A Ban On Money Into China Is Imminent, Says Nicholas Glinsman
What this covers
Nicholas Glinsman, macro investor and co-founder of Malmgren Glinsman Partners, returns to Forward Guidance to update viewers on banks, commercial real estate, and China. Glinsman says that he and his partner Harald Malmgren expect a ban on new foreign investment into China will be “imminently” passed via executive order of U.S. President Biden.
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Follow Nicholas Glinsman on Twitter https://twitter.com/nglinsman Follow Harald Malmgren on Twitter https://twitter.com/Halsrethink Follow Jack Farley on Twitter https://twitter.com/JackFarley96 Follow Forward Guidance on Twitter https://twitter.com/ForwardGuidance Follow Blockworks on Twitter https://twitter.com/Blockworks_ ____ Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets. ____ Timestamps: 00:00 The De-Dollarization Narrative 04:28 Maybe The Fed Is Not Done Hiking? 05:48 Banking System 08:43 Commercial Real Estate 32:30 Views on Bond Yields and Volatility 42:10 China and Reverse CFIUS 01:18:07 Imminent Ban On Foreign Investment Into China Is Coming, Says Glinsman
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Glinsman argues that US-China decoupling through reverse CFIUS restrictions and China's shift toward political ideology over economic pragmatism will fragment global trade into competing blocs, requiring investors to position defensively in dollars and avoid Chinese exposure while watching for regional banking stress from shadow credit and commercial real estate deterioration.
- China is centralizing economically under Xi with CCP representation mandatory in private firms, making the country structurally less attractive for foreign investment and causing capital flight
- US reverse CFIUS executive order restricting outbound investment in semiconductors, AI, and quantum computing will trigger Chinese retaliation and accelerate deglobalization into competing trading blocs
- Regional US banking system faces hidden risks in private credit, shadow banking, and office real estate exposure that could cascade if not contained, while the Fed's delayed rate hiking cycle compressed time and increased systemic fragility
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White paper protests in China indicate citizens have lost desire to marry, have children, or move out of parents' homes—all behaviors that drive consumption; yet government edicts encouraging larger families contradict the underlying demand destruction
“the white paper protests indicate that there's not much desire to get married there's not much desire to move out of your parents house there's not much desire to have children and again all of those aspects would boost consumption but you're seeing news against that that the the edits from above have more children than not having any children”
China weaponizes trade restrictions as political tools: it orchestrated a buyer strike against South Korean supermarket chains in retaliation for South Korea accepting U.S. missile defense systems
“South Korea there was a you know they were trying to break one of the the supermarket chains in China is owned by the south Koreans and there was a a buyer strike and that was orchestrated by the the government so and that was when the South Koreans took uh delivery of the submissiles”
De-globalization and re-shoring will be inflationary in the near term (until production is built out) but part of the long-term trend as countries decouple and build domestic supply chains instead of relying on China
“and I think the the biggest block against the Chinese to counter the Chinese way will be cptpp which the British have now tried uh and you've got Canada you've got Mexican you got Japan South Korea they're all all there um Trump pulled out but in the end that will probably be that should the U.S should go back into that but that depends on politics um and in fact with cptpp because you've got a free trade Association you've got a back door into the U.S market Anyway by Mexico and Canada which the the British were very excited about so we're going to split into trading blogs that will be inflationary to an extent until the domestic resource resources have re-shored deglobalization is done is is coming”
Wang Huning, Xi's chief ideologue, has authored books harshly critical of American capitalism and the U.S. system, and is a rare public figure photographed in the White House, suggesting his influence shapes China's anti-Western policy direction
“the probably the most famous of which is Wang Hunning who's the one that writes the books he was he there's some rare photos of him in the White House and he he the books he's written are but very critical of the American system and the capitalist system”
U.S. farmers benefit when China imposes import restrictions on U.S. goods because domestic U.S. prices for those commodities (coal, soybeans) rise, and China is forced to eventually re-import from the U.S. anyway due to supply constraints
“when the coal band was on in Australia Peabody Energy and the Americans exported to their heart's content and you know he makes a lot of soybeans right and when but when they stop these things it has implications in the domestic U.S market or the domestic Australian Market South Korea there was a you know they were trying to break one of the the supermarket chains in China is owned by the south Koreans and there was a a buyer strike and that was orchestrated by the the government”
China's economy was gradually decentralized from 1978-1989 under Deng Xiaoping, then continued as 'socialism with Chinese characteristics' until 2013, but this wasn't genuine socialism (lacking welfare state) and was more accurately described as communism with Chinese characteristics
“China's economy was decentralized by 78 to 89 in that period um you had socialism with Chinese characteristics continue up until in 2013. and it defines social socialism with uh Chinese characteristics because when I think of socialism I think of government helping people out and you know a generous welfare state so you know if people don't make a lot of money with your income or other stuff they'll have their your basic needs met by the government but it's my understanding in China that that infrastructure does not really yeah get health care you didn't get unemployment benefits not socialism it's communism okay”
Office real estate problems are structural, not cyclical, because the work-from-home trend has permanently changed space utilization, causing users to downsize into newer, green-compliant buildings while old office stock becomes worthless.
