The Communist Spin Can't Hide It

China's economy is neither steady nor in a recovery... Cutting through the communist spin... What's left unsaid... The People's Bank of China is stimulating again... What a weak Chinese economy means for you... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] China's economy is neither steady nor in a recovery... Cutting through the communist spin... What's left unsaid... The People's Bank of China is stimulating again... What a weak Chinese economy means for you... --------------------------------------------------------------- Read past the headline and you'll see... One of the things I (Corey McLaughlin) wrote to you yesterday was that we'd be watching the latest data out of China this week, primarily to see just how much the world's second-largest economy has been slowing lately. A day later, we awoke to the unexpected news of the Chinese government cutting key interest rates for the second time in three months... amid a slew of economic reports out of the country suggesting slower activity than many people expected. The communist spin didn't even do a good job of hiding the trouble. For example, had you just read the headline on China's National Bureau of Statistics' latest wide-ranging economic report this morning, you might be encouraged. The title reads, according to an English translation on the bureau's website... National Economy Sustained the Steady Recovery in July The takeaway, though, is substantially different if you actually read the numbers and put them in context... China's desired post-pandemic recovery is not steady, nor perhaps even a recovery anymore. The unfiltered information... As I wrote yesterday... Last week, a bunch of further data made the case for deflation occurring in China... And we were reminded that "zombie" companies aren't limited to the U.S., either. Credit numbers on Friday showed a major slump in demand for Chinese business and consumer borrowing. New local-currency bank loans plunged by nearly 90% in July from June to the lowest level since 2009. What's more... the country's top private property developer, Country Garden, is reportedly close to defaulting. Today, the Chinese government reported more bad news, if you could find it... Chinese industrial production increased by a reported 3.7% year over year last month, but that's down from a 4.4% pace in June. And, importantly for investors, this most recent gauge of production was well below market expectations. A Reuters poll of analysts and economists, for example, expected another 4.4% jump in Chinese production in July. It was a similar and worse story with Chinese retail sales. They grew 2.5% year over year, down from a 3.1% increase in June. That was drastically less than the 4.5% growth expected and the slowest pace of expansion since December 2022. Overall Chinese urban unemployment for the month moved higher as well, to 5.3%. As our Asia-based Stansberry Research analyst Brian Tycangco posted today on X, formerly known as Twitter (what a mouthful – thanks, Elon)... These [numbers] make it difficult for China to achieve the government's 5% GDP growth target for the year without a significant stimulus program aimed at boosting nearly all of its key sectors. We'll get to more about Chinese stimulus momentarily, but first... What's unsaid is most important... We looked through a deluge of Chinese data today. But even more telling than the numbers was that China's official statistics bureau stopped breaking down unemployment by age groups. Why? Because youth unemployment – an extremely troubling trend in China that had risen to a record high of 21.3% in June – is probably worse now. The official line from a National Bureau of Statistics spokesperson today, without sharing numbers, was instead that... The economy and society are constantly developing and changing, statistics need to be constantly improved, and labor force survey statistics need to be further improved and optimized. Young people looking for jobs in China have another take... According to a story published by NBC News today... The decision to withhold monthly data on youth unemployment met with backlash online, where social media users accused officials of trying to bury bad news. "Put in a clearer way, the current data looks very bad, so don't look at it for now," one user wrote on Weibo, a microblogging site, where the relevant hashtag drew more than 180 million views. "The National Bureau of Statistics is being capricious," another comment read. "The unemployment rate is an important indicator of national economic development and should not be arbitrarily decided whether to release or not. The public has the right to know the