Important Economic Trends During Anarchy – Week 5

2020 – Something Big is Afoot. Are You Prepared?

China – The Importance of Data Points

Did you receive your seeds from President Xi? We have. Be careful. Do not open.

When our third child was born, a business friend with four children shared with me that the difference between two children versus three or more children was that you could no longer play man to man defense, you had to convert to playing zone. That proved to be excellent advice.

In graduate school, I learned that while two data points would enable you to plot a straight line, the importance of the third data point was that it showed you if there was a possible trend. Admittedly, you need more than three data points to confirm a trend, but early warnings are important. Most business decisions are made without perfect information. Trends are important.

China is the second largest economy in the world so economic trends in China are important to the rest of the global economy. But China never provides accurate information about anything. Only by looking at a variety of data points can one get a sense of what is happening in China.

Previously we have discussed how dictatorships typically fail because no one is prepared to question a bad decision of the dictator. At the same time, when their economy suffers dictators historically become aggressive and often start wars. China’s behavior this year suggests it is experiencing severe economic distress.

The following are among the significant data points which are business decisions perhaps combined with China’s military that may reflect the economic pain they are experiencing:

  1. Wuhan Virus – Created and released from their only Class Four bio-weapon facility which is located in the city of Wuhan, China’s behavior distributing the virus globally and hiding the facts while they tried to corner the global supply of PPE AND buy the bio-tech firms that had anti-viral drugs is a critically important data point.
  2. Hong Kong – While under British rule, Hong Kong became the banking center in Asia. That has largely remained the case since the British left in 1997. But the recent actions of China towards Hong Kong risk the destruction of this golden egg laying goose.
  3. The “Mystery Seed” packages from China. The USDA has issued warnings NOT to open or plant them but to get them to the USDA. Given the Wuhan Virus is 1/100 of the width of a human hair, there is no telling what coating invisible to the human eye is on the seeds or even in the sealed package. China is famous for warfare by unusual means.
  4. A New Evil Axis. President Xi and the leaders of Iran have just signed an agreement where China will open two oil fields in Iran. Did you see that Russia and China have stated their opposition to the renewal of the UN imposed ban on the sale of weapons to Iran when it expires in September? Oil for modern weapons? Kerry and Obama happy?
  5. Additional Data Points – China has sent a fleet of 240 fishing vessels into the waters of Ecuador; shipped millions of counterfeit $1 intercepted by the U. S. Customs earlier this spring along with explosive devices that were enhanced “fireworks” intended for rioters; sabre rattling in the strait between Taiwan and mainland China; all indicate behavior similar to a petulant child or a country in pain.

Meantime, here in the USA we continue existing in a combination “Alice in Wonderland” and “1984” world. Several important data points describe our economy:

  1. The unemployment payment of $600 per week in addition to the respective state unemployment benefits has now expired and as of this writing has not been replaced.
  2. October 1 is the expiration date for other financial support from the CARES ACT that targeted specific industries such as the airlines. Those industries are giving notices to their employees of expected furloughs, layoffs, etc.
  3. Our government seems determined to spend more money it does not have even though only half of the CARES ACT money has been distributed. One would think $1.5 Trillion in fiscal economic stimulus already in the pipeline is enough.
  4. The Most Important USA Data Point this week – The Fed announced this week that going forward they will not be focused on the rate of inflation.

Short term. it takes one year for the full effect of either a positive or negative impact to be fully measurable in the economy. The simple facts are that:

  1. There is nothing Congress can do at this point that will have a quick, short-term impact before the election in November.
  2. The economic data will not fully reflect the impact of the Wuhan Virus until March or April, 2021.
  3. After April 2021 is when we will see the real economic recovery begin as a result of the awesome fiscal and monetary stimuli already forced into the American economy.
  4. With interest rates at historic lows, the new home market is soaring. Since the new home market is an important leading indicator of the USA economy, this is very significant prediction and a major positive force in our economy.

Unknown at this point is the full impact of the Wuhan Virus economic shutdown on the commercial real estate market. In addition to the Commercial Mortgage Backed Securities (CMBS) pressure points being repeated from The Great Recession, this time the retail industry is experiencing an enormous shift in consumer behavior. Some portion of that shift is permanent.

The stock market appears over valued as it trades on hopes and aspirations in reaction to the massive fiscal and monetary stimuli. Similarly, the bond markets reflect the impact of The Fed buying assets in Quantitative Easing (QE). No accurate market guidance from those sources. Capitalism is adrift on a sea of government money.

Is this an instance in history where “No Deal is better than a Bad Deal”. My vote, YES. There will be pain in the short term, but capitalism will pull us back onto a path of rapid economic growth beginning in the second quarter of 2021. You can almost hear the roar of the approaching economy. It is a shame we have more politicians than business heads in Congress.

What happens AFTER 2021 depends on the election this November. Pure economics not politics, the difference is stark. Biden’s announced plans will put us into a severe economic decline while Trump will rebuild the economy like he did the first three years of his administration.

Either way, there will be inflation. The alternatives are Biden’s stagflation (inflation with no growth) or Trump’s inflation with rapid growth. I know which I prefer.

Here is this week’s good news:

  1.  There are some land market segments that will thrive but not all. You can preserve or enhance your capital with those assets.
  2. Due to the superb leadership of the Trump administration, America will set a record (one year not four years) providing to the world this fall and winter Wuhan Virus therapeutics and vaccines. Thank you Lord, Hallelujah, Amen.
  3. Most important, God is in control.

Get your portfolio prepared for what is coming by balancing cash and some superb land.

“I have said this to you, so that in me you may have peace. In the world, you face persecution. But take courage; I have conquered the world.”

(John 16:33 New Revised Standard Version, Oxford University Press)

Capitalism builds wealth, socialism consumes it in self destruction. I serve an awesome God. Stay healthy,

Ned