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Why CNY DOWN = BAD (Part 3) For Everyone

This is basically a rhetorical question drawn from a generally rhetorical exercise. We’ll never know for sure, this is about China, after all. Transparency…

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This is basically a rhetorical question drawn from a generally rhetorical exercise. We’ll never know for sure, this is about China, after all. Transparency is a Western obsession and a curse for the committed Communists. Particularly when the Party of “Science” starts to lose control of the situation when such a possibility has been treated as pure blasphemy.

Did the Chinese purposefully withhold import buys in 2015?

Again, no need to offer an answer when the whole array of data does so for you. Of course authorities curtailed imports of materials! Why wouldn’t they? If there is any real question, it’s only when trying to figure by how much.

Faced with a ravaging, worsening (euro)dollar problem in 2014 even the deployment of hundreds of billions in so-called foreign reserves couldn’t satiate, either to stem the “outflows” or to rescue CNY’s plunge, it would only make sense to pull back on imports relative to exports to conserve “dollars.” Fewer imports mean fewer “dollars” leaving Chinese pockets at a time when having “dollars” had become the main issue.

Yes, commodity prices had fallen and imports were certainly declining of their own economics; meaning, China’s economy was itself falling apart, leaving lower demand for imported resources.

Still, after factoring those decisively negative factors, what’s stands out is how Chinese imports really fell apart and more so when – the exact beginning of 2015, which is how China’s Communist masters make decisions most times.



Imports had been decelerating yet still barely positive throughout 2014. Then, bam, right from the outset of 2015 (above) it was as if someone had flipped a switch. After it, China-tanic struck the iceberg. Which one? The eurodollar iceberg forced into the path of policymakers because of their growing and unrestrainable dollar shortage problem.

The evidence is about as conclusive as it can get given the target of our examination, particularly when you add CNY’s behavior to our (still largely rhetorical) review.

Late last night, early morning Beijing time, China’s General Administration of Customs reported that Chinese imports were essentially flat year-over-year (both the smallest minus) for the second month in a row. Given prices, that must mean actual volumes are decidedly in the negative. China’s economy is weak and getting worse as it was seven years ago, and that’s still a factor.

But, as you’ve probably heard, CNY has pretty much crashed over the past couple of weeks. Some will say “devaluation”, others might claim the Fed and interest rates (differentials). Both are absolutely wrong.


Beginning at the end of February, the Chinese currency finally joined Euro$ #5, a late entry almost certainly due to the country’s huge, historic trade surplus from throughout 2021 which for China appears to have somewhat cushioned the local effects of this growing global monetary disease.

In March, “something” finally broke – which we could see all over the monetary data and indications. Repo, collateral, curves, etc. Now CNY has clearly been sucked into the still-growing vortex of Euro$ #5. Despite Mao’s Xi’s reassurance, the yuan continues to plummet, puking to another multi-year low of 6.73 just today.

Two straight months of zero import growth (and only 3.75% year-over-year exports in April) will be blamed on the Chinese government’s pursuit of a zero-coronavirus outcome. Shuttering port facilities like entire cities isn’t going to help trade (though ports like manufacturers have been granted special concessions), for sure, though for all these reappearing factors and outcomes it’s fair to question whether there’s more going on particularly with CNY abruptly tanking (unlike last summer when delta corona showed up).



“Something” big has changed.

And if China is rerunning the 2015 save-dollars-by-cutting-back-imports playbook, the real economy effect will be, just like in 2015 (and 2018, to a smaller extent), to transmit the contagion of Euro$ #5 throughout the rest of the world’s monetary and financial system right into the real economy as other parts of the world suffer from the curtailing of Chinese purchases everyone further down the chain sorely needs.

To put one final fine point on this exercise, China’s State Administration of Foreign Exchange, or SAFE, also reported over the weekend that the country’s official total holdings of, you guessed it, foreign exchange fell sharply during April, too.

Dropping by $68.3 billion last month alone, the largest single-month decline since…2016. China’s foreign exchange balance has been declining all year thus far, well beyond typical seasonality. On a rolling 3-month basis (below), February through April also represented the biggest decrease in five and a half years.


