by Louis Navellier
January 24, 2023
The debate about globalization (at Davos and elsewhere) will be interesting as companies increasingly return to more domestic suppliers to solve their global supply chain glitches. Although local sources may be more expensive, supply chains are now less global than just a couple of years ago, due to safety and security concerns. Canada and Mexico have emerged as the biggest winners from supply chains moving away from China. The biggest winners in Asia are India, South Korea, Taiwan, Thailand, and Vietnam, which are all experiencing rising export growth as manufacturing centers seek alternatives to China.
Interestingly, the International Monetary Fund (IMF) warned that declining global trade could shrink global economic growth, but other than China and Russia, many other economies seem to be benefitting from new supply chains being diverted to India, Mexico, Taiwan, Thailand, Vietnam, and other countries.
Complicating matters further for China, its population actually declined in 2022 by 850,000 people to 1,411,750,000 (from 1,412.6 billion in 2021) as deaths outpaced births. This demographic problem is attributable to the after-effects of China’s one child policy, imposed in 1980 and enforced for decades. It was replaced in 2016 by a two-child limit. China’s birth rate in 2022 was the lowest in seven decades.
India’s population now stands at 1.4066 billion and is expected to pass China this year. What’s more, China’s GDP grew by only 3% in 2022, the lowest in decades, while India’s GDP is forecasted to have grown 7% in 2022. India is now replacing China as a stronger Asian economy for the foreseeable future.
Also last week, U.S. Treasury Secretary Janet Yellen and Liu He, a senior Chinese economics official, met on Wednesday in Zurich. After a three-hour meeting, both parties said that it was “important for the functioning of the global economy to further enhance communications around macro-economic and financial issues.” Secretary Yellen added that she “looks forward to travelling to China” and welcoming her Chinese counterparts in the U.S. Secretary Yellen then headed off for a tour of Africa to strengthen U.S. influence there. Since China has invested heavily in Africa, I suspect that China wants to manage Yellen’s expectations. U.S. diplomatic ties with China were abruptly suspended after Nancy Pelosi visited Taiwan, but they are now being reestablished with the leadership change in the House. Ironically, the Biden Administration has been mostly following the Trump Administration’s trade policies with China.
The Wall Street Journal last week had a great article about how major Chinese infrastructure projects, like hydroelectric dams in Ecuador, Pakistan, and Uganda, are falling apart due to cracks in the concrete. Since most of these major projects are debt-financed, defaults are increasingly likely. As a result, China’s infrastructure projects in Africa, Latin America, and other countries are becoming increasingly scrutinized.
The EV “Earthquake” from Tesla’s Price Cuts Continues
The EV earthquake from Tesla’s price cuts is still reverberating, and it will be interesting to see if domestic EV sales will be stimulated by lower prices. Tesla effectively sent a “kill shot” out to the entire automotive industry with its EV price cuts, so it will be interesting to see how long Tesla will remain the EV leader. Interestingly, the #2 leader in U.S. sales, namely Ford, has collaborated with VW in Europe to make EVs based on VW’s electric “MEB” platform that utilizes VW-sourced batteries for Ford’s Cologne plant in Germany. Ford and VW formed an alliance in 2020 to join forces on EVs, self-driving technology, and commercial vehicles. However, Ford and VW recently stopped their joint work on driverless cars after the closure of the Argo AI business. Although Ford will build VW’s next delivery van, a pickup truck, and a future electric van, Ford is open to other collaborations, including with VW.
By the way, my family finally got our Audi e-tron back after five months’ hiatus due to two bad battery cells. Although the e-tron was running well, we sold it due to fears that other battery cells may soon fail, and the vehicle would be grounded again. I also noticed that due to Tesla’s price cuts, both Audi and Porsche dealers were eager to sell us their new EVs. They seemed to suddenly have sufficient inventory.
The next interesting development in the EV world pertains to Tesla’s massive giga presses, which it has installed in its new factories in Austin, Texas and Berlin, Germany. Essentially, the EVs from these factories have fewer body panels and so should be more reliable. The real question is: Do these massive giga presses make manufacturing cheaper? Virtually all major automakers make their vehicle bodies with robots that weld and glue body panels together, so I am not sure Tesla’s giga presses are an advantage.
I should add that stock prices for Ford, Toyota, and VW Group all declined in the wake of Tesla’s price cuts, but are now near-term buys, since they are all profitable and represent serious competitors for Tesla.
