₿ Senate Slams SEC’s Crypto Rule

What’s on the Menu 🍴

We’re smack in the middle of massive legal battles and earnings season.

Here’s what we’ve got on the menu for you today:

• Don’t Call It a Comeback (Yet) 🥊

• What Walmart Earnings Tells Us About The Consumer 🛍️

• Senate Slams SEC’s Crypto Rule ₿

• Video Of The Day: Why Stocks are Ripping & Bitcoin
  is Playing Catch-Up 📺

Today’s newsletter is a 5 minute read.

Don’t Call It a Comeback (Yet) 🥊

Back in January we wrote about how Chinese stocks were some of the most hated in the world.

China was one of the worst performing markets in 2023 and the consensus seemed to be that those stocks would underperform badly again in 2024.

But we also gave the bull case and wrote about why the herd might be wrong on Chinese stocks.

So far that contrarian call has been right, as KWEB (a popular China stock ETF) has outperformed large US tech stocks by a wide margin lately:

Companies like JD, Alibaba (ticker: BABA), and Baidu (ticker: BABA) have gotten more aggressive with stock buybacks while also posting solid earnings growth in Q1.

Some notable institutional investors have also warmed up to Chinese stocks lately.

Michael Burry, the famous investor profiled in “The Big Short” movie, made JD and BABA his largest positions in Q1.

David Tepper, who runs the storied $7 Billion hedge fund Appaloosa, has almost 25% of his firm’s portfolio in Chinese stocks as of the end of Q1! 😮

There remain quite a few skeptics however…

And to be fair, there’s still a lot to worry about with Chinese stocks.

US & China relations have worsened this year, with the Biden administration adding fresh tariffs on Chinese EVs, batteries, and solar panels just this week:

The Chinese economy has improved a little this year, but the recovery has been lackluster in some areas.

For example, retail sales in China looked very robust when 2024 began, but have slowed in recent months:

Short term bumps are to be expected.

On a longer term horizon, Chinese consumer spending still has a ton of room to grow.

And valuations on Chinese stocks sit at roughly half the level of US stocks.

China deserves criticism for many of their governance choices and blunders.

But the country is also innovating at a speed & scale well beyond most others.

Getting some exposure to the world’s second largest economy while paying low valuations doesn’t seem like that crazy of an idea.

If the charts continue to shape up, we’ll likely see more investors coming around to this idea.

Proper position sizing and risk management are super important of course.

We won’t declare victory on this contrarian call yet, but let’s see if this train can keep rolling!

What Walmart Earnings
Tells Us About The Consumer 🛍️

I’ve been talking about the consumer a lot … because quite frankly, it matters!

The future of the economy and stock market really depends on consumer spending.

There is good news and bad news to extrapolate out of the recent Walmart Q1 earnings report.

First of all, it’s been surprising to see just how well Walmart has been doing in terms of stock performance.

Its performance since 2020 has rivaled the S&P 500.

The stock rallied after the report. WMT has successfully diversified their business internationally, via a subscription service, and an ads business that is thriving.

Not only that, they’re the number one grocer in the U.S.A. People from all income classes are seeing Walmart as a great place to get what they need.

For anyone who has been watching closely ( 🙋‍♀️ ), it’s clear to see the turnaround in the brand.

To add to the bonuses, revenue growth has been healthy and earnings have grown significantly year over year (which the market loves):

Walmart is simply firing on all cylinders.

So, where’s the bad news here?

It’s not bad news for WMT investors because Walmart is now the go-to for value seeking consumers on a tight budget across income levels it seems.

However, it’s clear Walmart is still seeing a consumers pocketbooks stretched. This is the softening that the rest of the market (and companies) don’t necessarily want to see.

It’s clearly a trend that consumers are spending less in discretionary categories still.

The good news for Walmart from an investor perspective, is they’ll likely be okay either way.

They’re still thriving in a low consumer discretionary spending environment. If consumers move more towards discretionary again, that helps their margins and they still benefit.

So, Walmart is starting to look more like a defensive play in the portfolio for either scenario. Price has proven that as well over the years.

However, it’s the rest of the market that could see a stretched consumer pose a problem going forward.

Senate Slams SEC’s Crypto Rule ₿

The U.S. Senate made a bold move to challenge the SEC’s controversial crypto policy, Staff Accounting Bulletin No. 121 (SAB 121).

With a 60-38 vote, the Senate joined the House in pushing to repeal SAB 121, but President Biden is ready to wield his veto power.

SAB 121 requires companies holding customers’ crypto assets to list them on their own balance sheets, a rule that could strain banks working with crypto clients.

Critics argue the SEC overstepped its bounds, bypassing the usual rulemaking process. Even the Government Accountability Office agreed, calling out the SEC for its missteps.

In a rare display of bipartisanship, a dozen Democrats aligned with 48 Republicans, surpassing the simple majority needed but falling short of a veto-proof two-thirds.

Senate Majority Leader Chuck Schumer (D-N.Y.) broke ranks, voting against the SEC’s stance.

Sen. Cynthia Lummis (R-Wyo.), a leading advocate for the resolution, celebrated the vote as a victory for financial innovation.

She criticized SAB 121 as a “disaster” for consumers and financial institutions alike.

“This marks the first standalone crypto legislation passed by both chambers,” she stated, emphasizing the bipartisan opposition to the SEC's approach.

Despite the legislative success, the resolution’s future is uncertain with Biden’s veto threat looming. The White House argues that removing SAB 121 could hamper investor protection and financial stability in the crypto markets.

If Congress succeeds in overturning SAB 121 via the Congressional Review Act, it would prevent the SEC from implementing similar policies in the future.

Rep. Kyle Flood (R-Neb.) urged Biden to reconsider, framing the resolution as crucial for America’s digital financial future.

This legislative tussle highlights the growing tension between regulatory authorities and lawmakers over crypto policy, reflecting broader debates on how best to balance innovation with investor protection.

Video Of The Day:
Why Stocks are Ripping & Bitcoin
is Playing Catch-Up 📺

We have SO much to cover in this week’s We Talk Money episode!

You’ll learn:

• Why GPT-4o changes everything

• What’s pumping GME and AMC?

• Is Inflation REALLY cooling?

• And Q&A!

Food For Thought 🧠

"Fear is a natural reaction to moving closer to the truth.”
- Pema Chödrön

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.