Saturation & Precipitation

The week ended on June 1, 2024. Interesting news items to look at this week are:

1. Saturation & Precipitation: In chemistry, saturation is a natural state when  a solution has reached a point in which no more solute can be added. Addition of solute after this point would result in a solid precipitate or gas being released. Such a mixture is called a saturated solution. (Fig. 1)

In simple language, the environment simply won’t take the intrusion anymore. This phenomenon equally applies to economics, politics and financial markets. Sadly few politicians and planners are ahead of the curve as too often myopic officials take credit during an upswing and refuse telltale signs of looming dark clouds.

(i) Ukrainian and Gaza Wars:  The encroachment of NATO against former Soviet satellite states and the Apartheid Zionist settlement Policy against Palestinian Partitions have been around for decades. No matter how much propaganda is spin in the media, precipitation in the form of wars finally arrived in 2022 and 2023.  There are only two ways to prevent further precipitation, the first method is to cease addition of solute to the mixture. Russia is willing to negotiate when the predominant ethnic Russian oblasts of  Donetsk, Kherson, Luhansk and Zaporizhzhia are secured under the Russian Federation. (Fig. 2).

Equally Hamas would release all hostages in exchange for a permanent ceasefire, reconstruction and resettlement of displaced refugees. (Fig. 3).

The Biden Administration has rejected the former but conceded the later. A number of factors have forced US hands to resolve the Israeli genocide of Palestinians including but not limited to (a) ICJ and ICC verdict against Israel of genocide and crimes against humanity, (b) NATO members Ireland, Spain & Norway breaking away from other European countries to formally recognize an independent State of Palestine (Fig. 4),

(c) China and 22 Arab Countries (many are US allies) met in Beijing and push for a peaceful settlement (Fig. 5).

This is a severe downgrading of US influence in the Middle East. Finally and (d) the fearless Houthis claim of a Missile Strike against the US Carrier Dwight D. Eisenhower in the Red Sea. (Fig. 6).

Another chemical method to cease precipitation is to create a supersaturated solution. An aqueous solution can be rendered supersaturated by first dissolving the solute in water at an elevated temperature using enough to give a concentration just under its solubility at that temperature. After the last of the solute crystals have dissolved the solution is cooled.  In geopolitical terms, this means US/NATO need to burn up the heat of war in the Ukrainian theater to such a bloody level that both sides decide to call it quits simultaneously.  An example is the North/South Korean & US armistice. The Korean War was so bloody that there were 3 million casualties. The armistice that began in 1953 had continued until this day. (Fig. 7).

History suggests fatalities and casualties are highest in the closing months of any war. In the month of May, Russian MOD claimed AFU had lost 35,000 troops, that is the equivalent of one brigade per day, not even NATO could sustain that type of losses. (Fig. 8).

Yet US had just authorized Ukraine to use US weapons to hit targets within Russia. (Fig. 9).

This is a serious escalation because Ukraine had previously targeted Russian long range military radar installations, ones that track potential US nuclear strikes against Russia and allow Russia just 20 minutes lead time to respond to the threat. (Fig. 10).

Such existential threats against Russia would mean the war between NATO and Russia would turn extremely ugly. Could it be also that in anticipation of a bloody European theater, Biden wish to quickly wrap up the sad saga in Gaza and concentrate all military resources in Europe? Be warned my friends.

(ii) Saturation of USD Debt:  We have for the past few months reminded readers of a liquidity crunch in the US financial markets in May. YR2 Treasury auction results held at the end of May was ugly with Primary Dealers compelled to buy 16.6% of the issue. (Fig. 11).

I have repeatedly said in my Blog the true reason for The Fed to keep interest rates higher and longer was not fighting inflation.  In every aspect, supply of US Treasuries has fully saturated the global financial markets. Currently US GDP growth rate is 1.9%  but this growth rate came at the expense of a fiscal deficit of 6.3% of GDP. If we subtract the impact of the fiscal deficit, the US private sector actually shrunk by 4.4%. I have prepared a chart showing the 4 main buyers of US Treasuries between 2020 and 2024 (Fig. 12).

They are the Federal Reserve (Black), Social Security (Orange), Foreign Holders (Green) and US Domestic Buyers (Blue). With demand from Foreign Buyers and Social Security a flatline,  and the Fed cosmetically giving the printing press a pause, the burden of funding endless wars and welfare entitlements finally fell squarely on US citizens. Between January 2020 and March 2024, this burden increased from $8.5 trillion to $15.9 trillion and the trajectory is on an accelerated increase. Without further money printing by the Fed, the US Private Sector’s capacity to further absorb new Federal Issuance will be exhausted in July 2024. The arithmetic is simple, the US Treasury need to raise $1 trillion new debt every 100 days, that is $4 trillion per year. (Fig. 13).

US National savings rate is between 13% to 17% on GDP of $27 trillion. Unless households do not pay down their mortgage, car, student and consumer loans and Corporation do not pay dividends, make new investments or replenish depleted equipment and every cent goes to the Federal Government, then US Federal Government could barely scrape by.  Here is the catch 22 of the US hegemon, without activating the printing press, the US Govt will default but with printing, the USD will be junked. Ever wonder why the urgency to escalate into a conflict with the Global South into WWIII.  

The following are financial market performance for May 2024.

A. Stock Market:  Dow Jones Industrial Average rose by 870 points to a May close of 38,686 or +2.3 %. (Fig. 14).

Speculation of a Fed Pivot kept the market in gyration as euphoria turns to disappointment. News of Dell Computer AI server sales were sold at “near zero” margins dampened the AI driven sector all round. (Fig. 15)

B. Debt Market: Yield on USGGYR10 dropped from 4.69% to 4.502% for the Month (Fig. 16)

or an decline of 18 basis points helped by a cooling down of the economy as PMI showed significant weakness.

C. Commodities and Precious Metals: Trading results to mid Q2 2024 (Fig. 17)

as follows: Silver (+21.32%), Copper (+14.29%), Gold (+4.14%), Russian Ruble (+2.36%), GBP (+0.97%), Eur (+0.54%), NASDAQ (++0.34%), USD Index (+0.17%), CNY (-0.19%), S&P500 (-0.36%), Uranium (-1.96%), Bitcoin (-3.05%), JPY (--3.72%) and Oil (-6.77%). A note worthy mention here is price for silver and copper both had a spectacular rise in the month driven by a realization that demand for AI will have a profound impact on electricity demand. A search query on ChatGPT will consume 15 times more energy than a Google search query. (Fig. 18).

An even more profound impact is the demand for very precise and stable power supply. Chinese transformer manufacturers have received order increase by a 1000 fold and prompted speculators to pile in om cooper (for transformers) and silver (for photovoltaic cells). The forerunner of AI service provider in the US, Microsoft, could not wait for the long lag time for the development of legacy electricity infrastructure and is directly investing in Solar power generation. (Fig. 19).

I need to declare here I have an interests in silver bullion. China is the world’s leading provider of solar panels with an 80% world market share.

Matthew 6:19  "Do not lay up for yourselves treasures on earth, where moth and rust destroy and where thieves break in and steal; 20  but lay up for yourselves treasures in heaven, where neither moth nor rust destroys and where thieves do not break in and steal. 21  For where your treasure is, there your heart will be also. 22  "The lamp of the body is the eye. If therefore your eye is good, your whole body will be full of light. 23  But if your eye is bad, your whole body will be full of darkness. If therefore the light that is in you is darkness, how great is that darkness! 24  "No one can serve two masters; for either he will hate the one and love the other, or else he will be loyal to the one and despise the other. You cannot serve God and mammon.