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.