Over the past month, as Wall Street turned increasingly optimistic on US growth alongside the Fed, with consensus (shaped by the Fed’s leaks and jawboning) now virtually certain of a March rate hike, we have been repeatedly warning that after a huge policy error in 2021 when the Fed erroneously said that inflation is “transitory” (it wasn’t), the central bank is on pace to make another just as big policy mistake in 2022 by hiking as many as 4 times and also running off its massive balance sheet… right into a global growth slowdown.
And, as we have also discussed in recent weeks, one place where this growth slowdown is emerging – besides the upcoming deterioration in US consumption where spending is now being funded to record rates by credit cards before it encounters a troubling air pocket – is China and its “covid-zero” policy in general, and its covid-locked down ports in particular.
But what until recently was a minority view confined to our modest website, has since expanded and as Bloomberg writes overnight, the effects of restrictions in China as the country maintains its Covid-zero policy “are starting to hit supply chains in the region.” As a result of the slow movement of goods through some of the country’s busiest and most important ports means shippers are now diverting to Shanghai, causing the types of knock-on delays at the world’s biggest container port that led to massive congestion bottlnecks last summer that eventually translated into a record number of container ships waiting off the coast of California, a glut that hasn’t been cleared to this day.
No food for 3 weeks.
With sailing schedules already facing delays of about a week, freight forwarders warn of the impact on already back-logged gateways in Europe and the US and is also why HSBC economists are warning that the world economy could be headed for the “mother of all” supply chain shocks if the highly infectious omicron variant which is already swamping much of the global economy spreads across Asia, especially China, at which point disruption to manufacturing will be inevitable.
“Temporary, one would hope, but hugely disruptive all the same” in the next few months, they wrote in a research note this week first noted by Bloomberg.
For those who have forgotten last year’s global shockwave when China locked down its ports for several days, a quick reminder: it led to an unprecedented hiccup in global logistics and shipping which hasn’t been resolved to this day. That’s because China is the world’s biggest trading nation and its ability to keep its factories humming through the pandemic has been crucial for global supply chains.
While the outbreak of omicron in China has been small compared to other nations (if one believes China’s official data, which is a big if) authorities are taking no chances, especially with China’s continued “zero-covid” policy. In recent weeks scattered infections of both the delta and omicron variants have already triggered shutdowns to clothing factories and gas deliveries around one of China’s biggest seaports in Ningbo, disruptions at computer chip manufacturers in the locked-down city of Xi’an, and a second city-wide lockdown in Henan province Tuesday.
Below is a brief timeline of the most recent events courtesy of Deutsche Bank:
- China’s first Omicron outbreak was detected in the city of Tianjin over the weekend. On the morning of Jan 8, two patients in Tianjin who actively sought medical treatment were confirmed as being infected with the Omicron variant. The local government immediately locked down certain districts, restricted travel, and conducted large-scale screening. A total of 41 positive cases have been reported as of the morning of Jan 11.
- The source of the local cases in Tianjin is still unknown, and community transmission is possible, according to local disease control officials. All previous local Omicron cases in Tianjin belonged to the same transmission chain. However, the above cases cannot be confirmed to be in the same transmission chain as the sequences of the imported cases of the Omicron variant that have been found in Tianjin. The early confirmed cases do not have any travel history outside Tianjin either. The specific source of the local cases found in Tianjin is still unknown at this time.
- More alarmingly, the same Omicron virus strain has already spread to outside Tianjin. Two positive cases were found in Anyang, Henan on Jan 8, and were later confirmed to be the same Omicron variant found in Tianjin. Through contact tracing and gene sequencing, the source was identified as a college student who returned to Anyang from Tianjin on December 28, 2021, and who did not show any symptoms. 81 cases have since been confirmed in Anyang over the past few days. This suggests that (1) the Omicron virus may have been transmitted in Tianjin for almost 2 weeks; and (2) other travelers might have already carried the Omicron virus from Tianjin to elsewhere in China.
