Friday, March 28, 2025

Apologies

The week ended on March 28, 2025, interesting news items to look at this week are:

1. Apologies: For the past two months, I was busy prepping my old house for sale, a house we built 18 years ago and now proved too big for empty nester. Selling houses in Australia is rather theatrical and involved a process called staging, which means clearing out all our belongings, getting contractors in to do repairs and touch ups, then interior designers to place rented furniture and display items like artworks, paintings and plants, inspectors to check on compliance with latest building codes and agents to do marketing and selling. Marketing is about placements of ads in specialists housing platforms and social media. Creating marketing materials like drone shots, dusk photos, videos, and of course copy writers for the ad campaign. There is a trade off between how much one pays for outside services and DIY and added complications of reliability of contractors and the desirable effect. With all these, there simply weren’t enough time for me to sit down and put ink to paper for my weekly blog. Here is a photo of the final product with prayers that it would be sold. (Photo)


At  hindsight, a brief period away from my desk proved to be a blessing as there were just too many breaking news for anyone to digest and analyze in the past period. The Munich Security Summit and the disintegration of NATO, the kabuki reality Trump/Zelensky show, the rise and fall of the Coalition of the Willing by UK Prime Minister Starmer, the on/off Tariff fiasco on Mexico and Canada, the cease fire in Gaza on a false pretext, the de facto default by Bank of England on spot gold deliveries and not forgetting DeepSeek and Unitree Robotics open source global sharing. Not following news too closely has its benefits as keeping a distance allows one to see more clearly the big picture, the macro view and for what it's worth, here is a summary.

2. Capabilities and Not Intentions: In the most intense competition of global powers in recent history China has finally given up on explaining her position with the United States or even the hope of a meaningful dialogue as China finally accepts the fact that the United States is motivated to destroy rivals based on their “offensive” capabilities buildup and not their intentions. (Fig. 1).


It took 25 years for many political leaders to wake up to the fact that the doctrine of “Full Spectrum Dominance” of the Anglo American Empire first promulgated in 2001 was not a design to get more funding for the US Military Industrial Complex but a genuine desire of their political elites to be the perpetual apex predator.  I suppose it is expedient to overlook the depravity of human nature and politically correct and beneficial to enjoy the open markets of the United States, to get rich on the outward flow of dollars as US hollowed out her industrial capacity in pursuit of the “Dollar Hegemony”. After all, America was indeed once a great nation and a “benevolent ruler”.  Sadly, few observers book marked what Alexis de Tocqueville said in 1832. (Fig. 2).

This brings us to the subject of the likelihood of success of Trump’s MAGA.

3. MAGA: MAGA received wide acceptance of the American voters because a lot of people in the Red and Purple Electorate believed that they can have the promised prosperity at the expense of other people. (Fig. 3).


That fallacy alone would mean MAGA would fail as militarily, economically and particularly monetarily the current health of the United States is a far cry from the Reagan era. As I explained in a previous Blog, US survived a default of the Bretton Woods Agreement in 1971 by (i) jacking up shot term interest rate to 20%, (Fig. 4)

(ii) by flooding the world with US$ through trade deficits in a purposefully hollowing out of her industries (Fig. 5)

and (iii) an agreement with the Saudis to exclusively sell petroleum in US$. More will be said on the agreement with the Saudis in later paragraphs.  As Trump stepped into the Oval Office, the United States is high on debt, high on inflation and high of stock market valuations. Tools in the old tool box were simply not available to Trump. As US migrate by design to a financialized economy away from a real productive economy the concept of competitive advantage gained through land (resources, strategic locations, connectivity and infrastructure), labor (cost and skill) and capital (intellectual and money by which I mean real money or ample barterable products and not a promissory note of fiat currencies) has long been abandoned by a majority of American businesses. Instead, the two customary tools for the US financialized economy are TINA (There Is No Alternative) and FOMO (Fear Of Missing Out), we will cover more on this two features later. Let us now take a close look at how Trump sets out to MAGA.

4. The Art of the Deal: Trump is obsessed with tariff as a bargaining tool because the imposition of tariff is totally within the powers of PONTUS, no cabinet endorsement required, no Congressional approval necessary, not even a possible challenge by the Courts. When 60% of Americans never ventured outside its own national borders, Americans are easily fooled by a misguided notion that the exporting countries are the ones who will be penalized by tariffs. People describe Trump as a “Poster Bully”, someone who will post anything on the social media and see what reactions may result and then amend his tacit accordingly.  To the weaker targets, Trump will apply maximum pressure until something breaks. This is typical of a US Marine war plan (the US Marines is Trump’s most loyal supporters in the military) which requires a shock and awe attack in the shortest time frame to siege a beach head because a long drawn out fight is fatal on account of logistics and lack of defensive infrastructure. To America’s peer rival like Russia and China who are land powers and play the long game, Trump is extremely cautious and desires dialogues and guard rails for fear of over reaction and retaliation. In my books, no borrower can ever succumb a lender. (Fig. 6).


