A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: bitcoin pulls back on higher bond yields, stocks waver, oil and copper stable. Frontier markets seeing pressure to improve standards of governance. 

“At the right price there should be plenty of appetite for any Egyptian IPO,” said Hasnain Malik, a strategist at Tellimer in Dubai. However, he said that, in general, foreign institutional investors are more likely to go for IPOs out of the private sector, whereas sovereign wealth funds will be more interested in government-related enterprises.

“This is because, for sovereign wealth, the concern over whether their interests as a minority investor are subordinated to those of the government is outweighed by their geopolitical interest in the overall country,” he said.

The benchmark EGX 30 Index has been on a bullish run, rising over 100% in local currency terms from its July low, and is the third-best performing benchmark globally this year. It jumped 3.9% on Thursday, extending gains to a fifth day, and closing at the highest since May 2018.

The Gulf War was a transformative event for India. When Iraq invaded Kuwait remittances abruptly stopped and the Indian government was presented with a dilemma. They chose economic reform and capitalism and the rest is history. The Nifty Index is up 3077% since 1991 for an annualised 9.53% gain. That is almost identical to the S&P500’s 9.99% 32-year annualised performance on a constant currency basis.  

Shell Plc, BP Plc and TotalEnergies SE have spent the last few years trying to convince investors about the merits of net-zero carbon and investment into renewables. But in 2022 they switched to showering them with tens of billions of dollars earned from pumping oil and gas, just like their US peers. 

The change of course was triggered by Russia’s invasion of Ukraine, which shifted governments’ focus back to energy security and created a huge gap in Europe’s oil and gas supplies that the majors are well placed to fill. 

“Oil production will be back above 2019 levels,” said BP Chief Executive Officer Bernard Looney, a change in tone from 2020 when he suggested that peak demand may already have been reached. “Demand for this product is strong.”

Shell has said it will pause the growth in spending at its renewables unit while expanding gas output. BP slowed the planned decline in its fossil fuel production and scaled back its target for emissions reductions. TotalEnergies is opening new liquefied natural gas import terminals in Europe so it can keep growing a business that expanded by 15% in 2022.

If the majors are slowing down investing in renewables, despite significant subsidies, that’s really not good news for the solar, wind and hydrogen sectors. Meanwhile, if the majors increase exploration and production budgets is should be very positive for drillers. 

DM: Mortgage originators have been decimated. They’re losing both purchase mortgages, down 30%, and they’ve lost 100% of refi [refinancing]. We’re going to see a consolidation in mortgage origination that will be pretty transformational. Within the single-family rental space, you’re going to see the smaller people fall by the wayside, because it’s so hard to access houses the way they’ve done, and the relatively low level of unemployment is going to put a lot of pressure on their ability to service the assets. I expect to see more consolidation in single-family rentals, with the big guys getting bigger over time. Title insurance companies are struggling right now. Other vendors to that space are struggling. I think you’re just going to see—across the whole homeowner­ship ecosystem—massive consolidation. 

Banks are firing mortgage personnel at an accelerating pace. That is a sure sign business has dried up and they are not willing to carry dead weight. The longer rates stay high for, the more likely a deep recession becomes. Lending standards did not ease very much ahead of the pandemic surge so there are fewer stressed owners but some softness can be expected. 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Japan inflation has not yet completed its base, China unwinding overbought, India steady, oil firm on backhanded support from President Biden, Turkey ETF as potential support, AI wobbles, gold still correcting. 

Brookfield Asset Management Ltd.’s earnings rose in the fourth quarter as it wrapped up a record year of fundraising that has given the firm more than $90 billion to invest. 

The Canadian alternative asset manager reported distributable earnings of $569 million, or 35 cents a share, up 6% from the prior year. It’s the first quarterly report for Brookfield Asset as a public company after it was spun out of parent Brookfield Corp. in December. 

The company raised a record $93 billion in capital last year. “Our fundraising outlook remains strong,” Chief Executive Officer Bruce Flatt and President Connor Teskey said in a letter to shareholders. “In 2023, we expect to have three flagship funds in the market, along with several complementary perpetual strategies and other long-term funds.”

Brookfield Corp. spun off a 25% stake in the division in an effort to gain a higher valuation by separating the money-management business from its own investment capital. Brookfield Asset managed $418 billion in fee-bearing capital at the end of December across asset classes including real estate, infrastructure, credit, private equity and renewable power.  

The Toronto-based company plans to more than double that to $1 trillion by 2027, driven by ambitious plans to grow in private credit and insurance. Some of the growth may come through acquisitions, Flatt suggested at a conference in December.  

$93 billion raised during a bear market for stocks and amid rising yields is an impressive feat. Blackstone is also chasing the moniker of the first alternative asset manager to reach $1 trillion under management. 

Borsa Istanbul has also canceled trades that were executed on the morning of Feb. 8 before transactions were suspended, citing low trading volumes. Before those cancellations, the benchmark Borsa Istanbul 100 Index had erased $35 billion in value and was headed for its worst weekly performance since the 2008 global financial crisis. 

Even with Wednesday’s trades being removed, the two days of selling following the deadly earthquakes in Turkey’s southern region wiped out $21 billion in value. Turkish stocks, which are this year’s worst performers globally, entered a technical bear market on Tuesday after falling more than 20% from their January high.

The earthquake in Turkey is a human disaster of epic proportions and will require significant investment in rebuilding. It is to be hoped building standards also improve to minimize the impact for inevitable future quakes. The big question in the short term is how much inflation will jump as the rebuilding process gets underway? 

The scrutiny comes as the battle to build the most accurate and effective search engine is escalating. On Monday, Google introduced Bard, whose underlying technology will eventually be built into Google.com. The next day, Microsoft Corp. said it was integrating a cousin of ChatGPT into Bing. On Wednesday, Google hosted a news conference in Paris where it shared more details about the company’s progress integrating artificial intelligence into search.

“The general sentiment is that ChatGPT and the Microsoft Bing announcement have created a narrative that Google’s search business model is under threat,” said Mark Riedl, a professor at the Georgia Institute of Technology.

The market reaction to Bard’s inadequacies was both swift and severe. The downward dynamic experienced by Google shares demonstrates how fickle the mob can be during a momentum move driven by hope rather than earnings. 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: correlation between bond yields and growth stocks cannot last indefinitely. AI stocks extend rebound, bond yields rise, oil firms, oil drillers breaking out. 

Powell says the labor market report from Friday “underscores the message” he sent last week, that there’s a significant road ahead to get inflation down. There’s an expectation that inflation can come down painlessly, but “that’s not the base case.”

The primary conclusion investors have taken from Jerome Powell’s interview today is pain might be coming but rates will quickly adjust when it does. The volatility on the Nasdaq-100 showed the development of this conclusion with a 1% advance, drop back to flat and recovery to finish up 1%. 

The European Union’s import ban on Russia crude has led to much longer voyages for shipments, with journeys now taking an average of 31 days from Baltic ports to India, compared with just seven days from the same terminals to Rotterdam and about half that to Poland. That’s putting more pressure on the dwindling fleet of ships whose owners are willing to haul Russian cargoes. A similar pattern is expected to emerge in Russia’s refined products trade.

The country is increasingly reliant on its own tankers and a so-called “ shadow fleet” of usually older ships owned by small, often unknown companies that have sprung up in recent months. European-owned vessels can still carry Russian crude, as long as it is sold at a price below a $60-a-barrel cap, introduced at the same time as the import ban. The level of that cap is due to be reviewed in March. 

There has also been a resurgence in ship-to-ship transfers of cargoes in the Mediterranean, with loads either being combined onto larger vessels or shifted from ice-class tankers to others in order to free up those ships needed for operations in the Baltic in the winter months.

Tankers hauling Russian crude are becoming more cagey about their final destinations. Vessels carrying more than 41 million barrels of Russian crude, the equivalent of 1.45 million barrels a day of exports, left port showing no clear final destination in the four weeks to Feb. 3.

The prospect of buying oil at a discount will ensure there is ample demand for Russian exports of crude. The rewards are more than ample to compensate for the risks. Transfers between ships off the Malaysian coast have been ongoing for more than a year and that is unlikely to change while there is such a wide arbitrage. 

Lula tried to walk back prior comments on Monday, saying his criticism was not about whether or not the central bank was independent, but rather over the fact that the institution continues to keep borrowing costs high. 

In Brazil, “the problem is that there is a culture of living with high interest rates and that doesn’t mix well with necessities and investment.” Lula said.

The president had publicly questioned the central bank in both January and earlier this month. Current Selic levels make it “impossible” to boost growth, Lula said previously, adding that he considered the bank’s autonomy law to be “nonsense” and suggesting a higher, 4.5% inflation goal. 

Lula’s default mode is to spend. His first tenure as President of Brazil afforded him the luxury of spending during an historic commodity boom. This time around he has inflation to contend with and a central bank that appears ready to push back against profligate spending plans. The challenge is clear. If spending goes ahead without inflation coming down, the central bank will raise rates to levels that clearly depress economic activity. 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: geopolitical tensions weigh on stocks and further support inflationary pressures with bond yields popping on the upside. Dollar strong, gold eases, oil finds support at lower side of short-term range. 

Yamana’s outgoing executive chair Peter Marrone told The Financial Post last month that he expects a wave of gold mergers as executives and investors seek to maintain margins amid higher production costs and declining grades of the metal.

