The Breakdown - China Stocks Surge and NYC Real Estate Craters: 5 Stories Shaping Markets Today

Episode Date: July 7, 2020

In this extended Brief, NLW tells the story of the economy through five themes: The story of the economy as told by five macroeconomic indicators including Chinese stocks, New York City real estate, coronavirus cases and more. China stocks surge – but how much is it driven by Chinese state-sponsored media hype? A tale of two cities – real estate in New York City and Hong Kong are telling very different stories A global currency crisis in Lebanon - foodstuffs are up 100% in the last two weeks as the pound continues to falter  The COVID-19 ticker - daily cases continue to grow in the U.S. but deaths are declining  The cost of the U.S. losing its place in the world - from travelers turned away in Italy to decreasing capital inflows  Plus a bonus: what the Nasdaq all-time highs really mean

Welcome back to the breakdown, an everyday analysis breaking down the most important stories in Bitcoin, Crypto, and Beyond. This episode is sponsored by BitStamp and Crypto.com. The breakdown is produced and distributed by CoinDesk. And now, here's your host, NLW. Welcome back to the Breakdown. It is Monday, July 6th, and I hope that you guys had an excellent 4th of July. weekend wherever you were celebrating. Independence Day, big symbolic day, lots of contention this year around what its legacy is and what we should be going for, which I would remind everyone

is kind of the point. So not something that I think is a bad thing, even if it's hard in a lot of ways. But anyways, let's talk about the economy. Today's episode is all about five different themes that I think tell the story of this moment. And I wanted to do an episode like this because with the holiday last week, obviously, we did primarily interviews. It was the Free Ideas Festival, and there were a lot of great ideas that we explored, and so if you haven't listened yet, I highly encourage you to go back and check that out. But because of that, we didn't spend that much time on actual economic news and understanding what was going on. So today I'm basically doing an extended brief, five themes instead of three with a little bit more detail, around some

different stories that I think are really reflective of the market that we're seeing going into this week. Before we kick off, if you are enjoying the breakdown, it would mean so much to me if you would go to Apple, iTunes, or Spotify, or wherever you listen, and rate this thing. It makes a huge difference in terms of new people discovering this content and is hugely appreciated by me. With that said, let's dive into the themes. theme one, China is popping off. The global rally in stocks today is being largely attributed to excitement around the Chinese markets. Dovi Wan tweeted this morning,

Chinese A shares rallies so hard and total market cap surpasses 10 trillion USD for the first time since 2015 today. Absolutely printing. Bloomberg wrote, A gauge of momentum on the CSI 300 is also the strongest since late 2014. Shares of brokerages surged as daily turnover exceeded 1.5 trillion yuan, which is $213 billion, for the first time again since 2015, indicating increased participation from retail investors. Monday's more than 5% gain in stocks had only happened once before since the bubble burst. So what are they talking about? Well, it's inviting comparisons to 2014.

And again, Bloomberg writes, in 2014, encouraging words by state media helped revive interest in what had been a dull equity market. The result was a debt-fueled speculative bubble that burst, wiping out $5 trillion in value. So what you have going on here is Chinese official state media pushing and trying to rally citizens to get involved with the stock market to move from savings into the stock market, and it seems to be working. The question, of course, is to view this with a grain of salt. There is a track record, as the Bloomberg article was indicating, 2014-2015, of that same

sort of inducement from the Chinese Communist Party leading to some amount of bubble-bursting activity eventually. And of course, it's hard not to make comparisons to the U.S. where we've had the last month characterized by the Robin Hood Rally and the Wall Street Betts community and Davey Day Trader Global. But you have to think in a world where every government is just pushing its citizens into stocks, regardless of valuation, regardless of fundamentals, there is something to be a little concerned about. One other note on this issue, it definitely impacts crypto, and I think that this is something we've been seeing. Dovi again tweeted, as most pro or prosumer traders trade across sectors and assets with limited capital capacity. Hence, they always hop among sectors with most

volumes and volatility to best utilize their time and money. This new activity will further suck in retail capital into equity markets, both are 80% or more retail in China. That's crypto and stock markets, so this makes crypto markets even more dull. This China story is to me, one, an interesting reflection of the global push of governments into stock markets trying to get citizens to rally, and two, something interesting as we look at crypto market volatility or lack thereof as well. Theme two, city real estate confusion. So this is a tale of two cities, literally. Let's talk first about New York City. New York City real estate is having its worst. year in 30 years. Apartment sales were down 54% in Q2 as compared to the previous year.

