And we're seeing that across the board at lower level manufacturing. Everybody's got kind
of in trouble with some manufacturing facilities in China over at the pandemic and ran
into shortages, ran out of stuff, couldn't get it, got tangled up
in this transportation chaos that we had and all under lesson then. And I
think this is a major shift in how the United States is now looking at
globalization. Interesting. Interesting, So we're deglobalizing before our very eyes here,
right, And where does that leave China? Where does that leave the world.
You're listening to Carrie Letz's Financial Survival Network where you get valuable information you
just can't find anywhere else to thrive in today's trying times. You need the
Financial Survival Network now more than ever. Go to Financial Survivalnetwork dot com and
get your free newsletter and gift. Financial Survival Network now more than ever.
And welcome you are listening to and watching the Financial Survival Network. I'm your
host, Carrie Lutz. Hey, we got real pleasure with us today and
our good friend Wolf Richter from wolfstreet dot com is with us now. Wilf.
I avidly read your site because you have a take on things that very
few others really can approach. And I know, like when you write an
article, you've really thought it out. So first thing, we're talking pre
call commercial real estate office buildings, especially in major cities, kind of going
the way of the dynosaur. Huh, thanks for having me carry Yeah,
I mean, that's that's one of the astonishing developments over the last few years.
And it's too skating worse and worse and worse that companies have learned during
the pandemic that they don't really need all this off space. So they have
ordered office space before the pandemic as soon as something came on the market,
had they grabbed it to grow into. Because there was so little on the
market. It was an office shortage in cities and tech cities like San Francisco
and Seacattle. I mean, people were talking about the office shortage in Facebook
and Google nab some office space, and then the pandemic came and working from
home took over. In companies realized they number one, don't need all of
this empty office space that they thought that we'ld grow into. And then number
two, they started trimming down there the office attendance and would you even need
less than what they already had. So we have a gigantic mess on our
hands with these office buildings, over a third of them or on the market.
Police in San Francisco and in some other cities in Dallas and Houstons has
been the same issue for many years because of the order bust in twenty to
sixteen, and so that has he's very hard. But now it's spread across
the country really and and there's no good way out here. There's no good
way out. So is the solution. Like the old buildings in New York,
they were like perfectly set up to convert to residential because they were certain
distance the wall to the elevator core. And I saw numerous, you know,
literally dozens and dozens of buildings in New York City, converted buildings that
were built like in the twenties, thirties, early forties. But the newer
buildings the emphasis was on, you know, basically maximum floor to air ratio
and the steel buildings, so that they're not really practical to convert the space
is too big. Yeah, that's correct, Especially the buildings in the nineteen
eighties and later there are there they're depending on the foot printed the big square
footprint. Uh, that they're very expensive to convert. And then in that
case, you're looking at the land value. That's that's sort a building like
that is worse. It's land value. It has to be torn down and
redeveloped into residential and that's that's one of the big steps. And there are
some buildings that can be converted, especially narrower buildings, uh, and that
may be the cheaper route to go than tearing it down, and so they're
doing some of that. And the suburban office buildings, of course, with
big parking areas and the like a four story office building a three story office
building, they're very easy to tear down. And it's like a shopping mall.
You have several acres of land there and not a lot of building,
and so that's easy to tear down and put a large residential development on it.
But in these downtown office towns where we have a relatively small lot and
a huge building on top, Yeah, that's it's essentially land value what these
buildings are the worst today. And of course that's not the collateral value that
was assumed when one of the loans were taking out on these buildings. So
yeah, there's this huge amount of money that's now being lost in commercial real
estate. So people aren't shopping anymore. They don't go to malls, they
don't go to offices. What are people doing now? Oh, there's no
more retail therapy. Your retail therapy is going to Amazon, and you don't
need to go to the office anymore, so you just stay home and order
stuff. I don't know what the world's coming to here, wealth Yeah,
I mean, I think the shopping on your smartphone and on your laptop is
still sort of a form of therapy for a lot of people, and they're
doing it and they're done lots of it. And online retail has been booming,
of course, and brick and mortar stores aren't having trouble. I mean,
like Walmart's online business is surging in twenty percent plus growth rates here over
here, or and grocery sales are really doing well in brick and mortar stores.
But yeah, the rest of it is just really hard hit. And
I don't know what people are doing. You know, we'll go out hiking
on weekends, and we see lots of people out hiking on weekends. I
mean, they're doing stuff. It's not like they're sitting it old. They're
doing anything, and they're entertainment, they're doing all kinds of stuff out and
so yeah, I never thought personally that shopping was anything I wanted to do.
And even before the Internet I bought, we have catalogs. So I
don't know, you got it. Guess you just don't get the dopamine.
