The Week in Review
Also available in video format: https://youtu.be/lFlEDmEs9ek
Four UFOs (UAPs) Shot Down
In the wake of four mysterious objects being shot down over North America, a member of NASA's Unidentified Anomalous Phenomena (UAP) panel—set up to study unexplained sightings in the sky—has weighed in on what these latest objects could be.
The last object, said to be octagonal in shape, was shot down over Lake Huron by U.S. military fighter jets on Sunday.
The first of the four objects, identified as a Chinese surveillance balloon, was shot down on February 4. But China has denied any involvement with the other objects, including one shot down over Deadhorse, Alaska, on February 10 and another over the Yukon in Canada the following day.
"The object recently shot down over Lake Huron was described by one of the pilots as octagonal and hovering at 40,000 feet with no obvious means of propulsion or lift," Joshua Semeter, a professor of electrical and computer engineering and director of the Center for Space Physics at Boston University, told Newsweek. "This account bears some resemblance to previous accounts by Navy pilots. I believe we will learn a lot if the vehicle can be recovered and examined."
UAPs, which used to be known as UFOs or unidentified flying objects, are aerial phenomena that cannot be immediately explained.
"I know there have been questions and concerns about this, but there is no ... indication of aliens or extraterrestrial activity with these recent takedowns," White House Press Secretary Karine Jean-Pierre told reporters on Monday.
Sources:
https://www.youtube.com/watch?v=960INh7qBCc
https://www.youtube.com/watch?v=8KnBrlBRYo4&list=PLjz0Vq24mVQXHGemacqW-zrFwrhS3FCwQ&index=18
https://www.newsweek.com/ufo-shot-down-over-us-mystery-nasa-1781009
https://www.msn.com/en-xl/news/other/ufo-us-and-canada-on-high-alert-after-3-objects-intrude-airspace-in-just-72-hours/ss-AA17qDB5
https://www.thesun.co.uk/news/21365388/third-ufo-shot-down-over-north-america/
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IMF Warning
IMF chief warns world is a very different place after crises like COVID.
The Managing Director of the IMF warned that we need to “think of the unthinkable,” as we live in “a more shock-prone world” impacted by the Covid-19 pandemic, Russia’s invasion of Ukraine and the recent earthquake across Syria and Turkey.
“We all have to change our mindset to be much more agile and much more oriented towards building resilience at all levels, so we can handle the shocks better,” Kristalina Georgieva said Tuesday, during a World Government Summit panel hosted by CNBC’s Hadley Gamble.
“What we are very concerned [about] is the unexpected,” Georgieva said.
The global economy is set to grow 2.9% this year, according to forecasts by the financial agency.
Source:
https://www.cnbc.com/2023/02/14/think-of-the-unthinkable-imf-chief-warns-world-is-a-very-different-place-after-crises-like-covid.html
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“Golden Ruble 3.0”
The U.S. must vigilantly maintain U.S. dollar hegemony. And the playbook looks like this:
- The U.S. can devalue the Federal Reserve note “dollar” to oblivion while other countries receive it in exchange for their tangible goods and hold it in reserve.
- The U.S. can confiscate other countries' assets and currency reserves because of our military advantage. That is what just happened with Russia.
- The U.S. can also block other countries from using the global financial system (SWIFT) it set up and controls.
After the big drop, the rouble recovered somewhat, which is typical in such situations (known in the literature as “exchange-rate overshooting”). However, the currency strengthened further after the roubles-for-gas announcement and on the gold-backing announcement, the currency has continued to strengthen to about RUB83 to the dollar. As precious metals analyst Ronan Manly has said, this makes sense if you reflect that the market price of a gram of gold is currently about US$62 (£47.20). That’s fairly close to Putin’s announcement that 1 gram of gold equals RUB5,000, which effectively creates a gold-based exchange rate of RUB81 to US$1.
