Up in Smoke

The big news of the day is, of course, the worst wildfire season in Canadian history. Even though it has only just begun, it is already deeply engulfing major US cities from the Midwest to the Atlantic in an apocalyptic, “blood moon,” painful-to-breathe atmosphere of smoke. So severe is the impact — cutting off flights into and out of New York, forcing people to stay inside by the millions or mask back up (this time truly for their health or comfort, especially those who suffer from asthma or COPD and similar ailments) — that the president of the United States is calling out US firefighting resources to go up to Canada and help battle the blazes. With flights out of NYC cancelled due to inability to see the runway even with lights on, the dark cloud is almost inescapable if you are engulfed in its toxic air and need to get out because of lung conditions. That also means it is starting to strangle commerce.

But it is not just Canada and clear blue skies that are up in smoke. The time that I promised would happen as soon as the debt ceiling was lifted is engulfing the bond market, carrying yields skyward and snuffing out the stock market’s recent rally into a smoldering mess by outcompeting stocks for safe returns, as I warned we were certain to see. Jobs also appear to be putting in the turn that I said a month ago I expected to finally begin to show as we move into summer. Initial jobless claims have now turned up to where they were at the tail of the Covid crisis back in October of ‘21, which ended the biggest unemployment surge in the nation’s history.

This morning, famed billionaire Stanley Druckenmiller, who struck his riches at the start of the Great Recession by calling the crash exactly right, affirmed the claim I made in yesterday’s special and maybe controversial article about there being “A Lot of Bull in the China Shop.” Druckenmiller, who says he used to be really big on China as the rising economic giant of the world, now sees China as the fallen Goliath, having brought ruin upon itself because of Big Xi’s policies:

I was in love with China until about six or seven years ago… The energy in Shanghai was like New York on crack… the entrepreneurs were exciting, they were into it, and then Xi Jinping did his thing. If you look at the rise of China… you had this internal capitalist system… building new businesses in a dynamic economy, but (Xi) has proved he is not a capitalist, he’s definitely not a monopolist – there’s only room for one monopolist in China in his mind and that’s him.

That was my theme in yesterday’s exclusive article for supporters — that Xi has proven himself to be nothing but an old-fashioned Chinese Communist dictator, and his polices are responsible for terrible destruction of China’s economy — far worse than many in the alternative press seem to be realizing. Says, Druckenmiller,

I honestly think he either doesn’t understand why China succeeded and grew the way it did, or frankly, he doesn’t care in terms of staying in power. I would be looking out ten or 15 years (and) I just don’t see it. Unless there is a change in power there at the top, I think that is going to be a very undynamic economy… If I’m right that makes me more fearful of military action because that’s when dictators become more dangerous. What they are doing now is very simulative. We’re expecting a sugar high and some kind of robust growth there for six or nine months, but looking out I do not look at them as a big challenger to the United States in terms of economic power and growth…

My thesis exactly, except I’m even dubious about the sugar high. Unless Xi gets Xipped into a body bag, you can forget about China being an economic contender to the United States and about the yuan ever replacing the dollar as the global currency for the multitude of reasons I laid out in that article, which are already happening. My own article, for example, pointed out just how seriously the yuan is falling along with China’s economy due to Xi’s Xiro-Covid policy that shut the nation down for business longer than any other country on earth, creating greater Covid destruction than any other nation saw … as well as his Covid weaponization of the world’s first central-bank digital currency.

The damage is also far worse than than the always over-ebullient stock market fantasized when China started to reopen back in January. Just as I said a few years ago when the US reopened after its very brief stint (comparably) with lockdowns, “You will know what the true damage is, not by how quickly things start back up — which will be quickly — but by how much didn’t restart when the startup period is over.” We found out. The labor market broke down and has been broken ever since — tight not because there are so many jobs but because there are so many fewer workers, forcing production slowdowns and shortages. Supply-chain troubles still persist to some extent, and debt due to all the bailouts made necessary by the business lockdowns is piled mountain-high. China’s situation is far worse because they closed far more aggressively for a much longer period.

Also, popping up in the news today is another thing I noted in that China article we could probably expect due to the dam that collapsed in Ukraine — a much greater worsening of Ukraine’s ability to supply grains and other food products to market, especially Europe. Today’s news says millions of tons of agricultural products have been put at grave risk because of the dam’s collapse. I brought that likelihood up yesterday in the article before this news came out because drought has devastated crops in China and is killing livestock, while rains have devastated crops in other areas of China. The same, I pointed out, is happening in America where we see in today’s news stories of drought destroying crops on a huge scale and stories of rain keeping fields flooded so they cannot not be planted.

It seems odd to see both drought and rain simultaneously causing huge crop losses in both countries; and, of course, it is all being blamed on global warming without the benefit of any scientific evidence to prove a direct cause and effect between the global warming and the contradictory extended rains, high snow levels and long-term droughts. It’s just an assumption that, because the combination is weird, it must all be due to global warming, just like is claimed for the Canada wildfires. It’s now a knee-jerk claim every time the weather is severe.

But here is the critical thing you need to know from these articles: Whether it is or isn’t all due to global warming (and I’m not coming down on one side or the other), US grain production is way down, Chinese grain production is way down. Ukraine’s grain production is way down. Food is a global market. When staples are down in one nation, that nation reaches to other nations in order to be able to feed its people, pushing prices up with demand in those nations. These three nations are THE major breadbaskets of the world, and the grains involved are used in thousands of food products, having serious implications for the future of food — especially in nations that cannot afford the inflation that will come from bidding up short supplies in competition for survival.

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