Trojan Horse or a New Chapter

 Week ended August 25, 2023, interesting news items to look at this week were:

1. Trojan Horse or a New Chapter: This week’s BRICS Summit turns out to be a cautious new chapter of repudiation of the past 300 years of Western Colonial Rule. Cautious in the sense that with the exception of Russia and China, the other original and some new members are still trying to jockey for personal gains between their old colonial masters and the reemerging powers of old kingdoms. To the disappointment of gold bugs, there were no announcement of a new BRICS currency to challenge the dollar hegemony. To the horror of the alliance of “Ruler Based International Order”, oil giants of Saudi Arabia, Iran, UAE and African oil majors of Algeria and Nigeria closed ranks with BRICS. By 2024 half of the World’s oil reserves and exports will be under the control of BRICS+. I conclude therefore the “petrol dollar” effectively ended her monopoly as the sole payment medium for oil and gas. Over the next 12 months, India and Argentina remained the curve balls that may hinder a quick and complete migration into a true multipolar world order. By January 2024, BRICS+ will include: Brazil, Russia, India, China, South Africa, Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the UAE. (Fig. 1).

The dark horse is Argentina. Argentina didn’t send its own delegation to South Africa even though President Alberto Fernandez was invited to be a speaker. We also know that the country’s economy minister (and presidential candidate), Sergio Massa, instead went to the US to meet with officials from the International Monetary Fund (IMF) about the country’s debt. An Argentine official in Washington was quoted in the media as saying that “the IMF and the BRICS are two very different families,” suggesting that Buenos Aires cannot be in both.  It also must be said that Argentina faces a tough presidential election in October of this year. The far-right economist Javier Milei won a stunning primary election and will face off against the center-left Massa, shocking markets and polite society alike. He has promised to cut off trade relations with China and reorient Argentina toward the “civilized world,” or “the West,” as he said, and to implement a radical market-driven economic policy similar to Chile’s former dictator, Augusto Pinochet. Milei also spoke last week to IMF officials, assuring them that he’s their man. Should election results in Argentina turns out to favor US, Argentina may turn to become a Trojan Horse to the regrets of a true multipolar world order.

2. Prigozhin died - Using cui bono logic, it looks like Prigozhin and key members of his Council of Colonels has a high probability of being summary executed. The exiled of Prigozhin was not enough to deter him and he continued to wheel and deal in Mali at a very sensitive time that distracted Putin’s grand geopolitical designs for Africa.

3. Worsening Position of Anglo American Finances: (Fig.2) -

The Global De-dollarization continued at a rapid pace. Reported figures up to June 30 indicates Global Central Banks and Sovereign Funds have sold down US Treasuries $405 billion treasuries since Russia’s Special Military Operations with China and Japan leading the pact. With USD trade surpluses not reinvested in US Treasuries since that time, the drain should top US$1 trillion. Attempts to window dress the cash drain by US Treasury Dept. using FX and Interest Rate Swaps with crony offshore bankers had not really worked as these antics had all shown up in the Foreign Reverse Repo numbers. By the way, it is not just Central Banks who is selling down USG Bonds, investment funds in Europe are also pulling out of US. Case in point, Amundi, the largest fund manager in Europe, nicknamed “the Blackrock of Europe”, is also switching out of US. (Fig. 3).

As mentioned before in this Blog, the only way to finance the insatiable lust for spending by the US Govt was to run a higher interest rate than what domestic US Banks can offer to lure bank deposits into US Treasuries. The Fed cannot be honest about this so they tried to disguise it as a policy option to fight inflation. After some 8 months into this chanting, the financial market finally woke up to the fact that something smells. This week the average 30-year fixed mortgage rate hit 7.49% on Tuesday for the first time since late 2000. (Fig. 4).

The Masters of the Universe at Wall Street are not really that smart as it took Fitch a long time to downgrade the credit rating of US Inc. with Moody, then S&P to follow subsequently with a series of downgrades of US Banks. You know it is very late in the game when S&P revised its outlook against the consummate insider JP Morgan from stable to negative. (Fig. 5).

I reported last week, the Fed already started its stealth direct subscription of the 30YR Treasury Auction. Japanification of US is in full swing but as usual the financial market will pretend not to know until quite sometimes later. All the while, the mantra of a “Japanification of China” continued in the western media as a diversion tactic.(Fig. 6)

4. Retreat of US in Niger -  Interesting headline “US prepares to evacuate drones from Niger” but do not know where to park yet. (Fig. 7).

Did you hear the popping of champagne in Africa?

This week’s financial markets:

A.  Stock Market: (Fig. 8): Dow closed at 34,347 for the week, a loss of 153 points or -0.44%. S&P 500 +0.58% and NASDAQ 1.87%..

