I should definitely be asleep, but this whole China is going to reignite inflation disaster is stressing me out and so I have a response that I believe is very valid for you to document for your investing. Journey Uh, yes, it is December 27th. so maybe I'm also motivated to post a video just an hour and 55 minutes before midnight to remind you about that expiring coupon code tonight. because well, that's what happens.

The coupon codes expire and then the prices change like the ride along with Kevin the shadow Kevin for a day price. That's definitely going up because we you're like overbooked at this point. Anyway, okay, let's talk about China so I just read a piece in Bloomberg you know, look all right. I'm gonna reserve my opinion on Blue Book They argue that Global rate markets should be concerned about the inflationary impact of China's reopening that even though China is having a surge of coveted cases now and in the short term, we could have supply chain disruptions thanks to covet cases and Factory shutdowns and so on and so forth after.

this is all said and done, once we get through the coveted Peak give it a couple months. hey, hopefully many people don't die, at least according to state-run Media Hospitalizations are low, but then again, how much can you really believe the state-run media? I Don't know, probably not too much either way. at some point in the future, China will reopen and China is also receiving a decent amount of stimulus. not like what we saw in 0809, but the government is trying to prop up the property sector and they want consumers to spend.

They're trying to get rid of dollars and they're buying gold. They're buying a lot of gold, so they're putting a lot of central banks are buying gold. It's putting sort of a support under the price of gold right now. But uh, the big thing is China wants to make their economy better than the United States.

So if the United States goes through problems next year, China would rather be sitting there kind of running the money wheel. And if the money printers are running and the Chinese economy is booming and that leads to potentially inflationary pressures, guess whose problem that is not China's Jerome Powells And by virtue of Jerome Powell's problem, our problem because that just puts pressure on our stocks in theory, downward pressure on our thought on our stocks. So Bloomberg makes this argument that the demand for Commodities could actually Peak inflation or Spike inflation I should say and economic-wide purchasing pressure could also push up prices and we could see inflation continue for basically goods and services thanks to Chinese buying commodities for thanks to Chinese buying and then when you have increases in those prices that filters through the economy and then things get more expensive to produce in America because you have less Factory capacity in China for or foreign things because they're busy making their own things which have got more expensive. so Factory prices go up Factory prices go up Commodity prices go up.

What happens? you end up seeing prices in America go up for things. Prices America go up for things at the same time as commodity prices go up. And what do you have? Well, you have Jerome Powell Who says don't care that our economy is slowing down? Say hello to my little friend and it is known as stagflation baby. We will do whatever we must to get inflation down.

even if that means a stagnating economy. Not great, Especially if a wage price spiral forms, then you're really screwed right? because uh, wage price spiral. The only way to solve that is deep recession. Bad.

worst case scenario hasn't come out yet. but uh, it's what everyone's paying attention to. So what's a potential counter argument to this idea? that just because China is going to reopen things, uh, we're going to see high inflation. Okay, well what I did is I decided to grab some Charter Charters I like charters and uh, I what I did is I graphed GDP for China So economic output right? gross domestic product for China alongside the Consumer Price Index in China And what we're going to do is we're going to Overlay those two so we can see.

Is there any correlation between potentially GDP going up really high and inflation going up really high At least in China Right now this, this is just Chinese inflation. so maybe what we can do is overlay U.S inflation after that? Okay, so here's what I found. First things first, we have the following chart right here: Uh, this chart shows you the blue line, which is inflation in China I'm sorry, the blue line is GDP see it says right here: gross domestic product China And the red line is inflation and you can see they kind of correlate, but inflation seems to stay below a lid. see inflation seems to Peak out here in 08 at 5.9 Peaks out at 5.5 here in 11 and it actually kind of then Peaks out around two and a half percent and it sits below two and a half percent or two percent for about the rest of the decade, getting as low as under one percent in 2021.

That's insane. At the same time, their GDP was reportedly 20. So even though over here it looks like these lines are kind of a lying GDP does not seem to have a lid and it can fluctuate substantially, whereas inflation seems to sit between that zero to five percent range. And if you remove those two peaks of 2008 and 2011, you're actually really sitting below 2 2.6 percent.

