Markets got the year off to a stellar start in January, with a positive performance for 34 of the 38 non-currency assets tracked by Deutsche Bank thematic research group. In fact, in terms of the breadth of gains, that’s the strongest start to a year since 2019, with advances across equities, sovereign bonds and credit. The main exception to this pattern has been among energy commodities, but lower oil and gas prices have themselves been good news to consumers who’ve been squeezed by higher energy prices last year.

Elsewhere, As DB’s Henry Allen writes, Chinese assets have continued to perform strongly amidst the economy’s reopening, which has also supported a strong rally amongst industrial metals. Nevertheless, it hasn’t been all good news, with investors remaining nervous about a US recession, as well as the prospect of more persistent inflation.

Below we share some more details from the latest DB January performance review

Month in Review – The high-level macro overview

2023 got off to a positive start in January, with investor risk appetite supported by several good news stories. The most important was the decline in energy prices, particularly in Europe, where natural gas futures continued their decline from late December with a further -24.8% decline in January. That took them down to their lowest levels since September 2021, and means that the outlook for the European economy is much brighter than expected only a few weeks ago, prompting numerous economists to positively revise their forecasts and remove a Euro Area recession from their 2023 projections. This brightening picture has also been reflected in sentiment indicators, with the European Commission’s numbers for Euro Area consumer confidence at an 11-month high in January.

The other positive story for markets in January was the continued reopening of China’s economy. Easing restrictions have made investors more optimistic on China’s economic performance, with the Shanghai Composite up +5.4% in total return terms. And more broadly, industrial metals prices have performed very strongly, with copper (+10.9%) advancing for a third consecutive month, raising concerns that China’s reopening could be inflationary for the global economy.

The brighter macro outlook meant that various assets put in a very strong performance over January. For instance, the S&P 500 (+6.3%) had its best start to a year since 2019, and Europe’s STOXX 600 (+6.8%) had its best start since 2015. Meanwhile for US Treasuries (+2.8%), it’s been their second-best monthly performance since March 2020, back when the Fed slashed rates to zero as the Covid pandemic began. Tech stocks saw a particularly strong performance following an awful 2022, with the FANG+ index of 10 megacap tech stocks up by +18.7%, marking its best month since August 2020.

However, a more negative story over the month has been continued fears about a US recession. These were present from the start of the month, when the ISM readings showed that December was the first month since May 2020 that both the services and manufacturing components were in contractionary territory. Then both the retail sales and industrial production data for December came in beneath expectations. And lastly, the Conference Board’s Leading Index showed a year-on-year decline of -6.0%, which historically has been consistent with either recessions or the recovery from recessions. Other leading indicators such as the yield curve remained deeply inverted too, with the 2s10s closing in inversion territory for a 7th consecutive month.

A final theme over the month was growing speculation that central banks might be nearing an end to their current cycle of rate hikes. That was turbocharged by the weak ISM services index for December at the start of the month, and then the US CPI release for December cemented expectations that the Fed would downshift to a 25bps move at their February meeting. Similar themes were evident elsewhere, with the Bank of Canada formally announcing a pause in their rate hikes for the time being. That said, nervousness about stronger-than-expected inflation was still evident, and the end of the month saw a modest sell-off on the penultimate day amidst fears that the central bank meetings in February could see a continuation of their hawkish stance.

Which assets saw the biggest gains in January?

• Equities: January was a positive month for all the major equity indices, including gains for the S&P 500 (+6.3%), the STOXX 600 (+6.8%), the Nikkei (+4.x%) and the Shanghai Composite (+5.4%). Certain sectors like tech did particularly well, with the NASDAQ up +10.7%. European banks also outperformed, with the STOXX 600 Banks index up +14.1% in its strongest January since data begins in 1987.

• Sovereign Bonds: After an awful 2022 performance, sovereign bonds have had a very strong start to the year, with gains for US Treasuries (+2.8%), Euro Sovereigns (+2.4%) and UK gilts (+2.8%). For US Treasuries, it marks their second-strongest monthly performance since the height of the pandemic in March 2020.

• Credit: All the credit indices we follow were in positive territory over January, although as with sovereign bonds, EUR credit underperformed USD and GBP credit. The biggest gain was for USD fin sub (+4.4%), where the gain was more than double that for EUR fin sen (+2.1%).

• Metals: China’s reopening was a big support for industrial metals in January, with copper up +10.9% in its third consecutive monthly advance. In the meantime, gold advanced a further +5.7%, which brings its gains over the last 3 months to +18.0%, and marks its strongest advance over 3 calendar months since August 2011.

• EM Assets: Emerging markets put in a strong month over January, with the MSCI EM equity index up +7.9% for its strongest start to a year since 2019. Other EM assets also outperformed, with EM bonds up +3.9%, and EM FX up +2.5%.

• Cryptocurrencies: Having struggled in 2022, crypto assets have had a much better start in 2023. Bitcoin was up +38.8% over the month to $22,951, which is its strongest monthly performance since October 2021. The gains were widespread elsewhere, with Ethereum (+31.5%) and Litecoin (+32.9%) seeing significant advances as well.

Which assets saw the biggest losses in January?

• Energy Commodities: Natural gas prices have declined significantly since the start of the year, with European futures (-24.8%) and US futures (-40.0%) seeing big falls over January. Oil prices have also lost ground, with Brent Crude (-1.7%) and WTI (-1.7%) both down slightly.

• US Dollar: The dollar index (-1.4%) fell for a 4th consecutive month for the first time since 2020.

Update (1415ET): 

A suspected Chinese spy balloon flying over the US was spotted in the skies of north Kansas City on Friday afternoon.

