Ian Reynolds
BREAKING US pension funds worth $1.5tn add risk through leverage [Financial Times]
US public pension plans that manage hundreds of billions of dollars of assets are increasingly turning to risky leverage strategies as burgeoning private market holdings create cash flow strains.
At least eight very large US public pension funds are using borrowed cash or other leverage strategies, now that the board of Calstrs, one of the largest US retirement funds, this month voted to allow the fund to borrow as much as $30bn, or 10 per cent of its portfolio.
Why this is important [Suberia Capital]
North Korea Goes To War
Kim Jong Un Has Decided To 'Go to War,' North Korea Watchers Warn [Newsweek]
Kim Jong Un abandons aim of unification with South Korea [FT]
Kim told North Korea’s Supreme People’s Assembly on Monday that South Korea was his country’s “principal enemy” and its citizens should no longer be regarded as “fellow countrymen” as he ordered officials to close state agencies dedicated to unification and inter-Korean tourism.
White House Throws Support Behind Seizing Frozen Russian Assets [Bloomberg]
President Joe Biden’s administration is backing legislation that would let it seize some of $300 billion in frozen Russian assets to help pay for reconstruction of Ukraine, a shift as the White House seeks to rally support in Congress to further fund the war against Vladimir Putin’s forces.
The sea change in the bond markets was when US freezed Russia's US Govt Bonds and foreign exchange reserves, post the invasion of Ukraine. A big shift in the success of US bond auctions followed and subsequently a change of ownership structure as countries realised that there were no rules with US international policy.
Seizing assets is a completely different ball game entirely. Not respecting financial ownership destroys trust and may indeed be an act of war.
US Economy
And regardless of when rate cuts begin, Waller said the central bank should proceed "methodically and carefully," not make the sort of large, fast reductions used when the Fed is trying to bail out the economy from a shock or a pending downturn.
The markets 100% disagree with Waller and his FED mates. 6 x 25bps cuts are priced in for 2024 and with the first FED meeting on 31 January, either the FED or the markets are very wrong.
We suspect that, as usual, the FED will puke first
Beige Book
The U.S. economy is (not) in such terrific shape that 7 of the 12 FRB district banks reported economies either in contraction or in stagnation in this week's Beige Book. The other 5 are barely expanding. The suspicion that retail sales and employment numbers are being manufactured by US Govt is now endemic amongst traders. It's a sign of a very broken global economic system.
"It's All Over": Powell's WSJ Mouthpiece And JPMorgan Confirm Imminent End Of QT [Zerohedge]
NY Manufacturing Index Jan 2024
When's the last time we looked at this economic release? Never !
The Empire State Manufacturing Index rates the relative level of general business conditions New York state. A level above 0.0 indicates improving conditions, below indicates worsening conditions. The reading is compiled from a survey of about 200 manufacturers in New York state.
Middle East Conflict Spreads
Pakistan launches retaliatory strikes into Iran, killing nine people [BBC]
QatarEnergy halts Red Sea LNG shipping amid attacks, seeking security advice [Reuters]
QatarEnergy, the world's second largest exporter of liquefied natural gas, has stopped sending tankers via the Red Sea
Oil major Shell has suspended all shipments through the Red Sea indefinitely [Marinelink]
US launches fresh strikes on Houthis as Red Sea trade disruption spreads
As a side note, it seems Ukraine has no friends currently and is running out of money rapidly. Biden keeps trying to free up some cash but congress blocks it. He tried to push a request through with support for Israel, but only the Israeli support passed in the end.
Even Europe, with much more strategic reasons to support Ukraine, has been unable to release funds due to Hungary blocking the vote.
World Trade Shrinking
We've seen lower exports and imports from national trade statistics in 2023.
The Israel / Gaza dispute and Ukraine / Russia war has disrupted supply chains, raised prices and depressed economic activity. The result is plunging volumes of trade globally.
In a world where all countries have massive public debt, it seems unlikely that the world can inflate it's way out of insolvency as Debt-GDP is actually spiking as the cost of debt service rises and GDP falls.
Baltic Dry Index
In The Background
Chinese & Japanese Stock Markets
Chinese stock markets down to less than 50% of peak valuations ever.
Chinese stock rout accelerates as foreign investors sell out [FT]
China's aging population threatens a Japan-style lost decade [Nikkei Asia]
Shanghai Composite Monthly
Hang Seng Monthly
Whilst in Japan, stock markets are at all time highs, after 40 years
Nikkei 225 Monthly
Goldman and Morgan Stanley report lowest profits in 4 years [FT]
In Case You Missed It
German and EU CPI has stagnated at lower levels
Australia
Economists issue rate cut warning over Stage 3 tax cuts
The tax changes, which were legislated by the Morrison government in 2019 and subsequently endorsed by the Albanese government when it came to office, will abolish the 37 per cent bracket that applies to the income earned between $120,000 and $180,000 from July 1
The scheduled stage three-tax cuts could stop the Reserve Bank from cutting interest rates earlier, economists have cautioned, amid warnings the changes will pump billions of dollars of additional spending into the economy, inflaming price pressures.
But economists warn the timing of stage-three, which will add $21bn into consumers’ wallets in the 2024-25 financial year, means the RBA could be forced to move later and slower on rate cuts.
This legislation is now 5 years old. It may have been a good idea in 2019 when the global economy was stagnating, but right here right now the last thing we need is to free up A$20B.
Unemployment steady at 3.9pc despite 65,000 job losses [AFR]
RBA should lift rates, Labor ought to cut spending: IMF [AFR]
AUD / USD Daily
Aussie failed to reach the double top just below 0.69c and has broken through the scene of the crime just below 0.66c.
Look for a retest of 0.6275c.
This Week's Important Economic Indicators [London time]
