“Am I Too Late To Short The Renminbi?” (And Other Questions Answered)

As promised, I began writing about collateral in the system and quickly realised that it’s a bit like a putting together one of those children’s toy cars that comes in a box saying “ready to go” when in fact it really isn’t.

You have to spend 15 minutes finding batteries which the makers dutifully never supplied, hammer them in with a mallet because the Chinese factory where it was birthed cocked up the measurements, and now the batteries don’t fit. And then you have to glue back the roof which came apart in the hammering process.

Suffice to say there are a lot of pieces that go into the collateral puzzle and think it’s better to turn it into a fully fledged sparkling report so stay tuned.

Instead, and because I haven’t done it in a bit, I’ll answer some questions from readers.

Question #1

Hi Chris,

I’ve been getting a lot out of everything you have been writing for a while now (put it right up there with Realvision.) Thought the 7 Steps To The Easiest Short In Recent History was brilliant and shared it with a number of my friends.

The below email [The Easy Uncomplicated Way to Get Rich] also stuck a chord with me as it’s exactly what I did and it’s so fucking simple. I turned 30 earlier in the year and just as I had promised myself, left my corporate job before my birthday. I worked for JLL in Brisbane and religiously put 2/3 of my wages into investments every month (was lucky enough to have found Brad soon after moving to Australia (I’m a Kiwi) to mentor me in trading.)

Currently living in Berlin and heading to a different country for 2 weeks of every month (makes me smile as struggled to get 2 weeks per year off with my corporate job.)

Cashflow mainly comes from a covered call strategy and utilising long dated options in place of stock to help boost returns (you and Brad put out a youtube video on it with the AEX as vol was ridiculous at the time.) Also started managing private money over here after a few lucky chance meetings.

Completely understand if you are too flat out to get to this but the question I wanted to ask you relates to your email ‘Is a short squeeze coming from this?’. After playing around with a number of the vol ETPS can’t find a attractive payoff with the options on them. Even the vix options give a average payoff (given if things get really hairy I’ll eat my words.) My way of playing this currently is just adding to my OTM short USDCNH, USDSGD and USDJPY (think the BOJ locking down the 10year can only end in the currency taking it on the nose.)

Is there a different way to play this that I’m missing? Mainly trade options and stocks, so futures are a no go as try and protect myself from my own stupidity (which is hard at times.)

Also wanted to get your take on EURCZK as a trade? Czech Central Bank has been maintaining a price floor at the 27 level and are likely to abandon it in 2017. Volatility is 3.5% which is pretty attractive, unfortunately Saxo won’t price puts OTM. Was thinking of playing it via ATM call to hedge short spot position. Don’t expect the sort of reaction at when Swiss Central bank removed the floor, but would be nice to have a tiny allocation it if it does.. Thoughts?




Awesome to hear you knuckled down and killed it. I’m sure you feel liberated.

With respect to low vol ETFs. You’re right there isn’t enough asymmetry in the options. As long as markets keep going up these passive ETFs are fine.

There’ll come a day when they don’t and passive will try to get active and it’ll be a mess.

Whats more, you’ll have a retail component to the market that previously wasn’t there are retail is always stupid money. Also as discussed the ETPs are increasingly distorting individual equities and bonds that sit within them. I like that actually. It opens opportunity.

I don’t have a view on EURCZK, sorry. Readers who follow it will hopefully comment and lend a helping hand.

Question #2

Hi Chris,

I guess I could post this on the blog but here goes.

What do you think of selling 3m euribor futs? At -30bp rate for the foreseeable future, good liquidity, not too much upside risk (in theory, how much more negative can rates go? famous last words?), very little risk if we retrace to recent highs, low margin per fut contract, and considerable downside if rates normalize (which could happen quickly if/when it really gets going?), I feel like they offer good risk/reward. How do you see that vs selling bond futs such as 2 or 5 yr or 10yr german bunds? Asking about german because those are pretty much the only bond futures I have access to on Interactive Brokers that are trading negative yield.



I don’t like the futures so much since you have to really really watch them and the leverage can quickly wipe you out. You’re bang on with regards to the asymmetry though. This is the trade. I believe the cycle has turned.

I would say don’t focus too much on what’s negative yield and what’s positive. Just look for convexity. Let the market direct you.

