Will Chinese Devaluation Be the Black Swan?

Published on
July 23rd, 2019
35 minutes

Will Chinese Devaluation Be the Black Swan?

The Interview ·
Featuring Russell Clark

Published on: July 23rd, 2019 • Duration: 35 minutes

Russell Clark of Horseman Capital warns that a Chinese currency shock could be the spark that burns down the entire global economy. In this conversation with Real Vision’s Roger Hirst, Clark forecasts that Chinese policymakers will eventually respond to the trade war by declaring: "if you're changing the trade rules, we're going to change the currency rules." He then walks through the massive consequences that he believes this action could have. Filmed on July 11, 2019 in London.



  • GB
    Gordon B.
    27 August 2019 @ 10:36
    USD/CNY down ~7% over 4 months.
  • MN
    Maverick N.
    26 August 2019 @ 18:39
    Exceptional gems embedded in the conversation. Keep it up RV! "Algos are not designed to think ........ they are designed to react!"
  • WB
    William B.
    5 August 2019 @ 20:36
    Japan and South Korea are NOT having a trade war, per se. It's an argument about payment to Comfort Women/Slave Labor from 74 years ago. https://foreignpolicy.com/2019/07/15/why-are-japan-and-south-korea-in-a-trade-fight-moon-abe-chips-wwii/ "The immediate trigger for the trade war appears to be a South Korean court case late last year, which ruled that Japan’s biggest steelmaker, Nippon Steel, used forced labor during the war and ordered the firm to compensate some South Korean survivors with about $89,000 each. (The court seized shares that Nippon Steel has in a South Korean firm but hasn’t sold them yet.) A similar case last year ruled against Mitsubishi Heavy Industries, and other cases against scores of other Japanese firms are being heard in lower courts. Japan argues that it has already made amends with a monetary settlement in the 1965 accord that reestablished diplomatic relations between the two countries, but South Korean courts don’t see it that way."
    • jb
      joon b.
      17 August 2019 @ 16:51
      Its because the accord only compensated the damage on country level, not individuals. They need to pay. Simple.
  • JJ
    Johnny J.
    8 August 2019 @ 20:22
    Just listening to this here Aug, 8 2019.. unbelievable call!!
  • VH
    Vladislav H.
    5 August 2019 @ 18:26
    Just Brilliant Donald J. Trump @realDonaldTrump · "China dropped the price of their currency to an almost a historic low. It’s called “currency manipulation.” Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!"
  • MN
    Michael N.
    5 August 2019 @ 17:33
    beautiful call Mr clark!
  • IH
    Iain H.
    5 August 2019 @ 04:16
    He was right, sooner than many thought!
  • CB
    Conor B.
    1 August 2019 @ 12:57
    Unfortunately for Russ the market can remain irrational longer than he can remain solvent...
  • NR
    Nelson R.
    26 July 2019 @ 01:05
    Get Russell and Michael Green in the same room.
    • KS
      Karen S.
      26 July 2019 @ 19:49
      my wet dream
  • IP
    IDA P.
    25 July 2019 @ 20:42
    Loved the interview, I don't like the sponsorship thing, when I first subscribed I did it because there were no sponsors, therefore no conflict of interest.... I hope you can rethink this and go back to the old model, less interviews if necessary , but conflict of interest is terribile. I'm angry with macro voices for the same reason....
  • SS
    Steven S.
    23 July 2019 @ 22:42
    Excellent interview (yet again). I'm not a finance/economics guy, but with a devaluation, how does China stem a massive capital outflow offsetting gains in exports? Am I misunderstanding the situation and FX dynamics?
    • DL
      David L.
      25 July 2019 @ 00:12
      Good question. If I understood earlier interviews, such as Kyle Bass, this is already an issue the government is trying to deal with. For example, people buying gems to smuggle out of the country in anticipation of a currency deval. Also, China's banning real estate purchases in Canada and other places is relevant to this.
  • SB
    Stephen B.
    24 July 2019 @ 18:04
    The thing to understand about the Chinese housing market is that new property is typically bought by young men, as property ownership is effectively a prerequisite for attracting a future bride (or even a girlfriend). In that way, it is very different from western housing markets. Should housing get to be unaffordable in China, expect social unrest.
  • DF
    Dominic F.
    24 July 2019 @ 13:58
    If I remember correctly I think one of the very first Real Vision interviews ever was Mark Hart talking about the Chinese devaluing the renminbi. That was a few years ago now :-)
  • MR
    Max R.
