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☕️ China says no to rare earths, now what?

Apr 15, 2025

Howdy! 👋

All indices are ticking higher in the early going which makes sense.

As we have talked about many times – including this past Monday on Varney & Co - the perception of clarity may actually be more important that clarity itself when it comes to tariffs.

Makes sense.

Patience and discipline are the most undervalued assets in the market today imho.

Here’s my playbook.

1 – Who’s really selling all those treasuries and what it means for your money

Chances are you’ve heard that the bond market is a wreck because US Treasuries got sold off. (Read)

What you may not know is who is really doing the selling and why.

Here’s the skinny.

China – which is the 2nd largest US creditor after Japan – holds an estimated $750 - $775B in US Treasury securities. And lately, they’ve weaponized ‘em.

Like tariffs weren’t enough! 🤦‍

China appears to be selling US Treasuries and converting the proceeds into German Bunds or Euros. And you can see that in both instruments – the Bund and the Euro – because they bucked the recent global downturn, particularly in long-dated US Treasuries.

Here’s where it gets sticky.

Selling treasuries drives prices down on every remaining treasury out there which means that at some point China will incur losses on its own investments. If not already.

At the same time, neither the Euro nor the Bund is deep enough to absorb all that selling so money is going to flow back to China which means the Yuan will appreciate according to classic economic theory.

Where most economists go off the rails, though, is that China only has a few externally facing banks, all of which are state owned if memory serves: ICBC, CCB, BOC and ABC. I think the real damage is something Beijing is prepared to absorb or has already hedged based on my experience there.

The bigger contributor here is likely Japan where private insurance companies hold a boatload of US Treasuries. They won’t take the selloff lightly and – my guess is – that’s why those companies and Japanese pension funds are selling US Treasuries to buy European fixed income.

Then there’s the hedgies – meaning hedge funds – who are being forced to unwind something called “bond basis trades” to avoid margin calls. Basis trades are typically used by big hedge funds who borrow money to buy US Treasuries while selling futures contracts on those same bonds to profit from the implied price differences.

Got all that? 🤦‍

It’s complicated but not really.

Think about it this way… the vig just got too high so the bookies put different odds on the outcome and the bets are being adjusted to reflect that.

What does this mean for your money?

The clickbait mongers are having a field day scaring investors that “faith in America” is faltering as a safe haven. And while that may be true from an emotional standpoint, quantitively it’s not.

The world’s financial managers are still buying the dollar when the you know what hits the fan.

The selloff is about: 1) China playing nasty, 2) Japan’s managers trying to make a trade and 3) professional investors who borrowed too much and who got pinched for doing that.

This’ll hit home in a few ways. If you’re borrowing money, get ready to pay more… on cars… on homes… on credit cards etc if this doesn’t calm down.

Other than that and from an investing perspective, stay focused on shorter-duration Treasuries and other bonds like those I recommend to the One Bar Ahead® Family.

2 – Free Wi-Fi, but you’ll still pay for pretzels

Starting in 2026, American Airlines will offer free inflight Wi-Fi on most of its fleet—joining Delta, JetBlue, and United in turning internet access into a loyalty battleground. (Read)

AT&T’s picking up the tab—if you’re part of American’s AAdvantage program.
90% of jets will be connected; older wide-bodies still stuck in airplane mode which I found the hard way during my trip home from Italy this spring. Super frustrating because Delta advertised that it was available and buried the “not on all routes” part in the fine print.

Anyhoooo…

Airlines want to turn legroom into logins—because connectivity = customer stickiness. Delta started the trend in 2023. I’ve been using Alaska’s version for years. And United’s going full Starlink for speed freaks at 35,000 feet.

American’s Wi-Fi used to cost $20+.

Now it’s free-ish... and a reason to join their loyalty loop.

But airline stocks?

Still a nonstarter in my mind… thin margins, fuel volatility, labor showdowns and, of course, geopolitics with turbulence.

The real play is connectivity.

Global internet demand is about to go full afterburner.

Grandview says it’s a $2.87T market by 2030 but I think that’s an order of magnitude low.

AST SpaceMobile might be interesting. 🧐

Hmmm.

3 – Uncle Sam needs a new supplier – yesterday!

This is a much bigger deal than most people understand.

China just slapped export controls on 7 rare earth elements. You know, the kind we need for jets, missiles, EVs, drones and more. Basically, everything high-tech. (Read)

No license? No shipment.

There are a handful of US reshoring opportunities and I’m exploring ‘em with an eye on doing a little shopping.

Stay tuned.

Keith’s Investing Tip: If you can't dig it, don't depend on it. At least not in today’s world anyway. 🤷🏻‍

4 – Time to buy Adobe?

Adobe has taken a strategic stake in British startup Synthesia, the company behind lifelike AI-generated avatars for corporate video content. (Read)

Synthesia now serves over 70% of the Fortune 100 and just crossed $100M in annual recurring revenue. The company lets users create AI avatars for enterprise training, onboarding, and marketing—no film crew needed.

Adobe’s backing underscores a bigger shift and that’s what I’m seeing – pun absolutely intended. Video production is being reimagined through AI.

“We’re building the world’s leading AI video platform for enterprise,” said Synthesia’s CEO.

Adobe clearly agrees.

Should you buy it?

I could make the case that AI eats Hollywood next but I’d rather put my money in choices that are farther up the proverbial food chain and dramatically more useful. Not to mention profitable.

One of my faves, for example, has returned ~41% over the past three years or just less than double the SPX which has turned in 23.22% over the same time frame. Hopefully you’ve got this covered as well or are thinking along similar lines. If not, I’ll be here.

Keith’s Investing Tip: Successful investing isn’t just about the stocks you buy. Sometimes it’s knowing what not to buy—especially when there’s a better opportunity staring you in the face.

Speaking of which…

5 – The Dimon difference

Citi, BofA, Goldman, Morgan... they all beat earnings.

Great quarter.

Shrinking stock prices.

Typical.

But JPMorgan?

Still the one to own.

I make a huge stink about why CEOs matter when it comes to investing. Sometimes to the point of being a broken record.

The way I see things, strong leadership isn’t optional. It’s the edge.

Case in point, Jamie Dimon’s steered JPM for two decades—through crises, chaos, and bull runs alike. Most of the other banks have at least 2 and in some cases 5 CEOs during that time frame.

Result?

JPM has delivered a whopping ~1,076.54% return over 20 years—easily outpacing Goldman Sachs, Citi, BofA, and Morgan Stanley which have turned in 544.87%, 36.18%, 32.66% and 288.68% respectively.

To put this in context, the SPY is 579.82%, still great but a fraction of Team Dimon.

Coincidence?

Not a chance.

MyPOV: Own companies with the best “bench” because leadership matters to the pursuit of profits.