China's Economic Situation

China's GDP grew 5.2%, but other macro figures aren't looking too good. January 18, 2024 | Peel #628 Silver Banana goes to... [CapLinked. ]() In this issue of the Peel: - 💰Retail sales figures came out... how do you think the U.S. did? - 🚀Instacart and Digital World Acquisition went up, Spirit Airlines and Rivian went down. - 📊China's GDP grew 5.2%, but other macro figures aren't looking too good. Market Snapshot 📸 Happy Thursday, apes. Here’s a sentence we never would’ve thought we’d factually be able to say: WSO Alpha subscribers are growing faster than China’s population. That’s not too hard when the latter is actually in decline, but as always, a win is a win. Despite growing faster than the population of the world’s second most populous country and second-largest economy, it was still a tough day for WSO Alpha as we officially slipped into negative territory in our year-to-date return once again. We’re still outperforming the S&P (psh, too easy), but the Nasdaq is actively laughing at us. Remember, you can [join us for the ride]() anytime as we try to reclaim the title soon enough. Let’s get into it. Banana Bits 🍌 - Finally, some hope can be found in housing as the [NAHB/Wells Fargo Housing Market index]() sees its largest jump in almost a year. - This is the “Keep it simple, stupid” analysis at its finest—The Fed’s Beige Book contains the [least number]( of instances of the word “weak” or “slow” since April 2022. - Spirit has [lost all of its… spirit]()… this week as the proposed merger with JetBlue gets blocked by federal regulators. - You’ve probably heard a lot about the tough scene over in commercial real estate, but the WSJ went ahead and [actually quantified it](=). Caplinked Is Hooking You Up With Free Dream Vacation!! You got a lot of people tryna drain you of your energy! And nobody wants to drink with the VDR sales guy. That's why Caplinked is sending you on an all-expenses-paid luxury vacation to Thailand when you sign up for an Enterprise VDR! Fill out the form, go for a demo, and see if it works for you. No Cap, It's as simple as that. [Click here]() to get one step closer to chilling with monkeys in Lopburi, getting litty under the stars in Koh Phangan, and swimming in the world-famous beaches of Phuket. Offer expires at the end of the month. Macro Monkey Says 🐒 Retail Sales Santa’s Nice List must’ve been extra long this year, as spending during this holiday season came in as quite the surprise. Donations to this wonderful charity we call the U.S. economy made via retail sales grew unexpectedly fast in December, toning down recession fears but bringing those concerns right back up on the inflation and interest rate side. Together, we spent a grand total of $709.9bn at retailers in December. While most of that was probably still spent on random sh*t nobody needs, it’s always nice when we waste money on other people instead for a change. [Source]() Seeing those surprisingly high spending numbers only makes us wish there was a way we could invest in the return aisles at these retailers because, given the current investment landscape, gift returns are about the only thing we’re confidently bullish on. That $709.9bn is a 0.6% jump from the revised November figures and a solid 5.6% jump from December of 2022. Keep in mind—these figures are notably not adjusted for inflation. Factoring in December’s 3.4% annual inflation rate, we find that real spending only increased by 2.2%. [Source](=) But we’ll take it. Consensus estimates were anticipating only a 0.4% monthly increase, so beating expectations is certainly a good thing for the overall economy, but it’s not ideal for investors whose mouths are watering at the idea of a rate cut. Speaking of mouths watering, American consumers were all about dining out last month, too. Spending time with our families obviously means we’re gonna have to eat and, most of all, drink a lot more, so it’s no surprise to see sales at “food service and drinking places” 11.1% higher than that of 2022. While food and drinking places make up only a fraction of the total spending amount, high ticket items like vehicle purchases really carry the team. Based on auto spending, it’s clear the real holiday—the Lexus December to Remember sales event—saw another strong performance as well, driving 0.2% of the total monthly increase alone. Despite the strong spending numbers and the macroeconomic optimism that comes with that, given consumer spending drives ~2/3rds of U.S. GDP in any given year, markets weren’t too excited at the report. Strong spending is exactly what causes inflation to accelerate, at least in part. So, seeing this report makes Mr. Market think that Fed Chair JPow will be less likely to start cutting rates as soon as expected. That means the “higher for longer” narrative around interest rates is coming back to take the spotlight from the “lower for sooner” narrative everyone was hoping for. Outside of interest rates, hopefully, this means we can expect a stronger performance from some of the retail names within [WSO Alpha,]( like Costco and Dollar General. The former has already been an absolute dawg within the portfolio, but Dollar General definitely has some catching up to do. Sadly, I don’t think many people had DG on their list of places to hit for the holiday season unless, of course, you get someone you really hate in the office as Secret Santa. What's Ripe 🤩 Instacart (CART) 📈 7.50% - When MadeinTYO and Travis Scott released “Uber Everywhere” back in 2016, little did they know that they were actually conducting an 8-year forecast of market conditions in the rideshare and food delivery space. - Now, 8 years later, we can confirm they were spot on. After announcing on Tuesday their plans to discontinue alcohol delivery service Drizly and consolidate that brand under the Uber Eats umbrella, analysts are now starting to think that Instacar could get the Drizly treatment soon. - Wolfe Research analyst Deepak Mathivanan suggested in a research note published yesterday that shares in the grocery delivery firm had a lot going for them, “including