Wednesday 8, December 2021
Evergrande
It seems to me that the PBoC is pulling out all the stops to avert a crisis of confidence as Evergrande continues to sink. This should result in the RMB/CNH falling, just as all prices will rise with an increase in the money supply. The problem is that this money is not finding its way into the broader money supply, as Chinese savers are trying to unwind their leveraged positions. Nobody is buying apartments and borrowing.
This is how the Depression started, and a bit like how the 2008 crisis got going. Repeatedly, central banks prove that they are not all powerful. Let’s see what happens in China. Of course, it’s different this country: the government has an unlimited ability to pull fiscal levers, so it’s far too early to count them out yet.
Spruce Point
We think we've saved the best for last for our loyal followers. If you missed our calls on $OTLY, $LSPD, $DNMR, $GENI, $ABML, $LDOS, $HSKA, $MGNI you haven't seen anything yet. Tune in tomorrow for our “Grand Finale” pic.twitter.com/72GvSJNRh5
— Spruce Point Capital (@sprucepointcap) December 7, 2021
AWS
Amazon Web Services had a major outage yesterday. The stock price was hammered. Nah, just kidding. It went up 3%. Those fees are not refundable. The failure of systems like Robin Hood, Netflix, Disney+, League of Legends, Tinda, Instacart, Venmo, Roku and the McDonald’s app just served to remind investor how ubiquitous AWS is, and how indispensable it is to the modern Internet. I have a Ziglu card. The app for that seemed to be down. Not sure if it’s linked.
Ghislane Maxwell Trial
I have to admit, I am fascinated by this trial. There are a mass of conspiracies swirling around, and it does seem totally amazing that none of the US celebrities who were constantly flying on the “Lolita Express” have been called. The Free Press Report is doing its best, but it has had its Twitter account suspended. Twitter really does seem to be controlling the flow of what we see, which is fine, but then it should be treated as a publisher.
The importance of urea
Domberg writes about how we might be running out of urea.
$NVEI:to
Spruce Point did a great hatchet job on this company. The price collapsed 38% this morning! People are starting to pay attention to these despicable short sellers.
$TMTG
The Trump SPAC is a snowball of a car crash. Read about it here. It’s pretty crazy. It’s hard to see how members of the public can avoid being ripped off, but none of them will be reading this, so I’ll stop.
Krugman is angry
With Trump, mainly, but with a change in culture in the USA (and in the UK, in my view) about the fact that we don’t stand up for things any more. This is what he wrote.
It didn’t start with Trump. We’ve been heading this way for a long time. Back in 2006, in the aftermath of the invasion of Iraq on false pretenses and the botched response to Hurricane Katrina, I wrote about the “mensch gap” — the unwillingness of the people then running the country to accept responsibility for their own failures, their eagerness to blame others when things went wrong. Later, during the Obama era, it was striking how many critics on the right refused to acknowledge error when their predictions of runaway inflation or the abject failure of Obamacare failed to come true.
But now the transformation of American conservatism — the same movement that complains about liberal “snowflakes” — into a collection of malignant whiners seems to have reached apotheosis. Yes, there are self-pitying hypocrites on the left too; but they don’t dominate the way Trump and Trump-like figures dominate the right.
Inflation is coming, and it’s bad for banks
Well, that’s the thesis of this post. I am not totally convinced: banks have been killed by the flat or inverted yield curve, since they lend long and borrow short. In normal yield curve environment they are rewarded for maturity transformation. In this financially repressed one, they are not. As long as real assets are keeping track of inflation, banks have solid collateral and liabilities which are declining in real terms. Having said this, there may be other moving parts I don’t understand.
$APPL:NSQ
Apple is the stock that nobody dare short (0.6% of the float are shorted, according to Morningstar. It might be less than that in reality as some of this might be hedging for longs arising from derivatives positions). It trades on a P/E of 30, down to promised new products, like the Apple Car and Apple VR headset. No product has come close to the iPhone as a revenue earner in the whole time Tim Cook has been in charge. The company pays China to allow it to not be blocked in PRC, and receives a lot of money from Google to make it difficult to change the default search engine. It is not at all innovative in software development, and is run by a bean counter.
Am I going to short Apple? Is the Pope Jewish? But you have to wonder if a 3.3% earnings yield is enough to compensate for inflation running at 6%. A dividend yield of 50bp doesn’t go far either. Apple has supported its share price for a long time by replacing equity with debt. For a supposedly high tech company it is heavily geared: Debt/Equity is running at around two times. We will see, but I can’t see the next ten years for Apple being as good as the last.
Of course, the chartists will argue that the bull market will run and run. Well, it will for a while. But not forever.
Wrap
The SPX finished unchanged today. The market is not calm, but everyone is biding his time to see which way the market will break. It is as if the swoon from last Friday never happened. Everything is back to normal. But the fact that a variant which was know to be mild, albeit more infections, could cause a fairly violent movement in stockmarkets in countries where it had not even arrived was pretty scary, with big risk-off moves in commodities (especially energy) and bonds says to me that there is no depth of buying in this market.
China seems extremely fragile, the yen is volatile, the sheer amount of speculation in crypto are all contributing to increase the gain
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