Over the Weekend: Hedge Funds vs. the Chinese Communist Government
Weekend media stories included this one about how hedge funds are taking on the Chinese government. And we're talking about some of the best and brightest fund managers here:
Three more legendary managers are cited:
First, we doubt that the fact that everyone who's anyone is taking the "against" side of the Chinese bet represents a contrarian opportunity. Our guess would be that, just as in all bear markets, the bears here are right, and betting against them would not be smart investing or even speculating. And Chinese financial markets, under any definition of the term, must be considered to be in a bear market.
Second, it's reasonable to assume that until the Communist party releases its strangle-hold on the Chinese government, economy and society, the smart bets will continue against a Chinese recovery of any magnitude, either in their financial markets or their economy. The government can manipulate all it wants, but in the end, the natural forces of the markets and the economy will prevail. Even the mighty Soviet Union collapsed under the weight of its totalitarian tyranny and ineptitude after decades of belligerent bluster. And thus it likely will be in China - someday.
So we'll stick with the bright boys against the Commies here. Despite their progress in at least painting their markets as modernized and their economy market-driven, albeit with an occasional guiding push and pull, the Communist leaders will ultimately choose to protect their power and privileges. When the free market or the common good of their people threaten them, they will vote for themselves. And that, ultimately, will be their downfall. In fact, it should not be shocking if their downfall - or at least the beginnings of it - becomes the big story of 2016.
Kyle Bass’s Hayman Capital Management has sold off the bulk of its investments in stocks, commodities and bonds so it can focus on shorting Asian currencies, including the yuan and the Hong Kong dollar.Bass cleaned up betting against the U.S. housing market years ago. He also bet against Japan's monetary and economic policy. While the bet hasn't been as cleanly successful, it looks like he will ultimately be correct in his previously stated view that Japan was a bug waiting for a windshield.
Three more legendary managers are cited:
Billionaire trader Stanley Druckenmiller and hedge-fund manager David Tepper have staked out positions of their own against the currency, also known as the renminbi, according to people familiar with the matter. David Einhorn’s Greenlight Capital Inc. holds options on the yuan depreciating.The Chinese government has already taken umbrage at negative remarks by perhaps the most legendary of all investment managers, George Soros. They've tried to hide their real feelings with a patina of calm assurance, but you can just sense how upset they've been with the aging but still successful billionaire speculator.
...a commentary appeared in China’s state-run Xinhua News Agency warning that “radical speculators” trying to short sell, or bet against, the Chinese currency would “suffer huge losses” as the Chinese monetary authority takes “effective measures to stabilize the value of the yuan.”Let's add two additional points here:
First, we doubt that the fact that everyone who's anyone is taking the "against" side of the Chinese bet represents a contrarian opportunity. Our guess would be that, just as in all bear markets, the bears here are right, and betting against them would not be smart investing or even speculating. And Chinese financial markets, under any definition of the term, must be considered to be in a bear market.
Second, it's reasonable to assume that until the Communist party releases its strangle-hold on the Chinese government, economy and society, the smart bets will continue against a Chinese recovery of any magnitude, either in their financial markets or their economy. The government can manipulate all it wants, but in the end, the natural forces of the markets and the economy will prevail. Even the mighty Soviet Union collapsed under the weight of its totalitarian tyranny and ineptitude after decades of belligerent bluster. And thus it likely will be in China - someday.
So we'll stick with the bright boys against the Commies here. Despite their progress in at least painting their markets as modernized and their economy market-driven, albeit with an occasional guiding push and pull, the Communist leaders will ultimately choose to protect their power and privileges. When the free market or the common good of their people threaten them, they will vote for themselves. And that, ultimately, will be their downfall. In fact, it should not be shocking if their downfall - or at least the beginnings of it - becomes the big story of 2016.
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