📈 TikTok, China, and Gold

Private Capital Insider: Weekend Edition

Author

Equifund: Weekend Edition
March 16, 2024

While everyone else is talking about the proposed TikTok ban…

So are we! But here’s the side of this story that hasn't been getting much attention. 

This story is quickly turning into something weird. But the other story that’s turning a little weirder?

  • Gold continues to be the story no one is talking about, despite fever pitched buying activity in China.

That’s what we’re talking about in today’s issue of the Weekend Edition.

-Equifund Publishing

Steven Mnuchin Strikes Again As The TikTok Drama Continues

In our previous Weekend Edition, we devoted the entire issue to the “NYCB Story You Haven’t Heard” – a short expose on Trump Treasury Secretary, Steven Mnuchin, and his $1bn investment in NYCB.

And in a “fact is stranger than fiction” moment, this week, we have this bizarre intersection of several different narratives we’ve been tracking over the past six months.

To lead things off…

Mnuchin & Friends are putting together an investor group to purchase TikTok.

For those who’ve never heard the name Steven Mnuchin, the Yale graduate joined investment bank Goldman Sachs in 1985.

After leaving Goldman in 2002, he briefly worked as vice chairman of a hedge fund called ESL Investments, owned by his Yale roommate and Goldman Sachs alumni, Edward Lampert (who would later be kidnapped in 2003, and allegedly managed to persuade his captors to let him go after two days)… 

Mnuchin was named in a lawsuit filed by Sears’ holding company accusing its former chairman, hedge-fund manager Eddie Lampert, of a “multiyear and multifaceted scheme” to siphon more than $2 billion from the company’s coffers to himself, his hedge fund E.S.L. Investments, and other insiders. Source: Vanity Fair

Then, in 2003-2004, he worked as CEO at SFM Capital Management, a fund backed by George Soros…

This was followed up by founding a hedge fund called Dune Capital Management, alongside two former Goldman partners. The firm invested in Trump International Hotel and Tower in Honolulu, as well as the one in Chicago – and was eventually sued by Trump.

In 2004, Mnuchin also launched Dune Entertainment – a film production company that financed more than 75 films (like the X-Men film franchise, including Avatar, The Lego Movies, Godzilla, Mad Max: Fury Road, War Dogs, Ready Player One, and a bunch more you’ve heard of).

So if this story sounds like it comes straight out of Hollywood, that might have something to do with it. 

Since then, he pursued what can reasonably be considered garden variety private equity shenanigans, involved in the bankruptcies of both Kmart and Sears, as well as the entire IndyMac/OneWest/CIT Group saga, which the NY Times alleged “was involved in a string of lawsuits over questionable foreclosures, and settled several cases for millions of dollars.”

In 2016, Mnuchin accepted his nomination for Secretary of the Treasury…

And then, formed his current investment fund, Liberty Strategic Capital, following the 2020 election.

That brings us up to today’s TikTok drama.

For a Congress that is divided on basically every single issue there is, they moved with incredible speed and unity to pass a bill forcing the sale of TikTok.

While the official story is that this sudden interest in banning TikTok is somehow related to China…

President Trump, who once led the charge on the TikTok ban, via executive order – and effectively hooked up his buddy, billionaire Larry Ellison, co-founder of Oracle, to be the American server that all U.S. traffic has to run through, via the $1.5bn Project Texas – has now reversed his position in an interview with CNBC stating:

Frankly, there are a lot of people on TikTok that love it. There are a lot of young kids on TikTok who will go crazy without it. There are a lot of users. There’s a lot of good and there’s a lot of bad with TikTok. 

But the thing I don’t like is that without TikTok, you can make Facebook bigger and I consider Facebook to be an enemy of the people along with a lot of the media.

When asked if TikTok is a national security threat, potentially exposing sensitive data to China, Trump responded: 

You know, if you look at some of our American companies, when you talk about highly sophisticated companies that you think are American, they are not so American they deal in China.

If China wants anything from them, they will give it so that's a national security risk also.

If you ban TikTok, Facebook and others, but mostly Facebook will be a big beneficiary. And I think Facebook has been very dishonest.

I think Facebook has been very bad for our country, especially when it comes to elections.

While we don’t take political sides here at Private Capital Insider, the logic here makes reasonable sense…

If the issue is China getting access to sensitive information about Americans – and they can still get that data from other American companies – shouldn’t we be talking about that instead? 

