🗞 China's War Runs Deep

WHILE YOU POUR THE JOE… ☕️
Check Engine Light (Gone)

Maybe Trump took it too far, maybe these auto and auto parts tariffs were just a swing to stimulate last-minute spending and really feel out what the consumer’s pocket may feel like today. 👀 

The point is, these tariffs were lifted and auto stocks jumped as a result, and this is something we expect to be amplified (or killed) as retail sales data comes out in the following days.

Of course, we’ll do a full coverage of what was healthy and what contracted right in here.

Speaking of taking things too far, let’s get on with today’s email 📧…

BEEN THERE BEFORE
The Bogeyman is Back

So everyone is talking about how China could threaten to dump US bonds as a retaliation measure against these tariffs, but the truth is that we’ve been here before.

In fact, China has been reducing their US paper holdings since 2012, and accelerated when the first round of trade wars got started. 📉 

Now that we’re back for round two, it looks like Trump was the one that did most of the preparation.

Let me explain: ⬇️ 

Notice that China is back to the same bond-holding levels it was in during the great financial crisis, when it arguably helped bail the US economy out of a funk.

Now that China has gotten stronger as a world power, it doesn’t need to hold all of this investment-grade debt as collateral, so it’s turned to gold and other measures to prop up its Yuan. 📈 

That popped a thought in my head the other day:

• Are they trying to collateralize all this gold in order to keep boosting their economy and rolling out stimulus?

• Is this a plan to derail the US dollar out of reserve currency status?

Whether that’s the agenda or not, they’ve backed themselves into a corner now that it is clear most countries have sided with the US during this trade war.

Now let me introduce you to China’s worst nightmare:

Scott Bessent, now the secretary of the US treasury.

I don't know his resume, the guy’s pretty secretive in how he run his fund with $2 billion in AUM, but I do know this:

• He was the CIO or George Soros, and we all know what that old geezer did to the British Pound in the 1990s

So, if Trump wanted to rip China to shreds, he hired the right guy this time around.

In fact, Scott Bessent has pointed out some weaknesses in the Chinese economic system, particularly its unsustainable credit increase as well as its bubbled up property sector.

His genius went as far as saying that the Chinese themselves are looking to devalue their own currency in order to keep their status in trade and cushion these tariffs. 🔥 

The reality is that China is now more of a services economy, and crashing the Yuan would bring on a severe depression, one that would force it to concede to US demands in trade terms to emerge from it.

This is exactly what I’m talking about, ever since Trump took office, capital has been leaving China at an accelerating pace, and clients in Chinese banks have been buying up foreign currency reserves while they sell their Yuan.

So if you think China wants a currency devaluation, you’ve been listening to the media too much. ❌ 

Look, it only makes sense:

• China is cornered and dependent on gold now

• Their last bullet is to dump US bonds to spike our interest rates

• This would deplete their balance sheet of quality, devaluing the currency

So there you have it, either China risks dumping the value of its Yuan by selling our bonds, all on a bet that higher interest rates will also wreck us as we need to refinance trillions of debt coming soon.

However, the Fed has way more room (and reason) to cut rates down to 2.5% or less, and start stimulating the economy once more. ✅ 

TRADE OF THE WEEK
Boeing go Boing

So China decided to attack the US with other nonconventional methods, this time banning Boeing's deliveries to China.

The stock barely reacted to the news, as everyone kind of knows that China is a small portion of Boeing’s backlog through 2030, so this hurts them more than it hurts us.

And for those thinking that Airbus is going to be the replacement, I don’t think that the market is starting to price that at all: ⬇️ 

You can see the forward P/E premium being rewarded to Boeing, and how Wall Street analysts expect forward EPS growth to read in closer to 226.2% massively above Airbus.

Therefore, forward PEG ratios show a potential discount in Boeing stock today.

Now where do I see the stock going? I think shooting back to $180-$190 would be a reasonable target right now, that’s just under 20% upside by the way. 🔥 

And as always, our analysis is right in line with Wall Street. I mean we come from there so it’s kind of expected 🫰 

GO AND MAKE IT HAPPEN
Cut Them Down

You’re probably sick of those chat rooms filled with signals that lead you to take on unnecessary risks and positions, without even knowing the why behind them.

Well, just like this newsletter, I decided to change the game.

Which is why we have opened a WhatsApp community that acts as a remote trading floor, with daily prep angles and information for the day, along with levels on different assets for you to watch out for.

38 people are now learning more in a single week than in 5 years, bumping their heads against the market’s machine. So today’s book recommendation 📖 is my own, sort of.

Here’s the link to join us for free, see you in tomorrow’s meeting ⬇️ 
https://chat.whatsapp.com/JYVbUYMmG3x4arv5Gart6U

To your success,

G. 🥃