The tough sanctions on Russia caused big shifts in their foreign trade. The main foreign economic partners are the EAEU member countries, China, India, Iran, Turkey, the United Arab Emirates, etc. In friendly countries, the process of de-dollarization is underway, and the share of settlements in “soft” currencies (yuan, rupee, rial, etc.) is growing. In September, Russia became the third country in the world in terms of the use of the yuan in international payments. The yuan/ruble pair on the Moscow Exchange has more than once overtaken the dollar and the euro in terms of daily trading volume. When using soft currencies in foreign trade settlements of the Russian Federation (and in the presence of a trade surplus), the result is the accumulation of cash balances on the accounts of Russian exporters in “soft” currencies in the banks of the above partner countries.
The accumulation of funds in “soft” currencies will increase in the future. But since this money is also subject to exchange rate and possible sanctions risks, it becomes necessary to sterilize their excess mass. The best way is to buy non-sanctioned gold in China, UAE, Turkey, possibly Iran and other countries for local currencies. The “foreign” gold purchased by the Russian Central Bank can be stored, up to certain limits, in the central banks of friendly countries - it can also be used for cross-country settlements, currency swaps and clearing operations. Part of the gold may be repatriated to Russia. Gold can be a unique tool in the fight against Western sanctions.
Gold (along with silver) has been the core of the global financial system for millennia, an equivalent, an honest measure of the value of paper money and assets. It was canceled in its final form half a century ago (the United States announced the “temporary” closure of the “golden window” adopted in 1944 at Bretton Woods), re-pegging the dollar to oil. But the era of the petrodollar is coming to an end, with the rise of the petroyuan and other mechanisms to limit the abuse of the status of the world reserve currency issuer. Russia, together with its eastern and southern partners, has a unique chance to “jump off” the sinking ship of the dollar-centric debt economy, ensuring its own development and mutual trade in the accumulated and extracted strategic resources.
Sources:
https://theconversation.com/why-russia-has-put-the-rouble-on-a-gold-standard-but-its-unlikely-to-last-180632
https://news.russia.postsen.com/trends/135432.html
https://mronline.org/2023/01/21/golden-ruble-3-0-how-russia-can-change-the-infrastructure-of-foreign-trade/
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Lael Brainard Leaves the Federal Reserve
President Biden’s reshuffle of his economic team could have its most immediate economic impact on the Federal Reserve, with the departure of the central bank’s vice chair, Lael Brainard, for the White House. Ms. Brainard said Tuesday she would resign her Fed post on or around Feb. 20.
Ms. Brainard’s move to lead Mr. Biden’s National Economic Council means the Fed will lose an influential top official who has advocated for a marginally less aggressive approach to raising interest rates than Fed Chair Jerome Powell.
While she has publicly backed Mr. Powell in rapidly raising rates over the past year to fight inflation by slowing the economy, Ms. Brainard has at times emphasized different considerations in setting policy, including the risks of lifting rates more than necessary.
She had become one of the Fed’s most persuasive policy “doves”, who think high inflation is likely to slow as lingering effects of the pandemic reverse and who want to minimize potential job losses. By contrast, the central bank’s “hawks” more readily embrace stiffer measures to curb inflation.
At the margins, Ms. Brainard’s Fed exit raises the risk of a recession because it could lead the central bank to raise rates more aggressively this spring, said Derek Tang, an economist at the forecasting firm LH Meyer.
The central bank raised rates by 4.5 % over the past year, the most rapid adjustment since the early 1980s, after inflation hit 40-year highs last summer.
Sources:
https://www.reuters.com/world/us/brainards-departure-white-house-would-come-critical-juncture-fed-2023-02-14/
https://www.wsj.com/articles/lael-brainards-fed-departure-could-leave-immediate-imprint-on-monetary-policy-3a349e65
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Household Debt is Rising
The Federal Reserve Bank of New York's Center for Microeconomic Data today issued its Quarterly Report on Household Debt and Credit. The Report shows an increase in total household debt in the fourth quarter of 2022, increasing by $394 billion (2.4%) to $16.90 trillion. Balances now stand $2.75 trillion higher than at the end of 2019, before the pandemic recession. The report is based on data from the New York Fed's nationally representative Consumer Credit Panel.
