deglobalization and the stock market

[medicoFIRE]

So, I think the writing is on the wall for the end of globalization as we knew it. Covid really drew attention to the risks of globalization. For example, a pandemic hits and you don't even have enough masks for healthcare workers because most of them are made in China. Countries like Germany are finding out that depending on a country like Russia for over half your natural gas/oil is not a good plan. It's like this for many products in the supply chain. Some components even in products like refrigerators etc depend on widgets made in China etc.

With all that said, I personally see US companies onshoring a lot of their supply chain or at least scattering it among more countries. This will inevitably increase costs and affect profit margins. Anyone have any thoughts about how this will affect stocks longterm? I know the response will be to just keep money in the stock market for 30 years and don't worry about it. That's for sure a solid plan and what I intend to do, but just curious as to what others think about this topic. I think deglobalization will also be a contributor to longterm high inflation. Part of the reason inflation has remained so low is because we could outsource a lot of our manufacturing to cheap labor in China etc.

Current fiasco is CT IV contrast shortage. GE literally sourced almost all of their contrast from Shanghai which has been shutdown with zero covid china policy and many EDs in the country are having to ration IV contrast. Cancer patients in some cases have to get their follow-up scans without IV contrast.

[Dont_know_mind]

It's an interesting topic. I have a few different POV's I try to weigh up:
- On the one hand it could mean that US labor will benefit from onshoring (yah, maybe the US wage inflation everyone has been waiting for) and value vs growth. So maybe the converse of the last 20 years in terms of US manufacturing. At least to some extent this is making Mexico and Thailand and Vietnam more interesting to the investing world as moving Chinese manufacturing to there is probably more practicable.
- On the other hand I rarely hear about trends in areas I haven't been watching and I'm usually near the back of the line to hear about trends. Basically, I hear about a move around 6 months before it ends. The end of globalisation narrative is sort of getting popular and I find it attractive, so using myself as a barometer, I would say it could be close to peaking. I read somewhere that globalisation by some measures has been reducing since the mid 2000's. So maybe actually this is nearing the cyclical bottom (not the top as the narrative would have you think).
- on the third hand the geopolitics is also probably critical and who knows what will happen there. I also read somewhere that the Chinese may have miscounted their population census by overcounting 100m people (mainly women below the age of 40) and their demographic decline, which was supposed to occur in the next 3 years, actually may have started 10 years ago.

I think if you are interested in this stuff, then the book by peter Zeihan: Disunited nations is good:
https://www.amazon.com/Disunited-Nat.../dp/0062913689

He has another book coming out soon, "the end of the world is just the beginning". Zeihan is a great story-teller.

I don't find any of this too actionable, although the China stuff does scare me somewhat as I'm commodity heavy. But I still have kept my portfolio the same despite the scary story Zeihan describes.

I don't find any of the global macro stuff very investable. It sounds good, but way too hard to profit from and many players with more processing power and intelligence will be analysing it.

Put a gun to my head and I would tend to go long - inflation, labour over capital, ROW vs US in the medium term, but then I tend to be a contrarian and like to go for the underdog.

Inflation, if only I had some idea. These macro questions are impossible and I wonder if anyone has any edge. But yeah, I like to think about it, a lot...

[Lordosis]

In 5 years everybody will forget all of this and we'll just produce things as cheaply as possible from the lowest bidder.

[Tim]

Actually, companies will work extremely hard to have multi-source suppliers. Domestic or international, it is just the option of some supply and the option if the main source gets disrupted. The secondary source will NOT be able to meet the full demands. But they could if push comes to shove.

Contingency planning.

[Dont_know_mind]

I could also be wrong and this may turn out to be a huge trend, like technology since 2012, which I didn't really get either, until recently, about when it peaked!

One of the great things about this sort of stuff is that you can track the accuracy of your predictions over time.

I also remember thinking that China would blow up in 2015, so I'm really wary of China will blow up predictions, but maybe it will.

Always surprising and that's what I love about investing. Endlessly charming.

[artemis]

In 5 years everybody will forget all of this and we'll just produce things as cheaply as possible from the lowest bidder.

I don't think so. Russia's completely unprovoked invasion of Ukraine has been a big wake-up call to much of the world.

[Dont_know_mind]

There was a good bogleheads thread that touched on inflation and deglobalisation, but unfortunately my ramblings may have resulted in the thread being closed!

https://www.bogleheads.org/forum/vie...75503&start=50

[CordMcNally]

In 5 years everybody will forget all of this and we'll just produce things as cheaply as possible from the lowest bidder.

Bingo. We’ve had shortages before in the past (healthcare-related included) and we continue on with our short memories.

[medicoFIRE]

Yeah I’ve read Peter Zeihan as well. He tends to think worst case scenario but is often correct in his thinking- just never to the extent that he proposes.

