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Week Ahead

China Protest context, changes, and market risks: Week Ahead Special Episode

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The last couple of weeks has seen rising levels of unrest in China. This seemingly started in a Zhengzhou iPhone factory after the deaths of seven workers and has rapidly spread after Covid lockdowns contributed to the deaths of a family of 12 in Urumqi. Some are even saying the World Cup contributed to domestic unrest. But there’s no getting around the fact that people are just tired of lockdowns.

There’s an old Chinese saying – often attributed to Mao Zedong: “A single spark can start a prairie fire.”

What started this prairie fire and what does it mean for China and the world? We discuss that in this special episode with Dexter Roberts, Isaac Stone Fish, and Albert Marko.

Dexter talks about his retweet of a note from Lingling Wei.

Isaac talks more about this unrest potentially leading to the downfall of Xi Jinping. That seems optimistic, especially for the West. What are some of the probable outcomes?

And on the ongoing risks and market impact, Albert shares his knowledge on the issue. We’ve talked a lot about Chinese markets and the CNY. How will the markets react in the coming weeks? And how Western companies will respond to these protests and the aftermath?

Key themes:
1. Protest Context – Spark and prairie fire
2. Will anything change? “
3. Risks and market impact

This is the 43rd episode of The Week Ahead, where experts talk about the week that just happened and what will most likely happen in the coming week.

Follow The Week Ahead panel on Twitter:



Hi everyone, and welcome to the Week Ahead. This Special Week Ahead, talking about China protests.

I’m Tony Nash, and today we’re joined by Dexter Roberts. Dexter is an author. He’s member of the Atlantic Council, the Mansfield Center. He’s a former Bloomberg Business Week China bureau chief, among many, many other things. Dexter, this is your first time. We really appreciate that you joined us. Isaac Stone Fish is also joining us again. Isaac is a CEO of strategy risks. He’s also Atlanta council member. He’s a China-based journalist for Newsweek and has was there for a lot of years. And we’re also joined by Albert Marco, who is a geopolitical maven and knower of all things. So guys, thanks for joining us today.

The key themes today is really what’s the context of the protest? There’s the old saying of a “spark and a prairie fire,” which we’ll go into. Really want to understand that context. Want to understand will anything change? And also what will be the impact on markets? That’s kind of hard to tell, but we’ll walk through that the last couple of weeks.

Obviously, we’ve seen rising levels of unrest in China, particularly over the weekend we started seeing quite a lot more. This seemingly started in a Zhengzhou iPhone factory after the deaths of seven workers. There’s a long story. There are a lot of videos on the internet about that, and you can do a little background on that if you want. And it spread rapidly about a week ago after there were deaths of a family of twelve in Ürümqi in an apartment fire. Again, there’s a lot of background on the internet that I’m sure you guys have seen. Some people are even saying that the World Cup contributed to the domestic unrest as Chinese families saw other people in other parts of the world out celebrating.

But there’s no getting around the fact that people are just tired of Covid lockdowns. There’s an old Chinese saying, it’s often attributed to Mao because it was a title of one of his essays called a Single Spark Can Start a Prairie Fire. And we’re trying to figure out what started the prairie fire and what does it mean to China and the world. I want to look at that with some experts, which is why we have this amazing panel today.

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So please check it out. Please click on the site. If you need a demo, let us know. Thanks very much.

So, Dexter, welcome. I really appreciate that you joined us. Thank you. You’ve retweeted quite a bit this week about the protests, and you retweeted this one from Ling Ling Wei, talking about kind of some of the origins of the protests.

Can you talk to us a little bit about kind of what are the sparks? Are there things that we’re not seeing on this side of the world that have led to this in China?


Yeah. Well, thanks so much for having me and really appreciate it. Great to be in such a great company here.

So, obviously, we all know that there’s tremendous frustration about Covid Zero, the intermittent lockdowns, the unpredictability of life for so many people in China today. And that’s very real, and it’s a huge part of the spark, if you will, that caused the protests. I do think that less remarked upon is the very, very deep economic malaise, which is also a really important cause of this.

In particular, we’re seeing for young people a far less rosy future, if you will, and they are starting to realize that. So we’ve got the obvious economic indicators that are very bad, like the 18% plus youth unemployment rate. And then you look further than that, and I think there’s this sense, particularly amongst young people, probably amongst everyone but the young people that have taken to the streets protesting that the future is simply just not going to be what they had expected it to be.

I’d actually go one step further and say that for them, they feel like the social contract that they grew up under that really has been in place since Dung Xiaoping launched reform and opening in the late 70s.

This idea that your life will always get better, your children’s life will be better than yours, you’ll make money, you can pull yourself up by the bootstraps and do better in China if you work hard. I don’t think people feel that’s necessarily the equation anymore.

Some of the things if you just look at what’s happened in the property sector, that people have become very used to rising values in the property sector, going up and up and up, making a good career, including in the private sector, in the big tech companies, all these things are really in question in Xi’s China.