Resource industries are on the front lines of the climate challenge, whether it be coping directly with extreme weather, or indirectly through rising costs associated with adjustment and policies such as carbon taxes. Gold miners face an additional layer of difficultly because their deposits are yielding less ore that’s dense with gold. Lower grade mines can still be profitable, but only if extraction costs are lowered.

Aside from the sale of Yamana, which has properties and mines in Canada, Brazil, Chile and Argentina, there have been at least eight notable combinations since 2018, when Barrick Gold Corp. and Randgold Resources Ltd. announced an $18-billion, zero-premium, all-share merger.

Finding new large-scale mining projects is a fraught with difficulty. That leaves little option for major miners than to pay up for competitors. Newcrest has tried to focus on tier-one assets, led by the Cadia mine in New South Wales. The low cost of production at that mine has funded international expansion. No doubt, Newmont views the security of production as a sound investment. 

AI Should Increase Knowledge Worker Productivity Dramatically
According to ARK’s research, AI should increase the productivity of knowledge workers more than 4-fold by 2030. At 100% adoption, AI spend of $41 trillion could increase labor productivity by -$200 trillion, dwarfing the $32 trillion in knowledge worker salaries and rivaling current projections for global GDP in 2030. If vendors were to capture 10% of value by their products, AI software could generate up to $14 trillion in revenue and $90 trillion in enterprise value in 2030. 

ARK is big on big on ideas. They don’t typically pay too much attention on where the money is going to come from to fund all that growth. The investment in the computing power necessary to achieve the heady goals of artificial intelligence and all it promises does not happen on its own. It requires sustained access to capital and cashflows to make it worth the cost of foregoing other potential opportunities. Microsoft is attempting to fill that void with its investment in OpenAI.

Leaders go to war because they believe they can win, as did Putin in Ukraine. It is entirely feasible to reinforce both Taiwanese and US capabilities in the region, to a point at which Beijing must doubt its ability to prevail in the necessary amphibious assault, a perilous and difficult undertaking.

The Ukraine experience has rewritten in lights a towering lesson of history: To deter aggression, there is no substitute for credible armed forces. We in the UK and the rest of the West are supremely fortunate that America still possesses these, despite the caveats about the Navy’s vulnerabilities in the Pacific.

Yet more important even than weapons is will. Many people, sometimes including myself, have doubted and continue to doubt whether, if China does invade Taiwan, the US and its allies will undertake military action in response. This is a reprise of the 1950 Korean uncertainty, with one important difference: 73 years ago, there was nothing in South Korea of material value to the West; its armies fought instead to defend a principle. In modern Taiwan, by contrast, advanced semiconductors represent an industry of towering importance both to China and ourselves.

The USA downed a Chinese balloon over the weekend after allowing it to traverse the entire continent. That speaks to a great deal of indecision about the right way to deal with an airspace incursion and not least because it is so unexpected. 

A link to this week's Big Picture Long-Term video is posted in the Subscriber's Area. 

Shell Plc isn’t planning to use its growing cash pile to pursue big acquisitions, aiming instead to deliver greater value for shareholders. 

That was the message delivered by new Chief Executive Officer Wael Sawan and Chief Financial Officer Sinead Gorman at a meeting with analysts on Friday morning, following their announcement the day before of record profits of nearly $40 billion in 2022 and the lowest level of indebtedness since 2015.

The company’s management is trying to boost Shell’s value, which has lagged American peers that stuck more closely to their fossil-fuel core instead of diversifying into cleaner energy.

Shell’s shrinking debt could give investors “some nervousness around the potential for large-scale M&A,” Biraj Borkhataria, an analyst at RBC Capital Markets, wrote in a note on Friday about the meeting earlier in the day. “Wael clearly stated this was not on the agenda, with focus more on performance of the asset base and driving higher returns.”

Shell said at the meeting that big acquisitions of around $10 billion are unlikely in low-carbon energy because there aren’t good opportunities, according to analysts at Barclays Plc led by Lydia Rainforth. 

There could be smaller-scale investments in that area, particularly in hydrogen. Last year Shell spent $2 billion to buy Danish company Nature Energy Biogas A/S and reached final investment decision on Europe’s largest green hydrogen production site.

Berkshire purchased a chunk of Occidental Petroleum in December 2022 for $10 billion. That reflected a conscious decision to boost exposure to the conventional energy sector. Meanwhile, energy majors have been shy about increasing exposure and have instead become much more conservative. The majority of their spending has been either been in onshore domestic US production. They have also been open to high probability overseas exposure with close access to major markets like Exxon’s Brunei/Malaysia production. 

I hope you are well, and not too cold. In London.

I am interested to invest in some US FUNDS. Is there any way of assessing/culling the Funds by 1 year, 5 year Performance. As you know you have large list.

Thank you for this topical question. The wonders of the online market means neither Sarah or I still live in London. She is in the environs of Manchester and I live in Dallas Texas which has been covered in ice for the last three days. My daughters have had a great time enjoying their snow days but went back to school today.

The easiest way to slim down the list would be to create a section in your Favourites. Then you can use the Performance Filter to rank them by performance intervals. Here is a video detailing how to do that. 

Revenue fell 5.5% to $117.2 billion in the December quarter, Apple’s biggest sales period of the year, coming in well short of the average Wall Street estimate of $121.1 billion. It was Apple’s first quarterly decline since 2019 and the first time the company has missed analysts’ holiday sales projections since 2015. 

The iPhone and Mac were particular weak spots for Apple last quarter, dragged down by a broader slump afflicting mobile devices and computers. The Covid restrictions in China added to Apple’s woes, making it harder to ship enough of the most popular versions of the iPhone. Timing was another issue: The company didn’t launch new Macs and HomePods until recent weeks, missing the end of the holiday quarter.

Apple predictably reported lower sales for the fourth quarter. It is a highly cyclical business because most people only buy new phones every few years. The 1000 charge cycling of lithium-ion batteries translates into a 3-year sales cycle for phones. 

The surge of cash donated to consumers during the pandemic boosted initial iPhone purchases and coincided with the peak of the existing renewal cycle in 2021. That carried over into sales in 2022 but that momentum will be more difficult to sustain in coming quarters as monetary conditions tighten around the world.

That negative outlook was priced in over the last four months as Apple declined back to test the region of the 1000-dat MA. Investors are now pricing in the potential that future sales will return to the outsized growth. I remain sceptical that will be the case but a clear downward dynamic will be required to check momentum beyond a pause to unwind the short-term overbought condition.

A broad gauge of dollar strength jumped after the jobless rate in the US hit a 53-year low as traders amped up bets on a higher policy rate.

The Bloomberg Dollar Spot Index extended gains for its biggest two-day climb in four months after data highlighted the resilience of the labor market and another report showed resurgence in consumer demand, suggesting even more tightening may be in store from the Federal Reserve. 

The greenback gained as much as 1.2%, climbing against all of its peers in the Group of 10, with the Japanese yen, the Australian dollar and New Zealand dollar falling the most. 

“The headline number for nonfarms was shocking, and the US dollar is clearly reacting to that,” said Bipan Rai, a currency strategist at Canadian Imperial Bank of Commerce. “We still have plenty of data to comb through before the picture is complete.”

The simple logic is you cannot have a recession without unemployment rising. That suggests the Federal Reserve is under no pressure to cut rates and may even continue to raise them. That lent considerable support to the Dollar Index and it is working on a large upside weekly key reversal which marks a lot of at least near-term significance. 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: tech stocks surge following Meta earnings but Amazon and Alphabet disappoint in after hours, dollar strengthens on ECB and BoE close to rate peaks, gold downside key reversal, oil eases, Australia's ASX overbought as it tests its peak.

The inflation that we originally got was very much a collision between very strong demand and hard supply constraints, not something that you really have seen in prior, you know, in business cycles.

And

I think it's -- because this is not like the other business cycles in so many ways. It may well be that as -- that it will take more slowing than we expect, than I expect to get inflation down to 2 percent.

And

this is not a standard business cycle where you can look at the last 10 times there was a global pandemic and we shut the economy down, and Congress did what it did and we did what we did.

There is some logic to that statement. We have never shut down the entire global economy or printed so much money in such a short period of time. The clear conclusion Powell is taking in predicting a soft landing is that inflation really is transitory. 

The European Central Bank lifted interest rates by a half-point, with President Christine Lagarde saying another such move is almost certain next month, despite conceding that the inflation outlook is improving.

Policymakers, as expected, raised the deposit rate to 2.5%, the highest since 2008. Lagarde warned that the most aggressive bout of monetary tightening in ECB history isn’t done — even as energy prices plunge and the Federal Reserve moderates the pace of its own hikes.

In a statement, the Governing Council said it “intends” to raise rates by another 50 basis points at its March meeting, then “evaluate the subsequent path of its monetary policy.”

The ECB may hike again at the next meeting but clear implication is the peak of the hiking cycle will be lower than the USA’s. The same is true for the Bank of England. The vast sums spent to avoid an energy crisis mean governments will be under pressure to contain costs in future. That will siphon money from speculative activities and help to contain demand driven inflationary pressures. 

For years, energy experts modeling the impact of 2050 net zero targets on oil demand had the advantage that the deadline, and the incremental steps to getting there, were a long way off. If time proved their scenarios wrong, they’d be long forgotten anyway. 

