China's Wallet Woes

In this issue of the Peel:

• Student debt repayments are officially resuming in 2023, with interest accruing for 44 million borrowers starting September 1st. Be aware of changes in loan servicers and reset your direct debits.
• Hawaiian Electric stock soared on pushback against a lawsuit, while Novocure plummeted after a failed Phase 3 test for their ovarian cancer therapy.
• China shows early signs of a deflationary spiral, impacting consumer confidence and potentially affecting the global economy.

Market Snapshot

Happy Tuesday, apes.

Anybody here? Volume was so light across US markets yesterday that I thought you guys mistook this Monday for Labor Day. Don’t worry; you still get to look forward to your long weekend.

But for now, we can just look fondly back on the day’s return for our equity portfolios. US stocks largely gave JPow’s hawkish tone on Friday another middle finger as equities broadly gained with large cap names leading the way. Breadth came up big on the day, too, with 419 S&P 500 stocks gaining, led by communication and tech names.

Bonds had a bit of a more confusing day to say the least. While the 2-year note rose ever so slightly, the 10-year moved opposite, suggesting the lightest possible rotation into longer-dated assets could be at play.

Let’s get into it.

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Macro Monkey Says

Students of Debt

I hate to be that guy, but hey, don’t shoot the messenger.

Much like Suits, low-rise jeans, and oversized clothing of any kind, student debt repayments are too officially BACK in 2023. Again, hate to ruin your Tuesday already, but don’t hate the player; hate whoever gave 18-year-old you that $100k loan.

"... the Donnie T administration instituted a temporary pause in student loan repayments ..."

On March 13th, 2020, the Donnie T administration instituted a temporary pause in student loan repayments, allowing borrowers to forgo payments as C-19 arrived and seemed ready to kill us all.

From then:

• The original end date for the pause of September 30th, 2020 was extended to December 31st, 2020
• Then, once again, Donnie T and his admin pushed back the dreaded date to January 31st, 2021
• By then, a whole new President had taken office. The Joey B admin extended the pause window 6 times between January 2021 and January 2022, then…
• About this time last year, Biden and his admin sought to invoke executive authority to forgive various amounts from individual borrowers relaying on the HEROES Act, ranging from $10k - $50k each (if you made <$125k/yr)
• SCOTUS did not like this, striking down that action in June, and now it’s back to the drawing board for Team Joey B as Congress outlawed any further pause extensions, and, well, time has passed.

Now, on Friday, September 1st, 2023 (yes, this Friday), interest will begin accruing once again for the 44mn student loan borrowers that collectively owe $1.6tn from sea to shining sea.

Actual payments won’t be due until October, and the exact date will vary, but according to the Department of Education, if you don’t receive some kind of communication updating your due date at least 3 weeks in advance of that date, contact your loan servicer ASAP.

Oh yeah, does anybody use Navient as their servicer, btw? Because they’re no longer in the game, dumping all their servicing contracts to Aidvantage. Does anybody have a direct debit set up before the pandemic? Go reset it - they’ve all been canceled since then.

There’s a lot to be aware of, but with 44mn borrowers and an average balance of $38k, paying attention and being communicative with your servicer will be key.

That might sound like a lot, but keep in mind that 54% of borrowers owe less than $20k, while only ~10% owe a technical “sh*t ton,” defined as $80k or more.

"That might sound like a lot, but keep in mind that 54% of borrowers owe less than $20k, while only ~10% owe a technical “sh*t ton,” defined as $80k or more."

As if consumers weren’t already showing weakness, as indicated by all of last week’s abysmal earnings retail reports, the lack of demand for housing, and more, adding another bill to their plates sure won’t help.

But at the same time, this could be viewed as just another, much more direct, lever of monetary policy tightening (also BACK in 2023). JPow is probably hyped that you’re gonna save even less money than before as the numbers on his inflation chart could be influenced down even further.

It’s basically the opposite of economic stimulus. Instead of giving you free money or lowering barriers to access money, this is the government essentially adding another tax to 44mn fellow Americans. But hey, if you have a degree now, it seems like your “taxation” had plenty of representation. Hope it helps you pay that sh*t off.

Good luck, apes.

What's Ripe

Hawaiian Electric (HE) ↑ 44.62% ↑

• The saga continues as Hawaiian Electric shares rip back to life thanks to the company’s decision to call BS on Maui County’s lawsuit.
• In case you just moved out of the rock you’ve been living under, recall that Hawaiian Electric is actively being sued by the county for (allegedly) starting / not stopping the wildfires that recently ripped apart the island and claimed the lives of hundreds.
• Now, the company is calling cap and clapping back. According to Hawaiian Electric, the one fire that’s been traced to power lines was actually extinguished by a local fire department. Aside from this fire, the company claims all of its power lines in the affected area were de-energized over 6 hours prior to ignition.
• He said this, she said that, and it seems that no one really knows right now. Clearly, Wall Street thinks there’s a decent shot the company isn’t liable for all that despair, disaster, and the deaths that have been caused. We’ll see.