Momentum trade continued with AI stocks as the secret hand pumped AI stocks to maintain the illusion of wealth and value of dollar assets. Nvidia was ramp up by 8% on Wednesday and settled back for the week with a gain of 3.5%. This is a repeat trick with CISCO as a predecessor during the Dotcom mania in the year 2000. CISCO has lost 80% of its inflation adjusted value since that time. The mantra for CISCO at the time was “there is no internet without CISCO”. This is the same jargon for Nvidia “there is no AI without Nvidia”. Caveat emptor, my friends. Nevertheless, momentum is a powerful force and will have its 1 minute of glory.

B. Debt Market: (Fig. 9): USGG1YR ended the week at 4.231%, a drop of 2 basis points. 

Having spooked the market with a rise of long duration rates, the Plunge Protection Team set to work with Operation Twist, selling short duration bills and notes and bought long duration bonds. Price across medium duration dropped and long duration gained. (Fig. 10).

The Federal Reserve has run out of both tools and resources with weekly trading losses now topped $92.6 billion. (Fig. 11).

At this rate, the annualized loss of the Federal Reserve is $4.8 trillion. By simple arithmetic and assuming no further deterioration, the Federal Reserve would have squandered all its asset by mid November 2024, 15 months from now. Sadly the whole financial market is still fixated on what Powell says after the Jackson Hole Meeting, I rather spend my time in other pursuits.

C. FX, Commodities and Precious Metals: Trading results for the week: (Fig. 12)

Silver(+6.55%), NASDAQ (+1.69%), Gold(+1.20%), S&P 500 (+0.78%), Bitcoin (-0.02%), Rmb(-0.12%), Oil (-0.17%), Euro(-0.72%), JPY(-0.88%), Rubble (-1.20%), GBP(-1.26%). Machinations to create weak prices for gold, silver and Chinese and Russian currencies ahead of the BRICS summit has drawn to a close with short covering pushing prices to a reversion to short term mean. Outlook to Energy, Commodities and Precious Metals is favorable as pricing thereof will progressively disregard artificial tempering in USD terms.

Ecclesiastes 10:1  Dead flies putrefy the perfumer's ointment, And cause it to give off a foul odor; So does a little folly to one respected for wisdom and honor.

Two songs that showcased the Times

Week ended August 18, 2023, interesting news items to look at this week were:

1. Two songs that showcased the Times: Just one week apart, a Chinese Song “Rakshahai City”(羅剎海市) and an American Song “Rich Men North of Richmond” were catapulted to the top of the charts. Both songs were not from pop-culture celebrity singers nor with sophisticated music arrangements. Their instant hit were due to the songs were in perfect harmony of every citizen’s inner voice. The Chinese song lamented the perspective of societal value has been totally twisted and the American song depicted the depression of the long oppressed working class. (Fig. 1).

My wife asked me before, why the longevity of the Anglo American Empire when it is blatantly cleared that they are bankrupt. My answer to her was people who were deceived by their “große Lüge” were still very much in the majority and it takes time for the awakening to mature. This morning I told my wife that time has come and the following are my thesis. 

 I have presented before in this Blog, that Cycle Experts have long predicted that in the first decade of the millennium we would have entered into both a Global War Cycle and a Civil Unrest Cycle. (Fig. 2).

Two recent published works explained the onset of the Civil Unrest Phenomenon very well.

(i) The first work is Neil Howe’s “The Fourth Turning is Here” (Fig. 3).

Howe is the co-founder of the Strauss–Howe generational theory which postulates society would go through cycles of approximately 80 to 100 years and will end in a “Fourth Turning” which overthrows all established orders in the past 3 turnings. The Fourth Turning for America began in 2008 and expected to conclude between 2028 to 2033. We have entered into the final phase of the fourth turning and should expect violence and instability culminating in a change of the established order.

(ii) The second work is by Behavioral Economist Peter Atwater “The Confidence Map - Charting a Path from Chaos to Clarity”. (Fig. 4).

Atwater hypothesis that in extreme frustration, the population at large will go through the 5 Fs, namely: Fight, Flight, Follow, Freeze and F***it. The recent Topanga Mall Nordstrom looting was a manifestation of the final stage (F***it) where some criminals who robbed Nordstrom committed the crime not because of poverty (their getaway cars were BMWs and Lexus) but was simply an act of sabotage. These people completely lost hope and confidence in the governance of America and made a statement of “To Hell with the Authorities - F***it”. Michael Synder wrote an excellent piece titled “Some Parts Of America Are Already On The Verge Of Being Ungovernable As Rampant Lawlessness Spreads Like Wildfire” (Fig. 5).

For readers who would like to read further on the works of Atwater and Synder, here are the links:

https://finance.yahoo.com/news/fight-flight-freeze-f-stressed-130000862.html

http://theeconomiccollapseblog.com/some-parts-of-america-are-already-on-the-verge-of-being-ungovernable-as-rampant-lawlessness-spreads-like-wildfire/

Coming from Hong Kong, personally I witnessed Hong Kong has gone through the Fight Stage in 2019, the Flight Stage in 2021 and not having good local leadership, the city has quickly skimmed past the Follow Stage and landed into the current Freeze Stage. I prayed for wisdom for those who govern Hong Kong that they find solutions to the present predicaments and the city not to degenerate into the final stage.