In today’s Western economy, currency is debt and for debt to be sustainable, credit ( the etymology of which is “credo” meaning a statement of faith) is foundational. When a nation sell short her integrity, a nation’s credit is destroyed and so would the nation’s currency. This bring us back to the drivers of a financialized US economy which is TINA. Since oil is no longer exclusively to be sold in US$, semi-conductors seemed to be an ideal substitut. Foolishly by sanctioning US once largest creditor - China from access to US semi-conductor technology, the demand for US$ would correspondingly disappear and alternate supply chain develops. Then came AI which for a couple of years may aspire to be the next TINA. Everything looks rosy for the US tech sector until December 2024 when DeepSeek is launched and now with both DeepSeek and Unitree Robotics on open source, everyone is bidding sayonara to American TINA. In one of my earlier posts, I intimated that ChatGPT is more a financial phenomenon than an earth chattering technological breakthrough. The 7 fold increase in share price of Nvidia in two years is a design to suck in cash globally through momentum trade on the basis of FOMO. Since DeepSeek, we have witnessed how a $5.6 million Chinese investment in DeepSeek has deflated a $ trillion + valuation climb down on the American bourse with its consequential negative wealth effect. This is asymmetrical warfare in its finest.

5. The Petrol Dollar Deal: To the world at large, the Petrol Dollar was fomented in the mid 1970s after US defaulted on the Bretton Woods Agreement. The official narrative was the Saudis agreed to sell petroleum exclusively in US$ in exchange for US protection and a perpetuation of the Saudi family monarch. The real deal is a little bit more complicated. Market sources at the time understood US had actually agreed to pay for imports from Saudi as to 50% in gold and 50% in US$ with an undertaking that the price of gold would be maintained at slight premium of the cost of gold mining and production  around US$ 400 per ounce at the time. For US Treasury to hide this fact, gold leasing and the Gold Carry Trade was developed which involved the engagement of Bullion Banks to lease gold from Central Banks, cash out in the open market and lend the cash proceeds to gold miners at a preferential interest rate. In return gold miners would tender back future production to Bullion Banks at a contract price who would return the gold to Central Banks. This very act had ensured the drop of gold price from a panic speculative high of $800+ per ounce to around $400/Ounce for 15 years until 1995. (Fig. 7 Green Zone).


By 1995 US had successful created and then pricked the Japanese bubble economy and found a new sucker donkey in a Yen Carry Trade. A leak for the secret Saudi deal was made in the elite banking circles and suddenly FX dealers found a no brainer winning trade of leasing gold from Central Banks at 25 basis points, short sell and reinvest the proceeds in US Treasuries at 600 basis points plus a possibility of buying gold back at depressed prices. (Fig. 7 Red Zone). Between 1995 and 1999 Central Banks saw the value of their core Reserve Asset plummeted from $400/oz to under $300/oz and consequently in 1999 at the International Monetary Fund Annual Meeting, Central Banks, particularly European Central Banks agreed not to make further gold leases and to limit gold sales to no more than 2000 tons over 5 years and 400 tons on an annual basis. This is known as the Washington Agreement. The US Administration did not expect this curve ball and did not have sufficient time to call back all the leased gold in the 4 years of happy speculative gold selling, Gordon Brown, as Chancellor of the Exchequer, was prompted to initiate a sale of 60% of UK's gold reserves between 1999 and March 2002 at an average price of $275/oz and likewise for Canada. Canada emptied all her gold reserves in the early 2000s.  (Fig. 7 Gray Zone). Now you have a more complete picture of where Fort Knox’s gold has gone? (Fig. 8)

6. Not One in a Million: The following quote is from the famous economists John Maynard Kaynes: (Fig. 9).


Do you think the powers that be will pay you an interest higher than the rate they debauch the currency. As a mathematical fact, even the so called risk free asset of a US 10 Year Treasury Note will loose virtually all her purchasing powers in 18 years at a rate of decay of an average of 4% per annum. My friends be warned and be prepared. We are into QE to infinity and hyperinflation in 2025.

7. Financial market performance since Trump won 2024 Presidential Election to March 28 2025  (Fig. 10):


Gold (+15.73%), Russian Ruble (+14.49%), Bitcoin (+10.27%), Silver (+9.24%), JPY (+3.11%), Eur(+0.87%), GBP(+0.42%), USD Index (-0.99%), Rmb (-1.16%), S&P 500 (-5.74%), Nasdaq(-7.22%), TSLA(-8.70%) and Nvidia(-25.01%).

