dont look east

An unpleasant reality is hurtling toward us, but virtually everyone wants to ignore it.

While the star-studded film has received mixed reviews, it's a satire of human nature. In its case, it's about an asteriod heading towards the earth and a parable for global warming. However it could just as easily be a market warning for what's slowly unfolding in China.

I've yet to hear any kind of coherent strategy for how China will deal with omicron. Cases continue to pop up throughout China and Xian is now approaching a fourth week of total lockdown. Cases in Tianjin and Shenzhen threaten two of the most important cities/ports in the country, millions of people are set to travel over the Lunar New Year holidays and the Winter Olympics are three weeks away.

Goldman Sachs lowered its China GDP forecast to 4.3% from 4.8% this week on the "likely higher average level of restriction (and thus economic cost) to contain the more infectious Omicron variant" but that barely scrapes the surface of the possible range of outcomes.

Beyond that, there's virtually no talk about China risks. Neither of the top two nominees at the    Federal Reserve  were asked about it this week. Markets are oblivious.

We could be seeing hundreds of millions of people locked down this year if China continues with its strategy. They've changed the nominclature of 'covid zero' to 'dynamic clearing' but the goal is the same. The only change is to shift the burden and responsibility to regional governments.

The effects of lockdowns could be profound, with global supply chains breaking in a political and inflationary environment that's already explosive.

it's inevitable that China will eventually have to learn to live with the virus just like the rest of us but how they go from covid-zero to covid-everywhere features a wide range of possibilities. Perhaps the ideal solution would be a quick pivot but towards tolerating omicron but I don't think that's realistic.

Amongst all of this, what bothers me most is that no one even seems to acknowledge the risk.

Will this be a repeat of 2020 where when it finally becomes undeniable the rug is pulled out from markets?