Stellar 2Y Auction Sees Bond Market Mocking Fed’s “Higher For Longer”
Back in November, when the 2Y auction hit a cycle high of 4.513%, markets knowingly nodded muttering that the bond market was agreeing with the hawkish Fed. Since then however, things haven’t gone according to plan with each auction printing at an lower and lower yield, culminating with today’s sale of 2Y paper which priced at just 4.139%, down from 4.390% in December, and the lowest since August. It also stopped through the When Issued 4.152% by 1.3bps, the third consecutive stop through which prior to December had tailed 3 of the past 5 times.
The Bid to Cover confirmed the stellar demand, jumping from 2.713 to 2.944, the highest going back all the way to the flight to safety bond market chaos of April 2020.
Finally, the internals were also phenomenal, with Indirects – or foreign buyers – awarded a whopping 65.0%, the third highest on record, and well above the recent average of 57.4%. And with Directs taking down 18.7%, it meant that Dealers were left holding on to just 16.3% which was also one of the lowest on record.
Bottom line: this was an absolutely blowout auction, and one which is clearly mocking the Fed’s “higher for longer” intention as demand for 2Y paper at well below the Fed’s market implied terminal rate of 2Y suggests that even the smartest guys in the room are convinced the Fed will be cutting quickly and aggressively as soon as the second half.
Not surprisingly, both the 10Y and the 2Y yields hit session lows after news of the stellar demand for 2Y paper hit the wires.
A ‘small number’ of documents with classified markings were discovered at former Vice President Mike Pence’s home in Indiana last week, officials confirmed Tuesday.
On January 18, Pence’s team notified the National Archives that the documents were “inadvertently boxed and transported” to the former VP’s house at the end of the Trump administration, and that Pence was “unaware of the existence of sensitive or classified documents at his personal residence,” according to his lawyer.
The findings at Pence’s residence comes as President Biden is facing mounting criticism, which had also come from Pence, over the discovery of classified materials at Biden’s old office at a Washington, D.C., think tank and at his Delaware home.
Greg Jacob, the attorney representing Pence, wrote to the Archives that Pence used outside counsel with experience handling classified documents to review records stored at his personal home after several classified documents were found at Biden’s Delaware home earlier this month. -The Hill
“Vice President Pence has directed his representatives to work with the National Archives to ensure their prompt and secure return,” wrote Jacob. “Vice President Pence appreciates the good work of the staff at the National Archives and trusts they will provide proper counsel in response to this letter.”
So – we imagine the new narrative will be that everybody does it, so it’s no big deal – and nevermind all that ‘treason’ and ‘walls are closing in’ talk when it was just Trump. We’re sure many committees will be launched to get to the bottom of the ‘classified document problem.’
Market Goes Haywire With Dozens Of NYSE Trading Halts At The Open After “Technical Glitch”
Update 2 (11:15am ET): The NYSE says it is continuing to investigate the “technical issue” that caused wild stock swings at the market open Tuesday as dozens of large-cap stocks suddenly plunged or spiked during the broken opening auction.
According to the New Jersey-based New York Stock Exchange, “impacted members may consider filing for Clearly Erroneous or Rule 18 claims” adding that “In a subset of symbols, opening auctions did not occur. The exchange is working to clarify the list of symbols.”
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Update (9:52am ET). According to the NYSE, as of 9:48am, all systems are back to normal, although that is an understatement in a market where nobody knows what the correct opening price is! We are still waiting for the NYSE to give a detailed explanation of what caused this latest “broken markets” episode.
While it is still unclear what was the “technical glitch” that sent the world’s biggest companies into a multi-trillion market cap rollercoaster, Bloomberg reports that “a wave of sell orders targeting financial services stocks swept across American equity exchanges at the open of trading Tuesday, sending companies including Wells Fargo & Co. and Morgan Stanley to brief but sharp plunges from which they mostly quickly recovered.”
