Something's brewing ...

Geopolitics

Putin just started his fifth term as president, renewable in 2030.

Unless Russia is defeated in a global war, he’s here to stay.

Meanwhile, Russia has launched a major offensive toward Kharkiv, the second largest city in Ukraine, and the West is still sleepwalking into WWIII…

Israel is now more or less occupying the full Gaza strip, after bombing and taking control of Rafah, at the border with Egypt.?

IDF now controls the entire Philadelphi axis along the Egyptian Border in Gaza, which is a breach of the Egyptian-Israeli peace deal of 1979 known as the Camp David Accords (the narrow band around the border should not be militarized according to the agreement).

The EU shows again its military irrelevancy. The EU mission in the Red Sea to insecure the passage through the Suez canal lacks ships. The mission has only three ships at his disposal, when 10 ships are needed for the mission to function properly.

The MSM is now ramping up the rhetoric around H5N1 Bird Flu. It looks like 2020 in repeat, as indictments against Trump fall apart one after the other.

On that note, Trump’s classified documents case is indefinitely delayed.

By weaponizing the DOJ against a political opponent, the current administration only managed to make Trump look as a victim, and grow his polling numbers.

Economy

The numbers about the US Federal debt are staggering. Has been added:

• $100,000 every second over the last year
• $10 billion per day since March 1st

If interest rates do not go down, debt servicing could rise to $1.7 trillion in annual interest expense in just one year from now.

Spending is out of control, and the US government needs lower interest rates more than anyone.

Global Inflation Forecasts still show a path to the 2% target inflation for developed countries. However, forecasts have been systematically wrong in the past, and higher than expected.

Interestingly, the Fed balance sheet holds inflation adjusted bonds (TIPS), meaning that the US govt paid the Fed for inflation. So, the Fed creates inflation, and get paid for it.

Currently the Fed is paying out all of its profits to commercial banks to fund the Fed's policies via reserves and reverse repos that commercial banks own. This is all a massive wealth transfer to the banks, which are in a crisis deeper, but hidden, than 2008.

Hey, can't call this a bailout !

US manufacturing and services employment have simultaneously contracted for 3 consecutive months, which only happened during the 2020 pandemic and 2008 Financial Crisis in the last 20 years.

While official data indicates that the US has added 100,000+ jobs for 40 straight months, the best streak in US history, companies from manufacturing and services sectors claim that employment is falling. The number of US manufacturing jobs remains at multi-decade lows, only 2/3 of the peak level of manufacturing jobs in 1979.?

To finish the picture of a “booming” economy, the percentage of companies that have defaulted on their debt more than once has reached its second highest level since 2008, according to S&P Global Ratings.

Japan continues to fight against a depreciating Yen that stays under pressure despite interventions. The risk is the BOJ losing its credibility if it failed supporting the Yen, which would likely reinforce speculative attacks against the currency.

But the US cavalry would certainly comme at Japan's rescue as it has much more to lose.

Meanwhile, world central banks continue their purchasing spree of with a new record in Q1 2024 with 290 tonnes of gold bought, which contradicts the narrative of a soft landing.

Purchases were led by Turkey, China, and India, and gold prices are up by more than 11% year to date and 25% since last October.

Emerging markets have seen massive increases in #Bitcoin ownership, led by Turkey with the largest global Bitcoin ownership share, followed by Vietnam, Nigeria, and Venezuela (United States takes 7th place).

Estimated global Bitcoin adoption shows just ~3% of the population or 269 million users hold the currency.

Turkey leading the rankings is a great example with inflation and currency debasement, which led citizens to look for anti inflationary alternatives to preserve their assets.

In Argentina, the risk of a default (CDS) has decreased by nearly 40% since Javier Milei took office in December.?

Markets

Investors now have a massive allocation to Equities: everyone appears to be on the same side of the boat. Beware when the boat swings …

At the same time, retail investors have bought over $5 billion of leveraged equity ETFs in the last 12 months, the most since 2022, which is a $3 billion increase on a 1-month rolling sum basis in just a few months.

This happened similarly in 2021 and early 2022 after which retail experienced significant losses, with the average retail investor portfolio drawdown from the 2022 peak being 35%. It took 1.5 years to recover.

Meanwhile, stock concentration is still on the rise, with the top 10 companies' share in the S&P 500 index having reached record levels. The top 10 now account for ~34% of the S&P 500 market cap, the most since the 1970s’. As a comparison, at the peak of the 2000 Dot-com bubble, the weight of the top 10 stocks did not break above 30% of the index.

Fewer stocks effectively “are” the stock market, which means more volatility.

The index shares the same issue when you don’t rebalance your portfolio: only a couple of names end up dominating the whole portfolio.

Many major markets appear to be in consolidation/waiting patterns to break out on either side, whether it is US Equities, emerging markets Equities, Oil, Bitcoin ....

There are many economic data released this week that could swing the boat either way:

• PPI inflation (Tuesday)
• CPI inflation (Wednesday)
• Retail sales (Wednesday)
• NY Fed manufacturing Index (Wednesday)
• Jobless claims (Thursday)
• Fed manufacturing Index (Thursday)
• Building permits (Thursday)
• Housing starts (Thursday)

So, inflation? Recession? Stagflation? ...

This will be interesting to check out which side the coin falls.

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