CBB: Chinese Economy Slows Sharply in Q4; Is Chinese Propaganda Front Running the Recession?

The drop in real estate investment should be causing a major slowdown in the Chinese economy considering all the labor and capital dedicated to the sector. There are some crazy estimates of housing driving 20% or more of GDP growth and while one can quibble with the numbers, the high number reflects how important this sector has been for growth. With real estate investment falling 5.1% year on year in November, and declines in the province reaching as high as 75%, there should be a significant amount of displaced construction labor, as well as pain all the way up the supplier chain. We see this in steel and copper prices, we see it in the investment picture, but the vast middle of intermediate goods is pushing ahead as if nothing has happened. One can only assume the cement and glass, to name two industries, are in the same boat. In fact, these industries are mentioned as among those whose overproduction will be targeted for "annihilation."

Perhaps the call to "annihilate" overproduction is only propaganda. The China Beige Book shows the economy slowing sharply in Q4 (see below). Steel industry insiders were expecting for a massive shut down and bankruptcy wave in early 2016 (see: Chinese Steel Industry "Sliding Into The Abyss"; Chinese New Year Could Bring Mass Bankruptcies). Surplus production is going away one way or another in 2016, so the government might as well get out in front with a big and loud policy to shut production. The government will step in to manage the fallout of what is really a market decision. Instead of failure as the economy slumps, the government will claim great success.

As for that beige book. Bloomberg: China Beige Book Shows ‘Disturbing’ Economic Deterioration

National sales revenue, volumes, output, prices, profits, hiring, borrowing, and capital expenditure were all weaker than the prior three months, according to the fourth-quarter China Beige Book, published by CBB International. The indicator is modeled on the survey compiled by the Federal Reserve on the U.S. economy, and was first published in 2012.

...While retail and real estate held up reasonably well, manufacturing and services performed poorly, with revenues, employment, capital expenditure and profits weakening.

The survey shows "pervasive weakness," Miller wrote in the report. "The popular rush to find a successful manufacturing-to-services transition will have to be put on hold for a bit. Only the part about struggling manufacturing held true."

Housing Stick Save? November New Home Prices Tick Up

It looked as if the rally was over in October, but prices ticked up 0.19% in November, almost matching the 0.20% increase in September. The first-tier plus Xiamen are still dominating the rise in prices. The five combined for 55% of the national price increase. Shenzhen was still the price increase leader, but the city only accounted for 22% of the total national increase. In October, these five cities delivered the entirety of the national price gain. However: the worst price decline was Jinzhou, down only 0.4% in November and Sanya new home prices slid 0.3%. Every other city showing a price decline was down either 0.1% or 0.2%. If I was making policy off this report I wouldn't be confidence of the numbers holding, but in isolation, the report is worthy of a wait-and-see attitude. With real estate investment imploding in various provinces though, China's central government is cooking up various ways to rescue the housing market in lower-tier cities.

Year over year, prices are down 0.4%.

Since 2010, average prices are up 8.8%.

March 2014: 4 cities saw declines in price mom, 10 cities were flat, 56 were up.
April: 8 cities saw declines in price mom, 18 cities were flat, 44 were up.
May: 35 cities saw declines in price mom, 20 cities were flat, 15 were up.
June: 55 cities saw declines in price mom, 7 cities were flat, 8 were up.
July: 64 cities saw declines in price mom, 4 cities were flat, 2 were up.
August: 68 cities saw declines in price mom, 1 city was flat, 1 was up.
September: 69 cities saw declines in price mom, 1 city was flat, 0 were up.
October: 69 cities saw declines in price mom, 1 city was flat, 0 were up.
November: 67 cities saw declines in price mom, 3 cities were flat, 0 were up.
December: 65 cities saw declines in price mom, 4 cities were flat, 1 was up.
January 2015: 65 cities saw declines in price mom, 3 cities were flat, 2 were up.
February: 66 cities saw declines in price mom, 2 cities were flat, 2 were up.
March: 49 cities saw declines in price mom, 9 cities were flat, 12 were up.
April: 47 cities saw declines in price mom, 5 cities were flat, 18 were up.
May: 41 cities saw declines in price mom, 9 cities were flat, 20 were up.
June: 34 cities saw declines in price mom, 9 cities were flat, 27 were up.
July: 39 cities saw declines in price mom, 10 cities were flat, 31 were up.
August: 26 cities saw declines in price mom, 9 cities were flat, 35 were up.
September: 21 cities saw declines in price mom, 10 cities were flat, 39 were up.
October: 33 cities saw declines in price mom, 10 cities were flat, 27 were up.
November: 27 cities saw declines in price mom, 10 cities were flat, 33 were up.

