Financial Market Forecasts

Image

The Crypto Complex, and especially Bitcoin, with its ever-increasing market value, provided the best alpha generation in Q1 2024, followed by the Crypto 10 Index. They rallied impulsively, as our market models predicted that they would. This particular Bitcoin trade captured a super tight low-risk entry point and then we ran the trend to near the highs, taking profits earlier than we should have done.

Q1 2023 PERFORMANCE REVIEW CONTENTS

We recommend that subscribers to our Macro CIO's View take the time to read this analysis of our performance to enhance their understanding of how we consistently extract alpha from the markets, whilst minimising our downside risk on entry points, with extremely tight tactical stops, that are then actively managed as the trade moves in our favour.

1. Executive summary; Global Forecaster and Global Trader
2. Trade recommendation and risk methodology
3. Our key 2024 year-ahead geopolitical calls
4. Our main Q1 2024 geopolitical calls
5. Q1 2024 market predictions and performance
6. Alpha captures long-short fund performance.

1.0 EXECUTIVE SUMMARY

Our Global Forecaster geopolitical and market calls have once more proven accurate during Q1 as they unfold slowly before our eyes. We predicted that:

1. The second Russian offensive would see Putin apply increased pressure on Ukraine.
2. Inflation would keep moving higher, driving Bond prices (and equities) lower.
3. Both the war in Ukraine and Iran's war with Israel via Hamas, the Houthis and Hezbollah would escalate.
4. Accelerating Inflation would push bonds lower in the early phase of a US debt crisis as spending increases, especially on defence.
5. The banking crisis would see a third chapter as bond prices fell.

Global Trader covers six macro sectors, with some 80-plus markets, and has been producing exceptional alpha extraction since its inception in 2019. In summary, Q1 2024 could best be characterised by the rally of the safe havens: crypto and precious metals. Our capital preservation methodology has been a critical part of our risk performance, based on our ratchet risk-to-stop methodology (explained below).

1. Our best performance has come from the broad sector across cryptocurrencies and precious metals as the safe havens rallied strongly.
2. The worst performers were the Equity and FX sectors.

2.0 TRADE RECOMMENDATIONS AND RISK METHODOLOGY

2.1 GLOBAL TRADER – DESIGNED FOR RISK-TAKERS

Global Forecaster was set up in the summer of 2019 to inform and advise professional asset managers through troubled waters. During that year, there were obvious indicators that global markets were soon to peak (in February 2020) and collapse, with the most grievous consequences. We have called this transition The Great Shift, as it is driven by the intersection of the peak of the K-wave cycle and the hegemonic challenge of China to America and the West.

We continually seek to quantify the accuracy of our trade recommendations as they translate into real-time market positions that are readily actionable by risk managers. We are pleased to report that the system we have used over the past three years (plus) has produced a very accurate representation of our market calls, in the direction, size and magnitude of the move. This has allowed risk-takers to quickly assess the accuracy of our past predictions in any market or sector, as well as benefit from our trade recommendations.

The structure of our trade recommendations allows our clients to apply them directly to their portfolios. Similarly, we go a stage further for some clients, by taking our trade recommendations and applying them to specific alpha-capture platforms with outstanding results. This service is available upon request.

2.2 GLOBAL TRADER METHODOLOGY AND STRATEGY

We now have 17 quarters of performance under our belt, and the results of our geopolitical predictions, market predictions and alpha-capture fund performances have been exceptional. We believe the key to high returns and long-term success is based on:

1. Prescient market views generated within a systematic multi-timeframe and price modelling system, which combines our geopolitical and market behavioural models.
2. Our strategy of trading is to seek alignment with long-term trends and then to find short-term entry points that translate into long-term time frames. Producing tight risk rewards on entry as well as high multiple-risk returns.
3. Our tight risk rewards on entry may mean that sometimes an entry point might require several attempts. A spreadsheet is available on request to explain all the trades that are displayed on the website and in the summary tables below.
4. Good trade entry points with tight and structurally meaningful stops (entered with contrarian price modelling).
5. Appropriate position sizing – to remind you of our methodology behind each trade recommendation; each real-time idea has a risk unit, defined from the entry point to the stop level, and a trade idea in one market can have a maximum of 400%, which equates to 40 risk units at any one time. Trade recommendations can be either 100% or 200%. The 400% limit in a market can be put on all at once or in combinations of sub-trades. High-conviction trades require the time frames of short, medium and long to all be aligned. Notably, since Q2 2021, the conviction levels have been and continue to be very high due to the strong integrated signal strength associated with our price and geopolitical models.
6. Ongoing trade management by following the progression of a trend. by lowering stops  where appropriate
7. Successful trade exit points that ideally replicate the dynamics of point 2 above, by precisely picking the end of the trend.