a potential merger with Uber.” - That’s the kind of wild speculation we love to see. But even without a potential acquisition, Mathivanan raised $CART shares to an outperform rating and slapped on a $35/sh price target, implying a 36.3% upside. Digital World Acquisition Corp (DWAC) 📈3.13% - Well, I guess yesterday was the time to break out the bright red hats on Wall Street as shares in the Trump-backed Digital World Acquisition Corp got a nice boost on the day following the results of the Iowa caucus. - We hate politics as much as Bill Ackman hates being concise in his tweets, but damn, I almost forgot this SPAC still even existed. - To jog your memory, this SPAC is the owner of Truth Social, the social media app backed by the former President that is essentially a carbon copy of the pre-Elon version of Twitter. Damn, that’s gotta be one of the wilder sentences we’ve ever typed, but unfortunately, it is all true. - With ol’ Donnie T’s dominance at the Iowa caucuses, the Bulls are back on Truth Social. Shares are up >30% since Friday alone, and now I’m gonna go throw up and forget again that this thing exists. What's Rotten 🤮 Spirit Airlines (SAVE) 📉 22.47% - Losing nearly 50% of their value on Tuesday wasn’t enough punishment for Spirit shareholders as markets sent this poor thing down another 22.5% on Wednesday. - Along with their (former?) potential merger partner JetBlue (JBLU, -8.67%), Spirit continued to tumble as a result of the merger block issued by a federal judge on Tuesday. - Analysts are now sizing up a potentially serious risk of Spirit legitimately going bankrupt if this thing doesn’t go through unless they’re able to jack up prices and fix operational headaches. - You’d think that not taking on a potentially bankrupt asset would be good for JetBlue investors, and J.P. Morgan analyst Jamie Baker concurred, saying that JetBlue “dodged a bullet” with this merger getting shut down. Rivian (RIVN) 📉 5.95% - Electric vehicles (and their stocks) have in recent years become a lot like those podcasts everyone started in the past couple of years—nobody wants them, but sadly, they’re still here. - Thankfully, though, unlike those podcasts, these vehicles actually provide some use in the world. However, according to analysts at Deutsche Bank, not enough use to justify a bull case as analysts at the German bank downgraded shares and cut their price target by 35% to $19/sh on Wednesday. - With rate hikes and the potential for an economic slowdown, the market for EVs continues to suffer in 2024. That’s not ideal for current shareholders, but it will only make our soon-to-come equity research piece on Tesla even more interesting. [Stay Tuned.]() Thought Banana 🤔 China Keeps Chugging Losing the title of “most populous country in the world” has gotta be a [tough L]( for China to take, but you’d think that hitting 5.2% GDP growth might make up for it. But of course, that’s simply not the case in the world’s second most populous country. This week, China has begun to release high-level macroeconomic data for the full year of 2023. For the second time in a row, and only the second time since 1961, the world’s second-largest economy once again saw its population decline. According to official government data, China saw its population decline by 2.08% in 2023, accelerating from the 0.85% decline seen in 2022. In economic terms, a declining population is one of the worst things a country can face, as that fundamentally means the size of the economy’s consumer base is declining. Fewer people are around to buy and sell things, so unless you can make up for that decline in the export markets, GDP declines will come along with falling population soon enough. Despite that acceleration in population decline, however, China’s economy did grow much faster than it did in 2022—take a look: [Source]() Nearly 4-years on from the start of that silly little global pandemic, China’s economy is still in the process of reopening and getting back to “normal” after implementing its radical “C-19 zero” policy from 2020 to late 2022. But clearly, the reopening isn’t going terribly, as the 5.2% GDP growth figure in 2023 is a strong step up from the 3.0% seen in 2022. Issues in the country's real estate market have continued to be a driving force here, with debt-loaded developers unable to make investments of a similar scale to the pre-C-19 days. In total, property development investments fell 9.6% in 2023, per the FT. Foreign investors had been hopeful that China would take notes on JPow’s stimmy package and institute their own massive forms of economic stimulus but debt-saddled local and regional governments make this outcome all too unlikely. Compared to the U.S. above, China’s own retail sector saw sales “boom” by 7.4%, but that was actually quite a disappointment as analysts had been looking for an increase of 8%. For a country with an actively declining population, 5.2% annual GDP growth is still fairly solid, but considering the plethora of problems under the hood, the picture is looking much less rosy. The Big Question: Will China be able to return to pre-pandemic growth rates in both population and GDP? What steps, if any, will the government take to support their economy? Banana Brain Teaser 💡 Yesterday The annual interest rate earned by an investment increased by 10 percent from last year to this year. If the annual interest rate earned by the investment this year was 11 percent, what was the annual interest rate last year? Answer: 10 Percent Today A total of 5 liters of gasoline is to be poured into two empty containers with capacities of 2 liters and 6 liters, respectively, such that both containers will be filled to the same percent of their respective capacities. What amount of gasoline, in liters, must be poured into the 6-liter container? Send your guesses to vyomesh@wallstreetoasis.com Wise Investor Says 🤓 “China's rise represents perhaps the most significant economic event in our lifetimes.” — 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") 20705 Saint Charles St Saratoga, California 95070 United States (617) 337-3353