Hello, welcome to “Financial Insights.” Let’s first focus on the abnormal frenzy in the mainland stock market last week. To rescue the ailing economy, the Chinese Communist Party (CCP) pulled out a big move last week.
Today’s Focus: The People’s Bank of China’s fierce intervention caused a frenzied surge in the Chinese stock market! Taking advantage of the market surge, more than a hundred listed companies saw their shareholders cash out! The first-generation internet celebrity Zhang Dayi closed her online store after a decade! Intel’s three giants: a discordant management team built the most successful enterprise! The turnover rate of houses hits a new low again, the road to real estate recovery is long!
Last Tuesday, the People’s Bank of China held a landmark press conference. Unlike usual 10 AM meetings, this time it was moved up to 9 AM. Why? To act before the mainland stock market opened.
People’s Bank Governor Pan Gongsheng sat at the chairman’s table and, after a sip of tea, unleashed the biggest move of the year.
First, they lowered interest rates to urge banks to release more cash, making it easier for individuals to invest with loans.
Then they lowered the reserve requirement ratio, reduced interbank reserve rates, and lowered deposit interest rates.
Next, they lowered the down payment for a second house to 15%, further enticing people to buy houses, with a 0.5% reduction in mortgage rates.
Most critically, they broke an unwritten rule: the central bank directly injected blood into the stock market, injecting liquidity into the market.
In simple terms, they directly printed money into the market. How much money? The first wave was 500 billion. Governor Pan said, if 500 billion isn’t enough, they can add another several 500 billion waves!
And that’s not all. Governor Pan introduced two new measures to boost the market frenzy: “Fund Insurance Exchange Convenience” and “Stock Buyback Increase Special Bonds.” In layman’s terms:
First, allowing funds and insurance companies to use stocks or bonds as collateral to borrow money from the central bank, stimulating holders to buy stocks.
Second, allowing listed companies to use stocks as collateral to borrow from the central bank, encouraging them to repurchase company stocks.
When this fierce intervention was introduced, A-shares skyrocketed, with trading volumes in Shanghai and Shenzhen exceeding 800 billion that day, and a direct jump to 1.2 trillion the next day, bringing the Shanghai Composite Index back to 3,000 points! Everyone couldn’t sit still, it was a nationwide celebration, a joyous moment! But experience tells us that sudden good things often hide huge conspiracies behind them.
Moreover, the rapid rise of the mainland stock market is precisely the problem. On one hand, it indicates clear artificial intervention, aiming to quickly achieve CCP’s top-level goals, settling matters as soon as possible.
On the other hand, institutions controlled by the all-seeing CCP elite must have received prior information, profiting from the situation with leveraged funds, swiftly making gains while also boosting fund net worth. Thus, on the day that trading volume exceeded 1 trillion, they built up short-term positions while raising prices. They lack confidence in listed companies and need to use policy opportunities to quickly raise prices and then sell, the faster, the better, resulting in this huge trading volume.
For most stock investors, playing A-shares is like gambling. Think about it, China’s stock market rules are set by the CCP, the market trends are controlled by the CCP, and stockholders are supervised, exploiting the weaknesses of human nature to harvest their hard-earned money.
China’s A-shares are completely different from world stock markets; it’s more of a government-controlled market, so when there’s a large amount of favorable policies and even more liquidity flooding in, of course, there will be a reaction; it’s a market with excessive human control.
These past few days of market rebound mainly stem from policy intervention, as a series of major moves by the central bank have boosted market confidence in the short term, but this certainly does not indicate an improvement in the economy.
Economically, there is a law of diminishing marginal returns. Take eating bread as an example: when you eat the first piece, your return is the greatest, providing you with the most enjoyment. The second slice’s benefit is less, not as satisfying as the first, diminishing further as you eat more. By the time you reach the tenth slice, not only do you get no more benefit, but it’s harmful to your health. This is the law of diminishing returns.
Applied to China’s current economic situation, the CCP’s policy interventions operate on a similar principle. Once such actions were announced, it was like a starving person seeing a loaf of bread, but after that first wave, each subsequent move yields diminishing returns, falling into a state where the nation starves itself further.
The most critical issue is that China currently faces too many fundamental problems that have not been solved. Pushing the market through excessive stimuli on the consumption side or surface policies will only bring greater backlash. It’s like putting makeup on a terminally ill patient, dressing them up nicely, injecting a powerful stimulant, at most making them look good for a few extra days, but ultimately facing a more miserable death. That’s the predicament the CCP finds itself in.
Looking at the recent frenzy in the mainland stock market, many companies’ major shareholders and executives took advantage of the opportunity to reduce their holdings and cash out. This phenomenon once again reveals the true state of the Chinese economy.
According to the Chinese financial technology information platform, “Titan Media,” as of September 29th, more than 50 listed companies have announced reduction plans involving controlling shareholders, actual controllers, major shareholders, and company executives, with some major shareholders completing their reduction plans quickly amid the surge in stock prices.
Additionally, financial practitioners and self-media figure “Peng Brother Research” revealed on September 25 that in just two days, 50 companies joined the ranks of reducing holdings, with some companies even violating their commitment not to reduce holdings, quickly selling off stocks.
People seek to maximize profits and minimize losses. With a surge in stock market newcomers, a significant influx of new funds, and those previously stuck seizing the opportunity to cash out, new entrants may once again be trapped, turning the Chinese stock market into a death vortex, where pouring in more funds won’t help, rendering it lifeless.
