On Saturday, China reported its first Covid death in six months. On Sunday, China reported two more, totaling three for the weekend. Oil and stock prices fell sharply on the news. China relaxed its "Zero Covid" policy on November 11, and the market began to relax. However, with China reporting cases and deaths on the rise, market fear is growing that widespread, long-term lockdowns will be a reality again in China.
Earlier this month, Hong Kong relaxed all Covid restrictions to host the Global Financial Leaders Investment Summit (November 1-3) and the Rugby Sevens tournament (November 4-6). Since then, Hong Kong has seen a rapid increase in Covid infections. On average, Hong Kong has seen 6,000 new infections daily since the summit and tournament. Chinese officials are moving quickly to contain the outbreak and spillover cases from Hong Kong.
Less than 24 hours after the third death, officials instituted a five-day total lockdown of 3.7 million residents of Baiyun in the Guangzhou providence. The Guangzhou providence, home to more than 19 million people, reported 9,085 new cases on Monday. The Chinese people already on complete lockdown again are more the population of Chicago.
New travel requirements have already been announced for Beijing starting Tuesday. The new travel requirements will require visitors to test once per day for the first three days. People must wait for results before leaving their housing situation. Also, any person wishing to leave their home must present a negative test. Chinese officials will probably announce more restrictions soon.
China’s policy relevance in the global markets cannot be understated. China is the world’s second-largest economy and accounts for about 18.8% of the global GDP. American stock markets fell around 1% within an hour of hearing the news. Oil prices fell more than 5% as expectations of China’s demand dropped. Gold also fell by around 1%, probably due to the falling oil price. Most major world currencies lost ground against the Dollar. The U.S. yield inverted to the most severe level since 2000. The 3-month T-note now pays more than all Treasuries longer than three years. The market reaction is screaming that a substantial downturn is ahead. Learn about an inverted yield curve.
One of the significant contributors to global supply chain shortages has undoubtedly been the strict Chinese “Zero Covid” policies. China is the world’s manufacturing superpower and the leading global supplier of consumer goods exports by a large margin. In September, FedEx stock lost 24% in one day due to missed earnings. The CEO of FedEx, Raj Subramaniam, stated two reasons for the missed earnings. The reasons were decreased customer demand due to inflation and planes coming from China only being half full due to supply chain issues. Last week, FedEx announced it would furlough employees in multiple markets due to “current business conditions impacting volumes.” FedEx was not specific about what conditions, but it seems reasonable to assume it was the conditions that Subramaniam stated: China and inflation. The health of delivery companies, especially leading into the holiday season, is a good indicator of the general perception of the overall economy’s health.
The sad irony is that the Fed printed so much money to avoid the effects of the covid lockdown. There is record inflation, and the market will still get another lockdown. The Fed will continue raising rates and tightening monetary policy, so intervention tools are limited. The Fed is destroying aggregate demand, and China's covid lockdown policy will destroy supply chains. Subramaniam's stated problems for FedEx are about to be felt across multiple sectors again. Supply and demand challenges will affect Black Friday and the holiday shopping season.
What to Do?
For months and months, crises and bad policies have been accelerating. A new or potential crisis is unfolding almost every day. Unfortunately, many people act like ostriches, pretending there is no danger. Every day, I research some terrifying stories and numbers. Many of the stories and numbers never make it into the blog. Stocks, bonds, and crypto markets are all down by double digits. They will continue to go down for the foreseeable future. Housing is contracting, and now China has Covid. Despite so many warnings, would you believe there are still people who have not yet protected themselves with precious metals?
If you haven’t protected yourself yet, I strongly recommend doing so. Protecting yourself with precious metals is a prudent, time-tested strategy to survive the worst economies. Most people put between 5-20% of their portfolio into precious metals as insurance for their wealth. Have you heard of sports stars or actors who made millions but went bankrupt? Why did they go bankrupt? They didn’t transfer their wealth to tangible assets with intrinsic value. They should have set up some of their portfolios with cash-flowing assets like real estate and some with protective assets like precious metals to store value. If they had a long-term strategy, they would still be rich today.
The process is simple.
1. Decide you are going to protect yourself.
2. Call the precious metal experts at the U.S. Gold Bureau
3. Order your metals.
4. Enjoy peace of mind