At this juncture, there are 760 million Chinese — about half the population — on lock down.
Nikkei reports, “On average, suppliers in the Apple iPhone supply chain are currently operating at around 30% to 50% of capacity.”
Another source told Nikkei that the “constrained supply of iPhones will likely extend to April. There are still a lot of hurdles, from labor shortages to logistics transportation.”
In cartoon world the wildlings have continued to plow into Apple and other bubblelonean stocks in what many veteran managers are calling the greatest disconnect of all time. Some how the wildlings and algos think the Fed has their backs but yesterday’s FOMC Minutes Warn Of “Elevated” Asset Levels, Suggest ‘NotQE’ Tapering Imminent.
Refusing to examine the dark side of life and its dangers has become a staple of our society. Naive optimism has become a virtue. The pajama person cult encourages people to remain oblivious in the face of adversity. And the more precarious our system becomes, the more these people see unicorns and rainbows. It is truly bizarre.
The source added that the “biggest uncertainty is still lingering as no one can be sure whether the coronavirus is under control,” but some suppliers could have more people back to work around Feb 24.
However the experiences of 634 passengers infected and 2 dead on the cruise ship Diamond Princess demonstrates a virus reproductive rate (RO) that’s high in close confines — far too high to be considered safe for large numbers of workers to be forced back into crowded factory dormitories simply to reach economic targets.
To date, this is not happening. Freeway traffic in Shanghai can be tracked online. Point of fact is that congestion data points to even less road traffic, and zero recovery. It’s one-third of last year’s pace. The trendline of the situation, as of now, is getting worse, not better.
Other broader transportation data points confirm Shanghai road traffic.
It’s now evident that Apple iPhone and Airpod shortages are imminent.
Global notebook unit shipments for the first quarter of 2020 are estimated to experience a larger sequential fall of 29% to 36%, rather than the 17% projected earlier, as severe labor and components shortages and stagnant logistics arising from the coronavirus outbreak are derailing supply chains in China, which commands over 90% of global notebook production, Digitimes Research reports.
Taiwanese notebook ODMs have already resumed assembly operations in China, but risks of supply chain disruptions in March are mounting, as inventories of many components will run out by end-February.
In the best-case and highly unlikely scenario under which the virus is under control by the end of February and factory resumption rates keep rising, China’s top-four handset brands are expected to see their smartphone shipments experience an annual fall of 19.5% in the first quarter of 2020.
Adidas AG and rival Puma SE said business in China was pummeled by the coronavirus. German sporting-gear companies have been forced to shutter stores. Adidas AG says business in greater China dropped 85% in the weeks since Jan. 25.
China Passenger Car Association said that sales dropped to just 4,909 units in first 16 days of Feb., down 92% from 59,930 vehicles in same period a year earlier. China auto market is the biggest in world – 50% larger than U.S.
Taiwan’s Tourism Bureau said suspension of group tours to Hong Kong and Macau will be extended to April 30 from original schedule of March 31. Taiwan had earlier barred entry for all residents of mainland China, Hong Kong and Macau.
HSBC: “Since the start of January, the coronavirus outbreak has created significant disruption for our staff, suppliers and customers, particularly in mainland China and Hong Kong,” Quinn said. “Depending on how the situation develops, there is the potential for any associated economic slowdown to impact our expected credit losses in Hong Kong and mainland China.”
Per Bloomberg, a growing number of China’s private companies have cut wages, delayed paychecks or stopped paying staff completely, saying that the economic toll of the coronavirus has left them unable to cover their labor costs. A significant percentage of Chinese production is marginal, often financed by shadow or private banking, that will not be paid back.
Japan, the third largest economy in world, is now also virtually shut down. The health minister warned Monday to avoid “non-essential gatherings,” including packed commuter trains (that’s how they get around in the cities), as Japan’s coronavirus enters “a new phase.”
104 confirmed cases in South Korea is not a good containment sign.
Major Update: This is in South Korea! Key Apple Supplier Hynix Tells 800 Workers To Stay Home After Trainee Contracts Virus
For further reading:
More than 42% of investment-grade bonds in the United States and globally by amount outstanding are rated Baa, according to Moodys. This is dramatically higher than the lead up to the 2008-’09 financial crisis. The total amount outstanding currently hovers around $5 trillion.
- The Low grade bond bubble: Survey of a Paper Tiger Debt Implosion
The swarm fallen-angel scenario is a downgrade from Baa/BBB, leading to a high-yield or junk-bond status and a big air pocket in prices. Most institutions and pension funds are required to hold only so-called “investment grade” notes. BAA is the lowest “investment grade” rating allowed. Therefore, institutional funds would be forced to dump their holdings.
The energy industry is front and center for a wrecking-ball downgrade to junk status. But recently, the rating agencies have been downgrading consumer companies.
One week after Fitch and S&P downgraded consumer products giant Renault to junk, or from BBB- to BB+, sending a “gargantuan” amount of debt to junk. Then S&P downgraded another investment grade staple, Macy’s, to junk, when it cut its rating from BBB- to BB+, due to what S&P said was “considerable execution risks as the company attempts to improve its position in the challenging department store sector.”
Macy’s has $7.5 billion of net debt. Macy’s is considered to be one of the last strong mall anchors.
Now the bond market has a new $21 billion fallen angel: Kraft Heinz. It’s the largest issuer to move into junk status. That means the company’s bonds will move out of investment-grade bond indexes and into junk-bond indexes at the end of this month.
Winter Watch Takeaway
Nearly a month into this pandemic, there are few deaths of non-Chinese reported. It was our earlier speculation that Africa would be hit, but oddly there are no serious outbreaks there – as yet. So far the majority of fatalities seem to be older and poorer Chinese men. Is the virus weaponized that way? A fair question to ask that few are addressing.
“Advanced forms of biological warfare that can ‘target’ specific genotypes may transform biological warfare … to a politically useful tool.” – “Rebuilding America’s Defenses” – PNAC
Also if weaponized don’t just assume that a state actor is behind it. The New Underworld Order Crime Syndicate can consist of non-state actors who may, for an example, be looking for mass vaccination largess combined with medical martial law, population culling and economic blow ups thrown in for good measure.