The median price of apartments fell 18% to 1 million, which is the largest decline in a decade. In total, only 1,147 sales were minted last quarter, which is the lowest on record. So, interpretations of this. I mean, one, this isn't totally unexpected, right? People weren't able to show apartments for most of this quarter, so that has a hugely dilaterious impact on the amount of volume that you're actually going to be able to push through. So in that way, maybe we could see something of a recovery. However, there's a more worrying secular trend as people who were maybe on the fence or thinking about a move to the suburbs or to a rural area are really pushed into that over the last few months. You're seeing more and more companies getting comfortable

with work from home. And because of that, there's going to be a natural realignment, a natural rediscovery of rural and suburban real estate. And in fact, it seems like that's what's showing up in the numbers as well, with suburban and rural real estate doing pretty well. So this is a really complicated story of real estate in America right now that really needs to be broken down into different categories and different regions and different subcategories. And it's a really evolving story. But I want to turn to a different city, which is experiencing very different outcomes. When Hong Kong right now, there is huge demand with major projects selling out. In fact, some developers are expecting home prices to increase by 10% this year,

which if it happens, would reach a record high by the end of the year. This seems crazy, right? I mean, Hong Kong just had the Chinese security law passed that effectively is threatening Hong Kong status as independent and separate from China. In fact, you see the U.S. government making explicit that they believe, that if China is going to treat Hong Kong as just part of China, then the separate policy for Hong Kong will have to go away. An article in the South China Morning Post is basically making the argument that this passing of this law is in effect the thing that's going to make

the city return to normalcy. The article said the enactment of the national security law could help return the city to normalcy, reversing last year's anti-government protests that contributed to the housing market's downturn. One person said, the dice has been cast as the security law has passed. The market will stabilize with fewer uncertainties, and we will see even stronger sales in July. So here's the argument, which is sort of rational, I guess, on spec, is that there's been this year-long protest about this national security law, obviously spiraling into a larger set of issues as well. But with that law passed and theoretically, protests behind them, the housing market can get back to itself. And in fact, perhaps there's even some pendent.

up demand. On top of just the COVID issues, there's been this larger issue of uncertainty. The caveat, of course, is that the South China Morning Post, like all media, is subject to some influence. It was previously one of the most disconnected or independent sources in the region. However, over the last few years, it was purchased by Alibaba, and there's more and more questions of its real independence from the CCP party line. In that context, All of a sudden, this story and this narrative becomes more interesting and contextual with what we were just talking about before, which is the idea that China is aggressively trying to tell the story of resurgent markets.

Christopher Balding put it this way. He said, China is either going full Pyongyang or we are witnessing a seriously tottering regime. So really interesting stuff and worth keeping an eye on. BitStamp is the original global cryptocurrency exchange. Since 2011, BitStamp has been the preferred exchange for serious traders and investors, trusted by over 4 million customers, including top financial institutions. BitStamp is built on professional grade trading technology. Their platform is powered by a NASDAQ matching engine, and their APIs are recognized as the best in the industry.

