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Monday, August 30, 2010

The Rumors of China's Central Bank Chief's Defection

I don't like to inundate you folks with more than one blog entry per day, but I could not resist on this little topic.

Stratfor reported on possible rumors of a defection of China's Central Bank Chief. When you read past the headline ... you quickly discover there is a shocking lack of substance in the form of facts to such a 'defection'. It is as they reported ... nothing more than rumors and denotes a political power struggle more than anything else. China's markets were down, it's economy showing problems, and the communists will use innuendo and rumor to try to expand their political power base.

Naturally, Zerohedge was quick to pick it up ... change the wording ... and yes ... you guessed it ... extrapolate this news straight out to Armageddon! How shocking! (note, that's sarchasm, considering one of their latest posts on hyperinflation read like something out of a James Bond movie, rather than this little thing we call 'reality' in the capital markets)

First of all, lest we allow previous 'scandals' and 'stories' to fade to a dim memory, we should recall that Zerohedge was also the one to report on a supposed billion dollar bond exit through carry-on luggage of an airport. Which was laughable ... in the extreme. So while discussing "shocking if true" headlines? Let's remember the caliber of such stories.

Second, I would like to know how any bond investor anywhere is in any sort of trouble with anyone? Since 2009, bond investors have looked like geniuses. Professor Pinch (worth a follow on twitter) came up with a possibility 10:1 leverage pyramiding on each successive maturity. It'd be stupid in the extreme for any Central Bank Chief to do such a thing, but in the interests of fairness, it'd be possible.

As I said, bond investors have looked like geniuses since 2009. Of course, when the bond market turns around, it can get very ugly, very fast. You haven't seen 'getting your face ripped off' until you see bond investors start to lose money. But that's all beside the point. To say today that a bond investor is in trouble ... is silly.

Some may wish to file this story under "shocking if true". I would file it under "fear mongering". I find it equally as suspicious that such a story "breaks" after this monsterus rise in bonds (falling yield) at the end of the typical August rally, while China is undergoing a political power struggle.

Those more suspicious than myself may wish to file this under "red herring".

Fear mongering leads to sensational headlines that skew you towards emotional decision making. Remember ... fear mongers can cloak their wording and hide behind insubstantial innuendo. Unfortunately, all too often, the result is that people who read such stories end up making really dumb decisions in regards to their investment choices.

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Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 14 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

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