More Unprecedented
Looks like it’s going to be another rough week for equity markets on the back of continued escalation in the middle East. Not sure what’s happening in Ukraine though, can someone tell us if things have wound up in Ukraine recently, news seems hard to come by. And what about the last $100B of “packages” recently directed to Ukraine?
On the matter of large numbers, here’s a couple for interested readers. The first we took from Bloomberg on Sept 19:
Total US Debt surpasses $33 trillion for the first time. For those keeping tabs, the US added $1 trillion in debt in three (3) months.
Then one month later from the same source:
Total US Debt is now $33.649 trillion, up $58 billion in one day and up $604 billion in one month… up $20 billion every day, up $833 million every hour. At this rate US debt will be $41 trillion in one year.
There is no need to go into the numbers, they are just going to escalate until something breaks, there is absolutely 0 interest from any side of politics in the US for fiscal restraint. Hardly much different in EU/Japan but it is the sheer pace of increase in the US that is outstanding.
What we will say is, it is well known how Empires fail. Spain must have seemed invincible in 1556.
Decades of bad decision making is how it happens. Corruption, bloated bureaucracy and inflation to go hand in hand with endless and costly warfare. Excessive spending and debt also come with idiotic decrees that increase the size of government, further restraining economic growth.
On the matter of making government bigger, Australians from all cultural backgrounds recently had their say, via way of referendum, on how big they want .gov.au/bureaucrazy to get. The answer as of this October is, it’s big enough. Make no mistake this was a vote against further upsizing of government. Canberra was the only state or territory to vote a majority “yes”. What more could be said.
Those at the “coal face” (can we even say that any more?) of trying to run productive businesses can now get on with the serious commercial challenges faced day to day for survival, without the immediate threat of an even heavier hand to weigh them down.
Those wanting to be involved in “socially progressive” boondoggles are still spoilt for choice, with a plethora of involvement opportunities. No one could possibly argue against the noble virtues of ESG, the war on climate, the new green economy, more ESG, Covid and the other myriad of serious woke agenda.
That such a large section of society can focus on these “progressive” issues is testament to a robust economic backdrop, without which, we can assure readers, virtue signallers may actually have to sing a different tune for their supper.
Meanwhile, equity markets have taken the global bond rout in their stride but seem incredibly fragile right now. The situation in the Middle East only magnifies existing economic issues in global markets. With “risk free” cash rates providing an actual return for investors these days, we expect investors will continue to develop a liking for safe harbors as equity market volatility ramps up. We been increasing our cash allocation where we can in recent months.
Meanwhile, some parts of the Gold market know something is up. USD Gold most recent close was over 2000.
Aussie dollar gold looks like it may open well over $3150 tomorrow.
Meanwhile, gold miners get no love and are barely off their 1-year lows despite bullion prices, especially in Australian dollars. Once confirmation of new highs in gold are received by the market, we expect interest in the gold equity sector to respond violently. So, until then, investors have an excellent opportunity to enter or average prices down.
Energy
We’ve been advocating and allocating an overweight energy investment position for most of 2022/23. It has been obvious to us that global demand for oil and gas would continue to expand, we’ve also maintained exposure to Uranium.
Emerging market demand for traditional energy remains robust, and we need not remind investors of what may happen should significant production in the mid-East be affected by an expanding conflict. Add to this scenario poor policy and ESG investing “issues” in developed nations that have retarded corporate access to capital for the “non green” energy sector. Investors should just say thanks for the continued opportunity to invest in businesses with such strong cashflow.
The IEA estimates we will need 10 million more barrels a day in five years, plus, potentially another few tens of millions to replace normal depletion. The only circumstance in which energy prices do not rise will be in an environment of serious recession. And the Central Bank response to serious recession will be?
You’d be correct if you guessed a rapid move of rates downward and a restart of stimulus (not that it ever really stopped, fiscally) with more boondoggles and acronyms you’ve never heard of. And the resulting inflation to go with the existing inflation can only be combatted by, well, we can’t think of anything Central Banks will be able to do, at this point investors just need to have made sure their portfolios are ready for this. It was always going to end this way. Inflation is a feature, not a bug and the only way Central Bankers/planners of this world could ever deal with the debt load.
Finally, it is interesting how Gold is now rising along with US Treasury Yields, as indicated below.
Maybe indicating that the dollar is becoming destabilised by Bidenomics, and a debt trap awaits US Government finances? In fact, the strength of gold through this whole rate rising program has been…unprecedented.
Finally, we can’t recall where we sourced the quote below, but it did resonate for these times.
“The world is periodically subject to a mighty release of tensions. That’s why there are great wars. We’ve been well aware of these tensions building into the new millennium and now here it is. The elaborate systems we’ve allowed to evolve — our gigantic manufacturing and resource supply lines, the financial scaffold that has turned capital formation into a freak show of scams and wishes, the grotesque behemoth governments of a zillion regulatory impulses turning more tyrannically against their own citizens every day — all add up to a general condition of fantastic fragility. So, you see, a global release of tensions is liable to bust up a lot of those arrangements”.
Peace.