Existing home prices were up nearly the same amount as new home prices last month, rising 0.20%. The city up/down breakdown was the same as with new home prices. The first-tier plus Xiamen accounted for 22% of the increase in existing homes nationally.

Source: 2015年11月份70个大中城市住宅销售价格变动情况

Unrest in the Netherlands

China doesn't have a monopoly on rising social unrest.

Guardian: Thousands riot in small Dutch town over plan for asylum-seeker centre

According to national broadcaster NOS, around 2,000 people joined the protest in a town of 27,000.

A meeting of the town’s council to decide on whether to build the centre to house 1,500 asylum seekers had to be halted. A regional broadcaster showed footage of the meeting being evacuated by shouting policemen as rioters sought to force their way into the building.

In China, people protest because they don't have power and they need to get out on the street so the leaders will notice them. It isn't a threat to the regime simply to have people in the streets, even a large number around the country, if they are protesting local issues. Meanwhile in the West, there is supposed democracy. If you are angry, you vote for change. When people go into the streets in the West, especially the supposed majority groups, something is deeply wrong and the risk of regime change is far greater.

I would not worry much about labor unrest in China, though it could increase substantially in 2016. I'm be far more worried about the West when 10% of a town come out and protest the elected officials. The odds of the police joining the protesters is a real risk in the West, not so much in China.

2016 Social Mood: Hope The Stock Market Rallies

The Trump campaign has tapped into voter anger that has been building for more than a decade, but suppressed by the media and political establishment of both parties. Most of the things Trump talks about have been discussed online, offline, or in independent media outlets for many years, but received very little airtime in the controlled mainstream debate. Trump broke the control over the debate.

Bloomberg: Why This Year’s Christmas Season Is So Angry

Diane Farmer, 54, is a lifelong Democrat from the New York City area now living in Palm Beach County, Fla. She attended Catholic schools and later belonged to unions while working for a phone company and then in a court clerk’s office. She voted for Barack Obama in 2008 and 2012. But Farmer says she’s never been more excited about a candidate than she is this time. Her choice? Donald Trump.

Meanwhile, Americans increasingly don't trust each other:

Absent another Teddy Roosevelt riding into town, there’s no easy solution for what ails the country. The hard solution is to rebuild trust by fixing the economy so it works for everyone. But turning things around will require everyone working together. Which isn’t happening because, well, Americans no longer trust each other. There’s the dilemma in a nutshell. Happy New Year!

I've noticed a lot of media starting to notice that trust is way down. The culprit, aside from the establishment and media lying to the public, is mass immigration. Robert Putnam showed that increased diversity leads to a lack of trust, and it is fueling everything from the immigration debate to anger at police in black communities.

The political establishment is still completely deaf and blind to the public as well. The latest budget passed by Congress quadruples the number of unskilled work visas. Supply and demand is a basic economic concept and holding all else constant, when supply goes up, price goes down. America has increasingly less demand for unskilled labor thanks to automation, but it is massively increasingly the supply, crushing the wages of low skilled workers and pushing millions onto welfare programs.

In the near term, social mood is quite positive with the stock market near its all-time highs. The tension, anger and division seen thus far is the baseline for 2016. The chances of riots in the streets and a voter riot at the ballot box are high even without a negative shift in mood. If mood tumbles in 2016, reflected in a falling stock market, it will raise those chances. With a political/media establishment that admits it doesn't understand what is going on and which is going about its business as if nothing has changed, all of the anger will be directed into the streets or into the Trump campaign.

Shanghai Free Trade Zone Allows FX Borrowing

Non-financial firms in China (Shanghai) Pilot Free Trade Zone will be allowed to freely convert cash raised from overseas debt into yuan, authorities said in Shanghai Thursday evening.

