RUSSIA & CHINA Not Using US Dollars — Is the VW Brand “Uncompetitive”? — Tesla is the Exception — Macquarie Bank Phases Out Cash; a Poor Decision? - [12-24-23]

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BOOM EDITORIAL THIS WEEK

Merry Christmas and Happy New Year to all BOOM readers wherever you are. BOOM is published on many platforms – Substack, LinkedIn, WordPress, the Burning Platform — with a total readership each week of many thousands worldwide. It is a select readership of curious, well-informed people interested in high level finance, economics, funds management, personal investment, geopolitics and financial markets.  BOOM expects 2024 will be a year of great consequence.

RUSSIA AND CHINA ARE NO LONGER USING THE US DOLLAR

The trend to multipolarity in trade settlements continues within the BRICS group of nations and other associated nations. BOOM has often stated that this process will take 50-100 years to resolve US Dollar dominance in most international trade and capital settlements. In the fullness of time, that timeframe estimate may prove to be excessive.

On December 19, the Russian Prime Minister Mikhail Mishustin announced that Western currencies have been almost completely phased out in Russia-China trade settlements. He said that nearly all payments between the countries are now carried out using rubles and yuan. This was a noteworthy statement, indicating a more rapid transition than expected. The Russian PM was visiting Beijing to meet Li Qiang, the current Premier of China,

“We continue to increase the share of national currencies in mutual settlements. If in 2020 this figure was about 20%, then this year we have actually completely gotten rid of the currencies of third countries in mutual settlements,” Mishustin stated.  This indicates that full transition to multipolarity between those two nations has only taken three years.

India is a founding BRICS partner. They will be watching these developments closely. If they were to increase trade with China and Russia and settle those trades using Chinese yuan, Russian rubles and Indian rupees, then over 3 billion people could benefit from the trend to multipolarity. China, India, Russia, Brazil and South Africa (the original BRICS) make up 40% of the global population.  BOOM will have to review the 50-100 year forecast on a regular basis!

IS THE VOLKSWAGEN BRAND NO LONGER “COMPETITIVE”?

In 1933, Ferdinand Porsche built the “Volksauto”, a car with an air-cooled rear engine and a “beetle” shape. In 1934, Adolf Hitler got involved, placing the first orders. Volkswagen was established in 1937 by the German Labour Front (Deutsche Arbeitsfront) as part of the “Strength Through Joy” program (Kraft durch Freude). All this was a dream come true for Adolf Hitler who had been a long term admirer of Henry Ford.

Volkswagen AG (VW) is now the largest car company in the world with a revenue of almost $300bn in 2022. Hitler should have stayed quietly at home.

However, on November 27, 2023, Volkswagen’s brand chief, Thomas Schaefer, reportedly said the car-maker’s original brand is “no longer competitive” because of high costs and low productivity. A planned $10.9bn savings program will include significant staff reductions. German manufacturers are struggling with high energy costs and high wage costs.

On November 12 BOM reviewed the electric car sector and found that investors had fled from the companies involved but with one exception, Tesla. It was apparent that the investor revolt is based upon an assessment that the sector is not long-term commercially viable. This week, BOOM looks at the general car manufacturing sector.  [Disclosure - BOOM is biased towards European cars, currently owning a German car from a major manufacturer.]

BOOM owns an extraordinary vehicle; eight years old without a single squeak or rattle from the body and almost no engine or tyre noise at any speed. It’s value for money, all things considered, and beats all other cars that BOOM has owned, including other German cars.  However, the most remarkable aspect is the fuel consumption. On long trips, unleaded fuel consumption is as low as 5-6 litres/100 km.  The coffee stops cost more than the fuel!  [NB for US readers, 5 litres/100km is equivalent to 1.32 US gallons per 60 miles or 45 mpg]

How can such a car be “no longer competitive”?  What does this mean? It can only mean that the industry as a whole is in turmoil.  Conventional “wisdom” says that the turmoil is coming from China and from electric cars. However, the facts don’t appear to support this hypothesis.

Comparison with the ‘Top 20’ car manufacturers, based on revenues, market capitalisation, and share price performance over the last five years. [Charts are from Stockcharts and Yahoo Finance ranked by revenue in 2022.

Investors are currently buying the shares of Toyota (the company that has largely rejected the full electric trend), Stellantis (the French-American-Italian conglomerate), BMW (the German quiet achiever), KIA (the Korean quiet achiever) and Volvo (another European quiet achiever).  Honda and Mercedes Benz are holding investors’ interest.

