Gold Stocks Explode Higher After China Slashes Dollar Exposure in Renminbi Basket

China designed the renminbi CFETS basket as a way to peg the yuan against a variety of currencies to best represent their trading partners. In a surprise move last night, they slashed their dollar exposure from 26.4% to 22.4%, perhaps indicating less dependence on US markets for their goods. In the past analysts viewed this scheme as an indicator of further yuan weakness.

Here’s the new CFETS basket.

Today’s result, however, is a sharply lower dollar and fast rising gold and silver prices.

Gold miners are sharply higher, bouncing after months of underperformance.

In case you’re wondering about gold, seasonally speaking, both January and February are, traditionally, the best times to own them.

Valuation wise, the sector is a little elevated. But when comparing it to previous years when gold was running higher, current valuations are nowhere near stretched.

The fate of the yellow metal is one embedded in the minds of investors. If people feel insecure about things, gold, typically, will trade higher. Or, if the Fed signals they won’t hike rates, investors will sell off dollars and bid up precious metals. Perhaps the market is being logical today, forecasting a trade war with China — which would definitely cause GDP to slow in the interim and cause Central Banks to meddle in our affairs again?

Somehow I doubt the ADD addled minds of traders are thinking that far ahead.

The shills over at the Minnesota based hedge fund, Pine River, are making the media rounds these evening, after issuing a letter featuring a Hong Kong Professor named James Wang who said China would defeat the United States in a trade war. The entire article is suspect and wreaks of enemy propaganda.

Have a look, penned by <<<Bei Hu>>> (hmm).

This is what Wang had to say about a prospective trade war with the US,  which includes Trump slapping the shit out of China with 45% tariffs.

“By design, decision-makers in a democracy face difficulties coordinating a relief effort and must eventually face a political backlash from impacted domestic producers,” Wang wrote. “On this basis, the Chinese may have more runway to play the long game in a trade war.”

“The balance of power worldwide is much more diffuse compared to the early 20th century, and players like China and India have emerged to create new political centers of gravity,” Wang wrote. “However, as economic and political paralyses spread across the developed world, the most likely outcome is a trade war.”

In other words, Pine Capital believes America is finished and the balance of power now lies in Beijing.

The math, however, tells a different story, as China enjoys nearly a $300 billion per annum trade surplus with the United States, wholly dependent on the US consumer to keep their bedraggled populace at bay, saddled with incredibly high levels of debt (250%+) and soaring NPLs.

Goldman analyst, Kinger Lau, believes punitive tariffs will clown-rape China’s GDP by 3% in 2017. Kevin Lau from Daiwa Capital isn’t as optimistic as Goldman. He thinks an American-Sino trade war will result in an 87% drop in Chinese exports to the US — a drop of $420 billion. That would equate to a 4.85% blow to the Chinese parasitical ‘economy.’

Even in a Trump light environment of just 15% tariffs, Chinese GDP stands to drop by 1.8%, according to Daiwa.

China’s protest would involve selling US treasuries, which have proven to be meaningless with QE programs and they might give Boeing, Ford and GM the boot. They might shut down a few disgusting KFC restaurants too.

Bottom line: Investors freak the fuck out when China misses by one tenth of one percent. Can you imagine if Chinese exports dropped by $420 billion or 87%?

Pain.

For those of you who are members of Exodus, a new Bubble Basket was launched tonight. It’s update this index twice per annum, just like the GARP, which will be updated tomorrow. The stated goal of the Bubble Basket is to find 25 stocks that are overvalued to short. Had you done this over the past 6 months, you would’ve lost 3% — as the index rose on a media basis by 3%. However, had you also purchased the GARP, you’d be up more than 16% on a median basis — creating a 13% upside spread.

For risk averse or those looking to partake in passive investing with a hedge, this is an excellent strategy to partake in. Starting 2017, I intend to purchase GARP and sell short the BB — amongst other things. I’ll be incredibly active in 2017, after a year off of slumber and decadence.

