Edge and Odds

The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

Edge and Odds

Invest with smart knowledge and objective odds

THE DAILY EDGE: 24 FEBRUARY 2022

Russian Invasion Scrambles Prospects for Global Economy Financial markets reacted swiftly to the invasion, with stock markets dropping sharply and commodity prices soaring

(…) Extensive fighting and sanctions that disrupted Russia’s energy exports would have an outsize impact on the European economy, given its heavy dependence on Russian gas. Some European banks and businesses also have extensive ties with Russia. (…)

Russia and Ukraine together make up a small slice of the world economy and represent only a minor destination of exports for Europe or the U.S. However, Russia is a major supplier of oil, natural gas and other commodities. It pumps about 10% of the world’s oil. In turn, the EU relies on Russia for nearly half of its natural gas imports and almost a quarter its oil imports.

Meanwhile, Ukraine and Russia combined account for nearly 30% of global wheat exports, according to the U.S. Department of Agriculture. The nearby Black Sea serves as a major conduit for international grain shipments from Ukraine and the country is also among the top exporters of barley, corn and rapeseed. (…)

Russia’s MC Norilsk Nickel PJSC is the world’s largest producer of palladium, responsible for between 25% and 30% of total output. The automobile industry, which is struggling with a shortage of semiconductors, could face additional problems if Russia’s supply of palladium were to slow. Platinum, however, can be used as an alternative, and South Africa is by far the world’s largest supplier of that metal.

Russia is also a big producer of the key ingredients for fertilizers such as urea and potash. Disruptions in those supplies could drive food prices, which are already at multiyear highs, up further. (…)

  • Fossil fuels — oil, as well as coal and natural gas — provide more than 80% of the global economy’s energy. And the cost of a typical basket of them is now up more than 50% from a year ago, according to Gavekal Research Ltd., a consultancy. (Bloomberg)
  • “the war has limited impact on global trade, because apart from oil and natural gas, Russia doesn’t have supply chains that can impact the world, which is different from China.” (Reuters)
  • “This puts central banks in a really tricky situation. A March hike from the Fed is being priced out (and) the number of Fed hikes this year being lowered because …it feels like it’s the wrong time to start taking liquidity out of markets. “Central banks may have to look through an inflation spike though that means ultimately rate hikes could become substantially bigger. I’d say medium term inflation risks have increased substantially…” (Reuters)

Weekly Gas Prices Since 2000

Goldman Sachs:

Historically, Fed officials have sometimes preferred to delay major policy decisions until uncertainty surrounding geopolitical risks diminished. (…) The current situation is different from past episodes when geopolitical events led the Fed to delay tightening or ease because inflation risk has created a stronger and more urgent reason for the Fed to tighten today than existed in past episodes. With some signs of problematic wage-price dynamics emerging and near-term inflation expectations already high, further increases in commodity prices might be more worrisome than usual. As a result, we do not expect geopolitical risk to stop the FOMC from hiking steadily by 25bp at its upcoming meetings, though we do think that geopolitical uncertainty further lowers the odds of a 50bp hike in March.

But pre-opening today (4100), the S&P 500 is down 14.6% from its January high. Where is the Powel put if there is one?

Michael Batnick (The Irrelevant Investor) tells us that since 1950, the S&P 500 has declined 10% from its highs 25 times, 7 times by 20-30% and 5 times by more than 30%.

At 4100, the S&P 500 is 7.8% below its 200-day m.a.. Since 2010, it got below 10% only 3 times as Ed Yardeni illustrates.

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But every time the index traversed its 200dma, it bottomed after the Rule of 20 P/E, currently 24.2, got below 20.0. That would be below 3155 at current earnings and inflation levels. I bet we get the Powell put before we get there.

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Devil Vladimir Putin said nations “will face consequences greater than any you have faced in history” if they interfere in his invasion of Ukraine. This is a rare overt threat of nuclear attack. (Axios)

Assessing the risk of a correction turning into a bear market

(…) The chart below shows the S&P 500’s median price path once it fell into a correction, separated by those that turned into bear markets (black line) and those that did not (blue line).

Both groups tended to see a short-term bounce lasting 1-2 weeks. After that, the bear market corrections fell apart and quickly plumbed lower lows. The non-bear-market corrections only saw some choppiness then went on to recover further in the weeks ahead.

