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00:00THESE GUYS HAVE BEEN ENGAGING IN INTERVENTIONS FROM TIME TO TIME. THE REALITY IS SINCE NOVEMBER 30, SINCE THE IMF VOTED TO INCLUDE THEM, THE INTERVENTIONS HAVE BEEN FAR AND FEW BETWEEN. IDLE HAVE TO TELL YOU LAST MONTH BECAUSE OF IT HAD ACCELERATED, THAT IS NOT BECAUSE THE CHINESE, SOMEHOW ALL THE MONEY IS POURING OUT OF CHINA BECAUSE BEIJING IS NO LONGER INTERVENING AS AGGRESSIVELY. THERE IS NO REASON FOR THEM TO PROP IT UP ANYMORE. SCARLET: YOU CAN SEE THE GAP WIDENING, THE ORANGE LINE HERE INDICATING THE ONSHORE RATE AND THE OFFSHORE RATE. THAT GAP CERTAINLY WIDENING. SCARLET: ON THE SUBJECT OF THE CURRENCY THERE IS A LOT OF HEAD SCRATCHING. JOE: WE WERE TALKING ABOUT THE AUGUST 11 DEVALUATION. THAT WAS IN AUGUST BEFORE INCLUSION WAS TOTALLY GUARANTEED . IT COST A LOT OF MONEY. THEY STABILIZE THE CURRENCY. PEOPLE TALKED ABOUT WAS THIS SOME SORT OF MISTAKE. OR DID THEY NOT EXECUTE WHAT THEY INTENDED TO DO. WHAT WAS YOUR THINKING? >> WE HAVE TO UNDERSTAND IT WAS ABOUT THE SDR . CHINA HAD TO BASICALLY SHOW THEY ARE OPEN TO THE CURRENCY TO BE DETERMINED BY THE MARKET FULLY. WHAT THEY DID MISCALCULATE, THE OUTFLOWS EVER GOING TO FOLLOW AUGUST 11. I AM SURE THE PRESIDENT GIVEN THE GO-AHEAD FOR SOMETHING LIKE THAT, THAT WAS HUGE DECISION. NO ONE TOLD HIM A COUPLE HUNDRED BILLION DOLLARS WAS GOING TO LEAVE THE COUNTRY. IT WAS PROBABLY A LITTLE BIT OF PAYBACK OF WHAT THEY DID. WE SHOULD NOT ASSUME THAT IT WAS A MISTAKE. WE NOW HAVE TO BASICALLY GO THE OTHER WAY AROUND. THEY ARE GOING TO BE THE CELEBRATING. IF THERE WAS A BIG CONCERN AT THE START OF THE YEAR, I WOULD BE POUNDING THE TABLE SAYING EVERYTHING WAS GOING DOWN. CHINESE COMPANIES SITTING ON A TRILLION DOLLARS OF DEBT. THIS IS GOING TO BELOW $100,000 OF THEIR DAMAGE. EVERY CHINESE COMPANY I MET WITH TOLD ME THE LAST THREE MONTHS, PAYING DOWN THE DOLLAR DEBT, BECAUSE THEY GOT THE MESSAGE. AS A RESULT THERE HAS BEEN A REDUCTION OF THE OPEN CURRENCY EXPOSURE WHICH ALLOWS BEIJING TO ALLOW THE CURRENCY TO GO DOWN MORE QUICKLY. JOE: AS YOU CAN SEE ON THIS CHART, CHINA IS ENORMOUS ON THIS FRONT. YOU WERE TALKING ABOUT THIS AS A RESULT OF ULTRALOW FED POLICY THAT CAUSED REFLATION AND LEDGER LEVERAGING. GUEST: IT IS A HUGE ISSUE. CHINA HAS THE MOST INFLEXIBLE EXCHANGE RATE. WITHOUT CHINA IMPORTING U.S. MONETARY POLICY, THIS IS WHY INTEREST RATES IN CHINA WERE MUCH TOO LOW. THIS IS WHY THE COUNCIL HAS AMASSED LEVERAGE. ALL THIS LEVERAGE WILL JUST KILL THEIR PROFITABILITY. THEY NEED LOWER INTEREST RATES. THIS IS WHERE IT IS INTERESTING. THERE WERE FOUR COUNTRIES IN THERE BEFORE THEY TRY TO JOIN. WHAT DO THESE COUNTRIES HAVE IN COMMON? THEY ALL DID QE. I'M NOT SAYING IT MEANS CHINA IS GOING TO DO QE TOMORROW BUT SOMEONE IS GOING TO MAKE IT A LOT EASIER FOR CHINA TO EASE MONETARY. GUEST: WHAT WOULD IT LOOK LIKE? GUEST: CHINA HAS BEEN CONVERTING THEIR GOVERNMENT VEHICLE DEBT INTO MEDIA. IF TOMORROW THEY WAKE UP AND SAY WE ARE GOING TO BUY $1 TRILLION OF THIS THAT WILL FREE UP A TRILLION DOLLARS ON THE BANK BALANCE SHEET. THERE IS NO QUESTION THEY HAVE A LOT OF AMMUNITION. THE IMPORTANT THING IS TO UNDERSTAND THE COVER HERE. I DON'T TELL YOU IF THEY ARE DOING QE. THEY SAY ARE CURRENCY FELL BY IT WAS NOT OUR OBJECTIVE. IT IS A BYPRODUCT OF OUR MONETARY EASING. WHY CAN'T THEY TELL THE SAME STORY? NOW THEY SAY WE ARE GOING TO HAVE THESE MONETARY POLICIES. IF CURRENCY FALLS THE REST OF THE ROMAN NOT BE ABLE TO SAY MUCH ABOUT IT. SCARLET: ALL RIGHT, DAVID WU. YOU ARE STICKING WITH US. COMING UP, HIS OTHER TOP TRAITS OF 2016. WHAT ELSE IS IN PLAY FOR DAVID WU?

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