Mortgage balances rose by $254 billion in the fourth quarter of 2022 and stood at $11.92 trillion at the end of December, marking a nearly $1 trillion increase in mortgage balances in 2022.
Credit card balances increased $61 billion in the fourth quarter to $986 billion, surpassing the pre-pandemic high of $927 billion. Auto loan balances increased by $28 billion in the fourth quarter, consistent with the upward trajectory seen since 2011. Student loan balances now stand at $1.60 trillion, up by $21 billion from the previous quarter. In total, non-housing balances grew by $126 billion.
Mortgage originations, which include refinances, fell to $498 billion in the fourth quarter, representing a return to lower levels last seen in 2019. The volume of newly originated auto loans was $186 billion, representing a slight increase from the previous quarter. Aggregate limits on credit card accounts increased by $88 billion in the fourth quarter and now stand at $4.4 trillion.
The share of current debt becoming delinquent increased again in the fourth quarter for nearly all debt types, following two years of historically low delinquency transitions. The delinquency transition rate for credit cards and auto loans increased by 0.6 and 0.4 percentage points, respectively.
Source:
https://www.newyorkfed.org/newsevents/news/research/2023/20230216
https://www.newyorkfed.org/microeconomics/hhdc.html
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On The Economic Front
Economic Data Source: Trading Economics
Japan GDP Growth Annualized
The Japanese economy advanced 0.6% on an annualized basis during the fourth quarter of 2022, below the market consensus of a 2% growth and after a revised 1.0% contraction in the previous period, a flash reading showed. Private consumption quickened following the removal of pandemic measures, while government spending increased for the fourth quarter and at a faster pace. Also, there was a positive contribution from net trade, as exports grew and imports fell. Lastly, business investment contracted for the first time in three quarters.
United States Inflation Rate
The annual inflation rate in the US slowed only slightly to 6.4% in January of 2023 from 6.5% in December, less than market forecasts of 6.2%. Still, it is the lowest reading since October of 2021. A slowdown was seen in food prices (10.1% vs 10.4%) while cost of used cars and trucks continued to decline (-11.6% vs -8.8%). In contrast, the cost of shelter increased faster (7.9% vs 7.5%) as well as energy (8.7% vs 7.3%), with gasoline prices rising 1.5%, reversing from a 1.5% decline in December. On the other hand, both fuel oil (27.7% vs 41.5%) and electricity prices slowed (11.9% vs 14.3%). Although inflation has shown signs of peaking at 9.1% in June last year, it remains more than three times above the Fed's 2% target and continues to point to a broad-based advance on the general price level, particularly services and housing. Compared to December, the CPI rose 0.5%, the most in three months, mostly due to the higher cost of shelter, food, gasoline, and natural gas.
United States Core Inflation Rate
The core consumer price inflation rate in the United States, which excludes volatile items such as food and energy, eased for a fourth consecutive month to 5.6 percent year-on-year in January 2023, the lowest since December 2021. Still, the rate came in above market expectations of 5.5 percent and remained well above the US Federal Reserve's target.
United Kingdom Inflation Rate
Annual inflation rate in the UK fell to 10.1% in January of 2023 from 10.5% in December, below market forecasts of 10.3%. Inflation fell for a third consecutive month to the lowest since September last year. The largest downward contribution came from transport (3.1% vs 6.5%), particularly passenger transport and motor fuels; and restaurants and hotels (10.8% vs 11.3%). Prices also rose at a slower pace for food and non-alcoholic beverages (16.7% vs 16.8%), clothing and footwear (6.2% vs 6.5%) and furniture (9.2% vs 9.8%), in line with traditional New Year discounting. In contrast, inflation accelerated for housing and utilities (26.7% vs 26.6%), recreation and culture (5% vs 4.9%), health (6.3% vs 5.1%) and alcoholic beverages and tobacco (5.1% vs 3.7%). Compared to the previous month, the CPI fell 0.6%, the first decline in a year and the biggest since January of 2019. Major declines were seen for fuels (-3.8%) and air transportation (-41.7%).
