At Least One Hedge Fund Manager Has It Right

Bloomberg: Hedge Fund That Called Subprime Crisis Says Yuan Should Fall 50%
Mark Hart, the hedge fund manager whose bets against U.S. subprime mortgages and European sovereign debt proved prescient, said China should weaken its currency by more than 50 percent this year.

A one-off devaluation would allow policy makers to “draw a line in the sand” at a more appropriate level for the yuan, easing pressure on China’s foreign-exchange reserves and removing an incentive for capital outflows, according to Hart, who’s been betting against the currency since at least 2011. China should devalue before its $3.3 trillion hoard of reserves shrinks much further, he said, because the country can still convince markets it’s acting from a position of strength.

“There wouldn’t be anything underhanded about a sharp devaluation,” Hart, who runs Corriente Advisors from Fort Worth, Texas, said in an interview on Real Vision, a subscription video service targeting Wall Street. “Why should China be forced to suffer deflationary effects of defending its currency when everyone else isn’t?"
China is boxed in politically and economically by its delay. Reform should already be underway and the currency should already by depreciated. Now they have a perfect storm of needing to unleash major reforms and allow a depreciation amid the most populist U.S. election in a century, if not more.

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