Financial Analysis, May 11 – May 24, 2022

May 24, 2022

Market Overview

 

financial-analysis-2022

 

The World

 

Global GDP and inflation in the period 2018-2022.

 

 

Despite promises, the future of fully autonomous vehicles still seems like a distant fantasy.

 

But tech giants, carmakers, and beginners from the U.S. and China, including Ford, GM, Baidu, Tesla, and Alphabet, have invested billions of dollars and years of research and development to make it happen.

 

Food prices are going wild.

 

 

USA

 

U.S. households have lost $ 20,000 billion since the beginning of the year, while privileged oligarchs have lost $ 800 billion.

 

According to the AAA website on gasoline prices, diesel in Texas costs an average of $ 5,231, which is more than $ 2,820 a year ago.

 

People’s concerns grew the most about paying their monthly bills (up 8 percentage points to 40%) and maintaining their standard of living (up 7 points to 52%). But concerns have also risen, by 5 points, over rent or mortgage payments (35%), minimum credit card payments (22%), and pension allocations (63%).

 

The MBA Mortgage Market Index fell to 319.4 for the week ended May 13 from 358.9 earlier, the lowest level since the reporting week of January 3, 2019. Building permits for April fell 3.2% year-on-year level from 1,879,000 earlier to 1,819,000. The previous month was revised from 1,793,000 to 1,728,000 (in percentage from +0.3% to -2.8%). Since April, there has been a slight further decline to 1,724,000, the forecast was 1,765,000.

 

According to my estimates, inflation has exceeded 22%.

 

Eggs went up 161.3%, cereals 41.3%, chicken 24.1%, fresh vegetables 45.7%, fresh fruits 17.3%, gasoline 50%.

The average pay for a new mortgage jumped 38% in a year, due to rising real estate prices and rising interest rates, and citizens fell into big trouble.

 

The real estate market is bursting, if you have real estate and want to sell, now is the right time.

 

Here’s what the numbers look like for a typical home in the United States: The average house price rose from $ 309,200 in December 2020 to $ 357,300 today.

In the same period, interest rates rose from 2.67% to 5.08% this week. With a down payment of 10%, that increased the monthly payment from 1,124 dollars to 1,742 dollars – which is an incredible 55 percent. That’s more than $ 600 a month at that $ 357,300 home. This is the impact of higher prices along with rising rates.

 

April survey 67% of Americans live from paycheck to paycheck.

 

Despite the focus on higher prices, the US economy is still overwhelmed with huge waste. Just turning off chargers and unused devices would save up to 5% of the country’s electricity consumption. A large percentage of food is thrown away or left to rot. Millions of low-mileage vehicles are parked in traffic, each carrying one person.

 

The Office of Management and Budget (OMB) incorrectly forecasts budget movements. They claimed in 2016 that the budget deficit would stop at -2.75%, but that did not happen, and it continued to grow in 2016 – by 3.75%, 2017 – by 4.0%, 2018 – by 5%, and 2019 – by 5.5%.

 

So much for the great economic experts leading the destroying the western Empire.

 

The growth of official government debt is accelerating.

 

 

 

FED

 

In recent weeks, I have noticed that more and more American economists say that the debt of the USA is not 30.4 trillion dollars, for which 1,500 billion dollars of interest is paid annually, but that the real debt is much higher and amounts to 90,000 billion dollars and that the interest has reached 4,500 billion dollars a year.

 

Well, American economists are slowly discovering the true depth of debt.

 

I remind you that my estimate is that the debt of the United States, the state, companies, and citizens reached the amount of 420,000 billion dollars.

 

As the crisis escalates, so will American economists get closer to my estimates.

 

The Fed is moving from inflationary to deflationary policies. Starting in June, the Fed’s balance sheet will be reduced by $ 47.5 billion per month and starting in September by $ 95 billion per month. This is exactly what markets are expecting now with a sharp drop in prices! However, we still assume that this will not lead to a crash in one go but will take place in waves.

 

The yield on 10-year government bonds.

 

 

Inflation and yield on government bonds.

 

 

Interest on credit cards is 15% and more, student loans 6% and more – what’s the difference that the Federal Reserve has raised interest rates from almost zero? No one.

 

The Fed is making the same mistake as in October 2017, when they reduced liquidity, did not buy government bonds, and increased interest rates, which led to the illiquidity of the financial system in 2018 and the peak of the financial meltdown was August / September 2019, when pandemic manipulation began.

 

I expect big problems with liquidity in 2023 and probably new manipulations with pandemics and citizen imprisonments, while the standard of living will drop drastically.

