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QuickHit

QuickHit: Will China Invade Taiwan? (Part 2)

This is Part 2 of the QuickHit episode on “Will China invade Taiwan?” with Chris Balding and Albert Marko. In this second part, the guys discussed Hong Kong, the semiconductor industry, and possible actions by the Biden administration. Tony Nash is hosting this show where the two experts discuss likely possibilities for China, Taiwan and other countries that may be affected by the conflict between the two countries like the US, Japan, and South Korea.

 

In Part 1, we looked at the plausibility of China invading Taiwan and what that might look like. In Part 2, we look at is Hong Kong a precedent for China potentially taking over Taiwan? We also look at the global semiconductor industry and firms like TSMC. What kind of impact would Chinese action on Taiwan have toward TSMC and also how would we expect the US to react and what would the different reactions do to US credibility in East Asia?

 

You can watch the Part 1 here: https://www.completeintel.com/2021/01/27/quickhit-will-china-invade-taiwan-1/

 

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This QuickHit episode was recorded on January 26, 2021.

 

The views and opinions expressed in this Chinese invasion of Taiwan QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

 

Show Notes

 

CB: What you’re saying about body bags makes perfect sense. Is Xi that directly rational? Because it would seem like there would be a better way to handle Hong Kong than what has taken place?

 

AM: Hong Kong was a little financial center with no military, no nothing. There’s just a bunch of woke millennials running around, thinking they can hold off the PLA. That doesn’t work like that in real life. You got to come at them with guns to earn your freedom. It was a circle by China. It was inevitable.

 

TN: Since ‘97, there hasn’t been a question as to whether Hong Kong is China. Hong Kong is China. And people have shrugged their shoulders since ‘97 and said look, it’s China. It’s a matter of time. It’s a special zone.

 

CB: Maybe my meaning was lost a little bit. The cost-benefit of what Xi has done in China or in Hong Kong, he clearly probably could have reaped more benefit by saying we’re gonna let Hong Kong continue to be Hong Kong for another 10 years or something. There wasn’t really a need for him to move. It’s probably going to create bigger problems internationally. There’s probably assets that are going to move out of Hong Kong and other places, Singapore. So what if we look at a strict cost-benefit, there wasn’t really a reason for Xi to do that.

 

TN: There was. The protests that would come, first every five years, then every two years, and so on, it was becoming increasingly embarrassing to Beijing. The official channel to as an inward or outbound investment lane through Hong Kong, it’s still there. But Beijing couldn’t take the embarrassment of this and what they didn’t want is to have some rogue police brigade kill a bunch of 25-year-olds on accident. I believe they had to pull the trigger and I think this has been planned and architected over years and it seems like something sudden that people are like “wait, what’s going on?” They’re rolling military and this has been planned for years.

 

CB: What you’re getting at is this was embarrassing domestically and he basically said to hell with the consequences internationally? If we apply that same basic line of thinking to Taiwan, the question would then become, well, they’re willing to deal with the international consequences. We know that in colossal range barriers. What other domestic issues are at play here about Taiwan?

 

TN: I think it’s backwards. It was more embarrassing internationally because the CCP plays international media like a fiddle. Xi Jinping goes into Davos or speaks at a WEF event. Everyone walks away, enlightened and they play international media like a fiddle. They were less worried about what international media would think and even less worried about what domestic populations would think over time.

 

They just needed to rip the band-aid off so that kind of righteous reporters in Hong Kong wouldn’t keep raising this story because it’s inconvenient. They knew that at some point, they were going to take over, and so they just did it and that it’s inevitable that’s going to happen. They just did it.

 

And global media? They’ve fallen in line over the last nine months. Nobody talks about Hong Kong anymore and the rights and being trampled upon and all that stuff. International media have fallen in line on this. They don’t care. They want to make China happy. Why? Because the CCP and their companies are going to buy supplements in their newspapers and in their online forums and they’re going to pay for their think tank pieces and all that stuff.

 

CB: There are specific media outlets that are decidedly less critical of China than they used to be as an editorial line.

 

AM: I agree and I love that analogy of like ripping the band-aid off because Hong Kong was ripping a band-aid off but Taiwan would be like ripping duct tape off a Greek guy’s chest. That’s the problem here, and that’s what we think we have to understand that not only is it economically damaging, it’s politically damaging internationally, militarily. The risks, just in my opinion, way outweigh the benefits of trying to take over Taiwan.

 

TN: Let’s say this happened. Let’s say six, nine months, something happens. What happens economically? I know there’s cross holdings with CCP princes and stuff but let’s look at say semiconductors, TSMC. The otherfoundries are disrupted for a period of time.

 

AM: I know where you’re going with this and this would actually make me flip my position if I was advising China. If they wanted to hit the West and create even a bigger semiconductor shortage, then you absolutely destroy Taiwan. This is where I’m going. You absolutely would do that.

 

TN: Right. So, does it make SMIC relevant and does it make the Chinese foundries relevant? What is in that gap? TSMC, all the execs are moving to Phoenix. What happens then?

 

CB: Taiwan and TSMC are in the very awkward space. At this point, they’re probably like THE manufacturing firm. The other places do the design and stuff like that. There’s a lot of firms that are in the mid and low end. But when it comes to your high-end stuff, it’s pretty much TSMC. I think you could make a case that Beijing says, “screw it!” Forget about Taiwan. If we can capture TSMC, we’ve got it all.

 

TN: We just invade Hsinchu, right?

 

AM: The Chinese, for all the negative things that I have to say about them, are really good asymmetrically combating the West especially the United States where they’ve weaponized Caterpillar, weaponized multiple American companies within China to hit the United States politically and economically. That would make perfect sense from the Chinese perspective to just cut off the semiconductors specifically because those semiconductors go to Apple, to the big three automobile sector, which is the only thing right now that’s going to be able to get unemployment back down to a decent level for the Biden administration.

 

TN: If that did happen, would that present an opportunity for Japanese, Korean firms to fill that void to circumvent Chinese control or has that ship sailed years ago and there’s no way they can recover that?

 

AM: I don’t think that they’d be able to recover especially in the near term. I think the chip shortage would be so, so damaging to the entire global economy that it would be pretty devastating for a while.

 

CB: And the people I talk to in chips basically say, when it comes to manufacturing of higher end chips, it’s basically TSMC. Not even Intel these days is manufacturing their own chips. So even if TSMC is Chinese tomorrow, it would probably take five years before Korean and Japanese firms at the earliest would be producing high-end chips that could compete with TSMC.

 

TN: If China threatens to invade Taiwan and the West is like “look, do whatever you want, we just want to make sure we have our chips.“ Is that really a plausible negotiating point?

 

AM: I don’t think the West could even trust China in that respect. Has the Chinese ever given us assurances and anything like that ever?

 

TN: Let’s act like this happens. Something happens in June, July whatever. What does the US Navy do? Will they protect Taiwan or will they distance and reevaluate?

 

AM: The US would probably let Taiwan defend itself for a certain period of time and float in a carrier strike group just to deter China at some point. They’d have to walk defense there. That’s not an easy solution. You’re talking about going up against China within proximity of their borders, which they would have an advantage of.

 

CB: They’re not going to do something like this just launching a couple volleys of low-grade missiles. This is moving all your chips to the center of the table. And so basically, the question that the US Navy would have to ask is are we going to move all our chips to the middle of the table otherwise, let China have it.

 

TN: If the US says, “fine, we’re not going gonna move our chip to the side of the table. Let China have it,” then does that destroy US credibility in East Asia because the obligation of the US to defend Japan, Korea and so on, those are gone then, because US has an obligation to defend Taiwan.

 

AM: The South Korea would be the biggest problem immediately after that.

 

CB: One of the first comments about by the administration foreign policy was the Japanese defense minister saying China is a real problem, you boys need to get your big boy pants on. That was a month ago or a couple weeks ago. That was pretty much the Japanese saying, “you know this isn’t 2008 boys. We’ve got to be ready.”

 

The other thing was, is over the past couple years, there’s been a shift in the US Military. Basically, all the US Military in Korea is now way far down the peninsula. And South Korea knows that. The US Military is in a position where if the North Korea decides to stream across the border, they can pretty much pack up their personnel and be gone in a couple of hours. If something happens, Tokyo and Seoul are absolutely going to be paranoid. Doesn’t stand right there and start firing back.

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QuickHit

QuickHit: Will China Invade Taiwan? (Part 1)

Albert Marko and Christopher Balding are back for another #CageMatch special episode for QuickHit, where the two experts discuss the million dollar question: Will China invade Taiwan? Tony Nash is hosting this episode with Marko and Balding sharing what they think the two countries will do. Does China have the capability (and money) to invade Taiwan? If ever, will Taiwan ever retaliate? Can they afford to go to war? And how will the US fit in all these? Will this be another war waiting to happen?

 

This China and Taiwan conflict is Part 1 of 2 episodes. Subscribe to our Youtube Channel and signup to the CI Newsletter to be among the first to know when the second part is out.

 

The China-Taiwan relations was briefly discussed in the first ever #CageMatch episode. Watch the Part 1 here. 

 

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This QuickHit episode was recorded on January 26, 2021.

 

The views and opinions expressed in this Chinese invasion of Taiwan QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

 

Show Notes

 

TN: We’ve seen some build up of China’s activity toward Taiwan especially over the last month and we wanted to have a deeper discussion about one of the big questions that is out there which is “Will China invade Taiwan?” and is that a viable likely possibility or is it just saber-rattling to shake things up a little bit. With the new Biden administration and the change over there, there is potentially an opportunity for China to take a more aggressive stance toward Taiwan, the region and, the U.S.

 

We’re joined by Chris Balding and Albert Marco to talk about this. Let’s go through your basic thesis. Chris, what’s your position China preparing to invade Taiwan? Do you think it’s something that is possible and or likely?