“what's interesting about the office side of the commercial estate is is not cyclical this is structural it kicked off with work from home people haven't come back um and you're seeing users of office space move from what they had it's a brand new you know they're so much brand new office space being built they'll move in they'll take a little less space as more people are working from home with all the latest greatest features and green and they become green compliance what happens to all these old buildings value collapses and that's that's those old buildings are primarily where a lot of the exposure in the secondary Market be it direct Equity direct lending or cmbs resides now that that is structural it's not cyclical”
The world is splitting into at least two trading blocs (US rules-based order vs. China-led bloc), with the question being which countries will join China and whether China's own poor economic performance will destabilize Xi's position.
“we're going to split into trading blogs that will be inflationary to an extent until the domestic resource resources have re-shored deglobalization is done is is coming and the question outstanding is a couple of questions outstanding which countries will join China over and above Russia fighting against U.S rules-based uh world and if all this disappoints if political ideology hits the Chinese economy further and in a really bad way how strong is she could he survive”
China-related politics will intensify heading into the 2024 election cycle, with both Democrats and Republicans competing to be more hawkish on China, creating a rare point of bipartisan agreement and likely leading to more aggressive trade restrictions and sanctions
“the situation with China becomes much more aggressive stressed as we run into the the election I think you're going to see both parties try and out Hawk each other on on China now I've been told that within Congress the Democrats are not as hawkish as the the Republicans uh and I've been told there's complete it's the one thing both sides can agree on”
Ford is closing EV manufacturing in China; Stellantis (Chrysler-Jeep) is exiting China entirely; foreign companies are withdrawing because of business risk, regulatory uncertainty, and safety risks to executives operating in a centralized surveillance state
“you're going to start to see foreign companies come out okay and I think that Trend to start you know is already I mean Ford are now pulling their EV manufacturing efforts in China closing that down stalantis which James Chrysler is out out of China okay um and I think that will be an increasing path certainly for American companies because their executives are in danger”
China's real estate hit has significantly impacted household balance sheets and consumption capacity because the people most likely to spend (home and apartment owners with decent incomes) have taken massive losses on property values
“the people that are going to spend money in consumption in China are those people that own their own houses Apartments whatever they're making a decent living unfortunately those people have taken a massive hit on their real estate whether it's one house or more a massive hit from the bursting of the biggest bubble in history so that from my from our perspective dampens consumption”
US sneezing (early signs of slowdown) causes Europe and China to catch a cold (deeper slowdown) because they are export-oriented surplus nations dependent on US demand, as evidenced by poor German manufacturing orders and China's export struggles.
“if the U.S catch sneezes the rest of our catches a cold I think the U.S is sneezing because things have begun to break a bit somewhat um but definitely Europe and China you know if you look at Germany American Terrorist export Surplus Nation look at China the same they're disappointing I mean manufacturing orders in Germany”
The Chinese cannot easily build an alliance against the U.S. because most countries with coastal South China Sea exposure (Philippines, Vietnam, etc.) have direct disputes with China; the Philippines example shows China's Coast Guard is actively harassing Filipino fishing boats in Filipino territorial waters
“probably not with countries that have Coastal exposure to the South China China Sea everybody's got even the Philippines where Marcos Jr wanted to be quite pro-china they've got this problem with the fishing and that and the Chinese Coast Guard attacking the Filipino fishing boats off in the easy you can have exertion which I think is 12 nautical miles of the Philippine Coast so they're in their own Waters and they're being shall we say Manhattan or by Chinese Coast Guard”
Hong Kong is no longer under common law; the National Security Law of 2019-2020 superseded common law and introduced Beijing law, eliminating contract law, tort law, and trust law protections that characterized Hong Kong as a financial center.