 

Commercial banks have never held so many government bonds because in 2018 they tried to help the Fed get out of the illiquidity of the financial system.

 

 

The Fed’s position is tragicomic because it pulls more and more catastrophic moves and the whole system leads to an explosion.

 

The average amount of personal savings fell 15% from $ 73,100 in 2021 to $ 62,086 in 2022, according to a recent Northwestern Mutual study on planning and progress for 2022, while 60% of adults in the U.S. say the pandemic has “severely disrupted” their finance.

 

EU

 

Brussels is seeking to strengthen its ability to control China’s entry into the European economy, with proposed new powers to investigate foreign companies backed by states that want to buy European companies.

The decree, to be announced Wednesday by European Union (EU) Chief Competition Chief Margrethe Vestager, is part of Europe’s stronger stance on Beijing, while China remains the continent’s second-largest trading partner after the United States.

 

ECB

 

The ECB plans to raise interest rates for the first time in July.

Increasing the interest rate to 1% will cost France 40 billion euros a year.

 

Turkey

 

Turkey’s top statistician resigns for “health reasons” after inflation reaches 70%

 

 

The government, meanwhile, is seeking to pass a law banning independent researchers from publishing their own data without seeking approval from Turk Stat and could potentially face jail time if they break the law. This should answer all questions about whether government or inflation statistics are accurate.

 

Russia

 

The American, speculative strike on the ruble failed.

The ruble defended itself and strengthened.

 

 

GDP grew by 3.5% year on year in Q1 2022, after 5.0% earlier.

The Russian economy is not affected by sanctions.

 

 

France

 

In March 2022, the French trade deficit reached a new historical double record: 12.4 billion euros in one month and 100 billion euros in one year. And, unfortunately, it is not over.

 

 

China

 

Covid closure has had negative effects in both industry and real estate.

 

 

The Central Bank reduced the reference interest rate on five-year loans to -4.46%.

 

China’s foreign exchange reserves amount to 3,300 billion dollars, but 1,100 billion dollars are in US government bonds with extremely low yields.

 

After the seizure of $ 300 billion of Russia’s foreign exchange reserves, the Central Bank is considering a strategy to withdraw foreign exchange reserves from American government bonds, because if there is a war with Taiwan, the United States will surely confiscate those reserves.

It is estimated that China has assets worth 2,000 billion dollars abroad.

 

The Chinese RMB fell sharply, from 6.31 US dollar exchange rate at the end of February to 6.53 – on April 22, as the National Bank of China (PBOC) reduced its reference short-term rate from about 2.1% to 1.5%.

 

India

 

The government banned the export of wheat, which amounted to 2 billion dollars in 2021.

 

 

Due to the growth of inflation in the first four months of over 6%, the Central Bank intends to raise the reference interest rate to – 5.15%.

 

Germany

 

For the first time, the number of employees is higher than before the pandemic broke out. In the first quarter of 2022, 45.1 million people were employed. This is an increase of 217,000 or 0.5% compared to the fourth quarter of 2021. For the first time, that number was above pre-crisis levels. Compared to Q4 2019, 43,000 people worked or 0.1% more.

 

The upward trend is likely to continue despite increased economic uncertainty over Russia’s invasion of Ukraine, as there are currently 1.74 million job vacancies, and therefore more than ever, according to the Institute for Labor Market and Occupational Research (IAB). However, the war in Ukraine and supply bottlenecks could slow economic development.

 

 

Japan

 

The Bank of Japan is in an unsolvable dilemma as it tries to prevent the yen from collapsing, on the one hand, and on the other, they want to keep 10-year yields below the upper limit of the 0.25% yield curve. The problem is that the Bank of Japan (BOJ) can control one or the other, but not both. Japan suddenly found itself in a dilemma:

 

Intervene in the bond market and initiate a potentially destabilizing and uncontrolled fall of the yen, which would lead to inflation, which could destroy any remaining confidence in the BOJ, or do nothing and risk the collapse of the yen, a country with GDP debt larger than almost any other country in the world, could mean both fiscal and monetary collapse.

 

As the world watches Ukraine, a real reckoning of global financial stability could take place in Japan. Both the yen and the yuan have recently fallen against the U.S. dollar, already reflecting a fundamental split in monetary policy. Japan and China are the two main central banks that are currently giving in, while the United States is tightening inflation.

 

Japan sold US bonds in the amount of 60 billion dollars in three months, but it is still the largest creditor of the USA in the amount of 1,300 billion dollars.

