Liu Junluo: RMB will fall to 20 per dollar within 3 years

刘军洛: 2010年美元时代的开启——三年内英镑跌至1 欧元跌至0.8 人民币跌至20 日元跌至150
Lui Junluo: 2010 Dollar Era Begins— Within 3 Years, the Dollar Index will be at 130, the pound will be at $1, the euro will be at $0.80, the renminbi will be at 20, and the yen will be at 150.

Liu Jinluo explains his experience in the 327 bond scandal, or 327 incident. Here is some background from an Asia Times article:
The bond-futures market that operated in China from 1993-95 is a good case in point. It was originally introduced to improve liquidity in the spot market and make bonds more attractive to financial institutions by allowing them to hedge their exposure. But there were two serious problems. First, because most of the bond issuance up until that time had been directed toward individuals, institutional investors did not have large positions to hedge. And second, most interest rates were set by the government and adjusted only infrequently so there was also not much risk against which to hedge.

There was thus relatively little demand for bond futures as a hedging tool and the market quickly became dominated by speculators trading on insider information, with positions often far in excess of the limits set by the exchanges. (Bond futures traded on the Shanghai and Shenzhen stock exchanges and also on a number of "securities trading centers" set up by local governments throughout the country.)

The regulators finally stepped in after massive losses at Shanghai International Securities Co (SISCO), at that time China's biggest broker, which had unsuccessfully attempted to push down prices by taking a short position with a notional value more than eight times the total issuance of the underlying bond. After this scandal, known as the "327 incident" after the series number of the futures contract SISCO was shorting, all bond-futures trading was indefinitely suspended in May 1995.
Liu Junluo is able to make profits due to his "trader's instinct" and he gives some examples of how people were reacting, which I interpreted as due to there being asymmetrical information in the market.

He believes China and Japan will face economic collapse. He goes on to explain how a multinational could use a large loss in China to its advantage, by shorting large amounts of Japanese bonds or Japanese yen, since this event would be very bullish for the U.S. dollar. I think in this regard, he sounds very much like Martin Armstrong, where finance and derivatives can earn very large profits and can affect economic events, but most economists, politicians, etc. have no clue as to how this world works.

In the end, he believes the U.S. will make great profit from the $600 trillion in derivatives, and goes so far as to say God gave Americans the "derivatives gene", but Chinese got the "Coolie gene"—certainly the opposite of almost every financial critic's opinion.

While I agree that the U.S. could do relatively well in a (non-USD) crisis, I suspect the deflation would be powerful enough to cause losses that exceed those of 2008. Counter-parties would be unable to pay off their derivatives bets, but the futures markets may fail as well, with governments unable to offer any bailouts. One of the only ways to profit would be to hold the safest and most liquid cash and cash equivalents. That is, to lose zero while everyone else loses big.

Translation of the piece follows.

Update 2010-03-23: This needs more work, but I haven't got time. The part where he discusses the day of trading 327 bonds is the area with the most mistakes, take it for what its worth.
The U.S. dollar Era Starts in 2010- Within three years, the dollar index will be 130

The U.S. dollar Era Starts in 2010 - within three years, the pound will fall to $1, the € will fall to $0.80, the yuan will fall to 20, and the yen will fall to 150

Before a country goes bankrupt, there will always be a strange scene-the upper class usually has ostrich-like blind optimism; the middle-class has serious mental and physical exhaustion; the lower class is resigned to its fate and give up on themselves.

In 1995, I had the honor of participating in the sensational "327 treasury bond" transactions. China's financial hegemon at that time, Shanghai International Securities, collapsed due to large short positions in 327 treasury bonds. That era was a seriously chaotic decade for the exchange systems. At that time, the SSE opened about 3 minutes later than the Beijing Exchange. I entered the war in the Shanghai Stock Exchange. At that time, my short bonds were "317 T-bonds." On that day, after the Beijing Exchange opened, my Beijing friend informed of the situation on a big brick mobile phone. I did not rush to the Stock Exchange, after hearing the first reaction was that my position was completed at the open. My instinctive reaction was to appropriate the phone and call the trade declaration young lady immediately and demand an overdraft of more than ten times the money "call market" to buy many "327 bonds". I put down this phone, crazily dialed several futures traders who were short t-bonds while running and ask them to make more "327 bonds." After calling these futures traders by telephone, I was very uncomfortable, because of the numbeness of the general reaction of these traders. And this was the opposite of the excited reaction I heard after calling Beijing "friends". At the moment of the open, I just burst into the trading room, the computer displayed the opening price and I immediately let me into a kind of "gallows" feeling.