All these companies are not pursuing the electric car fad as much as the others. However, the most interesting observation is that the Chinese car shares are all being sold by investors. Their share prices are in a steady downtrend, this is telling.

TESLA IS THE EXCEPTION - Tesla only makes electric cars, and thus far, it is bucking the exit-electric trend with shareholders remaining faithful. It has been a great investment for those who were early buyers. However, its share price has been in downtrend for the last two years and its revenue and market capitalisation seem disconnected from financial reality. It has, by far and away, the largest market capitalisation “value” in the ‘Top 20’ at US$809bn — 10 times larger than VW — but its revenue is only $81bn versus VW’s $300bn. And this is in a market where buyer hesitancy for electric cars is growing.

BOOM feels that this valuation is extremely optimistic and is watching closely for any sign that may indicate investors’ loss of enthusiasm and trust. That will manifest as a stronger downtrend in the share price. If Tesla shares fall again below US$150, it will all start to look precarious.

Examine these charts and watch revenues and market capitalisations closely. European car-makers are not yet defeated.  At this stage of the drama, both China and the electric car phenomenon have clearly failed to win the long term confidence of investors.

CONCLUSION: The most enthusiastic investors seem to be in Volvo, KIA, Honda, BMW, Mercedes and Stellantis. Tesla is in the balance.  Investors are undecided on its future at this juncture. Pessimism appears to be dominant in all the Chinese manufacturers.

MACQUARIE BANK TO PHASE OUT CASH – A POOR DECISION?

Macquarie Bank is Australia’s fifth largest bank.  Recently a Macquarie Bank spokesperson said, “As a digital bank, we’re committed to transitioning to completely digital payments by November 2024 as a safer, faster and convenient way to bank. The majority of our customers already bank digitally and we’re working very closely to support the less than one percent of our customers who currently use cheques or cash to ensure they have access to other digital payment methods.”

Macquarie Bank will phase out its cash, cheque and phone payments for customers from next year as it moves to digital-only payment systems.

In a letter written to customers, Macquarie Bank said that by November 2024 customers will be unable to write or deposit cheques (including bank cheques), deposit or withdraw cash over the counter at NAB branches or make a super contribution or payment with a cheque. Macquarie Bank’s telephone banking system will be scrapped in March next year, while in May cheques will be ditched completely.

Customers will also be no longer able to deposit or withdraw cash or cheques over the counter at Macquarie branches from May 2024.

BOOM believes this is a grave mistake. As long-term readers will know, BOOM is a great admirer of cash in its ability to be a natural buffer for credit money excess in the money supply of any economy. BOOM expects the next big societal trend in all the advanced economies will be a return to using physical cash.

For any bank to openly turn its back on cash at this juncture is a direct challenge to its customers. Customers are familiar with cash. They understand its utility. They know that it can save them in an electrical blackout or in a natural disaster. They trust it. This experiment by Macquarie may backfire badly if they start losing customers. And if that were to happen, they will have to admit defeat and beg their customers to return. Such a situation for a major bank would be very worrying indeed. This experiment has a significant chance of failure. And such a failure could damage the bank’s reputation irrevocably.

BOOM’s QUANTITATIVE BOOSTING FOR THE PEOPLES MONEY EXPLAINED: https://boomfinanceandeconomics.wordpress.com/2019/12/15/boom-as-at-15th-december-2019/  AND BOOM’s Perfect Economy: https://boomfinanceandeconomics.wordpress.com/2020/01/18/boom-as-at-19th-january-2020/

In economics, things work until they don’t.  Make your own conclusions, do your own research.  BOOM does not offer investment advice.

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BANKS DON’T TAKE DEPOSITS, THEY BORROW YOUR MONEY: LOANS CREATE DEPOSITS — that is how almost all new money is created in the economy (by commercial banks making loans). https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy.  Watch this short 15-minute video and see how Professor Richard Werner brilliantly explains how global banking systems really work.

In 2014, Richard Werner provided the first empirical evidence that banks create credit out of thin air.  They do this whenever they issue a loan or, more specifically, purchase a promissory note. This is a walk-through of exactly how they do it.

Most economists are unaware of this and even ignore the banking & finance sectors in their econometric models.

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COMING NEXT – Revised Schedule 2024

• Letter from South Africa – Saturday December 30, 2023 – the first biweekly issue

• The Financial Jigsaw Part 2 – January 6, 2024 - Chapter 3 begins

• Letter from Great Britain – Saturday January 13, 2024 – ongoing biweekly