As I just wrote, it is getting serious. Don’t call them “outflows”, however, nor is this simply the market value of reserve instruments falling as yields worldwide have risen (most are ultra-short term).

Imports suddenly stop. CNY begins to crash. SAFE reports rapidly falling foreign reserves.

We’ve seen all these things before. Twice: 2015 & 2018. The mainstream will do everything it can to try to come up with other explanations, each one sounding more benign yet increasingly absurd, desperate, and, in the end, unable to explain all the facts.

Meanwhile, Jay Powell’s rate hike path is about to get mugged by a very different reality from the out-of-control inflation due to a red-hot economy allegedly requiring the FOMC’s interventions. While it may be easy to dismiss China’s issues here as those of pure China, nothing for Americans to worry about, including Xi’s power demonstrations, as everyone should have learned during those prior episodes there is no decoupling.

Even if there ever could be in the real economy, there won’t be once the eurodollar gets involved.

The global dollar shortage of Euro$ #5 has finally seized China in its viselike grip, and the Chinese are almost certainly acknowledging it by their actions (and some inactions).

It’s the simplest “equation” in all the economy and markets. CNY DOWN = BAD. Not because of CNY, nor China, really, but because of what CNY and China have to do when the Euro$ gets its next number. 




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The investment case for copper miners – elevated prices are firmly supported by supply bottlenecks

A combination of the Covid pandemic disrupting production and supply chains across the globe and Russia’s invasion of Ukraine almost a year…
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A combination of the Covid pandemic disrupting production and supply chains across the globe and Russia’s invasion of Ukraine almost a year ago has led to significant volatility in commodity prices in recent years. Copper prices have been no exception, shooting up 127.66% from a low of $2.17 in mid-March 2020 to an all time record high of $4.94 on February 28 2022.

They subsequently dropped almost 35% between that high and a recent low last July before climbing over 30% against since. It’s been a rollercoaster couple of years for copper, which is used for everything from electronics to equipment manufacturing, building construction, infrastructure and transport.

Copper prices – 10 year chart

Source: MacroTrends

Why are copper prices rising as the economy slows?

Ordinarily, a backdrop of the highest inflation levels in decades, rapidly rising interest rates, geopolitical challenges and a Covid hangover degrading near-term global growth prospects would be expected to weigh on the price of copper and other industrial commodities. But over the past 3 months the price of copper has risen by over 20% as the world economy has deteriorated and demand outlook dwindled.

The recent surge in the price of copper is partly the result of a softer dollar and the end of China’s zero-Covid policy leading to market optimism demand for the metal and other industrial commodities will rise again. However, it’s mainly down to a supply squeeze that has in large part been due to temporary factors such as weather conditions and labour challenges reducing the output of currently active mines.

But while those issues will abate, supply tightness appears baked in for copper for several years to come as a result of underinvestment in new mines and extending current projects. There have been very few significant new copper deposit discoveries in recent years and that is expected to lead to a disconnect between supply and forecast demand over the next several years.

Electric vehicles and renewable energy infrastructure should see demand for copper rise significantly over coming years. Cyclical industries like construction should also bounce back as the global economy recovers from its current downturn, recovering to at least previous levels, on top of new demand resulting from electrification.

Based on current mining output and known new discoveries and miner pipelines, the evidence suggests copper supply will remain tight for years into the future. With that in mind, which copper miners could be worth a closer look from investors?

Antofagasta

Antofagasta

One of the world’s biggest copper miners, FTSE 100 constituent Antofagasta’s activities are mainly concentrated in Chile. While it also produces gold and silver like most copper miners (the metals are typically found in close proximity to each other), Antofagasta’s valuation is most influenced by copper prices and tracks them relatively closely.

The miner is also expected to increase its copper output over the next several years so will be even more tied to the metal’s price trends than now. Antofagasta published a Q4 production update earlier this month, revealing that it exceeded its revised full-year target of producing 646,200 tonnes of copper. It aims to produce between 670,000-710,000 tonnes in the current year, despite rising global inflation that has increased input costs. The net cash costs per pound, however, are expected to stay similar to last year’s.

