China is starting to wake back up from Its pandemic-induced Slumber Restrictions have been eased as its Insane zero covert strategy has been Abandoned and everyone is wondering what Impacts China's reopening will have on The markets now we can get a sense of What may be to come by looking at how The easing of restrictions in other Countries affected everything from Productivity to inflation but then again China ain't like other countries today I'm going to give you an overview of how Exactly pandemic restrictions affected The global economy and tell you why this Suggests China's reopening could be both Problematic and positive for the markets It's believed that the illness behind The pandemic emerged sometime in late 2019 the exact date depends on your Source the official narrative is that The illness was first detected in Wuhan China in December 2019 and was Transmitted to basically everyone on the Planet in the months that followed However subsequent reports have found That it's possible if not probable that The illness had already found its way Into every country by the end of 2019. This is because of the military world Games that were held in Wuhan in October 2019. Many athletes reportedly arrived home Very unwell after the event note that
The infamous event 201 pandemic Simulation by the world economic Forum The Bill and Melinda Gates Foundation And the John Hopkins Center for Health Security coincidentally occurred on the Same day that wuhan's military World Games began More about that rabbit hole in the Description Anyways at the end of January 2020 China Became the first country to impose Pandemic restrictions on its citizens Starting of course with those living in Wuhan and its surrounding provinces a Few days later the World Health Organization or who finally declared an International Public Health Emergency Now it wasn't until early March that the Who officially announced that the Illness had become a global pandemic in The weeks that followed almost every Country followed China's lead of going Into lockdown and imposing Other Extreme Pandemic measures the Pressed pause on The global economy The news of the pandemic and the Introduction of restrictions also caused Markets to collapse this forced the Federal Reserve and other central banks To drop interest rates to zero many Central banks also started purchasing All kinds of debt including corporate Debt to prevent defaults at the same Time governments around the world
Announced unprecedented fiscal stimulus Promising to bail out both individuals And institutions to ensure the system Didn't collapse it's important to note That giving money directly to Citizens Was only done in a handful of countries Like the United States by contrast Countries like China directed The Lion's Share of their fiscal stimuli to Institutions now as far as I can tell This is in part because households in Countries like China tend to have higher Levels of savings and lower levels of Debt thus they have more Runway to Survive an economic freeze it's also in Part because China's initial Restrictions apparently did not impact Its economy all that much as you can see China's manufacturing production dipped At the beginning of 2020 quickly Recovered and almost went parabolic in 2021 you'll understand why that happened In just a moment Meanwhile in the west much of the fiscal Stimulus inevitably found its way into The markets this is simply because there Wasn't anything else people could do Besides purchase goods and invest in Assets the former led to larger revenues Which boosted stock prices and the Latter caused speculative pumps the Sudden demand for goods caused inflation In countries with lots of manufacturing Such as China to spike naturally this
Inflation was driven by a spike in Prices of Commodities used in Manufacturing The CCP responded by selling some Reserves of oil and Industrial Metals Into the economy for the first time Here is where things get interesting Although Chinese manufacturing continued Despite pandemic restrictions Disruptions to International Supply Chains made it difficult to ship all the Goods that were being made this resulted In shortages and delays causing the Prices of goods to spike lo and behold The spike in the price of goods caused By the sudden demand for them coupled With the disruptions to supply chains Eventually started causing inflation in Consuming countries like the United States at the time the Fed was convinced That inflation was transitory more about That in a moment now the shortages and Delays combined with the more aggressive Pandemic restrictions in 2021 meant that There were even fewer places where People could spend their money I would Go as far as to say that this was the Primary cause of the Epic rally in the Crypto market and in the stock market That year By early 2022 it was abundantly clear to Everyone that the pandemic restrictions Weren't working to flatten the curve or Slow the spread or whatever the goal was
At that time the people in power were Effectively forced to give up their Totalitarian Ambitions and countries Started reopening Unfortunately for Chinese citizens However the CCP tripled down on its Pandemic restrictions in early 2022 it's This third wave of restrictions that hit Chinese manufacturing the hardest this Is evidenced by the second dip in Manufacturing production in early 2022 That wasn't seen in most other countries The worst part is that China's economy Was already in trouble because of a Collapse in the country's property Sector in late 2021. if you watched our Video about evergrand you'll know that Most Chinese citizens hold their wealth In real estate and there were widespread Protests because of the property crisis A collapse in wealth combined with new Lockdowns was therefore a double whammy For the Chinese it was a triple whammy If you include the fact that they could See the rest of the world reopening and Returning to normal from inside their Pandemic prison cells created by the Ccp's digital ID passports by mid-2022 Most investors had sold what was left of Their 2021 crypto and stock market gains Hence the massive crash in both markets The initial cause of the selling was a Sudden rise in interest rates around the World which made it harder to borrow