After closing Monday at $45.03, Wells Fargo fell as low as $38.10 before bouncing back, while Morgan Stanley plunged to $84.93 after ending at $97.13 on Monday.
That may be accurate, it’s not comprehensive as virtually every NYSE-listed stock was slammed at the open, only to rebound powerfully before tumbling once more. Indeed, as noted below, other impacted stocks included the likes of Walmart, McDonald’s and Exxon. These stocks saw drops of at least 12% before they were halted. Their moves have now rebounded to less than 1% in either direction.
Separately, at least 40 S&P 500 Index stocks were hit with trading halts. Other impacted shares included the likes of Walmart Inc. and McDonald’s Corp. These stocks saw drops of at least 12% before they were halted. Their moves have now rebounded to less than 1% in either direction.
“It’s a little concerning,” Oanda senior market analyst Ed Moya told BBG. “These are not your typical meme stock, easily manipulated companies, these are Morgan Stanley, Verizon, AT&T, these are some of the giants.”
Tuesday’s transactions occurred in New York Stock Exchange-listed securities and took place on virtually every trading platform, including ones overseen by CBOE Global Markets and private venues reporting to the Finra trade reporting facility.
The start of trading in most American stocks involves a complicated but usually routine process called the opening auction, designed to limit volatility resulting from orders for shares that pile up before the start of the regular session. In it, a computer balances out supply and demand for a particular stock by establishing an opening price that can be viewed as the level that satisfies the largest possible number of traders.
“We don’t have all the details yet, but what it looks like is that some stocks opened and were automatically or were erroneously triggered for limit up/limit down, which threw them into a halt status,” said Jonathan Corpina, senior managing partner at Meridian Equity Partners who typically works on the floor of the New York Stock Exchange.
“All of our phones are lighting up,” he said. “We’re trying to field calls from our customers and try to explain to them what happened, what’s going on and relay as much accurate information so they understand what’s happening. But as of now, things are still unfolding.”
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It has been a while since we had a market-wide break.
Something snapped at exactly 9:30:00 am ET this morning when stocks opened for trading, only… they didn’t, as instead hundreds of NYSE-listed stocks were immediately halted for trading after breaching circuit breaker limits…
… which among others saw giga-caps such as Exxon, Morgan Stanley, Verizon, AT&T, Nike, and Wells Fargo tumbling as much as 11%…
… while McDonalds traded down to $236.42 before rebounding to $268.32 – a $55 billion swing in market cap in seconds – before being almost immediately halted.
While it is unclear what the “technical glitch”, as CNBC called it, in question was many stocks had abnormally large moves when stocks opened for trading, which triggered the resulting volatility halts.
It took several minutes for the circuit breakers to be lifted and for trading to return to something resembling normalcy although nobody knows if these prices are accurate or still affected by whatever glitch halted trading.
From a contrarian investing view, everyone remains bearish despite a market that corrected all of last year. I polled my Twitter followers recently to take their pulse on the market.
Of the 1280 votes cast in the poll, roughly 73% of respondents anticipate the market to be lower throughout 2023. That view also corresponds with our sentiment gauge of professional and retail investor sentiment, which, while improved from the October lows, remains depressed.
More importantly, investor allocations, particularly among professional investors, remain extremely light, suggesting a much higher level of caution. The following is the 4-week moving average of the National Association of Investment Managers bullish index. While the reading of 25.04 in October coincided with the market low, the current reading of 48.16 remains bearish.
As Bob Farrell’s Rule Number 9 states:
“When all the experts and forecasts agree – something else is going to happen.
As a contrarian investor, excesses are built by everyone betting on the same side of the trade. When the market peaked in January 2022, everyone was exceedingly bullish, and no one was looking for a 20% decline. Sam Stovall, the investment strategist for Standard & Poor’s, once stated:
“If everybody’s optimistic, who is left to buy? If everybody’s pessimistic, who’s left to sell?”
