Blog – Page 19 – shiqiv.com

The Great Rebalance

It has been 4 years since Covid-19.

From q2 2020 to q1 2022, China attracted export orders as many parts of the world was shut down. US lowered the interested rate and asset prices surged.

Then a few things happened: the war in Ukraine, the interest rate hikes, and the Shanghai lockdown among rolling lockdown in different parts of China.

From q2 2022 to q1 2024, US has attracted capital with high rates and developments in AI. US started to introduce more targeted policies in maintaining tech leadership (namely AI), from foundry subsidiaries and chip restrictions. China would get rid of lockdowns but started an even more difficult fight with property sector problems.

As of now, after the eventful four years, many things have rebalanced to a point that I think many have achieved their agenda.

US regained global leadership, via global defense partnerships in Ukraine and middle-east, and via LLMs, monopoly in the most advanced chips, and computing power. US has diversified supply chains and TSMC has plans to build 3nm or below to the US.

China recalibrated its growth model and has de-risked this property bubble. China has built out its own chip capabilities although very limited and maybe only up to 7nm (Huawei restarted smartphone business again in China). China now views itself with fewer chock points than before.

Policymakers should be happy? They seem to have gained tremendous power. In first 2 years, they seem to be reacting / pushed to do things, while in the second 2 years, they were definitely more active in setting the tone.

Regular people lost some confidence/freedom in the last two years, after the first two years of gaining lots of bargain power

Is LLM still on track of its dream value? Note from podcast

Note from this interesting BG2 podcast: AI Demand / Supply – Models, Agents, the $2T Compute Build Out, Need for More Nuclear & More

Very good discussion. And some notes.

Some would argue that while LLMs are indeed good in coding, chatting etc., that “amazingness” was extrapolated too much. In other words, the gap between pre-ChatGPT and ChatGPT-3 is not gonna continue/replicate. The expectation is too high that the room to beat is diminishing.

Some would question the “moat” of most LLMs. The most advanced ones, the “leading edge” is good, but the rest could be commoditized. Then all those R&D dollars is more of less duplicated and return is low.

GTP-5 is undoubtfully powerful and could be more powerful than people think, but what’s next? What cards haven’t been played or thought about after GPT-5?

Besides technology advancement, there seems to be a problem in regulatory environment in nuclear power in the US, which put a lot of restrictions.

France and China have lowered the nuclear power costs over the years.

Zillow’s problem?

1/ the $1.8bn lawsuit became the catalyst to lower commission revenues for each home transaction.

Some real estate agents may exit the industry as the pie is smaller; and spending on Zillow per transaction will likely decrease.

Therefore, Zillow’s revenue from home sales shall decrease under the current model.

2/ competition from CoStar is very real while Zillow is not growing

CoStar combined traffic from 23q4 earnings presentation

Home.com (owned by CoStar) had 149 million unique visitors in Feb 2024, with 567% yoy growth.

Zillow’s 2023q4 reported average monthly unique users was 194 million, down 2% year over year. Visits during Q4 were 2.2 billion, up 1% year over year.

Zillow’s DAU trend from Investor Deck February 2024 – not looking amazing.

Their business models are different. CoStar is more SaaS like. And Zillow is more e-commerce.

(above from ChatGPT 4)

3/ of course the current interest environment is not helping.

While it’s not new and Fed may cut this year, marginal benefits of lowering from 6.5% to 6% won’t move the needle.

March CPI 3.5%

March CPI is 3.5% for the past year and increased 0.4% MoM in March.

Higher than expected, but again, like the post last month, Truflation indicates <2% inflation.

Here is another discussion of “lagging” in shelter CPI, which was 0.4% in March

This lag occurs for a few reasons. First, the market indices capture rents of units currently on the market, not rents for units occupied by continuing renters, like the CPI does. Rents change when leases expire, which typically happens annually. In addition, landlords may be less likely to raise rents to market prices for continuing tenants, and so it might take even longer for rents on all units to catch up with rents charged to new tenants.

A new index was introduced to more closely track market prices of renting.

Take turns: Japan and China

Japan largely missed the PC/mobile/internet wave decades ago.

In retrospect, Japan was in “competition” with the US in memory chips etc.

Microsoft chose Beijing as its APAC research center back in 1998.

Now in 2024, Microsoft chose Japan to invest billion of dollars for AI and cloud.

And China is in “competition” with the US in AI and other tech.

China risks losing behind in AI, mostly as the most powerful chips are not allowed to be sold to China.

PingAn Trust?

A coin has two sides.

A balance sheet has two side.

If there is a hit on the asset side, there must be a hit somewhere else.

When properties are not selling, the property linked trust products would take a hit.

PingAn Trust is not responsible for those products’ underlying assets, which are troubled developers; it’s like an investment bank that packages products and sells those to “retail investors”.

Maybe many of those “retail investors” are not sophisticated enough.

In China, anyone with 500k rmb annual income can become a “qualified investor”, vs. $200k in the US, only ~1/3.

In China, if you have 5mn rmb financial assets (not net assets), or 3mn rmb net financial assets, you could become a “qualified investor”, vs. $1mn net worth (not counting primary residence) in the US.

Someone can borrow against the house and buys financial assets? Sure. He/she may get a >5mn loan from a tier-one city home (a 100+sqm home can be easily over 10mn rmb during good times).

It’s such a perfect designed chain of problems when property prices are coming down.

Underlying assets of trusts are worsening.
Trust investors can’t pay mortgages or home equity loans (or banks lower the est. value so can only take out less loan).
Fire sale from developers (trust products) & home owners (trust investors) shall further put pressure on the property market.

Controversial fast fashion

Fast fashion companies are sometimes criticized as environmentally unfriendly.

Intuitively, this seems right.

But exactly how?

It seems that the production process (incl. dyeing and finishing) is not very environmental friendly, with energy & water consumption in question.

E.g. – “Most of these impacts are a direct result of apparel’s reliance on hard coal and natural gas to generate electricity and heat in key processing locations. Asian countries such as China, India and Bangladesh not only comprise the largest manufacturers, but also have heavily coal-based energy mixes.”