    24 July 2019 @ 03:10
    Liquidity this, liquidity that. C'mon guys. You're talking about China. A foundation of China's business plan, as Clark said, is a stable currency. China lets the U.S. monkey with increasingly superfluous levers while they work their plan. Phase One is complete, the development of a state-of-the-art manufacturing industry. Phase Two, creating a domestic market is also going well, though is experiencing problems, as Clark again pointed out, like real estate bubbles in the cities (and ghost cities in the burbs). Phrase Three, where China builds the distribution channel (belt n road) is not going well. Simply put, the world is in a recession. Raoul doesn't need to convince me ;) Minorities, ethnic groups in China and smaller countries on the spice road are fighting exploitation. Automation is destroying jobs faster than society can recreate them. Opportunity inequality is breaking apart societies everywhere, form the U.S. to China. Sure, cheap money is distorting the markets, but even without it many economic trends would remain. Clark mentioned the Japanese trade war with South Korea. THAT was the topic for RealVision to pounce on. Or, his comparison in regard to Chinese corporate debt and industry concentration (or lack of it). In short, people don't buy liquidity or currency. They buy products (at least from China). The more China can lock in commodity sources and the more infrastructure it builds to get those goods to the rest of the world without others blocking it the more powerful they become. Will it be the U.S. sneezes and the world gets a cold, or China? Will China's go-it-alone becomes their undoing? Will U.S. fiscal policy be its undoing? Tons of fascinating questions that could have been asked. Maybe next time.
  • WS
    William S.
    24 July 2019 @ 02:57
    If we subscribe to the view that China is a mafia state, why would we credit them with the ability to play chess whilst we play checkers? All data flowing to the CCP has a political slant. Regional party heads “paint the tape” for logical reasons. They wish to survive and maintain stability. Our system is worse, theirs, in the words of my son, are worser.......
  • mp
    michael p.
    23 July 2019 @ 23:55
    You have on another bearish PM but the interviewer never asks how exactly are you positioned. Why? Ask exactly his bets, shorts etc. put him on the spot. I doubt he has any position. Also no clue on this guys performance over the past etc. really no value add.
    • DS
      David S.
      24 July 2019 @ 00:46
      You could Google and find out about Mr. Clark. This is not a Trade Idea, it is about the macro background so you can decide if you agree and how you would like to use Mr. Clark's insights. DLS
    • EF
      Eric F.
      24 July 2019 @ 02:02
      A quick search would show he is quite clearly short.
  • bs
    bernard s.
    23 July 2019 @ 11:52
    Even though I wish Russell is correct I think we are missing the fact that central banks are controlling the bond markets (and by extension) equities....FX is slowly also getting controlled by governments .....
    • DS
      David S.
      23 July 2019 @ 22:26
      The CBs control is only psychological now. They are out of bullets except for MMT which will just make the bubble bigger. The trade war will escalate until it disrupts the global trading patterns. It is a classic destroy and see what pieces you can pick up. It is a dangerous game. Just like corporations went overseas for lower labor cost, it is now in their interest to return home and use an army of robots to manufacture. I do not think that this is a planned action, just corporation doing what is in their own interest like financial engineering. The internet is like a vise squeezing prices down as everyone is using it to get the lowest price on cost of goods and purchases. No wonder we do not have wage inflation – the internet now and robots later. DLS
    • DH
      Daniel H.
      24 July 2019 @ 00:36
      David -- perfect comment. Thanks.
  • RE
    Richard E. | Contributor
    23 July 2019 @ 14:58
    As I said in another comment on another video, I do NOT believe equities are saying inflation. Cyclical equities at all time lows vs. defensives. Small caps are at cycle lows vs. large caps. ROW (look at Germany and Japan) vs. US at cycle lows. These are all indicators that the equity market is giving the same message as the bond market and the currency markets.
    • DH
      Daniel H.
      24 July 2019 @ 00:34
      EPS has been rising only due to buybacks. On absolute basis they have been flat to slightly up for a very long time.
  • DH
    Daniel H.
    24 July 2019 @ 00:31
    Russell is always a great interview. And he offered some positioning advice.