 

CB: I would put what we think of as a full-scale invasion, where there’s soldiers and rubber rafts storming the beaches of Taiwan. I think that is relatively unlikely as a scenario. But I do think what is much more likely, and I would put it above 50% is some type of escalated conflict either in the East or South China Sea over the next 18 months as distinctly possible.

 

And when I say that, let me emphasize, we’re talking a range of possibilities. This could be everything from a PLA navy boat ramming a Taiwanese fishing boat. It could mean blowing up a shoal or something like that they’re fighting with Vietnam about. There’s a range of possibilities, but some type of conflict within the next 18 months is distinctly possible.

 

The reason I say 18 months is Xi will be going up for election of his third term in about 18 months. That is a very important time period. And I guarantee you, Xi and those around him know what basically they’re looking to accomplish within those 18 months. You have a number of complicating factors. It’s not uncommon for Chinese leadership to say: “Hey there’s a changeover in the U.S. Let’s see what we can get away with”. That’s not why they would do it. The timing is fortuitous.

 

So, I do think some type of escalation in the East and South China over the next 18 months is likely.

 

TN: Okay. Albert, what do you think?

 

AM: China likes the poke and they like the prod and they like to test the perimeters of defenses like most nations. When it comes to offensive capabilities, they want to test their adversary’s defensive capabilities.

 

Do I think that there’s going to be some kind of escalation? Well, I kind of agree with Chris there. Something might happen along those lines. But I don’t think it would be anything very serious. China would need an assurance of a quick and decisive victory if they were to attempt something like that. Obviously, a full-scale invasion is definitely not going to happen.

 

But even blowing up a shoal or taking out a couple fishing trawlers or whatnot, they certainly don’t want to sit there and affect their shipping lanes. Taiwan straits in that entire region, is the world’s biggest trading lanes for ships. You can’t have the United States running there with an armada just to protect Taiwan. It would adversely affect the Chinese economy. Xi at that point in 18 months, like he’s running up for election like Chris said, he can’t afford any kind of hiccups right now in the Chinese economy. And most of the CCPs elite are ingrained with Taiwanese companies. So, for them to sit there and disrupt that wealth, I just don’t see it happening.

 

TN: We saw over the last week where the Chinese government said that they can now defend itself in its claimed territorial waters. And with China expanding its claims, whether it’s with India, South China Sea, wherever it is, it seems to me that they’re telegraphing a more aggressive stance. Do we expect that as a warning? That is fairly hollow but they just want to put it out there or is that something that we believe they’ll act on against the Philippines, Vietnam, Taiwan, Japan or something like that. Could we see the claim over, maybe, the Senkaku Islands go hot at some point for some phosphorous hills or whatever?

 

CB: A lot of this follows a very similar pattern of what we call “salami slicing,” is over the course of a couple years, they just continue to slice away and slice away and slice away, until the last logical step in progression of some type of escalation. That’s a similar type of strategy. That’s part of why I say a full-scale invasion of Taiwan, likely no, I don’t think it is. I generally agree with Albert in that sense that I would put it as a very low probability type of event.

 

Are there other types of conflicts that may take place? Whether that is Taiwan or Chinese navy and fishing vessels circle islands and stuff like that. Absolutely. I think it’s relatively likely 50 percent over the next 18 months.

 

There’s been very under-the-radar moves in the sense that within the past year, maybe 18 months, Xi replaced key generals that oversaw the southern and eastern areas, which are very closely tied to Taiwan.

 

If there’s not some type of conflict, they’ve taken all the move that seemed to indicate signal that yes, they are at the very least they want to stick out their chest a lot more in these areas. And I think probably the one area where I would fundamentally disagree with Albert is that I think he’s perfectly right on “why would China do this this? This could mess up their shipping lanes they’re invested in Taiwan.?” And the reason I disagree is not that I think Albert is wrong. But I think, it’s the wrong type of rationale.

 

If we look at why is China picking a fight with India in a frozen ground on the Himalayas at 25,000 feet? It makes no sense. I mean there’s little logical reason. They’ve successfully turned India against. They’re kicking out in India. They’re kicking out Chinese apps as fast as they can find them. And they’re looking to start an Indian smartphone market. Very little action is proven has provoked a very large reaction from India. Albert’s rationality, in a way, is perfectly accurate. I don’t think that necessarily captures the reality of what I would call Chinese rationality of the logic that they’re using to make those decisions and the risks they’re willing to take.

 

TN: If we take the Hong Kong scenario and we talk about the salami slicing that Chris talked about. After the umbrella revolution in 2014, intel I was hearing out of China was that the decision was made in Beijing that Hong Kong would lose its status as a global financial center. And it was just a matter of time, right? And we’ve hit that point effectively. Okay? Hong Kong is not a place where you, unless you want risk, where you’re going to necessarily park your assets. It’s taken five years. They were patient and it seems to me they’re beyond the tipping point. It was that kind of salami-slicing approach to taking away the credibility of Hong Kong, but also injecting the inevitability of Chinese ownership. Is it possible that can happen with Taiwan?

 

AM: Well, of course, it is certainly possible. There’s no question about that. Do I think it’s possible in the next 18 months? Absolutely, like even Chris agrees. I don’t think that’s going to happen in 18 months.

 

There’s no Chinese build up militarily for Taiwan invasion. If you were to look at every single military offensive project has logistics involved. There’s just none piling up. The United States would see that in satellite images well in advance.

 

However, back to the Himalayas, which I think is something we should rather key on. If you want to talk about India’s slicing away stuff, there is a rationale for the Himalayan conflict. It’s the watershed. They need that water and they they’ve been piping that water into agricultural areas in China for years now and they haven’t done too much of it because it’s going to really upset India. You have a billion people in India versus a billion people in China that needs fresh water. It’s going to be a problem. They’ve built mountaintop bases. They have built up a military presence there. That’s where I would actually focus in the next 18 months as a real skirmish.

 

This Taiwan thing, I completely agree. It’s well within the Chinese game playbook to slice away and just wait for their time. But a Taiwanese invasion would be extremely costly for the Chinese. The risk-reward for the Chinese right now to even think about adventuring into Taiwan would cost them significant military losses, significant economic losses. It would ruin some BRI projects. It would ruin the perception of China as a growing superpower. There’s just so many negatives that I can’t see any real generals in the PLA telling Xi that this is a good idea. Now that’s not to say that Xi won’t do it anyways because…

 

CB: Tony, let me ask a question. So, Albert, 70 people I’ve talked to say they actually see the military risks increase significantly to Taiwan based upon hardware that’s getting onboarded in the PLA. They see the risks to Taiwan’s increase significantly post about 2022. Okay. Would you share a similar outlook?

 

AM: You have to understand, when it comes to offensive versus defensive capabilities, the defense always has a clear-cut advantage, right? Offensively, it takes seven dollars per one dollar of defense of offensive spending to actually take over. Now without a doubt, China would win over the long term. But at what cost will the PLA navy take? The Taiwanese defenses are no joke. They’re well equipped to at least hold them off for quite a long time and invading. Even the PLA. The PLA officers, that’s a social structure. That’s a social ladder realistically. How would it look like for Xi if the firstborn son of some of these elite families are coming home in body bags?

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QuickHit

QuickHit: Understanding the Covid Vaccine Supply Chain

Blue Maestro co-founder Kirstin Hancock joined us this week on QuickHit to explain the sensitivities around transporting the Covid vaccines. How vaccine manufacturers are adjusting to the special handling requirements, and how technology helps make sure that these are delivered in perfect condition?

 

Kirstin is the co-founder of Blue Maestro, which was set up eight years ago. Blue Maestro designs and manufactures Bluetooth sensors and data loggers. These are very small devices that have a PCB chip in them that use Bluetooth technology to communicate with smartphones to measure variations of the environmental conditions such  as temperature, humidity, barometric pressure, etc.

 

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This QuickHit episode was recorded on December 11, 2020.

 

The views and opinions expressed in this QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

 

 

Show Notes

 

TN: Great. Okay. That sounds really interesting and I’ve been looking at you guys for a long time and what I’m really interested initially to talk about as we look at the environment with Covid and a number of other things happening this week and next week, I’d really like to understand what you’re seeing around the vaccine supply chains because I know you guys do some work there and I know it’s critical to see your types of products in those supply chains. Otherwise, we don’t get live vaccine, right? So, can you talk to us about a little bit of the work that you’re doing there?

 

KH: One of the criteria for the CDC is that sensors and data loggers are able to measure temperature in real time and that this is able to be recorded over a period of time and that maximum and minimum temperatures can be seen throughout the time.  Our sensors and data loggers are all unique.

 

They have a unique MAC ID address on them and they can be named, and logging intervals can be set at specific intervals. So, within the storage and transportation of vaccine, Tempo Disc in particular, is a really useful tool because it does all of these things. Now, we have actually been using Tempo Disc in a number of different countries to transport vaccines already.

 

We’ve been working with the UN this year, 2020, to deliver vaccines in developing countries in Africa through a project that they’ve been working on and that’s been very successful.

 

TN: Very good. So, what are the considerations like how long are these things usually in transport? I mean, what variability are… are there huge temperature swing variabilities? Are there huge… What are the kinds of things that the vaccine makers are really worried about because this seems like a really delicate supply chain?

 

KH: What vaccine makers are really concerned about is that the vaccines go out of their temperature range. Now, using our app for Tempo Plus 2, you can see real-time data. So, you can see exactly what the temperature is of the container that the vaccines are being put in and that’s generally what our users are doing.

 

They’re using Tempo Disc in the containers and they’re labeling them according to that batch of vaccines and that’s really important so that they’ve got the traceability from when they go from the manufacture of the vaccine right out to the pharmacies, the nurses, the clinics where these vaccines are administered.  And I think that’s probably the number one concern that these vaccines go out of temperature range because when they do, there is an emergency procedure that goes into place and basically, all of the vaccines have to be disposed of.

