Forewarned is forearmed 2023

 It is New Year’s Eve 2022, may the Lord bless you all with Peace, Joy and Contentment as we will surely need God’s presence in what may be a roller coaster 2023. Here’s what I think we can expect:

 1. Continued Lies and Deception by elected leaders: We are in an era of faked news and for insecure political leaders (whether in “democratic” US/UK or tyrannical Ukraine) truth is suppressed via “misinformation” censorship. Half truth fills the MSM because controlling the narrative is political survival. (Fig. 1) headlined “China unveils a surprising new weapon in its information war against the West”.

The weapon is “discursive multipolarity”; In an era of “post-truth” meaning public opinion is shaped not by facts but by emotions, China without overthrowing the West’s “discursive hegemony”. used the West information assets to display an alternative. Since 2018 China stepped up her effort in this regard by not just fighting false accusations but by providing an alternative to the “rule based international order” through “Community of common destiny for mankind,人类命运共同体”.A rule based international order is just a rhetorical device implying China is breaking established rules. These rules were never clearly defined but in fact were made up as and when the Anglo American Empire so chooses. “Community of common destiny” on the other hand is what China has been practising for decades in substance with aids, investment and trade and can be immediately identified and sympathized. The result has been remarkable if we just take a look at the G20 line up between the two camps. But before we do that, one of the greatest deception before us is we have been led to believed that a country’s strength and prowess can be solely judged by its nominal GDP, hence the Anglo American Alliances (“AAA”) is all dominating hands down. (Fig. 2)

 On nominal GDP terms Russia is but 2% of Global GDP vs AAA’s 51% hence given draconian financial and economic sanctions and the combined NATO’s military might, Russia should crumble within months. The thinking the US led NATO was Russia produces 10 million barrels of crude per day and at the pre-conflict price level of $70 per barrel, the global economy of $101 trillion can surely can take an annual $255 billion hit (0.25% of Global Nominal GDP) for one year at most. Sadly Western politicians are mostly lawyers or political science graduates, so very few understand each barrel of oil went missing means energy equivalence of 12.5 years of hard labour hours. With misguided and narrow mind sets, no wonder rule by the West is in such chaos. Now a better measure of comparative strength of nations is Purchase Price Parity, stripping out pricing effect between countries. A simple illustration is using a $3 million Patriot Air Defense Missiles to intercept a $20,000 Russian Iranian Kamikaze Drone in Ukraine will add 150 times more GDP to US than Russia, but is it relevant ? On this basis, the G20 East and West line up indeed looks very different using PPP as a basis(Fig. 3)

 No amount of lies and propaganda can change the course of evolution to a multipolar world and we expect in 2023 the West will continue to fight against this trend and even double down to resist the evolution from happening. So be prepared for a deception galore to come.

2. The Big Bust: My friend and ex colleague sent to our chat group the economic outlook of the top banks from US, Europe and Asia. (Fig. 4)

Whilst I am still reading and digesting the contents, the immediate feeling I got, especially from the Wall Street Big Guns is don’t fight the Fed, interest rate will stay high around 5% for 2023 and recession in US is probable but manageable. For past two consecutive weeks I wrote about the surreal US finances. I did some more homework on 45 Years of US Treasury Yield Curve involving over 60,000 data points(Fig. 5) and found only on 5 occasions did serious yield inversion happened.

Three incidents happened on shorter duration and all related to credit and currency events, 1991 after the Japanese Bubble Economy gone bust, 2000 after the Dot Com bubble and 2008 at the Sub-prime Fiasco. (Fig. 6).

One event was of long duration of 27 months with extreme Yield Curve Inversion. The Event was the USD crisis in full bloom which began in August 1978 and ended in March 1981. This was brought on by a default of the Bretton Woods Agreement. The 2022 deep Yield Curve Inversion has the same shape and depth as the 1978 incident. The market is alerting to a similar credit and currency event of yet another US Default around the second quarter of 2023. So be forewarned.   

If you need further corroborative evidence please take a look at:

(i) (Fig. 7), the waterfall mounting losses at the Federal Reserve, from weekly average earnings of $1.6 billion to weekly losses of $18 billion.

(ii) (Fig.8) the false Quantitative Tapering accounting and covert QE using Reverse Repo. RR conveniently disguised $2 trillion + of printing, and is happening every 24 hours non-stop.