Looking at the recent data, China’s Covid outbreak this winter could be worse than in the previous winter – as shown in the chart below more provinces have detected Covid outbreaks this winter. Entering Q4, there are 12 provinces which have found more than 19 local cases in the past 14 days. More significantly, the total number of new cases in the past 14 days in Shann’xi has already exceeded 1500, which is a record high, except for in Hubei when Covid first occurred in early 2020, and this has happened despite China now having very high vaccination rates and strict regulations such as lockdowns. In addition, comparing the differences between months near Chinese New Year in 2021 and 2022, not only have the number of news cases been larger this year, the provinces hit by Covid outbreaks this year also tend to have higher GDP and population density.
As Bloomberg adds, Henan and Guangdong, which also has an outbreak, are centers of electronics production. If cases continue rising there, it could impact the supply of iPhones and other smartphones.
This also brings us to what Bloomberg calls the paradox of China’s aggressive “Covid-zero” strategy: while on one hand it helps contain the virus spread, to do so usually requires significant disruption or lockdowns as authorities limit the movement of people. The repeated mandatory testing of whole cities interrupts businessess and production, although nothing to the extent seen in places like the US, where the omicron wave caused an estimated 5 million people to stay home sick last week, leading to further economic slowdown (as discussed in “A March Rate Hike? Not So Fast“)
That risk of disruption for factories is already prompting companies to spread their risk by ensuring they have alternative production facilities, Stephanie Krishnan, a supply chain expert at IDC in Singapore, told Bloomberg.
“We are starting to see companies mitigating risk, seeing where they can increase capabilities for production of different products in different factories so they can shift that around,” she said.
Echoing what we said last night in “New Year Brings New All-Time High For Shipping’s Epic Traffic Jam“, Krishnan doesn’t see an end to the global supply crunch anytime soon and cautions it could take several years for the snarls to unwind. It’s a sobering outlook to start a year that many had hoped would mark the beginning of the end of the Big Crunch which dogged producers and consumers through much of last year.
Clearly what happens next is critical, and how China’s control of the virus plays out will ultimately be crucial, said Deborah Elms, executive director of the Singapore-based Asian Trade Centre. Those companies whose supply chains are fully located inside China may be insulated by the country’s mitigation strategy. But that won’t apply to everyone, she said.
“Lots of products in supply chains come from outside China,” Elms said. “Given challenges elsewhere, even zero Covid doesn’t solve all the issues of disruption.”
* * *
In its assessment of next steps, Deutsche Bank expects the government will try to contain the Omicron outbreak with more lockdowns and quarantines rather than taking a “live with Covid” approach. This will pose downside risks to near-term growth. The impact on consumption could be significant, although probably not as large as what happened in 2020.
While Omicron is far less deadly than other Covid variants, it is still deadly enough to cause healthcare service shortages in China, at least in some regions. Vaccination has proven to be ineffective in preventing Omicron from spreading, and while it offers protection against hospitalization, China still has some 20% of the population who are not vaccinated and will face serious health risks if Omicron becomes widespread. As such, DB says that a containment approach is still the government’s optimal choice for this winter regardless of how fast Omicron spreads in the next few weeks. It will be good news if travel restrictions, lockdowns and large-scale testing and contact tracing work in containing the outbreak. Even if outbreaks cannot be contained in some regions, these measures will still be considered necessary in flattening the curve and preventing hospitals from being overwhelmed nationwide.
What is much more important for the US, global capital markets and the Fed’s monetary policy – which has assumed much stronger growth in 2022 – is that China’s Omicron outbreaks are significant downside risks for near-term consumption demand. Restrictions will likely be imposed nationwide to reduce travel before the Chinese New Year and encourage people to stay where they are. Cities where new cases were found will reimpose lockdowns and social distancing measures. The impact in each city will depend on local authorities. Experience from the past 2 years was that while some cities (such as Shenzhen and Shanghai) can manage outbreaks in a less disruptive way, other cities (such as Xi’an) have resorted to stricter and larger scale lockdowns, causing severe disruptions to consumption and service sector activities. Businesses such as restaurants, as well as those linked to travel, and leisure & entertainment will suffer from sharp revenue reductions or even temporary shutdowns. This may also cause temporary job and income losses and negatively impact consumer goods purchases. Retail sales growth dropped by 3ppt in Jan-Feb 2021 (in 2-year average terms). Retail sales might weaken again in Jan-Feb 2022, though the YoY growth rate might not drop much owing to the low base in 2021.
