The Croissant Files are going LIVE

The croissant files started going LIVE last Saturday, and will continue to be LIVE every Saturday at 10am EST.

I wanted this to be more interactive than a newsletter and better connect with my friends here on LinkedIn.

In these live meetings, we'll address the same topics as here: geopolitics, economy, the investment industry and whatever you may feel discussing about, and I'll do my best to answer your questions.

For the moment, the platform used is LinkedIn Live, but I'm still looking for the best platform to enhance the experience with real interactions. Maybe this is this one, or maybe another.

In this context, I will ask you to visit this link The Croissant Files LIVE to register so you can be notified for the next destinations if it changes, or if the timing changes, or the situation requires to do an Emergency Live.

Anyways, back to our (almost) regular schedule: LIVE on Saturday, Newsletter on Monday

Geopolitics

Ukraine

The situation is not improving for Ukraine:

• Counter offensive has not led to significant advances
• Ukraine is constantly extending the conscription by lowering the age, but the size of Ukraine population can’t compete with Russia population

• Zelensky recently made a request for peace talks involving China but not Russia. Zelensky is now basically asking for the the peace treaty the West persuaded him to refuse in April 2022
• Russia is in a position of strength and has no interest to negotiate
• Most western countries and top military admit the war is lost and lost territories can not be reconquered
• There is now a risk of a desperate move from Zelensky to drag NATO into the conflict by provoking Russia with attacks on civilians

The real question now is:

what will the US do not to lose face, especially for Biden in an election year ?

Middle east

• US strikes against Houthis had no impact: Houthis are still very active and controlling the red sea. Indeed, a guerilla style conflict can't be fought like a conventional war
• This is the same situation as with Afghanistan: can’t win a fight like this with vessels, fighters jets, … You can put soldiers on the ground but Houthis will reappear as soon as the US leaves
• Shipping rates are rising around the red sea and the world as well, and this will obviously impact inflation

Politics

• At the crossroads of geopolitics and US politics there is the situation at the border with the opposition between the Federal government and Texas supported by 25 states, 10 of them committed national guard troops to secure the border

• It is estimated that 6 million illegal aliens have crossed the border which is more than 33 states !
• More globally, and according to a Yale study, there is 22 million illegal aliens in the US. The democratic party is pushing for mass legalization, meaning full citizenship with voting rights. Statistically, a large majority will become democrat voters. As a reminder, the largest spread between 2 candidates was 10 million in 1984
• After the New Hampshire primary, Trump is the only contender.
• Nikki Haley saved the face because a majority of non republican voted for her (70% non registered as republicans, compared to Trump voters who are 70% registered republicans)
• Andy Sabin and Reid Hoffman, two major contributors of Haley's campaign, have already stopped contributing

Economy

• US debt is skyrocketing : Treasury borrowed $47 billion yesterday, pushing federal debt to new record high: $34.136 trillion

• The service of the debt is skyrocketing as well : Q4 GDP report - Annualized interest on the federal debt now exceeds $1 trillion and is projected to breach $3 trillion, annualized rate, by Q4 2030

• End game is always the same for a fiat currency, is when those who used to buy the debt actually stop buying it, and the govt is forced to print to buy its own debt

• Speaking about debt, everyone is celebrating the GDP but, it required $834 billion to produce $328 billion in GDP: not a good deal ..

• Banks cash reserves are still deteriorating and we’ll probably see a consolidation in the banking sector if the Bank Term Funding Program is stopped as expected on March 11th

• In other words, JPM will get even bigger

Commercial Real Estate (a little segment for my real estate friends)

• 14% of all commercial real estate (CRE) loans and 44% of office building loans are now in "negative equity". In other words, the debt is now greater than the property value on all of these properties.

• Currently, US banks hold over $2.9 trillion of CRE debt, the majority of which is held by regional banks (which we've seen are not in a good shape).
• Office building prices are down 40% from their highs and CRE as a whole is down over 20%.
• All as rates rise and many of these loans are due to be refinanced, and CRE is beyond bear market territory.

The status of the American dream

• Net saving as a percentage of gross national income has been negative for 4 straight quarters, which happened in only 3 periods since 1947
• The previous two periods were in 2020 during the pandemic and 2008 during the financial crisis.

• While net savings are plummeting, retail sales continue to rise while credit card debt approaches $1.1 trillion and "Buy Now Pay Later" spending hit a record $20 billion.
• Americans are getting poorer and are tapping into savings and maxing out credit cards to maintain a certain lifestyle

This week is very busy in terms of economic data with:

• Tuesday: JOLTs Job Data -
• Tuesday: CB Consumer Confidence
• Thursday: ISM Manufacturing PMI data -
• Friday: January Jobs Report
• and about 20% of S&P 500 companies are reporting their earnings

But make no mistake, the market will only have eyes for the Fed Interest Rates decision on Wednesday, and what it means in terms of the Fed policy for the months to come.

Markets

• International conflicts have short lived impacts on the US markets: Russia surprise passed rapidly, in a couple of weeks, and tensions in the Middle East seem to be part of the global picture now
• It seems to me that the only thing that could have a significant impact to the US would be a direct confrontation with a major power: Iran maybe not so much, but China and Russia are possibilities

• Despite the dire situation of the economy, the S&P500 is levitating around its highest highs
• But divergences are starting to appear with the VIX. Let's keep an eye on this. The stock market is not the smartest (I'll elaborate on that)

• Market is very difficult to read as market participants have Pavolvian reactions with interest rate cuts anticipation, discarding all other issues. More money is always good for the market as it serves as a parking for printed money
• The issue as always is inflation, and although the market is levitating, its actual value in real money is less
• Turkey scenario where stock index rose when currency collapsed with inflation. At the end of the day it was still a losing proposition

You can watch a replay of the last Saturday "Croissant Files LIVE" here:

LET's GOOOOOO !!!!!