May 23, 2019
Will China Call Trump’s Bluff?
Expect a long and protracted war between China and the USA on trade, intellectual property rights and geo-political posturing. It is our view that China will challenge this administration, and will not back down from its current position on trade and other issues. The $64,000 question is what will China decide to do with its $3 trillion in foreign exchange reserves? In the past 15 years, China has directed some of its foreign currency reserves away from the USD by increasing five-fold its holdings of gold from 10 tons to 60 tons, and has built and financed infrastructure projects and extended direct loans to Latin America, Africa and other areas of interest. China, with its large pile of reserves, its importance to the global supply chain, and its ability to restructure-if necessary, internal debt, is in a unique position to challenge the US$ reserve currency status. We do not believe that China will succumb to US demands and lose face, but rather, will dig in its heals with the strategy that global financial chaos will result in the loss of the 2020 election for Trump.
On rare occasions, global financial markets experience both a strong USD$ and higher Gold prices as investors seek safe havens. It appears as though we are at the door step of this trend once again.
In the following pages you will find various charts highlighting China’s ability to withstand a long and protracted trade war with the United States.
May 13, 2019
A Perfect Storm
As evidenced by the two charts below, Pemex/Mexico is facing a perfect storm that could result in a massive unwind of both foreign investment in Mexican local currency debt, and foreign holdings of USD$ denominated Pemex debt. AMLO seems to have the backing of the general population, but has lost most support from the Mexican business community, so internal financial allies are few and far between. A decline in exports to China as a result of the current US/China trade war will only add fuel to the fire, and exacerbate an already imbalanced structural situation.