 

TN: Interesting. Okay. I really wanted to talk to you because with all of the talk of this distribution, I know this is probably something that there’s not a lot of thought from kind of your average consumer. But it’s such an important part of what’s happening here that I wanted to get some understanding of that. So, can you also tell me or help me understand… Blue Maestro does a lot of other work around healthcare and we’re an artificial intelligence company, we use a huge amount of data. You guys are an IoT company. You do the same. So outside of the vaccine supply chain, how are people using your products around health care and life sciences?

 

KH: We have a number of different use cases for Tempo Disc in a number of different healthcare applications. We work with a number of different US companies to monitor specific environmental conditions and I’ll just give you a couple of examples. We’re working with Boston O&P Orthopedics and Prosthetics to develop a solution where Tempo Disc is used in prosthetics to monitor how long people are wearing their prosthetics.

 

We also work with a company called GoGoband on a device that monitors when children or people with disabilities have wet themselves at nighttime because then their parents can get alerted. So, there’s a variation. We work with some international companies to actually monitor and record the pharmaceutical equipment that they have throughout the factory and then for its transportation to particular pharmacies within a number of different countries.

 

TN: Interesting. So, with the pharmacy activity, I mean that’s very precise manufacturing processes. As we get more into say precision manufacturing, how are manufacturers using your devices to understand precision around their manufacturing processes? Because again, as we have more sophisticated products, manufacturers have to know this stuff. It reduces defects. But it also creates ultimately better products for customers. So, can you help us understand a little bit about that?

 

KH: So, we issue conformity certificates and calibration certificates. They’re a little bit different. But basically, what they do is they track the PCB devices from the very start of the manufacturing process. So then when they’re programmed by our team, we have each device has a unique ID so that particular device can be tracked right from its manufacturing cycle right to its end user.

 

Now this is really important for traceability within the supply chain because the end user knows exactly which product they’re using for what purpose. So, if they’re looking at just temperature, they can have an ID that they can trace all the way through. And this ID is, it’s embedded in the electronics firmware. But then the end user can also change this so they can give it its own name.

 

So, if you’ve got a vaccine batch, then you can give it that idea of the vaccine batch. But then you can trace it right back. Now, our calibration certificates are two-point temperature calibration certificates. They’re very accurate.  Our devices use a product called si7020 silicon labs sensor. It’s one of the most accurate on the market. Its accuracy is 0.3 percent and we’ve had that tested and very verified by labs and our devices are very accurate.

 

TN: Very interesting, Kirstin. I think we could go on for a couple hours talking about this stuff. But I just wanted to kind of get a quick overview out to people so they understand what’s happening particularly with vaccines but also with other aspects of the manufacturing supply chain. So, thanks so much for your time today. I really appreciate it.

 

For anybody who’s watching, please check out the details in the bottom of the page. Also follow us on Youtube. Thanks very much. Have a great day.

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QuickHit

QuickHit: $70 Crude & $5 Copper are coming

Returning guest Tracy Shuchart graced our QuickHit this week with interesting and fresh insights about oil and gas. What is she seeing on the industry — is it coming back to the normal levels, or better? Why she thinks oil will reach 70+ USD per barel? What’s happening on copper and why does its price going up? And is she seeing any surprises under the Biden administration?

 

Tracy Shuchart is the energy and material strategist for Hedge Fund Telemetry and she is a portfolio manager for a family office. She’s pretty active on Twitter with a large following. Check out her on Twitter: https://twitter.com/chigrl

 

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📺 Subscribe to our Youtube Channel.

📊 Forward-looking companies become more profitable with Complete Intelligence. The only fully automated and globally integrated AI platform for smarter cost and revenue planning. Book a demo here.

📈 Check out the CI Futures platform to forecast currencies, commodities, and equity indices

 

This QuickHit episode was recorded on November 24, 2020.

 

The views and opinions expressed in this QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

 

 

Show Notes

 

TN: We’re seeing a lot happening in markets on the energy side and in things like industrial metals. We’re starting to see some life back into energy not just food but even in energy companies who come a fair bit off of their loads that we saw in Q2 and Q3. Can you help us understand what’s happening there? Why are we seeing, if we see people walking down again in the US and locking down in Europe, why are we starting to see life in energy?

 

TS: Part of that reason is we are seeing a little bit of that rotation into value from growth and the energy sector has been really beat up. It’s finding a little bit of love just from that kind of rotation. But also, we’re seeing these lockdowns and things like that, but what people aren’t really realizing, because of all these lockdowns and things of that nature, we’re actually seeing demand up in other areas where there really was not so much demand before.

 

So everyone’s talking about nobody’s driving anymore. Nobody’s flying anymore. When you know in fact, everybody’s online, e-commerce, we’ve got cargo ships full in the port of Los Angeles. They’re lined up there. That’s shipping fuel. And it’s not just in Los Angeles. Asia’s seeing the exact same thing. Singapore. Trucking has become huge if you you know look at the truck index. It’s basically exploding from 2019-2018 levels because you you have trucks that have to go from the port of LA to all the way to Atlanta. You have everybody ordering on Amazon so you have all sorts of trucking going on. And even down to the little things like propane. They’re actually seeing double propane demand right now merely because everybody’s dining outside and it’s getting cold.

 

So demand showing up in these little places that typically didn’t have as much demand before. Recently, they were talking about the airlines this holiday season. That air travel is picking up in the United States. Domestic travel is almost completely back to normal in Asia and in China, particularly. So things aren’t as bad as it seems.

 

TN: So when we talk about oil and gas companies, we’re really starting to see some of those oil and gas companies to come back as well. We’ve spoken over the past six or nine months a couple times and it seemed like there were fundamental operating issues with those companies. Are you seeing those oil and gas companies cycle through their issues?

 

TS: A lot of the Q3 calls that I was on, a lot of these companies are changing their tune a little bit. We’ve also had a lot of of mergers and acquisitions in this space. We’ve had a lot of bankruptcies in the space. That pile, it’s gotten smaller. Only stronger surviving and not that I don’t think that they’re 100 in the clear, but the bigger names and the bigger companies are finding a little bit of love right now especially you see that in refining right now, because heating oil is actually pulling up that whole sector right now. The whole energy sector. Refiners were the first ones to really take off because refining margins are getting better as oil prices get higher and things of that nature. So that kind of started leading and then of course, they’re the safe havens likePBX, XOM, BP, Equinor…

 

Once people see oil getting some sort of footing, they’re more likely to move into those stocks. They’re beaten up. If you’re looking for value stocks, you want to look for something that’s 80 percent off the ties. It’s a bargain.

 

TN: We had also talked about crude prices would stay depressed into Q2 or something of next year of 21. Does that seem about right, still? Do we still expect things to stay in the low to mid 40s until Q2? Obviously, we’ll see bouncing around. I’m not saying I’ll never go above that. But do you expect people will think to stay in that range for the next two quarters or has that moved forward a little bit?

 

TS: That’s moved forward a little bit. I remember when we spoke last, we were talking it to the end of this year and I saw the upper 38s. Obviously that averaged this quarter so far. We’ll be a little bit higher. So I think that we’re still in that range. We’re not going to see a huge bounce in oil. Not yet, but it’s coming.

 

TN: You say it’s coming. What brings that about? Is it demand? Is it supply? Is it a massive shortfall? Where’s the pressure that would bring about that 70 plus?

 

TS: We’re going to have a supply shock just like we had a demand shock this time. We’ll have a supply shock just because of the sheer lack of Capex in the market and the sheer amount of companies that have gone under. I don’t think that you’re going to see shale back at 13.5 million barrels per day anytime in the near future ever again. A lot of those wells are closed. They’re gonna open them up again. It’s just not cost effective. So we lost a lot of producing capacity just because that. So as we move on and we move forward in time and flights come back and we start having more and more demand, I think we’re gonna find a shortfall so I wouldn’t be surprised if we see 60, 70 dollars a barrel in 2022.

 

TN: We’ve seen copper have just a stellar few months and given the demand issues that we’ve seen in the markets probably a little bit surprising. So can you talk us through some of those dynamics and help us understand is this here to stay? Are these elevated prices here to stay? Or is this something that we’ll see for a relatively quick cycle then it will turn back?

 

TS: With copper, we really had a supply issue because a lot of the mines were closed during the summer. China by that time had already been pretty much back up and running and ordering what they normally order. That’s kind of lifted prices off of that like two dollar level initially because we had a supply problem and then I think the expectation is, there’s a lot riding on electric vehicles, which require a lot of copper.

 

Manufacturing is rebounding in a lot of places. Maybe not Germany. But it is rebounding here. It is rebounding in Asia, not just China. It’s rebounding in Australia. There is that anticipation of demand. We’re starting to get supply back online and yet you know prices are still going higher. I don’t think we’re gonna go straight to five dollars by stretching the imagination. But that’s kind of where copper lost its disconnect with the market. When you know markets started coming down, copper’s still shooting up because it’s generally considered a gauge of the health of the global economy. But that kind of correlation went out of whack when we had a whole bunch of supply problems.

 

TN: And based on copper prices today, I would think everyone was back to work, we’re all traveling, probably with disposable income. So there is that weird disconnect right now and I’m not sure that it’s necessarily an indicator that a lot of people really point to.

 

So we’ve just had a big change in the US as well with the election and some shifting around. What are you expecting over the next few months? Are you expecting big surprises, big moves or what are you looking at over the next few months?

 

TS: Everybody pretty much knows Biden. Everybody knows his voting record. I looked at it as an energy strategist, obviously. I’m looking at his voting record and went on his past history and is the new green deal going to dictate the markets or how is he prone to be? He’s been in the office since the 70s. So we already know him. All his picks so far have been in been in DC forever, right. Whether it’s in an Obama administration, etc. So I don’t think there’s really a whole lot of surprises, which is why I think the market is so calm right now, because the election’s basically over. We don’t have that anymore. We’ve got this vaccine and the people that are going to be taking office in January are people that everybody’s familiar with. So I think that’s also giving the markets a little bit of complacency at this point.

