China’s Inflation Disaster & Nio Stock.

why does the story keep coming up that

that China is going to boost inflation

again they've got they've got the

opposite problem in China they're trying

to stimulate and then

to some extent their GDP is going to

miss even the downwardly revised

forecast that they had uh and uh the I

think the thinking is that hey if Europe

and America need to raise rates well

then China needs to raise rates as well

but China is really facing at least

according to this fantastic Wall Street

Journal piece that came out which I

agree with because mostly we've been

saying a lot of this uh for the past

many months here and that China is

actually facing a more likely risk of

quite frankly deflation price is charged

by Chinese factories tumbled in May at

their steepest annual Pace in seven

years and consumer prices barely moved

the Wall Street Journal suggests that

not only is this obviously bad for

China's a five percent uh growth Target

this year which is uh pounded by sort of

their Miss on exports just a few days

ago but ultimately if they end up

getting into the cycle of essentially

persistent deflation you could end up

having an economy that falls victim to

the downsides of deflation remember the

downsides of deflation the downsides of

deflation are more psychological than

they are practical because from a

practical point of view we should all

want deflation right we should want

prices to come down unfortunately what

happens when prices come down that is

prices for things that we need to buy is

as a society we just delay the purchase

of those things for example if we

suspect that the prices of a car are

going to keep coming down then we would

eventually expect that to the extent we

can we would just wait to buy the car

but the problem is the more companies

and businesses wait to invest in either

vehicles or assets or whatever

the less money circulates throughout the

economy and then you actually end up

with GDP shrinkage which is really bad

this is why central Bankers along with

obviously like monetizing the debt come

on let's be real but this is why

generally Central Bankers want to Target

around a two percent inflation rate they

want some inflation so that way there's

this incentive to continue to invest and

innovate and grow and so what we're

seeing in China with these falling

prices is uh Obviously good for Global

inflation it's an anchor to Global

inflation but it also is a sign that

China is quite different from the rest

of the world in terms of where it is

economically much of Europe and the

United States or Australia or Canada

have seen pain from higher interest

rates have seen an adjustment in their

real estate market the United States

recovered quite well already because of

and thanks to the 30-year mortgage

whereas Canada and Australia parts of

Europe haven't been so lucky in terms of

the real estate market but broadly many

asset markets aren't actually doing that

horribly given kind of what the markets

were pricing in last year which was The

Depression Paul volcker and a real

estate crash and it already serves

everything was being crowd priced in

last year whereas today we're not really

seeing that sort of pricing in

of such pain anymore hence our Nike

Swoosh recovery but this uh this this

Chinese deflation uh is is not only

something to pay attention to for weaker

growth on Headline GDP for China

something maybe that could end up being

a red flag for investments in China

uh but it contributes to anchoring a

global inflation uh and then ultimately

it probably puts less pressure on

commodity prices so that's something

else to consider so whether you're

investing in Chinese stocks or you're

investing in American stocks with

exposure to China

or you're betting on Commodities because

of China it's worth noting that the

present indicators whether it's uh

producer prices uh which uh which which

are not holding I mean consider these

for example okay consumer prices uh Rose

0.2 percent

uh which that report just came out uh

today and uh that was slightly higher

than the 0.1 percent we got in April but

the China's government isn't targeting

two percent they're actually targeting

three percent inflation and they got an

annual gain of 0.2 percent that's not a

month over month number an annual gain

of 0.2 percent

and the target's three percent so we

basically have no movement in consumer

prices for producer prices what you have

is a negative

4.6 reading year over year the year over

year numbers are well rip like

non-existent for inflation in China

there literally is no inflation in China

you're quite frankly facing deflation so

consider that uh when you're looking at

either a Chinese investment uh or or

United States Investments that are

associated with China yesterday for

example in the course member livestream

we were exploring Neo and so we did a

bit of a fundamental analysis on Neo Neo

was was an interesting one because you

know Neo's still in position of net

negative uh income which makes valuing

it certainly a lot more difficult but

beyond that

they're going to need to raise some

money soon we're convinced that there's

a there's a limit to how much money Neo

has and I would expect within the next

18 months you're going to see Neo

somehow raise money whether that's

through a bond offering or through a

stock offering however they're going to

have to raise some money so we'll see on

top of that it's worth noting or this

morning we realized that the average per

quarter gross profit for Neo is usually

186 million dollars and the average

operating expenses in 2022 are usually

around 753 million dollars well that

operating expense came in roughly in

line with the average per quarter

expense of 2022 here in q1

767 is broadly similar to what we saw in

2022 however we were looking for about

186 generally for gross profit on

average in 2022 that was only 23 million

dollars in q1 2023 which is like no

margin what happened now but that is

something to consider when it comes to

Neo and you know obviously Chinese

company uh and uh it looked to us like

based on our analysis which remember if

you join any of the programs linked down

below you get lifetime access to not

only the archive of live streams but

these these fundamental analyzes uh

every day the market is open

what we found is Neo would probably have

to grow somewhere around 35

compounded annually uh or just 35

annually right and then that compounds

they would have to grow that for five

years at 35 just to break even but their

vehicle growth rate uh in in the number

of vehicles they're selling isn't

