China & COVID

China is trying to move away from COVID-0. That’s sensible, as containment with Omicron isn’t possible given the R0 of the virus, without recurring, harsh lockdowns.

That reopening story is driving markets, at the moment, and commodities, however it is not clear to us, in absence of a highly vaccinated elderly population, that it can work. Looking at the flow of daily case cases below, you can see how the China data stacks up.

The current outbreak is absolutely one to worry about. We think China reopens, but as people get sicker, and the numbers grow larger, they will likely return to “self-selected” lockdowns, as opposed to state mandated ones.

We aren’t 100% sure (or even 90%, or 70%) sure where such a tipping point “might be”. We think we’ll hear about it, in the form of hospitals overrun, or morgues filling up, and we’ll have to go off those kinds of cues.

For us, we are inclined to fade commodity price strength, given that backdrop.

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