At that time, "327 bonds" opening price was over 148 yuan. And my "call market" panic buying price was 150 yuan. Moreover, the first price position short-selling reached several hundred million yuan.And this is only 2 or 3 seconds, wiping out the first madly entered "327 bonds" thrown into the influx of orders, "327 bonds" rose rapidly to 151 yuan, 152 yuan, 153 yuan. [I did not translate this next part.-Ed]Then I commanded the young lady, display on the computer how much the price must rise higher deficit to unwind serious "317 bond" short contracts. She immediately warned that this will bring "317 bond" contracts more serious losses.[End untranslated portion] I smiled at a higher price to close a position of small plates of "317 bond", the platter of "327 bonds" was also driven up about 10 points, I immediately liquidated "327 bonds" with a large profit.

At lunch break, I already closed all my positions. At noon, I left the exchange. Afterwards, in afternoon trading the "327 bonds" staged a farce. When I left the exchange my heart was very heavy. At that time everything I did was a "trading animal's" instinctual reaction. In reality many people do not have these traders' instincts. However, these people will instinctively oppose the thinking of traders' instincts. Like the French army in World War II, its tanks, artillery, aircraft, the number of troops several other areas were better than the German army, but the French military commanders were originally infantry officers. In early 1937, the father of German tanks, Guderian, in his book "Achtung! Panzer" critcized the systematic ignorance of the infantry officers.

Within two years, China's home prices will have fallen 70%, that is until the end of 2011. A few days ago in Beijing gave a mini-lecture. A Beijing lady told me that at the end of November 2009 she read my book, "Chinese Home Prices in a Multi-Polar World" and immediately sold her house, and now rents. I said to her: "Two years later you're bound to thank me."

I'm very happy that this book saved this lady in Beijing.Because the Japanese economy will soon collapse, and the Chinese economy and the Japanese economy will collapse simultaneously. Now, there are many multinational companies' assets allocated to China. If China and Japan simultaneously collapse, these multinational companies will get rich.

Assume that a multinational in China has $5 billion worth of real estate.In theory, it is difficult for this multinational company to realize these assets while the Chinese and Japanese economies simultaneously collapse. In fact it will take the initiative at a very low price, such as $1 billion or $500 million U.S. dollars to close out China assets. By then, Chinese economists will say that the multinational would be crazy to sell at bankruptcy prices. Therefore, Chinese mainstream economists are only a group of "globalization's fools." The reason is that this multinational company will have scaled up a large short position in the Japanese foreign exchange or Japanese debt market. Presently, the global foreign exchange market leverage is up to 200 or 400 times, just a $1 billion deposit could conservatively short $100 billion worth of Japanese currency or debt. This multinational company by way of underselling its China assets will trigger a market panic, but the short-yen or short positions in Japanese government bonds will make huge profits, this is a type of crisis arbitrage.

This is a "trading animal's" world. Today's global derivatives market is $600 trillion and China's economy is only $5 trillion, by underselling real estate in China, while profiting in global capital markets, the American Age can begin.

Today, any mainstream Chinese economist's criticism says the U.S. empire will fall into a serious debt crisis, the same as the Netherlands and the former British Empire, but have no way to explain that the previous Dutch Empire and the British Empire were only trading in general merchandise. All it takes is imitation and hard work to make the Netherlands and the British Empire decline.

And today is a world of innovation and derivatives, it's a knowledge society. It's through the elimination of a nearly $5 trillion country, that there's $600 trillion profit in the derivatives market. Unfortunately I'm a Chinese, so in May-June 2007 I proposed the U.S. strategic goal is to have China's stock market crash to 2000 points in 2008; then let the Chinese property market skyrocket at the end of 2008. With a $600 trillion fortune in the derivatives market, China's property market will fall 70%, this is common sense. With a $600 trillion fortune in the derivatives market facing the victors, in the next three years, U.S. dollars will undergo, since the beginning of world history, the most spectacular and the greatest—and perhaps the creative human vocabulary cannot describe— rise, a soaring rise.

