I watched this on YouTube before knowing it was here - 4 months after it was initially aired. Says a lot about the new Real Vision TV, to be honest.... total mess to be honest. It's a shame because this was excellent RVTV - so many good trades can come from this HK situation which I see as only continuing to worsen.

Seems this was pretty spot on

Hong kongs USD reserves have doubled since 2008, from 150000million USD to now over 436400 million USD doesn't seem like there is a capital flight issue there? in the past few months the foreign USD reserve is actually increasing? I think Kyle's views are to one sided and do not apply the numerous measures and tools that are able to be applied these scenario's. China currently is holding over 3 Trillion USD or reserves, and is increasing not declining, 3 trillion USD is a huge amount of money. It was 4 trillion over the last 3-4 years , but 1 Trillion USD of those reserves was pumped into the western economies, hence western economies performance, since the closure of the capital USD injection into the western economies since 2017 the western economies are now forecasting slower growth, hence trumps trade concerns. Prognosis, once the western economies start to really slow China will start the capital outflow again which shall start spurring the western economies again, it's just a question of how much will China inject/capital outflow into the western economies again? I think anyone who reads into China's figures should also read into their massive USD reserves?? over 3 Trillion USD is massive it can run the global economy for at least around another 20 years.

The problem with Kyle is that he thinks he's the smartest guy in the room. While he's clearly smart, that just makes him a great analyst, but boy is he an awful portfolio manager.

Follow-up 7 weeks later. USD/HKD has collapsed as this pair now sits at a 6-month low, well into the bottom half of its year-long range, far from breaking out (and closer to perhaps actually breaking down). Anyone who took on this loser trade is bleeding money - like many of his other calls this decade. Charts don't lie! Also, what's with that ridiculous flagpin he wears? A paid puppet of the US deep state as rumoured? Don't llsten to a word this propaganda mouthpiece utters, especially about markets!

How long as Mr. Bass been short on the Yuan? DLS

I don’t understand half of how it works but Kyle sounds very convincing and confident. So let’s assume he is right and I’ll risk some money based on his words. What are the best trade ideas anyone has to play this?

It's worth listening to Louis-Vincent Gave's point-by-point counterargument to Mr. Bass aired (free) on this week's MacroVoices podcast.

I'm a simple man. I see Kyle Bass I watch it.

I would think this would quickly become an opaque China intervention. They could print money on HK's behalf. And if HK free trade treaty were to fall apart and HK tariff's would kick in? That would could very well be kindling for a hot war... China should never have been allowed to be the major supply chain to the West.. Now they think they are top dog.

Absolutely brilliant! Massive thanks!

Maybe there is something to Kyle's thesis. But it seems to center on the argument that the US / HKD interest rate differential is causing hot money parked in HKD to flow out of HKD into USD. Maybe perceived political risks is one factor. But if low HKD interest rates vis a vis USD ones is the other main factor, there is nothing to stop HK banks raising the rates they pay on HKD to match USD ones. The HKMA doesn't set the banks' rates. And, as a matter of fact, just this morning HSBC has sent me a promotional email offering special, higher rates on HKD deposits. Interesting, no?

I'm a Chinese Texan. A I strongly support Kyle Bass. Not only it's a money making move but also is a righteous bet. To bet against the Hong Kong government is not only to show our political stance against the communist party. It's a movement to tell the Chinese government that we strongly support democracy, Not the autocracy. The Chinese leadership is totally based on lies and naive of the western people. They are not trustful and please facilitate their collapse. This government will not last long. I drank a little bit, but this is personal！

I have the upmost respect for Raoul Pal and his work, but honestly when it comes to interviewing Kyle Bass he is useless. It's understandable as they are friends, but that unfortunately leads to a one way biased interview. He is just a yes man acknowledging everything KB says. There is no counter argument and KB is never challenged.

