☀️☕️ EV: 15 mins to 100%

📊 Also: Kev's vote, Red-Hot Green Light, Chinese bear; J&J and Opioid Sacklers 🎓️ The US Debt Ceiling

Happy Thursday!

Welcome to the last month of the first half of 2023 

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📝 Focus

• EV: 15 mins to 100%

📊 In the Markets

• Kev's vote, Red-Hot Green Light, Chinese bear

• J&J and Opioid Sacklers

📖 MoneyFitt Explains

🎓️ The *&^% US Debt Ceiling

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📝 Focus

With China's blazing electric vehicle (EV) price, performance and feature war on the verge of spilling over to other global car markets, our guest writer looks at the future of one of the key cost and performance components, the battery:

China to launch first solid-state battery Electric Vehicle by 2025

China's largest carmaker, SAIC Group, expects to see its first model with solid-state battery roll off the assembly line in two years, as more local carmakers target the new battery technology for a longer range. SAIC's first mass-produced model with the solid-state battery will roll off the production line in 2025, it said.

..... ▷ SAIC said its solid-state battery appears to have been developed with local startup QingTao Energy Development, similar to what NIO did with Beijing WeLion New Energy Technology. On July 6, 2022, SAIC announced that it had set up a joint lab with QingTao to develop solid-state batteries. The two will focus on the mass production of solid-state batteries with a range of more than 1,000 kilometres, 4C fast-charging technology, and the development of high-safety, long-life solid-state batteries, according to a press release at the time. Charging time for the solid-state battery is estimated to be around 15 minutes.

A Tesla Model S takes 11-18 hours from empty on a 240-volt wall outlet at home. Even a Tesla Supercharger takes 25-30 minutes (EnergySage)
- Image credit: Tenor

..... ▷ Nio, another Chinese automaker, has developed a semi-solid state battery with WeiLio. However, reception on the car has been lukewarm at best.

..... ▷ The solid-state battery could leapfrog the Chinese automakers in the EV race. Imagine having an EV with a battery that is half in weight, charges 1000km in 15 minutes and has a better safety record (no combustible liquids in the battery). This would definitely be a milestone ahead for the EV industry. Good for the Chinese automakers (Nio, SAIC) and bad for the rest of the world (Tesla, Ford, Toyota).

Guest writer: Woo FC, a veteran investment manager with over 25 years of Asia and global market experience. This article is for information only and not a recommendation. The writer may have long or short positions in the companies mentioned above. Please see the important disclaimer at the bottom.

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📊 In the Markets

Kev's vote: With investors again focused on the US debt ceiling🎓 vote in Congress that will at least finally happen, global markets were generally in "risk off" mode, which is trader-talk for selling down riskier assets (like stocks and corporate bonds) and preferring safer ones (like sovereign bonds and cash.) Stocks went down, as did US Treasury bond yields (because when there is more demand for bonds and prices go up, the yield --the interest rate that you actually get at the price-- goes down. See below.)

..... ▷ So later on Wednesday, the US House of Representatives will finally start voting on a bipartisan deal to avert a US Treasury bond default by lifting the $31.4 trillion ceiling (though, as we explain here, the US will just fail to pay other debtors before actually doing an Argentina.) The bill faces a tricky path through the House: though Speaker Kev McCarthy is a Republican and his party holds a slim majority, he was only elected 216-212 after 15 ballots and may struggle to corral his own party's extremist wing, while it is also unclear how many House Democrats will back the compromise. We have until next Monday.

Red hot labour market = green light for the Fed to hike again in June?
- Image credit: Tenor

Red Hot Green Light: US Treasury yields also moved lower following comments by Philip Jefferson, the nominee to be Jay Powell's #2 as vice chair of The Fed (replacing Lael Brainard, who'll be Director of the National Economic Council) saying the Fed may skip a rate hike at its next meeting. (As a governor of the Fed, he's already a voting member of the FOMC, the US central bank's interest rate-setting committee.)

​​“Skipping a rate hike at a coming meeting would allow [The Fed] to see more data before making decisions”

 Fed Governor Philip Jefferson, regarding further rate hikes.

..... ▷ BUT (because there's always a but) US job openings unexpectedly went UP in April, showing that the US labour market remains red hot despite 5% of interest rate hikes over the last 14 months. Because the Fed has officially not just inflation but also unemployment to worry about (it has a "dual mandate") record low unemployment and loads of offers per unemployed person (1.8x) combined with the danger that ever-higher wages spark an inflationary vicious cycle (as we're seeing in the UK) suggests a green light for the Fed to raise interest rates again in June. Data last week also showed the strength of the US economy, with consumer spending reaccelerating and the Fed's favoured inflation measure, the personal consumption expenditures index, rising 0.8% after being about flat the prior two months. Technically The Fed doesn't care about recessions anyway as long as unemployment and inflation are under control.