We have had several reports across northwest MO of a large balloon visible on the horizon. It is now visible from our office in Pleasant Hill and the KC Metro. We have confirmed that it is not an NWS weather balloon. pic.twitter.com/CKQWOw7God

— NWS Kansas City (@NWSKansasCity) February 3, 2023

The question people are asking: Where is the balloon headed? 

To answer that, Capital Weather Gang said:

“Forward trajectory based on atmospheric steering currents would bring it close to St. Louis tonight & into North Carolina Saturday.” 

A map of the balloon’s trajectory. 

Others say the balloon could take a different path:

Given the sightings of the spy balloon near Kansas City around noon CT, the most likely path it will take this weekend is across the Mississippi Delta and Deep South, reaching the Southeast coast by Sunday evening.

Probably will be drifting across Florida or offshore by Monday. pic.twitter.com/uNtLg7qkMD

— weathertiger.substack.com – WeatherTiger, LLC (@wx_tiger) February 3, 2023

*   *   * 

Update (1012ET): 

Bloomberg confirmed US Secretary of State Antony Blinken would postpone his trip to Beijing amid spy balloon allegations. 

The two-day trip was set to begin on Sunday. Even before Blinken postponed his trip, expectations were low to reset deteriorating Sino-US ties. 

RM @RepGregoryMeeks: The presence of a PRC surveillance balloon in US airspace is an unacceptable violation of our sovereignty & international law.@SecBlinken‘s right to postpone his China trip.

Beijing must begin acting responsibly if it wants to stabilize US-China relations. https://t.co/ZDYzIsjbii

— House Foreign Affairs Committee Dems (@HouseForeign) February 3, 2023

*   *   * 

Update (0932ET):

In response to some US officials accusing China of sending a spy balloon near ICBM fields in Montana, the Chinese foreign ministry said the balloon was for monitoring the ‘weather’ and veered off course and entered into US airspace due to force majeure. 

The ministry “regrets the unintended entry” and said Chinese officials would continue communicating with the US about the balloon. They added the balloon is for meteorological and ‘other scientific research.’ 

Earlier, foreign ministry spokeswoman Mao Ning urged the US to act “calmly and prudently” after some US officials accused China of sending a spy balloon. 

“I want to emphasize that before the facts are clear, any speculation and hype are not conducive to the solution of the problem,” Ning said.

So China states the balloon is for weather purposes only, while some US officials declare it a spy balloon. One thing is certain. The balloon mysteriously ended up near a highly sensitive area in Montana that is home to ICBM fields. 

*   *   * 

US military commanders have advised President Biden against shooting down a Chinese spy balloon flying over the US. 

Reuters said the US military took “custody” of the “high-altitude surveillance balloon” and deployed military aircraft, including stealth fighter jets, to observe it. 

Such balloons operate at an altitude of 15-22 miles, well above commercial air traffic. The balloon’s size is estimated to be equivalent to three buses. 

🚨#BREAKING: More video of the Chinese spy balloon⁰
📌#Montana | #USA

More video is coming out as
The Chinese high altitude surveillance balloon was seen over Billings Montana yesterday.
The size of balloon is three buses wide and has been flying over the Northern U.S. for days pic.twitter.com/4iUVvJQCG8

— R A W S A L E R T S (@rawsalerts) February 2, 2023

A photo of the Chinese spy balloon currently over Montana. The Pentagon’s been tracking the balloon, about the size of three buses, for a few days, but decided against shooting the balloon down, on account of it not posing a military or civilian threat. pic.twitter.com/xLRovjKxbI

— Domenico (@AvatarDomy) February 3, 2023

#BREAKING: A massive spy balloon from China has been surveilling the United States. It is described as the size of three buses and includes a technology
bay – US Media #BreakingNews #usa #Internationalleaks #China pic.twitter.com/x10a1xkdkh

— International Leaks (@Internl_Leaks) February 2, 2023

“The United States government has detected and is tracking a high-altitude surveillance balloon that is over the continental United States right now,” Pentagon spokesperson Brigadier General Patrick Ryder told reporters Thursday. 

“The balloon is currently traveling at an altitude well above commercial air traffic and does not present a military or physical threat to people on the ground,” Ryder continued. 

Right now, the spy balloon appears to be occupying Montana airspace. This alarmed the state’s Republican Senator Steve Daines, who sent an alarming letter to the Department of Defense (DOD). He said the spy balloon is a “concerning event”: because Montana airspace includes “Malmstrom Air Force Base (AFB) and the United State’s intercontinental ballistic missile (ICBM) fields.” 

Looks like three #USAF RC-135s were observing the “Chinese Spy Balloon” over Montana today. These planes are known to track objects the size of a soccer ball from a distance of 300 miles. #ChineseSpyBalloon pic.twitter.com/IGlPetCmUN

— Wilson (@WilsonsWorld) February 3, 2023

Daines wrote that given “the serious nature of the event,” he is “requesting a full security briefing from the administration on this situation.”

“It is vital to establish the flight path of this balloon, any compromised US national security assets, and all telecom or IT infrastructure on the ground within the US that this spy balloon was utilizing,” he continued.

“As you know, Montana plays a vital national security role by housing nuclear missile silos at Malmstrom AFB,” the senator said. 

Separately, Canada’s defense ministry is monitoring a “potential second incident” but declined to give further details. 

News of the spy balloon followed CIA Director William Burns’ speech at a Georgetown University event, where he called China the “biggest geopolitical challenge” facing the West. 