 

TN: Right. It does feel a little bit complacent to be honest. I think you’re right. I think you’re right. So let’s see if there’s a surprise over the next few months.

 

TS: Right? You never know.

 

TN: Tracy, hey, thanks again for your time. It’s always great to talk to you. We really appreciate everything you say. I just want to ask everyone watching if you could follow us on YouTube. We look forward to seeing you next time. Great! Thanks.

Categories
QuickHit

QuickHit: Decentralized Finance and Crypto

JP Baric, of Aurum Capital Ventures, joins Tony Nash for this week’s QuickHit episode where he discussed crypto currencies and how it plays in decentralized finance or de-fi. Also, what is stranded energy and how is it mined? What is the future of crypto and why is its fiat currency value is very volatile? Was the industry affected by Covid? If so, how?

 

Aurum Capital Ventures is a company that’s focused on using stranded energy to mine cryptocurrency and other digital currencies and building a yield generation or building a way to generate yield through the mining process for consumers and for institutional investors.

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***This QuickHit episode was recorded on November 4, 2020.

 

The views and opinions expressed in this QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

 

Show Notes:

 

TN: Okay. Very interesting. So I want to go into a couple things about cryptocurrency. But first, I want to ask what is stranded energy?

 

JB: Sure. So stranded energy is energy that is either not accessible to the grid so it can’t connect to the standard power grid or energy that’s been built up in areas where the federal subsidies for wind and solar farms have basically built these infrastructure that wasn’t needed in one area but it was built there because of those subsidies and in return the power prices are actually going negative during the night because there’s over supply and not enough demand. So that’s where we target when we build out mining sites.

 

TN: Very interesting. Okay. Thanks, JP. So let me ask you this. Just in terms of some crypto basics, okay. Is cryptocurrency, is it an asset or is it a currency? And so by that, you know gold is an asset, right? You know you can’t really go to 7/11 and spend gold. Dollar’s a currency. You can go to 7-eleven and spend a dollar.

 

So is cryptocurrency is it an asset? Is it a currency? Is it both? Is it moving from one to another? How do you think of it?

 

JB: Yeah, the more I look and think about Bitcoin is the more I think it’s actually an asset less than a currency. I’ve used bitcoin to buy laptops that you know 12 bitcoins for a laptop and then you realize that’s worth more than a house eventually. So I think the Bitcoin as an asset is really where how I view it. It’s a way to store value digitally that can easily be separated and transferred anywhere in the world and you also, it’s an asset that we know there’s a finite supply of it. We know how much there’s going to be, how many new bitcoins are going to be every day for the next 100 years and there’s not, that’s something you can’t really get without saying many other assets.

 

The reason why I don’t think it’s a currency is because we’ve seen other people have built on the Bitcoin blockchain and built on top of it as a way to build stable coins or other ways to transact, which are just more efficient and don’t have the price fluctuations that you do with using Bitcoin as a medium of exchange.

 

TN: Okay. So one of the things I’m really puzzled about with Bitcoin is, you know, normally with software, it’s the newer versions that are more desirable and more valuable, okay. Bitcoin is kind of the, you know, Windows 3.1 or something like that I mean it’s the OG of cryptocurrencies, right. So why is Bitcoin more desirable and valuable than other coins?

 

JB: So my opinion really comes down to first the miners. The miners are the ones who are allocating the most amount of capital in the space, who are taking the risk to capture this Bitcoin. You have to put that capital up uh millions of dollars when building out the infrastructure before they even see return. So because the miners are centrally focused around Bitcoin, it’s um you know the top currency for miners. I’ve seen that network effect um has really grown Bitcoin to keep its position and its power.

 

The amount of computing power protecting the Bitcoin network is ten times if not a hundred times more than any of the other networks out there. That would always say the first thing. The second thing is the on-ramps. To use a digital currency like bitcoin we need um on-ramps that have been put together over the past 10 years and have been focused solely on building on-ramps for this cryptocurrency.

 

Bitcoin works in the way and it functions as that secure digi secured and digital store of value. Other currencies have tried to do that. But the reason why it’s a store of value goes back to my first point which is the miner spending all that capital and infrastructure to secure the network using that energy on a day-to-day basis and giving Bitcoin that
floor price.

 

TN: Okay. So when you say on-ramps, what do you mean? So if I have a new coin, I need to have a way to be able to uh uh mine it and distribute it. Is that what you’re talking about?

 

JB: I was uh when I was referring to on-ramps, I was actually referring to fiat on-ramp. So basically, how does fiat currency come into the space. So US Dollars, Euros, Japanese Yen, how do they come into the space and then from there how does that get turned into this digital currency?

 

Those are on-ramps. Then also custody solutions, insurance. All right. Okay. All of that being on ramps.

 

TN: Okay. Very good. Okay. So um also in terms of crypto, what I’m really interested also also is when I look at the current environment, we’re in the wake of an election in the US. It’s a little bit uncertain. We’ve got, we’re in the wake of Covid. There’s a lot of uncertainty, you know. Is there kind of an optimal, say, environment for cryptocurrencies? Um, uh you know. Do we see say um uh confidence in traditional currencies waning and people moving to cryptocurrencies?

 

Is it in either or world or you know. Is it both and and what does that environment look like for people to turn their attention to cryptocurrencies?

 

JB: So I think the the as you mentioned the two different types of pandemic. The Covid pandemic and the election has really pushed crypto to the forefront as another asset class, as a safe haven. I don’t think cryptocurrency necessarily follows uh the same, you know, SP500 or other type of cycles out there when it comes to economics and social cycles. Bitcoin to me really follows the having events, which happen every four years. And so that would, that in my mind is what brings the momentum required to push Bitcoin to a new price. And in those having events is when Bitcoin miners receive half of the amount of Bitcoins they were getting every day just simply because it’s past
the four years and the issue and schedule is set.

 

So as I mentioned, we’ll know exactly how many coins are coming out. That in my opinion, is what creates these price rises about every four years, which then drives new interest to Bitcoin which then drives more speculation and which then drives the community growing at massive scale. And then shrinking because the people that are just speculators, just coming in to make a quick buck, they make their quick buck or they lose a lot of money. But the people who then now start to understand the technology and understand how much better of a monetary system it is because it empowers the user.

 

It provides them a steady base that they can build their life on. A steady-based currency that they know is not going to be inflated away and don’t they know it’s going to retain its value over the long period of time.

 

TN: Okay and so when you talk about having events, what happens around those having events in terms of say processing power, in terms of the the computing requirements. Are there cycles to build up more equipment and less as it ages and and what does that look like?

 

JB: So right now, they’re the cycle. There’s definitely there are cycles to build up equipment and the in May, when was that that having event occurred, the the amount of machines came down by about 15% 20%. And those machines were turned off because they were just older generation. The newer machines are coming in line. They’re being deployed. But we see it as in, if you want to get into Bitcoin mining, the next two years after the having event are the best time to get in because as I mentioned, that momentum will start to build up the Bitcoin price will continue to rise. You’ll have a great two years of profitability and you’ll be very very profitable and you’ll be a big arbitrage there. But then as Bitcoin price rises to an extreme height, there’s not enough actual bitcoin miners available for everyone to buy and acquire.

 

We don’t have enough semiconductors and so what happens is the value of those machines will rise rapidly and the people that are just coming into the space that are new are trying to pick them up and grab them and buying these machines for a really top dollar. The problem is, is that bitcoin price will crash. But you still have new machines on order for maybe six or nine months out. Those machines will continue to come online, will continue to run until it squeezes the profitability of all the miners and then you see a crash in difficulty usually in correlation as the bitcoin price is continuing to push down back to a normalized you know area and not in the hundred thousand dollars ranges or really overvalued where we see it uh once it kind of starts that on ramp.

 

TN: Okay. So when you say there’s a hardware replacement after the having event. So my understanding is this, you’re getting half the amount of Bitcoin for doing the same amount of work. You have old equipment. It’s it’s uh utilizing the same energy it did at double the price. So you have to cycle out that old equipment so you can still be profitable in your Bitcoin mining. Is that?

 

JB: That’s exactly right. That’s exactly. We either cycle the equipment or we move to lower cost power about half the cost in order to stay competitive. Those machines aren’t necessarily going to immediately become unprofitable after having. But they will become unprofitable very quickly after the having. And now, because Bitcoin price has risen, those machines you actually can turn back on and make a few pennies depending on what your power rates are.

 

TN: Okay. And so, since it’s so equipment intensive and we have supply chains bottleneck through Covid out of Asia, what has that done to the Bitcoin mining environment? Is it, has it, has Bitcoin risen in price as a result of it? Or are people using less efficient machines and maybe losing money or coming close to losing money on mining?

 

What’s happening as a result of the supply chain issues that we saw out of Asia earlier this year and also is there still kind of pent-up demand for that equipment?

 

JB: Yeah. So right now, the you know, with Covid and the supply chain issues that have occurred, the machines got backed up, the factories had to close, and so those orders that were maybe supposed to deliver in December of this year aren’t going to deliver until January or February. So they have been backed up by two months. Also due to 5G and the new phones coming out, the the amount of chip production capacity that is allocated to Bitcoin miners from the fabrication facilities like TSMC that has gone down as well um and they’re not able to get as many chips as they would like.

 

Right now, if you’re buying miners and you’re doing a project like we’re looking to do one in Oklahoma to buy 50 megawatts worth of miners or 15 000 machines, it’s going to take us about four months to acquire those machines and get them delivered to the United States in multiple batches. So that’s the, you know, the expected timeline to wait for these newer machines. But as they do ship from bitmain and from the manufacturers, we expect that hash rate to continue to grow and as Bitcoin price grows faster, it’s going to create more demand and it’s that vicious cycle.

