World Wide Inflation is Here and How does this Impact Investors?

What are the causes of the world’s Inflation and what can be done?

China has been living on the edge for years and its house of cards is starting to fall. The bad news is China’s problems are predictably now impacting the rest of the world to a lesser degree.

What are China’s Supply Chain Problems that Affect Investors?

As usual, these economic and macro-economic posts are for investors and not focused on politics.  The following are risks and realities that investors need to deal with to find niche opportunities. Change-is-opportunity for investors.

So, China’s house of cards leads to a supply chain domino effect. Here are China’s self-inflicted problems.

• In late 2020 and 2021, the PRC shut down many plants for COVID.
• The CCP because angry at Australia for wanting an investigation of the origin of the COVID virus. As retaliation, the CCP stopped imports from Australia. The PRC makes a grave mistake by also banning Australian coal. By not having enough coal for the CCP’s 1,900 coal plants led to power outages to both residential and industrial areas. Unreliable power was the last straw for many large and small foreign manufacturers who were losing money due to unscheduled power outages for their plants. Hence, many companies started to pull out of China. By this plant being shut down, further hurt the world supply chain. Many of these companies moved or are moving to India, The Philippines, Vietnam, Indonesia, South America, and the US.
• China’s real estate market has been a house of cards for years. Millions of Chinese families saved for generations to buy condos. However, the Chinese builds and banks were highly leveraged. Just a few economic blips in the PRC growth rate would cause a ripple effect. Many waves of problems started to hit the housing and PRC capital markets. These problems caused Evergrande and other real estate companies to fail thus leaving many middle-class Chinese workers buying homes penniless and jobless.
• Because many of the capital markets were not able to lend from the real estate losses, then lead to Chinese manufacturing companies were not being able to get loans to buy raw materials to keep their manufacturing plants operating. Hence, an under-acknowledged supply chain problem.
• With manufacturing companies not being able to run their assembly lines, their orders cannot be filled. If there are no products to fill the containers and container ships, then shippers cannot afford to ship empty containers to the rest of the world. If the empty containers do not leave the South China Sea. For example, that is causing a shortage of containers in Hamburg, Germany. Germany cannot ship its durable goods without shipping containers.
• In addition to the container shortage, the Chinese workers at the plants that cannot get loans to by their raw materials loose their jobs to further hurting the Chinese economy.
• The CCP just took over Alibaba putting a further chilling effect on foreign manufacturers and foreign investors. Alibaba is China’s equalizing of Amazon.

Here are China’s non-self-inflected problems.

Flooding – and more Flooding

• For the past four years, “China has experienced 100-year flooding.” Yes, that is what was said.
• If you live in the American west, is China hoarding your water? It appears so.
• With so much massive flooding, any factories in the thousands of square miles of land will be shut down.

 

The Good News For China/CCP

• With embargos on Russian oil, the CCP is gladly buying Russian oil at a discount.
• The PLAN (The Peoples Liberation Army Navy) just launched the Type 003 aircraft carrier last week.

The Chinese Mandate from God and the CCP’s 20th Party Congress Election Real Impact

Sometime in October of 2022, the CCP will reelect Xi Jinping. Clearly, Xi Jinping and his supporters want to reduce any narrative risks to the election.

• With the loss of jobs, housing losses, middle-class losses, and flooding there are reasons for the Chinese people to not be happy. The floods are out of control of CCP and are an act of God. That is especially problematic since the Chinese culture of a billion people know that if the government losses the “Mandate from God,” then the leadership should be replaced. The Mandate from God is a real thing and a real concern for the CCP leadership.
• It has been said by others (not me.) that the draconian Zero COVID policy is to deflect blame from the aforementioned issues by locking the population up so there can be no protests and threats of them and their families being sent to COVID exile.
• The world result of the Zero COVID policy is that nearly zero workers can work in the factories to make the goods to ship to the world. That leads to more empty containers and empty containers ships that can’t afford the diesel fuel to sail to other ports pick up more loads.

In Summary

The impact of all of these self-inflicted and non-self-inflected Chinese problems is causing the whole world to be in a supply chain death spiral. When will this end? As investors, place your bets.