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Global Economy Heading For “Mother Of All” Supply Chain Shocks As China Locks Down Ports

Global Economy Heading For "Mother Of All" Supply Chain Shocks As China Locks Down Ports

Over the past month, as Wall Street turned increasingly optimistic on US growth alongside the Fed, with consensus (shaped by the Fed’s leaks and jawbonin

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Global Economy Heading For "Mother Of All" Supply Chain Shocks As China Locks Down Ports

Over the past month, as Wall Street turned increasingly optimistic on US growth alongside the Fed, with consensus (shaped by the Fed's leaks and jawboning) now virtually certain of a March rate hike, we have been repeatedly warning that after a huge policy error in 2021 when the Fed erroneously said that inflation is "transitory" (it wasn't), the central bank is on pace to make another just as big policy mistake in 2022 by hiking as many as 4 times and also running off its massive balance sheet... right into a global growth slowdown.

And, as we have also discussed in recent weeks, one place where this growth slowdown is emerging - besides the upcoming deterioration in US consumption where spending is now being funded to record rates by credit cards before it encounters a troubling air pocket - is China and its "covid-zero" policy in general, and its covid-locked down ports in particular.

But what until recently was a minority view confined to our modest website, has since expanded and as Bloomberg writes overnight, the effects of restrictions in China as the country maintains its Covid-zero policy "are starting to hit supply chains in the region." As a result of the slow movement of goods through some of the country’s busiest and most important ports means shippers are now diverting to Shanghai, causing the types of knock-on delays at the world’s biggest container port that led to massive congestion bottlnecks last summer that eventually translated into a record number of container ships waiting off the coast of California, a glut that hasn't been cleared to this day.

With sailing schedules already facing delays of about a week, freight forwarders warn of the impact on already back-logged gateways in Europe and the US and is also why HSBC economists are warning that the world economy could be headed for the “mother of all” supply chain shocks if the highly infectious omicron variant which is already swamping much of the global economy spreads across Asia, especially China, at which point disruption to manufacturing will be inevitable.

"Temporary, one would hope, but hugely disruptive all the same" in the next few months, they wrote in a research note this week first noted by Bloomberg.

For those who have forgotten last year's global shockwave when China locked down its ports for several days, a quick reminder: it led to an unprecedented hiccup in global logistics and shipping which hasn't been resolved to this day. That's because China is the world’s biggest trading nation and its ability to keep its factories humming through the pandemic has been crucial for global supply chains.

While the outbreak of omicron in China has been small compared to other nations (if one believes China's official data, which is a big if) authorities are taking no chances, especially with China's continued "zero-covid" policy. In recent weeks scattered infections of both the delta and omicron variants have already triggered shutdowns to clothing factories and gas deliveries around one of China’s biggest seaports in Ningbo, disruptions at computer chip manufacturers in the locked-down city of Xi’an, and a second city-wide lockdown in Henan province Tuesday.

Below is a brief timeline of the most recent events courtesy of Deutsche Bank:

  • China's first Omicron outbreak was detected in the city of Tianjin over the weekend. On the morning of Jan 8, two patients in Tianjin who actively sought medical treatment were confirmed as being infected with the Omicron variant. The local government immediately locked down certain districts, restricted travel, and conducted large-scale screening. A total of 41 positive cases have been reported as of the morning of Jan 11.
  • The source of the local cases in Tianjin is still unknown, and community transmission is possible, according to local disease control officials. All previous local Omicron cases in Tianjin belonged to the same transmission chain. However, the above cases cannot be confirmed to be in the same transmission chain as the sequences of the imported cases of the Omicron variant that have been found in Tianjin. The early confirmed cases do not have any travel history outside Tianjin either. The specific source of the local cases found in Tianjin is still unknown at this time.
  • More alarmingly, the same Omicron virus strain has already spread to outside Tianjin. Two positive cases were found in Anyang, Henan on Jan 8, and were later confirmed to be the same Omicron variant found in Tianjin. Through contact tracing and gene sequencing, the source was identified as a college student who returned to Anyang from Tianjin on December 28, 2021, and who did not show any symptoms. 81 cases have since been confirmed in Anyang over the past few days. This suggests that (1) the Omicron virus may have been transmitted in Tianjin for almost 2 weeks; and (2) other travelers might have already carried the Omicron virus from Tianjin to elsewhere in China.

