Turning point: elections, BRICS, debt and market concerns

GEOPOLITICS

USA

Momentum is increasing for Donald Trump in the last stretch of the campaign, with a significant lead on betting platforms and a tie on MSM polls.

Meanwhile, Jeff Bezos instructed the Washington Post not to endorse Kamala Harris.

BRICS

Russia hosted the Brics summit in Kazan, with more than 30 countries participating. The summit also included secretaries general from international organizations such as the SCO, EAEU, and even the UN.

The BRICS organization is still developing with 13 countries currently applying for the status of partner state. A couple of them are blocked from joining BRICS though, like Venezuela (vetoed by Brazil) and Turkey vetoed (by India because of support to Pakistan).

The success of the summit proves if necessary that sanctions do not work, and the IMF now ranks Russia as the fourth largest global economy in the world by purchasing power parity behind only the U.S., China, and India. The IMF also raised its estimate for Russia’s GDP growth at 3.6% increase by the end of the year.

BRICS continues its de-dollarization with two thirds of trading now settled in local currencies, and control of 20% of Global Gold Reserves, especially Russia and China.

Middle East?

Ahead of the planned strike of Iran by Israel, Israel urges U.S. Support at a time reports suggest Israel has finalized preparations for an imminent attack on Iran.

Secretary of state Blinken admitted he failed to convince Netanyahu not to strike Iran, and declared that “at any moment, events could happen in the Middle East that have not happened in the last hundred years”

Asia

Xi Jinping urges PLA thre Chinese army to prepare for war, and called on the military to ensure that troops maintain reliable combat readiness. This is the first time since Xi’s access to power that he appeared in combat uniform.

China appears to be ready for war with high weapons stocks, decent economy, self sufficiency, fresh army. The issue is the PLA has no experience...

ECONOMY

The US debt is increasing exponentially:

• In October so far, the total US debt has jumped by $473 BILLION, to reach a record $35.8 trillion, or $103,700 of debt for every American.
• The US deficit spending as a percentage of GDP remains at World War 2 levels, while 2024 marks the first year with over $1 trillion in interest expense.
• A third of the US debt is owned by the US government itself, and government funds such as Social Security and the Fed. A quarter is held by foreign governments, mostly by Japan and subsequently China.

In this context, the US net interest costs as a share of GDP are set to reach 6.3% by 2054, more than DOUBLE than the projections for the Fiscal Year 2024.

Interest costs will represent nearly triple the government's average historical spending on R&D, infrastructure, and education combined.

Over the last 12 months, interest payments have exceeded defense spending for the first time, and at the current pace, interest will soon be the largest expense in the Federal budget, surpassing Social Security.

This is the main reason we see 10-Year UST rising at a time the Fed cut interest rates, as investors are now demanding higher yields to protect against reckless US government deficit spending. This will force the Treasury to continue growing the debt and require perpetual, high inflation to manage it. And this is what the Fed decision is about.

As Paul Tudor Jones mentioned in an interview recently, we can only inflate our way out of this.

This context provides a strong tailwind to Gold and Bitcoin. Gold's market capitalization has hit a record $18.4 Trillion, and Gold has doubled since 2019, gold prices surpassing $2,750 for the first time in history (up 33% YTD).

Americans are hit with the average interest rate on a 30-year mortgage being officially back above 7%.

Nearly 50% of US consumers perceive themselves as living "paycheck to paycheck," according to a BofA study, comparing to ~37% only in Q1 2022.

Food prices in the US reached a new all-time high in September and are up 22.5% since 2021.

Meanwhile, manufacturing activity declined yet again in October according to the Richmond Fed, and the US labor market continues to weaken with jobs posting declining and job vacancies reaching their pre-pandemic levels from February 2020.

MARKETS

Stock market concentration has rarely been so extreme with the top 10 US companies now accounting for 18% of global stock market capitalization, the most since the early 1970s, tripling over the last 15 years. At the the 2000 Dot-Com bubble peak, the top 10 firms' weight was 4 percentage points lower at 14%.

The top 5 US companies now reflect 15% of global stocks' market value, the most since the data began tracking in the 1970s.

An investigation was launched against Tether, the company behind the stablecoin USDT, only 2 weeks before the presidential election !

It is surprising as Tether is a big parking for treasuries as collateral and can help the treasury place its debt with the development of cryptos.

This is probably the last fight before the election, and clarifies the position of the current administration. However, Bitcoin only dropped 2% on the news.

Everything looks great on the surface with US Equity markets at all time highs, but other markets are showing concerns, especially about reckless Fed policies:

• 10Y UST rates going up when the Fed is cutting rates (hello inflation)
• Risk off assets like Gold and USD sharply going up
• Bitcoin going up
• Oil oriented down, especially now that the geopolitical risk in the middle east appears to be alleviated (hello recession)

The result of the US elections will be critical for all markets !

A little more than a week of patience ...