China is fully targeting Australia. The idea is making an example so other countries would get scared and comply.

Especially with the new US President that wants to build anti Chinese alliances.

Australia in the last year has stood firm against China influence and aligned itself with India, Japan, Taiwan and other nations subject to the aggressive influence of China.

China decided to target Australia as it is an easy target: Anglo-Saxon like the US and dependant on China like no-one else. At 35% of export Australia is the only developed country so dependent on China.

It is interesting to see how as the Chinese, with their imperialistic view of the world , they misunderstand the Western democracy. Their behaviour will likely spur more alliances against the Chinese.

My biggest worry is that the Chinese shows the same misunderstanding that Hitler had invading Poland (and please I am no comparing China with Nazi Germany – it is about policy misunderstanding ). After several concessions (annexation of Sudetenland (Czech), Austria) Hitler did not think that the UK and France would declare war over Poland.

A similar situation can be drafted for China. No major power contested their annexion of Hong Kong and part of India’s territory. This could spur to consider a Taiwan invasion that would be a “Poland” moment.

Biden and the importance of Taiwan

Posted: November 18, 2020 in Uncategorized

While Taiwan has always been a contentious issue between China and the USA, under President Trump it has become a hot topic.

Under President Biden, or in the follow up President, it will come a point the issue will come to fruition.

Taking a step back. What is the issue? While Taiwan has been independent since the Chinese revolution, China has always considered it as part of China. While it is practically impossible to see China changing idea, Taiwan is fiercely independent and drifting ever more away from China.

What will happen will be a moment of truth in deciding who will be the dominant empire of the future.

3 scenarios

  • 1962 Cuba Kennedy style scenario. The USSR was trying to set up nuclear missiles on Cuba and at the end at to retreat as the US looked ready to start a nuclear war.
  • 1956 Suez Canal Crisis style scenario. This is by definition the moment where the British Empire ended. Egypt nationalized the Suez canal and Israel, under the benevolent watch of Britain and France, occupied part of the Suez Canal. While the military operation was technically a success, both France and Britain had to retreat under pressure from the USSR and the USA.
  • An actual limited war. While a “US win” scenario is almost impossible to see as Taiwan is too close to China and China has achieved an “area saturation level”, the aim should be to make it too costly in term of human and military costs. It almost reminds me of Iwo Jima that costed the life of 25,000 people (plus 20,000 wounded) for an island of barely 20 square kilometre and the Japanese having very little heavy weaponry.

Taiwan would be a much harder objective. While the Taiwanese army is very much smaller it is preparing for an invasion from 1949 with tunnels and traps.

Taiwan is mountainous and with few usable beach and the Chinese Army does not have a sizable paratrooper forces.

Then there is a well defended archipelago (Penghu) that must be taken unless you want the fleet being sunk. While the taking of the archipelago is doable, it is hard as it is defended by over 60,000 troops armed with US weaponry.

The weak link of Taiwan is that it has only two submarines. But it would just need the intervention of a couple of US attack submarines to make a Taiwan takeover an impossible scenario.

Election: a moral dilemma

Posted: November 10, 2020 in Uncategorized

Welcome to the media dictatorship.

Biden beat Trump, but not a great margin. Well over 40% of Americans believed in him.

This happened notwithstanding an unheard-of media campaign against President Trump to the point that the media switched off a Presidential speech in mid stream.

We could be all happy as apparently most hated President Trump, but this is against Freedom of Speech.

Once they do it one time for their good cause, they could do it for another cause.

Now Pfizer released the news that their vaccine is almost ready. This news was due to come out in early October, but Pfizer got such a backlash by the media and community that they waited the election.

This was due so Pfizer and their vaccine would not influence the election. Actually they did influence the election, but in favour of Biden, as the media wanted.

And by the way- a month delay in Covid-19 cost the life of thousands of people.

What a price to get rid of the crazy President Trump, the only second US President in history, after Jimmy Carter, not to start a US war.

And yes, also Jimmy Carter was a one-term President.

I am not pro-Trump, but I wonder.

From an article of the magazine Science (US), Nature Medicine (HK). OggiScienza (Italy) and backed by research.

-Covid-19 develops in clusters and superspreaders (in the study 70% of infected did not infect anyone, while 8% of infected is responsible of 60% of infection. A different study sgiws that 20% of infected was responsinle of 80% of the spread.

Most of the superspreader events occour in a closed space or space with low ventilation/ high humidity.

The Ro is 2.5, but there is another factor called K (transmission factor in the population). This is much lower than the flue, hence a cluster style of development.

This indicate two main developments.

-The diffusion of the virus is non-linear. This means that a period of low cases can be followed by a high number . A few superspreaders events can blow out the numbers. Large scale lockdown is ineffectual unless you intend to keep it on forever.

-The location of danger events are offices, places where you have to lower your mask (eg restaurants) or raise your voice and physical exertion.

The North-eastern University showed that the West used “flue like” statistical models to combat the virus that are wrong (in the East models were based more on SARS experience, much better). Instead of contact tracing a rewind tracking model should be used (identify the super spreader and track his movements – it has been used successfully in South Korea and Japan).

