#970 - Has China Bottomed? With Noelle Acheson

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0:54out. As China bottomed, hi, everyone. Welcome to the Real Vision Daily Briefing. With me today is Noelle Akson, author of The Crypto Is Macro Now Report. Hi, Noelle. How are you? I'm great. Thank you, Maggie. Hi. Great to be with you. How are you today? I'm doing okay. I'm doing okay. Thirsty Thursday, as they say here, as I am saying this week, because it has been really interesting. And even though the markets, not all markets, some markets are moving a lot, it feels like there's so much churning underneath the surface, and there's a lot of confusion. People are trying to figure out what's going on.

1:31We asked the question, has China bottomed at the very start? The flip side to that is the other question I think everyone's asking, which is whether U.S. stocks are topping. So let's start there and take a look at what's happening here in the U.S. We have the S &P 500 sitting just shy of 5 ,000, with Treasury yields moving higher, and Fed officials, as many as can find a microphone, all warning that they will be cautious about cutting and that maybe not as many rate cuts are coming as the market seems to think. It doesn't seem to feel like all these things can be true. What's your view of what's happening here in the US?

2:11It does sometimes feel, Maggie, like we're missing a big part of the story. It doesn't make a lot of sense. And that apparently is very typical for when the market is nearing the end of a cycle. But then again, I do have to confess, I've been expecting this for some time. And I personally, where an investor, which I'm not, would have missed a very large part of the run-up. It doesn't make a lot of sense simply because, in my opinion, the U.S. market is very much navel-gazing at the moment. It is not taking into account what's happening with its largest trading partners. And I'm thinking of China and Europe mainly.

2:45It's not taking into account the buildup of tension. It's not taking into account the astonishing report that we got yesterday from the Congressional Budget Office, which even if those forecasts are realistic, and I think they're undershooting it, even if it's a very frightening fiscal scene coming in the United States. The stock market does not seem to be taking any of this into account. And maybe there are some ways to go before it does, or maybe that reckoning, especially given the loud messaging that you mentioned, Maggie, maybe that reckoning will be coming soon. I'd given up trying to time this because I would have gotten it wrong a lot over the past six months.

3:22Yeah. And part of that, I'm so glad you mention the fiscal, because part of the timing that's been so difficult is that we have this unprecedented fiscal spend, and the tale of that is just so hard to gauge. I want to talk about that in a second. But when we're looking at the US economic strength, Andrea Seno-Larsen dropped a new Seno signals on our platform. I'm talking about the same thing, just the surprise of the US economy. Let's have a listen to a clip from that, and then we'll talk on the other side. But if we look at the gross domestic product of the United States, we've had two consecutive quarters of substantial positive surprises.

4:04Both the third and the fourth quarter basically delivered extreme growth, in my humble opinion, relative to expectations. And it seems like the economy is actually accelerating even from that outset into 2024. If we look at a couple of indicators of why that is, first of all, we have an explosion, basically in outright terms, in the exports of semis from Korea to the US. If we look at the shipments of semis from South Korea, one of the large suppliers of semis globally, we see a large increase year and year. That's what you see in the dark blue line here. And typically, that is a strong but early signal that the manufacturing cycle is actually improving in the US economy.

4:56Why do we see such cyclicality in semis? Well, semiconductors are cyclical as a consequence of the whole semiconductor space being cyclical of nature. And when there is an increase in demand for semis, it's typically a sign that the overall economy is improving from a cyclical perspective. and you can see that full episode on our platform. If you're watching on YouTube and you are not a full Real Vision member, go to our website, join our community so you can get access to all that great stuff. So Noelle, we don't seem to be getting that slowed down, but now people are looking at some of this information and wondering, is it going to come at all?

5:36I mean, are we, you know, we're kind of back to that, is it no landing situation? Everything has to land eventually. That's my theory. And I do believe that we're all very much underestimating the snowball effect of the unemployment, which right now is looking great. That was a blowout report we got last week. God, it feels like longer ago, doesn't it? Last week. But we all know that when unemployment starts to move, it moves fast. You and I have talked about that before. There is a snowball effect that we're overlooking there. The manufacturing is strong, but then again, manufacturing is around, what, 10 % of US GDP.

6:12It's the services side that are also providing a huge amount of growth. We saw that in the ISM data this week. I do have something to add, though, on the chip situation, which is fascinating. Yes, South Korea is exporting more chips because the demand for chips does seem to be picking up. And a lot of this is going to be coming from defense spending. We're going to see increased defense spending around the world. This is one of the reasons why I think the budget office estimates are lowballing. But there is also another thing to take into account when it comes to the correlation between chips and manufacturing demand.

