David Fuller and Eoin Treacy's Comment of the Day
Category - General

    China Tech Crackdown, a short-term pain for the new growth phase?

    Thanks to a subscriber for this note from UOB which may be of interest. Here is a section: 

    As there is still no indication of the regulatory crackdown, investing in the tech sector at this current juncture could result in a high risk of catching falling knives. On the flipside, the attractive valuation and rapid growth of these China Tech companies may strike as a good bargain to long-term investors. The sell-off of some tech stocks were not a result of any fundamental changes, but rather investor sentiment, which could change again in a flash. First, we must understand the short and long-term impact of the crackdown. Here are 3 fundamental factors you may want to consider if you decide to buy the dip:

    1. Will policy changes cause structural change to business’s model?
    2. Companies’ valuation
    3. Companies’ growth

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    Priciest Food Since 1970s Is a Big Challenge for Governments

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    Adjusted for inflation and annualized, costs are already higher now than for almost anytime in the past six decades, according FAO data. Indeed, it’s now harder to afford food than it was during the 2011 protests in the Middle East that led to the overthrow of leaders in Tunisia, Libya and Egypt, said Alastair Smith, senior teaching fellow in global sustainable development at Warwick University in the U.K.

    “Food is more expensive today than it has been for the vast majority of modern recorded history,” he said.

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    Key U.K. Power Cable Will Be Partly Knocked Out Until March

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    A key U.K. power cable knocked out by a fire will stay partly offline until March, National Grid Plc said, deepening the energy crisis threatening Britain as it heads into winter.

    The timing couldn’t be worse. The U.K. is already struggling with shortages, with gas and power prices breaking records day after day. The energy crunch is fueling concerns about inflation and a potential hit to businesses just as the economy emerges from the worst impact of the pandemic. How the U.K. fares through the winter now hinges in large part on the weather.

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    Chinese Banks Are Dumping Dollars in Swap Markets, Traders Say

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    The PBOC is expected to conduct its monthly MLF operation on Wednesday, with 600 billion yuan due. Last week a central bank official said that interbank liquidity should remain balanced in the coming months, damping speculation that there’ll be another cut in the required reserve ratio soon. 

    Money market traders are more cautious this month as cash demand could rise due to quarter-end regulatory checks and before China’s Golden Week holiday in early October. If the maturing MLF is not mostly rolled over or covered by another liquidity injection, market sentiment is likely to be further impacted, said Frances Cheung, rates strategist at Oversea-Chinese Banking Corp. 

    Evergrande Woes
    Concern about the property sector amid the potential restructuring of China Evergrande Group -- the world’s most indebted developer -- could also be impacting swap rates. 

    Market participants might be preparing for “the liquidity squeeze in crisis mode,” Mizuho Bank Ltd. chief Asian FX strategist Ken Cheung wrote in a note.

    “Rising property sector concerns and specific credit concerns around Evergrande are raising pressure on banks’ liquidity management,” Eddie Cheung, senior EM strategist at Credit Agricole, wrote in a note. He expects onshore yuan liquidity conditions to remain tight in the near term.

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    Email of the day on Modern Monetary Theory

    Hope you are well in Dallas.

    I have a question: why do you often mention that we have MMT in action right now?

    MMT is not a policy adopted by government or central banks. They don’t “do mmt”

    MMT is a theoretical framework that tries to explain how the monetary system works in a freely convertible and fiat currency system in which we have been living for 50 years now (and it explains it correctly to a large part in my opinion). it’s not the “policy ode making debt”. Isn’t it?

    When you mention “MMT in action” you likely refer to the government demand for goods, services and the grant of subsidies / social securities payment / medicare /unemployment benefit to people etc. along with the debt issuance “to pay for” this spending. Finally the FED buying the government debt to “ease” the monetary conditions (the QE vs tapering).

    But this is not “MMT”. Government spending has always existed and it is the second largest component of a country GDP (after “C” , private consumption). Look at the development of the US federal debt since the early 80es to the almost USD 28tn in 2021 / today. It does not matter who administered the country (super conservative or super liberal), they have all managed to expand the debt. And the market has always absorbed the “debt”. Have they been “doing MMT” for 40 years?

    Thank you for your regular market updates... always appreciated

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    Amazon and Walmart are Winning the Labor Market Wars

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    That’s putting manufacturers in an unexpected competition with service employers for workers. Amazon likes to quote its average starting wage of $17 an hour at fulfillment centers in Michigan that comes with a host of benefits, a package that's likely better than a lot of entry-level or lower-tier manufacturing jobs for similar work. Thursday, Amazon upped the ante again, announcing that it will pay for some U.S. employees to get four-year college degrees.

    A whole host of retailers pay $15 an hour or more — Walgreens announced it would do just that last month — and offer working conditions that are likely more comfortable and less hazardous than being on a factory floor. Would you rather make $15 an hour working at a sawmill or inside a Home Depot?

    This is one reason manufacturers will end up embracing automation: They just can’t find a way to make jobs good enough to attract the workers they need relative to their ever-escalating service economy competition.

    Service employers have spent the past several years improving the nature of their jobs, doing everything from increasing pay and benefits packages to relaxing dress codes and offering more flexible schedules. Manufacturing employers are realizing that they now have to do the same. They've got arguably an even heavier lift in front of them, given the riskier, more physically demanding nature of many of the jobs — and if they can’t manage to pull it off with humans, they might have to do it with robots.

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    The Apple v. Epic Decision

    This article by Ben Thompson for his Stratechery service may be of interest to subscribers. Here is a section:

    This isn’t the only duopoly: Google and Facebook jointly dominate digital advertising, Microsoft and Google jointly dominate productivity applications, Microsoft and Amazon jointly dominate the public cloud, and Amazon and Google jointly dominate shopping searches. And, while all of these companies compete, those competitive forces have set nearly all of these duopolies into fairly stable positions that justify cooperation of the sort documented between Apple and Google, even as any one company alone is able to use its rival as justification for avoiding antitrust scrutiny.

    Judge Gonzales Rogers does note that it is unclear whether Google “could increase output in the short run in order to erode Apple’s market share”, but the real problem is that Google is content to simply share the market with Apple and earn their own supracompetitive commission rate.

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