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

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