Submitted by Alasdair Macleod via GoldMoney.com,
Last Sunday (31 January) Zero Hedge ran an article drawing attention to the big names in the hedge fund community who are betting heavily that the yuan will suffer a major devaluation any time between the next few months and perhaps the next three years.
The impression given is that this view is universal, almost to the exclusion of any other.
Instead of allocating capital to expensive tail risk bets on direct asset class collapse (in equities, credit, and commodities), it appears, just as we detailed previously, the 'smartest money in the room' is "betting" indirectly on a stock market crash through eurodollar options.
As we previously detailed, the costs of tail risk protection in credit and equity markets are soaring (and perhaps the crash in global financial stocks and spike in systemic credit risk supports that concerning possibility).
By EconMatters
The China currency debate in financial markets is rather interesting right now with many market ramifications. A rapid depreciation in the Chinese currency could lead to an Asian currency market crisis. I can see both sides of the current debate of a rapid devaluation versus a prolonged drawn out devaluation of the currency.
The current financial system is on borrowed time.
This is not fear mongering. It is fact.
The system almost went down in 2008. Since that time, every major decision made has been to double down on the very same bad ideas that created 2008.
Those bad ideas:
1) Excess debt driven by loose money policy.
2) Moral hazard (not allowing those who make terrible choices in the banking industry to fail).
3) Increased Centralization of the economy.
Ten days ago, when Deutsche Bank stock was about 10% higher, the biggest German commercial bank declared war on Mario Draghi, as we put it, warning him that any further easing by the ECB would only push stocks (with an emphasis on DB stock which has gotten pummeled over the past few months) lower. What it got, instead, was a slap in the face in the form of a major new easing program when the Bank of Japan announced it is unveiling negative rates just three days later.