So what is the real motivation behind this bill? Who is really behind this bill? And more specifically, why now?

There’s a LOT of speculation the issue is around Gen Z, their overwhelming support for Palestine on the TikTok platform, and a desire to court their vote in the upcoming election.

Oh, and billionaire Jeff Yass – the biggest donor to the conservative organization Club for Growth – owns 15% of ByteDance (TikTok’s parent company)...

And Dave Urban, a longtime lobbyist for ByteDance, has pitched TikTok’s effectiveness as a campaign tool for some time to people around Trump.

However, because this is a finance-related newsletter, let’s get back to the potential suitors lining up to buy TikTok.

While it’s unlikely Microsoft, Alphabet (Google’s parent company) or Meta (Facebook’s parent company) could purchase TikTok, due to antitrust concerns…

Here’s where the story gets even weirder:

According to some guy on Twitter, this entire thing could be some set up for what I can only describe as a MAGA/QAnon bingo square – a massive merger between Truth Social, TikTok, Rumble, and X/Twitter…

And who knows, for good measure, let’s just throw in NYCB too, and now we have a super bank app controlled by Elon Musk.

Or, what might be considered a more sober – but alarming – theory, according to Whitney Webb, a tour de force in investigative journalism:

As William Shakespeare once said, “All the world’s a stage, and all the men and women merely players.

They have their exits and their entrances; and one man in his time plays many parts.”

So I guess the only question remains is this – how will you play your part in today’s market conditions?

For one idea, let’s take a look at our favorite story no one is talking about – Gold.

China Gold Buying Fever Sending Prices Higher?

We’ve been covering gold on a regular basis here in the Weekend Edition for one simple reason…

In many respects, outside of your own private credit, gold (and silver) are the origin of money.

And even though the media attention has overwhelmingly focused on the price action in Bitcoin – sometimes called “digital gold” – which has a tiny market cap in comparison to gold…

How is it possible that there is an asset class that is hitting all-time highs in every single currency, and almost no one in the mainstream media seems to care?

Especially with the looming commercial real estate crisis, regional bank failures, and persistent inflation… something that should be an overwhelming reason to talk about gold? 

One potential answer – investors just don’t care about commodities anymore…

And they especially don’t want to own precious metals. According to Daily Chart Book, 75% of advisors have little to no exposure in gold (<1% of assets) – the highest since 2019 – and 90% showing no interest in the metal at all.

But what makes this even stranger? The fact that as gold is hitting record highs, there is basically no demand for gold mining stocks – which are trading at what might be record discounts to net asset value (NAV).

Why? Because here’s the truth about the stock market – share price is based entirely on supply and demand. 

And with AI stocks and Bitcoin capturing the world's attention, there aren’t many people out there looking to buy miners (except Stanley Druckenmiller that is).

The relative valuation of “old school” companies (many of them commodity producers) is reflected in their discount to technology and other asset-light sectors. 

The bifurcation that we have seen over the last 18-months across the broader markets has pulled capital away from these essential sectors even more.

Even stranger, the price of gold is climbing DESPITE net outflows from ETFs.

How is it possible that gold is continuing to climb higher in the face of this selling pressure? China.

Yes, there are plenty of central banks buying gold… but that’s been going on for years now, and it hasn’t put much upward pressure on price. 

This means that what is driving up the price of gold IS NOT demand for paper gold, but for physical gold. 

And so much so, it’s forcing the price of gold higher in the West, as there is likely some obvious arbitrage happening in the markets.

Chinese people have started a gold rush as property crashes. 

Sales of gold, silver, and jewelry have been brisk for months, defying wobbles in the Chinese economy centered around the protracted crisis in the property market.

While many Western investors sold gold as interest rates rose last year, worldwide demand was supported by significant purchases by central banks in emerging market countries, led by China.

Regular people are also buying – despite the high prices, Chinese consumers stockpile coins, bars, and jewelry to protect their wealth against volatility in the country’s stock market and property industry.

“Western investors have not driven the gold market,” said Bernard Dahdah, a commodity analyst at Natixis. “China, so far this year and through last year, has been the engine behind gold prices — but not necessarily behind this spike.”

As usual, we don’t make predictions, buy/sell recommendations, or provide individualized advice…

But if the key to being a successful investor is to be contrarian and right – and then have the rest of the market agree with you (i.e., a new consensus)...

Is there any other asset class that shows more obvious signs of market sentiment being more asleep at the wheel than gold? 

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