Today, everyone remains bearish, suggesting the possibility of the market doing something no one expects.
The Art Of Contrarianism
As we have often discussed, one of the investors’ most significant challenges is going “against” the prevailing market “herd bias.” However, historically speaking, contrarian investing often proves to provide an advantage. One of the most famous contrarian investors is Howard Marks, who once stated:
“Resisting – and thereby achieving success as a contrarian – isn’t easy. Things combine to make it difficult; including natural herd tendencies and the pain imposed by being out of step, particularly when momentum invariably makes pro-cyclical actions look correct for a while.
Given the uncertain nature of the future, and thus the difficulty of being confident your position is the right one – especially as price moves against you – it’s challenging to be a lonely contrarian.”
As noted, a majority of investors remain bearish. There are certainly ample reasons to BE bearish:
The Fed is remaining aggressive on monetary policy.
Central banks are reducing liquidity to markets.
Inflation remains problematic.
Earnings remain elevated.
The economy is slowing.
Consumers are running out of savings.
We certainly agree with the more dismal outlook and continue to suggest that investors should be more cautious in their portfolio allocations. However, this is also the point where investors make the most mistakes. Emotions make them want to avoid the risk of loss.
Given that many investors have never witnessed a “bear market,” the current bearing sentiment is unsurprising. The increased price volatility, and subsequent decline in prices, created a substantially higher level of instability. That instability creates “fear” and drives investors to the behavioral bias of “loss aversion.”
That increased volatility weighs on investor sentiment leading to poor investment decision-making and, ultimately, poor outcomes.
However, if the most fundamental premise of investing is to “buy when everyone is fearful,” investors may again be missing the contrarian opportunity.
With the market negatively positioned, the contrarian trade is an expectation of the unexpected.
What if the markets have discounted an economic slowdown?
What if earnings remain stronger than currently expected?
Could the Fed reverse monetary policy?
Have valuations declined enough?
The fundamentally bearish arguments of valuations, earnings, a Fed policy mistake, and a recession are certainly viable outcomes.
However, given that “everyone” is already expecting those outcomes, what happens if something else occurs?
Navigating A Contrarian Trade
Everyone is so bearish the markets could respond in a manner no one expects.
There are plenty of reasons to be very concerned about the market over the next few months. Given the market leads the economy, we must respect the market’s action today for potentially what it is telling us about tomorrow. Therefore, there are some actions we can take to navigate for whatever path the market chooses.
Move slowly. There is no rush to make dramatic changes. Doing anything in a moment of “panic” tends to be the wrong thing.
If you are overweight equities, DO NOT try and fully adjust your portfolio to your target allocation in one move. Again, after significant declines, individuals feel like they “must” do something. Think logically about where you want to be and use the rally to adjust to that level.
Begin by selling laggards and losers. These positions were dragging on performance as the market rose, and they led on the way down.
Add to sectors, or positions, that are performing with or outperforming the broader market if you need risk exposure.
Move “stop-loss” levels up to recent lows for each position. Managing a portfolio without “stop-loss” levels is like driving with your eyes closed.
Be prepared to sell into the rally and reduce overall portfolio risk. You will sell many positions at a loss simply because you overpaid for them to begin with. Selling at a loss DOES NOT make you a loser. It just means you made a mistake.
If none of this makes sense to you, please consider hiring someone to manage your portfolio. It will be worth the additional expense over the long term.
Just remember:
“In good times, skepticism means recognizing the things that are too good to be true; that’s something everyone knows. But in bad times, it requires sensing when things are too bad to be true. People have a hard time doing that.
The things that terrify other people will probably terrify you too, but to be successful, an investor has to be a stalwart. After all, most of the time the world doesn’t end, and if you invest when everyone else thinks it will, you’re apt to get some bargains.“
Ukraine Rocked By Corruption Scandal, Wave Of Top Officials Resign: Sports Cars, Mansions & Luxury Vacations As People Suffered
The Ukrainian government on Tuesday confirmed the resignation of multiple high ranking officials amid large-scale corruption allegations, in what’s being called the biggest mass resignation and graft scandal since the Russian invasion began.
