Hello everyone, welcome to *Financial Insights*! The Chinese stock market barely survived the week-long National Day holiday, but couldn’t hold on any longer.
Today’s focus: Stock market crash again? China’s A-shares on the ChiNext fell by the largest drop in history! Turbulent times ahead? Costco ran out of gold bars! Why was the Nobel Prize in Physics awarded to an AI expert? Why is the AI pioneer afraid of AI? The global ranking of the richest countries has been released, with Taiwan surpassing China, Japan, and South Korea!
On Wednesday (October 9th), all three major stock indices of A-shares in China fell. Among them, the ChiNext Index plummeted by over 10%, setting a record for the largest single-day drop in history.
By the end of Wednesday’s closing, the Shanghai Composite Index fell by 6.62%, the Shenzhen Component Index fell by 8.15%, and the ChiNext Index broke the record for the largest single-day drop of 8.91% during the stock market crash in 2015, plummeting by 10.59% to set a new record.
According to media statistics, only 294 stocks in the Shanghai and Shenzhen stock markets, as well as the STAR Market, saw gains, while 5039 stocks saw declines, with 3162 stocks falling by over 9%.
In the latest round of crazy scams by the Chinese Communist Party, a large number of young people in mainland China have become victims. Most of them are born after 1990 or 2000 and have never experienced the horrors of previous stock market crashes, let alone understand the fearsomeness of the Communist Party. Many rushed into the stock market with their parents’ retirement funds, money saved for marriage, or even funds for starting a business. It is heartbreaking to think about how many people will face financial ruin, lose everything, and even resort to drastic measures. It’s really just a sigh!
Facing a stock market that has not been prosperous for a long time and has had several serious negative records, suddenly experiencing a crazy surge like this, one must be cautious, as it exploits the greed in human nature. Many people may think they can make a quick profit and leave. But do not underestimate the greed in your nature, it will make you keep holding on, thinking of adding more positions, thinking, “It’s fine, let me wait for another rise and then exit!” And so, you may welcome a disastrous stock market crash that makes you deeply regret.
Although the Chinese stock market is in chaos, other countries have not been affected. The S&P 500 index rose by 0.1% in early trading on that day, nearing the historic highs set last week. The Dow Jones Industrial Average rose by 155 points, a 0.4% increase; The Nasdaq Composite Index fell slightly by 0.2%. Indices in other regions of the world also performed relatively stably, with Japan and Germany rising by 0.9% and 0.2%, respectively.
In the oil market, oil prices further declined. The international benchmark Brent crude oil price briefly surpassed $81 per barrel earlier this week but then dropped by 2.1% to $75.55. The U.S. benchmark crude oil price dropped by 1.8% to $72.23 per barrel.
In the bond market, the 10-year bond yield rose from 4.01% on Tuesday night to 4.04%. The two-year bond yield slightly increased from 3.96% to 3.98%. The changes in yields are closely related to the actions of the Federal Reserve’s interest rate cuts.
The European Union approved a decision last week to impose a 45% tariff on electric vehicles imported from China. In response, the Chinese Communist Party protested and announced retaliatory measures, which came quickly. China’s Ministry of Commerce announced on Tuesday that temporary tariffs ranging from 30.6% to 39.0% will be imposed on brandy imported from the EU, effective this Friday.
Perhaps it seems insufficient to only increase the tariff on brandy, so the Ministry of Commerce also mentioned the possibility of increasing tariffs on high-displacement fuel vehicles imported from the EU. Just wait, we’ll study it thoroughly before making further decisions.
To be honest, how much do Chinese people love brandy? It is more of a pursuit of a luxurious lifestyle by urban middle-class or financially capable individuals. Although there are few who truly enjoy drinking, the vastness of the Chinese market cannot be ignored.
After news of the increased tariff on brandy emerged, the stock prices of many European distilleries were indeed affected. The stock price of Remy Cointreau, the producer of Remy Martin Cognac, dropped by 9%, and the stock price of Pernod Ricard, which owns the Martell brand, fell by over 4%. The stock price of LVMH, the parent company of Hennessy Cognac, dropped nearly 7%. In addition, other large liquor companies also saw varying degrees of decline in their stock prices.
