Hey all - a quick note to say this will be my last posting for a while. I’ll be taking on some work that will keep me busy for an extended period of time (months, if not years). But I’d like to personally thank YOU, my very dedicated global audience, for taking a few minutes each week to read my thoughts on markets, geopolitics, and U.S.-China relations. And I’d also like to thank those who gave me valuable feedback. I started this journey as covid was raging, people were losing their jobs left and right, and the market was tanking. Things looked grim around the world. Three years on, and we’re finally seeing covid deaths receding, a normalizing economy, and a somewhat normalizing market. I know how precious every minute is these days, and it’s truly been an honor servicing you as we all went through this journey. Keep staying informed. And always maintain a level head through all the market’s ups and downs.
We are finally seeing what could be called a slowdown “blip” that is impacting economies around the world. America’s services PMI fell to 51.2 in March from 55.1 in February, while manufacturing activity in the E.U., Canada, and Japan are all showing signs of a slowdown. This is good news because although equity markets won’t like it, we finally have real economic evidence that the Fed’s rate hikes are having an effect, and further hikes hopefully won’t be necessary.
U.S. Treasury yields seem to be pricing short-term inflation pressures persisting for the rest of the year before eventually abating. Shorter-dated yields yield a whopping 4.9 percent over a 4-month time frame while rates two years or more yield only 3 to 4 percent. We still aren’t in what might be considered “normal” territory where longer-term yields yield more than shorter term. But to see longer-dated yields slowly edge down is a good sign.
A key determinator in whether the Fed continues forward with rate hikes will be wage data. Higher wages mean higher inflation, so the Fed will need to see firm evidence that wages are under control before it can be confident to take its foot off the breaks. Here, we are seeing slow but encouraging signs in the U.S., Japan, and Canada as wage increases decelerate. However, wages in the E.U. are still taking off, so this will be something to keep an eye out for. Note that G10 central banks don’t like to diverge too widely from each other so as to prevent “market dislocations.”
Meanwhile, there isn’t terribly good news coming out of China’s economy of late. Annualized growth continues to trend downwards while the country’s unemployment rate grinds steadily upwards. The stock market remains generally flat while the real estate sector contracts on the back of severe financial difficulties linked to property developers like Evergrande, Shimao, and Sunac.
There still remains a massive stock of Chinese property that is unfinished, which means a large chunk of household savings and spending will remain constrained, weighing down on growth. Falling property prices will strain local government revenues, reducing local fiscal spending capacity. In short, despite China’s recent ending of covid controls, demand will remain constrained, which will only add to the subdued global growth environment.
In non-market news, NASA named a diverse crew for its Artemis II moon mission. This is big news for any tech watcher as it will be America’s first trip to deep space since NASA’s last moon mission in 1972. It’s slated to include a 10-day journey that will swing around the moon and come back to Earth, testing systems that ultimately will be used for NASA’s planned lunar-landing mission for 2026 or after.
The new technology behind NASA’s advanced spacecraft is noteworthy. The Orion spacecraft is NASA’s most advanced spacecraft to date, now equipped with digitized GUI-format graphical interfaces, more advanced flight automation systems, redundant flight computer modules, and more advanced Avcoat heat shielding. In addition, the capsule will also use large DU-1310 cockpit displays instead of paper manuals to give information to astronauts when they need it.
The news has intensified the discussion of a space race between the U.S. and China. Both countries are on track for building a long-term habitat on the moon, which ultimately will be used as a stepping stone for going to Mars. But when will the Mars trip happen? Likely not before the mid-2030s for either country.
Instead, the focus will be building a lunar base as a stepping stone for Mars, which could happen as soon as the late 2020s or early 2030s. America’s lunar base is expected to house a lunar cabin, rover, and mobile home. Initially, it will only be equipped to house astronauts for short trips, but over time, the hope is to enable astronauts to stay on the moon for months. China’s program is less transparent, but expect it to have similar capabilities and closely pace America’s program.
Finally, had this newsletter gone on for a few more months, it would have been nice to do a deep dive into the TikTok - Congress blowup. You can watch the whole thing here. For those who know me, you’ll know I’m not a huge fan of social media in general (its effects on sleep, mental health, and anything related to connection are all well-documented). I would never recommend anyone use even American social media for their dopamine hits.
But Chinese social media is an entirely different beast altogether. TikTok is a greater threat than any other social media for a simple reason. As much as Americans or British complain of their respective surveillance state, the government cannot compel cooperation from these companies. Sure, they can ask, but only within limits. And there is an entire court system set up to stand up against government overreach.
Meanwhile, China’s Article 7 of the National Intelligence Law outright compels all citizens and corporations to act as arms of state security on demand, even if they reside overseas. TikTok’s CEO can promise as much as wants to Congress about firewalls and safeguards. But at the end of the day, when the state comes knocking on his door, he has no choice but to comply. This point was articulated very well by Rupert Goodwin in his great piece at The Register. Tiktok is definitely not safe from a national security standpoint.
TikTok also does not have a history of abiding by data protection rules. Just recently, it was fined $15.9 million for inappropriately allowing up to 1.4 million children under the age of 13 from using the service. In Britain, data protection rules require parental consent for organizations to use children’s personal information. TikTok did not obtain that consent. TikTok also recommended content tied to eating disorders and self-harm to 13-year-old users within 30 minutes of joining the platform. TikTok is definitely not safe from a mental health standpoint.
Chinese apps and hardware have a checkered history respecting data privacy rules in other countries. Chinese phone makers such as Xiaomoi, OnePlus, and Oppo Realme are known to collect huge amounts of sensitive user data through their operating systems. Apps pre-installed on their phones also collect huge amounts of data. All this data gets collected and sent to devise vendors as well as service providers such as Baidu and Chinese mobile network providers without any ability to opt-out. This includes stuff like phone numbers, MAC addresses, advertising IDs, geolocation data, user contacts and phone numbers, and corresponding phone and text metadata. All phone numbers in China are also linked to a citizen ID, meaning all of this data is intrinsically tied to a user’s real legal identity. Even when a SIM card was removed from the phone, this data was incredibly sent to mobile providers. TikTok is definitely not safe from a privacy standpoint.
In short, TikTok is an uglier and meaner beast. And U.S. and European policymakers are right to be nervous about it. At the risk of sounding like a cranky old man, it’s all fun and games until a U.S. policymaker is coerced to vote on certain pro-China trade legislation or be threatened to have his daughter’s TikTok exploits leaked to Fox news.
Stay safe out there, folks. And thank you again for your attention.
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