Xi has shown an attitude that is very, very different from his predecessors about the private economy. And I think this is sort of starting to become something that young people are very aware about. Then you have, of course, you have the isolation of the country, which I think is deeply distressing to a lot of young people as well. It’s a much, much different social contract that they’re being told that they need to be part of if they want to be important in the future of China.


It’s interesting you mentioned the social contract under Dong. I think it was in 1980. He talked about unifying China because there were all the fractions after the Cultural Revolution. Do you feel like Xi Jinping has continued to unify China? Has he done things to really break that up?


I think his idea of how to unify China, he has a very ambitious idea of how to do that. It has a lot to do with nationalism. It has to do with taking pride in the ancient traditions of China. It has to do with taking pride in the earlier communist, the Mao era as well. Look where Xi Jinping took his new standing committee of the Polit Bureau right after the 20th party Congress. He took them out to Yenan, which is all about emphasizing frugality and sacrifice, self-reliance, as Xi Jinping likes to say, the old Mao expression.

So I think he believes that those can be unifying in some way. I don’t think the young people of China feel that that’s very unifying at all. It’s much more collectivist. Anti-individualistic has an almost negative attitude towards making money towards the private sector. And these are all, I think, a bit of a shock for young people in China today.


Tony, it’s interesting because trying to unify a billion people is not going to be an easy task under any system, whether it’s socialist, communist, capitalist, whatever you want to throw out there. But Xi moving into a more nationalistic arena, specifically with the private sector, has just taken the Western companies out of the equation. They’re all leaving out of China. And what Dexter is saying, what future did they possibly see with everyone leaving, especially the tech sector and the manufacturing sector? They’re just leaving. This is something Isaac can talk about, because I believe this is…


Yeah, Isaac, what are you saying about that? Are you seeing young Chinese kind of giving up on their careers? Are they frustrated by that?


There’s such a wide range of views. And I think one of the things these protests are showing is that you can’t, nor should you try to unify any large population, because then you just squelch out the diversity of opinions. I think the protests are a real sign that a lot of people have been a lot more frustrated with communism in the Communist Party and China’s economic situation and COVID than we had thought. There’s no good polling on any of these issues. There never will be until the party relinquishes. The question of foreign businesses. It’s definitely a trend moving in the direction of reducing exposure to China. However, your average Fortune 500 company is still incredibly exposed to China and to the Chinese market.


And dependent, right?


Yes. Especially dependent both on a revenue perspective, but also a supply chain perspective or regulatory perspective for some of the investors.

And one of the things companies are very slowly waking up to is that, on the one hand, China is not Russia. There’s so many differences between the two countries. On the other hand, there’s a lot of things that have happened in Russia that could be templates for how the future unfolds with China. Most noticeably, the situation in Taiwan.

So, three years ago, US traded 25 times more with China than we did with Russia. The numbers are starker today, but if China invades Taiwan and the US gets involved militarily, companies better have a plan for what they’re going to do with the immediate cessation of their business or the nationalization of their assets, and frankly, how they’re going to protect their Chinese and American staff.


Yeah, I’m curious about with protests like this, could it become nationalistic like it was against Japanese companies in 2012? Could we see the central government try to pivot to that type of venting?


It’s tough to say because the party wants things to be at lower levels where you can be very nationalist because you’re cleaning up the party. And probably the most worrying thing are the calls for the downfall of the party and the calls, the rare for the downfall of Xi. And the strategy seems to be, hey, the center, Beijing is taking care of you. It’s just some local officials or some local jurisdictions are having the problem. So you can be pro-China, but anticorruption or anti what’s happening in HubeiNanchang or nonchang or wherever they decide.


Right. So let’s go to the next section, which is really looking at what are likely impacts. You talked about people calling for the downfall of Xi Jinping. I think Westerners are making a lot more of that than is on the ground. Is that what you’re seeing as well?


I think and I’m really curious to your thoughts on this too. It’s so hard to know fully what’s happening on the ground. There’s so many fewer journalists. Even with the videos that we’re seeing on the Internet, it’s hard to know always how accurate those are and what we’re missing. And it does feel like a small, small number of people calling for the downfall of Xi Jinping is incredibly significant. And at the same time, it doesn’t mean that there’s going to be any sort of downfall of said man.


Yeah, no, I think you’re absolutely right. It is very significant that right there in the heart of Beijing, right next to where I used to live, actually in the Taiyuan diplomatic compound, you had those protests. I guess the calls for Xi to step down were down in Shanghai. But having those kinds of very angry people and in some cases saying something from the Chinese Communist Party perspective as extreme as the leader should step down. I think is very notable.

Yeah, I don’t think that’s a widespread sentiment. I think it more has to do with a sense amongst young people that the party and Beijing is less fallible. It’s not infallible that they’re not quite as competent as people thought. And I think Covid Zero has really demonstrated that to people that the economy is a mess. The IMF is now saying, I guess, 3.2% growth for the year. It’s just almost as bad as we saw in 2020.

The script, they’ve gone badly off script. There was this great stirring narrative of how China survived the initial COVID outbreak, struggled when the rest of the world was still doing okay, and then emerged victorious and kept society, the economy recovered.

