There is a reason why we have redirected much of our attention to inform and try to understand the new coronavirus (covid-19) that originated in Wuhan, China, in December.
The heart of our approach is to be "systems thinkers."
“Learn to see. Realize that everything connects with everything else ”
~ Leonardo Davinci
We do not see the economy as a closed ecosystem to be analyzed and understood on its own. It is connected to energy flows, especially oil. So we also investigated them, with the aim of determining how the eventual decline in fossil fuels will impact an economic system that depends entirely on perpetual growth.
Without a healthy planet, without intact and functional ecological systems, nothing matters in the economy or in the energy markets. Both impact the ecological world and vice versa. So we also analyze and inform about the environment.
That is why we hope to affirm that Humanity now faces its greatest threat. Our current path of depleting our essential resources at an accelerated pace in the search for "more growth" is unsustainable and self-destructive.
So here we are, with a global economy that is very profitable but not resilient. It is wonderful that Walmart has solved how to order a new tube of toothpaste from China; the second is taken from a shelf in Topeka, KS. But that means there is no deep storage to turn to in times of interruption of the status quo. There are no warehouses stored with 12 months of future goods. Only a brilliantly complicated supply chain thousands of miles long that has to work perfectly for things to continue working.
As an example that brings us to this point: we learned during the 2011 earthquake in Japan that there are it was just a factory that manufactured a necessary polymer gel for the oddly shaped lithium batteries used in smartphones and iPods. There was no backup factory.
We watched closely during that huge crisis (which also generated the Fukushima nuclear disaster) while electronics companies rushed to classify their remaining supplies and try to find new sources. It was very tactile and ready. Huge portions of the battery-powered electronics industry were simply reduced to production interruption, all for lack of an esoteric polymer gel.
Yes, the most cost effective way to make that gel was to house it all on one floor. But it made no sense from a point of view of redundancy and resistance.
And we "learned" from that experience? Do not
Supply Chain Armageddon
The global economy is more interdependent than ever. Their supply chains are based on a huge network of dependencies with many "single points of failure" along their many branches.
Can anyone predict what will happen next? Do not.
But we are already seeing early failures as Chinese plants, factories and ports remain inactive from the country's quarantine mass efforts:
China will lose production of 1M vehicles when the coronavirus closes car factories
China exports around $ 70 billion in auto parts and accessories worldwide, with approximately 20 percent going to the US. UU.
February 5, 2020, 4:32 p.m. ITS T
By Paul A. Eisenstein
China could suffer the loss of a million production vehicles as factories in its crucial automotive industry remain closed until at least next week, and probably longer in Wuhan, the "motor city" in the center of the coronavirus outbreak .
With more than 24,000 people infected, car manufacturers are also beginning to feel the impact of the highly contagious disease in other parts of the world. Hyundai is suspending production at its South Korean plants due to a shortage of parts made in China, and even European automakers could be affected: Volkswagen and BMW could see a 5 percent drop in their profits for the first 2020 semester, according to research firm Bernstein.
We are predicting that these automatic stops are just beginning. All that is needed is that a single component is not available and that the entire line must be closed.
Is China the only source of many critical components in the automotive industry? Absolutely.
Here is an inside view:
On Monday, Steve Banker and I had the opportunity to speak with Razat Gaurav, CEO of Llamasoft. Razat had some interesting opinions about the outbreak, especially when it comes to automotive and pharmaceutical supply chains. On average, 30,000 pieces are needed to make a finished car.
Due to the virus, production facilities have already indicated that they will have lower than normal volumes of parts. This has left companies struggling to make contingency plans. During my conversation with Razat, he mentioned that the inventories of most of these automotive parts are managed efficiently and just in time.
This means that, on average, companies have between two and twelve weeks of available buffer inventory for auto parts. As production volumes are decreasing, this has the potential to cause a global shortage of parts. The reserve inventory will only last so long, and once the pre-holiday supply runs out, the industry will have serious problems. According to Gaurav: "Most original components of unique origin for new vehicles and China is a great supplier of those. "
"Single source" is exactly what it implies. There is only one factory somewhere that produces a single component that is absolutely vital for making a motorized vehicle. If that factory disappears for a prolonged period of time, a new source must be identified or, worse, from a time and cost point of view, build from scratch.
But this vulnerability to China's dependent supply chains is not exclusive to the automotive industry:
Last month, the Economic and Security Review Commission of the United States and China held a hearing on the growing dependence of the United States on China's pharmaceutical products. The subject reminded me of an energetic discussion described in Bob Woodward's book, Fear: Trump in the White House.
In the discussion, Gary Cohn, then chief economic advisor to President Trump, argued against a trade war with China invoking A Department of Commerce study that found that 97 percent of all antibiotics in the United States came from China.
