US telling the Chinese to GTFO
Where is the opportunity? Gold or gold miners here?
It's mentally taxing to keep up with the news flow and filter what matters.
I think this matters... America First Investment Policy and, in particular, this section.
(k) To further reduce incentives for United States persons to invest in our foreign adversaries, we will review whether to suspend or terminate the 1984 United States-The People’s Republic of China Income Tax Convention.
This would mean increasing taxes on Chinese investments from zero to the standard 30% withholding tax (I recommend reading Michael McNair's tweet). It would apply to $2 trillion worth of Chinese investments, of which $759 billion is currently in U.S. stocks.
Michael McNair's work points out that you can't fix a trade imbalance if you don't address capital flows, i.e., foreign investors piling into U.S. assets (originally treasuries, now U.S. equities).
Foreigners own:
41% ($25T) of the U.S. stock market
23% ($8T) of Treasury securities.
The Treasury holdings have been on the decline ever since QE started, with the Russian asset confiscation being the final nail in the coffin.
Telling $759B of capital to GTFO when the Magnificant 7 was already struggling to find a marginal buyer helps confirm what others far smarter than me, such as Paulo, have observed with this must-read piece: Trading the Rollover Syndrome: How I Think…
“Tops are a process, bottoms are an event.”
It also makes sense, as sentiment on the other side of the NASDAQ trade is pure despair.
Opening the ticker prices for uranium and offshore services lately has been like falling out of the first-floor window, only to crash through the ground floor into the basement, to then find its a torture chamber.
Which fits well with this quote:
"Value investing is pain, and the higher the level of pain,
the better the future performance."
-John Marie
On Twitter, I see retail investors throwing in the towel in energy; I’ve even seen it labeled a retail mass extinction event.
I keep track of the sentiment of some of the professionals I follow, and this one from one of the smartest oil investors I know stuck with me.
This makes me think of this graphic I made a while ago.
“I've always said, the key organ here isn't the brain, it's the stomach.”
-Peter Lynch
What are the opportunities?
Using ratios helps illustrate what's going on beneath the scenes before the majority catch on.
As I touched on in my last piece, a solid rule for the next decade is to invest along with Chinese capital flows or in things the Chinese need. It’s hard to see how Chinese equities and gold don’t benefit from the US telling China to GTFO of US assets.