China’s Growing Isolationism And The Global Slowdown

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China’s Growing Isolationism And The Global Slowdown
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In his Daily Market Notes report to investors, while commenting on China’s growing isolationism, Louis Navellier wrote:

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Q2 2021 hedge fund letters, conferences and more

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The Risk In Taxes

Goldman Sachs stated that the higher taxes being proposed were the single greatest risk to stock prices. Even before this declaration the pushback against new taxes, especially taxes on investments, was bound to be very strong.

As always, the devil is in the details which are surely being heavily negotiated behind closed doors.  It's difficult to position for what may come. Because tax changes are bundled with the proposed $3.5 trillion stimulus spending plan, you can't look at the taxes as having a stand-alone impact.

Further affecting the situation is that the monetary actions of the Fed will surely be influenced by the final amount of fiscal stimulus that makes it to the finish line and gets passed.

In the meantime, long US Treasury yields are drifting lower again despite continued strong inflation numbers, indicating no fear of the Fed tapering anytime soon. Stocks remain soft, as expected for a seasonally weak September, but no serious correction is taking place.

It feels like everyone is hoping for a dip to buy, not that the bull market is over. Perhaps a couple of weeks of going mildly lower is the only correction in the cards for September. It's not like other areas are running; not bonds, or gold, or Crypto. New money will continue to flow primarily into equities and climb the wall of worries regarding inflation, Covid, and taxes.

Global Economic Slowdown

There is more evidence of a global economic slowdown.  China’s National Bureau of Statistics on Wednesday announced that retail sales rose only at a 2.5% annual pace in August, which is a major deceleration from an 8.5% annual pace in July.  Real estate investment in China this year slowed to a 10.9% annual pace, down from a 12.7% annual pace in July.  Finally, construction in China this year declined 3.2% in August, down from a 0.9% decline in July.  When China’s property market cools, consumer spending tends to also cool off.  Like many countries, China is being impacted by the Covid-19 Delta variant.

China's Growing Isolationism

Apparently, Chinese President Xi Jinping declined a White House invitation to meet in person with President Biden.  President Xi will also not attend the UN General Assembly in person, which is also raising suspicions that he will not attend the G-20 meeting in Italy on October 30th.  China’s growing isolationism as President Xi deals with domestic problems is an interesting development.  Furthermore, President Xi is also trying to address the wealth inequality in China and is pushing companies to try to spread the wealth.  Due to China’s domestic woes and economic deceleration, the U.S. will continue to lead worldwide GDP growth.

I spoke at the Money Show in Las Vegas this week and most investor questions were about the Chinese capitalism crackdown, the ongoing semiconductor chip shortage as well as the long-term course of interest rates.  I explained that none of my Chinese stocks were the subject of the capitalism crackdown and that the accounting associated with the few Chinese ADRs that I still own is solid.  Regarding the semiconductor chip shortage, I explained that is expected to persist well into next year.  Finally, regarding interest rates, I explained that the Fed is expected to keep its key interest rate well below the inflation rate for the foreseeable future and that the U.S. budget deficit is now so large that the Fed could not raise key interest rates much anyway.

Finally, on the EV front, Rivian is now delivering the first electric pickup trucks and beat Ford, GM and Tesla in making the first EV pickup truck.  The next electric pickup to hit the market is expected to be the Ford F-150 Lightning, which has over 130,000 reservation holders.  Tesla’s Cybertruck has even more reservations, but was recently delayed again to late 2022.  The Rivian R1T truck has been widely praised by automotive journalists and is expected to be a major success.

Heard & Notable

Hurricane Ida smashes previous rainfall records for New York City, dumping 3.15 inches per hour. That's more than August Hurricane Henri, which dumped "just" 1.94 inches per hour. Source: Statista 

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