But now, those first intermediate waymarks are around the corner, and they look increasingly farfetched.

Earlier this week, BP Plc published its annual Energy Outlook, presenting three scenarios — not forecasts — for how oil demand may evolve. The Net Zero path, broadly in line with the goals of the Paris Agreement, is difficult to reconcile with current trends.

In such a narrative, BP’s model shows global oil consumption collapsing to 21 million barrels a day by midcentury, down from about 98 million today.

Ignore 2050 and focus instead on the intervening milestones, starting with 2025. In just two years’ time, BP’s Net Zero scenario sees oil demand 4 million barrels a day lower than it is now. That would mean removing the equivalent of Germany’s entire consumption in 2024 and repeating that feat again the following year. 

Every oil forecast I’ve seen shows demand rising in 2023, and the few 2024 projections already published — including one from the US government — see growth continuing.

Looking further ahead, BP’s Net Zero readout suggests demand would need to plunge a further 9 million barrels a day from 2026 to 2030, falling to 85 million a day by the end of the decade. That equates to eliminating the consumption of France each year and, on the final year, striking out Italy as well.

Then the really difficult period starts. The scenario sees the world using just 70 million barrels a day in 2035, requiring the annual removal of 3 million a day. That equals the demand of Japan, currently the world’s fourth-largest consumer.

Net zero models look increasingly at odds with short-term trends. It’s possible oil demand can sink by 2050, but is it going to plummet in a matter of months and keep falling precipitously every year for the next decade? No.

Politicians talk a good game on containing carbon emissions, but have no real solution for how to avoid massive cuts to living standards in achieving them. Environmentalists have been inveighing against the evils of coal for decades but global consumption continues to hit new highs. Is there any reason to expect oil to be any different? That suggests demand will migrate to less well off countries where the reality of survival trumps environmental concerns.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Fed raises rates and calls peak inflation, stocks and bonds rebound, dollar down, gold jumps, bitcoin firm, growth outperforms value. Adani Enterprises crashing. China continues to rebound.  

Table 1 contains historical return data for the S&P 500 in the first five days of January as well as annual returns. This is the “Early Warning System.” The last 46 times that the first five days had positive returns, the full-year return was positive 38 times, for an 82.6% accuracy ratio. The average S&P 500 gain was 14.3% in those years.

The second part is the S&P 500 return in January and the accuracy in forecasting the return for the year. In years when the S&P 500 had positive returns in the month of January, the average return for the year was 17.6%. The indicator has registered 10 major errors since 1950, for an 85.7% accuracy ratio.

74% of time, the stock market finishes up on the year in nominal terms. The big question for investors is whether the strong positive return for just about every asset in January will improve those odds. At least the market is starting from a lower level so the odds of achieving that goal has been improved. 

CATL accounts for the largest share of the global electric-vehicle battery market, according to data from Seoul-based SNE Research. It sold a total of 165.7 gigawatt-hours of batteries in the January-November 2022 period, almost three times as much as second-placed BYD Co., a Chinese automaker that also manufactures batteries.

CATL’s market share was about 35% in the first 10 months of last year. The Fujian-based company supplies carmakers including Volkswagen AG, Geely Automobile Holdings Ltd., Nissan Motor Co. and Tesla Inc., which delivered fewer EVs than expected last quarter, despite offering some price cuts. 

In 2017, CATL raised about $822 million in an initial public offering in Shenzhen. The company raised another 45 billion yuan ($6.7 billion) in a private share placement last year. China Securities was the lead sponsor, while CICC, Goldman Sachs and UBS were among the co-lead underwriters.

Shares of CATL have fallen about 18% in the past year, valuing the company at about $172 billion.

The opportunity to buy CATL shares will be welcomed by the global investment community since not everyone has the opportunity to trade in domestic Chinese stocks. The challenge is CATL has appreciated significantly since its IPO so in buying today one is betting both the company retains its dominance as a battery manufacturer and market growth approaches optimistic forecasts. 

The crisis of confidence plaguing Gautam Adani has taken a sudden turn for the worse, with a record 28% plunge in his flagship company’s stock raising questions over the extra collateral he needs to cover loans.

Adani Enterprises Ltd. plummeted in afternoon trading in Mumbai after Bloomberg reported Credit Suisse Group AG has stopped accepting bonds of Adani Group’s firms as collateral for margin loans to its private banking clients. Banks including Barclays Plc had earlier asked for more shares to cover a $1 billion loan.

With the rout in the group’s stocks triggered by short seller Hindenburg Research’s fraud allegations reaching $92 billion on Wednesday, the risk is that more financial institutions start to scrutinize their exposure to the indebted conglomerate. Without a dramatic upturn, investors who bought into a recently completed $2.5 billion stock sale by Adani Enterprises may be staring at deep losses.

“The problem now is that the dynamics are becoming a self-reinforcing negative feedback loop and investors are now just dumping the shares and asking questions later,” said Peter Garnry, head of equity strategy at Saxo Bank A/S.

Adani Enterprises is a trading house with interests in coal, shipping and ports. The size of leveraged positions is a product of risk appetite and the willingness of credit providers to provide margin trading. When margin calls come in, positions have to be reduced or the trader must successfully scramble for fresh funds. Adani Enterprises is currently receiving margin calls faster than it can source new funds. That is contributing to volatility. 

One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.

A link to today's video commentary is posted in the Subcsriber's Area. 

Some of the topics discussed include: Wall Street firms, China weak, bonds yields stable but volatiltiy falling, dow/gold and dow/oil comparisons. Insurance stocks at new highs outlook is for a deflation shock.  

Hello Eoin, In today's Financial Times it is stated that the IMF is concerned about the risks of debt defaults by emerging market companies and states. How does this bring into question the flow of stock market investments in these countries in recent months?

Thank you for this question which is certainly topical. Countries like Ghana, Egypt, Pakistan, Lebanon, and Turkey experienced significant stress in their respective debt markets over the last 12 months. The unfolding drama with Adani group in India is an additional sign that global liquidity conditions are tightening. I think it reasonable to assume the flow of money into “emerging markets” is either bargain hunting or avoiding some of these destinations. 

There’s a stampede in the European bond market to buy high-quality notes paying hefty yields.

Investors have bid a total of €1 trillion ($1.08 trillion) on corporate and sovereign debt this month, fueling a ferocious comeback in markets battered by last year’s selloff. The intensity of demand is so high that the average order book is more than three times the size of what’s available to buy.

That’s the second-highest ratio for any January of the past five years, according to data compiled by Bloomberg, and shows that investors are acting fast and early to fill their portfolios, especially with investment-grade debt. 

“Investors are taking on risk and there is good appetite,” said Stephanie Besse, global head of debt capital markets for corporates at Natixis CIB. “We have seen strong demand at the long end of the curve, which is a sign of trust in credit markets.”

Investors neglected investing in Europe because of the assumption the region would experience a deep winter of discontent because of the impending energy crisis. Regional governments instead spent whatever was necessary to ensure that did not happen. That resulted in natural gas prices spiking during the summer. The price predictably collapsed when the price-insensitive inventory-build abated. 

As always thanks for your excellent service. I appreciate your comments on Volkswagon today, and am considering buying some, as I don't see how the German government would let VW go under. Can you also please comment on Credit Suisse. Do you think there is a serious risk that Credit Suisse will not survive. Thanks in advance. 

Thank you for this question which may be of interest to the Collective. Credit Suisse employs over 50,000 people so I imagine the Swiss government has an interest in ensuring it remains a going concern.

The biggest challenge for all Swiss banks is they lost all their US clients when they were forced to share account details in 2012. That sharing was greatly expanded in 2017 and today Switzerland shares details with almost 100 countries. Swiss banks have struggled to tap into new markets like China and India. 

GM would supplant China's Ganfeng Lithium(002460.SZ) to become Lithium Americas' largest shareholder. GM has also agreed to buy all the lithium from Thacker Pass when it opens in 2026 - roughly 40,000 tonnes per year.

Under the agreement, GM will buy $650 million of shares in Lithium Americas in two equal parts, with the first tranche coming only if Lithium Americas prevails in an ongoing court case. A U.S. judge earlier this month said she would rule "in the next couple of months" in the case, which centers on whether former U.S. President Donald Trump erred when he approved the mine just before leaving office in 2021.

The automotive industry appears to be getting back to its roots. Fifty years ago it was common for bid industrials to control mines, processing, fabrication and manufacturing in a vertically integrated business model. The 1970s ushered in offshoring and just in time manufacturing and inventory was suddenly considering a balance sheet liability. In the aftermath of the pandemic and now war in Ukraine, the merits of controlling the supply chain are being viewed with fresh perspective. 

A link to today's video commentary is posted in the Subcsriber's Area.

Some of the topics discussed include: China consumption disappoints, Wall Street pauses ahead of Fed, energy weak, gold pauses.

There has been no suggestion that the Adani entities would struggle to make these payments, and Adani has flagged interest coverage ratios that show it has the wherewithal to meet such obligations.

But Hindenburg’s report last week alleging “accounting fraud” along with its short position in Adani’s US-traded bonds and non-Indian-traded derivatives has put the debt in the spotlight. Some of the notes have fallen to distressed levels below 70 cents on the dollar that generally show mounting concern about creditworthiness. The securities extended declines Monday after a rebuttal by the Indian conglomerate and as Hindenburg followed with its own response.

