TheBRRR’s Thoughts

GM.

China continues to inject liquidity into its economy and signal dovishness in regard to future actions. Their stock market index is down 35% from 2021’s high while the US indexes have recently set new all-time highs.

These liquidity injections will continue to support global asset prices as a passive tailwind as fiat currencies continue to devalue.

Domestically, Tesla reports earnings after the close today so we’ve compiled a preview. We own Tesla in the newsletter’s portfolio.

Bitcoin briefly lost $40,000 support yesterday but has returned above the key level in early trading today. Sentiment has started to improve, as many believe the price-indiscriminate Grayscale has slowed down its torrid pace of selling. We expect short-term choppiness but the medium-long term uptrend remains intact.

Global Macro News

China Injects Liquidity; Cuts Banking Reserve Requirements

• What Happened:
  
  The People’s Bank of China (PBOC) announced an unexpected 50 basis points cut in the required reserve ratio (RRR) effective February 5, to release 1 trillion yuan ($139 billion) into the market.

• This measure is seen as an urgent response to support the economy and stop a $6 trillion stock market collapse.

Why It Matters:

• Positive initial market response with 3% gains in the Hang Seng China Enterprises Index and a slight dip in yield on China’s 10-year government bonds.

• Economists suggest that China needs more than monetary policy adjustments, emphasizing the need for increased government spending and measures to resolve the real estate crisis and boost consumer confidence.

The BRRR’s Take: This only provides more evidence that the the PBOC is “putting in the bottom“ in their stock market. With its main index, CSI1000, down 35% from its 2021 peak and Chinese inflation essentially negative y/y, we believe the PBOC will imminently step in with a record-breaking liquidity injection.

ZeroHedge, Reuters

Tech News

Tesla's Set To Report Earnings Today

WHAT HAPPENED:

• Tesla is set to release its Q4 earnings report on January 24, 2024, after market close. Expectations are centered on revenue of around $25.88 billion.

• The company is navigating through challenges like recalls, supply chain disruptions, and Elon Musk's recent bid for more control over the company.

• Musk expressed discomfort in leading Tesla's AI and robotics without having 25% voting control, hinting at building products outside Tesla if not granted.

• Tesla halted manufacturing at a German factory due to supply chain issues linked to the conflict in the Red Sea.

• Despite challenges, Tesla prepares for a Cybertruck showcase in China amid an Autopilot recall affecting 1.62 million Chinese vehicles​​​​.

WHY IT MATTERS:

• Analysts forecast a significant year-over-year decline in Tesla's Q4 profit, with average Q4 profit forecasts down over 55% from a year ago.

• Tesla's market valuation far exceeds other automakers, mirroring big tech companies, yet faces subsidy issues in the US and EU.

• Tesla's EPS (Earnings Per Share) is expected to be around $0.73 to $0.74, indicating lowered profitability due to recent price cuts.

• The company's focus on AI and robotics, especially in the context of Musk's demands for more control, raises questions about its future direction.

• A positive response to the earnings report could hinge on factors like guidance on 2024 deliveries, profitability margins, and updates on new vehicle models​​​​.

ADDITIONAL INSIGHTS:

• Tesla's stock has been underperforming compared to the S&P 500, with a significant decrease in value in the beginning of 2024.

• There is optimism for Tesla's growth potential in the EV market, despite current challenges and margin pressures.

• Analysts are closely watching Tesla's moves in AI, especially in the context of self-driving capabilities and potential new, lower-priced EV models​​​​.

Barron’s, CNBC

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The BRRR is meant for informational purposes only. It is not investment advice. Please consult with your investment, tax, or legal advisor before making any investment decisions.