These key points describe Global Trader's risk methodology. By reading the below quarterly performance appraisal, you will have a better idea of how we apply our risk-allocation methodology, as well as how we combine geopolitical predictions using various models from Breaking The Code Of History. All of these real-time predictions have been published on the Global Forecaster website and are available to our clients.

3.0 OUR MAIN 2023 GEOPOLITICAL PREDICTIONS

3.1 2023 – THE YEAR TO STAY UNDER COVER

Image

Our main predictions for 2024 were outlined in 2024 – The Year To Stay Under Cover One of our core investment themes  was that 2024 would be;

The Year of Precious Metals
For those who subscribe to our Global Trader Product, we have been advocating the main financial survival strategy to be focused on Bitcoin and even more heavily weighted to precious metals and their associated mining stocks. We believe, this year, this strategy will prove to be the only game in town. Whilst bonds have fallen significantly and will only accelerate, precious metals have held their value, completed a major correction, and are now in only the foothills of a powerful once-in-56-years rally to new highs and beyond.

3.2 GEOPOLITICAL PREDICTIONS RELEVANT TO Q1 2024 

Image

As expected, the calm before the storm has been replaced by increasingly entropic war events, that have now manifested in Israel over Gaza. However, we view this as not an isolated event but one linked to the collapse of American hegemony, and part of an alarming global pattern of expected escalation into WW3.

One that ultimately involves China opening hostilities across the Asian basin, in the scenario we call Red Lightning. Thus we seem to be at the confluence of geopolitical and market events of a very significant magnitude, with an oil rally being the key market trigger. The specific areas that we highlighted for geopolitical risks in Q1 2024 were;

1. The Ukraine counter-offensive would see Putin increase pressure on Ukraine as US support dried up and the war escalated into an ever more direct confrontation with NATO. This was correct and is unfolding.
2. Inflation will keep moving higher, driving bond prices (and equities as Bonds accelerated) lower and the yield curves to steepen as energy and commodities surge due to wartime resource constriction. In addition, we expect wage and input inflation to continue to move higher. Notably, we expect that commodity input inflation in the coming wave 3 will start to once more feedback into top-line inflation. See Inflation Expectations Are Increasing As Predicted. We were encouraged in our prediction by Andrew Bailey. Who at the lows of the oil price boldly insisted that Inflation was about to fall 'markedly', even as he signalled the Bank of England would have to keep raising interest rates. The Governor said that tumbling energy prices and cheaper food would help to drive down inflation for the rest of this year. AB is our favourite inflation reverse indicator, and it is no coincidence that he called for lower inflation in 2024 = at the oil lows. Just when we were predicting that commodity prices had completed their correction and would commence their next surge higher!!! At which point, in contrast, we correctly predicted the next commodity surge into war had commenced with the energy/commodity sector, which had started one of its biggest rallies in 56 years, into an expected peak in 2030. A peak that is all about resource constriction and escalating global conflict. This was correct and is unfolding as shown in the plot below.
   Image