If the company goes ahead with a proposed second concentrator at its Centinela operation, its annual production could reach 900,000 tonnes by 2026. In the first half of last year the miner had a net-debt-to-equity ratio of 5% and operating profits 64 times higher than net interest costs. The means the company is in the financial position to expand production as part of its five-year plan and absorb potential disruptions or delays to capital investments.

But after a 53% rise in the Antofagasta share price over the past six months, does it still represent the kind of value that should tempt investors to take a closer look? The Telegraph’s Questor investment column thinks it does based on the miner’s long term prospects and a price-to-earnings ratio of just 15 that offers a good safety margin with the FTSE 100 close to its all time high.

BHP Group

BHP Group

Headquartered in Australia with a dual listing in London BHP is one of the world’s biggest miners and was last year the second largest copper producer behind the Chilean state-owned miner Codelco. It’s not as pure a play on copper prices as Antofagasta because it also produces larges quantities of iron ore, nickel, coking and energy goal and gold amongst its metals and minerals portfolio.

But copper prices are very important to BHP and it is investing in increasing its output. Its dominant market position and the volume of its output means it will benefit if prices do hit record levels in 2023 as some analysts predict. However, with share price gains of 25% in the past 6 months and a potential hit to iron ore demand if the global economy struggles for a period, upside at the current valuation is questionable.

Southern Copper

Southern Copper

NYSE-listed Southern Copper is another relatively pure play on copper, though it does also produce smallish quantities of other metals and minerals. Its mines are located across Central and South America, in Mexico, Peru, Argentina, Ecuador and Chile.

The companies gross profits have have rising in recent years from $3.79 billion in 2019 to $7.15 billion in 2021. That’s expected to have dropped for 2022 when full year accounts are released but due to investment in expanding existing projects which should allow it to increase production, and profits, in the long term.

Basically, if the copper price stays strong over the next several years, Southern Copper could prove a wise investment. But it is very closely tied to copper prices so vulnerable to any negative turn the market for the commodity might take.

Investors convinced of the prospects for copper prices in the medium to long term might also consider copper ETFs, which build in some diversity across miners. The biggest is the U.S.-traded Global X Copper Miners ETF.

The post The investment case for copper miners – elevated prices are firmly supported by supply bottlenecks first appeared on Trading and Investment News.

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Growing Number Of Doctors Say They Won’t Get COVID-19 Booster Shots

Growing Number Of Doctors Say They Won’t Get COVID-19 Booster Shots

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

A…

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Growing Number Of Doctors Say They Won’t Get COVID-19 Booster Shots

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

A growing number of doctors say that they will not get COVID-19 vaccine boosters, citing a lack of clinical trial evidence.

I have taken my last COVID vaccine without RCT level evidence it will reduce my risk of severe disease,” Dr. Todd Lee, an infectious disease expert at McGill University, wrote on Twitter.

A vial of the Pfizer-BioNTech COVID-19 vaccine is seen in a file photograph. (Justin Sullivan/Getty Images)

Lee was pointing to the lack of randomized clinical trial (RCT) results for the updated boosters, which were cleared in the United States and Canada in the fall of 2022 primarily based on data from experiments with mice.

Lee, who has received three vaccine doses, noted that he was infected with the Omicron virus variant—the vaccines provide little protection against infection—and described himself as a healthy male in his 40s.

Dr. Vinay Prasad, a professor of epidemiology and biostatics at the University of California, San Francisco, also said he wouldn’t take any additional shots until clinical trial data become available.

“I took at least 1 dose against my will. It was unethical and scientifically bankrupt,” he said.

Allison Krug, an epidemiologist who co-authored a study that found teenage boys were more likely to suffer heart inflammation after COVID-19 vaccination than COVID-19 infection, recounted explaining to her doctor why she was refusing a booster and said her doctor agreed with her position.

She called on people to “join the movement to demand appropriate evidence,” pointing to a blog post from Prasad.

