A Nation in Facemasks: Disease Control and Total Control

“So we arrive at Shanghai middle of the night. EVERYONE has facemasks on. Ground crew, loading guys, mechanics, our gateway handlers, customs agents. Everyone.”

shanghai

Facemasks… “Everyone.”

Thus begins an email from a friend of many years, a pilot for an international cargo carrier.

He was in China at the end of January — just a few weeks after the new and deadly form of “coronavirus” started capturing the world’s attention.

His report is sobering — especially considering things have no doubt gotten worse since then.

We can’t be sure, though, because China keeps escalating its “people’s war” against the viral disease — which has led to a complete government crackdown.

In the West, mainstream news tells us some of the story; but not all. Too busy creating political narratives, I suppose. Impeaching Trump. Stopping Bernie. Whatever.

From where I sit, people seem a lot more optimistic than they should be. Just look at the constant stock market highs for proof.

But the fact is, what’s happening in China is about to affect you in a big way — no matter where you live or what you do.

Facemask? Biohazard suit? Doesn’t make a difference.

You will feel this thunder out of China sooner or later… and probably sooner.

Here’s why…

“We passed two FedEx guys processing thru customs,” my aviator correspondent continued. “Of course, they had masks on.”

Then, “Arrived at our hotel an hour later; again, everyone has masks on. I asked the check-in clerk at our deserted hotel if they had any extra masks, and she gave me three for me and my crew.”

empty street

“Ghost Town” of Shanghai, population over 24 million.

“Shanghai was a ghost town while I was there. It was Lunar New Year. However, it is a city of around 24 million and the sidewalks were empty. The hotels empty. Businesses closed. And I don’t think it’s going to get back to normal anytime soon.”

Indeed, I doubt that anything will get back to normal. Not in China or elsewhere, as a matter of fact.

But what is “normal” for China, anyhow? It’s a tightly controlled communist state on the best of days. Considering what’s currently happening, how could “normal” even begin to make a comeback?

Right now, tens of millions of Chinese are in quarantine; perhaps hundreds of millions, based on some reports.

Tens of thousands of Chinese are ill; perhaps hundreds of thousands, again based on alternative news sites. Police arrest people for being sick. Off they go to quarantine sites.

Hundreds of Chinese have died; perhaps thousands or tens of thousands, depending on whose news you want to believe. By some accounts, crematoriums in Wuhan (and now, other cities) are working 24/7, burning bodies.

Meanwhile, the entire spectrum of Chinese state power is mobilized, from local police and militia, through the country’s army. It’s a “communist” thing, right?

As China wages war on illness, the collateral economic damage is vast. It’s bad and getting worse.

The U.S. State Department has advised Americans not to travel to China; not that travel is even possible. Airlines have cancelled service to/from China. Everything.

Think about that… Delta, United, American, Air Canada, British Air, most other European carriers. All flights to China… cancelled.

It was a quick decision by airline management groups. They had no choice. Pilots and flight crew simply told the bosses that they refused to fly to China. No one wanted to risk getting sick and losing their aviation medical clearance. Let alone risk getting sick and dying.

So people don’t travel to/from China. It makes for empty hotels and restaurants. Business and tourism don’t happen.

Next, consider all the grounded aircraft, idled flight crews, ground crews, maintenance, catering, fuel, airline tickets and taxes… Cancelled.

Over time, that’s billions of dollars in cash flow that’s not flowing.

It also means there’s no more scheduled Western-nation airline service between North and South America, and China. And almost none out of Europe.

In other words, three continents have self-isolated from China.

And consider Russia, with its budding “strategic partnership” — Putin’s words — with China. Yet Russia has closed transit and commerce along its long Chinese border. Nothing gets through.

It’s not just traffic to/from China that has hit the rocks. Global trade with China has all but fallen off a cliff.

Ships don’t sail, cargo doesn’t move — like U.S. wheat and soybeans — and a lot of canal passages (Suez and Panama) won’t happen.

The Baltic Dry Index (BDI), which tracks rates for cargo ships that move dry bulk commodities, has tumbled to its lowest level in over three years.

Other shipping has been torpedoed as well. Per Reuters, “China’s (virus) is throwing the global container shipping trade out of sync, with lines re-routing cargoes and reducing calls to Chinese ports, setting the scene for months of delivery delays ahead.”

By one estimate, up to 100,000 China-origin containers per day are disrupted.

If you trace things back, every container comes from a factory somewhere in China. But now the workforce may be under quarantine or unable to get to their job. Or even to obtain raw materials or component parts. Think about factories now unable to ship goods to port facilities.

ALTTAG

Your editor and idle cargo cranes, recently in Vancouver.

If you extrapolate forward, that’s a lot of containers that won’t unload in the U.S. or Canada. A lot of containers that won’t roll cross-country on railcars or trucks. And cancelled deliveries that will never hit the shelves of Walmart, Target, Best Buy, Home Depot and many other places that offer Low! Everyday! Prices!

