According to Adobe (ADBE) Analytics on-line shopping for Cyber Monday saw sales decline slightly (1.4%) from $10.8b last year to $10.7b this year, while Black Friday spending declined 1.3% from $9b last year to $8.9b this year.  That said, during the period between November 1 and November 29, consumers spent $109.8b, up 11.9% y/y, as consumers anticipated potential product shortages and shopped earlier than last year.  Drilling down in the electronics category, biggest sellers were Apple Air Pods and Apple Watches, laptops from Hewlet (HPE), Lenovo (992.HK), and Dell (DELL), the Nintendo (7974.JP) Switch, the Microsoft (MSFT) Xbox Series S, the Facebook (FB) Oculus  Quest 2, and TVs from Sony (SNE) and Samsung.
Final price points grew 13.9% on Cyber Monday and 19% for the season, and while Adobe says it indicates that some are buying bigger ticket items (certainly possible), e-commerce prices have been up for 17 consecutive months according to the data.  As we expected, discounting was modest at -12% against last year’s -27%, with TVs at -13% vs. last year’s -18% and appliances at -8% vs. last year’s -20%.  For computers, Adobe expects 12/1 would have been the day with the deepest discounts (-26%) but expects those discounts to decrease as shipping costs continue to increase.  Out-of-stock messages were up 8% week/week on Cyber Monday, but were up 169% y/y and 258% from 2019 for the period between November 1 and November 29.  39.7% of Cyber Monday purchases were made on smartphones, up 8.4% y/y but the y/y increases have slowed as stay-at-home shoppers are more inclined to use desktop of laptop computers, while they use their phones for browsing (57% of web visits). 
There will be more data about Black Friday and Cyber Monday over the next few weeks, some of which comes from retail trade associations that have a particular bias toward a more positive view of holiday sales, so we will continue to monitor new data and (hopefully) average the sets, but the two charts that stood out in the Adobe report seen below, tell much of the story.

​While we praised Ericsson (ERIC) yesterday for being open about how not all of their forecasts for mobile communications turned out to be accurate, we take a minute to go in the opposite direction.  Trendforce, a well-known provider of pricing data for DRAM and semiconductors, seems to have forgotten some of the forecasts it made earlier in the year.  In a recent article citing its expectations for smartphone shipments in 4Q this year, the company stated that it was reducing its full year smartphone forecast to 1.335b units, stating that was 10m units less than its initial forecast.  As we actually track forecasts such as these, we note the following:
The difference between the previous Trendforce full year smartphone estimate is 12m units not 10, but that ‘initial’ estimate was made in July, after the actual initial estimate of 1.367b, made in February and an update (reduction) to 1.36b in May.  This puts the difference between the actual initial estimate and the just revised estimate at 32m units or a 2.3% reduction from the February forecast.  It might seem that we are nitpicking, but Trendforce tends to be an outlier when it comes to estimates and forecasts and is not particularly open about the details or changes that they make.  It is certainly valid to be lowering a full year smartphone forecast in light of component shortages and logistical disruptions, but it would be far more credible if it were done with a bit of humility, rather than deception, intended or otherwise.  JOHO.

​According to the South Korean press, Hyundai Motors (005380.KS) has cancelled plans to launch an electric kickboard due to changes that were made to the country’s traffic laws earlier this year.  The company is shifting development from the device to a ‘purpose-built vehicle for the delivery market’ and will expand that to a larger vehicle in the future.  The new laws, which were instituted in May, require all scooter, electric bike, and ‘personal mobility device’, users be licensed (minimum age 16, up from 13 previously) and must wear a helmet, with violations ranging from $17 (no helmet) to $85 for underage riders (guardian must pay). 
German kickboard producer Wind Mobility (pvt), a producer of kickboards and sharing services that entered the South Korean market in 2019, has seen it usage drop by 70% since the new laws went into effect in May and has decided to leave the market, although ridership for such devices had doubled between 2017 and 2019, while Hyundai Motors spent $3.4m to acquire a South Korean kickboard start-up in 2019 when it began development of its own kickboard.    
The laws for electric scooters varies considerably both by country and by city, with 12 states in the US requiring helmets and a few considering them tacitly illegal, although changes are afoot.  In Europe, rules vary by country or even city, so uniformity is certainly not a driving force, and in Asia, where e-bikes and scooters are quite popular, rules vary from Japan’s strict control (classified as motorcycles) to India’s lack of helmet requirements being the norm.  At a peak speed of 25nph, a fall or collision with another moving vehicle could prove fatal, as it did for 10 users in Korea, prompting the tighter regulations, but it seems some value vanity over the ability to have an intact skull.