U.S. Retail Sales
Retail sales in the US unexpectedly jumped 3% month-over-month in January of 2023, the biggest increase since March of 2021 and way above market forecasts of a 1.8% rise. It follows a 1.1% drop in December. Biggest rises were seen in sales at department stores (17.5%), food services and drinking places (7.2%), motor vehicles and parts (5.9%), furniture stores (4.4%), electronics and appliances (3.5%), miscellaneous stores (2.8%) and clothing (2.5%). On the other hand, sales at gasoline stations were flat. Excluding autos, sales increased 2.3% and excluding gas and autos 2.6%. The so-called core retail sales which exclude automobiles, gasoline, building materials and food services and relate more with the consumer spending component of GDP, were up 1.7%. The data showed that consumer spending remains robust after a slowdown last year, amid a strong labour market, wage growth and signs of easing inflationary pressures. Retail sales aren’t adjusted for inflation.
United States Producer Price Inflation MoM
Producer prices for final demand in the US increased 0.7% month-over-month in January of 2023, the most in seven months and higher than market forecasts of 0.4%. Goods prices jumped 1.2%, also the largest increase since rising 2.1% in June 2022, led by a 6.2% surge in gasoline cost. The indexes for residential natural gas, diesel fuel, jet fuel, soft drinks, and motor vehicles also moved higher. Conversely, prices for fresh and dry vegetables decreased 33.5%. The indexes for residual fuels and for basic organic chemicals also declined. Meanwhile, services cost edged 0.4% higher, mainly hospital outpatient care (1.4%). The indexes for automobiles and automobile parts retailing; health, beauty, and optical goods retailing; portfolio management; chemicals and allied products wholesaling; and airline passenger services also moved higher. In contrast, margins for fuels and lubricants retailing fell 17.5%.
A Walk Around the Markets
The yield on the US 10-year Treasury note, seen as a proxy for global borrowing costs, topped 3.9%, a level not seen in three months, as investors adjust their portfolios for a higher terminal rate. Recent economic data showed the sharpest increase in producer prices in seven months in January, while another report showed the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, opening the door to further rate hikes by the Federal Reserve. This slew of data followed a blockbuster retail sales report and a hotter-than-expected CPI reading. Speeches from St. Louis Fed President James Bullard and his Cleveland counterpart also supported the idea that the US central bank will have to continue to raise interest rates to cool the economy. Money markets have now priced at least three more 25 basis point rate hikes this year and see interest rates peaking at 5.5% by July.
US Yield Curve
Source: https://www.ustreasuryyieldcurve.com/
Source: Trading Economics
Silver futures were trading around the $22 per ounce mark, a level not seen since late November, pressured by a sharp dollar appreciation as hotter-than-expected economic data dashed hopes for the termination of the Fed's tightening cycle. At the same, recession concerns weighed on prices, as investors worried about lower industrial demand for the metal. Still, projections of weak supply limited the fall, as COMEX inventories remained under pressure and LBMA stockpiles plunged amid outflows to India.
Source: Goldmoney, Alasdair Macleod
To progress further, the rally in the US dollar Trade Weighted Index must overcome resistance at the 105 level, which has turned this index multiple times. Currently, traders see inflation continuing to be a problem, with producer prices firmer than expected. The talk is of a 50-basis point hike in the Fed funds rate at the next FOMC meeting.
In current markets there is a strong view held by traders that a strong dollar is always the mirror image of a weak gold price. Sometimes the correlation is positive and sometimes not. Currently, the correlation is positive. But going by Comex Open Interest, gold and silver are now as oversold as it gets.
Opinion Section
Upcoming
In the US, the focus will be on the FOMC Meeting minutes and speeches by Fed officials. Investors will also closely follow personal income, spending, PCE price index, and 2nd estimate for Q4 GDP growth rate. Also, the attention will be taken by fresh PMI manufacturing and services readings for major economies including US, UK, France, Germany, and Japan. Finally, central banks in South Korea, New Zealand, and Turkey will decide on the course of monetary policy.
Have a nice week.
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