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to come back to like this, because it's so devastating for the people who are experiencing this, but let's talk global currency crises for a moment. I want to talk, of course, about Lebanon, and in Lebanon, the price of foodstuffs have risen something like 72% since May, according to the head of the Consumer Protection Association, Zuhar Barrow. And in the last two weeks, they've registered an increase of 100%. Hanibosali is the head of the Food Importers Union and breaks this down. He said that, quote, many importers did not submit import orders because of the very difficult conditions, including the need to pay the price of the goods to the supplier company and then placing a guarantee in the bank with the value of these goods in Lebanese pounds. The quantity of

imports, especially for non-essential foodstuffs, has decreased significantly in the recent period. This is due to two reasons, the dollar shortage and the decline in purchasing power, as many traders stopped importing non-essential food items because their prices had become very high with the rise of the dollar. So the rise of the dollar that Boussali is talking about is that we talked a few weeks ago, or I guess more than a few weeks ago, a couple months ago now, about how over the last six months up to that point, the Lebanese lira, the Lebanese pound, had gone way out of its 1,500 to the U.S. dollar peg that it had had since 1997. At that time, it was trading as high as 3,200 to even 4,000 Lebanese pounds per dollar.

That has continued to rise. It is currently, according to lira rate.com, which is updated every few hours, and looks at the black market rate of Lebanese pounds to dollars, it's up to about 9,300 Lebanese pounds to the dollar right now. That's down from a high of 9,800 Lebanese pounds to the dollar a few days ago, but it's on the rise again after a dip over the weekend. For an import economy like Lebanon, that means devastation, because importers have to pay and place their orders in dollars,

but those dollars are increasingly more in demand, And so one, there are actual shortages of the dollars they need, but two, when it comes time to be paid by their customers who are using Lebanese pounds, those Lebanese pounds go a shorter and shorter way. So this is what it looks like to see a currency failure and an inflationary spiral. And I just keep thinking about the folks who are actually living through this, trying to figure out how to provide food for their families. People have already seen their savings destroyed. years and years, decades of work wiped out. And I think that it's really important that when we talk about these things, we don't just use them to score points for our theories that are coming to pass, right?

We need to understand that people who were a decade ago thriving, professional, white-collar just like us, drinking with me on the pigeon rocks when I was in Lebanon just a decade and a half ago, are now in the streets waiting in lines, trying to get. access to the most basic essentials. We need to have that humanity when we discuss this because ultimately this is a currency crisis with real human implications. And if we want to avoid this in other parts of the world, in our own part of the world, we need to treat it as such. Theme 4. Corona's Impact. I mean, the reality is that we simply can't discuss the U.S. economy without discussing what's happening with the coronavirus. Everything is shaped and will be

shaped by how we handle or don't this disease. And the numbers are mixed, but bad. But mixed a little but bad. The rolling seven-day average for daily new cases in the U.S. has reached a record high for the 27th day in a row. On Sunday, it was 48,640 cases. Hospitalizations, meanwhile, rose to their highest levels to date in places like Arizona and Nevada. 12 states reported new highs in their seven-day case averages. So that's the bad news, and it's really bad news, because it's happening a huge array of places, right? It's not constrained, as it might have been before,

to one city or geographic region. Now, the interesting question is that deaths are down. Chris Anderson, who was the founder of Wired, wrote another day of record low COVID deaths in the U.S., even the hardest hit stakes like Texas and Florida that are a month into their spike in cases. In other words, enough time for deaths to catch up aren't seeing a rise in deaths. People are trying to make sense of this.

They're trying to figure out to what extent it has to do with younger people being the ones who are afflicted now. They're trying to figure out to what extent it has to do with improvements in our approach to treatment. But it is one bright spot in an otherwise really frustrating set of news. Now, the real question, of course, with the coronavirus's impact is what it's going to do to jobs. And I think Joe Wisenthal summed it up really well in his newsletter for Bloomberg this morning where he wrote, last Friday's jobs report was better than expected. Some 4.8 million people went out to work

and the headline unemployment rate dropped to 11.1%. But the number of people losing their jobs on a permanent basis continues to rise. In just four months, the number of people who characterize their layoff as permanent has jumped by over 1.6 million. By contrast, after, After the official start of the recession during the last crisis, it took 11 months to see more than 1.6 million permanent layoffs. So basically, we have a hyper-acceleration into temporary layoffs becoming more permanent layoffs, and it took us a decade to recover the jobs that came out of the great financial crisis, or rather the recession that followed the great financial crisis. We're still really early where the government spigot is fully turned on,

And frankly, the question is going to be how much can that government spigot stay on? How much will this be a contentious political issue? Is it just predestined? Are we basically ushering in MMT and UBI de facto and kind of without debate? Because that's where we are. There are all these questions around what the actual outcome is going to be. And frankly, it's still too early, right? We had this idea that this coronavirus could be some temporary shock.