Authored by David Stockman via InternationalMan.com,

There is nothing more substantive than Bernanke’s original finger-in-the-air proposition that the Fed needed a 200 basis point cushion in the inflation rate in order to steer the economy clear of the dreaded 0.0% inflation line, the other side of which allegedly amounted to a black hole of deflationary demise.

But here’s the thing. There is not a shred of historical evidence that the US economy needs a 2.00% inflation guardrail to thrive, or any fixed rate of inflation at all.

For instance, even during the most difficult period of the 20th century—from 1921 to 1946 when the US economy experienced the Roaring Twenties boom, the Great Depression bust and the WWII rebound—there was abundant net economic growth over the period as a whole, accompanied by zero inflation.

In fact, the US economy nearly tripled in size during that quarter-century period. Real GDP expanded at a robust 3.64% per annum rate, and real GDP per capita rose by 2.55% per annum.

By contrast, between the 2007 pre-crisis peak and 2021, real GDP grew at only half that rate (1.72% per annum), while per capita real GDP increased by just 1.04% per year. That was just two-fifths of the rate of annual gain during 1921-1946.

Needless to say, it didn’t take any 2.00% inflationary guard rails to generate the salutary outcomes cited above for 1921-1946. The CPI index shown below posted at 542 in February 2021 and 541 a quarter century later in May 1946.

Purchasing Power of the Dollar, 1921 to 1946

As it had unfolded, there was zero CPI inflation during the Roaring Twenties; a severe deflation during the Great Depression, which merely reversed the war inflation of 1915-1920; and then a return to the 1921 price level during the booming but regimented economy of WWII.

Still, by the spring of 1946 the dollar’s purchasing power was 100% of what it had been in early 1921. It had not taken any net inflation at all to generate a near tripling of the nation’s economic output.

The implication is straightforward. To wit, the Fed doesn’t need a pro-inflation target of 2.00% per annum. Nor does it need any of its other macroeconomic targets for unemployment, jobs growth, actual versus potential GDP or the rest of the Keynesian policy apparatus. All of those variables are the job of the people interacting on the free market, producing whatever outcomes their collective actions happened to generate.

Indeed, macro-economic outcomes are not properly the business of the state at all. The Fed’s job is far more narrow. As originally conceived by its great architect, then Congressman Carter Glass, its mission was to keep the purchasing power of the dollar as good as the gold to which it was to be linked, and the banking system liquid and stable, as driven by the free market of borrowers and lenders.

As we have explained on other occasions, Congressman Glass called this a “bankers’ bank” and the term could not be more diametrically opposed to the central planners’ bank of Greenspan, Bernanke, Yellen, Powell and Brainard.

As Carter Glass saw it, no academician needed to stick his finger in the air and divine an inflation target. Nor did any modeler need to goal-seek his/her equations until they suggested the optimum U-3 unemployment rate relative to an arbitrary inflation target.

The fact is, the free market operating with sound gold-backed money was never inflationary. In that context, interest rates were also not a policy “tool” of the central bank, but the result of a market-clearing balancing of supply and demand.

As Carter Glass had arranged it, the Fed was not allowed to own government debt, nor did it have an activist arm now known as the FOMC empowered to intervene in the money and capital markets by buying and selling debt securities.

To the contrary, its avenue of operation was the discount window at the 12 regional Federal Reserve banks. The latter were authorized to advance funds to member banks, but only at a penalty spread above the free market interest rate, and also only on the basis of sound, self-liquidating collateral in the form of commercial paper that matured within a matter of months.

Given this mechanism, the dynamics of Fed policy were the opposite of today. Under the Glassian arrangement, the Fed’s balance sheet was the passive consequence of free market activity by commercial bankers and main street borrowers, not a mechanism to proactively steer the level of aggregate commerce and business activity.

Accordingly, the Fed’s value added stemmed not from wild-ass guesses about the inflation rate by PhDs like Lael Brainard, but from the grunt work of green-eyeshade accountants. Their job was to verify that bank loan collateral presented for funding at the discount window represented the obligations of sound borrowers, not speculators and high flyers, who would reliably repay under the terms of the underlying bank loan, thereby ensuring that the Fed’s discount loans would be repaid at term, too.

What this meant was that the Fed’s balance sheet was intended to reflect the ebb-and-flow of decentralized commerce and production on main street, not a centralized judgment by 12 people gathered on the banks of the Potomac about whether inflation and unemployment were too high, too low or just right.

That is to say, under the bankers’ bank arrangement the free market put an automatic check on CPI inflation. That’s because unsound speculative loans could not be easily made in the first place, since they were not eligible for discount at the Fed window.

And if demand for even sound loans got too frisky, interest rates would rise sharply, thereby rationing available savings until more of the latter could be generated or demand for the former was curtailed.

*  *  *

The truth is, we’re on the cusp of an economic crisis that could eclipse anything we’ve seen before. And most people won’t be prepared for what’s coming. That’s exactly why bestselling author Doug Casey and his team just released a free report with all the details on how to survive an economic collapse. Click here to download the PDF now.

In surprising bit of candid investigative reporting out of mainstream media, The Times asked the question this week: who attacked the Nord Stream pipelines? In an honest and objective fashion, the premier British paper writes, “In this global whodunnit, the US, Russia and even Britain have all been suspects.”

Naturally, the collective West rushed to blame Russia for sabotaging its own natural gas delivery infrastructure in the immediate aftermath of the Sept. 26 blasts underneath the Baltic Sea. 

The most important twist to the West’s narrative that is featured in the Times report concerns Germany. Its officials say they are now “open to theories” that the sabotage attack was conducted by a Western country “with the aim of blaming it on Russia.”

