To The Moon

The biggest market concern yesterday was not Tesla's plunge, but $Apple(AAPL)$'s 4.8% plunge, makinh its market cap dropping below$2 trillion.

It's reported that

Apple's Chinese supply chain manufacturers have received notices from Apple to reduce the number of orders. There are numerous products involved: AirPods, Apple Watch and MacBooks.

It makes more sense to understand the present than to predict the future.

For example, we should understand that the current Hong Kong/Chinese market is worth to invest in;

understand that energy is a sector that is losing momentum (crude oil was back to $80 at the end of the year after I was last bearish, but quickly fell to $74 in the New Year);

understand that high CPI in the US is a thing of the past (US December CPI will be released next week).

It is very reasonable for Apple to have a big drop yesterday on this news.

Apple's big drop is a demand concern. Indeed, if the cheap AirPods are also cut, then it proves that US consumption is indeed getting weaker. In fact, Tesla's delivery problem is also a demand issue in the end. There are more and more signs that US consumption levels are weakening.

Spending power is weakening

From the composition of the CPI, if the price of food won't drop and the people's income becomes less, then the first thing that should be reduced is the consumption of electronic products.

When the pandemic broke out, the American people took their savings and bought a ton of electronics from BestBuy, and now the cycle is completely reversed.

If you want to look at one macro indicator to see the spending power of the American people, it is the level of savings.

The chart below shows the level of savings of the American people, which is currently even lower than it was in 2018.

To consumer & To business companies both suffer

Consumer companies that make and sell electronics, graphic cards, stream music, etc. are in great danger. When people's savings decrease, they will stop consuming 3c products and cancelling subscription services. The industries that had explosive growth during the pandemic are now going to plummet.

The demand for to C companies is suppressed, then it will affect the business of to B companies. Because to B companies are making money from these companies. The news that Salesforce is laying off 10% of its workforce seems to be the result of this logic.

The most important thing to look at in the to B industry is the layoffs in the tech industry. The chart below shows the tech industry layoffs since the pandemic (based on statistics from public market information), which are still on the rise.

According to the Wall Street Journal, these laid-off employees of big tech companies will find jobs in smaller companies in a shorter period of time, so the unemployment rate in the US remains relatively low.

I believe that many people will conclude that the United States will enter a recession. I think it is possible, but how deep and how long will it take, it is difficult to say. The most important reason is that the U.S. is a "consumption-based economy".

US GDP is building on consumption. So the key is whether the government is willing to spend money (here is the US Treasury deficit, not the Fed's temporary monetary policy). According to the US Treasury data, the US federal government spent $6.27 trillion in fiscal year 2022, equal to 1/4 of GDP. As long as the new government continues to spend money, even if the United States entered a recession, it will not be a deep recession.

Bottom Line

Finally, to summarize, the certain investment opportunities are:

Chinese / Hong Kong stocks, good cash flow of U.S. companies (games?) , defense stocks;

cautiously invest in

consumer electronics and streaming music - wait for the macro trend pivots and then begin to bottom.