And This Isn’t Even a Global Recession Yet.

Auto sales plunged in China over the past four months. What was particularly disconcerting was the sharp deterioration at the end of the year in other markets, not just China. Each market has its own problems, but they’re sure coming together at an awkward moment (13 minutes).

“What we witnessed in November and December was just extraordinary.” Read…  Bottom Suddenly Falls Out of Demand in China in Many Sectors


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  46 comments for “THE WOLF STREET REPORT

  1. Howard Fritz says:

    Sputtering growth, soaring debt and an escalating trade war with the United States are increasingly weighing on China’s economy.

    China has reported growth figures over the past two years that painted a picture of an economy that is gamely chugging along, despite the country’s lingering problems and widespread doubts over the reliability of official numbers. A different narrative has emerged this year, one of a slowing economy that is forcing Beijing to make some difficult choices.

    During periods of economic slowdown, China has turned to local governments to prompt growth through big infrastructure and development projects. That approach fueled growth but saddled key parts of the economy with debt.

    China’s expanding middle class and its increasingly expensive consumption habits have been an important pillar for growth as China moves away from its dependence on exports and big investment projects.

    Wages are stagnant. Investment in splashy infrastructure projects has dropped sharply.

    It would appear that in many ways peak prosperity has come and gone and we didn’t even notice, or rather choose to ignore.

    • I am Marie Antoinette's Big Toe says:

      …I miss sept 2008 through may 2009 so much…sigh…the schadenfruede vintage from those years was excellent…although it could’ve been much much better..this time around I’m not sure how pleasurable it will be to see elite panic, but I can say one thing, the political backlash this time will be much much bigger than 2008 where people were sort of asleep at the wheel…not this time..

      if similar events come to pass, the rioting will be glorious…more so in europe than asia and america…perhaps brazil? perhaps central and the southern cone…in the usa I don’t see anything happening on the scale of the occupy/tea party protests of the early part of this decade…but what I do expect is the people fighting each other rather than elites…in the us people are totally confused, same in the UK (though not as much), europe carries the legacy of robbespierre and elites have never forgotten this, though they certainly try.

      I wonder what timmy geithner is doing nowadays…

      Mark twain said: history doesn’t repeat itself, but it does rhyme…c’est la vie…

      • yngso says:

        The Cinese govt is already obsessing about and do a lot to avoid social unrest. Govts worldwide will be busy doing this soon.

  2. michael says:

    prices up…sales down what could possibly go wrong. i am sure they can make it in volume

  3. Aussie says:

    If the demand has fallen off in China, the US and elsewhere, would more than likely drop off proportionately. But is China really as bad as MSM makes out?

    • Stockolio says:

      Yes, I live in Vancouver… Can definitely confirm

      • roddy6667 says:

        Is Vancouver in China?

        • Si says:

          Yes it is!

        • Nat says:

          I was on business in Shanghai late 2017 and the topic of Vancouver came up. A number of native Chinese present talked about how much they loved the place because “it is just like an extension of China, you feel right at home and can do everything in Mandarin.” By the end of the conversation I learned one of the people present who considered themselves native-born Chinese had actually been born in Vancouver and spent a number of their early formative years there. Both she and the other actual native born Chinese present seemed to make no distinction between her being born and raised in Vancouver or China proper.

          So Vancouver is apparently (unofficially) considered an honorary Chinese city by at least middle-to-upper-class urban Chinese. The rural and lower-class Chinese may have a very different opinion however, but I would argue rural and lower-class Chinese live a very different existence then the urban and middle-to-upper-class class Chinese; enough so that they probably consider each other effectively more from different countries than the urban middle-to-upper-class Chinese do Chinese born in Vancouver Canada.

      • Nick says:


      • Nicko2 says:

        Silver lining; Hong Kongese are migrating back to Canada (ie. Vancouver) as China’s authoritarian agenda picks up pace in the not-so-autonomous territory

        • Paulo says:

          Mostly Richmond. Vancouver has other ethnic enclaves as well. However, the Chinese surge started in earnest with Hong Kong leaving British control in ’97, mostly due to fears about Communist China taking their wealth away. Since then China has become more like Hong Kong than the other way around.