The Wall Street Journal reported last week that EV sales in 2022 surged to approximately 11.02 million vehicles, led by China with 6.798 million, Europe with 2.245 million, the U.S. with 1.098 million, and other markets with 879,000. China is the clear leader, but the U.S. will dominate pickup trucks and other truck designs, like Tesla’s Cybertruck that appears to be designed for an Apocalypse. Ford currently has the lead on pickups with the F-150 Lightning, while VW has the lead on vans with the ID.Buzz. Porsche is expected to sell many Macan EVs in 2024, when it makes its top selling SUV electric. Hyundai Motor is currently 3rd in U.S. EV sales and is expected to sell lots of SUV EVs, due to its joint venture with Kia.
Interestingly, Germany’s EV sales surged in December, since the government price incentive of 6,000 euros dropped to 4,500 euros in 2023, so analysts expect EV sales to temporarily stall now. However, Tesla’s recent price cuts and growing inventories may stimulate EV sales. Otherwise, the EV glut will continue to grow and an industry shakeout of unprofitable players, like Lucid and Rivian, may ensue.
The Latest U.S. Economic Indicators Point to a Possible Recession
The Commerce Department on Wednesday announced that retail sales declined by a shocking 1.1% in December, and November’s retail sales were revised lower to a 1% decline (from -0.6% previously reported), so 2022 ended on a very weak note and December marked the biggest monthly drop in the year.
Sales at bars & restaurants, which were strong in November, dropped 0.9% in December. Also notable is that vehicle sales declined 1.2% in December, while sales at gas stations declined 4.6% due to lower fuel prices. The only minuscule pocket of strength was that building materials sales rose 0.3% in December. Core retail sales, excluding auto sales, gasoline, building materials, and food services, declined 0.7% in December and -0.2% in November. So essentially, there are no longer any significant pockets of strength in the retail sales report, so the Fed succeeded in its destruction of demand in U.S. consumer spending.
Speaking of the Fed, on Wednesday the Fed released its Beige Book survey in preparation for its upcoming Federal Open Market Committee (FOMC) meeting next week. Six of the 12 Fed districts reported no change or a slight declines in economic activity, while five Fed districts reported slight to modest growth and one Fed district reported a significant decline in economic activity.
Ironically, the Beige Book survey said that most Fed districts benefited from a slight increase in consumer spending during the holidays, despite dismal retail sales in November and December! This is one of the problems with the data the Fed receives, since it is partly anecdotal and clearly a bit behind the latest economic data. I should add that the Beige Book’s economic data is incorporated through January 9th.
Fortunately, unlike the Beige Book survey, the bond market responds instantly to economic data. As far as the Treasury bond market is concerned, bad news is good news, since Treasury yields declined substantially in the wake of the December retail sales report. As a result, there is growing optimism that inflation will continue to decline, and the Fed may stop raising interest rates after its February 1st meeting.
The other reason that Treasury yields are falling is that the Labor Department on Wednesday announced that its Producer Price Index (PPI) declined 0.5% in December, due to a 7.9% decline in wholesale energy prices. Wholesale gasoline prices declined a whopping 13.4% in December, while food prices declined 1.2%. The PPI was substantially below economists’ consensus estimate of a 0.1% decrease. Excluding food, energy, and trade margins, the core PPI rose 0.1% in December, in-line with economists’ consensus estimates. Interestingly, the wholesale price of goods declined 1.6% in December, while final demand in services rose 0.1%. In the past 12 months, the PPI and core PPI rose 6.2% and 4.6%, respectively.
The Labor Department reported on Thursday that weekly unemployment claims in the latest week declined to 190,000, down from 205,000 in the previous week. Continuing unemployment claims in the latest week rose slightly to 1.647 million in the latest week, up from a revised 1.63 million in the previous week. Weekly jobless claims continue to run below economists’ consensus expectations and are now at the lowest level since September. It will be interesting to see if the layoffs announced by Microsoft and other companies significantly impact the jobless claims data in the upcoming weeks.
The Commerce Department announced that housing starts in December declined by 1.4% to an annual pace of 1.382 million and have declined 21.8% compared to a year ago. Interestingly, single family home starts rose 11.3% in December to an annual pace of 909,000, while multi-family home starts declined 18.9% to an annual pace of 463,000. This is the highest single family home starts have been since last August, so there may be some life in the housing market now that mortgage rates are following bond yields lower. I should add that December building permits also declined 1.6% to an annual pace of 1.33 million and have declined 29.9% in the past year. In the wake of the poor retail sales report and housing starts data, the Atlanta Fed reduced its estimate for fourth-quarter GDP growth to a +3.5% annual pace.
