In China, You've Got One Hour to Play Your Video Games
China cracks down on 'spiritual opium'... In China, you've got one hour to play your video games... The 'common prosperity' plan... A Fed meeting post-mortem... What history says about stocks in the next year...
It turns out that 'spiritual opium' report was foreshadowing...
At the start of this month, you may recall we reported on an article published in China's state-run Economic Information Daily that described online video games as "spiritual opium," and suggested that kids be limited in how much they play them.
Since this was a state-run media outlet, and since we had already seen weeks of reports and rumors about increased regulations by the Chinese government leaking out regularly, shares of related stocks plummeted after the report...
From the August 4 Digest...
As a result, shares of Tencent and fellow Chinese video-gaming giant NetEase (NTES) tumbled at least 10% Tuesday morning amid the report... which ended up being deleted from the Economic Information Daily's website by noon. (Such it is with state-run media.)
According to a source cited by the South China Morning Post, the report was deleted – from the "investigation" section of the newspaper – because it does not represent the communist government's official stance.
That source, it seems, was wrong... or intentionally misleading.
Yesterday, the Chinese government announced 'anti-addiction measures' for video games...
It created a law that many parents around the world, frankly, might be interested in... just not through government-mandated and monitored means...
The Chinese government says children under the age of 18 will only be allowed one hour of online gaming on Fridays, weekends, and holidays, and that hour will begin at 8 p.m. local time and end at 9 p.m...
We'll see if the Internet can handle every interested kid in China playing Fortnite or Honor of Kings all at the same time...
According to an announcement from Xinhua – the Chinese government's official news agency – game time will be monitored by a government-run "real-name verification system," and companies will likely be forced to link that information to payment methods for tracking purposes.
All online games must connect to the system, which will be strictly inspected, and penalties will be given to companies that don't adhere to regulations... Gaming companies now "must always put social benefits" first.
From the announcement (translated, thanks to Google Translate)...
The notice is guided by [President] Xi Jinping's Thought on Socialism with Chinese Characteristics for a New Era.
A Chinese government spokesperson later told the global news service Reuters...
Protecting the physical and mental health of minors is related to the people's vital interests and relates to the cultivation of the younger generation in the era of national rejuvenation.
While this might be the first time you're hearing of "screen time" curbs like this, these moves are actually a modification of an existing rule, as our Stansberry NewsWire team reported yesterday...
The previous rule allowed for up to 90 minutes of play during weekdays, in addition to three hours on Fridays, Saturdays, and Sundays. This new change is a reduction of over 80%.
By now, you should know the Chinese government has been cracking down on its technology market lately...
A flurry of new regulations appears to have reached a crescendo this month... ranging from rules related to Chinese companies deciding to list on the New York Stock Exchange... music licensing... and China's massive for-profit tutoring industry.
As NewsWire analyst Daniel Smoot wrote yesterday...
Back in November, Beijing forced Alibaba-backed (BABA) Ant Group to delay its planned initial public offering. And while this originally put pressure on Ant, the government quickly turned its attention to the rest of the technology market.
In the months since, China has introduced rules to cut down on anticompetitive and monopolistic practices, as well as legislation aimed at improving data security and privacy.
This has resulted in a series of probes, punishments, and fees among some of the largest technology giants – wiping billions in value off Chinese tech stocks. E-commerce company BABA received a $2.8 billion fine following an investigation over monopolistic practices. Ride-hailing giant DiDi Global (DIDI) had more than 25 of its apps removed from app stores in the wake of a cybersecurity review.
The underlying story is that these moves are all strategic pieces of a broader plan by Chinese President Xi Jinping to assert more control... and achieve his goal of "common prosperity" for the world's second-largest economy.
That includes social initiatives, like limiting the use of video games for kids, by any means necessary. The move of course will eat into the revenues of video-game companies that would be positioned to make more money if people spent more time using their products.
According to the Financial Times, over 110 million minors in China play video games.
Companies like NetEase and Tencent (TCEHY) have been feeling the fallout already with their share prices, as investors wonder where this rollout of government-asserted regulations will end, or if it will.
As Steve Sjuggerud and Brian Tycangco wrote in this month's issue of True Wealth Opportunities: China, Chinese tech companies are trying to adjust to a "new reality" of Beijing's new ground rules...
The market sell-off spread across multiple industries. But as we explained last month, China's government is simply catching up with an industry that has had free rein for the past 20 years.
This situation won't last. We'll watch our stops closely. And we'll continue to help you navigate any patches of volatility in Chinese stocks.
In the meantime, Steve and Brian continue to recommend stocks that they consider "Next China" opportunities. In other words, a chance to profit as emerging markets in Asia (and around the world) follow China's road map to success.
Their latest pick is a little-known digital payments company that has "hundreds-of-percent upside potential"... To catch their latest issue, existing subscribers and Alliance members can click here... and if you're interested in starting a subscription, click here to learn more.
