Fool's games

GEOPOLITICS

Everyone is training for the war Olympics, WWIII

• US in the Baltic sea near Russia
• Russia in the pacific with a fleet of about 40 ships, boats and support vessels, about 20 aircraft and helicopters of naval aviation
• Russia again testing its new cruise missile submarine in White Sea. The multipurpose submarine able to carry the Tsirkon hypersonic cruise missiles will be based only about 60km from NATO country Norway.
• Chinese PLA near Taiwan, simulating the destruction of US Navy aircraft carrier with supersonic anti-ship missiles fired from missile bombers

Ukraine

• The Swiss “peace” conference were not peace negotations, as stated by the U.S. Ambassador to the UN, Linda Thomas-Greenfield, without Russia’s presence at the negotiating table. Russia was not invited

• 12 participating countries didn’t sign the final declaration, including Brazil, Iran, India, Indonesia, Saudi Arabia, UAE, Mexico, Thailand, the UN, and the Pope (!)

• Putin courts North Korean support in the Ukraine war with a rare trip. Russia and North Korea signed a treaty on comprehensive strategic partnership, providing mutual assistance in the event of aggression against one of the parties
• Russia may start supplying combat aircraft and long-range missiles to North Korea. This is seen as a response to the West's decisions to provide similar weapons to Ukraine
• As an immediate consequence, South Korea will reconsider sending military aid to Ukraine. Putin declared South Korea arming Ukraine is a big mistake
• Putin continued his Asian trip to Vietnam

The US managed to unite all its enemies, against the Brzezinski doctrine followed since the late 1990s.

Concern is now growing in the West about a developing close alliance between Russia, China, North Korea and to a lesser extent Iran.

The Russian Northern Fleet ships eventually left Havana, Cuba on 06/17. The US likely received the message that an extension of the conflict in Ukraine would not be limited to Europe.

Asia

• China is expanding its nuclear arsenal faster than any other country, and could have as many intercontinental ballistic missiles as the US or Russia by the end of the decade (Stockholm International Peace Research Institute annual report)
• The US and Russia respectively have 3,708 and 4,380 nuclear warheads, on a global total of over 12,000 weapons
• Malaysia to begin the necessary processes to join BRICS.

Europe

The self proclaimed paragon of democracy, the Europe Union started threatening populations that do not vote correctly. The EU warned France and six other EU nations, Italy, Belgium, Poland, Malta, Slovenia and Hungary, over excessive deficits and coming sanctions.

EU rules require member countries to maintain budgetary discipline or face hefty fines if debt climbs above 60% of gross domestic product or if budget deficits reach more than 3%. France is in debt to the tune of around €3 trillion, or more than 110% GDP, and a deficit of €154 billion, representing 5.5% of economic output.

The spread between French 10-year government and German bonds has widened about 0.28% to almost 0.80%. French CDS also jumped since the recent election.

ECONOMY

The US Dollar remains by far the world’s reserve currency despite remaining in a downtrend, with reserves falling to 58.4% in Q4 2023 from 59.2% in Q3 2023. The US Dollar accounted to 71% of reserves globally in 2000.

The Chinese Yuan's share in Q4 2024 was just 2.3% and the Euro's share is ~20%.

2024 US budget deficit estimate has been revised upward to $1.9 trillion from a February estimate of $1.5 trillion, and the forecast for the deficit to GDP ratio to 6.7% from 5.3%.

The revisions come after incorporating additions to government spending with:

•  student loan forgiveness plans, which added $145 billion in red ink
• aid to Ukraine, Israel and Taiwan, which helped to boost discretionary spending by an extra $60 billion
• a $70 billion reduction in the estimated amount the FDIC will recoup from payments made to cover bank failures in 2023 and 2024
• and an increase in estimated Medicaid spending.

Job growth touted by the Biden administration is a lie, as we’ve seen already with full time jobs destroyed and replaced with part time jobs.

Official statistics are manipulated with job growth overestimated by more than 770,000 last year. This is about one in every four jobs supposedly added last year that actually never existed.

The previous two quarterly reports from the Philadelphia Fed also pointed to overestimation of payroll growth.

Democracy is at risk when the MSM is parroting government lies.

Lots of remaining actual job growth comes from the public sector. The issue is that about three private sector jobs are needed to finance a single public sector job. Moreover, gov't employees' average cost of compensation is 40.0% higher than their private sector counterparts in Q1. The difference comes mainly from a whopping 79.5% larger benefits for gov't employees than their private sector counterparts.

The American Dream is dead, and the middle class is crushed, and has been for the last 50 years.

7 in 10 Americans feel their income isn't keeping up with the cost of living, with inflation-adjusted take-home pay dropping 9% since Biden took office. Over 60% of Americans live paycheck-to-paycheck with no emergency savings.

MARKETS

The recent market rally is breaking records: S&P500 this year is both exceeding the its average gain during a presidential election year, as non election years which is higher (~ +13% average).

Dedollarization doesn’t necessarily mean less dollars as not used reserves for international trade may be used to invest in US stocks markets and fuel the rally.

In this context, foreign holdings of US stocks has reached an all-time high allocation of ~60%, exceeding 2000 Dot-com bubble levels. Since 2009, foreign holdings of US equities has doubled.

Foreign investors are piling into US markets.

Only 30% of the S&P 500 stocks have outperformed the index year-to-date, slightly higher than the 29% that occurred in 2023. Last time a streak of 2 consecutive years with such a low percentage happened was during the 2000 Dot-com bubble, when the historic median is 49%.

A few stocks are driving the entire market, and the market cap of technology stocks as a percentage of the S&P 500 hit a record 44%, a level higher than the 2000 Dot-com bubble peak at 32%.

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Happy investing, and see you next week !