Jabil (JBL) ↑ 8.84% ↑

• It’s not often that boring manufacturing companies like Jabil jump nearly 9% in a single day, but I’m sure shareholders aren’t too mad.
• And they can thank Chinese EV maker and (former) darling of the Buffett portfolio, BYD, for that. The overseas Tesla has agreed to purchase Jabil’s mobility division for $2.2bn, roughly 15% of the firm’s market cap at yesterday’s close.
• Getting real creative with it, Jabil plans to use the funds to juice returns (obviously) through things like share buybacks and improved capital management.

What's Rotten

Novocure (NVCR) ↓ 37.50% ↓

• As an unprofitable biotech name, you live by the Phase 3 test, and, as Novocure learned on Monday, you die by the test, too.
• Which, unfortunately for shareholders, happened to be exactly what happened to kickstart the week. Novocure’s ovarian cancer therapy “didn’t meet the primary endpoint of overall survival.”
• Instead of dropping out to go get a biotech degree real quick so you actually understand this, let’s just say a hyped-up product line for the company won’t actually be coming online anytime soon.
• Biotech names like this are just about as close as you can get to buying a lottery ticket. Next time, maybe just run down to the convenience store and try your luck there.

CrowdStrike (CRWD) ↓ 3.71% ↓

• One of Wall Street’s favorite tickers, this cloud-based cybersecurity name humbled analysts far and wide yesterday as shares tumbled thanks to one analyst breaking rank leading into earnings.
• The report will drop on Wednesday, but Morgan Stanley wasn’t waiting to downgrade this thing from Overweight to Equal Weight. Of the 45 Street issued ratings, that makes 7 for Hold / Equal Weight, 4 for Overweight, and all the rest with a firm Buy slapped on.
• From Morgan Stanley, the fear is primarily born out of a continued slowdown in cybersecurity spending. There’s been heavy debate over how cyclical vs. defensive cyber spending is, and idk about you, but keeping data secure seems at least mildly important.

Thought Banana

China Check-In

The Great American poet, philosopher, and one-time crack dealer, The Notorious BIG, once famously stated, “mo’ money, mo’ problems.” Well, my $126.17 checking account balance and I couldn’t agree more (obviously).

Hopping over to the other side of the world, “mo’ money, mo’ problems” is playing out in real life. All year, we’ve been watching a gradual yet deep slowdown across the world’s second-largest economy, and now, recent data suggests the biggest fear—a deflationary spiral—could be forming.

It’s early, but it sure does not look good. From China’s decision to stop publishing youth unemployment figures right as they reached an all-time high to the lack of stimulative action taken to support a fledgling and expansive real estate market, consumer confidence is even lower than my checking account balance (probably).

"... consumer confidence is even lower than my checking account balance (probably)."

Just take a look. According to analysis from various banks and others compiled by the FT:

See what we mean? Chinese consumers are showing early signs of delays in spending on big-ticket items, the first sign of a deflationary spiral. It's indicative of a weakened economy where large savings become more valuable than familial love.

It’s also a sign confidence has gotten so low that consumers simply just expect things to be cheaper next month. It’s that kind of thinking that leads to price cuts, leading to delays in purchases, extending price cuts, and I think you get it by now.

"These line items suggest increases in the degree of slowdown for things like real estate and shelter costs ..."

Delays in car purchases, household appliances, and building/decoration materials are all arguably the most concerning. These line items suggest increases in the degree of slowdown for things like real estate and shelter costs, household formation, and, most worrying, big-ticket items.

But this isn’t a China-only problem. As the world’s second-largest economy, intra-economic forces necessarily spill over into the macro environment. Smaller economies, especially with a trade or infrastructure reliance on China, could be set to hurt the worst.

The big question: How and when will China’s economy recover from this slowdown? To what degree will this impact the rest of the world? Are we really about to witness a deflationary spiral in the world’s second-largest economy?

Banana Brain Teaser

Yesterday — On a clock, the big and small hands are exactly between 1 and 2. Both hands lie on top of each other. What time is it?

Answer: 12:00. The hands lie exactly between the 1 and 2 in the number “12”.

Today — What does this mean?

cHIMp

Shoot us your guesses at vyomesh@wallstreetoasis.com.

Wise Investor Says

“An investment in knowledge pays the best interest.” — Benjamin Franklin

How would you rate today’s Peel?

All the bananas

Decent

Rotten AF

Happy Investing,

Patrick & The Daily Peel Team