Spirits Europe, the European spirits industry association, stated that China is a major export market for European spirits. The association has called on the European Commission, the EU’s executive body, to negotiate with the Chinese side and find a solution.
Foxconn recently announced a major move: they will build the world’s largest production base for NVIDIA’s “super chips” in Mexico.
Reportedly, the NVIDIA GB200 graphics chip is currently the most powerful computer chip for graphics applications, crucial for advancements in artificial intelligence, especially in image generation.
Last year, Foxconn announced plans to collaborate with NVIDIA to create an “Artificial Intelligence Factory”, and setting up a plant in Mexico is part of this initiative.
Forbes recently published the 2024 “Richest Countries” rankings, with five out of the top 10 countries in Europe, four in Asia, and one in the United States. Notably, Taiwan ranked 14th, surpassing Hong Kong, Japan, and South Korea, leaving mainland China far behind.
Forbes calculated the rankings based on each country’s GDP per capita estimated by the International Monetary Fund (IMF), adjusted for each country’s price levels.
The richest country in the world is Luxembourg, a small European country, with a GDP per capita of $143,740. The United States ranks ninth, with a GDP per capita of $85,370. Taiwan ranks 14th with a GDP per capita of $76,860.
A three-dimensional version of the famous painting “Along the River During the Qingming Festival”, made of LEGO blocks and measuring 26 meters in length and 1.78 meters in width, recently broke the Guinness World Record.
On September 23, “Bank of China Hong Kong” gathered thousands of young LEGO enthusiasts in “Sha Tin New Town Plaza” to complete this feat using nearly 3 million LEGO blocks. This impressive artwork titled “Along the River During the Qingming Festival” will be on public display at Sha Tin New Town Plaza from September 25 to October 31.
There’s a Chinese saying, “Antiques in prosperous times, gold in troubled times.” When society is stable, businesses thrive, and people live affluently, investments in antiques increase; however, when there’s social unrest, conflicts, and economic downturns, people store gold to hedge risks and preserve their wealth. Looking at the world today with conflicts like the Russo-Ukrainian War, Middle East crisis, and tensions in the Taiwan Strait, it fits the definition of “troubled times”, which is also reflected in the gold market.
In 2024, the international gold market has been on a historic path of rapid acceleration, continuously breaking through the price levels of $2100, $2200, $2300, $2400, and $2500 per ounce, and recently even approaching a new record of $2700. Since the beginning of the year, the price of gold has risen by nearly 30%, surpassing the milestone of a total gold value exceeding $20 trillion worldwide.
So, is buying gold for hedging really reliable? Let’s take a look at historical data to understand better.
Over the past 50 years, in seven out of ten major economic and stock market turmoil in the United States, the price of gold has increased inversely to stock market crashes, with only three instances where it declined simultaneously, but at a much lower rate than the stock market crash. The most severe stock market decline in the U.S. was during the financial storm from October 2007 to March 2009 when the S&P 500 plummeted by 57%, while the price of gold rose by 28%, showcasing the significant potential of gold as a hedge against stock market risks.
This is why today, from individual consumers to central banks, everyone is increasing their gold purchases continuously. In just the first half of this year, central banks globally reached record-high gold purchases, with China and India being the biggest buyers. Goldman Sachs analysts predict that gold prices will continue to surge towards the $3000 mark by 2025.
Regarding personal consumption, this year’s popular *Costco gold bars* are worth mentioning.
Costco, or “Opening Satisfactory” in Mainland China, has indeed shown excellent foresight. In October 2023, this American retail giant targeted the bullish market for gold and decisively introduced one-ounce gold bars. They sold rapidly, with monthly sales continually rising, and many Costco stores kept running out of gold bars, often facing shortages.
A recent survey from Bloomberg of 46 Costco stores across the U.S. found that although gold bar inventories were restocked in recent weeks, a whopping 77% of Costco stores sold out of gold bars within the first week of the launch, some even selling out within hours.