          A good friend of mine married a Chinese gal of Hong Kong descent. As he explained her wealthy family to me, it’s always money money money, and appearances, in that order. They tolerated him but that was about it as he was a carpenter who worked with his hands building houses. They sold RE, and this was before the latest surge of Chinese emigration/immigration.. :-)

        • Atu says:

          The British didn’t want Hongkongers (except for a very select group) , went out of their way to limit British citizenship to the people, even tried to get Portugal to deny nationality to Macanese which transfered around the same time, because they feared Hongkongers would find an indirect route back to UK (that is quite recently revealed after declassification of documents) ! British Columbia is probably a nicer destination anyway, but there is still resenment towards the UK for its approach.

          So you know who to blame if you have to.

        • Gandalf says:

          Yes, and thus England’s national dish became chicken tikka masala instead of sweet and sour pork

    • roddy6667 says:

      The average Chinese citizen saves a third of his income for the future. If a Chinese household suffered a 33% cut in income, they could just refrain from saving and not change their lifestyle one bit. If they cut back on dining out and entertainment, they could weather a 50% slash in pay easily. A single digit slowdown in the economy is not going to change things much for the average person.
      Not so for the typical debt-ridden American family living on the ragged edge of bankruptcy.

      • Si says:

        This assumes the saving is in cash. If in hard assets like apartments for example then not so easy. So called ‘wealth funds’ have come to a bad end taking savers with them.

        • roddy6667 says:

          They save money in cash first. Second and third homes are later. Everybody has cash. The “wealth funds” in the Shadow Banking is almost all “casino money”, coming after cash and a paid off home. Of course there are imprudent gamblers who put it all on one roll of the dice, but they are not the norm. Most Americans can’t understand or accept the fact that Chinese have savings and almost no debt.

      • Nicko2 says:

        There is no universal publicly funded social welfare support system in China – no old age care, little pensions, weak public schools ect… There is little fallback for the struggling middle class when times get tough — but oh, they could always to back to the village and scrape out an existence as a subsistence farmer.

        • RoseN says:

          The United States is not that far off from this or perhaps we’re in a worse state because of the skyrocketing costs for some essential services (e.g. healthcare, college, housing).

        • roddy6667 says:

          I’m 70. Almost every person my age in China I have met is getting some sort of government check every month. In the cities, the people also get a medical card that is kind of like Medicare. The rural people, not so good, but it is improving. They have town clinics and have to go to a city for more advanced care.
          The public schools give a better education than American schools, which are now far down the list in international ratings.

      • Pat McKim says:

        The problem with this comment is that “average” is only very few. “Median” would be better. The poor in China don’t save 33%. The rich do. You understand the US because you live here, but you don’t understand China because it’s a different culture and you haven’t experienced it. What you just said was uninformed blather. As Twain said, “There’s lies, damn lies and statistics.”

        • roddy6667 says:

          I have lived in China for years. I have extensive family here, and own real estate. I know a lot more than the third hand rumors you read on the Internet.

    • yngso says:

      The MSM always only scratch the surface. The Red Ponzi as Stockman calls it is much worse than most people know about and the Chinese will admit. Breakdown there will be a big problem for the world.

  4. And this while fuel is cheap. Gotta wonder what happens with $1 bump at the pump and our industry is caught heavily invested in fuel hogs. Dejavu.

  5. timbers says:

    This article captures my thoughts regarding our 10+ year laggard Federal Reserve, and words can’t described the ECB and it’s Alice in Wonderland polices:

    “The window to restock monetary ammunition is closing for the world’s major central banks.

    With economic growth slowing and inflation lagging in big economies like the U.S. and euro area, a push to escape crisis-era policy settings that include rock bottom interest rates appears at risk of stalling. That will leave less firepower to fight off the next economic downdraft, threatening a prolonged downturn.”

    • ZeroBrain says:

      The Federal Reserve can create unlimited amounts of money at a keyboard, so their bloviation about keeping “dry powder” and such seems insincere to me. They just want to pretend they don’t get to make the rules (“Hey, let’s buy overpriced MBS at par and bail out our friends!”) and do whatever the hell they want.