Looking at the recent data, China's Covid outbreak this winter could be worse than in the previous winter - as shown in the chart below more provinces have detected Covid outbreaks this winter. Entering Q4, there are 12 provinces which have found more than 19 local cases in the past 14 days. More significantly, the total number of new cases in the past 14 days in Shann’xi has already exceeded 1500, which is a record high, except for in Hubei when Covid first occurred in early 2020, and this has happened despite China now having very high vaccination rates and strict regulations such as lockdowns. In addition, comparing the differences between months near Chinese New Year in 2021 and 2022, not only have the number of news cases been larger this year, the provinces hit by Covid outbreaks this year also tend to have higher GDP and population density.

As Bloomberg adds, Henan and Guangdong, which also has an outbreak, are centers of electronics production. If cases continue rising there, it could impact the supply of iPhones and other smartphones.

This also brings us to what Bloomberg calls the paradox of China’s aggressive “Covid-zero” strategy: while on one hand it helps contain the virus spread, to do so usually requires significant disruption or lockdowns as authorities limit the movement of people. The repeated mandatory testing of whole cities interrupts businessess and production, although nothing to the extent seen in places like the US, where the omicron wave caused an estimated 5 million people to stay home sick last week, leading to further economic slowdown (as discussed in "A March Rate Hike? Not So Fast")

That risk of disruption for factories is already prompting companies to spread their risk by ensuring they have alternative production facilities, Stephanie Krishnan, a supply chain expert at IDC in Singapore, told Bloomberg.

“We are starting to see companies mitigating risk, seeing where they can increase capabilities for production of different products in different factories so they can shift that around,” she said.

Echoing what we said last night in "New Year Brings New All-Time High For Shipping's Epic Traffic Jam", Krishnan doesn’t see an end to the global supply crunch anytime soon and cautions it could take several years for the snarls to unwind. It’s a sobering outlook to start a year that many had hoped would mark the beginning of the end of the Big Crunch which dogged producers and consumers through much of last year.

Clearly what happens next is critical, and how China’s control of the virus plays out will ultimately be crucial, said Deborah Elms, executive director of the Singapore-based Asian Trade Centre. Those companies whose supply chains are fully located inside China may be insulated by the country’s mitigation strategy. But that won’t apply to everyone, she said.

“Lots of products in supply chains come from outside China,” Elms said. “Given challenges elsewhere, even zero Covid doesn’t solve all the issues of disruption.”

* * *

In its assessment of next steps, Deutsche Bank expects the government will try to contain the Omicron outbreak with more lockdowns and quarantines rather than taking a "live with Covid" approach. This will pose downside risks to near-term growth. The impact on consumption could be significant, although probably not as large as what happened in 2020.

While Omicron is far less deadly than other Covid variants, it is still deadly enough to cause healthcare service shortages in China, at least in some regions. Vaccination has proven to be ineffective in preventing Omicron from spreading, and while it offers protection against hospitalization, China still has some 20% of the population who are not vaccinated and will face serious health risks if Omicron becomes widespread. As such, DB says that a containment approach is still the government's optimal choice for this winter regardless of how fast Omicron spreads in the next few weeks. It will be good news if travel restrictions, lockdowns and large-scale testing and contact tracing work in containing the outbreak. Even if outbreaks cannot be contained in some regions, these measures will still be considered necessary in flattening the curve and preventing hospitals from being overwhelmed nationwide.

What is much more important for the US, global capital markets and the Fed's monetary policy - which has assumed much stronger growth in 2022 - is that China's Omicron outbreaks are significant downside risks for near-term consumption demand. Restrictions will likely be imposed nationwide to reduce travel before the Chinese New Year and encourage people to stay where they are. Cities where new cases were found will reimpose lockdowns and social distancing measures. The impact in each city will depend on local authorities. Experience from the past 2 years was that while some cities (such as Shenzhen and Shanghai) can manage outbreaks in a less disruptive way, other cities (such as Xi'an) have resorted to stricter and larger scale lockdowns, causing severe disruptions to consumption and service sector activities. Businesses such as restaurants, as well as those linked to travel, and leisure & entertainment will suffer from sharp revenue reductions or even temporary shutdowns. This may also cause temporary job and income losses and negatively impact consumer goods purchases. Retail sales growth dropped by 3ppt in Jan-Feb 2021 (in 2-year average terms). Retail sales might weaken again in Jan-Feb 2022, though the YoY growth rate might not drop much owing to the low base in 2021.