Tightening global liquidity causes liquidity issues. We’ve seen several examples of that in the last 12 months. The UK pension crisis, South Korean perpetuals, frontier country sovereign defaults, REIT withdrawal issues are all symptoms of that theme. The issues currently being explored with Adani are part of the same trend. The longer rates stay high and as liquidity tightens the more these issues will appear. Eventually we will see solvency issues arise.

In a recent article, Joseph Stiglitz argues that the current inflation is primarily due to the supply-side shock of the Covid crisis and to shifts in the demand patterns. His view is that the rate of inflation has already peaked - it is 1% higher now than in June 2022. He claims that the rise in interest rates has been largely passed on to consumers via higher prices and that any future interest rate rises would be inflationary.

Thank you for this email which may be of interest. I believe the article you referring to is Stiglitz’s one in Project Syndicate. Here is a section:

Worse, it is not even clear that there is any upside to this approach. In fact, raising interest rates could do more harm than good, by making it more expensive for firms to invest in solutions to the current supply constraints. The US Federal Reserve’s monetary-policy tightening has already curtailed housing construction, even though more supply is precisely what is needed to bring down one of the biggest sources of inflation: housing costs.

Moreover, many price-setters in the housing market may now pass the higher costs of doing business on to renters. And in retail and other markets more broadly, higher interest rates can actually induce price increases as the higher interest rates induce businesses to write down the future value of lost customers relative to the benefits today of higher prices.

To be sure, a deep recession would tame inflation. But why would we invite that? Fed Chair Jerome Powell and his colleagues seem to relish cheering against the economy. Meanwhile, their friends in commercial banking are making out like bandits now that the Fed is paying 4.4% interest on more than $3 trillion of bank reserve balances – yielding a tidy return of more than $130 billion per year.

The assumption the passthrough mechanism from costs to rents is seamless is a big leap. Without a healthy economy that delivers wage growth, rental yields increase through lower purchase prices. This article describing how robo-purchases by institutional investors in property have gone wrong, particularly Opendoor, may also be of interest. 

The steel industry is working on solutions. According to the Leadership Group for Industry Transition, at least 73 green steel projects are in progress. But the researchers say the technology just isn't there yet.

"These technologies still face serious technical, economic, and social challenges, and have yet to be implemented at scale," said Takuma Watari, a researcher at the National Institute for Environmental Studies in Japan and the paper's first author, in a news release. It's still unclear whether enough electricity will be available in the future to power these innovations, he said.

Better processes for recycling steel scraps into high-quality materials are needed, the researchers write. They call for partnerships between the steel industry and users in a variety of sectors. But the current system "is incompatible with a zero-emission future," they write.

Electric arc furnaces rely on scrap steel and the major steel producers in developed countries have been busy securing scrap supplies over the last decade. If global steel production is to grow, then relying on scrap to provide carbon content is not going to be sufficient. That means either production new steel is going to have to become much more carbon efficient or the global sector will need to contract significantly to meet carbon emissions targets.

A link to this weekend's Big Picture Long-Term video is posted in the Subscriber's Area. 

Unlike OpenAI and other startups such as Stability AI, Google has released its most powerful image- and text-generation models only to a limited group of testers. Google executives in recent years have stressed the need to test new artificial-intelligence tools for signs of bias while guarding against potential misuse, concerns shared by many academics.

Such caution has at times frustrated researchers at groups such as the artificial-intelligence unit Google Brain, some of whom have left to raise money for their own startups where they can more easily release new products, said people familiar with the matter.

Last week, the head of Google's research division, Jeff Dean, published a more-than-7,000-word blog post summarizing the company's recent work in artificial intelligence, writing that the developments are "making their way into real user experiences that will dramatically change how we interact with computers."

The pressures add to a difficult business environment for Google, whose search and ad-tech operations have both been targeted by Justice Department lawsuits. Google also announced the largest layoffs in company history last week, cutting about 12,000 employees.

"We have long been focused on developing and deploying AI to improve people's lives," a Google spokeswoman said. "We believe that AI is foundational and transformative technology that is incredibly useful for individuals, businesses and communities, and as our AI Principles outline, we need to consider the broader societal impacts these innovations can have."

Google had a reservation robot system running in 2018. It automatically made calls to the restaurant when an online booking system was not available. They got so much backlash against robots taking jobs that it essentially canned the program. Today apps like Opentable or Fork have grown to capture more of the booking market but that does not negate the fact robo caller tech is at least five years old. 

But in a Nov. 30 speech at the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, Powell said he was watching something even more specific -- not core PCE, but core services PCE less housing. "[This] may be the most important category for understanding the future evolution of core inflation," Powell said at the time.

That isn't just specific, it is super specific. Core PCE already strips out food and energy. Core services PCE strips out food, energy, and the cost of physical goods. Powell wants to remove housing as well because "as long as new lease inflation keeps falling, we would expect housing services inflation to begin falling sometime next year," he explained.

When Powell refers to core services PCE less housing, he is really talking about the job market. "Because wages make up the largest cost in delivering these services, the labor market holds the key to understanding inflation in this category," he said. "Thus, another condition we are looking for is the restoration of balance between supply and demand in the labor market."

The Core services ex-housing PCE inflation measure continues to hold above 4% which is higher than at any time since 1992. It does look like it has peaked so the question is how quickly it will contract. The hopes for a soft landing reside in this measure falling back to below 3% and staying there without an uptick in unemployment.  

Putin’s confidence in his military’s ability to grind out a triumph - even at a cost of vast casualties and destruction - reflects a misreading of the West’s commitment to turn back his aggression, some insiders concede. The US and its allies have steadily stepped up weapons supplies to categories once considered off-limits.

Still, US and European military officials fear the conflict could soon settle into a World War I-style artillery fight with largely stagnant front lines, a scenario that could come to favor Russia, with its larger population and military industry.

Diplomatically, Russia has sought to win supporters among non-western countries with appeals for talks on a cease-fire. Even people close to the Kremlin admit those are hopeless at present, given Ukraine’s demand that Russia pull out its troops as a condition for any deal.

The minimum the Kremlin would accept would be a temporary truce that left Russia in control of the territory its forces currently hold in order to win time to rebuild its forces, the people said. Though short of the boundaries of the regions that Putin illegally annexed in September, that would still leave Russia with a large swath of land, linking the areas it occupied before the war. As a result, the idea is a nonstarter with Kyiv and its allies.

“Unless something changes, we’re looking at a war of attrition like World War I, which could go for a long time because both sides believe time is on their side,” said Andrey Kortunov, head of the Kremlin-founded Russia International Affairs Council. “Putin is sure either the West or Ukraine will grow tired.”

The route to a Russian victory lies in a war of attrition. They have more artillery, shells and tanks than NATO so they estimate a long drawn out conflict will eventually favour larger numbers. Absorbing high casualties is part of that strategy. It worked for Iran against Iraq in the 1980s and Russia appears to be following a similar strategy. 

A link to today';s video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Intel disappoints, Tesla discounting temporarily boosts demand, carbon credits and oil firm, European banks break higher, Hong Kong resumes trading with further gains, bonds yields steady, Australian dollar firm

“To fight the Chinese, we will have to have comparable cost structures,” Stellantis NV CEO Carlos Tavares said on Dec. 19, speaking to reporters at a powertrain plant in Tremery in northern France. “Alternatively, Europe will have to decide to close its borders at least partially to Chinese rivals. If Europe doesn’t want to put itself in this position, we need to work harder on the competitiveness of what we do.”

And

The growth in the supply chain in China has also kept pace with car manufacturing. Domestic companies now make almost all parts, including those they used to import until about a decade ago, such as high-strength steel and reinforced fiberglass. As a result, China ran a trade surplus in vehicles and vehicle parts for the first time in 2021. The assembly lines still depend on advanced machines from Japan and Germany, though.

“There seems to have been a step change,” Dyer says. “The long-term trend is for increasing sales of Chinese brands around the world.”

A decade ago it was obvious China was moving up the value chain in manufacturing. It might have not have reached heights of 3nm chip production but planes and automobile parity is now a reality. That’s as much of challenge for Airbus and Boeing as it is for Toyota, Hyundai, Volkswagen and GM. 

Australia's surprisingly strong 4Q inflation isn't likely to phase the Reserve Bank of Australia. The headline outcome exceeded consensus estimates, but undershot the central bank's forecasts - and isn't a threat to our view that a February rate hike is likely to be the last of this cycle.

The economy’s inflationary pulse largely reflects temporary shocks, centered on utilities and airfares in 4Q. A number of other categories showed continued signs that pressures are set to subside in 2023. The central bank’s expectation for a lift in wage growth - necessary for inflation to be sustained in the target band - looks increasingly vulnerable given emerging signs of a softening labor market. Click on the Text tab for the full report.

The Australian Dollar has broken the two-year sequence of lower rally highs against the US Dollar. This is the 7th time since 1985 that the Australian Dollar has rebounded from the $0.60 area. The only time it has sustained move below that level was a brief period between 2001 and 2002. I’ll never forget that time because I felt well off from my success in door to door selling in Melbourne and only got £1 for every A$2.60 when I got to London in the spring of 2000. 

Intel Corp. slid in late trading after giving a dire forecast for the current period, hurt by sinking demand from PC customers and tough competition in the lucrative market for server hardware. 