Some dozen officials have quit their posts after a huge political shake-up over allegations and probes into cases ranging from bribery, to mismanagement of aid funds for purchasing food, to embezzlement, to driving expensive cars while common people suffer under wartime conditions.
A top presidential adviser and four deputy ministers – among these two defense officials, along with five regional governors were forced out of their posts. And among the regional governors to step down included officials overseeing regions which have seen intense fighting, including the Zaporizhzhia and Kherson regions, where Russian forces have lately reported gains.
In reference to the announcement by a senior government official, Oleg Nemchinov, international reports detail the following list:
Deputy Prosecutor General Oleskiy Symonenko
Deputy Minister for Development of Communities and Territories Ivan Lukeryu
Deputy Minister for Development of Communities and Territories Vyacheslav Negoda
Deputy Minister for Social Policy Vitaliy Muzychenk
And the regional governors of Dnipropetrovsk, Zaporizhzhia, Kyiv, Sumy and Kherson
And separately, “the defense ministry had earlier announced the resignation of deputy minister Vyacheslav Shapovalov, who was in charge of the army’s logistical support, on the heels of accusations it was signing food contracts at inflated prices.”
In this case regarding the food contracts, Shapovalov is accused of signing a deal with an unknown, shady firm. In his role as deputy defense minister, his is the most notable and visible resignation. Crucially he would have had no small part in overseeing the billions of dollars flowing from the pockets of US and European taxpayers as authorized defense aid.
He purchased military rations at inflated prices in what appears a scheme to line the pockets of contractors, and potentially involving kickbacks to himself.
Deputy Minister of Defense Vyacheslav Shapovalov has resigned over to the food procurement scandal. https://t.co/kP3U8CjHd2
While the defense ministry is still trying to downplay it as a “technical error” – Politico reviews of the details to the scandal:
An exposé from the Ukrainian news website ZN.UA revealed last week that the defense ministry purchased overpriced food supplies for its troops. For instance, the ministry bought eggs at 17 hryvnias per piece, while the average price of an egg in Kyiv is around 7 hryvnias. According to ZN.UA, a contract for food procurement for soldiers in 2023 amounted to 13.16 billion hryvnias (€328 million).
This is two to three times higher than current rates for such food items, reports say. Shapovalov’s resignation letter indicated he’s stepping down so as “not to pose a threat to the stable supply of the Armed Forces of Ukraine as a result of a campaign of accusations related to the purchase of food services.”
There’s also deputy head of the Zelensky administration Kyrylo Tymoshenko, who stands accused of living a lavish wartime lifestyle. Many current mainstream media reports on Tuesday are burying some of the key verified details. For example, BBC writes simply that “Tymoshenko was implicated in several scandals during his tenure, including in October last year when he was accused of using a car donated to Ukraine for humanitarian purposes.”
But starting in early December local Ukrainian outlets, angered at the posh lifestyle of Ukrainian leaders at a moment tens of millions are without power amid Russian aerial bombardment of the nation’s power grid, began confirming that Tymoshenko drove high-end sports cars in and out of the capital, to and from mansions which typically range in cost from$10,000 to $25,000 per month.
Below are photos published by The New Voice of Ukraine, republished in Yahoo News, in early December of last year, showing Tymoshenko frequently behind the wheel of a shiny new Porsche Taycan…
One outlet published a photo series entitled Not the “martial law” of Kyrylo Tymoshenko, deputy head of Ukraine’s Office of the President
US taxpayer dollars at work in Ukraine…
As another example of Western MSM seeking to downplay or soften this latest wave of graft-related forced resignations, the AFP writes, “Ukraine has long suffered endemic corruption, including among the political elite, but efforts to stamp out graft have been overshadowed by Moscow’s full-scale war that began in February.” And yet officials like Tymoshenko were spotted around Kiev and oligarchs’ neighborhoods driving luxury sports cars for months throughout the war.
