Xi’s Pivot- Following the Bouncing Ball

The zero Covid lockdowns in China make little sense if not considered as the critical component of asymmetrical warfare against the West and in particular the dementia Brandon puppet lead US.

The lockdowns have slowed the Chinese economy and curtailed exports aka the supply chain. But the Chinese leadership are accepting of taking a hit to bring down the paper tigers of the West. After all and par for the course the leaders and The Party are unaffected, the burden falls on the people.

It has also impacted the western supply chain in China itself. This tit for tat follows US sanctions put on semiconductors imported to China. China in turn has ordered a seven-day lockdown of the area around Foxconn‘s main plant in Zhengzhou. That will severely curtail shipments in and out of the world’s largest iPhone factory, which is responsible for 80% of capacity for the iPhone 14 series.

The result is being called the “great escape” as the workers in Zhengzhou clear out and hit the road.

#Foxconn workers in #Zhengzhou continue to escape from the #iPhone city on Nov 1. The dorms are empty, every has gone. Foxconn has increased the full attendance bonus to over 18K yuan ($2469) per month to encourage workers to stay. But they keep leaving. pic.twitter.com/n4L5G8tD1i

— Jennifer Zeng 曾錚 (@jenniferzeng97) November 2, 2022

Apple is really the last FAANG bubble stock left standing. We saw AMZN massacred last week after earnings. The FANNGs are super-mega caps and their fall to pre-Covid levels bull trapped and destroyed the perceived wealth of many Americans.

The other front in this asymmetrical war are resources such as energy, metals and food. The zero Covid policy has restrained the USD prices of these resources of late. This has been amplified by Dementia Brandon’s puppetmasters reducing the strategic petroleum reserve into the market.  A portion of this oil makes it’s way into exports. Once that happens oil becomes fungible, in other words hard to track. It makes it’s way to China. As part of the art of war chess game China has also aggressively stockpiled oil from Russia to help keep that country afloat.

Now as SPR oil sales wane (Nov-Dec likely to see ~400,000 b/d compared to >900,000 b/d from May-to-Sept), the US oil market and inventory is going to come under greater pressure. Next few weeks could see some hefty draws, requiring higher prices to pare down demand.

Biden drains Strategic midterm reserve below 400MM barrels for the first time since May 1984. All for nothing.

Including 1.9MM SPR drain, total crude inv dropped -5MM.

SPR drain finally over in a few weeks. pic.twitter.com/OgkiHm7c5Z

— zerohedge (@zerohedge) November 2, 2022

A critical Achilles heel for the West is insufficient and old refining capacity. 1. Since the 1980s, refineries have been cut from 300+ to ~130. 2. Diesel demand has doubled over that time. 3. So diesel inventories are at an all-time low.

Pernis, largest diesel refinery in Europe (the Netherlands) is down. Traditionally the EU has imported diesel from Russia.

A decline in global refining capacity, especially in Europe and the United States has curbed the supply of the fuel that is essential for every economy and now there are warning signals flashing on both sides of the Atlantic.

Elaine Levin, president of Powerhouse, an energy risk management consultancy firm, noted that the diesel industry is “running on fumes.” It is especially acute in the eastern US.

Incredibly at least up to now, and despite shortages developing, the US has been exporting finished petro.

As far as the heating crisis, Europe has caught a break in late autumn as the weather has been unseasonably warm and comfortable. But Russian and Chinese war planners must be eyeballing a cold period developing going into December.

Bloomberg: Some Northwest Europe forecasts point to cooler-than-normal conditions from late November pic.twitter.com/l6ghJ39dvH

— 🅰🅻🅴🆂🆂🅸🅾 (@AlessioUrban) November 3, 2022

China is one of very few countries in the world that has the refining capacity to boost diesel production significantly enough to alleviate some of the pain and/or use it as leverage in the asymmetrical war.

Chinese refiners have increased their crude oil purchases ahead of the year’s end.  According to Bloomberg, Chinese companies have bought at least 10 million barrels of crude over the past week, mostly from the Middle East, West Africa, and Brazil.

Besides the weather turning Russian and Chinese war planners must be salivating over the big surge in “unplanned” refinery maintenance going into November and December. Trouble on the high seas for LNG tankers is also in play during this period.

Chinese and Russian war planners also have to be chomping at the bits at the inventory levels in the metals fundamental to economic activity. Add to that rare elements, which are largely produced in Eurasia and China- unfriendly to the West.

The USD is trading completely devoid of fundamentals. The trade deficit is running amok.

Meanwhile central banks and I would suggest in particular China are gorging on gold. They have been gorging on all kinds of strategic resources and commodities.

Central Banks Are Quietly Buying Gold At The Fastest Pace In 55 Years https://t.co/4Jo1pGsHG7

— zerohedge (@zerohedge) November 3, 2022

Observant readers who have been paying attention to the data points on this page should be able to fill in the blanks about where Russian and Chinese war planners are going. They will flip the switch on the zero covid policy, declare some sort of con job victory and open China’s economy back up. There were rumors to this effect on Friday and resource commodities spiked. The real follow on effect will be a brutal shortage led crack up boom in the west.