First-quarter sales will be $10.5 billion to $11.5 billion, the chipmaker said in a statement Thursday. That compares with an average analyst estimate of $14 billion. Intel expects to lose 15 cents in the quarter, excluding some items. Analysts had projected a profit of 25 cents.

The outlook reflects the myriad challenges facing Intel, which was attempting to stage a comeback even before the market for personal-computer chips — its main source of revenue — fell into a slump. To get back on track, the company needs computer makers to quickly work through inventory stockpiles and return to ordering components. That would provide Intel with a revenue boost needed to help shore up its finances, which were already stretched by ambitious plans to regain technological leadership within the chip industry. 

The road to global competitive leadership is long and filled with obstacles. Above all catching up with Taiwan Semiconductor will be expensive and, even then, may not be possible. Both Intel and IBM failed to satisfy expectations for future earnings this week. 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: near-term scope for rebound versus medium-term challenges, meanwhile emerging markets,gold and miners remain firm. 

“In terms of just the macro and company performance, I think it will be much more muted as people capture the inflationary pressures,” he said. “Private equity M&A activity I think will be dampened.”

Concerns around portfolio company performance were not the only challenges up for discussion in the south of France, with private equity firms struggling to secure the debt financing they need to do big deals and juice returns and facing more competition when raising funds. 

The chief economist at German insurer Allianz SE, Ludovic Subran, said the industry had “nowhere to hide” when markets turned last year. “The private equity world has not been immune or has not defied gravity,” he said.

Banks pulling back from lending on buyouts was described as a “new reality” by Francois Jerphagnon, head of Ardian Expansion, in an interview with Bloomberg TV. This will open up an opportunity for private credit funds to step in, others said.

“There is much more interest in private credit and infrastructure where you do have that hedge against inflation and that hedge against rising rates,” said Richards at Pantheon.

Blackstone’s Eapen said private credit providers are in “the middle of a golden age” and that last year had been one of his business’s biggest ever for deploying capital. 

After the credit crisis, the vindictive wish of anyone who lost money in the crash was for banks to go broke. At the very least everyone concluded they needed to be heavily regulated. Today the burden of regulation is heavy within the banking sector and we are in our 15th year since the crash. 

“Every decade, there is a new leader in the market. In the 2010s, it was US stocks and mega-cap tech,” Kandhari said in a phone interview. “Leaders of this decade can clearly be emerging-market and international stocks.” Morgan Stanley IM has $1.3 trillion in assets under management.

The asset class has had a strong start to the year, with the MSCI emerging-markets index soaring 8.6% compared with a 4.7% advance for the US benchmark. The gains come as China’s pullback from its strict Covid Zero policy brightens the economic outlook, while investors position for the end of aggressive central bank interest-rate hikes. Many also still see US stocks as expensive, with those in emerging-markets trading at a nearly 30% discount.

There’s a growing disconnect between US’s shrinking share of the global economy and the size of its stock market capitalization, Kandhari said. Along with fund allocations to emerging-markets that are well below historical averages and inexpensive currencies, that gives them a lot of room to outperform, she said.

“What really drives this asset class is the growth differential, and that growth differential of the EM is improving relative to the US,” she said.

The risk of a US recession is increasingly being priced into equity markets. At the same time, China has just exited its three-year quarantine. US money supply is now negative on a year over year basis for the time. China is boosting monetary and fiscal support for its markets. Even with arguments about trade wars and competing systems, it will still be easier to make money in China this year. 

Grantham views the process of further stock market pain playing out now as similar to the popping of bubbles following other rare “explosions of investor confidence” such as in 1929, 1972 and 2000. While many are attributing last year’s slide in stocks to the war in Ukraine and the surge in inflation, or reduced growth from Covid-19 and ensuing supply chain problems, Grantham believes the market was due for a comeuppance regardless.

While the first and “easiest” leg of the bubble’s bursting is over, Grantham says that the next phase will be more complicated. Seasonal strength in the market in January and during the current period of the presidential cycle could keep the market buoyant in the early part of the year. “Almost any pin can prick such supreme confidence and cause the first quick and severe decline,” he wrote. “They are just accidents waiting to happen, the very opposite of unexpected. But after a few spectacular bear-market rallies we are now approaching the far less reliable and more complicated final phase.”
 

I was at dinner last night with some very successful elderly investors who chastised me for being too bearish. Their contention was that the lows were posted in October and the market always bottoms ahead of earnings. So let’s consider the argument that the October nadir is unlikely to be exceeded. 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Australia extends rebound aided by the US Dollar's decline, Japan and Hong Kong also firm, India steady, Defense companies firm, significant single stock volatiltiy on the back of earnings, gold continues to firm. 

First, no country can avoid engaging with both the US and China. Dealing with both simultaneously is a necessary condition for dealing effectively with either. Without the US there can be no balance to China anywhere; without engagement with China, the US may well take us for granted. The latter possibility may be less in the case of a big country like India, but it is not non-existent.

Second, I know of no country that is without concerns about some aspect or another of both American and Chinese behaviour. The concerns are not the same, nor are they held with equal intensity, and they are not always articulated – indeed, they are often publicly denied -- but they exist even in the closest of American allies and in states deeply dependent on China.

This perspective gels very well with the reality on the ground I observed in Saudi Arabia on my last two visits. The simple reality is China is the country’s biggest customer and the USA the country’s greatest geopolitical ally. There is no way to play favourites the greatest risk for any country is to be taken for granted because that greatly enhances the scope for one’s interests to be trampled. 

As Ukraine and its allies prepare for a potential escalation in fighting in the spring, the debate over sending battle tanks to back Kyiv’s military and potentially retake territory has become a flashpoint among NATO allies. US and European officials have bridled at Scholz’s slow decision-making, saying the German leader should be more assertive, following through his promised “Zeitenwende,” or historic turning point on security. 

Scholz has insisted that Germany should not act alone in sending new categories of heavy weapons that could provoke an escalation with Moscow. He’s placed a premium on moving in lockstep with the US and NATO. 

“We never go alone,” Scholz said in an interview last week with Bloomberg. 

There are estimates Rheinmetall could send as many as 139 Leopard Type 1 and 2 tanks to Ukraine via various swap agreements over the next several months. By that time, there is a risk available inventory will be fully exhausted. 

Microsoft’s total revenue increased by 2% year over year in that quarter ending Dec. 31, the slowest rate since 2016, according to a statement. Net income fell to $16.43 billion from $18.77 billion in the year-ago quarter. The company took a $1.2 billion charge in the quarter in connection with its decision to cut 10,000 employees, revise its hardware lineup and consolidate leases.

Revenue in Microsoft’s Intelligent Cloud segment amounted to $21.51 billion, up 18% and slightly above the $21.44 billion consensus among analysts polled by StreetAccount. The unit includes the Azure public cloud, Windows Server, SQL Server, Nuance and Enterprise Services. Revenue from Azure and other public cloud services, which Microsoft does not report in dollars, grew by 31%, slightly above the estimate of almost 31% that analysts polled by CNBC and StreetAccount had expected. In the previous quarter, the category grew 35%.

Cloud computing helped to save Microsoft’s quarter since compute, which includes computer games declined by 19%.

Cloud computing is not about to disappear but the days of every cloud company doing well are over. There is not clear scope for consolidation and middle market players will either be acquired or out competed over the coming couple of years. 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Risk-on gaining traction on Wall Street, bond yields and gold steady, oil pauses, bitcoin and fintech firm.

The report describes four potential futures centred around food, water and metals and mineral shortages, all of which could spark a humanitarian as well as an ecological crisis – from water wars and famines to continued overexploitation of ecological resources and a slowdown in climate mitigation and adaption. Given uncertain relationships between global risks, similar foresight exercises can help anticipate potential connections, directing preparedness measures towards minimizing the scale and scope of polycrises before they arise.

In the years to come, as continued, concurrent crises embed structural changes to the economic and geopolitical landscape, they accelerate the other risks that we face. More than four in five GRPS respondents anticipate consistent volatility over the next two years at a minimum, with multiple shocks accentuating divergent trajectories. However, respondents are generally more optimistic over the longer term. Just over one-half of respondents anticipate a negative outlook, and nearly one in five respondents predict limited volatility with relative – and potentially renewed – stability in the next 10 years.

Indeed, there is still a window to shape a more secure future through more effective preparedness. Addressing the erosion of trust in multilateral processes will enhance our collective ability to prevent and respond to emerging cross-border crises and strengthen the guardrails we have in place to address well-established risks. In addition, leveraging the interconnectivity between global risks can broaden the impact of risk mitigation activities – shoring up resilience in one area can have a multiplier effect on overall preparedness for other related risks. As a deteriorating economic outlook brings tougher trade-offs for governments facing competing social, environmental and security concerns, investment in resilience must focus on solutions that address multiple risks, such as funding of adaptation measures that come with climate mitigation co-benefits, or investment in areas that strengthen human capital and development.

Some of the risks described in this year’s report are close to a tipping point. This is the moment to act collectively, decisively and with a long-term lens to shape a pathway to a more positive, inclusive and stable world.

The worst case scenario seldom comes to pass. That’s an important point to remember when sentiment about the future is so bearish. Some of the biggest challenges are with relation to how populations are distributed globally. That’s true because of migration within countries to the coasts and because the highest population growth countries are all in the emerging markets. These factors are stressing water resources. So is the fact that water infrastructure is hard to build and politically fraught so also hard to get paid for building it. In the end it comes down to governance. 