truth." Young unemployed graduates also expressed anger over the decision. "They are lying every day," Cassie Sun, 24, who has been unemployed since graduating two years ago, told NBC News on Tuesday. On a related point, you can rightfully debate the accuracy of any of these numbers – maybe they are actually worse – or blame the economists or analysts for missing projections. But we don't need to debate veracity... That's because China's central bank's response to this stream of data is an acknowledgment from the government itself that the Chinese economy is slowing more than many people had thought. Today, the People's Bank of China cut short-term interest rates by 10 basis points, just a few hours after lowering medium-term rates by 15 basis points. And this could be just the start of major stimulus efforts, as Brian also wrote today... This is after data came out earlier this week that new loan growth in China has substantially slowed despite the presence of abundant liquidity. This increases the chances that China's loan prime rate (LPR) will also be cut when rates are announced next week. The LPR is used as a guide for corporate and household loans (i.e. mortgages) and a cut in this key rate may be what the market needs to get some positive momentum after a spate of bad economic data. Brian also said that steps to increase liquidity in the Chinese economy haven't translated into more economic activity, "likely due to low business confidence." That stems from the hits the Chinese real estate industry has taken in the last several years, which we mentioned yesterday regarding Evergrande's plight in 2021, ghost cities, and the country's top private-property developer on the verge of default. As Brian put it over the weekend... The growth in prices of newly built homes in China has been steadily falling after President Xi Jinping declared in 2017 that property should be lived in, not for speculation. They removed that wording during the last Politburo speech. Whether prices start posting healthy growth again depends a lot on Beijing being able to address the current debt issues facing developers, as well as convincing Chinese citizens that it will no longer attempt to kill the ability of property to rise in value. Millions of people hope for a better life through the time-proven ability of real estate to increase wealth. It's why 70%+ of Chinese household wealth is in property. Take away its ability to generate solid returns and you douse people's dream of attaining a better life for them or their children. People become more anxious about the future and they will hold back on spending. I expect Beijing to come out with more measures to try restoring confidence in the coming days and weeks. No other choice. All right, so the Chinese economy is slowing, 1 out of every 5 young people living in Chinese urban areas can't find a job, and it looks like the government will ramp up stimulus efforts soon. But this scenario may still seem foreign and insignificant to you. Your portfolio isn't immune to this far-off mess... Here are four takeaways for what trouble in China could mean for you and your money. 1. The short-term impact on the U.S. dollar. My first, macroeconomic takeaway is that a stimulative Chinese economic policy could mean a weaker yuan in relation to the U.S. dollar – for now... You may ignore currency moves in your own portfolio, but they are hugely significant. As we've said many times before, a stronger dollar on balance compared with other major global currencies has meant lower prices for stocks in general over the past few years, and vice versa. The dollar has risen about 2.5% versus the Chinese yuan in just the past few weeks (since a low on July 25). At the same time, the U.S. Dollar Index – which doesn't include the yuan, but measures the dollar in relation to the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc, is up about 1.5%... and the U.S. benchmark S&P 500 Index is down 2.5%. This may not seem like a big move for the Dollar Index. But the recent behavior has pushed it through its 50-day moving average and, as of today, its 200-day moving average. A sustained move above that measure of a technical long-term trend could be a bearish sign for stock prices ahead. Of course, it might not last. The Federal Reserve – the U.S.'s answer to the People's Bank of China – is also signaling it may do its own version of easing up on monetary policy by possibly pausing its rate-hiking spree again. This could weaken the dollar relative to other currencies. So any strong-dollar headwinds that may result from Chinese (or other nations') weakness may be a short-lived risk for U.S. stocks, too. We'll see. 2. The impact