   
3. The Israeli war with Hamas would escalate to a regional war with Iran, sending oil prices through the roof and catalysing Xi’s war. As outlined in The New Age of War; Chapter 2: Israel and the Middle East and Dimensions of American Decline 10: Biden, Afghanistan, Ukraine and Now Israel and The Iranian/Hamas Trap Is About To Spring Shut On Israel and America. This was correct and is unfolding and putting pressure on oil prices.
4. The Chinese demand gap would force Xi’s hand into war. In March 2020, Xi shifted his economy from a manufacturing export-driven nation into one that slowed its exports, collapsed its capitalist social camouflage, and stockpiled commodities on a massive scale as described in Red Peril 20; China's Increased Polarisation, Aggression and Bifurcation. The result is a demand gap that has seen the Chinese economy slow down significantly, compounded by numerous CCP economic decisions that do not make sense in peacetime – unless they represent a wholesale economic plan to prepare for a wartime economy that can survive total bifurcation from the West. This includes the lowering of US Bond holdings. The rapid borrowing by local governments has fostered an illusion of prosperity. However, China’s development model has been to issue a tremendous amount of loans to non-performing projects, particularly the housing industry, but now the housing market is collapsing, with dire consequences. The consequence is similar to that of the Nazi four-year plan instigated in March 1936, which meant that in preparing for war, the German economy would be bust by 1940, so had to use its military capability or implode. Xi is thus in the same position as Hitler was, where he either uses it or loses it. As we have regularly stated, dictators always warn what they are going to do, and liberal democracies always discount it as rhetoric, until they are attacked! In Xi's case his intentions are very clear, as we outlined in Red Peril 13 – Read My Lips: I Am Preparing China To Go To War. One only has to look at the recent changes to Chinese law, the economic strategy, and of course the military expansion, complete with the development and deployment of ballistic carrier-killing missiles and hypersonic missiles that can be deployed in massive waves to overcome all defenses, without warning. To cement the picture, the massive expansion of Chinese ICBM missile silos to 400 plus, is the last piece of the puzzle, designed to deter any American nuclear uses and close the avenue of Chinese military inferiority. This was a quarter early.
5. Accelerating inflation would bring about a US debt crisis that would collapse the stock market and dollar. Which is also in line with our call for the collapse of the Doomsday Bubble. Conditions for this financial implosion are now accelerating for all to see as interest rates rise and bond issuance increases to the point of being unsustainable. In this regard, any dent in the perception that the US hegemony is collapsing, through failed military intervention, or escalating global conflict, will accelerate the cost of UK debt and accelerate this dangerous situation. In effect, America is now trapped in a declining empire's debt doom loop. This was correct and is unfolding.
6. The banking crisis would see a third chapter. With the bond market collapse inevitable as inflation surges, alongside wartime debt issuance it is inevitable that this move will destroy the balance sheets of at least 50% of US banks (as they all hold 25% on long-dated bonds)  making them bankrupt an unprecedented banking crisis is unavoidable. Stocks to watch are SocGen, DB, and Fifth Third Bancorp. Watch out For The Next Leg Of The European  Banking Crisis and European Banks Ready For Next Lurch Lower. This is ongoing and will keep causing the yield curve to steepen even more severely. This has been the case, if not on slow burn as bank stocks started to weaken just at the end of Q3. This was a quarter early.

In summary, we saw a clear market response to a significant escalation in Iran’s war on Israel 5; The Battle for the Sinai Sea Lanes in the rally of the safe havens.

4.0 MARKET PREDICTIONS AND ALPHA GENERATION

Over the quarter we followed our game plan, based on our predictions that:

1. That the safe havens of Bitcoin and gold and silver would rally strongly.
2. Energy prices would increase significantly, with oil targeting the $130.00 highs and ultimately $200-$250.
3. Commodities – food and base metals would also increase significantly, as explained in The Next Commodity Surge Has Commenced (blog post) and The Next Commodity Surge Into War Has Commenced (Arkent Scenario).
4. Inflation would increase significantly due to increased input prices, feeding into an accelerating wage cycle. Based on the previous K-wave cycle peak in 1975, US CPI could considerably exceed 16%.
5. Interest rates would keep rising and the cost of borrowing/mortgages will become exorbitant, absorbing household spending power, and reducing consumer spending. Based on the previous K-wave cycle peak in 1975, US Fed funds could exceed 22%.
6. Bonds would fall and not act as safe havens, driven by higher inflation and the massive bond issuance associated with the unfolding arms race/ wartime spending programs. The medium term (next three months) out to the end of 2023 continues to see a risk of a wave 2 rally of some 10 points before the fall commences that could ultimately lead to US debt default. The debt projections from the US Budget Office say it all! Indeed, it is interesting to note that our prediction back in 2007, as shown in the lower diagram, that US debt would skyrocket in this phase of US decline, was correct, as issuance now exceeds the WW2 peak. As oil rallied we recognised that there would not be a wave 2 and that The Bond Correction Looks to be Over as Oil Builds Momentum Higher and that yield curves would steepen dramatically.
7. Equities would be the last to peak, supported by ever-accelerating money printing. But as bonds accelerate lower, they will take equities with them, especially the Russell 2000.

