China

[hasilp89]

4 minutes ago, Dalal.Holdings said:

Right now a lot of their actions seem geared toward helping the property sector including even buying unsold units... The problem is that there are just way too many property units in China and the people of China view real estate as their main investment vehicle over their own local stock market…China’s population cannot support so many real estate units and they are not a country with significant immigration.

 

The losses in real estate will not be easy to reverse. Boosting the stock market and corporate sector is certainly not what the CCP has prioritized lately and allowing their tech/corporate sector to flourish would be a 180 from since they purged Jack Ma.

 

Then there are other questions. Are they going to put their desire for Taiwan and all the other aggressive actions in the South China Sea on the back-burner to save their economy?

 

Tepper did well in the wake of the GFC, but China is not the U.S.A. The Chinese stock market has not historically served as the primary investment vehicle of its people and because the people lack a vested interest in it, it has been allowed to flounder. There has also been very limited progress in turning the economy into one driven by consumption.

i think tepper answered all your points pretty well in his interview. It doesn't matter. hard for us fundamental value investors to get our heads around it but he's just using the common sense he has - Xi created buyers and no one is going to sell into that. 

[moneyball]

And this is ultimately what make a market^^^

 

I ultimately believe that governments act based on the constraints that they are under. Bailouts weren't popular in the US during the GFC and ultimately didn't get passed until the market made the politicians pass the bailout measures. 

 

Looking back it's funny to think about how much talk there was about moral hazard back then. Fast forward to covid and we basically told everyone who managed a business prudently that they were an idiot and it is better to run your business in an incredibly fragile manner because you will get an automatic bailout. I digress.

 

Over time we've seen governments take actions they would have never taken before when faced with a terrible economic environment whether that is going off the gold standard, breaking a currency peg, creating new lending programs or sending folks cash in the mail. In many of these situations the governments fought against taking action but ultimately acquiesced.

 

I'm young and can stomach the risk I have if this doesn't pan out. My belief based on bottoms up and top down investment analysis is that the outlook for US stocks seems just okay from a real returns basis. Chinese stocks are absurdly cheap. 

 

To me it seems easy to have a visceral reaction to all of the risks presented by Chinese investment. Not as easy to have the same reaction to a future world where those risks don't materialize. That to me is what creates this opportunity. Agree with you that there is no guarantee Tepper is right, but this type of investing is where the guy excels and his track record shows it. My sense is he has an ego around being known as an all time great for investing in situations like this and isn't just pumping his book - his track record shows that isn't his MO (again just my belief). He called to get on CNBC and talk about it. Not something he really does. Now if this was General Ackman I'd be scared lol.

[nsx5200]

19 hours ago, Spekulatius said:

The more I think about it the more I believe that the CCP putting money in banks is more of a salvage operation than stimulus.

For stimulus the CCP needs to give money to consumers who hopefully spend it, but that’s not what we are seeing here 

 

This seem tells us that the CCP is afraid of their financial system falls apart, just like when Congress decided on TARP in 2008.

 

Not exactly bullish.

https://www.newsweek.com/china-news-hands-out-poverty-payments-1960190

"China is rolling out a subsidy for impoverished citizens[...]"

https://www.reuters.com/markets/asia/china-issue-284-bln-sovereign-debt-this-year-help-revive-economy-sources-say-2024-09-26/

"China to issue 1 trillion yuan of special bonds mainly to stimulate consumption-sources"

"In addition to the special sovereign debt issuance to support consumption, Chinese authorities also plan to ramp up financial support for small and medium-sized enterprises in phases, such as employment subsidies and tax and fee relief, to reduce their operating costs, the second source said."

 

The effort looks more broad than the one reported by Bloomberg.

 

Edited September 27 by nsx5200
reflect additional article from Reuter

[nsx5200]

https://www.scmp.com/news/china/politics/article/3280295/china-tries-rally-risk-averse-officials-ignite-economy-promising-tolerate-mistakes

"China’s leaders are again seeking to rally risk-averse cadres to the cause of decisive economic action by stressing the need to “get things done” and its tolerance of mistakes in a policy known as the “three exempts”."

"The three exempts policy differentiates between “mistakes” made during reforms, suggesting leniency for those stemming from inexperience rather than deliberate violations of discipline; those made in exploration; and those made unintentionally to promote development rather than for personal gain."

 

From the CCP mouth piece newspaper, so calibrate accordingly.  It seems like they realize they've gone top-down too much and are trying to swing it back.  Hopefully they can place more clear policies for the business in China to operate as well.

[crs223]

3 hours ago, Dalal.Holdings said:

Are they going to put their desire for Taiwan and all the other aggressive actions in the South China Sea on the back-burner to save their economy?

 

China is not going to destroy their economy attempting to conquer Taiwan.