Nevertheless, consumption will likely recover rapidly once lockdowns are lifted. Similar to what happened before, such negative shocks will likely be transitory and will be followed by strong recovery once lockdowns are lifted and businesses reopen.

Still, the notorious bull-whip effect will emerge once again, as supply chains once again become stretched, and like in 2021 the question will be how the trade off between rising costs - as goods in transit end up stuck on a ship far longer than expected - and slowing growth will impact the Fed's view on what the optimal policy response is. While the Fed's prerogative for now is clearly to contain inflation, the reality is that much of the inflation experienced today is on the supply side, something which Brainard told the Senate in her confirmation hearing the Fed is powerless to address. Meanwhile, if we see a "surprise" drop in growth in the coming months, the Fed will have no choice but to delay or at least stagger its tightening as the last thing the Fed can afford to do is hike into another recession, which will then quickly be followed with even more easing. 

Tyler Durden Thu, 01/13/2022 - 13:06

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International

Are We Falling As Rome Did?

Are We Falling As Rome Did?

Authored by Julie Ponese via The Epoch Times,

3, 2, 1… Timber! A Philosopher’s Take on the Collapse of Our…

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Are We Falling As Rome Did?

Authored by Julie Ponese via The Epoch Times,

3, 2, 1... Timber! A Philosopher’s Take on the Collapse of Our Civilization

The clock seems to be ticking.

Growing disparities in wealth, a housing and gas crisis, transhumanism galloping over the horizon, heroized incivility, and the constant threat of viruses, the “cures” for which may be worse than the diseases. Global politics feels eerily apocalyptic these days and, in our own little worlds, many of us are so lost, so unmoored from the comforts of our pre-pandemic lives, that we don’t know which end is up or what the future will hold. Investigative journalist Trish Wood recently wrote that we are living the fall of Rome (though it’s being pushed on us as a virtue).

I wonder, are we falling as Rome did? Is it possible that our civilization is on the verge of collapse? Not imminent collapse, perhaps, but are we taking the initial steps that civilizations before ours took before their eventual downfalls? Will we suffer the fates of the Indus, the Vikings, the Mayans, and the failed dynasties of China?

As a philosopher, I need first to understand what we mean by “civilization” and what it would mean for that thing to collapse.

This is a significant conceptual hurdle. “Civilization” (from the Latin civitas, meaning a body of people) was first used by anthropologists to refer to a “society made up of cities” (Mycenae’s Pylos, Thebes, and Sparta, for example). Ancient civilizations were typically non-nomadic settlements with concentrated complexes of persons who divided labor. They had monumental architecture, hierarchical class structures, and significant technological and cultural developments.

But just what is our civilization? There isn’t a tidy line between it and the next in the way the Mayans’ and the Greeks’ coexistence was defined by the ocean between them. Is the concept of Western civilization—rooted in the culture that emerged from the Mediterranean basin over 2,000 years ago—still meaningful, or has globalization made any distinction between contemporary civilizations meaningless? “I am a citizen of the world,” wrote Diogenes in the fourth century B.C. But of course, his world wasn’t quite as vast as our own.

Now for the second issue: civilization collapse. Anthropologists typically define it as a rapid and enduring loss of population, socio-economic complexity, and identity.

Will we suffer a mass loss of population or socio-economic complexity? Perhaps. But that isn’t what concerns me. What I really worry about is our loss of identity. I worry that we’ve lost the plot, as they say, and that with all our focus on the ability of science to save us, we’ve lost our ideals, our spirit, our reasons for being. I worry we are suffering what Betty Friedan called “a slow death of the mind and spirit.” I worry that our nihilism, our façadism, our progressivism are incurring a debt that we may not be able to pay.

As the eminent anthropologist Sir John Glubb wrote (pdf), “The life-expectation of a great nation, it appears, commences with a violent, and usually unforeseen, outburst of energy, and ends in a lowering of moral standards, cynicism, pessimism and frivolity.”

Think of a civilization as the top step on a staircase, with each stair below having fallen away. Western civilization today is built largely on the foundational ideals of ancient Greece and Rome that endure long after their physical structures and governments disappeared. But they endure because we find them meaningful. They endure through literature and art and conversation and ritual. They endure in how we marry, how we write about one another, and how we care for our sick and aging.