Whether GDP was 13, 12, 1, 12, 20 didn't matter. Inflation, it doesn't seem to be much of a terrible issue in China. So in other words, the Chinese government is clearly motivated to print money to keep their GDP up, because that makes the Chinese Communist Party look good. And apparently we don't really have as big of inflationary pressures in China for whatever reason.

Uh and uh, You know what? Maybe, uh, maybe that's a good thing. Who knows, Maybe inflation will come to China. But at least based on this trend, it doesn't appear like inflation's coming anytime soon to China. Uh, even though they're they're stimulating their economy.

So let's now go ahead and add Uscpi. So we're going to get CPI for the United States We will add the data series. we'll make sure it's a percent change from a year ago and let's jump on over to annual just to smooth this out a little bit. And then let's just go back to I Don't know.

1964 over here When we start getting GDP data from China So 1964 just to align this, there we go. So as you can see here, GDP is the Blue Line The red line is inflation in America. Once again, you have a few Peaks on the left I'll hide myself for a second. You have a few peaks in inflation on the left in the United States and there's really no clear correlation between the United States inflation, the red line, and China.

So let's just go to like 1990. let's get rid of all that like noise on the left there. So let's go to 1990. what do we have here? GDP Skyrockets in China What happens to U.S Inflation like nothing? Okay, GDP comes down.

What happens over here? Nothing okay. GDP Skyrockets in China What happens to inflation in America Pretty much nothing. it. It almost seems like there's there's virtually no correlation between these two numbers here, right? Uh, now that's eyeballing.

I Mean we could do some regression analysis and stuff, but I I Don't know that that's necessary I Mean maybe you could say here you had a modest increase in inflation. But but look, you were. You were at 3.3 percent here. Uh, GDP went from 16.9 to 29.

So you had a, you know, almost a 50 bump more than a 50 bump. You're almost a doubling in GDP in China and inflation went up like 50 basis points in the United States Like there's no correlation here I Don't see it So fine. Then let's remove the CPI for the United States And let's now suggest that maybe oil prices will screw inflation right? So let's get China's CPI back in here. Add that data Series Right back in, there's our red line.

Again, let's smooth it out to get the annual number. and uh, since the data doesn't go back as far, let's go back to when the data starts, which is about 1994.. there we go. Data aligns.

now. what are we going to do? Well, now, let's add oil prices because Bloomberg Said oh no. Oil prices might just Spark All right. Fine, so let's take Brent in dollars so we can understand it a little bit here.

and uh, let's just take the percent change from a year ago for Brent crude prices here. Let's go to annual again just to try to smooth this out a little bit because as you can see, oil gyrates like crazy. Sure, when you have this recession over here, oil plummets. Okay, when you have a recession from Covid oil plummets I mean oil went to negative 32.

you know, just like over here went to negative 36. Okay, it happens. But aside from this bottom and this bottom here, which were clearly recessions where you would expect oil to come down and then maybe over here the.com bubble, right? Is there really a link between oil going up and then all of a sudden crashing while the other numbers are going up? Well, that's the opposite. You know Here it seems like they're going up together and you get this massive crash which seems a little disproportionate to this GDP movement here.

Okay, maybe a little bit of a GDP movement and oil price move over here? Maybe maybe some correlation over here? Uh, I can't really call that correlation and it's difficult to call anything else correlation. So personally, I find it very difficult to say oil. Uh, the percent change of oil prices have anything to do with the percent change of inflation or GDP in China I I Don't think so. But let's try this.

Let's set everything to a scale of a hundred. Okay, so this is gonna now. instead of being a percent where you know oil could change by 20 or GDP changing by 30, you have these and then maybe CPI is only five percent right? It messes up the lines a little bit. It makes the lines a little harder to compare because they they start spreading so far apart.

So let's set everything to a hundred, a basis of 100, an index scale of 100. Um, we have to get rid of GDP to do this. So we're gonna get rid of GDP. We're only going to compare here.

