by Louis Navellier

December 5, 2023

October’s numbers did not look good, but November picked up momentum and December may be better, so fourth-quarter GDP may come in better than first feared.  First, the bad news, from the October data:

The Fed’s Beige Book, released last Wednesday, revealed that consumers pulled back on discretionary spending, but the Beige Book is based on data from mid-October through November 17, not from the Black Friday weekend. Specifically, the Beige Book said, “Sales of discretionary items and durable goods, like furniture and appliances, declined, on average, as consumers showed more price sensitivity.”

Last Thursday, the Commerce Department confirmed that consumer spending slowed to a 0.2% pace in October, down from a 0.7% pace in September, so the Beige Book basically was describing that same deceleration in consumer spending that took place in late October through early November.

In other economic news, S&P Core Logic announced on Tuesday that home prices rose at an annual pace of 3.9% in September (based on its 20-city index), up from a 2.5% annual pace in August. San Diego remains the hottest market, with prices rising at a 6% annual pace, while home prices in Las Vegas declined at a 1.9% annual pace. Overall, the housing market is improving due to moderating interest rates.

The Labor Department reported on Thursday that continuing jobless claims rose to 1.927 million in the latest week, up from a revised 1.841 million in the previous week. Continuing jobless claims are now running at the highest pace in two years, which means that the unemployment rate may rise from here.

Confirming November’s improving data from October, the Institute of Supply Management (ISM) reported that new orders rose to 48.2 in November, from 45.5 in October. The overall ISM manufacturing index, however, remained flat, at 46.9 in November. Since any reading below 50 signals a contraction, the ISM manufacturing index has now been mired under 50 (contracting) for 13 straight months.

This recessionary ISM manufacturing reading bodes poorly for fourth-quarter GDP growth, so I should add that the Atlanta Fed is now estimating annual fourth-quarter GDP growth of just 1.8%, down from its previous estimate of 2.1% annual GDP growth, versus the 5%+ annual growth reported in the third quarter.

One other positive is that the hawkish Fed President Christopher Waller apparently turned semi-dovish last week. Speaking before the American Enterprise Institute, he said, “I am increasingly confident that our policy is currently well positioned to slow the economy and get inflation back to 2%.” Waller added that if the decline in inflation continues “for several more months … three months, four months, five months …we could start lowering the policy rate just because inflation is lower.” Waller is very influential at the Fed, so bond yields declined after his comments, as the first Fed rate hike could come early in 2024.

Speaking of inflation, on Thursday, the Commerce Department reported that the Fed’s favorite inflation indicator, the personal consumption expenditure (PCE) index was unchanged in October, and rose 3% in the past year. The core PCE, excluding food and energy, rose 0.2% in October, and 3.5% in the past year.

Much of the rest of the world is in deflation. I have already told you about China exporting its deflation to the U.S. Now, I should add that, last Wednesday, Europe announced Germany actually entered into deflation in November, as consumer prices declined by -0.3%. Eurostat also announced on Thursday that inflation in the eurozone is now running at a 2.4% annual pace, while energy prices declined by 11.5%.

On Wednesday, the U.S. Commerce Department revised its third-quarter GDP calculation to a +5.2% annual pace (up from a 4.9% initial estimated. This compares with Canada’s third-quarter GDP growth falling at a 1.1% annual pace. This was a big surprise, since Canada has a robust energy sector.

Two Big Meetings Held Late Last Week Debated Energy Policy
— OPEC+ and COP-28

Two big international energy-related meetings opened last Thursday – a delayed OPEC+ meeting, held online, and COP28, meeting in Dubai. Both conferences wanted to cut fossil fuel production, but for different reasons. First, Saudi Arabia was pushing OPEC+ members to cut crude oil production by at least one million barrels a day, to help boost the price. UAE agreed to cooperate on additional production cuts.

Officially, OPEC+ announced cuts in new crude oil production of 900,000 barrels per day. Despite deep production cuts by Russia and Saudi Arabia, other OPEC+ members were apparently cheating on their quotas. Angola openly said that it would reject any new OPEC+ quotas. Due to this infighting and quota cheating by some renegade producers, crude oil prices declined after the OPEC+ meeting.

In the meantime, the American Petroleum Institute reported on Tuesday that crude oil inventories declined by 817,000 barrels in the latest week. Furthermore, severe storms in the Black Sea have disrupted up to two million barrels per day of crude oil exported from Kazakhstan and Russia, according to the Caspian Pipeline Consortium. As a result, crude oil prices could rise, if these production disruptions persist.

