January 18, 2019

The R-Word

John Gruber, writing for the prominent Apple-centric blog Daring Fireballon the possibility that Apple’s recent revenue miss for the holiday 2018 quarter points to a much greater problem:

I think what has [Apple CEO Tim] Cook spooked is not the drop in iPhone sales, but the fact that the iPhone sales drop in China might be a symptom of a bigger problem. An effect, not the cause. Apple has gotten crazily good at predicting everything about their financials. It’s almost freaky how accurate they’ve been for years. But they got something very wrong last quarter. Again, it was a slight year-over-year decline, but it was the second-best quarter in history. iPhone sales were disappointing compared to expectations, but weren’t bad in the abstract. What was bad was Apple’s guidance. A $7 billion miss is bad, but Apple not foreseeing a $7 billion miss is a red flag. I think they’re evaluating deeper plans just in case it was more than just one thing in one quarter. No one wants to say the word, but I think it’s what has Cook spooked.

Recession.

As Gruber wrote elsewhere in this article, we cannot trust the economic data coming out of China as we can that from politically open countries. We’re left to glean secondary indicators like iPhone (and other product) sales as proxies for deeper trends within that economy. A wide variety of companies are warning on sales in China.

It’s a long-held belief that when the American economy sneezes, the rest of the world catches cold. What, then, can we predict accompanies a Chinese economy tumbling into recession, if that is indeed happening?

Equities markets often provide an early hint that an economy is about to dive into recession. The US stock market hemorrhaged just prior to the last two economic downturns here—some would argue that it became a self-fulfilling prophecy, even—leaving those with intuition room to step out of the way. I’m not a market-timer with my investments, and I don’t advocate anyone try. Catching the falling knife that is the eventual end of a market downturn is fraught with peril; it’s so much easier to get that timing wrong than right. Knowing what came before, and knowing that it’s never “different this time” can be useful managing one’s own investments, though.

All of which is to say there may be a far more interesting story playing out in the Chinese economy right now that may have significant implications for the US economy and personal investment later this year and next. I don’t trust the political hands at the wheel here in the US—Steve Mnuchin has prior experience managing big money, but is beholden to what he can convince Donald Trump of, and Trump, in turn, has little successful* experience at economic stewardship—leaving only cooler heads at the Federal Reserve as a backstop.

Think carefully about your level of trust vis-a-vis your financial future.

#China #recession #economy #Apple #indicators #investing


* how successful is a businessman who loses money and files bankruptcy on New York City real estate, which never devalues, and casinos, where people pay to give away their money?