Pigs & Pills

Denmark’s economy? Turns out it’s riding high on pills and pigs. Let’s just say Ozempic is the MVP, and Danish pastries are more than just delicious— they might be the secret weapon keeping those pharma profits high.

September 24, 2024

Silver banana goes to…

In this issue of the peel:

  • After 2020, China’s economy was the world's envy with its zero-C-19 policy. Now, the rest of the world is its envy. The Middle Kingdom is facing a series of economic crises with many concerns about the implications domestically and worldwide. Find out why the world’s second-largest economy is on the ropes. 

  • Tesla shares continue to rally in hopes of solid delivery numbers, and Boeing has taken steps toward a safer future with fewer strikes. Meanwhile, GM faltered during a hefty downgrade, and Qualcomm is busy flexing on Intel.

  • Oh, and Denmark’s economy? Turns out it’s riding high on pills and pigs. Let’s just say Ozempic is the MVP, and Danish pastries are more than just delicious— they might be the secret weapon keeping those pharma profits high.

Market Snapshot

Banana Bits

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Macro Monkey Says

China Check In

Communism and economic growth usually get along like Elon Musk and a social filter—completely incompatible. But China’s version has been more like Musk and space travel—ridiculously ambitious, yet somehow pulling it off.

Billions have been lifted out of poverty since the 1980s, and, for a long time, it looked like there was no end in sight… until now.

Let’s get into it.

What Happened?

As the second largest economy in the world, it's important to keep tabs on China. In fact, by purchasing power parity, China’s economy is actually the single largest in the world.

At its current trend, however, that won’t last long. 

At the start of the pandemic, China set the goal standard in viral containment. But, mixing nearly three years of so-called “Zero C-19” policy with challenging demographics and a wildly indebted property market paints a bleak short-medium-term future.

The first symptom of slowdown appeared in the form of having the exact opposite inflation problem as the rest of the world.

After flexing on the rest of us with monthly CPI prints that never breached 0.9%, the country’s deflationary problem has become indicative of a struggle to retrigger demand.

Looking deeper into the data, it’s not hard to understand why.

Compared to most other countries, Chinese households have a far greater reliance on real estate with regard to their net worth.

As we can see below, the average property value in China’s top cities has declined almost 30% since the onset of the pandemic. The average Chinese household carries 62% of their wealth in property, which reflects major wealth deterioration.

Recent data on the consumer and industrial side show further symptoms of deterioration.

According to reports from the National Bureau of Statistics, China’s retail sales grew just 2.1% in August, below the 2.5% expected and the 2.7% in July.

Meanwhile, industrial production expansion slowed to 4.5%, missing expectations for 4.8% and below July’s 5.1% acceleration. Fixed investment also slowed to just 3.4% annual growth, below the 3.5% expected, with investment in real estate down 10.2%.

Unemployment is a further problem weighing on aggregate demand, with an urban unemployment rate of 5.3%, rising slightly from the prior month’s 5.2%. Youth unemployment is the biggest problem, clocking in at a yuge 18.8% in August.

That’s a fresh high for those aged 16-24 in the country and a sharp rise from the 17.1% in July. But hey, at least they’re actually publishing this data again after hiding it for most of 2023.

This has led to slowing GDP growth, rapidly declining government bond yields, and calls for stimulus becoming louder than the sirens in a Hollywood disaster movie.

The Fed’s rate cuts have made things slightly easier in China as they don’t have to worry as much about further deterioration in the value of the yuan.

That’s partly why the country’s recent decision to hold its key one-year and five-year loan prime rates at their current level was a surprise to most China watchers. However, the PBOC did indicate plans to continue cuts later this year.

In addition to lowering the cost of borrowing, China has instituted a trade-in program to give consumers cash for their goods so they can go and spend further on new goods, services, and investments.

I respect the creativity, but it’s arguably a sign of desperation. Further stimulus exists as well, including eliminating restrictions on foreign investment, local investment to create urban jobs, increased defense spending, and vouchers for further spending.

The Takeaway?

Because China is the number one trading partner for much of the world and investing heavily in infrastructure for developing economies, the Chinese version of the expression “When the U.S. sneezes, the world catches a cold” might be even worse.

Whether you want to use the flu, pneumonia, the dreaded C-19, or any other disease for your analogy, the trend is clear—China’s economy needs some medicine.

Maybe another booster shot will do the trick. Stay tuned.

