Spekulatius

I don't think it's as simple than that. When Den Xiaping started to change things after the Mao era, there as a genuine hope that China would become a valuable in terms of trade (which did happen) but also over time reform into a more open society that if not exactly westers would adopt some western values. The latter just did not happen. There was Tianamen , but even after this setback, I don' think all hopes were lost. Changes rarely go in strait line. With Xi Jinping however, we are not looking into China that goes it own way, they are also now keen to export their own totalitarian approach into the rest of the world. That part was news to me. I also thought that the communist party in China isn't really communist any more. I was wrong about this after view this DW documentary. Xi Is a neo Maoist (he actually went through the Mao re-education) and now tries to Mao approach but with an more open economy, which is all but a tool to make his ideology work. The problem with the Maoist approach was that it forced China almost back into the stone age and hence China lost 30+ years where they could have made their economy better. Xi knows better and uses the economic power to try Mao 2.0 and even more has a neo imperialist (belt and road fits nicely in that framework) edge to export the happiness to the rest of the world whether they like it or not. So yes, sooner or later, this will have to come

The threats were a dump move by Xi Jinping, because now he is in Zugzwang (german chess expression). If he does nothing, he "loses face" as they say in China (big deal for a leader in China), but every move is a bad one... Again, totally unnecessary and unforced error in practical terms, but not in Xi's ideology framework of course.

Schools and childcare might be the primary transmission vector. toddlers and small kids like to touch. From there it gets to the parents and pretty much everywhere else. https://www.bloomberg.com/news/articles/2022-07-29/as-monkeypox-spreads-kids-can-get-monkeypox-too Evolutionary pressure likely makes monkeypox more infective if we get enough cases. I don't think this is something to joke about - might be coming soon to your school and community. It won't be limited to gay communities.

This appears to be confirmed by the WSJ: https://www.wsj.com/articles/nancy-pelosi-begins-asian-tour-in-singapore-as-china-again-warns-against-visiting-taiwan-11659358264?mod=hp_lead_pos1 After Xi threads, Biden had no choice but to sent here there. If the US starts to respond to threads and does cave and not let US officials travel to other countries then we basically cease to be a superpower and mighty as well invite the Chinese to take the Island. Again another one of Xi Jinping's unforced errors, imo. Ball is in his court.

Yep, I think that’s the answer for the consensus. Thanks for posting.

How do you know what the market expectation for interest rate rises is at this point? Is this embedded in some future curve or the interest rate difference between several durations? I don’t think the prospect of a total 1.5% raise in the next three meetings is all that bullish.

I don’t think the Fed looks that much at the stock market these days. It’s largely irrelevant at the levels we are (far from crisis level). The bond market and exchange rate movements are probably are more in the focus. Even the latter have not shown any issues. Neither of the above or the Labor market prevents the Fed from rising rates further. What might give the Fed pause is risk spreads blowing out or unemployment going up significantly. We have not seen much of an issue with either one.

Parking this here, because it appears to be an excellent documentary about Xi Jinping - A man with a plan: Edit - the plan: https://en.wikipedia.org/wiki/Document_Number_Nine

I wouldn’t predict anything as far as China is concerned , but it’s a situation worth keeping and eye on. I think the risk are higher then some here assume. For example BABA jumped when it seemed that they give US auditors a look in their books to stay listed. Noe it seems that this is not the case any more and China’s contingency is to have BABA listed primarily in HK to avoid transparency. This obviously warrants a lower valuation Imo. It worth watching how these things develop over time and see the forest rather than the trees.

I don’t think it’s that many people participating in mortgage boycotts yet. However, I think it’s interesting that this became viral and we know how viral things can work. Yes, these were mostly people who put in a deposit or paid for apartments under construction from builders that have defaulted , so these apartments are in a limbo state. It seems however that most Chinese builders and not just Evergrande have ran into financial trouble and so far the central government just lets them just go. I guess we are at the Bear Sterns stage at this point. This means the above could easily repeat many times over. If real estate crashing were the only issue, this probably wouldn’t be so bad. However with Xi being in charge and making things worse and kneecapping the economy (zero COVID-19, tech crackdown) and the ominous neo Maoism becoming a new reality as well as challenging the US on Taiwan (Pelosi is now almost forced to show up in Taiwan on an aircraft carrier doing a Mac Arthur style landing) I really think this could take a turn for the worse. People think that companies can work around these type of issues in a totalitarian state like China - well really?

This makes sense.The guy who lost ~$150k was asked to “invest” the money and I was wondering about this , since pretty much everyone should be able to put money in a bank account. So he probably collected money from his relatives/ family and put it in one of those high interest rate account in this private bank and got screwed. Now, I still wonder how the banking system works. Most banks in China are private , since they trade as shareholder corporations. Is banking in China not regulated? No deposit insurance? What happens to depositors money if one of the large banks goes belly up?

