Latest / Financial Survival Network / De-globalization and its Impact on China - Wolf Richter #6079

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De-globalization and its Impact on China - Wolf Richter #6079 · Financial Survival Network

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  And we're seeing that across the board at lower level manufacturing. Everybody's got kind
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  of in trouble with some manufacturing facilities in China over at the pandemic and ran
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  into shortages, ran out of stuff, couldn't get it, got tangled up
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  in this transportation chaos that we had and all under lesson then. And I
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  think this is a major shift in how the United States is now looking at
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  globalization. Interesting. Interesting, So we're deglobalizing before our very eyes here,
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  right, And where does that leave China? Where does that leave the world.
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  You're listening to Carrie Letz's Financial Survival Network where you get valuable information you
• 0:42
  just can't find anywhere else to thrive in today's trying times. You need the
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  Financial Survival Network now more than ever. Go to Financial Survivalnetwork dot com and
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  get your free newsletter and gift. Financial Survival Network now more than ever.
• 1:03
  And welcome you are listening to and watching the Financial Survival Network. I'm your
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  host, Carrie Lutz. Hey, we got real pleasure with us today and
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  our good friend Wolf Richter from wolfstreet dot com is with us now. Wilf.
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  I avidly read your site because you have a take on things that very
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  few others really can approach. And I know, like when you write an
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  article, you've really thought it out. So first thing, we're talking pre
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  call commercial real estate office buildings, especially in major cities, kind of going
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  the way of the dynosaur. Huh, thanks for having me carry Yeah,
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  I mean, that's that's one of the astonishing developments over the last few years.
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  And it's too skating worse and worse and worse that companies have learned during
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  the pandemic that they don't really need all this off space. So they have
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  ordered office space before the pandemic as soon as something came on the market,
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  had they grabbed it to grow into. Because there was so little on the
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  market. It was an office shortage in cities and tech cities like San Francisco
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  and Seacattle. I mean, people were talking about the office shortage in Facebook
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  and Google nab some office space, and then the pandemic came and working from
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  home took over. In companies realized they number one, don't need all of
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  this empty office space that they thought that we'ld grow into. And then number
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  two, they started trimming down there the office attendance and would you even need
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  less than what they already had. So we have a gigantic mess on our
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  hands with these office buildings, over a third of them or on the market.
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  Police in San Francisco and in some other cities in Dallas and Houstons has
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  been the same issue for many years because of the order bust in twenty to
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  sixteen, and so that has he's very hard. But now it's spread across
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  the country really and and there's no good way out here. There's no good
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  way out. So is the solution. Like the old buildings in New York,
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  they were like perfectly set up to convert to residential because they were certain
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  distance the wall to the elevator core. And I saw numerous, you know,
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  literally dozens and dozens of buildings in New York City, converted buildings that
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  were built like in the twenties, thirties, early forties. But the newer
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  buildings the emphasis was on, you know, basically maximum floor to air ratio
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  and the steel buildings, so that they're not really practical to convert the space
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  is too big. Yeah, that's correct, Especially the buildings in the nineteen
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  eighties and later there are there they're depending on the foot printed the big square
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  footprint. Uh, that they're very expensive to convert. And then in that
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  case, you're looking at the land value. That's that's sort a building like
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  that is worse. It's land value. It has to be torn down and
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  redeveloped into residential and that's that's one of the big steps. And there are
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  some buildings that can be converted, especially narrower buildings, uh, and that
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  may be the cheaper route to go than tearing it down, and so they're
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  doing some of that. And the suburban office buildings, of course, with
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  big parking areas and the like a four story office building a three story office
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  building, they're very easy to tear down. And it's like a shopping mall.
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  You have several acres of land there and not a lot of building,
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  and so that's easy to tear down and put a large residential development on it.