4.1 TOP 20 PERFORMING MARKETS OVER THE PAST 17 QUARTERS

Image

The top-performing macro sector was Crypto, and especially Bitcoin with an excess of 729 trading units, followed by Bunds (378 units) and Gold (310 units), with very solid performances in the commodities sectors including oil, copper and uranium. Making Q1 2024 an excellent quarter's perfomance.

4.2 WORST 10 PERFORMING MARKETS OVER THE 17 QUARTERS

Image

The worst-performing markets were Gilts (in contrast to Bunds), which continue to prove challenging to extract alpha from, the Eurodollar as the dollar corrected higher, and of course the NASDAQ as part of the equity complex that kept rising.

4.3 SPECIFIC MACRO SECTOR PERFORMANCE

4.3.1 Equity Markets – Looking For the Trend Reversal

Image

Equities were in a bull market and hence not a productive sector (with moderate losses for well placed short positions) for our bear view. With some exceptions like the Vix and HK 50. We are still looking for a major reversal.

4.3.2 FX Markets – The in Corrective Mode

Image

The FX sector was very much in corrective mode, creating moderate losses to our short dollar positions. Notably, our NZD short did very well, even as stock market indexes continued to rally.

Image

 4.3.3 Crypto Markets Rallied

Image

We had excellent results in this sector, especially with Bitcoin with two trades with tight entry points and trends higher, which allowed us to capture multiple returns on each trade.

4.3.4 Bond Markets – The Fall Commences

Image

Bonds started their year on the highs with the market bullish and long and we have been short ever since that point, correctly avoiding the first wave-two price correction and then resetting our shorts.

4.3.5 EM Markets – Zero Movement

Image

The EM markets saw a very quiet quarter with zero notable alpha-generating opportunities.

3.3.6 Commodity Markets – Oil Leads The Way Higher

Image

The energy sector with uranium and oil created solid returns. As did our core investment in precious metals and copper.

Image

Notably, our Carbon Emissions short did very well indeed, as that market sector imploded and the net-zero economy is slowly being replaced by wartime imperative.

Image

Gold and  Silver rallied in a zero-movement dollar environment, implying that they are ahead of an escalation cycle of some kind.

Image

The agriculture sector produced small negative returns and has not yet caught up with oil.

5.0 ALPHA CAPTURE AND FUND PERFORMANCE

Image

This was an incremental negative performance of 01.11% in a challenging quarter for our mining stocks, as they failed to follow the underlying gold and silver prices higher. Note our commodity fund was up 1.4% for the quarter.

Image

The equity indices provided the best alpha in Q3. After a period of large-degree correction in the equity markets in Q1/Q2, we caught the high of the wave 2 correction and ensured that we were short with very tight stops from that high. Running the positions as the market fell in a coiling sawtooth decline, which suggests that October will see significant declines. Our best performers were the Eurostoxx 50 and SP 500.

Q1 2023 PERFORMANCE REVIEW CONTENTS

We recommend that subscribers to our Macro CIO's View take the time to read this analysis of our performance to enhance their understanding of how we consistently extract alpha from the markets, whilst minimising our downside risk on entry with extremely tight tactical stops, that are then actively managed as the trade moves in our favour.

1. Executive summary; Global Forecaster and Global Trader
2. Trade recommendation and risk methodology
3. Our key 2023 year-ahead geopolitical calls
4. Our main Q3 2023 geopolitical calls
5. Q3 2023 market predictions and performance
6. Alpha capture long-short fund performance.

1.0 EXECUTIVE SUMMARY

Our Global Forecaster geopolitical and market calls have once more proven accurate during Q3;

1. The dynamics of the inflationary surge, whose correction ended with that of oil's correction.
2. The course of the battle for Ukraine.
3. The accelerating risk of bifurcation and war with China.
4.  The continued exposure of the banking sector and risk of further collapses.

Global Trader covers seven macro sectors, with some 80-plus markets, and has been producing some exceptional alpha extraction since its inception in 2019.

In summary, Q3 2023 could best be characterised as a period of consolidation and correction that in the later part of the quarter gave way to movement and alpha generation. Our capital preservation methodology has been a critical part of our risk performance, based on our ratchet risk-to-stop methodology (explained below).

