🇨🇳 China's Best Friend

What’s going on with China and Russia geopolitics? May 16, 2024 | Peel #711 Silver Banana goes to... [Interactive Brokers. ]() In this issue of the Peel: - 🆒 The Consumer Price Index (CPI) clocked in at 0.3% in April. - 🤡 Meme stocks tanked for the day… who would’ve guessed? - 🌎 What’s going on with China and Russia geopolitics? Market Snapshot 📸 = Banana Bits 🍌 - There’s a new prom queen on Wall Street as Buffett’s Berkshire Hathaway reveals the position they’ve been secretly buying, [Chubb Ltd](=) - “Building to rent” is a booming [trend in the U.S.]() - Walmart’s crown hangs loose over the claim of “[largest retailer](=) in the world by revenue” - Consumer spending is still [jacked in the U.S., per BofA]( Interactive Brokers has key competitive advantages for sophisticated investors like you. IBKR was rated lowest margin fees by stockbrokers.com and offers USD margin rates from just 5.83% to 6.83%. 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However, the author of the above quote, MIMS, didn’t realize that his analysis is actually somewhat faulty on inflationary pressures. Not sure if he missed that day in his Macro Analytics class, but the Consumer Price Index was fly because it wasn’t hot. At least, that’s what the market’s telling us. Let’s get into it. The Number Yesterday, the Bureau of Labor Statistics blessed us with yet another updated inflation report. The Consumer Price Index (CPI) clocked in at 0.3% in April. [Source]() Consumer inflation clocked in just below the economist guesstimate of 0.4%, beating to the downside, unlike the producer inflation data seen on Tuesday. On the annual side, headline CPI came in at 3.4%, right line with guesstimates from the same economists. For the first time in way too long, every CPI reading—headline, core, annual, and monthly—trended lower from prior months, causing Fed Chair JPow to finally step back off the ledge of his fourth-story office at the Eccles Building. [Source]() Traders were hyped, not necessarily due to the levels at which CPI grew, but simply because of what we stated above—that this wasn’t a surprisingly hot inflation print. Remember, it’s never about “good or bad” but always “better or worse” on the macro side. And speaking of “better or worse”, food and energy costs came in slightly better than expected, especially in the shadow of a hot gasoline index put on blast in Tuesday’s PPI report. Food at home costs grew just 1.1% for the year, while food away from home is still mooning up 4.1%, probably thanks to Chipotle and Olive Garden’s borderline-unconstitutional price hikes. Energy costs were still kinda being a d*ck. Electricity prices led the league with an annual gain of 5.1%, likely due to a sudden spike in natural gas prices over the last few months. However, fuel oil costs declined for the year, even if just by 0.8%. Prices at the pump have gained recently but remain rangebound in mid-high $3/bbl territory. All told, this led to Core CPI setting a 3-year record low, clocking in at 3.6% for the year and right in line with headline inflation for the month at 0.3%. [Source](=) The Takeaway? There’s not much more to say on the numbers side, as the real point of interest here is buried in the market’s reaction. This is the first CPI report that didn’t cause panic, alarm, or some kind of never-read-a-book hawkish mob to emerge on X/Twitter pretty much at all. In fact, this one sent U.S. stocks to a fresh, new, delicious all-time high at the close. Not only is the market relieved at the low print, but it feels like the first time general market sentiment believes we’re close to winning the war on inflation. After all the U.S.’s success in prior wars on things like drugs and terror, I can’t imagine where the doubt came from. [Source](=) That was clear in conversations on X, YouTube, and other corners of the internet I find myself kidnapped into. But, on the rate expectations side, not much changed. Markets are still pricing for at least two 25bp cuts before the end of the year. Don’t be surprised to see the first at the July FOMC meeting, but as of now, consensus is calling for the first cut in late September so rates can fall with the season. The other interesting takeaway comes from diving into the data, which we have already done here at [WSO Alpha](=). Not only could high rates be stimulating economic growth by increasing interest income to rich people, it could be stimulating inflation readings by propping up the cost of financial activities, like brokerage and portfolio management services. Portfolio management was one of the biggest drivers of the CPI and the biggest driver of final demand supply price increases for the PPI, so for all the PMs and analysts freaking out about inflation, take a look in the mirror—it’s your fault. Just don’t shoot the messenger. Just don't shoot the messenger. What's Ripe 🤩 Petco (WOOF) 📈27.9% - All our dawgs are eatin’ good these days, and if you hold shares in PetCo, your money is eatin’ right alongside them. A new master just rescued the firm. - Shareholders were barking on Wednesday as the pet supply firm appointed a Chairman who then threw $2.5mn into the stock almost immediately. - Petco is still looking to hire a new CEO too. For now, it was a good day for the fresh Chair Glenn Murphy, getting a >20% vote of confidence from the market. Monday.com (MNDY) 📈21.4% - Q1 was a true mitzvah for Israeli firm Monday.com, soaring past estimates and increasing revenue and free cash flow guidance for the year. - The firm reported 34% revenue growth to $217mn, beating estimates and previous guidance of $211mn. EPS beat by 56.4% at $0.61/sh. - But that wasn’t even the best part—free cash flow grew 130.7% annually to $90mn, and guidance calls for a 25% FCF margin, hyping up investors. What's Rotten 🤮 Meme Stonks (AMC, GME) 📉20.0% - Amazingly, some kind of rationality existed in markets yesterday as AMC, GME, and every other