Things are happening as we fear they would.
I know, stocks and bonds have been going down. Asian currencies, including the yen, have continued to free fall.
The US dollar – a currency that was shunned 11 years ago, has returned as the safest currency to own for investors.
Last week, the Fed continued to raise interest rates by another 0.75%. That’s the fourth consecutive hike this year.
I believe, the war against inflation is scarier than the current one in Ukraine — more and more people continue to chase a smaller number of goods and services.
Jobs data and unemployment rates also point to a tight labour market – businesses are trying to fill up job roles.
Well, that’s what’s keeping Fed Chairman, Jerome Powell up at night: how to slow an overheated economy?
He has also said the Fed is not going to pivot for now.
Though he would consider reducing the amount of increase maybe in the next meeting, or the meeting after next. Who knows?
A changing epoch for the British Empire
Meanwhile, in the UK, the pound struggles to keep above the “dollar parity”.
Yields on the 10-year Gilt, or the UK government bonds, breached 4.4% last month, inching closer to the peak yields in 2008.
The UK now suffers from double-digit inflation, driven by food and energy prices – and has hit the highest level since April 1980.
UK, once the hegemony of the world, still has to face a Brexit mess.
And you know, it remains to be seen how another fresh change of Prime Minister can pull the British economy out of a rut.
Is the death of the Queen truly a changing epoch for the British economy – who knows?
The world’s second largest economy under stress
Nothing in particular came out from China’s recent 20th Party Congress Meeting held last October. But just last week, a mysterious and unconfirmed post had claimed top officials are mulling over a reopening of the 1.4 billion populous economy.
No one knew who wrote it, no one knew whether if what was said, was true.
Though a screenshot of four paragraphs in Chinese showed China’s reopening plans — China’s “No. 4 official”, Wang Huning, one of the seven most powerful men in the Politburo Standing Committee had held a meeting of Covid-19 experts – at the request of China’s President Xi Jinping.
As a result, China stocks rallied last week.
Of course, I wasn’t surprised Beijing later on came out to say there weren’t any rumours.
Again, who knows?
If I could tell you what happens next, I wouldn’t be sitting in my desk this morning writing. While I know facts can mislead us, but rumours, they can be revealing at times.
Economists and strategists now say, the world’s second largest economy. will ease up after their planetary session in March next year.
I’ve no prediction of an exact date to China’s reopening.
Are things as bad as they seem?
But I know, China at some point has to open up.
The country is already close to full vaccination, businesses — retail, travel, commodities, factories — have to run as normal. At some point China has to tell themselves Covid-19 is here to stay.
There are companies shifting out of China, or diversifying away from the Chinese economy. But you cannot ignore China. The economy is simply too big to avoid.
Think about it, Starbucks recently reported in their third quarter results, they now have 6,000 stores in China. And the specialty coffee maker will continue to expand into the mainland.
Apple, the world’s most valuable company today, sells a fifth of their products and services to China.
What’s more, Apple recently had to tell its customers they have to wait longer for their latest iPhones, as shipments of the latest premium iPhones will be lower than previously expected, after China lockdowns affected operations at a supplier factory.
China has made a point to the world – ignore China, and you suffer.
Yet, China still has a long way to go to fix two of their biggest problems today – regulating big tech and managing their property debt bubble.
But what I know people across the world still need to eat, buy stuff and go on with their daily life.
And perhaps, as investors, as business owners, that’s perhaps what we should continue to know about.
Sometimes, investing can be simple.
Willie Keng, CFA
Founder, Dividend Titan