 

TN: Interesting. Okay. So as you look out at the next year, are there certain things you’re looking for like are there coins that that you’re interested in? Are there you know, where is your attention going and what do you see over the next say six months in the crypto cryptocurrency environment?

 

JB: So over the next six months you know I’m I’m really focused on bitcoin particularly. But I do think decentralized finance. So de-fi has a lot of opportunity. There’s a lot of very cool projects. One of them being a token called lend token. L-E-N-D. And that token has something called a flash loan. And what flash loans are is that a concept that liquidity is no longer an issue for anyone that can prove there’s an arbitrage opportunity on in the market. And so, when these Ethereum contracts are written, um they basically have to balance the price points and if the prices start to become a little bit off, someone can go in and balance that contract and take the reward for balancing that contract. Before, you might have to put up the capital yourself to do these balances so that you can make the profits from balancing this contract and getting that arbitrage there. No longer do you need to do that with protocols like LEND, which are really trying to decentralize the credit problem. Decentralize uh what is credit look like on the blockchain. How do we give credit to companies.

 

How do we ensure that um we can lend to them without necessarily having to verify uh everything and do the, you know, do the verification process we have currently but how do we do that on chain in a contract. So protocols like that are what I’m really focused on. I think decentralized finance is going to blow up. I think it’ll be the next ICO hype as we would say in 2016, 2017. There’ll be good projects and there’ll be projects like we saw with Sushi that, you know, the developer just ran away with the funds because the contracts weren’t audited. That’s another big thing. If you’re investing in a project or investing anything, you want to make sure that it’s backed by you know VC companies in the United States that are these very popular VC companies in China and Europe or that it’s been audited by reputable sources in the community.

 

TN: Great. Okay JP. Thanks so much for your time today. I know you’ve got a lot going on so uh thanks so much for joining us and talking about this. Really appreciate this. Wish you all the best um over the next six months as all those things come to come to pass. I also want to thank our viewers and remind you please subscribe to our YouTube page. Please subscribe to our newsletter. Both are in the foot of the video. Thanks very much.

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QuickHit Visual (Videos)

QuickHit: Permanent demand destruction in fuels markets

Patrick De Haan, Head of Petroleum Analysis at GasBuddy, joins us for this week’s QuickHit episode where he discusses the loss of demand in gasoline (petrol) and fuels markets in the wake of Covid-19. How much gasoline demand has been lost and when will it recover? How far have prices fallen – and how long will they remain low? Patrick explains the dark clouds that have formed around petroleum and when we’ll get back to a “sense of normal.”

 

GasBuddy helps motorists save at the pump by showing low gas prices across North America and down under in Australia. Patrick has been with GasBuddy for over a decade basically helping millions of users understand what goes into what they’re paying at the pump and to understand how complex issues can influence their annual fuel bill.

Follow Tony on Twitter: https://twitter.com/TonyNashNerd

Follow Patrick on Twitter: https://twitter.com/GasBuddyGuy

Check out the CI Futures platform to forecast currencies, commodities, and equity indices: https://www.completeintel.com/ci-futures/

 

***This QuickHit episode was recorded on September 16, 2020.

Last week’s QuickHit was with TankerTrackers.com co-founder Samir Madani explaining half a billion barrels of oil going to China right now.

 

The views and opinions expressed in this QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

 

Show Notes:

 

TN: I was following you particularly in the last couple of weeks going into the U.S. Labor Day weekend in early September and then coming out of it. It seemed to me that consumption going into Labor Day seems pretty strong but coming out of it seemed like things really fell off even on an annualized basis. Can you talk us through what is that telling you if anything meaningful and is that telling you anything about the recovery from COVID, the consumption recovery?

 

 

PD: We’re just entering this post-summer time of year. That we really get a good idea of where we’re going and obviously, COVID19 has really influenced every angle of what’s normal for this time of year.

 

 

What’s normal is that demand for gasoline typically drops off notably. Kids are back in school. Vacations are done. Americans are staying closer to home. But this year, a lot of what we’re seeing in the media, the current events headlines are playing into how Americans are feeling and that plays into where they go. How often they do and so all of this is really factored in and probably one of the top economic indicators of what to expect.

 

 

And so far in the week after Labor Day, we did see a nice run up to Labor Day. I think it was probably one of the best summer holidays, which gave us some glimmer of optimism. But now, we’re coming down from the sugar crash and we are starting to see demand fall off. Where we go from here? I think, we’re at a turning point. Will we see demand continue to kind of plunge or will we start to see a little bit more optimism? I think obviously a vaccine would be the holy grail. But for now, really we’re kind of looking at seasonal trends that may be enhanced by a lot of the restrictions motorists are contending with state by state.

 

 

TN: Next to my office is a commuter lot, and that commuter lot has been closed. We’re outside of Houston. So, people get on a bus to go into downtown Houston for work. That’s been closed since February. Yesterday, I noticed they’re mowing the lawn. They’re getting it ready to reopen. How much of an impact are those commuters, who are driving, who would normally use bus into a downtown? Is that having an impact on the consumption and on the demand or is it pretty marginal at this point?

 

 

PD: At this point, we’ve seen a lot of demand come back. We were at one point down 55% in March or April and basically everyone stayed home. Now we have rebounded. We’re still down about 15 to 20% compared to last year. But it’s that last 15% percent that’s probably going to take more than a year, maybe, two years to fully come back as businesses slowly reopen. That’s a really good benchmark of how quickly that last 15 percent in demand is going to take and I think at this case, it’s going to take quite a long time for people to be comfortable getting on mass transit.

 

 

I have the same thing here in Chicago. I was recently down in Northwest Indiana. There’s a lot of commuters that come up from Indiana during the day. And again a massive parking lot satellite imagery shows that parking lot filled for the last 10 years consistently, suddenly it’s empty. Some of the big businesses, they’re not really talking about getting a lot of people back into the offices by the end of the year. All the focus really is going to be on early next year or if there’s a major disruption like a vaccine that would cause businesses to move their timelines up. But for now, when it comes to gasoline, distillates even jet fuel, it looks rather bleak.

 

 

TN: Yeah, I think so and I think we’re getting to that point of the year. Even if there was a vaccine tomorrow, I don’t know if people would necessarily call everyone back before the end of the year. It just seems like we’re getting into a really awkward time where it’s hard to tell people to come back. Is that the sense you get as well? I mean JP Morgan aside, right? You know, they’ve called everyone back on September 21st but do you see, are you seeing much activity around other people heading back into the office?

 

 

PD: Not a whole lot. It’s really interesting actually. I was talking to my wife this morning, who does investment bacon and she said that some of the JP Morgan traders had been called back earlier only to be now sent back home because of a coronavirus in the office. That’s kind of the risk that businesses are taking here. That’s why it’s going to take a while for us to get that confidence back to go in offices.

 

 

Now even more so than ever, businesses are becoming accustomed to this new era and telecommuting is likely to really surge. That could mean a permanent demand destruction of at least 5% maybe even more than that. Maybe we don’t get 10% of demand back and it takes years for us to start building up our confidence to get back on planes, to get back on trains and that’s where the dark clouds are forming for petroleum is that the longer we remain in this era, the longer it’s going to take us to get that confidence back to go back to some sort of sense of normal.

 

 

TN: Since you focus on gas prices, petrol prices. What does that do if we don’t recover that 10% in commuter consumption or driver consumption? Putting even the jet fuel stuff aside. What does that do for overall gasoline pricing in the U.S.? Are we at a kind of a step lower than we’ve normally been or do we still see say intermittent seasonal volatility where we go up to normal prices? What does that look like for the average consumer?

 

 

PD: I think it was back in 2015 at some point when OPEC opened the Spigot up and oil prices were low. We all had this phrase “it was lower for longer.” That’s a phrase that may be in a different use here but that’s what we may be looking at for both gasoline and distillate prices lower for longer because of this very slow return of demand. And so I foresee that gasoline prices will struggle for quite some time. Maybe, a period of years to get kind of back into where they normally would go and it’s because of this demand destruction that could stick around. I think most of this winter motorists will be looking at prices under $2 a gallon. Of course barring the traditional high-taxed, high-priced states like California and Hawaii where the sun is shining and unfortunately right now they have a lot of forest fires but for everyone else it’s going to be a sub $2 gallon winter. Next summer is probably going to be another good one. But the future next summer does get a little murky if we do get some demand back. Keep in mind that we’re making a lot of permanent decisions today on the era wherein that is oil production has been shut down, drilling is offline, even some refineries in Europe are shutting down. And if we do get some sort of bounce, that could lead these shutdowns today, could lead to higher prices whenever we do turn that corner.

 

 

TN: Just for context when you say sub $2 a gallon? How much is that off of normal prices? What are normal prices? Is it 2.53 dollars?

 

 

PD: It typically is in the last few years we’ve held remarkably stable somewhere in the mid to upper two dollar gallon range nationally. So, very, very rarely with the exception of I believe early 2016 and early 2015 have we seen the national average spend a considerable amount of time under two dollars.

 

 

TN: So you’re saying 30% off of what had been traditionally normal prices? Is that fair to say for the next maybe 12 months or something?

 

 

PD: Yeah, I think six to 12 months and potentially beyond that and the amazing thing about those prices is before this, that would entice motors to hit the road. Now, it’s not really doing a whole lot.

 

 

TN: If gasoline prices are 30% off of normal but commuting is down these sorts of things. Is there an upside? What are you telling your clients about this?