If it must be a gene. Some people are born to shop and others
aren't, and those who are not just get no gratification from all those shiny
new objects. Speaking of shiny new objects, so we have a building boom,
factory boom taking place. I assume a lot of it is AI generated
because we need these huge data centers right to basically house all the AI computing
systems that are going up. But there's more to it than that as well,
isn't there. Yeah, So this particular article I was writing about the
manufacturing facilities that are being built at at an extraordinary pace. You know,
the data centers are in a category, and there's also a boom going on,
but that's not particularly what I was talking about. I was talking about
manufacturing, actually actual factories. So and I've listed a whole bunch of announcements
that we're done last month, and yeah, a lot of that is chip
makers. And now we've got the Chips Act that's starting to reshore chip manufacturing
to the United States. And of course the money has started flowing yet.
The announcements have been made, but the actual disbursements haven't happened yet, so
that's still going to show up. But the world's largest chip makers are setting
up shop in the United States to produce chips, and they're doing in Arizona,
They're doing it in Texas, they're doing it in Ohio, They're doing
it all kinds of places. And these are gigantic, very expensive production facilities
or one of those factories. So the construction itself is not that expensive.
What's expensive what's going inside these chip manufacturers And that's not even included in the
numbers yet. We're just talking about the building costs. And uh, yeah,
our construction of factories is doubled and tripled. So this is really a
that's a good movement. I mean, factory construction has stalled for a decade
more a decade, and manufacturing output in the United States has stalled, and
automakers are still heavily represented in the United States and all the world's automakers are
manufacturing in the United States, but overall, yeah, the number two manufacturer
behind China, where we should be the number one manufacturer, and given the
size of our economy, and uh so I think it's it's it's a good
thing to see that there is a a sort of a reshoring going on.
It's not that manufacturing is being brought back. It's that new facilities are no
longer building overseas that that built in the United States. So it's not that
these jobs are coming back, it's that these new jobs are being created here.
And of course the different jobs engineers and advanced degrees and those kinds of
people that are really highly qualified that are needed for those plants, and and
uh we're seeing that across the board a lower level manufacturing. Everybody's got kind
of in trouble with the manufacturing facilities in China over the pandemic and ran into
shortages, ran out of stuff, couldn't get it, got tangled up in
this transportation chaos that we had and all under lesson then. And I think
this is a a major shift in how the United States is now looking at
globalization. Interesting. Interesting, So we're deglobalizing before our very eyes here,
right, And where does that leave China? Where does that leave the world?
I mean, there's a lot of stuff that we get from other places,
some more friendly than China. We don't have to worry about IR theft
as much. I think everybody does IR theft, IP theft rather intellectual property
theft. I think it's a global epidemic. Everyone's stealing from everybody. The
Chinese are just like that was the price of admission for their market. But
everybody steals everybody else's intellectual property, right right, Yeah, and that's a
big issue. It you have a little bit better control over your IP when
you manufacture in house manufacture in the United States and in China, of course,
the major manufacturers were set up, all of them. Really we were
forced to share their IP with a Chinese company, so that was part of
the deal. And they didn't even need to steal it. That's just which
is part of the deal. And and yeah, you think that you stay
ahead of the Chinese uh developments that way because you're smarter and you can develop
new things by the time they figured it out here a few years ahead.
But that turns out to have been a miscalculation, and the Chinese have caught
up. I mean, the European train makers went through that, Japanese high
speed train makers, they all all had uh these ip sharing agreements with China
make their trains over there to sell to China. Now China's making its own
ice peed trains and he's selling them over theseas in competition with the European and
the Japanese makers. So this is how it's happened. In that car Chinese
cars, they're showing up everyone and the evs, especially the you know,
countries are trying to protect themselves from this, this flood of cheap evs threatening
to come in. And so this whole thing has turned around and and I
think people manufacturers are seeing the risks of exposing themselves to the supply changing China.
It's just a very risky thing. They have paid a huge price for
it during the pandemic. They've paid they're still paying a huge price in terms
of loss of pipe. They're now competing with companies that I helped form in
China. So you know, that's it doesn't come to cheeses moment here.