  • JH
    Jesse H.
    23 July 2019 @ 17:10
    Raoul - can you comment on / discuss in a brief video presentation perhaps...how a Chinese deval. could impact / be impacted by your Doom Loop thesis? Thanks again; I am greatly enjoying this series.
    • MN
      Maverick N.
      23 July 2019 @ 22:31
      Try Kyle Bass interviews from 2017 and 2018. He brilliantly breaks it down. However, he's recently modified the short China Yuan trade to the short HK$.
  • SA
    Stephen A.
    23 July 2019 @ 20:48
    Great interview.
  • JG
    Joseph G.
    23 July 2019 @ 20:11
    Wonderful interview. The programming on RealVision just keeps exceeding expectations. I think the key insight of this interview was the comment by Mr Clark that central banks can't control currencies and China may be weighing the possibility that a Trump reelection is the outcome if things keeps moving along. Perhaps the ripping off the band-aid approach makes more sense as a real disruption would jeopardize that reelection.
  • AB
    Amarildo B.
    23 July 2019 @ 20:01
    Interviewer nott godd!! Very looooooong questions!!
  • SB
    Stewart B.
    23 July 2019 @ 19:09
    Fantastic. Please invite Russell back.
  • JH
    Jesse H.
    23 July 2019 @ 16:45
    Always great listening to Russell - he is clearly a v. sharp guy who has a deep historical understanding of markets. He seemed to scare the pants of Roger at the end! lol. The story that's the same in this credit cycle: we are in yet another credit bubble, it would appear, in many developed markets (and in China); and The story that's different: this time, central banks and governments are both complicit in the perpetuation of this illusion, and so will throw their full weight behind ensuring things go well for themselves. China, however, is a red herring indeed, and its central bank will almost surely not cooperate with the Fed / ECB / BoJ and others if the latters' actions go against their own domestic interests. My humble prediction: someone's currency is gonna get taken to the cleaners...and China is playing chess, while the US is playing checkers. I know who my money's on in the long run.
    • JH
      Jesse H.
      23 July 2019 @ 16:46
    • JH
      Jesse H.
      23 July 2019 @ 16:55
      China may choose, in a rather intelligent yet calculating way, to devalue...drawing the US into their "game," knowing full well that markets will tank, but calculating that they will better manage the down-draft than US markets, governments and consumers will. China may also do something in this window with the convertibility of gold to the yuan to enable them to sidestep any medium to longer term issues and sustain their strength in terms of energy input for growth. The moment they can actually strongly step outside the USD system, they could pick their moment to intervene. When I start seeing it this way, and you combine it with part of Russell's thinking, all the actions China has been taking in the last 5-10 years (5 year plan, remember) make a hell of a lot more sense. Again, they're playing chess, while the US is playing checkers - my sense of things, anyway. I don't necessarily think this is a "good" thing - it's just how I am seeing things play out.
  • RA
    Robert A.
    23 July 2019 @ 16:17
    I really enjoyed Russell Clark’s prior RV interview and very much enjoyed this one as well. Great “handoff” Raoul to Roger and taking the moment to do so. Roger is an excellent interviewer and an excellent resource for RV and we the viewers, IMO. Roger, Justine and Ed Harrison have really proven to be a cut above....we are always in good hands with them to tease out the salient points from the interviewees and keep the pace just right.
  • lD
    lance D.
    23 July 2019 @ 13:54
    interviewer: so you think its going to blow any minute Mr Clark: (big intake of breath) yes hahah love'd that great chat
  • ID
    Ian D.
    23 July 2019 @ 09:36
    Have we seen i bull yet in this RECESSION WATCH series ? Would be nice to see both sides. And i think it was advertised that way.
  • DS
    Dusko S.
    23 July 2019 @ 08:54
    Raul and the team kudos on this entire series. You outdid yourselves on this production!
  • ET
    Eduard T.
    23 July 2019 @ 08:30
    Always enjoy watching Russel Clarke's interviews! Also for background: A Short Seller Bets It All on a Spectacular Market Crash - Horseman Capital’s Russell Clark has been bearish for more than seven years. And if he’s wrong? “This could be my farewell interview,” he says. Link: https://www.bloomberg.com/news/articles/2019-05-10/a-short-seller-bets-it-all-on-a-spectacular-market-crash
  • Nv
    Nick v.
    23 July 2019 @ 08:22
    Always thought-provoking