 

 

PD: The upside here potentially and my clients at GasBuddy members so we’re looking at this a little bit differently. Is that low prices probably here to stick around? I think given the situation, low prices will actually keep America using more petroleum than the early era 2014, 2013 when motorists were really looking at Prius’s, EVs. I think that’s going to really slow down given the environment of low prices kind of incentivizing motorists not to ditch their fossil fuel cars at this point.

Categories
QuickHit Visual (Videos)

QuickHit: “Perceived Recovery” and the Artificial Market

Political economic consultant Albert Marko joins us for this week’s QuickHit episode where he explained about this “perceived recovery” and how this artificial boost in markets help the economy. He also shares his views on the 2020 US Presidential Election and the chance of Trump winning or losing this year. What will happen if his scenario plays out, particularly to the Dollar, Euro, and others?

 

Albert Marko advises congressional members and some financial firms on how the machinations of what D.C. does and how money flows from the Fed, Treasury or Congress out to the real world. He is also the co-founder and COO of Favore Media Group.

 

This QuickHit episode was recorded on August 25, 2020.

 

Last week’s QuickHit was with independent trading expert Tracy Shuchart on the end of “buy everything” market and the unknowns and apprehensions.

 

The views and opinions expressed in this QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

 

Show Notes

 

TN: We’ve seen a lot of intervention in markets from the Fed and the Treasury. I’d really love to hear what you’ve seen and what your assessment is of that activity.

 

AM: First off, we have to understand that politics and economics are tied to the head. You can’t deviate from the two of them. I don’t like when people try to disassociate the two from that. The Fed and the Treasury had to work on financial stability of the markets. That is the ground game right now. The only way to do such a thing would be to congregate all the market makers and select certain equities and pump those equities until the market had a perceived recovery at that point.

 

TN: So perceived recovery, that’s an interesting, interesting word. When you say market makers or strategists got together and plan this, what concentrations have you seen in markets? Is it possible to focus on a specific number of companies and make sure that the rest of the market moves based on their coattails?

 

AM: Of course. This is not a new strategy. We’ve done this in 1907, and done this in nineteen eighty seven with Buffett and Goldman and we’re doing it now. It’s just the way it is.

 

The way the strategy works is you take a couple equities, say a dozen of them, maybe a little bit less. Tesla would be one. Nvidia, Adobe, all of these companies that don’t really have international peers to compare with and valuations that they can pump and the market takes over and comes up with all sorts of fancy ideas of why Tesla is at a $400 billion valuation.

 

But the fact of the matter is, if you look at the pricing and you look at all the call options that have happened over the last four months, it’s pretty clear that this was completely done artificially.

 

TN: It seems the US markets lead global equities. Is there some linking of this? And again, are there international coattails that follow on to US equities coattails or is that what you’ve seen in recent months?

 

AM: That is absolutely correct. There are a couple of markets that would support the US market specifically. That obviously would be the U.K. But the one I like to look at is the Swiss National Bank. They have their minions and their people intertwined within US hedge funds and working with the Fed and the Treasury for years. So if something is going on, they would probably be the next people to hear about it. And you can actually see this by looking at their portfolio buys in Q1 and Q2, as opposed to the 2018. You’ll see that those certain equities like Apple and Tesla had just gotten ridiculous amount of eyes.

 

TN: How successful is that been? As we look at the depths of the pullback in April? Crude oil was at negative $37 in April and it fell $99 from January through April. WTI did at least, right? Equities obviously had a lot of problems. So from your perspective, how has that been executed? How has it been pulled off? Is it okay? Is it good? Are we seeing, at least in equity markets, are we seeing a “V” and do you think that translates into the real economy whatever that is?

 

AM: I use the word “perceived recovery” before as this is artificial. It does support the markets. They’ve done exactly what the Fed was mandated for financial stability. Loretta Mester says that quite often in her speeches. In that respect, yes, they absolutely stabilize the market. Now comes the challenge of rotating out into value stocks and the actual financials or retail or something that’ll actually create jobs later on. They’re going to have to do that. But again, this is basically to stabilize not only the markets, but also the political class that’s supporting it.

 

TN: When you talk about the political class… We’re in the middle of an election cycle. This is my first election to be back in the US since the first Bush election. I was overseas for a long time. So I’m seeing things I haven’t had a front row seat to for a long, long time. How does all the things we’ve been talking about with supporting markets and and really having this kind of quasi recovery, how does that segue into the election? How do you see the election playing out?

 

AM: The people that are in charge now are appointed by the political class in charge at the moment. So those two are going to protect themselves at all costs. Trump appointing Mnuchin. Mnuchin doing what he has to do for financial stability. Now we’re looking at Trump ”losing in the polls” — highly questionable when you look at the methodology about those polls. Right now, I would have Trump winning — about a 60 percent chance at the moment.

 

TN: But the president isn’t the only office, right? So do you have an opinion on the Senate and the House as well? Do you think we’re going to see a flip in either of those places?

 

AM: No, I think the Republicans will actually take back anywhere between eight and 10 seats in the House and they’ll lose possibly two, maybe three seats in the Senate. So they’ll still control the Senate, although that’s when the political calculations come into work where one senator, two senators can block an entire policy of the president. Trump is going to have to do more executive orders going forward, which I personally don’t like, and nobody really should actually advocate for that. But this is the time that we live in.

 

TN: If your scenario plays out, how does that impact US foreign policy for the next four years? What do you see is the major… I would say trade was a big issue in the first four years of Trump, right? And bringing China to the four was one of the big issues. What would you say would be the big foreign policy issues under a second Trump administration if it comes to pass?

 

AM: The big one is China. China is quite intelligent. They hire former congressional members to go and talk politics so they understand how it works. They’re going to start hedging their bets. If they see that Trump is possibly going to win, Phase One Agriculture deals will be flying. They’ll make some concessions on intellectual property rights and whatnot. So you’ll see some of that happening from China.

 

The Europeans are absolutely in denial of what can actually happen if Trump gets elected. The only reason I see the Euro at these levels is because they’re on vacation and the US has just negative news pounding us day in and day out with the Dollar dropping to the low 90s. But I don’t see that sticking around. I think that as soon as Trump gets re-elected, I think the dollar’s back up north of 97.

 

TN: I think you’re right. I think that’s feasible.

 

Well, thank you so much for your time. I really appreciate this. Obviously you have a lot going on and you have a lot of information. This is hugely valuable for us. So I’d like to check in maybe before the election, maybe after the election so that we can do an assessment of how would the changes, whether it’s Biden or Trump, how does it impact markets and how does it impact geopolitics? That would be a fascinating discussion. So thanks for your time. Really appreciate it.

 

AM: Thank you. Thank you, Tony.

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QuickHit: Market unknowns and apprehensions

A returning guest joins us for another QuickHit talking about how the current market unknowns are affecting the economy, and what are these “unknowns” anyway? Independent trader Tracy Shuchart discusses with Tony Nash about the “buy-everything” market and why is it happening despite the worries and crashes of economies because of COVID. We’ve also looked at the crude oil market and whether it will recover or not and how? She also shares what she thinks about the regionalization and shifts in supply chain.

 

Tracy Shuchart is a trader portfolio manager and all-around high-profile, social media person on markets. We did the first two QuickHit episodes with her with the recent one on “Oil companies will either shut-in or cut back, layoffs not done yet“ last May.

 

 

This QuickHit episode was recorded on August 14, 2020.

 

The views and opinions expressed in this QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

 

Show Notes

TN: It feels like the markets have taken a breather this week. Is that what you’re seeing and also what are we waiting for?

 

TS: You notice all this entire summer, actually, that it’s been a buy-everything market. Bonds are up, equities are up, gold’s up, crude oil’s up, across the board, everything was up. Commodities, equities, fixed income, and then just starting in August about a week, week and a half ago, we started seeing some of that error let out of those sales.

 

Equities are still grinding higher but gold futures reached 2,089 dollars, and then came off to 200 dollars really quickly. It has stalled out over the last couple of days.

 

Crude oil in general, this summer has been stuck in a range. So, I guess you could say OPEC did their job. They wanted to stabilize the oil market. They did that.

 

Then this week we’ve seen some of the air come out of bonds. So I think, right now, it was kind of buy-everything. We had all this government stimulus, we had central bank stimulus and now we’re at the point where the government stimulus is out. The extra unemployment, PPP loans, there’s no more checks things like that. And then we have the election come up. The markets are waiting to see what’s going to happen.

 

 

TN: And RobinHood closed their api. So, we don’t know what the Robinhood traders are doing anymore.

 

 

TS: Yeah, so it just seems like there’s a lot of things that are unknown. If you look at the vix curve structure you see the kink in that November area. So, the markets are forward looking at that as an unknown. So, these next couple months might be either going to be flat until we find out or it’s going to get really volatile.

 

 

TN: Right, the one that really told me that we are in a pause is when gold turned around. When we started to see gold turning around and we’ve seen it paused where it is now, that’s really what showed me that things have changed or things have at least slowed down. And so, are we waiting for clarity around stimulus? Because I don’t think it’s earnings or anything like that that we’re looking for. It really does, as you said, kind of a stimulus-driven market. Is that really the next thing that we’re looking for?

 

TS: I think it’s a combination of things. Fed purchases have curtailed a tiny bit. We still have an unknown about what’s going to happen and congress just adjourned for recess without a decision. So, we won’t find out what a decision is really probably until September. That leaves a whole unknown, especially, when you’re talking about that extra unemployment.

 

The big thing is the election because we don’t know what the market’s going to do. If there’s a Biden win, that will only be a sector rotation in my opinion, because of what their agenda is. Everybody’s just very apprehensive right now. They are pulling back on, their involvement in the market being that there are a lot of big unknown factors out there right now.

 

TN: It’s really one of the only recessions where incomes have actually grown during the recession, which is weird. We’ve seen retail sales and industrial production in recent months come in and they’re actually okay. It seems like the breaks are put on that with stimulus stopped as well. The question really about being stagnant or rising? Or is there a possibility that we tip over and start to decline if stimulus isn’t forthcoming by the end of August or early September?

