Inflation-Deflation-stagflation-Overproduction-Fortress USA

Investment Analysis Clubs Macro Economic Trends and Risks
1

Latest Mish:

For decades, China had two ways to hit its GDP targets, a property bubble and exports.

But the property bubble has permanently collapsed as have the State Owned Enterprises SOEs that fueled the bubbles.

China desperately needs measures to support consumption, instead it goes back to the wll one more time with exports. It’s a move that cannot work.

WSJ writer Nathaniel Taplin says:
“China’s domestic economy remains weak
excess capacity is very real, and could be damaging to China itself.
pricing power both at home and abroad is weakening
capacity utilization data itself. Falling run rates were especially obvious in Beijing’s favorite sectors like automobiles and electrical equipment—the so-called “new productive forces,” including electric vehicles, chips and solar panels, which policymakers have highlighted in recent speeches and have been stalking Western politicians’ nightmares. Automobile manufacturing utilization rates fell below 65% in the first quarter: well below their previous low (excluding the first quarter of 2020) of 69.1% in mid-2016.”

[both previous and current presidents] does not want imports from China. Both want to make the US a near-island

A Major Trade War Looms

No one wins these trade wars, and this one is likely to have major international repercussions.

China is hell bent on growing via exports while the rest of the world is hell bent on stopping that. Via announced policy US trade policy will stop Chinese imports and the EU is fast heading in that direction.

Tariffs are inflationary and excess capacity is deflationary.

Thus, the trade war will be very deflationary in China, but stagflationary in the US and EU.

China will try to get around the tariffs by exporting cars or assembling the parts in Mexico.

I think this rates to be near the top of macroeconomic events in 2025. It is not on most people’s radar. And it will be a huge issue no matter who wins the presidential election in November.

I don’t disagree about this being a macroeconomic event. Just don’t know how it shakes out. Steady as she goes on my investments.

6 Likes
2

I think Mish is off the mark here, exaggerating things a fair amount. Only one potential future administration is talking about banning all imports from China. The other one is talking about merely reducing imports, with a ban only on cutting edge technology. And even that is sketchy, since the proposed ban doesn’t include Taiwan - which China considers to be part of China.

However, I agree with your conclusion. Don’t know how this shakes out, so steady on.

—Peter

2 Likes
3

“Yes, I think there’s a chance that can happen again,” he said during an appearance Tuesday at the Economic Club of New York.

“Chance”
Jamie’s crystal ball is as cloudy as mine.

1 Like
4

That is how you grab headlines these days. Just like the local weather report. Federal Weather Bureau says “marginal risk” (ie a 5% probability), so the local weather forecast is “60mph winds, 1” hail", even though there is a 95% probability nothing near that scale will happen.

Steve

2 Likes
5

The macro event has been the shift in the relative cost of Chinese factory building. Even with property values way off, production targets are deflationary because demand is not there.

US and Mexican factories are taking business from the Chinese. This lowers the relative factory costs. The more units sold the lower the factory cost burden.

Better yet economies of scale bring down the relative costs of factories.

The energy costs also drop. Factories demand energy and sign hard fought contracts with suppliers. These contracts manage and control the costs of energy even as usage goes up.

Better yet, the US is spending on key grid lines. This spending will expand in the coming years. This will bring down the waste or loss of electricity on the lines with modernization of the grid.

We have more and more of a deflationary energy pattern. Something China never reached.

3 Likes