Why the trade war will usher in a long, drawn-out bear market: Andy Xie Article

This article “Why the trade war will usher in a long, drawn-out bear market, with stocks, bonds, credit and property all at risk” by Andy Xie took some time to think about.

Shakeout of Speculators
Historically low interest rates have allowed people to take out debt cheaply. These funds have been sued to purchase risky assets. This has led to speculation. Now that interest rates are rising this will force speculators to use more expensive funds to service their debt. Over leveraged companies will not survive.

US-China I buy your goods, you buy my debt
Over-consumption in the US has led to an overinvestment in Asia (forced savings). The US overbuys Chinese goods. China should receive USD, exchange for Yuan, yuan demand goes up, yuan should appreciate. But yuan is fixed low, and does not benefit Chinese people, who cannot buy more foreign goods with their yuan. Instead China buys Fed bonds with USD.

The trade war upsets this pattern, no more I buy your Chinese goods, which then derails the you buy my debt. Therefore the bond market will slide

Increased bond volatility
Increased political volatility, less certainty, more risk for companies, rising bond yields
This will remove speculators, but also high valuations

If debt is used to buy, deleveraging will reduce credit, making servicing existing debt more difficult, and buying will quickly fall. If profit growth depends on more debt, then profit will also fall.

Stock market over-valued
China’s 12 yr property bubble starting to go down. This will cause an economic slowdown, leading to a construction slowdown, which means commodities will be in less demand. This will lead to a commodity growth slowdown throughout the world.

The tech bubble also over-valued. Most of these unicorns will not survive.

In China: property bubble at risk, elsewhere: stock and internet bubble at risk

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