The key passage comments on the ongoing German investigation, deemed to have made little progress for lack of evidence as to who was behind the three blasts that disabled the pipelines. Germany, writes The Times, has “yet to uncover any compelling evidence” pointing to Russia, and it remains that the German investigation is “open to theories that a Western state carried out the bombing with the aim of blaming it on Russia.”

Additionally, European officials were cited in the report as lamenting that failure to provide transparency in the probes could encourage “dangerous conspiracy theories” and “wild speculations.”

One Western analyst was quoted as saying the utter lack of anything definitive is itself suspicious: “This was a major infrastructure attack. It’s strange that we’ve heard very little,” the person said.

Russia this week seized on recent comments of the Biden administration’s Under Secretary of State for Political Affairs Victoria Nuland to formally charge Washington with being behind the pipeline sabotage. The US ‘directly participated,’ he alleged, though without providing new evidence. He referenced Nuland’s Senate testimony from last week:

“The other day, speaking in Congress, Ms. Victoria Nuland, the under secretary of state, said openly that like many senators, and she personally, the State Department as an organization is happy that the Nord Stream pipelines have turned into metal junk on the Baltic Sea floor. It’s an amusing admission,” Lavrov said.

Below is a clip of the Senate testimony in question…

At a Senate hearing, top US diplomat Victoria Nuland celebrated the Nord Stream 2 pipeline bombing:

“Senator Cruz, like you, I am, and I think the administration is, very gratified to know that Nord Stream 2 is now, as you like to say, a hunk of metal at the bottom of the sea.” pic.twitter.com/KS5OM4N165

— Aaron Maté (@aaronjmate) January 27, 2023

The new UK Times report also makes note of a December report in the Washington Post, which also surprisingly and bluntly admitted that numerous officials in the West now say the evidence is not pointing to Russia.

The Post had issued the rare about-face of accusations (of Russia being the culprit) after interviewing a total of 23 diplomatic and intelligence officials in nine countries who have been privy to the international investigation into the sabotage incident which has threatened European energy supplies going into winter. “There is no evidence at this point that Russia was behind the sabotage,” one European official is quoted as saying.

⚡️Nuland made a confession, rejoicing at the explosions at Nord Stream, her words speak of the direct participation of the United States in the terrorist attack – Lavrov pic.twitter.com/cCzWGSpXOG

— War Monitor (@WarMonitors) February 2, 2023

Further, the report indicated, “Some went so far as to say they didn’t think Russia was responsible. Others who still consider Russia a prime suspect said positively attributing the attack — to any country — may be impossible.”

Likely, that prior WaPo report, as well as Nuland’s bizarre ‘confession’ of sorts, has allowed the German investigators to be more open in expressing their view that it could have been a Western power behind the sabotage, with the aim of a ‘false flag’ operation.

Authored by James Rickards via DailyReckoning.com,

Another warning shot across the bow just happened…

I warned my readers a few weeks ago about how the Federal Reserve, in cooperation with giant global banks, has launched a 12-week pilot project to test the message systems and payment processes on the new CBDC dollar.

A pilot project is not research and development. That’s already done. The pilot means that what I call “Biden Bucks” are here, and the backers just want to test the plumbing before they roll the system out on the entire population.

That project is due to be completed next month. In other words, Biden Bucks are getting closer to becoming a reality for us all. Now there is another big development to keep you up to speed…

This month, the Digital Dollar Project (DDP) released an updated version of its white paper called “Exploring a U.S. CBDC.”

The project expanded the paper in order to examine central bank digital currency projects internationally, though its focus is still on the United States. Since its original white paper release in 2020, CBDC projects worldwide have increased from 35 to 114.

Here is one statement in the updated paper:

It [is] imperative that the U.S. government consider ways to maintain the use of the dollar in digital global payment systems and develop a strategy related to the use of alternative payment systems.

Pigs in the Digital Slaughterhouse

“Alternative payment systems” is simply a technical term for Biden Bucks, which means replacing the cash (“fiat”) dollar we have now. What’s this mean for you?

Let’s first consider the kind of freedom that physical cash offers you. Above all, cash is untraceable and anonymous. When you buy something with cash, there’s no way to trace the purchase to you individually. In that sense, cash is like gold or silver. It doesn’t leave a digital fingerprint.

And that’s why the government wants to eliminate cash — with cash out of the way, it can trace anything and everything.

At that point, the pigs (all of us) will be in the slaughterhouse ready for the digital slaughter of negative interest rates. All of your money will be locked in the banking system. If you don’t want to spend your money, the government can punish you by imposing negative rates. It doesn’t want you saving your money.

And in a completely digital world, what would stop the government from having individualized interest rates for every citizen?

Biden Bucks would also allow for account freezes, tax withholding and outright confiscation in some cases. After all, this is a government-approved digital wallet without any access to physical cash as you know it now.

You’re Just a Pawn

When the government is in full control of your money, it opens up the door for manipulating the economy by using you as a pawn and your assets as chess moves.

If they need to slow down the economy (as they are attempting to do now with increasing interest rates), they could freeze a certain percentage of your cash so you can’t spend it.

If they feel the economy is too slow and needs a jolt of spending, they could punish people who are saving too much with a “spend it or lose it” policy. That’s the reality behind negative interest rates.

It would make your money less truly your own and under government control. We are already seeing how many retailers are not accepting cash across America.

Another thing about physical cash: It’s not hackable.

Under Biden Bucks, all the data that the government will have on every aspect of your life would be a dream come true for hackers. Identity theft would become commonplace.