1Timothy 6:10  For the love of money is a root of all kinds of evil, for which some have strayed from the faith in their greediness, and pierced themselves through with many sorrows. 

Friday, February 7, 2025

Uncontrolled Chaos

The week ended on Feburary 8, 2025, interesting news items to look at this week are:

1. Uncontrolled Chaos: Two remarks will underpin the geopolitical and economic conditions for the next 4 years. The first was by US Treasurer Bassett in his private briefing to Wall Street Financiers (paraphrase) “In Trump 1.0, you have to take Trump seriously but not literally, but for Trump 2.0, you have to take him both seriously and literally”. (Fig. 1)


Now Bassett is a no nonsense hard nose numbers person and reflects what he truly believes. The second comment was from Russian FM Sergey Lavrov “US is incapable to make agreement”. The bottom line of Trump enforcing MAGA is US allies and unaffiliated weaker states will see unbridled demands made on them by an Empire with insatiable appetite for freebies and advantages brought on by skyrocketing debts and a hollowed out manufacturing sector. For countries that have not bend the knee to the Empire, they will all queue up to join BRICS to insulate themselves against the wrath of a predator vulture. BRICS in turn will decouple from the Empire because to China, Russia, Iran and their allies, there is no assurances on pieces of paper signed by any US Officials.

(i) Mexico, Canada and Panama capitulated for a reprieve - Mexico will spend money to guard US border against illegal immigrants and Panama rumored to give free pass to US Naval Vessels crossing the Panama Canal. (Fig. 2)


(ii) Gaza genocide sanitized to mass expulsion and a Trump resort deal: First fantasized by son-in-law Jared Kushner in Trump 1.0, Trump would now want to take charge of Gaza and turn into a Middle East Riviera with casinos and hotels with lucrative offerings Saudi, UME and Qatar for a piece of the action. Forget about legality, morality of the ethnic cleansing and expropriation, well at least in Trump eyes, the killing may end. (Fig. 3).


If Egypt is forced to house the evicted Palestinians, the blow back from this former US ally and now a BRICS full member could prove explosive with PM Sisi destabilized. (Fig. 4)

(iii) Musk’s DOGE Goon Squad - A team of inexperienced youngsters, none aged above 26, are working 120 hours week to indiscriminately amputate branches of US government deemed inappropriate under Trump 2.0. (Fig. 5).


USAID was the first to go and 20,000 CIA staffers have received letters offering voluntary departure. The first blood against the Deep State has turned into a torrent. To the relief of countries under threat of a US sponsored covert color revolution, at least any future destabilization effort may officially come through the front door.

(iv) Cyber Attack on DeepSeek - Received a post from the old school classmate chat group which is worthwhile to re-post here: In context, globally Google only need to respond to 300,000 enquirers per second on her multiple Data Centers, when DeepSeek was under attack, she received 230 million hits per second and that would mean over one million zombie computers were employed to stage the attack. It is a blatant large scale State Actor from North America and it did not even break China’s civilian cyber defence. Just how very afraid US has become of a 130 people startup in China. The question is if a counter attack were launched of equal magnitude, can the US dilapidated infrastructure be sustained.

2. Changes in Financial Markets for the first week of February 2025.

(i) Key Financial Asset Category Performance: (Fig. 6) Copper (+7.92%), Jpy (+2.46%), Gold (+2.26%), Silver (+1.83%), Ruble (+1.62%), Uranium (+0.98%), AUD (+0.78%), Nasdaq (+0.22%), GBP (-0.08%), S&P500 (-0.17%), USD Index (-0.26%), Euro (-0.48%), Dow (-0.49%), Rmb (-0.51%), Oil (-1.37%), and Bitcoin (-5.73%).


Commodities and Precious Metals continued their surge against the Dollar as Trump begin his trade war with BRICS and reciprocating tariff revenge but relent on Mexico and Canada. As Bullion Bank repatriate the physical metal from LBMA, gold shorts were scrambling to find physical bullion to make delivery, Gold Lease Rate spike with spot gold price continue to climb. (Fig. 7).

(ii) Short Term Interest Rates: Short Term Rates remained steady with on and off tariff rumblings by  Trump (Fig. 8)


(iii) Duration Treasuries were bid as US Employment began to crack and rates softened. (Fig. 9)


Proverbs 16:18  Pride goes before destruction, And a haughty spirit before a fall. 19  Better to be of a humble spirit with the lowly, Than to divide the spoil with the proud. 20  He who heeds the word wisely will find good, And whoever trusts in the LORD, happy is he.