One lesson history tries to teach us is that civilizations are complex systems—of technology, economics, foreign relations, immunology, and civility—and complex systems regularly give way to failure. The collapse of our civilization is almost certainly inevitable; the only questions are when, why, and what will replace us.

But this brings me to another point. Early in its usage, anthropologists started using “civilization” as a normative term, distinguishing “civilized society” from those who are tribal or barbaric. Civilizations are sophisticated, noble, and morally good; other societies are uncivilized, backward, and unvirtuous.

But the old distinction between civilization and barbarism has taken on a new form in the 21st century. It is from within our own “civilized” culture that emerges an inversion of the concepts of civility and brutishness. It is our leaders, our journalists, and our professionals who ignore the standards of rational discourse, who institutionalize hatred and incite division. Today, it is the elites who are the true barbarians among us.

Taking a cue from Walt Whitman, who thought his own 19th century America was waning, “We had best look our times and lands searchingly in the face, like a physician diagnosing some deep disease.”

If our civilization collapses, it won’t be because of an outside attack, like Bedouin charging in from the desert. It will be because of those among us who, like parasites, destroy us from within. Our civilization may collapse and it could be due to any number of factors—war, the economy, natural disasters—but the silent killer, the one that may get us in the end, is our own moral catastrophe.

The ultimate problem, therefore, is not interpersonal; it’s inner-personal. If our civilization is collapsing, it’s because something in each of us is collapsing. And we need to rebuild ourselves first, brick by brick, if we are to have a chance of rebuilding ourselves together.

Tyler Durden Wed, 09/28/2022 - 22:20

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Economics

DryEyeRhythm: A reliable, valid, and non-invasive app to assess dry eye disease

Dry eye disease (DED) is a condition characterized by an array of different symptoms, including dryness, ocular discomfort, fatigue, and visual disturbances….

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Dry eye disease (DED) is a condition characterized by an array of different symptoms, including dryness, ocular discomfort, fatigue, and visual disturbances. This condition has become increasingly common in recent years owing to an aging society, increased screen time, and a highly stressful social environment. There are about 1 billion people, worldwide, who have DED. Undiagnosed and untreated DED can lead to a variety of symptoms, including ocular fatigue, sensitivity to light, lower vision quality, and a lower quality of life. Given the widespread prevalence of the condition, this can further lead to reduced work productivity and economic loss.

Credit: Juntendo University

Dry eye disease (DED) is a condition characterized by an array of different symptoms, including dryness, ocular discomfort, fatigue, and visual disturbances. This condition has become increasingly common in recent years owing to an aging society, increased screen time, and a highly stressful social environment. There are about 1 billion people, worldwide, who have DED. Undiagnosed and untreated DED can lead to a variety of symptoms, including ocular fatigue, sensitivity to light, lower vision quality, and a lower quality of life. Given the widespread prevalence of the condition, this can further lead to reduced work productivity and economic loss.

 

Despite the obvious disadvantages of DED, a large portion of the population remains undiagnosed, which ultimately leads to increased disease severity. DED is currently diagnosed through a series of questionnaires and ocular examinations (which can be invasive). But this method of diagnosis is not ideal. DED examinations do not always correspond with  patients’ subjective DED symptoms. Furthermore, non-invasive and non-contact dry eye examinations are required in the COVID-19 pandemic. These flaws point to a need for a simple, reliable, and accessible screening method for DED to improve diagnosis and prognosis of the disease.

 

To answer this need, a research group, led by Professor Akira Murakami and Associate Professor Takenori Inomata of the Juntendo University Graduate School of Medicine, developed a smartphone application called DryEyeRhythm. “DryEyeRhythm leverages the cameras in smartphones to measure users’ blink characteristics and determine maximum blink interval (MBI)—a substitute for tear film breakup time, an important diagnostic criterion of DED,” explains Associate Prof. Inomata. “The app also administers Ocular Surface Disease Index (OSDI) questionnaires, which are also a crucial component of DED diagnosis.

 

To validate the usefulness of the app, the research team conducted a prospective, cross-sectional, observational, single-center study, the results of which have been published in

The Ocular Surface (available online on 25 April 2022 and published in volume 25 in July 2022).

 

For their study, the team recruited 82 patients, aged 20 years or older, who visited the ophthalmology outpatient clinic at the Juntendo University Hospital between July 2020 and May 2021. The participants completed the Japanese version of the OSDI questionnaire (J-OSDI) and underwent examinations for MBI, both via the app and via other analysis techniques.

