🎙️ Deep Freeze

“Software is eating the world, but AI is going to eat software” 😵‍💫

That quote is from Nvidia CEO Jensen Huang, who is having himself quite the year.

It’s safe to say he’s been pretty accurate so far, as his company surpassed the one trillion market cap milestone, and his net worth has jumped to about $40 billion amid his company’s 225% rally year-to-date (YTD).

💭 Check out our chart below — and today’s trivia question — to see how Nvidia’s ascension compares with other big growth years.

— Matthew & Shawn

Here’s the rundown:

Today, we'll discuss the three biggest stories in markets:

• Apple’s shifting supply chain

• Confusion abounds after student loans re-emerge

• Trend followers’ rough year

All this, and more, in just 5 minutes to read.

CHART OF THE DAY

IN THE NEWS

📱 Inside Apple’s Shifting Supply Chain (Bloomberg)

Quick: How many suppliers does Apple rely on to make its signature products? In 2022, there were 188 companies.

Roughly 80% of those partners have a footprint in China. But as U.S.-China relations weaken, Apple is spreading to places such as India, Singapore, Japan, Europe, Thailand, and Vietnam.

• India and Vietnam have emerged as Apple's most popular new hubs — each country has strengthening ties with the U.S. and an inexpensive workforce.

• Apple’s $3 trillion empire runs through China and other parts of Asia, highlighting the challenges around having a massive, global supply chain with many moving parts. Issues arise when scattering production across countries, including shipping delays and inflated costs, which Apple could pass on to the consumer.

To be sure, China remains a critical piece of Apple’s supply chain. That’s unlikely to change. But other countries are emerging as part of the mix.

Said author Chris Miller: “Apple is the bellwether. Apple is one of the largest assemblers of electronics in the world. It is the most profitable. So it has a lot of weight to throw around regarding demands on suppliers and the way they operate.”

• Long before U.S. policy dramatically cut close relationships with China, companies began trying to compete with China by offering investment incentives and better infrastructure.

• In 2012, for example, no Apple suppliers operated out of India. Now it’s home to 14 and growing as Apple eyes India for iPhone sales in the coming decade.

Why it matters:

The shift away from China is expected to create millions of jobs elsewhere, boosting economies like Vietnam and India. The electronics workforce in Vietnam has quadrupled since 2013. In one area’s rice fields, a billion-dollar complex is expected to produce MacBooks on a plot the size of 93 football fields.

More than 300 Apple subcontractors have also opened factories in the area.

• This year, Apple CEO Tim Cook reiterated Apple’s goal of investing in the world’s most populous country, India, whose prime minister is offering financial incentives to assist Apple and boost growth in the country.

• India now manufactures about 7% of all iPhones, tripling production in the past year alone. It could be only the beginning for Apple in India.

While basic services such as power and water are less reliable in India and Vietnam, positive-minded analysts point out that India is “focusing on improving ease of doing business,” which could have ripple effects beyond Apple in international trade and economic power dynamics.

BROUGHT TO YOU BY

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👨‍🎓 Student Loans Are Emerging From Deep Freeze, and Borrowers Are Confused (WSJ)

If you're among the 44 million people with student loans, brace yourself, as federal loan interest will resume on Friday, with the first installment payments scheduled for Oct 1.

Resuming payments: As pandemic relief ends, borrowers will again owe interest beginning Friday. Many are being notified, frequently through emails, about new payment plans from services they don’t even recognize, leaving them hesitant to pay.

• This stems from nearly 40% of borrowers shifting their loans to a different servicer since the payment pause began in March 2020.

It’s complicated: Resuming a $1.75 trillion federal student loan program is far more complex than initially halting it. And the implications are big — university graduates owe an average of $33,500 a year after they leave school.

During the three-year payment pause, millions have either graduated or left school and are facing their first-ever loan payments. They must navigate an array of new and potentially appealing changes to repayment and debt-forgiveness options introduced by the Biden administration.

On the same boat: The administration is also grappling with resuming the process.

• “I’ve been working in this field for many years, and I admit it’s the most complicated process I’ve ever been involved in,” said an analyst from The Department of Education.

However, they added that the department recognizes the challenges and talks with servicers to improve communication with people who borrowed money. All of that while sending email reminders about payments this summer.

• If borrowers don't pay by October 1, they’ll get notices offering more help.

Why it matters:

The struggle is real: After a long break from paying student loans, borrowers must collaborate with their loan companies and use government resources and services to determine the best way to repay them.

• Options include consolidating loans or joining the income-based repayment program known as Saving on a Valuable Education (SAVE).

Begin again: A new plan the government introduced last week, if all rules are followed, could lower payments and even erase student loan debts after 20 years.

• Borrowers must choose between starting payments immediately or using a 12-month "on-ramp." During this on-ramp period, interest will grow, but missed payments won’t hurt their credit score or be considered late.

MORE HEADLINES

💊 Bayer says Parkinson's stem cell therapy improves symptoms in the initial trial

📉 Evergrande, at the center of China’s property market crisis, lost 79% of its remaining market value in Monday trading

💼 Zillow to offer some homebuyers a 1% down payment loan program

💬 Bed, Bath & Beyond shareholders are left holding “worthless stock”

🧠 Americans invested in their mental health during the pandemic

📊 Trend Followers Have a Rough Year After Great 2022 (FT)

There are many ways to make money in financial markets. Some people are Warren-Buffet-style value investors, some just invest in passive index funds, and others are trend followers (among many other approaches.)

Trend following is a broad term in investing, but you wouldn't be far off if you envision a team of hedge fund “quants” (specialists in quantitative data analysis) pouring through data and charts to find patterns.

Up and down: As the name suggests, trend followers make bets based on prevailing trends in global markets, profiting when both markets are going up or down.

• That sounds great, but it works best when there’s a consistent pattern in one way or another — things get harder when markets are very ‘choppy.’

The Financial Times reports that many trend-following hedge funds and their close neighbors, commodity trading advisors (CTAs), are struggling to make money this year. These investors, employing vast amounts of computing power to identify and exploit market trends, made up many of the world’s top-performing hedge funds last year.

What happened: Although markets sold off in 2022, the trend was very clear: Inflation was too high, and the Fed was going to raise rates a lot (and quickly) in response, which predictably rippled through markets, sending both stocks and bonds lower.

• In 2023, Wall Street has been extremely divided over whether the Fed will continue raising interest rates now that inflation has cooled and whether the economy will enter a recession this year/early 2024.
  

• One investor put it like this: “Equities, interest rates, and commodities have all suffered violent oscillations this year — not a good environment for trend followers. One month you look like a genius, the next, you feel like a moron.”

Why it matters:

A number of the industry’s biggest names have taken big hits, while conventional stock market indexes like the S&P 500 are up by double-digits year-to-date.

• Systematica, which manages around $17 billion, has lost 9.6% in its Bluetrend investment fund. It’s the same story for Lynx, which manages $7 billion and faces over 9% losses.

Feeling the same pain: While every trend-following fund makes different bets, there have been a few common pain points. The bond market has been particularly problematic.

• Many bet that government bond prices would continue to sell off in light of Silicon Valley Bank’s collapse, only to watch them rally when U.S. Treasury Secretary Janet Yellen indicated that the government would backstop failed banks.

See you next time!

That's it for today on We Study Markets!

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