Im not sure about the short term memory thing. Companies will no doubt continue to seek profit above all else, but having your supply chain ripped apart will lose you more money than saving 10% on low wage labor in China. We’ll see how the next few years unfold.

Many also think that robots are increasingly the future of manufacturing- to the extent that you will need low wage labor less and less. With shipping costs increasing 2-3 fold, it would be cost effective to just put those automated factories in the US or at least in Mexico or somewhere else closer to home.

No way US companies will expand more in China than they already have. For one, chinese labor costs have risen something like 100% in the last decade. I think the only reason to stay in China now is the sunk cost of their currently operating factories. Even current factories in China may get phased out eventually as labor costs go up even further with China’s collapsing demographics. The Chinese are now at their peak and many working 80 hours a week in grueling conditions. That isn’t sustainable especially when your population is on track to be approximately 20% less people in 20 years. Our labor shortage will look incredibly rosy compared to theirs in the next couple decades

[medicoFIRE]

I’m thinking this may be the lost decade for stocks. But of course I have no crytal ball and will continue to plug into the market

[artemis]

I’m thinking this may be the lost decade for stocks. But of course I have no crytal ball and will continue to plug into the market

So will I, but part of me wishes I'd kept my bell-bottom jeans and mood ring. This feels like 1973 all over again. But if we ARE heading into Stagflation v. 2.0, there's nothing I can do about it except to keep investing steadily. Everything performs badly in stagflation, but stocks, real estate, and commodities take the least damage.

[artemis]

No way US companies will expand more in China than they already have. For one, chinese labor costs have risen something like 100% in the last decade. I think the only reason to stay in China now is the sunk cost of their currently operating factories.

And given what Xi has done to several Chinese-owned companies, I can see US companies deciding that even if Chinese labor costs remained low, the risk of the business running afoul of the CCP because it's becoming "too successful" is too great a risk to take. What's the point of building up a successful business only to see it seized or shut down by the state for political reasons?

[mamaham]

So will I, but part of me wishes I'd kept my bell-bottom jeans and mood ring. This feels like 1973 all over again. But if we ARE heading into Stagflation v. 2.0, there's nothing I can do about it except to keep investing steadily. Everything performs badly in stagflation, but stocks, real estate, and commodities take the least damage.

maybe you jest, but bell bottoms are back in style now.... so there's that.

[Dont_know_mind]

Yeah I’ve read Peter Zeihan as well. He tends to think worst case scenario but is often correct in his thinking- just never to the extent that he proposes.

Im not sure about the short term memory thing. Companies will no doubt continue to seek profit above all else, but having your supply chain ripped apart will lose you more money than saving 10% on low wage labor in China. We’ll see how the next few years unfold.

Many also think that robots are increasingly the future of manufacturing- to the extent that you will need low wage labor less and less. With shipping costs increasing 2-3 fold, it would be cost effective to just put those automated factories in the US or at least in Mexico or somewhere else closer to home.

No way US companies will expand more in China than they already have. For one, chinese labor costs have risen something like 100% in the last decade. I think the only reason to stay in China now is the sunk cost of their currently operating factories. Even current factories in China may get phased out eventually as labor costs go up even further with China’s collapsing demographics. The Chinese are now at their peak and many working 80 hours a week in grueling conditions. That isn’t sustainable especially when your population is on track to be approximately 20% less people in 20 years. Our labor shortage will look incredibly rosy compared to theirs in the next couple decades

I was thinking about it today.
I like the Zehan narrative. I find it quite compelling. I think it is spreading like fire and getting quite popular.

Sort of like the Bitcoin narrative 12 months ago or the ESG narrative 2 years ago. At this rate, maybe it will get to peak popularity in the next year.

I would love to see it peak in a major way with a major washout, like oil. I would play it the other way. I will wait for a washout and buy EM.

EM has already had a poor last 15 years so is getting very interesting. I guess it depends what you think is likely. I think globalisation peaked a decade ago and has really slumped since COVID, but it is something I believe in the long term. A bit like tech, it will come back. EM, which nearly everyone derides nowadays, has enormous potential. I will wait for it to get hated, hopefully as much as oil was at the low. If it gets there, I’ll pull the trigger.

It would be great if there was a major washout event, to indicate peak belief in the end of globalisation, harder if it’s just years of grinding pessimism. With the geopolitical instability, I’m hoping a washout.

I remember this Scorpions song from the early 90’s:
https://youtu.be/n4RjJKxsamQ

What hubris that we thought the Russians were like brothers. But you know what? They are.

The pendulum swings.

[Tim]

I’m thinking this may be the lost decade for stocks. But of course I have no crytal ball and will continue to plug into the market

But the second decade looks fantastic. You are in it for 20 years aren’t you?