NOTE: Prices are going up for both Exodus and After Hours at 12am New Years Eve, so be sure to lock in lower prices now.

Who said the buy and hold strategy was dead?

Talk about overhead supply. There is a lifetime worth of $QQQ-fags stuck in this shit for the past 15 years, ancient relics who decided to simply buy and hold and ignore reality.

That’s one heck of a round trip.

What else is new? I don’t care what some of you perma-bulls say, Marc Faber is wonderfully insane and always entertaining. Don’t you fuckers get it? YOU’RE ALL DOOMED, eventually.

In the meantime, carry about drinking and smoking and fornicating to your black heart’s endless desires.

Faber thinks the rally is mature, long in the tooth and higher rates will fuck it into panic. Let’s all remember the last credit crisis and how its seeds were sowed several years prior though Greenspan’s INSANE 16 consecutive rate increases.

Only in a bizarro world does this sort of shit happen before the New Year, in the middle of Hannukah. But Obama chose this time and place to call out Israel, just prior to being replaced by someone who will just have to unravel the yarn he’s tying in knots now.

In response to John Kerry’s speech, where he lectured Israel about democracy and the path to peace, Israeli President, Bibi Netanyahu, said he was deep disappointed, didn’t need to be lectured about peace and said he was looking forward to working with Trump on undoing all of the damage both Kerry and Obama have caused the state of Israel, with their last minute antics.

Benjamin @netanyahu expresses "deep disappointment" in John Kerry's speech: "Almost as unbalanced as" last week's UN resolution. pic.twitter.com/TJSyx9Nzmn

— ABC News Politics (@ABCPolitics) December 28, 2016

.@netanyahu: "Israelis do not need to be lectured about the importance of peace by foreign leaders." https://t.co/XHlINpWoH1 pic.twitter.com/8TqH2HPFf5

— ABC News Politics (@ABCPolitics) December 28, 2016

.@netanyahu: "Israel looks forward to working with President-elect Trump…to mitigate the damage this resolution has done." pic.twitter.com/iaolE7YorC

— ABC News Politics (@ABCPolitics) December 28, 2016

.@netanyahu: "I have no doubt that our alliance will endure the profound disagreement we have had with the Obama administration." pic.twitter.com/o6Gl6eWrDi

— Fox News (@FoxNews) December 28, 2016

And lastly, Netanyahu said his government has ‘incontestable’ evidence that the United States was behind the recent UN resolution.

Netanyahu: We have "absolutely incontestable evidence" the US was behind the UN resolution https://t.co/JnTnuXgCIt https://t.co/vnmQ1XdoJv

— CNN Politics (@CNNPolitics) December 28, 2016

Markets are trading off a bit here, as Dow 20,000 proves to be wonderfully elusive. Since everyone expected we’d reach 20k by New Year’s, we’ll probably never reach it at all.

Heading into 2017, it’s important to formulate a gameplan and prepare for any headwinds that might pose a problem for the stability of markets — else you’re just shooting in the dark — like morons.

Here are some things to pay attention to in 2017.

Trump’s anti-China rhetoric may start yielding some poisonous berries. Pay close attention to the USD/CNH and USD/CNY crosses. The FX markets will tell you all you need to know about China. Should you see their FX reserves shrink at the same time their currency drops, you know there is a flight of capital from China — which is bound to dry up liquidity and cause market dislocations. Remember, unlike our markets, the Chinese market is still traded and owned by ordinary people, traditionally weak hands. Plus, they’re so overleveraged, the slightest hiccup will literally destroy them.

The yuan is a constant downtick, which helps their exporters and pisses off Trump.

The US dollar index is at 14 year highs and continues to surge. Bad, bad, bad for US exporters.