Well, we're seeing a second wave that's really just sort of the extension of the first wave, and we're also seeing a second wave of layoffs, and these are potentially more permanent. So, again, you can't talk about the economy right now without trying to make sense of the new inputs that relate to COVID-19 and its economic impact. Which brings us to our fifth and final theme, the cost of the U.S. losing its place in the world. We talk sort of glibly about America First and America First policies, and even people who don't and agree with that, talk maybe a little bit glibly about the retreat of America from the rest of the world, which is sort of just an undeniable force and characteristic of the last 30 years or so. However,

if you start to look at both anecdotes and data, you can actually see the real cost of this. Let's talk anecdotes and stories first. Over the weekend, a news story blew up that travelers from the U.S. had been turned away in Italy. They had traveled on a private plane from Colorado to Italy. There were 10 on board, five of which were Americans. These were obviously very well-to-do people who were flying private from Colorado to Italy. And when they got there, the five Americans were turned away immediately. The other people who were on the plane were invited to stay if they were willing to subject themselves to two weeks of quarantine. But the Americans were turned around. Now, everyone decided to turn around in solidarity. But this is a reflection of this is the EU's policy right now. The EU has banned

travelers from the U.S. or extended its ban, rather, of travelers from the U.S. for at least two more weeks on the basis of this surge in cases. And Americans aren't used to things like being turned away at borders, especially when you're wealthy. We're used to being able to exert the political and social capital of America, not to mention the political and social capital of our wallets to get what we want. And it may be that we're entering an era where those currencies like the other currencies we're discussing are just worth less than they were before. So that's sort of the anecdotal side. Now, the numbers side, I saw a really interesting tweet this morning from cross-border capital, which asked,

the bubble in U.S. safe assets may be about to pop, question mark. Liquidity appears to be shifting away from U.S. towards Asia and Eurozone, spells warning for the mighty dollar. Basically, these charts showed that the capital flows into the U.S. dollar as a percentage of global liquidity were down from a high of 1.5% of global liquidity, and, 2016 to less than 0.5% today. And what's more, Asia and Europe used to be net outflows that are now nearly flat. They're gaining versus the U.S. and seeing more inflows to match outflows as well. All of these are little pieces of evidence that help us understand the story of the changing shape of the U.S. and the world, and in particular the role of the dollar as the world's

reserve currency. I certainly don't think they tell us that things are predetermined. from where we are now or predestined, but they are interesting and show that there's more vulnerability than some people think. One quick bonus before we wrap the NASDAQ, as Trump tweeted it hit a new all-time high today. However, I think most people feel that this is a bit of mania. Dan Nathan called it exactly that on CNBC. Sven Henrik said the NASDAQ is over 20% above its 200-day moving average. That's the first time in a very long time.

time, only the 2000 tech bubble had highest readings. Moreover, Tracy Schuart, who was on the show a few weeks ago, said, the average American could care less if NASDAQ hit a new all-time high. They want to know if their job will return. Obviously, I am sympathetic to that perspective and want us to have the complete conversation where we can talk about the stock market and what's driving it while also looking at these other economic indicators. Anyways, guys, that is five themes to help tell the story of the economy right now. Let me know what you think, what I missed, and as always, I appreciate you listening. So until tomorrow, guys, be safe and take care of each other. Peace. I'm Galen Moore, senior research analyst at CoinDesk. On July 7, I'll be with Lucas Nootzee from

Coin Metrics hosting a live webinar on everything you need to know about a fundamental that's critical for understanding digital assets. Bitcoin Days Destroyed. Join us by signing up at coin desk.com slash sign up.