Additionally, there’s this laughable and embarrassing line out of the AFP report: “Kyiv’s Western allies, who have allocated billions of dollars in financial and military support, have been pushing for anti-corruption reforms for years, sometimes as a precondition for aid.”
From a government supposedly “pushing anti-corruption reforms for years” to over $100 billion in US defense and foreign aid being pledged to Kiev’s coffers over the past year… to now this from within the heart of the Zelensky administration:
Kyrylo Tymoshenko, deputy head of the office of the president of Ukraine, confirms he submitted his resignation to Zelensky. In his IG post he thanks Ze for “the opportunity to do good deeds every minute of every day,” and many others including his family and Ukrainian officials. pic.twitter.com/AwAiH8txMb
It doesn’t stop at posh and expensive cars, but the controversy has even extended to luxury vacations abroad as Ukrainians suffer the deprivations of war at home. “The departure of Symonenko, a deputy prosecutor general, comes after media reports that he spent a holiday in Spain this winter, reportedly using a car belonging to a Ukrainian businessman.” The government has as a result now reportedly barred top officials from vacationing abroad as a result of the scandal.
Just prior to the wave of resignations, another official named Vasyl Lozynskiy was accused of receiving bribes to “facilitate” the purchase of generators at greatly hiked-up prices. Crucially, Lozynskiy as Deputy Minister of Infrastructure and Communities Development would have also been directly involved in overseeing how billions of dollars in Western humanitarian and infrastructure assistance gets doled out.
“Transparency International ranked Ukraine 122 out of 180 in its corruption ranking for 2021,” the AFP now writes (the second most corrupt in Europe, with Russia the most at 136.)
And now Ukraine’s Defense Minister Oleksii Reznikov is under scrutiny related to the growing probe and scandal. Meanwhile, as news of the widening scandal hits world headlines…
Addressing a Chambers of Commerce meeting in Boca Raton today, Zelensky thanks BlackRock, JP Morgan, Goldman Sachs, and others for their support of Ukraine. Adds that sending Ukraine heavier weapons, like Abrams tanks, represents a “big business” opportunity for US corporations pic.twitter.com/N1h8OVECLt
Investors Surge Back Into Oil At Fastest Pace In 5 Years
By John Kemp, senior market analyst
Portfolio investors have piled back into petroleum futures and options at the fastest rate for more than two years as concerns about a global business cycle downturn have eased.
Hedge funds and other money managers purchased the equivalent of 89 million barrels in the six most important petroleum contracts over the seven days ending on Jan. 17.
Purchasing was the fastest since November 2020 (shortly before the first successful coronavirus vaccine trials were announced) and before that April 2020 (when the first lockdowns started to be eased). The wave of buying was led by crude (+78 million barrels), especially Brent (+55 million), with smaller buying in NYMEX and ICE WTI (+23 million).
Total Brent positions climbed to 212 million barrels (44th percentile for all weeks since 2013) up from 157 million (22nd percentile) on Jan. 10 and a recent low of just 89 million (4th percentile) on Dec. 13.
Bullish long positions outnumbered bearish short ones in Brent by a ratio of 5.30:1 (63rd percentile) up from 3.07 (28th percentile) on Jan. 10 and 1.95 (6th percentile) on Dec. 13.
The increase in investors’ Brent positions was the largest since August 2018 and the sixth-largest out of 514 weeks since the time series began in 2013.
The sudden turn around seems to have been driven by a combination of low initial positioning and a sudden increase in confidence about the outlook for the global economy and oil consumption. Recent inflation data have shown the rate of price increases is moderating, which has raised hopes for an early peak in the interest rate cycle.
With gas and electricity prices declining in recent weeks, some major forecasters now expect the euro zone as well as the United States to avoid a formal recession in 2023. China also appears to be pressing ahead with re-opening the economy after three years of intermittent and disruptive lockdowns.