“Hong Kong is not no longer common law or it is subject to the law of Beijing you don't have a lower contract you don't have law of torque you don't have law of trust trust being as in trusts as opposed to trusting somebody as in trusts so your legal status is subject to the whims of the of an ever-changing legal system in China I think that change in 2019 2020 is that correct yeah yeah I mean now now you know it's questioned whether the the in the appeals court in Hong Kong uh the Hong Kong authorities are now saying you know we don't need UK appeals charges anymore this this was this was fully up until 2019. Hong Kong was still acting according to common law then they changed it with the Democracy riots and everything they they put in because it was that change in law which was the National Security Law I think it was that caused you know overrode everything else in the legal system that was the end of common law in Hong Kong”
Lithuania's trade ban with China (blocking all imports and exports) demonstrates that China will exercise extreme economic punishment against countries that allow Taiwan representation; this is a cautionary example for understanding China's retaliation patterns
“let's look at Lithuania no Imports no exports no trade at all with China because they allowed Taiwan to open a representative office yeah you could never do that to the US no yeah you know right so so but there's no there's no representative of this there”
Japan's 1990s real estate collapse and subsequent lost decade provides a relevant comparison to China's current situation; both countries had excessive real estate bubbles that burst, followed by decades of stagnation—the key difference is China's political repression adds an additional headwind
“Japan so the pro real estate bubble was absurd the risk on the real estate bubble was picking your your child your opportunity the levels to get short of the Japan but the minute that burst you knew that there was going to be a long period of stagnating growth we didn't know how long it was going to be and that's a comparable um that's the good comparison with what China's going through”
China will escalate retaliation through tit-for-tat hostage-taking and legally pretextual arrests—citing its 2015 arrest of Huawei CFO Meng Wanzhou in Canada, which triggered the arrest of two Canadian diplomats as a pattern
“when the daughter of the CEO of Huawei was arrested in Canada what did the Chinese do arrest two Canadian diplomats it you know there's many examples where they've done that tit for tax”
China and Xi are decoupling from Deng Xiaoping's economic liberalization model that allowed private enterprise and entrepreneurs to flourish, reversing decades of opening-up policies that drove growth.
“Harold came up with a very good phrase China is not only decoupling from the world it's decoupling from itself then Xiaoping and allowing entrepreneurs and private Enterprise to flourish well that's that's so it's clearly that's god”
Belt and Road Initiative lending is proving problematic because original recipient countries are unhappy with the terms, making it an unreliable lever for China to promote exports to emerging markets.
“you can't rely on exports to Emerging Markets unless you have leverage on them so I suspect Belton Road leverage trouble is Belton Road is proving quite problematic because the original recipients of Belton Road Investments loans Etc are none too happy”
The biggest risk going forward is the shadow banking system—private equity, private credit, and unregulated financial intermediaries—which faces similar contagion risks to the 2007-2008 crisis, with problems originating in California and spreading outward.
“the biggest risk is that not seen right and what what I took when I say that not seen is probably private equity and private credit the shadow banking system um I think we have quite a lot of risks that's come to the fore in and it's it's just like 2007 to 2008. interestingly enough problems seem to originate not necessarily in New York first but in California”
European real estate investment funds lack liquidity safeguards and are open-ended on the liability side (unlike U.S. shadow banks which can gate), creating catastrophic risk exposure if their 4.5 trillion CRE mortgage market experiences stress
“I read from ECB that it's it's a lot more open-ended fund which would be a catastrophe of the four and a half trillion cre mortgage markets okay”
Insurance companies directly own much of the office real estate in the US, while pension funds have exposure through commercial mortgage-backed securities (CMBS), making these slow-moving institutional buyers vulnerable to write-downs.
“the office segment is owned probably directly by a lot of insurance companies the office debt or the equity in the building uh equity okay I didn't know that okay and then on the pension fund their exposure comes on cmbs so commercial mortgage-backed security so policy yeah exactly and you're talking about two segments of the market on the buy side that are very slow moving uh so calsters have had a big problem with commercial real estate”
Technology billionaire Mark Mobius and other investors have experienced difficulty extracting money from China due to capital controls, illustrating structural barriers to foreign capital exit
“you heard that there was a story of Mark Mobius couldn't get his money out for quite a while then he was able to do so but there's something else that's occurred”
Banks are losing retail deposits but large deposit exodus is not a systemic concern for big banks because they offer such low rates (e.g., Bank of America 16 basis points) that they are indifferent to deposit flight and can compensate through other sources
“they're losing deposits but they can more than compensate for that yeah you're absolutely right uh I didn't know one percent but I take your word for it but yeah for the large you know Bank of America uh JP Morgan small percentage of commercial real estate and uh their deposits to the extent that they're leaving they kind of still they kind of uh don't care that they're leaving like the retail deposit rates are something like from Bank of America like 16 basis points so it's horrible so they're letting them leave”
The Federal Reserve's failure to start raising rates a year earlier (from zero) would have avoided much of the current regional bank stress, as slow rate increases would have allowed deposit rates to rise gradually rather than exploding upward when rates moved 50-75 basis points at a time.
“we'd started to raise rates a year earlier right up from zero from zurb and do it slowly probably some of the this strip bank stress may not have happened um you know because deposit rates would have moved up very very slowly as they did in the last hacking cycle”
The CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) is the key multilateral framework countering China; it includes Japan, South Korea, Canada, Mexico, and the UK should be the center of US trade policy post-Trump.