According to a circular released by State Administration of Foreign Exchange, non-financial firms within Shanghai's Free Trade Zone will be given freedom to choose whether they would like to convert their cash raised from overseas debt into yuan, which will save enterprises' cost of cash management and settlement.

China Daily: Shanghai Free Trade Zone to ease convertibility of foreign debt

Unprecedented Bankruptcy Reorganization Wave Coming to China

Xi Jinping has said there will be four "annihilations" in 2016 and one will be overcapacity. If this actually happens, either GDP estimates are way too high or the government is planning to print severance pay for million upon millions of workers. With labor unrest growing, the latter may be needed simply to keep the peace.

NYTimes: Mass Layoffs in China’s Coal Country Threaten Unrest
WSJ: China’s Workers Are Fighting Back as Economic Dream Fades

Phoenix Financial News According to the "Economic Information Daily "quoted authoritative news channel, national fist governance is brewing overcapacity, will accelerate the establishment of a more effective exit mechanism, the steel industry bear the brunt, including electrolytic aluminum, cement, shipbuilding and other industries with excess capacity the whole industry is facing an unprecedented influx of bankruptcy reorganization, the relevant departments have been carried out long-term research.

19th Meeting of the Central Financial Work Leading Group, the Xi Jinping put forward four "annihilation," including overcapacity. Recently held a Politburo meeting, Xi Jinping again be made to actively and steadily promote the survival of the fittest, through mergers and acquisitions, bankruptcy and liquidation, to achieve market clearing.

Premier Li Keqiang also raised, for more than two years time, spend a greater effort to transform the kinetic energy of the old upgrade. "First Financial Daily" from near the official who was informed, recently appointed by the main leaders of the research group has started research on excess steel production capacity, and strive to achieve the transformation and upgrading of production capacity as soon as possible, to prevent systemic risk.

This person also said, from the overall layout of view, "resolutely out of a group, more transformation and upgrading a number of" general idea. "In the serious overcapacity in the industry, next year will accelerate the integration of restructuring and mergers and acquisitions, focusing on the bigger number of large enterprises." This person said that the central idea is to shorten the time of upgrading, so that the traditional momentum continued to be effective, at the same time the development of a new momentum to win time and space.

Media statistics found , whether it is a high energy consumption of electrolytic aluminum, steel manufacturing, or photovoltaic solar and wind power new industries, as well as in the shipbuilding and steel industries silicon steel high-end products are the industry that "excess capacity."

Further, the steel, iron ore , coal , petroleum, petrochemical and other heavy chemical sector, industry overcapacity particularly serious. Data show that, PPI (producer price index) over 40 consecutive months of negative growth, these five industries for the entire industrial PPI decline of "contribution" to account for 70% to 80%.

In fact, with the way of mergers and acquisitions to accelerate the elimination of backward production capacity is not a new formulation. The last two years, many ministries leaders have publicly explained this idea. Although consensus has been formed, but the actual implementation of the effect is not ideal. The reporter combing found that companies can not be "quit" the main reason, one taking into account the employment problem, and second, concerns about non-performing assets, the third is considering the impact on the regional economy.

It is noteworthy that, compared with some of the concerns employment and regional economic issues, central's attitude is very firm. Li had said at the meeting, we want great determination, the next step will be "zombie companies", "absolute excess capacity" of the enterprise under the knife ruthless, and determined to make a few selected areas of serious excess capacity "strike."

iFeng: 多行业一场前所未有破产重组潮要来了！

November Real Estate Investment Tumbled in Liaoning, Zhejiang, Chongqing

Real estate investment fell 5.1% in November year-on-year, but the losses were concentrated in a few provinces. Liaoning saw real estate investment fall 75% from a year earlier. Zhejiang and Chongqing swung from positive growth to negative, with Zhejiang falling 28% and Chongqing down 14%. Hunan and Jiangsu also slowed considerably.

Industrial Production Ticks Higher in Northeast

Liaoning is still contracting at double digits.

CASS: Real Estate Depression Could Last Two More Years

Apparently there is almost no impact from contracting real estate investment or producer prices. CASS predicts both will fall again in 2016, but economic growth will barely be dented. Or CASS is predicting the rest of the economy will boom and make up the difference.