Indeed US Job Postings Tracker: Data Through February 18 Job postings have yet to substantially rebound post-omicron surge.

It seems like the worst of the omicron surge’s impact might have passed. New job postings (those on Indeed for seven days or less) are well above pre-pandemic baseline, up 83.9% as of February 18. (…)Line graph titled “Job postings on Indeed, United States.”

Unretirements are picking up!

Reproduced from Indeed; Chart: Axios Visuals

Some Companies Ditch Annual Raises and Review Worker Pay More Often The demand for U.S. workers has led some manufacturers, technology firms and other employers to ditch the annual raise and switch to more frequent pay reviews as they compete for talent and keep pace with rising wages.

U.S. Mortgage Applications Continue to Fall As Rates Rise

Mortgage rates rose from 2.7% to 4.0% in one year, boosting monthly mortgage payments by 18%. But house prices are also up 18% in the last year. Payments at 2.7% on what was a $300k house are up nearly 40% (+$473/m) on the same $354k house at 4%. An impossible dream for all but the wealthiest.

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CalculatedRisk’s Bill McBride computes his own affordability measure

I used median income from the Census Bureau (estimated 2021), assumed a 15% down payment, and used a 2% estimate for property taxes, insurance and maintenance. (…) For house prices, I used the Case-Shiller National Index, Seasonally Adjusted (SA). Also, for the down payment – there wasn’t a significant difference between 15% and 20%. For mortgage rates, I used the Freddie Mac PMMS (30-year fixed rates).

So here is what the index looks like (lower is more affordable like the FirstAm index):

Bill notes that “in December, the average 30-year mortgage rates were around 3.1%, and currently mortgage rates are close to 4.12% – so we already know the “Affordability Price Index” will increase sharply over the next couple of months (meaning houses are less affordable) – and will be the least affordable since the housing bubble / bust.”

Rent? This price-to-rent chart also from CalculatedRisk uses the OFHEO house price index and the Owners’ Equivalent Rent (OER) from the BLS. “Note that OER is lagging behind other measures of recent rent increases.”

Americans are in a housing crisis. Add 7.5% foodflation and 30% energyflation and you get a huge squeeze on most household budgets. Disposable income is up 5.6% YoY but has increased only 4.6% annualized in the last 3 months.

Lowe’s Profitability Improves Despite Dimming Sales Outlook The home-improvement retailer’s management of costs and pricing impresses investors.

(…) Looking ahead, Lowe’s said it expects that on a comparable basis, sales in 2022 will register between a 1% decline and a 1% improvement from 2021’s levels [+5%]. The company forecast that profit will grow by approximately 8% to 13%. (…)

Fast-Spreading Type of Omicron Revives Reopening Concerns A more infectious type of the Omicron variant has surged to account for more than a third of global Covid-19 cases sequenced recently, adding to the debate about whether countries are ready for full reopening.

(…) Evidence so far suggests BA.2 is some 30% more infectious than its cousin, the BA.1 subvariant that kicked off the Omicron wave in southern Africa in November 2021. In South Africa, BA.2 has accounted for 82% of cases so far in February, according to health authorities in that country.

Overall, BA.2 accounted for 35% of Covid-19 virus samples whose genomes were recently submitted to the global Gisaid database, according to a Gisaid update released Tuesday.

Studies so far suggest that both types of Omicron pose about the same risk of severe disease in humans. That risk is lower than last year’s Delta variant, but with so many people getting infected, the death toll from Omicron is still high. (…)

Early studies suggest that vaccines and booster shots work equally well in both Omicron types in preventing serious illness. (…)

Prof. Sato said the current co-circulation of BA.1 and BA.2 could spawn a hybrid virus that would “more easily increase and be more harmful.” (…)

From Katelyn Jetelina:

  1. Transmissibility. We now have consistent data showing that BA.2 outcompetes BA.1. A recent study found the global reproductive rate of BA.2 was R(t)= 1.4 compared to BA.1, which had a R(t)=1.1. In England, secondary attack rates in U.K. households are also higher: 13.4% of BA.2 cases transmitted within their households vs 10.3% of BA.1. Together, this means that BA.2 will become the dominant variant worldwide very soon.