American borrowing costs are surging at the same time that optimism for Trump fiscal stimulus projects buoy markets. This is counter-intuitive. Higher borrowing costs places a strain on our balance sheet and also makes it harder for Trump to enact stimulus, the whole basis of the recent 10% rally.

Crazy Grandma Yellen wants to hike 3 times in 2017, while the dollar is at 14 year highs, inflation is non-existent and has openly stated she’d hedge any fiscal stimulus by Trump with monetary tightening in order to stave off inflation — since we’re at ‘full employment.’

Last but not least, French elections will be held on April 23rd, 2017. If Le Pen gets elected, she will remove France from both the EU and NATO — something that only a deranged lunatic would liken to being bullish for stocks. This is a major event in a major EU nation, which might and quite literally lead the way towards the total collapse of the union.

The significance of Obama’s efforts to drag Israel in the mud, just prior to leaving office, is magnified by the fact that he knows Trump doesn’t agree with his position. If Obama truly wanted to exit the White House gracefully and with honor, he’d hold off the dogs at the UN from passing a resolution designed to humiliate Israel. Instead, he crafted the damned resolution himself and then sent his attack dog, John Kerry, to make all sorts of scandalous statements to the press — in one last ditch effort to toss Heinz ketchup bottles at both Israel and Trump.

Trump reacts to recent Obama comments and derides the lack of ‘seamless’ transitioning of power.

Doing my best to disregard the many inflammatory President O statements and roadblocks.Thought it was going to be a smooth transition – NOT!

— Donald J. Trump (@realDonaldTrump) December 28, 2016

Trump defends Israel and tells them to ‘stay strong’, a bit melodramatic, but you get the gist.

We cannot continue to let Israel be treated with such total disdain and disrespect. They used to have a great friend in the U.S., but…….

— Donald J. Trump (@realDonaldTrump) December 28, 2016

not anymore. The beginning of the end was the horrible Iran deal, and now this (U.N.)! Stay strong Israel, January 20th is fast approaching!

— Donald J. Trump (@realDonaldTrump) December 28, 2016

Put the validity of Kerry’s claims on pause for a moment and think about what Obama is doing here. He is the very definition of lame duck. His legacy was roundly repudiated on election night with the election of Trump. They know Trump is very pro-Israel, yet according to Israeli sources they put the UN up to the task of passing a resolution that demanded an end to Israeli settlements.

This is the exact opposite of creating a seamless transition to power for Trump. Everything these clowns are doing now, their vindictive agenda trolling, will have to be undone by Trump.

Here’s Kerry calling Netanyahu the most right wing in Israeli history. I’ve never heard an America Secretary of State speak like this about Israel.

Kerry says PM Netanyahu’s coalition is the “most right-wing in Israeli history” https://t.co/dO3ZqGI7vI

— NBC News (@NBCNews) December 28, 2016

And here is Kerry chiding Israel about its values, saying ‘they can either be Jewish or democratic, it cannot be both.’ I don’t recall Kerry doing a presser suggesting the same advice for our dear friends in Saudi Arabia.

Kerry speaks on Israel: “If the choice is one state, Israel can either be Jewish or democratic. It cannot be both.” https://t.co/M7xk7tf45h

— NBC News (@NBCNews) December 28, 2016

$NVDA has been the best performing semiconductor stock for 2016. But the stock is woefully stretched by any measure. It’s kind of funny that people are freaking the fuck out and selling now, just because Citron issued this tweet, warning that the stock is vulnerable to a little downside. They believe the shares are heading to $90.

Citron readers know we have long been fans of $NVDA,but now the mkt is disregarding headwinds. In 2017 we will see $NVDA head back to $90 pic.twitter.com/n4U7f6eV7G

— Citron Research (@CitronResearch) December 28, 2016

In Exodus, we visualize valuations using graphs, in order to crystallize data. Have a look at NVDA’s PE, p/s, p/b and fair value analysis and tell me the stock isn’t ridiculously overvalued here, based off historical norms.