Given that I am from Hong Kong, I think many people outside of Hong Kong don't fully understand the Hong Kong people's mentality and culture when it comes to property. For many generations now, we are taught to buy property because 1. It is a symbol of status and wealth, 2. It is the safest place to invest our money as it has only one direction, up. 3. It ensures the wellbeing of future generations when you pass away. Hence people like my Grandma are still holding properties which her father gave her 50 years ago. Many HK families, even those who came from poor backgrounds (literally nothing) obtained vast amounts of wealth (easily $10m USD+) following this teaching. All they do is keep buying as it improves their status and wealth of their family. Its a cultural thing. People are obsessed with property and young people/ families will do whatever to get on the property ladder. A funny reason is that many young HK girls refuse to marry men who do not own property. Thus small apartments (150- 300sqft) in new developments have on average 30 applicants per apartment because they are relatively cheap 3 - 6m HKD or 375k - 750k USD. It is almost impossible to find a decent size apartment for less than 3m USD nowadays. And Kyle refers to people being highly leveraged (85%), he refers to these young people with no money chasing these small apartments. And I agree, a small movement in the property market will screw these guys over. But theres a caveat to all this. Kyle doesn't mention about the fact the government has introduced a 15% stamp duty on 2nd properties bought after 2016 as a cooling measure. And this has major implications for wealthy individuals and families who own property. They havent been buying for almost 3 years now and are sitting on a lot of cash with very little debt. Only their heirs who don't own property are buying ulta high end properties 25m USD + with family money. And if the property market has any issue the government will just scrap the 15% stamp duty, lower mortgage requirements and the old money will flood into the market. And people will just wait out the drop and continue to buy. Its in our blood to do that. The gov revenue from stamp duty from property account for more than salary tax in HK. Its in the gov interest to keep property prices high. Btw they build around 15000 public housing rent free for low income people/ families every year, so the high property prices actually benefits them as the stamp duty pays for free healthcare, education, housing, and they get 500 USD cash a month as subsidies. Our gov will definitely step in to support the market. And about China, the people who are scared of China have basically all gone. we have 28 years until we officially become China, and people rich and poor have accepted it. 60% of our Councillors which we voted for are pro china. People ive talked to dont think this new extradition bill if passed will change anything. They still think HK is the safest place in the world, we have the best gov, a "grandfather" (china) who will protect us, low crime rates, low poverty, best political, social and economic conditions. Our sort of pact with China is that as long as they help us make money and keep the status quo, they can do what they want. So to break the HK mentality that properties are the safest/ most prestigious things to hold in the best place in the world is going to be very very tough. Given we have the HK gov and Chinese gov backing it on top. As for the peg, if anything were to happen, China will just step in to defend it, its pretty given if you ask anyone on the street. But I am interested to see what happens in the next 12- 18 months.

Thank you as always Raoul & Kyle for your time - love being a fly on the wall on a discussion between old friends. A client just asked me to watch this interview and poke a hold in the theory. So I submit for RV comments Kyle laid out clearly the leverage in HK, the ever more authoritarian heavy hand/fist of the Chinese in HK affairs as reasons why HK wealth should naturally want to leave the HKD system, and that best of all Kyle is being paid the FX difference to wait for the coming HKMA crisis - positive carry 83 bps. I also remember 1997 & the HKMA won but the volatility was insane in equities & rates. Today Kyle says the HKMA cannot use interest rates as a tool to defend as it would burst the property market. HK will someday be part of China (it is now) but the land & law turns Chinese 50 years from July 1 1997 - so 2047 (you can argue this point, but China will decide all from 2047 onwards) The PBOC can already stand behind the HKMA & here is where that gets interesting.....Hugh Hendry in a previous RV interview claimed of the trillions (then) of PBOC investments in US Treasuries “It’s not an asset if you cannot sell it” -> Idea being that China needs to remain competitive and selling US Treasuries would strengthen the Yuan / so China cannot exit US Treasuries....but my hypothesis -> If the PBOC repo’d via Fed Member Bank of China NY branch US Treasuries & gave up 83 bps in yield (3month US t-bills are at 2.4%), they can take and fund and deliver US$ to Kyle Bass (and the world) all day, and until the US Fed cuts rates back to zero at which point these HFs will close their HKD trades at an FX loss (maybe a positive carry) but at the price the HKMA chooses. Everything else makes sense, yes highly levered, yes the best 10 years that HK may ever have, but there is no reason for this peg to ever break (China may even welcome actually selling UST to deliver here and diversify or more gold with their US$) The fact that the peg is so close to the peg 7.85 is just the HKMA & PBOC maximizing their returns (the wall does not need to “show strength”) it just needs never break (nor raise rates)

Since his big winning trades in 2008 and 2009, Kyle has been taking on larger governments and central banks with bond and currency trades. These governments and central banks can change the rules, move the goal posts and covertly and overtly do bailouts to stop his trades from working out.

