Decline in global economic activity

Shipping group AP Moller-Maersk today warned of a steeper decline in global demand for shipping containers by sea this year, prompted by muted economic growth and customers reducing inventories.

Fits with news from China:

China’s exports fell last month at their fastest pace since the onset three years ago of the COVID-19 pandemic, as an ailing global economy puts mounting pressure on Chinese policymakers for fresh stimulus measures.


Our companies are coming home. China is fading and turning inward as a failure.

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They may be moving from China but I’m not too sure where they will end up:

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It is not an either or producing the largest share of the global output. Our manufacturing will end up in many many places.

The Mexican labor is less expensive than Chinese labor. That possibly goes lower yet in some of central and south America. India has a proximity we may want to other markets.

Back when Ford Motor was considering offering a third generation Focus in North America, their first thought was build in Mexico, then they switched to sourcing it in China. Their reasoning was it would cost half a Billion for a set of tooling for a line in Mexico, while, building in China made it possible to leverage the tooling made for producing for domestic Chinese sale. The savings in tooling more than offset the higher variable cost of Chinese production vs Mexican. Of course, ultimately, Ford elected to not offer the Focus here at all, only offering SUVs instead.

Currently, Ford has ended production of the Edge in Canada. The Lincoln Nautilus is a tarted up Edge. Ford likes the fat profit margin they can get by pasting a Lincoln badge on the car, but, they do not sell enough Nautiluses here to pay for the tooling. The Edge is still made in China however, so, again, Ford is leveraging the Chinese Edge tooling to build Nautiluses there, for sale in the US.

My takeaway is that as long as a company is producing something in China, they will tend to source product in China for export to the US, to leverage the sunk costs in China.

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China is very quickly losing economies of scale. Not only have they topped out but they are in decline.

As the US and EU pulled their factory production from 2021 forward the economies of scale have moved.

While you have an older point about Ford it is not just one industry that benefits from economies of scale. There is energy production, transfer and other costs that come into play as resources and products are sourced.

The tooling industry had moved to China. That is changing fast. It does not have to change for Ford auto manufacturing lines first but eventually it will change for that as well.

United States, mostly. The US is undergoing a generationally huge investment in manufacturing construction spending. The great Neil Irwin reports:

“We believe the U.S. is in the early stages of a manufacturing supercycle,” wrote Joseph P. Quinlan, head of CIO Market Strategy at Merrill and Bank of America Private Bank, in a report this week.

  • He emphasizes the role of foreign direct investment in the surge, as global companies rush to build large-scale facilities in the United States. He sees the trend extending well into the second half of the 2020s.
  • “It’s really gotten the attention of the world,” Quinlan tells Axios. “When you talk to companies in South Korea, Japan, Europe, all they want to talk about is building out a presence in the U.S.”

Other countries don’t seem to be making similar investments.

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Yes, and Mexico is getting the same only more highly leveraged by what is going on in the USA, as Mexico is rapidly becoming USA’s new Vietnam and Philipines. The peso has been on a tear, much to the dismay of some resident retired gringos without local income streams.

david fb


But our investments will also be in central and south America. Depending on a lot of factors.

That’s where our investment dollars should go because…

Gold doesn’t produce anything, factories do. BTW, just because central banks are buying gold is not a good reason for individuals to buy the stuff. Central banks are hedging in case their currencies turn to crap – fiat currencies tend to just that. Gold remains a universal currency but individuals live in one economic sphere and most of the time it’s best to be invested in that sphere. Venezuela, for example, since the discovery of oil has been in the USD sphere. A large part of the so called ‘capital flight’ went to the USA, condos in Miami for example and to the American stock markets.

The Captain

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