​BYD Automotive (002594.CH) (“Build Your Dreams”) is a major producer of cars, trucks, and busses based in Xian. China where it has two production sites.  According to local news the sudden death of a 36 year old employee aroused public concern due to the fact that documents appeared implying that the worker had been ‘worked to death’, far exceeding working hour restrictions.  After the company refunded the workers social security and funding plan to the family, negotiations began over the company’s responsibility in the sudden death.
The employee, having been with the company since 2009, worked in logistics (which could mean almost anything) and tended to work the night shift, however it was soon discovered that between October 28 and November 3 he had taken 7 night shifts in a row, six of which lasted roughly 12 hours, and had 26 days of work in October that lasted 12 hours..  According to labor laws in China restrict workers to 8 hour shifts with extended hours only in special circumstances.  Such extended hours, which cannot exceed 11 consecutive hours, can only be applied for 12 working days per month, which was obviously exceeded. 
As the employee was in rental housing when he died and no autopsy was done to pinpoint the cause of death, the company claimed no responsibility, while the family tried unsuccessfully to negotiate a settlement based on the excessive working hours.  As negotiations failed, the family went to the press to bring the story to the public and suddenly the company negotiated a settlement of 200,000 yuan ($31,322) as compensation (likely no guilt admitted).  Without an autopsy it would be hard to liken the incident to being ‘worked to death’, but we hear so many incidents of ‘overworking’ in Chinese factories during the holiday period that it is hard to rule it out, but $31K? C’mon…

​While not an official holiday in China, Single’s Day (aka 11/11) is the largest shopping day globally, surpassing all other holidays in revenue generated.  The holiday is said to be the result of a group of four Nanjing University student’s frustration with the constant focus on marriage and couples, deciding to celebrate their ‘singularity’ with a celebration (originally called Bachelor’s Day).  This idea spread through social media and while celebrating singles, is also a day where parties and special programs are common, allowing single men and women to meet and find a partner.  The 11/11 designation (双11) represents singles (ones) and couples (11) and was trademarked in 2012 by Alibaba (BABA).  Shopping had little to do with the origins of the holiday, but as Alibaba championed the data early on, it became a focus for every type of consumer related product, from restaurants and Karaoke Bars to almost anything that can be purchased on-line and is now the biggest single day revenue generator of any global holiday.  Of course it doesn’t hurt to have 18.3% of the global population behind such a celebration in China alone, but a $75b last year, Single’s Day is 3x larger than the total of Thanksgiving, Black Friday, and Cyber Monday combined.
While expectations for the extended holiday (11 days) still call for growth of ~15% this year, that compares to 26% last year, as China’s GDP growth of 4.1% in 3Q was lower than last year’s 3Q growth of 4.9% and lower than 2Q’s 7.9% and inflation is also increasing, with the PPI rising 13.5% y/y last month after a 10.7% increase in September, and the CPI rising 1.5% y/y last month, 2x the rate in September.  Many Chinese companies built inventory levels earlier in the year in anticipation of component shortages and rising inflation but have sold out much of that lower cost stock and are now faced with raising prices or facing lower margins. 
While these are cyclical economic issues that face many businesses globally, the Chinese government has been particularly focused on “common prosperity” or the redistribution of wealth, which has taken the form (among other ways) of increased scrutiny concerning anticompetitive behavior among large on-line businesses.  Alibaba saw a $2.8b fine, with others either under investigation or having decided to ‘donate’ billions to government sponsored social programs to join the ‘redistribution’ as President Xi Jinping makes it a ‘priority’.  Specific warnings to on-line retailers, such as banning the practice of raising prices before putting them on sale for the holiday, or limiting marketing messages to consumers, have made on-line retailers in China a bit more cautious this year, which could be reflected in a slower holiday growth rate, and companies have been focusing on ‘woke’ promotions and vouchers this year, as opposed to those that are absolute revenue generators.  Whether all of these factors make a difference to Chinese consumers or if they are sustainable over time remains to be seen, but its still going to be the globe’s biggest shopping day.