Only major economy to see, significant growth, I think a year later. Well, everything’s gone wrong now. So I think this sense amongst and again, it’s so hard, as Isaac says, to know actually what people are thinking. But from what I hear and from some conversations I’ve had, it seems as if there’s this feeling that the Party has really badly screwed up and they need to take some responsibility for it.

I think also it’s notable that they’re saying Beijing because as we were saying earlier, for years the party has got by on the argument that we’re good here in Beijing. There’s all these evil local officials, they’re abusing workers, they’re creating polluting factories. All we got to do is appeal to the right people in Beijing and they’ll solve our problems because ultimately the party has our interests in hand.

Now, if we are starting to see, and I think we are, this feeling that the Party, even at the center, has screwed up badly. And of course, the gentleman who’s in charge of everything but the chairman of everything, Xi Jinping, then that is very notable.


Yeah. So first of all, I don’t believe it’s possible for one guy to control all that stuff. So in the west, people way oversimplify and act like China is a monolithic government and there’s one guy at the center, it’s just not possible for one guy to control all that stuff. Do you guys think he really is the only guy making decisions, the only guy making policy?


No. I have a contrarian point, though. For my take of this, the question has to be why is China even allowing these videos to leak? Why are they even allowing these protests to get this big? In my opinion is they want to show the world that they are done with this COVID they need a reason to be done with COVID Zero. It’s been hampering their economy and they need to move on. They’re done working with the United States on combating inflation and this is their signal to the rest of the world saying, look, we can’t do this anymore.


So when you say “they,” who is they?


When you say they and his cohorts on the CCP, they’re done with this, they’re done with helping the Fed and Yellen combat inflation globally.


I have to just push back a little bit. I think they are aware, and I think it’s the reality that if they do, they’re in a really difficult spot, because if they were to actually pull away and all controls, they’re just not prepared, I think, for the outbreak of the pandemic that China would see. They have very little herd immunity. They’re victims of their own success to a degree there. As we all know, and we’ve heard a lot about the there’s low levels of vaccination for the elderly. They have a very fragmented healthcare system. I think ending COVID Zero with one stroke is a recipe for huge problems in China and I think that the leadership knows that, or at least they fear that. I think they’re in a very difficult spot. They do want to move beyond it. I agree. It’s not easy.


Yeah, I don’t think they’re going to move as the one full stroke and just open up everything. I do think it’s going to be a staged open, but from what I heard, my contacts there said March was the date that they’re going to end COVID Zero, whether it be stages or one full stroke as a debatable thing. But at this point, I don’t think they can last that long. I think now it’s looking more like end of January, early February.


I’m going to say really quickly, I mean, the other huge issue is Xi Jinping has associated himself so much with what he sees as a successful, I mean, what had been until not too long ago, it seemed like a successful COVID Zero policy. It turned out it wasn’t successful at all. We know in hindsight, but they have really defined themselves in opposition or in contrast to the rest of the world. So if you watch the Chinese media, the staterun media, every time we’ve reached a new level of mortality, more than a million people have died. These things are top of the news in China and I think the party has tried to tell the Chinese people, you’re safe here, in contrast to the chaotic rest of the world and particularly chaotic America. This is their argument. And if they lift Covid Zero now and they do have the pandemic rips through the population and they do have high mortality, there goes out the window Xi Jinping’s narrative of the grand success of the CCP with COVID Zero.


The Spring festival in January, February, where hundreds of millions of people normally travel, would be a super spreader event, like nothing we’ve ever seen before. So one imagines if they do loosen, it’ll be after that. And the record, I do want them to loosen up, and the draconian and arbitrary lockdowns have such a massive toll, but I think Spring Festival will be a big piece of their consideration.


Okay, that’s a great point. I think you and Albert kind of agree on that generally, in terms of the time frame. So let me ask you, what else will change? Will we see, say, some local leaders go down saying they overly aggressively enforced it or something like that? There is typically some sort of accountability, whether it’s well placed or misplaced in China. So will we see somebody or a group of people or many, many people go down? And I’ll tell you why I asked that.

I referred to this on social media. This reminds me of the April 5 incident in 1976, when Zhou Enlai died and Mao didn’t attend a funeral and didn’t want people to recognize that  Zhou Enlai died. So people started protesting and expressing their, you know, their sadness that Zhou Enlai died. Thousands of people went to jail. Right. And somebody had to pay. It was an outburst like we’re seeing now across China, and it really took two or three years for those people to be let out of jail. Right. So it seems to me a discreet event like that, and it seems to me that the response back then was thousands of people going to jail, and then a few years later, under new leadership, saying, “oops, that was a mistake, let everyone out.” Will it be something like that?


I don’t think so. I’d say the base case is quiet arrests and harassment where people disappear or people aren’t seen for a brief period of time, and there’s not enough that people can hang their hat on. I think one of the easiest ways to make this into a movement is to create martyrs. So if a local policeman screws up and shoots into a crowd of protesters, this could really, really spiral. It’s so hard to know. I mean, it’s impossible to predict whether or not that’s going to happen. That could be a history changing moment. I think right now we are before the tipping point, and I think the most likely outcome is these protests subside. We see some more of them this weekend, but they’re not as well attended. And this is basically the high point of that. And there’s probably a couple hundred arrests, but we don’t really know. There’s no good statistics on it. And COVID slowly opens up, and several provincial level officials lose their job in ways that people loosely tied to this event.