6:47And that is chips are no longer just a thing you put in objects. Chips are a geopolitical item, much like oil. And they are being stockpiled by governments around the world that are worried that supplies might be cut off if, for instance, tensions escalate in the South China Seas or if there are other supply chain issues. Chips matter and the world cannot survive without them. So I think the demand for chips is not just to put into things anymore. I do think there's some geopolitical factors going in there. It's not even taking into account the possibility that China might decide to weaponize chips.

7:23China is seeing lower demand for chips, but it is ramping up its investment in its chip production. Why? My theory is that it plans to use them to flood the world with low-end chips, and it's also ramping up production of high-end chips. chips are going to become a weapon, much like Russia weaponized oil and gas at the beginning of the Ukraine war. It's such a great point, because if that's the case, then maybe you can't just look at it as an economic barometer or a signal of manufacturing health. You have to look at it through a different lens, which is really fascinating. And another, I sort of just guess, adds to the confusion of what's trying to see into the future, because these indicators that we used as signposts are suddenly, same thing with jobs.

8:10We were all scratching our head, huge jobs number, but we see the layoff notices every day coming out. Every single day, we see reports of companies laying off people. What's the lag on all that? It's a little bit tough to decipher. Let me ask you about the fiscal point that you made, which is super interesting. We have just trillions of dollars of fiscal spending, three different acts in the US, which pumped or at least earmarked a lot of spending, government spending. But the feeling was that, OK, that's done. We're tapped out. That's not going to continue anymore. So that's going to be a sort of, you know, a headwind that the economy is facing.

8:53And now that that's gone, that's maybe the people who are looking for recession, thinking that the economy is going to lose that support. But when you're talking about increased defense spending, That doesn't sound like fiscal spending that's ramping down. Exactly. And, you know, if only, Maggie, if only that was it on the big blowout bills. But let's pull on the Congressional Budget Office report that came out yesterday. There were several statistics in there that blew me away. And one of them is that for 2024, the CBO expects net interest payments to exceed defense spending. And with what's going on in the world, Maggie, that is absolutely crazy.

9:35We know that China is easily outspending the United States. We know that China is trying to catch up with the United States. The Chinese Navy is trying to catch up with the U.S. Navy in terms of its blue water capabilities. We know that the U.S. Navy is having problems recruiting. We know that maintenance is an issue, according to a Newsweek report that was out late last year. There are a lot of issues that point to a greater need for defense spending. And yet now we're spending more. for 2024, according to the official estimates, on net interest. The total expected income from individual tax payments this year, Maggie, one third of them, one third of your tax payments, Maggie, are going to be going to pay interest on the government debt.

10:17By 2034, 10 years from now, it is expected that the United States will be paying more on interest, on its debt, than the entire budget deficit for last year. These are all conservative estimates because they do not take into account the significant ramp up in defense spending that is going to be needed, not just by the United States, but by pretty much everyone as walls go up and as military conflicts continue to escalate around the world. Hey, everyone, we're going to take a quick break right now to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing.

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11:56Yeah, which is just frightening to think about. And one reason that despite what we're seeing on the economic front, a lot of folks, Raoul included, think that we're just going to see more easing because they just simply can't afford the interest payments. This is the sort of part of the equation that we're all trying to wrap our head around. Let's talk a little bit about China. So certainly all of these geopolitical concerns, we get asked about Taiwan a lot and China's intentions there. We know it's gonna be a big talking point in the upcoming US election. But a lot of people looking at China see a very weak economy.

12:43We have capital flowing out. In fact, I think that Bo just put in the chat, China's a disaster. Jobs report's like a sleight of hand. U.S. consumers tapped out. So trade-wise, they're in trouble. And insiders are selling like crazy. We did see those capital flows out. The market's been under pressure. What do you see happening in China? What are you watching? Does it seem like officials have a handle on what's going on from an economic point of view? I would say no, to take that in order, no, they don't yet, but they will because what's the alternative? They are going to do what they need to do.

13:21And that is part of the spending issue that we were talking about. In terms of China has dreadful economic growth, it certainly looks like that from some of the unemployment figures, from the property crisis that they're having. Let's remember that it was 5.2 percent in 2023. And of course, if you believe that figure, you know, that's a whole nother thing. What figure is coming out of China? Actually, can we trust? There's not exactly a lot of transparency. But even the official estimates for 2024, if I remember correctly, are perhaps around 5%, maybe a bit less, 4.8. That's still pretty darn good.