Earlier CASS was neutral to bearish on home prices. (See: CASS: Third and Fourth Tier Housing Inventory Still Grim, Prices May Tumble in 2H 2016; Or Not So all those Chinese economists saying real estate was a huge portion of GDP were wrong. The brakes can be slammed on the sector with barely any impact. Also, the officials running around proposing all manner of housing bailout policies are overreacting.

Chinese Academy of Social Sciences held "2016" Economic Blue Book "published and China economic situation report," China's economic growth is expected in 2016 at between 6.6 to 6.8 percent, the real estate downturn at least also need about two years time, investment will continue to fall.

According to the new media perspectives estate Blue Book Academy of Social Sciences of China's economic growth is expected in 2016 at between 6.6 to 6.8 percent, and is expected in 2016 consumer prices rose 2.1%, industrial producer prices fell 3.7 percent, excluding food and energy prices The core CPI rose 1.9%.

Academy of Social Sciences believes that China's economy continued downward pressure intensified in 2016 to increase efforts to implement the proactive fiscal policy is necessary. Also suggested that 2016 should continue to implement structural loose monetary policies to guide monetary credit and financing a reasonable social moderate growth acceleration.

A question to ask any economist putting out a China GDP forecast: what's the assumed renminbi exchange rate in your model?

iFeng: 社科院：房地产仍处调整期 低迷至少还要两年

Correlation and Causality

Liaobu Town Publicly Protests Land Auction

For two straight days, the town of Liaobu, part of Dongguan, has publicly protested a scheduled land auction with a full page complaint in the local party newspaper. The court has ordered the auction stemming from a payment dispute between a town owned company and another company. I don't know how big of a story this is at the moment, but it has made national news and I learned of it from a Weibo alert. Chinese law doesn't use precedent so there may be nothing to learn from this case, but if there are many defaults in 2016, this type of case could become more common considering how much debt is on the books of local governments and their local SOEs.

Sina: 东莞一镇政府连续两天发声明骂法院：罔顾事实

Chongqing Mayor Offers Solution to Steel Overcapacity: Triple Amount of Required Steel In Buildings

Central planning, FTW.

...according to informed sources, Chongqing Mayor Huang Qifan at the Fifth Plenary Session of the CPC held in October, said China China should introduce the relevant regulations to triple the amount of steel used in buildings in order to ease steel industry overcapacity. Because the conversation is not disclosed, informed sources declined to be identified.

iFeng: 黄奇帆建言钢铁去产能：建筑物中钢材使用量提高两倍

Update:
Bloomberg: Chinese Officials Have a Solution to Steel Glut: Use More

In a closed-door gathering of more than 300 Communist Party leaders in Beijing in October, Chongqing Mayor Huang Qifan proposed tripling the amount of steel used in construction, according to a person with knowledge of the matter. He argued that using 150 kilograms (330 pounds) of steel per square meter, compared to about 50 kilograms now, would ease overcapacity and improve housing quality, said the person, who asked not to be named because the discussions were private.

The proposal, which the person said came during top-level discussions to finalize China’s development blueprint for the next five years, was notable because of Huang’s rising profile among President Xi Jinping’s economic advisers. The former coking plant manager was named to the panel that drafted Xi’s signature economic plan in 2013 and he was among a half dozen regional leaders who joined the president on a state visit to the U.S. in September.

2016 Forecast: Turkey Collapses

iShares MSCI Turkey (TUR) has completed a head-and-shoulders pattern with a target of $4, or a nearly 90% loss from current levels. Turkey has moved into direct confrontation with Russia. As I previously linked:

The Wall Street Journal reported on August 12 that a senior US military official accused Turkey of deceiving the American government by allowing its use of Incirlik airbase to attack ISIS, as a cover for President Erdogan's war on Kurdish fighters (PKK) in northern Iraq. So far, Turkey has carried out 300 air strikes against the PKK, and only three against ISIS! Erdogan's intent in punishing the Kurds is to gain the sympathy of Turkish voters in the next parliamentary elections, enabling his party to win an outright majority and establish an autocratic presidential theocracy.