Good interview. Always like to hear interesting and contrarian ideas. Would like to hear KB's reply to several comments below differentiating between the HKMA's reserves and aggregate balances, with the former being much much larger and more relevant to the discussion vs the declining aggregate balances. I would also be curious as to what the Central Bank reaction function is on these fundamental pressures...namely, the currency will be seen as a sovereign issue--as a currency is viewed as a country's share price in some circles--so in all likihood the PBOC, other Asian Central banks, and indeed perhaps the Fed, will issue dollar swap lines to defend the currency, as they have indicated they would in the past (not to mention the Chiang Mai Initiative formed by Asian central banks after the AFC which does something similar with $4T in reserve firepower). Sure the peg may go long-term for the correct reasons KB mentions about it being out-of-date/out-of-sync with the current trade flows, but to the extent that CBs around the region (and the world) have a vested interest in suppressing volality in all forms lately, I would think the peg may survive until much later down the road, then as determined by domestic capital flows and/or speculators. Perhaps the best way to play is buying to some options in size and playing for a vol spike, without the deval per se. Agree with Raoul if the peg did break, there would be many related trades. The only thing I wonder is if the peg goes does HK equities go up or down...when the Thai baht broke 2 July 1997 equities rallied. Obviously in dollar terms no so, but if you are short futures with currency shorts, you could get hurt, somewhat counter-intuitively. Admittedly, Asia pre-Thai devaluation had already seen a fall in equtities from 1994 onwards unlike HK now, but it was a surprise to most to see Thailand rally on the day and days after the deval.

There seems to be confusion here between aggregate balances (HKD) which have shrank by 80% and FX reserves (predominately USD) which are near their record highs of USD440bn. Aggregate balances are the excess HKD cash in the system once all payments are settled for the day by the local banks with access to the HKMA. The HKMA has control over this number and it is independent of what happens to the currency. It is natural that it is shrinking as they track US monetary policy and the Fed balance sheet is also shrinking They can inject their local currency cash into the system just like any other central bank can to maintain a functioning market whenever they like. They don't have to inject enough to allow speculators to have a big carry pick up attacking the peg. No central bank would let the excess cash in their system go to zero as payments have to be made everyday and intraday liquidity managed. Unfortunately this seems to me to be grossly misunderstood here or an advert to for an event driven fund that probably won't pan out for the investors but will for the fee charging fund managers.

KB last good trade was probably sub prime crisis (maybe he was lucky), then came short Japan JGB that ended in tears. Not sure what his returns have been like post financial crisis. Maybe he is a one trick pony like Paulson. But definitely interesting to watch.

Kyle mentioned not wanting to be exposed to HK HSBC and Standard Chartered equities. Would he care whether he had funds - foreign currency (not HKD) deposits - with these banks in HK? How about deposits in other/local HK banks?

Interesting to see the SCMP post this morning...the video has clearly gotten some attention: Hong Kong now has a giant war chest for defending its currency https://www.scmp.com/business/banking-finance/article/3008963/hong-kongs-exchange-fund-posts-record-first-quarter Only thing I wish the post touched on more was the geopolitical angle of how China could (likely will) step in

His numbers on HKMA reserves are miles off. Not $6bn but > $400bn in FX reserves Not an imminent threat. The 1992 Treaty is interesting

Good Trump-trade-war-propaganda. Nothing more, nothing less. A killer trade? Kyle struggles to sell the story after years of being early/ wrong. Bring on Jeff Snider if you want to understand the Chinese situation

Maybe its not as glitzy but why not long dated puts on the EWH?

