Exhaustion

November 18, 2022 key news items this week:

1. Exhaustion: Last week we speculated some kind of a short term deal has been struck between the West and the East for a limited timeout with observable shifts in the financial markets. This week we are seeing further signs in that direction. Some of the markers are as follows:

 (i) Polish Missiles Incidents: A (two?) soviet era S300 anti-air missile(s?) hit Poland. Poland, Ukraine and UK immediately turned on their propaganda machine to incite war escalation. (Fig. 1).

Interestingly Biden immediately douse the fire and suggested the missile was more likely from Ukraine. One analyst questioned why the confusion between one or two missiles in the news release by Poland. The explosion on impact did not seemed too large and hence it could be a vintage Soviet S300 but Russia could have tested the West by sending a self destruct missile to entice a defense blocking missile by Ukraine with the pair crossing into Polish territory. Russia could then triggered her own missile to self destruct in mid-air leaving the trailing Ukraine missile to strike Poland. For the time being the facts are not knowable but an assumption of a timeout is reasonable whatever version one choose to buy.

 (ii) G20, APEC and ASEAN Meetings: Courteous meetings were seen between heads of states of China/US, China/Australia and China/Japan with further ministerial meetings to follow. However the instigators and lackeys in the form of British and Canadian Prime Ministers were given the harsh treatment. (Fig. 2)

 (iii) Weapons Out-of-Stock and must take a pause: Three separate news items of interests came out within the last 10 days. The first is from Josep Borrell (EU High Representative for Foreign Affairs and Security Policy). He said “The military stocks of most member states have been, I wouldn’t say exhausted, but depleted in high proportion, because we have been providing a lot of capacity to Ukraine” (Fig. 3).

The second news was from Der Spiegel of Germany “Self-propelled howitzers out of action(sent to Ukraine) due to lack of spare parts”. (Fig. 4)

Analysts who monitored US military aid sent to Ukraine.(Fig. 5)

commented that the Avenger air defense systems has been mothballed for decades and a contract for their refurbishment has not been awarded. The 21,000 155mm artillery rounds would only be sufficient for 4 days of combat based on average consumption. The analyst concluded each military assistance package gets smaller and more antiquated which suggests US is also scrapping the barrel for supplies.

(iv) US Runs Out of Places to Borrow : The September US Treasury International Capital Report (TIC) was released late in the week and shows global de-dollarization accelerated. In the month of September, there was a sell down of US$213 billion of Treasuries from the international community and cumulatively since the Ukraine conflict, total Sovereign sell down of Treasuries amounted to US$423.3 billion. (Fig. 6)

I have repeated warned strength of DXY was never a flight of capital to USD. It was simply derivatives at work. In fact when DXY peaked at the end of September, selling of Treasury were strongest. The appearance of an orderly US Credit market is all smoke screens and mirrors. Taking the raw data, the Federal Reserve may appeared to have tapered her Balance Sheet in 2022. (Fig. 7).

The reality is exactly the opposite. Every night, the Fed sold US$2 trillion Treasuries domestically with a contract to buy back the next morning (RRP Reverse Repo Program) . This is just window dressing to mask the huge dumping of US Government Bonds by bond holders.(Fig. 8).

The same applies internationally and Foreign Account RRP shot up to US$377 billion in November and accelerating. (Fig. 9).

Adjusted for this deceptive accounting, I have previously exposed the insider banking cronies have actually dumped and shorted their entire Treasury portfolio in August 2021. They sold quickly and in high prices but camouflaged by the continuous QE of the Federal Reserve. The truth is the Fed had never paused their QE program because the borrowing needs of the US Government far exceeded genuine investors appetite. (Fig. 10)

In fact, the accounting hocus pocus is getting tired and US needs to come clean and negotiate her way out.

The past week’s financial markets:

A. Stock Market: Dow went flat points for the week with just a 2 points change to the previous week (Fig. 11).

There were some carry over momentum from the previous week’s soft inflation number but mid week, Boston Fed President Susan Collins spooked the market by saying for the Dec rate hike 75 basis points is still on the table and Dow gave up all early week gains.(Fig. 12)

B. Debt Market: (Fig. 13):

USGG10YR ended the week at 3.829% a gain of 2 basis points from the previous week. Judging from the spread between YR2 and Fed Funds, (Fig. 14).

Boston Fed Talk looks it is just talk to dampen over enthusiastic market euphoria and likely to be just NATO (No Action Talk Only).UST Yield Curve continued to be seriously inverted indicating a continued tightening of credit and a recession is at the door. (Fig. 15)

C. FX Market (Fig.16): for the week ended November 18, 2022, DXY opened at 106.969 and closed at 106.416 (Up +0.5%). 

Currencies performance are mixed with CNY steady, GBP strengthened after the Polish missile incident and EUR and JPY weakened. Against the USD, oil(Brent and West Texas Intermediate) softened by 8~9% as the economy chills. Gold was steady and silver dips slightly. (Fig. 17)

 D. Precious Metals & Crypto :(Fig. 18) Gold price opened at $1771.2, and closed the week at $1750.4, price eased $20.8 (-1.17%). 

Over zealous leveraged funds continued to redeem their short position in gold whilst produced increased their forward sales. Bullion Banks also increased slightly their shorts. The most interesting development this week is the Bank for International Settlements (BIS) bought back 500 tons of gold. (Fig. 19)

Subsequent to the news, in a shocking development, the Bank for International Settlements has officially closed down its gold swaps.This means banks that have been practising fractional reserve banking with client’s gold will no longer be bailed out by BIS by offering currency deposits to BIS for gold in a swap transaction. Basel III rules will come into effect on January 1, 2023 and will restrict a bank holding client’s gold from matching their liability with a derivative contract at an Exchange but most match their liability with physical metals. According to BIS, some 10,662 tonnes of gold and 105,000 tonnes of silver swaps and Forward exists. It will be interesting to see how London and NY maneuver themselves when the noose is finally tightened. For the week, silver eased 3% whilst Bitcoin held its ground. (Fig. 20)

Revelation 3:17  Because you say, 'I am rich, have become wealthy, and have need of nothing'—and do not know that you are wretched, miserable, poor, blind, and naked. 18  I counsel you to buy from Me gold refined in the fire, that you may be rich; and white garments, that you may be clothed, that the shame of your nakedness may not be revealed; and anoint your eyes with eye salve, that you may see. 19  As many as I love, I rebuke and chasten. Therefore be zealous and repent. 20  Behold, I stand at the door and knock. If anyone hears My voice and opens the door, I will come in to him and dine with him, and he with Me.21  To him who overcomes I will grant to sit with Me on My throne, as I also overcame and sat down with My Father on His throne.