Hello everyone, welcome to “Wealth and Economy Insights”.
Today’s focus: The combination of black money and bread, why did Japan’s Liberal Democratic Party suffer a disastrous defeat? Fighting for survival, the closure of three German factories by the public, resulting in tens of thousands of job cuts! Porsche faces huge losses in the Chinese market, BMW shutting down stores! Tesla’s financial report shines, Elon Musk bags billions overnight! Trump vs. Biden, top ten economic policies!
Next Tuesday, on November 5th, the highly anticipated US presidential election will take place. This year’s election, one of the most discussed topics is the economy. It is understandable as prices, wages, stock market, and real estate are closely related to people’s livelihoods and naturally the most concerning topics.
Let’s compare the performance of Trump (Trump) and Biden – He Jingli in ten aspects of economic and livelihood. FYI, the period from February to December 2020, the peak of the COVID-19 pandemic, is not included as the economic data was severely distorted at that time.
First, let’s look at GDP. The Gross Domestic Product (GDP) is a fundamental indicator to assess economic performance.
During Trump’s first three years in office, the average GDP growth rate was 2.6%, which is quite good. The main driving force behind GDP growth was his tax cuts and expansionist economic policies.
During Biden’s first three years in office, the average GDP growth rate was 3.4%, mainly due to the strong economic recovery after the pandemic lockdown was lifted. Taking into account the balanced recovery effects, the GDP growth rate during Biden’s tenure is approximately 2.5%, which is also quite good.
Second is the stock market. It is worth emphasizing that during the first three years of both presidents’ terms, the S&P 500 index surged well above historical average levels.
From Trump’s inauguration until the end of 2019, the S&P 500 surged by 42.2%. This period marked the longest bull market in US history, lasting 132 months until the outbreak of the COVID-19 pandemic in 2020.
Moving on to Biden. From his inauguration in January 2021 to the end of 2023, the S&P 500 rose by 23.8%, exceeding the average 10% increase, which is also quite good.
Third is inflation. During the Trump administration, the inflation rate in the US remained relatively low, with the Consumer Price Index (CPI) peaking at only 2.9%. In 2020, due to the outbreak of the COVID-19 pandemic and the Russo-Ukrainian War, the US government began printing money.
By June 2022, in Biden’s second year in office, the US CPI surged to 9%, and inflation became uncontrollable. The latest CPI data for this year shows a decline in inflation to 3.1% in early 2024, but daily essentials prices remain high, especially food prices. Official data indicates that since Biden took office, food costs have risen by more than 20%.
Fourth, employment rate. During Trump’s first three years in office, 6.8 million jobs were added. It was a remarkable achievement. However, due to the later impact of the pandemic, overall job growth fell behind during Biden’s administration.
As of September this year, the US added 16.4 million jobs during Biden’s tenure. From a percentage perspective, the average annual employment growth rate under Biden is the best among all US presidents since President Carter in 1981.
Fifth, wages. In his 2020 State of the Union address, Trump mentioned the era of “blue-collar resurgence” in the US. During his first three years in office, the inflation-adjusted average wage increased by 6.4%. However, during Biden’s tenure, wages also grew significantly, but due to high inflation rates, this growth was offset. According to Bureau of Labor Statistics (BLS) data, from January 2021 to September 2024, the actual wage growth after adjusting for inflation was only 1.4%.
Sixth, unemployment rate. When Trump took office, the US unemployment rate was 4.7%. By September 2019, it had dropped to 3.5%, the lowest in 50 years. When Biden took office, the labor market was severely impacted by the pandemic. There were job losses of 9.3 million in 2020, with the unemployment rate peaking at 6.4% in early 2021. However, by January 2023, the unemployment rate had dropped to 3.4%, the lowest in 54 years.
Seventh, interest rates. During the Trump administration, the federal funds rate target range was only 0.5%-0.75%. In January 2019, the Fed raised rates to 2.25%-2.50%, but later lowered them several times, cumulatively by 1 percentage point.
During Biden’s tenure, in response to inflation, the Fed implemented the most aggressive tightening policy in 40 years, raising rates 11 times over two years, with the target range reaching 5.25%-5.50%. This put the US into a four-year period of high-interest rates.
Of course, by the end of September this year, the Fed finally started cutting rates, officially ending the era of high-interest rates.
Eighth, the housing market. When Trump took office, the average US home price was less than $300,000. By now, this number has reached $493,000. When Trump took office, the 30-year mortgage rate was 3.5%. By November 2022, this rate was averaging 7.8%. With the Fed now cutting rates, mortgage rates are gradually declining.