Why are people particularly drawn to Costco gold bars? The reason is simple: Any member purchasing gold bars using a Costco Citi card can receive a 2% rebate, with premium members enjoying an additional 2% benefit, making Costco’s gold bars cheaper compared to other retail gold sellers.
Facing the situation of high demand and low supply, Costco came up with a new idea. Just a few days ago, they launched one-ounce platinum bars with 99.95% purity, priced at $1090 on their website, hoping to replicate the immense success of gold bars.
Since the beginning of this year, international platinum prices have risen by 15%, slightly less hyped than gold, but as another valuable metal with hedging capabilities, platinum bars are becoming another choice for investment and risk mitigation.
With global gold prices soaring, the mining of small-scale illegal gold mines in Africa has seen a significant increase in activity. Following the camera to Ghana in Africa, witness how challenging the gold mining process is there.
These seemingly rough and muddy mines have become part of the thriving industry in Ghana, providing substantial informal income for this impoverished country’s economy.
Since the beginning of this year, the global rise in gold prices has led to a surge in illegal gold mining in Ghana, attracting more impoverished individuals to join this activity.
Anonymous miner: “Before coming here, I had nothing; so I told myself that I must come here to earn some money. I earned about 60,000 Cedis when I started mining, and then I brought my children here, started (illegally) hand mining.”
Martin Ayisi, CEO of the Minerals Commission in Ghana: “The root cause of illegal mining is that people need jobs; that’s the main reason.”
About 40% of Ghana’s gold production comes from small mines. According to data from Ghana’s mining regulatory agency, in the first seven months of this year, small mines produced a total of 1.2 million ounces of gold, surpassing the production of the entire year in 2023. Within these small mines, 70% to 80% operate without government-issued mining licenses.
Chris Aston, project manager of UK-based Ghana Gold Plan: “Perhaps 70% to 80% of gold miners do not have licenses, making it a very informal industry that is easily infiltrated by organized crime groups.”
The process of illegal mining and smelting may seem quite rough, but driven by immense profits, people are willing to endure significant health risks, mining and refining gold without any professional protective equipment, inhaling dust containing lead and other heavy metals and toxic fumes from refining gold using mercury and nitric acid. These early deaths from lung diseases primarily result from inhaling toxic fumes and dust with heavy metals like lead during gold extraction.
Those who mine illegally and villagers neighboring these mining areas are under significant health risks. Local medical reports show an increasing number of premature deaths due to lung diseases caused by inhaling dust containing lead and heavy metals and toxic smoke produced during the extraction of gold. These deaths do not even include miners who perished in mining collapses.
After refining gold, the excess chemicals go unused and are carelessly poured into the soil and rivers, continuously polluting water sources. Roughly 65% of Ghana’s water sources have been contaminated by mercury and heavy metals from mining. Thousands of hectares of cocoa plantations and virgin forests have been damaged by illegal miners. Despite successive Ghanaian governments’ promises to address these issues, no significant progress has been made.
When these hefty gold bars are smuggled across the world through illegal channels, people likely overlook the grim reality behind these sparkling treasures.
It’s not just gold that has seen a steady rise this year; cocoa prices, which set nearly a 50-year record high last spring, have also had a significant impact on chocolate production and prices. While cocoa prices have slightly dropped in the second half of the year, they are still at historic highs. By the end of September, cocoa prices had risen over 80% compared to the same period last year. This has directly affected the upcoming Halloween season.
Children looking forward to going trick-or-treating for chocolates this Halloween may be disappointed, as they might end up with gummy bears instead.
According to market research firm Citracana, U.S. candy companies are reducing the supply of chocolates for Halloween and are offering more affordable gummy candies and licorice instead. This shift is due to the soaring cocoa prices, driving up chocolate prices by nearly 8% compared to the same period last year.
To cater to consumer purchasing power, renowned chocolate manufacturer *Hershey* timely introduced a new line of gummy candy brands before Halloween. They made adjustments to their iconic chocolate brands, like Reese’s launching “Werewolf Tracks” candies designed specifically for Halloween with vanilla cream replacing the previous milk chocolates. “*KitKat*” introduced the new product “*Ghost Toast*” with cinnamon toast-flavored cream in place of the milk chocolate coating on the wafers.
