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May 17th, 2022
Could this one date really mean so much to the US economy? That date is June 1st, 2022. Aside from it being one day from my niece’s birthday, it’s also the date that Shanghai has announced it will attempt to reopen and allow normal life to resume.
Back in March, China’s biggest city, Shanghai, was hit with its worst covid outbreak. Since China has a zero-covid policy, it meant strict lockdowns that saw people separated from family and in some cases food and medicine.
As cases began to spike, the worse the restrictions were, which had an impact on global trade. Shanghai and the surrounding regions are among China’s largest manufacturing hubs. Tesla (TSLA) shut down its Shanghai factory that produces 2,000 vehicles a day! That’s just one example of how far-reaching the economic impact can be.
I’m not sure that June 1st will mark the beginning of the end of our inflationary woes, but I believe that it certainly can’t hurt to get goods moving again. To put things in perspective, shipping one container from China to the West Coast now costs roughly twice as much as it did a year ago and there’s already a 34% increase in ships stuck at the Shanghai port as a result of the lockdowns.
Ok, but now they open and everything will be great again, right? As we saw earlier in the United States, as ports get backed up, it takes a monumental effort to get them back to normal. Some global companies are once again questioning how much risk they have in a one-country supplier. Nearly 23% of European companies in China are reconsidering whether to shift planned investments to another country. That represents a 50% increase in companies looking elsewhere over the past two months. China hasn’t experienced this type of potential outflow in more than a decade.
It’s not just in Europe either. US companies like NIKE (NKE) continue to move work into other nations. It can be a costly venture to move suppliers and set up shop in a different geographic location.
It may take some time to get things moving again and I’m not sure how the market will react on June 1st or the weeks after, but it’s a start.
Today’s trade ideas are in the transportation sector…
If we have another issue at the US ports, similar to the end of last year, we could see Union Pacific Corporation (UNP) be the benefactor as a way to move goods. I also like that it has a 2.05% dividend, trading at a forward P/E discount, and increasing EPS.
Guest Writer, Filthy Rich, Dirt Poor
Editor, Wealthy Investor Society
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