Morning News: August 28, 2023
Posted by Eddy Elfenbein on August 28th, 2023 at 7:11 am

Euro Zone Lending Growth Slows Further as Rate Hikes Bite

Lagarde Policy Silence Keeps ECB Interest-Rate Debate Raging

Why Central Bankers Are Unsure Whether They’ve Raised Rates Enough

China’s 5.5% Stock Rally Fizzles in Blow to Market Rescue Effort

Evergrande Loses $2 Billion In Value As Trade Resumes; Extends Creditor Voting

China’s Worsening Economic Slowdown Is Rippling Across the Globe

Biden’s Commerce Secretary Raimondo Says Trade Can Stabilize US-China Ties

Apple’s iPhone Supply Chain Splinters Under US-China Tensions

US-Sino Tensions Help Spawn China Card Game Craze

Fed’s Inflation Fight, China’s Slowdown Hammer Emerging Markets

Economists, and Their Comical Search For a Higher ‘Inflation Target’

Traders Have S&P 500 Comebacks Fading at Historic Pace

The ‘Fidelity Mafia’ Behind Big Crypto

Western Banks Help Fund Blacklisted Oligarch’s Charity

Consumers Are Spending Like It’s 2019

Auto Union Boss Wants 46% Raise, 32-Hour Work Week in ‘War’ Against Detroit Carmakers

3M Agrees to Pay More Than $5.5 Billion Over Combat Earplugs

Owens Corning Appears Insulated From High Rates

Hawaiian Electric Stock Surges. It’s Fighting Back Against Maui Wildfire Allegations

Broken Satellite Risks Big Claim in Shrinking Insurance Market

A.I. Brings the Robot Wingman to Aerial Combat

Please Support This Ice Maker: Big Manufacturers Try Crowdfunding to Market-Test Products

The Kingdom of Golf Carts

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Morning News: August 25, 2023
Posted by Eddy Elfenbein on August 25th, 2023 at 7:00 am

Argentina’s Milei to Send Team for Investor Talks in New York

China Stimulus Rally Lasts Just 10 Minutes, Showing Trader Gloom

US Budget Deficits Are Exploding Like Never Before

How Jackson Hole Became an Economic Obsession

One Year Later, Powell Faces a Changed Economy and Market

Why the Stock Market’s Summer Doldrums Are Not a Problem

Stockpickers Aren’t Stupid. The Market Is Just Stacked Against Them

Crypto Is Dead? Or Is That Just ‘Fud’?

Pro Take: Corporate Venture Capital Provides Path for Long-Term Tech Strategy

Heineken Sells Russia Business…for $1

These Are 5 Ways Surging Mortgage Rates Are Reshaping the Housing Market

Zillow Offers 1% Down Payment to Lure Struggling Homebuyers

This Is Public Housing. Just Don’t Call It That

AstraZeneca Fights Back Against Biden’s Move to Cap Drug Prices

Justice Department Sues SpaceX, Alleging Discrimination Against Refugees

Wagers on the Weather? Insurers Offer a Way for Businesses to Hedge Climate Risks

Seafood Is Safe After Fukushima Water Dump, but Some Won’t Eat It

Coach and Michael Kors Tie-Up Shows Limits of Accessible Luxury

Shein and Forever 21 Team Up in Fast-Fashion Deal

New US Private-Jet King Crowned After Cessna Model’s Long Reign

He Didn’t Start the Fyre

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Morning News: August 24, 2023
Posted by Eddy Elfenbein on August 24th, 2023 at 7:03 am

BRICS Asks Saudi, Iran, Other Nations to Join Bloc

Insiders Say China’s $9 Trillion Debt Problem Is Getting Worse

How China Made Its Housing Crisis Worse

Turkey’s Central Bank Raises Rates More Quickly Than Expected

How Jackson Hole Became an Economic Obsession

Powell Is Using Jackson Hole as Final Push in Inflation Fight

Bank Boardrooms Need More Experts on Nature-Related Risks

KKR’s Latest Bankruptcy Deal Is a Bad Omen for Lenders

In Quest for Battery Metals, U.S. Takes On Cobalt’s ‘Inconvenient Truth’

How High a Rate Can Housing Take?

The U.S. Regulates Cars, Radio and TV. When Will It Regulate A.I.?

