A New Viking In Town

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GEOPOLITICS

USA

Trump is the new viking in town: Greenland is a high strategic stake for the control of the arctic and northern sea shipping routes, not to mention the huge source of natural resources. This is the same situation that is at stake with Canada, and if both were to become integrated with the United States, this would leave the north pole and arctic controlled by Russia and the USA only, facing each other.

In the wake of Trump’s comments, Greenland's Prime Minister, Múte Egede, expressed a desire for the island's independence, and was summoned to Copenhagen for a meeting with the Danish king.

There is a path to what Trump suggests and considering the strategic importance that the arctic sea represents for the USA, it only makes sense it wants direct control of the area, not through an western ally proxy.

This will have major consequences on global trade (Russia cargo in the northern sea route went 10x between 2014 and 2024) and the commodity markets.

Eastern Europe

No significant development in the Ukraine-Russia conflict.

The focus is clearly shifting to the middle east with a Trump presidency, impacting commodity markets as well.

Middle East?

After Israel and Turkey partnered to remove Assad from power and take control of some of their key national interests at their respective borders, both seem to be turning backs at each other with the Nagel committee, created by Netanyahu, warning about Ankara trying to re-establish the Ottoman empire influence in the middle east.

Of course Israel wants to be the dominant power in this region and the committee warns it could lead to a direct conflict between the two powers, although both are under the US umbrella (Turkey is a member of NATO)

As mentioned in previous newsletters and Lives, the overthrow of Assad clears the way to a pipeline for Natural Gas and Oil from Qatar and Saudi Arabia to Europe, and the project has now been officially announced. After cutting Europe from Russian energy, the last pieces of the puzzle fall into place.

The middle east becomes an even more critical region for energy supply, and in industrial processes, one would call this a single point of failure, especially for Europe who can not diversify its demand in energy.

Asia

China continues its methodical progress in Africa, by establishing or comforting relationships on the continent, in an effort to control natural resources. In this context, Chinese Foreign Minister Wang Yi is visiting Namibia, the Republic of Congo, Chad, and Nigeria.

China is also an investor in many ports around the world, and has some capacity to choke-point our maritime trade. This is for instance the reason of Trump’s focus on Panama and the Panama canal with Chinese influence.

ECONOMY

Last Friday jobs report was the key data release for last week.

The US economy officially added 256,000 jobs in December, way above expectations of 164,000.

The administration keeps pushing the narrative of a strong jobs market under Biden’s term, but this jobs report will very likely be revised on the downside once again.

When government related jobs (direct or indirect) and the largest providers of jobs, manufacturing jobs keep decreasing (the ISM manufacturing PMI index is still in contraction). The jobs market is weaker than advertised. There are still fewer native-born Americans working today than pre-pandemic, with all net job growth since Dec '19 going to foreign-born workers.

Full time jobs are replaced with part time jobs, driving down the average hours worked, which is at the lowest level of the previous business cycle (~'10-'19). All net job growth since then coming from part-time work.

With inflation still rising, the “strong” jobs report helps the Fed build the narrative for a stop in rate cuts. The Fed won’t help Trump for his second term, just like it didn’t help in his first term.

Stocks didn’t react so well to the anticipation of fewer or no rate cuts in 2025, and were lower across the board.

What was the 50 bps cut in September 2024 for?

MARKETS

Despite the last day drop, the Equity markets were only slightly last week.

The end of year is an opportunity to look at the performance of the best money managers: the US congress.

Stock trades for both Democrat and Republican politicians outperformed the S&P 500 in 2024, gaining 31% and 26%, respectively, with five politicians generating gains of more than 100% in 2024.

To be fair, the worst in congress managed to lose more than 50%. I don’t know what to think about him: honest or idiot?

Among amateurs (hedge funds), macro hedge funds got a massive boost from Donald Trump’s US presidential victory in November, and are wagering that this year will bring more of the same.

More significantly in my opinion, we still recognize some usual suspects at the top of the list: the multi-strategy of the like od DE Shaw, Renaissance, Citadel, Millennium, …

With interest rates rising and bonds collapsing, the bond-tracking ETF $TLT has posted a record $7.4 billion in net outflows over the last 2 months, from about $49 billion in assets under management.

Everybody’s selling bonds right now.

More surprising, total gold ETF holdings fell 3% year-over-year in 2024, declining for the 4th consecutive year,? despite record physical gold demand coming from China and India.

Central banks have also purchased a record ~2,800 tonnes of gold since 2022, which fueled the gold price rally in 2024. It appears that physical gold is preferred to paper gold.

Once again, the concentration in US stocks makes Equity markets more fragile.

Beware out there !

One last note regarding markets and the impact of last Friday jobs report is that it triggered break outs of consolidation patterns for two important assets to monitor closely in the next few weeks: Gold and Oil.

Happy investing, and see you next week !