I think that we've had and and it and it's a good thing. It
happened probably ten years to white, but it's a good thing to see that
happening. Yeah, I think so. And the EV thing. So if
you read the paper, they would have you believe or read the media,
the legacy media that evs are flagging and the sales are lagging. But not
true, is it. No? I mean Ford just came out with its
May figures for sales, total sales, and it's EV sales up sixty five
percent from a year ago. So I mean it was everybody sided forward is
backing off? Well, I mean Ford made some miscalculations, they had some
product problems, they had some supply chain problems, they had all these issues
that Tesla had years ago, and uh so they couldn't really do all the
things they wanted to do. And they now they're there that can't get the
manufacturing costs down quick enough. But they've got all these issues. But the
sales are not backing off. You know, the sales sales are up a
bunch. And among all the legacy automakers that got into v evs, Yeah,
they're what whatever they can build they can sell. It's it's not like
that, you know, there's no demand for them. There's plenty of demaind
for these evs. Obviously, now there's a lot of competition. Tesla has
a lot of competition. I'm glad to see that. So it's were we're
not just one manufacturer anymore, so everybody they're trying to do it. Your
GM is coming out or has come out with a bunch of new models and
they're taking off. And they of course they had the second best selling model
to Bolt that killed that one. But now they're coming out with the new
models and their selling was supposed They have those apply chain problems and they have
the quality problems. They have all these issues that yeah, when you start
developing a brand new vehicle. But the men's there for those vehicles, Yeah,
definitely, and you know, you just see it. You see more
and more of them on the road. So what's your take though on what
it does for you know, between AI and between electrification, whether it's good
or bad, it's irrelevant, it's happening now. Personally, I think the
cores are potentially a lot better if they're electric, they do a lot more
technologically or the self driving also kind of overlaps with AI. But electrical generation
in the country, the grid is it up to the task here? And
uh, what do you think it means for utility? Uh companies profits and
dividends. Yeah, so evd's are really a good thing for utilities. I'm
more worried about the data center, the AI, UH data centers and and
also some extent to cryptos, but UH ebs genuinely charge. I'm usually are
charged at home, and and that's usually done at night off ours, especially
if you have a time of use pricing, so you do that after midnight,
and that's when the grid has the smallest loan. There's a lot of
ivy capacity, and so utilities can actually sell electricity during a time when they
had to carry the grid without really a lot of revenue. So that's really
a good thing for utilities. Not loving that. The problem is is AI
data centers. They're guarding up a huge amount of and that's during the day,
that's at night, that's all the time, And I'm not sure where
all this electricity is going to come from. Obviously, utilities like to be
in a growth industry that like this. Electricity consumption in the United States has
stagnated since about two thousand and seven, and so this is for for the
companies that are doing this. This is a good thing. They're now in
a growth business. They they can build power plants, they can build power
lines, they can maintain them better because now they're having growth revenues in revenues
and growth in profits and electricity process have been going on. I mean,
because it was a bit thing about that. But for the utilities, this
is there's really a pretty good situation. When you add that kind of growth,
then investment becomes easily justifiable. They can issue bonds, thirty year bonds
to uh TO to build a power plant and to build out the grid,
and they're doing that so they they will be able to meet demand if they
see this growth potential is there and it makes financial sense to invest in it.
And it's not going to be a smooth past, but yeah, that
will use that to build out the capacity. Hey what do you think of
the like Tesla battery centers, the megapacts, you know, Jigundo stacks of
LFP batteries that are used to kind of equalize the load. So they n
plus like they have the ability to buy up all the cheap electricity Now in
Florida here my rate's like thirteen cents per kiloot hour but off peak. If
I was to switch back again, it would be seven cents per hour off
peak and twenty five cents per killoout hour peak. But in places like Georgia
they let you buy the energy for a penny per kiloout hour off peak,
but obviously commercial industrial users get far more preferential rates. Uh. You think
that's going to be a vital part of the electrical grid going forward. Wolf
batteries, Yeah, yeah, And that's an interesting thing. It does an
arbitrage now as a motivation behind installing these batteries, because you have power surges
during which electricity becomes very very expensive, and so about demand surges and then
they're brief that may only be an hour day, and that despite or electricity
on the whole sale market gets very very expensive. And then you have periods
where the excess potentially excess production of electricity and especially from renewables that you don't
really turn off, I mean as you have to because there's no fuel costs
involved. So you run them all the time as long as there's in the
sun, and you end up over generating electricity and some of the power dry
into the negative. You know, they have the prices that have trouble.
So you have a battery installed that can charge up when the electricity costs very
low, and they can sell the electric it pays very little to get the
electricity, and then it can sell the electricity during the day when the demand
is high and the price is so high, and that's arbitrage. And so
people are making lots of money doing that. And so now because of this
this huge prof profit motive behind it, battery in selicious are surging. They're
going on all over the place. And what they're doing, in effect,
they're taking the spikes out of the grid, and that's a really good thing.
The grid has to be able to handle the spikes. It has to
be built big enough stry all the spikes also collapses, and with batteries being
able to take out the spikes, that is a huge thing for the grid
and it's I think it's a game changer. Yeah, I agree. And
you had plants that they call peakers, and they were just there. Their
only purpose in life was for peak demand. So now if you get enough
of these batteries, you'll be able to eliminate the peakers, which didn't really
weren't really necessary and then you're cheap. You save for nighttime your cheapest electricity,
which is by a large nuclear in existing nuclear plants. New nuclear plants
still through the moon. So it sounds like it sounds like it's really going
to be a major have a major impact over time. They just can't quite
build them quick enough right now. Musk says that the megapacks could be like
the major source of profits for the company in the next few years, so
it'll be interesting to see. Anyway. You find Wolf over at wolfstreet dot
com. Link is in the show notes. Questions of comments for Wolf or
myself shoot me an email at Carrie LUTs dot com. Hey, Welf,
it's always a pleasure, always interesting speaking with you. We'll have you on
again soon. Thanks Carrie, Thanks for listening to Carrie Letz's Financial Survival Network,
your solution to today's trying times. For the latest, go to Financial
Survivalnetwork dot com. Financial Survival Network now more than ever,