  2. Immunity escape. In a recent lab study, immune escape was similar for BA.2 compared to BA.1. In the real world, we have evidence that boosters continue to work against BA.2, but just like BA.1, protection against infection wanes over time (see Table below). A study of Denmark households found that vaccination helped protect against transmission more for BA.2 than BA.1. So, vaccines continue to work against BA.2. This is not surprising but sure is great news.

    UK Health Security Report Source Here

    What about infection-induced immunity? A recent preprint from Denmark found that BA.2 reinfections after BA.1 infection were rare, but much more common among unvaccinated compared to vaccinated: of the 47 reinfections, 89% were not vaccinated and 6% had only the two-dose series.

  3. Severity. We’ve gotten mixed signals as to whether BA.2 induces more severe disease than BA.1. A recent lab study in Japan found that BA.2 is more severe in hamsters. Hamster models have helped us out a lot in the past, but they certainly have limitations. A “real world” study in South Africa found something different: BA.2 had similar risk of hospitalization as BA.1. Because hamsters are not people, and because the lab is not the real world, I tend to have more confidence in South Africa’s conclusion that BA.2 is not more severe than BA.1. But we definitely need confirmatory analyses from other countries.

Taken together, we thought BA.2 would extend the tails of the Omicron wave. Many countries, like South Africa, did see the tail of the epidemic extended a little, but BA.2 did not cause a huge case upswing. Which is great news.

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Source: Tom Wenseleers Source Here

Over the past two weeks, conversations have bubbled up about the need for another booster. As far as I can tell, the triggering event for these discussion was a recent U.S. study published in MMWR. This study analyzed data from a network of hospitals across 10 states during August 26, 2021–January 22, 2022. The scientists wanted to evaluate mRNA vaccine effectiveness (VE) against hospitalizations over time. What did they find?

  • Two doses: VE for hospitalizations was 93% <2 months of a booster → VE was 80% >4 months after a booster

  • Three doses: VE for hospitalizations was 95% <2 months of a booster → VE was 81% >4 months after a booster

So this study showed that vaccine effectiveness against severe disease waned over time, regardless of a 2- or 3-dose series. Is this a sign that the booster did not solidify long-term effectiveness like we hoped? Maybe.

But there are some significant limitations to this study. For example, the data was not stratified by age or health status. Those over 65+ years or immunocompromised may disproportionally contribute to waning. If that’s the case, this study doesn’t necessarily support a broad fourth dose policy. There was also a very small sample with very limited follow-up data: only 39 people in the study had a booster for more than 4 months. This means there is a lot of uncertainty in the statistics. We really need a more robust study to see whether there is a “true” waning signal.

Cue Kaiser Permanente. They published a study this week in Nature. (Note that the study was funded by Moderna). Kaiser has an incredibly extensive database because of their closed health system, making this sort of study among a huge population feasible. The scientists leveraged a sample of over 26,000 patients to assess VE against infections and severe disease. What did they find?

  • Protection against infection waned, regardless of booster status. This is no surprise and another indicator that we really need to shift our focus away from infection to severe disease.

  • During Delta, VE of 2 and 3 doses against hospitalization was ≥99%.

  • During Omicron, VE of 2 and 3 doses against hospitalization was 84.5% and 99.2%, respectfully.

  • The 4 people hospitalized with Omicron despite three mRNA doses were more than 60 years of age with chronic diseases, and one was also immunocompromised. (Immunocompromised people really need to get their fourth dose!)

  • The number of boosted hospitalizations in this study was so low researchers were not able to measure any possible waning.

This study shows that vaccines and boosters continue to work incredibly well against severe disease. But limitations also exist with this study. There was limited follow-up time to properly evaluate waning against severe disease. This was also an insured population, meaning it’s not a great representation of the general U.S. population.

In addition to the Kaiser study, data from the U.K. continues to show a three-dose mRNA series continues to protect swimmingly well against hospitalization. However, they also only have 14 weeks of follow-up data after a booster, so we are at the mercy of time to see if boosters do in fact start waning like the primary series. So far, in the U.K., it doesn’t look like they do.

So, do we need another booster right now? No. Do we need another one soon? Before next winter? Ever? No one knows. That decision will be highly dependent on the duration of protection, how protection changes due to occupation, age, health, and, probably the most important factor, how this virus continues to mutate.

Bottom Line:BA.2 is something to keep an eye on, but I’m not too concerned. I’m more concerned about another variant popping out of nowhere like Omicron did. The booster story will continue to evolve as long as this pandemic continues to evolve.