Yeah, I think that’s fair. Dexter, does that make sense to you generally?


Yeah, it does. It reminds me of I covered the labor movement before Xi Jinping ultimately destroyed it around 2013, and going back to even the first big labor protest in the northeast of China in places like Dai Qing and Lio Yang. And back then, what they would always do is they would arrest or maybe they would create the ringleaders of the protests. So they put a couple of highprofile people in jail as a warning to the others and then they would do a lot to try to meet the frustrations of the protesters. So then it was about local corrupt officials or corrupt factory managers stealing the pensions or whatever it might have been, and they would announce that. I see sort of yeah, something like, as Isaac was saying, well, they’ll do more. They will loosen on COVID Zero when they can. You already had a statement. I’m trying to remember if it was the Health Ministry or something that seemed to be sort of it didn’t go very far, but it seemed to be sort of saying, we understand the frustrations of the people just in the last day or so. I think they’ll do that.


The arrests, of course, they’ve already started talking about the hostile foreign forces that are involved, which is not a surprise. They’ll probably heat that up a bit and blame. They’ll try to make the argument that the young people have been misled by bad people overseas, which they always do. And they did that in Hong Kong and they’ve done that in Xinjiang and so on. But, yeah, I think I do agree with Isaac. I think that’s probably most likely. They definitely don’t want to make martyrs.


Great. Okay, then let’s move on to kind of the markets impact. So it sounds to me like the general consensus is not a lot. This is not a revolutionary event. We’re not going to see the deposing of Chinese leadership, despite the kind of Western sharing, all that sort of thing. So in terms of the risks and the market impact, Albert, can you just start us on that? Do you see markets impact? Do you see Chinese markets rallying or falling? Do you see CNY devaluing or appreciating? What do you generally expect?


Well, as I said before, I think this is a signal to say that China is definitely going to be moving beyond COVID Zero. Data is debatable, but they have just an enormous amount of stimulus to unleash. They just did a little bit overnight talking about helping out the property sector and KWEB and Baba and everything is up 7%. It’s uncanny. So, yeah, this is definitely a signal to the US or Europe and say, hey, we’re almost about to open for business. Get your stuff in gear, because when it does, it’ll be a tsunami of money coming in and the markets will rally on it, for sure it will.


So this is generally could be good for Western markets and Asian markets because China’s lockdown is really I mean, I don’t I don’t mean to be overly simplistic, but I’m going to do it. Ending China’s lockdown is really the most important issue in Asia right now, I think. And it’s the most important issue in markets right now.


But it’s not good for the west. It’s not good for the United States specifically because it’s going to take inflation back up to where was six months to eight months ago. When China starts moving, commodities start rallying.


Which is at 78 right now, or something up to?


110 or 120 easy. That point. On top of that, money from the United States will end up flowing out back into China, in Asia, Singapore, Japan, South Korea. Name your manufacturing sector, but that’s the reality of it. The Fed right now has 60 days to get things sorted out with two Fed meetings coming up.


Okay, Isaac, what do you see on the risk side as this plays out? Is it just going back to business as usual, no problem, everything’s great, or do you see are there some risks that we’re not kind of aware of?


Geopolitical tensions are so much higher than they were preCovid lockdowns in China, and the looming specter of a Chinese invasion of Taiwan still not the base case, but still very likely increased tensions with Japan or India or in the South Sea or the East Sea. These protests, I think really the right assumption is that they don’t lead to further instability, but they certainly could, or certain other areas of disturbance or frustration with the leadership could really bubble up, and that could have very severe economic consequences.

I think there’s also the really important point of the strong leftward turn that China’s economy is taking. It’s becoming a lot more statist and with more investments, more JVs, a flowing of capital into China. This is going to be done under different rules than it was under Hu Jintao or under early Xi Jinping. It’s going to be with a much heavier state footprint, and that’s going to make things a lot more complicated. It’s going to be a different set of rules, even for companies that have been doing this for a very long time.


So what you’re saying is we are who they thought we were a few weeks ago in the part of Congress, right? There was this ominous feeling coming out of that. And then there was this event, I think, last week in ASEAN where it felt like there was some shine put back on Xi Jinping. And now it feels like that it’s coming back to be kind of who we thought they were.


And the narratives keep shifting so rapidly, and they’re going to continue to shift and evolve. I think people need to understand. There’s an old saying, if you’re going to have to remind me how this went, but it’s something that in China, the only thing you know about the impossible is that it happens all the time, and it’s very difficult to know what we’re going to see. But we do have I think Taiwan is the best example of that. We do have a very clear possibility that China invades Taiwan, and that may start World War Three. And we can predict that now, so people can plan not, hey, this is definitely going to happen, but, hey, this is a very real risk, so how do I plan accordingly?


Okay, so protest not a big deal, but World War Three possible? That’s kind of what


That’s the summary. Yeah, put that on my tombstones.


Very good. Any other thoughts?