 

TS: That’s a possibility that we see a pullback in the markets absolutely. I don’t think you’re going to see anything, like we saw obviously back in February. But I could definitely see a market pull back just on people’s apprehensions of the unknown.

 

TN: As you mentioned OPEC and that crude oil has settled and it’s been horizontal for the past couple months. What would move that either way? Do you see airlines coming back online? Do you see major events happening that would really push the oil price up? Or do you think we’re just also in a waiting pattern there?

 

TS: We’re in a waiting pattern. But from what I’m seeing, the fundamentals are improving. Even though people don’t really want to see that. I look at driving patterns not only in the States but driving patterns in the world. I look at airlines and things of that nature and we are seeing a slight improvement. Everybody’s looking for a big crash in oil prices again but I don’t foresee that at this point. Unless, obviously, something fundamental changes, like the whole world goes on a lockdown again or some unforeseen event happens. But right now, the crude oil market looks pretty strong. We’re still over supply but we’re working off that oversupply. Especially going forward into 2021, when that supply really starts to be worked off, then we have a Capex problem. We’re gonna have a supply problem. I can forsee the oil prices even going higher into next year. But right now, I would say we’re stable to drift higher at to the end of the year. We are hitting that soft season. But again, I don’t see the oil market really pulling back that much at this point.

 

TN: Is the back-to-school factored into your expectation of rising oil prices or would that accelerate it?

 

TS: I believe that people will be apprehensive to send their kids on a school bus. So they’ll probably be driving them to school. That’s actually oil demand positive for me.

TN: Our view is to see oil grind higher into the end of the year. As of August 1st, that was our view as well. I’m also curious about your views on the dollar. Do you see any dramatic movements either way in the dollar or are we in the low 90s for the next few months?

 

TS: The market is so oversold at this point and everyone is so leaning bearish. I wouldn’t be surprised in he next couple of months if prices don’t go lower that people start to unwind those short trades and we could see not a huge spike in the dollar. But just a general unwind of that shortness.

 

TN: Great, okay, is there anything out there that you’re seeing that’s really interesting that we should know about? It’s late summer. People are tired. They’re not really all into work. Is there anything that you’re looking at that we’re not really paying attention to?

 

TS: The lumber market. I sent out a few tweets about that. I think that’s definitely something to watch because the housing market is doing better than anticipated. However, we don’t need things like extra ten twenty thousand dollars added on housing costs for new home builds. So, that’ll put a very big strain on the market and on home builders. So that’s definitely something to watch at this point.

TN: I noticed if you go to home depot, the lumber section is empty. That’s not where home builders go, but that’s what I see as a consumer is. It’s just empty. There look to be seriously obviously. There’s demand pulled but there really seems to be some sort of supply issue there as well.

 

TS: Yeah, there’s a supply issue. A lot of the mills have been closed like they’ve been closing for the last couple of years because the demand hasn’t really been that high, well at least in British Columbia. But with this new surge, I’m hearing that tons of mills are back up and running shifts  24/7 now. Even smaller mills that you used to do little to no business are back up and running. So, I think that looking forward October, November, we should see some more supplies.

 

 

 

TN: What we’ve seen since COVID from toilet paper to meat processing to lumber is real stress put on supply chains. And from your perspective as a portfolio manager and a trader, do times like this make you concerned about the stability of the U.S. economy or do these tests make you feel like the people participating in that economy are making their supply chains more resilient? Do you think people are actually investing to make those things more resilient or do you think they’re just getting through and they’ll forget about it within a few months?

 

TS: No, we are seeing some improvement on supply chains and moving forward. There are companies that are diversifying out of China. It’s in supply chains closer to the U.S., Mexico, Latin America. This particular incident, this COVID really made people rethink and reassess things and I think we are seeing changes. It’s not easy to move supply chains obviously, right? So, it’s just going to take some time but I definitely see in the markets where companies are changing.

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QuickHit: China is not going to stop being China

Panama Canal Authority’s Silvia Fernandez de Marucci joins us for this week’s QuickHit, where explains why China is not going to stop being China. She also shares first-hand observation on the global trade trends — is it declining and by how much, what’s happening in cruises and cargo vessels, where do gas and oil shipments are redirecting, why June was worse than May, and what about July? She also shares the “star” in this pandemic and whether there’s a noticeable regionalization changes from Asia to Europe, and when can we see it happening? Also, what does Panama Canal do to be up-to-date with technology and to adapt the new normal?

 

Silvia is the Canal’s manager of market analysis and customer relations. She has 20 years of experience studying all the markets for them and is responsible for their pricing strategy, their forecasting of traffic and customer relations.

 

Panama Canal opened in 1914 with annual traffic of 14,702 vessels in 2008. By 2012, more than 815,000 vessels had passed through the canal. It takes 11.38 hours to pass through it. The American Society of Civil Engineers has ranked the Panama Canal one of the seven wonders of the modern world.

 

***This video was recorded on July 30, 2020 CDT.

 

The views and opinions expressed in this QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

 

Show Notes

 

 

TN: Recently, the CPB of the Netherlands came out and said that world trade was down by double digits for the first five months of the year. Obviously that’s related to COVID. Can you tell us a little bit about what you’ve seen at the Canal and really what you guys have been doing? Everyone’s been in reactionary mode. So what have you seen happening in the market?

 

SM: There are some trends that had been present before COVID like the movement of production from China to Eastern Asia and we think this is going to be accelerated by this pandemia. But I don’t think that China is going to stop being China. It will keep the relevance and the importance in global trade as they have today.

 

We think that probably, yes, we will see more regionalization. We saw the signing of the renewal of the NAFTA trade between Canada, the US, and Mexico. So we think that there may be something happening in that area. However, we don’t see that trade is going to stop. I mean trade is going to continue growing after this pandemic.

 

This is something that I would say very different from anything that we have experienced before because once it is solved, I don’t know if the vaccine appears and people start going back to the new normal, there will be changes probably to the way we do things and the consumer is going to be very careful and probably will change his habits in order to prevent contagion. But I think trade is going to continue.

 

We see some of these trends becoming more and more important or at a faster pace. It is not an economic crisis per se. Once the people are going back to work, the industry will restart their operations, people are going to be rehired. The economy should start recovering faster. We are not sure because there is no certainty with this situation.

 

We first heard about it early in the year with the cases in China. But then, it looked so far away. It was happening to China. It was happening to Italy. We didn’t think about it as something that was so important or so relevant. The first casualty was the passenger vessels. The whole season for cruise ships at the Canal was cut short in March and Panama went to a total lockdown on March 25.

 

It really started for us when we received the news of a cruise ship arriving in Panama with influenza-like disease on board that wanted to cross, which was the Zaandam, and the first one that we had with the COVID patients on board.

 

TN: And how much of your traffic is cruise ships?

 

SM: It’s very small, to be honest. It’s less than two percent of our traffic. But still, we see it as an important segment, not only because of the traffic through the Canal, but also because of what it does to the local economy. We have a lot of visitors, a lot of tourism, and that is a good injection of cash coming to Panama. It was the probably the end of the season but it was shorter than what we would have wanted.

 

TN: When we saw the first wave of COVID go through Asia, did you see a a sharp decline in vessel traffic in say Feb, March? Or was it pretty even? Did we not see that much? Because I’ve spoken to people in air freight and they said it was dramatic, the fall off they saw. I would imagine in sea freight, it’s not as dramatic but did you see a fall off?

 

SM: It started in January, which is the very low season for containers, which is the most important market segments in terms of contribution to tolls. When we saw that there was this COVID happening in Chinese New Year, everything was closed. We were in a slow season. So we didn’t see much of an impact.

 

And for the Canal, there is a lagging effect because we are 23 days away in voyage terms. So whatever happens in China, we feel it probably one month later. We expected January and February to be slow because of the normal seasonality of the trade. But then after March, I would say that April was probably the worst month for us. We were hit April then May was worse than April and then June that was even worse than than May.

 

TN: June was worse than May? Okay.

 

SM: June was worse than May. We‘ve seen four percent, ten percent, fourteen or sixteen percent decline each month. It was like, “Oh wow! This is really thick. This is really getting worse.” We had reviewed our forecast in April. And I think so far, it is behaving as we expected back then. But there’s nothing written about COVID. We are learning as we go.

 

I would say that container vessels were also affected these three months of the year. We have LNG vessels that were supposed to deliver natural gas to Japan, Korea, and China. And LNG had been behaving very badly all year. That is kind of a peak season for LNG and LNG has been having a hard time because the market were supplied and the prices were very low, so many shipments that were supposed to end up in Asia, ended up in Europe or other destinations that were more profitable for the owners. But when the price of oil collapsed and went negative, the prices of LNG were affected in the Middle East and became more competitive than the US prices.

 

We saw a harsher decline in LNG shipments. We see, for example, 30 percent less than we expected to see and by COVID in April, it was probably 50 percent below what we were expecting. It was major and Iguess it’s a matter of demand because since the whole Asia was locked down, there was no demand.

 

TN: When industry stops, you don’t need energy. It’s terrible.

SM: Exactly. It’s really terrible. It was terrible. But we had some stars in our trade that supported the situation like LPG, the cooking gas and obviously people were cooking more at home so the demand was high and we saw an increase in trade for LPG. It’s a good market for us, for the neopanamax locks, so in a way we are grateful that our trade has not suffered as much as we have seen in other areas.

 

TN: You said you declined into June. How have things been in in July, so far?

 

SM: July seems promising. We came from a from a very bad June that was closed probably 16 percent below what we expected to have. But July is about maybe seven percent below our expectation. But we are very concerned about a potential W-shape recovery because of the new cases that we have seen in the US.