 

USD / YEN – 6 MONTHS

 

USD / JUAN – 6 MONTHS

 

Exports in April increased by 12.5% ​​compared to 14.7% earlier, while imports increased by 28.2% from 31.2% previously recorded. The trade balance showed a deficit of 839.2 billion (1.150 billion forecasts) from 414.1 billion yen earlier. Machine orders rose 7.1% in March to -9.8% earlier. On an annualized basis, there was an increase of 7.6% (3.7% forecast) after 4.3% earlier.

 

United Kingdom

 

Consumer prices rose 2.5% by April (expect 2.6%) after 1.1% earlier. Compared to the previous year, there was an increase of 9.0% (forecast 9.1%) after 7.0% earlier. The base rate rose by 0.7% monthly from 0.9% earlier. On an annualized basis, there was an increase of 6.2% (6.2% forecast) after 5.7% earlier.

 

Australia

 

The unemployment rate fell from 4.0% to 3.9% (projected 3.9%) in April, the lowest level in history available to us until 1978.

 

Stocks

 

DOWJ – 31,591

DAX – 14,062

S&P – 3,926

NASDAQ – 147.71

 

NASDAQ down – 28%.

 

TESLA down – 33%.

AMAZON down – 36%.

 

 

Forecasts for the S&P 500 – it will fall to 3,400.

 

 

The balloon of stocks is inflated and threatens to burst.

 

 

Fight against monopoly

 

The bill, which has yet to be scheduled for consideration in committee, will face resistance from lawmakers – especially those from California, which includes Facebook, Google parent company Alphabet and Facebook parent company Meta, among others.

It also marks the latest legislative attempt by Congress to establish federal control over the booming and largely unmanaged online industry.

The bill would ban large digital advertising companies such as Google from owning more than one part of the “ecosystem” of digital ads and would block them from playing dual roles in the advertising process.

 

Large companies, namely Google, would have to discontinue ownership of supply-side and demand-side platforms that helped them generate significant revenue. Source – Washington Times.

 

Last year, Alphabet earned over $ 209 billion from advertising, while Meta earned about $ 115 billion.

 

Companies would be required to “get rid of significant parts” of their advertising business. The bill would also “affect” Apple’s upcoming third-party advertising business, while technology giants need to be regulated because they have established a monopoly over digital advertising space that blocks competition and harms consumers.

 

Gold

 

Gold all week in speculative maintenance, currently – 1857 $ / ounce.

 

Silver

Silver is low at $ 21.77 / ounce.

 

Oil

 

Oil is at $ 110 / barrel.

The oil market ended another volatile week of hectic trading, swinging up and down in the $ 5 per barrel range as it pulled between bull and bear catalysts in both directions each day. Both indicators reached an 8-week high early Tuesday, only to withdraw later in the day and join a Wall Street sell-off sparked by renewed investor concerns about a possible recession as top retailers noted rising costs and supply chain bottlenecks in their quarterly earnings reports.

 

Gas

 

One of the largest German importers of natural gas, VNG, has opened an account with Gazprom Bank for the payment of Russian gas under Moscow’s new conditions.

According to a Reuters report, VNG said that the next payment for Russian gas would be transferred in euros, which would then be converted into rubles in Russia, according to a new gas payment scheme announced by Russia in March in response to Western sanctions.

 

U.S. natural gas prices are significantly lower than Asian or European prices, but as exports increase, U.S. prices will rise and approach international prices.

 

A summer that is warmer than usual in the United States could push the prices of natural gas in the United States even more because international demand is not going anywhere.

 

It seems that everyone assumes that American gas production will continue to grow, but there are problems that can be seen in the largest shale deposits in the country.

 

USD

 

The dollar is falling – 1.0717 against the euro.

 

 

In global foreign exchange reserves, the dollar fell from 73% to 58%.

 

 

This means that the dollar must fall, instead of rising for several weeks in a row.

 

PURCHASING POWER OF THE DOLLAR

 

Russian ruble

 

In great growth against the euro – 60.8652

In great growth against the dollar – 56.7900

 

Cryptocurrencies

 

Bitcoin low – $ 29,294.

Ethereum in further decline – $ 1,971.

 

Bitcoin has fallen 35% since the beginning of the year, and Ethereum by 46%.

 

Terra USD is in a sharp fall, as there was a withdrawal of $ 4 billion.

Luna has an even bigger drop due to panic sales.

 

 

 

 

Branko Dragaš

Investment banker

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Market Overview