“the biggest block against the Chinese to counter the Chinese way will be cptpp which the British have now tried uh and you've got Canada you've got Mexican you got Japan South Korea they're all all there um Trump pulled out but in the end that will probably be that should the U.S should go back into that but that depends on politics um and in fact with cptpp because you've got a free trade Association you've got a back door into the U.S market Anyway by Mexico and Canada”
China's shift to centralization will be economically devastating because centralized economic management failed in Russia and will fail even more dramatically in China given its scale and complexity.
“if you look at the history of centralized economic management it was bad enough in Russia it was hard enough in Russia it's going to be near impossible in China”
Stan Druckenmiller made similar recession predictions about a year ago based on trucking rate weakness, but the economy remained resilient for the following year, suggesting that recession timing is difficult to predict and early calls can be wrong despite sound logic
“it was about a year ago I was listening to none other than legendary macro investor Stan druckenmiller who was interviewed for some copper immigrant this is 2022 and he was noting that his Guide to the business cycle is the internals of the stock market and he was talking about trucking rates going down and trucking stocks being very weak as a harbinger of a recession and I think you know number one I mean there's no one better than Sandra Miller we can I agree and number two uh the economic growth uh one year hence from that prediction probably has been higher than that that comment would have suggested”
The Fed made a critical error calling inflation 'transitory' and has further erred on banking regulation; Lael Brainard, now in the Biden White House, led both errors and is now an economic policy advisor.
“this is a Fed that has made it's not just a fan of CCB in the Bank of England horrendous error teams transitory and I'll give you an interesting critique of somebody who's now in the White House um Vice chair of the FED LED team transitory leil Brainard lail was also responsible for the regulation of banks another error on the Fed so two huge errors led by the person that everybody leaned on for for the economic View okay and now she's in the Biden White House”
The desire to avoid boom-bust cycles paradoxically increases recession severity: the longer policymakers try to suppress recession, the larger the correction becomes when recession inevitably occurs
“there's this desire to avoid boom bust avoid a recession well actually the longer you think you're going to avoid a recession increases the recession could be quite Sharp okay stir it slowly down to the recession”
Private equity and private credit gating mechanisms (e.g., Blackstone BREIT) actually provide stability by preventing bank-run conditions and controlling withdrawal velocity, even though they harm investors in the short term
“there are clearly issues and those issues have got to play out before we get any resolution and I think what's interesting about the office side of the commercial estate is is not cyclical this is structural... we've seen uh Blackstone gating right that's not a long-term solution but they're so big it probably doesn't matter to them there are clearly issues and those issues have got to play out before we get any resolution... oh it's gating it's people that sounds bad for the investors obviously but it actually can uh force a stability because there can only be so many withdrawals you can't have a bank run when Valley Bank could not get its deposits uh it probably would still be around if it could”
Copper prices declining from over $4 to $3.66/lb is a strong signal of economic distress, because copper is a risk-on indicator sensitive to global growth expectations and Chinese demand.
“just look at where copper is 366. it wasn't that long ago it was over 400 on the uh comex right that's gone a long way that that that has a long way to go down if that Trend in Chinese economic data continues that's risk Dr copper is a risk measurement”
The next 110 regional banks (with $10B-$160B in assets) hold $800 billion in CRE debt, which represents 16% of their total CRE exposure, creating meaningful concentration risk that requires institution-by-institution analysis.
“next 110 Banks which have 10 billion to 160 billion of assets held 800 billion which is 16 of cre deaths”
Youth unemployment in China has hit a new record of 20.4%, with another 11.8 million university graduates entering the job market in summer 2023, creating a severe skills mismatch as companies are not hiring college-educated workers.
“youth unemployment got a new record higher today in China 20.4 and there's another another 11.8 million University students graduating in the summer this these sorts of things are quite disastrous uh for that sort of system so he will continue because he's shown that political ideology trumps economics um and I and you know if you if you listen to Mark Warner he will say that it became explicitly clear that all Chinese companies first obligation is to the CCP”
China's real estate market has not bottomed; recent data shows a dead-cat bounce followed by renewed weakness, indicating that the real estate crash will continue to weigh on domestic consumption
“even a dead cat can bounce it looks like that may be the appropriate phrase for right now a dead cat has balanced because the the data that's coming out I think you may have seen it in one of my dailies uh this week the data is very poor on China very poor in China real estate so that's going to be a dampler for the uh the domestic consumer”
The Fed will not cut rates in 2023 unless it has broken something, and while some regional banks are exposed and may fail, the system has been reasonably well controlled so far.
