China Takes BOOM’s Advice: Goes in New Direction — US Rates Rise — Supply Chain Disruption Slowing — Criminal Investigation into EU Politicos — Valdai Speech — Australia Excess Deaths +40%; Not 17%

Direct from BOOM Finance and Economics at the links below - Note - BOOM uses American English whereas AP uses British English.

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THIS WEEK’S EDITORIAL

CHINA TAKES BOOM’S ADVICE — CHANGES DIRECTION:  In last week’s editorial, BOOM strongly cautioned China to change its current direction as soon as possible. Let’s look at what BOOM wrote and then what happened just 5 days later —

“BOOM’s advice to China is to abandon all Zero Covid policies immediately and to again encourage wealth creation for all of its citizens. ….. It must abandon all connections to the World Economic Forum and its anti-human ambitions. The injectable “vaccines” that cannot work against respiratory viruses and are promoted by the World Economic Forum must be abandoned. Klaus Schwab and his guru, Yuval Harari, must be denounced. This is the pathway forward to a healthy and wealthy China.”

“Unless there is a change in the management of the economy, it will start to implode into a debt deflation with further, severe asset price collapses baked into the cake. The loan books of the commercial banks will then begin to crumble leading to a banking crisis. And then, nobody in China will be happy with their economic circumstances. Massive social upheaval will follow as sure as night follows day.“

BOOM also wrote “Hong Kong’s financial markets are slowly but surely being destroyed. Its position as a global financial hub is over.“

On Friday, just 5 short days later, China appears to have taken BOOM’s advice. There appears to be definite significant change in direction coming, away from the Zero Covid policy as advised.

A report from Reuters, published November 4th, led the headline “China stocks notch Trillion-dollar gain on hopes of reopening, better U.S. ties“. It indicated strongly that a significant change in Chinese policy would occur by next March. The article started with this sentence — “Chinese markets soared and the yuan rose on Friday, with about a trillion dollars added to the value of Chinese stocks in the week, as rumours and news reports fed hopes for twin relief in U.S.-China tension and China’s tough COVID rules.”

It went on to report that the Hong Kong Hang Seng stock index had suddenly surged 5.3% on Friday which caused its biggest weekly gain in 11 years. Extraordinary, yes?  It went on to state “Unsubstantiated social media posts flagging an aim to relax COVID rules in March have also driven optimism all week and seemed to get new momentum on Friday.“

And then “A former Chinese senior disease control official told a closed-door conference that substantial changes to the country’s zero-COVID policy were set to take place in the next five to six months, according to a recording of the session heard by Reuters.”

The article tried to explain that this was not yet “official” — “Changes to COVID policies have not been officially flagged.“  But then it referred to “unnamed people familiar with the matter“.

“Bloomberg News also reported on Friday, citing unnamed people familiar with the matter, that China was working towards relaxing rules that penalise airlines for carrying COVID-positive passengers.”

The article is clearly written to show that China intends to make significant changes to its Zero Covid policy settings. The exact timing is uncertain but BOOM expects changes to occur very soon indeed. Why? Because it is the right thing to do in the current circumstances. There is no point in waiting until March. Changes must begin immediately to stem the damage already done to the Chinese economy.

US INTEREST RATES RISE: The US Federal Reserve raised its key interest rate by 0.75% on Wednesday last week. This was expected but was still interpreted as an aggressive stance by the US stock market. The Dow Jones Stock Index fell by 1.56% on the day. The broader S & P 500 Index fell by 2.5% and the Nasdaq Index fell rather dramatically by 3.36%. Other major stock markets around the globe promptly fell out of bed on Thursday morning, falling mostly by about 1%. Hong Kong was hardest hit, falling 3% which did not surprise BOOM readers after having read last week’s editorial regarding recent Hang Seng performance.

However, US Bond prices were generally subdued in their response with the exception of Junk Bonds. Junk Bond ETF’s fell on average by almost 1%. However, MUNI’s actually rose in price during the day (Municipal Bond Prices). Long term Treasury bonds fell slightly in response but, overall, their price moves were not noteworthy. Gold and Silver prices reacted negatively as the US Dollar index predictably rose. Crypto prices were generally flat to negative.