THE DAILY EDGE: 23 FEBRUARY 2022: Strongflation

U.S. Flash PMI: US economy rebounds from Omicron wave, but output prices rise at survey record pace

Growth of private sector output in the US gained considerable momentum in February as companies reported a notable recovery in demand from COVID-related disruptions at the start of the year. Services firms led the rise, although manufacturers likewise registered a stronger increase in output, buoyed by a slight easing of supply bottlenecks. However, February also saw a survey record rise in average prices charged for goods and services.

Rising from an 18-month low of 51.1 in January to 56.0 in February, the seasonally adjusted IHS Markit Flash US Composite PMI Output Index indicated a substantial expansion in private sector output that outpaced the long-run series average.

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Both the manufacturing and service sectors recorded stronger expansions in output, with companies linking growth to substantial gains in new business, employees returning from sick leave, increased travelling and greater availability of raw materials.

February data highlighted a sharp and accelerated increase in new business among private sector companies that was the fastest in seven months. Firms mentioned that sales were boosted by the retreat of the pandemic, improved underlying demand, expanded client bases, aggressive marketing campaigns and new partnerships. Customers reportedly made additional purchases to avoid future price hikes. Quicker increases in sales were evident among both manufacturers and service providers.

Inflationary pressures across the private sector intensified in February, with the rate of input price inflation quickening from January’s ten-month low. Panellists continued to indicate higher raw material, transportation and wage costs. Global shortages of raw materials and lingering supply-chain disruptions were again cited, albeit less so than in prior months.

Prices charged for goods and services in the US rose at a record pace in February as companies continued to share additional cost burdens with their clients. Manufacturers signalled a sharper increase in selling prices than service providers, though the latter reported a record rise.

Private sector employment expanded further in February, taking the current sequence of job creation to 20 months. Moreover, the increase was marked and the strongest since last May. Anecdotal evidence indicated that hiring activity stemmed from sustained gains in new work and an associated rise in output requirements. Goods producers posted a moderate expansion in staff numbers, while jobs growth quickened to a nine-month high among services firms.

At 56.7 in February, up from 51.2 in January, the seasonally adjusted IHS Markit Flash US Services PMI™ Business Activity Index highlighted a substantial and accelerated upturn in output.

Boosting the latest rise in business activity was a quicker increase in new work intakes. Companies noted the strongest expansion in sales since last July. International demand for US services also strengthened in February.

With demand conditions improving, service providers continued to hire extra staff. The increase was marked and the fastest in nine months.

On the price front, there were sharper increases in both input costs and output prices. Notably, the rate of charge inflation hit a series peak.

The IHS Markit Flash US Manufacturing Purchasing Managers’ Index ™ (PMI™) rose from 55.5 in January to 57.5 in February, signalling a stronger improvement in business conditions across the sector. Although the Suppliers’ Delivery Times Index continued to inflate the PMI, the latest reading was also boosted by stronger increases in output and new orders.

Production rose at a quicker rate in February, albeit one that was moderate relative to those registered in 2021. Anecdotal evidence indicated that growth was hampered by raw material scarcity, supply-chain disruptions and labour shortages.

Factory orders increased at a sharp and accelerated pace in February, prompting firms to resume their hiring efforts after a blip in January. Export sales likewise expanded, with growth hitting a five-month high.

In contrast to the trend seen in the service sector, input cost inflation among manufacturers eased to a nine-month low midway through the quarter. That said, the rate of inflation remained elevated and outpaced that seen for services.

Additional cost burdens continued to be transferred to clients, as evidenced by another increase in factory gate charges. The rate of output price inflation was sharp and the fastest in three months.

Finally, manufacturers continued to purchase additional inputs for use in the production process, with the rate of input buying growth improving to a five-month high. Suppliers’ delivery times meanwhile lengthened to the least extent since last May.

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To summarize the U.S. flash PMI in preparation for the March 15-16 FOMC:

  • The U.S. economy bounced back strongly in February with strong new orders from “improved underlying demand” and inventory hoarding “to avoid future price hikes” per purchasing managers seemingly not seeing much slowdown in input inflation and focused on protecting margins.
  • The February CPI is unlikely to ease much as “prices charged for goods and services rose at a record pace in February”, unless rising costs are not fully passed on to the end consumer.
  • Private employment was the “strongest since last May”.