 

The study revealed that the J-OSDI collected with DryEyeRhythm showed good internal consistency. Moreover, the app-based questionnaire and MBI yielded significantly higher discriminant validity. The app also showed good positive and negative predictive values, with 91.3% and 69.1%, respectively. The area under the Receiver operating characteristic (ROC) curve—a measure of clinical sensitivity and specificity—for the concurrent use of the app-based J-OSDI and MBI was also high, with a value of 0.910. These results demonstrate that the app is a reliable, valid, and moreover non-invasive, instrument for assessing DED.

 

Non-contact and non-invasive DED diagnostic assistance, like the kind provided by DryEyeRhythm, could help facilitate the early diagnosis and treatment of patients, as well as, DED treatment through telemedicine and online medical care,” says Associate Prof. Inomata. The research team plans to further validate its results by conducting a multi-institutional collaborative study in the future. They are also planning to obtain medical device approval and insurance reimbursement for the smartphone application.

 

The development of DryEyeRhythm is crucial step forward toward the management of DED and improving vision and quality of life among the population.


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Spread & Containment

A rapid, highly sensitive method to measure SARS-CoV-2 in wastewater

Wastewater-based epidemiology (WBE) has been shown to be an excellent means of understanding the spread of SARS-CoV-2 in communities. It is now used in…

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Wastewater-based epidemiology (WBE) has been shown to be an excellent means of understanding the spread of SARS-CoV-2 in communities. It is now used in multiple areas across the world to track the prevalence of the virus, serving as a proxy for determining the status of COVID-19. Of particular importance is that WBE can be used to estimate the prevalence of COVID-19, including asymptomatic cases. However, one of the major drawbacks of WBE for SARS-CoV-2 has been that the traditional method was not very sensitive, and low viral loads could not be reliably detected.

Credit: Hiroki Ando, et al. Science of the Total Environment. August 8, 2022

Wastewater-based epidemiology (WBE) has been shown to be an excellent means of understanding the spread of SARS-CoV-2 in communities. It is now used in multiple areas across the world to track the prevalence of the virus, serving as a proxy for determining the status of COVID-19. Of particular importance is that WBE can be used to estimate the prevalence of COVID-19, including asymptomatic cases. However, one of the major drawbacks of WBE for SARS-CoV-2 has been that the traditional method was not very sensitive, and low viral loads could not be reliably detected.

A team of scientists from Hokkaido University and Shionogi & Co, Ltd., have developed a simple, rapid, highly sensitive method for the detection of SARS-CoV-2 in wastewater. The method, EPISENS-S, which does not require specialised equipment, was described in the journal Science of the Total Environment.

During the COVID-19 pandemic, Japan has had the lowest number of cases per capita. Thus, the viral loads in sewage have also been lower, and much more difficult to evaluate using established WBE methods—due to their low sensitivity. Prior work by the research team showed that the SARS-CoV-2 virus was associated with solids in sewage, so they focused on developing a method to analyse the solid phase of wastewater.

The method they developed, EPISENS-S, involves centrifuging collected wastewater samples to separate all the solids in the samples. The solids were then treated with a commercially available kit to extract all the RNA; the RNA was then reverse transcribed and amplified to obtain a substantial amount of DNA copies. A separate set of samples was subjected to treatment with polyethylene glycol followed by RNA extraction and reverse transcription to synthesize DNA: the method that is currently widely implemented in Japan. The DNA obtained from each of these methods was subjected to quantitative PCR (qPCR).

The team found that the EPISENS-S method is approximately 100 times more sensitive than the polyethylene glycol method. They used EPISENS-S to conduct a long-term analysis of wastewater from two sewage treatment plants in Sapporo city, and found that there was a high correlation between changes in RNA concentrations in the collected samples and changes in the number of reported cases in the city. EPISENS-S can also detect and quantify the Pepper mild mottle virus (PMMoV), which is associated with fecal matter and is used as an internal control.

EPISENS-S provides a way to track COVID-19 cases that are asymptomatic, as well as those that have not been clinically confirmed. In addition, it has great potential to continue tracking the prevalence of SARS-CoV-2 as vaccination rates increase. Finally, EPISENS-S could also be adapted to track other viral diseases with low infection numbers and viral loads.


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