June 30, 2023 | Peel #492

In this issue of the Peel:

• China is aiming to spur economic growth by potentially implementing direct stimulus and currency manipulation to reach a GDP growth target of 5% after achieving only 4.5% annualized growth in Q1.
• Freyr Battery and Overstock.com have made significant gains, while Virgin Galactic and Micron experienced a decline in shares.
• The Southeast region of the U.S. has seen significant economic growth and a shift of $100bn in income due to factors like climate, tax policy, and pandemic policies. The trend's long-term impact is to be observed.

Market Snapshot

Happy Friday, apes.

Be honest—seeing that sentence above has to be a Top 3 (and not 2nd or 3rd) part of all of our weeks, right? Let’s just hope our portfolios have the same vibe.

Equity markets were strangely mellow today, with the Nasdaq moving just 0.42pts lower, or a whopping 0.00%. The S&P and Dow worked a little better throughout the day, gaining mildly, while staples and communications were the only S&P sectors down for the session.

Treasuries were mostly lower on the day before spiking into early trading on Friday. The 2-year is rapidly approaching the key 5% level after briefly surpassing 4.9% yesterday and hanging around that level since then. The U.S. Dollar followed a similar path and didn’t give a whole lot more than a day of watching grass grow.

Let’s get into it.

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Macro Monkey Says

China Goes Full Bernanke

The world zigs, and China zags. Sometimes it works out in an unbelievably phenomenal manner (hence bringing >2x the U.S. population out of poverty in just the last 40 years), and sometimes it doesn’t (hence, the whole 20th century before that).

Since joining the World Trade Organization in December 2001, China has seen an average GDP growth rate of 8.674%. That’s an absolutely crazy number.

For context, the numbers for other major economies include:

• India: 6.076%
• The U.S. 4.258%
• The U.K.1.476%
• France: 1.143%
• Japan: 0.5303%

As you can see, China is, much like Dottie Hinson and Kit Keller, in a League of Their Own. And just like that great film, there’s no crying in geopolitics.

But right now, something tells me the Middle Kingdom and their economy would love to shed a tear or two right now.

"China has been making its classic move of zigging while others zag."

Since the onset of the C-19 pandemic, China has been making its classic move of zigging while others zag. Their “zero-C-19” policy was unique anywhere in the world and, while having some benefit, seemingly has put the nation just about one step behind the rest of the world in their policies and directives.

For example, Chinese officials earlier this week announced plans to spice up development, demand, and markets across the country. For a nation that explicitly targets GDP growth, similar to how the U.S. targets inflation, the 4.5% annualized growth realized in Q1 was just way too short of the 5% target.

Naturally, it’s time to hit the gas pedal. Obviously, the classically opaque Xi-run CCP didn’t give any color to the mechanisms behind spurring that growth, but we may see them slam the accelerator as much as Bernanke in 2008 or even JPow in 2020.

"... China also signaled plans to get back into the currency manipulation game."

Like the saying, “When the U.S. sneezes, the world gets pneumonia,” China’s economy is so f*cking massive too that its vibe is easily contagious too.

Maybe the rest of the world won’t get pneumonia, but they probably will at least catch a head cold (unless they wear a mask?).

Just jokes, apes, relax. Anyway, in addition to potential direct stimulus, China also signaled plans to get back into the currency manipulation game. Maintaining a low currency value, as China has sought to do throughout the years, has proved a particularly thorny prick in the side of China’s economic overseers this week.

Now, the value of the nation’s renminbi and yuan has dropped to levels that are (apparently) just simply too low. I guess we found our answer to the age-old question, “How low can you go?”

What's Ripe

FREYR Battery (FREY) ↑ 20.26% ↑

• Although just about as unknown and irrelevant as you and I, Freyr Battery, a maker of (believe it or not) batteries, has at least one big new fan.
• Freyr held essentially a biga**, dramatic advertisement for shares the other day in the form of a capital markets day. In response, Morgan Stanley analysts were hyped, jacking their price target to $13, still a 43.2% upside from yesterday’s close.
• Basically, the company is approaching actual manufacturing scale, an almost unheard-of feat for startup-style companies like the 2018-founded Freyr. Maybe keep this one and this sector on your radar.

