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On the other hand, tariff threat can be good?

Cooling off the excessive confidence

If the economy is running too hot, you need to cool it off.

One way to cool it off is to add uncertainties.

Individuals and businesses will pause new investments and rethink how fast they shall run when uncertainty (not short-term, or can be overlooked) skyrockets.

Perfect excuse to change gears

Sometimes, business leaders also need a good external excuse to press the “pause” button. Why?

Normally, they want to be seen as the encouraging voice internally. That what business leaders do – to grow the companies. And they always want suppliers to increase their capacity. Thus, showing extra confidence in business can ensure suppliers are confident enough.

To be seen as credible in the long-term, business leaders can’t change the tone overnight. And it’s hard to change the tone if there is no external shock. Otherwise, it feels like you were trying to “trick” your suppliers or employees.

Suddenly, tariff becomes this perfect excuse – external, lingering, impactful.

It’s just the perfect time to take a step back and rethink business leaders. And it’s the perfect opportunity to change gears.

Tencent x Ubisoft: a new model?

Ubisoft created a new entity and put valuable assets into it.

Tencent put money into this new entity and got 25% ownership.

While Ubisoft’s shareholder got nothing, Tencent can do more with the important IPs like Assassin Creed.

Maybe there is a limit on how much Tencent can buy into Ubisoft. Maybe the possibility of Ubisoft being acquired is low due to France regulation, not due to Tencent’s previous investments.

Probably it’s the complications and regulations around the world are making those deal structure necessary. Capital is not allowed to buy anything it interested in.

So.. on the positive side, will this model serve as a template for TikTok US?

ByteDance inject some assets  (TikTok US) into a new entity, and new investors inject money or assets into the new entity, so that the new ownership structure can satisfy both US and China’s demands?

Supply chain – Lululelom

Approximately 40% of our products were manufactured in Vietnam, 17% in Cambodia, 11% in Sri Lanka, 11% in Indonesia, and 7% in Bangladesh,
and the remainder in other regions.

Approximately 35% of the fabric used in our products originated from Taiwan, 28% from China Mainland, 11% from South Korea, and the remainder
from other regions

Special government employee

A Special Government Employee (SGE) can work no more than 130 days during any consecutive 365-day period.

They’re allowed to maintain private-sector jobs or other roles.

They are subject to federal ethics rules, but with some exceptions or leniencies given the part-time nature of their service.

They can be paid.

 

Elon Musk is a SGE.

He won’t be paid though.

 

https://www.law.cornell.edu/uscode/text/18/202

China’s fixed asset investments: smaller discrepancy and better numbers vs 2023

Found another closing discrepancy in reported numbers.

These were the reported numbers for fixed asset investments (excl. rural) between 2020 and 2024.

The 2023 number has the biggest difference. If you directly compare 503,036  and 572,138, that’s dropping -12% yoy. Yet, the reported yoy was +3%.

This resulted in a 15% gap in yoy percentage number for 2023.

That gap has been shrinking to less than 1% in 2024, with +3.2% reported for 2024 fixed investments, compared with +2.3% in calculated comparison.

In 2024, the investment in the water conservancy management industry increased by 41.7%, investment in the air transportation industry increased by 20.7%, and investment in the railway transportation industry increased by 13.5%.

Those are some big % numbers. If you compare some headline numbers, e.g. water conservancy, the growth should be 13%, rather than 42%.

  • 2023年全年完成水利建设投资11996亿元
  • 2024年完成水利建设投资13529亿元

Maybe 2023 was indeed a lower base than reported.

Anyways, the picture in 2024 indeed looks better.

Brail set to rise

One thing is certain – US is trying to fight its trade deficits.

Who would be relatively safe from Trump’s tariff threat?

Countries that US runs a trade surplus!

Any examples? Brazil.

If a company wants to relocate its production, Brazil would be a top destination due to the trade surplus US enjoys, which means tariff threat is lower.

Plus, Brail has a big population with a relatively lower labor costs vs other countries like Australia, UK, or Singapore (US runs a trade surplus to those countries as well).

To be greedy when other are fearful

If there is one thing we should learn from China’s equity market in the past few years, it’s to be greedy when other are fearful.

China’s equity, on the index level, dropped double-digit for 3 consecutive years from 2021 to 2023. The table below summarizes the performance of MCHI, the ETF that tracks MSCI China Index.

Some of the headwinds China had were structural. So you can’t expect a quick turn around.

But when things do turn, and when valuation is very reasonable, it’s hard to ignore.

Now the question is, with a few weeks of correction, has the US stock market become attractive enough? Are most market participants fearful?

Source: yardeni

We better ask Buffett if he still suggests buying S&P 500 at this valuation.

So, investors think tariff is negotiation tool?

Tariff is not an unknown factor.

Trump talked a lot about tariff during campaign and after election.

However, stock market was buoyant until recently.

The most common excuse? Investors thought tariff is just an negotiation tool that won’t be implemented.

That sounds reasonable, but actually it doesn’t make any sense.

Let me explain.

If stock market reflects the common wisdom and it doesn’t go down, then it means everyone assumes tariff threat is not that real.

Then why should the negotiation be effective?

Governments are not fools. Like in poker, if they think Trump is just bluffing, they would call.

The stock market almost sells Trump out if it doesn’t fall.

So, if US wants to be considered serious on the negotiation table, stock market must fall.

Why?

Because you need to let everyone know tariff is real. Every company needs to talk about it. Investors need to be panicking about it. When investors are really worried, they sell, even with losses.

Stock market drop is a manifesto that everybody realizes the tariff can be as real as the losses in their retirement accounts.

That’s when the “negotiation tool” is effective.

Nvidia GPUs as financial products

Nvidia GPUs can be used as collateral to borrow. Financial Times reported that $11 billion of loan was created for these chips.

That’s something too creative for me.

I think it’s generally safe to borrow against assets with a growing value.

Chips, however, are like cars to me, depreciating… with new versions better than the previous one.

Well, it seems you can borrow against your car, but that’s still based on your ability to pay back the loan.

So how does it work?

Maybe it’s actually a loan borrowed against the “service contract” or rental agreement carried by the chips, which makes it more like an asset with “yield”.

But still, this market sounds a bit too arbitrary…

Hard to imagine that the rental income will be stable or rising, as Nvidia chips supply is up to Nvidia and TSMC. That capacity can increase over time.