Economic update, Rate cuts in China, Chinese bank presidents, Child Care at Work, and Nvidia & Denny's.
Leading Economic Indicators
The numbers this week…
Weekly Initial jobless claims were 201,000, down from 213,000 last month. Folks, this trend is really pushing historical lows. In the early 2000s, initial claims were running 300,000 and in the recession, it hit 653,000. It’s only after covid (where it peaked at over 6 million) that it dropped to below 200,000 in 2022.
It still sucks for the 201,000 people laid off, though.
Existing home sales came in at a 4 million/year rate, up from the 3.9 million rate last month. Up is good, but it’s still less than during or after the recession in 2009.
In 2021, there were over 6 million existing homes sold.
That’s what higher interest rates will do.
Mortgage rates haven’t been this high since 2008.
You have a 33% drop in sales and still home prices are still holding. Yep, not enough supply and too much demand.
The National Conference Board’s leading economic indicators were down for the 22nd month in a row. But even the Conference Board folks don’t think that’s much of a big deal since 6 of the 10 variables were positive.
Most folks are envisioning a soft landing. Some folks are saying we have already landed.
Interest Rates Fall… in China
That doesn’t do you much good in the USA.
You may recall that China is having some economic issues: their economy is just not picking up.
That’s what happens when your population starts declining, as I mentioned in last week's Russell Report.
So, what do you do when your communist economy can’t get going? You take a page out of the capitalist playbook of the Federal Reserve of the United States.
And cut interest rates.
The US has the Fed Funds rate, which is the rate that the Federal Reserve uses to lend to Banks that need to borrow for liquidity purposes, like Signature Bank and Silicon Valley Bank did last year.
That rate is 5.33% as of Friday.
China’s key rate is the five-year loan prime rate, a benchmark for home loans in that country.
That rate was cut to 3.95%, down from 4.2%.
Predictably, the Chinese stock market reacted positively.
I’ll stay on top of this story for you.
Speaking of China… what happens to disgraced bank presidents?
If you are in the United States, you may resign or negotiate an exit package, or both, and fade away. But what if you are in China?
You get a suspended death sentence.
Tian Huiyu, 58 years old, was the head of China Merchants Bank and had worked at other institutions.
Over the course of his career (banking or crime, your choice):
He took bribes of $29 million
Gained $40 million from trading stocks on insider information
And abused his power. I’m guessing that’s the least of his problems.
His death sentence was suspended for two years because he confessed, repented, and returned the money.
Other finance executives have received suspended death sentences and then gotten life in prison, except for Lai Xiaomin. He received $249 million in bribes, a new record.
The court wasn’t happy, calling him “greedy”. He was sentenced and executed in the same month: January, 2021.
I guess there wasn’t any basis for appeal.
Question for your next mixer… how do they execute people in China?
Lethal injection in a mobile execution van. For real.
Child Care at Work?
Firms that provide childcare services for their employees get a tax break.
They are eligible to claim a credit of up to $150,000 per year to offset 25% of the cost of constructing, acquiring, maintaining, and operating their own childcare facility.
Who knew? Hopefully, your CPA.
That $150,000 credit can also be used to offset up to 10% of the payments made under a contract with a third party to provide childcare resources and referral services for your employees.
Talk to your CPA, but you better make an appointment; they are just a little busy right now.
The Impact of AI & Nvidia
Years ago, in the early 90s, I went to Fry’s and bought the parts to build my own computer. In addition to the CPU (an 80486 Intel processor), I also purchased a graphics card.
It was manufactured by ATI. This was before 1993 and before the Pentium.
In 1993, Nvidia was formed by 3 guys out of Silicon Valley: Jensen Huang, an electrical engineer; Chris Malachowsky, an engineer at Sun Microsystems; and Curtis Priem, an engineer and graphics chip designer.
The first meeting was at Denny’s in San Jose. They started the company with $40,000.
Sequoia Capital and others eventually put in $20 million of venture capital to really get it up and running.
The idea was to make the next generation of computer chips to run demanding graphics applications that gamers were looking for.
Without a formal name, they were just three guys plugging along, naming all their files with the letters NV, as in “next version”. So, when they actually incorporated, they looked at words that had the letter combination of “nv,” one of which was Invidia, the Latin word for “envy.”
And boy, are they envied now.
In 1996, they had to change gears due to Microsoft’s announcement that they would only support a certain type of graphics architecture.
By the time they had the product ready for shipping, they only had enough cash to cover 30 days of payroll.
They survived and went public in 1999.
They now manufacture chips that go into phones, cars, and a multitude of Artificial Intelligence applications.
And that’s the key that is driving their stock price: AI
In 2015, the stock price was around $8/share.
On Friday, it was at $788/share.
All from a meal at Denny’s. I’m guessing it was a Grand Slam breakfast.
How productive are your breakfast or lunch meetings? Just something to think about…
