Are We Doomed for a Nuclear WWIII

The week ended on June 6, 2025, interesting news items to look at this week are:

1. Are we doomed for a Nuclear WWIII: In last week’s Blog we lamented the risks of a Nuclear WWIII following the assassination attempt on Putin but this week the attack on Russia’s strategic nuclear bombers is a clear sign that the West wants a nuclear show down, given Russia has a near zero probability to employ strategic bombers against Ukraine. The original SALT Treaties (The Strategic Arms Limitation Talks) called for strategic bombers of both US and former USSR to be parked under open skies for monitoring purposes. Although the US Senate chose not to ratify SALT II, both US and Russia for a period choose to honor its tradition. The attack on June 1 by Ukraine on Russia’s strategic bombers is a clear nuclear challenge. We all understand the Kiev regime could not accomplish  this escalation without the assistance of her Western allies’ satellite, radar and electronic technical support and this begs the question how much is US involved. Media reports cited Trump was not warned in advance of the attack and this is even more threatening. Simply put, it either points to PONTUS could lie on such an important issue or PONTUS is not in control of the war machine. (Fig. 1).

In the early days of my weekly Blog journals back in December 2018, I intimated that the clash of US and China in a series of tech wars and trade wars would ultimately lead to WWIII. The Cold War is here and now but what about a kinetic WWIII. What are the signs we should be made aware of ? Allow me to suggest two key data points less we all fall prey to our easy schedule and caught unprepared. Naturally I tend to lean on domains which I am familiar with and apologize here for obvious omissions.

(i) Global Hyper inflation before WWIII - A nuclear exchange between Military Super Powers namely US, Russia and China would mean a mass destruction of human lives. Unlike the bombing of Hiroshima and Nagasaki, the deployment of Nuclear bombs can not be looked as a deterrent to a nuclear armed adversary but would be an assured mutual destruction. The pain threshold for either of these 3 countries to launch a nuclear first strike would be a collapse of their economies and unmanageable domestic civil strife. In a contest of last man standing, which one of these 3 countries would you think would out last the other. Let’s for the time being accept Russia and China continue to stand back to back, it is then a tag team of the Bear and Dragon against a solo Eagle. (Fig. 2).

My perspective as to the likelihood of who would drawn first blood would therefore be based on economic grounds. As a start total foreign debt and equity ownership in Russia, China and US are respectively US$60 billion, US$1.1 trillion and US$28 trillion. (Fig. 3)

Hence the need to print money to address a foreign led run on the banking system is only prevalent in the US. Most market participants are expecting this to happen because cracks already appears in the US bond market. (Fig. 4).

Faced with a reckless Congress and Administration on a debt binge, the Federal Reserve (whose primary interest is to protect US banking system) is in locked horns with White House over the direction of interest rates. (Fig. 5).

The market is now quite convince that the US Treasury is wasting precious funds raised in fresh issuance to stealthily buy duration notes and bonds to stop further spikes in interest rates in a yield curve control process. It is to prevent the important bench mark rates of 10YR and 30YR to flow onto mortgage loans, car loans, credit card and student loans. (Fig. 6).

In reaction thereto, major bond funds are shying away from buying long duration in favor of short dated Treasury Bills, (Fig. 7).

It seems most American investors are on the same page, including Warren Buffet, to give US long bonds a miss. (Fig. 8).

The Federal Reserve is running at a negative networth of $176.7 billion as at May 2025 (Fig. 9)

plus sitting on top unrealized losses of $1.06 trillion from the last QE fiasco is therefore in no financial position to incur further liabilities to buy Treasuries at above market prices to suppress interest rates. (Fig. 10).

