The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Monday, September 13, 2010

Phat Dragon destroys Chinese central banking defection story

Getting a grip on China is crucial for all Australian economists. We will rise or fall with the Middle Kingdom. Westpac's Phat Dragon has this take on the latest central banking gossip:

"The market is presently fixated with the rumour that the Governor of the People’s Bank, Zhou Xiaochuan, has defected to the US. The topic gets 155k hits on Google. The apparent reason for the defection? A loss of $431 billion on US Treasuries. Phat Dragon’s take, based on various inconvenient facts for the rumour mongers, is that this is a most unlikely trigger and response. Fact #1: SAFE manages the bulk of the FX reserves, with a portion allocated to the CIC, so the PBoC is only obliquely responsible for the returns achieved. #2: a “buy and hold” strategy on USTs is seriously in the money right now. 3# When the CIC suffered major losses on various equity investments during the Crisis, the PBoC was never mentioned as culpable. 4#: he isn’t Cuban. Unless Mr Zhou has secretly developed an unhittable fastball/ curve combination and has a dream to pitch in the big leagues, he just doesn’t seem like a great candidate to “defect”. Given that Phat Dragon’s advance scouts have him topping out at 82mph with a gale behind him, we can safely count this one out. #5: the Cold War has been over for two decades, so the security hawks should go take a frigid shower. #6: Zhou is historically aligned with the “Shanghai Gang” that has been out of power since the Hu/Wen pairing took office and he is thus something of an outsider in the current administration. In sum, this apocryphal news story is most likely be remembered as the first major blow struck in the jostling for position ahead of the next round of political succession in 2012."