What a great discussion on RVTV. This is what it is all about pro and con. A special thanks to our Hong Kong friends for their deep insights. Thanks to everyone for their comments. DLS

HK SCMP article on this bet, explains the FX reserve coverage (as in Louis Gave charts as well). https://www.scmp.com/week-asia/opinion/article/3008816/hong-kong-ticking-financial-time-bomb-thrilling-story-dont-buy

yikes... probably the most hard hitting piece i have seen yet on RV... and as a founding member that's saying something ... mind you as a HK resident, when HF titans start talking about your home as a 'trade' you have to start to worry... even just a little bit.

Macau's currency is pegged to Hong Kong Dollars and in the casinos there they only accept/use Hong Kong dollars. An obvious trade may be to short casinos listed in the USA - Wynn Resorts, Las Vegas Sands, MGM Resorts etc.

I had to spend more time digesting this Kyle Bass video than other RV content, given I have lived in HK (and still live here) since mid-90's (living it directly), and have respect for Kyle's analytical data/thesis. Have followed Kyle Bass since the2007/08 MBS bet, lately I have less confident in his investment ideas (the ones he's shared publicly) on Japan (currency) and now China, and it's less about what Raoul mention at the end of the video about bets not working out, but more about why he picking investments that need to "fight" the momentum of countries or central bankers. Maybe he wants to be George Soros (bet against the UK pound in 92). He's placing bets against Govt's/Central Bankers (Japan & China), which (to me ) is risky, back to the "don't fight the FEd" and trade ahead of and not against. CB's have shown they can/will implement policies outside of normal policies, even negative interest rates. He appears to mix politics/personal opinion with the China investment thesis. I watched this video, another interview with Kevin McCullough on Hedgeye (thanks to Dmitry Y to flag this to me) available on Youtube, and Louis Vincent Gave's rebuttal interview on Macro Voices. In conclusion, I agree w/ Louis Gave and other commenters below that I don't think this bet against HK will work out for Kyle. I agree w/ LV Gave's thesis, even more so as Louis also lives in HK and is more in tuned with HK market. Interestingly, I think Raoul also wasn't convinced about this trade, but he was (nicely) asking probing questions rather than to directly challenge Kyle, very smooth Raoul :-) Some additional points to consider for this trade: HK Peg, 9X GDP, Highest Property Prices, Flight of HKD to USD/Leaving HK, Extradition Law **HK Peg. - It wouldn't surprise me at some point in the future, the HKD is peg to SDR or RMB, ie to Kyle's point it makes more sense to align the currency to where the growth comes from. But this would be done within a long term strategy (China) with a high stress breakpoint providing the opportunity for China to make it's move (and get the support of the HK people). - He under-estimates the resilience of the HK people to "suffer" through difficult times. To his point, HK can raise interest rates to slow money outflows. It did in 97'ish, and as he mention property values dropped 50-70%. BUT, most people continued to pay their mortgages and didn't default... whereas in USA, Canada, AUS, there would/has been a higher default rate where people walked away from their homes. So, if there was a crisis, HK people will endure the pain of govt actions as much as they can. - HK People have a high savings rate. Anecdotally i hear lots of people waiting for the property market to drop so they can invest their cash savings. **HK Economy / 9X GDP Debt Ratio - agree w/ Gave that focusing on economic activities (shipping port, manufacturing) is wrong, HK moved mftg to south china years ago, and stop relying on shipping as well. HK is all about finance and services, most of the early developments in China leverage HK skills (architects, $$, expertise, property). for example, Shanghai's Xintiandi area (ie, their version of HK's Lai Kwai Fong) was developed by Shui On Land (one of HK's property developers). - Also agree, comparison should be to other financial centers, ie, London or NYC, rather than to compare 9X HK GDP to USA or Japan (misleading comparison). - Comparing HK to Iceland or Cyrus is fearmongering. HKMA has a decent track record, not to say things can't change but don't think that's a fair comparison (like comparing Singapore to Zimbabwe, no offense intended) **Property Prices - definitely crazy, highest in the world but it's hard to see when/how this will break downwards apart from a global recession. Besides the low interest rates, there has been china money support in that if you were a rich China multi-millionaire, you would want to own at least 1 HK property (diversify). Apparently there is at least 1.6-2M millionaires in China, if 50% own 1 property in HK, that's 1 M units... same problem Vancouver, Sydney, London etc have with chinese money, it's an insurance policy that has skew property for local owners. https://www.dw.com/en/number-of-chinese-millionaires-sees-rapid-surge/a-39322859 - personally, I would love to see property prices reset in HK, but I don't see any catalysts. - if mortgage rates go up, or property prices drop, the most likely scenario is like 1997 (HK owners have been through it once), people are just going to tighten their spend and pay off the mortgages even at (heaven forbid) 15% interest rates. ie, no major crisis in the financial system for the banks, ie, their loan books won't have a crazy default rate. ** Flight from HKD, Leaving HK: - Personally, haven't seen any indication of anyone thinking to leave. Back in 97 Handover, there everyone was getting Canada, AUS, NZ, USA passports and concern about the handover. Definitely don't sense this in HK today, flight of people/capital. maybe those that have more reasons to (insider trading, dirty business) definitely due to the clampdown on corruption in China (even within their own party ranks) but the average person... not so much. - No need to "buy" USD, HK people trade / invest in forex fairly common, due to interest rate differentials, ie, CDN, AUD, NZD, Pound, Euro etc.... and buying property worldwide :-) yes, like the chinese, raising property prices for local residents. ** Court of Law, Extradition - definitely a concern with the new extradition law, but the govt has done a poor job of explaining it and/or making it safer for HK people. There's a need for such a policy, just look at the Huawei exec extradition from Vancouver/Canada to USA, such is needed between countries. I believe the "real" issue is people have a mistrust of China and chinese rule of law/courts rather than that such a law should not exist. - Personally I see people with high confidence in HK's court of law/system, it's been fairly stable since the handover. Where else in the world do you see police officers jailed as well as protesters per Occupy Central actions from 2014? I can't recall cases in USA where police are jailed (and in HK, it wasn't even for shooting people). - agree w/ Gave there's nothing to gain for USA on this, except maybe to negotiate a better trade deal. otherwise, nothing to gain = won't pick this fight. If you do plan to trade this asymmetric opportunity, hope this helps and good luck. I'll pass on this as I think there are less riskier investment opportunities than China, HK, or Japan :-) Thanks for reading!

