The Wuhan Virus Will Impact the Land Market – Week 6

RISKS vs. Rewards

China – The Hegemon Pretender

Self-delusion is a really strong force. Several years ago a demographer interviewed members of the Boomer generation and asked them how old they “felt” compared to their chronological age.  The Boomers all deducted a decade from their true age. I can easily identify with that because if you asked me how old I feel, my reply would be that I am no more than 60…after the first Advil …following a good morning of stretching exercises and walking a mile. My body is in good shape. Well, mostly. Okay, I am a walking testimony to modern medical science, and I am 70.

Several years ago, I tried to convince the Love of my Life that my hair was turning platinum.  After repeated attempts on my part she asked me why having platinum hair was important to me. I replied that young people have platinum hair and old people have gray hair. As only a wife can, she looked me in the eyes, laughed, and said “Dear, you are going gray. Get used to it”. That sort of feedback is vital to making important decisions grounded in “the real world”. Without accurate, real world feedback, decisions are made in “a delusional world”, usually bad.

Dictators by definition lack “real world” feedback. There is no succession plan. Retirement is called a state funeral. No one around them is willing or able to tell them “Here is the real world, get used to it” because that will cause “an abrupt career termination” without a state funeral.

This lack of a real-world feedback loop in the power structure makes Dictators inherently dangerous because their decisions are made in “a delusional world”. That is why most wars are started by Dictators. No one will tell them “Just because you can, does not mean you should”.  Remember the award given to President for Life Xi last October? Betcha no one told him.

The Wuhan Virus Pandemic evolved in steps. A brief synopsis of the evolution in China is as follows:

  1. There were reported cases in November but it was in late December a young Chinese doctor reported the new disease publicly. Arrested in January, he died in February of the Wuhan Virus. At least that was the official explanation given.
  2. During the period of December to February, the Chinese were accumulating every mask, personal protection equipment (PPE) they could obtain from the world and even tried to acquire some foreign bio-tech companies with promising antiviral drugs.
  3. In late January the Chinese prevented any domestic travel into or out of Wuhan but still allowed international flights out of Wuhan. Some 500,000 Chinese flew out.
  4. In late February, China finally acknowledged the virus to the world issuing a press release that minimized what was happening and the WHO repeated it verbatim to the world.
  5. To date, the Chinese have refused to share any information on the disease and treatments.
  6. In April the Chinese began selling PPE and other equipment back to those countries that donated it to the Chinese with the prices being 10 to 20 times the Pre-Virus price.
  7. With great fanfare, the Chinese “gave” some medical tests and equipment to a few countries who since have reported all of the materials to be defective.
  8. Lacking any information from the Chinese the rest of the world has had to experience the disease in order to collect its own data and thereby learn how to best deal with it.

How does this pattern strike you? To me, this is not the behavior of a country that made a mistake. It looks VERY intentional to me. In fact, it looks like a series of decisions made by a Dictator in a delusional world, President for Life Xi.

From their writings and the recent One Belt One Road Initiative, it is well known that the Chinese Communist Party (CCP) sees themselves as the rightful Hegemon today. Will the Wuhan Virus bankrupt the countries engaged with China on the One Belt, One Road Initiative making them unable to repay the money they owe to China? Has the Wuhan Virus resulted in China being viewed as a member of the “Evil Axis” – Iran, North Korea, Venezuela, Cuba, Russia?  My guess is “yes” to both questions which is a huge “loss of face” to the Chinese.

These mixed signals mean we need to look at this situation from the Chinese perspective. From my reading and research, I believe the summary below provides critical clues to both what is happening within China and therefore the RISK to the world from the CCP.

  1. China’s Demographic Risk – Historically, no country experiences both population decline and a strong economy. Those forces are totally opposite. Some demographers are now estimating that by 2050, China’s population will have declined from 1.5 Billion today to less than 1 Billion. The decline is the result of the CCP’s central planning rule limiting one child per couple. This rule has been modified by the CCP, but middle-class Chinese do not feel they can afford a second child and the birth rate remains too low.
  2. China’s Debt Risk – With the highest Debt to GDP Ratio in the world, approaching 400%, China’s debt would be unsustainable in a capitalistic society. Since the Chinese big banks and major companies are owned/controlled by the CCP, there is some “flexibility” from a bank regulation perspective. At some point that flexibility will not save the CCP in the global currency market. In economics, unsustainable forces continue until they do not, and they tend to stop “continuing” quite abruptly.
  3. China’s Currency Risk – One of the key benefits to China of becoming the Hegemon is that their currency (Yuan/Renminbi) would be The Reserve Currency of the world economy like the U. S. Dollar is today. There are many benefits along with the responsibilities of being The Reserve Currency. Like any economic charlatan, China needs to achieve the Hegemon and Reserve Currency status before the global currency markets realize that the Yuan/Renminbi is worthless. It is sort of like AOL needed Time Warner and it was not until after the merger that Time Warner realized that AOL was largely smoke and mirrors. The CCP telegraphs their desperation by restricting capital outflows from China in order to maintain their foreign currency reserves. Without capital controls, those foreign reserves would disappear as wealthy Chinese moved their wealth out of China. That exodus would force a massive devaluation of the Yuan/Renminbi of at least 50%, probably more. The devaluation would reduce the Chinese GDP relative to the world and USA GDP. Sooner or later, that devaluation will occur…abruptly.
  4. China’s Economic Growth – The CCP lies about everything. That norm includes their reported economic growth which is much less than officially quoted. The Wuhan Virus has now destroyed China’s global credibility. Countries will now remove their manufacturing from China thus exacerbating the current Chinese recession. Japan is the first and has just started paying Japanese companies to bring their manufacturing back to Japan. Weak USA Presidents created slow economic growth in the USA such that China appeared to be gaining on the USA. Trump reversed that trend. Recent analysis shows that China’s GDP will decline before it comes close to surpassing the USA.

These facts are ominous when combined.  Here is THE question. Is the Wuhan Virus the first act in the drama to be known as World War III with warfare by economic means or is it a less ominous, intentional but flawed miscalculation by a Dictator in a delusional state?

It is totally believable to me that Xi, lusting after China becoming the Hegemon during his reign, grabbed for the Hegemon title now because:

  1. The combination of forces outlined above show that for China it is “now or never”;
  2. The Democrats have weakened the global image of the Trump Administration by their incessant, demented attacks because of their own lust for the idol of POWER;
  3. Even if the CCP fails to become the Hegemon, if they get the father of Hunter Biden in the office of the President then the CCP expects to benefit.

Joe Biden became the sole Democratic Presidential Candidate after the Wuhan Virus was launched. But it is well known that when Obama was President, Hunter Biden was a partner with a Chinese investment company owned and controlled by the CCP. If you think that was a result of Hunter Biden being an investment genius, …then Xi is not the only one in a delusional state.  As Will Rogers said “America has the best politicians that money can buy”. The Chinese and Ukrainians have been active buyers. It is important that we learn who, what, and how much.

Two more weeks of Risks and then we will address the many Rewards of the Wuhan Virus which will impact the land market. In the meantime, consider these worlds of the Apostle Paul:

“Do not be mismatched with unbelievers.  For what partnership is there between righteousness and lawlessness? Or what fellowship is there between light and darkness?”

(1 Corinthians 6:14, New Revised Standard Version, Oxford University Press)

I serve an awesome God, not any idols.  God plus one human makes a majority.

Stay healthy,

Ned

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