China is Winning the EV War

Posted on September 27, 2024 by MN Gordon

Jim Farley, chief executive of Ford Motor Company, knew it was bad before he boarded his return flight to Michigan. His fact-finding mission to China in May had revealed the cold hard truth.

That “Chinese EV makers are using a low-cost supply base to undercut the competition on price, offering slick digital features and aggressively expanding to overseas markets.”

According to Farley, “this is an existential threat.”

While U.S., German, and Japanese automakers were busy focusing their electric vehicle (EV) rivalry on Tesla, Chinese EV makers like Xiaomi and BYD were busy upending the market. Lower prices, high-tech interiors and rapid vehicles updates, have brought Chinese made EVs to dominance in the span of a few short years.

Farley’s EV products cost more and do less. The Ford Mustang Mach-E, for example, has a range of 320 miles and a price of $39,995 to $58,995. By comparison, the BYD Sea Lion 07 has a range of 379 miles and a price of $26,700 to $33,200.

American consumers generally have no clue of what has happened. Steep tariffs have kept Chinese EVs out of the U.S. so far. Under the veil of protectionism, the American public is none the wiser. Continue reading →

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Let the Games Begin!

Posted on September 20, 2024 by MN Gordon

Monetary policy took center stage this week.  On Tuesday and Wednesday, the Federal Open Market Committee (FOMC) huddled up, licked their collective index finger, held it up to the wind, and then commanded how they would intervene in credit markets.

With the major stock market indexes and housing prices near all-time highs.  And with consumer price inflation still rising.  These are hardly the conditions that demand cheaper credit.

Nonetheless, the Federal Reserve cut the federal funds rate for the first time since March 16, 2020 – during the dark days of the coronavirus panic.  What’s more, the Fed went big.

Wall Street wanted a 0.50 percent rate cut.  Thus, the Fed delivered a 0.50 percent rate cut.

Traders had waited all year for this moment.  They’d diligently bid up share prices for months in anticipation.  When the moment finally arrived, they reacted like a deer in the headlights. Continue reading →

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What Would Hugo Do?

Posted on September 13, 2024 by MN Gordon

“The wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion.  There is no means of avoiding the final collapse of a boom brought about by credit expansion.  The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”

– Ludwig von Mises, Human Action

Crank Up the Printing Press

Fed rate cuts are coming.  If you believe this will levitate your stock portfolio, you are in for a big disappointment.

The forthcoming collapse on Wall Street can be seen a country mile away.  But only by those with their eyes open.

Extreme stock market valuations.  Sky high prices.  An AI bubble that is running out of greater fools.  All the while, the economy is slipping into recession.

These factors, coupled with a behemoth government debt problem, are aligning for something much more than a run-of-the-mill bear market.  By our estimation a 50 percent top to bottom decline in the S&P 500 will be the minimum.  Practically speaking, if the stock market goes down by 50 percent, then up by 50 percent, you have not broken even. Continue reading →

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Reality Check September 2024

Posted on September 6, 2024 by MN Gordon

Summer break is over.  School is back in session.  Football rules the weekend.

With the turn of the month, and the approaching autumn season, comes a reality check.  A time to pause and take stock of where things stand.  A time to make decisions.

With respect to the economy and financial markets, there appears to be a long, cold winter ahead.  Stocks are near their all-time highs.  Valuations are at historic extremes.  While cracks are appearing in the economy’s foundation.

For example, U.S. manufacturing contracted in August for the fifth consecutive month and the 21st time in the last 22 months.  These were the findings offered by the Institute for Supply Management (ISM) on Tuesday as part of its monthly Manufacturing PMI report.

Specifically, the manufacturing PMI for August came in at 47.2.  A PMI reading below 50 indicates contraction in the manufacturing sector, which accounts for 10.3 percent of the economy.  Machinery, textile mills, chemical products, transportation equipment, electrical equipment, and appliances and components were among the 12 industries reporting contraction. Continue reading →

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