Sean Foo: China Is Dumping U.S. Treasuries — The AI Bubble Is Next to Fall

本站添加: 2026-06-07

[00:00:00]Welcome back. We are joined today by Sean Fu, uh, market analyst and expert on China. So, uh, thank you very much for coming back on the program. Uh, a lot has happened since last time we spoke.

[00:00:13]>> Sure. Of course, Glenn, glad to be here.

[00:00:16]>> Well, besides the actual wars, uh, not just being fought against Russia, but also in Iran, uh, we forget that there's also, of course, the ongoing economic war between the United States and China.

[00:00:28]I I want to start off by asking how you view uh this economic war going especially with focus on the US treasuries. Are is China still looking at further investment or do you think they're going to essentially begin to reduce their position in this market?

[00:00:47]>> I think more or less China is done with US treasuries. I mean in the last month they dumped around 40 billion or 41 billion and going forward I think China doesn't really see a point in uh coupling their economies too tightly with the United States. Uh if we look at the entire debacle over the last 60 to 90 days especially when we talk about the Iran war the war in Iran well at the grand scheme of things it is in a way to contain the Chinese economy. Now if we look at the flows of oil from Homus all the way to China, China does buy a lot of Euranian oil and right now their flows have been compromised. Right now obviously that isn't really a big problem for China because 90 to 95% of of their power generation is not from oil and gas is from renewables is from coal and most of the supply chains China controls themselves. But it does show a concerted effort on Washington to really use the US military and other sanctions geopolitical schemes to really corner China's economy. Now if we look at what happened during the recent Trump she summit you know when Trump brought his delegation including his family to China to Beijing uh to talk with President Xi.

[00:02:05]The grand idea was basically to, you know, throw the heads of Iran, throw the heads of Venezuela on the floor like uh like like a conquering hero in order to intimidate the Chinese saying that, hey, we managed to do X, Y, and Z. We managed to pressure the Iranians, so it's time for you to comply. But that didn't happen at all. And we could see a lot of um supplication from the Trump administration side. They really didn't push the Chinese on anything and they even accepted phrases from the Chinese saying that yeah we'll look into rare earths but chances are they won't right they'll just keep their hands on the tap and I I don't think China is going to really uh recouple themselves with the United States going forward least of all buying more treasuries.

[00:02:52]>> Yeah. Well, in in the United States, there's many who thinks that uh the increasing energy uh prices will essentially benefit the United States as it's considered self-sufficient at least in some areas uh and also an exporter.

[00:03:08]So the money the price will go up. They will may have greater income. Also countries will then um well also be forced to be spend more on energy in US dollars. And uh as you said, many are hoping that this will also uh slow down the Chinese economy. Well, you you mentioned the Chinese side of this, but how do you assess the American side? Do you think this would actually work that this would end up benefiting the United States? Because, you know, the US is part of the world. I I know they they seem like they're trying to build up uh well insulate themsel build up some western hemisphere or or exclusive region of security to insulate themsel from the rest of the world. But uh but to what extent do you think this is possible?

[00:03:57]>> Well, I don't think it's really possible at all. Right? Let's just take a look at an example that you just gave. Now it's true that because of the constricted oil flows from Homos a lot of countries they're being forced to buy more American oil. Now that is true and because oil is a global market the price of oil goes up for macaron crude as well. So if you look at all the stock prices of the big companies from Chevron to Exxon they've been exploding higher and higher over the last 90 days right now obviously but the big problem with that is oil is a global market. So prices for everyday Americans also go up. Now if we look at the inflation numbers over the last two two months, it has been uh absolutely uh disgusting, right? You know, inflation has gone from 2.4%.

[00:04:47]Uh it has gone up two months ago to 2.8%.

[00:04:50]And now it's around 3.8%. So there is a trend of inflation going up. Now, no doubt that a lot of the big oil companies, they're going to rake it in.

[00:04:59]But other parts of the real economy is going to suffer, right? Americans, they're now paying between uh $500 to maybe $1,000 more a year for just uh their gas bills. So, sooner or later, consumption is going to crack. Something has to give. They're not going to spend perhaps in restaurants. They're going to buy less of Walmart. They're going to slash their discretionary spending. So a lot of cracks already being formed in the US economy and because of higher energy prices, inflation goes up, bond yields are going to stay high as well.

