🎙️ Space Monopoly

Today’s newsletter is brought to you by: The Doldrums of Summer ☀️

Kidding. But as Wall Streeters spend the next two months jetting back and forth between the Hamptons and New York, and the scorching heat makes it unbearable to sit outside while working on this newsletter, it feels like things are slowing down.

But don’t be fooled. There are plenty of compelling market stories to keep an eye on. Read on to stay in the loop.

— Shawn

Here’s the rundown:

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

• Efforts to restore economic relations between the U.S. and China

• Why Apple is toning down plans for its new Vision Pro Headset’s debut

• SpaceX’s interstellar monopoly

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

CHART OF THE DAY

IN THE NEWS

🇺🇸🤝🇨🇳 U.S. Treasury Secretary Tries to Restore Relations with China (Reuters)

From Balloongate to semiconductor sanctions, 2023 hasn’t been a good year for relations between the U.S. and China. That has put an even bigger spotlight on U.S. Treasury Secretary Janet Yellen’s visit this week to China, which markets watched keenly for insights into how the two countries might interact going forward.

• Even with frequent chatter about a “decoupling” between the world’s leading superpowers, Reuters reports that both economies remain intimately linked, as two-way trade hit a record $690 billion last year.
  

• Still, Yellen called out China’s “unfair economic practices.” Chinese officials responded that the U.S. must “meet China halfway” to normalize relations.

Yellen also added that closer ties could help the two countries jointly monitor financial risks to the global economy from “Russia’s illegal war in Ukraine and the lingering effects of the pandemic.”

For American companies operating in China, Yellen’s visit gives some hope that trade and general economic communications can persist, despite certain industries mired by a geopolitical minefield.

• Investors seemed to respond favorably, with the iShares MSCI China ETF — a proxy for Chinese stocks available to international investors — rising over 2.6% on Friday.

Why it matters:

But Yellen’s trip comes just days after China announced export controls on gallium and germanium, key inputs into semiconductors (the computer chips that power the modern world), both of which China is a leading global producer in.

• Despite that, Yellen insisted the U.S. has “no interest in decoupling,” evidenced by China’s vibrant American business community, where a growing middle class offers a huge market for American goods and services.

The elephant in the room is whether the U.S. and China can actually engage in “healthy competition” while protecting national security interests.

Many American firms operating in China aren’t optimistic: For the first time in the 25-year history of the American Chamber of Commerce in China’s business sentiment survey, most companies said they no longer see China as a “top three investment priority.”

• 66% of respondents cited rising geopolitical tensions as the primary business challenge.

SUGGESTED VIEWING

Tom Botica is an everyday investor from New Zealand, with a passion for all things value investing. A previous guest on our Millennial Investing Podcast, Tom runs his own YouTube channel and podcast with over 40,000 combined subscribers.

Check out his recent video, reviewing the latest earnings numbers from the Chinese e-commerce giant, and Charlie Munger favorite, Alibaba:

🥽 Apple Tempers Ambitious Plans for $3,500 Vision Pro (Bloomberg)

Let the Apple new product hype cycle begin. The company that makes your phone, watch, earbuds, and computer will unveil its “Vision Pro headset” early next year, initially available only by appointment and in-store promotions in select U.S. markets (primarily in major metros like NYC and LA.)

The tech giant intends to set up dedicated sections within its stores, including seating, demonstration units for the Vision Pro headset, and tools to assist customers with sizing accessories.

• The wearable device combines virtual and augmented reality, providing immersive experiences through high-resolution displays.
  

• It also offers the capability to overlay applications onto the user's field of view, allowing for the display of messages and notifications without overwhelming the wearer.

Apple plans on scheduling appointments to purchase the Vision Pro in-store, adopting a similar strategy to its approach with the Apple Watch in 2015. This ensures early adopters leave with a properly fitted product while also boosting exclusivity and intrigue.

Some analysts are optimistic, projecting that the Vision Pro’s user base will surpass 12 million within five years of its launch. That’s far less than its unit sales for other products, though it comes at a higher price point.

Why it matters:

When America’s biggest company unveils a new product, it’s a big deal for both consumers and investors. However, can Apple overcome initial skepticism and prove the device is more than just a novelty? If so, it also must be able to profitably produce the headsets at scale.

The Vision Pro’s debut is expected to be the company's most complex product debut yet, involving sensitive production challenges and supply chain logistics, training sales staff on device setup, and educating customers on its usage.

Additionally, Apple initially intended to manufacture approximately 400,000 units of the Vision Pro headset priced at $3,499 in 2024. But they have seemingly scaled back those plans, only requesting component suppliers for enough parts to produce 130,000 to 150,000 units in the first year.

• The production adjustment stems from manufacturers’ difficulties with the device’s intricate design, specifically the micro OLED displays, which are crucial for delivering immersive experiences.

• These are also the most expensive components, with a combined cost for two micro OLED displays (for each eye) estimated at $700, almost half of the device’s total manufacturing cost.
  

• Input costs, production delays, and uncertain customer demand prompted two Bloomberg analysts to suggest the new headset won’t have a “significant financial impact for the next three years.”

MORE HEADLINES

🥵 World records hottest day ever for the third time in four days

💼 Employment rate for people between the ages of 25 and 54 reaches highest in 20 years

✅ President Biden approves the largest off-shore wind project to date in U.S.

🚀 SpaceX’s ‘De Facto’ Monopoly on Rocket Launches (WSJ)

To reach space, there’s Elon Musk’s SpaceX, and not a whole lot else.

Satellite operators and government agencies increasingly rely on the private company that has cornered the market because it has a proven fleet of reusable rockets at lower prices than the competition.

• SpaceX rockets powered 66% of customer flights from U.S. launch sites last year and handled 88% in the first six months of this year, a dominance set to continue. Russia’s invasion of Ukraine put one alternative in Russia off limits for most launch buyers, and rival vehicles from Jeff Bezos’ Blue Origin and the French launch company Arianespace haven’t yet flown.
  
  

• “The fact is that the competition can’t field anything right now, and that makes SpaceX a de facto monopoly,” said a former Air Force space operations officer who writes about the space industry.

Many satellite-internet companies pay SpaceX to launch devices that help them compete with SpaceX’s satellite-broadband service, Starlink. SpaceX is also the only company ferrying NASA astronauts to and from the International Space Station, giving it additional revenue streams to fund other ambitious projects.

• That includes Starship, which exploded during its inaugural test flight in April. SpaceX wants to use Starship for satellite launches, human missions, and the trip to Mars that Musk has long envisioned.
  

• “We don’t really think about the competition,” Musk said recently.

Why it matters:

Musk founded SpaceX in 2002 to one day transport humans to other planets. The company has since aggressively tested and made improvements to vehicles, showing it can operate a fleet of reusable rockets that reduces waste and can significantly reduce costs.

• Companies such as SpaceX charge tens of millions of dollars to ferry satellites, scientific instruments, and other payloads to orbit. The worldwide market for all rocket launches was estimated at $8 billion in sales in 2022 and is projected to grow to $13 billion by 2025, according to Deutsche Bank.
  

• The totals don’t include SpaceX’s launches for Starlink, which sells high-speed broadband connections via its satellites. Starlink has provided internet for Ukrainians during its war with Russia and has about 1.5 million customers globally.
  

• “We have the hardware. We have the infrastructure. We can scale the staffing,” a SpaceX executive said.

See you next time!

That's it for today on We Study Markets!

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