Is Apple’s Recent Sales Slump a Warning?

It’s a strange new interconnected financial world we live in today and it’s going to take Americans some time to adjust. The shift from the United States as the global economic leader to the U.S. economy being just one of many is a thought that doesn’t sit well, so we tend to avoid it. For decades USA as number one was a reality in just about any endeavor and the world economy in particular. After all, we crushed the old Soviet Union just through military spending, without firing a shot in anger. Back then, when the U.S. stock market sneezed the world caught a cold, but not anymore.

Of course, as with any major paradigm shift, it’s not all bad news. It wasn’t healthy for the world economy to be dependent on the U.S., just like it’s not healthy for the world to depend upon our military to be the world’s peacekeeper. We need some of the money here at home that we’re spending on aircraft carrier battle groups parked in the Persian Gulf defending Saudi Arabian interests. The economic world is changing and we here in the U.S. had to adapt to that new reality. The proverbial shoe will be on the other foot when the rest of the world has to adapt to shouldering more of the cost of their own defense.

Apple Sales Slide, But is That the Whole Story?

Bizarrely, all of that is a build-up to Apple’s recently announced sales numbers, though the connection might not be immediately obvious. Apple stock dropped nearly ten percent in early trading because its sales in China were down nearly a third. Sales of Apple products, particularly in Hong Kong, struggled due to a combination of softness in the Chinese consumer market and our strong dollar, which makes Apple products more expensive to overseas buyers. Hong Kong especially feels the pain, because their dollar is pegged to ours. The strong U.S. dollar has not only hurt the sales of electronic devices but travel, tourism and shopping in Hong Kong.

Not Just Hong Kong

Sales of Apple products also dropped in mainland China, which had previously been one of Apple’s largest growth markets. Apple was one of the first companies to benefit from the new world order, expanding sales of smartphones and tablets into the massive Chinese market. During boom times it’s a customer base of 1.35 billion, but when those overseas markets suffer setbacks such international American companies feel the pain.

The real issue? While the uncharacteristic slip in Apple sales was widely reported as a company glitch, it seems at least equally a failure of forces external to a single manufacturer.  Unless you’re Tim Cook, a slowdown in Apple sales won’t affect you. The same can’t be said of the dangers of a too-strong currency combined with a country (and economy) of billions headed on a dangerous downward trajectory.

We’re All Connected

We’re not picking on Apple, most analysts believe the company will recover and continue to produce strong sales of compelling products well into the future. We’re merely using Apple’s recent headlines to point out a significant financial truth about the global economy. NASDAQ suffered a down day when news about Apple’s recent quarter broke. It’s an example of how U.S. markets can suffer when consumers in China are having a rough quarter.  That’s not so easy to fix.

There’s More Coming

A U.S. company, unless it’s Apple, having an off quarter because of sluggish overseas sales isn’t exactly a headline. Caterpillar, which makes massive earth-moving equipment, and Boeing, an aerospace manufacturer, have both seen the strong dollar exerting pressure on their profits for years. The real question is what happens when one of those economies we’re so tightly connected to, like China, experiences a massive currency meltdown?

A potential currency collapse is exactly what’s brewing in China at this very moment. China’s been hemorrhaging billions in foreign currency reserves for the last couple years, with $657 billion fleeing the country in 2015 and another $530 billion projected for 2016. Roughly $175 billion fled the country in just the first three months of this year.

The last time this much foreign capital fled China it resulted in a massive and sudden devaluation of its currency that nearly tipped the world into recession—and here we are again. What it says about the new connected global economy is that our equity investments here in the U.S. can be torpedoed by currency and market manipulation in other countries. Some of those countries are being run by governments that are hostile to the interests of the United States.  So the question you have to ask yourself, hopefully before the next time China pulls the plug, is “How much does Beijing care about my retirement?”