Crosscurrents
“Don’t let anyone else tell you what to do with your life. You have to figure that out by yourself.” – Doug
The Buzz
Stocks finished higher on Tuesday as the July Producer Price Index (PPI) came in lower than expected. At the close, the Dow was +1.04%, the S&P 500 +1.68% and the tech-heavy Nasdaq was up 2.43%. Individual stocks making big moves included Starbucks (up) and Chipotle (down) as the coffee giant snagged Chipotle’s CEO.
Traders are already looking ahead to today’s July CPI report which is expected to show a 3% increase from a year ago.
While we cannot underestimate the importance of the CPI data, a lower than expected data point won’t necessarily mean safe waters for investors. It may simply confirm that inflation is in the rearview mirror and turn the Street’s attention to other matters. There are a number of crosscurrents in play including questions about the labor market, consumer sentiment, and geopolitical risks.
source: Bloomberg, WSJ, CNBC
China
If Trump wins in November, he’s vowed to be even tougher on China this time around. Trump said that he would raise tariffs on Chinese imports to 60% or more. According to a report by the Wall Street Journal’s Jason Douglas, the economic damage to China would be worse not only because the tariffs would be higher but because China’s economy is more vulnerable than it was during the first Trump administration.
A boost in exports has been a boon for China’s otherwise struggling economy. However, its reliance on manufacturing and imports leaves the country much more exposed to a trade war with the United States. China has been diversifying its trading partners since 2018 by selling more to developing countries like India, Brazil and Mexico. But now these countries are pushing back on China as they too are concerned about protecting domestic jobs and their economies.
Back on track
Rate expectations have been all over the map of late as Fed watchers and investors worried the Fed acted too slowly to save the economy from recession. Some economists were calling for emergency and/or jumbo rate cuts. Now that the markets have stabilized a bit, participants’ expectations are back to narrowly favoring a 25 basis point cut at the FOMC’s September meeting. According to the CME Group’s FedWatch Tool, the odds of a 50 basis point cut next month are back below 50%.
source: Bloomberg, WSJ, CNBC
Real Estate
Historically, Hong Kong has generated massive income by auctioning off land to developers as real estate prices continued to skyrocket. These land sales helped support Hong Kong’s low-tax system which has been vital its status as a business hub. Now, an extended property downturn is testing the viability of this tax model. Revenue from land in fiscal 2023-2024 has been the lowest since the GFC of 2008-2009. Demand projections aren’t rosy either, which put the government in the uncomfortable position of coming up with alternative ways to generate (a lot) of revenue.
source: Bloomberg
Private Equity & Venture Capital
Francisco, that’s fun to say!
Francisco Partners announced it would sell QGenda, a healthcare workforce management software provider to Hearst Healthcare’s Information business in a deal reportedly worth more than $2 billion. According to the Wall Street Journal, sources say that Francisco could return more than 15x its gross investment in the company over roughly eight years of ownership.
Francisco bough QGenda in 2016 to help founder Gary Benoit expand the company whose roots go back to a program Benoit wrote while in high school to help a family friend’s anesthesiologist practice. QGenda helps hospitals and other healthcare providers manage their workforce issues including scheduling, credentialing, compensation management and other tasks.
Defense Tech
According to PitchBook, VCs have invested $130 billion in defense technology startups from 2021 through mid-June 2024. These are companies that develop AI-enabled weapons that could prove valuable in a potential war with China. One source was quoted as saying the industry’s focus is on the “great power conflict in the Pacific.” Fun.
source: WSJ
Crypto
A Chinese couple living in Texas has been accused in a $10 million scam to defraud investors in what is known as “pig butchering.” Feng Chen and his wife Tiangqiong Xu allegedly set up a number of “rogue cryptocurrency platforms” and convinced approximately 120 investors to invest their crypto through these fake exchanges. The phony platforms would show the value of the investors’ holdings growing, encouraging them to invest additional funds. Chen and Xu allegedly milked the investors dry and ran off, like literally ran off. The couple and their two children fled to China, where they are citizens, in January.
source: Forbes
And then…
Disclaimer
This letter is not offering investment, trading, or investment advice nor is based on any individual portfolio or business operation. We are are not a registered investment, stock nor commodity advisor. One should consult with their own registered advisor to discuss investment strategies that are appropriate for their business or personal goals, risk tolerance and financial situation. Information in this report and on any website is derived from a variety of source believed to be reliable however no representation is made that the information is accurate, complete or correct. These lessons, newsletter and site content is not intended nor shall not constitute or be construed as an offer or recommendation to “buy”, “sell”, “trade” or invest in any securities, commodities, futures, options or other asset referred to in said lessons, reports or newsletters. Rather, this research is intended to identify situations and circumstances that those in the trading community should be aware of to better help assess and improve their own risk management skills.