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  But in these downtown office towns where we have a relatively small lot and
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  a huge building on top, Yeah, that's it's essentially land value what these
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  buildings are the worst today. And of course that's not the collateral value that
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  was assumed when one of the loans were taking out on these buildings. So
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  yeah, there's this huge amount of money that's now being lost in commercial real
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  estate. So people aren't shopping anymore. They don't go to malls, they
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  don't go to offices. What are people doing now? Oh, there's no
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  more retail therapy. Your retail therapy is going to Amazon, and you don't
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  need to go to the office anymore, so you just stay home and order
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  stuff. I don't know what the world's coming to here, wealth Yeah,
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  I mean, I think the shopping on your smartphone and on your laptop is
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  still sort of a form of therapy for a lot of people, and they're
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  doing it and they're done lots of it. And online retail has been booming,
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  of course, and brick and mortar stores aren't having trouble. I mean,
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  like Walmart's online business is surging in twenty percent plus growth rates here over
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  here, or and grocery sales are really doing well in brick and mortar stores.
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  But yeah, the rest of it is just really hard hit. And
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  I don't know what people are doing. You know, we'll go out hiking
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  on weekends, and we see lots of people out hiking on weekends. I
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  mean, they're doing stuff. It's not like they're sitting it old. They're
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  doing anything, and they're entertainment, they're doing all kinds of stuff out and
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  so yeah, I never thought personally that shopping was anything I wanted to do.
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  And even before the Internet I bought, we have catalogs. So I
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  don't know, you got it. Guess you just don't get the dopamine.
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  If it must be a gene. Some people are born to shop and others
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  aren't, and those who are not just get no gratification from all those shiny
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  new objects. Speaking of shiny new objects, so we have a building boom,
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  factory boom taking place. I assume a lot of it is AI generated
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  because we need these huge data centers right to basically house all the AI computing
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  systems that are going up. But there's more to it than that as well,
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  isn't there. Yeah, So this particular article I was writing about the
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  manufacturing facilities that are being built at at an extraordinary pace. You know,
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  the data centers are in a category, and there's also a boom going on,
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  but that's not particularly what I was talking about. I was talking about
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  manufacturing, actually actual factories. So and I've listed a whole bunch of announcements
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  that we're done last month, and yeah, a lot of that is chip
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  makers. And now we've got the Chips Act that's starting to reshore chip manufacturing
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  to the United States. And of course the money has started flowing yet.
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  The announcements have been made, but the actual disbursements haven't happened yet, so
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  that's still going to show up. But the world's largest chip makers are setting
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  up shop in the United States to produce chips, and they're doing in Arizona,
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  They're doing it in Texas, they're doing it in Ohio, They're doing
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  it all kinds of places. And these are gigantic, very expensive production facilities
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  or one of those factories. So the construction itself is not that expensive.
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  What's expensive what's going inside these chip manufacturers And that's not even included in the
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  numbers yet. We're just talking about the building costs. And uh, yeah,
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  our construction of factories is doubled and tripled. So this is really a
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  that's a good movement. I mean, factory construction has stalled for a decade
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  more a decade, and manufacturing output in the United States has stalled, and
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  automakers are still heavily represented in the United States and all the world's automakers are
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  manufacturing in the United States, but overall, yeah, the number two manufacturer
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  behind China, where we should be the number one manufacturer, and given the
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  size of our economy, and uh so I think it's it's it's a good
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  thing to see that there is a a sort of a reshoring going on.
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  It's not that manufacturing is being brought back. It's that new facilities are no
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  longer building overseas that that built in the United States. So it's not that
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  these jobs are coming back, it's that these new jobs are being created here.
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  And of course the different jobs engineers and advanced degrees and those kinds of
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  people that are really highly qualified that are needed for those plants, and and
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  uh we're seeing that across the board a lower level manufacturing. Everybody's got kind
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  of in trouble with the manufacturing facilities in China over the pandemic and ran into
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  shortages, ran out of stuff, couldn't get it, got tangled up in
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  this transportation chaos that we had and all under lesson then. And I think
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  this is a a major shift in how the United States is now looking at
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  globalization. Interesting. Interesting, So we're deglobalizing before our very eyes here,
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  right, And where does that leave China? Where does that leave the world?