Nvidia Nears Record High as AI Demand Fuels Blowout Forecast

In Reversal Because of A.I., Office Jobs Are Now More at Risk

Sandwich Chain Subway Agrees to Sell Itself to Roark Capital

Shein Strikes Deal With Forever 21

Facing Backlash, Nike Says It Will Offer Star Soccer Goalie’s Jersey

Michael Jordan Is the Richest Basketball Player Ever With $3.5 Billion Fortune

Elon Musk Is Acting Like He Wants to Break His Own Company

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Morning News: August 23, 2023
Posted by Eddy Elfenbein on August 23rd, 2023 at 7:08 am

Slide in Euro Zone Service Sector Sharpens ECB’s Rates Dilemma

The Hottest Jobs in Argentina Are the Ones That Pay in Dollars

Can Shrinking Be Good for Japan? A Marxist Best Seller Makes the Case

China Tries to Increase Its Clout in Africa Amid Rivalry With the U.S.

Oil Slides on Grim Manufacturing Data

The Race to Ditch Russian Uranium Starts in New Mexico’s Desert

The BRICS and Their Dollar Dilemma

Recession Fears Have Been ‘Blown Out of the Water,’ Long-Serving Fed President Says

US SEC Readies Vote on Regulatory Overhaul for Private Funds

Bank of America Trading Desks Gain Ground With More Capital

With ‘Everybody Else’ Dead or Gone, One California Bank Thrives

US Mortgage Rates Jump to 7.31%, Highest Level Since Late 2000

Youngest Baby Boomers’ Pay in the US Peaked When They Hit 45

Goldman Sachs Cancels ‘Summer Fridays,’ Wants Staff in Office Five Days a Week

U.S. Steel, United Steelworkers Square Off on Takeover

UPS Employees Approve New Contract, Averting Strike

Bankrupt Trucker Yellow’s Real Estate Is in High Demand

Ford CEO Jim Farley and his $300,000 Mustang are Gunning for Porsche

Foot Locker’s Stock Tumbles 31% as Company Suspends Dividend after Swinging to a Loss

Peloton Gives Downbeat Forecast as Comeback Remains Elusive

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CWS Market Review – August 22, 2023
Posted by Eddy Elfenbein on August 22nd, 2023 at 6:51 pm

(This is the free version of CWS Market Review. If you like what you see, then please sign up for the premium newsletter for $20 per month or $200 for the whole year. If you sign up today, you can see our two reports, “Your Handy Guide to Stock Orders” and “How Not to Get Screwed on Your Mortgage.”)

China’s Growth Model Hits the Wall

Americans have been unnerved by the recent rise in mortgage rates. According to Freddie Mac, the average 30-year fixed-rate mortgage is now over 7%. That’s a 21-year high.

On Tuesday, the existing-home sales report said that sales in July were down 2.2% from sales in June. Compared with one year ago, sales are off by more than 16%. This was the slowest July since 2010.

Last month, there were only 1.11 million homes on the market. That’s tiny. For context, that’s about half as many homes as were on the market before Covid, and it’s the lowest number in nearly a quarter of a century.

As rough as those numbers are, they’re peanuts compared with what’s happening in China. That country’s real estate sector appears to be going through a full core meltdown, and the damage isn’t limited to real estate. It’s starting to get folks to wonder if China’s entire model for economic growth is flat-out wrong.

The Chinese economy used to be the gem of the Far East and a global growth superpower. Not anymore. The country is mired in debt, and it’s addicted to overbuilding.

For four decades, the Chinese economy roared ahead. We heard countless stories about China’s emergence as a global superpower. We even heard from some observers in the West that China provided a blueprint for future development. Soon, we were told, China would replace the United States as the world’s largest economy.

The old playbook was simple: borrow and build. When in doubt, borrow and build. That was followed by even more borrowing and even more building. To help spur all the borrowing, Chinese state banks set rates artificially low. Now China has millions of apartments with no tenants and cities with no people. Even some small cities have multiple airports.

Don’t get me wrong. The borrow-and-build model is a great idea, but it needs two things. One is tons and tons of Western money pouring in. The other is rising prices. As long as you have those, there’s nothing to worry about.

Once the reverse happens, then things get bad. Really bad.

On Monday, the People’s Bank of China (i.e., the Chinese Fed), responded to the real estate mess by, what else, cutting interest rates. The problem was that the cut was only by 0.1% which was less than expected. In fact, a lot of observers ignored it as a token gesture, which it is.

The benchmark for one-year corporate loans fell from 3.55% to 3.45% while the benchmark for five-year loans was unchanged at 4.2%.