..... ▷ Meanwhile, the Great Resignation of the pandemic era seems to have ended: The quits rate fell to 2.4% in the same Job Openings and Labor Turnover Survey, back to pre-pandemic levels, and off the peak of 3% seen a year back when everyone seemed to be job hopping for better pay and other temptations, a sign that red-hot as the market may be, it might no longer be in the overheating territory.

A Hong Kong and a China bear
- Image credit: Pascal Müller via Unsplash

Chinese bear: Yesterday, Hong Kong’s Hang Seng Index fell 3% to hit technical bear market territory (which is a 20% drop from the recent high mark... though old-timers call a bear market based on how miserable investors feel about it.) It closed down just shy of 2% for a new low for the year. About 60% of the total earnings of the 50 Hang Seng Index constituent companies come from Mainland China as of March 2023 (up from about 50% just two years ago.)

..... ▷ China’s latest official purchasing managers index slid for a second-straight month in May to 48.8, a steeper contraction than April’s 49.2 and below the 49.4 expert estimate based on a poll by Reuters. (A score of 50 is neutral. The higher the reading, the faster the pace of expansion; the lower the reading, the faster the pace of contraction.) While this could be a precursor to Bank of China policy easing and potentially a bigger stimulus from Beijing, the rapid deterioration of the economy after the excitement of last December's sudden exit from zero-Covid policies has shaken investors. At the time, observers did speculate that the move was from a position of weakness rather than strength (i.e. desperation given increasing evidence of economic trouble), but bullish sentiment prevailed, and the Hang Seng and Shanghai Composite Indexes shot up 26% and 23% from December lows before peaking together on March 8th and sliding ever since on increasing scepticism about the data coming through.

J&J and Opioid Sacklers

Johnson & Johnson is back on trial over its talcum-based baby powder and links to asbestos-related cancer, despite the $9 billion deal to settle the class action suits just a couple of months ago. The company had set up a separate company called LPL to settle it through bankruptcy courts using a sneaky (to some) trick called the Texas Two-Step, in which a separate company takes all the liabilities and sort of goes bust on purpose despite getting funded, thereby absolving the parent company from any further liability. In theory. Some plaintiffs are still seeking to have the bankruptcy filing dismissed, while J&J / LTL say it delivers settlement payouts more fairly, efficiently and equitably than a “lottery” via individual trial courts, where some get gigantic awards while others get nothing.

..... ▷ Meanwhile, in a far more egregious example of liability dodging (in some opinions) privately-held Purdue Pharma filed for bankruptcy and handed over its OxyContin opioid business and liabilities to its equivalent of LPL called Knoa Pharma. It's now controlled by Purdue's creditors (mainly the victims/plaintiffs.) Purdue allegedly helped create the opioid addiction epidemic and has been sued for trillions of dollars. The remaining value of Knoa is tiny relative to the enormous damages being sought.

..... ▷ The Sackler family has received roughly $11bn in dividends from Purdue over the years, and anything the family has not already agreed to pump back into Purdue/Knoa (recently raised to $6bn) is now more or less out of bounds since on Tuesday, the US Court of Appeals for the Second Circuit ruled that the bankruptcy court is allowed to release the Sackler family from liability.

..... ▷ The Sacklers obviously have a lot more than the balance of $5bn, given the investment returns generated over the years. One 2020 estimate put the family's net worth at $11bn. So for now, the billionaire family members just lose their name off some buildings at the University of Oxford.

📖 MoneyFitt Explains

🎓️ The US Debt Ceiling -- the last Explainer on this for 1.5 years (we hope)

• The debt ceiling is a limit set by the US Congress on the amount of debt the federal government can incur. The debt ceiling does not control or limit the ability of the Federal Government to run deficits or incur new debt, it only limits the ability to pay off already incurred debt.

• The debt ceiling is separate from the federal budget and appropriations process, which sets spending levels for the government. It is regularly raised by Congress to allow the government to borrow more money to finance its operations, such as paying for military expenses, entitlement programs like Social Security and Medicare, and interest on existing debt. The debt ceiling has been raised over 100 times since its inception in 1917.

• In recent years, the debt ceiling has become a point of political contention, with some members of Congress refusing to raise it unless certain policy demands are met. If the debt ceiling is not raised, the government would not be able to borrow any more money and would only be able to spend what it takes in through taxes and other revenue. This could lead to a government shutdown or a default on its debt obligations, both of which could have severe US and global economic consequences.

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