Well, things are getting a little bit crazy in China and we want to talk implications of well, first, not only talking about what's happening in China, but then talk about how that could affect global markets. We'll talk a little bit about oil. We'll also talk a little bit about Peak inflation here in the United States And uh, what could keep Raleigh from happening in the stock market towards the end of the year? Let's talk about it. So first, regarding China last week, we reported that the Economist suggested we could see as many as 1.5 million deaths in China over the next few months as we get a big, coveted wave and we started getting reports that flu medications were starting to sell out and that pharmacies were essentially restricting individuals from purchasing more than one of any kind of fever medication or even something as simple as ibuprofen to prevent hoarding unless individuals appeared to have symptoms, in which case, they would sort of open up the floodgates and let them buy as much as they wanted.

Well, now, things have appeared to have worsened over the weekend. On Saturday we started hearing that mourners, well, coroners, mortars, they use the word interchangeably in China apparently in translations. but anyway, basically companies that, uh, that take care of dead people uh, and uh, cremating bodies are reporting uh, three to four times the number of usual cremations. Uh, some talk about Refrigeration trucks being ordered 24-hour a day operations now.

Uh, lines not only to drop bodies off, but pileups and hospitals. Uh, the lines at pharmacies for fever medications getting even worse. There's now even talk that police are holding back the media from crematorium lines. Beijing's not reporting really any official changes in Covet cases, They're They're reporting two deaths have happened over the weekend.

and this is mostly because the Chinese government is suggesting that they're only going to count cases and deaths from people people that have tested at their facilities. But I think they're They're shutting down most of these facilities and what seems to be happening right now is uh, this sort of, uh, well, let coveted rage kind of mentality. And so there are estimates that anywhere between 500 000 to 1.5 million Chinese could die uh in the next few months, which is, uh, pretty impactful. The Uh are not number the number of people that one person can in fact in China is is thought to be quite High When Covet first hit America we we thought maybe two to three individuals would be infected per individual who got coveted here.

In America When we first got the first wave in America uh that went up to as high as about 10 to 11 During Omicron, China is deemed to be at potentially as high as a number of 16. Uh, that brings the doubling rate for Kovid to Uh within hours rather than days. In a country that seems to have very little herd immunity, even though 50 percent of their population over 18 is vaccinated with the Chinese Covid vaccine, it's deemed that a lot of these vaccinations were conducted a long time ago and that they're just not valid anymore, and only 50 percent of those over 60 have had their third shot, which also probably was given way too long ago to prepare for uh, the wave here. On top of that, the latest variants of Covet are showing you know more stubbornness against the existing Uh coveted vaccines, which creates really a unique challenge for China.

Remember that when Hong Kong last year was hit by Omicron, they had about three to four million cases in three to four months. Official statistics reported just 5 900 deaths. though nobody really believed that this surge is expected to be substantially worse as it spreads over mainland China and in the short term, the economic issue could be quite devastating. we could see, uh, plummeting demand for oil between now and probably the end of Feb word, which has substantial disinflationary forces for the world.

Do keep in mind that when we look at inflationary statistics, a lot of folks look and say oh well, you know if we strip out energy, inflation is doing XYZ or whatever, but stripping out an energy is really quite misleading given that pretty much every single product that we use on a day-to-day basis involves energy and oil. You know it's it's not just the coffee in your coffee cup that is transported with oil, or the Plastics in your remote controls or or the computers you're using. I mean oil is is ubiquitous to our lives. Uh, I mean from from uh, solvents to to sealants? It's it's really incredible.

What? What we use oil for? So uh, seeing a potential massive decline in demand in China over the next three months could actually lower the cost of energy quite a bit. Uh, However, we think that this this, uh, shutdown of schools and potential factories and the short-term term as not because factories are being forced to shut down, but because people are just all sick and if everybody's sick, there are just fewer workers available in in China As as the world sort of goes through, uh, getting used to being exposed to covet uh, we could see a pretty depressive economy for China for the next three months, which I believe will be quite disinflationary. For the world, you'll have this sort of, uh, anchor of a shock of deflation at least in the short term. Uh, now what's interesting will be how China ends up reopening if there are no forced shutdowns in Uh China And the official policy of China is to turn a blind eye all of a sudden as they undo their their covet zero attempts.

