Interesting week coming up...
China FX reserve numbers on Sunday Feb 7, Markets closed for Chinese Lunar New Year all next week.
Possible moment of truth. Serious event... US markets left to balance change, and nervous time for asset managers, until China comes back on-line.
Monday morning could be interesting... or not.
Yeah... or maybe.
Been watching the pundits today... trying to explain the market drop.
If the explanation was easy... but it's not. I'm coming back to the China FX Reserves, and the continued drop. There is no simple one paragraph explanation to help understand how this all works. Definitive studies that show how the tentacles of the eventual Chinese devaluation go to many pages, and the listing of affected financial entities range from the IMF, to the derivatives market, to banks and housing and to our personal financial security.
The drop in the reserves was relatively minor and should have been balanced by the internal Chinese markets. Because of the weeklong holiday, the uncertainty about balancing the devaluation reached into world markets.
The Chinese citizen does not have the kind of safety nets available to US citizens... Social Security, Pensions and health support as in medicaid etc., so the safety net is in savings. This is where the problem begins. With the government managing the financial system, mistakes can be catastrophic. It's this nibbling at the problem that is causing some of the domino effect in the world markets. When China freezes the personal savings of its' citizens, we'll see more world market changes.
And so, while we're seeing the market drop on oil prices and supply and demand... and while this looks to be the driving force in the markets, the switch to bonds reflects a wider concern.
Then... where is the gold? who owns it? who is amassing physical gold? what country owes what other country? how much is loaned or owed in bonds? What country, what banks have safe liquid assets? How much in unfunded liabilities? Is debt percented to GDP a real number?
The experts are talking value unwind, rebalancing and capitulation.
Maybe... maybe not!
...and so ends this conspiratorial exercise. YMMV