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. 

 

  

 

A Hair Breadth Escape from Nuclear WWIII

The week ended on May 30, 2025, interesting news items to look at this week are:

1. A Hair Breadth Escape from Nuclear WWIII: The nuclear doctrine of both US and Russia states that should the countries' nuclear defense infrastructure be attacked, the country will respond with its nuclear arsenal.  At the apex of the command and control of a nuclear defense system is the President who carries on a 24/7 basis the launch codes of  nuclear missiles. So when an attempted assassination was made against Putin in Kursk by Ukraine using a drone swam under the guidance and intelligence of  US led NATO, a nuclear holocaust was very much on the cards.(Fig. 1)

 But the big question is why the West is in such desperation.  A question that readers of this Blog are well aware but perhaps still a bit uncertain as to the timing of the exact event horizon. Allow me to quote from the world’s best Trend Forecaster, Gerald Celente, “When all else fails, they take you to war”. (Fig. 2)

(i) NATO face a total defeat at the Ukraine Proxy War: It is no secret among the Think Tanks in the West a plan to Balkanize Russia and loot her resources began in earnest in public forums as early as 2014. (Fig. 3)

More than 10 years has lapsed and now the best US and Europe can hope for is Russia would agree to a 30 days cease fire as the Kiev regime faces an imminent total collapse. UK, France and Germany are particularly anxious because they have bet the shop and their dream of a greater Europe incorporating Russian colonies (Fig. 4) to outpace US and China as the alpha would be forever shattered.

One of the key consequence of a failure to capture Russian resources (estimated at 75 trillion  Fig. 5)

would be an existential risks to the entire European financial architecture. In a candid warning by ECB  this week, the euro area currently has an “exposure”—that is, claims and liabilities—related to gold of around €1 trillion. I note with interests that the entire gold reserve in the euro area of approximately 11,000 tons has but a current market value of $1.1 trillion. That means virtually all the gold reserves in the euro area has been sold, pledged or derivatively shorted already and any further weakness in confidence would mean a massive run on ECB and European banks to ruins. (Fig. 6)  

Just one week earlier, ECB has also warned that they would push back the implementation of BASEL III similar to US. (Fig. 7).

Please note one of the key ingredient in BASEL III is the “stable funding ratio”, which means if a bank has a claim against them in gold, they are required to have physical gold in their vault, a feat which is impossible to achieve given every ounce of gold a European bank has, there now is speculation that claims of 100 ounces are on the books. 

(ii) US totally frustrated by China: The tech war, the trade war, the smear war, the colour revolutions in Hong Kong and Xinjiang, the space war, the AI war and now the drones and missiles tech war, US has not been able to advance too much against China. The latest twist is cancellation of student visas in a witch behind every rock hunt. (Fig. 8).

So long as US would not address its military and dollar oppression against her own people and other nations, the decline of the US empire is a mathematical certainty. Every maneuver that Trump has come up so far has ended US in a deeper financial hole. DOGE and Musk is gone and sooner or later the rest of the financier backer of the politicians will jump ship like rates. The US Federal Government debt and expense has gone parabolic. (Fig. 9).

At the current trajectory, all tax revenue will be chewed up by interest expense by 3032. (Fig. 10).

And what hare brain scheme does the Administration come up with to deal with the debt problem? Jack the price up on Cryptos by wrapping US Treasuries around stable coins as a new crypto trading currency and use inflated cryptos to pay off foreign creditors. Officially it is called “The GENIUS Act, or Guiding and Establishing National Innovation for U.S. Stablecoins Act”. For the sake of avoiding WWIII, my prayers is that the Americans would listen to Winston Churchill for once. (Fig. 11)

Leviticus 19:33  'And if a stranger dwells with you in your land, you shall not mistreat him. 34  The stranger who dwells among you shall be to you as one born among you, and you shall love him as yourself; for you were strangers in the land of Egypt: I am the LORD your God. 35  'You shall do no injustice in judgment, in measurement of length, weight, or volume. 36  You shall have honest scales, honest weights, an honest ephah, and an honest hin: I am the LORD your God, who brought you out of the land of Egypt. 37  'Therefore you shall observe all My statutes and all My judgments, and perform them: I am the LORD.' " 

Hyper Involution and Hyper Inflation

The week ended on May 23, 2025, interesting news items to look at this week are:

1. Hyper Involution and Hyper Inflation: Two important pieces of information in the media this week have focused the mind on the extremely perilous state of the global economy and geopolitics. The root of the malignancies began in 2018 and unless remedied, WWIII will almost be a certainty. In China, the malignancy is Hyper Involution and in US, Hyper Inflation. The world’s two biggest economy has a combined share of 44% of the global GDP and they have respectively weaponized the supply chain and payment chain in a cage fight to out last the opponent. There will be no escape from a sea of pain for all third party countries unless US & China reconcile their differences.

(i) Hyper Involution: Involution (内卷, neijuan) in the Chinese economy is a sense of diminishing returns, where intense domestic competition and pressure, particularly in education and the workplace, result in a feeling of futility and a "rat race" with little real progress. The genesis of Involution began in 2018 when the U.S. drew first blood in a Tech War against Chinese communication giants Huawei and ZTE just when China made her maiden launch of a 5G integrated telecommunication system. The US, fearful of losing its preeminence in semiconductor technologies, a key driver in substituting the petrodollar hegemony by the tech dollar hegemony has since rolled out a full spectrum attack and encirclement of everything Chinese. In response to an existential threat, the Chinese national team decided to reallocate all funding away from the speculative sectors namely real estates and shadow banking into industries, particularly new energy, NEV(new energy vehicles) and high speed rail.