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  I mean, there's a lot of stuff that we get from other places,
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  some more friendly than China. We don't have to worry about IR theft
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  as much. I think everybody does IR theft, IP theft rather intellectual property
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  theft. I think it's a global epidemic. Everyone's stealing from everybody. The
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  Chinese are just like that was the price of admission for their market. But
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  everybody steals everybody else's intellectual property, right right, Yeah, and that's a
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  big issue. It you have a little bit better control over your IP when
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  you manufacture in house manufacture in the United States and in China, of course,
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  the major manufacturers were set up, all of them. Really we were
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  forced to share their IP with a Chinese company, so that was part of
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  the deal. And they didn't even need to steal it. That's just which
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  is part of the deal. And and yeah, you think that you stay
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  ahead of the Chinese uh developments that way because you're smarter and you can develop
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  new things by the time they figured it out here a few years ahead.
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  But that turns out to have been a miscalculation, and the Chinese have caught
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  up. I mean, the European train makers went through that, Japanese high
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  speed train makers, they all all had uh these ip sharing agreements with China
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  make their trains over there to sell to China. Now China's making its own
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  ice peed trains and he's selling them over theseas in competition with the European and
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  the Japanese makers. So this is how it's happened. In that car Chinese
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  cars, they're showing up everyone and the evs, especially the you know,
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  countries are trying to protect themselves from this, this flood of cheap evs threatening
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  to come in. And so this whole thing has turned around and and I
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  think people manufacturers are seeing the risks of exposing themselves to the supply changing China.
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  It's just a very risky thing. They have paid a huge price for
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  it during the pandemic. They've paid they're still paying a huge price in terms
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  of loss of pipe. They're now competing with companies that I helped form in
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  China. So you know, that's it doesn't come to cheeses moment here.
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  I think that we've had and and it and it's a good thing. It
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  happened probably ten years to white, but it's a good thing to see that
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  happening. Yeah, I think so. And the EV thing. So if
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  you read the paper, they would have you believe or read the media,
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  the legacy media that evs are flagging and the sales are lagging. But not
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  true, is it. No? I mean Ford just came out with its
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  May figures for sales, total sales, and it's EV sales up sixty five
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  percent from a year ago. So I mean it was everybody sided forward is
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  backing off? Well, I mean Ford made some miscalculations, they had some
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  product problems, they had some supply chain problems, they had all these issues
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  that Tesla had years ago, and uh so they couldn't really do all the
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  things they wanted to do. And they now they're there that can't get the
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  manufacturing costs down quick enough. But they've got all these issues. But the
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  sales are not backing off. You know, the sales sales are up a
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  bunch. And among all the legacy automakers that got into v evs, Yeah,
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  they're what whatever they can build they can sell. It's it's not like
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  that, you know, there's no demand for them. There's plenty of demaind
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  for these evs. Obviously, now there's a lot of competition. Tesla has
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  a lot of competition. I'm glad to see that. So it's were we're
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  not just one manufacturer anymore, so everybody they're trying to do it. Your
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  GM is coming out or has come out with a bunch of new models and
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  they're taking off. And they of course they had the second best selling model
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  to Bolt that killed that one. But now they're coming out with the new
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  models and their selling was supposed They have those apply chain problems and they have
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  the quality problems. They have all these issues that yeah, when you start
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  developing a brand new vehicle. But the men's there for those vehicles, Yeah,
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  definitely, and you know, you just see it. You see more
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  and more of them on the road. So what's your take though on what
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  it does for you know, between AI and between electrification, whether it's good
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  or bad, it's irrelevant, it's happening now. Personally, I think the
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  cores are potentially a lot better if they're electric, they do a lot more
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  technologically or the self driving also kind of overlaps with AI. But electrical generation
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  in the country, the grid is it up to the task here? And
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  uh, what do you think it means for utility? Uh companies profits and
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  dividends. Yeah, so evd's are really a good thing for utilities. I'm
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  more worried about the data center, the AI, UH data centers and and
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  also some extent to cryptos, but UH ebs genuinely charge. I'm usually are
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  charged at home, and and that's usually done at night off ours, especially
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  if you have a time of use pricing, so you do that after midnight,
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  and that's when the grid has the smallest loan. There's a lot of
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  ivy capacity, and so utilities can actually sell electricity during a time when they
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  had to carry the grid without really a lot of revenue. So that's really
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  a good thing for utilities. Not loving that. The problem is is AI
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  data centers. They're guarding up a huge amount of and that's during the day,
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  that's at night, that's all the time, And I'm not sure where
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  all this electricity is going to come from. Obviously, utilities like to be
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  in a growth industry that like this. Electricity consumption in the United States has
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  stagnated since about two thousand and seven, and so this is for for the
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  companies that are doing this. This is a good thing. They're now in
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  a growth business. They they can build power plants, they can build power
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  lines, they can maintain them better because now they're having growth revenues in revenues
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  and growth in profits and electricity process have been going on. I mean,
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  because it was a bit thing about that. But for the utilities, this
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  is there's really a pretty good situation. When you add that kind of growth,
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  then investment becomes easily justifiable. They can issue bonds, thirty year bonds
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  to uh TO to build a power plant and to build out the grid,
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  and they're doing that so they they will be able to meet demand if they
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  see this growth potential is there and it makes financial sense to invest in it.
