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
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 82nd 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 10th. 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."
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