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Better luck next year, China

This past Thursday, the People’s Bank of China (PBOC) set the daily reference rate, or “fix,” higher than previous days. The new peg of 6.3915 yuan per U.S. dollar represents a 0.08% higher level.

So, what has all of this recent currency tampering done for China so far?

For one thing, it’s caused the International Monetary Fund (IMF) to delay its decision to include the yuan in the vaunted basket of reserve currencies for at least a year.

I guess when it comes to China and the yuan, it’s a case of better luck next year.

Rather than letting the Chinese yuan into the elite club of reserve currency status, also known as the Special Drawing Rights (SDR) basket, China will have to wait until at least October 2016 for the IMF’s decision.

Why is this so important?

As the Wall Street Journal explains:

For months, investors and analysts were betting on a stable yuan as China lobbied the International Monetary Fund for inclusion in the emergency lender’s elite basket of currencies, known as the Special Drawing Rights.

Recognition as a reserve currency would be a symbolic win for China’s currency and policy-makers on the global stage.

China isn’t going to get that recognition, at least not for another 14 months.

For investors around the globe, the IMF’s decision is just one more vote of “no confidence” for China.


The recent currency tampering … the plunge earlier this year in the China A-shares market … and lackluster Chinese economic data have all have teamed up to put a big wrench in all sorts of financial markets.

From international stocks, to emerging markets, to commodities to stocks here at home that sell a lot of product to China, the promise of China is looking more and more like a failed pledge.

Goldman Sachs analysts put the China situation in perspective quite nicely, writing in a note to clients earlier this week that:

It is hard to have a high degree of conviction in anticipating the increasingly fitful reactions of the Chinese policy-makers, and by extension the near-term direction of the [yuan].

As any trader knows, there is nothing more toxic to an aging bull market than a lack of clarity about the short-term future conditions.

Right now, there’s a lack of clarity regarding …

China’s constant currency moves …

The uncertainty over when commodities will finally stop crumbling …

And when the Fed will finally pull the trigger on an interest-rate hike …

These uncertainties all have teamed up to make the current investing environment very opaque.

So, what do you do when you’re driving a car and weather conditions are such that you can’t see very far in front of you?

You slow things down, drive with the utmost caution — and pull over to the side of the road until the visibility begins to increase.

What are you doing right now to add to increase your market visibility? Have you slowed down a bit, or are you full-throttle into the market’s turns?

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