COTD: Coronavirus Risk To Manufacturing

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The holiday is over, but few people are back in offices and factories…the effects of covid-19 will be like those of SARS in 2003: a sharp shock to Chinese growth, followed by a strong rebound. But SARS may not be a reliable guide. China’s economy accounts for 16% of GDP today, up from just 4% then. It has become enmeshed in supply chains of mind-boggling complexity, and just-in-time production leaves little room for delays.  – Economist

That Was Then, This Is Now

China Impact on Global Economy 2019 v 2003

Hat Tip:  Mike Bird  @Birdyword

Run to our post, The Global Supply & Demand Shock Of The Coronavirus, which we wrote waaaaaaaay before the MSM jumped on this story.

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Why The Millennials Feel The Bern

The Global Macro Monitor has been writing about the Clash of Generations for years, and way before the headlines and data that are now starting to show up in the MSM.   See here.

The fight taking place between the moderates and the progressives in the 2020 Democratic primary is just another manifestation.

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The nation’s finances are almost as skewed toward the elderly as its politics are. Americans 55 and up account for less than one-third of the population, but they own two-thirds of the nation’s wealth, according to the Federal Reserve. That’s the highest level of elderly wealth concentration on record. The reason is simple: To an unprecedented degree, older Americans own the most valuable real estate and investment portfolios. They’ve captured more than 80 percent of stock-market growth since the end of the Great Recession.  – Atlantic

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Representative Alexandria Ocasio-Cortez is often described as a radical, but the data show that her views are close to the median for her generation. The Millennials and Generation Z—that is, Americans aged 18 to 38—are generations to whom little has been given, and of whom much is expected. Young Americans are burdened by student loans and credit-card debt. They face stagnant real wages and few opportunities to build a nest egg. Millennials’ early working lives were blighted by the financial crisis and the sluggish growth that followed. In later life, absent major changes in fiscal policy, they seem unlikely to enjoy the same kind of entitlements enjoyed by current retirees. – The Atlantic

We have put together a few charts to help explain the economics between this struggle.  We are grateful to the economists and statisticians at the Federal Reserve Board for constructing their Distribution of Financial Accounts (DFA), which provides a treasure trove of data.

Go To The Charts

We will let the charts speak for themselves, and, yes, we get it.  Younger generations are always less wealthy than the older ones, who have had a lifetime to accumulate assets, but wealth accumulation has become increasingly prohibitive for those just starting out in our age of serial bubbles.

We are hoping the Ms will not be sucked into this massive asset bubble.

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Controlling For Population Ratios

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The Washington Post’s Christopher Ingraham adjusts for this, pointing out that in 1990 “boomers owned 21% of the nation’s wealth and represented 31% of the population, for a wealth-to-population ratio of 0.68 — each percentage point of the total U.S. population represented by boomers, in other words, owned 0.68 percent of the wealth.”

And yet in 2008, “Gen X–ers owned 9% of the wealth and made up 22% of the population, for a wealth-to-population ratio of 0.41.”

Millennials by comparison, are on track to have an even lower wealth-to-population ratio than that.  – MarketWatch

Upshot

When you have little or no “skin in the game”, why support the system?   Burn it the F&@K down!

Don’t chase and let the markets come to you Ms.  The fever will break and the bubbles will burst.  Not a great way to reduce the wealth gap but it will provide an opportunity to accumulate assets at a decent price.

Patience, young grasshopper.

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Source:  Axios

What Generation Are You

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Source:  Career Builder

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Low-Cost Universal Health Care With A Record Budget Surplus?

How can it be?

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     See the full DW article here

The following video on the German health care system is a must view, folks.

Take the 10 minutes and watch.

If not, study the charts.

The German system is completely private consisting of two plans: 1) SHI — Statutory Health Insurance — for those making under $60k per year, is made up of a highly regulated sector of competing not-for-profit private companies, and 2)  PHI – Private Health Insurance.

Upshot

Better healthcare at a lower cost.  Ich bin ein Berliner, baby!

You listening Amy, Mike, and Pete?

Hat Tip:  Roro @rorotrader

Germans Much More Satisfied Than Americans 

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Less Than U.S. Health Care

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Two-Tier System – Public and Private Options

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Less Wait Times

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Much Lower Prohibitive Costs

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Source:   All Charts Are From The CNBC Video

 

 

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Coronavirus: It’s The Second Derivative, Stupid!

Double yikes.   Arrest this beast!  Please!

On a business trip meeting with many firms with huge exposure to China.  Concern in their community definitely growing but still a bit clueless about the seriousness of the growing crisis.  I give them about two weeks before full blown panic sets in.

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The Global Supply & Demand Shock Of The Coronavirus

Our analysis of the impact of the Coronavirus is a work in progress and nobody knows the endgame.  It is still the early days of the epidemic, and its dynamics will take time to understand. The scale of the impact will depend on how contagious and lethal it reveals itself.  That is the second derivative of the infection rate – the rate of change of the rate of change.

There is a supply shock to global manufacturing as many factories in the world’s supply chain will be shuttered for longer, which shifts the global supply curve left, increasing-price and production pressures.  Ergo component shortages, higher prices, and lower production.