It is nice to have more detail but this trade is not a revelation. Mr. Bass, discussed this in October 2018 with Miles Kwok - "KB: Right, but it's very bad. But when you go back to Hong Kong, Norman Chan and the HKMA, they've spent 78% of their excess reserves fighting the peg. This peg's been in place for more than 30 years. And now Hong Kong imports US monetary policy, so they're having to raise rates, while China's economy slows down. This could be a very big problem for Hong Kong, yeah?"

apologies for the lengthy post, i think I tend to post long or not at all one more point, if HK govt is short on money or worried about funds, i wouldn't think they would give $$$ back to HK citizens, how many countries give free cash :-) https://www.info.gov.hk/gia/general/201812/31/P2018123100468.htm

Tough trade for Kyle as Chinese government loves USD more than RMB. Chinese RMB is not a tradable currency. China needs Hong Kong to attract global deposits to fund the Chinese companies. Hong Kong has no capital control, no inheritance tax, no capital gain tax, no sales or value added tax, 15% income tax with 16.5% corporate tax (no cap on entertainment expenses). Partially contributed by our pension, Hong Kong attracts US$1.7 T bank deposits vs. America US$30T. The Chinese government trick is to use Chinese RMB back assets to obtain USD denominated loan. For case like Huawei to receive US currency denominated loan, the local banks HSBC, standard chartered bank accepts Huawei’s China asset such as real estates and RMB deposits to back lending with Bank of China guarantor. Bank of China takes care of the due diligent processes. As soon as the assets are “Healthy”, there will be continuing US dollars cash flow for Huawei. HKMA, local banks and we all know they are not recoverable asset in case of default. Local banks have no legal way to put a lien on China’s assets, not to mention judicial procedures to recover them. Kyle’s trade might work if 1. US terminates Hong Kong Policy Act, treating Hong Kong like China; it means same tariff, high tech export restriction. 2. Exposing the Chinese State-directed accounting frauds, Moody and S&P starts downgrade Hong Kong banks due to their assets quality.