      • Atu says:

        Good point. They play this game where demand is considered real if there is a price to it, that being interest payment. So you can fuel demand at a smaller cost, and by obvious mechanism demand actually increases the lesser the cost of financing it. You then get to zirp, and the only cost is you have to repay sometime. Them nirp, which is force feeding credit/demand . Actually though, with inflation low positive rates act like nirp – people push to speculate to keep pace with inflation, hence asset price increases occur. Also government debt acts like nirp, because that money will not be repaid but rolled, so causing various inflation, which is part of that acting on the low rates above.

        So “dry powder” is just the name used for a section of finance which is considered true to market principles, the official book that people like to think they are playing right by.

        Wet powder is mush, as in when money openly becomes a fools game, where demand is allocated politically. It doesn’t do much except redistribute existing wealth and make balance sheets look better. It does not have the effect of having people calculate how they are going to contribute to repay. It makes people dependent unless they are very smart about it – it does not invite prudence, and is usually enacted when a majority of people are already stressed, so just is relief. People like relief, it makes them feel entitled.

        So it is all a con maybe, not because there isn’t a difference between wet and dry, but because the whole framework is so manipulated in so many ways you would not know where to place the distinguishing line.

  6. raxadian says:

    “No more cheap credit” sure has affected everything.

    And is not like the FED was subtle saying it was gonna raise rates, last year it warned months in advance before each raise.

  7. Bobber says:

    Wolf mentioned the cost of a crossover is about the same as the cost of a sedan, since they share the same platform and power train. Yet the price difference is huge, simply because customers are willing to pay the premium.

    I also think automakers are successful in selling extras of questionable value like changing notification, other monitoring equipment, and interior electronic BS.

    This tells me that a large part a new car (i.e., the extra junk and premium margin) is discretionary and will be hit hard in a recession. The used prices of these cars should also take a big hit.

    I was thinking about buying Ford stock because it’s price has been beaten down, but I think there is more pain ahead that hasn’t been priced in.

    • Prairies says:

      I have heard a few people eyeing up a few markets for buying low but at the moment the market hasn’t gotten close to the bottom of a proper correction.

      As for Ford, it hasn’t fallen from a bubble. It has been steadily falling for 3 or 4 years and during the last crisis it fell much further than it has at the moment. The 2009 bottom was easy to spot but risky to buy into because over a 2 year period it went from $8 to $2 and then back up to $8. The current Ford situation is a steady decline, not a real promising market trend.

    • economicminor says:

      I’ve been car shopping lately.. due to my older sedan being t-boned.

      At a local Chevy dealer, their base Equinox model has NO features.. But to get one with the heated seats and dual climate control they wanted an $7k bump. I got up and walked out.. I guess the general public is nuts or Chevy is nuts or both.. Who in their right mind wants to deal with such foolery and gouging?

      So still shopping.. I go on line and find that I can purchase one with all the bells and whistles 250 miles away for only a few thousand$ more.. Also on line, Chevy Factory site offers a $4500 cash rebate for using GM finance. But when I ask about using this for the discounted version I am told it is only available on select models.. And not the one I want..

      To many games.. I think I will go try some other company. Good that I’m not in a hurry. GM lost my business.. Maybe they are all this way and I will buy some older used version from a private party.

      • Paulo says:

        Plus, with GM dealers watch out for bait and switch. My buddy ordered a specific truck and when it arrived it was short a few of the goodies, like the ‘tow package’ which he needed. After the “but but buy you said” routine he still bought the truck he didn’t want. Just like Clark Griswold in ‘Vacation’.

        The Family Truckster is now just called a crossover with heated seats, or the truck that cannot tow.

      • yngso says:

        Buy a very nice 3-5 year old car for a fraction of the price.

  8. Old Engineer says:

    I think the mid term future for the existing car makers does not look good. The birth rates of the U.S., Europe, Japan, Russia, and even China have fallen below the replacement levels. The birthrate of China is now below that of the U.S. This cannot bode well for the demand for autos. In addition increasing urbanization (as more people move to fewer bigger cities) reduces the affordability and need for autos.

