The Compound and Friends

Investing Ideas From Jason Hsu, a Stock Market “As Good as It Gets”, Why the Fed Should Stop Talking

Tue Apr 02 2024

InvestingChinaEmerging MarketsAISemiconductorFinancial AdvisorsMarket TrendsFederal ReserveDonald TrumpRetail TheftTesla

Description

This episode covers investing opportunities in China and emerging markets, along with market trends and insights. Topics include China's economic slowdown, challenges and risks in Chinese markets, investing in real estate as a store of value, the potential of emerging markets, the dominance of the US in artificial intelligence, semiconductor production, financial advisor biases, market rally and trends, Federal Reserve decisions, Donald Trump's stock holdings, theft issues in retail, and the performance of Tesla stock.

Insights

China's economic slowdown presents investment opportunities

Despite China's struggles, US stocks have performed well and Chinese stocks are currently at their cheapest valuation levels.

Investing in emerging markets requires understanding risks and opportunities

Emerging markets contribute significantly to production and GDP but struggle with profit margins. Demographic shifts and US reshoring could benefit emerging markets.

US dominance in AI and semiconductor production

The US leads in AI innovation while Asia focuses on engineering and scalability. There is a trend towards domestic semiconductor production in the US.

Financial advisor biases and market trends

Financial advisors may struggle with allocating investments between US and emerging markets due to biases. Market trends include a strong rally, small caps outperforming large caps, and breakouts in oil and gas stocks.

Concerns about Federal Reserve decisions

There are concerns about the reliance on intuition rather than data-driven decisions by Federal Reserve chairpersons. Calls for a more streamlined approach using algorithms and real-time data analysis.

Donald Trump's stock holdings and theft issues in retail

Donald Trump's stock shares have increased significantly. Theft rings selling stolen goods online are a major issue for retailers.

Performance of Tesla stock

Tesla stock is experiencing losses and growing bearish sentiment, but there is anticipation of a potential buying opportunity in the future.

Summary

Transcript

Investing Opportunities in China

00:00 - 20:38

China's economic slowdown has had a localized impact on the US market, with US stocks performing well despite China's struggles.
The recent signal of China welcoming US CEOs for business talks indicates a potential improvement in US-China relations and global economic growth.
China is making efforts to attract foreign investment and restore confidence in its domestic market through various signals and measures.
Despite negative sentiment and challenges, Chinese stocks are currently at their cheapest valuation levels, potentially presenting an opportunity for investors.
The current negative economic news in China is reflecting potential speculative and unlikely scenarios, such as a hot war or a return to central planning.
Investors face challenges in understanding the opportunities and risks in China, exemplified by issues like TikTok's situation and Apple's struggles in the Chinese market.
Chinese officials view the stock market as akin to a casino due to retail-driven trading lacking long-term discipline and intelligent capital.
Chinese investors predominantly store their wealth in cash and real estate, treating real estate as a store of value rather than for living purposes.

Investing in Emerging Markets

20:11 - 39:45

High net worth families invest a lot in real estate as a store of value, similar to investing in gold or Bitcoin.
US-based investors have seen a significant gap in returns between the S&P 500 and emerging market stocks.
Emerging markets contribute significantly to production and GDP, but struggle with extracting profit margins compared to US companies.
A demographic shift with boomers retiring could potentially lead to increased consumption and pricing power, benefiting emerging markets.
US reshoring is a key theme for the next decade, with Mexico being viewed favorably as a destination for manufacturing relocation from China.
India's strengths lie in software development and outsourcing rather than manufacturing, making it distinct from China.
India excels in software development due to its talented workforce and fluency in English.
India's focus on software development has led to growth despite not being a major manufacturing hub.
Emerging markets like India may need a catalyst for re-rating, possibly driven by demographic shifts and global power dynamics.
The US dominance in artificial intelligence is expected to continue, with the US leading in innovation and Asia focusing on engineering and scalability.
There is a trend towards building and manufacturing semiconductors domestically in the US, driven by concerns over supply chain disruptions.
Top semiconductor engineers in the US prefer working at companies like Google rather than in manufacturing.
US companies still produce chips, but operationalizing and manufacturing them cheaply is done outside the US due to talent shortage.
Engineers from Taiwan are skilled and willing to work for lower pay, making them attractive for chip production.
Challenges arise when trying to recruit Taiwanese engineers to collaborate with US domestic workforce due to pay differentials.
Investment in semiconductor production in the US may face challenges if not able to match efficiency of companies like TSMC elsewhere.
Financial advisors may struggle with allocating investments between US and emerging markets due to past market experiences and biases.
Advisors tend to be more cautious about missing out on a potential Asian equity rally than underperforming in the S&P 500.
Home country bias influences investment decisions, leading to asymmetrical risk perceptions between domestic and international stocks.

Market Trends and Insights

53:12 - 1:39:51

The recent stock market rally is among the greatest in history, showing remarkable resilience despite some underperforming stocks like Apple and Tesla.
Technician Ari Wald notes the emergence of speculative themes like micro caps, ARK innovation, IPO index, and meme stock index, indicating a potential shift in market dynamics.
Market momentum remains strong with breadth expanding and small caps outpacing large caps, suggesting a broadening market trend rather than a sign of a market top.
Concerns include excessive vertical growth in stocks and the importance of a slow grind higher to maintain stability.
The S&P is currently moving sideways, which is seen as a positive sign for the market stability.
Small caps are showing potential for growth both technically and fundamentally, with favorable sales growth projections and lower valuations compared to larger caps.
Interest in small caps may increase if they outperform the S&P consistently for a period of time.
Oil and gas stocks, particularly exploration and production companies, are experiencing breakouts due to supply issues and increased demand.
Oil stocks are seen as a good hedge and diversifier in the market, especially during times of volatility.
There is disagreement over whether Fed Chief Powell deserves credit for the economy's success.
Alan Greenspan's approach to rate cuts as a solution to all problems is criticized.
Greenspan's actions during his term, including rate cuts and rate hikes, are criticized for contributing to economic crashes.
There are concerns about the Federal Reserve chairpersons relying on intuition rather than data-driven decisions.
Criticism of the current system involving frequent speeches, press conferences, and interest rate focus by the Federal Reserve.
Calls for a more streamlined approach using algorithms and real-time data analysis for economic decision-making.
Donald Trump's stock shares are worth $5 billion and he owns 58% of the stock.
There is speculation about Trump selling some of his stock to finance his campaign.
Trump's stock value has increased significantly, up 196% year to date and 267% over the last year.
Truth Social, a company associated with Trump, had $4 million in revenue and lost $50 million last year.
Retailers are addressing inventory shrinkage by reducing self-checkout options due to potential theft issues.
Theft rings selling stolen goods on online marketplaces like Meta Marketplace and eBay are a significant issue, with department stores being a major target.
Employee theft is also a prevalent problem, with more inventory leaving through the back door than the front door.
Amazon has decided to discontinue their Just Walk Out program in favor of dash carts where customers scan products as they shop.
The modern supermarket concept was invented by Clarence Saunders in the 1920s, revolutionizing the grocery shopping experience.
Investing strategy discussion around Domino's stock, highlighting long-term growth projections and shareholder-friendly practices.
Tesla stock is experiencing significant losses and is approaching a key support level around $110.
Short interest in Tesla stock is at its highest since 2020, indicating growing bearish sentiment.
Quarterly sales numbers for Tesla vehicles were below expectations, leading to concerns about the stock's performance.
Despite the current sell-off, there is anticipation of a potential buying opportunity in the future due to Tesla's historical recovery patterns.