Money and made existing debts more Expensive Given that it was the first normal Summer in over two years most of the Money people had left was spent on Services which could be fully enjoyed Thanks to all the extra holiday days In practice this caused a paradigm shift In spending from goods and assets into Services of all kinds and colors this Shift in spending was terrible news for Retailers who sell goods and that's for Two reasons the first reason is obvious Fewer people buying their goods the Second reason is less obvious and that's That they had ordered extra Goods Because they expected consumption to Continue The result was record high levels of Inventories for retailers in the United States and elsewhere some of you might Remember all the headlines about the big Box stores like Walmart allowing Customers to keep items they had Returned retailers literally didn't have The space to store all the extra stock This sudden spike in Supply is something Called the bullwhip effect and it's Something that famous 2008 Trader Michael Berry had predicted would happen Months before logically the high supply Of goods and low demand for goods in the US was another blow to China's Manufacturer-driven economy it also
Paradoxically put more pressure on the Fed and other central banks to raise Interest rates even further that's Because the shift in spending from goods And assets to Services caused inflation In services to explode the same way that Inflation in Goods did shortly after the Pandemic began the FED had initially Thought that Goods inflation would come Down along with General inflation which Is why Jerome insisted inflation was Transitory What the FED didn't expect was that Services inflation would spike nor that This Spike would be exacerbated by Commodity price spikes because of the Ukraine war now the difference between Goods and services inflation is that Providing more services means hiring More people but the pandemic Restrictions pushed millions in the United States into retirement this has Caused a labor shortage in the services Sector which is keeping unemployment low And wages High the fed and other central Banks have taken this low unemployment As a sign that the economy is fine and They've taken the wage pressure in the Services sector as a sign that inflation Could come back both signals have pushed Them to raise interest rates higher and This is starting to hurt the global Economy luckily for China its government Isn't anywhere close to defaulting on
Its debt the same can't be said for Other countries though including the United States itself if interest rates Stay high for long enough we could start To see a series of serious government Defaults more about that in the Description Now while inflation in the United States And elsewhere is starting to come down Inflation in China has been in a steady Uptrend since early 2020. this appears To be due to a combination of Progressively lower interest rates and All the extra pandemic stimulus due to All the additional lockdowns that must Be the cause because China has been Mostly unaffected by the rising costs of Commodities around the world now this is In part because China has been buying Lots of cheap oil gas and coal from Russia since the war in Ukraine began It's also in part because China has lots Of commodity reserves in case it wasn't Clear enough China keeps lots of Commodity reserves so that the CCP can Influence the prices of Commodities in The country some have speculated that China is also stockpiling Commodities in Preparation for a conflict with Taiwan And the West more about that possibility In the description anyways the Inflationary pressures of low interest Rates and pandemic stimulus are likely a Part of why the CCP decided to drop its
Zero covert strategy late last year The main part was probably Rising social Unrest which you'll recall had begun in Late 2021 after the collapse of the Property sector the third wave of Dystopian lockdowns in early 2022 and The sharp decline in economic output Only increased the anger towards the CCP Ironically enough the ccp's 180 on Pandemic restrictions has reportedly Caused a massive erosion of trust that's Been seen in almost every other country That locked down in any case it's not Entirely clear where China is in its Reopening process this hasn't stopped Investors from speculating about what Effects China's reopening could have on Specific stocks and commodities China's Reopening seems to have been a Significant contributor to the recent Market rally as a result it seems like Most of this uncertainty may be coming From the fact that most Chinese citizens Have spent the first part of their free Time enjoying the Chinese New Year in Case you missed the memo Chinese New Year fell on the 22nd of January and it Seems to be correlated to gains in the Crypto Market the catches that Chinese New Year celebrations last for a little Over two weeks this means that we may Not know what affects China's reopening Will have on the global economy and the Markets until later this month at the
