Monday, April 16, 2007
The G7 statement was limp, as expected. There was no real change from February, and surprisingly little moaning on the sidelines: a classic non-event.
The IMF statement was limp. Sure, they provided a list of policy targets for the multilateral participants (US, Europe, Japan, China, and Saudi Arabia.) And sure, Hank Paulson said he really, really, really wants the IMF to strengthen its oversight capabilities on exchange rates. But as Brad Setser discusses, the policy goals are generally nebulous and toothless.
The problem, as it has been, is that the IMF has no “stick” with which to encourage cooperation. China, the Middle East, et al. have no need for the Fund’s monetary IV- quite the contrary! So if pleas like Macro Man’s have not fallen on deaf ears, they seem to have fallen on relatively powerless ears.
That China couldn’t give a hoot what the IMF had to say was evident by the fact that they sent jubbs to the meetings while the Finance Minister and PBOC Governor stayed at home. It’s hard to take China’s lip-service towards rebalancing its economy seriously when the relevant officials cannot even be bothered to give up their weekend barbecues.
A comment from one of the jubbs, PBOC deputy governor Hu Xiaolian, afforded Macro Man some modicum of amusement. She told the IMF steering committee that "Given the limitations of various exchange rate analytical tools, it is well known that the concept of exchange rate misalignment is subject to theoretical weakness, their estimates highly unreliable, and therefore could not serve as criteria or premises for surveillance."
Perhaps, but suggesting that the shortcomings of various models prevents one from identifying the RMB as undervalued given the trade surplus/reserve accumulation is like a birdwatcher stating that the absence of a DNA sample prevents one from correctly identifying a waterfowl that looks like a duck and quacks like a duck.
Anyhow, it looks very much like an “as you were.” The dollar should trade poorly against most things that pay 3% or more, and decently against the other stuff. It was amusing yet predictable to see PBOC ensure that USD/CNY closed higher on the day- Zhous must have had a nice giggle over that at his weekend barbie.
The entry signal on the FX carry beta plus portfolio was finally triggered; fills are in the P/L below. This week could prove interesting for equities; US earnings season picks up steam, and the data slate is chock full of important releases, starting with retail sales today. Ultimately, though, the world continues to look like a pretty happy place, especially if you work at PBOC and you’re holding all the cards.