Meanwhile, global oil markets are in turmoil. Per the New York Times, OPEC nations and Russia are scrambling to deal with falling Chinese oil demand.

Crude is hitting lows not seen in a long time. Platts, a price-tracking firm, foresees oil in the $40s.

The Wall Street Journal reports that China’s coronavirus is “bruising America’s oil patch.” Falling prices are devouring energy company profits. This comes after several years of growing debt for expensive fracking. Now, loans plus interest are due. The implication is a looming wave of new bankruptcies across the U.S. oil patch.

Natural gas prices have plummeted, too. This reflects a collapse in Chinese demand for liquefied natural gas (LNG). The Asian benchmark price is currently at an all-time low, per Platts. Hundreds of billions of dollars of capital investment in LNG has gone “negative return.”

Airlines… energy… two big industries that are being stricken with coronavirus. They’re not the only ones — not by a longshot.

Consider Yum China (a division of Yum Brands), which operates Pizza Hut, Taco Bell and KFC food outlets in over 1,300 cities across China. The company shut 9,200 restaurants and stated that profits would be severely hit by the virus outbreak.

Need more? OK:

  • Copper and iron ore prices have tumbled as Chinese orders have ceased. There’s no new China demand; none. This affects numerous suppliers and national accounts from Africa to Australia and South America.
  • South Korea’s Hyundai motor car company has closed all factories due to lack of parts from Chinese suppliers.
  • Honda and Toyota closed auto assembly factories in China due to lack of parts. Tesla may follow. Japanese and U.S.-based factories will eventually run short of parts as well when the shipping containers don’t arrive.
  • Qualcomm foresees trouble making computer chips due to supply interruptions from China. This will slow output of smart phones from several downstream producers, including Apple.
  • PPG Industries — a major supplier of automotive paints and industrial coatings — has closed Chinese facilities, and may slow production in other countries due to lack of materials from Chinese suppliers.
  • Sales of luxury brands such as Gucci, Versace, Kate Spade and more have plummeted from lack of Chinese demand. In part, it’s due to the sudden demise of a formerly robust tourist trade for high-end brands that comes via planeloads of Chinese visitors… Visitors who no longer walk the streets of London, Paris and Rome due to no more airline flights. And sales in Chinese stores have all but ceased.
  • Even Canada Goose has problems. The maker of fashionable winter coats — beloved by college kids and upscale millennials — announced that China’s “health crisis has resulted in a sharp decline in customer traffic and purchasing activity.” According to a company news release, “Retail stores and e-commerce across Greater China have and continue to experience significant reductions in revenue.”

The trickle-down effects of these stalled markets should be obvious to any reasonably savvy investor, let alone the pros. But you wouldn’t know it from looking at the rise in major indexes.

Where’s the fear? Why so much optimism?

It could be that everyone sees coronavirus as a temporary problem — one that will soon go away thanks to a combination of medical science and Chinese resolve. “Resolve” being a polite way of saying, “controlling the country with an iron grip.”

Surely, you’ve heard stories about China’s tight control and censorship.

But the new virus has made things even worse. Controlling that virus means survival — or not — for the CCP. Thus have China and its Communist leadership cadre pulled out all stops. It’s medical martial law.

Entire provinces are isolated. Officially, about 60 million people are quarantined; perhaps more, and maybe many more. As in hundreds of millions.

Just at 60 million, think in terms of “quarantining” the entire population of California and New York. Or all of Argentina and Chile. Or all of Italy, or all of South Africa. Ring-fence the places and tell people not to come out until the virus begins to subside… Or you’ll shoot them.

Most people in affected areas are confined at home, with (if they’re fortunate) one family member allowed outside every few days to buy food and medical supplies if such are available. Police and rubber-suited medical personnel enforce the situation.

Will this work? Can China and its CCP get this mess back under control? Well… We’ll see. But so far, it’s not working.

And more worrisome, you have to consider something else…

What if this level of state control — a top-down, draconian, national-scale lockup — is actually the “best” way to stop a deadly disease with long latency and high mortality. And if the alternative to rigorous state control is not hundreds of thousands, but millions or tens of millions of dead. As in… nuclear-war levels. Or bio-war levels.

Oh yes… We love our so-called “freedom” here in the West; those God-given rights to say what we want and do as we please. Government can’t push us around, right? But beware the spreading bug. Coming soon to a quarantine site near you.

And stand by to be mentally, morally and ethically challenged if — or is it when — that Chinese virus leaps the ocean, lands on our continent and then breaks out.

China’s virus is already playing havoc with the global economy. It’s going to smack-down many overvalued plays and players. And beyond that, if that virus breaks free it’ll play havoc with every belief and social myth we hold. It could be a sickness that surpasses biology.

On that note, I rest my case.

That’s all for now… Thank you for subscribing and reading.

Best wishes,

Byron King

Byron King
Managing Editor, Whiskey & Gunpowder
WhiskeyAndGunpowderFeedback@StPaulResearch.com

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