That’s not enough to do the trick. The ultimate judge on any policy is how the markets react, and traders didn’t like the puny rate cut. The Hang Seng Index, which is based in Hong Kong, fell 1.8%. It’s now down more than 12% this month. The yuan recently hit a 16-year low.

The real estate mess is bad and it’s getting worse. Country Garden is the latest to run into trouble. The developer “has hundreds of billions of dollars in unpaid bills,” and it just got booted off the Hang Seng.

Not that long ago, Country Garden was hailed as the model company. The New York Times notes that, “More than 50 developers have already defaulted or stopped paying on overseas bonds.” They’ve simply run out of money.

So much of China’s economy revolves around real estate. In July, new-home sales in China were down by one-third from last year. In June, new home sales were off by 28%.

For years, millions of Chinese citizens moved from rural areas into big cities. In response, the country built massive amounts of urban housing. They struggled to meet demand. They built way too much and now demand has plunged.

It’s not just housing. The government has spent billions of dollars trying to make a world-class independent semiconductor industry. That hasn’t worked out. In terms of sophistication, their chips are still way behind Taiwan’s.

China’s problems don’t end there. Two weeks ago, I told you about how the American and Chinese economies are being decoupled. That’s threatening China’s foreign investment and trade. Now economists are concerned about China’s future.

What will the future look like? The International Monetary Fund puts China’s GDP growth at below 4% in the coming years, less than half of its tally for most of the past four decades. Capital Economics, a London-based research firm, figures China’s trend growth has slowed to 3% from 5% in 2019, and will fall to around 2% in 2030.

In 2020, President Xi Jinping said his goal was to double China’s economy by 2035. That looks like it won’t happen. Nor is China about to dethrone America as the world’s largest economy.

Normally, if you want to get an economy moving, you can try boosting credit and leverage your way forward. China is at the point where it can’t do that anymore.

Truthfully, cracks have been showing in China’s economy for some time. Covid just sped things up. China’s explosive housing market helped masked the problems that had been growing just beneath the surface. Now the housing bubble has popped.

The outlook has darkened considerably in recent months. Manufacturing activity has contracted, exports have declined, and youth unemployment has reached record highs. One of the country’s largest surviving property developers, Country Garden Holdings, is on the cusp of a possible default as the overall economy slips into deflation.

The big fear is that China won’t merely slow down but that it will enter a multi-decade period of low growth similar to what Japan’s been through. There is, however, one major difference. When Japan hit the wall, it was already rich. China isn’t nearly as developed.

800 Million Have Been Lifted Out of Poverty

Another fear is that a weaker economy might lead to a more aggressive foreign policy. That may already be happening. President Biden recently said that China’s economy is a “ticking time bomb” that will cause it to do “do bad things.” That didn’t exactly go over well in Beijing.

Youth unemployment is so bad that the government has stopped reporting the numbers. The last report was for June. It said that the jobless rate for urban 16 to 24-year-olds was 21.3%.

The growth story dates back to 1978 when Deng Xiaoping opened China’s economy to free enterprise. It’s hard for us today to imagine how poor and backward China was. Millions of Chinese lived as peasants, not very different from how their ancestors lived.

According to numbers from the World Bank, since the free market reforms, China’s per capita has increased 25-fold, and 800 million people have been lifted out of poverty.

Forty-five years later, China has massive ghost cities. It’s estimated that 20% of China’s urban apartments are vacant. That’s 130 million units. They’ve built cities that no one lives in, and airports and rail networks that no one uses.

The borrow-and-build philosophy has already picked the low-hanging fruit. Now the return on investment in China is far lower. Instead of facing the problem, the government has encouraged even more borrowing. In ten years, China’s total debt has grown from 200% of GDP to 300% of GDP.

Here’s a chart of the yuan to the dollar:

There is an obvious solution to China’s problem: make the economy more balanced. For that, it needs to promote its consumer sector. That means that Chinese consumers need to spend more and save less. The problem with that is that the government would have to give up some control over the economy and replace it with individual choice. That kind of thinking doesn’t come easy to the Chinese Communist Party.

The big worry is that China’s problems will spill over into the United States, but for now, I think that’s very unlikely.

This may sound odd, but the U.S. economy really isn’t heavily exposed to China. Of course, we’re talking about very large sums.

The U.S. currently has about $215 billion in direct investment in China and about $300 billion in portfolio investment. Paul Krugman points out that U.S. office buildings are worth about $2.6 trillion which is about five times our total investment in China.