[00:05:32]So if we look at the other side of the equation where Trump is trying desperately to tout the new AI economy, he's trying to keep the bubble afloat.

[00:05:40]They're trying to build fields of data centers. Well, you can only keep doing that to a certain degree. Money is finite. And if interest rates still continue to go up or at least stay stubbly high, well, it's going to backfire on the US economy sooner or later. Right now, we're looking at the stock market at bubbish valuations. You know, Trump keeps telling us that the war is on, the war is off. You know, they're going to discuss something with Iran or no, now we want them uh to give up the nuclear weapons and sign it on paper. So, everyone is really in a big state of confusion and I don't think the US can isolate themselves. In fact, they're just stacking stacking more cards on this house of cards.

[00:06:23]>> Yeah, Trump has become the war the boy who cried wolf. I mean, every day it's either Iran will be bombed again or we're so close to a deal. I mean [clears throat] it's a bit strange that the markets still respond to his statements because they seem you know not very credible and then very evidently aimed towards managing the markets or influencing them. Um but uh well while while the financial markets are you know you can say are all in very difficult position a key aspect of this um economic war though is still the the the tech fight or the chip wars if we can call it this and uh uh yeah if we go back we remember that initially the goal was or the assumption was if they would cut off China from American chips then somehow all their major tech giants would then begin to stumble. Uh either they would stagnate or begin to decline.

[00:07:24]Obviously, this didn't play out. But uh where do we stand today in this chip war?

[00:07:31]Most recently, Huawei, they revealed a breakthrough and innovation, right? They are now beginning to make chips at least by 2031 to the scale that they can compete with Nvidia, they can compete with TSMC. And this is what happens when you push the Chinese to a corner. You force them to innovate and they have no choice. Either they innovate or they lose the AI race. Now over the last one to two years, we have seen the Chinese economy, Chinese engineers come up with very uh interesting solutions uh to the tech race. Now, if Nvidia and Trump deny the most powerful AI chips to China, well, the first solution was basically to create a lower-end version of theirs and just string a bunch of chips together, right? Instead of using maybe 100 Nvidia chips, we'll use a thousand Huawei chips. And considering the energy build out in China, energy prices is a quarter uh that of the United States, at least 50% cheaper. And if we look at the entire AI uh race right the base layer is always energy. As long as you have sufficient and you have cheap enough energy everything else will follow right your manufacturing it's more uh gets cheaper you can make more mistakes you can undergo more trial and errors and eventually you can just get up to better innovation through brute force.

[00:08:56]And this is why I think the chip race is starting to backfire. you know when and when when Jensen Huang of Nvidia went all the way to China I think he basically gave up he wanted the administration to just uh allow China uh to buy the high-end chips because China isn't even importing much of the lower van chips right China already understand hey we are going to leap frog these technology sooner or later why do we want to invite uh Nvidia to really get a foothold into the market and because of that 50% of the global market is now effectively shut away from the United States. No, even on the visit itself, uh, China, Beijing, they banned, if I'm not wrong, an RTX Nvidia gaming chip that some companies use for AI as well.

[00:09:46]And that was during the same trip where Trump uh went to visit President Xi. So, we can already tell a bit of the ring fencing going on in plain sight. I think the AI war, I won't say the US has lost it completely, but they're going to have to find a way to desperately make up the shortfall when you lose 50% of the market. And maybe that's why over the last week, Jensen Huang came out uh onto the convention holding two laptops, telling the whole world that now Nvidia is going to go into the personal laptop business because where else can you find the revenue from when half of the market is gone from you?

[00:10:25]It's kind of strange if look back remember it was the United States that decided to a large extent to cut itself from off from the Chinese market. It's um you know if you want to lead innovation you do need some revenue stream and if there's no money coming in how can they continue to to fuel this uh and uh I guess this is where there's been a lot of focus on uh the argument that the AI market in the United States is in a bubble that uh yeah the financing especially is also not sustainable. It appears that this has taken a further hit though by the Middle East because a lot of the Gulf states were, you know, they can't sell all their energy and they used to pump a lot of money into not just US treasuries but the AI in America as well. Do you see this having an effect or do you think this is exaggerated?