Wealthy people have been leaving countries like China/HK, Russia, Venezuela for years... I'm not sure that's an accurate way to time a macro trade on a crisis in any of those places (though I realize Kyle's got many other excellent indicators etc.).... When wealthy people return to their home countries and invest there could be more accurate (as a bullish change), as may happen at some point with Venezuela... Excellent video.

Good interview even though not quite new with exception of the extradition law; then again, look at what happened to Julian Assange, that's even more scary Then again on the household debt, it has barely moved between 2000 and 2018 at around 60 to 70%. HK has the 4th highest savings rate after Singapore, Switzerland and Japan. HK household wealth stands at over 12 times liabilities, even if property would crash 50% that would still be more than for US or UK households. Household debt has risen half only of the rise in property prices between 2009 and 2018. Mortgage debt-service is at 30 years lows but i agree that this could quickly change should interests go up. If HKD interests should go up i d rather expect a property correction than a HKD risk. Perhaps property will be down over 30% but what if HKD pegs with RMB on a 1:1 basis, that's roughly 12% upside... it would make HK savers and middle class tenants feel good and add stability to the Greater China system... it is very much a possible outcome ...

What if China backstops the peg

Great interview. Kyle is articulate, does deep analysis and has a great grasp of macro. The biggest flaw in his argument is the assumption that China does not backstop the HK. In the interview he points out the relationship is more integrated than ever. China is a major investor in HK real estate, HK is funding mainland investment etc. China is moving to open its capital account, attract foreign capital and position the RMB as an alternative reserve currency to the USD. Rightfully so with a ~14tn economy. The last thing Chinese leadership wants is regional volatility during this transition.

Bill Ackman made the same call a few years ago for all the same reasons so you have to believe in an additional trigger to make this happen. Perhaps that’s the business cycle. If this current soft patch follows though to the downside in the coming months this call is more likely to happen. If we reflate or muddle though it’s probably postponed until a more moderate to severe recession finally occurs.

Having also be living and trading in Hong Kong in 1997/1998, there are battle scars from HKMA that are very real. However, I think Kyle makes a compelling case that there is less ability to withstand the pressure now. Also, I think the point brought up that HKD could be re-pegged to CNY is a very real possibility and been on my radar for years. The Chinese government just needed the right crisis to bring the re-peg about.

KB misrepresents the functioning of the aggregate balance. It is true that HK has seen a base money shock because people are converting to dollars. Base money shock plus massive real exchange rate overvaluation is always very bad. But, also have to look at HKMA’s official reserves, which have continued to rise, which indicates steady net inflows.

a significant number of Asian private banking clients are already in this trade - they are funding their levered USD fixed income portfolio using HKD loans instead of USD loans

Kyle has been wrong with the China bearish trade for years now. No matter how good an investing thesis is, if you get the timing wrong, you are wrong, sorry! Reminds me of Jeff Gundlach with his bearish bond trade. It's all about timing in the markets! I am surprised RV continues giving so much credibility to these guys than think they can outsmart the markets.

Very interesting. I would like to think I have learned to follow the money. I would love to know if there is a way to track or measure the # wealthy family's (rich people) that are relocating. I think KB has a solid argument. I just fear that HK can kick the timing out much longer than most think. However if there were a currency fire to start somewhere else then the HKD could quickly ignite like a very dry powder. Knock-on impact to USD, Gold, Crypto currency?

Hong Kong dollar peg has its political interest. I cannot find any reason why China will not support Hongkong dollar in any circumstance except for very bad recession or Hong Kong's losing special status with US. If bad recession happens, you can short AUD, CNH or HKD, not much difference. So I think shorting HKD is about betting against the Hong Kong - US agreement. Honestly, I do not see high possibility of big crush of HKD alone.