And forget privacy. That would be a thing of the past.

“Sorry, We Really Don’t Want to Do This to You, But We Have No Choice”

What happens when physical cash is eliminated from any payment transactions? Imagine this alarming possibility…

To further advance the climate change agenda, what if Joe Biden or his successor decided that gasoline needed to be rationed?

Your Biden Bucks could be made to stop working at the gas pump once you’ve purchased a certain amount of gasoline in a week! They could justify it based on “national security concerns” or whatever, and that it’s something they just have to do.

They’ll say, “We really don’t have a choice. We have to do it!”

In other words, Biden Bucks would create new ways for the government to control how much you could buy of an item, or even ban certain purchases altogether. Government would keep score of every financial transaction you made.

In a world of Biden Bucks, the government will even know your physical whereabouts at the point of purchase. It’s a short step from putting you under FBI investigation if you vote for the wrong candidate, buy the “wrong” reading material or give donations to the wrong political party.

The Slippery Slope

They may deny that this is part of some grand plan to control the population, that it’s just a way to make the financial system more efficient. The rest of it is just a conspiracy theory that only kooks believe. And they may mean it. They may not have bad intentions.

But history clearly shows that once the government acquires a specific power, it will eventually use it to the fullest extent it can. And when corrupt people are running the government, they’ll use that power for political purposes, even if they might not set out to originally. The temptation is just too strong.

If any of this sounds extreme, fantastical or otherwise far-fetched, well, it’s not. I simply invite you to look at what’s happening around the world.

China is already using its CBDC to deny travel, employment and educational opportunities to political dissidents. Canada seized the bank accounts and crypto accounts of nonviolent trucker protesters last year. Nigeria put a cap on ATM cash withdrawals at $45 to promote digital payments.

Don’t think that other governments, including the U.S. government, haven’t noticed. They have.

The simple fact is “social credit scores” and political suppression will be even easier to conduct when Biden Bucks are completely rolled out in the U.S. With Biden Bucks, the government will be able to force you to comply with its agenda, like with the climate change example I mentioned above.

Because if you don’t, they could turn off your money. But you can fight back. How?

Get Physical

One, I recommend keeping some physical cash at home or in a safe place. I wouldn’t recommend too much cash because the time may come when cash is declared illegal and you have 60 days to hand in your cash for digital credit.

Handing in too much cash may cause you to be put on a watchlist from a tax or money laundering perspective, even though the money is yours and you obtained it legally.

Second, buy some gold. Gold is a non-digital, non-hackable, non-traceable form of money you can still use.

Also, one-ounce silver American Eagles are the best form of money for day-to-day transactions.

These are ways to protect your freedom and your savings. The time to prepare is now, before it all hits.

New Yorkers will feel the wrath of Old Man Winter today as temperatures will plummet into the teens and single digits by this weekend. Heating demand will soar as millions turn up their thermostats to stay warm. The result so far has been the largest spike in New York natural gas prices in two decades. 

Bloomberg data shows next-day NatGas deliveries via the Iroquois Gas pipeline that transports Canadian NatGas into New York jumped to $164.80 per million British thermal units (MMBtu), a 14x increase from Wednesday prices. This is the highest print for NatGas at the New York hub dating back to 2003. 

Earlier, we quoted Upstate New York meteorologist Ben Frechette who warned, “the coldest airmass on the entire planet will be over New England by Friday night – the only comparable air currently exists over central Siberia.”

Heating demand is also expected to surge in Boston. Prices at the Algonquin City Gate NatGas hub traded around $58/MMBtu, up from $12/MMBtu on the previous day. 

Despite the increasing heating demand in the Northeast, US NatGas prices slid another 2% to $2.40/MMBtu on Friday as traders overlooked the cold shot in the Northeast as mild winter across the Lower 48 has allowed for increases in NatGas production and storage. 

Authored by Martin Young via CoinTelegraph.com,

The crypto bank hasn’t been accused of wrongdoing, but prosecutors want to see how deep the dealings between the crypto bank and FTX went…

Crypto bank Silvergate is reportedly being probed by the United States Department of Justice fraud unit over its involvement with the bankrupt FTX exchange and its affiliates.

The probe is investigating Silvergate’s hosting of accounts linked to former FTX CEO Sam Bankman-Fried’s businesses, according to a Feb. 3 report by Bloomberg, which cited “people familiar with the matter.”

The California-based crypto bank is not accused of any crime, but investigators are attempting to discover how deep the dealings with FTX and Alameda went.

Silvergate was heavily impacted by the collapse of FTX in November, reporting a $1 billion loss last quarter. The bank axed 40% of its staff and disclosed taking out billions of dollars in loans to prevent a liquidity crisis and bank run following the fall of the SBF empire.

The federal investigators are trying to ascertain whether Silvergate and any other companies working with FTX were aware of the situation.

According to Silvergate, Alameda opened an account with the bank in 2018, before the launch of FTX. It claims to have conducted due diligence and ongoing monitoring at the time, according to the report.

This week a bank representative said that the firm “has a comprehensive compliance and risk management program.”

Crypto trader Josh Rager commented on how this latest criminal investigation may impact crypto exchanges with ties to Silvergate.

The Silvergate DOJ fraud probe will probably create some fud for crypto exchanges

Funny how they always time these announcements 🙂 pic.twitter.com/7WxJYFawuF

— Rager 📈 (@Rager) February 2, 2023

On Jan. 27, Silvergate suspended its dividends, citing “recent volatility in the digital asset industry.” It maintained that it had a “cash position in excess of its digital asset customer-related deposits,” at the time.