growing anywhere near 35

in may they delivered 6 155 vehicles uh

they delivered a 43 854 Vehicles year to

date in 2023 and that represented a 15.8

percent increase and the way I got to

this 35 annual compounded that they

would need is that they're operating

expenses are sitting at about three

billion dollars for the year uh maybe

you've got some one-time charges in

there so it's worth diving a little bit

deeper into that but if your Opex is

sitting somewhere around uh a 30 or

sorry three billion dollars which is

about double from

2021. uh much of that operating expense

increase

uh being made up of an increase in

actually both r d which more than

doubled and then SG a which probably

increased uh roughly looking at it here

about 60 so both of these numbers it's

not like it was just one of them both

these increased actions but anyway

so when we're looking at Neo we're like

wow okay well in order to get to um to

just cover three billion dollars in

operating expenses and in your last year

you had a gross profit of uh uh 745

million bucks these are dollars uh

you've got some some growth ahead of you

before you even get to a break even they

do have a gross profit margin worth

noting is just above 10 on gross profit

but that Opex really eats a lot of uh

what Neo's doing but again something to

consider when we're looking at Chinese

companies

where's the money going what kind of

transparency do we have of where the

money's going uh and in addition to that

now you've got a country that

potentially is facing deflation what is

that going to tell the consumer in China

which is not like it's uh you know carte

blanche great thing for uh every

investor because consider

less or more deflation in China could

potentially also indicate uh less buying

pressure for GPU chips or Tesla cars or

other cars like or or other AMD or uh

what should I say or other companies

with large exposure to China such as AMD

uh so do consider that there are a lot

of companies that have massive exposure

to China even apple is another one with

large exposure to China and what you can

do is you can go through any of the

companies that you're looking at or

considering investing in and look at

their annual reports see what percentage

of their revenues is coming from China

uh one stock that I've been interested

in but I had to pull the trigger and

we're on is uh is Starbucks partly

because during the pandemic what they

did is I feel like they did this sort of

stealthy growth approach to China while

everyone was worried about the Chinese

lockdown Starbucks is like let's double

how many stores we have in China and so

they literally doubled the amount of

sores that exist in China

and nobody seems to have noticed I

personally believe eventually people are

going to go oh man there's a lot of

growth coming from China but then it

makes you scratch your head will there

be if you're in potentially a deflating

environment and potentially one where

people are now Shell Shocked because of

what they went through with uh coveted

lockdowns and one where they're

potentially facing deflation maybe

that's not as a Surefire bet so these

are a lot of things to consider when it

comes to investing in China all of the

various different companies that are

associated with China uh and uh and

ultimately I I suppose I would just say

proceed with caution with China I will

say though just to give you a little bit

of a flip sided argument there are some

people who say all right Kevin

everything you said might be true

but now we're at a bottom Chinese stocks

are underperforming European stocks or

underperforming American stocks you know

what now is the time to buy the dip on

China

maybe maybe now is the time to buy the

dip on China I personally I can't get

away from just investing in America

because again I feel like I relate to

the American Consumer I can I I could I

feel like I could sit down

let's think about this all just like a

personal personal level for a moment I

feel as though I could sit down with any

American any anyone watching we could

sit down have a coffee uh you know what

whatever you want to make a drink

whatever it is hot uh who cares whatever

point is we could sit down and actually

have a reasonable discussion about

anything right really uh and uh it and

that could be an amical and productive

discussion I don't think I could do that

with every single person

in China mostly because I I don't

understand all of the various different

cultures I'm sure there are people in

China who I absolutely can sit down with

and have a reasonable productive

discussion but

I've I I don't even know I don't even

know what I don't know about China right

so I just stay away from markets that I

don't understand and I'm gonna stick

with the markets that I do understand

and that is my favorite the best in the

world the United States so and I really

believe that I I look I was born in

Germany but I don't even understand all

the

you know cultural things that go on in

Germany uh you know there's everyone's

different

so anyway uh long and short of that is

it's a lot harder in my opinion to to

really evaluate okay oh you know our our

Chinese consumers going to behave like

American consumers and if anything I

actually think they're more likely to

behave less like American consumers

where American consumers are more like

ah well you know if poop hits the fan

we'll get our stimi checks we'll get our

unemployment which the reality is I

think there's a very good chance

artificial intelligence will bring back

stimulus checks

eventually uh some form of like Ubi or

something to that effect

China doesn't work that way they they

offer corporate stimulus as opposed to

direct cash payments to individuals and

the savings rates of Chinese are

substantially higher than American

Saving rates in part because they have

to uh because the government isn't going

to bail them out uh now now we can

obviously argue about the merits of our

government and go down to political

rabbit hole but I'll save you from that

in this one so anyway that's my take on

China oh hopefully that's at least

somewhat useful but uh I I would I would

proceed with caution in China and if

you're still betting on these

inflationary arguments from China look

at some of the recent data because

probably missing something now I want

you to know this when it comes to AI

time is what's going to make you money

and if you can prove that value to an

employer you'll always be able to be

employed so this is another way of

making sure that you don't get replaced

but

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