Reducing holdings for cashing out is a normal practice, and all regular investors in a healthy stock market would do so. However, the Chinese A-share market surged for just four days, yet many companies quickly engaged in cashing out operations, raising suspicions that these companies had been waiting for this opportunity for a while, with shareholders and executives rushing to reduce holdings to maximize their interests. Many of these individuals have close ties to the CCP’s top echelons, with many serving as proxies for CCP elites. Ultimately, it’s the common people who will bear the consequences.
Moving on to a piece of news about OpenAI, a rising star in artificial intelligence, the company faces internal and external challenges. As it undergoes a major transformation, several top executives, including the Chief Technology Officer, have resigned. Furthermore, OpenAI’s latest and estimated $150 billion massive fundraising unexpectedly took a turn, with Apple announcing its withdrawal from the latest round of funding negotiations.
According to The Wall Street Journal’s report last Friday, Apple has exited the latest round of fundraising negotiations for OpenAI, with the fundraising scale estimated at $6.5 billion. Analysts speculate several reasons for Apple’s exit:
Firstly, OpenAI recently indicated it’s transitioning from a non-profit organization to a for-profit company, no longer reporting to the board. This involves corporate restructuring, changing the company’s future business goals and structure, putting pressure on new potential backers.
Secondly, OpenAI CEO Sam Altman’s strong push for commercialization sparked discontent among senior team members, with complaints that the company prioritized profit over its founding principles. Demonstrating this discontent, the Chief Technology Officer Mira Murati recently resigned, and the Chief Development Officer Bob McGrew and vice president Barret Zoph also chose to leave. This exodus of the founding team has cast a shadow on the company’s future prospects.
Lastly, OpenAI’s revenue generation ability falls behind its spending pace. A financial document revealed OpenAI’s revenues this year to be around $3.7 billion, but it has spent nearly $8 billion. Consequently, OpenAI faces an approximate $5 billion deficit this year, causing investors to hesitate.
Shifting to an update on Intel, it was reported by The Wall Street Journal that chip giant Qualcomm is in talks with Intel on a potential acquisition, aiming for a merger that could be among the largest in the technology industry’s history.
Morgan Stanley analysts believe that if the deal is finalized, Qualcomm will become a dominant player in the personal computer, automotive chip, and data center sectors. However, this acquisition could impact the Asian chip technology industry, particularly affecting TSMC and Samsung.
As a powerhouse in the high-tech chip industry, Qualcomm has traditionally outsourced chip manufacturing to foundries. Herein lies the dilemma: setting up and operating a leading foundry comes with significant costs. Thus, Qualcomm primarily relies on TSMC and Samsung for foundry services. However, Intel has its foundries.
In the event of a merger, Intel’s foundries will become Qualcomm’s industrial assets, potentially diverting orders from Qualcomm to TSMC and impacting Qualcomm’s ties with Samsung.
For Samsung, a Qualcomm acquisition of Intel poses a significant risk. Morgan Stanley suggests that as a major customer of Samsung’s latest processing technology, if Qualcomm begins to allocate chip orders to Intel and TSMC, this could present a serious challenge to Samsung.
Ending with a commercial story, let’s dive deeper into Intel’s narrative. The company’s most crucial trio consists of Gordon Moore, Bob Noyce, and Andy Grove. While Moore and Noyce have been previously mentioned, who is Andy Grove? Officially, he isn’t one of Intel’s founders but the fourth employee. He deeply revered Moore, trailing him closely. Interestingly, in many discussions about Intel, Grove tends to come to mind first, earning the title of “Silicon Valley’s greatest manager.” Why so?
In Intel’s core triumvirate, Noyce managed external matters, Moore engaged in strategic thinking, and Grove spearheaded action. After Intel’s resounding success, other companies began structuring their core teams accordingly. Intel essentially defined a prime operational mode for corporate core teams, and later entities have been heavily influenced by this approach.
Notably, Intel may have been historically the most successful tech company established by a team whose relationships weren’t exactly harmonious. While many credit Moore, Noyce, and Grove for clearly defined roles and seamless collaboration, in reality, their relationship was far from ideal.
Moore and Noyce shared a close bond, fighting shoulder-to-shoulder since Fairchild Semiconductor. Despite Moore adopting a hermit-like persona, opting out of specific company affairs early on and leaving promptly at closing time, Grove greatly respected him. In contrast, Grove didn’t really value Noyce, perceiving him as indecisive and lacking leadership.
One might ask, given their strained relations, how did they manage to keep working together? Two reasons stand out. Firstly, due to their personalities: confident and charismatic, Noyce brought the gentle Moore onto the treacherous startup journey, with Moore serving as a lubricant between the intense Grove and Noyce. Grove, in turn, took the helm of Intel for a long period, serving as the actual key figure.
This diverse trio was highly complemented; each played a crucial role in Intel’s success. Moore, a recluse-like sage, provided strategic thinking. Noyce, the charming face of the company, held an unwavering tech-product passion, while Grove was the decisive, assertive doer administering operations. Together, their unique qualities drove Intel’s success.
Fast forward half a century, Intel is now facing acquisition. Interestingly, 14 years back, in 2010, a struggling Nokia briefly collaborated with Intel. Yet, despite a futile struggle, the world knows Nokia’s fate.
In 2014, Microsoft announced its acquisition of Nokia. At the time, Nokia CEO Jorma Ollila made a poignant comment: “We did nothing wrong, but somehow, we lost.” Amid tears from dozens of high-ranking executives, the harsh reality set in.
Years later, Intel, like Nokia, may have missed a golden opportunity to enter the era of mobile internet, refusing to manufacture Apple’s iPhone. Subsequently, one misstep led to another. The truth remains that a series of industry giants may suffer the same fate, succumbing to history’s inevitable and lamentable flow.
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