However, the strategy of using gummy candies and chocolate alternatives to support Halloween might be just a temporary measure that might not last long. Because, according to Citracana’s analysis, the prices of non-chocolate candies and snacks have also been dramatically increasing.
The other day, Geoffrey Hinton, the “AI Grandfather” at 77, stayed at a hotel in California, and at 2 a.m., he received a phone call claiming to be from the “Nobel Prize Committee of the Royal Swedish Academy”; the hotel’s weak internet signal made the call unclear. Geoffrey’s first thought was, “This must be a scam!” Just as he was about to hang up, he hesitated and listened to the caller for a while longer: Well, the person did indeed speak with a strong Swedish accent, the call was made from Sweden, and it sounded like several people were on the phone. Only then was he sure he had won this year’s Nobel Prize in Physics.
Sure enough, on October 8, 2024, the Nobel Prize in Physics was officially awarded to Geoffrey Hinton and another scholar, John J. Hopfield, to honor their foundational discoveries in machine learning and artificial neural networks. The 91-year-old Hopfield was also “a little shocked” upon receiving the news.
After this news, a question arose: Why was this year’s Nobel Prize in Physics awarded to scientists in the field of computers and AI?
Artificial neural networks, as the name suggests, are imitation of the brain’s workings. Scientists imagine that the neurons in the brain can be recreated through computational nodes, transmitting information through connections similar to neural synapses. This network, when trained, can reinforce certain connections to give the system learning and memory capabilities when handling complex data, laying the foundation for modern artificial intelligence.
In the 1980s, Hopfield, originally a physicist, began incorporating concepts from physics into the field of artificial neural networks.
Subsequently, Geoffrey Hinton took artificial neural networks to a new level. Hinton employed tools from statistical physics, especially a statistical model by 19th-century physicist Ludwig Boltzmann, to develop the “Boltzmann Machine,” which could learn to identify elemental features in a certain type of data.
In the 21st century, Hinton and his colleagues further optimized and trained the network to identify image elements more effectively.
The Nobel Prize Committee pointed out: Their work has brought significant benefits. In physics, we use artificial neural networks extensively in various fields. In recent years, this technology has also been used to calculate and predict the properties of molecules and materials. In essence, their groundbreaking research has made a remarkable impact on the field of physics!
However, global netizens were constantly debating whether the contributions of the laureates truly belonged in the field of physics.
As skeptical voices increased, the Nobel Prize Committee had to launch a poll: Do you know that machine learning models are based on physics equations?
An intriguing aspect is that despite being regarded as the AI Grandfather, Geoffrey Hinton explicitly expressed his fear of artificial intelligence.
In March of last year, after OpenAI released GPT-4, there was an interview with Hinton. He said, “It made him realize that machines were evolving in ways that were much smarter than he had imagined, and he was scared by this.”
He said, “These things are completely different from us. Sometimes I feel like aliens have landed, but people don’t realize it because they speak English so well.”
Hinton fears that these AIs will find ways to manipulate or kill those unprepared for the new technology.
He said, “I suddenly changed my perspective on whether these things would be smarter than us. I think they are now very close, and in the future, they will be even smarter. So, how do we survive in this scenario?”
He is more concerned that people will exploit these self-aware tools created by humans, capable of making their own decisions and goals, to influence vital matters like elections and wars for self-interest.
Hinton believes that the next step for intelligent machines is to create their own sub-goals and keep iterating to achieve longer-term goals. However, when this ability is applied to unethical actions, what will happen?
He’s even more concerned that people will use these advanced tools, which have acquired self-awareness or life-like capabilities, and lack fundamental moral judgment or the universal ethical values that humans have followed for centuries. Such uncontrolled aspects of human nature seem minuscule against a being that has countless times more power. Can you not be fearful when facing such a scenario?
Reportedly, when Hinton bid farewell to the reporter that day, he said, “Enjoy yourself, as you may not have much time left.”
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