Yeah, well, Isaac just brought up a big one, which is this increasing status nature of the economy. I think as multinationals going forward, they’re going to do business in a very different environment. We heard that, of course, with Xi Jinping’s 20th Party Congress speech, which, as we all know, mentioned security, whatever it was, 91 times, and market a small fraction of that. There’s a new emphasis. Xi Jinping has made it very clear that he’s willing to make economic sacrifices, productivity growth sacrifices, in order to make sure that the party is secure and China is secure and is on a path that he thinks is correct. He’s got that whole line about that. He’s been saying for years about how we can’t use the second 30 years of China’s history to negate the first 30 years. Meaning we moved too far in saying that reform and opening was the end all to be all and negating the earlier the historical neolism that Y’all talks about, which is negating the Mao era. He thinks there’s important lessons for the Mao era. He’s not a Maoist at all, and he certainly doesn’t believe in bottom up revolution. He’s a very top down sort of guy.

But I do think he has a very different vision for the economy. I do think he’s willing. We saw with the private education sector, he seemingly didn’t lose much sleep over completely wiping out a major industry, forcing markets around the world to shed tens of billions of dollars and sending huge numbers of young Chinese into unemployment with this crackdown on private education and tech. And I think ultimately that’s cheap. I don’t believe I think he’s a very different breed. When I showed up in China, it was Zhang Zumin and obviously Jung Zumin and Zhu Rong Xi.

Very different than Hujing Tao and Win jabao. And then today, and I myself was astonished by who Xi Jinping is. I think he’s deeply ambitious and has very different ideas about where China will go, how it will get there, and those have very big economic implications.


Wow. I’d love to have a two hour conversation with you guys. Let’s just keep it quick. Thank you so much for this time. I think we can maybe do, if things take a different turn, let’s do another conversation in a couple of weeks or something. But I really appreciate your time and thanks, guys. Really. Thank you very much.

Week Ahead

The Week Ahead – 08 Aug 2022: Low energy prices, China tech & stimulus, equity upside?

Learn more about CI Futures here:

Energy has taken a huge downside hit this week, in the wake of the OPEC+ announcement, US refining capacity utilization declining, etc. What’s happening? Why are we seeing differences between physical and paper crude markets?

Also, there was talk months ago about a new energy supercycle. Is that real? With China-Taiwan-US tensions tighter than they’ve been for years, we’re seeing Chinese tech stocks just muddle through. We haven’t seen a major hit – as if China tech will see major fallout from these tensions – but we also haven’t seen a major bump – as if China is expected to stimulate out of this to win domestic hearts and minds.

Also, could possible government intervention to solve China’s mortgage credit crunch be holding back the broad stimulus we’ve all expected for a couple of quarters?

Key themes:

1. Low energy (prices)

2. China tech & stimulus

3. Equity upside?

4. What’s ahead for next week?

This is the 29th episode of The Week Ahead, where experts talk about the week that just happened and what will most likely happen in the coming week.

Follow The Week Ahead panel on Twitter:




Time Stamps

0:00 Start

0:30 Key themes for this Week Ahead episode

1:51 Moves we’re seeing in energy markets – why there’s a fall?

3:39 How much of the energy moves is seasonal?

6:58 EIA computer “glitch” problem

7:24 What happened in the refining capacity now at 91%?

8:30 Capacity utilization fall – is this a statement about the denominator or falling demand?

10:14 Is the commodities supercycle happening?

12:13 China and technology – KWEB is not falling or rising

14:00 Will the Chinese government help real estate developers? Will that take away from possible tech stimulus?

16:58 Viewer question: Is there still upside benefit to SPY?

22:18 How will be the start of the Fed pivot — 25 or 50 bps rise?

24:45 What’s for the week ahead? Listen to the podcast version on

Spotify here:


TN: Hi everyone. Welcome to The Week Ahead. I’m Tony Nash, and today we have Tracy Shuchart and Albert Marko joining us.

We’re going to walk through a number of topics today. First is energy prices, low energy prices. We want to understand why that’s happening and what’s around the corner. Next, we’re looking at China tech and potentially the stimulus in China and how that will impact tech.

Finally, we want to look at equities. What remaining upside is there in equities right now, given the environment we’re in? Before we get started, I would like to ask you to like and subscribe to the channel. Also give us your comments. We’re very active and respond to comments, so please let us know what you’re thinking. If there’s something else we should be covering, let us know.

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Okay, so guys, we’ve had a really weird week with the Pelosi visit to Taiwan, geopolitics and the risk associated with geopolitics is kind of back on. We’re not really sure exactly how that’s going to resolve, but I’m really interested in the moves we’re seeing in energy, Tracy, and we’ve seen energy really fall throughout the week and I’m curious why we’re seeing that, particularly with crude, as we’ve seen geopolitics dial up. I know there’s not a perfect correlation there, but we typically see crude prices rise a bit with geopolitics. 

TS: I think, it’s a combination of a lot of things. First of all, we’ve had which is ramped up to 200 million barrels being released to the SPR, which is fine initially, but we’re looking at the cummulative effect of this. In fact, we’re releasing so much so fast that now those barrels are actually finding their way overseas because we have nothing else to do with them. We can’t process that much right now.