That is as close as possible to a "single source."
And to put the icing: guess the name of the region in China responsible for producing all these antibiotics. Yes, Hubei province. With Wuhan, its most important production center.
Can we find another source of our generic medications and antibiotics? India possibly. But here again we find the same problem of global interdependence:
Another industry that feels the impact of coronavirus is the pharmaceutical industry. The average buffer inventory for the pharmaceutical industry is between three and six months. However, this does not tell the whole story. Gaurav mentioned that China is responsible for producing 40 percent of the active pharmaceutical ingredients (API) for the pharmaceutical world
Additionally, China supplies 80 percent of the key starting materials (KSM), which are the chemicals in API, to India. Together, this represents 70 percent of all APIs worldwide.
The production of India is directly linked to the uninterrupted supply of China:
Indian generic drug manufacturers may face a shortage of supplies from China if the coronavirus is prolonged
February 13 (Reuters) – The scarcity and possible price increases of the generic medicines of India are closed if the outbreak of coronavirus interrupts the suppliers of pharmaceutical ingredients in China last April, according to industry experts.
An important supplier of generic medicines to the world, Indian companies obtain almost 70% of the active pharmaceutical ingredients (API) for their medicines from China.
Generic drug manufacturers in India say they currently have enough API supplies from China to cover their operations for up to about three months.
"We are conveniently located with eight to 10 weeks of key inventory in place" said Debabrata Chakravorty, head of global supply and supply chain for Lupine Ltd, adding that the company has some local ingredient suppliers.
Sun Pharmaceuticals Industries Ltd said it has a sufficient inventory of API and raw materials for the short term and has not seen any major supply disruption at this time.
The Indian pharmacist, however, this supply has been affected by some API products and the company is closely monitoring the situation. He did not identify the products.
India supplies almost a third of the drugs sold in the United States, the largest and most lucrative healthcare market in the world.
Is this a big concern? Of course it is.
If you depend on prescription medications in any way, it would be completely rational to pursue whether they come from China or India and, if they are, start talking to your doctor about the alternatives or what to do if supplies are reduced.
A fast moving situation
Look, we fully understand why authorities and the media are minimizing the covid-19 pandemic. We really do. They feel the need to manage the crisis, which means managing the public narrative.
But we go. Does it make sense that the price of Apple shares goes up while its main Foxconn manufacturing plant is completely closed?
The manufacture of fewer iPhones and Airpods should equal lower future earnings and, therefore, a lower share price. But no, AAPL has risen easily during the last month:
And this is even crazier. Does it make any sense that Boeing shares have risen $ 12 during the last month? How did you report your first year (2019) of NEGATIVE orders and a completely order-free January (2020)? Of course not.
But those are the types of "signals" that officials believe to have be sent to prevent the masses from realizing that something really worrisome is happening.
Unfortunately, such signals work in the masses. Higher stock prices send a powerful comforting message that "everything is fine."
But prudent critical thinkers, who define those of the Peak Prosperity tribe, can easily see through deception and be busy preparing for what is coming.
It is time to act
The situation with covid-19 is fluid and fast moving. Keeping abreast of innovative developments and making sense of them is our main job.
But information without informed action is useless.
After all, knowing something of concern but not doing anything about it is simply cause for anxiety, if not alarm.
The only ways to keep calm and protect your loved ones from the threat of this pandemic are based on taking intelligent action.
Yes, we can all expect this to end. We sincerely wish the macro-planners all the best to shape the narrative and keep the macroeconomy somehow functioning and stuck.
But we will prepare the best we can, here at our micro level because that is our duty to ourselves, our families and our communities.
Creating a resistant defense against the coronavirus
This is a great moment in history. The first global pandemic at a time when the world economy is of unique origin and completely interdependent.
No one can predict what will happen next. Cars, drugs … who knows what will be the next industry to stumble?
Given the ridiculously high infectivity rate of covid-19, there is really no chance of stopping its spread. The rate is now just an equation of time, luck and official actions to aggressively isolate and quarantine infected individuals and communities.
Our position gives us many experienced contacts with experts around the world, and those we know with deep medical training are preparing more aggressively at this time. This outbreak has all its attention; and that informs us that ours should also have ours.
Therefore, our advice is to prepare yourself now.
Last week we published the guide How we are personally preparing for the coronavirus to our premium subscribers. It is a great resource that provides specific recommendations for prevention and treatment.
Today we launch an extended complementary guide A tough defense against the coronavirus, again for our premium members.
Particularly useful for those who have recently arrived at PeakProsperity.com, it offers a valuable framework to use in preparing for any disaster (including pandemics) and then details the specific action steps to take today in all aspects of your life (that is, not just health and hygiene) against an outbreak of coronavirus in your local area.