DNB Asset Management materially increased investments in EV maker Tesla (ticker: TSLA) and Plug Power (PLUG), a hydrogen fuel-cell technology company, while slashing its stake in General Motors (GM) in the fourth quarter. The unit of Norway's largest financial-services firm, DNB, disclosed the stock trades, among others, in a form it filed with the Securities and Exchange Commission.

Norway’s commitment to renewables is a very vocal and not least because it is such a large exporter of oil and gas. Nevertheless, one cannot argue with the timeliness of these purchases. Tesla lost 75% of its value in little more than a year. That’s a sufficiently large drop to encourage some value oriented interest. 

To call the vindication of MMT a reductio ad absurdum, as I did above, is perhaps an exaggeration. MMT economists made some interesting arguments about the interaction of monetary and fiscal policy which orthodox economists and central bankers were wrong to ignore. But what about the Magic Money Tree? If inflation is cured painlessly by the end of the year and Goldilocks returns to dominate the markets for the next decade, as investors are now expecting, then governments will revive their interest in the Magic Money Tree. I too may start to believe in fairy tales—and we can all live happily ever after.

The immortal word’s of former Citigroup CEO Chuck Prince come to mine when I see bond yields rising from already high levels, and a risk-on rally gaining traction on Wall Street. ““When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing,” 

A link to this week's Big Picture Long-Term video is posted in the Subscriber's Area. 

Many junk-rated companies will require urgent funding. They may struggle to find it at a time when investors’ demand for sky-high premiums has effectively shut public capital markets as a refinancing avenue for the most stressed firms.

While default rates are expected to increase, it may not immediately become a flood of failures. A large chunk of high-yielding debt has weak investor safeguards — loose covenants that mean highly indebted firms will be able to delay engaging with creditors until further down the line. 

Moody’s forecasts the global default rate for high-yield companies will increase to 4.9% by November, up from 2.9% a year earlier. In a “severely pessimistic scenario,” however, the rate could go up to 12.6%, it said in a report published last month. 

It stands to reason that when the artificial support for failing companies is removed, they will go bust. Interest rates have surged over the last 12 months, the availability of credit is drying up as banks withdraw from lending and money supply growth is close to contraction on a year over year basis. That suggests many highly leveraged companies will have issues refinancing. 

It's a head-scratcher. According to the Office for National Statistics, some 467,000 working days were lost in November alone — and a total of 1.6 million in 2022, the most since 1990. This year is shaping up to be worse. We certainly feel poorer for it all, but with the rail sector comprising just 0.3% of GDP, it is not showing up in the data in a way that we can justifiably point a finger at it.

Network Rail estimates lost ticket revenue to date from the strikes at £400 million ($500 million), but it is very tricky to measure what might well be a permanent loss of future revenue as commuters alter their behavior. Passenger numbers are still only about 80% of pre-pandemic levels. The Royal Mail also will struggle to recover business from the postal worker strikes. UKHospitality reckons there was £2.5 billion of lost trade due to the rail strikes. The picture will be worse in city centers but that will be counterbalanced in areas where commuters live.

The Centre for Economic and Business Research estimates a £1.4 billion direct cost in lost working days over the past eight months. That seems suspiciously low, but compared to the U.K's £2.5 trillion annual GDP, the verifiable effects so far are basically a rounding error.

Just as in markets, economic correlations break down over time and efficiencies smooth out. Using the number of passengers multiplied by train journeys equates to a number of work hours lost. However, to rely on that figure one would have to assume work from home does not exist.

I remember when we got broadband internet at home in the mid ‘90s. I decided at that time I was going to go to London when I finished college and find a job I could do from anywhere. Many people came to the same conclusion during the pandemic and that is shifting the relevance of economic metrics.

Being in the SEC’s cross hairs is likely to lead to a further shake-up of what little is left of the lending sector. 

“There will be two different models in the future,” said Campbell Harvey, a finance professor at Duke University. “First, certain organizations will register with the SEC and sell these products as securities. Second, investors may do this on their own by putting their crypto into decentralized liquidity pools and earning a fee for that.”

In decentralized finance, or DeFi, investors use software to automatically borrow and lend tokens, with positions being automatically liquidated if prices fall too low or they miss repayment deadlines. Some platforms such as Maple Finance organize pools where an operator can manage incoming investor funds and choose who to lend them out to, using due diligence to assess a borrower’s creditworthiness rather than asking for collateral. Such an approach has already lead to some defaults during the current crisis, in addition to plummeting volumes.

Because these types of loans are conducted on public blockchains, the collapse in lending is more visible. The total amount of value locked on DeFi networks hit a peak of $181 billion in early December, according to data from DeFiLlama, and now sits at around $45 billion — tarnished by wavering demand, declining crypto prices and several spectacular failures.

The next bitcoin halvening is due in April 2024. That will halve the reward for successful minting a new block from 6.25 to 3.125. Therefore the limited supply and rarity of the asset will become a topic of conversation again around this time next year. 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: stocks weak, dollar hits news low so commodities steady, bonds yields likely to contracat over the balance of the year. 

Just six or seven days ago you commented that the recovery could go on for two to three months, now (apparently) you are waiting for the Vix to hit 50 so indicating a bottom of the market.

Sometimes your commentary is as volatile as the markets you are reporting on!

Thank you for this email and I apologise for mixed messaging. Let me take this opportunity to try and be clearer.
In last night’s audio and video commentary I highlighted the fact that major lows don’t generally form until the VIX Index spikes to around 50. By major low I mean the ultimate low in a medium-term downtrend; as in 18-month to 3-year bear market. Along the way there will be several short covering rallies and they can last for a couple of months at a time. 

Protests in Peru are threatening to choke off access to almost $4 billion worth of copper just as China’s emergence from Covid lockdowns promises to boost demand. 

Peru’s third-largest copper mine, Las Bambas, hasn’t dispatched copper concentrate since Jan. 3 due to security concerns. Glencore Plc’s Antapaccay is also facing restrictions. The mines, which share the same highway access to ports, together account for nearly 2% of the world’s copper output. 

Unrest has rattled Peru since the ouster and arrest of former President Pedro Castillo, upending commodity supply chains from metals to organic coffee. The disruption comes at a particularly precarious moment for copper markets. Inventories stand at historically low levels while miners warn demand for the world’s most critical metal is poised to skyrocket with the growing electrification of vehicles.  

Base-metal prices have been on a bull run since New Year’s after China, a top consumer, abruptly abandoned Covid-19 controls. Prices settled Wednesday at a seven-month high on the London Metal Exchange. Goldman Sachs Group Inc. predicts ongoing deficits and forecast a record price of $11,000 a ton within 12 months.

Las Bambas, whose operator MMG Ltd. is controlled by state-owned China Minmetals Corp., has been the target of multiple demonstrations since it opened in 2016 as indigenous groups seek greater compensation for land and roads used by mining companies.

Social unrest is a significant issue in several Latin American countries. The reality on the ground is local communities have learned to agitate for better deals from miners through tapping into global activist talking points.

Buzzwords like indigenous rights, climate activism, environmental laws, water use, remediation, road congestion and social services funding all represent themes for protestors. 

“I commend the Biden administration for working with our partners to apply export controls on equipment used to make advanced semiconductors and am eager to scrutinize the specifics of what comes out of these talks,” Texas Representative Michael McCaul, who chairs the House Foreign Affairs Committee, said in a statement to Bloomberg News. “A Republican Congress is ready to use its authorities to protect U.S. national security and defend human rights, should the outcomes not substantially match the controls currently in place.”

McCaul is set to meet with Raimondo to discuss the matter on Thursday. It’s uncertain how long it will take the other countries to implement their measures. 

“It could even be something which just happens without big announcements,” Rutte said in the interview. “It’s still not clear. It depends a bit on how the discussions with various countries will evolve.”

After the US announcement in October, some American companies were forced to warn investors that they may lose out on billions of dollars in future China revenue. Since then, they’ve argued it also exposes them to losing market share, if overseas competitors are allowed to continue to operate in China relatively unrestricted.  

Tokyo Electron has said the general clampdown on its Chinese customers is already hurting business, while ASML has said that demand elsewhere in the world for its most advanced products can make up for any revenue shortfall from China.

Despite the friendlier sounds coming from Chinese and American diplomats, the trajectory of the trade war has not changed. It is still the clear ambition of the US government to curtail China’s ability to compete technologically. It is viewed by both sides of the political divide as a national security priority. 

One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.

A link to today's video commentary is posted in the Subcsriber's Area. 

Some of the topics discussed include: BoJ holds on to yield curve control fot a little longer, Yen reverses weakness, Nikkei unlikely to hold gains tomorrow, Wall Street rolls over as Treasuries rally, gold eases, oil reverses early strength in US trading, copper reverses early advance, several global markets are short-term overbought so at least some consolidation is likely. 
 

“The private equity model works,” he said in a Bloomberg TV interview at the World Economic Forum in Davos on Wednesday. “It puts capital to work with experts that really help drive these companies.”

Pagliuca said private equity has “absolutely not” peaked and will still be able to deliver the standard 18% to 20% rate of return in the coming decades. 

“We’ve maintained those returns now every decade for 40 years,” he said. “It’s a great business model.”
Buyout firms are readjusting to an environment of higher interest rates that’s making it harder to finance deals and juice returns by loading companies with cheap debt. Valuations have tumbled in both the public and private markets.