And so we’re looking at that which is putting a damper kind of on the front end. We’re also looking at the fact that open interest is almost at the lowest in a decade, which means there’s nobody participating in this market. People are just not participating in this market.

In addition, we have physical traders that are completely nonexistent in this market anymore. They’re all trading via clear port on the OTC market as I’ve talked to actual physical traders, they don’t even want to be involved in this volatility.

And so that’s also taken a lot of open interest out of this contract. So this contract is easily pushed around because there’s just not of liquidity.

TN: How much of that is seasonal? How much of that is because it’s early August, late July, early August?

TS: It is seasonal. I will give you that because this summer is the summer lag. We generally see more participants in getting in September, and we’ll have to see how that kind of plays out.

But in general, the market is, this whole dive started in, was this market was factoring, we’re going to have this huge recession. Right? It’s going to be low berry session. Demand is going to go up.

And then we have this EIA discrepancy. The discrepancy was on gasoline demand. Actual gasoline demand versus what the DOE is reporting. Right? And ever since they had that “glitch,” where we had two weeks of no reporting whatsoever, those numbers suddenly changed.

And now they’re putting gasoline demand at below 2020 numbers at the height of COVID, which is to me,

not to sound conspiratorial, but to me, there’s just no way that we are below 2020 numbers. Right. And if you look at Gas Buddy demand, which is they look at a kind of a different look. What they look at is how

many gallons are being sold per station across the nation. And that’s how they kind of factor in what demand is. DOE is at the midpoint, right? So it’s like the midstream level. But those numbers should

eventually correlate. That discrepancy should eventually get together.

TN: So Gas Buddy is showing demand still growing, and DOE has it kind of caving. Is that correct? You know what I’m saying?

TS: Okay, yes. First of all, I think we need to look at the 914 numbers, the monthly numbers, which are definitely lagging. They’re too much behind, but they have been correct on production. Right? So I think they have weekly production at 12.1 million. Last 914 monthly report was at 11.6 million. So it is lagging information. But we have to start really looking at these weekly numbers and what the DOE is reporting and what they’re not reporting.

TN: If anything, what I’m seeing just observationally traffic seems to continue to grow. Like, I’m seeing more people going back into the office. I’m seeing more people take drives where they wouldn’t have taken long drives before. So what we’re seeing out of DOE doesn’t really match with what I’m seeing observationally. I could have selection bias, but it just doesn’t seem to match what we saw in April, May

of 2020. 

AM: Tracy is absolutely spot on on that. I actually had a few people note that the EIA computer “glitch” problems set all this thing off in the DOE inventory shenanigans. It’s starting to gain more traction with everybody. It just doesn’t add up. When things don’t add up, bad data comes in, and it’s politically advantageous for the moment try to get gasoline down, going into midterms. I mean, Tracy is absolutely 1000% spot on that assessment.

TN: So, Tracy, I want to ask you a couple of questions. We’ve got a chart on refinery capacity utilization, and it shows capacity utilization at about 91%. So last month we were talking about being at 94%. Now it’s at 91%. What’s happened? Has the Denominator going? 

TS: Well, that’s not actually a bad thing. Let me tell you that. Refineries operating at 94% 95% leads to a lot of problems. You’re going to see problems with maintenance, you’re stretching that capacity. Personally, I love anything over 90, 91. I’m much more comfortable with than 94 95%, which we got to, which is very stressing to me because you’re stressing those refineries, right. And that’s going to lead

to problems down the road. So for that to come down, it’s not a big deal to me, to be honest. Anything above 90, great. We’re good.

TN: Okay, so we’ve seen gasoline prices fall as we’ve seen capacity utilization fall. And so is that a statement about the, say, the denominator meaning the available capacity, or is that a statement about falling demand?

TS: I don’t think it’s a statement about necessarily anything. Okay. To be honest. Is the expectations around say that the gasoline price falling, is it expectations maybe around recession, but given the job numbers we got? Expectations about being around recession right when we’re seeing these prices fall. And I think we have a lack of participants in this market, especially lack of participants in the physical markets. The physical guys, like guys that trade for BP and Shell, which is where they’re just not in this market anymore because it’s too volatile, it’s too pulled around, and they can’t deal with that right now. So there’s nothing structurally changed about the physical markets right now.

You have to understand, too, is that the paper markets far outweigh the physical markets, meaning that there’s far more paper barrels traded than there are actual available physical barrels on the market

to be traded.

And when we look at a contract like WTI, which is actually physically deliverable, and we look at the market participants that are involved in deliverability, that is shrinking, shrinking margin, and then you look at something like the Brent contract, is completely just a financial contract.

So there’s a lot of hanky panky goingon in that market.

TN: Okay, now one last question while we’re on crude. Months and months ago, we kept hearing about this emerging commodities super cycle. And as we’ve seen commodities fall over the past few months, there have been some questions about is that really happening? So where are you? Do you think we’re in the early stages of another super cycle or do you think we’re just kind of modelling through?

