By Michael Every of Rabobank
Yesterday’s China data’s first surprise was that retail sales were only 1.7% y/y vs. 3.8% expected in December, although at 12.5% y/y year-to-date vs. 12.7% expected, this implied some significant revisions. The second, as flagged, was that Q4 GDP came in above expectations at 1.6% q/q, 4.0% y/y, with 8.1% year-to-date. This is unlikely to capture the reality of an imploding property sector, rolling blackouts, a surge in PPI, and a slumping consumer, but the market didn’t ask any questions, as usual; and it was a nice upbeat backdrop to Xi Jinping’s virtual presentation to Davos, which stuck to the usual script - stronger international cooperation in overcoming shared global challenges including defeating COVID-19, revitalizing the economy, and addressing climate change. That was all red meat to platitude-seeking algos.
Yet underlining the GDP data were not as good as appeared, the PBOC cut its benchmark rate 10bp to 2.85%, the first decrease since April 2020, as well the 7-day reverse repo rate from 2.2% to 2.1%. Yes, things are going *so* well that just as the Fed looks set to hike 2, 4, 6 or 7 times in 2022, the PBOC is cutting. Markets chose to focus on the apparently bullish nature of such a move, ignoring the fact that we will need to see at least 10 times that cut to stabilize the economy, as the Fed goes the other way. The real interest will then be on CNY again once: and if USD/CNY was a truly freely traded cross, we might already be seeing this being priced in.
Not so much market focus was placed on the Chinese demographic data also released, which showed a further precipitous decline in births that some demographers believe is still over-reporting the actual numbers (as they say so did past data when looking at births vs. school enrolment and hukou registration numbers). If the present trend is maintained --and marriage rates continued to fall sharply in 2021; and nobody else has turned that kind of demographic decline around so far-- then by 2100, China’s population will be less than that of the US, and even by 2050 there will be 200m fewer people. Yes, there will be automation: but there are going to have to be *a lot* of robots to keep GDP growing at the kind of goal-seeking rates we associate as normal in China. That is going to impact on demand for a whole host of products, including red meat. How does that sit with the 45-degree straight lines for future demand I see in management-consultant presentations? (Or platitude-seeking algos?) Life offers us much more gristle, sadly.
In the UK, PM BYO’s new ‘Red Meat’ politics campaign is not just going after the easy target of BBC ‘pinkos’ and a scorched earth policy for any cabinet minister or civil servant who has ever had a glass of wine. Ominously, it combines the two via delivering anti-tank missiles and elite British troops to Ukraine: “Wag the Dog!”, as some will bark, but this is not yet working, in that former policy supremo Dominic “eye-sight” Cummings is still the top headline of the Daily Mail, claiming BYO lied to parliament and more photos of wine and wine fridges are yet to come. Even Meghan Markle, also having a pop at the Beeb, is the second headline. The threat of war with a nuclear power comes in a distant third. Whether this says more about the public, press, BYO, or UK geostrategists is unclear, but I feel the sudden need for a glass of wine for breakfast – and I don’t even drink. Crucially, this UK move escalates the Ukraine situation further from the Russian perspective: it breaches a clear red line to them. Logically, it also underlines the need for others to act in coordination to ensure that such overwhelming force is put in place that is helps deter aggression.
Yet as the UK digs into red meat, Germany ‘goes vegan’ – apart from its vegans! The UK is shuttling this military equipment to Ukraine while avoiding German airspace. Indeed, yesterday saw Berlin agree that while fully backing Ukraine if it has to fight, they won’t supply it with any arms if it has to, for historical reasons. They will do the nursing. (Literally.) That seems noble….until you consider Germany sold USD10bn in arms to other nations in 2021. Moreover, the cabinet cannot agree to any new Russian sanctions either: the SPD won’t threaten NordStream 2 (“Schroederisation”); the CDU won’t threaten car exports (“Merkelcantilism”); and only the vegan Greens appear to have any grasp of the meaning of “realpolitik”. None of this makes me feel like underlying risks are receding. Quite the opposite, in fact.
Sticking with the red meat theme, Israeli scientists have stumbled across a new technique for massively speeding up the process of cultivating lab meat. If that proves the case, one wonders what the impact is for some of the ‘meat and potatoes’ of the geopolitics we see playing out around us.
Meanwhile, for those who think they are ‘red-pilled’ enough to grasp all the meaty risks I speak of and think that crypto is a safe ‘way out’, consider that even there we see a gap between ‘steak’ and lab-grown artificiality.
Yes, Tesla will let you pay for merchandise (not cars) with the joke-turned-‘currency’, Dogecoin. But China is saying it will soon launch its own official state-backed NFTs --or ‘NF-Xis’?-- which underlines how the state is going to be moving into this (cyber)space. As does the US IRS saying it is coming for your crypto gains. Meanwhile, Fitch is downgrading El Salvador’s credit rating because of the drop in the price of Bitcoin, which it had just started accepting.
But the most recent example to tickle me is crypto collective @TheSpiceDAO proudly telling Twitter they have snapped up a rare physical copy of a hardback book about the aborted making of Jodorowsky’s ‘Dune’ film. (Which, planned to star Orson Welles, Mick Jagger, David Carradine and even Salvador Dali, would probably not have been like watching sand dry, as the 2021 iteration was.) As the group proudly declare: “We won the auction for €2.66M. Now our mission is to: 1. Make the book public (to the extent permitted by law); 2. Produce an original animated limited series inspired by the book and sell it to a streaming service; 3. Support derivative projects from the community.” As others immediately pointed out, if you buy a copy of a ‘Spiderman’ comic, you can show it to your friends, but you do not get the rights to make Spiderman films or derivative community projects. So these guys overpaid 10x the auction asking price for a *second-hand book*. Mentats, they ain’t. But I am sure an NFT scheme will soon be launched to try to cover those massive losses: “The spice must flow!”
So must the red meat, apparently. I am not sure how much longer the idiot liquidity will though.