[moneyball]

2 minutes ago, crs223 said:

 

China is not going to destroy their economy attempting to conquer Taiwan.

Even in a world where China did such a thing, The US would have to make the decision to nuke the US economy. I’m reminded of Syria and Obama’s hard line in the sand…

[Dalal.Holdings]

2 hours ago, nsx5200 said:

https://www.newsweek.com/china-news-hands-out-poverty-payments-1960190

"China is rolling out a subsidy for impoverished citizens[...]"

https://www.reuters.com/markets/asia/china-issue-284-bln-sovereign-debt-this-year-help-revive-economy-sources-say-2024-09-26/

"China to issue 1 trillion yuan of special bonds mainly to stimulate consumption-sources"

"In addition to the special sovereign debt issuance to support consumption, Chinese authorities also plan to ramp up financial support for small and medium-sized enterprises in phases, such as employment subsidies and tax and fee relief, to reduce their operating costs, the second source said."

 

The effort looks more broad than the one reported by Bloomberg.

 

 

2 Trillion Yuan is $300B. Comes out to about $200 per citizen. It's going to take a lot more to boost consumption and get China out of its funk.

 

CCP and Xi are still in charge. It's like betting on a management team that got you into a big mess to get you out of it.

 

3 hours ago, moneyball said:

I'm young and can stomach the risk I have if this doesn't pan out. My belief based on bottoms up and top down investment analysis is that the outlook for US stocks seems just okay from a real returns basis. Chinese stocks are absurdly cheap. 

 

Fortunately I am finding pretty cheap stocks outside of the United States that are not in China. China is not the only option

[UK]

https://www.thetimes.com/world/russia-ukraine-war/article/china-supplied-weapons-to-russia-ukraine-war-lk7j2jb8v

 

Duh..

[UK]

14 hours ago, hasilp89 said:

i think tepper answered all your points pretty well in his interview. It doesn't matter. hard for us fundamental value investors to get our heads around it but he's just using the common sense he has - Xi created buyers and no one is going to sell into that. 

 

And fundamental value investors still can not complain either:). If not for remaining geopolitical risks, this would be really fat pitch (and likelly will be), but I am afraid to participate big here, because of sanctions/war risks. 

[UK]

11 hours ago, crs223 said:

 

China is not going to destroy their economy attempting to conquer Taiwan.

 

I am afraid it is not only up to China to decide, this is important to understand. It is impossible to be certain in my view, same was said about Russia, before they did it. Btw I was almost 100 percent sure, they were bluffing.

 

Edited September 28 by UK

[UK]

13 hours ago, moneyball said:

I'm young and can stomach the risk I have if this doesn't pan out. My belief based on bottoms up and top down investment analysis is that the outlook for US stocks seems just okay from a real returns basis. Chinese stocks are absurdly cheap. 

 

May I ask how much capital are you willing to risk here?

[Ver]

The Chinese government cannot wreck the economy because that will violate their social contract. They can make it less efficient in the name of reducing risks and increasing security, but there is a limit as to how far they can go. You saw how quickly the government folded on Zero covid once protests erupted. Then last year reasonable video game regulations were immediately canned when the markets freaked out. The regulators apologized and the chief regulator responsible was fired. Their recent ecommerce regulation was made with the lightest touch, having the companies themselves agree to self-discipline with no penalties instead of making public decrees.

 

Importantly, the WW3 talk comes from the west and is not there in China. Xi even told the EU back in 2023 that he would not be fooled into attacking Taiwan, a statement that is not easily walked back internally once leaked. From China's perspective, war now makes zero sense when the US is powerful and ready, especially when its production advantage means it is narrowing the force gap every year. The huge difficulties Russia has experienced make war less likely, not more.

 

Now in 5-10 years if the US is experiencing some severe internal crisis? Completely different story.

That said there are many problems with Chinese companies beyond the oft-discussed fraud. A few are absolutely world class, but many are experts in destroying capital to chase dreams. There's a reason the Hang Seng was at 1997 levels earlier this year, not just from depressed valuations. And A shares are worse, not sure if you can profit from holding any company beyond Moutai for several years.

Edited September 28 by Ver

[Paarslaars]

13 hours ago, Dalal.Holdings said:

 

2 Trillion Yuan is $300B. Comes out to about $200 per citizen.

 

That's a lot of money for most chinese citizens.

[UK]

3 hours ago, Ver said:

The Chinese government cannot wreck the economy because that will violate their social contract. They can make it less efficient in the name of reducing risks and increasing security, but there is a limit as to how far they can go. You saw how quickly the government folded on Zero covid once protests erupted. Then last year reasonable video game regulations were immediately canned when the markets freaked out. The regulators apologized and the chief regulator responsible was fired. Their recent ecommerce regulation was made with the lightest touch, having the companies themselves agree to self-discipline with no penalties instead of making public decrees.