Nevertheless, consumption will likely recover rapidly once lockdowns are lifted. Similar to what happened before, such negative shocks will likely be transitory and will be followed by strong recovery once lockdowns are lifted and businesses reopen.
Still, the notorious bull-whip effect will emerge once again, as supply chains once again become stretched, and like in 2021 the question will be how the trade off between rising costs – as goods in transit end up stuck on a ship far longer than expected – and slowing growth will impact the Fed’s view on what the optimal policy response is. While the Fed’s prerogative for now is clearly to contain inflation, the reality is that much of the inflation experienced today is on the supply side, something which Brainard told the Senate in her confirmation hearing the Fed is powerless to address. Meanwhile, if we see a “surprise” drop in growth in the coming months, the Fed will have no choice but to delay or at least stagger its tightening as the last thing the Fed can afford to do is hike into another recession, which will then quickly be followed with even more easing.
Kachelman: Alert to a Most Disturbing Survey of January 2022!
ALERT TO A MOST DISTURBING SURVEY OF JANUARY 2022!
Guest post by John L. Kachelman, Jr.
“While many voters have become skeptical toward the federal government’s response to the COVID-19 pandemic, a majority of Democrats embrace restrictive policies, including punitive measures against those who haven’t gotten the COVID-19 vaccine.
“A new Heartland Institute and Rasmussen Reports national telephone and online survey finds”…click link to read the entire article.
For the bullet points of the frightening survey see below.
You may say this cannot happen in the USA. I say, “Dream on! Be aware! WAKE UP!” Our USA Constitutional boundaries are no longer respected. Obama claimed the US Constitution was an old document and needed revising. Cal Thomas wrote in 2008,
“Obama said the Constitution mostly ‘says what the states can’t do to you … what the federal government can’t do to you, but it doesn’t say what the federal government or state government must do on your behalf.’ That’s because the Constitution is about liberty and protecting citizens from oppressive and invasive government. This is scary stuff…Barack Obama thinks the Constitution and the country it helped create should be remade in his image. He wants to be a Founding Father of a different America, one that would bear little resemblance to the country we have known.”
Obama’s promise of a transformation of our nation is more of a reality than most admit. Rasmussen’s poll reveals how little personal freedoms are cherished and respected in our nation. This is illustrated in the eager sacrifice of personal liberty to the COVID idiocy.
Look at the highlighted points of the Rasmussen survey posted 13 January…This is the USA folks!
- 59% of self-identified Democrats support the government requiring unvaccinated individuals to stay at homes “at all times” unless an emergency arises that warrants going outside. 35% of Democrats surveyed “strongly” support the government confining the unvaccinated.
- 45% of Democrats would like the government to involuntarily detain unvaccinated Americans and have “federal or state government require that citizens temporarily live in designated facilities or locations if they refuse to get a COVID-19 vaccine.”
- 29% of Democratic voters would support temporarily removing parents’ custody of their children if parents refuse to take the COVID-19 vaccine.
- 55% of Democrats favor a proposal that would fine unvaccinated Americans.
- 47% of Democrats favor a government tracking program (using digitally implanted chips to track unvaccinated people to ensure that they are quarantined or socially distancing from others for those who won’t get the COVID-19 vaccine.
- 75% of Democrats support Dr. Anthony Fauci.
According to the published Rasmussen: “Among voters who have a Very Favorable impression of Biden, 51% are in favor of government putting the unvaccinated in ‘designated facilities,’ and 54% favor imposing fines or prison sentences on vaccine critics. By contrast, among voters who have a Very Unfavorable view of Biden, 95% are against ‘designated facilities’ for the unvaccinated and 93% are against criminal punishment for vaccine critics.”
