#637 – 🇨🇳 China’s economy has long COVID – The Average Joe
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    #637 – 🇨🇳 China’s economy has long COVID

    victorlei

    February 22, 2024

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    Good morning. Thinking of moving? If so, you’re in the minority. As this chart from Apollo shows, the percentage of American households moving to a new address has steadily declined for decades and is now half as much as it was in 1985. While this might not seem like a huge deal, it could hurt GDP growth because skilled workers aren’t relocating to areas with booming job opportunities.

    Why are fewer people moving? The US population is getting older, people’s ideas around work and family are evolving, and if you check out Zillow, you’ll see the most obvious reason: moving is expensive.


    GLOBAL

    The Solution For the World’s Worst-Performing Stock Market: Prevent Investors From Selling

    China’s economy, the second-largest globally, has caught a bad case of long COVID — and if it doesn’t do something soon, Germany, Japan, or India could make this the worst Year of the Dragon ever. Since 2020, weak economic growth, a distressed property sector, and a collapsing stock market have weighed on China — scaring away both local and foreign investors.

    How bad is the situation? The severity is evident from the substantial loss in value China’s stock market has experienced since its peak in 2021, totaling $6.3T. The CSI 300 index (a.k.a. the S&P 500 of China) has lost over a third of its value — posting three consecutive years of decline. And China and Hong Kong finished 2023 as the worst-performing global markets. Enough is enough, and worried Chinese officials are taking matters into their own hands.

    The prescription for China’s problems: To prop up the country’s ailing market, China’s government has started buying shares of domestic companies as part of a $278B stimulus package.

    • Yesterday, the country banned institutional investors from selling more equities than they buy during the first and last 30 minutes of each trading day — an effort meant to curb market volatility and bearish bets.

    • The country also pledged to limit short selling and high-frequency trading, which act against the market, with at least one major quant fund facing a temporary trading ban.

    Is China worth the squeeze?

    Chinese stocks look cheap at these valuations — the iShares MSCI China ETF (NYSE:MCHI) trades at a price-to-earnings (P/E) ratio of 11.5x — a significant discount to the S&P 500’s 23x P/E. However, even with policy and stimulus on its side, diving into the market could be a daring and potentially risky move.

    • Over the past few years, overseas investors who attempted to buy the dip in Chinese markets often ended up with disappointing returns compared to those in the US, India, and Europe.

    • Even Chinese citizens have started favoring overseas indexes as the country’s 200M+ retail investors lost billions in China’s stock market and have only recently begun repurchasing domestic names.

    The Great Wall Street showdown: Investors will have to weigh the risks of a second Donald Trump presidency, which could stand to derail China’s comeback. Trump, who imposed new tariffs and anti-China trade policies, has already threatened to impose further tariffs as high as 60% on Chinese goods… if re-elected.


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    You can now own and profit from the supercomputers driving AI and large language models.

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    LARGECAP RECAP

    💸 The hype lives on after the “most important earnings report” of the season

    ChatGPT wasn’t the only one that went “off the rails” this week. Nvidia (NASDAQ:NVDA), “the most important stock on planet earth,” as Goldman analysts call it, also delivered a monster earnings report that sent its stock up as much as 9% in after-hours trading yesterday. The poster child of AI demonstrated its staying power, handily surpassing analyst estimates and giving investors two things they love:

    • Strong revenue growth: The semiconductor giant reported $22.1B in revenue, with over 83% of its revenue coming from its fast-growing data center segment — which grew 409% year-over-year (YoY).

    • Even faster profit growth: It beat earnings per share estimates by 11%, boasting over $14.7B in operating income, up more than 6x YoY.

    Unlimited powaaaahhhhh: Emperor Palpatine Nvidia CEO Jensen Huang said, “Accelerated computing and generative AI have hit the tipping point,” with demand surging across companies and nations — and that optimism translated in the company’s Q1 forecast of $24B in revenue, surpassing analysts’ estimates of $21.9B. And if Huang can convince global governments to build their own AI systems, we better start preparing a backup plan against Order 66.