Ninth, government debt. In terms of borrowing and spending, the stance of both administrations was basically the same. Currently, the US public debt stands at $34.3 trillion, amounting to $101,976 per person.
According to the Committee for a Responsible Federal Budget (CRFB), during Biden’s tenure, national debt increased by $3.8 trillion, mainly due to the massive stimulus payments issued during the pandemic. However, the bills were passed with bipartisan agreements, hence it’s not solely the fault of the Biden administration.
In comparison to Biden, Trump’s administration saw a more astounding increase in debt. Data from the CRFB indicates that during Trump’s tenure, national debt increased by $8.4 trillion, which is more than twice Biden’s increase.
Both administrations aimed to foster strong economic growth in the US. The key difference lies in the inflation issue, where Trump didn’t trigger it, while Biden wasn’t as lucky.
Lastly, looking at consumer confidence. During Trump’s presidency, the general public generally believed in economic prosperity and stable employment, with high confidence levels.
However, during Biden’s presidency, consumer confidence plummeted, reaching historic lows in June 2022.
Starting from the second half of this year, consumer confidence began to rise, but it still remains below pre-pandemic levels due to prolonged high prices, coupled with a bleak economic outlook.
Economists believe this is mainly due to the prolonged high prices and the bleak economic prospects.
Now, let’s shift our focus to a significant event in Japan. In Sunday’s 50th House of Representatives elections in Japan, the ruling coalition only secured 215 seats, failing to surpass half of the 465 seats in the House. This marks the first time since 2009 that they have lost the majority. The ruling Liberal Democratic Party, led by Prime Minister Shizo Maehara, only obtained 191 seats, losing 56 seats, a disastrous defeat.
The opposition party, the Constitutional Democratic Party, saw its seats surge from 98 to 148, becoming the second-largest force in the House of Representatives.
This defeat signifies the ruling coalition’s loss of parliamentary discourse, raising questions about Shizo Maehara’s ability to continue governing.
Shizo Maehara took office as Japan’s new prime minister on the 1st of this month and on Sunday marked his 27th day of his term. If he resigns due to this election’s disastrous outcome, he will become the shortest-serving prime minister since World War II. Currently, Shizo Maehara has stated that he will not resign.
The Japanese financial markets are shrouded in uncertainty due to the election defeat. However, the defeat did not impact the rise of the Japanese stock market.
On Monday, the Nikkei index rose by 1.79%.
The yen weakened to its lowest level in three months, with the USD/JPY exchange rate closing at 153.54.
In response to the political turmoil in Japan, analysts at Barclays Bank predict that if the worst-case scenario occurs – meaning if the Liberal Democratic Party and Komeito (a political party in Japan) lose enough seats to form a government, the market may exhibit strong risk-aversion sentiment. In this case, the yen is expected to appreciate, long-term bond yields will drop, the Japanese stock market will decline, and the USD/JPY exchange rate may fall by 2%, with a 7 basis point drop in the 10-year Japanese government bond yield, and the Nikkei 225 index could plummet by 5%.
Moving to other news, on October 22nd, Tesla’s production plant in Fremont, USA, rolled out its 7 millionth electric vehicle. Alongside an excellent third-quarter financial report, Tesla delivered approximately 463,000 vehicles in the third quarter, a 6% year-over-year increase. Revenue from Tesla’s automotive business surpassed $20 billion for the first time in the third quarter, up 6% year-over-year.
In the third quarter, Tesla’s net profit was $2.167 billion, representing a 17% increase from the same period last year and a 46.6% increase from the previous quarter. One reason for the profit growth was the increase in delivery volume, and another reason was the sale of surplus carbon credits to governments, bringing Tesla $739 million in net profit.
The market responded with high approval: Tesla’s stock price surged to $262.2 per share intraday, closing with a 22% increase, resulting in a market capitalization surge of over $150 billion overnight, marking the highest daily stock price increase in 11 years. Elon Musk’s net worth also jumped to $267.8 billion overnight, contributing to a 10% increase in one day.
During last week’s earnings call, Elon Musk remained bold in his expectations for next year’s car sales volume, estimating a 20%-30% growth.
