GM and BRRR.

Markets continue to drift lower through the doldrums of summer and there’s plenty of impactful news and analysis to digest.

Our top story today focuses on Chinese censorship, as the CCP unleashes its totalitarian tendencies on bearish economists and market analysts in an effort to prevent panic.

Despite dropping its “COVID-Zero” policy earlier this year to reopen the Chinese economy, growth and economic activity has disappointed and the government doesn’t want to inject stimulus too quickly, so it’s censoring inconvenient speculation.

Our secondary story today dives into AI darling (and deep state partner) Palantir. The intelligence and surveillance company has rebounded strongly this year and we wanted to dig into why investors are pumping the valuation back up above its 2021 direct listing price.

Elsewhere there were a few headlines that caught our attention:

1. The SEC delayed its decision on ARK’s Bitcoin ETF yesterday, as expected.
2. iPhone maker Foxconn reported good q2 earnings, but warned demand is rapidly decelerating
3. Tesla cuts prices in China, stock drops

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Macro News

China to Media: Print Positive or You're Finished

Chinese authorities are actively restricting prominent local economists, brokerage analysts, researchers, and state-run think tank scholars from publicly discussing concerning economic issues like deflation and capital outflows.

This escalating censorship comes as China is experiencing a prolonged slowdown with weak consumer demand, declining exports, and struggles in real estate leading GDP growth to expand just 0.8% last quarter. The increased silencing of negative news mirrors similar actions in early 2016 when China was facing massive capital flight after a surprise yuan devaluation drained over $1 trillion from reserves.

Officials are aiming to censor negative news and foster "positive energy" to bolster confidence in the economy. However, the constrained information flow undermines transparency and investor trust in the data-scarce Chinese markets. Meanwhile, despite clear declines in producer and consumer prices for 8 straight months, officials adamantly deny deflation is occurring. The clampdown on economic pessimism follows criticism of analysts for warning about mounting risks.

• Massive capital flight: In 2016, over $1 trillion fled China for safer assets abroad after a surprise yuan devaluation. This capital exodus launched bitcoin from $400 to its prior peak of $20,000 as citizens moved money offshore.

• Prices clearly falling: China's producer price index has dropped for 8 straight months, and consumer inflation hit a 2-year low of 0% in June. But officials insist deflation doesn't exist, though data shows prices are objectively declining.

• Eerily similar to 1996 crisis: In 1996, Premier Li Peng denied brewing economic troubles right before growth plunged from 10% to 7%, eventually requiring an IMF bailout. Peng had jailed analysts who warned of issues.

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AI News

Palantir Finds Precious Q2 Earnings

Palantir’s latest quarterly results showed the company’s continued ability to deliver solid double-digit revenue growth even amidst economic uncertainty. More significantly, Palantir’s launch of its AIP generative AI platform represents a major strategic move to ride the AI wave and greatly expand its addressable market. However, with the stock trading at a substantial premium to peers, Palantir’s lofty valuation remains a major concern for investors weighing the company’s future potential against current multiples.

In Q2, Palantir grew revenue 12.8% year-over-year to $533 million. The company added 66 large deals worth over $1 million each and expanded its customer base 38% for commercial clients and 15% on the government side, reflecting strong ongoing demand for its data analytics software and services even as clients tighten budgets overall. Palantir also generated positive cash flow and net income for the third straight quarter. The durability of Palantir’s business is clear, but the bigger story is the company’s push into generative AI.

• Strong Q2 Growth: Palantir increased revenue double-digits in Q2 and added major new $1M+ contracts, growing commercial and government customers by 38% and 15% respectively.

• Transformative AI Platform: Palantir's new AIP platform leveraging generative AI is already deployed by over 100 companies just months after launch. With generative AI projected to become a multi-trillion dollar market, AIP positions Palantir to lead this technological transformation and vastly expand its addressable market.

• Path to S&P 500: Palantir is on track for S&P 500 inclusion after Q3 earnings, which would prompt substantial passive ETF buying. The company has also authorized a $1 billion share buyback program to provide price support.

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