COP 28 also commenced on Thursday in Dubai. Two years ago, we sent a representative to COP 26 in Scotland, which concluded with a statement that green hydrogen would be the fuel of the future. Then at COP 27, held in Egypt, poor countries like Bangladesh and Pakistan dominated the conference by seeking reparations from rich countries for increased flooding in poor countries with coastlines subject to floods.

At COP 28 in Dubai, green hydrogen was once again relentlessly promoted by UAE, since they dominate desalination. The fact is that green energy is very expensive, and the fossil fuel industry has the patience and capital to pursue green energy, so it looks like the fossil fuel industry is taking control of COP 28.

Ironically, a massive European snowstorm prevented some attendees from reaching COP 28 on time, as many private jets were literally frozen on the tarmac. Munich’s runways became a glacier as a direct result of Germany’s largest December blizzard, with 44 centimeters (17.3 inches) of snow. Due to an El Nino weather pattern, Europe may remain frozen this winter, after global cooling decimated COP 28.

This deep freeze will likely boost natural gas prices and LNG related stocks like Dorian LPG Ltd. (LPG).

I find it ironic that the oil producers of OPEC+ managed to meet on-line rather than fly to a destination by private jets, while those who think fossil fuels disrupt the climate insist on flying private jets to meetings.

Last Thursday, The Wall Street Journal published an article, Why No One Wants to Pay for the Green Transition, citing waning EV demand. It was also critical of the offshore wind industry, like Denmark’s Orsted, which recently took a $4 billion charge after pulling out of New Jersey’ offshore wind projects.

On the same day, the WSJ published an opinion piece, titled Germany Gets Honest About What Net Zero Will Cost, describing how German Chancellor Olaf Scholz’s administration is falling apart, since a German constitution court recently ruled that emergency Covid funds cannot be used to pay for the green transition and electricity subsidiaries, which triggered a 60-billion-euro ($65 billion) budget crisis and a spending freeze. The WSJ piece cited how crippling energy prices are causing industry to flee Germany, so Chancellor Scholz is now becoming a lame duck after his party took fourth in recent regional elections.

Last Tuesday, nearly 3,900 U.S. car dealers signed a letter to the Biden Administration to let them know that most U.S. car buyers are not interested in buying an EV, even with government subsidies. The letter said, “The reality is that electric vehicle demand today is not keeping up with the large influx of BEVs [Battery Electric Vehicles] arriving at our dealerships, prompted by the current regulations. BEVs are stacking up on our lots.”  The letter added this zinger: “Dealers will sell whatever is manufactured, but we’ve never seen a situation where government has intervened in such a draconian way.” Ouch!

I suspect that the Biden Administration is not happy with this letter, which was signed by 3,882 car dealers. A White House spokesperson responded by saying, “More Americans are buying EVs every day — with EV sales rising faster than traditional gas-powered cars — as the President’s Inflation Reduction Act makes EVs more affordable and helps Americans save money when driving.”  This spokesperson added, “Allow time for the American consumer to get comfortable with the technology and make the choice to buy an electric vehicle.” Clearly, 3,882 car dealers carried no weight at the White House.

I should add that Tesla’s Cybertruck deliveries commenced on Thursday at its plant in Austin, Texas. According to Elon Musk, the Cybertruck is designed to survive the Zombie Apocalypse. The Cybertruck has been criticized by the media as a manufacturing nightmare due to its stainless-steel panels. However, Musk has been obsessed with quality control, so the display Cybertrucks had tight clearances, and the stainless-steel panels lined up as Elon requested. Tesla will lose money on the Cybertruck, but I suspect that it will be a big hit, since it is so weird compared to other trucks, plus it has thousands of deposits.

Meanwhile, Chinese vehicles, including electric vehicles (EVs), are invading Mexico in full force. In the first 10 months of 2023, 212,169 Chinese vehicles were sold in Mexico, which represents a 51% annual sales increase. These Chinese vehicles, including EVs, can be bought for under $30,000, so they continue to capture market share. BYD, China’s largest and most successful EV manufacturer, launched a joint venture with Liverpool to sell its EVs in Mexico, so BYD is expected to capture major market share.

Nissan, Stellantis and VW’s sales for the first 10 months of 2023, all rose 25% in Mexico, so the Chinese have competition, but the company that makes the most affordable vehicles is expected to win. Nissan and VW are designing new and affordable EVs, so China’s EV dominance should persist.

Navellier & Associates owns Volkswagen Ag. (VWAGY), some accounts own Dorian LPG Ltd. (LPG) and one client holds Tesla (TSLA), per client request in managed accounts. We do not own Stellantis (STLA). Louis Navellier and his family own Dorian LPG Ltd. (LPG), and Volkswagen Ag. (VWAGY), via a Navellier managed account. He does not personally own Tesla (TSLA), or Stellantis (STLA).

All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.

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Louis Navellier

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