Investors Pick Your Poison – Inflation vs a Trade War vs a Hot War
Nothing affects the world economy more than Inflation or a “hot war” between the two biggest economies in the world. The best case is we get a trade war between both Russia and China. Much has changed in the past few weeks.
Hyper Inflation has been under control since the Carter years. However, in the interest of fairness and avoiding domestic politics, Larry Kudlow made a good point that Nixon made some fiscal mistakes that did not help matters.
- Restaurants and small businesses are having a hard time hiring workers due to the extended unemployment benefits that “may” run out in September. Companies are having to pay workers more than $15. Paying that much in hourly payroll is OK, “IF” that worker can create enough value. If not, the business may have to shutter for marginal cost reasons.
- Due to the lack of exports to China, empty containers are in North America, but there is not enough demand for goods export back to China. Like sending an empty 18-wheeler or empty U-Haul to back California, the container ships do not want to pay a crew and fuel to sail a ship to China with just empty containers. Hence, there are not enough containers to ship the plywood made in China back to the USA. However, in the last week, lumber prices are starting to come down. I saw a meme last week of an old garage with a dusty 1960s Porsche and a piece of plywood inside. The caption said, “What a find.” He was talking about the plywood and not the antique car.
- The Chinese silicon chip issue is still a massive problem for cars, servers, and durable goods demand. My friend paid $1,800 to rent an average car for 12 days this week since rental car companies cannot purchase any more cars to rent. Five years ago, I found a deal and paid $8 per day for a midsized rental vehicle. That is an example of hyperinflation. Thankfully, that situation is not yet pervasive and systemic.
- Housing prices are extremely high in most markets as people try to leave crime-ridden areas to safer harbors—the Laffer curve is in full effect. However, the pain and movement have been increased due to crime. The premise of the Laffer Curve is that “rich people can live anywhere and will pay their property taxes at their next hometown.”
- I do not understand the wishful thinking out of the FED.
- We may be wishing for the “good ole days” of the trade war. That will be far better than inflation or a hot war.
Geo-Political News and Investment Affecting Concerns On the Russia Front that Investors need to consider
- During the G7, right before Presidents Putin and Bidden met, the US Navy conducted a Freedom Of Navigation mission with a DDG Arleigh Burke Destroyer (front-line US warship) in the Black Sea. This naval mission angered Putin and the Russian military before the meeting.
- Called “Steadfast Defender 21”, Nato started a full 26-country Eastern European war game with 21,000 military personnel in May and ends sometime in June of 2021.
- In a headscratcher, the US did not block the Russian/German oil pipeline. It will be allowed to proceed with completion.
- My next blog will discuss important G7 decisions or outcomes.
The Increasing Dangerous South China Sea and What Risks Investors Need to Consider in Their Decision Making.
What is the chance of a “hot war” in the South China Sea and spreading to India and Australia? With tensions this high, if one 19-year-old sailor from PLAN (Peoples Liberation Army Navy) or a (US, Indian, Japanese, Vietnam, South Korean, North Korean) sailor gets scared and pushes the wrong button, we could be in a hot war within minutes.
Recent Developments in the South China Sea
- China (The PRC) was trying to sell the PRC vaccines to the Covid ravaged Indo-Pacific counties for favorable political concessions. (I’m glad the US created their own.) However, the US stepped in and “gave” some of our extra COVID vaccine to the countries under the protest of the PRC.
- The US, Japan, are France are doing their part to move assets into the area with a naval war game in the southern tip of Japan for the past few weeks. Not surprisingly, the PRC condemned this naval war game (Peoples Republic of China or the Chinese Communist Government.)
- The Ronald Regan Aircraft Carrier battle group with the associated US Navy ship sailed into the South China Sea on Monday of this week. The task force will conduct drills, be a deterrent to the PRC and PLAN, and protect Taiwan, China, The Philippines, India, Vietnam, South Korea, and other smaller countries.
- Also, this week, the US deployed one-third of its nuclear submarine fleet into the Indo-Pacific area to patrol and be a deterrent. The Chinese now have more active submarines than the US and Japan combined.
- The US Navy announced that it is building 20 new and updated DDG Arleigh Burke Destroyers. One of which will be operational in 2023. The big difference in the new destroyers is that the radar will be 35 times more powerful to better track drones and stealth aircraft, and faster missiles.
- USMC’s NSM. To counter the PLA and PLAN (Peoples Liberation Army and Peoples Liberation Army Navy) stated plans for invading area countries in Africa and new India, the US Marine Corps will deploy to many small islands in the Indo Pacific. They will move from island to island to keep the threat to PLAN warships high and lethal. The reason for the new lethality is that the USMC will operate a new weapons system called NSM or Naval Strike Missile. This sea-skimming missile can be fired from a truck and destroy a ship 60 miles from shore. Moreover, in the terminal phase of the attack by the missile, it will make severe turns and jukes to make the US missile attack hard to defend.
- Using a similar defense strategy, the US will move many of its front-line jets to smaller airstrips to make it harder for Chinese mid-range missiles to take our stationary bases with swarm attacks.
- It just keeps getting worse for the PLAN. The “Hammerhead” is a new combination of torpedos and smart mines. It is basically a US Navy torpedo that sits on the bottom of the ocean near a Chinese harbor or near a threatened coastline that can wait for a PLAN submarine or PLAN warship to pass with six miles of the torpedo. The US can and will activate the torpedo to chase down the submarine or surface ship in a surprise attack. To take it up another notch, the US Navy is making a crewless submarine that can deploy twenty of these smart torpedo mines without a crew. Legally, since the mines are not passive and should not harm commercial shipping traffic, it is permissible under international law.
What are the Opportunities for Investors
With the massive inflow of lethal and motivated military assets from the US, France, India, Australia, Great Britain, Vietnam, Japan, and South Korea, will a world war be avoided by making the risk-return too high for the Chinese Government? Will this military build-up move the world back to a status quo of a few decades? Or will a mistake start a world war? Investors need to choose wisely and cover their bets.