The China Problem | The Daily Peel | 8/17/22

Market Snapshot

Futures pointed to a slightly lower open after yesterday's turnaround rally, but markets turned themselves around. Retail had a good day in earnings, with Home Depot and Wally posting strong reports.

Bit-C is still hovering around 24k, but the real story is ETH. The second largest fantasy currency is up about 60% in the last month, kind of like how the S&P has regained half of its losses for the year in that same time.

At the closing bell, the Dow was up 0.71%, and the S&P moved higher by 0.19%. The Nasdaq closed lower by 0.19%.

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Macro Monkey Says

99 Problems - And a b*tch ain't one.

But one of them is definitely China.

Whenever I'm not shitposting about Chinese corporate espionage and IP theft, I'm usually ranting about their subversive, oftentimes clandestine efforts to undermine the formerly unipolar world order led by the United States.

Today, we won't talk about any of that.

The print is in. And usually, I don't believe a word of the data because it's usually too good to be true.

However, this time, it's so effing bad I have no choice but to believe that the Chinese are coming to Jesus.

Their economy is struggling. After battling the Zero C19 policy, demand is slumping, and the housing market is plummeting.

Retail sales were up slightly in July, but they missed the 4.9% expected growth number and came in at only 2.7%. Industrial output is the same story; analysts estimated 4.3% growth, but it missed that number by half a percentage point.

Home sales are down almost 30%. Property investment, once booming in the world's largest economy by population, is down 12.3%.

Steel output, a gauge of Chinese economic productivity in many sectors, is down 6.4%.

Finally, youth unemployment is at 19.9%. This is a record high for the PRC.

While we are over here rapidly ratcheting up interest rates and quantitative tightening at a strong clip, the Chinese Central Bank decided to lower two key interest rates.

In the Soviet Union, one of the tenets of their economy was planned growth. Economic power was political power, and regardless of whether the output was worthwhile or not, the good Soviet Comrades set specific milestones for every industry.

The Chinese economy is similar. The Chinese Communist Party relies on some semblance of central planning to keep the world's second-largest economy by GDP (if you believe the official stats) on pace and on target.

For the Chinese, economic power is also a source of global influence.

The Soviet Union entered into its darkest days as the wheels started to fall off its economy. Waste, corruption, meaningless output metrics. These symptoms were accentuated when the economy started to sputter.

I'm not sure that the same thing is happening in China. But this is an interesting time for Xi J as he attempts to seize even more power and influence at this fall's Communist Party National Congress. He has the helm at one of the most uncertain times for China's economy, and I'm not sure that there's a light at the end of the tunnel for the PRC just yet.


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What's Ripe

Bed Bath & Beyond ($BBBY) - If it isn't a short squeeze, it's meme stock traders, particularly after Ryan Cohen, Chairman of Gamestop, is rumored to have pumped a bunch of money into call options, long the home goods retailer.

Shares went to the moon, but not without volatility. Shares have been rocking and rolling all day, but eventually, the latest meme stock craze closed up 29.06%.

Walmart ($WMT) - Shares of Walmart surged after an earnings report that did not disappoint. In addition to top and bottom line beats, the company's outlook on inventories wasn't as bad as I expected.

This buoyed the DJIA, enabling another positive day for the index. Shares of $WMT finished the day up 5.11%.


What's Rotten

Sea Limited ($SE) - Shares of Sea Limited crashed Tuesday morning after a widening loss and some sketch news on the guidance front.

Management has wholesale suspended its guidance for the fiscal year, which screams that things are going, well, not great.

Shares of $SE ended the day down 13.94%.

Zoom ($ZM) - Shares of Zoom retreated yesterday, closing the day down 3.57%.

And why shouldn't they? With a push to return to the office, Zoom meetings are becoming less and less a part of the reality of the world we live in.

Throw in a few downgrades and some price target cuts, and that's a recipe for a rough patch for the WFH C19 stock.

Someone throw these guys a life jacket!


Thought Banana

Is WFH Dying? - We've all done it-woke up at 8:59 for a 9 am MS Teams call.

"Should I brush my teeth or even put deodorant on? Nah, I'll just get to that after my mid-day shower and nap combo."

Apple is the next employer in a long line of shot callers who are demanding employees return to the office and be f*cking grateful about it.

Some of the biggest proponents of office work are in banking and finance. Even as Omicron popped up and cases spiked again here in the City, there was little reprieve from managers in giving that flexibility to work from home and be in the office when it was convenient.

Elon Musk has been a vocal critic of WFH. He has even demanded that employees spend at least 40 hours in the office, the office where their team is located. You can't just show up to any office and work remotely. That's cheating.

It's hard to justify so much capex on lavish office facilities when a third to half of your employees are taking an afternoon "personal excellence time" and riding on their Pelotons during the day.

But if you have children, returning to the office might actually not make sense. In some locales, you're better off quitting your job than paying for childcare.

For example, a great daycare in the City for two kids can cost around five to six thousand bucks a month. On an annualized basis, this is at least 60k. Depending on your tax bracket, this might require as much as 100k of pre-tax income to afford this bill.

At this kind of price point, are you better off staying at home and finding a job for less money if you can dodge this bullet of a monthly bill?

Employers are beginning to take more hard-line stances on WFH, driving a push for a return to normalcy. Now that quarantines and social distancing are dead, if WFH goes away, we have more or less come full circle. Change my mind.


Wise Investor Says

"...one nice thing about gold is that it doesn't have quarterly conference calls." - David Einhorn



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