Welcome to Sunday Bites, people. During the day we’re running GoBias industries and at night we’re scouring for articles to analyze to make you smarter about current financial events.

We also have Oppenheimer Barbies this week.

Here’s the run-down for this week:

Evergrande: Bankruptcy Edition

Evergrande, the Chinese Real Estate giant filed for bankruptcy protection this week in the United States, seeking relief from American creditors as the firm begins restructuring in Hong Kong and the Cayman Islands.

Here’s 2 things for context:

By way of background,

1. The embattled developer which realized losses over the last two years of over $80 Billion, heralded a real property crisis in China from 2020-2022 as demand for housing softened and construction on many large projects stalled.

2. This led to broader market chaos in the fall of 2021, as markets began to price in the probability of a complete sector collapse.

Okay Peter, it’s a Chinese company why do I care?

Alarmists believe that China's loss may be the United States' gain, and could even serve as a curb to inflation in the West.

This is because: deflation weakens the Chinese Yuan, which favors countries with a stronger currency who are net importers of Chinese goods, like the U.S..

In the short-term at least, Americans can expect to pay a little less, relatively speaking, for Chinese-produced durable goods.

Could it be enough to be material? Perhaps if it's long-term enough of a trend, but many economists doubt that it will be, as China may still be on target to hit a 5% annual rate of GDP growth. 

Let’s talk about steel, baby

We’ve never much talked about raw materials because we’ve never really had a reason to (you’re not going to impress any flashy MD’s by talking about your book on metals).

But here’s something interesting: The eventual regulation big tech is going to go through…other industries have already been through it (steel, transportation, cable, finance).

So, what’s steel got to do with it?

Here’s the cold hard breakdown:

• Well, first off, stop with the pun-adjacent BS
  
  Okay fine.
  

• US Steel rejected a bid from Cleveland-Cliffs for an acquisition.

• There are 4 key players in the United States Steel game. Cleveland-Cliffs and US Steel are 2 of those players.

• Cleveland-Cliffs looks to expand further as they’ve acquired AK Steel and ArcelorMittal’s US operations in previous years.

• If you’re thinking ‘Well any regulatory body would block that merger anyway. The market is already too consolidated.’

NOT SO FAST PARTNER

Ugh what’s with the irrelevancy this week, guys?

You’ve heard it in your favorite podcasts all the time:

• Apple should buy Netflix

• Netflix should buy Disney

• Microsoft should buy Krispy Kreme (nooo silly)

Well, why haven’t these acquisitions happened?

Aside from maybe it doesn’t work with their brand/strategy, it would also mean more regulatory scrutiny in already sensitive environment and a possible block of a buy/merge transaction. 

So why might a steel industry merger go through even with such a tight roster of large producers in the US?

Here’s the answer: Failing Industry. 

Sometimes, an industry actually benefits when you call it ‘failing’, because regulators can provide more leeway for M&A because importers might be dominating a given industry over the domestic player.

Here’s a stat: United States produced 80.5mn tons of steel last year. China produced a 1B tons.

That merger with Cleveland-Cliffs and US Steel? If US Steel accepted that merger, it would barely crack the top 10 steel producing companies in the world.

So, sometimes regulations can get stepped over depending on the state of its industry. A little lesson for your mind grapes.

Again, none of this is investment advice.

What AI made this week

Have a great week!

Ahmed and Peter