(iii) (Fig. 9), the humongous quantity of Gold purchases by Official Financial Institutions in November 2022 shattering all records for 55 years as reported by the World Gold Council. The historic purchase 55 years ago was in 1967 which led to a collapse of the London Gold Pool and eventual default of the Bretton Woods Agreement by the Anglo American Empire.

 3. Hyperinflation: The causes of Inflation may be cost push, demand pull or supply disruptions but hyperinflation has always been monetary events. (Fig. 10) is a picture of reported inflation of G20 nations.

(Fig. 11) is a similar picture showing effective yield of 10 Year Government Bonds adjusted for inflation. Negative yield are shown in brackets and in red.

With global de-dollarization in full rage the Biden Administration still seemed oblivious to the changing world circumstances and just signed another $1.7 trillion spending bill (Fig. 12).

It is simple arithmetic that the Federal Reserve needs to start printing real soon or the US Government will default. The volume involved is beyond cosmetics and white wash through creative accounting. When that happens, be prepared for cronies of AAA to follow every footstep and a global tsunami of debauched currencies is guaranteed.     

4. Ukraine Conflict: Fig. 13 shows Putin’s intentions for Ukraine.

Ukraine will likely be carved up by Russia, Poland and certain parts to declare Independence but politically neutral. The nation of Ukraine would be reduced to the Oblast of Kiev, denazified, demilitarized, land locked and politically neutral. The white lines on the map depicts what the original Ukraine looks like before the 2014 Maidan colour revolution. It is draconian and will be very bloody. I do not know the future but with Russia facing an existential threat, this war would be long and hard and a prelude to WWIII. I do not expect to see a nuclear contest in 2023 but am certain we are migrating closer by the day. Do remember always the name of our Savior is Jesus Christ.

Revelation 6:1  Now I saw when the Lamb opened one of the seals; and I heard one of the four living creatures saying with a voice like thunder, "Come and see." 2  And I looked, and behold, a white horse. He who sat on it had a bow; and a crown was given to him, and he went out conquering and to conquer.3  When He opened the second seal, I heard the second living creature saying, "Come and see."4  Another horse, fiery red, went out. And it was granted to the one who sat on it to take peace from the earth, and that people should kill one another; and there was given to him a great sword.5  When He opened the third seal, I heard the third living creature say, "Come and see." So I looked, and behold, a black horse, and he who sat on it had a pair of scales in his hand. 6  And I heard a voice in the midst of the four living creatures saying, "A quart of wheat for a denarius, and three quarts of barley for a denarius; and do not harm the oil and the wine."7  When He opened the fourth seal, I heard the voice of the fourth living creature saying, "Come and see." 8  So I looked, and behold, a pale horse. And the name of him who sat on it was Death, and Hades followed with him. And power was given to them over a fourth of the earth, to kill with sword, with hunger, with death, and by the beasts of the earth. 

 

                    

Refelction on 2022

It’s Christmas Eve and wishing everyone a peaceful Christmas and a progressive 2023 New Year. Let’s review key developments in 2022 and prepare for what may be a very volatile 2023.

 1. Covid-:19: Whilst the jury is still out on the long term side effects of the experimental mRNA vaccines, mankind is saved by the mutation of Covid-19 viruses into the mild but very infectious Omicron strain. To that extent, China has revised her Zero Covid policy to open up her accessibility in January 2003. We hope the global economy may show signs of revival thereafter. Still global weekly new infections and deaths are respectively 3.7 million and 12,000. (Fig. 1)

In both US and UK approximately 7.5% of those infected developed long Covid which invariably impaired their quality of life. We have to be individually vigilant on safe and hygienic practices.

2. US-NATO/Russia Proxy War in Ukraine: With Angela Merkel’s confession that the Minsk Agreement was just for NATO to buy time to prepare for an assault on Russia, there cannot be any meaningful negotiation for long term peace for Russia. (Fig. 2).

Whatever hope and trust there may have been, they disappeared. The conflict now becomes an existential struggle for both NATO and Russia. Skipping all the Western propaganda, the reality is US and her NATO allies have exhausted her armory to supply Ukraine and cannot restock in real time. Russia on the other hand have aligned her military industrial production to replenish wartime consumption in real time and hence will have a decisive win based on logistics and conventional warfare. Putin has also tilted her energy sales towards the East and economic sanctions produced little results. With Qatar angered by Europe’s corruption accusation (Fig. 3)

Qartar's rebuttal became an energy issue. Europe may finally have to climb down on her pretense of having moral high grounds on most of her dealings. When the fig leave is blown away, hungry and shivering citizens on the streets may finally wake up to send puppet politicians in UK, Germany and France packing back to their masters just like Sweden and Italy. I am hopeful that this day may come in Spring, 2023.

