CHINA HAS LOST ITS COMPETITIVE ADVANTAGE

OBSERVATIONS: THE TWO AMERICAS WE LIVE IN

There are two Americas that few seem to fully appreciate. I am not talking about the Rich versus Poor, nor the Haves versus the Have nots, nor the Liberals versus the Conservatives, nor EVEN the Powerful versus the “Deplorables”. It is much more pervasive and therefore more serious. It is the difference that divides a country and potentially destroys it if political leadership doesn’t both understand it and effectively bridge it.

In simplest terms it is best understood as (statistics from Rasmussen’s RMG Research):

• • The ‘Disconnected Elite’ versus the Average American
  • The Disconnected Elite (DE) are typically those earning more than $150,000 a year and living in high-density areas.
  • 74% of the ‘Disconnected Elites’ say their finances are getting better (88% who are Ivy League graduates) versus only 20% of the rest of voters.
  • DE’s give President Biden an 84% approval rating, compared with 40% from non-elites.
  • DE’s complete faith in fellow elites extends beyond Mr. Biden. Large majorities of them have a favorable view of:
    • University Professors (89%)
    • Journalists (79%)
    • Lawyers and Union Leaders (78%) and
    • even Members of Congress (67%).
  • Two-thirds of DE’s say they’d prefer a candidate who said teachers and educational professionals, not parents, should decide what children are taught.
  • 50% of DE’s believe the U.S. provides “too much individual freedom”—compared with nearly 60% of voters who believe there is too much “government control.”
  • 77% of elites support “strict rationing of gas, meat and electricity” to fight climate change, vs. 28% of everyone else.
  • More than two-thirds of DE Ivy graduates favor banning things like gasoline-powered cars and stoves and inessential air travel in the name of the environment. 
  • More than 70% of average voters say they’d be unwilling to pay more than $100 a year in taxes or costs for climate—compared with 70% of elites who said they’d pay from $250 up to “whatever it takes.”

DE members are prominent in every major institution of American power, from media to universities to government to Wall Street, and have become more intent on imposing their agenda from above. They dominate the new leadership class in all areas of our economy, finance, politics and even our social networks.

I have come to refer to Washington politics as being controlled by the UniParty. Conservative members are not RINO’s, but are actually DE’s.

Silicon Valley, Manhattan and Washington, D.C. have become bubbles that have lost contact with everyday Americans. This explains why the political class – which is a big part of the elite group – is confused by poll numbers showing that voters are feeling financially stressed out. The elites are doing fine, so they believe that everyone is prospering. I suspect that most don’t want radical change in the public schools, because their kids attend blue-chip private schools. They are fine with abolishing SUVs, because in big cities Americans generally don’t drive those cars – if they drive cars at all.

Crime, illegal immigration, inflation, fentanyl and factory closings aren’t keeping the elite up at night, because in their cocoons they don’t encounter these problems on a daily basis the way so many Americans do today.

Not too many main street Americans are losing sleep about climate change or LGBTQ issues.

The elites in America tend to work in the “talking professions” – university professors, journalists, lawyers, actors and lobbyists. They keep talking and normal Americans are more than ever not listening to them.

The DE’s are the core of the Rich, Have’s and Progressive Liberals.

WHAT YOU NEED TO KNOW!

CUMMULATIVE INFLATION IS KILLING THE BOTTOM

50% OF AMERICANS

Despite a post Covid recovering economy, real after-tax take-home pay is still underwater for most Americans. According to BLS data, workers in the bottom half of incomes still haven’t caught up to inflation. That leaves many Americans unable to afford what they could just 3 years ago!

RESEARCH

CHINA HAS LOST ITS COMPETITIVE ADVANTAGE

• • The competitive labor advantage China once had is no longer the situation compared to other developing nations.
  • China is a nation dependent on Capital Formation, which is ~43% of its GDP. This has placed China in a very serious predicament as Foreign Direct Investment (FDI) support has quite literally “fallen off a cliff”. Profits are not being reinvested but re-patriated, and corporations are nervous about the direction the increasingly dictatorial path the CCP is taking.
  • China’s growth model has been over-Reliant on policies of extraordinary levels of Investment and Financial Repression. Financial Repression, as used here, has nothing to do with the usual political usage of the word. It means, rather, that the state controls:
  • Domestic interest
  • Exchange rates and 
  • Capital Outflows 
  • As such, citizens receive little accrual or benefit from their high rates of savings. Instead, these are captured by the state and channeled into industries that are favored or prioritized by bureaucrats, including many that are state-owned (SOE).

Q4 2023 EARNINGS SEASON

• • For Q4 2023, the blended (year-over-year) earnings decline for the S&P 500 is -1.4%. If -1.4% is the actual decline for the quarter, it will mark the fourth time in the past five quarters that the index has reported a year-over-year decline in earnings. 

CORPORATIONS ARE LOSING PRICING POWER (WEAK REVENUE GROWTH)

AS BOTH CONSUMER SAVINGS AND REAL DISPOSABLE INCOME INCREASINGLY TIGHTEN!

DEVELOPMENTS TO WATCH

AN EXPANDING US GOVERNMENT KEEPS JOB & WAGE GROWTH ALIVE.

While private sector compensation struggles to keep up with inflation, government wages and salaries in Dec rose 8.2% Y/Y, their fastest annual rate since Jul ’90 – all that gov’t spending has to go somewhere?

DAVOS HIGHLIGHTS: THE ELITES ARE SOLVING PROBLEMS THAT EXIST ONLY IN THEIR HEAD!

The 2024 World Economic Forum (WEF) in Davos, Switzerland, included many plethora of key themes. Some of the key takeaways include:

• • Disease “X” is a major concern and well discussed.
  • Democracy is critically exposed by the potential election of populist leaders such as Trump.
  • Tighter controls of Misinformation must be implemented.
  • The climate crisis is a health crisis: The connections between climate and health are becoming clearer.

GLOBAL ECONOMIC REPORTING

What This Week’s Key Global Economic Reports Tell Us?

• • STRONG GDP growth (but cool inflation) 
  • STRONG New Home Sales (but cool home prices) 
  • STRONG LABOR MARKET DATA (jobless claim rose, but remains near multi-decade lows) all set the tone for the day .
  • WEAK NATIONAL ACTIVITY data from The Chicago Fed 
  • WEAK MANUFCATURING data from The Kansas City Fed
  • WEAK HEADLINE DURABLE GOODS ORDERS

• • $1.55 in budget deficit to generate $1 of growth
  • $2.50 in new debt to generate $1 of GDP growth