2024 Began with a Bang

 Week ended January 6, 2023, interesting news items to look at this week were:

1. 2024 Began with a Bang: At the close of 2023 many wished for peace and progress, sadly reality is the opposite and the flames of war continued to burn unchecked into 2024. My last week’s Blog was titled a “Decade of Struggle”, I am afraid things will further deteriorate over the next 10 years.

(i) Ukraine: In retaliation to AFU bombing of civilians at the Russian Border City of Belgorod, Russia launched the biggest missile strike against Ukraine since the SMO. (Fig. 1).

The Ukrainian strike against Russia civilians was of little military significance and likely to be a pure publicity stunt. The truth is this NATO proxy war against Russia is running out of Western financial support (Fig. 2)

as well as ammunition (Fig. 3).

At the AFU Front Line, commander of the 47^th Brigade acknowledged that AFU is fighting with what they have available, not always with what is best suited to hit their targets. (Fig. 4).

According to the very well respected Swiss Hedge Fund Manager Felix Zulauf, the AFU started with an army of 700,000 and stepped up to 900,000 but now 500,000 is gone.  State Television of Ukraine previously reported 1.1 million soldiers were killed or injured but the news was later retracted at the instruction of Zelensky. To all independent military and intelligence analysts, Ukraine and NATO have been defeated yet for Western political reasons, the cabal elites would not back down and more lives will be lost. Talk about delusional, well, if you believe CNN, it is Russia that has lost 87% of its troops and Ukraine can still win even without regaining the lost territories. (Fig. 5).

(ii) Middle East, the Gaza War is quickly escalating with:

(a) Assassination of Hamas leader Saleh al-Arouri in Lebanon when a pair of drone-fired missiles slammed into an apartment building in south Beirut. Speculation is that Israel is using this plot to lure Hezbollah into full scale war with Israel and thereby tie US into direct conflict. (Fig. 6).

(b) Blasts kill nearly 100 at slain commander Soleimani's memorial; Iran vows revenge. Could it be the dirty work of Mossad with a similar agenda to the Beirut assassination just two days earlier. (Fig. 7)

(c) From AP - An armed unmanned surface vessel launched from Houthi-controlled Yemen got within a “couple of miles” of U.S. Navy and commercial vessels in the Red Sea before detonating on Thursday, just hours after the White House and a host of partner nations issued a final warning to the Iran-backed militia group  (Fig. 8)

(d) Major Shipping Companies are avoiding the Red Sea path resulting in more economic pressure on Israel and Europe. (Fig. 9)

(iii) North Korea: North Korea fired more than 200 rounds between 9 a.m. and 11 a.m off its west coast, near South Korea’s Baengnyeong and Yeonpyeong islands, according to South Korea’s Joint Chiefs of Staff (Fig. 10)

(iv) South China Seas: In an act of provocation, USS Aircraft Carrier Carl Vinson Strike Group plan to sail with the Philippines Navy between 2^nd to 4^th January 2024 in the South China Sea. This came after a number of clashes over a rusted Philippines warship run aground on a small atoll two decades ago but refused to leave Chinese territorial waters. (Fig. 11).

By Saturday 6^th, the Aircraft Carrier Carl Vinson did not show up because on Wednesday Jan 3^rd, the PLA Missile Armed Frigate 054A Huangshan (黃山號飛彈護衛艦) was spotted in the planned route of navigation giving a much undesirable welcome to the Carrier Strike Group. (Fig. 12)

Eventually only one US Aegis Class Destroyer participated.  Guard Rails or not, it is clear that China will not waste time in proxy wars but will directly engage US when dealing with issues of sovereignty and territorial integrity.

2. Thucydides's Trap: Allow me to quote from research by Felix Zulauf. In the past 500 years, there were 16 conflicts that fell under the conditions of the Thucydides’ Trap. 12 resulted in a direct war between the sitting power and the emerging power. 3 ended with Proxy Wars and only one did not end with armed conflict. (Fig. 13).

Would China be on the right side of history.

First week  2024 financial markets:

A. Stock Market: DJI dropped 223 points or  0.59% for the first week. (Fig. 14).

The market turned bearish as there were doubts as to Powell’s Pivot Statement after the FOMC meeting.  More and more hawkish statements came out from other Fed Officials continuously. With few innovations seen in Apple i15 as well as the anticipated i16 in 2024, Apple stocks were down graded again. The market began to differentiate that Apple is not an enterprise tech stock but just a consumer tech stock.  (Fig. 15).

The concentration of funds in the Magnificat 7 with a very high valuation beyond what the US economy could sustain means the risks and reward equation is very questionable.

B. Debt Market: (Fig. 16): USGG10YR ended the week at 4.051%, a rate increase of 17.1 basis points.

Bond prices dropped by 0.47%, reflecting caution that interest rate cuts may not come as easily. Regional Banks are under tremendous pressure as Depositors continued to withdraw deposits for higher yield and less risky Money Market Funds. In 2023, we saw the largest annual money-market inflow ever - a whopping $1.151TN. (Fig. 17).

Usage of The Fed's bank bailout facility rose by another $4.5BN last week to a new record high of $136BN as banks are drained of their liquidity. (Fig. 18).

This highly subsidized bail out facility will end in March 2024 and the Fed has no political justification for its extension. What would banks do then? (Fig. 18). Will 180 banks fall like dominoes. My prediction for the liquidity crunch should come in February as reported in previous week’s Reverse Repo forecast. (Fig. 19).

Rob Arnott, Chairman of Research Affiliates commented that his research on 14 different economies over the past 53 years was that there were 31 burst of inflation above 8%. Only 2 out of 31 have inflation receded to 2% after 2 years. The rest went on to new highs or lingered on at high inflation for years. The mean result is it took 13 years to have inflation back under control.

The question is do we have such a brilliant bunch of Fed directors and ex directors like Janet Yellen or Powell that have proved themselves that they can anticipate issues and nip problems in the bud before things blow up. My take is US is a money junkie with a single printing tool, when crisis comes by their own follies, they will rob, steal and destabilize other economies to save their own skin.

C. Commodities and Precious Metals: Trading results for the week: (Fig. 20) Bitcoin (+4.66%), Oil (+2.60%), GBP (-0.18%), CNY (-0.58%), Eur (-0.95%), Gold (-0.96%), Uranium (-1.14%),  S&P 500 (-1.53%), Rubble (-1.91%), , JPY( -2.51%), Silver (-2.71%) and NASDAQ (-3.17%).

USD showed some strength as Tech Stocks were liquidated and USD bid. It will be an interesting year as Putin and Russia takes the Chair of BRICS+ and a multi-polar world is build.

Leviticus 26:14  'But if you do not obey Me, and do not observe all these commandments, 15  and if you despise My statutes, or if your soul abhors My judgments, so that you do not perform all My commandments, but break My covenant, 16  I also will do this to you: I will even appoint terror over you, wasting disease and fever which shall consume the eyes and cause sorrow of heart. And you shall sow your seed in vain, for your enemies shall eat it. 17  I will set My face against you, and you shall be defeated by your enemies. Those who hate you shall reign over you, and you shall flee when no one pursues you. 18  'And after all this, if you do not obey Me, then I will punish you seven times more for your sins.