    👀 Investors are preparing for a “magnificent” market correction

    The seven major tech giants, known as the Magnificent Seven, had a stellar performance last year, soaring by an average of 106%, while the broader market, represented by the S&P 500, gained 24%. Despite this, hedge funds are reducing their exposure to these blockbuster stocks. One concern is the increasing market concentration around these seven companies, especially as some report less-than-magnificent earnings.

    • Analysts have downgraded Apple (NASDAQ:AAPL) and Tesla (NASDAQ:TSLA) after falling short of Q4 earnings estimates — and with iPhone troubles in China and a shaky electric vehicle (EV) market, neither company appears to have a strong outlook for 2024.

    • These seven companies are trading at high valuations, with an average price-to-earnings ratio of 37x — compared to ~23x for the S&P 500.

    Too magnificent to fail? In an analysis of 722 hedge funds, all seven megacaps (except Amazon) saw reduced exposure — with Microsoft (NASDAQ:MSFT), Apple, and Nvidia experiencing the sharpest decreases. This market concentration hasn’t been seen since the late 1920s (gulp), prompting investors to adopt a defensive stance against potential underperformance in AI or a resurgence of inflation. Even CEOs like Jeff Bezos are taking precautions — he sold 50M Amazon shares this month.


    JOE’S MARKET PULSE

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    Your freedom is under attack: Like China, Joe Biden authorized a “Digital Dollar” Turning your savings into ‘spyware’ that can search your bank accounts, dictate what you purchase and the causes you support… And delete everything with the click of a button. Learn how you can preserve your freedom and protect your wealth. Get your FREE copy of this Digital Dollar guide →*

    Markets & Economy

    Reddit to offer shares to top 75K users as it hits stock market: The top Redditors will get shares at the issue price, which Reddit hopes will build loyalty among their user base. (And there’s loyalty to win back after it broke that Reddit trained AI models with users’ posts.) [Read]

    Natural gas prices jump 10%: Chesapeake Energy (NASDAQ:CHK), one of the world’s top shale producers, reported a lower production outlook this year — and while this produced a bounce in prices, it comes as natural gas prices have already fallen 25% so far in 2024. [Read]

    Amazon (NASDAQ:AMZN) to join Dow Jones Industrial Average: The e-commerce giant will unseat Walgreens in the index of 30 major companies. The news comes amid boom times for Amazon, which crushed Q4 earnings thanks to robust cloud and advertising revenue. [Read]

    Business & Wealth

    Teamsters strike at Molson Coors brewery: Over 400 workers walked off the job, and 5K more Teamsters at Anheuser-Busch (NYSE:BUD) could join them if they can’t reach a new contract by March 1. The union wants higher wages — as the brewery touts record profits. [Read]

    Apple launches a sports app: Apple Sports will let users track the latest scores, stats, and betting odds. Could FuboTV’s suit against legacy sports media’s joint streaming venture be good news for sports-curious tech companies? [Read]

    Higher bag fees for American Airlines (NASDAQ:AAL) customers: Now you’ll have to shell out $40 to check your bag at the airport (or $35 if you check it during online sign-up) — up from $30 for either option. It comes as airlines look to boost revenue amid slowing airfare and high fuel costs. [Read]

    *Thanks to our sponsors for keeping the newsletter free.


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    CHART


    DIGIT OF THE DAY

    Food Hasn’t Been This Unaffordable In Over 30 Years

    While food is often said to be the way to someone’s heart, these rising prices are becoming harder for Americans to stomach. The WSJ reports that it's been three decades since food demanded such a large portion of our disposable income. Increasing labor costs and more expensive ingredients are driving up food prices, leaving many feeling the pinch.

    • Between 2019 and 2023, US food prices surged by 25% — outpacing increases in housing, medical care, and all other major expense categories (USDA).

    • In Jan. 2024, prices at restaurants and eateries jumped by 5.1% from last year, while grocery expenses rose by 1.2% during the same period.

    Recipe for relief? McDonald’s customers have been pushing back against numerous price hikes — prompting CEO Chris Kempczinski to address the “affordability” problem with price cuts. Significant price drops may not happen overnight, but there’s a glimmer of hope. Some restaurants are dialing back prices on everyday items like coffee and margarine while offering deals to entice customers. With affordability on the menu, consumers might soon be able to enjoy their meals without the financial heartburn.


    EXTRA JOE

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