Hi everyone and thank you all for the warm welcomes in my DMs – if I can be of any help or if you have any questions, please don’t hesitate to reach out.
With that being said, let’s break down what’s trending today in the Wall Street Journal.
Neither Coronavirus Nor Trade Tensions Can Stop U.S. Companies’ Push Into China
Relations between the US and China are at their lowest point in decades – despite this, US companies and brands are doubling down on China anyway. For example, my favorite place to eat greasy fried chicken, Popeyes, opened their 1st of 1,500 planned locations in China just a few days ago.
How was it received? Great! Hundred of people were lined up to dig into those sandwiches while completely disregarding social distancing. While the pandemic has caused businesses to rethink supply chains to reduce dependency on China, companies that are producing in China for Chinese customers are bulking up their local presence.
China’s economy shrank -6.8% during Q1 for the first time in 40 years due to COVID19 and US foreign direct investment in China has been stable for the past decade, average $14B / year (equivalent to 10-12% of China’s total inward FDI).
I think China will continue to be an absolute powerhouse going forward.
Nasdaq Moves to Delist China’s Luckin Coffee
Speaking of China, the Nasdaq Stock Market has determined the Luckin Coffee Inc. (https://www.luckincoffee.com/) should be delisted. Why? Because it was disclosed last month that $310M of the company’s sales last year were completely fabricated.
And their stock price definitely reflects this bad news and were suspended from trading on April 7.
A bit of background on the “Chinese Starbucks” – they were founded in June 2017 and boast more than 4,500 coffee shops in China. They went public in May 2019 and raised $651M from their IPO by selling shares at $17 a pop. They then returned to the capital markets again in January 2020 raising an additional $865M from a follow-on stock sales and convertible notes (debt).
Their coffee started burning on April 2 when they disclosed to investors that their COO and several employees fabricated 2.2B yuan in sales – not something you really want to hear on a Thursday morning.
The most interesting part of this scandal is how pensions are becoming weary of US listed Chinese companies – for example, the Labor Department last week asked for the portfolio manager of the $594B federal government pension fund to cancel their investments in Chinese stocks.
Long story short – your boy doesn’t hold any Chinese stocks.
Mnuchin Says Treasury Ready to Provide More Money, Take More Risk in Fed Lending Programs
Treasury Secretary Steve Mnuchin said Tuesday he was prepared to provide more money and take more risk to expedite lending programs being established by the Fed to combat the economic crisis cause by COVID19.
If we back up for a second, Congress made $500B available to the Treasury Department through the $2T economic-relief package in March. The legislation provided the Treasury with $46B to provide direct assistance to airlines and other distressed industries, plus another $454B to cover losses in Fed lending programs. Then last week the House of Representative narrowly approved a $3T relief package.
In other words – money machine goes BRRRRR!
Mr. Mnuchin has said the administration expects economic growth to pick up in the second half of the year, and administration officials are taking a “wait and see” stance regarding additional relief.
Next Wave of Coronavirus Stimulus Payments Hinges on Debate Over Reopening Economy
Americans have now received $239B and counting from the IRS to help them ride out the COVID19 pandemic. Whether households get another $1,200 stimulus payments is tied to the increasingly partisan debate over how quickly the economy should reopen.
Democrats see a slow recovery and want to get more money out to Americans; Republicans see a rapid economic recovery as lock downs end and they think the incentives should shift toward working.
As of right now, some people collecting unemployment insurance are raking in $600 a week – an hourly rate of $15. In some cases, this could be more than they’d make actually working. Republicans are worried this will slow the economic recovery since people simply don’t have an incentive to go back to work. They’re suggesting a payroll tax cut instead – this would increase an employee’s take home pay along with decreasing the cost of hiring for employers.
What method do you think will help individuals most? Direct deposit or payroll tax reductions? Let me know in the comments below.
Walmart Sales Surge as Coronavirus Drives Americans to Stockpile
Walmart, the country’s largest retailer, said US comparable sales rose +10% in the quarter ended May 1. Although their foot traffic fell in the quarter, spending per transaction rose +16.5%. Their sales also got a big boost in April when shoppers spend government stimulus money.
E-commerce sales jumped +74% as millions of customers switched to ordering online for home delivery or picking up groceries in the company’s parking lots.
The company did though absorb about $900M in additional COVID19 related costs including raising wages for warehouse workers and paying bonuses to its store staff. They also hired +235,000 new hourly workers to help it staff stores. Despite these additional expenses, they still reported higher operating profit for the period.
I’m personally bullish on Walmart, especially because of what they’re doing in healthcare. What about you? Are you an investor? Let me know below.