Posted on 10/31/2018 9:30:08 PM PDT by BeauBo
I share the concern over debt, but I think that the guy at the link (John Mauldin) makes his living scaring the bears.
His assessment of inventories is worse that what the latest (5 Oct) inventory reports would indicate. They showed the last month reported (August) ratio of inventories to sales, was unchanged at 1.34. That 1.34 is how many months it would take to sell all the inventory on hand. One year ago, the inventory-to-sales ratio was a higher 1.39.
The new and larger round of tariffs was announced in September, and imports have risen marginally, but not to a degree that would themselves dramatically increase inventories in the USA. The bottom line is that how good Christmas sales will be is a bigger factor for inventories, than the effect of stocking up ahead of tariffs.
The tariffs are rolling out in force over a few quarters. Although it is big in total effect, It spreads out the effects of each little niche product going through its cycle of stocking up, and then finding an alternative supplier for future orders. Six to nine months (starting September 2018) of hard steering to turn the supply chain away from China. Globally, that will require a strong stimulus elsewhere to ramp up the production lost from China.
Although Wholesale and retail inventories were up in August, domestic manufacturing inventories were down, as they ramp up production.
There will be some drag in the future quarter from inventory buildup in the prior quarter, but that will be rolling over from one product line to another as tariffs are rolled out, like a bow wave in front of a ship. As one product experiences a slower quarter due to their previous buildup, another product will be experiencing a buildup before their tariffs go into effect. As those products or sectors are going through their inventory cycles, domestic manufacturing will likely see steady gains, as it picks up a share of the former Chinese market.
There will be some adjustment in the short term, for long term gain, but it has been throttled to be manageable for us (for China, not so much).
True, and I followed his advice in 2008, so I have a tendency to listen to him. ;-)
I hope that he is wrong about the US economy, and I agree that the Chinese economy is in much worse shape. That is why we can see this from a communist official:
A senior Communist Party of China (CPC) official, You Quan, head of the United Front Work Department of the CPC Central Committee, stresses the importance of further improving the development environment for the private economy in a symposium on Sunday in Beijing.
Private entrepreneurs shall enhance their confidence in socialism with Chinese characteristics, the principles and policies of the CPC Central Committee and the future development of private enterprises, said You.
You also required offices of the united front work department and federation of industry and commerce at all levels to work with Party committees and governments to improve and implement policies, promote the communication between governments and enterprises, help with companies’ difficulties and create a better environment for the development of the private economy.
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