When Gentleman Plays Dirty

 November 4, 2022 key news items this week:

 1. When Gentleman Plays Dirty:Russia has named UK as the culprit behind the pipeline explosions and drone attacks in Crimea.(Fig. 1)

The story line is simple, Liz Truss phone was hacked even whilst she was Foreign Minister (Fig. 2).

Between the time GAZPROM detected a decompression in the gas pipelines to Liz Truss as UK Prime Minister texting Anthony Blinken saying “It’s done”, there was only a time lapse of 1 minute.(Fig. 3).

Modern spycraft have everything time stamped recorded and leaves little room for conjectures. Naturally there are other collaborative evidences but the series of planned information leaks by Russia has tilted the balance of international opinion that the Anglo American were the saboteurs. On cui bono alone, the Anglo Americans were already the primary suspects . Who needs enemy when you have friends as such? The blow back is immediate, Germany finally woke up and despite objections from pro US ideologists, Scholz led a high power industrial delegation to China on the pretext to secure economic cooperation.(Fig. 4)

But according to Professor Michael Hudson, the Scholz caravan went to Beijing to essentially lay down the preparatory steps for working out a peace deal with Russia, with China as privileged messenger.

 2. Proxy War of Anglo American Empire Against Russia in Ukraine: When will this war end? Well according to latest Russian MOD directives, the war at Ukraine will be a war of attrition (Fig. 5).

As the burden to prop up Ukraine will gradually falls solely on UK/US, I am optimistic that comes next Spring, green shoots of peace may break out.

 

3. Winds of Change:

(i) Brazil: Lula defeats Bolsonaro and a more independent and balanced international affairs profile from Brazil can be expected.(Fig. 6)

(ii) EU: In a reversal from Ursula von der Leyen proposal for seizing Russian assets, EU Commissioner for Justice Didlier Reynders reveals conditions for unblocking Russian assets.(Fig. 7)

(iii) Qatar: More and more middle east countries are breaking away from the Anglo American Hegemony, Qatar ready to turn its back on Europe and redirect gas supplies somewhere else. (Fig. 8)

 The past week’s financial markets:

 A. Stock Market: Dow dropped 458,58 points for the week (-1.39%) (Fig. 9). 

The optimism for a Fed pivot was punctured after the midweek FOMC meeting with another hawkish Powell lamentation. The Dow gave up 1296 points. Fed Funds rate was hiked up by 75 basis point without fanfare. The expectation was the Fed should go slow at the Dec FOMC meeting. Friday saw short covering all round with stocks, energy and precious metals all rebounded as DXY dip.

  

B. Debt Market: (Fig. 10): USGG10YR ended the week at 4.163% a gain of 15.3 basis points or +3.8% change from the previous week.

On the US Treasury Yield Curve, there were increases of 10 to 20 basis points between 1 Year to 30 Years. (Fig.11).

We have previously discussed how the Fed dresses up the lack of domestic US demand for Treasuries by Reverse Repo. Using the Treasury TIC (Treasury International Capital) report, we have also identified global de-dollarization has gone main stream and window dressing by SWAPS with 5Eyes, BLICS, and Bermuda and Bahamas were necessary to soften the mad rush to exit. Since September, the 3 US subordinated Central Banks, namely BOE, BOJ and ECB has also been forced to defend their own currencies by dumping USD. This week we saw a liquidity collapsed as the Fed’s Foreign Reverse Repo spiked to $351 billion, a historic high. (Fig. 12).

With both foreign and domestic Reverse Repo running at historical level(Fig. 13),

despite the tough Powell talk on interest rate increases, the international community have expressed their lack of trust of US Govt debt very vividly through their unwillingness to hold such IOUs. A credit event is unavoidable and with that the spigot of QE will be opened again but this time round the world will finally realized currencies of the western alliance are empty promises which they do not intend to honour.

 

C. FX Market (Fig.14): for the week ended November 4, 2022, DXY opened at 110.668 and closed at 110.788 (Up +0.1%).

The surprise hawkish Powell only provided macro traders one day of fun. After spiking to 113.096(+2.19%) from previous week close, DXY quickly collapsed to where it began. The dire financial position of US is plain to see. As they say, you can fool some of the people all of the time and all of the people some of the time. But you shouldn’t think you can fool all of the people all of the time. In the previous section, I mentioned there was all round short covering. As the hedgie goes, it was a few months of easy picking when Europe and Japan get stuffed with US led energy crisis. Short Yen, buy dollar. Short Euro buy dollar, Short Silver buy dollar, Short Gold buy dollar, bet on Fed hiking, short oil. But of course, as prices of some asset class got whacked, supplies went out of the window. Master of the Paper Universe does not equate to Master of the Real Universe. As Fed hiked another 75 basis points, it is advisable to check whether there were indeed demand destruction and surprise surprise, there wasn’t for energy and previous metals and all of a sudden there was a scramble to cover shorts. (Fig. 15)

 

D. Precious Metals & Crypto :(Fig. 16) Gold price opened at $1644.3, and closed the week at $1680.2, a gain of $35.9 (+2.18%).

Following the FOMC meeting, Gold was hammered down to $1620 but what momentum traders did not expect was the long queue of buyers waiting at Comex to pickup physical gold at the low prices. The realization turned into a panic and a short squeeze developed. The long expected fireworks should continue. The reason, all Western Central Banks which have carried on QE non-stop since 2008 like a drunken sailor, namely Federal Reserve, ECB, BOJ, BOE and many others have printed currencies to overpay Government Bonds to suppress interest rates now found their bond portfolio have shrunk in value by 20 to 30%. With a thin equity, these Central Banks are all trading at negative net worth. Unwilling to admit their mistakes, one option opened to the Central Bankers is to revalue their gold holdings. Such a proposal was formally tabled by the Dutch Central Bank Governor. (Fig. 17).

If Gold Standard were to be introduced, the equilibrium price of gold would be US$6400 per ounce and Silver at $869 per ounce. (Fig. 18).

For the week both Bitcoin (+2.73%) and Silver (+8.26%) has outperformed Gold (Fig. 19)

 

Psalm 7:14  Behold, the wicked brings forth iniquity; Yes, he conceives trouble and brings forth falsehood. 15  He made a pit and dug it out, And has fallen into the ditch which he made. 16  His trouble shall return upon his own head, And his violent dealing shall come down on his own crown. 17  I will praise the LORD according to His righteousness, And will sing praise to the name of the LORD Most High.