Let me begin by reiterating that this is NOT a political blog but a place for the exchange of ideas dedicated to those who desire to improve trading and investing in order to increase profits. My STRENGTH is bringing an in-depth knowledge of political economy and 40-plus years of trading my own funds (while also managing other people’s money via hedge funds).

My personal political views OUGHT not to be relevant for when it comes to generating ideas. I adhere to the wisdom of Deng Xiaoping: “I don’t care if the cat is black or white as long as it catches mice.” While I might criticize certain persons in any political administration it is merely to criticize actions as a way of comprehending policy outcomes. (For example, my disdain for Steven Mnuchin is solely based on what I deem to be his incompetence, a similar contempt that I held for Tim Geithner.)

When I deride the gathering of elites at Davos it is in regards to the notion that insiders with rendezvous in Switzerland as a way of gaining an advantage in information over the ordinary capitalist. For the last eight years I have written my battle cry, PEPPER SPRAY DAVOS. This is a nod to the ugly scene from the University of California–Davis in November 2011, when the campus police lathered pepper spray into the faces of belligerent student protesters. It is with the same malice that I wish global police to send the insiders home from Davos with tears in their eyes.

My view is supported by none other than Adam Smith, the father responsible for much of the thought on the positive results of globalization: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, OR IN SOME CONTRIVANCE TO RAISE PRICES.” We at Notes From Underground will continue to analyze events from the outside looking in, and pursue profitable trades with wisdom and integrity.

***In another affront to market integrity, the Wall Street Journal reported that China was willing to “eliminate US trade imbalance” in six years. The foundation of the Chinese effort was to buy U.S. products in such quantity that the U.S. trade deficit would disappear. This BIT of news was supposedly dated two weeks earlier when the U.S./China negotiations began in Beijing. This news provided a boost to U.S. equities as well as other global stock markets. It also helps explain the persistence of the New Year’s rally, regardless of the data. Will the Chinese really do this?

We have no idea but upon analysis it seems that certain elements failed to respond in similar fashion to the equity markets. The CHINESE YUAN OUGHT to experience a huge rally because a STRONG YUAN would enable an economy restructuring from exports to imports to aid its consumers by making imports CHEAPER. This has been the argument of Michael Pettis for many years. A strong currency is needed and acts as a tax cut to consumers.

Also, upon release of this news the MEXICAN PESO OUGHT to be a major beneficiary of Chinese demand because of the role of supply chains in ensuring competitive U.S. manufacturing. The YUAN/PESO has been a long-watched barometer at NOTES FROM UNDERGROUND as I have watched the CROSS since January 1,1994, the day NAFTA went into effect. It was also the day that the Chinese government depreciated the YUAN by 50 percent to 8.7 yuan/dollar from 5.8 to the dollar. The depreciation of the YUAN was the catalyst for so much global disruption as massive amounts of foreign investment was rendered superfluous in the Chinese efforts to create an export juggernaut. The Mexican peso was trading at 3.10 to the dollar.

Today the Mexican peso is 19.11/dollar while the Chinese yuan is 6.77. If U.S. firms are going to supply China with massive amounts of goods the ultimate beneficiary has to be MEXICO as companies will seek to enhance profits through utilizing cheap Mexican labor with an undervalued currency. This will be an important place to watch for the validity of any news headlines in regards to China-U.S. trade negotiations.

Now, pepper spray DAVOS and show Mnuchin the door. (Oh, yeah, I forgot the worst part of the China news blitz:  Allegedly the White House was searching looking for a to staunch the selloff in equity markets.)