China’s Monetary Meltdown – CASH!!! Remains King

Have I mentioned how much I like CASH!!! lately? 

Apparently, so do the traders in China, so much so that the Nation's foreign-exchange reserves dropped by record amounts despite the PBOC injecting over $80Bn back into the system through their medium-term lending facility (MLF).  That has chased the 14-day repurchase rate, a gauge of funding availability in the financial system, up 3.3% in Shanghai and has pressed the overnight repo rate 2.13%, the highest since April 2015.

“The rising overnight repo rate will force highly-leveraged investors to unwind their positions, leading to a further decline in bonds,” said China Guangfa’s Yan Yan.  “The market is still tight, despite the injections. “All the seasonal factors, plus the capital outflows and currency market-related liquidity drain, are tightening interbank liquidity.”

What this means, in plain English, is that the Chinese are printing money so fast that they are draining their reserves at an alarming rate while, at the same time, the pace of new reserves coming in (from their positive trade balance) is dwindling during a manufacturing Recession:

In short, China's ability to act is dwindling at the same time as their monetary actions themselves are losing their effectiveness because the problem is getting bigger – so it takes more and more money to fix.  We knew China was going to collapse, that was never in doubt. In fact, in our June Trade Review, my comment to our Members was:

I don't want to be overly dramatic about this stuff (and we are short on both China and Japan through FXI ($51.85) and EWJ ($13.26) as well as short the US markets as full disclosure) but I'm not going to let my people go through what people went through in 2008 if I can help it. If you remember, it was a very slow roll to collapse while the markets made record highs in 2007/8 as well.

As you can see on the chart, FXI has fallen all the way to $30 (down 42%) but Japan hasn't caught China's cold yet and…
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