TS: I actually think we’re still in the early stages of a super cycle. I mean, I think we’re kind of like I think my best comparison sake would be like, let’s look at the 1970s, right? And everybody’s looking at that ’73, ’74 when the oil embargo happened. But I actually think we’re closer to the ’67, ’69 era where we saw inflation kind of hit. Right. They tried to hide us into a recession, and then we had another peak in ’73, ’74 because issues with the market and then we have a third wave. So I actually think we’re only in this first wave of an inflationary cycle as far as commodities are concerned, okay.

Because we’re still in a structural supply deficit across not just the energy sector, but base metals, agriculture, et cetera. but you have to think your input cost for metals and for agriculture, it’s all energy.

So if energy is high to see inflation in energy costs, then you’re going to see inflation across all

of these commodities. We’re at $90. We were at negative $37 two and a half years ago. So to think that we’re crashing? You know.

TN: Okay, let’s switch over to China and technology and kind of talk through a few things with Albert. Obviously. Albert, we spoke earlier about Pelosi’s visit to Taiwan and US. China Taiwan affairs, and I’d recommend anybody view that that we published on Tuesday night US time. But I’m curious, Albert, as we look at and we’ve got KWEB up on the screen, which is an ETF of Chinese technology companies, it’s kind of middling. It’s not really falling. It’s not really rising. It seems like people are a little bit uncertain about what’s happening with Chinese tech. We have the closures of different cities. We have one of the big manufacturing cities that’s going zero COVID now.

And we obviously have the China Taiwan issues. What are your thoughts on China tech right now? And what should we expect over the next, say, two to three months?

AM: Well, over the next two to three months, I think China is going to be forced to stimulate. Once they stimulate names like KWEB, Alibaba actually, I really like Alibaba. There’s some good things happening there. I mean, the delisting stuff is a risk and it’s always been a risk, mainly because Gensler and Yellen have been trying to suppress the Chinese to stop stimulus because it hurts the United States and their plans to fight inflation.

So, yeah, I’m really bullish on KWEB. I really like it at 25 26 level. It’s not that far from where we are right

now. For the Chinese tech, it’s like, I don’t really think domestically, there’s too many problems domestically for KWEB. For me, it’s just all the delisting risk and that shot, the warning shot across the bow from the US. 

TN: Okay, so when you talk about stimulus, I want to understand a little bit of the substitutionality of stimulus. So if we have this big mortgage crisis in China where owners aren’t paying their mortgages,

and that’s even worse on the property developers, and there are trillions of dollars at risk there, do you think the Chinese government will intervene  and help those property developers? And if they do, will that take away from stimulus that could help technology companies?

AM: They will step in, but they’ll step in selectively for the most systemically important property developers. Not just the best connected, but the ones that touch the most debt and whatnot. So they don’t want things getting out of control. So for sure they will step in. I don’t think it will take away from the tech

sector at all. I think that the Chinese have been pretty pragmatic and diversifying how they get money into the system, whether it be other Asian countries, the US, Europe and whatnot. But they’re definitely in line right now to stimulate the economy going into the fall.

TN: Okay, great. If you’re trying right now and you’re talking about stimulus, that is to make up for kind of the COVID Zero close downs, but it’s also, I would assume, kind of winning some of those hearts and minds going into the big political meetings in November. Right, so you’ve whipped up nationalism with the Taiwan thing over the last couple of weeks and now you need bridge to get you to November. So you’re going to put out a bunch of stimulus to keep people fairly nationalistic and obedient. Is that fair to say?

AM: Yeah, that’s definitely fair to say. I think going even a little bit further than that is keeping the circle around Xi happy. That nexus of connected families that make money off the tech sector manufacturers. They need to be able to solidify it economically and stimulus will be targeted like that. And so when you say keep those families happy. You’re talking about skimming, you’re talking about sweet deals on contracts and that sort of thing.

TN: And I just want to make clear that doesn’t only happen in China. That happens in every country, right?

AM: Oh, every country you can imagine that happens. How politically connected with the donors, the political parties and so on and so forth. I just want to make clear to viewers. Like everybody. 

TN: Yeah, I just want to clear to viewers, we’re not just picking on China. This happens everywhere. 

AM: No, this is nothing negative towards China whatsoever. This literally happens in every country in every single country. Yeah.

TN: We had a question come in from a regular viewer talking about one of Sam’s calls. He’s not here, so he can talk behind his back today. The question was, Sam had talked about risks being to the upside a while ago for SPY, for the S&P 500. Now that we have had a mini rally, does he still see higher as the path of least resistance or is the risk reward fairly balanced here? I mean, we’ve seen a really nice uptick in the S&P and equities generally. Do you think there’s still upside benefit, or would you be a little bit hesitant in terms of the broad market?

AM: I’m bullish for a week, basically going a week, maybe two. I think that the CPI number is probably going a little bit lower than people think. And then all the peak inflation people are going to come out the woodwork and then they’re going to talk about Fed pivot, whether it’s real or not. I don’t think the Fed actually pivots. I think they just build a narrative of a pivot, if that makes sense, to rally the market.