Isis sells smuggled oil to Turkey and Iraqi Kurds, says US Treasury and The Unexpected Explanation How "That Ford Truck" Ended Up In ISIS Hands are more evidence of Turkish support for ISIS. President Obama and the United States are unlikely to punish Turkey, but Russia may. The next President may take a different position as well, but I expect Turkey will be undone mainly for economic reasons, with a geopolitical risk only adding to a potential crisis.

NYTimes: The Toxic Cocktail of Crises in Turkey

The economy is still expected to grow at about 3 percent, largely because construction and domestic consumption have held up. However, this depends on credit, with households borrowing to buy homes and developers borrowing to build them.

Housing investment is fueled by rising property prices, and pushes them still higher. But if prices stop going up, the debt that has backed the purchases could weigh heavily on the economy.

The only good piece of news recently is that the European Union has agreed to re-energize talks about Turkey joining the bloc. In theory, that could lead to a series of political and economic reforms that put the country onto a positive new trajectory, as Ankara strived to meet the conditions of membership.

If Turkey is found to be aiding ISIS in any way, the EU will not be able to allow Turkey to join for fear of political backlash.

Fanya Metals Fallout: Song Hongbing Attacked By Mob

Song Hongbing is a financial writer whose series of "Currency War" books were popular in the run-up to the 2008 crisis. I haven't read all his books, but his first had a lot on the Rothschilds, and was pro-gold, anti-dollar. It wasn't too different from arguments you might have heard in the West about the need to buy gold and the death of the dollar. A post I did from 2011: Chinese silver futures market is three times the size of CME; does this sound like a bubble?

SCMP: Chinese investors attack bestselling financial author they blame for ‘40 billion yuan losses’

A high-profile Chinese author of a controversial financial bestseller claims his clothes were torn and his glasses trampled on after he was attacked by angry investors who blame him for them losing 40 billion yuan [HK$48 billion].

Song Hongbing said he was assaulted on Saturday while giving a talk at a hotel in Taiyuan, in Shanxi province, by the investors who bought shares in financial products managed by Fanya Metal Exchange, which is at the centre of an investment scandal.

...Song leapt to fame on the mainland in 2007 after writing a conspiracy-theory bestseller Currency Wars – a book suggesting that Western financial institutions, including the US Federal Reserve, are controlled by a group of bankers that remain loyal to the Rothschild family.

Background on Fanya.

FT: Chinese celebrity author apologises for endorsing Fanya

A bestselling Chinese author has apologised to investors for endorsing the Fanya Metals Exchange in a rare acknowledgment of the role celebrities and state media play in promoting high-interest products to the Chinese public.

Caixin: Author Disavows Letter Backing Angry Investors, Citing Physical Attacks

A controversial best-selling author has disavowed any links to a government-backed commodities exchange that has been accused of fraud, saying he wrote a letter apologizing for his support of the bourse only because angry investors physically attacked him.

China Chooses Urbanization to Fill Empty Homes

A good summary of all the proposals and suggested policies that have popped up in the past month or so.
WSJ: China Seeks a Way to Fill its Empty Homes

The People's Daily explains which policies are the important ones today. iFeng: 三四五线城市农民工买房机会来了

From the above two paragraphs, the country to "speed up urbanization of migrant workers" is a focal point for reducing the inventory of real estate.

Clearly, the main focus of implementation will be in third-, fourth- and fifth-tier cities, rather than first- or second-tier cities.

Yuan Walks Through The Valley in 2016

I posted this in September: PBoC: We Can Do This All Year; Bears: Let's

The Chinese idiom on the chart says "Manna from Heaven," referring to the PBOC intervention in the market.

The bears were happy for the lift:

The PBoC will intervene until it cannot or will not. These interventions will attract larger bear traders as depreciation expectations rise and interventions provide better entry points. Eventually, the PBoC will see reserves fall to a point that invites sudden heavy selling, or it will choose to protect the reserves and allow faster depreciation.

In the prior post on 牛刀's forecast, he picked 6.8 as the battle line. Why 6.8 you may ask? Let's go to the chart:

The 6.8 level is where the government froze the currency back during the 2008 crisis. A break below 6.8 will be interpreted as reflecting a situation worse than in 2008. Think of all the people who may have bought yuan from 2008 to 2015 expecting appreciation, and now potentially facing double-digit losses.

