1/5

This article suggests that the reason the surge in China’s surplus isn't being matched by an equivalent rise in PBoC reserves is because there was an increase in other net capital outflows. But this is true simply by definition. The balance of...

scmp.com/economy/china-…
2/5

payments must always balance.

What really matters is what explains those other net capital outflows. There was of course a significant increase in net dollar assets among Chinese banks, which is where much of the suspicion lies, along with substantial errors and...
3/5

omissions, and the article quotes an analyst as suggesting that “Commercial banks are soaking up a lot of dollars so that they can use it for overseas lending and investments.”

That’s a little weird. It might have made sense two years ago when RMB interest rates...
4/5

exceeded foreign interest rates but the RMB was expected by many to depreciate (very incorrectly, and I think the PBoC and the banks knew it was incorrect), but with the interest rate gap greater than ever and nearly everyone expecting the RMB to continue to...
5/5

appreciate, this would be a punishing strategy for the banks.

So the question remains: why are Chinese banks borrowing RMB to buy dollars. Isn’t this what the PBoC should be doing?

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More from @michaelxpettis

5 Feb
1/8

Good article, although I think the argument as to whether or not GDP is a good measure of economic performance largely misses the point. Of course it isn't, but no measure can be. GDP is a proxy for certain kinds of economic activity, and not only...

ft.com/content/647345…
2/8

do we not know or agree what economic activity to include in our measure, but we're not even sure how to measure whatever we decide to include.

But as any mathematician can tell you, that doesn't make the GDP measure worthless. It can still be used comparably as long as...
3/8

the relationship between the GDP measure and whatever it is we "really" want to measure is unbiased and consistent. Last year's US GDP, for example, doesn't meaningfully measure the total value of goods and services produced last year in the...
Read 8 tweets
4 Feb
1/5

For over 15 years Chinese regulators have implemented one reform after another aimed at taming the wildly speculative Chinese stock markets in an attempt to make them converge with more sophisticated markets in the US and Europe. I have long...

ft.com/content/b6a975…
2/5

argued that because these reforms never really addressed the structural problems in the stock markets – mainly poor-quality macro data, false financial statements, a terribly opaque corporate governance framework, suppressed interest rates, unpredictable and...
3/5

ever-changing rules of the game, political vendettas, insider activity, and other features that made it impossible for fundamental investors to project and value cashflows except at very high discount rates – none of these reforms would make a...

carnegieendowment.org/chinafinancial…
Read 5 tweets
4 Feb
1/5

Yes, you are right, Matt. In hindsight we forget how terrified the US and Europe were in the late 1950s and 1960s about what seemed like a formidable Soviet technological threat, along with a relative growth rate so high that in the early 1960s most economists expected
2/5

that the USSR would overtake the US economically and technologically during the 1980s. You have only to watch the Nixon-Khrushchev kitchen debate in 1959 to see how Soviet confidence in their technological path so exceeded US confidence.

3/5

In retrospect both sides got it so wrong that today it seems almost comical, and it is impossible to believe that the US or anyone else once took the threat seriously, but in fact an awful lot of very smart and knowledgeable people did, and a lot of long-term planning...
Read 5 tweets
3 Feb
1/4

This very good piece by @hussmanjp will probably be ignored, as pieces like this always are unless their authors are lucky enough to publish them just before a collapse in the market. One point I would make is that I don’t think it is market...

hussmanfunds.com/comment/mc2102…
2/4

“psychology” — fear and greed, most famously — that cause market bubbles and collapses, and so these kinds of warnings will have almost no overall effect.

As I see it, in any large market there is inevitably a normal distribution of risk-taking participants, including a...
3/4

normal distribution among the foolishly optimistic and the equally foolishly pessimistic, of confidence, ignorance and so on. What matters, I think, are the structural conditions that favor one side or the other of the distribution. I am pretty sure these have to do with...
Read 4 tweets
2 Feb
1/7

While there was a certainly a long period in which provincial growth rates collectively exceeded the national growth rate, Shehzad, they have been more closely in line over the past few years. In fact when I counted up 2020 GDP province by province, I came up with...
2/7

RMB 101.24 trillion, vs the national NBS figure of RMB 101.59. That's not a big difference, but at least it is on the "unexpected" side.

Obviously there are other problems with the data – you found many instances of fudging, while I worried more about the capitalization...
3/7

in the past 15-20 years of what should've been expensed (necessary if they are to target GDP growth rates above the real growth rate of the underlying economy) – and the provincial data is clearly worse than the national data: even Beijing has acknowledged this many times.
Read 7 tweets
1 Feb
1/4

Interestingly enough, when the Massachusetts Bank Commissioner first went after Charles Ponzi’s scheme in August 1920 (only 8 months after it started), many of his investors blamed their subsequent losses on highly biased meddling by the...

ft.com/content/4916c4…
2/4

authorities, and angrily accused the financial elites of trying to destroy an operation that was bringing the secrets of Wall Street to the masses. Ponzi, they said, was trying to help ordinary people in their struggle with the bankers, and the bankers had decided to...
3/4

go after him only because his financial operations had been so successful .

One way to be a successful con man, it seems, is to tap into the legitimate resentment of the aggrieved and convince them (and perhaps yourself) that you are their champion. By the way at least...
Read 4 tweets

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