 

Importantly, the WW3 talk comes from the west and is not there in China. Xi even told the EU back in 2023 that he would not be fooled into attacking Taiwan, a statement that is not easily walked back internally once leaked. From China's perspective, war now makes zero sense when the US is powerful and ready, especially when its production advantage means it is narrowing the force gap every year. The huge difficulties Russia has experienced make war less likely, not more.

 

Now in 5-10 years if the US is experiencing some severe internal crisis? Completely different story.

That said there are many problems with Chinese companies beyond the oft-discussed fraud. A few are absolutely world class, but many are experts in destroying capital to chase dreams. There's a reason the Hang Seng was at 1997 levels earlier this year, not just from depressed valuations. And A shares are worse, not sure if you can profit from holding any company beyond Moutai for several years.

 

I kind off agree with your thinking, that they do not want war per se, but one could always invert then. Reportedly Xi/CCP asked for US assurances as early as 2020 elections, also this year with EU, perhaps he/they are just too paranoid, who knows, I have no idea. But the question I ask is what choice would they have if e.g. in the next 4 years Taiwan will be encouraged to declare independance or something simillar happens?

 

Edited September 28 by UK

[Spekulatius]

Like always , we need to look at what’s happening rather than what XI saying. it is probably true , that an attack on Taiwan is not imminent, but there is no question that they regard Taiwan as theirs just like Russia believes Ukraine is theirs and sooner or later, we will see action, imo.

https://www.reuters.com/world/asia-pacific/taiwan-reports-surge-chinese-warplanes-off-its-coast-2024-09-26/
 

Autocrats tend to do what they believe in over a long enough timeframe.

 

In my opinion, the Chinese stock market surge should be sold (sell the rip, buy the dip) because China has a history or rips as the stock market it highly speculative and we have no idea if any of this action really sticks and Chinese really buying $5k handbags from stimmi funds.

 

Much of this may be spent to buy defunct buildings and blow them up and to rescue banks with now worthless loans that need to be written off.

Edited September 28 by Spekulatius

[formthirteen]

[nsx5200]

On 9/27/2024 at 3:23 PM, Dalal.Holdings said:

2 Trillion Yuan is $300B. Comes out to about $200 per citizen. It's going to take a lot more to boost consumption and get China out of its funk.

PPP of Yuan is roughly 4/1, so $200 USD is ~$800 USD parity adjusted.  It's not nothing, but it's roughly 1/2 of a U.S. COVID stimulus check.  We saw how it boosted the lowest income group to get them to spend here in the U.S. (and China has a lot more lower income people, according to the Gini index).

 

These fussing over the details on pennies and nickels misses the more important point that the CCP(Chinese government) is finally starting to give more attention/weighting to the Chinese economy, which is more important.

 

The CCP's continuing acts of aggresion continues to be troubling, no doubt.

[crs223]

On 9/27/2024 at 11:40 AM, moneyball said:

Even in a world where China did such a thing, The US would have to make the decision to nuke the US economy. I’m reminded of Syria and Obama’s hard line in the sand…

 

I did not phrase it well.  My point was:  If an invasion in 2025 will trigger sanctions strong enough to destroy China, then the invasion will not happen in 2025.  China is in no hurry.

[Hektor]

https://www.nytimes.com/2024/09/30/business/china-property-mortgages.html

 

China Removes Curbs on Home Buyers, Sparking Stock Market Surge

[Hektor]

And the fall out from the China rally

 

https://www.bloomberg.com/news/articles/2024-09-30/quant-hedge-funds-face-more-margin-calls-as-chinese-stocks-surge

 

Quant Hedge Funds Face More Margin Calls as Chinese Stocks Surge

China’s biggest stock market rally in more than a decade has added pressure on funds that short index futures.

[Paarslaars]

12 minutes ago, Hektor said:

And the fall out from the China rally

 

https://www.bloomberg.com/news/articles/2024-09-30/quant-hedge-funds-face-more-margin-calls-as-chinese-stocks-surge

 

Quant Hedge Funds Face More Margin Calls as Chinese Stocks Surge

China’s biggest stock market rally in more than a decade has added pressure on funds that short index futures.

Ah that explains the BTC drop.

[Green King]

I think that risk is gone. From recent action, most of that news is posturing. If there was a war the entire world economy would be destroyed. 

[hillfronter83]

Many signs are pointing to an epic pump and dump organized by the government. Why do they think it's a good idea is beyond me.

[Hektor]

https://www.wsj.com/world/china/china-housing-glut-population-economy-09cffa6a

 

China’s Housing Glut Collides With Its Shrinking Population

Many cities are stuck with empty homes that they will likely never fill, adding to the country’s economic woes

[UK]

https://www.bloomberg.com/news/articles/2024-10-01/dalio-says-china-s-leaders-face-whatever-it-takes-moment