Confusing Times

Layoff Concerns and China's Double-down

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What an amazing week! To be honest, I was a bit skeptical about covering issues outside the United States, but boy did you guys prove me wrong! As I write this, there are over 1.5 million views for the Chinese economic issues video and more than 18K retweets on the Twitter thread. This week, we also welcome more than two thousand new subscribers to this newsletter, and as we explore more challenging and diverse topics, I am so thankful to this community for its support, so first of all

Thank you :)

In more recent news, the Federal Reserve is convinced that more rate hikes are required to stabilize the economy. With inflation still hovering around 8.5% and unemployment levels at historic lows of around 3.5%, the only debate within the Fed is on how quickly the interest rates should be raised. 

However, despite the tight labor market and overall high spending, a wave of news about layoffs has hit the headlines. JP Morgan, Ford, Amazon, and Microsoft have all laid off employees and Google has issued internal warnings about ‘bloated staff’.  So, why are companies laying off staff at a time of increasing profits?

News about unemployment has been …. Confusing

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20% Of Workers Could Lose Their Jobs

In this video, I analyze historic cycles of inflation and unemployment rate and how the federal reserve raising interest rates can lead to a more pessimistic outlook for businesses, which causes them to lay off excess staff. 

A closer look at the record-high spending numbers reveals an unpleasant detail that the excess spending is related to rising prices while real spending, adjusted for inflation, has actually decreased. I also provide some tips on how you can avoid getting that dreaded pink slip, so don’t miss this one!    

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China’s Economic Collapse

Since my last video, the Chinese government has followed a more responsible fiscal policy by tightening regulations, and… who am I kidding, they have actually decided to double down on their strategy by lowering interest rates to inject more money into the struggling economy.

The CCP strategy :D

Even if the government were to change course and follow a prudent fiscal strategy, the Chinese economic outlook appears bleak as a confounding combination of issues seeks to derail the spectacular economic growth that they saw in the last twenty years.

1. Zero Covid Policy – The Chinese government has enforced authoritarian lockdowns to prevent Covid from spreading among their population, which is slowing down their economy.

2. Stock Market – The Chinese equity markets have experienced their worst quarter in several years due to recession fears and supply chain backlogs

3. Real Estate Bubble – Decades of high demand attracted Ponzi schemes, which defrauded customers of their pre-sale money and have resulted in mortgage boycotts across the country.

4. Debt Bubble – China’s debt grew by 20% annually as the government loosened restrictions to ensure growth at any cost. With crackdowns starting on real estate developers, anxious Chinese consumers, who have a majority of their wealth tied up in the housing market, are cutting down on spending, resulting in lower retail sales.

The second video this week analyses the Chinese government’s attempt to fight fire with gasoline, and the possible ripple effects for us back home. I also detail the long-term effects of China’s slowdown and the ensuing scenarios for the global economy. Have a look and let me know what you think!

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This week, I have a recommendation for you…

Check out the GRIT Capital newsletter.

GRIT is the #1 FREE finance newsletter on Substack – talking stocks, crypto, and investing. Run by a former $100MM portfolio manager Genevieve Roch-Decter. Her mission is to democratize access to stock market insights to the masses through her platform GRIT. She has +400,000 followers on social media and writes a daily newsletter to +65,000 investors - including hedge funds, billionaires, investment advisors, and retail investors.

This week, Genevieve writes about the very soft readings coming out of the housing market and what they mean for prices and affordability. Will housing be the next domino to fall? Subscribe to read more!

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So that’s it for my Sunday round-up. For the new folks here, in this newsletter, I give a quick recap of whatever you may have missed over the week on Sunday, and on Wednesday, I will be doing my deep-dive article on one of these topics.

See you next week with another bunch of exciting videos!

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