“will they cut I don't think they'll cut this here unless they're really broken something now have they broken something now uh it's been well reasonably well controlled um I think maybe you know a handful of not of other Regional banks are probably exposed uh and we may see some more accents but they have controlled it”
The UK secondary banking crisis of the early 1970s followed a predictable sequence: secondary banking crisis → commercial real estate crisis → doom loop that propagated through the banking system. The current US situation is following an identical sequence of events.
“we wrote the piece about the SEC secondary banking crisis in the UK in the early 70s um where we said you would the I the the comparison was fantastic started off as a secondary banking crisis and then within months which created the Lifeboat by the bank of England okay but with it within months it turned into a commercial real estate crisis which had a doom Loop effect on the banks so it became secondary banking crisis commercial real estate crisis well funny that looks exactly the same sequence of events in the U.S”
De-dollarization narrative is overstated; the dollar has 'earned the trust' of market participants because common law protects property rights and contract law in the US and UK, whereas yuan-based alternatives lack legal certainty.
“our view on the dollar is apart from the the economic arguments against the dollarization the dollar has earned the trust and people say well you know They confiscated Russian assets you're a private individual or you're a private firm you have law common law common law prevails in the U.S it prevails in the UK it's the law of Finance it's the law of property rights so yes that's that's where you go uh if I was I know one major bank with quite a lot of exposure to the Far East uh one of the most senior people is saying we have to focus on anglosphere where we knew we've got our rights protected by the legal system”
SVB-style margin loans to California billionaires at 1% against illiquid private company equity collateral with massive interest rate risk represent poor risk management, as loan values have been clobbered by the move from 0% to 5.25% rates.
“King of the one percent mortgage against collateral is more questionable than not if that makes sense oh I've got a private company we've just raised money it's worth three billion dollars I own 30 how much of a mortgage can I get well you can get this and we'll give you the mortgage one percent right um yes but I think that the odds of being paid back are accurately perceived as very high because this person is a billionaire... it's it's just that they got these sweetheart deals so that they would keep their money at the bank... there's tons of interest rate risk you know the value of a mortgage gets clobbered when you make it at one percent when interest rates are zero percent and then interest rates go to 5.25”
China's privatization of financial sector is the next frontier of Xi's centralization; recent edicts banned bonuses across the financial sector including foreign branches, signaling intent to consolidate control of finance.
“I think from what we hear Finance is the next shoe to drop anyway in terms of where you know what where's the next tech it's going to be in finance that's where they they're going they're going for um so much of Finance is already government-owned right in China yes but a lot you know it's been a lot of Finance in China has been based on the the Western model so you know there was a edit that came out a few weeks ago no bonuses bonuses are no longer permitted uh and that included the foreign branches right”
The optimal opportunity in commercial real estate is in factory and industrial space because of the decoupling and re-shoring trends, where the Chips Act and other industrial policy are driving demand; however, this space is scarce and mostly accessible only through private equity or direct lending positions
“let me spin something optimistic out of the commercial real estate market because of the trend towards the decoupling Trend and the trend towards reassuring and onshoring and Friends showing got to try and find factory space that's the commercial real estate that in my mind has got massive upside would you know if there was an active Market in Mexico you probably would buy Mexican Factory space but certainly in the states where you know the southern states and the states where the chips act have focused on you want to buy”
Interest rates are unlikely to return to zero (ZIRP) in the next decade because the Fed and market want more flexibility and fear being caught unprepared again; the floor is likely 1-1.5%, even that may be stretching it.
“let me put in the next decade I doubt it I think there I think there's a reticence to get back to that situation Nick are you confident enough in that view to put on some let's see what would they be uh short call spreads where you're basically betting that rates don't go to zero percent again because I know that a lot of people had drum managers people on Twitter who say that they want to buy these call spreads but I don't know what do you want to sell one of these if you think zurp is not going to be you know is there because your interest rate policies yeah I would say I think I think the floor has got to be one one and a half percent and I think that may even be stretching it”
Bond yields will experience bull steepening (short-end yields falling faster than long-end) as recession fears cause the Fed to cut rates, moving the yield curve from inversion to positive slope (2s10s from negative to positive).
“I think you're gonna see is bonds lower yields the bond market their yields I think you're going to start to see and we've started we've seen it already where is it right now um okay twos fives at 52 basis points two's ten sorry uh if that Yoko starts to gather Pace on the bull steepening so that would be bold the inversion and then ball steepening”
The top 25 US banks hold only $700 billion of commercial real estate debt, representing just 4% of their total assets, making commercial real estate exposure negligible for systemically important banks.