The Port of Los Angeles is the number one container port in the US with ~40% of all shipping containers entering the US coming through the port. making it a major hub for products entering the US, moving 9.2m TEUs (20’ equivalents) last year, the 4th highest amount in the port’s history.  That said, it would be hard to have missed the images of cargo ships waiting outside of the port for docking and the endless line of semis waiting to be loaded with items from containers.  While the problems associated with moving goods from the point of origin to ports such as LA are far deeper than the 15 second snippets that are typically shown when media is cautioning shoppers that they might not be able to get their holiday gifts in time this year, it seemed incredulous that only recently has the port begun working on a 24 hour schedule.  After trade issues in 2019 and COVID-19 in 2020 caused holiday volumes to decline at the port, this year both consumer demand and early ordering by manufacturers and retailers has caused the port to become a point of contention for the US supply chain.
But the problem is not only the port itself but the supply chain that works to move all of those items from the port to warehouses and those problems are much harder to fix.  Truckers that receive goods from the Port of LA must be licensed to operate at that location.  There are 18,000 currently licensed truckers that have access to the port but they tend to work during daylight hours, as do the 13 acres of temporary and dedicated warehouses that are operated by the port or private companies, and we note that truckers are by Federal law allowed to drive 11 hours/day and must rest after two consecutive days of driving.  11 straight hours of driving east (60mph), excluding loading time only gets you to central Texas, so most trips to the east coast are at least 2 – 3 days by truck.  With the increased product demand and early holiday ordering, which started in June/July, the port has seen cargo ships waiting for days and weeks to be brought into berths for unloading and containers that have been offloaded waiting for days and weeks to be picked up and brought to their final destination.
Currently ~40% of the cargo that has been offloaded has been sitting on the dock for 9 days or longer and 3 days or longer for cargo to be shipped by rail.  The port of LA and the Port of Long Beach have now instituted a fining system (as of 11/1) that will charge shipping companies that keep containers at the port for more than nine days and rail containers for more than 3 days.  While the fee ($100/container) is small, it doubles each day, which is an incentive for shippers to get containers out of the port, whether to an interim location or to their destinations, but we wonder whether financial penalties will do anything to alleviate the lack of cross-country transport that seems to be the problem for the port. 
The average semi driver makes $27.79/ hour, which puts them a bit below teachers and a bit above construction workers, working between 70 and 80 hours/week.  Its not an easy job and most drive trucks supplied and maintained by shipping companies, which leave the driver open to potential problems if they are old or have not been properly maintained while the cost of training for a CDL license runs between $2,000 and $7,000, aside from the license itself.  With estimates that the trucking industry is short by over 80,000 drivers, the industry points to the fact that since 2019 the average truckers earnings are up over 25% as an incentive and is one of the few remaining middle-income jobs that does not require a bachelor’s degree, but much of the problem is that truckers are aging out of the category[1] and chassis pools[2] at ports have rules that push drivers to use fee-based pool semis that cut further into driver salaries.
All in, while ports seem to be the focus of media attention (good optics), getting things out of the ports is really where the problems occur and fines might incentivize those who are just using the port for logistical timing.  But the problem is pay scales and drivers are only recently seeing pay incentives to fill the gaps that are expected to persist for the next few years.  Yes, one day there might be autonomous trucks cruising the highways that will only need recharge stations and not food or rest, but until then it is up to carriers to be willing to pay drivers enough to make it worthwhile to live the on-the-road lifestyle and consumers will have to be willing to bear some of that burden or learn to live without the ‘instant gratification’ that comes with on-line shopping.


[1] According to Bureau of Labor Statistics the average age of a commercial truck driver is 55.

[2] A Chassis pool is a group of semi trucks usually owned by a ship line with the driver forced to use a chassis from that pool or lose reimbursement for the chassis rental from the shipping line.

