WWIII as legacy?

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GEOPOLITICS

Eastern Europe

After Biden engaged in a major escalation with authorizing Ukraine to use long range missiles for strikes inside Russia, Ukraine launched six ATACMS missiles on a facility in the Bryansk region. According to Lavrov, Russia’s minister of Foreign Affairs, the necessary American involvement to operate these missiles makes the war enter a new phase qualitatively.

The Russian retaliation shortly after with a blank (non nuclear) IRBM on Dnepropetrovsk. The flight time of the newly unveiled Oreshnik missile was less than 5 minutes (Ukrainian monitoring resources). The hypersonic capability of the Oreshnik flying at Mach 10 (7,600 mph, 2 miles per second of 3 km per second), makes it virtually unstoppable at this time.

With this IRBM, all countries of continental Europe, from Poland and the Baltics to Portugal, as well as Great Britain, are in the target zone (Finland and Sweden who recently joined NATO consequently as well). The Oreshnik missile can strike most European capitals in less than 20 minutes (UK: 19 minutes ; Poland: 8 minutes ; Belgium: 14 minutes ; Germany: 11 minutes).

Russia unveiled a new weapon never used before which changes the perception of relative forces. Ukraine is a testing ground for major nations, on missiles, but also on drone war. With the success of the Oreshnik missile strike, Russia declared they will accelerate the production and deployment of such weapons.

Meanwhile, while Germany’s Scholz’s refuses to supply Taurus missiles to Kiev and carrying out strikes on Russia, Italy disagreed with strikes on Russian territory from Ukraine, France’s Macron agreed for Ukraine to use French SCALP missiles inside Russia, making France a primary target as much as the UK.

As mentioned multiple times here, Jake Sullivan, US national security advisor, recalls that the problem for Ukraine is the mobilization of troops, not NATO sending weapons. This questions the objectives of such an attack for a belligerent short of fighters. Just like the incursion in Russian territory near Kursk, the use of longer range weapons appears to be a sign of desperation potentially to prevent a collapse and force the hand or a calculated move to force NATO into WWIII.

In this context, Russia adjusted its nuclear doctrine to consider countries supporting attacks against Russia as joint attacks, making the US, UK and France particularly primary targets. It authorizes the use of nuclear weapons against the launch of ballistic missiles against Russia, as well as for those providing resources.

The US Department of Defense also changed its nuclear deterrence strategy as a consequence.

Middle East?

The major evolution is a ceasefire agreement (in principle at this moment) between Israel and Lebanon.

Meanwhile, the ICC issued an arrest warrant against Netanyahu that has no chance to be executed.

ECONOMY

The 30Y Treasury yield has surpassed the Fed Funds rate for the first time since Q4 2022, at a time when 30-year Treasury yield has risen ~60 basis points over the last 2 months, while the Fed started cutting since September …

Whenever the yield curve turned positive in past economic cycles, a recession in the US followed within months.

Similarly, the 10Y Treasury yield has exceeded the S&P 500's earnings yield for the first time in 22 years. This has suggested in the past that the market was overvalued.

Target retail chain shares sank last week as it cut forecast when posting its biggest earnings miss in two years, even after reducing prices on thousands of items.

This might be signaling recession as well.

MARKETS

Equity markets rebounded from the previous week weakness.

Gold prices rebounded last weekas well , even as treasury yields and the US Dollar hit multi-month highs (historically, they trade inversely).

Gold rebounded with inflation expectations, as well as concerns about US deficit spending flooding bond markets with supply driving bonds down and yields up.

In much welcome news for the Crypto sector, Trump is considering replacing SEC Chair Gary Gensler with pro-crypto lawyer Teresa Goody Guillen.

Bitcoin's market cap has now officially crossed above $1.8 trillion for the first time in history, and also surpassed the silver market cap for the first time.

Jim Cramer says "all I can tell you is to own #Bitcoin, that's a winner."

And guess what the price action was since he made that call …

Be careful out there !

See you next week, hopefully during the LIVE every Saturday morning when we get deeper into each topic !

Happy investing week.