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Is Geopolitics The Big Market Risk We’re Missing?

Is Geopolitics The Big Market Risk We’re Missing?

Authored by Bill Blain via,

“Address all your skill and the valour…



This article was originally published by Zero Hedge

Is Geopolitics The Big Market Risk We’re Missing?

Authored by Bill Blain via,

“Address all your skill and the valour of my soldiers to exterminate the treacherous English and walk all over General French’s contemptible little army…”

Markets are up and down, and the noise is focused on Covid, Central Banks, Inflation and Tech stocks. But… perhaps the big risks lie elsewhere. Where are Geopolitics headed? Faceoffs in Ukraine and Taiwan have the potential to completely derail markets.

Looking at bond and stock prices there is a rising sense markets might finally have peaked. Some of the conviction underlying strength, the likely support of central banks, and the buy-the-dip games of last year, feel like it’s evaporated. There are plenty of opinions and concerns about the inflation/stagflation threat, worries about globalisation and what the pandemic might or might not still do to us. It’s easy to figure why markets are nervous today, but they might just as well be ecstatic tomorrow if these fears and tensions subside – which will likely prove the case when Covid is beaten!

As always, I take the middle road: “Things are never as bad as you fear, but seldom as good as you hope”. Now is a time for patience – waiting the current misty market front to pass through, and for the path ahead to become clearer, which post pandemic (which I hope is sooner than we expect) the situation may look very good again.

But, But and But again…. When things look good… look for bad…

One aspect that doesn’t seem to be getting quite as much focus and attention as it probably should is Geopolitics – and the specific risks global tension zones could suddenly turn hot, specifically Taiwan and Ukraine. Speaking to clients yesterday – everyone had a multiplicity of views on stocks, covid, credit, bonds and inflation, but no one was really talking about the destabilisation risks of global tension and conflict.

And that’s probably a mistake as things look likely to come to head soon in Ukraine and the South China Seas.

Maybe we discount the geopolitical threats because we like to focus on the threats we understand and can predict. We can make a decent stab at explaining predicted inflation – considering every little detail like CPI, the pace of innovation and long-term demographics, to put together well constructed arguments. We can look logically at individual stocks and sectors and make educated assumptions on business models, profits and fundamental returns. We can look at volatility and bond yields and come up with risk assumptions about correlations across markets.

But watching Europe, the US, China and Russia and trying to predict how they will behave – especially in today’s fraxious market – is like watching a game of poker in a darkened room.

You have some idea of who holds what cards, but no idea on how they might play them. We can make all kinds of assumptions about the motivations, the relative military and political strengths, and the weaknesses of each player – we really don’t know what makes them tick, what their respective appetites for risk might be, their ultimate objectives, or what they are prepared to do to achieve them.

So, this morning, I shall go off-piste on one my irregular jaunts into an area where I have no particular knowledge or experience of – although I might have some pretty good contacts. Weigh the risks and what the potential scenarios mean.

Actual hostilities would doubtless absolutely challenge markets – triggering a massive flight to quality: buy Gold and Treasuries. In such an environment you can forget about Crypto-currencies. People will want real assets. Power for computers may become dicey, and the Russians might just press the destruct button to discombobulate crypto markets/shams in order to ferment domestic dissent in the West from furious meme-stock traders who will think they’ve been robbed!

Hot wars are always a classic sell the fact moment, before turning into a potential buy moment as the news develops, if/when peace is achieved or, hopefully, the west triumphs.

But will it actually happen? Nobody really expects conflict… do they? That’s exactly what we thought in August 1914 and March 1938. Conflicts can take years to quietly fester and brew, but can turn hot in an instant on a miscalculation.

It would be a mistake to think the chances of conflict are purely down to current personalities. Distrust of Russia has characterised the West for centuries – they may be European, but they are very very different. (Personally, on the individual level Russians are great fun and I like them, but they can be very dark..) The Chinese are a very different prospect, but their 4000 years of continuous history illustrates that no Emperor or Dynasty ever sits easy on throne – whatever President Xi may think he has acheived.