The 2 percent decline in the U.S. stock market and collapse in bond yields are signaling a potential global aggregate demand shock that offsets inflationary pressures of the supply shock.

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As of Friday, 10,000 cases have been confirmed by China, surpassing the total from the 2002-2003 SARS epidemic. The new virus has killed 171 people in China.

The epicenter of the outbreak is Wuhan, one of China’s largest manufacturing centers. Foxconn and Pegatron have operations there, as do memory manufacturers such as XMC (non flash) and Yangtze Memory Technologies Co. (non-volatile memory).

Auto producers, such as General Motors, Honda, Volkswagen, BMW and Daimler also populate the region.

The electronics industry is poised for a cascading disruption that could change industry growth forecasts for the year. Bill McLean, president of semiconductor research firm IC Insights, said the virus has exacerbated the economic unease that has stalled semiconductor capital investment.

“Brexit, trade issues and now the coronavirus are causing global uncertainty,” he said  at a Boston-based forum. “Uncertainty causes [businesses and consumers] to freeze.” Worldwide, semiconductor capital spending is forecast to decrease by roughly 6 percent this year, from $103.5 billion in 2019 to roughly $97.6 billion.

Zhang Ming, an economist at government-backed think-tank the Chinese Academy of Social Sciences, warned that the virus could push China’s economic growth below 5 per cent a year in the first quarter, reported the Financial Times. Economic consensus currently puts China’s GDP growth at 5.7 percent. That average has steadily declined since 2018, according to McLean.  — EE Times

More than 300 of the Global Top 500 companies have a presence in Wuhan, including Microsoft and Siemens. Wuhan is located in the Hubei Province.

Wuhan has 10 car factories, including those Honda, Renault, PSA and General Motors. The car industry represents around 20 percent of the city’s economy and employs 200,000 people directly and more than a million indirectly.

Most factories lose about two weeks of production in total during the Lunar Holiday but more production will be lost as the holiday has been extended.

Here is a look at the main manufacturing regions in China.

China Manufacturing Distribution Breakdown

Electronic Industry: Mainly in Guangdong (33%), the rest in Yangtze River delta, Sichuan, Shaanxi Provinces.

Textile Industry: Mainly in Zhejiang (18%) and Jiangsu (20%), the rest in Fujian, Guangdong, Shandong Provinces.

Leather & Feather: South-East Coastal areas, Hebei, Henan, Chongqing and Ningxia provinces.

Metal Product: Zhejiang, Guangdong, Jiangsu, Shandong, Hebei, Henan provinces.

Glass: More in Hebei, Jiangsu, some in Shandong and Guangdong provinces.

Ceramics: Jingdezhen in Jiangxi provinces

Furniture: Mainly in Guangdong and Hebei province, the rest in Jiangsu, Zhejiang, Shanghai, Chengdu and Beijing.

Construction: More in Shandong province, the rest in Hubei, Henan, Guangdong, Jiangsu, Beijing, Zhejiang.

Household Appliance: Guangdong, Zhejiang, Shandong provinces.

Artware & Stationary & Sporting: Zhejiang, Fujian, Guangdong, Hubei

Papermaking & Printing: Guangdong, Zhejiang, Jiangsu, Shandong, Fujian

Machinery Manufacturing: Dongbei Area, Hunan and Hubei provinces.

Petrochemical Industry: Shandong (32%), Liaoning (21%), Guangdong (15%)

Pharmaceutical Industry: Tianjin city, Xian city in Shanxi province

Food & Beverage: Liaoning, Shandong, Jiangsu, Guangdong, Fujian, Hebei, Henan, Hunan, Hubei, Inner Mongolia

Transportation Equipment:

  • Motor & Bicycle: Taizhou city in Zhejiang province (40%)
  • Shipping/Vessel: Yangtze River delta, Pearl River Delta, Bohai Bay Areas
  • Automobile: Mainly in Jilin, Hubei, Shanghai and Yangtze River delta, the rest in Pearl River Delta, Beijing

 

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Source: Berkeley Sourcing Group

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Source:  CNN

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Our Kafkaesque World Encapsulated In One Tweet/Video

See here for a good primer on the term Kafkaesque.

“So disorienting and illogical”

Screening for guns but no screen if you’re packing at the state Capitol.   WTF?

See no evil

That’s less than a chip shot away from the logic of the three monkeys now taking place in the Nation’s Capitol.

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The Rise Of The China Market In All Things

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Tesla Is Off The Charts

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Tesla is gapping up 12% after hours after releasing earnings.

We know several shorts who have been destroyed over the past six months.   The stock is up 270 percent from its June lows.  Rather stunning.

This comes after the company reported positive net income in the Q3 earnings report.

Still,  auto revenues grew by just 1 percent in 2019, but up 18 percent sequentially in Q4.

GAAP net income was down 25 percent on the year and 27 percent sequentially.

Vehicle deliveries climbed to over 100k for the time.

We are watching closely how these high fliers, including Apple, behave over the next few weeks.

The price action in Tesla, among others, is more of a macro thingy than micro, in our opinion.   Very Bubblicious.  We never learn.

 

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How The Coronavirus Affects The Body

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Copper Flop

If true, quite an impressive slump…

 

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