From the technical side, there's no resistance because the government controlled the appreciation from 8.28 to 6.8, so there are no resistance or support levels until it hits the old peg price of 8.28 to $1. A battle at 6.8 could produce a huge cup and handle formation (or a saucer bottom), which would signal a big bullish breakout for USDCNY. The number I have seen most around the bearish forecasters is 7, and that would probably be a brief psychological resistance point, but then it's smooth sailing upward. The PBoC could always short-circuit a depreciation wave with a big one-off devaluation, which strikes me as very plausible if control starts slipping away.

牛刀： Speculative Frenzy Will Exceed 1997; Spec Home Prices Must Plunge 60-80%; USDCNY Below 12

Last year I posted the 2015 predictions of a couple of Chinese bloggers. One was Bull Knife 牛刀: Chinese Debate Yuan Risk in the Wake of Ruble Collapse, Liu Junluo Sees Path to 1997 Repeat, Niu Dao Sees Path to Latin American Crisis of 1980s

Another Chinese financial blogger "Bull Knife" (Niu Dao) argues that the collapse of oil shows the Chinese economy is collapsing: 原油崩盘昭示中国经济全面崩溃. He argues that the global rebalancing will take place via exchange rates. Chinese real estate is not "its own thing," rather in the age of globalization, it too is subject to global conditions. He says the A-share bubble is fueled by commercial bank loans funneled into stocks because Chinese shares have no investment value, only speculative value. Make some money and run. He criticizes the Chinese government printing money to pull up land prices and even copper. (From November 2014: Chinese State Agency Buys Up Copper, Keeping Floor on Prices. China needs to prop up copper for the same reason that it needs to prop up land and real estate prices: a mountain of speculative debt will collapse if the underlying collateral craters. And copper is at a critical juncture....) Ultimately, he compares China's fixed exchange rate system to the fixed currency regimes in Latin America during the early 1980s. They began collapsing when the U.S. Dollar Index climbed between 100 and 126. By 1984, the USD Index was at a new high of 165. Niu Dao sees the USD Index hitting 171 this time.

Now he sees the yuan breaking down and speculative home prices tumbling.

Now he sees the yuan needing to hit 8.2 to move the needle on exports: 牛刀：人民币贬值受惠哪些产业？

At present, some small business owners to engage in export relieved, to say it better than the original did a little bit, obviously feeling the RMB devaluation, but not very obvious. Baltic Dry Index has been hovering at the bottom, indicating that exports remain sluggish, because the nature of everything from the devaluation of the renminbi is not enough. I calculated that, really want to export better, at least to 8.2000 yuan devaluation, so the Hong Kong dollar against the yuan go back 108 Hong Kong dollars against 100 yuan, almost the same, the years are the best years of China's exports, but also conducive to Hong Kong and Shenzhen, Guangzhou and the Pearl River Delta and the whole re-prosperity.

He sees USDCNY 6.8 as the battle line. Beyond it things will get...exciting. 牛刀：血战人民币6.8000元

As I expected, the exchange rate war began as scheduled. Current indications are not enough to say that has been carried out, because being not really carry out what is going on, at most, only the long and short sides of the game renminbi, but to break through 6.8000 may occur a battle beyond our imagination, this point is too important, not just long and short sides, even all the average people are concerned, it will be very exciting. Whether it is from the trend point of view, or from the technical morphological analysis, the violent battle will soon erupt at 6.8000 yuan.

He next goes on to discuss Soros and 1997, saying this speculative battle will exceed 1997. He also says home prices will collapse, but don't worry if you own your own home:

The first battle play very important. Please do not be nervous, if you live in you own house it does not matter, those excessively overhyped city home prices must fall 60-80%, and everyone is captive. Devaluation time is here, as long as you seize the opportunity, there are opportunities everywhere. Do not believe the cynical economists that said there's "no price bubble", the Chinese real estate bubble is bigger than heaven. The first battle is just fun.

The big war will not begin until the Fed's third rate hike, he speculates. He also says it will not be Soros who emerges this time, but someone unknown who will shock the financial markets. He closes by saying the depreciation has not yet begun.