Looking back, it took nearly 12 years for Tesla to reach 1 million cars, but only four years from the 1 millionth car to the 7 millionth car. Out of these 7 million cars, 3 million came from the Shanghai factory, with 1 million of them exported to overseas markets. The Shanghai factory has truly become a super factory outside the US, witnessing a surge in Tesla’s sales. China is also one of Tesla’s most important markets, with the company selling 182,000 electric vehicles in China in the third quarter, a 30% increase year-over-year.
Regarding Musk’s future plans for Tesla, there are three key growth factors: AI, energy storage, and new vehicle models.
The core of Tesla’s AI business is autonomous driving, which has been a significant progress.
The second growth point is in its energy business, including expanding its new energy industry and energy storage businesses.
Energy storage business, in particular, saw a 52% revenue increase in the third quarter, which was the highest growth rate among Tesla’s three major businesses.
The last growth point is the new vehicle models that Tesla is about to introduce. One is the high-end electric sports car, Roadster, with most of the design already completed, and further upgrades are expected for production next year.
Another highly anticipated model is the affordable car, the rumored “Model 2,” with an estimated price of around $25,000. It is also expected to enter production in the first half of next year.
Apart from these two new models, Musk revealed the latest plans for the Semi. Currently, 200 Semis have been delivered, all equipped with autonomous driving systems. By 2025, the Semi is expected to enter full-scale mass production.
During the earnings call, Musk emphasized his bold vision for 2025, particularly focusing on Robotaxi. He believes that Robotaxi could offer paid driverless ride services as early as next year, pending successful approval for driverless ride services in California and Texas.
In conclusion, looking ahead to next year, Elon Musk may have even more reasons to smile.
Lastly, in a different tone of news, Germany’s Volkswagen factory closure and job cuts were announced last Friday. Just on the eve of the latest financial report, this nearly 100-year-old, largest European automaker was left pondering its future, bringing a sense of solemnity.
Carsten Buechling, head of the Volkswagen Works Council, said, “Unfortunately, we have to announce that the board intends to close at least three factories and carry out large-scale layoffs at other factories, reduce production, and cut the salaries of all other employees authorized to work for Volkswagen. Their salaries will be significantly reduced. The Executive Committee plans to immediately reduce salaries by 10% permanently.”
For any company, layoffs and factory closures are considered very grim news. In the case of a massive automaker like Volkswagen, the shockwaves are undoubtedly larger.
Despite VW’s announcement coming from the Works Council after the elections, rather than an official statement from VW, the authenticity of the plan is believed to be real.
Over the past few months, VW has been dealing with financial troubles, partially due to the sharp decline in demand in the Chinese market. Coupled with sales slowing down in other major markets, transitioning to electric vehicles poses high costs, shaking the foundations of this towering tree.
According to the information from the VW Works Council, the extensive job cuts will affect tens of thousands of positions, representing only a part of VW’s survival plan.
In addition to a 10% permanent salary reduction for all employees, there will be a freeze on salary increases in 2025 and 2026, resulting in an estimated 18% reduction in workers’ salaries during this period.
Moreover, at least three factories located in Germany will be shut down, and VW plans to permanently scale down operations at other factories. If the news is eventually confirmed by VW, this would mark the first time in the company’s 87-year history that it closes a factory based in Germany, showcasing the extent of the needed adjustments for their survival plan.
Attempting to save costs is evidently not an easy task, as the automotive union may not easily accept Volkswagen’s strategy of layoffs and pay reductions to reduce costs.
Carsten Buechling, the head of the VW Works Council, commented, “We fully agree with the main union and IG Metall’s opinion. We will, of course, reject the board’s plans and announce that we will do everything possible to oppose these plans.”
Furthermore, the German government will not remain idle. Currently, VW has around 300,000 employees in Germany alone, making it inevitable for the government to apply pressure, considering the company’s massive size in the automotive sector.
Wolfgang Buechner, the deputy government spokesman, stated, “It is well known that Volkswagen is facing a challenging situation, and the union has communicated its information, but Volkswagen has not yet made an official statement. Therefore, I believe that we may have to wait and see, perhaps having to wait for Volkswagen’s official statement. However, the Chancellor’s position on this matter is clear, and the current problem is how to save jobs.”
The coming months will be tumultuous for Germany, particularly in the automotive industry. VW’s financial challenges and cuts will likely lead to a significant shakeup in the market.
In conclusion, the headlines from Japan and Germany are testament to the current economic climate and political challenges both countries are facing.
That wraps up today’s program of “Wealth and Economy Insights”. Thank you for watching, and we look forward to welcoming you back next time.
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