What about demand from China? That’s not that big, either. Last year, China bought about $150 billion worth of goods from us. That’s less than 1% of our GDP. That means a downturn in China will barely be felt in the U.S. As troubling as the mess in China is, we don’t have much to be fearful of.

That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

P.S. If you want more info on our ETF, you can check out the ETF’s website.

Morning News: August 22, 2023
Posted by Eddy Elfenbein on August 22nd, 2023 at 7:07 am

Pressure to Revive Economy Muddies Earnings Outlook for China’s Top Banks

China Ramps Up Fight With Yuan Bears

Why It’s So Hard for China to Fix Its Real Estate Crisis

Commerce Secretary to Visit China Next Week in Bid to Steady Ties

How Hard Should the Fed Squeeze to Reach 2% Inflation?

S&P Joins Moody’s in Cutting US Banks

Becoming a Bank Proves Challenging for Fintechs Seeking Survival

Deepfake Imposter Scams Are Driving a New Wave of Fraud

New U.S. Buyback Tax Hits Companies With $3.5 Billion Burden

Half a Million US Jobs at Risk of Vanishing in Payroll Revision

Sorry, But LinkedIn Is Cool Now

Microsoft Pushes to Get Activision Deal Done With Fresh UK Offer

Goodbye Bathtub and Living Room. America’s Homes Are Shrinking

Some Americans Take On Side Hustles for Fertility Benefits

America’s Farmers Are Bogged Down by Data

A Warlord With a Cocaine Empire Is Saving the Amazon Rainforest

Southern African Bloc Backs $17 Billion Gas Infrastructure Plan

Profit From America’s Manufacturing Renaissance With Rockwell Automation

Lowe’s Sticks By Full-Year Earnings Forecast Despite Weakening Sales, as Spring Projects Offer a Boost

Gap’s Discount Is Too Big to Ignore

Dick’s Sporting Goods Blames Theft for Profit Woes

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Morning News: August 21, 2023
Posted by Eddy Elfenbein on August 21st, 2023 at 7:02 am

China Central Bank Cuts Key Interest Rate on Bank Lending

Run It Cold: Why Xi Jinping Is Letting China’s Economy Flail

As China Falls Into Deflation, the Mood Turns Dark

China Is on Edge as Fallout From Its Real Estate Crisis Spreads

Chinese E-Commerce Giants Pivot to Selling Inexpensive Goods

JPMorgan Sees Japan’s Threshold for Yen Intervention at Around 150 Yen per Dollar

The Unbearable Nothingness of Yield Curve Inversion

Why the Era of Historically Low Interest Rates Could Be Over

The Fed Can’t Celebrate at Jackson Hole Just Yet

New York and California Each Lost $1 Trillion When Financial Firms Moved South

Why PayPal’s Stablecoin Is Likely to Succeed Where Facebook’s Libra Failed

Arm Listing Set to Be Turning Point for IPO Market, SoftBank

Bond Bulls at JPMorgan, Allianz Keep Piling Into a Bet Gone Bad

Wall Street All-Stars Including Weinstein, Ackman Bid for Hedge Fund

Borrowers With $39 Billion in Student Loans Finally See Relief

Retailers Are Fleeing Downtown San Francisco. IKEA Is Moving In

The US Mall Is Not Dying

Cargill Tests 123-Foot-Tall Sails in Effort to Slash Fuel Burn

Kraft Heinz Sees a $25 Billion Opportunity—in Schools

Meta’s Threads App to Launch Web Version as Rivalry With X Enters New Stage

Elon Musk Admitted X ‘Might Fail’—then the Social Network Accidentally Removed Swathes of Historic Content, Including Ellen’s Oscars Selfie that Broke Twitter

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Morning News: August 18, 2023
Posted by Eddy Elfenbein on August 18th, 2023 at 6:29 am

How Brexit Failed England’s Premier Fishing Town

How Geopolitics Is Complicating the Move to Clean Energy

Biden’s Big Green Push Is Driving Enormous Growth

A Sickly Ruble Reveals What Putin Will Not

Turkish Inflation Outlook at Its Worst in 21 Years on Weak Lira

Top US Firms From Apple to Intel Decry India PC Import Curbs

‘Peak China’ (Post-Dynasty Version)

China’s Hidden Financial Dangers Erupt With Shadow Bank Crisis

Evergrande Seeks US Court Nod for $32 Billion Debt Overhaul as China Economic Fears Mount