Goldman Sachs’ transitory team seems to be wavering:

Two-thirds of the core CPI basket has seen 4% annualized inflation since last July (vs. only 19% of the basket in 2019), and 16% of prices rose at a double-digit pace (vs. 2% in 2019). Regardless of the exact threshold chosen, the breadth of high inflation has returned to levels last seen in the 1980s. And in contrast to other recent episodes of labor market tightness, the peak of the inflation distribution itself is moving higher: prices of the center fifth of the core inflation basket are increasing at a 5-6% annualized pace—compared to a 2.5-3.5% pace in normal or tight labor markets.

Statistically, the high inflation breadth of the last six months argues for continued strength in core inflation this spring. And this estimate does not take into account additional upward pressure from wage-price pass-through or from continued supply chain constraints.

The medium-term implications are less clear-cut. While high and rising inflation breadth in the late 1970s coincided with the de-anchoring of inflation expectations, shorter-lived bouts in 2000 and 2006 did not. While encouraging, we note that the Fed responded to both of those latter episodes by tightening monetary policy.

So, at JPM:

we now look for the Fed to hike 25bp at each of the next nine meetings, with the policy rate approaching a neutral stance by early next year.

Our “This time is different” outlook incorporates an underlying reflationary tilt that keeps inflation elevated even as supply constraints related to the panemic and energy markets fade. We are also being challenged, however, as we do not forecast a broad and early move toward restrictive stances prompted by global inflation remaining well above central bank tolerance zones.

We think the risk that central banks shift and perceive a need to generate slow growth—and the corresponding impact on global financial conditions—is now the most significant threat to an otherwise healthy global backdrop.

9 x 25 = 225

ZeroHedge reminds us that “the Fed has only raised rates with stocks more overvalued just one time: that was in June of 1999. Everyone remembers what happened next…”.

ZH adds that “never before has the curve been this flat before the Fed hiked rates even once!” Which actually verifies:

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Meanwhile, supply shortages keep house prices risings:

The U.S. housing market experienced its highest one-year increase in home prices in at least 34 years in 2021, Nathan writes.

U.S. home prices soared 18.8% over 2020 levels, according to the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index released today. (Axios)

U.S. Consumer Confidence Weakens in February

(…) The expected inflation rate in twelve months rose to 7.0% in February coming after declines in the prior two months. It remained up from a 4.4% low in January of 2020. Roughly two-thirds of respondents expected that interest rates would rise over the next twelve months, the most in three years. The share of respondents planning to buy a new home within six months held steady m/m at 0.8% and remained below a June 2020 high of 2.0%. Those planning to buy a major appliance fell sharply to 47.2% of respondents, a five-month low. (…)

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February’s U.S. Light-Vehicle SAAR Set to Decline from January

On a seasonally adjusted basis, forecast February U.S. light-vehicle sales represent weakening from January, as the chip shortage, geopolitical issues and inflation all continue to loom large. The good news is Q1 overall is running stronger than Q4-2021. Though there likely will continue to be some aberrations in individual months, as of now the outlook is for sales to strengthen from quarter to quarter in 2022, albeit remaining below pre-pandemic levels.

Yesterday:

Home Depot’s Q4 comparable sales rose 8.1%. The number of transactions declined by 3.8%, but the average transaction value was up 12%. “Inflation in several product categories was responsible for much of that gain, Home Depot’s chief operating officer, Ted Decker, told analysts on a conference call.”

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  • Macy’s: “The retailer expects net sales in the current year to be flat to up 1% from 2021. It also guided its profit margins would shrink because of inflationary pressures and costs associated with online orders.” (WSJ)
TECH

The S&P 500 has officially corrected (-10.5%). The 38% of Investors Intelligence survey predicting a correction will now have to take another side, bull or bear.

Tech investors don’t have to make that decision. The NDX is down 17.3% and the ARKK fund is down 60%.

Are valuations getting attractive? Judge by yourselves with these charts from Ed Yardeni:

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FYI: “Tech is one of the few sectors where buyback trends have noticeably slowed, and it now represents only 2% of new S&P 500 buyback announcements vs. 30-35% of buybacks in recent years.” (The Market Ear)

Punishing Putin – How Biden could cut Russia off from world tech

If Russia further invades Ukraine, the Biden administration could deprive it of a vast swath of low- and high-tech U.S. and foreign-made goods, from commercial electronics and computers to semiconductors and aircraft parts, people familiar with the matter told Reuters.