Silvergate stock has lost 13% on the day tumbling to $17.14 in after-hours trading, according to MarketWatch. Furthermore, SI prices were currently 92% down from their all-time high of $220 in November 2021.

Cointelegraph reached out to Silvergate for comment but had not received a response at the time of publication.

Submitted by QTR’s Fringe Finance

Back in January 2020, I was pointing out that the coronavirus was going to wreak havoc on markets weeks before it ever happened.

As I’ve noted many times on this blog, those days were immensely frustrating.

I waited for a collective market ethos that only viewed the news through a backward looking rearview mirror, with the attention span of a fruitfly and the collective IQ of a wooden ping-pong paddle, to catch up to a news story that was unfolding and evolving, by the second, right in front of their eyes. The news – and the ensuing chaos it would create – couldn’t have been more obvious if it was bludgeoning the market over the head with a wooden club, Bamm-Bamm Rubble style.

Ultimately, I was proven right in my prognostication when the market crashed in March, before the Fed came in and launched unlimited quantitative easing and the public started to wrap their head around the fact that Covid wasn’t necessarily a death sentence.

Current markets seem hell-bent not just on once again ignoring the obvious right now, but spitting the obvious back in the faces of those who use reality as a guide to their decision making. And the real kick in the nuts is that the Fed, the broadest influencer of our economy and market sentiment, isn’t even a tailwind this time. On the contrary, it is a massive headwind.

The market is simply still hanging around – like a Mortal Kombat character stunned, but still on his feet, waiting for the Fed to deliver the final blow.

Old habits die hard. As I pointed out many times just over the last several weeks, it is difficult to break the psychology of market participants who have been conditioned to buy the dip without consequence for the last 15 years. So, in that respect, I’m not surprised the market is rallying despite economic reality. But to say that the market has been grasping for straws when it comes to reasons to rally would be a vast understatement.

Take this week for instance. The market is rallying based on nebulous words Jerome Powell used or omitted from his presser on Wednesday despite the fact that he very clearly stated that more rate hikes were on their way. Its tea leaf reading on top of tea leaf reading, ignoring the very stark reality that interest rates are nearing 5%. There’s nothing to guess or speculate about with rates – they’re most certainly at their highest levels in decades.

But instead of the market getting swallowing that pill in advance, we have seen short term whiplash higher in the form of a short squeeze, because there’s too many people that can’t believe the market isn’t responding to the obvious reality that our economy is slowing down and monetary policy isn’t going to help. In other words, these people got caught flat-footed by clearly seeing reality and being short the market as a result. Then, the market does the “wrong thing” by squeezing higher and all of a sudden these people have a crisis of confidence and are mired in FOMO, seduced by the idea that buying the dip is once again the comfort of investing strategy home that we can all return to, akin to a warm blanket and a fireplace on a wintry New England day.

And as I said earlier this week in a portfolio/macro update, perhaps, for the very long term, buying the dip is the right plan. Will markets be decidedly higher 10 years from now? Probably. It doesn’t mean that the currency is going to hold up though, but that’s another discussion for another day. I talk about how I invest for this anyways here.

But taking a mid-term view, I still believe that this week’s move is nonsensical.

Market behavior today centers around ignoring reality. This is a product of 40 years of Fed intervention in markets. When you constantly have somebody at the ready to bail out the market the first half second one person feels discomfort, it creates a foundation of irrational expectations from investors, namely that things are always better than they seem.

In my time in markets, I’ve listened to a decade of stories about how “king dollar will never die”, how the market will always go up and how the United States will continue to be the world’s super power, no matter what.  Those statements are made with certainty despite the fact that, mathematically, none of these things are certainties. In fact, just the opposite is true.

And so the only way we can try to gauge how close we are to something eventually “breaking” and sending markets lower is to continue to follow the news, objectively, and think critically about it on our own.

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Perhaps you are looking at the same group of facts that I am looking at and you have come to starkly different conclusions. If that’s the case, you likely made a lot of money over the last few weeks and I salute you – that’s what makes a market. However, the reality behind the scenes that the market continues to ignore doesn’t look as though it’s going to get any better anytime soon.

I’ll spare you guys the lecture about how 5% interest rates are eventually going to cause the economy to implode. I’ve prattled on about this way too much and continue to believe that it’ll be the case, and that it’s only a matter of time.

Let’s only take a look at what’s new. On Thursday night, Apple – the bellweather for tech stocks – reported awful earnings that missed expectations, a rarity for them. Google and Amazon did the same. As far as a gauge for technology stocks goes, that’s about as clear of an indication that we are going to get of an economy that’s slowing down and a technology sector where things are not OK.

These reports stand at extremely stark odds with the 16% rally in the NASDAQ that has taken place to start 2023. For a restrictive monetary policy environment, these moves simply don’t make sense.

Perhaps it is my fault for expecting that the market would understand and process this and act rationally – after all, the market never acts rationally.

And I don’t want to prattle on again about the geopolitical risk I see heading into this year, either. But, for fuck’s sake, yesterday we found a goddamn Chinese spy balloon flying over Montana.

The balloon was discovered right about the same time U.S. Central Intelligence Agency Director William Burns was talking about China’s ambitions towards Taiwan:

Burns said that the United States knew “as a matter of intelligence” that Xi had ordered his military to be ready to conduct an invasion of self-governed Taiwan by 2027.

“Now, that does not mean that he’s decided to conduct an invasion in 2027, or any other year, but it’s a reminder of the seriousness of his focus and his ambition,” Burns told an event at Georgetown University in Washington.

