Stability in Renminbi Offers an XXL Profit Opportunity

CRB Commodity Index

By: Brad Thomas

As mentioned in my writing on the Singapore dollar, the most dangerous thing in finance is the “thing” that never moves. This stability creates an illusion of control around which many positions are built, the greater the perceived stability the greater the positions, and the more other assumptions and forecasts are made.

The stability (or lack of volatility) in the Renminbi has been the one of the foundations that has made so many other variables more forecastable. No one can imagine the Renminbi being a highly volatile currency, let alone coming remotely close to repeating what happened during the Asian Tiger crisis of 1997! If this foundation of stability suddenly disappears then there will be a great increase in uncertainty and volatility in many markets across the globe.

I don’t know exactly how a breakdown in the Renminbi will play out. However, it is a sure bet that all those markets that prospered over the last 15 years or so on the back of a China will do badly. Where things become shady is the collateral damage to other markets that have had nothing to do with the Chinese economic miracle.

I think a reasonable bearish position on the Renminbi will be a great way to hedge out the uncertainty of outcomes with respect to how the Chinese economic miracle “unwinds”.

For a long time I have been highly skeptical on the Chinese “economic miracle”. Every contrarian bone in my body has been telling me that there is something not quite right with China’s meteoric rise from an economy that was seemingly insignificant some 15 years ago to the economic powerhouse that we are led to believe it is today.

The Chinese economy has risen to prominence too quickly too soon. What has been the driver of this rise? Why did commodity prices explode skywards in 2002 having gone nowhere for the previous 30 years? I find it hard to believe that commodities became scarcer all of a sudden!

CRB Commodity IndexThe CRB Commodity Index (the CCI)

Well, no one has been able to give me a straight down the line answer – at least one that an ordinary average trader like myself could understand. That is until I came across the following discussion with Mark Hart. Hart came to prominence together with Kyle Bass after shorting the “sub-prime thing” in 2007.

Hart’s discussion on China starts at about the 55 minute mark. Note what Hart says about how he is applying his view on China (via options on the Renminbi). The interview was conducted in September but note that he has been “bearish” on China at least since 2011!

For more on the issues facing China you might like to read the writings of Gordon Chang and Michael Pettis. I think both present very objective views on China. I am not going to pretend to offer anything more than what these gentlemen offer with respect to the view on China.

Hart talks about buying “puts” on the Renminbi. What makes the trade so attractive is the extreme low level of volatility. Below is an index of implied volatility for 12 months to expiry at the money (ATM) calls on the USD/CNY.

CNY Volatility

So we can buy calls on the USD/Renminbi for about 2.5% volatility. For comparison purposes – implied volatility on the AUD/USD is about 10%!

Hart talks about buying the CNY 7 strike call on the USD/Renminbi. To give you an idea of the leverage offered on a 12-month option at the CNY 7 strike – about $1,100 will get you a notional position of $1,000,000! To achieve a payoff of 10x all the USD/CNY would have to close at is 7.07, and at 7.15 a 20x payoff is achieved!

One can now appreciate what Mark Hart is on about – the gearing offered by options on the Renminbi is huge because volatility is grossly underpriced.

Is it so crazy to think that the Renminbi can get to a “tick or two” above 7 within 12 months?

CNY Chart

Well, let’s not forget what happened to currencies in the past. Note what happened to the Mexican Peso during the “Tequila” crisis:

Mexican Peso

…the Thai baht during the Asian Tiger crisis:

Thai Baht Chart

…or to the Russian Ruble during the LTCM crisis:

Russian Ruble Chart

Currencies can move and they move significantly when they have been sailing in calm waters for extended periods of time – just like the Chinese Renminbi now. Position for the unexpected. It is why Hart and Bass made so much money during the Subprime crisis.

– Brad

“Never think that lack of variability is stability. Don’t confuse lack of volatility with stability, ever.” – Nassim Nicholas Taleb

Crowdfunding – Disruptive Finance Goes Global Part II

By: Mark Wallace

On Tuesday we posted podcast session #1 with Jason Best and Sherwood Neiss from Crowdfund Capital Advisors, two of the Crowdfunding movement’s most influential thought leaders. Today we bring you parts 2 and 3.

As we mentioned previously, Jason was kind enough to join us in Aspen this past August to speak to Members of our private global investment syndicate, Seraph. That talk was one of the most highly-anticipated of the event, and Jason didn’t disappoint.

Jason and his partner Sherwood have led the charge in the US for crowdfunding, which led to the passage of the JOBS Act, the first significant change to the securities laws in the last 80 years!

Crowdfunding has ushered in a new, highly disruptive movement. Players are clamoring to get into the space, everyone from Angel List to Our Crowd on the top end of equity crowdfunding, to the less well-known players like AgFunder and EmergingFrontiers, which is set to launch its own platform in the next couple of weeks! They’ll be bringing emerging and frontier markets equity crowdfunding to Main Street, with minimum investments as low as $1,000, and the ability to create your own syndicates and funds… Stay tuned!

Listen to Podcast #2 below:

You can download podcast #2 here. For the audio transcription for podcast #2, click here to download.

Listen to Podcast #3 below:

You can download podcast #3 here. For the audio transcription for podcast #3, click here to download.

We’ll be interviewing Luan Cox from CrowdNetic in an upcoming podcast where will be discussing the data analytics side of the industry. Then we’ll speak to Kevin Virgil from to tell us about the launch of their platform and how it’s set to revolutionize investing in emerging and frontier markets!

As always, thank you for reading (and now listening!). If you have questions you can reach out to Jason and Woodie via their website at:

You can also meet Jason in person at the Crowdfinance 2014 conference happening TODAY in New York at the Thomson Reuters Event Center. For more information check out the website here:

– Mark

“Think left and think right and think low and think high. Oh, the thinks you can think up if only you try!” – Dr. Seuss

Crowdfunding – Disruptive Finance Goes Global

By: Mark Wallace Jason Best and Sherwood Neiss are two of the Crowdfunding movement’s most influential thought leaders. We’ve had the pleasure of knowing them both for some time now, and recently we grabbed about 90 minutes of their time to record some really insightful podcasts. Jason was kind enough to join us in Aspen […]

Continue reading...

Did Someone Say Deleveraging?

Corporate Debt to GDP

By: Chris Tell For reference I should mention that I recently wrote about debt in a post titled Debt Chart Porn, and we are about to mail out our comprehensive debt report to our registered readers. All of this has led me to thinking a lot about debt and the state of the world geopolitically, currencies, […]

Continue reading...

Replace These People with an App Already

App Cartoon

By: Chris Tell I spent a recent weekend looking at some real estate. It used to be a favourite way for me to spend time and I realized how much I really miss it. I was reminded of how 99% of real estate agents are completely useless. No, I mean not just incompetent but really […]

Continue reading...

Why the Singapore Dollar is Staring Into the Abyss

Singapore Property Price Index

By: Brad Thomas Singapore is regarded as the “safe haven” or Switzerland of Asia. While on the surface Singapore is the economy to which most others can only aspire to one day become, beneath the scenes is a very fragile economy highly dependent on the cost of capital staying low or at least rising very […]

Continue reading...