We are captivated by the amazing diversity of culture, ideology, art, and yes financial information that comes from Asia. Nothing else even compares. While we think of Waco, Texas and Providence, Rhode Island as different try to imagine the differences Vietnam and Israel (yes, Israel is within the continent of Asia). Is it possible to be more different than Afghanistan and Japan?

This incredible diversity manifests in many ways. Some countries can be counted as allies and some enemies of the US though many appear to be somewhere in between. The stories can be amusing; recall North Korea’s supreme leader Kim Jong-il’s widely reported 38 under-par on his first attempt at golf and last week’s announcement that North Korea is moving their clocks back 30 minutes to create their own time zone. Occasionally we shake our heads as with yesterday’s apology from Walt Disney Japan at their tweet on the anniversary of the atom bomb dropped on Nagasaki “congratulations on a not special day.”

More often than not we focus on the news as it relates to financial markets and the story out of China this morning is worth mention. European markets closed sharply lower and US markets are also selling off on news that China has allowed a one-time depreciation of its currency versus the US dollar. We would like to address some of the questions that may arise after this move and our offer our perspective.

What is the effect of depreciating a currency?

Simply put depreciating their currency makes Chinese goods less expensive to foreign buyers (exports) while simultaneously making the purchase of foreign goods from other countries more expensive (imports). This should provide a short-term boost to businesses within China by making their products more appealing based upon price relative their international competitors. Currency manipulation in this manner is thought of as an unfair practice.

Why this is a little different.

Prepare yourself for some shrill voices coming out of the US Government in response to China’s move. It has long been politically expedient to position China as playing unfairly and costing US jobs. Today’s move will no doubt open up some airtime for the political class to vent their outrage on behalf of US workers. While always a bit skeptical of the motivations of politicians we believe that there has been some historical merit to this particular grievance. We support the efforts of those politicians, both left and right, who advocate for the introduction of more market-based forces with regard to China’s markets and currency. Ironically, this is exactly what just happened. The People’s Bank of China allowed for the yuan more flexibility to price itself than be fixed or “pegged” to the US dollar. What happened, however, is that the yuan didn’t rise as lawmakers have been advocating for years. It dropped.

Why now?

China is desirous of having its currency become one of, if not the premier international currency or reserve currency. Presently that is the US dollar though the euro plays a major role in a basket of currencies held by central banks. Last week the International Monetary Fund (IMF) announced that the yuan wasn’t ready for the big show and that China needed to make its currency more “freely usable”. This move may be partly in response in their ongoing efforts to boost their currency’s favor relative to the dollar and the euro. Another possibility for this move is in response to how poorly the Chinese stock market has behaved as of late, down 23% since its June 12th high. Many experts believe China’s government has lost control of their markets and their ability to shore it up against severe downward movement. This may be part of a “”throw everything including the kitchen sink” at their market woes.

How does this affect our markets?

Harry Truman famously requested a one-armed economist out of frustration for their insistence on saying “on one hand … on the other hand”. With respect to Mr. Truman this seems to be one of those instances where there’s potential for both good and bad outcomes.

Make no mistake about it there is a global chess game between the US and China and today’s move is a gambit. In an effort to bolster the Chinese economy and stock market they have ceded some control over their currency inviting slightly more free market pricing. High risk for the potential of high return.

Short term today’s move is not a positive for the US economy and the US stock markets. It may however, bolster the case against the Federal Reserve raising interest rates later this year and putting off that move until sometime in 2016 which the stock market likes. We would like to take this opportunity to showcase, again, how upside-down the world can be with massive government intrusion into free markets. Bad news is often good news and vice-versa.

We think that longer term a less centrally-controlled China and a more market-based China is best for everyone. Shorter term look for a good deal of outrage, but we believe a more level playing field is what’s needed. The best way to level the field is to agree to let interest and exchange rates to move freely and of their own accord, not to engage in an arms race of central pricing, currency manipulations, tariffs and import duties.