What's Ripe

Tesla (TSLA) 4.93%

  • Tesla investors are revving their nonexistent engines as the Fed cuts interest rates, and third-quarter delivery expectations are starting to speed up.

  • Barclays had the hookup for the EV maker on Monday, reiterating their equal-weight rating on the stock and sending shares higher.

  • The investment bank cited anticipated strength in Q3 deliveries as a “near-term positive,” bringing the stock’s return for this month alone to over 20%.

Boeing (BA) 1.96%

  • A lot was going on at this air and spacecraft maker yesterday, and thankfully,  none of it had to do with crashing planes (for now). Strikes, firings, and more.

  • Boeing’s internal space and defense CEO, Ted Colbert, was forced out of the firm with a replacement already set up. After stranding astronauts at the ISS for 5 months, it’s not hard to understand why.

  • Secondly, the ongoing machinist strike took a step closer to the end. Boeing made another “best and final” offer, hoping that this headache, which cost $50mn/day, would be resolved shortly.

What's Rotten

Qualcomm (QCOM) 1.75%

  • Taking a chance to kick ‘em while they’re down, Qualcomm just did the corporate equivalent of waving a $100 bill in a homeless person’s face.

  • On Friday, Qualcomm reached out to its struggling rival Intel to propose a takeover bid, even though that’s about as likely as Lina Khan winning a court case.

  • At a ~$96bn market cap, Intel is about half the size of Qualcomm. No doubt that the aforementioned FTC Chair would have a big problem with this kind of merger, and it seems that investors do too.

General Motors (GM) 1.72%

  • GM seems to be getting more haters than customers in recent months, and Bernstein analysts are the newest in the group. The firm just downgraded shares.

  • Cutting from a Buy to Hold and chopping their price target a measly $1.50 to $53, Bernstein cites poor inventory management as the primary detractor.

  • The concern is that unsold vehicles are piling up, and, as a result, the firm will have to incentivize sales via price reductions and discounts, threatening margins.

Thought Banana

Pigs & Pills

Apparently, the Danish economy exports more than just a delicious breakfast pastry.

This is news to me, but it turns out Denmark is one of the world’s leading exporters of pig & pig meat along with pharmaceuticals.

Selling pigs is important, but Denmark relies on selling pills almost as much as its customers rely on popping them. Let’s dive in.

What Happened?

According to recent data published by our favorite certified smarty pants, Torsten Slok of Apollo, 70% of Denmark’s GDP growth is directly attributable to the pharmaceutical industry.

Put plainly, that is batsh*t insane.

We know that some countries are particularly reliant on a single industry, such as Saudi Arabia and petroleum, Russia and natural gas, and the United States and defense spending.

However, none of them come close to relying on a single sector for more than 2/3rds of their total economic growth. In fact, during the first quarter of 2023, the pharma industry accounted for 89% of the country’s GDP growth.

If that’s not enough economic concentration, let’s zoom in even further.

Danish pharma giant Novo Nordisk is effectively the modern-day equivalent of the British East India Company. 

At a ~$420bn market cap, the company’s market value is larger than Denmark’s GDP (~$400bn in 2023).

In 2023, Novo Nordisk accounted for nearly 20% of total job growth. Surprisingly, it gets even more concentrated than that.

42.7% of Novo Nordisk’s sales in 2023 come from one product alone. You might’ve heard of it before, just a little drug called Ozempic.

Factoring in fellow GLP-1 drugs produced by Novo Nordisk, including Wegovy, these two products alone account for 55% of the company’s revenue.

The Takeaway?

In other words, the company that accounts for 70% of Denmark’s GDP growth and 20% of employment growth gets 55% of revenue from two products and 42% from just one.

Damn.

Not only is that just a simple series of fun facts, but it demonstrates a highly risky reliance on literally one product to control much of the direction of the Danish economy.

Wait a minute—maybe that’s why they’re feeding the rest of us so many Danishes. It’s a great strategy to keep us all obese so that Ozempic sales can continue eating the entire world.

The Big Question: Should Denmark be concerned that its economy is so reliant on just one product? What other industries could they diversify into?

Banana Brain Teaser

Previous

A rope 20.6 meters long is cut into two pieces. If the length of one piece of rope is 2.8 meters shorter than the length of the other, what is the length, in meters, of the longer piece of rope?

Answer: 11.7 meters

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