The markets got carried out feet first on Wednesday in early trading that saw the Dow plunge more than 230 points, the S&P 500 shed more than 25 points, and the Nasdaq crater a massive 90 points.
Then, as logic and common sense prevailed, the major averages fought their way back in one of the most gut-wrenching days in a long time.
There were a lot of jangled nerves out there, and China was being pilloried for its actions.
But I’m convinced China's currency move was absolutely brilliant for two reasons:
- China's doing Yellen's job for her; and,
- China's creating a fresh round of profits for savvy investors.
Let's begin by talking about what Beijing did and why I believe this is a major move that changes the investing landscape.
This is the biggest currency adjustment Beijing's made in 20 years, and it's the biggest single drop since 1994 when China ended the old dual currency system.
On the surface, the 1.9% decrease in that nation's central bank "reference rate" is designed to support exporters and boost market pricing in China. Western analysts view it as a threat because it's clearly more "price fixing" on China's behalf.
What they don't understand is that China's been propping up the yuan for years to guard against capital outflows, to protect foreign currency borrowers, and to stabilize the yuan's role in international trade as a potential reserve currency for the International Monetary Fund. If you think China's got too much power now, imagine what the world would have looked like today if that nation had not restrained its currency.
Dropping the yuan is actually a means of making room for market-based pricing.
I've long counseled that Washington had better be careful what it wished for when they accused China of currency manipulation, specifically because of the kind of reaction that's happening today.
Contrary to what Washington would have you believe about China's currency being undervalued, the yuan's real effective exchange rate has risen by 33% over the past four quarters, according to the Bank of International Settlements. In fact, the growth was so high and so fast that it was the single fastest appreciation move and the highest among 32 major global currencies tracked as reported by Bloomberg.
About the Author
Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.