President Joe Biden would achieve that by expanding the list of goods that require U.S. licenses before suppliers can ship them to Russia, and his administration would then deny those licenses, the people said. (…)

The official added: “Export controls are really potent because we’re talking about critical technology inputs that Russia needs to diversify its economy.” (…)

U.S. exports to Russia were under $5 billion in 2020, according to the Commerce Department, and already face many curbs. But the use of the FDPR rule dramatically expands the impact of the restrictions included in the package.

But The Telegraph’s excellent Amrose Evans-Pritchard has a completely different view:

Vladimir Putin controls the supply chain of western technology, so who is bluffing? Russia has the power to hobble key industries in the US and Europe by restricting supplies of metals

(…) Bear in mind what Putin has lost by this action: he has killed the Minsk accord and therefore ended the possibility of controlling Kyiv’s foreign and security policy through the veto power of these two puppet regions.

If he left it there, he would emerge from this crisis in a weaker strategic position. (…)

The West cannot activate serious measures because it risks an asymmetric response – a lighter variant of ‘mutual assured destruction’ from the Cold War.

It is already well understood that Europe is a captive of Russian gas, and dares not eject Russia from the SWIFT system of international payments because it would suffer a more immediate crisis than fortress Russia itself. (…)

Putin has the means to cut off critical minerals and gases needed to sustain the West’s supply chain for semiconductor chips, upping the ante in the middle of a worldwide chip crunch.

Furthermore, he could hobble the aerospace and armaments industry in the US and Europe by restricting supply of titanium, palladium, and other metals.

If he controlled Ukraine, his control over key strategic minerals would be even more dominant, giving him leverage akin to Opec’s energy stranglehold in 1973. (…)

Some 90pc of the world supply of neon, used as laser gas for chip lithography, comes from Russia and Ukraine. Two-thirds of this is purified for the global market by one company in Odessa. There are other long-term sources of neon in Africa but that is irrelevant in the short run.

Technet said Russian C4F6 gas is used for etching node logic devices. Palladium is used for sensors, plating material and computer memory (MRAM).

The world’s biggest producer of titanium is VSMPO-AVISMA, located in the ‘Titanium Valley’ of Western Siberia.

It is owned by Rostec, the state conglomerate controlled by Sergey Chemezov, an ex-KGB operative who served with Putin in East Germany. Russia and Ukraine together account for 30pc of the global supply of titanium, but this understates their hegemony over the production chain.

VSMPO-AVISMA supplies 35pc of Boeing’s titanium, mostly for 737, 767, 777, and 787 jets. It is used in engines, fans, disks and frames, prized for its resistance to heat and corrosion, and for its ratio of weight to strength. (…)

The Bureau warned that the US is down to one ageing plant capable of producing titanium sponge at scale, and no longer has any titanium reserve in the National Defense Stockpile.

It relies on supply from a hostile state-controlled entity to build US fighter jets, rockets, missiles, submarines, helicopters, satellites, and advanced weaponry. The report called for urgent measures to rebuild domestic production and acquire strategic reserves. What a shambles.

Airbus is even more vulnerable. Half its titanium sponge comes from Russia.

Britain’s aerospace industry depends on Russian supply. VSMPO-AVISMA has an operation near Birmingham, making commercial alloys for aerospace, medical technology, and the military.

(…) Russia cannot be strangled because it is systemically central to the world economy.

Nor can Washington easily deny Russia semiconductor chips over the long run. (…)

But the semiconductor chain is notoriously complex and populated by middlemen.

“There would be all kinds of work arounds: Russia wouldn’t be able to get the cutting edge stuff but it could get by with intermediate chips for most of its weapons,” said James Lewis, technology director at Washington’s Center for Strategic and International Studies.

“They can always fall back on the Chinese, and this would dilute the sanctions. It would not be easy for Russia because you can’t just switch over. Everything has to be redesigned to accept the Chinese chips, and they’re not the best either. It would set them back two or three years,” he said.

Chinese companies were reluctant to breach US sanctions after the annexation of Crimea in 2014. It is a different world today. Xi Jinping has made it illegal for them to comply with US extraterritorial sanctions. (…)

The fate of Ukraine’s people is not so different from the story of the Czechs in September 1938.