 3. Global Financial Reset: Last week Japan shocked the global financial market by taking a first step in easing the JGB yield control. This signaled the decades long Yen Carry Trade is not a sure win formula. The basis of a “Strong Dollar Policy” first developed by Robert Rubin in 1996 using Yen Carry Trade and Gold Carry Trade to prop up the USD will likely see curtain falls in 2023. We have described in last week’s blog “Zombiefied”, the horrific finances of the US Government and the Federal Reserve. The Pound, the Euro and the Yen is not far off. Although no other currencies are gunning for the role of “Sole Reserve Currency”, for self preservation, Central Banks are all realigning for a Reset. The shock and volatility is almost guaranteed to happen in the first half of 2023. I do not have the capacity to give sound advice on individual asset allocations because readership of this blog, small as it is, spread across many countries. My own preparations is on the same level as if I am housebound in a snow storm in North America or Europe. i.e. independent and self sufficient.

 The following are some data on the performance of financial markets in 2022:

A. Stock Market: Ignoring FX effects, performance of key stock market indexes for Year to Dec 24, 2022 are shown in Fig. 4. By descending order, they are: Nikki +3.59%, FTSE +0.92%, France CAC -8.96%, Dow -9%, Singapore -14.3%, Hang Seng -15.13%, S&P -19.78%, Shanghai -21.83%, Korea -22.7%, Taiwan -24.46%, Nasdaq -33.39% and Russia -43.22%.

Adjusted for FX effect and using USD as a base, Index performance will change to: Dow -9%, FTSE -10.16%, Nikki -10.23%, Singapore -14.57%, France -15.11%, Hong Kong -15.23%, S&P -19.78%, South Korea -28.24%, Shanghai -28.94%, Taiwan -31.99%, Nasdaq -33.39%, Russia -38.26%. When interest rates and currencies are wrongly priced, everything became bubbles.We are not out of dangers yet as the Reserve Currency still struggles to be in a position when it no longer has the legitimacy nor moral imperative to retain ;

B. Debt Market: For the Year 2022, the so called Risk Free Asset (USGGYR10) lost -16.77%, 20 Year Bond -26.95% and 30 Year Bond -33.94%. The Federal Reserve holds 48% of all outstanding US 30 Year Bonds but like all things in US, it applies a different standard to itself. The Federal Reserve does not recognize they made a loss and treat such losses as a deferred asset only to be amortized by reducing remittance to the US Treasury. The entire UST Yield Curve is in severe inversion choking funding in business financing and investments, the financial markets expects a recession in 2023. As previously reported, the Fed is only using interest rates as a tool as it continued a covert QE operation via the Overnight Reverse Repo Operation to handle a dumping of Treasuries by both domestic and international bond holders. Even with Republicans in control of Congress, they are still talking about another $Trillion stimulus and no cut back in spending. The Fed’s half baked attempt to fight inflation will fail and hyper-inflation by currency debauchery is the likely outcome.   

 C. FX Market: The best performing currency in 2022 is the Russian Rubble which gained 8.74% against the USD. All crony currency of the Anglo American Empire were disadvantaged by the Russian Sanction Policy
(Fig. 5)

D. Precious Metals & Crypto: Precious Metals were steady against USD but Bitcoin lost -64%. (Fig. 6)

Luke 12:22  Then He said to His disciples, "Therefore I say to you, do not worry about your life, what you will eat; nor about the body, what you will put on. 23  Life is more than food, and the body is more than clothing. 24  Consider the ravens, for they neither sow nor reap, which have neither storehouse nor barn; and God feeds them. Of how much more value are you than the birds? 25  And which of you by worrying can add one cubit to his stature? 

                        

 

   

Zombiefied

December 16, 2022 key news items this week:

1. Zombiefied : Last week we reported the 2023 Global Economy will be a War Economy. This week we will look at another aspect of the Economy and we will call it the Zombie Economy. In financial market terms “Zombie companies “ZBC” are typically defined as firms that haven't produced enough profit to service their debts (also known as an interest coverage ratio below one) for three straight years. Last year on July 30, the Federal Reserve published a study and estimated 13% of US Listed Companies belonged to that category. (Fig. 1).