@Parsad What is strange about this is that despositors lost their money because a criminal gang managed to get control of this bank in Hanan and then plundered it, leaving the depositors out cold. I wonder how this is even possible. Don’t they have deposit insurance or a bank regulator ? From the report it sounds like the central government pushes down the responsibility to handle all this down to the local government , including what to do on the housing end. that sort of makes sense, considering that China is a big place, but now it really depends on the local government how this works out. Systemic issues also are hard to handle on a local level. I am not really doing anything, just watching, but if the confidence in the banking system cracks, we can see some funny stuff happening. So far, these incidents seem small.

Pretty good summary on bank frauds and mortgage boycotts. Apparently 70% of the household wealth is stored in real estate but Ci point is that houses are to live in, not for speculation. Chinese do not tend to rent out their investment properties, because they lose value (they become used). I can attest to this as well - was told the same when I was in China years ago.

There is another article from the WSJ about the Chinese economy. It seems that the leaders were not too concerned about the property market or decided it’s not worth it risk because of external costs (high housing costs) https://www.wsj.com/articles/chinas-leaders-arent-sweating-growth-slowdown-11659094452 I would say this much, housing is highly levered typically and has a huge multiplier effect on GDP. Someone owns all those mortgages in China, presumably banks. It also requires a lot of material, heavy equipment, energy. Yes a lot of people have been predicting a doomsday in China before, but zi don’t think we ever had a confluence or so many factors and a lousy leadership hampering the economy. Maybe Xi sails into the sunset, but I think this is very wishful thinking. I am not a macro guy generally, so I think the right course is to watch this closely and see which way it goes. I don’t have anything invested in China either so I am more concerned about the externally impacts that the direct ones.

Added to CMCSA and KNBE (speculative cybersecurity play).

Let us know how it went.

Interesting narrative violation - Europe's economy actually outperforms the US in the last quarter: https://www.wsj.com/articles/eurozone-recovery-picks-up-speed-but-ukraine-war-threatens-deep-contractions-11659087222?mod=hp_lead_pos6 Of course the outlook is much more murky, but I think Europe's economy will still exist in 2023. Once they get past the energy issue, which i think will mostly be the case in 2023, the worst will be behind it.

Yep, I agree. Very prescient observation from Trump.

The GFC was a very different situation and China was not in the center of it. They had 9.8% GDP growth in 2008. They could growth out of problems easily back then. They also had good demographics back then and now it’s rapidly turning worse (1 child policy effects lead to labor force shrinking) Its different now, their economy is growth I’m much slower and their real estate sector has been growing in leaps and bounds since then, as it is the preferred way to store wealth for the Chinese, which they may find out to be a boondoggle now. Thats why I think some are refusing to pay their mortgage. Biggest problem is Xi - he is the worst leader since Mao. The zero COVID policy alone is costing them several percent of GDP growth, but I guess that he and other leaders are now so invested in the idea that they can’t let go of it. Same with the common prosperity theme that’s not working out that great either. While it’s difficult to predict China or a meltdown , I think the chances are much much higher now than they were in 2008.

I do wonder if China is heading for a meltdown. The real state crisis with boycotts paying mortgages , developers going broke (Evergrande) sort of looks like a meltdown to me. Zero COVID adds to this disaster. The tech crackdown reduces economic growth. Aligning with Putin. “Belt and road” a monumental failure. The list of planned economic policy failures failures goes on and on. Xi as a leader is a disaster. That’s what happens without checks and balances. Maybe not an outright meltdown, but I would not be surprised if China’ economic growth just matches the US going forward or even turns out to be lower.

Powell made a huge mistake implementing his AIT (average interest rate targeting) at just the wrong time in 2020. AIT lead to a slower response when inflation was rising above 2% in 2021. Now we are paying the piper for this: https://www.federalreserve.gov/monetarypolicy/guide-to-changes-in-statement-on-longer-run-goals-monetary-policy-strategy.htm In the logical sense, this would have to lead to keeping the interest rates higher even if inflation falls below 2%, but I think it was only to work one way and not the other.

I don't think it's a pivot. It makes sense to raise slower from here, because some things are moving in the right direction already. Maybe he does another 0.5% next time. The economy is going to get used to higher interest rates. Anyways, I think we should ignore what he is saying, and just watch what he is doing. Everything he is saying is calibrated for market impact.

And here are people claiming that the sanctions are not working based on the Ruble strength. The Ruble strength just means that Russia can't buy anything. Yes energy is booming based on firm pricing, but the rest of Russia's economy is having the equivalent of the great depression, if not worse. @lessthaniv thanks for posting.

Sold PYPL on Elliot bump.

A strong labor market is bearish for stocks, because it means that the Fed can raise more without causing trouble with employment. The weak consumer sentiment on the other side is very very bullish. In the past, weak consumer sentiment has been correlated with very strong subsequent stock performance. I am guess this is because that weak consumer sentiment is correlated with weak investor sentiment. Got to be greedy when others are fearful.