Let’s try and think about the threats…

I read about the Chinese building full-scale mobile mock-ups of a Gerald Ford class US Aircraft Carrier and escort vessels in the vastness of Xinjiang’s Taklamakan desert. They are there so the Chinese can send a clear “do not interfere in Taiwan” warning. These targets will be taken out by China’s 1000 mile range DF-21D “ship-killer” missiles as a demonstration of their power projection. The Chinese believe their missiles are an effective way to deny the US from supporting for Taiwan. That matters, if conjecturally, China’s was able to “manufacture” an incident where suborned domestic politicians called for Chinese “peace-keepers” to protect the populace from an Anti-China coup. China would make the usual noise about it being a domestic issue and warn others to stay away.

But, the US Navy may disagree the missiles are an effective area-denial weapon. Taking out a number of undefended mock-ups in a desert is terribly clever, but the US Navy’s Carrier task forces are very well defended. They are working on anti-ballistic missile systems (ABM) to take down the missiles during their 15 minute flight, and can probably already disrupt the telemetry and systems guiding the missiles. Then the missiles have to get through F-18 fighters ABM screen, the Arleigh Burke class air defence destroyers and their ABM systems, and the final phalanx systems.

The Chinese will probably have to swamp each task force with multiple missiles to ensure “mission kills” (sinking carriers is actually very difficult – as the US Navy found when they sank the USS Kitty Hawk to become a reef.) But each carrier has a crew of 6000 – and the American’s will be loath to risk them.

The danger is an attack on a task force steaming to the defence of Taiwan could rapidly escalate. Neither side would be minded to back down. The missiles 15 minute flight gives the US time to warn off Beijing and threaten to launch a first Nuclear strike. The Chinese simply don’t have the warheads to match an American attack – although they are rapidly building more. Missiles in the South China Sea could turn hot in moments.

Meanwhile, the Ukraine is a major challenge to the West and Russia. There is an article in the Washington Post well worth reading if your want the background: “Russia’s rifts with the West keep growing. How did we get there.” It reads like something out of the inglorious summer of 1914.

Sit back and analyse it and both sides have backed each other into a corner. If the West sits back and lets Putin “intervene/invade” where would that leave Nato’s credibility? Putin has little alternative to look big to maintain his strong-man image. Historically, Ukraine is the road to Moscow, and its inconceivable it could end up in the hands of Nato.  He wants Ukraine back in the Russian fold and a key part, alongside Belarus, of Moscow’s security buffer.

Last week’s abortive revolution in Kazakhstan may have caught Putin by surprise, but if it was a manufactured warning from the West not to interfere in Ukraine by reminding Russia just how week some allied nations are, then it was a mistake. Its already served as an opportunity for Putin to stamp it out with Russian troops, rally his close states, forcibly reminding them who is charge, and committing them to his narrative.

Putin has repeatedly said he has no intention of invasion, successfully convincing the West he will. America has no boots on the ground, but is making a great deal of noise about the sanctions and “very angry letters telling Vladmir how angry they are” if he were to cross the border. And if Putin invades, his armies may well be tested. Ukraine’s military are not expected to last long. On the other hand, in December the Russians staged a dramatic paradrop assault exercise on the Ukraine border – but what Nato Analysts saw was a Russian Airforce short of transports and logistical support.

Long-term it may even be in the West’s interest to let Putin in – although the short-term credibility costs would be huge. The conspicuous domestic wealth of the west, and relative lack of popular support for authoritarian Putin dependent regimes in the satellite states (Belarus and Kazakhstan, and Ukraine if it’s taken) could prove a major cost and challenge for Russia in the future. And there is no way Russia can afford these costs if it’s under renewed American sanction.

Clearly any serious examination of the geopolitics of today’s market can’t be done in a couple of pages in the Morning Porridge, but I hope it makes you think. I haven’t even mentioned the raw materials and commodities dimension in regard to China, or the potential alliance that seems be forming between Putin and his “new best friend” Xi.

And I haven’t mentioned the potential no-see-um: Iran… What if Iran, encouraged under the radar by Xi and Putin, decides to go rogue in the Middle East? Ouch….

The message is simple – don’t discount the geopolitical background to the current markets.