• Our best performance has come from the broad sector across equity indices, bonds and energy commodities, and to a lesser extent for some cryptocurrencies.
• Our precious metals trade in gold has had a rare negative return this quarter.
• FX as the dollar rallied in a correction caused broad losses.
• EM has continued to provide incremental returns for our Rand short against Sterling and the Dollar.

2.0 TRADE RECOMMENDATIONS AND RISK METHODOLOGY

2.1 GLOBAL TRADER – DESIGNED FOR RISK-TAKERS

Global Forecaster was set up in the summer of 2019 to inform and advise professional asset managers through troubled waters. During that year, there were obvious indicators that global markets were soon to peak (in February 2020) and collapse, with the most grievous consequences. We have called this transition The Great Shift, as it is driven by the intersection of the peak of the K-wave cycle and the hegemonic challenge of China to America and the West.

We continually seek to quantify the accuracy of our trade recommendations as they translate into real-time market positions that are readily actionable by risk managers. We are pleased to report that the system we have used over the past three years (plus) has produced a very accurate representation of our market calls, in the direction, size and magnitude of the move. This has allowed risk-takers to quickly assess the accuracy of our past predictions in any market or sector, as well as benefit from our trade recommendations.

The structure of our trade recommendations allows our clients to apply them directly to their portfolios. Similarly, we go a stage further for some clients, by taking our trade recommendations and applying them to specific alpha-capture platforms with outstanding results. This service is available upon request.

2.2 GLOBAL TRADER METHODOLOGY AND STRATEGY

We now have 16 quarters of performance under our belt, and the results of our geopolitical predictions, market predictions and alpha-capture fund performances have been exceptional. We believe the key to high returns and long-term success is based on:

1. Prescient market views generated within a systematic multi-timeframe and price modelling system, which combines our geopolitical and market behavioural models.
2. Our strategy of trading is to seek alignment with long-term trends and then to find short-term entry points that translate into long-term time frames. Producing tight risk rewards on entry as well as high multiple-risk returns.
3. Our tight risk rewards on entry may mean that sometimes an entry point might require several attempts. A spreadsheet is available on request to explain all the trades that are displayed on the website and in the summary tables below.
4. Good trade entry points with tight and structurally meaningful stops (entered with contrarian price modelling).
5. Appropriate position sizing – to remind you of our methodology behind each trade recommendation; each real-time idea has a risk unit, defined from the entry point to the stop level, and a trade idea in one market can have a maximum of 200%, which equates to 20 risk units at any one time. Trade recommendations can be either 33.3%, 66.6%, 100%, 133%, 166% or 200%. The 200% limit in a market can be put on all at once or in combinations of sub-trades. High-conviction trades require the time frames of short, medium and long to all be aligned. Notably, since Q2 2021, the conviction levels have been and continue to be very high due to the strong integrated signal strength associated with our price and geopolitical models.
6. Ongoing trade management by following the progression of a trend. by lowering stops  where appropriate
7. Successful trade exit points that ideally replicate the dynamics of point 2 above, by precisely picking the end of the trend.

These key points describe Global Trader's risk methodology. By reading the below quarterly performance appraisal, you will have a better idea of how we apply our risk-allocation methodology, as well as how we combine geopolitical predictions using various models from Breaking The Code Of History. All of these real-time predictions have been published on the Global Forecaster website and are available to our clients.

3.0 OUR MAIN 2023 GEOPOLITICAL PREDICTIONS

3.1 2023 – THE YEAR TO TAKE COVER

Image

Our main predictions for 2023 were outlined in a series of posts published in early January called The Year To Take Cover (as below). They have all been quietly building momentum, much like the forces of plate tectonics before releasing their energy in an earthquake. In May we described the period of Q1/Q2 as that of the Phoney Calm, as the geopolitical pressure builds like plate tectonics before releasing even as volatility fell in the markets.

