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Letter 1566

August 19, 2015

 


What do you do when the market is crashing? If you’re the People’s Bank of China, you don’t fool around; you devalue your currency. This is exactly what China has done.

 


By devaluing the yuan, China becomes more competitive. Merchandise that’s sold by other nations to China is not as profitable, and China’s exports are cheaper in terms of other currencies. Since China is the world’s second largest economy, all other nations must become more competitive if they are to survive. The US stock market has backed off a bit as it absorbs the meaning of the Chinese devaluation. But I would say that with China’s devaluation, the currency war has begun.

 


In the big picture, the monster that’s scaring all investors is deflation. The central banks are now all fighting deflation, and the Fed has still not put in its first rate increase. The media treats it as an accomplished ... Log in or subscribe to continue reading.


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