 

TN: When we saw factories close across Asia in the first quarter and in some cases stay until the second quarter, did you see some of the folks who were shipping through the Canal start to pivot their production to North America?

 

SM: It’s probably too early to say. We will see the effects of COVID probably in terms of near shoring maybe in two years. I don’t think that the companies or the factories are so quick as to move the production especially during this period in which everybody is still trying to cope with the situation.

 

TN: And manage their risks, right?

 

SM: Yes. So I don’t see that happening anytime soon. But it’s probably something that the factories and the companies are going to start speeding up and diversifying their production.

 

TN: And as you said earlier, China’s still going to be there. China’s not going to disappear as an origin, right? What I’ve been saying to people is it’s incremental manufacturing that may move. It’s not the mainstay of Chinese manufacturing that’s going to move or regionalize. They’re still going to do much of the commoditized manufacturing there because the infrastructure is there.The sunk cost is there, and they need to earn out the value of those factories. I like your timeline of two years before you really start to see an impact because we may see some incremental movement and maybe some very high value, high tech stuff or something like that move first but the volume of things probably won’t happen for at least two years. Is that fair to say?

 

SM: I would say so and I would add that we have seen these shifts to Vietnam and Malaysia and other countries in Asia, but we still see containerized cargo shipping from China. The volumes are still not high enough to be shipping directly from those countries. The container may come from Vietnam and or from Malaysia and they come to Shanghai or to another port in China. They consolidate the vessel there and the vessel departs from those ports. So in terms of Canal, for us that is good news. And I would say that probably Korea is trying to attract that tradition as well. So the long voyage will start in China or in Korea or in Japan instead of these other countries that are further away from our area of relevance.

 

TN: That makes a lot of sense. Just one last question. How do you see transit changing over the next five to ten years? What are you seeing from the Canal perspective in the way your operations will change?

 

SM: We are still adjusting to what is happening. We have always been very regulated in the best way. What I mean is that we have always had our protocols and codes for attending every situation. We have our protocol for infectious diseases that was the basis to start working with COVID. We think that at the canal probably, what we will see in the future is more technology to improve the operation. I’m not sure exactly how, but definitely there are machine learning and artificial intelligence that may help us be more accurate in our forecasts and probably organize our traffic in a way that is faster or we make better use of the assets. The canal is 106 years old. We have been adjusting every time to the new ways of the world, and we’ll continue to do so as a trade enabler.

 

TN: That’s right. Silvia, thank you so much for your time. This has been very insightful. I really do hope that we can connect again in some time and and just see how trade recovers and what we look like maybe going into 2021 or something like that. Okay. Thank you so much.

 

SM: Thanks to you.

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QuickHit: Europe is undergoing a ‘partial’ regionalization

In this QuickHit episode, we’re joined by Velina Tchakarova, the Head of the Austrian Institute for European and Security Policy, to talk about the Europe reconfigurations and regionalizations on global supply chains, manufacturing, digitalization, and other industries.

 

The Austrian Institute for European Security Policy is a think tank, which works very closely with Austrian and European institutions. They provide a macro perspective for geo economic to strategic, geopolitical perspective on current and future developments in the fields of security and defense.

 

***This video was recorded on July 27, 2020 CDT.

 

The views and opinions expressed in this QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

 

Show Notes

 

TN: But it seems to me that you’re also seeing, observing ,and commenting a lot on things that are happening in China. And we’ve started to see a lot of structural change in western diplomatic and political and economic relationships with China as well as supply chains. What we’re seeing here in the States is a bit of a decoupling of supply chains from China and North America. So a little bit of re-shoring and I’ve been curious for a long time, is that same thing happening in Europe now? And what do you expect that to look like if that’s the case?

 

VT: I don’t have a ready answer but I can provide you with two main narratives that are right now relevant for the situation here in Europe.

 

On the one side, there are many, many statements coming from the highest ranking-level. One of them was the French President Macron or take the European Union Commissioner for Industry and they were namely sharing this view that globalization had went too far. Now, Europe has to take care of its own. They call it “strategic autonomy.” That means that in fields that are of strategic importance, specifically geo-economic fields, strategic sectors, strategic industries, that some of them have to go back to Europe. On the side of the so-called geopolitical commission, there is this clear statement that we want to introduce a green transition, a carbon-free economy by 2030, 2040. That means that dependencies on raw materials, on metals, and stuff like that is going to be cut and this is still in place because China has a huge market share.

 

Now on the other side, there is also the narrative coming from highest ranking politicians and representatives that the “strategic autonomy,” in terms of global supply chains is not possible. And that this kind of COVID 19 responses were crisis-related. Some part of the re-shoring was due to crisis response, to crisis management and once things start working again post COVID 19, we are going to go back to business.

 

We know that certain European member states have very strong economic interests in expanding relations with China and right now. I can name one of these countries that’s Germany. The German presidency of the European Council has began and there is no secret that the topic China was on the top of the agenda for the next six months. Now with the shift in terms of certain perceptions when it comes to dependencies on China, things are going to move slower. We’ll be slower. That means investment deals, negotiations that were planned are not going on according to the pre-COVID 19 plans.

 

Investment deals between Europe and China is a very important point. Investment screenings, buying up of companies in Europe that have declared defaults, all of these things are going to be on the agenda for the next six months. There is a debate on reconfigurations of global supply chains going back to Europe. But on the other side, there is an expectation to go back to business because the economies have been struck and have been hit very hard by COVID 19. And so we are right now somewhere in between.

 

TN: Five or eight years ago, there were a number of infrastructure pieces that were sold to Chinese SOEs — in the Puerto Peres, in Greece and the Portuguese electric utility. We had a number of things that were actually sold to Chinese SOEs that’s been slowed down quite a bit. In terms of supply chains, I was involved in that first generation of Eastern Europe build out of manufacturing in the mid to late 90s. And when China joined the WTO, we saw a lot of that manufacturing and the fixed asset investment associated with it moved to China in the first half of the 2000s and then accelerate.

 

Do you expect a scenario where we see reinvestment in Central and Eastern Europe for regional manufacturing? Do we expect a rebirth of that manufacturing or is that something that’s bygone era? We’re going to continue to see centralization of manufacturing in China or other parts of Asia and Central and Eastern Europe is kind of passe? It’s kind of very 20 years ago?

 

VT: We have to tell first and foremost the facts. And the facts are that two-thirds of the trade that takes place within the European Union is actually an inter-state trade. It’s taking place between the member states. So in that context, there will be no necessity for reconfigurations at all.

 

But what I am expecting to happen is that due to this decoupling between United States and China, and also due to the increasing awareness in the European capitals in terms of dependencies on China, there will be a reconfiguration to some extent.

 

So partial reconfiguration, which will be initiated, will be supported by the European institutions. The very fact that we have a European Commissioner now for industry points to the increasing realization of how important this. In that matter, there will be certainly a partial reconfiguration coming back to Europe. Not just manufacturing. We are talking also about digitalization, that it has to take place. We are still actually in the middle of the process of a fourth industrial revolution.

 

Six months ago, there was almost no discussion on 5G Huawei being initiated and supported by Huawei, by a Chinese company. Now with COVID 19, there are already strong signals and decisions in United Kingdom, in France. There will be some similar reaction in Germany that a 5G being introduced by Huawei will not be in the interest of European sectors. So this digital transition will certainly be also part of this reconfiguration of global supply chains. Partially, like I said. We should not expect too much. But there will be certain, certain expectations are already in place that this is going to happen.

 

TN: We’ve talked about from Complete Intelligence for the past couple years how our hypothesis has been that Europe would be the biggest loser of a US-China trade war. The reason we expect that is once China cannot export its deflation to the U.S., it will have to export that capacity to Europe because Japan has already, after the 2012 protest of Japanese factories, Japan’s already ramped down its imports from China. As the U.S. is gradually decoupling, it just seems that it’s likely that more deflationary goods will go to Europe and potentially hollow out European manufacturing even more. Is that something Europeans are thinking about? Or is that something that just seems a little too far out there?

 

VT: Right now, I have the feeling that our stakeholders and political decision makers are preoccupied with coping with the post COVID 19 social, economic repercussions. It’s all about how to revive the economies. So there is no serious debate right now on that matter.

 

But I think this is a very important issue that you’ve addressed. From a current perspective, I don’t see how Europe has a strong position, a strong card on that matter. On one side, there is the systemic decoupling taking place. On the other side, there is a trade surplus between the European Union and United States. And we all know that the U.S. President Trump is not in favor of institutions such as European Union. I am expecting pressure that he will probably impose on the European Union in order to provide a strong narrative prior to the US election.

 

The geo-economic relations between the United States and the European Union, that means the European member states are going to deteriorate. That’s my expectation. In terms of re-election, this is going to be further the case. Political decision makers in Europe would have to find other geo-economic allies. They will probably look for solidifying business interests. This narrative of going back to business with China is quite strong right now in European capitals without thinking of the long-term implications. I’m not saying that I personally agree with it. But I’m just outlining the reality the way it is.

 

You mentioned Japan. There are also other strong regional partners and regional players. Here, the European Union has on one side a regional card to play with the European Commission how to trade deals. This is something that they are going to push for. But on the other side, when it comes to the member states where the political narrative is being pushed and decided on in the capitals. Right now, it’s all about the French, German access because of the exit of the UK from the European Union.

 

I expect that there will be further push for solidifying business relations with China in order to have a sort of an exit plan in case that relations with the United States deteriorate. In the European capitals, everyone is hoping for Joe Biden to win the election in November because if that is not going to be the case, the expectation is that the relations specifically geoeconomics, they are going to deteriorate.

 

TN: A lot to think about. Velina, thank you so much for your time. I do hope we can reconnect in a few months just to see how this stuff kind of bears out over the next few months, and again thank you so much for your time this has been really, really helpful for us.

 

VT: Thank you for having me and stay safe and sound.