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  And it's not going to be a smooth past, but yeah, that
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  will use that to build out the capacity. Hey what do you think of
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  the like Tesla battery centers, the megapacts, you know, Jigundo stacks of
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  LFP batteries that are used to kind of equalize the load. So they n
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  plus like they have the ability to buy up all the cheap electricity Now in
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  Florida here my rate's like thirteen cents per kiloot hour but off peak. If
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  I was to switch back again, it would be seven cents per hour off
• 17:45
  peak and twenty five cents per killoout hour peak. But in places like Georgia
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  they let you buy the energy for a penny per kiloout hour off peak,
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  but obviously commercial industrial users get far more preferential rates. Uh. You think
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  that's going to be a vital part of the electrical grid going forward. Wolf
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  batteries, Yeah, yeah, And that's an interesting thing. It does an
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  arbitrage now as a motivation behind installing these batteries, because you have power surges
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  during which electricity becomes very very expensive, and so about demand surges and then
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  they're brief that may only be an hour day, and that despite or electricity
• 18:37
  on the whole sale market gets very very expensive. And then you have periods
• 18:42
  where the excess potentially excess production of electricity and especially from renewables that you don't
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  really turn off, I mean as you have to because there's no fuel costs
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  involved. So you run them all the time as long as there's in the
• 18:53
  sun, and you end up over generating electricity and some of the power dry
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  into the negative. You know, they have the prices that have trouble.
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  So you have a battery installed that can charge up when the electricity costs very
• 19:08
  low, and they can sell the electric it pays very little to get the
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  electricity, and then it can sell the electricity during the day when the demand
• 19:18
  is high and the price is so high, and that's arbitrage. And so
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  people are making lots of money doing that. And so now because of this
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  this huge prof profit motive behind it, battery in selicious are surging. They're
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  going on all over the place. And what they're doing, in effect,
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  they're taking the spikes out of the grid, and that's a really good thing.
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  The grid has to be able to handle the spikes. It has to
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  be built big enough stry all the spikes also collapses, and with batteries being
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  able to take out the spikes, that is a huge thing for the grid
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  and it's I think it's a game changer. Yeah, I agree. And
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  you had plants that they call peakers, and they were just there. Their
• 20:00
  only purpose in life was for peak demand. So now if you get enough
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  of these batteries, you'll be able to eliminate the peakers, which didn't really
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  weren't really necessary and then you're cheap. You save for nighttime your cheapest electricity,
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  which is by a large nuclear in existing nuclear plants. New nuclear plants
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  still through the moon. So it sounds like it sounds like it's really going
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  to be a major have a major impact over time. They just can't quite
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  build them quick enough right now. Musk says that the megapacks could be like
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  the major source of profits for the company in the next few years, so
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  it'll be interesting to see. Anyway. You find Wolf over at wolfstreet dot
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  com. Link is in the show notes. Questions of comments for Wolf or
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  myself shoot me an email at Carrie LUTs dot com. Hey, Welf,
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  it's always a pleasure, always interesting speaking with you. We'll have you on
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  again soon. Thanks Carrie, Thanks for listening to Carrie Letz's Financial Survival Network,
• 21:12
  your solution to today's trying times. For the latest, go to Financial
• 21:18
  Survivalnetwork dot com. Financial Survival Network now more than ever,