“Our assessment at CIA is that I wouldn’t underestimate President Xi’s ambitions with regard to Taiwan,” he said, adding that the Chinese leader was likely “surprised and unsettled” and trying to draw lessons by the “very poor performance” of the Russian military and its weapons systems in Ukraine.

His concluding remarks were notable: “Competition with China is unique in its scale, and that it really, you know, unfolds over just about every domain, not just military, and ideological, but economic, technological, everything from cyberspace, to space itself as well. It’s a global competition in ways that could be even more intense than competition with the Soviets was.”

If you haven’t read my 2023 outlook, here it is summarized in two pieces: first is my 23 Stocks To Watch in 2023 which explains my macro view and what stocks I’m buying heading into the new year. The second is a piece I wrote a couple weeks ago about several catalysts unfolding that continue to act as waypoints, dictating to me that my thesis is on point – and a piece I wrote last Friday reaffirming additional waypoints.

As I have said in many of my pieces, I strongly believe markets in 2023 are going to be driven by both a residual crash coming from this year’s rate hikes and then an eventual Fed pivot, with a fair amount of geopolitical risk on the side.

When I put together the 23 Stocks To Watch In 2023 (Part 1 here, Part 2 here), I tried to keep all of this in mind – I wanted to create a somewhat diversified, risk adverse, plan for myself heading into the new year. Whether or not I’m right, we’ll know in about 12 months.

So, anyways, I digress. I guess we can just add both balloons (the Chinese spy one, and the stock market bubble) to the long list of things that markets will continue to ignore until they cross the line from prophecies into action.

Only at that point (when it’s too late) will the market be able to understand reality, and only because it is literally being forced into not ignoring it anymore. After all, how are you going to make the argument that China isn’t going to invade Taiwan while China is actually invading Taiwan?

When it’s too late, the market will finally get it. This is what happened with Covid in February 2020, this is what happened when Lehman Brothers went under and the housing market crashed and this is what happened leading up to the tech bubble crash in the 2000s. 

Markets never crash as warning beacons are making their way out. In the case of the housing market, the market didn’t crash when delinquencies started to tick higher, it just ignored it. In the case of the Covid crash, the market didn’t crash based on the news that Covid cases were spreading in the U.S., it just ignored it. In both cases, the market crashed once the the public was forced to confront the reality of what was happening, and I don’t expect 2023 to be any different.

Bulls can have their last couple of weeks and their great start to 2023 and celebrate. If you’ve been a short term trader and have made money off this move, I commend you – it’s part of the reason why I like having long exposure in certain select names and sectors. But I still hold firmly in the camp that we are in unprecedented monetary territory and, most importantly, we are there without the backing of the central bank.

We could argue over whether or not the next rate hike is going to be 25 basis points, 50 basis points or nothing at all, but it’s immaterial. Stocks are expensive on a PE and market cap/GDP bases, rates are already near 5%, and that’s that. Even cutting rates to zero tomorrow wouldn’t reverse a lot of the trends that have already started economically at this point – they would still have to play their way out of the system before the cut took hold of the economy.

Like I said, if you’ve been a bull while I’ve been a bear over the last couple of months, you’ve made money. Congratulations. There’s two ways to look at what the market is doing over the last couple of weeks: either we have firmly shifted into a new era, where we are at the beginning stages of a bull market once again and the fundamentals have changed (this, obviously, I don’t think is the case), or we are drifting further and further off the path of reality, which will eventually only lead to a bigger snap back when the time comes and the market can no longer turn its a blind eye to the obvious, wretched financial reality our country faces.

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Update (0932ET):

In response to some US officials accusing China of sending a spy balloon near ICBM fields in Montana, the Chinese foreign ministry said the balloon was for monitoring the ‘weather’ and veered off course and entered into US airspace due to force majeure. 

The ministry “regrets the unintended entry” and said Chinese officials would continue communicating with the US about the balloon. They added the balloon is for meteorological and ‘other scientific research.’ 

Earlier, foreign ministry spokeswoman Mao Ning urged the US to act “calmly and prudently” after some US officials accused China of sending a spy balloon. 

“I want to emphasize that before the facts are clear, any speculation and hype are not conducive to the solution of the problem,” Ning said.

So China states the balloon is for weather purposes only, while some US officials declare it a spy balloon. One thing is certain. The balloon mysteriously ended up near a highly sensitive area in Montana that is home to ICBM fields. 

*   *   * 

US military commanders have advised President Biden against shooting down a Chinese spy balloon flying over the US. 

Reuters said the US military took “custody” of the “high-altitude surveillance balloon” and deployed military aircraft, including stealth fighter jets, to observe it. 

Such balloons operate at an altitude of 15-22 miles, well above commercial air traffic. The balloon’s size is estimated to be equivalent to three buses. 

🚨#BREAKING: More video of the Chinese spy balloon⁰
📌#Montana | #USA

More video is coming out as
The Chinese high altitude surveillance balloon was seen over Billings Montana yesterday.
The size of balloon is three buses wide and has been flying over the Northern U.S. for days pic.twitter.com/4iUVvJQCG8

— R A W S A L E R T S (@rawsalerts) February 2, 2023

A photo of the Chinese spy balloon currently over Montana. The Pentagon’s been tracking the balloon, about the size of three buses, for a few days, but decided against shooting the balloon down, on account of it not posing a military or civilian threat. pic.twitter.com/xLRovjKxbI

— Domenico (@AvatarDomy) February 3, 2023

#BREAKING: A massive spy balloon from China has been surveilling the United States. It is described as the size of three buses and includes a technology
bay – US Media #BreakingNews #usa #Internationalleaks #China pic.twitter.com/x10a1xkdkh

— International Leaks (@Internl_Leaks) February 2, 2023

“The United States government has detected and is tracking a high-altitude surveillance balloon that is over the continental United States right now,” Pentagon spokesperson Brigadier General Patrick Ryder told reporters Thursday. 