Given the speed of transmission, the current infection wave is likely to be completed by the end of February or early March. By April, there is likely to be a very large increase in domestic and international passenger travel by air, rail and road, driving a large increase in fuel consumption.
China’s re-opening industrial economy is also likely to stimulate domestic diesel consumption and spill-over stimulus to other economies in Asia.
Ironically, the biggest risk to the economy and oil consumption is that the economic revival rekindles inflationary pressures and forces the major central banks to persist in raising interest rates longer and higher.
EU Technocrat Threatens Musk With “Sanctions” Unless He Stamps Out Free Speech On Twitter
The battle over Twitter is often made to appear complex and chaotic, but it can all be boiled down to a simple dichotomy – It’s about the people who demand censorship in favor of the establishment narrative vs. the people who want free speech and fair rules applied to everyone equally.
Everything else is noise and distraction.
The complications arise when we try to define free speech when it comes to social media. Private companies are not subject to many legal boundaries related to free speech rights. This is an argument that the political left and government representatives made constantly during the massive purge of conservative and liberty oriented accounts by Big Tech companies since 2016. And, as we saw with Twitter previous to Elon Musk’s takeover, governments took full advantage of this legal loophole in order to silence people using social media websites as middlemen.
The ongoing release of the Twitter Files proves beyond a shadow of a doubt that collusion between Big Tech and governments for the sake of censorship is a reality. In America, at least, this is a constitutional no-no. The fact that politicians and agencies like the FBI were actively seeking out and targeting ideological opponents and having them silenced on Twitter is a direct violation of the 1st Amendment and these people should be subject to prosecution (the FBI even shelled out at least $3 million to Twitter for services rendered).
Prosecution might never happen, but at least the evidence is undeniable today after years of the public being lied to.
The reality that Twitter was acting as an enforcement agent for government censorship around the world tells us exactly why so many establishment officials have been up in arms over Musk’s purchase of the platform. Until now, every single major Big Tech company has been operating in lock-step with the establishment narrative. People couldn’t even talk about Hunter Biden’s laptop, let alone talk about the inconvenient facts surrounding “climate change” or the covid mandates and vaccines.
This is a dynamic that elitists would still like to keep in place, and they are looking to use international trade rules as a means to pressure Musk into conforming.
EU Commissioner for Values and Transparency Věra Jourová makes a statement from the frozen doorstep of Davos arguing that Twitter is subject to EU rules for preventing “harm to society”.
“The time of the Wild West is over,” Jourova told EuroNews.
“We will have the Digital Services Act [DSA]. We will have the Code of Practice as a part of this legislation.”
“So, after Mr Musk took over Twitter with his ‘freedom of speech absolutism,’ we are the protectors of freedom of speech as well,” she added.
“But at the same time, we cannot accept, for instance, illegal content online and so on. So, our message was clear: we have rules which have to be complied with, otherwise there will be sanctions.”
Who is Věra Jourová to determine what type of speech is harmful to society? She’s a bureaucrat who has long insisted that “hate speech” laws utilized in the EU should be instituted in the US. In other words, she’s nobody.
But two very important conclusions can be derived from her statements here.
First, she is essentially admitting that the EU Commission was working directly with the previous Twitter leadership to censor the public in a bid to control their behavior.
Second, establishment bureaucrats overseas assume that they should have the power to dictate the policies of private media companies in the US when it comes to communication.
It should be noted that these same bureaucrats were defending Twitter operations as a private company only a year ago (as long as company policies fell in line with government messaging). As soon as Twitter started to allow more free speech, suddenly its operations as a private company became an international problem.
Again, the conflict is about one question – Should people be allowed say what they want and share the information that they want within the confines of constitutional law? For those that believe the answer is no, we have to then ask “Why?” What about free speech is so threatening to them? Can mere speech really do damage to society? Is this really about public safety? Or, is it about power, and the means to lie to the public while removing their ability to contradict?