    As Wolf points out the companies are focusing on the high and middle income sections of society, which are shrinking. You would think this would leave an opportunity for some company to make a business out of the low end. But between safety standards, fuel economy stands, pollution standards, and the increasing cost of materials, I wonder how easy that would be.

    • Rowen says:

      Of the 20-25 millenials/GenZ in my extended family, I would estimate that there are maybe 3 car owners. They just don’t have a desire to drive. Everything they need is literally on their smartphones. Netflix, uBer, uBer eats, Facetime.

      On the other hand, each of3 siblings had a car in high school because it was really hard to do anything without a car 20 years ago.

  9. ft says:

    A quick survey of my house, the house next door, and the two houses across the street in union City, CA shows 18 cars between us. Each house has a double garage, but only one car is kept in one of those garages. The driveways hold two cars and they are full. The other 9 cars are kept on the street. We’ve all done more than our part to keep ourselves broke and the auto companies in business, but can’t buy any more because we’ve no place to put them.

    • Old Engineer says:

      Yup. Here in Huntsville, AL, where I live, there are many houses in the neighborhoods with 4 and 5 cars parked in the driveway. The garages, of course, contain everything the family ever bought and no longer uses, rotting and rusting away and providing a nesting area for roaches and raccoons, and field mice.
      But the reason most of those families have those cars is that their young adult children (<30 or so) are all still living at home. Some don't earn enough to rent and some could but then wouldn't have much left over.
      And of course every American driver is required to buy car insurance (unlike medical insurance) and that cost has escalated dramatically, especially for people under 30 and people with a beginner's credit rating. So mom and pop are still subsidizing.
      By the way, I'm talking about a neighborhood of 250K to 300K houses, so the parents aren't poor.

      • NotBuying says:

        Hey, Huntsville AL my hometown! One of the few somewhat urban areas left without an outrageous housing bubble. I guess people have tons of discretionary income and choose to buy cars with it. Good for them, I guess? Haha

    • sierra7 says:

      That’s what all those expensive off site storage places are for: To store all the excess junk you can’t get into your houses/garages!
      Years ago in my day the SF Examiner (then a Hearst paper) heading the Sunday comics section was this script headline:
      “What Fools These Mortals Be”….(On to the comics!)

      • Old Engineer says:

        At the age of 68 I still read the comics first, every morning! Can’t help it. I have friends who have paid monthly for years to store old children’s toys, discarded sofas, clothes they can’t wear and that are 20 years out of style. When they pass on their kids generally toss about 90% of it and donate the rest. Most of it isn’t worth having a yard sale with.
        I have always wondered about the thought process of pack rats.

  10. secant says:

    WOLF – Is seems like it will take a very special “black swan” event for a global recession to play out beyond a 20% market drop if global central banks inject unlimited liquidity each time we get an attempt at market driven price discovery (see chart in link below)? China liquidity alone helped reverse the 2015/2016 U.S. “mini-recession”. Will a “Shanghai Accord 2019” continue the “BTFD/FOMO/TINA” motto? Dejavu 2016…with the Fed reducing rate expectations and China lowering bank reserve requirements.

  11. Paul Morphy says:

    Thanks for this very informative insight, Wolf.

    It would appear that the market for vehicle manufacturers is contracting. So as you point out Wolf, to offset the lower quantity of vehicles sold, the manufacturer ups the price per vehicle sold.

    But this maybe creating a future problem given that interest rates, LIBOR, have increased : making credit more expensive. If these higher price vehicles are being bought using credit (loans), then there is potentially another problem in the making namely car loan defaults.

    • yngso says:

      The importance of LIBOR has been pointed out about Australian banks’ mortgage loans, the Aussie housing bubble being a canary in the global coal mine ready to croak.

  12. yngso says:

    Like energy, the global auto industry isn’t getting enough attention, the overcapacity, malinvestment. need for consolidation etc etc etc. Keep it up WR!

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