“The balloon is currently traveling at an altitude well above commercial air traffic and does not present a military or physical threat to people on the ground,” Ryder continued. 

Right now, the spy balloon appears to be occupying Montana airspace. This alarmed the state’s Republican Senator Steve Daines, who sent an alarming letter to the Department of Defense (DOD). He said the spy balloon is a “concerning event”: because Montana airspace includes “Malmstrom Air Force Base (AFB) and the United State’s intercontinental ballistic missile (ICBM) fields.” 

Looks like three #USAF RC-135s were observing the “Chinese Spy Balloon” over Montana today. These planes are known to track objects the size of a soccer ball from a distance of 300 miles. #ChineseSpyBalloon pic.twitter.com/IGlPetCmUN

— Wilson (@WilsonsWorld) February 3, 2023

Daines wrote that given “the serious nature of the event,” he is “requesting a full security briefing from the administration on this situation.”

“It is vital to establish the flight path of this balloon, any compromised US national security assets, and all telecom or IT infrastructure on the ground within the US that this spy balloon was utilizing,” he continued.

“As you know, Montana plays a vital national security role by housing nuclear missile silos at Malmstrom AFB,” the senator said. 

Separately, Canada’s defense ministry is monitoring a “potential second incident” but declined to give further details. 

News of the spy balloon followed CIA Director William Burns’ speech at a Georgetown University event, where he called China the “biggest geopolitical challenge” facing the West. 

Shares of Ford are lower by about 6% in the pre-market session this morning after the company reported fourth quarter earnings that missed estimates on Thursday and failed to garner the praise of sell side analysts. 

The company reported 2022 earnings of $10.4 billion after guiding to $11.5 billion to $12.5 billion. “Poor execution” and “higher costs” were to blame for the drastic miss, which had been reaffirmed just weeks prior to the Q4 report coming out. 

The company reported Q4 EPS of $0.51 adjusted versus estimates of $0.62 adjusted. On revenue, 4th quarter beat expectations coming in at $41.8 billion versus $40.37 billion estimated. EBITDA adjusted margins were 9.7%, under Wall Street’s best case expectations of around 10%. 

CEO Jim Farley said in the company’s press release: “I’m excited about 2023, which is pivotal for us. We’ve got clarity and ambition with the Ford+ plan, a strong team carrying it out, and a lineup of great products and customer experiences that’s getting even better.

“We should have done much better last year. We left about $2 billion in profits on the table that were within our control, and we’re going to correct that with improved execution and performance,” he continued. 

Despite the miss, the company heralded some of its achievements for the year as well:

• More than 650,000 F-Series trucks shipped during the year, making it America’s best-selling truck for 46 straight years – and top vehicle of any type for 41 years
• The electric F-150 Lightning recently honored as both the North American Truck of the Year – marking the third straight year Ford vehicles have earned that award – and the 2023 MotorTrend Truck of the Year.
• Recognition of the 2023 Ford Bronco and 2023 Ford Maverick “10 Best Trucks and SUVs” by Car and Driver, the second consecutive year for Bronco
• In November, producing the 150,000th Mustang Mach-E in less than two years, a milestone to scaling Ford’s global EV production to a run rate of 600,000 annually by the end of 2023 and more than 2 million by the end of 2026, and
• Consumer Reports last week named Ford BlueCruise advanced driver-assistance system the best among 12 such systems that it tested; at the end of 2022, customers had traveled more than 42 million hands-free miles with BlueCruise, four times more than just six months earlier.

CEO Jim Farley told CNBC on Thursday: “We have to change our cost profile. We know what we have to go after. I’d love to give you all the metrics and all the specific gaps we see. But you know, whether it’s absenteeism, the number of sequencing centers, the number of wiring harnesses we have, we know what it is.” 

He continued; “We have a lot of complexity relative to the customer and also inside our company. And we can cut the customer-facing complexity like we have, but it takes time to work that down to parts on the line, to the manufacturing line. It just takes time to work through that and that’s what we’ll do.”

“I can’t wait to show you and the whole world this next cycle of products. Many of our competitors are just coming out with their first cycle and we can see their batteries are too big. Their distribution costs are too expensive. They’re spending too much money on advertising. You know, we can’t do that. We don’t plan on doing that.”

Other analysts also weighed in with their take on Friday morning, from Bloomberg:

Deutsche Bank, Emannuel Rosner (downgrades to sell)

• The large miss in 4Q and “aggressive” guidance for 2023 displays “considerable operational shortfalls,” and also implies meaningful downside to Ford’s earnings trajectory
• Notes management citing supply chain conditions for the miss, but Rosner also highlights that they had recognized the company’s “suboptimal material economics and poor operational execution”
• Rosner worries about the limited visibility into Ford’s supply base

Citi, Itay Michaeli (neutral)

• Print was “significantly below” previous guidance due to a number of company-specific factors, including lower volume and higher costs
• Guidance is likely to be overshadowed by the “surprise” miss, with the near-term story now focused on proving execution
• North America was only slightly below Citi’s own estimate; most of miss came from Europe and China, which reported losses

Jefferies, Philippe Houchois (hold)

• While Ford missed expectations across divisions, the free cash flow “held up in quantity and quality”
• Notes management is “clearly frustrated by slow pace of progress”