Overstock.com (OSTK) ↑ 19.69% ↑

• Well, definitely didn’t see that one coming. After purchasing Bed Bath & Beyond’s online assets just a few days ago, Overstock.com has decided to change its entire online brand to the defunct retailer.
• Not only did they spell Bed Bath & Bankrupt way wrong, but this move has to be a solid smack in the face to (former) executives and shareholders of that piece of trash dorm room supply sh*tco.
• Basically, Overstock.com said, “It’s not the brand that was the problem; it was the people.” The switch-up is meant to reflect Overstock’s pivot from a liquidation-focused retail model to a more furniture/general merchandise seller.
• Overstock is kind of like that friend of yours that was an Amazon drop shipper in 2020 and a crypto trader in 2021; they may just be using hot trends to chase a bag. We’ll see.

What's Rotten

Virgin Galactic (SPCE) ↓ 10.85% ↓

• Major schadenfreude coming your way right now: shares in Virgin Galactic were hyped for their first day of an actual space tourism flight but, unfortunately, (entertainingly) dumped like a bag of rocks.
• The flight was an undeniable success and, in theory at least, is at least a proof-of-concept for the “product” they’re selling.
• After mistakes, stunts, and setbacks like almost none other, the big payoff ended up being a big middle finger to shareholders. Now, it is, of course, an immediate reaction with a one-day sample size, but it’s definitely not the start Sir Richard Branson wanted.

Micron (MU) ↓ 4.09% ↓

• Bad earnings and bad China make for, in fact, a bad combination. Micron chose to learn that one the hard way.
• First and foremost, potentially escalating restrictions on chip exports to China seems to be yanking shares down. On top of that, an overly depressing outlook certainly didn’t get shareholders excited.
• Micron, in particular, is stuck between an Eagle and a Dragon—both countries seem to be doing their damnedest to limit sales in the world’s second-largest market. Best of luck!

Thought Banana

It’s Goin’ Down In Dixie

Editor’s Note: Please read the following section with a heavily Southern accent. Authenticity is everything, after all, right?

Over the past few years, we’ve witnessed a massive $100bn shift in income. Unfortunately, it just wasn’t to you.

In what Bloomberg calls the “New New South” (not a typo), the Southeast region of the U.S. has been an absolute economic powerhouse since C-19 showed up.

"10 of the U.S.’s 15 fastest-growing cities belong to the region ..."

10 of the U.S.’s 15 fastest-growing cities belong to the region while also claiming 2/3rds of the employment growth seen across the U.S. since 2020.

Damn, the numbers don’t lie, and it’s not hard to see exactly where they’re coming from, as Bloomberg again points out:

Source

Climate, tax policy, pandemic policies, and more seem to be the driving factors here. Businesses are flocking to the swampy, humid marshes of the nation’s underbelly to take advantage of cheaper labor and lower government oversight, in large part. I mean, can’t really blame them, right?

"Businesses are flocking to the swampy, humid marshes of the nation’s underbelly ..."

Northeasterners and Californians appear to make up the bulk of the movers. Population growth in areas in Central / Eastern Texas, Central / Southern Florida, and the Carolinas leads the nation in large part and, as a result, is pulling economic and political power into the region.

It could be a pandemic boom, but just like the demand for airfare, it sure is sticking around for longer than expected. Stay tuned.

The big question: Will the South continue to outperform the U.S. going into the long term? What kind of political and economic implications will this carry?

Banana Brain Teaser

Yesterday — Below are three pairs of words. Find the words that fit in the middle of each pair of words to create two new words, one front-ended and one back-ended.

Example: EVER - ______ - HORN
Answer: EVER - GREEN - HORN

1. LENGTH - _______ - CRACK
2. WITH - _______ - OVER
3. MAKE - _______ - LESS

1. LENGTH - WISE - CRACK
2. WITH - HOLD - OVER
3. MAKE - SHIFT - LESS

Today — What do the following words have in common?

• Buzz
• Part
• Maze
• Muse
• Stern
• Moral
• Bed

Shoot us your guesses at [email protected] with the subject line “Banana Brain Teaser”.

Wise Investor Says

“I’m in a business where if 52 percent of the days I’m right, I’m doing pretty well over the long-term. That’s not so easy to live with on a daily basis.” — Cliff Asness

Happy Investing,

Patrick & The Daily Peel Team

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