🤒 If China Sneezes, Does Wall Street Catch Cold?

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What’s on the Menu 🍴

From China’s struggling economy impacting Wall Street to Paypal’s new stablecoin…

Things are changing FAST - and we’re here to help you stay up to speed with everything you need to know to grow your dough!

Here’s what we’ve got for you today:

• Unpacking Risks & Rewards of PayPal's Stablecoin 💵

• China Sneezes, Does Wall Street Catch Cold? 🤒

• A Sudden & Mysterious Resignation at Tesla 🔎

• Market Is Punishing “Good” Earnings 🤕

Today’s newsletter is a 4 minute read.

Unpacking Risks & Rewards of PayPal's Stablecoin 💵

The crypto kitchen's buzzing, and guess who's donning the chef's hat?

PayPal.

They've whipped up their own stablecoin, PYUSD.

Let's knead through the dough and see if it rises to the occasion.

The Recipe: PayPal's PYUSD is the new kid on the block(chain), pegged to the U.S. dollar and baked on the Ethereum platform.

The Promise:

1. Transparency Commitment: PayPal has committed to providing monthly reports that detail the actual U.S. dollar reserves backing PYUSD, ensuring users can verify its stability.

2. Regulatory Oversight: Paxos, the company responsible for PYUSD, operates under the regulatory supervision of the New York Department of Financial Services.

3. Interoperability: Built on the Ethereum blockchain, PYUSD is designed to be compatible with various apps and platforms, allowing for broader use and integration in the digital financial ecosystem.

Too Much Control?:

Some tweets have been making rounds, hinting that PYUSD's code and terms of service might let PayPal freeze or even zap a user's balance. That's not the kind of control crypto enthusiasts signed up for.

The Dough's Verdict

PYUSD, while presented as a novel addition to the crypto space, isn't entirely groundbreaking.

Its introduction could potentially onboard more users to the digital currency realm, given PayPal's vast user base.

But there's a lingering skepticism…

PYUSD, in many ways, mirrors a Central Bank Digital Currency (CBDC) but is operated by a private entity.

Investors should approach with caution, weighing the potential benefits against the implications of a privately-run digital representation of a national currency.

China Sneezes, Does Wall Street Catch Cold? 🤒

Ever heard the saying, "When China sneezes, the world catches a cold"?

Well, grab your tissues, because China's economy is showing signs of the sniffles, and it might give investors a chill.

In the latest twist, China's trade took a nosedive in July.

Exports plummeted by a whopping 14.5% year-on-year, the steepest drop since the dark days of February 2020.

Imports weren't faring much better, contracting by 12.4%. These numbers weren't just a surprise; they were a cold shower for economists who had rosier forecasts.

Now, why should we care about China's trade blues?

Here's the dough-down:

1. Supply Chain Ripples: China's a global manufacturing hub. When its exports drop, it can cause hiccups in supply chains worldwide.

2. Consumer Impact: With imports to China dwindling, global brands might see a hit in their revenues.

3. Stock Market Jitters: Chinese stocks listed in Hong Kong took a hit, and the ripple effects could reach U.S. shores.

4. Currency Conundrums: China's central bank hinted at a softer stance on the yuan. A weaker yuan might boost China's exports, but it could also lead to competitive devaluations and currency wars.

But it's not all doom and gloom.

Beijing's rolling up its sleeves, introducing measures to stimulate growth. They're looking to boost everything from housing to electric cars.

So, while the dragon might be puffing less fire now, it's far from extinguished.

In the grand tapestry of global finance, China's a big, bold thread. When it wavers, the whole design can shift.

So, U.S. investors, keep those binoculars on the East. The winds there often bring change to our shores.

A Sudden & Mysterious Resignation at Tesla 🔎

In a surprise move last Friday, Zach Kirkhorn resigned from his position as Chief Financial Officer (CFO) of electric vehicle manufacturer Tesla.

Kirkhorn had been CFO (and “Master of Coin”) since 2019, collecting hundreds of millions worth of Tesla stock along the way.

However, Kirkhorn’s resignation was sudden and unexpected, with no reason given for his departure.

His replacement is an existing Tesla exec, Vaibhav Taneja, who was immediately appointed to the CFO position as of Friday.

There does not appear to be an executive search process or transition period at Tesla, though Kirkhorn will serve in a consulting support role through the end of the year.

Interestingly, Kirkhorn posted to LinkedIn with phrasing (”Tesla announced that I’ve stepped down…”) that suggests he might have been ousted:

Out of the “Mega-8” public tech companies, Tesla has had the most CFOs within the past 10 years:

• Apple: 2

• Amazon: 2

• Google: 2

• Meta/Facebook: 3

• Microsoft: 2

• Netflix: 2

• Nvidia: 2

• Tesla: 4 (or 5 if you include Deepak Ahuja’s second stint)

Working as an exec in an Elon Musk company is not a chill job to say the least!

Tesla bears are speculating that Kirkhorn may have left due to a spat with Elon, concerns over aggressive accounting, or even pressure to hit unachievable financial goals.

Tesla does stand out with the highest valuation in the auto industry BY FAR:

We think the explanation for Kirkhorn’s departure could be simple: his large stock option package finished vesting in late April this year.

Kirkhorn was awarded stock options for more than 2 million TSLA shares back in 2019, but he had to serve in the CFO role four years for all the options to become his.

Now his options are fully earned and worth $550+ million. That’s generational wealth!

And who wants to work for a demanding boss when you can hang out on your own yacht??

Maybe Elon was miffed that Zach even considered leaving and escorted him out briskly.

Regardless, Zachary Kirkhorn played the game cleverly and won BIG.

Master of Coin indeed!

Market Is Punishing “Good” Earnings 🤕

We’ve made it through the bulk of Q2 earnings season in the stock market.

As of last week, 84% of companies in the S&P 500 have reported.

Believe it or not, the number of companies reporting positive Q2 earnings (measured by EPS, or earnings-per-share), has been above the 5 and 10-year average.

So… why are many of these stocks actually having NEGATIVE stock price performance with good Q2 earnings reports?

One word: Valuation

Another word: Guidance

Valuation:

When it comes to the current valuation of the S&P 500 based on the price-to-earnings ratio. We’re not in cheap territory.

According to Yardeni and Factset, the forward PE ratio is around 19x.

This puts us above the 5 year average of 18.6 and the 10 year average of 17.4x.

So, needless to say, it’s no surprise that stocks might be feeling a bit flat or even down after reporting earnings this quarter.

Investors are not feeling like they’re getting ripped off by paying nosebleed valuations… but, they’re not getting the value of a lifetime either.

Guidance: 

Stocks price on FUTURE revenues and earnings.

Guidance is when management gives investors a peek into what they think the next few quarters or full year will look like.

It appears that management teams have been leaving investors with a little to be desired on the guidance front.

All of this leads us into a lukewarm feeling going into the rest of the year.

Risks of recession have eased, and even the Federal Reserve has taken their prediction of a recession off the table.

However, this doesn’t mean we won’t see slower growth and stock valuations potentially coming down in the short-term as investors digest what’s happening and where we’re heading from here in the economy.

Delicious Bites 😋

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• Example phrases to help you generate images with Midjourney

• What our solar system really looks like hurling through space

Food For Thought 🧠

“Being rich is having money; being wealthy is having time.”
- Henry Ward Beecher

DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.