All of these reactions amounted to a test of recent asset market strength. Buyers for stocks are back and have been since October 13th. But their enthusiasm for further gains is now being tested. On Friday, confident buyers returned with the Dow Jones Index rising 400 points (1.3%) while the  S & P 500 index lifted by 1.26%. The Nasdaq index rose by 1.3%.

If buyers see the Peak of CPI inflation in their rear view mirrors, they will continue to buy and overwhelm the sellers as the next few weeks and months pass. If that happens, it will indicate that asset price downtrends which began in January may have weakened and may be possibly reversing.

The upcoming US election on 8th November is the next big test. BOOM expects strong voting support for the Republicans which should encourage buyers back into the stock and bond markets. A continuation of Democratic Party control would be interpreted by the markets as a financial disaster. Watch closely on Tuesday.

Meanwhile, the Bank of England followed on and raised their rate by 0.75 % on Thursday — the largest rate rise in 33 years, since 1989. Why? Because their annual CPI inflation rate is now at the highest level in 40 years and the central bank of Norway raised their rate by 0.25%.  Earlier in the week, the Australian central bank raised its rate by 0.25%

SUPPLY CHAIN DISRUPTION SLOWING:  Of course, these increases in official central bank interest rates are a response to surges in CPI inflation. However, they may well have less effect than expected because much global CPI inflation has been triggered by high energy prices and supply chain disruption of finished goods rather than by excessive money creation. In particular, the flow of goods from China to the advanced Western economies has been disrupted by the war in Ukraine and the ill-advised Zero Covid policies of the Chinese government.

If the politicians in the advanced western world come to their senses and stop fuelling the unwinnable Ukraine war with guns and money, then we will see a sudden reversal of CPI inflation expectations. And, likewise, if the politicians in China (especially Xi Jing Ping) come to their senses and stop waging an unwinnable war against a relatively benign respiratory virus, that would also cause a reversal of CPI inflation expectations in the advanced economies of the West.

Until that rush of common sense happens, we must watch the supply chains and the CPI inflation rates closely. In the United States, the Port of Los Angeles recently reported its lowest import total for September since 2009, amid the Great Recession. And the neighbouring Port of Long Beach posted its weakest import total for September since 2016. These declines in US imports actually began way back in April/May. Since then, the long lines of ships waiting off the West Coast have declined dramatically. There are indications that consumer demand in the US is starting to fall as Americans become worried about the cost of living and their certainty of employment. Stock inventories in US companies are at very high levels. Thus, CPI prices should start to fall soon.

The world’s largest owner of container ships, Maersk, has warned of a dramatic slowdown in global trade. The CEO of the company recently said “it is clear that freight rates have peaked and started to normalize during the quarter, driven by both decreasing demand and easing of supply chain congestion.” And …….. “There are plenty of dark clouds on the horizon. This weighs on consumer purchasing power which in turn impacts global transportation and logistics demand.”

As BOOM has consistently stated, we appear close to the peak of CPI inflation in the US, if not already past it. All year, BOOM has been expecting a contraction of US GDP in the fourth quarter. If that happens as expected, then, again, CPI inflation expectations should moderate as consumer spending falls.

We can now only hope that these scenarios fulfil their promise allowing the Federal Reserve to back off and allow some breathing space over the coming winter. Paradoxically, because of the coming slowdown in US economic activity, asset prices could stabilize as BOOM expects and, slowly but surely, start to rise as buyers’ optimism overcomes sellers’ doom.

THE EUROPEAN ECONOMY CONTINUES TO WEAKEN:  Germany’s latest GDP Growth numbers do not inspire confidence. The EU is barely holding on to a positive GDP. The last release on 28th October showed Quarter on Quarter growth at 0.3%. Annual GDP growth came in at 1.2%. The annual CPI inflation rate is at 10.4% and rising. This is a picture of Stagflation and it seems that this can only get worse with winter approaching. Everyone is now expecting a contraction of the economy. The only uncertainty is the degree of severity.

France’s economic performance is much the same. The latest release on 28th October showed GDP growth Quarter on Quarter at 0.2%. Annual GDP growth has dropped from 4.8% at the start of 2022 to just 1%. The annual CPI inflation rate has accelerated to 6.2% in October of 2022, the highest since June of 1985, a long 37 years ago. France’s numbers are better than Germany but, again, winter will tell the full story.

