@KobeissiLetter: China is panicking:Today, Ch...

China is panicking:

Today, China announced that WIDESPREAD economic stimulus is coming in 2025, including raising their deficit.

Currently, parts of China's real estate sector are down -80% from their high and at 2008 levels.

Is China entering a recession?

(a thread)

To put things into perspective, China's HY real estate sector entered 2024 down -82% in just 2.5 years.

Meanwhile, one of China's largest property developers, Evergrande, filed Chapter 15 bankruptcy.

Real estate demand in China collapsed with the onset of deflation.

Currently, China is facing its longest period of DEFLATION since 1999.

Not even 2008 came with 5 straight quarters of deflation, as we are seeing now.

While everyone is fighting inflation, China is dealing with severe deflation.

This is arguably even worse than inflation.

On September 26, China began its largest stimulus since 2020:

1. Cutting reserve requirements by 0.5%
2. Cut 7-day RRP rate by 0.2%
3. Lowering mortgage rates
4. Injecting $142 billion into banks
5. Implement "forceful" rate cuts

As we said then, it was "only the beginning."

Immediately after a week of record inflows, Chinese ETFs saw record outflows.

The largest China ETF, $FXI, saw a record $984 million in withdrawals in 1 week.

$FXI saw 5 consecutive weekly outflows.

Needless to say, investor and consumer confidence was not restored.

China's central bank just resumed gold purchases.

Our premium clients got ahead of the move back to $2750, as seen below.

Most recently, when gold fell into $2,600, we called for a rebound into $2700+.

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Even as hundreds of billions of Dollars of stimulus have begun, Chinese consumer sentiment is terrible.

Over the last 3 years, consumer confidence in China is down ~ 50 points.

Such a drop in consumer assessment of the Chinese economy has almost never been seen before.

As a result, China announced the below stimulus for 2025:

1. Raising its budget deficit ratio
2. Deliver rate cuts
3. Lower reserve requirement for banks
4. Increase issuance of ultra-long treasury bonds
5. Increase issuance of local government special notes

Will this help?

As confidence is lost in other markets, US equities have become the "safe" risky option.

Our premium clients got ahead of this move as we bought the dip in $SPX at 5850.

We called for 6100+ and just got there.

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One of China's biggest issues is the rapid decline in consumer sentiment.

China home sales fell -6.9% in November, now down in 17 of the last 18 months.

Prior to the last 18 months, home sales fell in EVERY month during the 2022 bear market.

This is 2008-like behavior.

The next generation of homebuyers in China is not doing so great either.

Currently, more than 1 in 5 people aged 16-24 in China are unemployed.

Excluding students, ~19% of Chinese individuals in this age group are unemployed.

This is ~5 TIMES to overall US unemployment rate.

It's also interesting that China and other central banks have been stockpiling gold.

Central banks gold purchases are nearing 3,000 TONNES since 2022.

Are central banks bracing for a recession?

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Lastly, foreign firms are also concerned about China, pulling money out of China for the first time in 30+ years.

Investors have withdrawn$12.8 billion from China this year, the most since at least 1998.

Follow us @KobeissiLetter for real time analysis as this develops.