“other top 25 Banks held 700 billion of cre debt okay that's four percent of their total assets yeah insignificant”
Capital flows out of Hong Kong to Singapore have been disrupted; an example is an investment banker at a major financial firm who was trying to move $200 million from Hong Kong to Singapore to set up a family office but disappeared before the transfer was complete
“although it sometimes gets stopped uh that investment banker um ball I think his first name I never remember the second name who disappeared who's disappeared a real um Rainmaker for a lot of these Tech funds in in China he was disappeared at the time he was trying to move 200 million from Hong Kong to Singapore to set up a family office for him and his family”
The executive order on reverse CFIUS (restricting US outbound investment in China) is imminent and will be followed by Congressional legislation that is wider and more restrictive, including clean energy, biotech, critical minerals, and eventually publicly traded stock restrictions with retroactive clawbacks.
“the executive order is coming uh the initial talk over the last two weeks was it was going to come before G7 then we had Jake Sullivan me one year his Chinese foreign minister um and it seems that there were two days of substantive talks one wonders whether President Biden will be using reverse cypheus with regard to an executive order as a element of it as a quid pro quo... so we expect Congress to issue legislation where wherein you will add to the outbound investment Bard or subject to notification clean energy technology biotech and biomanufacturing particularly biotech critical minerals okay now we also expect that will then will then start to see publicly traded Investments curtailed and retroactive clawback on previous Investments”
China has retaliated against reverse CFIUS by changing its Espionage Act at the end of April to include consulting and due diligence activities, effectively criminalizing normal investment due diligence and making consulting firms like Bane, McKinsey, and CatVision targets for arrest.
“back at the end of April China changed the legislation on their Espionage Act to include Consulting and it's bringing due diligence into the you know this these new laws and regulations brings due diligence within Espionage terminology so if you are an investor whether you're a public share investor or a private Equity or venture capital and you can't or corporate you can't do your due diligence are you going to be making those Investments you may not be able to because due diligence is one of the core facets of an investment process and you know it got so bad with Bane that the Chinese arrested six of their local employees um”
Chinese regulators are changing goalposts on investment restrictions; a venture capital fund with early investor lockup expiring after one year was told they couldn't sell their shares, with regulators claiming they could 'decide' the lockup terms, demonstrating absence of rule of law.
“I'll give you a very simple example as a practical anecdote from a friend of mine Who's involved in a venture capital fund and they had an investment in a Chinese startup which has just gone IPO in China and in the documentation it said obviously restrictions for early investors is one year thereafter you can sell your shares one year has passed and they they went to sell the shares VC fund and the Lo the Chinese regulator said well you can't you're gonna have to wait another six months a year or whenever I say you can they say well but in the documentation it says that we could set up well I can decide so the goal posts like this all over the place”
Xi's administration is replacing experienced economic policymakers with political ideologues; key economics experts like Li Keqiang and others were removed from the Politburo Standing Committee, leaving only political advisors like Wang Huning.
“go back to the pilot Bureau where he took out all the economics guys Lee Hurley Ki Chang they're out so what we are seeing is political ideology is trumping economics because the economy isn't doing well”
Jack Ma is now teaching in Japan, having been sidelined by Xi despite being a major global entrepreneur whose advice would normally be sought by US and Chinese leaders; this reflects how Xi's centralization squanders economic talent.
“I mean Jack ma is now teaching in Japan you would want Jack ma involved in helping the economy wouldn't you huge success but a huge company that's going to be split into six these there's for somebody that you know even Biden Trump and Biden would both call into the White House and seek their advice if the economy and the Earth so it makes in that respect makes no sense”
China's State Security Agency has been made independent from the Communist Party and now reports directly to Xi, making it equivalent to the KGB and increasing centralization of political control.
“the updated Espionage law at the same time president XI took the state Security Agency which is an equivalent to the KGB made it independent from the the placing side of China so it's now independent acts like the KGB and it reports only to she”
All Chinese companies must now have CCP members on their boards with decision-making power; corporate meetings must seek CCP approval for business decisions, making profit secondary to political control.
“you have to have CCP built into any private company now so I I think back to any any of the viewers that have watched Dr Zhivago there was that famous scene on the train where the Communists that parachute said you're going to do this this and this and it was completely illogical that's how meetings at the company they have to ask permission of the CCP representative whether they can do this or that so profit and is that enshrined in law is there a paper trail for that or is that just an understanding they have a phone call uh no no no I think I I believe it was in it's in Chinese law it was definitely an announcement by she”
The decline in office real estate was foreseeable by CMBS portfolio managers because once multi-family residential problems emerged, the structural shift in office was obvious, yet many failed to reposition their portfolios ahead of the downturn
“cmbs you should have been able to do something should have seen this this was clear you know once they started talking about the problems of multi-residential commercial real estate you have this next stage with you know the obvious system to that was the office that huge you know this is intense human uh population within those those real estate areas that was clearly all going to change uh so you know we've been we've been telling people wouldn't touch commercial real estate particularly office for the last year and a half”
Greenspan was expert at 25 basis point rate moves; the current Fed compresses rate decisions into larger moves (50-75 bps) due to time compression in markets, reflecting structural change in how monetary policy operates.
