Welcome, last week was a bit of an aberration as I went on a last minute trip for my uncle’s birthday that I didn’t realize I would also be organizing all of the events for. So I missed last weeks review post. This week we will be looking forward while also reviewing macro events from The Post I made at the beginning of last week on 8/14/22.
Due to this, it’s possible I may miss my guarantee of 8 paid posts a month in August. If that occurs, then everyone who is a paying member on September 1st will be comped a free month. If you were around in March, you were also comped and know that I’m serious about meeting that goal in order to feel as if a fair exchange of value has occurred. I also will not put out paid posts that I do not feel are complete in order to meet that goal. I either meet it with quality or I don’t.
I have added a Definitions page which will include all of the terms and abbreviations that I use from now on and will be referred to on every post.
Substack has launched an iOS app for those of you using apple devices. I am an android peasant and can’t tell you if its good or not, but check it out if you have an iPhone or some other such trappings of royalty.
Please feel free to skip around or ignore certain sections if it does not apply to you. The Table of Contents is made to preserve your time in this manner. You can always simply read the conclusion if you are in a hurry.
Song of the week - Benjamin Tod (Lost Dog Street Band) - Wyoming
Table of Contents
Geo-Political Inevitability
Economic Calendar
Review 8/15
Jackson Hole and US GDP
Crypto Macro
Price Action
Crypto Crimes
Conclusion
1. Geo-Political Inevitability
We’ve outlined fairly extensively how China simply does not have the means to actually oppose the US militarily in any shape and if they were to enter into a direct conflict with the US, they would lose. You’ve seen the extensive economic problems China has internally from shadow debt, ghost cities, crumbling infrastructure, corporate junk bond defaults, and you’ve also seen some of the political intrigue that is putting significant internal pressure on Xi. Despite wanting to take Taiwan, they have to deal with the west in an economic and diplomatic offensive if they want to actually take Taiwan.
Meanwhile, among the BRICS countries, China and Russia have been growing closer and may present a unified front against the west soon. While it is true that China is a net importer of energy and food, they aren’t exactly dependent on the west and it’s likely they can eventually pivot to being energy dependent on their own hinterlands, as well as Russia, and ex-Soviet block nations. For instance, Russia’s export capacity of crude oil to china was estimated to be 35 million metric tons (MMt) in April.
Basic conversions would mean that expectations for production would be ~38.35 MMt in oil exports to China. This is of course a fraction of China’s annual consumption of 718.5 MMt of oil.
However, Russia is on pace to supply over 70 million metric tons of crude oil to China, which would represent 10% of their oil consumption and would make Russia China’s 2nd largest import partner of crude oil, trailing only Saudi Arabia. Russia has no strategic petroleum reserve (SPR), they don’t need one since Oil production is a nationalized state owned entity and there is no more efficient place to store oil than in the ground where it has sat for millions of years. However, China does have a strategic oil reserve, and while Wikipedia will tell you that the US has the largest reserves at ~700 million barrels, this is outdated information. China stopped publishing information on their SPR back in 2017, but it is being estimated based on their published imports and domestic production against their exports and refinery throughput. In September 2020 they reached nearly 1 billion in oil reserves between commercial and strategic reserves, and they have been adding about 2-4 million barrels each month to it. Meanwhile the US is selling it’s strategic reserves in order to lower gas prices ahead of the mid-term elections. And they’re bragging about doing so too.
The picture being painted here is this, if a larger economic conflict is going to emerge in the late fall or as late as spring, the US and the west will be woefully unprepared. As I stated previously, WW3 is an economic war, and whoever loses the economic war will start the shooting war. From a resource standpoint, the US is fairly resource independent and capable, but has a significant deficit in leadership. The main problem is that all of our allies have major holes in resource capability, and are essentially empires of nothing but paper money. Japan and Europe are essentially unconscious from an overdose on money printing. The UK is half in half out but completely cowardly on the geo-political stage. New Zealand has been captured by ideologues, but is less convinced of joining the fiat induced financial hell-scape and is also at least food independent. Australia is probably the only western ally that is also a resource powerhouse in terms of reserves and production.
As has been stated, the push for sanctions on Russia would (and did) backfire on western allies. We’re creating two spheres of resources. A western one, where resources are scarce and money is plentiful, which will cause high prices. And an eastern one where resources are plentiful and money is scarce, creating a form of abundance and cheap prices. We’re getting fairly close to that at this point as those still trading with Russia are enjoying significant discounts on oil and Natural Gas, while Europe is paying through the nose or rationing and doing without.
The Geo-political inevitability is that China and Russia can tie themselves closely enough that certain countries are going to have to admit certain diplomatic concessions to them in order to keep trading with the sphere of abundance. There are already those within Germany willing to move away from sanctions in order to secure more gas for the winter. Not to mention, Italy will have to form a new coalition government after the elections in September, and the largest prospective coalition at this point is Euro-skeptic and most likely to break away from EU policy in a lot of areas, and probably including Russian sanctions. Consider what happens if Russia and China attempt to negotiate in joint. What could they push the world to accept in order to maintain access to Russia’s resource abundance and China’s production capacity for (shoddy) manufacturing? It might be that in order to access those resources a country would have to deny diplomatic recognition of Ukraine and Taiwan entirely. Then consider that TSMC and Samsung are just this year shipping 3 nano-meter (nm) semiconductors. For reference, 3 nano-meters is about as wide as a strand of DNA. With processors that small, you can fit the entire computing power of the world in 1975 onto a chip the size of a fingernail.
This is a problem because outside of TSMC in Taiwan, and Samsung in South Korea, no one else has been able to mass-produce chips that small. Intel in the US is still struggling with anything smaller than 12 nm (which is still incredibly small). You might say “but wait, isn’t IBM located in the US? Didn’t they just make a 2nm chip design?” Yes, that’s correct, IBM did just unveil a 2nm chip design last year. But they don’t mass-produce any semi-conductors at that size. Consider IBM’s semi-conductor division to just be an experimental lab where scientists play around. They aren’t mass producing anything at that size. Taiwan and South Korea dominate the market for semi-conductors.
So what happens when China is able to leverage global dependence on the east for energy and manufacturing in order to get additional global diplomatic concessions from the west? Can they capture half of the worlds market for producing global semi-conductors through an economic war without firing a shot?
Yes, but also no. As I said previously; whoever loses the economic war will start the shooting war.
Alexander Dugin isn’t particularly close to Putin, but it’s probably as close as the west could get in terms of an internal strike. We’re doing what we can, explosions at oil depots, assisting Ukrainian missile strikes, car-bombs etc. We are basically aiming the gun and putting a Ukrainian finger on the trigger and pulling it. Much like in Fury when Brad Pitt forced the newest crew member to get his first kill.
Have no doubt that we’re losing in the economic sense and are very much maintaining the shooting side of that war as long as we can. Similarly we’ll do the same thing to China as they begin to consolidate and win on the economic side. By this, I mean that if China leverages enough on the diplomatic stage to gain control of Taiwan, that we might be the ones to influence events enough to justify a the first shots being fired. An explosion in Taiwan could be enough to justify US troops moving in, from there who knows what could happen. Our Trump card in the eastern sphere is still our armed forces, no matter how depleted they are, China is worse off. And this will all occur while Xi’s control over the country and economy will be crumbling around him. His economic, or diplomatic victory over the west will likely be bittersweet.
It’s very much two men in burning houses pointing guns at each others front door. Whoever is chased from his home by the fire first will be shot and die. The other will find himself homeless shortly after but still alive. And I genuinely don’t know which one we will be.
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