“Pay close attention to note this isn’t anti-vaccine sentiment. This is ‘provide [hard] evidence of benefit to justify ongoing use’ which is very different. It is only fair for a 30 billion dollar a year product given to hundreds of millions,” Lee said.

Dr. Mark Silverberg, who founded the Toronto Immune and Digestive Health Institute; Kevin Bass, a medical student; and Dr. Tracy Høeg, an epidemiologist at the University of California, San Francisco, joined Lee and Prasad in stating their opposition to more boosters, at least for now.

Høeg said she did not need clinical trials to know she’s not getting any boosters after receiving a two-dose primary series, adding that she took the second dose “against my will.”

I also had an adverse reaction to dose 1 moderna and, if I could do it again, I would not have had any covid vaccines,” she said on Twitter. “I was glad my parents in their 70s could get covid vaccinated but have yet to see non-confounded data to advise them about the bivalent booster. I would have liked to see an RCT for the bivalent for people their age and for adults with health conditions that put them at risk.”

The U.S. Food and Drug Administration (FDA) granted emergency use authorization to updated boosters, or bivalent shots, from Pfizer and Moderna in August 2022 despite there being no human data.

Observational data suggests the boosters provide little protection against infection and solid shielding against severe illness, at least initially.

Five months after the authorization was granted, no clinical trial data has been made available for the bivalents, which target the Wuhan strain as well as the BA.4 and BA.5 subvariants of Omicron. Moderna presented efficacy estimates for a different bivalent, which has never been used in the United States, during a recent meeting. The company estimated the booster increased protection against infection by just 10 percent.

The FDA is preparing to order all Pfizer and Moderna COVID-19 vaccines be replaced with the bivalents. The U.S. Centers for Disease Control and Prevention, which issues recommendations on vaccines, continues advising virtually all Americans to get a primary series and multiple boosters.

Professor Calls for Halt to Messenger RNA Vaccines

A professor, meanwhile, became the latest to call for a halt to the Pfizer and Moderna vaccines, which are both based on messenger RNA technology.

At this point in time, all COVID mRNA vaccination program[s] should stop immediately,” Retsef Levi, a professor of operations management at the Massachusetts Institute of Technology, said in a video statement. “They should stop because they completely failed to fulfill any of their advertised promise[s] regarding efficacy. And more importantly, they should stop because of the mounting and indisputable evidence that they cause unprecedented level of harm, including the death of young people and children.”

Levi was referring to post-vaccination heart inflammation, or myocarditis. The condition is one of the few that authorities have acknowledged is caused by the messenger RNA vaccines.

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Tyler Durden Thu, 02/02/2023 - 19:10

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Apple Pares Much Of Drop During Earnings Call

Apple Pares Much Of Drop During Earnings Call

Update 6:00pm:  Apple has staged a remarkable reversal after hours, and erased almost the entire…

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Apple Pares Much Of Drop During Earnings Call

Update 6:00pm:  Apple has staged a remarkable reversal after hours, and erased almost the entire loss after the company said that it expects a 5% impact from FX rates in Q2, and also expects iPhone revenue growth to accelerate in Q2. CEO Tim Cook was also asked whether the move to higher ASPs for the iPhone is sustainable in light of the sharp decline in sales, and whether this will continue in a worsening economy. Cook said the 14 Pro and 14 Pro Max did extremely well until the supply-chain constraints. He says this is definitely a “strong Pro cycle” and credits the new features in the device. He says he’s happy that Apple is now shipping to the demand.

Tim Cook also said that AI is critical to Apple and mentions features like crash-and-fall detection and the use of AI in features like EKG on the Apple Watch. He says AI will effect everything the company does, including all products and services.

Apple is quite bullish on India and other emerging markets, with CEO Tim Cook saying the company will soon open its first retail stores in India. He also said Apple saw marked improvement in China in December (versus November) after another round of Covid re-openings.

As Bloomberg notes, the company also stuck to a line that revenue and sales of individual product categories would have been higher if not for supply-chain constraints and issues stemming from the macroeconomic environment.