(iii) On a geo-politcal basis, both the BRICS Summit of De-dollarization and the Niger Coup are similar but bigger expressions of “No More Colonial Ruler Based International Order” in the Global Village.

 It now appears to me that the risk of simultaneous Global Civil Unrest is more pressing than a Global War and we should prepare for various societal breakdowns into chaos and lawlessness. The reason, a key enabler that allows division of labor and functioning of the global supply chain, the “credit based fiat currency system” is under tremendous strain at the breaking point. The Hawaii fire and severe floods in China have added despair against the governance of these two leading powers.

2. The Ukraine War: Ukraine has finally deployed its 2,000 strong 82^nd Air Assault Brigade for the final counter offensive at Kupiansk (North of Donetsk). This is the last remaining NATO trained Brigade of the Kiev Regime, their annihilation would mean Ukraine has no more seasoned troops to fight the RAF. Despite the propaganda, everyone in the know understands NATO has no more military cards to play. A trial balloon was floated by Stian Jenssen, director of the Private Office of the NATO Secretary General, for Ukraine to forego the Russian occupied territories for peace. (Fig. 6).

By implication, Jenssen would not step out of line in a public discourse on a peace proposal without both White House and Brussels’ prompting. From Lukashenko (President of Belarus), main Russian objective in Ukraine already achieved. (Fig. 7)

3. Global Liquidity Crisis: Unconfirmed reports both from China and the US rumored that there were substantial under demand for the US 30 Year Treasury Auction on August 10^th. The Federal Reserve had to step in using crony Foreign Central Banks to bid for the unwanted tranches. One of the cardinal rules of maintaining the Federal Reserve is independent of the US Government is that the Federal Reserve would not directly bid at Treasury Auctions. A direct bid would mean a strict monetization of government debt and would relegate both the US Gov and the Fed to the ranks of a Banana Republic. In the past, all unbid for bonds would go directly to the Primary Dealers (“PD”) who are under legal obligation to clear such bonds. In the event of a lack of liquidity on the part of PD, all they need to do is to tender the allocated bonds back to the Fed using the Repo facility and the game of charade continues. The rumor is the Fed had to take up 37% of the issue which means the PD have all lost their capacity to buy anymore UST. With UST demand of $1 trillion fresh issuance per quarter and only $7 trillion US bank deposits remained to be squeezed dry, most US banks have hunkered down in a self preservation mode. The global credit market is at a standstill. Even the broad US Bond market have become ill-liquid. In HK, first tier property developers are equally subjected to financing and refinancing hurdles. This explained why Cheung Kong had to offer deep discount properties to cash up and Blue Chip China developer Country Garden (碧桂園)( defaulted on its US debt instruments. The readership of this Blog includes very seasoned Commercial and Investment bankers, Fund Managers and Developers, I would appreciate if my prognosis is wrong at this point that they would let me know.

Last week I mentioned that a natural tsunami would involve first a retreat of the sea, then an onslaught of tidal waves. The retreat of water is here and now and the onslaught of money printing would come later in magnitude none of us have ever experienced. May God bless you all with wisdom to ride this volatility and survive.

This week’s financial markets:

A.  Stock Market: (Fig. 8): Dow closed at 34,500 for the week, a loss of 780 points or -2.2%. S&P 500 -1.98% and NASDAQ -2.27%.

The stock market was spooked by a continuing drop in prices of long duration bonds. For most of 2023, stock traders interpreted the yield curve inversion would be corrected by a retraction of short duration rates, hence soft landing or even no recession. Now they realized the correction may come by a very bearish rising of long bond yield and that’s very bad news. I have already tabled my prognosis in the preceding paragraph and will leave my readers to do their own due diligence.

 

B. Debt Market: (Fig. 9): USGG10YR ended the week at 4.251%, an increase of 9 basis points. 

During the week GG10YR has gone as high as 4.326 or 16.8 basis point above previous week close. This has spooked the Stock Market and triggered a risk off stock liquidation with some funds moving back into the Treasury market. UST Yield Curve has exhibited a Bearish Inversion Correction with long duration rates rising and short duration steady. This means recession is assured but not the soft landing anticipated but may be a long drawn out stagflation. (Fig. 10).

 

C. FX and Commodities and Precious Metals: Trading results for the week: (Fig. 11)  

Ruble (+5.37%), GBP(+0.29%), Silver(+0.28%), JPY(-0.33%), Rmb(-0.59%), Euro(-0.78%), Gold(-1.34%), S&P 500 (-1.94%), NASDAQ (-2.03%), Oil (-2.96%), Bitcoin(10.92%). Financial Warfare between the West and the Global South is extremely severe but with a rout in the US Bond Market, instruments which were used to short to prop up the USD like Ruble, Silver, GBP, Rmb and Yen were seen to be short covering. Gold was notably sold off by Hedge Funds to shore up their liquidity positions as it is the most liquid form of assets with ready Central Bank buyers. The coming week will likely be very volatile.

 ^{Revelation 6:5}  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."