“remember Greenspan was the expert at 25 basis points move yes he did hire rate hikes and rate cards but those were usually in exceptional circumstances um I think you know that again another part of the structural changes everything time has been compressed right time to react to stuff has been compressed”
Interest rates at current levels (5.25%) are not historically cheap; they must be viewed as cheap compared to the 2010s but rates were at these levels in the 1980s, suggesting that current rates represent a reversion to historical norms rather than emergency levels
“before before um 07 you know you go back to the 90s even it you go back this was this was cheap where we are now is considered cheap back in the 80s for sure right”
Russia's current alignment with China is unstable because Putin's strategic vision is Russian Empire restoration via Orthodox Church and white Russian nationalist principles, incompatible with being a vassal state to China.
“Putin's people okay it was talk it's a book talking about the history of Vladimir Putin how he came to be president from having been an underlying to the mayor of Saint Petersburg and it's supported by this in Petersburg KGB was it but the the basic principles upon which they took over the presidency and they gained more power after his re-election and the Elson family moved away was off the principles of the Russian Orthodox church and the white russian community particularly those based in Switzerland those principles are looking for Russian Empire so how is it consistent that Putin is now has created Russia as a vassal state to the Chinese I just find that incompatible”
Xi has implemented policies consistent with Stalinism—extreme centralization and control—rather than Marxism, including mandatory CCP representation on all private company boards and 80,000 new agricultural police ('crop cops') to enforce crop production mandates.
“so once when I see people say well she is a Marxist no he's actually a stalinist he's a particular brand of Marxism and if you recall your your history Stalin was very centralized and that and very controlling and it was quite it was not a good place to be you know if you got on the wrong side goodbye um... you've got these aggregate Agriculture and that's 80 000 more so there's obviously a lot more already there so they're controlling agricultural production this is all very stalinist”
Dollar strength is poised for an upswing in coming months as disappointed traders reverse out of China longs and European longs that were initiated at the beginning of the year, reversing the consensus narrative of dollar weakness and de-dollarization.
“we've been negative in the direction of the dollar I actually think the dollars on the verge of having another upswing... a lot of people put money into China at the beginning of the year a lot of people when long Europe out of the US and it's sort of must be disappointing them”
The narrowing of equity market leadership, with just Apple and Microsoft driving returns, creates dangerous concentration risk that is more vulnerable to a sudden reversal than a broadly distributed rally.
“I'm a little concerned about the narrowing of the equity Market I think that's dangerous... it's just Apple Microsoft are leading the way exactly I mean I just I find that dangerous”
China has shifted soybean procurement from the US to Brazil; Chinese government controls agricultural production and 'crop cops' enforce mandates, creating structural demand shift.
“and they've also shifted their exporter of choice from U.S to Brazil um it's sort of Nick we lost your video... these sorts of control features and adjustments I mean they're importing Australian coal again because they need to but when the coal band was on in Australia Peabody Energy and the Americans exported to their heart's content and you know he makes a lot of soybeans right and when but when they stop these things it has implications in the domestic U.S market”
Blackstone gating its Real Estate Investment Trust (blocking redemptions) is not a long-term solution, but the fact that Blackstone is large enough that it probably doesn't matter reflects the concentration of capital in the shadow banking system.
“we've seen uh Blackstone gating right that's not a long-term solution but they're so big it probably doesn't matter to them there are clearly issues and those issues have got to play out before we get any resolution”
China's economic data is disappointing even when compared favorably to prior year, as recent data releases that look good on a year-over-year basis are significantly below consensus expectations.
“now we're seeing that China's data is actually disappointing even the data they came out last night which was Monday um on the economic data look good but if you if you looked at where they were compared with from last year they were always going to look good but they were significantly below estimation”
The Federal Reserve is 50/50 on whether it will hike another 25 basis points in June because it is data dependent and inflation remains well above its 2% target across multiple measures.
“I think it's 50 50 on June as to whether they hike another 25 really yeah because they are data dependent and we still have inflation way above their target whichever measure you tend to to take right”
Major financial institutions are de-emphasizing China: Vanguard closed its office and divested local employees, and a major Canadian pension fund closed its Shanghai office, pulling investment decisions back to Toronto.
“Bangkok Vanguard closed its office and got rid of uh um its local employees one of the Canadian big Canadian Pension funds closed at Shanghai office all investment back to to uh I believe Toronto why did they close their office and one of the consequences of that directly like I think you still can invest in China via Vanguard yes you can but it there is a de-emphasis of putting presents there there is a de-emphasis for Bank out of raising Chinese funds okay”
The risk-managed approach going forward is to focus on defensive positioning: treat investing as a risk management process, aim to preserve capital while allowing profitable trades, watch for recession signals (curve steepening, commodity weakness), and maintain hedges against downside
“you've got to consider investing as a risk management process risk can make money but you've got to manage your risk and that means you've also got to accept that there's downside to it so that's what we're trying to minimize is and it inform people as to downside but at the same time allow them to let the upside trades run right”
The dollar will strengthen against the Chinese yuan (CNH) because China needs cheaper exports to boost its economy, requiring a weaker yuan; the CNH/USD should test 7.40 (weak yuan) and could breach it.
