by Louis Navellier
January 26, 2021
Last week was Inauguration week. While all eyes were on the ceremony in Washington DC, I firmly believe that China was the big winner from November’s U.S. Presidential election. The “globalists” are back in charge in the Biden Administration, which is very good for the cost structure of Corporate America, which likes to outsource manufacturing and servicing (like overseas call centers). The trade deficit with China is higher than ever and will likely continue to soar, since so many of our consumer goods that we buy from the likes of Amazon.com, Best Buy, Target, and Wal-Mart are made in China.
The globalist theory is that as China becomes more prosperous, they will become more like the capitalists in the Western world. That is the theory, but the reality is that China does not want to just prosper, but to dominate five key technological industries by 2025, which is the Communistic Party’s primary objective.
China wouldn’t mind dominating every other market along the way. Last week I went to the largest Porsche dealership in the U.S. to help a friend order a new Porsche sportscar. We soon learned that China is hogging the majority of new Porsche sportscars, so if you want one, you need to order one soon and then wait approximately eight months. The reason for this is that ten months ago, when the coronavirus crisis lockdown began, thousands of new Porsche sportscars were stranded on U.S. docks and many Porsche dealers canceled their orders due to the uncertainty. These stranded Porsches eventually ended up being bought by China in a deal they negotiated with Porsche. Furthermore, the China/Porsche relationship is now so strong that China is getting a much higher allocation of coveted Porsche sportscars.
In defense of Porsche, the U.S. dollar declined last year, while the Chinese yuan appreciated. If Porsche can now make more money by getting paid in a stronger currency, it should be no surprise that Porsche is diverting more of their vehicles to China! I was told that China negotiated a “lump sum discount” when they bought all the stranded Porsches stuck on U.S. docks 10 months ago. Since Porsche has a big union workforce, as do all German vehicle manufacturers, the China lump sum deal and higher allocation for future sportscars helped keep Porsche’s manufacturing plant busy and their workers happy, as Porsche’s union workers typically get a big year-end bonus based on the volume production of Porsche vehicles.
I expect that Corporate America will become more dominant then ever in a Biden Administration, since the hurdles to operating a business, such as a high minimum wage, will just allow big businesses to get bigger. The pandemic has accelerated technological change and the companies that can automate the best are also expected to prosper, while small “mom and pop” businesses and services will suffer the most.
Navellier & Associates owns Target (TGT) and Amazon for a few clients in managed accounts. Navellier & Associates does not own Best Buy (BBY) or Walmart (WMT) in managed accounts. Louis Navellier and his family do not own Amazon (AMZN), Walmart (WMT) or Best Buy (BBY) personally but do own Target (TGT) via Navellier managed accounts.
Biden’s Green Energy Changes Threatened by the California Example
There are a lot of articles lately about how the Biden Administration will impose more California-like rules on the federal government, like making the U.S. more welcoming to illegal immigrants, eventually banning fracking, promoting green energy, etc. This is going to be very interesting to watch, and there is no doubt that the rollout of some of these initiatives will be quite difficult.
For example, the tragic video of Guatemalan security forces breaking up a caravan of approximately 4,000 Honduran migrants trying to get to the U.S. caused a Biden Administration transition spokesman to say, “The situation at the border isn’t going to be transformed overnight,” and added that “there’s help on the way, but now is not the time to make the journey.” This spokesman also said that migrants attempting to cross into the U.S. to claim asylum in the first few weeks of the new administration “need to understand they’re not going to be able to come into the United States immediately.”
The green energy changes that the Biden Administration want to impose are expected to make China the “Saudi Arabia” of green energy, since China currently dominates solar panel manufacturing. Currently, solar is mandated on all new California homes. Lithium power walls are also popular in California, but the lithium batteries utilized typically do not use cobalt, since the more efficient cobalt batteries are being used predominantly to manufacture electric vehicles (EVs). China makes most of the non-cobalt lithium batteries, so China will become more dominant as these green energy initiatives are enacted.
The other interesting conundrum is that California’s green energy push has made electricity more expensive as well as causing “brownouts” during heatwaves. Naturally, if utility prices rise too quickly, it will hurt poor people, so the Biden Administration has to unveil its green energy initiatives very carefully, so it does not trigger excessive inflation and alienate voters. I will be watching the trade deficit very carefully, since China’s trade surplus will be rising from the green energy push, which will cause economists to curtail their GDP estimates as well as possibly undercutting the value of the U.S. dollar.
Another big hurdle for the Biden Administration in their quest to stimulate the U.S. economy is getting enough medical professionals to provide vaccine shots. Since two shots are currently required with the Moderna and Pfizer vaccines, that process is slowing down the completion of the vaccination process.
Furthermore, even if the upcoming Johnson & Johnson vaccine requires only one shot, there is still a bottleneck of getting enough medical professionals to provide vaccine shots. It appears that we are at least a year away from CVS and Walgreens having a one-shot vaccine available, which means that the Biden Administration has its hands full trying to stimulate overall economic growth as many big states, like California, continue to curtail economic growth with their strict Covid-19 lockdowns and restrictions.
Navellier & Associates owns Pfizer (PFE) and Johnson & Johnson (JNJ) in managed accounts. Navellier & Associates does not own Moderna, CVS, or Walgreens in managed accounts. Louis Navellier does not own Pfizer (PFE), Moderna, Johnson & Johnson CVS or Walgreens.
GDP Estimates are Starting to Come Down Again
The most important economic news last week was the Labor Department’s announcement that new unemployment claims in the latest week came in at 900,000, down slightly from 926,000 in the previous week. Prior to the pandemic, new weekly unemployment claims averaged 695,000, so weekly jobless claims remain elevated. Clearly, new job creation has ground to a halt, so the unemployment rate is expected to meander higher until weekly unemployment claims fall below 700,000.
The National Association of Realtors announced on Friday that existing home sales rose 0.7% in December to an annual pace of 6.76 million, which is the highest level in 14 years. In the past 12 months, existing home sales rose an amazing 22%, so clearly low mortgage rates are stimulating sales. There were only 1.07 million homes for sale at the end of December, which represents a record low 1.9-month supply at the current annual sales pace, so home prices are expected to continue to rise due to tight inventories.
Finally, I would like to mention that the Atlanta Fed on Thursday updated its fourth-quarter GDP estimate to a 7.5% annual pace. In the wake of three straight months of negative retail sales as well as a record trade deficit, many economists may continue to trim their fourth-quarter GDP estimates. Unfortunately, first-quarter growth is looking shaky, especially now that 900,000 people per week are losing their jobs.
Despite this somber economic outlook, the sales and earnings outlook for our stocks remains strong and will likely benefit if the stock market’s breadth and power continues to narrow in the upcoming months.