Pro Perspectives 8/30/19

August 30, 2019

As we head into the holiday weekend, let's revisit the China story (briefly).  Then I have two must-watch interviews for you.

As we know, China has used a weak currency to leapfrog almost the entire world over the past 30+ years, capturing 15% of the global economic market share and rising to an economic power. 

They've gone from a $350 billion economy in the early 90s, to a $13 trillion economy today (ascending from the eleventh largest country in the world to the second largest economy in the world).  That's 37 times bigger.  Over the same period, the U.S. economy has grown by 3x. 

How has China done it?

By undercutting the global export market on price, collecting our dollars, then offering our dollars back to us in the form of credit, so that we can buy more from China.  As long as China can maintain a cheap currency, this cycle continues, and so does the cycle of global credit booms and busts.  Meanwhile China stockpiles/sucks foreign currency (most importantly, dollars) from the rest of the world.

Clearly, this story ends well for China, and no one else, if left unchecked.  That's why it has become the top priority for Trump (and a critical piece of Trumponomics). 

Reforming the way the U.S. (and the world) deals with China is the root of the global structural reform that is necessary for the world to sustainably emerge from the global financial crisis era.  

With the above in mind, there are two very important interviews everyone should see, regarding how this may ultimately play out with China … 

Interview #1) Like him or not, when Steve Bannon speaks it's a good idea to listen.  Bannon clearly had a lot to do with Trump policies.  And Trump policies are driving the global economy and represent the risks and opportunities from here.

With that, Bannon has been vocal on the subject of China.  Earlier this year, he said the "economic war is about to go to another level."  He was right.  In this interview (here) he lays out China's grand strategy.  

Interview #2) In this next interview (here), an exiled Chinese billionaire (close to Bannon) gives unique perspective on China, and describes the motivations of the Chinese Communist Party. 

Both interviews are conducted by Kyle Bass – and recently released on YouTube.  Bass a well-respected hedge fund manager known for his research-based, theme-driven trades, which includes capitalizing on the sub-prime crisis.  He's also a known China bear, for the reasons that are clear in the interview.