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today let's tackle three crucial
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questions first who's driving the heavy
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selling pressure we've seen in US bonds
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over the past couple of days second in
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its tariff battle with Donald Trump is
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Beijing deliberately pushing the renm
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lower and third perhaps most critical
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what's the single biggest challenge
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confronting the Chinese economy right
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now let's start with that third question
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because the answer shapes everything the
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Chinese authorities do china's core
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economic problem is weak domestic demand
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which comes down to two things private
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consumption and investment for decades
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particularly in the 90s and 2000s China
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focused heavily on boosting investment
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that made sense initially they needed
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infrastructure like bridges roads
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airports and factories but once you've
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built out the most productive projects
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further investment yields diminishing
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returns keep pushing and you eventually
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fund unproductive ventures causing debt
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to balloon faster than GDP growth when
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an economy hits that point as China has
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it generates large trade surpluses if
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domestic consumers aren't buying enough
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those excess goods get exported
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effectively shifting the cost onto the
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rest of the world that can work for a
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while but it's not sustainable
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now a major player the United States has
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drawn a line saying enough is enough and
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logical chinese leaders knew this day
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was coming it explains why they subtly
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favored the Democrats they likely
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calculated that under Biden exports to
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the US would face fewer obstacles so
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given this reality what are Xiinping's
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options now they've understood the
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dynamics since Trump's election the core
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issue restraining consumption is
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straightforward chinese workers aren't
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paid a share of national income
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commensurate with their contribution to
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GDP one option raise wages but doing so
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erodess China's key competitive edge low
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labor costs plus increasing labor's
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income share means taking it from either
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companies or the government beijing is
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unlikely to accept a smaller slice of
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the pie for political reasons shifting
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the burden entirely onto companies makes
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them less competitive so significantly
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hiking wages across the board looks
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difficult what else how about boosting
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household income by raising interest
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rates that would kill off the cheap
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credit that businesses rely on making it
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another non-starter that leaves one main
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lever letting the renmanb
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appreciate think about it a stronger
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renmb makes imported goods cheaper for
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Chinese households this boosts their
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real purchasing power and could lift
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consumption without directly hitting
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corporate profits or government revenue
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in the same way wage hikes would yes
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appreciation hurts export
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competitiveness but in the midst of a
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trade war where export growth is already
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under pressure maybe Beijing sees this
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as the least painful path to rebalancing
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towards domestic demand based on this
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logic a falling renbi doesn't seem to
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serve China's strategic interests right
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now yet the currency is falling and it's
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broken key technical levels if Beijing
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doesn't want it lower why is it
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happening the most plausible explanation
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is that they lack the firepower
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specifically the US dollar reserves to
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effectively prop it up why are people
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selling the renman then it's pretty
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clear the perception is that China's era
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of easy export-led growth is ending the
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game has changed consequently even
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Chinese citizens and businesses are
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losing faith in their own currency
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individuals might be shifting into gold
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or even contributing to Bitcoin's
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volatility exporters are likely holding
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on to their dollar earnings rather than
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converting them back to R&B this dynamic
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drains dollars from the Chinese system
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while a dictatorship can theoretically
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force repatriation the underlying trend
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suggests a lack of confidence is the
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primary driver of the Renm's
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weakness okay that addresses the second
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now back to the first who is dumping US
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bonds rumors are swirling online
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pointing the finger at China personally
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I doubt it for a few key reasons for one
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they're actively negotiating starting a
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bond market war now would be
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counterproductive especially when Trump
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needs to roll over massive amounts of
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debt $9 trillion this year with $6
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trillion maturing around June
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weaponizing bond sales could provoke a
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severe backlash just when talks are
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underway furthermore large-scale selling
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would depress bond prices hurting
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China's own substantial holdings major
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players don't typically liquidate huge
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positions so openly so if not China who
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my belief is that we're seeing
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deleveraging by fund managers many run
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strategies involving leveraged bets on
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US bonds aiming for small margins
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amplified by borrowing when market
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conditions shift they're forced to
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unwind these positions leading to
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selling pressure for now this seems like
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a more likely explanation than state
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sponsored action and perhaps less cause
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for immediate geopolitical alarm where
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does that leave us looking back at the
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UN devaluation in 2015 Bitcoin seemed to
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benefit it's unclear if history will
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repeat itself this time while Bitcoin
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might see short-term spikes I don't yet
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see signs of a sustained uptrend
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emerging from the corrective phase it's
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been in this year and finally the S&P
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500 we're experiencing wild swings sharp
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rallies followed by steep drops like
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yesterday's reversal we need to
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recognize that this kind of volatility
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is actually quite normal under current
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conditions we're operating in a high
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volatility regime likely with negative
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gamma dynamics amplifying moves and the
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VIX hovering in the challenging 4550
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range these violent price swings are
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characteristic of such an environment
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they also understandably deter buyers
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who tend to wait for calmer waters did
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yesterday's price action mean anything
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significant in my view no the S&P 500
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failed to break any meaningful
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resistance levels on the upside and the
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pullback stayed above recent lows it
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still looks like the market is trying to
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carve out a bottom but let me be
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perfectly clear as I've said before has
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a definitive bottoming pattern formed is
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this the launch pad for a new uptrend
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absolutely not there's no confirmed
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pattern yet as I discussed previously I
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suspected an attempt around
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5500 but the pattern never materialized
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offering no buy signal are we in the
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process of forming a bottom now
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plausibly yes consider the internal
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weakness barely 2.5% of S&P 500 stocks
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are above their 50-day moving average
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and even fewer above the 20-day
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sentiment reflects extreme fear seeing
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this suggests we're likely near a low
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point but crucially is there a confirmed
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technical bottom in place no not yet