The Euro Area reflects these results with current annual GDP growth at 2.1% with Q on Q growth slowing to 0.2%. The annual CPI inflation rate in the Euro Area continued to break record high levels and jumped to 10.7% in October of 2022 from 9.9% in September.

The Euro currency has dropped by 22.5% over the last 2 years against the US Dollar. Such a dramatic fall generates higher prices for all imported goods if those trades are settled with US Dollars.

Imported energy costs, in particular, are rising while the currency is falling, a terrible situation. If this rate of fall in the currency were to continue, the whole Euro area will soon fall into a Stagflation scenario of low or negative growth combined with persistent and possibly rising inflation. In the current Geopolitical situation, this will be incredibly difficult to emerge from.

The people of Europe appear to be looking at a bleak future unless their incompetent political leaders wake up and demand a negotiated settlement to the war in Ukraine. The people are already out on the streets protesting against support of the Ukrainian war effort. These protests will steadily become bigger and more strident over the winter as many people will be freezing to death and starving.

IMPERIAL EUROPEAN POLITICIANS IMPERVIOUS — CRIMINAL INVESTIGATION UNDERWAY:  Ursula von der Leyen appears impervious to the suffering of the people. She is busy threatening Russia and making speeches about defending democracy when she is an unelected official as President of the European Commission. The scandal surrounding her conversations and messages with Albert Bourla, CEO of Pfizer, may soon become an impossible situation for her. The EU’s Public Prosecutor’s office has announced that it is investigating the EU’s purchase of coronavirus vaccines. The prosecutor investigates criminal matters so this could become a major headache for Von Der Leyen.

In mid October, the Croatian politician Mislav Kolakušić said “the purchase of 4.5 billion doses of the Covid-19 vaccine for 450 million EU residents is the biggest corruption scandal in the history of mankind“. He went on say “the figures equate to 10 doses for every man, woman and child in Europe, including newborn babies, for an injection that no one knows the ingredients of“.  It is only a matter of time before the full details of the negotiations and contracts with Pfizer become public.

THE VALDAI SPEECH:  Vladimir Putin made an impassioned speech to the Valdai Club last week. He emphasized that the old world of unipolarity whereby one nation, calling itself “exceptional”, makes the rules for a “rules based international order” is rapidly coming to an end. He explained that multipolarity is the future for the vast majority of the planet’s population and that the United States must accept this fact of international relations.

He explained that “the substitution of international law for the so-called rules is simply unacceptable“. “I am convinced that sooner or later both the new centers of a multipolar world order and the West will have to start an equal conversation about a common future for us, and the sooner the better.”

You can find the speech plus the extensive Question and Answer session if you search YouTube for “Mazarin Pills: President Vladmir Putin Speech at Valdai International Discussion Club meeting”

EXCESS DEATHS IN AUSTRALIA — UP ALMOST 40%, NOT 17.3%: There is a video published on Bitchute explaining that the Excess Deaths from All Causes in Australia is actually 40% above the average for the period 2015 – 2019 (pre-Covid). It is definitely worth watching. The maker of the video explains that the Australian Bureau of Statistics reaches a number of 17.3% excess deaths by referring to a different time frame average that includes some of the Covid period. He argues that this is disingenuous.  Search Bitchute.com for “Huge Australian Die-Off/Genocide Intensifies”: Tim Truth

https://www.bitchute.com/video/tWfFBl8GVC29/

In economics, things work until they don’t.  Until next week.  Make your own conclusions, do your own research.  BOOM does not offer investment advice.

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BANKS DON’T TAKE DEPOSITS, THEY BORROW YOUR MONEY: LOANS CREATE DEPOSITS — that is how almost all new money is created in the economy (by commercial banks making loans). https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy Watch this short 15 minutes video and learn as Professor Richard Werner brilliantly explains how global banking systems really work.

AND Watch for 4 minutes, this Bank of England explanation: Money is essential to the workings of a modern economy, but its nature has varied substantially over time. This video describes what money is today.

Most economists are unaware of this and even ignore the banking & finance sectors in their econometric models.  EMAIL: gerry{at}boomfinanceandeconomics.com

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