When 6.8 is broken, then the depreciation will begin for real. Right now this might just be the central bank playing games. But if international capital intervenes, then I will be the first to tell you to get rich dumping your renminbi!

He elaborates more on the 6.8 target in 牛刀：人民币突破6.8000的伟大意义. He says once 6.8 is broken, it is a straight shot to 8.2, which makes a lot of sense. This is a Schelling Point for traders and investors alike. He says a break of 6.8 will send AUDUSD below $0.70 (which isn't really much of a move since it's at $0.72 right now). He dubs the Aussie dollar the "shadow yuan." The drop to 8.2 isn't the end though, he sees the USDCNY climbing as high as 12.6 and real estates speculators ultimately suffering far more than equity speculators. He finishes by saying that if the currency floats, there's only one possible result: collapse. China's massive money supply inflation will meet its doom.

In another post, 牛刀：知道在人民币贬值下的投资吗？, he says Chinese officials will allow the real estate bubble to burst once the currency begins to depreciate. Devaluation will benefit the domestic economy, tourism and air travel (since going abroad will be too expensive).

In another, he suggests the yuan should be added to the U.S. Dollar Index (DXY) so that the euro will not need to depreciate as much. The euro bottomed at $0.82 when DXY hit 126 at the start of the millenium. If DXY were to climb to 165, the euro could bottom at $0.82 if it was reduced to a 40% weighting, otherwise it could drop to around $0.60. In that piece he also argues there are forces (the Fed) currently working to keep DXY below 100. 牛刀：这次100点危机远胜前次100点

In another recent post, he lays out some price targets for 2016. 牛刀：2016年美元指数与黄金价格

Iron Ore below $32
Crude Oil below $35
He sees inflation jumping in 2016 and the Fed hiking 3 times, taking DXY to 126
Gold will fall and he gives several targets at which point gold could bottom: $789 is the first resistance level, the next resistance level would be $618, then $389, may eventually drop back to $275 in 2017.
As for DXY 126, that is the toughest resistance level to break. This will rely on inflation jumping in the U.S., which he's not sure how to explain (he sees the breakout from the technical analysis).

Commentary: 牛刀 was a popular financial blog in China, but as far as I can tell, it is now banned. Not hard to guess why, although other bloggers saying similar things can be found.

As for the DXY and inflation, U.S. healthcare inflation is rising and core inflation is already 1.9%, with the Fed looking for 2% to 3% inflation. Were oil prices to spike along with some commodities (even if only a bear market rally), the yoy comparisons could push up headline inflation. With oil in the $30s this isn't likely, but at about $50 or more, the yoy turns decidedly positive in August. The healthcare market is a mess due to the Affordable Care Act and inflation has always been a result of government policies that increase spending on the demand side. The Obama admin may want to goose the economy to help the Democrats keep the White House in 2016. Finally, there's the theory that low rates are causing deflation and higher rates will change perception and sentiment enough to increase spending and risk taking. Higher rates might move home buyers off the sidelines, as one example. With core inflation at 1.9% in the U.S., if a couple of these things happened it might be enough to push inflation to where the Fed would want to hike sooner. Obviously, there are plenty of deflationary forces pushing the other way and a deflationary wave larger than 2008 and 2000 could also push DXY through 126.

Update: Speaking of inflation, core CPI rose to 2.0% in November and ZeroHedge had this to say about the rising rental prices driving it.

One can only hope that the Fed, in its attempt to stabilize core inflation, manages to tame surging rents with its 25 bps rate hike, otherwise it may find itself in a very unpleasant situation of chasing record asking rents across the nation and pushing rate hikes far more often than those hoping for a dovish rate hike would like.

Core CPI Rises 2.0% Driven By Surging Rents, Giving Fed Green Light To Hike Rate

When A 20 Year Policy Ends With SURPRISE! Don't Bet on Gradual

A look back at some of the yuan depreciation coverage here in the past year and earlier.

Back in June, I posted How Did China's Yuan Get So Peg-Like?. There was an article in Bloomberg: Yuan’s Peg-Like Stability Makes China Hottest Asian Carry Trade. Even two months ahead of depreciation, with the yuan starting to show signs of stress, it was "the hottest" Asian carry trade.

