China never learns and why we need to remove Biden NOW

[7 min read]

Dear Reader,

[Editor’s note: Please note that due to the original edition, the following article was adapted from being written in April 2022, some of the information below may be out of date.]

For all practical purposes, the pandemic is over and has been for some time. Caseloads and fatalities have collapsed and are at their lowest levels in two years. More importantly, the recent cases at the tail end of the omicron wave are almost always mild. The most vulnerable (older, obese, diabetes, etc.) should get the lion’s share of care and attention. The rest of the population can move on. It’s over.

New variants may emerge, but they’re highly likely to be even milder than omicron. That’s how pandemics end.

In my view, the masks never did any good, nor did lockdowns. The vaccines didn’t always stop infections or spreading. This was demonstrated in December 2021 when five million fully vaxxed (and often boosted) Americans got omicron. The vaccines didn’t prevent this.

What did produce the end of the pandemic was herd immunity. The natural antibodies created when you get COVID are far more effective at stopping the disease than the vaccines. Once enough people got COVID and bounced back, the population was healthier and more disease-resistant than ever. Again, that’s how pandemics end.

This is true globally except in one place — China. There, according to this article, a severe outbreak has begun and appears to be spreading out of control. The reason for this is China’s badly flawed and ineffective zero-COVID policy.

China has a policy of allowing no cases of COVID. When a case does emerge, they immediately shut down the surrounding area, quarantine everyone, test everyone, trace any contacts, and send the infected to isolation camps for two weeks or longer. When an outbreak spreads, they will lock down entire cities and ban all transportation to or from that city.

This is happening in Shanghai. The entire city of 26 million has been shut down. Citizens are being ordered to stay inside. Visits outside for food and water are severely limited.

Of course, the effects aren’t limited to the residents themselves. Shanghai is one of the largest cities in the world and is adjacent to Ningbo, one of the largest container cargo ports in the world.

China’s policies are a drag on global growth and represent another disruption to global supply chains.

China’s real problem is that its pursuit of zero-COVID means its population has never achieved herd immunity. This leaves the Chinese highly vulnerable to new COVID strains, which are highly contagious. China will fail in their efforts to contain this outbreak. Unfortunately, they won’t fail in their ability to disrupt the global economy.

The US is sleepwalking into a nuclear war with Russia — remove Biden now

No one wakes up in the morning and says, ‘What a nice day for a nuclear war. Let’s launch some missiles’. That’s not how a nuclear war will happen if it ever does. Instead, experts who have studied the subject of nuclear war fighting since the 1950s (and I’ve personally studied their work since the late 1960s) all agree that the danger is not an out-of-the-blue decision to launch. The danger is escalation.

The adversaries will first go through a process of confrontation and gradual escalation to the point that one side or the other feels trapped with no way out except to use nuclear weapons. At that point, game theory is applied to infer that if your enemy is about to launch nuclear weapons against you, it’s in your interests to launch first. That’s because suffering a first strike might make you incapable of launching a second strike in retaliation. The solution is to launch a first strike before the other side launches its first strike.

You can build a capability that will survive a first strike and launch a second-strike retaliation, but you cannot be sure it’ll work, and your adversary might have increased its first strike capability, etc. The entire game theoretic framework pushes both sides to a nuclear attack even though neither side wanted that.

The real answer is to avoid escalation in the first place. But that precaution is often overlooked because leaders and their advisors lack the training in escalatory dynamics and game theory.

There’s little doubt we’re now at the most critical juncture in potential nuclear war fighting since the Cuban Missile Crisis of 1962. Vladimir Putin has already warned that nuclear weapons aren’t off the table regarding Ukraine. Now, according to this article, the Russian leadership have relocated to secure nuclear-proof bunkers in Western Siberia.

Putin gave many warnings that he would invade Ukraine if his demands for neutrality by Ukraine and a promise not to join NATO were not met. The demands were ignored, and the invasion went ahead. Now Putin is warning about nuclear weapons and acting accordingly.

Once again, the US isn’t taking Putin seriously. The US and NATO continue to escalate the war. Escalation is the path that every nuclear war expert warns against. It’s a dangerous moment with uncertain outcomes. Investors should increase allocations to cash and gold until the danger passes…if it does.

Another Biden publicity stunt — don’t fall for this

With prices for gas at the pump soaring, Joe Biden needs some relief from angry Americans suffering through the worst inflation in 40 years. The inflation isn’t limited to what you pay to fill up your car. Truckers have to pay the same higher prices for diesel fuel, which adds to transportation costs and the final price of delivered goods.

There’s nothing the Fed can do to stop the inflation because it’s coming from the supply side, which the Fed has no control over. Higher interest rates won’t increase the supply of oil. The Fed has no mandate to drill for oil or discover natural gas resources. The Fed is helpless.

So what does Biden do? As described in this article, Biden is releasing one million barrels of oil per day from the Strategic Petroleum Reserve. That will accomplish nothing at all. Here’s why…

The US uses about 20 million barrels of oil per day. So the one-million-barrel release from the reserve only adds about 5% to the supply. But it doesn’t really add anything to the supply because importers will simply reduce imports or domestic drillers will reduce output to equilibrate for the new oil. There never was an oil shortage in the US, so adding a new source of oil doesn’t alleviate a shortage that never existed. It simply causes some oil to be redirected to other buyers.

