Comment of the Day
03 March 2022
Video commentary for March 2nd 2022
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: Oil, gasoline and wheat surge, Urals crude trading at an historic discount, bonds ease and stocks rebound on Fed slow and steady interest rates normalisation,
Global Money Dispatch February 27th 2022
Thanks to a subscriber for this report from Zoltan Pozsar for Credit Suisse. Here is a section:
We believe there is no difference between Lehman unable to pay back money funds because its tri-party clearing agent is unwilling to unwind o/n repo trades, and banks unable to receive and make payments because they are out of SWIFT.
The Herstatt risk – settlement risk – owes its name to a mishap at a single bank. The risk in the current scenario involves an entire country’s banking system. Banks’ inability to make payments due to their exclusion from SWIFT is the same as Lehman’s inability to make payments due to its clearing bank’s unwillingness to send payments on its behalf. History does not repeat itself, but it rhymes…
The consequence of excluding banks from SWIFT is real, and so is the need for central banks to re-activate daily U.S. dollar funds supplying operations.
Excess reserves and o/n RRP balances won’t be enough.
And so the Fed’s balance sheet might expand again before it contracts via QT – and not just because of the swap lines. The FIMA repo facility is also there to turn collateral into dollars – anonymously, away from the prying eye of dealers, if a central bank becomes a friendly correspondent for a sanctioned central bank turning gold into cash. That, or an unforeseen call on unwanted reserves in the o/n RRP facility as the correspondents flood the repo market with collateral…
…before QT even began.
My view - Congress today. His comments focused on the difficulty of tackling inflation when there are supply issues pushing prices up. He was also rather testy at the charge the Fed contributed to inflation by funding massive fiscal stimulus. His response was that demand is excessively high because of consumer activity in response to the pandemic. The Fed has repeatedly skipped over the question where did people get the money to fund the demand?
Email of the day on The Chart Seminar and a uranium ETF
Hello Eoin 1) could you please suggest a trustworthy ETF on Uran, with a well balance geopolitical profile 2) I would very much welcome a chart seminar, I hope you will be able to organize one in the not too distant future.
My view - We are currently looking at June 6th and 7th for The Chart Seminar in London. Sarah is in the process of securing a venue at present and as soon as the location is confirmed we will begin taking bookings. I am very much looking forward to meeting subscribers in person after an internal that has been far too lengthy.
China Moves to Secure Commodities Rocked by Ukraine War
This article from Bloomberg may be of interest to subscribers. Here is a section:
China is heading into peak demand season for many commodities, and the risk of supply disruptions because of Russia’s invasion of Ukraine will exacerbate rising prices of everything from metals to fertilizers.
Buyers are already looking beyond Russia and Ukraine for supplies as disruptions set in. With Belarus’ potash sector under U.S. and European sanctions, China is now paying 139% more than what it did a year ago to secure imports from Canada and Israel.
In energy, Chinese power plants and steelmakers are seeking alternatives to Russian coal after some domestic banks suggested they avoid purchases due to the mounting sanctions being imposed on Moscow. Russia is China’s second-biggest source of overseas coal after Indonesia.
Russia, which vies with Saudi Arabia as China’s biggest seller of oil, has strengthened trade ties with Beijing over the past decade. China has doubled purchases of energy products from its neighbor over the last five years, to nearly $60 billion.
My view - China has deep pockets and is not about to let food prices get out of control in a year when Xi Jinping is looking to cement his hold on lifelong power. That suggests they will be aggressively buying in size to ensure they meet domestic demand. No that the Winter Olympics is over, China’s metal bashing industries will be eager to get back to business as usual.
The Changing World Order: Focusing on External Conflict and the Russia-Ukraine-NATO Situation
This article from Ray Dalio may be of interest to subscribers. Here is a section:
1.Trade/economic wars
2.Technology wars
3.Geopolitical wars
4.Capital wars
5.Military wars
These competitions or wars reward the winners and penalize the losers, which reinforce their strengthenings or their weakenings. They vary in severity from healthy competitions to all-out wars. The progression tends to be from the first one on the list (trade/economic wars) toward the last one on the list (military wars), with each growing in intensity. Then, when a military hot war begins, all four of the other types of wars are applied full-on and weaponized. For these reasons, by monitoring the progression and intensities of the conflicts one can pretty well anticipate what is likely to come next.
To be a leading world power one must be strong in most of the major ways. For example, the United States and China are now strong in all of these ways but Russia is not. For that reason Russia needs to align itself with a leading power (China) to win wars.
My view - I believe it is an accurate characterization that Russia will have difficulty winning and cementing victory without some form of support from China. Whether that is through commodity purchases, increased use of the electronic renminbi or continued intolerance for security council measures at the UN, Russia needs China to help to support its economy as sanctions are amplified in line with it's aggression in Ukraine.