Here we go again.
My good pals over at Zerohedge have declared Armageddon in the form of Chinese currency collapse, due to the recent skid in the Yuan. While it’s true, leverage is leverage and if carry trade participants are in deep with the Chinese shadow banking system, the recent decline might prove to be somewhat eventful for them. I’d be remiss if I didn’t point out the larger picture here, which is the integrity of the currency itself, versus the dollar.
While it’s true, over a 1-6 month time frame the Yuan is weakening versus the dollar. Over a longer time frame, however, you can see this is merely child’s play, a blip of sorts. I am saddened to learn some suckers are getting crushed in this Yuan carry trade unravel, just like I was heart-broken over the numerous Yen carry trade unravels that have taken place over the past decade. In the end, this trade goes nowhere, unless of course there are events beyond the Chinese control that turn this correction into a rout.
Pardon my calmness, but this isn’t a collapse. A move from $6.05 to $6.20 doesn’t even warrant a headline.
As you were.