Tyler Durden
Fri, 01/14/2022 – 13:09

Author: Tyler Durden


Crypto Options Suggest Bitcoin Bottom Is In As Hash Rate Hits Record High

Crypto Options Suggest Bitcoin Bottom Is In As Hash Rate Hits Record High

After two months of brutal, constant pain for crypto longs on the…

Crypto Options Suggest Bitcoin Bottom Is In As Hash Rate Hits Record High

After two months of brutal, constant pain for crypto longs on the back of fears the Fed is about to yank the punchbowl and drain enough liquidity to end the party (at least until the next recession and market crash, when the Fed will double-down on easing, launch NIRP, buy equity ETFs and upgrade helicopter money to tactical money ICBMs, finally sending all cryptos to the moon and beyond), the tide may finally be turning at least according to the options market.

After bitcoin suffered its biggest drop since May 2021 as it tumbled more than 40%, sending the price to the most oversold level since the covid crash – traditionally a failsafe bullish indicator…

…. the world’s largest cryptocurrency rebounded this week after falling below $40,000 for the first time since September on Monday and has bounced as much 10%, just as we said last weekend it would.

In short, Bitcoin appears to have stabilized, and options activity suggests investors believe the test of $40,000 – a critical support level below which Mike Novogratz said last week is where he would buy more (and appears to have done just that)…

… is over, and more upside is ahead, according to Genesis Global Trading including Noelle Acheson.

For one, the skew – or difference in implied volatility of bullish and bearish bets – has recently dropped from double-digits to near zero, and revealed a decrease in investor demand for put options and an increase for call options, Genesis data show.

“That shift in preference may be bullish for the price of BTC, all else equal,” Acheson added, and indeed a look at the option-implied probability cone shows an upside target just shy of $10,000..

It’s not just option traders and billionaire investors who see $40,000 as a bottom- it is a view echoed by many analysts in the famously optimistic world of crypto. Quoted by Bloomberg, Martin Gaspar and Katherine Webb at CrossTower said in a Friday note that Bitcoin’s reserve risk, a measure of confidence of long-term BTC holders, is currently lower than it was at the coin’s last bottom in July 2021, and now stands in the “buy” zone, which could give “more weight to the indication that this is a bottom.”

The $40,000 level “has been the key pivot point,” said Bloomberg Intelligence’s famously bullish crypto analyst, Mike McGlone. Up next, $50,000 comes into play before Bitcoin resumes its upward trend toward his forecast of $100,000, he said.

“Demand and adoption are increasing and supply is declining,” McGlone said. “Something has to reverse the increasing Bitcoin adoption trend or the rules of economics point to higher prices. I expect demand and adoption trajectories to remain favorable.”

McGlone isn’t alone in his calls for Bitcoin to more than double from current levels. According to Bloomberg, Jonathan Padilla, co-founder of Snickerdoodle Labs, a blockchain company focused on data privacy, expects Bitcoin to hit that level by the end of 2022, and also said that $40,000 is likely a floor, given the level of institutional capital he expects to flow into the market this year.

“The institutional nature is dramatically different from the primarily retail focus in 2017, 2018,” Padilla said. “That shows the strength of institutional buying and the demand from the long-term perspective.” Of course, this cuts both ways, because when institutions are deleveraging, they dump those assets first that have outperformed in 2021 – such as cryptos – which is also why crypto’s correlation to risk assets has exploded as institutional adoption has grown.

David Tawil, president of ProChain Capital, was ready to watch the $38,000 level in this past week’s sell-off. But, he hoped to see U.S. tech stocks start to rebound, which signals to him that “the bottom is in” for Bitcoin, he told Bloomberg’s “QuickTake Stock” broadcast.

“This is a pretty good buying level, especially if we go ahead and just retrace the losses — you’re talking about a 50%-plus gain from a year,” Tawil said.  

A surprising view comes from some of the biggest crypto skeptics around – JPMorgan, and specifically their clients, who have recently initiated a new target price for Bitcoin for this year of 2022. In a recent report, America’s largest commercial bank asked its clients where they see Bitcoin by the end of 2022. Based on the results, nearly 41% of clients believe that Bitcoin could be trading at $60,000 or above by the year-end, or about 50% higher than the current levels and more than what other asset classes can offer.

Others are less bullish. Another 23% of JPMorgan clients believe that BTC will be available at a 50% discount from the current levels i.e. $20,000. While another 20 percent believe that Bitcoin will be trading flat at $40,000. Only a mere 5% believe that Bitcoin will be trading above $100,000 levels.

