Dangerous games

"We must condemn the one who makes war, but we must even more condemn the one who made the war inevitable"

Falsely attributed to Montesquieu, true nonetheless

Geopolitics

EU in general and Macron in particular continue to beat the drums of war with irresponsible declarations about troops on the ground.

Macron signed a security agreement with Ukraine with the ultimate goal to join NATO, in the footsteps of recent Stoltenberg declarations, which is another escalation.

French laws about conscription have been modified to not only be used in the event of a direct attack against the nation, but now also in the event of a "threat", a nebulous definition that can be used to send French kids to fight in Ukraine.

All the recent evolution of the situation are setting up the pieces to make the war inevitable.

However, many countries in NATO are opposed to sending troops on the ground in Ukraine, including the US.

So, what it is this warmongering rhetoric for, knowing that Europe doesn't have the means of its military ambitions?

As I've mentioned before, I believe this posture is meant to force a deeper European integration, by forcing the building of a European military force financed by European bonds (never let a good crisis go to waste !).

This is a very dangerous game to play for political gains, also signing the end of French sovereignty, and sacrifice the 1,500 years nation on the altar of the European cult that didn't deliver on its promises.

And this is precisely because it fails that they need to force the issue, taking the risk not only for EU, but also for other NATO members.

Ukraine is a serious issue for European farmers whose protests do not fade because entering NATO and EU, Ukraine massive agricultural production would definitely annihilate local traditional farming across Europe.

Interestingly, the EU’s foreign policy chief Josep Borrell just wrote that “the era of Western dominance has indeed definitively ended.”

A multi-polar world continues to take shape, which is exactly what the Brzezinski doctrine was trying to avoid at all costs, and that the US followed with the results we're seeing now.

Sweden has officially joined NATO as 32nd member.

I still do not understand why the Swedish govt decided to put its population at risk by joining NATO ...

In Israel, humanitarian aid was airdropped in Gaza to a starving population.

However, Netanyahu only reiterated that Israel will push on with the Gaza offensive as far as Rafah on the border with Egypt, meaning total wiping of the Gaza strip.

Politics

• Expected: Trump Wins Super Tuesday and Nikki Haley drops out. Trump is the official nominee for Republicans
• Less expected: SCOTUS votes 9-0 to keep Trump on the ballot
• Unknown: I wonder to which extent the left is willing to go to stop Trump as everything they tried failed so far. Many of them declared being ready not to certify the 2024 election if Trump wins. So much for saving democracy ...

State Of The Union

• Very few will remember what Biden said in this State Of The Union, but everyone will remember his anger
• The attacks on justices were a direct attack against our institutions, spiraling into totalitarianism
• Polarization of voters in the US, from the 1980s to 2010s: there is now 2 populations on a single territory. What could go wrong?

Economy

• US debt now growing at $1T every 100 days. How could it go wrong either?

• The federal government ran a $298 billion deficit in February despite continued revenues, representing over $10 billion a day! More deficit spending means more upward pressure on inflation

• SuperCore inflation, defined as core services less shelter inflation is a key indicator for the Fed follows. In January, this metric jumped by 0.7% month-over-month, the biggest jump since September 2022, after already multiple monthly increases since the 2023 low.

• Meanwhile real wage growth is turning negative again, and the fight against inflation is far from over.
• Comparison between CPI current vs history is remarkable although I'm not big fan of such historical comparison (they look the same, until they don't !)

• We are only 2 weeks away from the Fed decision, that is rather seen cutting rates in June than March.
• Home ownership costs have DOUBLED in 4 years (Zillow): The typical mortgage payment has doubled since before the pandemic. Median ownership is now ~50% of the median household income before taxes.
• "increased wealth" that the talking heads keep touting is only on paper. Adjusted for inflation, virtually no progress was made over the last 3 years

The US Federal Reserve’s Bank Term Funding Program(BTFP) ends today, and many US Regional Bank Stocks are in difficulties, mainly from the Commercial Real Estate issues we've discussed before.

Some have been hit YTD:

1. NY Community Bank, $NYCB: -66%

2. Valley National Bank, $VLY: -26%

3. Metropolitan Bank, $MCB: -26%

4. HarborOne, $HONE: -18%

5. Zions Bank, $ZION: -15%

6. Western Alliance, $WAL: -13%

7. Comerica Bank, $CMA: -12%

8. Citizens Financial, $CFG: -6%

9. US Bank, $USB: -6%

On Friday, jobs data was published: the US economy adds 275,000 jobs in February, above expectations of 198,000. US economy has added jobs for 38 consecutive months. That's the superficial picture.

At the same time: The January jobs report number revised lower, again. For 10 of the last 12 months, jobs numbers have been revised downward.

Initial announcement makes the news, no one ever talks about revision.

Pure manipulation.

Below the surface:

• full time jobs are being replaced with part time jobs

• 1/5th are govt jobs, that need multiple private jobs to be financed

• Native born employment is being replaced with foreign born employment

• Official narrative: the headline jobs number says the US have added jobs for 38 straight months.
• Reality: over the last 12 months, the US has lost 284,000 full-time jobs that have been replaced by 921,000 part time jobs (Zerohedge)
• The true number of workers employed in the United States is now at its lowest since May 2023. Last month, payrolls jumped by 275,000 (Yeah!) but the total number of individuals employed fell by 184,000 (Boooh).

Markets

Nothing really adds up, and markets appears to be in contradicting situations with:

1. S&P 500 is trading like are in a new bull market

2. Regional bank stocks are crashing like the crisis never ended

3. Bonds are rising like the Fed is cutting interest rates

4. Inflation data is rising like rate cuts are cancelled

5. Bitcoin is rising like there's no recession coming

6. Gold is rising like a recession is on the way

US Equity markets still run on the AI craze and AI seems to be the last engine propelling the rally:?lower Fed anticipations didn't derail the AI rally when Apple, Google, and Tesla are down over 5% YTD.

NVidia has taken the market lead in terms of influence on the index, and Apple and NVidia have about the same market cap now.

10 yrs ago, Apple had market cap 47x larger than Nvidia !

But pay attention, NVidia now can trade like a penny stock sometimes, and NVidia stock felt 10% on Friday in an hour or so.

This is a consequence of huge concentration, and lost of breadth in the market.

Finally, Gold eventually broke out of its long term resistance to make new highs. It was always obvious that Gold was manipulated (JPM was fined for this), but now that the dam was broken with Bitcoin, it may not be worth saving these levels for gold.

Quick performance review for major asset classes

Bitcoin

Bitcoin keeps posting new All Time Highs, particularly since the previous high on Nov 10th, 2021.

Bitcoin remains volatile around its ATH, hitting $69k to be sent back immediately to $62k (including a large sell of ~69M of btc that didn’t move since 2010, for a cost of $170 !).

Bitcoin bounced back to $70k on Friday, and the trend is still well alive.

However many over leveraged accounts were liquidated on the down move, and the higher volatility is a reason you don’t use leverage with Bitcoin or other cryptos.

Year to date, Bitcoin has had superior absolute and risk-adjusted returns than all commodities, currencies, stock indices, and all 11 GICS stock market sectors.

How long before Bitcoin canabalizes Gold, with a Sharpe ratio that is +10x higher? After only 8 weeks, Bitcoin ETFs are catching up to Gold ETFs for total assets, with more than 50% as much AUM as Gold ($54b for $BTC - $96b for Gold)

A couple interesting posts from last week:

• About Michele Mouton, one of the best WRC driver during the time of the mythical B group

• The simplest explanation why your $$$ ain't s#!t !

Enjoy your week, and let's catch up next Saturday.

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