Part 1 - Hegemonic Challenge Continues to Increase Global Entropy
Part 2 - Why We Named 2023 The Year to Take Cover
Part 3 - WW3; The Challenge to America's Hegemony and the Bifurcation of the World
Part 4 - Inflation Will Keep Rising
Part 5 - The Collapse of the Doomsday Bubble
Part 6 - Global Political Changes

3.2 GEOPOLITICAL PREDICTIONS  FOR  Q3 

We argued that during Q3 we would see  the calm before the storm, be replaced by significant market movement as the confluence of geopolitical and market events accelerated into events of a very significant magnitude with an oil rally being the key market trigger The specific areas that we highlighted for the Q3 2023 were;

1. The Ukraine counter-offensive will see Putin under increased pressure. Both through the potential threat of the re-capture of Bakhmut and the renewal of the counteroffensive on the southern front once more SAMs and cluster bombs arrive, along with the NATO-lite security guarantee to Ukraine, with the promise of NATO membership once Russia has been expelled. Putin’s response will be to increase his nuclear and subsea threats, and there is always the continued threat that China will cross the dual-use aid red line. This has been the case, if only a slow burn.
2. Inflation will keep moving higher, and the US correction due to the fall of commodity prices in the wave 2 is now over. Indeed we expect wage and input inflation to continue to move higher. Notably, we expect that commodity input inflation in the coming wave 3 will start to once more feed back into top-line inflation. See Inflation Expectations Are Increasing As Predicted. We were encouraged in our prediction by Andrew Baily insisting Inflation is about to fall 'markedly', even as he signalled the Bank of England would have to keep raising interest rates. The Governor said that tumbling energy prices and cheaper food would help to drive down inflation for the rest of this year. AB is our favourite inflation reverse indicator, and it is no coincidence that as he calls for lower inflation this year we are predicting commodity prices are about to commence their next surge higher!!! This has been the case.
3. That the next commodity surge into war has commenced (15/07/2023) with the commodity sector now at the start of one of its biggest rallies in 56 years, with an expected peak in 2025-27, as recently explained in Arkent Scenario July – Increased Volatility Ahead: Commodities, after the completion of their wave 2 over the past 14 months, are now moving off their lows, in what we expect to be the commencement of the wave 3. Notably Copper/Nickel/Wheat/Natural Gas have been leading the way, but others in the complex now seem to be following, such as WTI. We note that China is constricting two rare earth metals, consistent with the beginning of wave 3, which is all about resource constriction and escalating conflict. This has been the case with respect to the oil rally moving from $65 to $95
4. The Chinese Demand Gap will Force Xi’s Hand. In March 2020, Xi shifted his economy from a manufacturing export-driven nation into one that slowed its exports, collapsed its capitalist social camouflage, and stockpiled commodities on a massive scale as described in Red Peril 20; China's Increased Polarisation, Aggression and Bifurcation. The result being a demand gap that has seen the Chinese economy slow down significantly, compounded by numerous CCP economic decisions that do not make sense in peacetime – unless they represent a wholesale economic plan to prepare for a wartime economy that can survive total bifurcation from the West. This includes the lowering of US Bond holdings. The rapid borrowing by local governments has fostered an illusion of prosperity. However, China’s development model has been to issue a tremendous amount of loans to non-performing projects, particularly the housing industry, but now the housing market is collapsing, with dire consequences. The consequence is similar to that of the Nazi four-year plan instigated in March 1936, which meant that in preparing for war, the German economy would be bust by 1940, so had to use its military capability or implode. Xi is thus in the same position as Hitler was, where he either uses it or loses it. As we have regularly stated, dictators always warn what they are going to do, and liberal democracies always discount it as rhetoric, until they are attacked! In Xi's case his intentions are very clear, as we outlined in Red Peril 13 – Read My Lips: I Am Preparing China To Go To War. One only has to look at the recent changes to Chinese law, the economic strategy, and of course the military expansion, complete with the development and deployment of ballistic carrier-killing missiles and hypersonic missiles that can be deployed in massive waves to overcome all defences, without warning. To cement the picture, the massive expansion of Chinese ICBM missile silos is the last piece of the puzzle, designed to deter any American nuclear uses and close the avenue of Chinese military inferiority. This scenario continues to unfold.
5. The Banking Crisis will see a third chapter. Stocks to watch are Soc GEN, DB and Fifth Third Bancorp. Watch out For The Next Leg Of The European  Banking Crisis and European Banks Ready For Next Lurch Lower. This is ongoing and will keep causing the yield curve to steepen even more severely This has been the case if not on slow burn as bank stocks started to weaken just at the end of Q3.

4.0 MARKET PREDICTIONS AND ALPHA GENERATION

Over the quarter we followed our game plan set out in July – Increased Volatility Ahead and August – August – When Will the Phony Calm End?