13:54That's still a lot more than the United States is expected to grow in 2024. Anyways, even if China does have maybe 2 % growth in 2024, that's still not terrible. Let's bear that in mind. The stock market was the really worrying part. I've been saying for some time that I wasn't really buying into the Chinese liquidity injections are going to boost risk assets around the world, including crypto, which is what I tend to focus on. I wasn't really buying into it because the interventions so far have been very targeted, somewhat modest, if you could say, but they've been very targeted. They've been telling banks to lend more to construction and agriculture.

14:31That's not going to spill out into the markets. But on Monday, I changed my mind. on Monday, the bloodbath that we saw in the stock markets was really alarming. Insider selling, yes, because they do see what's coming down the pipe in terms of investments. But there's a lot of other things going on in Chinese insider stock investments as well. One, they see that individual people are really reluctant to invest because they are not certain of the consistency the consistency and constancy of official policy. Two, they are expecting an invasion of Taiwan, and they know that this is going to change the geopolitical landscape a lot, as well as hurt some of China's trade issues.

15:17Three, they are not really trusting the government's promise to support the market. I think that turned around on Monday. I think when they saw the huge amount of buying that happened late Monday, A lot of it obviously has to have come from state funds. We don't have confirmation of that as far as I'm aware, but it has to have because the volumes were off the charts. Maybe the trust that now the government does mean it, maybe the trust that maybe that is going to start to come back. And I think the symbolic changing of the head of the securities regulator is also very significant. And the timing is significant.

15:55A complete shift in the policy regarding market support just before the Lunar New Year holiday. I think that is important. So I changed my mind on China. I do think we're going to get the liquidity that we've been waiting for. And I do think that even the government officials were frightened by what they were seeing in the markets over the weekend and on Monday. Yeah, it's tricky because some people are trying to figure out, oh, do you step in because now you've got potentially the authorities bidding up the market? but it sounds like a very uncertain future. I mean, when you've got the state intervening to prop up prices, you don't know where the real value is and that uncertainty about future policy still holds true, right?

16:46It sounds like a very risky market to step into if you're looking for a bottom. It's not a healthy market. I mean, if the market is relying on government intervention, that's not a healthy market. Plus, all of the money that the government is pouring into the market to support subprises is money that is not going into perhaps more productive activities. Xi Jinping has been going on and on over the past year about quality growth. I took this as a sign that he was not going to tolerate any kind of market speculation. That was not the kind of China that he wanted. He wanted quality growth, which I also took to mean a sign of preparing everyone for lower growth.

17:23It's a matter of if it's lower, it's quality. and when you're pouring money into the market just to keep stock prices up, you're kind of throwing that strategy out the window. Is it sustainable? They can print money, much like the United States. Can the United States keep on spending? Yes, it can print money. This isn't good news for either currency, to be honest, but what's the alternative? Yeah, gosh, that last line just hit like a ton of bricks, right? You're so right about that. And I think very often on Real Vision, we try to game out and talk about and have people on who are trying to think really long term about what those consequences look like.

18:04For those of you who watch our programs regularly, you know that because let's be honest, we want to be ready. We want to make sure that, you know, we are not collateral damage if at all possible. I was just telling Noel before we came on air, because we were just going through a couple of things we wanted to hit on, that one of our editors, Matt Foley, the great Matt Foley, for those of you who read the newsletters, flagged a really terrific interview on our platform that you all need to go watch. That is exactly what Noel is just talking about. If you go on spending, if you buy your own shares, if you intervene in your own markets and perpetuate this sort of extend and pretend situation, what happens?

18:46I mean, eventually the rubber hits the road. And Harry sat down with a fellow named Jared Bibbler who wrote a book on what happened in Iceland. Remember Iceland back in the great financial crisis? If you don't, it was a big deal. They basically went bankrupt. And if you do think you remember, as I did, and I thought, well, Iceland, there's a lot of things that were happening at the time. Doing a deep dive into Iceland, we're all busy. I wasn't sure I was down for that. It felt like a history lesson. It is not. It is a very, very important warning about looking for the signs of what can happen again.

19:21And he really sees this as a canary in the coal mine and a lesson and a warning about what the future might hold for all of us. I started diving into it before we came on air and I was like, oh my gosh, how did I almost miss this? So I implore you all go check out this interview. we're going to follow up and do something else on it because I think it might be that important. And, you know, history holds a lot of lessons, right, Noel? And we can't ignore them. But that's what happens. And like in the faith of moving on. And I think at one point you said the return of tourism to Iceland, things get papered over, but maybe they shouldn't have.