The Federal Reserve has a lower estimates of ZBC than others as the generally accepted benchmark is ICR( interest cover ratio) of less than 1. (Fig. 2).

Bearing in mind, at the time of the Fed’s publication, the Effective Fed Funds Rate “EFFR” was only 0.07%, the fact that the Fed just raised its EFFR to 4.33% this Friday means the number of companies that fit into that category is a whole lot bigger. Why is that important? When a company that cannot service its debt, there cannot be any sustained growth unless it is in a high growth sector with robust earnings growth prospects. ZBC are found in different industries. The distribution by Industry Classifications can be found in (Fig. 3)

. ZBC are not only found in US and there are plenty of examples of Zombies in Europe and Japan. In fact the Bank for International Settlement “BIS” published a study of ZBC earlier in September 2018. (Fig. 4).

For those interested in these two studies, we list the links below:

https://www.federalreserve.gov/econres/notes/feds-notes/us-zombie-firms-how-many-and-how-consequential-20210730.html#fig1

https://www.bis.org/publ/qtrpdf/r_qt1809g.pdf

 (i) US Inc. And the Federal Reserve are Zombies - Having explained ZBC, the punch line is the entire country of US and the Federal Reserve are Zombies. Let me explain below, every Wednesday, the Federal Reserve published the surpluses (income from its Treasury portfolio less expenses including interest paid and trading losses) it made. From first published figures in Jan 2011, the average weekly earnings of the Fed is $1.6 billion per week but since Sep 7, 2022, such earnings turned into deficits and the pace of decline is in acceleration. By the week of Dec 14, 2022 the weekly deficit swelled to $14.3 billion. (Fig. 5).

By hiking interest rate again on Dec 14 and forecasts further interest rate increases in 2023, sustained losses at the Federal Reserve will snowball to an avalanche. The Federal Reserve is already trading at significant negative assets (liabilities greater than assets) and relies on the “full faith and credit of the US Government”. But is the US Government doing better? No, of course not. For Fiscal 2023, Gross Tax Receipts of the US Federal Govt was $570.61 billion. With Gross Federal Debt of $31.32 trillion as at December 15, 2022 and average interest rate of say 4%, interest on Federal Debt is $1,252.8 billion. The entire US Federal Gross Tax Receipts could only cover 45% of interests expense. By definition, US Inc is a Zombie and the mother of all Zombies.

 (ii) The Entire Western Alliance are Zombies - We are all well aware of the conflicts within the EU and between EU and US in terms of energy profiteering and trade subsidies and frictions. But is it the ideology of Democracy and Freedom that binds their alliance. No, these are just slogans for the naive public consumption. The sad truth is the alliance only because of their Zombie blood that by acting in concert as a pack they hope to continue to suck dry the life blood of the rest of the unallied world. Whilst USD remains as the only Reserve Currency, the Euro, the Sterling and the Yen could still gleam from the crumbs fallen from the US table, when the USD hegemon fails, every Western currency will fall like dominoes.

 Revelation18:11  "And the merchants of the earth will weep and mourn over her, for no one buys their merchandise anymore: (Fig. 6)

(iii) The Vampire Killer - Every month, US Treasury published a report on international capital flow and the October 2022 figures was released yesterday. In the month of October, the international sell down of US Treasuries continued and Foreign Holders dumped another US$111.5 billion. Cumulatively for the 10 months to October, total sell down was $554 billion comprising Central Banks -$511.2 and Private Sector -$42.8 billion. (Fig. 7).

Leading the charge of the Vampire Killing mission is China and the anti-vampire ranks are growing by leaps and bounds.

Please caution that the US Treasury figures above are highly dressed up, the real picture is a lot worst. We will discuss this aspect in later paragraphs.

 2. Update on Ukraine Conflict:

(i) In a rare moment of Western MSM candor, the Financial Times admitted Ukraine is running out of vital weapons (Fig. 8)

 (ii) The exhaustion of weapons, as previously reported, did not happen just in Ukraine but throughout Eu and NATO countries. EU top diplomat Borrell made an urgent appeal to the military industrial complex to step up capacity and investment to supply Ukraine. (Fig. 9)  

(iii) The same was echoed by the US Envoy. (Fig. 10)

(iv) In another propaganda piece, BBC reported yet another game changer when US announced she will equip Ukraine with Patriot Air Defense Missiles. (Fig. 11).