Now, the biggest problem is that this is simple common sense. Chinese people are keen to debate simple common sense. It can only be that God gave derivatives genes to the Americans; and gave Coolie genes to the Chinese. In the face of God's arrangement, the future will be beautiful, that's only the beauty of American dollars. [The Chinese word for America is Beautiful country, so this is a play on words. It could also be read as the future will be very American. -Ed]

Liu Jun Luo

2010年美元时代的开启——三年内英镑跌至1 欧元跌至0.8 人民币跌至20 日元跌至150

1995年,本人有幸参与了轰动一时的“327国债”交易。中国当时的证券霸主“万国证券”因大量沽空“327国债”而倒闭。在那个时代,是一个交易体制严重混乱的年代。那时,上交所比北交所晚开3分钟左右。我的参战地在上交所。当时,我沽空的国债品种是“317国债”。那天,北交所开盘后,我北京的朋友给我那台砖头大的大哥大通报了情况。我当时还未赶到交易所,听后第一反应是,一开盘我的仓位就全部完蛋。我本能的反应,迅速拨电话给交易所报单小姐,要求报单小姐立刻透支十倍以上的资金 “集合竞价”高位购买“327国债”多单。放下这个电话,奔跑中我疯狂拨打几个大户室做空当时国债“期友”的电话,让他们巨额透支做多“327国债”。与这些“期友”通过电话后,我的心情很不舒服,因为这些“期友”的普遍反应是麻木。而非本人听到北京“期友”通报后的一种亢奋。开盘刹那,我正好冲进交易室,电脑上显示的开盘价,立刻让我陷入了一种上“绞架”的感觉。当时,“327国债”开盘价是148元多一点。而我“集合竞价”抢购的价格是150元。并且第一价位抛空单高达几亿人民币。也就是2秒或3秒,“327国债”上的抛单被疯狂涌进的做多者消灭,“327国债”迅猛向151元、152元、153元价格上冲。这时我向下单小姐指挥,要求比电脑上显示价格高出许多平掉手上亏空严重的“317国债”空头合约。报单小姐立刻提醒这会带来“317国债”合约上更严重损失。我笑笑在更高价位平仓小盘子的“317国债”时,大盘子的“327国债”也被带动了十几点,我即刻平仓“327国债”上大量获利多单。上午快收盘时,已全部结清所有头寸。中午时分,我离开了交易所。后来“327国债”在下午交易时上演了一场闹剧。我离开交易所时心情很沉重。当时我所做的一切就是一种“交易动物”本能的反应。现实中许多人是没有“交易动物” 本能的。但这些人会本能反对“交易动物” 本能的人的想法。如同二战中法国军团在坦克、火炮、飞机、军队人数等几个方面都优于德国军团,但法国军队统帅是步兵军官出身。而在早1937年德国坦克之父——古德里安,就在其《注意!坦克》一书中批评步兵军官的思想体系愚昧。

两年内中国房价要跌去70%,也就是到2011年底。前几天,在北京举行了一场小型讲课。一位北京女士对我说,她于2009年11月底,看到本人写的《多角世界下的中国房价》一书立刻把自己居住的房子卖了,现在租房住。我对她说:“你两年后必定会谢谢我。”我很高兴这本书救了北京这位女士。因为日本经济很快会崩盘,而中国经济和日本经济一样会陷入同步崩盘。现在,有许多跨国公司资产在中国配置。如果中国和日本陷入同步崩盘时,这些跨国公司会发大财。假设,一个跨国公司在中国现有50亿美元价值房产。理论上,这家跨国公司很难在中国市场与日本市场同步不景气时变现资产。而实际上他却会主动以极低的价格,如10亿美元或5亿美元的价格抛售中国资产。届时,中国经济学家会说这家跨国公司疯了竟然破产抛售。所以,中国主流经济学家们只能是一群“全球化的笨蛋”。因为,这家跨国公司已在日元外汇或日本国债市场大规模布置了巨额空单。现在,全球外汇市场杠杆高达200倍或 400倍,只需10亿美元保证金,保守沽空日元或日本国债,仓位可高达1000亿美元。这家跨国公司只要通过低价抛售中国资产引发市场恐慌,而达到沽空日元或沽空日本国债上巨额仓位的盈利,这是一种危急中的套利交易的模式。这是一个“交易动物”的世界。今天全球衍生品市场是600万亿美元,而中国的经济规模只近5万亿美元,通过低价抛售中国房产,而盈利全球资本市场,美国时代这就可以开启了。




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