(Fig. 1) is a telltale picture of this particular shift which explains most of the economic phenomenon we observe today both in China and internationally. From a peak of Rmb 6 trillion annual new lending in 2018 to the real estate sector, the downdraft imploded to a net liquidation in 2024. Conversely, annual new bank lending to Chinese industries rose from below Rmb 1 trillion to over 5 trillion in 2024. Provincial and municipal governments all jumped into the bandwagon and as an illustration, between 2019 to 2021, there were 500 registered NEV companies with an active participation of 400 NEV brands. In China, commercial competition is both a sprint and a marathon and by 2024, 350 NEV brands has fallen by the wayside and only 50 brands survived  (Fig. 2).

However, competition between NEV brands is not unique, the same cutthroat competition is found in semiconductors, mobile phones, AI, consumer electrical appliances and electronics, e commerce, food and beverage and right down to the gig economy like share ride, delivery and logistics. The key to survival in China is speed, innovation, razor thin margins, continuous cost cutting and capacity expansion to capture unfilled demand and market share. Such competition eventually spilled over to jobs and employment with the “996” work culture all pervasive in China (The "996" work culture in China refers to a grueling work schedule where employees are expected to work from 9:00 AM to 9:00 PM, six days a week, which translates to 72 hours per week. This system is widely prevalent in the tech industry and is a violation Chinese labor laws, which set a standard workday of eight hours and a maximum of 44 hours per week.) In the long run, the severe competitive culture is just burning of candles from both ends and by 2025 both the Chinese National Team and industry leaders sense the risks of this unsustainable behavior. On a macro level, China national savings and liquidity is at record levels and despite US out all trade war, China trade surplus hit $1 trillion mark yet citizens are pessimistic and fearful of spending. Why, their net-worth is contracting because of collapsing property prices and job security is gone as business shutters on involution, supply chain realignment and skills upgrade.  DJI Drones (with a 70% global market share of civilian drones), Midea Group (the largest Appliance Maker in China) and Haier (Owner of GE Appliance in US, Fisher & Paykal in NZ, Candy in Italy, Hoover in Europe, AQUA and Sanyo in Japan) all issued work rules that no employees should stay behind in the office after 6pm and enforced by wifi and power switched offs. Discussions are ongoing with policy implementation at government and industry association levels for new development protocols on a more balanced approach. I am not here to make fun of a serious situation, but if cleanliness devolved to the point of OCD and  mysophobia, such a behaviour is detrimental to one’s health and severely affects the well being of those that needs to interact with the sufferer.  The EU China Accord to set a floor price for Chinese NEV imports is a good beginning as it gives breathing space for EU car makers and with a smaller volume but higher margin for Chinese exporters. Competition remains and consumers are not taxed but protected with a wider range of selections.

(ii) Hyper Inflation: Across the Pacific, the malignancy is also a form of OCD (Obsessive Currency Debauchery). Just in the past week we saw; (a) Moody downgrade US Credit Rating, (b) Miserable 20YR bond auction with an interest rate cross over beyond 5%, (Fig. 3)

(c) Yet, Congress just passed the Big Beautiful Spending Bill that would add another $4 trillion to the unsustainable federal deficits (Fig. 4),

(d) Another $175 billion for the Golden Dome defense shield (Fig. 5)

(e) Federal Reserve stealthily reignited QE with a $44 billion purchases in 4 days (Fig. 6) whilst officially the QT program is still on to contract Fed’s Balance by $5 billion a month.

(f) To calm a very nervous market, Stephen Miran, Chairman of White House’s Council of Economic Advisers was said to deny this week the Administration was planning to re-rate bonds held by foreign countries by forcing an extension of maturities to 50 to 100 years. (Fig. 7).

In 2018, a precedent was established by Greece in a default restructuring exercise that effectively halved the carrying value of the bonds. (g) EU to delay implementation of Basel III rules and (Fig. 8)

(h) Treasury Secretary Bessent is set to relax SLR (Supplementary Liquidity Ratio) to allow banks to hold more US Treasuries than existing prudential regulations permits. No doubt the current lack of genuine buyers for US Treasuries is giving the Administration little choice but to stuff US commercial banks with increasing US Government Debt and to ignore the disaster that bankrupted Silicon Valley Bank in March 2023 . (Fig. 9)

There can be no cure to the malignancy of the Western financial system so long as the powers that be refuse to acknowledge the use by date of their empty promises on currencies and debt issuance has finally arrived.

My hope and prayers is that China can relax a little and US will have the courage to claw back some of the ill gotten gains by those who gamed the system, since post Bretton Wood,s for a much needed global re-balancing

1Timothy 6:6  Now godliness with contentment is great gain. 7  For we brought nothing into this world, and it is certain we can carry nothing out. 8  And having food and clothing, with these we shall be content. 9  But those who desire to be rich fall into temptation and a snare, and into many foolish and harmful lusts which drown men in destruction and perdition. 10  For the love of money is a root of all kinds of evil, for which some have strayed from the faith in their greediness, and pierced themselves through with many sorrows.