It's entirely possible that is come after like post: Lunar New Year China Uh, February March of 2023, we could actually see this sort of massive decrease in spending reverse. and you could kind of see what you saw in the US and Europe which was a pretty inflationary disruption of Supply chains and massive spending, especially since China has already been stimulating. They've been supporting their property sector and so the question really now is hey, you know, Uh, even though China has an aging population, how how high is that potential that we could see an inflationary surge come the second quarter of 2023 and we could see something like what we saw in the US and Europe? Now at the same time, if we have an inflationary surge in Q2 2023, is it possible that the US and Europe could actually be in a deep recession than as our central banks about the ECB and the Federal Reserve have over tightened at which many now believe is a reality we'll see see. But it's these sorts of fears that could potentially lead any kind of risk on rally to sell off Uh.

towards the end of the year, it seems like we're almost in borderline capitulation preparation where individuals are taking any potential little rally and selling it as a way to to buffer their portfolios. Take for example, after Elon Musk's poll to step down from Twitter ending result being 57. Yes, 47 percent know Uh, Tesla seems to have sold down from being up about five to six percent in pre-market to only being up about two percent Now in pre-market markets about one hour away from opening 52 minutes to be exact. It's possible that uh, this, um, you know any kind of Tesla rally returns during the the day.

However, it does seem like any kind of rally that exists does get sold off, especially when the NASDAQ is basically flat at just 10 bases point up 10 basis points up. Some were calling for Peak inflation though just as many firms are calling for Peak inflation or saying don't get too excited For example, Chief Investment Officer of Global Private Equity Firm KKR says now is the time to add risk and even though they see EPS declines for 2023, see glorious rebounds in 2024 that they think will start getting priced in as soon as 2023. Which may be true because after all, the stock market is forward-looking and the stock market has been trying to price in 2023, EPS declines for a while now. Of course, then you've got folks like Bill Dudley saying don't bother.

The market still has another down light to go that leads to a lot of potential, uh, sell-offs for any kind of short-term rallies we get in. crypto. In Crypto world, Binance is apparently going to buy Voyager Digital's assets for about just over one billion dollars. 1.022 billion.

That'll be interesting. Uh, you know I think that's a sort of a way of Finance trying to suggest don't worry, we're still alive and strong and well we can buy other companies out. We've also got uh reports out that in Germany prosecutors are potentially investigating allegations of quote unauthorized dangerous goods storage at Uh Giga Berlin in Uh in in Germany Uh, potentially uh, some violations of battery material storage. Uh, so we'll see.

Okay, so uh, this creates a very interesting next few months for Uh Equity markets around the world. uh I think the uh the the big key for everyone is uh, doing your best to stay out of, uh, stay out of margin as much as possible and uh, the big key is going to be which companies are actually going to show EPS growth next year. This is the kind of positioning that I've really followed. Uh, although it's been very painful recently, it'll be interesting to see if it plays out well in in 2023.

it. One of the things to remember is that any kind of stock market positioning that never does well in every single Market but one that consistently tends to perform well at least or looking for companies with high EPS growth and High free cash flow I Believe Those personally are companies that have pricing power. Those being companies like uh, Tesla Apple Nvidia AMD Solaredge Generac These are companies that but I I believe not only have high free cash flow, but also High pricing power And so we'll see how that evolves in 2023. We'll definitely see how that evolves with the Uh, the expansion of what appears to be an unmitigated spread of covid Uh in China and how that ends up impacting manufacturing Supply chains is a potential downside risk for the global economy, though at the same time, the less spending occurs in China, the more that is potentially disinflationary for uh, the world at a time where everybody still seems to be fighting inflation pretty heavily.

So we'll see it's going to be really interesting. Uh, it's going to be really interesting to see how things uh, evolve so we'll see how the Market opens up today. Thank you so much for being here for this uh uh sort of morning update and we'll see in the next one. Thanks, Goodbye.