Earliest These effects ultimately depend on what Chinese citizens will do next many Analysts have argued that China's Reopening will be inflationary because It will lead to a surge in manufacturing Which will cause the prices of related Commodities to spike however we now know That this is unlikely due to China's Commodity reserves and the continued Lack of demand for goods that said China's reopening could cause Manufacturing driven inflation if the CCP provides the reopening stimulus it Had recently promised this money would Likely go to building new infrastructure The thing is that the CCP is now Reportedly reconsidering its plans to Inject more money into institutions Oddly enough it looks like China's Reopening is already causing Manufacturing driven inflation for Reasons the average analyst didn't Anticipate in short China's reopening Has caused pandemic cases to spike which Has prevented people from working due to Illness this is again causing supply Chain issues the Silver Lining is that This inflationary pressure will only Last as long as it takes for the Chinese Population to build up some much needed Natural immunity some reports suggest That over 80 percent of the population Has already been infected but I suppose
You can't always trust statistics from The CCP I suppose you can't always trust Statistics from the United States either More about that in the description I Digress now that's just the Institutional side of China's reopening Equation according to Bloomberg Chinese Citizens have added more than 720 Billion dollars to their savings between 2020 and 2022 this is like the build up And savings we saw in the United States And elsewhere during the pandemic the Authors of the article argued that China's reopening will be inflationary Because all the extra savings of Chinese Citizens will be spent the same way they Were in the West in the summer of 2022. On paper this is a good hypothesis Chinese citizens love to travel and they Also love to spend when they travel this Isn't some stereotype it's the Statistics Chinese tourists were Spending almost 300 billion dollars per Year on travel in 2018. this figure fell To a measly 100 billion in 2021 because Of the pandemic if we have the Revenge Travel phenomenon repeat in China we Could see spending of 500 billion or More in 2023 the problem is that Excessive spending by Chinese tourists Could supercharge inflation in the Services sectors of the countries where They go this could force central banks Of those countries to keep raising
Interest rates or at least keep them Higher for longer until the desire for Travel has been addressed For what it's worth the reintroduction Of travel restrictions for those flying From China will likely be a deterrent to Such tourism data from Chinese travel Sites also suggests that Chinese Tourists are more interested in Countries in Asia this makes sense given The war in Europe and tensions with the West but this all assumes that Chinese Citizens will spend all their excess Savings on travel again this hypothesis Makes sense on paper because a switch in Spending from goods and services to Assets is what we saw in the US and Elsewhere Chinese EV makers are cutting Their EV prices now too in practice Though there's no guarantee that the CCP Won't resume its zero covered Insanity At least in the eyes of most Chinese Citizens to my understanding pandemic Restrictions vary by region and it's Possible that these restrictions will Remain in some regions or be Reintroduced in others now this sounds Silly until you consider the fact that We're still technically in a pandemic The Who announced on Monday that the Illness remains a global Health Emergency whatever that means many Countries have also extended their Public Health emergencies despite
Restrictions being removed it's almost As if it wasn't about health at all Conspiracy theories aside the fact still Stands Chinese citizens may be reluctant To spend their savings until they're Confident that pandemic restrictions Aren't coming back The weakness in the Chinese economy Could be another reason to continue Saving and this weakness could continue For quite some time from where I'm Standing the effect China's reopening Will have on the global economy depends On the demand for manufacturing and the Demand for manufacturing comes from the Demand for goods with Western economies Struggling and inventories full the Demand for goods is low and it will go Lower the only caveat is the obsession With transitioning to intermittent and Unreliable power sources like wind and Solar China happens to be the largest Manufacturer of batteries solar panels And wind turbines don't think for a Minute that the odd obsession with wind And solar is in any way related In all seriousness The Reckless spending On sub-optimal renewable energy sources Could be the manufacturing Catalyst that Causes China's economy to grow then Again many Western countries are Starting to realize that being reliant On China for their energy isn't any Wiser than being reliant on Russia
Recently past spending packages such as The deceptively titled inflation Reduction act in the U.S are Specifically designed to essentially Onshore renewable energy manufacturing It's obviously going to take some time To set up these operations elsewhere but In the end it will impact China's Bottom Line This is why I find it a bit funny That institutional investors in the United States are starting to pour money Into Chinese stocks because of the Reopening they seem to be unaware of the Reshoring of energy or that big Companies such as Apple are actively Trying to move their manufacturing Elsewhere in Asia they also seem to be Unaware of China's continued Chokehold On publicly traded companies in the Country throw in the global recession That we're likely to experience because Of rising interest rates and you have a Recipe for disaster there's a reason why Chinese citizens stay away from Chinese Stocks all I'm wondering is what will Happen when Hong Kong allows retail Investors back into the crypto Market we Could see a massive Rally or a big Nothing Burger because everyone is busy Traveling thankfully it's just one of Many crypto catalysts that could take us Out of the bear Market lows more about Those in the description and with that Folks I will see you next time
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