US Confronts China Over State-Owned Companies Supplying Russian Military
The United States is once again putting pressure on China over its alleged behind the scenes assistance to Russia as it executes the war in Ukraine.
“The Biden administration has confronted China’s government with evidence that suggests some Chinese state-owned companies” may be providing assistance, Bloomberg reports, while seeking to “ascertain if Beijing is aware of those activities, according to people familiar with the matter.”
The sources cited in the report said the support involved non-lethal military aid and economic assistance that “stops short of wholesale evasion of the sanctions regime” put in place by the US and its allies on Russia.
It’s believed that non-lethal equipment such as helmets and flak jackets are being transferred, which US officials say is still “concerning” – and Secretary of State Tony Blinken is expected to inquire about the issue when he travels to China within coming weeks.
Washington has since the start of the Russian invasion worried that Moscow and Beijing’s mutual declaration of having a “friendship without limits” at the Putin-Xi summit on Feb. 4, 2022 will turn into supplying the Russian war machine militarily.
There have even been suggestions coming out of US officials that President Xi knew about the invasion beforehand, something Beijing as firmly denied. The timing of Putin’s cozy visit with this Chinese counterpart, having come just weeks before he ordered the Ukraine invasion, has long raised eyebrows.
The issue of potential sanctions-violating items sent to Russia by state-owned companies has been raised directly with top Chinese government officials in the foreign ministry. “The trend is worrying enough that US officials have raised the matter with their Chinese counterparts and warned about the implications of supplying material support for the war,” Bloomberg details.
But then even if the Chinese government is shown to have had direct knowledge of its state-owned firms sanctions-busting activities, the question remains of how far the Biden administration is will to go in terms of punishment.
The Bloomberg report highlights the dilemma in the following: “And if Biden and his advisers determined China’s government was involved in or tacitly accepted the actions of those state-owned enterprises, they would be forced to decide how much to push back.”
And further: “That could risk opening a whole new area of dispute at a time when the US has sought to balance its desire for stabilized ties with Beijing against moves to limit Chinese access to high-end mircochips and confront China over what it sees as a more aggressive posture toward Taiwan.”
The Kremlin potentially being able to tap China as a reliable military supplier would have huge repercussions for its war effort especially given the widespread assumption that Russia is fast depleting its artillery reserves. A large, powerful secret backer which could keep up fresh supply would be a game-changer, also at a moment the Ukrainian side is desperate for more from its Western backers. US intelligence has lately eyed North Korea too as a culprit in aiding the Russian invasion via equipment and ammo. The US has recently alleged Pyongyang is arming the Wagner private military firm in particular.
Russian Warship Armed With Hypersonic Missiles To Join China In South Africa-Hosted Drills
The Russian navy is set to participate alongside the Chinese and South African navies in exercises set for February off South Africa, Russia’s state TASS has announced.
Importantly, the Russian frigate named ‘Admiral of the Fleet of the Soviet Union Gorshkov’ is armed with hypersonic cruise missiles, after it entered deployment in the Atlantic Ocean three weeks ago.
The Zircon hyperonics it is carrying are believed to be able to fly at nine times the speed of sound, with a range of over 620 miles. The ship is expected to traverse the Mediterranean, making its way to Russia’s port at Tartus, before heading south.
“‘Admiral Gorshkov’ … will go to the logistic support point in Syria’s Tartus, and then take part in joint naval exercises with the Chinese and South African navies,” TASS reported.
The South African National Defense Force has also confirmed the drills, which will run February 17-26 and be located off the port cities Durban and Richards Bay, describing that the exercise aims “to strengthen the already flourishing relations between South Africa, Russia and China.”
The South African military also pointed out it will be the second joint drills involving the three countries, after a 2019 exercise.