Rising rates are bringing a reckoning for those firms that invested heavily in speculative technology companies at super-high multiples, according to Pagliuca. Bain has largely steered clear of this market and its portfolio is doing “pretty well,” he said.

There is no doubt that a version of the private equity business model continues perform. The investment practices of the world’s largest sovereign wealth funds, where the holding periods stretch from years to decades is a case in point. They have the financial resources to buy in times of market stress and hold for the long term. There will never be a time when buying low and securing growing cashflows with an infinite holding period will fail. 

As part of its deal with the IMF, Egypt agreed to shrink the footprint of all state-run enterprises, including “military-owned companies,” and committed to allow for a more flexible exchange rate.

“We are also looking at our region, and we want to be a role model for the region,” Al-Jadaan said. “We are encouraging a lot of the countries around us to really do reforms,” he said.

 

The UAE’s reluctance to offer donations but attach support to investments is a model Saudi Arabia is now also following. The big oil exporters want regional stability. This change of policy suggests they now appear to believe that will best be achieved through economic reforms.

The Arab Spring shook up the Middle East more than a decade ago and resulted in significant turmoil. It now appears that the policy suite developed in response to those events has matured. Large young populations need to be offered a route to a productive life or rebellion is inevitable. 

The Bank of Japan’s decision to keep its settings unchanged Wednesday gave global investors a modest jolt, leaving markets from the yen to Treasuries at risk from a potentially larger shock if officials opt to shift policy in the future.

Standing pat caught some traders by surprise, but it’s unlikely to douse speculation that the BOJ will normalize policy as inflation in Japan accelerates and Governor Haruhiko Kuroda nears the end of his term. It suggests just a temporary setback to bets on a stronger yen and a bond selloff as analysts say it’s still a question of when — not if — the central bank exits its yield-curve control policy.

Indeed, while Japan’s currency at one stage slumped more than 2% against the dollar in the wake of the decision, it clawed back some ground as the session proceeded, helped by a swath of US economic data that dented the greenback. Japanese government bonds surged as traders covered short positions and stocks pushed higher. US Treasury yields declined.

There were fireworks in Japanese markets this morning as the BoJ demurred from the tampering with its yield curve control policy. However the rebound in bonds and weakness in the Yen were short lived. Traders don’t see yield curve control lasting beyond Kuroda’s tenure. 

A link to today's video is posted in the Subscriber's Area.

Some of the topics discussed include: Dollar steadies, S&P500 tests 200-day MA, oil firm, gold eases, bond yield steady 3.5%. Leveraged loans resurgent, China recovery remains intact

Thanks for the interesting comments about Saudi - I spent a couple of years working in Riyadh in the late eighties.

On a different subject do you see the re-occurrence of the US debt ceiling with the Senate's inability to pass (anything...) creating any problems?

Thank you for this topical question which I’m sure will be of interest to other subscribers. On another note, I suspect even veterans of living in Saudi would be surprised at the extent of progress made since MBS has taken power. 

The Tea Party movement gained traction in the aftermath of the credit crisis. They eventually gained enough sway over the Republican Party to force fiscal constraints onto the 2nd Obama administration. The Freedom caucus has given us a sneak peak at the trajectory of budget negotiations in the concessions they squeezed out of Keven McCarthy. 

I have just read that in Arctic Sweden they have just discovered Europe's largest source of rare earths. It will take 10 to 15 years to bring them to market. 

Thank you for this note. I saw that news too. Here is a related article discussed the discovery. 

 The thing to remember about rare earth minerals is they are not particularly rare. The reason China dominates the mining and processing of these metals is because they are so often found in close proximity to radioactive elements. Processing is both dirty and creates harmful byproducts so many countries were only too happy for China to take over production. 

I just wondered whether you had any thoughts on Lumber given the recent price action? Thanks and keep up the excellent work, I'll definitely be renewing my annual subscription (as I have been for more years than I care to count!)

Thanks for this topical question and your long-term patronage. Serving loyal long-term subscribers is why I happily regard this service as a vocation. ​

One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: VIX pops on the upside even though the US market is closed, short-term oversold Dollar means rebounds are at risk of consolidation, China rebound continues.  

The Indonesian rupiah is leading a rally in Asia’s emerging-market currencies as bets grow that the US will slow rate hikes, bolstering risk sentiment. 

The rupiah gained as much as 1.3% against the dollar, the most in more than two months, while the baht climbed more than 1% to its highest level in about 10 months. Most Asian currencies are stronger. 

Easing inflationary pressures in the US have raised expectations of a smaller rate hike in the upcoming meeting of the Federal Reserve, while optimism over China’s reopening has also brightened the outlook for some of the regional currencies.

Last week’s lower CPI reading has led the wider investment community to conclude the peak of the interest hiking cycle is upon us. The Dollar took another leg lower on the news and supported everything from gold to crypto and non-US dollar denominated stock markets.

Investors are on high alert for further policy tweaks from the Bank of Japan this week after December’s shock decision to raise the bar on yield movements failed to significantly improve market liquidity.

While almost all economists surveyed by Bloomberg expect no change at the two-day meeting finishing Wednesday as their main scenario, market pressure on the central bank’s stimulus framework has intensified since last month’s efforts to ease the side effects of policy.

Another increase in the ceiling for the 10-year yield is seen as the most likely course of action, should the BOJ act, given its recent emphasis on improving bond-market functioning. 

10-year JGB yields are above the 50 basis point cap suggesting investors are willing to bet the BoJ will raise the rate at which they are willing to intervene.

UK Prime Minister Rishi Sunak plans to strengthen anti-protest legislation, giving police additional powers to clamp down on demonstrations even before they’ve caused any disruption.

The government on Monday will propose an amendment to its own Public Order Bill — currently working its way through the House of Lords — to broaden the definition of what constitutes “serious disruption,” according to a statement from Sunak’s office. 

“We cannot have protests conducted by a small minority disrupting the lives of the ordinary public: it’s not acceptable and we’re going to bring it to an end,” Sunak said in the statement. “The police asked us for more clarity to crack down on these guerrilla tactics, and we have listened.”

The legislation is aimed at strengthening the police’s ability to deal with protests such as those in recent years from environmental campaigners at Just Stop Oil and Extinction Rebellion, who have brought traffic and public transport to a standstill by blocking bridges, motorways and London’s subway network. But it’s provoked the ire of civil liberty groups and of the opposition Labour Party. 

Labour’s policing spokeswoman, Sarah Jones, said in a statement that the police already have powers to deal with disruptive protests. She criticized Sunak for not focusing instead on tackling “the epidemic of violence against women and girls” or on prosecuting criminals. 

The amendment will include allowing police to consider the total impact of a series of protests rather than treating them as a single incident; giving officers the right to step in even before a protest has resulted in disruption, and letting them deal with long-running campaigns designed to cause chaos repeatedly, according to the statement.

Tightening the noose of civil liberties is almost always done in a reasonable manner. Who could argue with additional measures to ensure extremist activists don’t block major roads? Of course, we need additional measures to stop activists from defacing great works of art. However, once these kinds of measures are in place, they are often applied at the discretion of the authorities in new and surprising ways. With teachers ready to strike, the government appears to be putting measures in place to combat disruptions.

A link to this week's Big Picture Long-Term video is posted in the Subscriber's Area.

I posted the first part of this update on Wednesday and saved the second part of today. The number one theme in emerging markets is governance. That’s where Saudi Arabia is clearly attempting to make an impression.

In speaking with the junior minister for investment, the decision to give opportunities to young people is very intentional. They know the only way to achieve the progress they need is through harnessing the productive capacity and thirst for invention of the young.

It’s incredibly refreshing to meet so many tenacious young people with ambitious dreams for the future. The fact they have a route to achieve their goals is even better.

One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: inflation figures as expected weigh on Dollar, stocks and bonds rebound, gold and oil extend rebounds, non-US assets outperform. 

Egypt is grappling with its worst foreign-currency crunch in years and has recently seen the emergence of a black market for dollars. It secured a $3 billion loan from the International Monetary Fund and sought help from its wealthy Gulf Arab allies. 

Core inflation, the gauge used by the central bank that strips out volatile items, accelerated to 24.4% in December from 21.5% in November. 

This week the government said it would curb state spending, including through halting costly new infrastructure projects. The central bank announced in December it was targeting inflation at an average of 7%, plus or minus 2 percentage points by the fourth quarter of 2024.

Allen Sandeep, director of research at Naeem Holding in Cairo, has said the latest bout of depreciation sets the stage for a pickup in inflation to around 23%-25% and higher government borrowing costs. 

Egypt is one of the largest food importers in the world. With a population now in excess of 100 million that is a major point of stress. The war in Ukraine threw food security into a state of flux and has contributed to the inflation spike.

The Federal Reserve is on track to downshift to smaller interest-rate increases following a further cooling in US inflation, though it’s likely to keep hiking until price pressures show more definitive signs of slowing.

Philadelphia Fed President Patrick Harker, speaking Thursday morning shortly after the Labor Department’s release of consumer price data, said rate hikes of a quarter-percentage point “will be appropriate going forward,” following bigger increases throughout most of 2022. Harker’s comments echoed remarks a day earlier from Susan Collins, his counterpart at the Boston Fed.