Back here in the U.S., the Fed spoke again...
We had been awaiting the Federal Reserve's annual get-together in Jackson Hole, Wyoming, for a few weeks now, to get a gauge of how the central bank is thinking about its policy going forward.
The meeting took place at the end of last week, and what we heard happened was just about what we expected. Fed Chair Jerome Powell indicated the central bank will start trimming its $120 billion of monthly bond purchases in the coming months...
As NewsWire editor C. Scott Garliss wrote on Friday, as part of Powell's opening remarks at the Kansas City Fed's Annual Economic Policy Symposium...
Asset purchases are one of the only remaining tools, along with interest rate cuts, that the Fed introduced last spring and has yet to remove. It put these policies in place to help the economy function normally during the pandemic.
Since that time, Fed members have noted these easy-money policies would remain in place until "substantial further progress" was made on price stability and employment. Now it's beginning to see those changes...
Scott pointed out that Powell said, as of the bank's July meeting (on which we reported in the August 19 Digest), the interest-rate-setting Federal Open Market Committee has seen "substantial further progress" on its inflation goals...
He also said we've seen clear headway made toward maximum employment. This is the first time the Fed chairman has made such comments since the pandemic's onset.
He elaborated that since the July meeting, price stability and employment have made even more progress. At the meeting, he said if the current pace of economic growth continued, it would be appropriate to start winding down bond purchases this year.
Powell all but confirmed the change will happen – though not just yet. A formal announcement might come at the Fed's September meeting.
Another Fed official, Atlanta Fed President Raphael Bostic, said he would be OK with the central bank beginning to taper its bond purchases in October and ending them entirely in the first quarter of 2022... if the economy continues its pace of gaining about 1 million jobs per month.
Even if that happens, Powell, the guy who ultimately calls the shots, also left the door open for the current "easy money" policy to continue... an environment catered to higher stock prices.
Here's the new narrative you will likely hear from the Fed over the next year...
Powell said he continues to expect a "baseline" outlook to rematerialize over time, but this will take a while as the pandemic-related swings in economic data will take some time to fall off – typically 12 months.
In other words, they're planning to rip the monetary pandemic Band-Aid off slowly and might not even consider raising interest rates again until 2022, though Powell has said ultimately that is the goal.
History is not guaranteed to repeat itself, but it's silly to at least not consider it...
The last time the Fed was in this situation, almost 10 years ago in the post-financial-crisis recovery, it took them two years to raise rates after it began slowing its asset purchases. And this environment continued to help boost stock prices...
Here's more from Scott...
Take a look at the chart below of the S&P 500's performance during the last time the central bank began tapering asset purchases. Two years went by before the first interest-rate hike. From market close on December 18, 2013, to the market close on December 16, 2015, the S&P 500 Index added 19.3%, or about 9.65% per year:
The bottom line: Make hay while the sun shines... look into getting plenty of portfolio insurance now, before it gets expensive... and be prepared for higher inflation to last even longer than you might think it will.
Bitcoin on Track to Double or Drop by 50%?
The price of bitcoin has been on a rollercoaster journey since the start of the year, explains best-selling author and market watcher Dominic Frisby. He tells our editor-at-large Daniela Cambone where we are in the cycle and what to expect next...
Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and Twitter.
New 52-week highs (as of 8/30/21): Apple (AAPL), AbbVie (ABBV), American Tower (AMT), CoreSite Realty (COR), Facebook (FB), Formula One Group (FWONA), Alphabet (GOOGL), Innovative Industrial Properties (IIPR), Invitation Homes (INVH), IQVIA (IQV), Ingersoll Rand (IR), Liberty SiriusXM Group (LSXMA), Motorola Solutions (MSI), Invesco S&P 500 BuyWrite Fund (PBP), ResMed (RMD), ProShares Ultra Technology Fund (ROM), Sea Limited (SE), ProShares Ultra S&P 500 Fund (SSO), TFI International (TFII), Thermo Fisher Scientific (TMO), ProShares Ultra Semiconductors Fund (USD), Vanguard S&P 500 Fund (VOO), Vanguard Short-Term Inflation-Protected Securities Index Fund (VTIP), and Waste Management (WM).
In today's mailbag, feedback on yesterday's Digest on the trends in the microchip market... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"You write:
The U.S. Innovation and Competition Act of 2021 has already passed in the Senate... And the House of Representatives will make its own version of the bill. It currently totals $250 billion to spur American innovation, including roughly $50 billion in government subsidies for chipmakers.
"My response... It is BS that any grant, tax credit, or subsidy is required. All that is required is an enforced 'buy America' mandate. Just how long do you think it would take to get chip capacity built domestically without any subsidy if GM, Ford, all communications companies, all airlines, U.S. military, state and local governments, etc. could not legally buy any tech containing foreign components?" – Paid-up subscriber Kendrick M.
All the best,
Corey McLaughlin
Baltimore, Maryland
August 31, 2021