You say, “it will not happen.” Understand this undeniable, inescapable fact—history’s past presents history’s present and magnifies history’s future! Look back at the way previous State-sponsored resettlement of populations deemed “a threat to the health and welfare of society” were treated! Look back at the “designated facilities” where millions were confined for “the welfare of the nation.”
AND NOTE…IT WILL NOT STOP WITH THE JABS, ENDLESS BOOSTERS, ETC…this government has an evil appetite that will not be placated! The issue is personal freedom vs governmental overreach. The more the government gets the more it wants! All the DEMS need to be successful in the passage of the “NASA bill.”
WATCH: Arizona Gubernatorial Candidate Kari Lake: “DAY ONE – We Will Issue A Declaration Of Invasion”, Plans An Interstate Compact To Secure Southern Border
There is a crisis at Arizona’s southern border with Mexico, and Trump-endorsed Gubernatorial Candidate Kari Lake has a bold solution.
Lake recently spoke at President Trump’s Save America rally in Florence, Arizona.
Part of the border in Yuma, Arizona, doesn’t even have a barrier, and illegal immigrants just walk into our country so that Border Patrol can pick them up, process them, and send them into America with a court date. Their court dates are often years away.
The Gateway Pundit reported on this area and even captured video of illegal immigrants literally running to the Border Patrol agents.
The Gateway Pundit reported that Kari Lake announced plans to finish President Trump’s wall as Governor of Arizona.
In her official policy release, Kari established, “Any budget that fails to fully fund the border wall’s completion will be vetoed.”
On day one, Lake promises to issue a declaration of invasion to prevent the millions of illegal immigrants, cartel members, and trafficking victims, as well as the drugs that kill our communities, from pouring across our border.
The fraudulent Biden regime has turned every state into a border state by shipping illegal immigrants as far as New York on airplanes, busses, and other means of public transportation.
Lake will draft an interstate compact with other states to protect our nation from this foreign threat. States like New York and Pennsylvania will be able to send aid to the border.
The Gateway Pundit correspondent Jordan Conradson spoke with Kari Lake about her aggressive plans.
Conradson: Let’s talk about your border policy. An interstate compact to do what the federal government basically won’t. So can you tell us more about what that means, the wall, and how you will ensure these criminals get arrested and actually deported?
Lake: Yeah, well, First of all, it’ll start on day one, and I will take my hand off the Bible after taking the oath of office, and we will issue a declaration of invasion. We have an invasion going on at our border. And it’s not just people coming across who are unvetted. We have deadly drugs coming across in record numbers, and it’s destroying our state. It’s destroying our country because what happens in Arizona as it pertains to the border doesn’t stay here. So in effect, every state is a border state. And we’re going to process these people coming across. So first of all, we’re going to work by starting up an interstate compact with other states, and we’ll work together, pool resources, pool intelligence. We’ll let the federal government know what’s going on, but we’re not going to wait for their approval. They have dropped the ball. It’s a dereliction of duty. Article four, section four requires that they protect us from invasion, and they’re not doing that, and there’s a remedy in the US Constitution. Our forefathers were brilliant. It’s almost as if they saw this day coming. Article I Section 10 allows us to take control and fight back and protect our citizens from an invasion, and we will do that. We will do that, and we will embolden our law enforcement. And we will allow our Arizona National Guard, which I, as Governor, would be the commander in chief of. And I will allow them to start stopping people at the border, arresting them for trespassing, processing them, and sending them back across the border. We’re not going to take this influx of people, many of them criminals, terrorists coming across, cartel operatives, they’re going back, and we have every right to protect our state. Every right, and we need to start doing it now. We don’t need to ask permission from the federal government who’s dropped the ball, turned their backs on us, and I think they’ve done it intentionally under Joe Biden. And I say it’s time we abandoned Brandon and start taking control of our state once again and making sure that our citizens are safe so that our kids can go out on the street and play like we did when we were kids, and they can be safe when they walk down the street. I’m tired of what’s happening in this state, and I think the moms and dads and citizens of Arizona are tired of it as well.
