Further to my comments on Irrational Exuberance, here are some excerpts from data that took place:
On October 3rd/18, Bloomberg Opinion stated that US automakers “just had a bad month. Buckle up: It’s going to get worse.” They went on to say that ”sales cratered in September” with Toyota’s deliveries down 10%, Ford’s down 11%, and Nissan’s down 12% and “investors shouldn’t think this is the bottom”. They say that shouldn’t be a surprise to anyone given the shift from sedans to SUV’s but that seems to be just a sop – down is down…if someone is shifting from a sedan to an SUV the numbers would reflect this, but these numbers reflect that people aren’t buying, period.
Yet BusinessWeek this week said that the consumer outlook is bright and that it should be a really good holiday retail season.
The economic multiplier effect of the auto industry is huge – according to the Center for Automotive Research (the aptly named CAR), there are 1.7 million people directly employed in the industry and altogether almost 8 million total owe their livelihoods to it. This is a key component of the economic well-being of all of North America. If sales are falling off a cliff and, let’s face it, I certainly don’t think that all those numbers are complete by any means, where is the “positive outlook” coming from? – maybe those polled got an early start on weed being made legal.
Irrational, hell – this is downright irresponsible.
But, more on the “Irrational” side, it’s been reported that US-based fund managers are still backing IPO’s of China-based companies, even if the companies are losing money. These are the same people who think that moving paper around is the same everywhere and just the time-zone differs. When Mr. Liu of JD.com was “unavoidably detained” a few weeks ago, it all of a sudden came to light that the company could not have a meeting of stockholders if he was not present – NOT ever! And he has control……sounds like a company that you would want to invest in, r-i-i-i-ght! You’d better hope that he’s healthy and stays out of jail.
And then there’s Haier – I recall that this is one of those companies lauded as one of the first Chinese companies to be privately owned….look closer and you’ll find that the majority of the stock is owned by the Government of Shandong and the City of Qingdao, not to mention a few other associated agencies….great company and great products but private? Not unless you have a different Oxford English Dictionary from the one that I own.
And then there was the paper issued by Wu Xiaohui of Anbang Insurance – great investment! Company is going places – it sure did….the dumpster would be a giant step up. 2 years ago I warned people I knew that this company was headed down deep (and I didn’t mean Australia) and then Caixin in 2017 issued a report that, shall we say politely, questioned the viability of the firm which, by that time, owned or controlled 58 companies around the world. Did they refute the article line by line? Nope – all they did was threaten to sue Caixin…..didn’t sue them, just threatened. Caixin is still running on all 8 cylinders – Wu Xiaohui will be a guest of the state for the next 18 years on charges of embezzlement, fraud and blah blah blah. That ‘paper’ ain’t Charmin but, in a pinch, it’ll have to do and that’s about all it’s good for.
The above is what I had written by October 5th but never had time to vet or post….since then, news about China housing market is down…down…down and ‘investors/homeowners’ having protests (called fangnao). Many analysts have long called the Chinese individual investor, “unsophisticated” – when one considers that the average person in China considers housing to be a “commodity” like grain, oil, or gold, “unsophisticated” should not be an adjective reserved just for the investor but applied to the market as well that fosters and hypes such thinking. And the powers-that-be do everything possible to aid and abet this lack of sophistication because it is those individual investors’ savings and, unfortunately, now their increasing loans that keep the money tumbling like laundry in a washing machine – and that is as good a metaphor as any for the state of the Chinese economy today.
“US$100 billion injected into the economy” read the headlines the other day – the government reduced the deposit ratio that the banks had to have with the Central Bank so that “they would be able to make increasing loans to small business” – sounds nice. But the banks are also state-owned and who said that the money was actually there to begin with and, even if they said it, was it actually there? And loaning to small business? Since when did any of those banks do anything other than loan to SOE’s whose main money-making divisions were their real estate ventures and their shadow banking?
And what kind of economy is it when people, these same unsophisticated uneducated people, are encouraged to borrow to buy lipstick and a chocolate bar (Lexin)? And how is it possible that companies are allowed to continue operations by loaning money and, as a ‘guarantee’ of payment, getting nude photographs of the borrower that will be publicly released if the payments are not kept current? And these ‘businesses’ (sic) are considered to be legitimate and some are even on the stock market!
A house of cards is never very stable but, when it is constructed on an ethical and moral morass perpetrated by those who should know better but don’t (and mainly don’t care anyway)?
ADVICE – RMB will continue to depreciate and inflation in China will start to climb. There will be more and more unrest, a lot of it illogical, as housing and stocks continue their erosion in value and home and stockholders find that their “sure thing can’t lose” investments are deeply under water; and there will be efforts to contain this unrest, many being illogical in response…..and one will beget more of the other. As orders dry up (partially due to the world economy gearing down, partially due to US companies having bought all they could before the 25% punitive tariff is imposed, partially because other areas of the world are starting to be able to manufacture in certain sectors), more and more companies will close putting more and more people out of work and putting more pressure on the state-owned banks, and consequently the state itself. And more and more money will leave China in torrents which will add to the pressure on the state as well as cutting down drastically on its viable economic options.
The piper is calling – and the piper will be paid. It sure was a helluva party!