The National Association of Realtors announced on Friday that existing home sales plunged 17.8% in 2022 to 5.03 million units, the lowest level since 2014. In December, existing home sales declined 1.5% to a 4.02 annual pace and are running 34% lower than a year ago. December’s monthly sales were the slowest in over 12 years (since November 2010). Clearly, the Fed has pricked the housing bubble and it will be interesting to see if lower mortgage rates can start to stimulate existing home sales.
Finally, due to the federal government’s $31.4 trillion debt ceiling, the Treasury Department is now taking extraordinary measures to keep the U.S. government operating through June. Obviously, the federal government’s debt ceiling is going to be a political football that will be endlessly debated, so one side can try to embarrass the other side. In the end, the debt ceiling will likely be raised, so as investors, we should not worry unless it adversely impacts Treasury bond yields.
Navellier & Associates Inc. owns Ford Motor Co. (F), Volkswagen Ag. (VWAGY), Microsoft (MSFT) and Toyota Motor Corp (TM), in managed accounts and a few accounts own Tesla (TSLA), per client request in managed accounts. We do not own Rivian or Lucid Group (LCID). Louis Navellier and his family own Ford Motor Co. (F), and Volkswagen Ag. (VWAGY), and via a Navellier managed account. He does not own Tesla (TSLA), Rivian, Toyota Motor Corp (TM), Microsoft (MSFT), or Lucid Group (LCID) personally.
All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
China’s Global Leadership is Slowly Slipping
Income Mail by Bryan Perry
U.S. Stock Market Enters a Fog of Uncertainty
Growth Mail by Gary Alexander
Davos Dreamers vs. Mont Pelerin’s Principles
Global Mail by Ivan Martchev
Where Will the Next Vertical Line in Germany’s Dax Point?
Sector Spotlight by Jason Bodner
The Economy is Slowing, But the Market is Forward-Looking
View Full Archive
Read Past Issues Here
Louis Navellier
CHIEF INVESTMENT OFFICER
Louis Navellier is Founder, Chairman of the Board, Chief Investment Officer and Chief Compliance Officer of Navellier & Associates, Inc., located in Reno, Nevada. With decades of experience translating what had been purely academic techniques into real market applications, he believes that disciplined, quantitative analysis can select stocks that will significantly outperform the overall market. All content in this “A Look Ahead” section of Market Mail represents the opinion of Louis Navellier of Navellier & Associates, Inc.
Important Disclosures:
Although information in these reports has been obtained from and is based upon sources that Navellier believes to be reliable, Navellier does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute Navellier’s judgment as of the date the report was created and are subject to change without notice. These reports are for informational purposes only and are not a solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in these reports must take into account existing public information on such securities or any registered prospectus.To the extent permitted by law, neither Navellier & Associates, Inc., nor any of its affiliates, agents, or service providers assumes any liability or responsibility nor owes any duty of care for any consequences of any person acting or refraining to act in reliance on the information contained in this communication or for any decision based on it.
Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier. in the future will be profitable or equal the performance of securities made in this report. Dividend payments are not guaranteed. The amount of a dividend payment, if any, can vary over time and issuers may reduce dividends paid on securities in the event of a recession or adverse event affecting a specific industry or issuer.
None of the stock information, data, and company information presented herein constitutes a recommendation by Navellier or a solicitation to buy or sell any securities. Any specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. The holdings identified do not represent all of the securities purchased, sold, or recommended for advisory clients and the reader should not assume that investments in the securities identified and discussed were or will be profitable.
Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. Individual stocks presented may not be suitable for every investor. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. Investment in fixed income securities has the potential for the investment return and principal value of an investment to fluctuate so that an investor’s holdings, when redeemed, may be worth less than their original cost.
One cannot invest directly in an index. Index is unmanaged and index performance does not reflect deduction of fees, expenses, or taxes. Presentation of Index data does not reflect a belief by Navellier that any stock index constitutes an investment alternative to any Navellier equity strategy or is necessarily comparable to such strategies. Among the most important differences between the Indices and Navellier strategies are that the Navellier equity strategies may (1) incur material management fees, (2) concentrate its investments in relatively few stocks, industries, or sectors, (3) have significantly greater trading activity and related costs, and (4) be significantly more or less volatile than the Indices.
ETF Risk: We may invest in exchange traded funds (“ETFs”) and some of our investment strategies are generally fully invested in ETFs. Like traditional mutual funds, ETFs charge asset-based fees, but they generally do not charge initial sales charges or redemption fees and investors typically pay only customary brokerage fees to buy and sell ETF shares. The fees and costs charged by ETFs held in client accounts will not be deducted from the compensation the client pays Navellier. ETF prices can fluctuate up or down, and a client account could lose money investing in an ETF if the prices of the securities owned by the ETF go down. ETFs are subject to additional risks:
- ETF shares may trade above or below their net asset value;
- An active trading market for an ETF’s shares may not develop or be maintained;
- The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track;
- The cost of owning shares of the ETF may exceed those a client would incur by directly investing in the underlying securities; and
- Trading of an ETF’s shares may be halted if the listing exchange’s officials deem it appropriate, the shares are delisted from the exchange, or the activation of market-wide “circuit breakers” (which are tied to large decreases in stock prices) halts stock trading generally.