[00:11:16]>> Well, I think it does have a bit of an effect and it really depends on how Trump ends the war, right? Does he end a war where the Gulf allies understand that they're not going to get powered by Iran forever and where the Gulf allies realize that all right at least the United States is not treating us completely like trash? Because if the United States continues this where the war continues on indefinitely, we we are going to see more uh so-called revolt in the alliances. So far we have already seen the UAE the Emirates break away from OPEC and that really shows you that um you know once the war ends they need a lot of revenue to rebuild their shattered economy. Tourism is down a lot of the oil facilities has been hit and if I'm not wrong uh airport in Kuwait has been hammered yesterday or a few days ago. uh Saudi Arabia, they're desperately shifting their oil flows from Tomos all the way to the Red Sea and and the Elmandep Street is always under uh the constant threat um of the Houthis if I'm not wrong. So because of that, I think it really depends on how Trump manages to settle the war, right?

[00:12:27]Can he come together to make some kind of a court that pleases both the Iranians and uh the Gulf allies? I think that's going to be hard. And going forward, I don't think um the Gulf allies, you know, they're going to place all their eggs in the same US basket as well.

[00:12:45]I think we were talking about how flows from uh the Gulf goes into US stocks and bonds. Now, I think that is going to be compromised as well. Over the last 3 days, we have seen quite a few announcements from Scott Besson, the Treasury Secretary about how Ian assets has been confiscated. Now it's not much.

[00:13:06]He bragged about confiscating around $1 billion worth of giving in crypto. Now this is something that is quite alarming because a lot of us we all come with the concept that money uh if you buy bitcoin if you buy cryptocurrencies is somewhere out in the ether is supposed to be anominous. No one can see it. You can transfer it from country A to country B.

[00:13:29]But it has been shown that the US manages to trace it on the public blockchain. they can go to the exchanges and they can just freeze it or take it away. So, right now there's a lot of uncertainty going on on where the Gulf allies they're going to put their money to. Now, obviously, one uh good option, the traditional option will be to buy gold, just ship the gold to your country and store in a bulk. There are other options where you can invest into so-cal adversary economies of the US.

[00:13:58]Obviously, China is one where you'll be at least protected within the Chinese sphere of influence. So, it's about spreading your eggs across the basket.

[00:14:06]And I don't think that'll be good for US assets in general.

[00:14:11]>> Oh, well, this is what happens in economic wars. There's a diminishing trust. People have to diversify. It's quite extraordinary if you think how short period of time it took us to get here where the United States first uh well starts to seize and well steal uh sovereign assets of countries uh they steal gold as we've seen from countries uh hijack ships and uh uh of course uh now they're getting into the cryptos able to to seize this as well. Uh so no this obviously countries have to react to this but uh but the Gulf states so it's not um uh this lesson that the US security arrangements are linked to to the economic links with the United States.

[00:14:59]So this is not a new thing that is for the Gulf States. The fact that they were have been protected by the US is a large reason why again they sell their oil in dollars as opposed to well for example gold or the Chinese one. But um uh but it's also a reason why they invest a lot of this money in the United States.

[00:15:19]However, what we've seen in the Iran war though is first the well the Americans um used a lot of their weapons up in Ukraine. So they didn't have enough for to fight Iran. And for this reason they had to begin to divert weapons that were supposed to go to Europe to fight Russia. Then they also had to divert weapons out of East Asia especially South Korea and then send it down to the Gulf States. And even there they prioritized uh Israel. So this military overstretch it must be sending some signals to the Europeans, the Gulf States, East Asia that the Americans can't really protect everyone anymore.

[00:16:01]But uh how do you see you know again in all these regions how does that translate into economics? Because does it mean that the South Koreans will begin to decouple a bit from the American economy and Europeans or or are we not quite there yet?

[00:16:17]>> I think we're not quite there yet.

[00:16:19]There's still a lot of uh partnerships going on between the Japanese, the Koreans and the United States. Uh as we can see, there's now a lot of concerted effort uh by the US and all these economies to invest between each other.