So whatever Powell and Bessnet will do can only be band aid and cosmetics and will not stop the runaway train from crashing. And that with band aid which are of very low quality indeed like relaxing SLR (Supplementary Liquidity Ratio) to allow banks (Primary Dealers) to buy more bonds than prudentially appropriate. No doubt Trump and Bessnet had no time to heed warnings by JP Morgan and acknowledge a total reluctance of Japanese Banks to sink deeper. The other silly band is by Lutnick to use crypto stable coins Tether backed by US Treasuries to substitute underwater electronic money issued by the Federal Reserve (also backed by the same US Treasuries) as a new currency. I have alerted readers of this Blog for years that there was never enough demand for US Treasuries and synthetic demand has to be created using interest rate swaps in the domestic market (Basis Trade) and fx and interest rate swaps in international market using UK and BLICS (Belgium, Luxembourg, Ireland, Cayman Is and Switzerland) as warehouses to give an impression that there is stable demand for USD. The basis traders like Citadel, Millennium, Balyasny, Point72, ExodusPoint are now all exposed and UK just became the second largest holder of US Treasury. With no industry, no trade/service surpluses over the past 5 years, where do you think UK gets the USD to buy all the paper? I am absolutely convinced that the two options open to the Administration is print or default. Wall Street analysts are already talking about a $10 trillion print and guess where inflation will be over the balance of this year and next. (Fig. 11).

 

(ii) The Anglo American Empire Increasing in Isolation: The only thing new in this week’s Shangri-la Dialogue was the presence of Macron trying very hard to sell Europe to Asia to a dis-interested audience. All attendees were too wrapped to avoid the appearance of taking side on the US China conflict. Hegseth certainly tried very hard to sell arms and with it military dependency on US but no results. Naturally, there was no escape to the fact that Trump had to beg months on end to have an audience with Xi. The message that came out from China was plain, deliver what you promised before in earnest then we’ll talk. South Korea also voted in a pro peace new President, peace with North Korea and co-operation for economic development with China. Those in US who bet on the stock market that the 90 days reprieve from “Liberation Day” means business is back to normal seems to have forgotten the wise saying that “Trust takes Years to build, Seconds to Destroy and Forever to Repair”. (Fig. 12).

  Even if Trump were to totally scrap “Liberation Day”, all the King's horses and all the King's men couldn't put Humpty together again.

 

These are the two most important markers in my personal diary to guide the choices I will make in the coming days.

 

2. Financial Market Performance for the year to date to June 6 2025 : (Fig. 13)

 

Russian Ruble (+39.35%), Gold (+26.11%),  Silver (+24.51%), Copper (+20.6%), Bitcoin (+11.79%), Hang Seng Index (+18.61%), VIX “Volatility Index” (+11.22%),  Swiss Fr (+11.41%), Eur(+10.02%), JPY ( +8.51%), GBP (+8.09%),  Nvidia (+5.53%), Nasdaq (+3.63%),  S&P 500 (+2.02%), Rmb (+1.54%),   USD Index (-8.55%), Oil (-11.3%) and TSLA (-26.96%%).

I suppose many people are surprised with the above ranking of financial asset class performance with the RUB ahead of the pack on a whooping 40% performance ahead of USD, following by precious metals and commodities then bitcoin. The fallen angel has been Tesla which dropped 27% year to date. The question is have you taken defensive measures for the coming storm. June and July will be fierce. Take care my friends.

Matthew 5:2  Then He opened His mouth and taught them, saying: 3  "Blessed are the poor in spirit, For theirs is the kingdom of heaven. 4  Blessed are those who mourn, For they shall be comforted. 5  Blessed are the meek, For they shall inherit the earth. 6  Blessed are those who hunger and thirst for righteousness, For they shall be filled.7  Blessed are the merciful, For they shall obtain mercy. 8  Blessed are the pure in heart, For they shall see God. 9  Blessed are the peacemakers, For they shall be called sons of God. 10  Blessed are those who are persecuted for righteousness' sake, For theirs is the kingdom of heaven. 11  "Blessed are you when they revile and persecute you, and say all kinds of evil against you falsely for My sake. 12  Rejoice and be exceedingly glad, for great is your reward in heaven, for so they persecuted the prophets who were before you.