sh*tco moved closer to the $0/sh where they belong. - Maybe I’m mad because I spent literally hundreds of thousands of dollars learning about the “efficient market hypothesis” only to have a rando posting a meme on X create legitimately billions of dollars in market value. - I’m out of breath already, but AMC, GameStop, and the other meme stocks tanked as it seems like Roaring Kitty is quieter than expected. - Maybe he’s joining Berkshire on buying Chubb, but it seems like GME should’ve hired this guy to come trade their cash balance instead of CEO Ryan Cohen. New York Community Bancorp (NYCB) 📉5.7% - Like submitting the homework but failing the final, NYCB took one step forward and 75 steps back yesterday. - NYCB completed their ~$5bn mortgage loan sale to JPMorgan, but investor focus shifted immediately to the banks’ CRE loan portfolio. - The firm is more exposed to CRE than Drake was when Kendrick dropped “Not Like Us.” So, investors are focused on the long, unstable, and potentially nonexistent path back to profitability. Thought Banana 🤔 Chilling With China Since 1984, Wendy’s has been asking us, quite aggressively, “Where’s the beef?” We know where the beef is—all across the Pacific Ocean, squarely between the U.S. and China. Although that might be the biggest beef here in 2024, it sure isn’t the only one. The Cold War has arguably been over since the 1991 collapse of the Soviet Union, but recently, tensions have undoubtedly (and, quite obviously) been put right back in the microwave and heated up once again. The U.S. might have beef with China, but all Russia has is a big, fat bear hug. What Happened? Today and tomorrow, Russian President Vladimir Putin is scheduled to meet with Chinese President Xi Jinping in his nation’s capital of Beijing. The 43rd element of the periodic table is called “technetium.” All I know about is that the element is a transitionary, radioactive metal—two qualities that ironically and almost assuredly describe the meeting between these two leaders at their 43rd encounter. [Source]( The two leaders will use this meeting as another opportunity to deepen their relationship, described as a “no limits partnership” back in 2022. For Russia, this is about securing the bag. For China, this is about securing the ball. Russia has grown reliant on China since launching its invasion of Ukraine more than two years ago. Given sanctions imposed by the West, the Kremlin has counted China as its new BFF in supplying the funds needed to propagate the war effort. The strongest way to unite disparate parties is through a common enemy. China and Russia share about 340mn of those by the way of U.S. citizens, making it only natural for them to grow closer when cut off from the rest of the world. Although China doesn’t have nearly the same economic and political reliance on Russia as Putin does to Xi Cha-Ching—I mean, *Xin Jinping—this gives the world’s second largest economy much more influence over the world’s 8th largest economy. [Source]( Nowhere is this growing economic and political relationship more clear than above, showing the change in bilateral trade between these countries from 2021 to 2022, following Russia’s invasion of Ukraine. Russia has become China’s most valuable customer, exploding the amount of imports from its neighbor to the south. In return, China has gained 1) fatter wallets thanks to the export growth and 2) more control over trade regions linked to Russia, such as inland trade routes diminished from U.S. control, like that of the Indo-Pacific region. Who Cares? While avoiding full freak-out mode so far (surprisingly), the U.S and its allies have been tweaking about this growing romance for the past two years. China is clearly aware of this, looking to seem as close to Russia as possible in Putin’s eyes and as far away as possible in the U.S.’s eyes. [Source]( No matter how much we like to pretend we hate each other, the U.S. and China are still massive trading partners. Further, the U.S. does still control the global reserve currency as well as boasts the most powerful military—by far. So, China is attempting to strike a nuclear level of balance between these two competing interests. I barely know what’s gonna happen during our own meetings here at WSO, so we can’t speculate on what might be accomplished here. But, I can be pretty damn confident that whatever the outcome is, the U.S. won’t like it. Most of the real news in geopolitical relationships like this is behind the scenes until a few years later, so we’ll probably be waiting a while for anything that matters. Stay tuned. 💭 The Big Question 💭: What will come of this meeting between China and Russia? How detrimental would it be to foreign U.S. interests? Who do we think is at the top, and who’s at the bottom? Banana Brain Teaser 💡 Previous 🗓 A worker carries jugs of liquid soap from a production line to a packing area, carrying 4 jugs per trip. If the jugs are packed into cartons that hold 7 jugs each, how many jugs are needed to fill the last partially filled carton after the worker has made 17 trips? Answer: 2 Today 🕐 Working simultaneously and independently at an identical constant rate, 4 machines of a certain type can produce a total of x units of product P in 6 days. How many of these machines, working simultaneously and independently at this constant rate, can produce a total of 3x units of product P in 4 days? Send your guesses to vyomesh@wallstreetoasis.com Wise Investor Says 🤓 “The arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislatures. The inflation tax has a fantastic ability to simply consume capital” — Warren Buffett How Would You Rate Today's Peel? 😁[All the bananas](=) 😐[Meh](=) 😩[Rotten AF]() Happy Investing, David, Vyom, Jasper & Patrick [ADVERTISE]( // [WSO ALPHA](=) // [ACADEMY]() // [COURSES]( // [LEGAL]( [Unsubscribe]( IB Oasis Corp. (aka "Wall Street Oasis") 14435 Big Basin Way PBN 444 Saratoga, California 95070 United States