A short note about Armageddon…

Investment Analysis Clubs Macro Economic Trends and Risks
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As we have all seen, China did a full lockdown for far too long in an attempt to avoid the Covid plague that swept the rest of the world. Three years in, the citizenry had had enough, and Xi suddenly eased the regulations to the point where there are almost none remaining.

Never mind that China is under-hospitaled to deal with the current wave that’s happening as a natural result of the sudden loosening of restrictions, I note that once other countries (including but not limited to the US) “opened up” people started doing things they had eschewed for years: travel, restaurants, etc.

Infections went back up, but not alarmingly so thanks to a fairly high uptake of vaccinations, prior infections spread out over many months, and better health habits.

So I’m just going to point out that for three years China has been in lockdown, there is lots of pent up frustration, there aren’t enough hospitals and - wait for it - the Chinese New Year approaches in less than 3 weeks. In the past that has been a time of extraordinary amounts of travel, as city dwellers go back to their rural roots (and occasionally vice versa). Transportation is “mass”, not individual automobiles, and people crowd together for celebration.

If you are invested in a company which has not taken significant steps to expand its supply chain out of China, well, I can’t predict the future but I wouldn’t want to be there. Some factories are already closed or struggling (Tesla, FoxConn, etc.) and I suspect things are about to get worse, not better. And worse could be wayyy worse. Hopefully not, but here we go.

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I’m not convinced that citizen protests were the main driver of this decision. I think Xi and company knew that they had to open up someday and waited for time when the current virus variant was less dangerous to make the calculated decision to reopen and accept the consequences.

There is some evidence that this is the case (a prudently deliberated decision rather than a panicked reaction to protests). First, China almost always works from top down, not bottom up. Second, China is very conservative, and almost always takes the conservative decision and conservative decision process. Third, if it were mainly a reaction to protests, gradual loosening is the way to go, that reduces protesting more effectively, and reduces it for a longer period. Fourth, China is very pragmatic, and while they do value their elders, I have to wonder if the [slight] alleviation of their demographic problem via early death of scores of over-65 people, wasn’t privately thought about at all (especially among the younger cohort in the party hierarchy).

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Peregrine Trader has a post which some may find relevant:

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“Many of Their “Leaders” Are Suspected Dead From Covid”

This may be an overall good thing for the world, maybe some new blood in the leadership is exactly what they need!

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The worse not better part is limited resources that are becoming less affordable for China. Xi’s need to centrally control the economy is going to make things a lot worse. American and European factories and those who supply us are going to get shoved aside by the Chinese government. There will be a strong bias against supplying the west at all.

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I think it is about extreme power to drive the narrative crazy. Xi avoids all blame if he screws it up enough that no one in China knows how to fix the economy and the entire thing drifts through a lot of dramas. Xi can even claim to be a father figure in bad times. Times he is making worse but whose to say that?

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The bad news is “everyone” will catch COVID at once and the weakest links will, unfortunately succumb (as they proportionately did in the US, but stretched out over time). That said, “long COVID” excepted, everyone will recover at the same time. So, I’m guessing, there will be a six-month gap in the supply chain, at most. Very unpleasant and expensive, but quantifiable.

Jeff

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ah…China has an advantage perhaps or a blessing in good judgement. Long Covid numbers from Omicron may be much less.

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Based solely on anecdotal data, it looks like Omicron doesn’t put you down anywhere near as long as Delta or Alpha did. For example, my parents had Alpha and it knocked them down for 6+ weeks, and took at least 3 additional months to fully recover. it was truly terrible. And a few weeks ago they had Omicron and were sick for less than a week. My mom has a slight lingering cough, but it’s been going away and she’s been fully functional for at least 10 days now. I had Omicron in May and was sick for 2 days, recovered for another 5 days, tested negative 2 days later and went back to work.

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Or, as I said…

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We are worried to a degree about variants but variants can come from anywhere. If they come out of China most likely it will be a still weaker version of Covid. Viruses need to survive the human body and die with the human being dying. Weaker versions/variants of a virus survive better. China may do us a favor here.

The same logic says we did China a favor by dealing with Delta so that Omicron would come along.

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