While we expect the National Retail federation, an 18,000 member trade group and lobbying organization that represents department, specialty, discount, catalog, internet, drug, and grocery stores and chain restaurants, might not be completely neutral with its forecasts for holiday retail sales, they do have a vast network of touchpoints to develop their forecasts, having been off by an average of only 1% from actual results over the last five years (higher than actual in every year except 2020).  This year’s prediction is for a range between 8.5% and 10.5% y/y or between $843.4b and $859b[1] (we use single point in Fig. 1).  If correct, this would be the biggest yearly gain after last year’s 8.2% y/y increase, considerably above the 5 year average of 4.4% and the 3.6% long-term average going back to 2003.   
NRF President and CEO Matthew Shay stated “There is considerable momentum heading into the holiday season.  Consumers are in a very favorable position going into the last few months of the year as income is rising and household balance sheets have never been stronger.  Retailers are making significant investments in their supply chains and spending heavily to ensure they have products on their shelves to meet this time of exceptional consumer demand.”  While such a statement from a retail trade association president is to be expected, the NRF Chief Economist was a bit less sanguine noting that “Pandemic-related supply chain disruptions have caused shortages of merchandise and most of this year’s inflationary pressure.  With the prospect of consumers seeking to shop early, inventories may be pulled down sooner and shortages may develop in later weeks of the shopping season.  However if retailers can keep merchandise on the shelves and merchandise arrives before Christmas, it could be a stellar season.”
Other estimates that we have looked at call for a slightly less robust view, with most around the 7% to 7.5% range, which, while lower than the NRF forecast, is still considerably above average, with the season extending even further this year given consumer concern over potential shortages and late deliveries.  A Deloitte survey indicated that overall holiday budgets are expected to increase by ~5%, while 68% of consumers in the survey expect higher prices this year, the effect being a 15% budget increase for high-income groups and a 22% decline for low-income spenders, with 70% of retail executives expecting consumers to spend more this year than last.  That same survey also indicated that while gift spending is expected to be up 3% y/y, non-gift spending is expected to be down 2%, while the ‘Experience” category, which includes travel, hotel, restaurants, concerts, etc. is expected to be up 15% as restrictions on such venues are lifted.  Looking at just the gift and non-gift spend, the increase in spending would be 0.54% y/y.
Expectations for how that spending will be allocated indicates that clothing will remain the most popular holiday spending item, garnering 18.5% of planned spending, with pets the smallest (6.5%) of the major categories.  Health & Wellness is expected to see the most growth (22.8% y/y) while gift cards are the only spending category that is expected to see negative growth.  25% of shoppers do not expect to find any items out of stock, leaving 75% that do.  49% of shoppers expect stock outs in electronics while only 9% expect stock outs in the pet category.  Interestingly 33% of consumers in the survey indicate that they hold the delivery company as the party responsible for delays or stock outs, while 27% believe they are tied to weather or supply disruptions, and 27% blame the retailers themselves.  Only 6% blame delivery personnel or company employees, and 85% of respondents indicated that free delivery was more important than fast shipping and 69% of consumers in the survey indicated that the biggest criteria for selecting a particular retailer was ‘getting a great deal’, with ’variety of products’ and ‘high quality (trust)’ coming in tied for 2nd place at 49%. 
Given the inflationary pressures already seen this year, 50% of consumers polled cited increased food prices as a reason for spending less and 39% of those spending more this year cited the higher cost of products in general as the reason, and while the CPI for all items has increased 5.4%[2] over the last year (9/20 – 9/21), the Bureau of Labor says that ‘Food at Home’ costs have increased only 4.5%.  Anyone buying groceries would likely find that number hard to believe given that the price of corn has increased 59.2% and the price of chicken has increased 31.6% over the last year (wholesale) as an example.  As we have noted in the past, typical holiday discounting, while still available, will both start from a higher base and will likely be offered on less products.  While we expect the holiday season to grow from last year’s level, we expect much of that growth to come from higher prices and a longer selling season with early ordering a metric that could make the holidays look better early on and fade later.  We are optimistic for CE spending during the holiday season, but less so that last year where pent-up demand fueled a strong season.


[1] Excludes Auto Dealers, Gasoline stations, and restaurants.  Includes the period between November 1 and December 31

[2] Not Seasonally Adjusted

​[1] Not Seasonally Adjusted
[1] Category-level averages are based on the no. of shoppers who plan to purchase the category. The sum of category averages would not equal the average retail spend ($927) which is calculated based on the no. of shoppers who plan to purchase at least one category. Sample size (N)=3,836

China has power problems and the biggest cost of bitcoin mining is power.  In order to reduce power consumption China has essentially banned bitcoin mining across the country, forcing bitcoin mining organizations to move mining facilities to locations that are both amenable to mining itself and have exceptionally lower power costs.  Much of the equipment is transportable in that it is essentially servers with high capacity graphics cards that are used for performing complex calculations, and can be readily adaptable to server farms almost anywhere on the globe.
The portability of such equipment and mining itself can be seen in the two infographics below, with the first showing a global map of bitcoin mining power consumption in May of this year, with the darker colors indicating the most bitcoin power draw.  The second infographic shows the same map for the July period, where we note that China, dark brown in May, is devoid of bitcoin power consumption in July, and Fig. 6 shows how bitcoin energy consumption peaked in April, decreased quickly during the transition period and has begun to move back up as the miners relocated.
So where did all the bitcoin miners migrate to?  The US, which now makes up 35% of the bitcoin hash rate (roughly where China was earlier this year) is now the home to the most mining operations, with Kazakhstan (18.1%) and Russia (11.2%) in 2nd and 3rd place.  While you would never know such a trasition has taken place, China’s problem will eventually become ours, as bitcoin mining will continue to grow and capture more of the global power grid, with the result being the additional cost of power capacity being added to your utility bill, or power outages.  Perhaps a mandate from the government limiting bitcoin power consumption might be in the cards somewhere down the road, albeit a bit less stringent than China’s ‘all out’ decree, but the balance between making bitcoin miners wealthy and keeping the lights on seems an easy one to make.