Amazing stuff of course. Let’s not forget that the Mainland will actually benefit from any economical turmoil in HK since they will step in as saviors and will finally swallow HK attaching it to the rest of the unlucky police nation.

I'd say a lot of these HK Chinese are the proud owners of empty properties in Sydney and Melbourne, Australia. Waiting.

Really Curious to seek how it's going to turn out Vancouver. Interesting talk. Thanks.

I enjoyed the interview. The figures are truly amazing when you compare the HK banking system to the US. They are at 850% of GDP vs. the US at about 75%. $10,000 is an average price/sf in HK and the borrowers are highly levered is scary. I trust Mr. Bass is right about this playing out in the next 18 months.

Gret interview but what I really want to know is. Where did you get that lamp?

The Hong Kong dollar is certainly at risk and has been for a long time. One should look at what will happen when the Hong Kong dollar is gone. HKDs may be converted to RMBs in a crisis of China's choosing. This will stop major outflows of currency from China and bring Hong Kong sovereignty under China – a long-term goal. The drop in HK housing prices will not be a concern to China. The timing may have a lot to do with US trade war with China, i.e., tariffs. If the trade agreement between the US and Hong Kong is not renewed, there would be no reason for China not to make big changes in Hong Kong's sovereignty. The trade may be the same, but it would be interesting to see effects of the HKD pegged to RMB, and then the elimination of the HKD all together. The knock-on effects may be even more interesting. Timing is most important as always with China. DLS

I think USD is a better short than HKD or CNH. Sorry to say this, if anyone follows his recommendation of shorting CNH n HKD, you would have loss alot of money.

SCMP: Chinese Banks Quietly Lower Limit on Foreign-Currency Cash Withdrawals https://www.scmp.com/print/business/banking-finance/article/3008795/chinese-banks-quietly-lower-daily-limit-foreign-currency

Very interesting and thoughtful. Particularly towards the end there was some dialog with regard to potential knock on ramifications and the conversation was centered mainly around the region. My question to Kyle/Raoul is with the magnitude of the thesis described, does this have the potential to be a larger Black Swan that precipitates an even larger global reaction that acts as the long awaited reset of the global markets.

Kyle Bass' argument makes plenty of sense - get ready for the HK peg to break. Carrie Lam is pro-Beijing and has set HK on a path to 'legally' hand it to China via her legislative ideas. She is in China's pocket and is doing whatever she's told like a good puppy dog. China seeks dominance of the region, recapturing both Taiwan & HK. It will likely engage in war to obtain Taiwan. But most likely this will happen next year. When HK runs out of money, China will be there with open arms to bail it out and re-peg its currency to the yuan. I have made this comment before on Real Vision. I won't be surprised if HK peg breaks in January 2020, inline with Martin Armstrong's ECM. I also wouldn't be surprised of Felix Zulaufs view when China will decline into 2020 and double down in 2021 and 2021 happens to celebrate the 100th year anniversary of the Communist Party and Xi Jinping's reelection. The stimulus will likely be to finance the military operations to take on Taiwan, backed by the western establishments. This is a scary future we face. But if we trade the trade one step at a time. Hopefully we can get through it with some sanity.

Very interesting. Listened to LVG’s counter argument to Kyle’s thesis on Macrovoices last night before watching this interview. It is difficult to disagree with their arguments, but I think Kyle presents a good risk/reward trade ... I just need to find it! I have an account with LCG, so only think I can short HSI or Hong Kong ETF if that’s the right trade.

Saw the spread 3m HIBOR to 3m LIBOR spike to levels that were close to 3 standard deviations in 2018. Was this mainly part of the HKMA burning through the FX reserves or the just LIBOR OIS blow out?

Thanks.

I think he said something about south east asia in the previous interview, and now continues talking about hk, either way I doubt the US administration would label hk as China since Trump would not want to spark fears in the markets. Unless something breaks down in trade negotiations, this remains a low probability event. A more possible scenario is growth continues to slow and the dollar continues to rally, that would hurt hkma big time.