globally. In any case, a serious slowdown from the world's second-largest state economy will be a drag on the global economy. Like it or not, Chinese growth over the past few decades has contributed greatly to global growth. I think this is what we may have seen reflected in markets today, with oil prices down 2%, the S&P 500 Index's energy sector off by about the same, and the major U.S. indexes down close to 1% overall. Over the longer run, a weaker Chinese economy may help U.S. fortunes by possibly bringing down inflation and – if there are any capable U.S. government leaders out there – providing some leverage in various geopolitical tensions. Lower export prices from China could also benefit U.S. companies. But fewer imports to China could also mean less profits for businesses in various other economies, like in Europe. 3. It foreshadows what could happen here. Remember, rate cuts – while intended to boost economic activity – only happen from central banks when things aren't going well on their own. That's certainly the case in China today. After seeing a similar rally to the one the U.S. enjoyed off last October's bottom, the iShares China Large-Cap Fund (FXI), for example, has traded sideways since March. Consumer confidence has cratered, and 20% of young people looking for a job in cities can't find one. Now you have the leaders of one of the world's largest economies looking to stimulate things as it copes with the threat of deflation. If the Chinese stimulus is successful, it would boost inflation by juicing prices. This is a scenario the Fed could face down the road if it's looking to boost the economy amid rising unemployment. If inflation is still historically high, decisions will need to be made. Or if deflation is something to address, that will mean nobody is happy. In any case, as Dan Ferris likes to say, the currency always loses. 4. A state of unrest. Last and not least – and probably most important over the long run... An economy in need of support is more evidence of unease among the people of China and a backdrop for possible unrest. This could further contribute to its leaders' geopolitical angst with respect to any number of issues, including those of the U.S. with respect to Russia and Taiwan. After all, throughout history, how many eventual external conflicts between nations have been fueled by the internal problems of one or both? Quite a few, as you likely know. You may have heard President Joe Biden's latest comment at a fundraiser that China is a "ticking time bomb" because of its economic situation, saying that "when bad folks have problems, they do bad things." Biden also recently signed an executive order regulating investments from U.S. venture funds and private-equity firms in Chinese companies focused on semiconductors, quantum computing, and artificial intelligence... The order is aimed at preventing American dollars from helping China use "sensitive technologies and products" from the U.S. "for the purposes of achieving military dominance." And it says exporting such technologies poses a national-security risk. I'm not saying China's current economic slowdown will lead to immediate war, but it certainly doesn't lower the temperature of major geopolitical tensions in East Asia. China may seem like a distant issue... But we're going to keep an eye on it. --------------------------------------------------------------- Recommended Links: [How 'Playing It Safe' Could Lead to 9 Times Gains, Starting Immediately]( If you think the only way to see huge upside is with complex and risky strategies like trading options or buying penny stocks... a top analyst has news for you: You can do it with ordinary stocks anyone can buy. In fact, he has shown his readers closed gains as high as 629% with this simple, low-risk strategy... and he says today is an even better time for you to start doing this, too. Until midnight tonight, [click here for details](. --------------------------------------------------------------- [His System Isolated Nvidia – Here's His NEXT Buy]( Marc Chaikin's stock-picking system isolated Nvidia before its massive bull run this year. And it just flashed "BUY" on a new artificial-intelligence company that no one is talking about yet. It's not a household name... but Marc predicts it could quickly double or triple from here. [Click here for the name and ticker](. --------------------------------------------------------------- New 52-week highs (as of 8/14/23): Fortive (FTV), ICON (ICLR), Innodata (INOD), Eli Lilly (LLY), Construction Partners (ROAD), TFI International (TFII), and Verisk Analytics (VRSK). In today's mailbag, some thoughts about what's going on in China... