A Game Of Chicken Between The U.S And China?

A number of financial commenters have highlighted the tick up in yields on U.S. Treasury bonds, e.g., Bloomberg's Joe Wiesenthal here...

How is this not an objectively disastrous development for @SecScottBessent pic.twitter.com/FHtcPngC3N

— Joe Weisenthal (@TheStalwart) April 9, 2025

But some have pointed out that China's financial system is experiencing its own stress. 

There’s a reason the Chinese demanded that the IMF stop 🛑 publishing their ‘Reserve Adequacy’ calculation for China and for Hong Kong in 2019…China doesn’t have adequate USD reserves to operate their economy. Buckle up….CNY and HKD are about to get sporty. #China #CNY pic.twitter.com/GD9debNZR1

— 🇺🇸 Kyle Bass 🇹🇼 (@Jkylebass) April 8, 2025

A viral long post recently suggested that Treasury Secretary Bessent is trying to do to the Chinese yuan what Soros did to the British pound--and prevent China from doing the same to us. Following that, we'll have a brief note about a contrarian China trade. 

Authored by @suitablepolitic on X

Turning The Soros Game Plan Against China

Bessent was hired to strengthen the dollar by doing the opposite of all the warning signs he saw in the British Pound. Inflated housing markets, treasury yields, etc. all pointed to the big short that the Soros fund pulled off.

Bessent's obsession with the prices of homes and the interest rates on treasury bonds isn't just rank populism. He's looking to strengthen the leading indicators of a currency.

This is what I mean by "white hat hacking" the dollar. Mapping out its vulnerabilities to protect it against future exploitation. One of the most glaring vulnerabilities was a heavily overinflated trading market. Wall Street was on a sugar high.

Hedge funds were leveraged to the gills, and if that bubble popped, it would have created an 08 style financial crisis.The tariff roll out... volatility and all... was a way of creating controlled detonation.

Wall Street FREAKED OUT and deleveraged themselves.

Now, there won't be any banks or hedge funds who can't afford to pay off their loans because they overlevered. The extreme tariffs are also coming at a time when Bessent sees a recession or depression happening in China. He emphasized this several times with Tucker.

By boxing in China and shutting down their exports, he's creating the same conditions that led to the big short of the British Pound. If the Chinese Yuan collapses, then it'll cause a global flight into US Treasury bonds. Driving down interest rates even further for when they go to refinance the $9T of expiring debt.

Buy China When There's Blood In The Streets? 

You certainly wouldn't want to buy China indiscriminately in now, but there's one Chinese stock that looks solid here. It does almost all of its business domestically, and would be highly sensitive to any Chinese government stimulus. In addition, it has rock-solid fundamentals. Data via Chartmill (everything on a scale of 0-10, except for the Piotroski F-Score, which is 0-9):

• Overall fundamental rating: 8

• Profitability: 9

• Health: 9

• Growth: 6

• Valuation: 9

• Piotroski F-Score: 8

We’ve made money trading this one a few times in the past, and it looks like we’re getting an opportunity for another attractive entry. If you'd like a heads up when we place our next trade on it, feel free to subscribe to our trading Substack/occasional email list below. 

And if you just want to limit your risk here, as a reminder, you can download the Portfolio Armor optimal hedging app by aiming your iPhone camera at the QR code below (or by tapping here, if you're reading this on your phone). Our app can help you find the least expensive hedges given your risk tolerance and time frame.

If you'd like to stay in touch

You can scan for optimal hedges for individual securities, find our current top ten names, and create hedged portfolios on our website. You can also follow Portfolio Armor on X here, or become a free subscriber to our trading Substack using the link below (we're using that for our occasional emails now).