As for the new currency basket, it was being discussed back in 2010. China moves slowly.

Last year's 2015 forecast: Scramble To Hedge Dollar Bull Will Fuel Rally in 2015, Yuan Bear Market Is Fissile Material. The big move may come in 2016, but the ground was laid in 2015. I was expecting a rate hike much earlier at the start of the year.

A week before that post: Flexible Yuan Goes Down, Not Up

Today, people believe the yuan is a stable currency with a bias towards appreciation. They expect very little volatility, and almost none on the downside.

The PBOC and China generally have the illusion of control because of their past success. Even the most competent can lose control by believing they control the market. China's leaders appear competent because they are willing to cede control of the economy to the market as it grows in size and complexity. If Chinese leaders suffer from the Fatal Conceit, the yuan will fall. If they open the economy, the yuan is a better bet, but it could also fall due to volatility in the market. The risk today is on the downside, and if its cheap to bet on a move outside of expectations in 2015, I'd take it.

Another week earlier:

I believe economic conditions have favored a weaker yuan at least since 2011 and I do not believe the yuan can appreciate along with the U.S. dollar if a major USD bull market begins. Weakening a currency is not a good solution to economic problems, but China controls the exchange rate. For political reasons as much as economic ones, the yuan is probably overvalued. Simply allowing convertibility would lead to a weaker yuan. If Chinese leaders want a weaker currency, all they have to do is allow greater convertibility. Previous discussions of a weaker yuan here.

Although it might shock the financial world, a slide in the renminbi to 7 versus USD in 2015 would hardly qualify as a major move in the currency markets. The yen has fallen as much in the past three months and euro is down a similar amount in 2014.

Today in the WSJ: Why China Is Loosening the Yuan’s Ties to the Dollar

The Fed is widely expected to raise rates this week amid signs of a strengthening U.S. economy. Meanwhile, China’s economy is going in the other direction, with Beijing cutting interest rates and making other moves to loosen monetary policy and spur slowing economic growth.

A U.S. rate increase could hinder that effort. It likely would make the dollar stronger, forcing China to intervene in currency markets to maintain the peg. That means buying yuan, often from Chinese banks, which effectively takes money out of China’s financial system even as Beijing tries to make more money available to its businesses and consumers.

...“The overvaluation of the renminbi is a root cause of China’s economic ills these days,” said chief economist Lu Zhengwei at China’s Industrial Bank Co.

Related:
Takeaway From China's Sept and Q3 Data: Yuan Devaluation Pressure Rising; Next Shoe Drops After IMF Vote
Lang Xianping Explains Renminbi Devaluation to Studio Audience
In the Yuan Overvalued? This Chart Says Yes
Nobody Expects Yuan Below 6.4
PBOC Propping Up Yuan Ahead of SDR Inclusion
China May Pay A High Price For SDR Push
The Logic of Strategy: Yuan Devaluation and the Road to Trade War
Falling Yuan Socks Debtors; Developers in the Crosshairs
The Informational Power of the Offshore Yuan Exchange Rate
PBOC can't buy a buck; talk of depleted reserves is not alarmist
China's dollar short position
Signs Point to Lower Yuan, But US Treasury Wants Appreciation
Chinese hoard dollars
Chinese Yuan Could Devalue 50% Or More

First Ten Days of December: Deflation Continues

Market Price of Important Means of Production in Circulation, December 01-10, 2015

Good Work Merkel

Angela Merkel has done the unthinkable: united left and right in their hatred for the German establishment.

Der Speigel: Fear, Anger and Hatred: The Rise of Germany's New Right

These street-extremists are still around, but they have received reinforcements. The New Right comes out of the bourgeois center of society and includes intellectuals with conservative values, devout Christians and those angry at the political class. The new movement also attracts people that might otherwise be described as leftist: Putin admirers, for example, anti-globalization activists and radical pacifists. Movements are growing together that have never before been part of the same camp. Together, they have formed a vocal protest movement that has radicalized the climate in the country by way of public demonstrations and a digital offensive on the Internet.

Notice the eastern part of the country, the former communist part, has the most incidents. Eastern Europe is much more nationalist than the West, and it is affecting Germany politics due to unification.