Dear Reader,
Good morning!
I read a great article in The Wall Street Journal by Andy Kessler.
Very smart person. Astute observer of world affairs and everything happening.
Here’s what he said:
The article is titled: “Time to Stress-Test Everything. Data Centers, China, the Dollar - America needs a new durability assessment.”
And basically he lists what he thinks are the biggest risks to us right now.
So I am going to go over them.
The first on his list is China-Taiwan.
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Will China invade or blockade the island where most Nvidia AI chips are made in 2026, or in 2028?
In other words, the question is not whether China’s going to try to take Taiwan. The question is, when?
And, what would happen if China actually did that?
This would of course be disruptive for the West.
There’s $2 trillion of trade that goes through the South China Sea.
Look around your house - couches, TVs, phones, computers - most of these things run through the South China Sea.
So, what would we do?
We need to be running through that scenario.
That’s his number-one concern.
The number-two risk he sees is data center overbuild.
He talks about massive amounts of data centers being built right now.
There are a lot of “circular” deals going on.
You have Microsoft investing in OpenAI, which receives credits.
You have Nvidia famously investing $100 billion last week in OpenAI.
And think about what that investment is.
Nvidia’s basically buying a customer…
Basically saying, “we’ll invest $100 billion in OpenAI as long as you guys use Nvidia chips.”
It’s like “musical money.”
What does that look like if it starts to implode?
There were a lot of circular deals back before the dot-com crash…
“Eyeballs for equity,” very famously, if you remember back then.
The third risk he lists is a stock market sell-off.
What happens if the market falls 10%... 20%?
That’s easy, actually. I don’t really see that as a big problem.
If the market falls 10% or 20%, I’m gonna be tapdancing…
Remember in April when the market fell 10%, 15%, 18%?
I call it “the Peter Navarro gift.”
He was on TV every day arguing for Liberation Day, and the market just kept crashing.
Thank you, Peter Navarro, for sending the market so low, being such an absolutist in your trade policy, because that sent the market into the worst April since The Great Depression.
Which was great for me and my friends, readers and subscribers.
We got to buy a lot of things really cheap.
So, thank you.
And the other thing Kessler warns about is a crypto selloff.
Here’s what really piqued my interest in this article:
There’s a 1929 film called Coconuts which Kessler references in his article.
And I remember this very famously…
There’s a little old lady going to buy a home and the Marx brothers see the Florida boom in real estate and want to get rich quick.
So they move down to Florida and start building homes and selling them.
And in one scene this little old lady says, “ooh, can I have a home with stucco?”
And Groucho says, “oh, you want stucco? You’re gonna get stucco.” (You’re gonna get stuck.)
Basially, it’s a greater fool theory.
Crypto really is in the greater fool theory right now.
There’s a Bitcoin holding company, MicroStrategy, we’ve talked about before, and many of you have asked about.
It’s valued more than three-times its Bitcoin holdings, which is crazy.
So what happens if Bitcoin sells off, and that stock gets pummeled and gets forced to sell a bunch of things?
So that’s another risk.
Kessler’s fifth concern is a dollar drop.
The dollar’s down 10% this year.
No one seems to care. The stock market keeps going higher. The market’s priced in dollars so that makes sense.
But the dollar has gotten hammered - really, if it drops much more, you could see interest rates rise to support the currency.
Which would be 10-year Treasury yields above 5%. Which would not be good.
I hope somebody in Scott Bessent’s Treasury Department is actually stress-testing this scenario.
Private credit implosion is another risk Kessler lists.
New to this economic cycle is the growth of private credit, now about $2 trillion in size.
We didn’t have that before - we had banks, but now we have all these “shadow lenders” lending all types of money to the economy.
You know, who’s really watching that, to see how that works?
So those are the economic risks that Kessler talked about.
I’m glad he started with China taking Taiwan, because news has been leaking recently that Xi Jinping is trying to get from President Trump his okay to take Taiwan…
Which is very interesting to see - if the President actually does that, that would be wild.
That’s Xi Jinping’s ask for a comprehensive trade deal with America.
We always knew that was going to be the ask.
Everything else is miniscule.
So, we’re going to see if the President trades away Taiwan, and if not, China might be saying to the President behind closed doors, “look - if you don’t sign off on Taiwan being kind of our property, then you’re going to put us in a position where we’re going to be forced to take it.”
And boys and girls, let me tell you something - if that happens, all hell breaks loose.
Here’s just a snapshot of what that looks like >>>
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