When Black Friday comes.... Steely Dan is dominating my mental soundtrack this morning. But, as I mentioned in my column earlier this week, I like to stay away from the herd. So, instead of focusing on mall traffic or Amazon Prime (AMZN) activity, I will focus on a much larger consumer base than the one in the U.S.: China.
The People's Bank of China reportedly will cut the reserve requirement ratio for most banks by a quarter percentage point by Dec. 5, which would pour in about $70 billion of liquidity into the economy.
I spend so much time on the energy sector that I have adopted its lingo. We always talk about the marginal demand for a barrel of oil. So, if we look at the global economy, China is counted upon to be the marginal demand for ... just about everything.
Yes, that obviously impacts oil, and the recent zero-Covid lockdowns in Beijing and other cities have indeed pressured oil via its Brent crude pricing benchmark. Brent is flat now at $85.30/barrel.
But energy is still the best of a bad bunch of U.S. stocks. I saw the stat the other day that energy is the only one of the 12 S&P 500 sectors that has posted a gain thus far in 2022. Rest assured that I am not selling any energy names now, nor do I plan to before Dec. 23.
But when I look at the Chinese consumer, I am focused on purchases of goods, not commodities. The first name that jumps to mind as a China Play is Tesla (TSLA) .
China's auto safety regulators announced yet another recall action Friday on older Teslas (models that were actually made at Tesla's California facility). A terrible record on initial quality combined with a softening macro environment in China does not bode well for Tesla's global growth prospects. Elon Musk knew that he had to grow where the marginal growth was in the global economy, so he opened Tesla Shanghai. But macro rules the micro, just as much in China as it does in the U.S.
Earlier this year, the Insane Clown Posse of sell-side analysts that pretends to follow Tesla were climbing all over each other to raise forecasts for Tesla's unit deliveries for 2022. The highest forecast I saw was 1.7 million units, but now, with a slower China and an awful Europe (Tesla opened a factory in Germany this year) it looks as if consensus is sitting at 1.35 million units delivered for Tesla in 2022. I think they will struggle to get to 1.3 mm units.
Those unit delivery forecast declines were largely a factor of analysts lowering forecasts for Tesla's deliveries in China. As delivery wait times mysteriously disappear on Tesla's Chinese website, we can see that demand has dissipated there. The Model 3 is 5.5 years old and is no longer selling well in China (or anywhere else,) and the Y, while still selling well, is expensive for the average Chinese consumer.
Tesla was painted as a China Play, and with China slowing so much that its Central Bank is throwing open the monetary spigot, look for Elon to continue to focus his energies elsewhere. As TSLA shares have declined by around 50% this year, I don't blame him for doing so.
(For some bonus content, and if you were understandably more focused on family and football yesterday than Brazilian financial media, this is my interview with Brazil Journal regarding Elon Musk, Twitter (TWTR) and Tesla that posted yesterday on that excellent site.)_
Black Friday comes for everyone. Just make sure your portfolio doesn't have one today, or any other Friday in the foreseeable future.