Interestingly, the timing of the new drills will correspond with the one year anniversary of Russia’s Feb.24 invasion of Ukraine. Given that it remains a US ally, South Africa is coming under heavy criticism for hosting the drills, and for also allowing Russian warships at its ports.
South Africa had been among the some three dozen countries to abstain from a UN vote last year to condemn Russia’s annexation over the four eastern Ukrainian territories.
The New York Times reported of the US reaction as follows:
The United States, which has fostered a decades-long strategic partnership with South Africa, immediately expressed disapproval. David Feldmann, a spokesman for the United States Embassy in Pretoria, South Africa, said in a statement, “We note with concern” the plan by South Africa to move ahead with the joint exercises “even as Moscow continues its brutal and unlawful invasion of Ukraine.”
“We encourage South Africa to cooperate militarily with fellow democracies that share our mutual commitment to human rights and the rule of law.” Feldmann said further.
The NY Times further notes on the significance of South Africa’s defiant and independent stance: “The naval drill is a show of diplomatic independence for South Africa, analysts said.” And further, “South Africa is part of an alliance with Brazil, Russia, India and China — known by the acronym BRICS — and this naval exercise reasserts South Africa’s position that it will not allow the conflict between Russia and Ukraine to dictate its diplomatic relations.”
Last week, the Producer Price Index data finally showed some cooling of wholesale prices. That coupled with better-than-expected CPI data further buoyed hope that the Fed is winning the war on inflation. But in his podcast, Peter Schiff emphasized that easing inflation is transitory. And a weakening dollar will be a big part of the story.
Markets rallied after the PPI data came out last week.
The markets liked this number and that was part of the reason for a rally that day — the reaction to this better-than-expected news on inflation. But you have to remember that all of this better-than-expected news on inflation is transitory. So, it wasn’t the increase in inflation that was transitory. That’s permanent. What is transitory is this slight decrease that we’re enjoying now.”
It’s important to remember that even though the rate of increase is slowing down, prices are still going up.
They’re just not going up as fast as they were. But all of that is temporary because the reason that we saw a decline in the rate of increase in prices was because we got a correction in commodities, in particular oil prices. We’ve also got a decline in longer-term interest rates. That has affected mortgage rates and probably other debt payments that are being made. That is helping to reduce somewhat the rate of increase in costs businesses are experiencing. But all these factors are temporary.”
Peter noted that commodity prices have already reversed their decline.
One of the reasons commodity prices fell was the strength of the dollar. But the dollar completely reversed in the fourth quarter. On Sept. 27, just before the start of Q4, the dollar index reached 114.11. That was the highest level of the year. From there the dollar index fell by nearly 8%. Today, the DIX is hovering just above 101.
Peter said he expects this dollar weakness to continue for the balance of the year.
I still think that 2023 could end up being one of the worst years ever, and maybe the worst year ever for the US dollar, and that weakness is going to help propel consumer prices much higher. So, I believe that after this transitory reduction in the acceleration of the inflation rate, I think we’re going to head higher again and that before the year is over, we’re going to be printing year-over-year increases in the CPI that will eclipse the high from last year.”
Peter also covered some of the most recent economic data that came out last week. For instance, the Philadelphia Fed Manufacturing Index for January came in weak. And existing home sales also underscored the growing weakness in the housing market. In 2022, existing home sales fell by 34%. That was the single biggest drop in home sales ever.
That means the drop is bigger than it was during COVID. It’s bigger than it was at any point during the 2008-2009 financial crisis.”
Peter said this has very ominous implications for the economy in 2023 because a lot of economic activity that shows up in GDP is related to home sales.
So, all those people who are still clinging to the false hope that the economy is going to experience a soft landing are not reading any of the very bold upper-case letters clearly written on this collapsing wall.”
In this podcast, Peter also talks about the rollover in growth stocks, gold making a 9-month high last week, job losses in the tech sector, the wasteful meeting in Davos, and how a Netflix documentary on Bernie Madoff proves more regulations won’t help us.