[00:16:33]And most recently we can also see Nvidia investing more money into TSMC or at least to Taiwan. So that in a form is a kind of technological shield right uh using money to shield their economies at least from the perceived threat of China. I think going forward we are going to see a lot of money printing a lot of debt going on when it comes to rearmaments. You know, at the end of the day, all these economies, whether it be the Koreans, whether it be the Japanese, they already can see in real time, they cannot rely solely on the American security umbrella. As you just pointed out, a lot of missiles, a lot of weapon systems, they have been shifted uh to other fronts that is active, right?

[00:17:15]Whether that be Ukraine, whether that be the Iranian front.

[00:17:19]So, all these countries, they really know and there speculation that they will have to step up. they will have um to borrow more more money in order to build all those weapons. So I think we are going to enter a very dangerous age of money printing where currencies they lose even more value uh in order to build out the weapons and even today there's still the perceived threat that China is going to invade any country any time in the Indo Pacific right or as Asia Pacific. So this constant fear mongering, I think it's going to push uh the the US and their allies to just rearm even faster.

[00:18:00]>> Well, I no I I I get the same impression that uh especially the Europeans now and yeah, everyone wants to arm themselves to the teeth. Uh the Americans I'm not sure if this yet passed it yet to spend one and a half trillion on the military.

[00:18:15]It's again it it's a lot of weapons and uh it can fuel many industries during this kind of um military buildup.

[00:18:23]There's often technological innovation, but no one in the west or, you know, in the east as well, countries like Japan, they're not really suited yet for it.

[00:18:33]Financially, it seems, I mean, they're all ridden with debt and inflation is already high. And the United States, where they're ticking now towards a $40 trillion uh debt, that's a big hole. I mean, to to to what extent do you think this can continue? Because if if an economic crisis would begin to unfold uh you know banks would be threatened. What what weapons do they have now though to essentially restore their markets or stabilize it because you know if they increase the interest rates you know they can't service $4 trillion debt. If they reduce the interest they you know they will further uh destroy their currency. Uh more countries might dd dollararize. So what what exactly you know can we expect uh in terms of I guess financial stability moving forward?

[00:19:27]>> Well, I think true market financial stability is now more or less officially gone. Right. We are now in a new world where low interest rates are more or less finished. Interest rates have been staying sticky. They have been going higher and as you said the $40 trillion debt is just going to balloon even worse. Now a lot of us we were all hoping or a lot of market participants still hoping for rate cuts by the end of this year but if we look at what's happening with the Federal Reserve the US central bank there's very good chance they'll actually hike in 2027. So this is going to make the debt situation even worse. Now, the United States, they already trapped in a in a quandry, right? If they decide to issue more bonds in order to pay off for the deficits, interest rates, yields are going to go even higher and that will push the national debt off a cliff.

[00:20:25]However, if they decide to cut rates uh in order to ease the debt burden, inflation will go up and the markets will punish them with even higher rates down the road. So everything just leads down to the central bank saving the entire system. Now as you said uh they cannot the US economy cannot afford or freeze of the money supply where everything suddenly slows down right uh no one is spending the banks are not lending the entire economy as we know it will grind to halt and this points to the Fed either suddenly or outwardly buying bonds to flood the market with cash flood the market with liquidity. So we are going to move towards a period where either a systemic crisis happens.

[00:21:09]For example, let's say the AI bubble bursts or the semiconductor bubble implodes or somehow everyone loses faith because Trump's war on Iran has taken too long and then basically confidence collapses. So the Fed will come in and they'll tell the whole world, hey, we are printing three trillion. or if that doesn't happen, it'll be a slow print where hundreds of billions of dollars a year will be suddenly pumped into the situation. And if we look over the last uh all the way trace back to December, six or seven months, the Fed has been printing money into the system already.

