Transcript:
Marie Marinovich:
With China locking down, we hear a lot about the supply side interruptions, it seems factories are setting up closed loop bubbles to produce goods. What impact do you see on the market?
Tom Vaughan:
Yeah, so China’s the world’s, you know, supply chain, for all intents purposes, when they locked down. Oftentimes, that means they’re locking down a factory, I know the Tesla factory was locked down in Shanghai, for example. And so Tesla can’t sell cars, if they can’t make the cars. And they, the price of the stock is already based on some expectation for how many cars or how much revenue, how much profit they might have. But if they can’t sell X amount of cars, then the price needs to readjust based on that. As far as that goes, unless they can make it up somewhere else, some other factory can work, you know, harder around the clock or what have you. So the situation and China’s is critical right now, because it’s really exaggerating the pain that we’re feeling here. The Federal Reserve wants to slow things down. But you know, so their demand is up and up and up, because people have money and supply, if it continues to go up and actually finally meets demand, you could lower inflation without doing a lot more. But if you’re trying to knock, you know, demand down, right, because we’re doing the Federal Reserve, but if supply also starts to come down, because the China is locked down and not producing, the Federal Reserve is going to try to chase that in, right.
And then you get the possibility of recession, they gotta kick the economy into recession to do that. So you’ll see the market respond quite aggressively to what’s happening in China, here’s an I actually think if there is an upside surprise, that’s going to happen here in the next month or two, it could be China. Because first of all, I think the market is discounting their abilities to produce. They, they are the world’s supply chain for a reason. They’re really, really good at this production. And so they’re creating these closed loop situations, like this Foxconn plant for Apple, where all the employees live inside the factory and just keep producing. And, you know, watch what they do, I wouldn’t be surprised. We saw some reduction and shipping and some reduction in production in April from China. But it wasn’t dramatic. You know, we’ll see what happens going forward as far as that goes. And so that’s the key issue. That’s why the closed loop thing is basically just putting a group of people together that live together. So theoretically, if nobody else is coming in, and nobody has the virus now then they can’t spread the virus either.
Right. You know, I can’t imagine that happening here in the US. Honestly, we were kind of laughing about it. What if we were all living here at retirement capital strategies, you know, probably better than some of those factories where people like each other. Yeah, exactly. I mean, and think about just from a human standpoint, you’ve got a scenario where, you know, probably not your whole family’s locked up in that factory, so your family somewhere else, and you’re in that factory, or you know, that, so you’re separated from your family for some period of time, too. But they are doing it, and there are some workarounds. And I think they’re going to be pretty ingenious in that area. So I’m not willing to discount their abilities here. I think the zero COVID policy is really kind of a wild concept. I mean, 20 plus million people in Shanghai, need to have zero cases for three days in a row before they start, you know, reducing some of the lockdown. Which seems like that’s not possible to me, maybe it is. But you know, so we’ll have to see. And that’s where I think the other upside surprise could be, they could modify the program in some form or fashion, make it a little looser, somehow. And that could really create a scenario where, you know, the production could get back up also, so that as a country, they’re not going to be able to keep production down forever, right. I mean, they, they, it’s, it’s like any other it’s like a business. You can’t just shut it down and expect great things to happen. So they’re gonna want to have this production work too. So but that’s that’s what’s important about it. That’s what a closed loop is.