Conradson: That’s right, and this is a national security issue. They are sending them all across the nation, putting them on planes, processing them, giving them court dates four to five years away.
Lake: You’re right, and Joe Biden is behind this. Taking all of the people coming here illegally, many of them dangerous people, and they’re shipping them all over the country. And I think we’re going to be able to find a lot of states that want to join that interstate compact with us to help us. They can send their National Guard, they can send their police, and they can send, you know, just security and help for us and resources because we need to protect our border here in Arizona to protect the people in every state. South Dakota, Iowa, Wyoming, Florida. Every state’s affected by this, and I think there will be a real push from governors across this country to say we’re going to protect our citizens as well.
Read Kari Lake’s plan to defend Arizona from the invasion here.
Lake urges Arizona Governor Doug Ducey to take action immediately and enact these changes before he leaves office.
CNN Scrambles to Explain Away Joe Biden Saying 2022 Midterms Could Be “Illegitimate”
CNN hosts scrambled to explain away Joe Biden’s remark during his car crash of a press conference when he said that the 2022 mid-term elections could be “illegitimate.”
Former President Donald Trump was vehemently monstered by the media both in 2016 and 2020 for suggesting the election outcome could be compromised.
Following the riot on January 6 last year, Trump’s so-called undermining of the election process was blamed for the raid on the Capitol itself.
Tens of millions of Trump supporters who believe the 2020 election was rigged have also been denounced as everything from dangerous radicals to domestic terrorists.
So when Joe Biden questioned the legitimacy of the upcoming election during a live press conference, the media was placed in an invidious position.
Biden was asked by a reporter if the election could be considered legitimate if he was unable to pass his voting reforms.
“It all depends on whether or not we’re able to make the case to the American people that some of this is being set up to try to alter the outcome of the election,” Biden responded.
This second attempt from Biden on whether the election will be legit is even worse.
“Oh, yeah, I think it could easily be illegitimate … The increase in the prospect of being illegitimate is in proportion to not being able to get these reforms passed.” pic.twitter.com/nCyuAWSMXm
— Justin Baragona (@justinbaragona) January 19, 2022
“I’m not saying it’s going to be legit,” Biden added, before noting, “The increase in the prospect of being illegitimate is in direct proportion to us not being able to get these reforms passed.”
Both Maryland Senator Ben Cardin and West Virginia’s Joe Manchin quickly expressed concern at Biden’s rhetoric.
CNN hosts also scrambled to explain away Biden’s clumsy response.
“Well, particularly the first part, Anderson, what he said was–actually, the entire thing, but particularly the first part was, probably the most jarring to hear a president of the United States who is not Donald Trump even suggest, ahead of time, that an election isn’t legitimate,” said Dana Bash.
She continued, “Having said that, the important thing to keep in mind is what he was trying to say, and that is in places like Arizona and places like Georgia, especially, that will determine, votes will determine not only the governor’s race, but this balance of power in the Senate, you have another Senate race there. The laws that were put in place in Georgia were such that the legislature — the Republican-led legislature has the ability to take the power away from the secretary of state to determine an election.”
“That is what he was trying to say, but it’s not exactly how he said it, which is why it was so jarring. The people who know what he was trying to say get it. But still, with this kind of language, given where we are with the Republican party and how you have a former president trying to continue to sew doubt and claim that the election in 2020 was stolen, which is a total lie. That is an area where I know talking to Democrats they believe the president needs to be a lot more nuanced,” Bash added.
This serves as yet another reminder as to why Biden barely ever holds press conferences.
After she lost in 2016, Hillary Clinton also repeatedly questioned the legitimacy of the election, blaming Trump’s win on the baseless Russian collusion conspiracy theory.
“It’s OK when we do it!”
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