‘With the election of Joe Biden confirmed, Australian policy makers must’ve been in a panic,’ says Nick Hubble, editor of Jim Rickards’ Strategic Intelligence Australia.
‘They’d chosen to confront China for its COVID-19 reaction, its treatment of the Uighurs, and on 5G. In fact, in many ways, we led the world in challenging China. And we paid the price, earning China’s ire.’
Recently, Tasmanian cherries joined the growing list of Australian resources, goods and services being shunned by China.
Cherries are popular gifts given in China during the Lunar New Year. And Tasmanian cherries are supposed to be in a league of their own.
But China is using a particularly rainy cherry season as an excuse to switch to cherry supplies from Chile.
According to Nick Hubble, China’s trade war with Australia is only going to get worse in 2021.
He says the worry was we’d overplayed our hand in trying to pander to the US, which is now less inclined to confront China with Biden in office.
‘This has investment implications. Defence stocks are back on my watchlist, for example. It also bodes ill for Aussie businesses exposed to China. Which aren’t necessarily the ones you might expect…
‘Consider that commodities are fungible. If the Chinese stop buying copper, coal, and iron ore from Australia, this doesn’t mean our commodity producers are in trouble. They simply sell elsewhere, just as the Chinese buy elsewhere. The market is global. So, the consequences of China’s aggression are small.
‘There is however a short-term disruption. Which has, so far, caused commodity prices to spike. And our commodity producers’ share prices too. It’s an example of how a counter-intuitive result can make sense in financial markets.
‘Meanwhile, Aussie goods and services which are more reliant on China directly — such as tourism and wine — could continue to struggle.
‘Let’s wait and see what Biden actually does before confirming this new trend though…’
Nick delves in detail into Australia’s new economic standing in the post-COVID world in the bonus chapter of Jim Rickards’ latest book.
The New Great Depression: Winners and Losers in a Post-Pandemic World
And while I don’t agree with all the conclusions Jim and Nick draw in the book, I think it’s nonetheless required reading for Rum Rebellion readers.
Jim’s revelations on the origins of the virus alone — and the investment implications — are pretty fascinating.
And the strategy section for private investors is a must-read for any investor concerned about the future impact of lockdowns, reduced economic growth, and more years of massive monetary intervention.
The New Great Depression is now in publication internationally on Amazon. But it doesn’t hit Australian bookstores until 23 March.
Jim, however, has managed a bit of a coup for us with his international publishers…
Not only has he arranged for Rum Rebellion readers to get early access to an eBook version…
…this early-access version comes with an exclusive Australia-focused chapter.
We’re going to show you how to get a personal access code to read it soon.
I strongly encourage you to do so.
Jim just sent us a quick preview video of the exclusive Australian edition.
I’ll show you how to view it in a second.
The worst is still ahead
As the title suggests, Jim believes the economic crisis the world now finds itself in one year on from the virus emergence is a ‘New Great Depression’.
As he wrote to his readers last week:
‘Not all market crises are created equal. Some are more severe than others. They also vary by type. A financial crisis originates in the banking system but can spread to the broader economy. An economic crisis originates in the real economy but can spread to the banking system. Sometimes we experience an economic crisis, sometimes a financial crisis, and sometimes both.
‘These distinctions are important to bear in mind both to understand the current market environment and to forecast what comes next. For example, the stock market crash of 1987 and the Long-Term Capital Management meltdown in 1998 were both examples of financial debacles that did not hurt the real economy. In 1987, the stock market fell 22% in one day. In 1998, global markets came within hours of shutting down completely. (I know because I negotiated the LTCM bailout and spent days on the phone and in meetings with global financial officials to bring the crisis in for a soft landing.)
‘But, in neither case was there a recession, spike in unemployment, or other economic distress. The losses were all financial.
‘Sometimes a financial crisis does result in an economic crisis. That’s what happened in 2007–09 when a meltdown in the mortgage market led to the collapse of Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers, and AIG. That was a financial crash that turned into a severe economic recession with spikes in unemployment, sharp drops in GDP and world trade, and a bailout of the auto industry.
‘Where are we now? The 2020–21 crisis so far has been economic and not financial. The economy is limping, unemployment is high, but the banking system has held up well. We’ve had the worst recession since the Great Depression, but no financial panic yet. But, we’re not out of the woods.
‘… a financial crisis may be on the horizon if the pandemic and recession are not over soon.’
Jim cites a recent interview with Carmen Reinhart, chief economist of the World Bank and a former Harvard professor.
She says that the longer the US recession persists, the more bankruptcies will pile up and the more credit losses will fall on the banks.
‘At some point, the economic crisis morphs into a financial crisis as stress builds on the bank balance sheets. Then all bets are off. It’s too soon to come out of the foxhole. The worst may still be ahead.’
As I said, we’re in the final stages of getting Rum Rebellion readers early access to an exclusive Australian version of The New Great Depression.
Its Australian bonus chapter is called ‘Long COVID Decade Australia: What happens next, how to prepare’.
We’ll show you how to download your own personal copy in the next few days.
Editor, The Rum Rebellion
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