We go CPI on the basis that CPI is 100 over here in 1993 And all right, fine. And oil prices are 100 and 1990. Whatever. Close enough.

Okay, so now you have a smoothed out path for CPI and you could see oil. So that's that's China's inflation right? And you can see oil dancing below it on the left, above it, in the middle, up and down on the right. There's no correlation here, folks. Okay, now I'm going to tell you what that means.

But first you might think, but wait a minute. high oil prices are going to hurt us in America right? Maybe I mean what do you have here? You have a Nike Swoosh recovery of oil rig count and in the Texas manufacturing Fed survey this morning, pretty the Dallas Fed pretty much the only sector that seemed like they were continuing to see investment was right here. We are seeing bigger, more and bigger orders recently from oil companies spending money on projects they have held back on in the last year. Okay, so oil companies are still buying equipment.

Oil rate count is going up. Why then did oil prices spike in the last few days? Well, because of this crazy storm that's not only affected LNG shipments in the ocean, but also uh, oil rigs in Texas Because all of a sudden they're freezing temperatures in Texas shutting rigs down and grounding planes Just Happening Throughout the country, we just look at Southwest So you have some temporary weather effects that affect the insanity of oil prices in the short term. But I Think the trend here is that oil companies are investing more to drill more because oil prices are high. they've paid down some good amounts of debt.

Now it's time to crank before prices come way back down. So I Hate to say it. but I strongly disagree with Bloomberg I Do not believe that a China reopening situation is bad I Don't believe I think U.S Inflation plummets when housing inflation plummets and everything else comes down with it. I Think oil prices will Trend down as more Rigs and more production come online even as China reopens and I think as we've seen in the chart, there's no correlation between a strong GDP in China and high CPI in America.

There's no correlation between like those two things. There's also no correlation between oil prices going up the Wazoo or down the Wazoo and inflation in China It it just I I don't see it I mean maybe it could happen I just don't see it. So I suppose if I have some bottom lines about China please open up so we can be done with You know this: these coveted shutdowns which are causing supply chain grief and bring the Chinese buyers back to the market to start substantiating a global economic recovery and hopefully inflation in America plummets because housing inflation plummets next year in 2023. But then again, everything that I'm saying right now could be wrong.

and this isn't me trying to hedge my bets I Want to be very clear? This is what: I believe I believe what I just told you I believe here on December 27, 2022. and oil prices will Trend down over the next two years and that inflation will strongly Trend down faster than the Federal Reserve expects, especially as housing inflation corrects itself and again, more oil manufacturing is going to come online reiterating that downtrend for oil and the more China is open, the smoother Supply chains are. If we can now end the ward in Ukraine, that'd be great, but uh hey, you know what? let's let's not be so crazy Wishful of course I do wish for that because of the tremendous amount of lives that are being lost. It's disgusting and it's terrible.

It needs to end, but you know we'll save this for a Ukraine video in the meantime. To me, this is not scary and I could be wrong again. I could be wrong for a few reasons. That does not mean I'm trying to hedge myself.

It's just to be clear that if wage price inflation keeps going and we go into a wage price buyer, we're screwed. We're even more screwed than we are now. If oil prices Skyrocket to over 100 bucks a barrel, it's gonna suck if quantity. The quantitative tightening hits us harder next year and bond yields continue to rise.

Real estate's Aft real estate just gets reamed if bond yields stay high. However, the stock market could actually recover as the global economy recovers and we start seeing earnings recover. But again, they're red flags. That is, inflation doesn't come down quickly and wages housing, inflation and wages.

Those are the two red flags. the whole China thing. please. China Get through this.

Hopefully very few people die. Hopefully nobody dies, but people will die So hopefully very few people die. Yeah, we get back to uh, a normal 2020 economy which honestly should be I Expect will start turning into somewhat of a Frugal decade because I think people are going to be shell-shocked after the hell that we've just gone through and everybody's gonna be like oh my God I Can't believe we survived. but we're gonna survive.

It's just a matter of how painful it is. between now and then. it's like torture. Anyway, go to bed, see you later Bye.