2009-06-18

Yuan and Oil—The Bubble Connection?

Zero Hedge uploaded a Hugh Hendry letter to shareholders. Some of it coincided with some of my musings in the previous post, such as comparing 2008 and 2009. What I found really interesting was the comparison of the rise in the yuan to the rise in oil. If you scroll down to page three of the report, there's a chart of the yuan and oil that I've extracted below. What you notice is that the rise in the yuan/USD stops at exactly the same moment as the rise in oil. Hendry speculates that Chinese speculators were borrowing in dollars at low rates and buying oil. Once the yuan stopped weakening, the trade lost its impetus and oil dropped.

The whole letter is great. I highly recommend taking the time to read it.

Eclectica Fund

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