Weekly Recap | September - W4

Chinese stimulus & effects, Tesla's 10/10, PayPal's news are never ending, The OpenAI Saga never ends, Crypto Market review and some charts & buy prices.

Pretty big week is ending today.

Chinese new Economic Stimulus.

This week's big news, which I'll try to dissect and explain why the markets - especially Chinese equities, reacted positively to it. China is facing a few problems in its economy, some due to its real estate market which was overleveraged and crashed when demand slowed, others due to a deflation they struggle to fight.

As an exporter, they had to keep their currency weak for decades to attract external investors and importers but things have changed, and China isn't the cheap factory of the world anymore. The country is now trying to turn its economy towards local entrepreneurship & tech giants. To do this, they need Chinese individuals to create companies, to innovate, to create value, and these individuals need liquidity to do so - and a change in their culture but that's another discussion.

This is what China unleashed this week; after many different stimuli through the years, they're finally using the big guns.

Liquidity.

The first measure is a reduction of the RRR from 1.7% to 1.5% while assuring that this was just the start; more cuts could come in the next months.

The RRR is the legal amount of money a bank has to keep on its own reserve to assure its loans. This reduction might seem weak, but estimations talk about freeing $140B of liquidity - pretty big after all.

It’s one thing to free liquidity, it is another one to have Chinese borrow that liquidity as the real problem comes from the demand. Innovation, capitalism & entrepreneurship isn’t engraved in Chinese culture at all after centuries of communism. This changed only a few decades ago with Deng Xiaoping, but the culture will take generations to change.

The party took some steps; Chinese now have to play their parts.

Stock Market.

The second measure directly impacts the stock market with new tools & programs to support the purchase of Chinese stocks by banks, insurance funds or other institutions. It is also made easier for companies to access liquidity to buy back their own shares on the open market.

This is meant to pump their stocks, nothing else. The government is working at making its stock market attractive with returns, firstly, and certainly with the hope that new companies will be created and receive external investments as investors’ trust in China’s stock market is back.

Real Estate.

Lastly, but also very important, interest rates were cut about 50 basis points and the minimum down payment for second-home buyers was reduced from 25% to 15%.

The Chinese real estate can be summarized by what they call ghost towns: hundreds of empty residential towers that no one wanted or couldn’t afford. This measure is meant to revitalize real estate demand and facilitate acquisitions.

In Brief.

This is probably the biggest stimulus we have seen in the world since…very long, probably the U.S. in 2008, but under very different conditions. China needs to grow consumption, local innovation & entrepreneurship if they want to transform their country & growth source from industry for international companies to a technology & innovation hub.

This will have many consequences, some detailed above, but an indirect one will be a global rise in households' liquidity and borrowing potential, which should boost consumption and affect local companies as well as any company selling in China - we’re talking about Lululemon, On Running, Tesla, etc…

Those stocks reacted well to the news, less than Chinese stocks which will enjoy the same consequences plus a share price boost due to those shares purchase programs. Alibaba pumped more than 15% since this announcement, while it was already up big time over the last months.

This might be what the Chinese stock market needed to attract international money again.

Small bonus. Many could ask themselves how China is financing those measures. First, being in deflation, creating money wouldn’t have the same consequences as what happened in the west during COVID. You fight deflation with inflation.

Secondly, and this is where things get interesting, China has “strangely” sold billions on U.S. treasuries over the last months. This is a beautiful economic war to watch, but what this means is that China is financing its future growth spurts by selling dollars on the street.

I’ll let you guess who’s buying those treasuries.

This might just be a temporary move which aligns their interest at the moment, and they might buy more afterwards. Or not. Time will tell, but the situation & the trade/currency war between the two giants is very interesting.

Crypto Market Update.

This market moves very fast, much have already unfolded by the time I sent this weekly but I spent the last months writing about crypto almost every week, so let’s say that my message was sent already.

Things went as I thought and the spot accumulation those last months has yielded wonderful returns - up +18%, +23% & +26% on Ethereum, Bitcoin & Solana respectively at time of writing.

Things are even better now than I thought they’d be, firstly because of the macro stimulus in the U.S. & in China - as those measures favor risky assets, and secondly because even with everything happening, the majority of market participants are still shorting.

We have a lot of spot accumulation at current prices, great macro & liquidity stimulus, and shorters who are convinced Bitcoin will crumble. The perfect recipe for a strong & violent short squeeze, maybe even stronger than last year as Bitcoin became more & more scarce during 2024.

I’ve rarely been so bullish on this market, but as usual, my reading might be entirely wrong, so let’s stay careful.

PayPal, again.

Three news, I’ll do them fast cause we’re tired of PayPal.

First, PayPal is now allowing business accounts to buy cryptos, which means the Bitcoin standard is now available to small merchants while banks are still telling them that they can’t do it.

Second, PayPal is now proposing its service in China for cross-border payments - meaning China selling internationally. PayPal has a best in class checkout process, even better with Fastlane now, and I could completely imagine why many more Chinese e-comerce would use PayPal to grow conversion rate. We’re talking about hundreds of billions of yearly volume.

Third, back to crypto as Alex confirmed that they are working on implementing a system to pay with cryptos. It would probably be a conversion from your crypto to dollars before paying, but it would mean you could now only hold Bitcoin on your PayPal wallet.

Might look useless, but PayPal continues to make its app a one-stop for all with plenty of options for customers to behave as they wish. Freedom, better than any banks.

Tesla Robotaxi Event.

Nothing new, but they did a pretty class announce so I felt like sharring.

I also like the reference and “we” might indicate more than one product reveil during the event. Pretty excited. Will see if they can live up to their promises on the 10/10, but future is already here:

https://x.com/AIDRIVR/status/1838335624123928636

OpenAI will be Adapted on Netflix.

It deserves to be because the drama - and the hypocrisy, around this company is bigger than any sitcom I've seen. But let's try to pass information without passing judgment.

We had this week the confirmation that OpenAI is not a "non-profit organization" anymore. They made very clear their wish to make tons of money from their products, even after swearing to God that they'd never do that - sorry, I passed judgement.

I still am a pro-capitalism & European liberal and believe that work should be rewarded & equity is important, so this isn't a problem at all for me. The problem is that all co-founders & most of the top management resigned after the announcement. Sam Altman is the last man standing. I'd love to know what is happening behind closed doors.

Anyway, let's see where this goes, I still am not a very big fan of ChatGPT and won't touch this new company, be it for-profit or non-profit. Still interesting to follow.

Charts & Buying Targets.

The accumulation targets didn’t change for any stock since my write up early September but two, as the market chose to finally reward Alibaba & PayPal shareholders with a potential new uptrend. Now that accumulation is done, it’s time to ride the train and for that, we pass in chart mode.

Alibaba. Now that we have the market's confirmation we’re back on an uptrend, my plan is pretty simple.

I'll buy the $90 retest and let it ride; the next big resistance lies around $120 and we might create a pretty big range around those prices as some will take profits there, up more than 100% since the exact bottom and largely above 50% to 60% for most who accumulated this last year.

PayPal. Same logic for PayPal.

The lines aren't that clear, but we could follow this upward trendline and a retest of the breakout would certainly give a good entry/accumulation point to ride it.

Anything under $75 is good for me.