A huge move in the currency markets... A new reserve currency is here... 'The greatest opportunity of my career'... Three things every investor needs to know about China now...
Earlier this week, something big happened in the global currency markets.
In short, there's now a new name on the small list of world reserve currencies: the Chinese yuan.
After rejecting the move at its last review in 2010, the International Monetary Fund ("IMF") "unexpectedly" announced Monday that China's currency now meets the necessary criteria to join its basket of reserve currencies.
As Bloomberg reported that day...
The IMF will add the yuan to its basket of reserve currencies, an international stamp of approval of the strides China has made integrating into a global economic system dominated for decades by the U.S., Europe and Japan.
The International Monetary Fund's executive board, which represents the fund's 188 member nations, decided the yuan meets the standard of being "freely usable" and will join the dollar, euro, pound, and yen in its Special Drawing Rights basket, the organization said Monday in a statement. Approval was expected after IMF Managing Director Christine Lagarde announced Nov. 13 that her staff recommended inclusion, a position she supported...
"The renminbi's inclusion in the SDR is a clear indication of the reforms that have been implemented and will continue to be implemented and is a clear, stronger representation of the global economy," Lagarde said Monday during a press briefing at the IMF's headquarters in Washington. Renminbi is the currency's official name and means "the people's currency" in Mandarin; yuan is the unit.
The IMF announced the move will take effect on October 1, 2016. The yuan will have a 10.9% "weighting" in the currency basket, making it the third "heaviest" currency behind the U.S. dollar and the euro but ahead of the Japanese yen and the British pound.
We put "unexpectedly" in quotes because not everyone was surprised by the move...
Longtime Stansberry Research subscribers may recall our colleague Steve Sjuggerud has been predicting exactly this move for months. In fact, Steve was among the first analysts anywhere to suggest it was even possible. As Steve wrote more than one year ago in the December 2014 issue of True Wealth...
You may be surprised to hear it, but last month, according to the International Monetary Fund (IMF), China surpassed the U.S. as the world's largest economy (on a "purchasing power" basis). It's the first time in 142 years that the U.S. hasn't been on top. (Technically, the U.S. economy is still larger than China's on a "nominal" basis, but the trend is still in place for China to overtake the U.S. there, too.)
China is on its way to becoming a global superpower. But it is not there yet... The U.S. is the superpower today. More than 80% of the currency reserves that countries hold are in U.S. dollars and euros. Right now, when it comes to global currency reserves, China's currency is near zero. But that will change...
In short, China's currency is on a trajectory to become one of the world's reserve currencies, as more big banks move their money there.
Kudos to Steve for another great call.
He shared his latest thoughts on the situation in Monday's edition of our free DailyWealth e-letter...
So what does this mean? It's a vote of confidence in China's drastic reforms by the world's major powers.
This move is largely symbolic (as none of us actually use the IMF's currency). What it means is far more important in the long run... It means that China's currency "passes the test." China's currency is finally considered to be as legit as the other four, in the eyes of the world's superpowers.
Most folks are blowing off the significance of this. I think that's a mistake...
After today, hundreds of billions of dollars will likely flow into China's currency in the coming years, and from a variety of sources... As a reserve currency for central banks... as a way for investors to diversify outside of the U.S. dollar... as a speculation... as a medium of exchange in global trade... etc., etc.
The era of China's yuan as a legitimate currency starts today...
Steve believes this could turn out to be the single greatest investment opportunity of his career. And best of all, it's not too late to take advantage of it.
As he mentioned Monday, most people still aren't even aware that this move has happened... and even fewer understand what it could mean for global markets over the next several years.
Steve says investors still have time to position themselves "ahead of the crowd"... and he devoted the most recent issue of his True Wealth advisory to helping his readers do just that.
He explained exactly what to expect as these changes take place, and what to do now to make the safest, biggest profits. From the issue...
One of the world's most powerful organizations is finally acknowledging China's status in the financial world.
It's an unequivocal vote of confidence in the success of China's drastic reforms.
And it's a major step toward establishing China's currency – the yuan – as a major reserve-currency asset... that could – one day – challenge the U.S. dollar...
It's important to note that Steve says there are only three "big ideas" investors really need to know about the situation...
If you don't remember anything else from this letter, please remember these three things:
1. China is the world's second-largest economy.
2. NOBODY owns its stocks.
3. NOBODY holds its currency.
Think about the insanity of that... I never imagined that – at any point in my career – there'd be a moment when NOBODY owned the stocks and NOBODY owned the currency of the world's second-largest economy. That makes no sense!
As I will show you today, $1 trillion could flow into China's currency (through Chinese bonds). And nearly the same amount could flow into Chinese stocks. So far, nobody seems to care. Let's get our money there first.
Of course, it wouldn't be fair to Steve's subscribers to share all the details here. But Steve has made it affordable for every investor to access his research...
If you aren't a True Wealth subscriber yet, you can gain instant access to all of Steve's research with a four-month risk-free trial subscription for 60% off the regular rate. Learn more here.
New 52-week highs (as of 12/2/15): short position in Santander Consumer USA (SC).
In today's mailbag, more subscribers share their experiences buying distressed bonds from our new Stansberry's Credit Opportunities service. Send your questions, comments, and concerns to feedback@stansberryresearch.com.
"Quick comment in today's newsletter where the subscriber that had trouble buying a bond with Fidelity. I was able to purchase both of the recommended bonds from Vanguard. They charge a $2/bond commission fee (works out to be 0.29%). You can find the bonds on their website using the CUSIP but you will need to call their fixed income desk to place the order. They have been able to shave a few points off the quoted price after the order is placed. On another note – I was trying to transfer a stock from Merrill Lynch to Vanguard to reduce ML's commissions but they would not accept a stock trading for less than $3. I've found Vanguard to be very low cost." – Paid-up subscriber Joe R.
"Porter, just for information purposes I have been able to purchase both of the new recommendations. I bought the [first] bond through Interactive Brokers. They were very helpful. Customer service talked me through the process and helped me get the permissions that I needed. But when it came to the [second] bond they apparently did not have access to it. I could not get it to come up on the internet interface. So I went to MBT, Manhattan Beach Trading (they have recently merged with I believe Trade King). They do not take bond orders through their interface but if you call their trading desk they will handle the purchase. They charged me a $10 fee. I was able to get both purchases for under your recommended price." – Paid-up subscriber Robert A. Greene
"I have read the newsletters about the impending junk bond crisis and listened to much of Porter's presentation, but could not finish it due to time constraints. I'd like to find out how to get information on what bonds to buy and how to do it without having to go through that lengthy explanation of what the problem is again. How can I do that?" – Paid-up subscriber Robert L.
Brill comment: You can sign up for our new bond service – Stansberry's Credit Opportunities – without watching the presentation by clicking here. (And if you'd prefer to read the rest of Porter's presentation rather than sitting through a video, you can do so here.)
Regards,
Justin Brill
Cambridge, Ohio
December 3, 2015
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