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Market Mysteries Unveiled 🤑
Did you know that the Dutch East India Company established the first stock exchange in the 17th century?
Equity Eats
February 12, 2024
Market Mysteries Unveiled 🤑
Did you know that the Dutch East India Company established the first stock exchange in the 17th century?
This important moment laid the groundwork for today's global economy, introducing the concept of shared investment in large ventures.
In this newsletter edition, we delve into the following financial situations:
The Wall Street Wizards Never Learn: First, we’ll examine the disconnect between Wall Street predictions and the US economy. Despite gloomy forecasts, the market's strong performance suggests a need to reconsider the experts’ analyses 🧙♂️
Milei Continues To Enlighten: Next, we’ll discuss Argentina's President Javier Milei's impactful policies, including the embassy move to Jerusalem. Milei's efforts to renew Argentina's economy and political stance are explored for their potential global market implications ✨
Are Chinese Stocks A Value Trap Or A Value Trade: Finally, we’ll question the idea of investing in China, pointing out the unique challenges faced by investors in markets influenced by totalitarian governments and urging a deeper understanding beyond attractive financial data 🤔
Through these articles, we aim to equip you with the knowledge to navigate the complexities of the global market, presenting opportunities and cautionary tales.
The Wall Street Wizards Never Learn 🧙♂️
The gurus of Wall Street have been pessimistic on the US economy and the US stock market for the last year-and-a-half, and they have been completely wrong.
They still haven’t learned.
Mohamed El-Erian is a classic example:
- El-Erian has a finance resume second to none.
- He has held high level positions at the IMF and Citigroup.
- He ran PIMCO, the largest bond fund in the United States.
- He went on to run Harvard’s endowment, the largest university endowment in the world.
Despite all the evidence to the contrary, El-Erian cannot escape his gloom ⛈️
He is now warning of coming stress in the banking system following the dramatic drop in the share price of New York Community Bancorp.
El-Erian suggested that market expectations for aggressive rate cuts rose, suggesting that investors believe that the odds of a recession are rising 📈
But in truth, the odds of more Fed rate cuts barely moved on the news about New York Community Bancorp, and the equity market has continued to rise.
Investors seem to understand that our banking system and our economy are sound, a fact that El-Erian and his cohort have not yet internalized 😒
Milei Continues To Enlighten ✨
Newly elected Argentine President, Javier Milei, continues to draw controversy, but so far he is shining light into this dark world.
In his latest splash, on his second international visit (the United States was his first) since winning the Presidency, he arrived in Israel and announced that Argentina will be moving its embassy to Jerusalem, making it just the sixth country to make such a decision.
Of course, the move is logical, Jerusalem is obviously Israel’s capital ✡️
But in our upside-down world where right has become wrong and wrong has become right, there are fewer and fewer leaders that have the clarity and moral fortitude to make the right decision.
Milei is a breath of fresh air 😌
At home, he is determined to overcome the entrenched socialist politics so that he can revamp the Argentine economy and unleash its potential.
If he can manage to defeat the enemies of progress, the economy will eventually boom, and stock investors will be handsomely rewarded 💰
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Are Chinese Stocks A Value Trap Or A Value Trade? 🤔
This is one of the most important questions for emerging market investors.
Those who argue that China offers value point to an attractively priced P/E ratio of 8 on the Chinese stock market.
They also are excited by signs that the Chinese government is on the verge of implementing fiscal and monetary stimulus that will jump start the economy.
Finally, they also believe that all the bad news must be priced in by this point.
What else could go wrong for China?
But China is indeed different, and analysis applied to stock markets of free market democracies do not apply to stock markets in totalitarian regimes.
Westerners almost always make the mistake of seeing the world through their own biased lens—totalitarians do nor share our incentives and motivations.
The priority of a paranoid totalitarian is control ⛓️
If prosperity comes at the expense of control, then control will be chosen as the top priority.
This explains why President Xi of China has continued to undermine entrepreneurs and successful business time and time again.
Xi sees everything as a zero-sum game 🏆
If the economy performs well, then in his eyes, he is surrendering power and control to other forces in the country, a development which is intolerable to him.
Xi assumed power in 2012—we now have almost twelve years of data that supports this conclusion: China is a value trap 🕳️