The Chinese government is between a rock and a hard place.  Recent mandates concerning the rationalization of power in certain provinces have put a hold on production in factories to reduce energy use as the country used up energy quotas faster than expected thus far this year, and to present a strong face at the UN Environmental Conference being held in Kunming, China today and for the upcoming Winter Olympics in Beijing.  Chinese utility companies, who are limited in their ability to pass on increased costs to consumers, are also being pressured by rising coal and gas costs, which the government has allowed in order to discourage excessive production. 
While the result from a physical standpoint seems to be clearer skies, implementing such harsh measures at a time when the Chinese economy is so dependent on the exportation of goods for the holidays seems a bit counterintuitive, and while it seems semiconductors, displays, and LEDs have all been spared such restrictions to a large degree, the effects of such power restrictions on upstream components will eventually take a toll on downstream production by further limiting product assembly and production.  The US press has taken hold of that possibility with stories about how you might not be able to get everything you want for the holidays because of said problems, and, of course, the inability of the global transportation system to operate with a smaller employee footprint.
That said, things can get worse.  The province of Shanxi in China, the country’s top coal producing region (394.8m tons thru May, ~26.4% share of total) is normally seeing the end of the rainy season, which typically peaks in July and is over in October.  However this year (global warming?) the province is facing unusually heavy rainfall (3x the monthly average in 5 days) which has caused crop damage, over 120,000 people being evacuated, the destruction of over 17,000 buildings, and the closing of at least 60 coal mines, with more rain predicted this week. 
While the government has taken radical steps to give the impression that it puts the environment ahead of economic growth, the timing could not be worse and Mother Nature is not helping.  This will only serve to exacerbate and extend product shortages that are already plaguing the global supply chain, all to maintain a face that few actually believe.  We can get along with a few less gifts over the holidays but those in China who depend on those factories being open will suffer the most.  While a single party dictatorship has the advantage of being able to implement what it wants when it wants and does not have the downside of two ineffectual parties that bicker over every detail, the downside is that stupid mistakes and inefficiency take a toll on much of the population. What’s the weather like in Reykjavik?

​As we have previously noted, in March Magnachip (MX) entered into an agreement with Wise Road Capital (pvt) under which Wise Road would be purchasing Magnachip for $29/share.  While the South Korean Ministry of Trade, Industry, and Energy initially gave tacit approval to the transaction the Korean government expressed the view that Magnachip’s technology was ‘core technology of South Korea’ after a bit of cajoling by the US Treasury Department, citing an investigation by the Committee on Foreign Investment in the US (CFIUS).  While Magnachip’s production is in South Korea, it is a Delaware company and therefore under the auspices of CFIUS, and with Wise Road being a Chinese entity, the scrutiny was inevitable..
Complicating things further, Magnachip received another offer, roughly 20% higher than the Wise Capital offer from Cornucopia Partners (pvt), another Chinese & Hong Kong group of investors, despite the cloudy regulatory picture.  In mid-June, the company received notice from the US Department of the Treasury essentially creating a standstill action, preventing any further movement toward the completion of either deal, until CFIUS makes a final conclusion.  On August 27th the company received another notice from Treasury indicating that CFIUS had identified ‘risks to the national security of the United States as a result of the merger’ and has not identified any mitigation measures that it believes would alleviate those identified risks. 
At this point, unless new information is uncovered, CFIUS is expected to refer the issue to the President for a final decision.  As always, there is no assurance that either the company or the acquirer would agree to any proposals that would satisfy CFIUS, so until the President makes his ruling, the deal is on hold.  As much as we don’t see Magnachip’s driver technology as putting US security at risk, there is enough political and national sentiment against China that we see almost no chance for the Wise Road deal to progress, which opens the door to Cornucopia.  That said, the details where capital from side investors is situated in that deal will also be reviewed, which could lead to another CFIUS review.