Market Overview
The World
Will there be a NATO war with Russia and China?
For the Pentagon hawks, the rhetoric is getting sharper.
They have prepared 8,500 soldiers to support Ukraine, asking other NATO members to prepare for military assistance to Ukraine.
They are pulling back their officials from Ukraine and spreading panic about a certain Russian invasion.
At the same time, the two largest carriers are moving to the South China Sea and further straining relations with China.
Can the Pentagon wage two wars?
USA
House prices rose in 2021 by 18.8%, gasoline 49.6%, gas 24.1%, electricity 10.4% and food 27.2%.
Record inflation in December – 7.04%
FED
The head of the FED announces that the raising of interest rates will start in March 2022, and it is expected that the central bank interest rates will reach 1.25% at the end of this year.
That is how the FED wants to deal with inflation.
I believe that raising interest rates will not stop the growth of inflation and that there will only be even greater growth in borrowing, falling economic activity, and great illiquidity in the financial markets.
Fed Governor Jerome Powell has an annual salary of $ 203,500 and owns assets of $ 55 million.
How does he manage his assets?
Almost 60% is invested in shares of American companies on stock exchanges. Over 20% of his assets are in government bonds.
Interestingly, the governor does not invest in government bonds in which the Fed invests the most. Decide for yourself why this is so?!
The FED has legally invested more than 5,000 billion dollars since the beginning of the pandemic.
How much was inserted illegally?
Inflation in 2021 is 6.8%, if measured by the 1980 methodology it would be 15%. The FED lost the battle with inflation. If FED wanted to curb inflation, it would have to raise the reference interest rate to 7%, which would lead to a complete collapse of the state, companies, and citizens.
The Fed has cornered itself and its room for maneuver has been closed.
Will there be an increase in interest rates?
The current official debt of 30,000 billion dollars is being serviced at an annual cost of 500 billion dollars, if there is an increase in nominal interest rates from 1.5% to 3.0%, then it will need to service 1,000 billion dollars a year.
EU
The EU Commission has given consent to FB, Twitter, and WhatsApp to be able to monitor, censor, and evaluate the communications of its users.
They apply the Chinese model of total citizen supervision.
ECB
Official inflation in the Eurozone is 5.0%.
The ECB closes its eyes and continues to talk about 2% inflation.
They believe that everything is temporary and that inflation will calm down on its own.
Hungary
Inflation record – 7.4%.
The central bank raised the interest rate to – 2.9%.
Russia
The Republic of Tatarstan has proposed to the Central Bank of Russia to be an experimental project for the introduction of cryptocurrency.
The Eurasian Bank plans to invest a $ 4 billion loan in Kazakhstan’s economy by 2026.
GDP growth in 2021 – 4.5%
The gas pipeline from the Russian Federation to Mongolia and China will start operating in 2027.
China
The central bank reduced the interest rate to 2.85% because the results in the fourth quarter of 2021 were significantly worse.
Credit incentives:
Germany
Negative interest rates are a big problem for the German economy.
Deposits of insurance companies, investment companies, and public companies and institutions in German private banks (Deutsche Bank, Commerzbank, etc.) will no longer be covered by the government fund from 2023. Some deposits of cities and municipalities have been excluded from this protection for several years. From 2023, this should also apply to corporate deposits with a maturity of more than 12 months.
For deposits of private savers, the protection will initially be limited to 5 million euros from 2023, and 50 million euros will then refer to the deposits of companies with a term of up to 12 months. In 2025, these limits will be lowered to 3 or 30 million euros, and from 2030 to only 1 or 10 million euros.
In the future, the protection of the security fund will include only those deposits that are kept in accounts in Germany. For now, nothing will change for private clients of private banks with deposits of less than one million euros.
Inflation in December officially – 5.3%, the highest since 1992.
Stocks
Stock markets panic over big falls.
DOWJ – 34,537
DAX – 15,454
S&P – 4,408
NASDAQ – 13,539
The announcement of rising interest rates by the FED led to a fall in stock markets.
Nobel laureate in economics Robert Schiller warns that stock markets are inflated and could fall by 50%.
In 2021, 1,000 new companies went public and raised a record $ 315 billion from investors. More than half of the companies are those that are tokens in search of unverified companies, that is, investors do not know what they are buying, but they are still buying.
Unbelievable, but true.
In the third quarter of 2021 alone, American companies bought $ 250 billion of their shares.
The merger and acquisition of companies resulted in a turnover of 5,000 billion dollars in 2021.
S&P grew 26.9%, which is twice the average growth in these ten years.
Gold
Gold rising to – $ 1847.
The reason for the low price of gold is the influence of speculators, futures traders, who were allowed to have the large financial leverage to trade. For example, if they want to trade 100 ounces, which corresponds to $ 180,000 for the price of $ 1,800 / ounce, it would be enough for them to have $ 6,500 in their account.
This means that the leverage is 27.7 times higher. There has never been so much leverage. In 1970, it was 2.0 times.
This creates space for big speculations and lowers the price of gold, while large and serious investors are not interested in participating in such speculations.
The Fed’s announcement that it will raise interest rates from March could lead to a rise in the price of gold because the history of rising gold prices has always happened at a time when interest rates were rising.
Since the amount of printed money from the Fed doubled, at the very beginning of that printing the price of gold was $ 1,337, then the price of gold is expected to jump, to follow the growth of the money supply, very quickly to $ 2,980.
Let’s look at the illogicalities in the movement of gold prices, inflation, and interest rates on government bonds:
- August 2020 – Expect inflation of 1.65%. Yield on 10-year government bonds is 0.55%. Implicit real interest rate of 1.10%. Gold price of $ 2,080.
- January 2022 – Inflationary expectation of 2.95%. Yield on 10-year government bonds is 1.60%. Implicit real interest rate of 1.35%. Gold price of $ 1,800.
The movement of gold against fiat currencies:
Comparative figures on the underestimation of the price of gold.
Silver
The undervalued price rose slightly to $ 23.89 / ounce.
The forecast is that silver will grow in the range of 29-34 $ / ounce.
Oil
Increased to $ 88.87 / barrel.
There are big oscillations in the price of oil.
High uncertainty in the financial market is raising the price of oil.
The Ukrainian crisis is putting great pressure on raising prices.
If the war arises, Russia will stop supplying oil and the price will go to $ 100 / barrel.
Goldman Sachs forecasts the price of oil in 2023 – $ 105 / barrel.
USD
In a slight increase to 1.1275
The decline in the value of the dollar in the period 2000-2021.
Russian ruble
In a big decline against the euro – 89.1355
In a big drop against the dollar – 79.0255
Cryptocurrencies
The drastic decline in cryptocurrencies continues.
A further drop is expected, bitcoin to $ 30,000.
Bitcoin today at – $ 37,790.
Ethereum in decline – $ 2,550
The IMF called on El Salvador to abandon bitcoin as a legal tender.
Branko Dragaš
Investment banker