[00:21:46]>> Yeah. I often think back at the global financial crisis in 2008 and 9 when uh uh well essentially there were no alternatives to the United States. It was argued, you know, the same as the dollar was the cleanest shirt in the hamper essentially. It's uh and there wasn't much that could be done to to diversify. But as you know, after this, this is when China began to develop, you know, its own uh transportation corridors. It attempted to replace much of the US supply chains, develop its own uh development banks and uh using more national currencies. And uh I I know that in this meeting you mentioned before between she and Trump the hope was I think by many that they would reach some grand bargain. That wasn't achieved. Uh however after this meeting with Trump um uh President Putin came to Beijing as well and they they had this common declaration on the establishment of a multipolar world and uh I was thinking you know only three years ago Putin and she was caught on mic making the onopen mic cut saying that you know the world will change more than it has in a hundred years now. So what what do you think will be essentially the the solution when uh when the US markets begin to melt down?

[00:23:06]It's um you know its tech war won't won't prevail, the dollar will begin to struggle. What do you think China is planning to do or how how will it will essentially get out of the splash zone and uh adjust to these new new realities because it doesn't look like they will will behave the same way as they did uh back in the first global fin not first but in the 2008 global financial crisis.

[00:23:34]>> Sure. I think we can see that China and Russia they are both consolidating even closer together. I think we all remember back in 2022, 2023, uh, you know, there was a joke and a meme that the US was pushing Russia closer to China because of because of all the sanctions and how the G7 hammered Russia, which is true.

[00:23:56]And Trump is doing the exact same mistake, right? He's pushing Russia closer to China as well, especially when it comes to oil flows and energy flows.

[00:24:07]Now what China has been doing over the last three months just recently over the last three weeks is slowly decouple their entire financial economy from the US. Now over the last two weeks China imposed even more capital controls on people's savings that's leaving China going to Hong Kong and then from Hong Kong living to other western economies. So China has had enough of that. So they're clamping it down. They're telling the brokers all right you're not going to allow mainland Chinese uh to send their money to you and then uh disperse to the rest of the world. So you can see China already starting to wing fence uh their entire capital flows how much money uh they have the savings of their people which is enormous is around over $50 trillion.

[00:24:53]What China is doing is basically concentrating all their investments into either their allies. They're trying to make some headway into Europe if possible, but mainly they're cons uh consolidating around the BRICS allies that includes Brazil and countries along along the belt road. Now, China, I believe they seen the devastation done in the Middle East. Well, I'm not saying they're going to pull out all their investments there, but I think they're going to concentrate more in the Asian region, which is exactly uh where they should be in, right? So, we can expect more cooperation with Russia. we can expect more cooperation with the central Asian states. Uh China definitely will work more together with India as well and obviously Asia. I think at this point China understands that they have to decouple uh from the US in quite a big way.

[00:25:44]>> I think a big consequence of the the the war in the Gulf is also that many countries are worried that the Gulf might Gulf states might actually go under if if this war escalates. But even if it doesn't, it will take a long time for these countries to essentially go back to where they used to be if that can even be achieved. So there seems to been a lot a huge um capital flow that is out of the Gulf States heading towards East Asia to places yeah where you are Singapore and uh and other areas. Uh but uh >> on uh on China trying to decouple from the US, do you see it also limiting its position in Europe? because the Europeans began to a large extent to repeat the American talking points. That is they they're very worried about what they call Chinese overcapacity.

[00:26:34]Again, it's a fantastic concept. It's no one's talking about America's digital overcapacity or the French wine over capacity, the Italian fashion over capacity. But anyways, uh this is a way of saying, you know, let's uh reduce uh try to diminish the Chinese market.

[00:26:53]Sounds Yeah. very defensive. Uh but um but but how do you think China will will respond to this? Because the European markets are already in a very difficult position. they well by cutting themselves off from first Russian energy and now they're being forced to have less contact with the Gulf States uh the energy prices go through the roof they are beginning to de-industrialize in a big way and uh well what does it mean for China because uh even if put politics aside only look at the economics of it uh to what extent you know is Europe still an attractive market or does that fall within the decoupling if say China shifting to the brick states for investments. Does that also entail uh reducing its position in Europe?