* * *

With both Amazon and Google sliding after reporting disappointing earnings and mixed guidance, it was all up to the world's biggest company, AAPL, to provide some hail mary for the tech earnings season which for better or worse is concentrated in a one hour stretch this afternoon. Alas, it was not meant to be and after missing on the top and bottom line, AAPL has joined the parade of selling and tumbled after hours due to numbers which the market was clearly not impressed with.

  • EPS $1.88 vs. $2.10 y/y, missing estimate $1.94
  • Gross margin $50.33 billion, -7.2% y/y, missing estimate $52.03 billion
  • Revenue $117.15 billion, -5.5% y/y, missing estimate $121.14 billion
    • Products revenue $96.39 billion, -7.7% y/y, missing estimate $98.98 billion
    • IPhone revenue $65.78 billion, -8.2% y/y, missing estimate $68.3 billion
    • Mac revenue $7.74 billion, -29% y/y, missing estimate $9.72 billion
    • IPad revenue $9.40 billion, +30% y/y, beating estimate $7.78 billion
    • Wearables, home and accessories $13.48 billion, -8.3% y/y, missing estimate $15.32 billion
    • Service revenue $20.77 billion, +6.4% y/y, beating estimate $20.47 billion
    • Greater China rev. $23.91 billion, -7.3% y/y, beating estimate $21.8 billion
  • Cash and cash equivalents $20.54 billion, -45% y/y, estimate $29.91 billion

And here is AAPL's diluted EPS in context: needless to say, could have been better.

Commenting on the quarter, Tim Cook said that “during the December quarter, we achieved a major milestone and are excited to report that we now have more than 2 billion active devices as part of our growing installed base.”

CFO Luca Maester chimed in: “our record September quarter results continue to demonstrate our ability to execute effectively in spite of a challenging and volatile macroeconomic backdrop. We continued to invest in our long-term growth plans, generated over $24 billion in operating cash flow, and returned over $29 billion to our shareholders during the quarter. The strength of our ecosystem, unmatched customer loyalty, and record sales spurred our active installed base of devices to a new all-time high. This quarter capped another record-breaking year for Apple, with revenue growing over $28 billion and operating cash flow up $18 billion versus last year.”

Going back to the results, Apple missed consensus revenue in most product categories, with the exception of iPads, to wit:

  • IPhone revenue $65.78 billion, missing estimate $68.3 billion
  • Mac revenue $7.74 billion, missing estimate $9.72 billion
  • Wearables, home and accessories $13.48 billion, missing estimate $15.32 billion
  • IPad revenue $9.40 billion, beating estimate $7.78 billion

Of note: Apple recorded its first decline in iPhone revenue since the third quarter of 2020; yet in context, the 8% drop was still less than the 20% decrease reported by Samsung. Other major smartphone providers that have yet to report are expecting to see double-digit losses. Ironically, Apple may have fared comparatively well on smartphone revenue.

The silver lining: service revenue $20.77 billion, +6.4% y/y, beating estimates of $20.47 billion...

... and rose 6.5% Y/Y, an improvement from last quarter's 5.0%

One other place where investors were pleasantly surprised was China sales, which at $23.91 billion, beat the estimate of $21.8 billion by more than $2 billion.

None of that changes the fact that AAPL's sales by region were uniformly negative across the board.

And another potential problem: AAPL's gross cash continues to slide, dropping to $165 billion, the lowest since June 2014...

... while cash net of debt rebounded modestly from $49 billion to $54 billion, just above a 12 year low with the company having spent hundreds of billions on stock buybacks. Let's hope that Apple doesn't actually need to use that cash.

Commenting on the results, Bloomberg writes that the results show that Apple hasn’t been able to dodge the tech slowdown afflicting many of its competitors. Demand for smartphones and computers has slumped in the past year, and Covid-19 restrictions in China added to Apple’s woes during the holiday sales period. Timing was another issue: The company didn’t launch new Macs and HomePods until recent weeks, missing the end of the first quarter.

In response to these disappointing earnings, the stock predictably slumped as much as 4% before recouping some losses, although even with the drop it is back to where it was... yesterday.

Tyler Durden Thu, 02/02/2023 - 18:05

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