Independent military analysts immediately pointed out with Ukraine’s power and communication infrastructures in ruins, the odd Patriot equipment could hardly be built into an integrated air defense system (iads) (Fig, 11, red framed window). Again supply of such equipment are purely for optics and would make little real impact.

 The past week’s financial markets:

 A. Stock Market: Dow dropped 556 points for the week (-1.66%). (Fig. 12).

On Dec 14^th the Federal Reserve raised the Fed Funds rate by 50 basis points. Although it was consistent with previous announcements, the Fed left the door open for higher and longer rate increases. That spooked the market and the reaction was risks off. For over 45 years, Fed Funds Rate”FFR” have followed closely the market rates of Treasury 2 Year Notes “YR2”, Rarely would FFR exceeds YR2. (Fig. 13).

Only on 9 occasions did the Fed break this market order and in every case it all foreshadowed severe problems ahead for the US Economy and USD. (Fig. 14).

The most severe case happened in the late 70s and early 80s when US defaulted on the Bretton Woods agreement. This resulted in an USD crisis which took 35 months of extreme high interest rates to restore order in the world currency markets. (Fig. 15)

However in the 70s US was still the world’s largest creditor nation and debt to GDP was in the 60% range. Today, US is the largest debtor nation with debt to GDP of over 120%. The capacity for US to restore confidence in the USD has forever been lost. This gambit by Powell to imitate Paul Volcker will fail. We expect a systemic crisis to occur within 3 to six months and the Fed will start an overt printing of USD with hyper-inflation to follow.  

 B. Debt Market: (Fig. 16): USGG10YR ended the week at 3.488% a drop of 9.8 basis points from the previous week and back to the same position two weeks ago.

In the previous paragraph we have already explained the severity of FFR crossing over YR2. The UST Yield Curve continued to be seriously inverted, but during the week, after the FOMC meeting of 50 basis points increase in FFR, Treasury bills of one and two months increased rates by 9 to 13 basis points but other duration all showed a decline. A very clear indication of recession fears. (Fig. 17).

To understand why the Fed won’t pivot to reduce the risks of recession we have to look at what the Fed can do. We explained before in order to fight inflation, the Fed as only 3 tools: (a) Cost of Money - to use interest rate as a lever to destroy demand, (b) Supply of Money = Withdraw liquidity from the market by reducing its Balance Sheet (ie, Quantitative Tightening or “QT” and (c) Forward Guidance - I.e. Talk or more precisely lie disguised as directional guidance. (Fig. 18) is Fed’s Balance Sheet which gave an appearance of QT, although ever so gently.

But of course, the real truth is the Fed has continued to print non-stop but taken off balance sheet and warehoused the US Govt Bonds in some Crony Accounts or Off Shore Entities.The Fed gave a confusing name for the deception and called it a Reverse Repo Operation. (Fig. 19). is a chart showing the Fed’s Balance Sheet with what the quantity of Treasuries the Fed is committed buy within the next 24 hours each and every night.

Quite blatantly, there was never any QT but a only conspiracy to defraud. The US Govt cannot reduce spending and with no buyers of Federal Debt, the Fed just have to buy and lie about it. Even the Hong Kong Standard picked up the story and reported it in early December. (Fig. 20)

C. FX Market (Fig. 21): for the week ended December 16, 2022, DXY opened at 104.932 and closed at 104.837 (Down -0.09%).

FX movements have been minimal within the week. As explained in the previous week, the drop in oil price as a result of the Western alliance price cap was just psy-
op and oil price rebounded by 4% for the week.(Fig. 22)

 D. Precious Metals & Crypto :(Fig. 23): Gold price opened at $1797.11, and closed the week at $1792.59,

Silver and Bitcoin both traded down slightly for the week. (Fig. 24)

 ^{Leviticus 19:35}  'You shall do no injustice in judgment, in measurement of length, weight, or volume. ³⁶  You shall have honest scales, honest weights, an honest ephah, and an honest hin: I am the LORD your God, who brought you out of the land of Egypt. ³⁷  'Therefore you shall observe all My statutes and all My judgments, and perform them: I am the LORD.' "