20:00And he wrote a book about it. So I'm going to go check it out. I think we all should, But it is worrying. So this brings us to the next thing, Noelle, safe havens, right? So it sounds like we're talking about a situation where there's a lot of risk out there. And so people looking for safe havens. Does that play into the crypto story? Do you see these things as potential positives for the crypto story? Absolutely. I would say perhaps the positive for the crypto story. Obviously, there are many, many narratives. There's the technology of growth and there's the community growth. There's a lot going on in crypto.

20:37But for me, the most important narrative for this year and perhaps next is going to be greater awareness of the utility of holding a seizure-resistant, hard asset, with a provable limited supply that cannot be confiscated, that is globally available. The advantages of holding that kind of hard asset, given the currency turmoil that we've already seen and that we are likely to continue to see over the course of the year, that I think is going to be increasingly key. We've been talking about the spending that's coming in China and the US. And again, is there an end to that in sight? Probably not.

21:19Does this mean continued dilution of two of the leading fiat currencies in the world? Yes, probably. And I've had people say to me, yes, but that doesn't really matter. It's what they're worth relative to each other that matters. And so the dollar being the cleanest shirt in the laundry basket is going to be just fine. And my response to that is actually no, because the world doesn't necessarily move on fiat currencies. The world runs on commodities. And it's the value of fiat currencies relative to a basket of finite commodities that is much more important. And the outlook for the leading fiat currencies does not look great.

21:55So therefore, investment theses are starting to take this into account. In a world of melting currencies, of melting ice cubes, if you like, what is going to remain standing? And that is generally hard commodities. We're going to take another quick break to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing.

22:19It's such an interesting way to think about it. So we've got so many good questions here. I want to get to them. And some are Bitcoin-related, some are macro-related. We're going to mix it up and go through all of them. So don't you worry if you're in one part of the world and you're not paying attention to the other. As Noelle's report says, it's all becoming the same world. And as we're discussing, so we're going to pop around in them. G Blackburn asking, what's your early take on how the Bitcoin ETFs are trading? Really well. I mean, they were an outstanding success. The net inflows, net volume is huge.

22:59And the net inflows, I think so far, if I remember correctly, as of yesterday, stood at something like$1.7 billion, which is a lot. So doing really, really well. Obviously, after the hubbub of the launch, some of the excitement has died down. But this was always going to be a longer term game anyways. The Bitcoin ETF issuers are ramping up their marketing efforts slowly. A lot of the investment platforms, the RIAs, the brokers, they are starting to slowly get used to this. So it was never going to be a one and done. It's going to be a much longer term benefit. Giving this access to people who are concerned about the kind of things that we've been talking about.

23:35giving them an easy way to get some kind of hedge exposure in their diversified portfolios. So doing really well. We could see some tapering off of excitement. But again, net, this is going to be a strong benefit on ramp, basically a very powerful on ramp. So do you get the same? I think many people wonder about this now that we're talking about sort of this role as a hedge in dealing with some of the risks out there. Do you get the same hedge benefit by being in the ETF as opposed to being in Bitcoin itself? We know that there's difficulties for people who are not aware about how to do it and some hoops that you have to walk through to sort of hold that and own that and store it.

24:19But do you get the same hedge or are you giving up for the convenience of using ETF, giving up some of the hedging power? Yes, you are. You are. Let's be honest. But let's also be honest for a lot of people, for most people, Maggie, It's just really complicated. I have a terrible, you know, I've held Bitcoin now for many, many years, but it scares me because I'm terrible. I'm with numbers and I have a bad memory and I'm terrified of losing my seed phrase one day. And so if I have a problem with that, and I've been in this industry for a very long time, imagine someone who hasn't had that kind of experience.

24:50It is obviously much better to self-custody. It is safer. But for most people who are not concerned about the government knocking out their door and trying to confiscate their wealth, or who are not concerned about whether BlackRock or Invesco are reliable counterparties, people who aren't concerned about that, then what they are going to get is the diversification, the portfolio diversification that an asset such as Bitcoin can offer. It is very similar to holding a gold ETF rather than holding gold in your backyard. I would argue that holding Bitcoin in a self-custody wallet is easier than digging a hole or finding space in your shoe closet.

25:25but for many people, it's just simply convenient. And there is the extra convenience of having your broker handle it for you. Yeah, no, definitely. But that's super helpful and very interesting.