1. Energy prices will increase significantly, with oil targeting the $130.00 highs and ultimately $200-$250.
2. Commodities – food and base metals will also increase significantly, as explained in The Next Commodity Surge Has Commenced (blog post) and The Next Commodity Surge Into War Has Commenced (Arkent Scenario).
3. Inflation will increase significantly due to increased input prices, feeding into an accelerating wage cycle. Based on the previous K-wave cycle peak in 1975, US CPI could considerably exceed 16%.
4. Interest rates will keep rising and the cost of borrowing/mortgages will become exorbitant, absorbing household spending power, and reducing consumer spending. Based on the previous K-wave cycle peak in 1975, US Fed funds could exceed 22%.
5. Specifically Bonds will fall and not act as safe havens, but rather will fall, driven by higher inflation and the massive bond issuance associated with the unfolding arms race/ wartime spending programs. The medium term (next three months) out to the end of 2023 continues to see a risk of a wave 2 rally of some 10 points, before the fall commences that could ultimately lead to US debt default. The debt projections from the US Budget Office say it all! Indeed, it is interesting to note that our prediction back in 2007, as shown in the lower diagram, that US debt would skyrocket in this phase of US decline, was correct, as issuance now exceeds the WW2 peak. As oil rallied we recognised that there would not be a wave 2 and that The Bond Correction Looks to be Over as Oil Builds Momentum Higher and that yield curves would steepen dramatically.

4.1 TOP 20 PERFORMING MARKETS OVER PAST 39 MONTHS

Image

The top performing markets sector was Equities and commodities, with solid performances in individual markets of BTPs and the crypto 10 index.

4.2 WORST 10 PERFORMING MARKETS OVER PAST 39 MONTHS

Image

Our worst 10 performing markets have shown some consistent problem areas such as the Eurodollar, Nickel, Wheat, Dollar Krone and UK Gilts. We will be looking to modify our approach in these sectors to improve performance. Especially in Nickel, Gilts, Euro Dollar and Dollar Krone

4.3 SPECIFIC MACRO SECTOR PERFORMANCE

4.3.1 Equity Markets – The Next Bear Decline Unfolds

Image

This was our best market sector in Q3, with broad positive returns across the whole sector, as we managed to put our most recent short positions on with tight stops close to the July Peak of the wave 2 corrections. The Eurostoxx 50 and SP500 indexes were the best performers. The weakest index has been and continues to be the R2000, which is now poised to lead the US Equity complex in dramatic decline.

Image

4.3.2 FX Markets: A Nasty Correction

Image

We maintained a dollar bearish stance all quarter, and suffered from the correction over the second part of the quarter that completed the wave 2 at the start of October. The dollar index shows an irregular correction that is complete so that Q4 should be very negative for the Dollar.

Image

 4.3.3 Crypto Markets Coiling For A Rally

Image

We had excellent results in the Crypto 10 index with a tight entry point trade as shown below. Whilst the others have been in a long and hold mode.

Image

4.3.4 Bond Markets – The Next Phase of The Fall Commences

Image

We spent the first half of the quarter trading from the long side looking for a C wave pop higher. Using great entry points to go long, most of which then went 3x to 5x in the money before reversing lower. We broke even on that half of the month. Then with the poor price action accelerated as oil rallied, we changed our view that the next fall had commenced and ran short positions with BTPS being the standout alpha generator.

Image

4.3.5 EM Markets – Zero Movement

Image

The EM markets saw a very quiet quarter with zero notable alpha-generating opportunities.

Image

3.3.6 Commodity Markets – Oil Leads The Way Higher

Image

The Energy sub-sector rallied as we predicted with oil and uranium being stand-out returns. Starting the quarter on their lows and ending on their highs.

Image

However, Silver and Gold fell as the dollar rallied, hitting our Gold longs more than Silver, which had a tighter stop, which enabled us to miss most of the drop and reacquire our longs at the lows.

Image

The agriculture sector produced mixed returns with corn and soya finally basing at the end of Q3.

Image

5.0 Alpha Capture and Fund Performance

Image

An incremental positive performance of 1.40% in a challenging quarter without clear direction, benefitting from long oil company and defence positions whilst losing on our gold and silver companies.