Consumer prices rose 6.5% in the 12 months through December, marking the slowest inflation rate in more than a year. So-called core inflation, which excludes food and energy, was up 5.7% over the same period, the smallest advance in a year. Both figures matched median forecasts.

“The trend in services inflation seems to be abating. That’s what the Fed will be looking at in today’s report,” said Thomas Costerg, a senior US economist at Pictet Wealth Management in Geneva, Switzerland. “At the margin, this means an increased probability of a 25-basis-point rate hike on February 1st.”

The bond market is already looking ahead to when the Fed will be cutting rates so it is quite possible the next rate hike will downshift from 50 to 25 basis points.

Saudi Arabia’s 11.95 billion riyals ($3.2 billion) of funding for a joint venture that will invest in mining assets internationally is “going to be a moving target,” Mining Minister Bandar Alkhorayef said in an interview with Bloomberg TV.

“We are establishing a governance between this JV with the ministry to make sure that this JV allows the country to get the right minerals needed for our industrial strategy and our needs in general,” he said

In 2022, Saudi Arabia saw as much as $32 billion of investments in the mineral sector, a 50% growth in revenues from 2021, the minister said in a separate interview

Saudi Arabia had previously estimated its mineral wealth at $1.3 trillion, but that’s now considered conservative because discoveries have been better than expected, he said

Maaden is now one of the largest industrial metal miners in the world and is only beginning to invest beyond Saudi Arabia’s borders. That represents a significant source of new competition for world-class mining opportunities and suggests bidding wars will be more common.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: bonds yields contract, stocks rebound, crude oil rebounds, Egypt pound floats.

Some of the topics discussed include: bonds yields contract, stocks rebound, crude oil rebounds, Egypt pound floats.

This year’s event has proven to be as educative an experience for me as last year’s. I had the great pleasure to sit down with one of the media minister’s advisors today. She made the decision to move home to Saudi Arabia to pursue her career, following time studying in the UK and USA, and living in Egypt.

The Aframax Sealeo is on its way to the US after receiving Venezuelan crude in a ship transfer off Aruba, according to ship-tracking data compiled by Bloomberg. 

Sealeo received Hamaca crude oil from tanker Caribbean Voyager in a ship-to-ship transfer ~Monday

Caribbean Voyager loaded ~500k bbl Hamaca ~Jan. 6 at the Venezuelan government-controlled port of Jose

Sealeo signals Pascagoula, Mississippi, as destination; Pascagoula is the site of the Chevron Pascagoula refinery, a facility designed to process heavy sulfurous oil like the types produced by Venezuela

Cargo is first to sail to US after the country eased sanctions against Venezuela in November

Last time US received Venezuelan crude was in May 2019 when Motiva Port Arthur refinery in Texas took ~350k bbl of Diluted Crude Oil: AHOY data compiled by Bloomberg

Other Chevron tankers sailing to/from Venezuela:

Kerala, which loaded 250k-300k bbl Boscan crude for Chevron, is currently anchored off Lake Maracaibo awaiting orders

UACC Eagle, which is bringing ~620.4k bbl of US heavy naphtha to Venezuela, is currently moored at the port of Jose to discharge.

The less remarked upon result of the shale oil revolution is it is predominately Texas light sweet. Most of the refining capacity on the Gulf coast is set up to handle heavy crude; mostly from Canada and Venezuela.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics covered include: stocks wobble on slightly higher yields, gold and oil steady, 

The Urals grade, by far the country’s top export stream, was $37.80 a barrel at the Baltic Sea port of Primorsk on Friday, according to data provided by Argus Media. That was less than half where Brent futures settled on the same day.

The ballooning discount follows the European ban on almost all seaborne crude imports from Russia that imposed from Dec. 5. Simultaneously, the European Union joined with the G-7 industrialized nations in imposing a cap on the price of Russian supply. Anyone wishing access to Western services — in particular industry standard insurance, but also an array of other things — could only do so if they paid $60 of less.

The western price cap is “illegal” and will affect stability of the global energy supply, requiring “significant cooperative effort by responsible countries to remedy,” the ministry said, reiterating earlier statements by President Vladimir Putin and top Russian energy officials.

Russia is prepared to cut its crude production by 500,000-700,000 barrels a day in response to the threshold, Deputy Prime Minister Alexander Novak said last month. 

The energy markets remain in a state of flux. Europe wants cheaper energy but the USA is now an exporter with a government willing to buy at around $70. Meanwhile the perennial issue of sustaining sufficiently high prices to balance bloated budgets among OPEC members has not gone away. Russia has a challenge in reducing supply because many of its wells are in permafrost. Once shut down, these wells cannot easily be turned back on.

There are big themes at play as great power politics makes a come back. The one thing which is certain is none of what is in front of us is cheap. Re-arming, Reshoring, re-stocking and re-wiring all imply higher costs, holding more inventory and less efficient supply chains. That’s a recipe for inflation to remain persistent.

The rally in gold prices over the past two months has defied analyst expectations for continued weakness, including TD Securities'. Yet, we see little evidence that the rise in gold prices is associated with a changing macro narrative. Given the bearish macro backdrop, speculative interest in gold has remained exceptionally lackluster as the world barrels towards a recession, especially after accounting for recent shifts in CTA positioning. Still, gold prices have continued to firm, retracing more than 50% of their significant drawdown from 2022 highs. • This begs the question: who in the world is this mystery buyer driving prices higher? Armed with a flows-based approach, we present strong evidence that behemoth Chinese and official sector purchases may have single-handedly catalyzed a $150/oz mispricing in gold markets. What is less clear is what has driven these massive purchases. • We investigate whether a sanctions-evasion war chest associated a potential invasion of Taiwan, China's reserve currency ambitions, massive pent-up demand associated with the Chinese reopening, or Chinese New Year demand could be consistent with this extreme buying activity. Chinese demand appears unrelenting for the time being, but barring a grandiose geopolitical regime change, we find that it would likely subside towards normal levels in coming months. This would leave gold prices vulnerable to a steep consolidation lower, given gold's lack of alternative buyers and its current mispricing relative to its recent historical relationship with real rates. We turn to our tracking of positioning for the top ten gold traders in China to scour for nascent signs of peaking Chinese demand, which could present a tactical signal for a noteworthy repricing lower.

Since China is the world’s largest gold producer it begs the question why they would be buying on the international market in size. There is the potential that they wish to lend credence to the Renminbi as a reserve asset in order to sway Middle Eastern governments to accept it in payment for oil.

A link to today's video commentary is posted in the Subcsriber's Area. 

Some of the topics discussed include: China recovery continues, copper breaks out, bond yields compress, tech rebounds, dollar weak, brazil steady, 

Indeed, the biggest winners may be Nvidia and TSMC. Nvidia’s investment in the CUDA ecosystem means the company doesn’t simply have the best AI chips, but the best AI ecosystem, and the company is investing in scaling that ecosystem up. That, though, has and will continue to spur competition, particularly in terms of internal chip efforts like Google’s TPU; everyone, though, will make their chips at TSMC, at least for the foreseeable future.

The biggest impact of all though, though, is probably off our radar completely. Just before the break Nat Friedman told me in a Stratechery Interview about Riffusion, which uses Stable Diffusion to generate music from text via visual sonograms, which makes me wonder what else is possible when images are truly a commodity. Right now text is the universal interface, because text has been the foundation of information transfer since the invention of writing; humans, though, are visual creatures, and the availability of AI for both the creation and interpretation of images could fundamentally transform what it means to convey information in ways that are impossible to predict.

For now, our predictions must be much more time-constrained, and modest. This may be the beginning of the AI epoch, but even in tech, epochs take a decade or longer to transform everything around them.

ChatGPT and other artificial intelligence models are growing in capability and the pace of development is accelerating. There is a big question about how consumers will react to intrusive predictive models and how the sector will ultimately be regulated. However, if history is any guide these issues arise after a significant interval and prices move ahead regardless.

Metals are finding favor again after a punishing 2022 that saw most notch large losses. An improving picture for Chinese demand is coinciding with investor bets on less aggressive rate hikes by the Fed, boosting the growth outlook while weakening the dollar in which commodities are priced.

Market moves may be exacerbated by low exchange stockpiles, after supply was hobbled last year by the energy crisis. On Monday, copper climbed to the highest since June, while aluminum and rose more than 4% and zinc surged over 6%.

Metals should rally as Chinese demand picks up after the Lunar New Year holidays later this month, Goldman Sachs Group Inc. analysts including Jeffrey Currie said in a note. There’s “significant price upside,” given extremely low global stockpiles of metals, they said. 

China’s swing from strict quarantine protocols to laissez faire measures is characteristic of the binary decision making inside authoritarian regimes. The focus is no longer on social control. Instead, we are back to business as usual which infers infrastructure development and property speculation.

Any pullback in Brazilian asset prices should revert quickly as the protests should be short-lived and not have major direct implications, Citigroup strategists led by Dirk Willer wrote in a note Monday. 

The Brazilian real was the worst performer among 23 emerging market peers tracked by Bloomberg, weakening 1.2%

The protests have been publicly criticized by far-right leaders, including former President Jair Bolsonaro, and they lack support from leaders in the executive, legislative and judiciary branches

David long ago observed “governance is everything”. That is as true to today as in the past, but there is no getting around the fact that standards are deteriorating. Peaceful hand-off of power, following a free and fair election, is the basic starting point for liberal democracies.