[00:27:44]>> Well, I think it does entail China reducing their position in Europe sooner or later if uh the EU decides to ramp up the trade war with China. China will have no choice but to enter other markets whether that's in break Asia or even Africa. Now, as you mentioned, I think Europe is really lost uh they lost in the twilight zone, right? They have lost cheap Russian energy. They have lost flows from uh the Middle East and and I don't see any way for them to really revive their economy and make their own manufacturing attractive unless they do a radical shift of their energy policies. You know, a very simple one could be just to, I don't know, dismantle some of their green policies or start reviving some of their nuclear plants. It's as simple as that because they only have a few options and most of it they find distasteful. You know, running back to Putin for natural gas.

[00:28:40]You know, Bond Lion herself has say it's distasteful. Uh asking the Chinese, you know, for solar panels. Well, you have tariff them. So, you have just raised the cost of production for yourself. So, the Europeans are left with very few options. Now for the Chinese, I don't think they really want to decouple uh with the EU because Europe has always been seen as one of the other big T kingdoms around, right? Apart from the US and China itself and I think they do see that there could be eventual hope for the EU but how long it will take is a very very big question. So I think China they just going around hedging their bets. I don't think China really wants to decouple from the EU. there's still quite a bit of consumer base there. Uh, you know, yeah, there's some definitely some EU countries are still relatively rich. So, I don't think the Chinese they want to just uh cut Europe off forever.

[00:29:36]>> Yeah. Well, it's not too late to change course, I guess. Um, I'm waiting as well for the European leaders to stop doubling down on failed policies and pursue some kind of course correction.

[00:29:47]Uh we're not quite there yet, but perhaps uh when the pain begins to ramp up, they will change course. Um well, I guess that yeah, takes me to my to my last question though. Where where do you think the good money is going these days? Because we're seeing such a such massive disruptions in international markets. We see uh you the geoeconomic central power shifting further to the east. Uh where do people invest? I know you're very big on gold and well silver and metals, but uh where where else do people essentially put their money these days in order to I guess preserve their wealth and well ideally grow as well.

[00:30:28]>> Sure. I think now is one of the most difficult eras to really invest.

[00:30:32]Everything looks like a everything looks like it's in a big bubble, right?

[00:30:36]Whether that is the US stock market, whether that is in tech stocks, we see a lot of uh semic semiconductor names like Micron, SK Hineik, Samsung all going up.

[00:30:48]So I think now should be a time where people should really consider the idea of diversification, right? Uh I I can't sit here and tell you that gold is going to go up in a straight line. I can't sit here and tell you that the S&P or even Chinese stocks is going up in straight lines because there's a lot of big risk coming down in the next two to four months. We just need to look at oil crisis from Homos. Um everyone thinks that uh the crisis is done but there's a very big backlog of oil shortages coming in that's going to register in July, register in August. And if there's such a low volume of oil, that means prices are going to go up. And the only way for that to reconcile is for people to consume less. And the price of uh oil will come down because people are consuming less. And that itself could really pop the bubble. But at the same time, if you buy bonds, if you leave your money cash, you're going to get inflated away. So I think this is uh really a time to spread your eggs across the basket. You know, having some gold is not bad. uh having some international stocks uh isn't isn't a worse idea as well. You know, investing to China, the R&B has been strong. That is also a great avenue. So, I don't think I can really give anyone a clear answer right now. Uh personally, I am still buying gold every month, every quarter because I see the long-term trajectory. But to put all your eggs in one single basket at this point of time, I think it's extremely risky.

[00:32:19]>> Well, this is the problem. Every everything all the markets are very integrated and uh once something goes wrong such as say the shutdown of the straight of removes not only would it be energy but it would also be the fertilizers and right >> you know with energy crisis food crisis you can expect the the triggering of uh more conflicts in the world as well this will impact the markets again. So I with this many variables in play with this uh conflicts now between well where most of the great powers so for not all of them are involved it's very difficult to make any predictions at all. Um uh let me ask you where where can people find you because I well I I enjoy your uh the YouTube channel you run so people want to follow you where where can they find you?

[00:33:07]>> Sure. You can just find me at YouTube itself uh YouTube.comfoogold.

[00:33:12]Sean Fu Gold. Uh, basically I cover economics, a bit of geopolitics as well, investments, the bond market, and of course gold and silver.

[00:33:22]>> Well, thanks for taking the time. I always enjoy talking to you and I hope you can come back soon.

[00:33:28]>> Sure. Thanks, Glenn.