Question #3

Hey Chris

Earlier in the year I was actively trading some of the junior miner stocks and eking out a decent return.

As that segment began to plateau I’m sitting on the sidelines in cash, with the exception of the long position on MOGLF. Before I went to cash I started noticing odd things happening in some of those miner stocks. Hard to say exactly what but some days there would be wild fluctuations in price with low volatility or huge volume but little price volatility. I’m not a super sophisticated trader by any means and I couldn’t tell you the first thing on how to spot HFT meddling but I can’t help wondering if I saw some of it. Any thoughts?

Do the machines decide for themselves what to go after?




I put this out there for any readers with deeper knowledge than I have.

I do know a thing or two about how they work and they’re built on modelling the order books including bid ask spreads and yes they decide what to go after (based on the particular model) but I don’t know to what extent they are involved in what are essentially fairly illiquid issues.

Question #4

Hi Chris,

Your recent article about walls being built really struck a chord with me. My family are from Eastern Germany and my life has been a much easier one than my parents as I’ve been able to go to Uni, enter a freer world and now work for a large multi billion dollar Swiss asset management firm managing their currency hedging.

We have access to a lot of research which my employers pay tens of thousands of dollars for and between you and I, we (the firm) get more out of your free blog than most of the paid analysis.

Given the walls being built around the world do you see this as the biggest systemic risk in markets? A move towards anti globalisation basically.

Thanks so much for all you share. If some day you are in Geneva I’d be honoured to put you up or at least take you to dinner.

PS. I like the way you’re apolitical and dispassionate, really just interested in market outcomes. It’s unusual.

Kind regards


I think you’re too kind but thank you.

You know I think the biggest risk is a systemic one. It is this global government bubble which is fed by sovereign debt and central bank credit. This bubble affects quite literally every asset class in the world because it affects collateral which is why I want to discuss collateral in the system and how it affects literally everything. It’s a way bigger issue on so many levels than any previous bubble we’ve experienced.

There are factors such as the building of walls, nationalism, and so forth which I qualify as qualitative factors which will and are creating cracks in this structure. I wrote about this in “What the Quants are Missing”.

I do think people are really ignoring risk. I say this because insurance is way too cheap amongst other things and so I’m focussed on attempting to actually attack risk really because I believe it’s the opportunity of a lifetime.

As to being apolitical: it’s like the market.

What you and I think or want to happen is inconsequential. You want a better life? Make smarter decisions and that begins with dispassionately viewing the world and looking out for yourself. Nobody else is going to do it… certainly not some smug political hack.

Question #5

Hi Chris,

My name is [omitted] and this email is my private one. I heard about you from our mutual friend Raoul Pal.

I just started reading your published work on the site, which is excellent by the way, and I came across an article you wrote about how China was likely to devalue the renminbi. It was written quite some time ago and now I can’t seem to find it.

As you’re no doubt aware we’ve a team of analysts and many smart people with whom I consult and opinions are somewhat divided on the yuan. I’m curious. Are you still bearish and are you still short?

Yours sincerely


Thanks, I’m humbled.

You’re referring to one of two articles. The first from end of July 2015 and the second from December 2015 when the timing really looked good and in fact where we decided to press the trade.


Volatility cost was something like just 2.5 points. Insanely cheap! Now it’s something like 8 points so the asymmetry isn’t there to the same extent. I tried to make this point last week when highlighting the importance of positioning BEFORE the big move. By the time you’re comfortable with the trade moving in your favour much of the asymmetry is lost.

Just tossing in the chart here which obviously looks as ugly as any you’ll see. I sure wouldn’t want to be long renminbi.

That said, I know Mark Hart and Worth Wray are pretty focussed on this and they’re still very bearish. I have a lot of respect for both of them and you should follow Worth on Twitter as he spends a lot of time on it.

I’m not short here.

It sucks that I can only get 2-year options and I would love more time. I’m trying to keep things manageable and pretty intensely focussed on where we can find asymmetry in these crazy markets.

That’s all for this week. If you enjoy this blog please share it around like a bag of candy at Halloween.

Muchas gracias and have a great weekend!

– Chris

“It is better to ask some of the questions than know all of the answers” — James Thurber (American cartoonist)


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