Investors Fear China’s ‘Lehman Moment’ Is Looming

Bitcoin Plunge Spurs Liquidations as SpaceX’s Token Sale Weighs

Billionaire Steve Cohen Fights a $10 Million Tax Bill to Derail an IRS Plan

Hawaii Fires Turn a Safe Investment into a Big Risk

Hawaii Explores Moratorium on Outsiders Buying Lahaina Properties

Why Child-Care Prices Are Rising at Nearly Twice the Overall Inflation Rate

For Single Women in China, Owning a Home Is a New Form of Resistance

China’s Abandoned, Obsolete Electric Cars Are Piling Up in Cities

The EV Startup Worth More Than GM Had Troubled U.S. Rollout

Ford Swings at Supercars With New $300,000 Mustang GTD

America’s Obsession With Weight-Loss Drugs Is Affecting the Economy of Denmark

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Morning News: August 17, 2023
Posted by Eddy Elfenbein on August 17th, 2023 at 7:06 am

Milei Promises Argentina Can Be Saved With Libertarian Economics

China Told State Banks to Escalate Yuan Intervention

Some Fed Officials Are Turning Cautious about Raising Rates Too High

With Investors on Edge, Fed Minutes Take on New Urgency

Global Yields March to 15-Year Highs as Rate-Hike Worries Build

Goldman Sachs Blames Zero-Day Options for Fueling S&P 500 Selloff

The Legendary, Wildly Profitable QQQ Fund Makes No Money for Its Owner

‘Don’t You Remember Me?’ The Crypto Hell on the Other Side of a Spam Text

More Cyber Companies Announce Layoffs

How a Small Group of Firms Changed the Math for Insuring Against Natural Disasters

The Trillions of Dollars Forgotten When Tracking the Energy Transition

U.S. Plans New Tariffs on Food-Can Metal From China, Germany and Canada

How U.S. Steel Became an Acquisition Target

US Housing Affordability Hits Worst Point in Nearly Four Decades

The Golden Girls Approach: Buying Homes Together Amid High Prices

Almost Half of Americans See Automation Replacing Their Jobs

The Desperate Hunt for the A.I. Boom’s Most Indispensable Prize

BAE Systems Snaps Up Ball Corp’s Aerospace Arm for About $5.55 Billion

Walmart’s Sales and Profits Rise, Fueled by Consumers Looking for Deals

Already Time to Hit the Brakes on VinFast

Nike, Adidas Bet Big on World Cup Football Shirts and Merch

LinkedIn is Uniquely Positioned to Benefit from Twitter’s Meltdown–and Disgruntled X Users are Offering Microsoft a Blueprint for Social Media Supremacy

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Morning News: August 16, 2023
Posted by Eddy Elfenbein on August 16th, 2023 at 7:04 am

U.K. Inflation Eases to 6.8% as Energy Prices Fall

Argentina Vote Shock Leaves Investors Dreading the Next Default

Lebanon Freezes Accounts of Former Central Bank Governor

China Asks Some Funds to Avoid Selling Stocks as Markets Sink

Zhongrong Trust’s Missed Payments Trigger Fears Among Chinese Investors

China Scuttles a $5.4 Billion Microchip Deal Led by U.S. Giant Intel

The U.S. Is Turning Away From Its Biggest Scientific Partner at a Precarious Time

Vital Natural Gas Is Being Stashed in Caverns Beneath War-Torn Ukraine

Race to Control Electric-Vehicle Supply Chains Leads to Africa

A BRICS Currency Replacing the Dollar is a ‘Ridiculous’ Idea, Says the Top Economist Who Named the Group—Unless China and India Become Allies

I.R.S. Says Cash Influx Has Made Agency Bigger and More Digital

Coinbase Gets NFA Approval to Offer Crypto Futures

Goldman CEO’s Most Loyal Deputy Is Tested by Mutinous Partners

Brookfield Chases Rivals for Private Equity’s New Money-Spinner

Billionaire Charlie Ergen Conjures M&A Magic to Save His Empire

Dubai Leapfrogs Lisbon as Best Destination for Globetrotting Executives

A Vietnamese Electric Carmaker is Now Worth More Than Volkswagen and Ford

High-Potency Pot Market Worth Billions Draws Regulator Scrutiny

Estée Lauder’s Big Bet on China Is Looking Not So Pretty

Target Sales Are Punished by Pride Month Backlash

Forget the Office Gym. Welcome to the Gym Office

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