Grader Disclosures: Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. The sample portfolio and any accompanying charts are for informational purposes only and are not to be construed as a solicitation to buy or sell any financial instrument and should not be relied upon as the sole factor in an investment making decision. As a matter of normal and important disclosures to you, as a potential investor, please consider the following: The performance presented is not based on any actual securities trading, portfolio, or accounts, and the reported performance of the A, B, C, D, and F portfolios (collectively the “model portfolios”) should be considered mere “paper” or pro forma performance results based on Navellier’s research.
Investors evaluating any of Navellier & Associates, Inc.’s, (or its affiliates’) Investment Products must not use any information presented here, including the performance figures of the model portfolios, in their evaluation of any Navellier Investment Products. Navellier Investment Products include the firm’s mutual funds and managed accounts. The model portfolios, charts, and other information presented do not represent actual funded trades and are not actual funded portfolios. There are material differences between Navellier Investment Products’ portfolios and the model portfolios, research, and performance figures presented here. The model portfolios and the research results (1) may contain stocks or ETFs that are illiquid and difficult to trade; (2) may contain stock or ETF holdings materially different from actual funded Navellier Investment Product portfolios; (3) include the reinvestment of all dividends and other earnings, estimated trading costs, commissions, or management fees; and, (4) may not reflect prices obtained in an actual funded Navellier Investment Product portfolio. For these and other reasons, the reported performances of model portfolios do not reflect the performance results of Navellier’s actually funded and traded Investment Products. In most cases, Navellier’s Investment Products have materially lower performance results than the performances of the model portfolios presented.
This report contains statements that are, or may be considered to be, forward-looking statements. All statements that are not historical facts, including statements about our beliefs or expectations, are “forward-looking statements” within the meaning of The U.S. Private Securities Litigation Reform Act of 1995. These statements may be identified by such forward-looking terminology as “expect,” “estimate,” “plan,” “intend,” “believe,” “anticipate,” “may,” “will,” “should,” “could,” “continue,” “project,” or similar statements or variations of such terms. Our forward-looking statements are based on a series of expectations, assumptions, and projections, are not guarantees of future results or performance, and involve substantial risks and uncertainty as described in Form ADV Part 2A of our filing with the Securities and Exchange Commission (SEC), which is available at www.adviserinfo.sec.gov or by requesting a copy by emailing info@navellier.com. All of our forward-looking statements are as of the date of this report only. We can give no assurance that such expectations or forward-looking statements will prove to be correct. Actual results may differ materially. You are urged to carefully consider all such factors.
FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.
IMPORTANT NEWSLETTER DISCLOSURE:The hypothetical performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier’s Growth Investor, Louis Navellier’s Breakthrough Stocks, Louis Navellier’s Accelerated Profits, and Louis Navellier’s Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters’ reported hypothetical performances should be considered mere “paper” or proforma hypothetical performance results and are not actual performance of real world trades. Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier Investment Products’ portfolios and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters contain hypothetical performance that do not include transaction costs, advisory fees, or other fees a client might incur if actual investments and trades were being made by an investor. As a result, newsletter performance should not be used to evaluate Navellier Investment services which are separate and different from the newsletters. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or hypothetical Newsletter performance claims, (which are calculated solely by Investor Place Media and not Navellier) should be referred to InvestorPlace Media, LLC at (800) 718-8289.
Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.
Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier’s composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report.
FactSet Disclosure: Navellier does not independently calculate the statistical information included in the attached report. The calculation and the information are provided by FactSet, a company not related to Navellier. Although information contained in the report has been obtained from FactSet and is based on sources Navellier believes to be reliable, Navellier does not guarantee its accuracy, and it may be incomplete or condensed. The report and the related FactSet sourced information are provided on an “as is” basis. The user assumes the entire risk of any use made of this information. Investors should consider the report as only a single factor in making their investment decision. The report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. FactSet sourced information is the exclusive property of FactSet. Without prior written permission of FactSet, this information may not be reproduced, disseminated or used to create any financial products. All indices are unmanaged and performance of the indices include reinvestment of dividends and interest income, unless otherwise noted, are not illustrative of any particular investment and an investment cannot be made in any index. Past performance is no guarantee of future results.