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com. "China has serious problems. And the saber-rattling by Xi over the Taiwan issue is just living proof of how their leader will go to great lengths to take the people of China and the world's attention away from those unsolvable problems. U.S. companies are leaving China in droves. The majority of China's younger population is unemployed aka NOT working. That is a very big issue because China's one-child policy over the past decades has created a massive shortage of new people to replace older workers in the economy. And now the young people who are there are unemployed!! Even in a communist country that isn't a good thing. Then to add insult to injury, Xi has shut down the country several times over the COVID scare, which has further eroded the strength of China's financial world. Xi has some challenging days in his future, IMO." – Subscriber John M. All the best, Corey McLaughlin Baltimore, Maryland August 15, 2023 --------------------------------------------------------------- Stansberry Research Top 10 Open Recommendations Top 10 highest-returning open positions across all Stansberry Research portfolios Stock Buy Date Return Publication Analyst MSFT Microsoft 11/11/10 1,187.6% Retirement Millionaire Doc MSFT Microsoft 02/10/12 1,015.5% Stansberry's Investment Advisory Porter ADP Automatic Data Processing 10/09/08 899.0% Extreme Value Ferris wstETH Wrapped Staked Ethereum 02/21/20 703.9% Stansberry Innovations Report Wade WRB W.R. Berkley 03/16/12 564.4% Stansberry's Investment Advisory Porter HSY Hershey 12/07/07 541.8% Stansberry's Investment Advisory Porter BRK.B Berkshire Hathaway 04/01/09 535.6% Retirement Millionaire Doc AFG American Financial 10/12/12 391.9% Stansberry's Investment Advisory Porter TTD The Trade Desk 10/17/19 318.9% Stansberry Innovations Report Engel FSMEX Fidelity SelMed 09/03/08 303.8% Retirement Millionaire Doc Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any Stansberry Research publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio. --------------------------------------------------------------- Top 10 Totals 4 Stansberry's Investment Advisory Porter 3 Retirement Millionaire Doc 2 Stansberry Innovations Report Engel/Wade 1 Extreme Value Ferris --------------------------------------------------------------- Top 5 Crypto Capital Open Recommendations Top 5 highest-returning open positions in the Crypto Capital model portfolio Stock Buy Date Return Publication Analyst wstETH Wrapped Staked Ethereum 12/07/18 1,602.5% Crypto Capital Wade ONE-USD Harmony 12/16/19 1,062.9% Crypto Capital Wade POLY/USD Polymath 05/19/20 1,030.8% Crypto Capital Wade MATIC/USD Polygon 02/25/21 803.0% Crypto Capital Wade BTC/USD Bitcoin 11/27/18 683.0% Crypto Capital Wade Please note: Securities appearing in the Top 5 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the Crypto Capital model portfolio. The buy date reflects when the recommendation was made, and the return shows its performance since that date. To learn if it's still a recommended buy today, you must be a subscriber and refer to the most recent portfolio. --------------------------------------------------------------- Stansberry Research Hall of Fame Top 10 all-time, highest-returning closed positions across all Stansberry portfolios Investment Symbol Duration Gain Publication Analyst Nvidia^* NVDA 5.96 years 1,466% Venture Tech. Lashmet Microsoft^ MSFT 12.74 years 1,185% Retirement Millionaire Doc Band Protocol crypto 0.32 years 1,169% Crypto Capital Wade Terra crypto 0.41 years 1,164% Crypto Capital Wade Inovio Pharma.^ INO 1.01 years 1,139% Venture Tech. Lashmet Seabridge Gold^ SA 4.20 years 995% Sjug Conf. Sjuggerud Frontier crypto 0.08 years 978% Crypto Capital Wade Binance Coin crypto 1.78 years 963% Crypto Capital Wade Nvidia^* NVDA 4.12 years 777% Venture Tech. Lashmet Intellia Therapeutics NTLA 1.95 years 775% Amer. Moonshots Root ^ These gains occurred with a partial position in the respective stocks. * The two partial positions in Nvidia were part of a single recommendation. Editor Dave Lashmet closed the first leg of the position in November 2016 for a gain of about 108%. Then, he closed the second leg in July 2020 for a 777% return. And finally, in May 2022, he booked a 1,466% return on the final leg. Subscribers who followed his advice on Nvidia could've recorded a total weighted average gain of more than 600%. You have received this e-mail as part of your subscription to Stansberry Digest. If you no longer want to receive e-mails from Stansberry Digest [click here](. Published by Stansberry Research. You’re receiving this e-mail at {EMAIL}. 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