OK, so I hear the name Albert Edwards (SocGen) and I smile. Another permabear conveniently ignoring the soaring US equity markets. Then I see he is quoted on FT Alphaville and I have a read and, I really hate this, the guy is making sense. Link: http://ftalphaville.ft.com/blog/2010/10/20/376441/the-end-game-approaches/
OK, so I will ignore his permabear prognostications (I am a trader, I respect the market moves, and when its going up I want to be a bull, when its falling I want to be a bear) but can’t help agreeing with a lot of what he has said.
Especially on the undervalued Yuan. This is a pet hate of mine and I rant far too much about it, but this is it in a nutshell:
Chinese Premier Wen is warning that a 20% yuan rise would bankrupt Chinese companies and sharply rising unemployment would cause a major social upheaval (i.e. exactly what is happening in the US).
Quite. Yes, Premier Wen, an appreciation in the Yuan would cause a rise in unemployment in China. By keeping the Yuan undervalued (the PBOC has to buy absolutely gigantic quantities of USDs, no wonder the Chinese hold so many USTs) unemployment is being exported to your trading partners, the rest of the world.
Anyway, my ranting about this is irrelevant. I cannot forsee any change in this Chinese policy. Edwards thinks the next step is trade tariffs in the US directed at China. The USA has a history of reverting to insularity (not making a value judgement on this either, when your major trading partner is exporting unemployment to you maybe insularism is a reasonable response …. talking politics here not neo-classical economic theory), so, yes, tariffs, here we come.
BTW, Rebecca Wilder (one of the best economists out there) has made the point that the Chinese rate rise yesterday is an act of further competitive devaluation. Great article, great clear-headed view:
China’s competitive devaluation http://www.newsneconomics.com/2010/10/chinas-competitive-devaluation.html