Oil is a global market. The price is set mainly on futures exchanges in London and New York. Those markets focus on a wide variety of market variables, of which the release from the reserve is only one. In fact, global output is about 92 million barrels per day, so the US reserve addition is only 1.08% of total output. That’s hardly enough to impact the world price one way or the other.

It’s also the case that US refineries aren’t geared to process the type of oil in the reserve without significant modifications that take time. In short, the oil from the reserve doesn’t convert easily to refined product and will have minimal impact on retail gas prices.

Finally, the Strategic Petroleum Reserve is meant to be strategic. It’s not a short-term price manipulation tool; it’s meant to give the US a cushion in the event of a war or natural disaster that directly affects the US itself.

Biden’s release will reduce the cushion and leave the US more vulnerable to a true disaster. Biden’s release from the reserve will not affect the price at the pump or the world price and will reduce US readiness. It’s a cheap and dangerous publicity stunt. Investors should act accordingly.

Until next week,

Jim Rickards,
Strategist, The Daily Reckoning Australia

This content was originally published by Jim Rickards’ Strategic Intelligence Australia, a financial advisory newsletter designed to help you protect your wealth and potentially profit from unseen world events. Learn more here.

Dear Reader,

Last week was a jolly mess.

Someone blew up the world’s most important gas pipeline. The Dow closed out the worst September in 20 years. The Bank of England (BoE) looked normalcy in the face — and panicked. Inflation rose. And a storm swamped much of Florida. ‘Get used to it’, said the climate alarmists; it’s the new normal.

But Floridians were already used to it; hurricanes in Florida are the old normal, not new normal. There was nothing especially ferocious about Ian. But it had been a long time since a hurricane like the Okeechobee Storm of 1928, which killed 2,500 people, had struck the Ft Myers area.

Meanwhile, just when the winds of inflation were supposed to be flagging comes news from Barron’s: ‘Fed’s Preferred Inflation Gauge Rises in August. Price Gains Still Running Hot’:

‘The core personal consumption expenditures price index, the Federal Reserve’s preferred inflation metric, picked up in August, after cooling off in July.’

And this from Breitbart:

‘The prices of food purchased by American consumers in August saw the most inflation since 1979, government data showed Friday.

‘The personal consumption expenditures index for food was up 12.4 percent compared with a year ago, indicating that food prices were up the most year-over-year since February 1979.’

12%?

Yep.

And for a lot of people, a 12% increase in food costs is a big deal. It forces them to make tough decisions.

‘The people’s’ money

It should be forcing the feds to make tough decisions too. After all, inflation is federal policy. The feds spent more than they raised in taxes and filled the gap with printing press money. Shouldn’t it cut back…and spend less of ‘the people’s’ money…so that inflation will go down?

Nah…instead, also last week, President Biden announced a plan to eliminate hunger by 2030. This will be done by spending more money, not less. No mention was made of the last great fight against hunger. That came in 1969 when Richard Nixon pledged to banish it forever. Apparently, that effort fell short…or there would be no need for a new one.

So, you see, everything happened more or less as could be expected. The president did what he does, such as it is. Central bankers did what they do. Terrorists did what they do. And hurricanes stuck to the familiar script, along with those who want the feds to ‘do something’ about them.

And here, we’ll do what we do too — marvelling at how terrifying ‘normal’ can be…especially, when you’ve been enjoying abnormal for such a long time.

Years ago, an old friend, whose tractor was stuck in deep mud explained what had happened:

‘I forgot that it could rain.’

Abnormal is a time when the Sun shines every day…and you can borrow money for less than it’s really worth. Naturally, you leave your umbrella at home. You think ‘abnormal’ is the new normal.

And then, it rains. And interest rates go up.

More bang for their bucks

Interest rates famously ‘discount’ things that could go wrong in the future. And when the Age of Everlasting Sunshine came to an end, suddenly interest rates had a lot more to discount. Inflation, for example.

In a country with 10% inflation, a 5% yield on a 30-year bond is more ‘normal’ than a zero yield. But while the BoE was as calm as a corpse at 0%...at 5% it was in a panic. It thought it was approaching its Lehman Bros moment…and decided not to take a chance. Markets are great, say the deciders, but not when they tell you what you don’t want to hear.

What markets were about to say, of course, is that Britain’s ‘lower for longer’ interest rates had turned even the most conservative money manager in London into a wild-eyed gambler. Fund managers were supposed to make sure pensioners got their money — 10, 20, 30 years out. And with such low rates, managers had to move their money from ‘risk-free’ gilts to ‘risk-ee’ bets on stocks. And then, to get even more bang for their bucks, they borrowed to gain leverage.

Everybody did it.

And it all went well, until…it rained. And the winds picked up. People loaded up on toilet paper. And then, Britain’s central bank made its pivot.

‘They had to do it’, you see in the financial press. ‘The BoE had no choice’, say the explainers. Otherwise, ‘it would have been a disaster’.

Meanwhile, in another town far, far away…another central banker stays the course. Yes, Jay Powell is not for turning. Not yet.

Not until things get too normal.

Regards,

Bill Bonner,
For The Daily Reckoning Australia