There are a lot of really well written analysis out there, but few point to a glaring error that will make it impossible to recover from this spending binge.

On page 2 of the budget there is a forecast of a GDP Growth of 3.75% for 5 years (4.75%pa in 21/22).

Australia in the last good 10 year achieved an average slightly more than 2% pa with only in 2012 reaching 3.92%pa.

With a net loss of immigration this is impossible. Hence all the Government forecasts are wrong.

The presidential debate was rabble and I think we all agree. But it was a lost opportunity for Biden. He could have risen and look Presidential…instead he went down in Trump’ s mud fight.

No one won.

An election battle that matters

Posted: September 15, 2020 in Uncategorized

The key political battleground is the Care Act 2. The Care Act 2 is practically the US version of JobKeeper. A stimulus that help people survive the Covid-19 income crash.

The Republican and Democrat are still miles apart upon agreeing in a new stimulus. The Democrats request an extra large stimulus to be combined wth a stopgap measure to stop the US Government shutdown.

The economy fared quite well in this Covid-19 time because due to the Cares Act 1, people could continue spending.

If Cares Act 2 is not introduced consumer spending would fall off a cliff…and consumer spending represents 70% of US GDP. And if Care Act 2 is not done before the US Election, it probably will be done in December and January.

Democrats have a vested interest in making the Care Act unpalatable to Republican. The market would probably crash and there is an interesting statistic.

The behaviour of the stock market in the three months prior to election it is an 80% reliable predictor of the Presidential winner.

A market crash in September/October could spell the doom for President Trump.

President Trump knows it and is calling the Congress for a second round of stimulus cheque by reallocating USD300Bn, but still needs the US Congress approval.

A dirty battle.

Update as 14 September: the Republlican “skinny” stimulus (USD300bn) has been rejected. There are gossips of discussions – Republicans offering USD1.5 trillion and Democrats not available for discussion unless the sums is around USD2.5 trillion.

A critical week for the market

Posted: September 14, 2020 in Uncategorized

This is a critical week for the market to understand if this is a NASDAQ consolidation or a rotation from tech- momentum to value.

The money flow now suggest a rotation – but it happened before and after a sell off, tech resumed its momentum.

At the moment looks like more a consolidation even if in September probably we will still have more pain to come.

Citigroup m0del show that the sell machines are primed to attach (algo trading) at SP500 3,254 and at Nasdaq Futures of 10,843 (at the moment 9:16, 14 Sept SP Fut 3,345 and Nasdaq Fut 11,157).

A machine attack would bring SP500 to 3,000, Nasdaq 9,800. Unfortunately SP200 does not offer much support until 5,400/5,500.

This would be a temporary reset , not a change of trend. But painful.

Calendar base a bad start of September get a worse end (funny enough, almost everybody is scared of October – in reality the early days of October has the big sell off that started in September – but October ends up positive more than recovering the initial losses).

Again Calendar base, in an election year September behaves better than average.

So pay attention

Here numbers that do not lie (unlike certain models)

Preliminary weekend Australian auction figures (CoreLogic)

  • National
    • Clearance rate 67.5% vs year-ago 72.3%
    • Number of auctions 882 vs year-ago 1,533
  • Sydney
    • Clearance rate 69.5% vs year-ago 75.7%
    • Number of auctions 625 vs year-ago 528
  • Melbourne
    • Clearance rate 33.3% vs year-ago 74.0%
    • Number of auctions 28 vs year-ago 765

Usually are quite similar (2 to 3% point to Sydney).

First as a start I am not a Covid-19 denier. It is a serious sickness and problematic due to the easiness of the spread – but it is also not as close as the killer virus the political class is making it.

Unfortunately Australia, and Victoria in particular, is ot a very open or democratic country.

Stats are hard to come by – what I could collect a good of new cases derive from first line healthcare workers and over 50% aged care related. Very far from a widespread issue within the population.

My two biggest gripe are different:

  1. There is not a clear path out of this – even the dates selected for freedom are conditional to a number of cases (and by the way there is no option that says there are no cases by mid October so you will be free again.
  2. The model. The paternalistic approach of Premier Andrews really annoys me. You cannot discuss the model? I do and see models for the stock market all the time – from my one to Goldman Sachs, JPM and all the best. They are all as good as the inputs and often a non-considered variable destroys the model.

In this model, even without studying it tehre are some basic errors.

The virus data input are coming from overseas (different hygiene standards, different geography, potential different strands of Covid-19)

The weather impact (various studies show that UV kills the virus and we are going into Australian summer).

There is no testing and tracing.

It considers halving of the cases every 18 days – while other models shows a halving between 10 and 8.9 days.

The 14 days average is a completely arbitrary parameter.

On top of this the current pandemic shows a major constitutional issue for Australia – in emergency the Federal Government has no emergency powers to overrule a State. This should be a critical factor as, aside the virus, in the next decade we will be confronted a range from challenge from China and other situation that require a united nation.