Friend or Foe

The week ended on January 4, 2025, interesting news items to look at this week are:

1. Friend or Foe:  2025 began with a continuation of irrational conflicts and chaos as a weakened  US struggled to exert its dominance on other nations, be they America’s allies or competitors. We take note as Henry Kissinger once said “ To be an enemy of America can be dangerous, but to be a friend is fatal.” (Fig. 1).

(i) Europe’s Energy War: On January 1, 2025 Ukraine ceased its gas transit agreement from Russia to Europe. Bloomberg energy analyst Stephen Stapczynski noted: "Cheap Russian natural gas has been a pillar of some European economies for half a century. That era is now over. Europe will face higher and more persistent gas prices." (Fig. 2).

Essentially Ukraine followed a cue from the Biden Administration in November 2024 to sanction Gazprombank by blocking the use of SWIFT for gas payment settlements. (Fig. 3).

Yes, Russia will loose some gas revenue but as Slovakia's prime minister Robert Fico,said “cutting off cheap Russian gas to Europe would create a "drastic impact" on EU nations but not hurt Russia.” Russia’s Gas sale to Europe is about $5 billion but I doubt Russia will suffer much damage because of price compensation and sales to the Global South. With Trump’s pledge to end the Ukraine conflict and thus leaving Europe as the final defender of Ukraine, why would Zelensky bite the hand that has been feeding her for 3 years. Since the start of the war, the EU and Member States have made available close to $135 billion in financial, military, humanitarian, and refugee assistance, nearly double the amount of $75 billion support from US. In the gas transit termination, Ukraine will loose $1 billion in transit fees, but all the benefits of the transit termination will accrue to the US in substantial overpriced LNG sales and a total domination of Europe’s energy supplies. (Fig. 4).

Quoting Kissinger again, “America has no permanent friends or enemies, only interests”. (Fig. 5).

From a global perspective of Natural Gas Balance, the sabotage and sanction of Russian Gas to Europe would not only hurt Europe but other US allies in Asia (Japan, South Korea, Taiwan and Singapore) who will need to compete for LNG from just 9 ex Russian LNG exporters. (Fig. 6).

Total Gas shortfall from Europe and US Allies in Asia is annually 645.8 bcm whilst US and Middle East’s surplus to export is limited to 246.05 bcm.  (Fig. 7).

Such risks has been on the radar of the Chinese who is well aware of the chameleon like DNA of the Anglo American Empire since 1917. (Fig. 8)

(ii) A Can of Worms in Syria: 3 weeks has past since the fall of the Assad regime to HTS, Russia still maintains her air and naval base is Syria. Two members of Nato, Turkiye and US are fighting a proxy war over the Kurds. (Fig. 9).

New Orleans had a terrorism attack by a US Veteran carrying an ISIS flag. (Fig. 10).

A wild fire is easy to start but difficult to control.

2. Major Shifts in Financial Markets for the two weeks December 23, 2025 to January 4, 2025.

(i) Key Financial Asset Category Performance: (Fig. 11)

Uranium (+5.00%), Oil (+4.64%), Bitcoin (+3.30%), USD Index (+1.05%), Gold (+0.58%), S&P500 (+0.40%), Dow (+0.40%), Silver (-0.31%),  Rmb (-0.33%), Nasdaq (-0.50%), Jpy (-8.2%), AUD (-0.65%), Copper (-0.76%), , Euro (-1.20%), GBP (-1.21%), Korean Won (-1.60%)  and Ruble (-6.26%). The sabotage of Gas supply to Europe had a major impact in Europe and US Allies in Asia. Uranium were and energy related assets were bid up and so were bitcoin and precious metals.

(ii) Bank liquidity shrunk to lowest level since October 2020. (Fig. 12).

With continued crowding out of funding by Fiscal Dominance, we expect a Repo crisis similar to September 2019 will occur soon enough and the Fed will be forced to start printing again. However this time round the Fed will unlikely be involved in buying Duration Treasuries over the top to force down bond rates as the last exercise had seen Fed Financial losses of $216 billion to January 2, 2025. The Fed negative equity is $165 billion as at January 1, 2025.  (Fig. 13).

(iii) Interest Rate Direction : There is little elbow road left for the Fed and the US Financial System to maneuver. We will continue to monitor key Treasury Rates and I expect side-way choppiness until another new major geopolitical or geoeconomic event breaks. (Fig. 14)

is recent Fed Funds Rate vs Duration Treasuries and (Fig. 15) is Fed Funds Rate vs USGG2YR.

II Corinthians 6:14  Do not be unequally yoked together with unbelievers. For what fellowship has righteousness with lawlessness? And what communion has light with darkness?