“it seems to me apart from the economic rationale you got to be long dollar against the Chinese one the offshore so USD versus cnh and you know we're just skirting below 7 right now so the data today has had an impact so 699.70 I suspect we're making retests at 7 40 higher breakthrough because the Chinese if they if they're not getting the demand from domestic consumer how are they gonna where are they going to get the demand to boost the economy and keep the population happy exports you need a lot cheaper you aren't than where we are now”
The Fed's shift away from 'soft landing' language (now using 'bumpy') reflects acknowledgment that steering an economy to a soft landing is impossible.
“soft Landing it's it's impossible to steer to a soft Landing yes so they kind of have Powell has backed off in fact soft Landing a little bit he's using words like bumpy now exactly”
China's bond market no longer has price transparency; the three firms that provided price data (Mint and others) have stopped, making it impossible to know bond trading prices on Bloomberg, deterring foreign investors.
“we now no longer have price transparency which means there's one price Market maker and that's the Chinese government so even if you're buying through connect and you're buying offshore when you go to sell because we've got nowhere you know mint is no longer doing it the three big companies that were providing price data you can't get in on Bloomberg I didn't believe it just double check yeah so you don't know where it's training anymore”
Trucking rates in the US have begun to dive, and freight rates on the shipping side have already crashed back down, suggesting recessionary conditions are emerging and lagging in trucking before spreading.
“you also had uh you see you started seeing trucking rates and Freight rates internally into the US start to dive now they lag Freight rates on the shipping side the freight rates are back down for those can we see that again in trucking it's quite possible if that's the case where we've got a recessionary situation”
Bull steepening should only happen due to recession, because market expectations of near-term Fed cuts are premature given sticky inflation and strong labor markets.
“if we see that both evening that's a recession that's because of a recession then you see the FED starting to cut uh I don't see how a recession is good for risk and if we look at disappointing economic data and the implications of that right now just look at where copper is”
The host (Jack) and Glinsman are walking the market levels: short-end yields need to fall for bull steepening recession signal; copper and gold/copper ratio show risk-off sentiment not reflected in stock prices; trucking rates collapsing are a recession canary.
“we have to see the market will tell you when there's a recession coming and it's that ball steepener in the treasury curve that's the thing that's going to tell you if you see that and we've had a partial bully inversion but if if the two's tens gets to positive then you know stuff is getting bad and it gets there because two-year yields fall not because 10 year years rise”
Malmgren Glinsman predicted a credit crunch in March-April 2023, and that prediction came to fruition, vindicating their March 2023 prediction and their advice to hedge short treasury yield spreads.
“we had called in January for uh some sort of credit crunch in March April which actually came to fruition uh better lucking than clever we got the timing you know the timing right uh which is why we were saying look at your portfolio if your short treasury is vital spread okay on the price or it puts red on the yield uh that also went well”
The Federal Reserve has proven apolitical by maintaining rate hikes before the 2022 midterms despite political pressure, suggesting it will resist political pressure from a 2024 election to cut rates prematurely
“I think that was a good expression of the FED being apolitical and remember who put Jay Powell in and remember what party with whom he is Affiliated yes he's got more democrat-appointed members of the fomc and the regional Banks but always remember the FED isn't a democracy and he's affiliated with the Republican party that's historically his”
The State Department issued a travel advisory warning American citizens against traveling to China, signaling heightened geopolitical tension and increasing personae non gratae status for Americans
“the state department I don't know where you saw this a couple of days ago issued a travel advisory about going to China for American citizens so it's all heating up”
Over the past 6 months, equity markets and bond markets have both ground higher (bonds rallying on falling yields), but if you've stepped away for 6 months nothing has fundamentally changed in levels.
“the past six months has been chopped you know Equity markets grinded higher it's been bonds rally as well but it's you know kind of you know up and down up and down uh if you've gone away for six months nothing really would have changed too”
Malmgren Glinsman's daily research product at $17.31/week provides actionable macro, geopolitical, sector alpha, and risk management hedges at institutional-quality but retail-accessible pricing.
“I would say that the daily particularly at the rate we've agreed with with you is what are we looking at um we're looking at 17.31 a week what are you paying for your newspapers or various alternative search and you know we're right at the front line you know we talked to the big institutions we don't necessarily convey their views but um where we hear something interesting it gets reported”