But going forward, the economy is not a good footing. The job numbers are just not accurate. It’s a purely political headline for Biden going into the midterms. CPI is going to follow the same suit. They’ll probably have a 50 basis point rate hike in September and say that they’re slowing down. And whether it’s real or not. 

TN: I want to question you just to push back a little bit. When you say the economy is not on a good footing, what do you mean? Help me understand how it’s done on a good footing? 

AM: Well, the whole jobs? Listen, 20% of people don’t have a job. 19% of people have two jobs or more. You’re sitting there making this glorified headlines thatBiden is great for the job market and the economy, but it’s just not accurate. We have people that are struggling paycheck to paycheck more than any time in the last 20 or 30 years. So the underlying economy, forget about the top half that are millionaires that are buying whatever, the bottom half of the country is an absolute recession. So that’s what I’m saying the economy is not good.

TS: I mean, I totally agree with Albert. I mean, I’ll make a case for the bullish side. Let’s put it this way. So not a single trades work this year. Average hedge fund scrambling on how to salvage this year. There’s no other choice, really, but to get long. I mean, we have long going girlfriends been shell shocked. Font, shitty year. Value guys waiting to buy the dip in cyclicals. So I think that until when November comes and we have redemptions and these guys are faced with losing money from clients, I think that right now they have no other choice than to buy the dip, which is really interesting because that coincides with midterms. But not to put on my tinfoil hat there. So that’s my case for we may see a little bit higher than people that anticipate.

Even though I agree we’re still in a bear market. Albert makes a ton of good points, totally agree with

him 100% on that. But for the next few months, we may be looking at different kinds of things, especially because we also have the CTAs that are still super short.

So we have the possibility that we could see a short squeeze now if hedgies start

eating up the market and… This is exactly what the administration wants to see, because they want to see the S&P higher going into Midterm electric if it makes them look great. Of course.

AM: And Tracy is right. And this goes back into the oil numbers from the DOE and the EIA Shenanigans. They lower gas, they try to get inflation lower. They rally the market going into Midterms. It’s just the way it is. Now, going back to the economy, real quick, Tony, I see across the street the US consumer credit was $40 billion. I mean, people are spending and collecting debt like it’s going out of stock.

TN: That’s not a good number. You saw my tweet this last week about the $15 grapes. I mean, that sounds ridiculous, but people are having to. I talked to people about their electricity bills and they’re doubling and tripling over the last few months. And so people are having to do this. Rents are doubling in New York and so on and so forth. So it’s hitting everybody. And people are having to tap into consumer credit just to make ends meet.

AM: Just for the viewers, Tony, the forecast was 27 billion. It came in at 40.

TN: Wow. That’s a slightly overestimate, I would say. Let me ask you a quick question about the Fed pivot. Okay. You say the Fed is going to kind of act like they pivot but not actually pivot. So would that mean and I know everyone’s been on Twitter today or on social media saying, oh, the job’s number puts 75 basis points in focus again, all this stuff. But would the start of a pivot be 50 or 25 basis point rise?

AM: The start of a narrative of a pivot would be 50. But let’s just be honest. Inflation is not going away. They can fake a CPI number, maybe one, maybe two months. But come October, December, January, and inflation is raging, nine point whatever, 9.5%, 10%. They are going to have to keep going 75 basis points. 

TN: So when you talk about a pivot, you’re talking about the beginning of a pivot, maybe a 50 basis point rise in September or something just to kind of ease nerves off a little bit?

AM: Yeah, that’s exactly what it is. It’s just the beginning of a narrative to move the market. It’s all it is. 

TS: Okay, if we went 50 instead of or even 25 instead of 75, which the market is expecting, the barn market would freak out. 

TN: Now what happens to commodities in that case, Tracy, if we’re in September and we go 50? You’re

going higher.

AM: Okay, this is the problem I keep telling screaming people and why I didn’t think that’s why I didn’t think this rally was a good idea is because all of a sudden now you’re going to create this stupid pivot narrative and do 25 or 50 basis points. But then, like Tracy just mentioned, commodities are going to rip. What’s that going to happen then? We’re going to have stage two of inflation coming around in 2023. That’s going to make this like nothing.

TN: Yeah, but as long as it happens after November, I think. Everything’s fine. Right. No, seriously, we have to think we’re in that. We’re in those closures.

TS: You have to think everything is political right now. So every decision is political right now and you have to factor that into kind of your investment thesis right now.

AM: Tracy’s absolutely right. I was just talking to a client. I said I don’t want to hear anything after November of this year. This era is this era right now. After November is a different era. We’ll talk about that accordingly in the next month. But until now it’s just a pure political game.

TN: What are you guys watching in particular for the week ahead?

AM: CPI. I think the CPI comes in a little bit lower than people expect and will rally the market for another 100 points. Like a seven handle or something? I think it’ll be a seven handle.

TS: I mean, everybody is watching CPI, I agree. I’m watching CPI as well. I think what’s really interesting going into this next week is I would start looking at Basin Industrial Metals and miners at this point because I think that they are lagging crude, they have been lagging crude oil. But we’re kind of starting to see a little bit of turnaround. So my focus really is going to be on base and industrial metals.