Marko Papic, chief strategist at Clocktower Group, is another skeptic – he warns that Bitcoin’s correlation with the S&P 500 remains at one of its highest readings in the past 12 months; this is happening just as tech names have swooned amid fears of a hawkish Fed.  In this environment, “you don’t really want to own high-beta risk assets,” he said. “You want to own things that are much more sensitive to value, much more sensitive to global growth and cyclicals, and that’s why I don’t think crypto and Bitcoin are going to really do great over the next three to six months.”

In his latest Crypto Keys note (available to professional subs), UBS FX strategist James Malcolm has turned quite bearish on crypto, writing that the recent drop in bitcoin prices is the result of disappointment with the SEC not approving ETFs, as well as three other reasons: 1. It’s not better money; 2. The technology may prove subpar; 3. Regulation is a rising hurdle. While we disagree with all of these points, UBS does point out something notable: whales now own more bitcoin than ever before.

Meanwhile, as debates rage what’s next for crypto, one thing that is certain is that China’s attempt to crush the largest cryptocurrency last year when it banished all crypto miners has now failed (and backfired) spectacularly:

Bitcoin’s hash rate has returned to all-time highs despite losing a key hash rate contributor. Meanwhile, amid lackluster price action, Block CEO Jack Dorsey confirmed the creation of an open Bitcoin  mining system. according to CoinTelegraph, while Kazakhstan, the network’s second-most important BTC mining country, experienced an internet blackout last week due to civil unrest, the hash rate faltered no more than 13.4% before regathering to reach all-time highs.

As shown in the data below from Glassnode, with the price checking into the $42,000 range on Thursday, the mean hash rate hit 215 million terahashes per second.

Said otherwise, Bitcoin miners continue to show resilience, and as Fidelity Digital Assets observed, the network is even “more widely distributed around the world.”

As testament to this, Jack Dorsey’s Block confirmed it would develop open-source Bitcoin mining systems in 2022. In the Twitter thread, Thomas Templeton, a general manager at Block, addressed issues relating to the availability, reliability, performance and products pertaining to BTC mining. In sum, Block’s goals for BTC mining are the following:

“We want to make mining more distributed and efficient in every way, from buying, to set up, to maintenance, to mining. We’re interested because mining goes far beyond creating new bitcoin. We see it as a long-term need for a future that is fully decentralized and permissionless.”

Building a BTC mining system “out in the open” and alongside the community is no mean feat. Econoalchemist, an established home BTC miner and BTC magazine contributor, tweeted that developing products in open source would “build trust where no reputation exists currently and also might shift consumer expectations in that direction.”

Ultimately, Block’s mining solutions may pave the way for more DIY miners to enter the space.

Ultimately, it seems the sky’s the limit for Bitcoin’s hash rate, at least until the next 2,016 blocks, when the network difficulty resets.

Tyler Durden
Sun, 01/16/2022 – 18:00

Author: Tyler Durden

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Et Tu? Chuck Todd Savages Biden Over Failing Presidency As Liberal Media Cuts Bait

Et Tu? Chuck Todd Savages Biden Over Failing Presidency As Liberal Media Cuts Bait

As legacy media continues to distance itself from the Biden…

Et Tu? Chuck Todd Savages Biden Over Failing Presidency As Liberal Media Cuts Bait

As legacy media continues to distance itself from the Biden administration amid dismal approval ratings (and dismal viewership), MSNBCs Chuck Todd delivered perhaps the harshest indictment of a president his network has spent the last three years breathlessly fluffing.

In light of the press’s previously ‘complicit’ relationship with the Biden White House, Todd’s monologue was blistering to say the least.

“For President Biden, the plan was that Covid would be defeated, the economy would fully recover and he would be able to deliver a return to normalcy. But plans have a way of going sideways. A year into Mr. Biden’s presidency, unemployment is down and wages are up, but inflation is also up to a 40-year high. Infrastructure and Covid relief bills were passed, but Build Back Better is stuck in neutral. And most important, though vaccines are available and effective, Delta and Omicron have dealt a one-two punch to the economy, the supply chain and that promised return to normalcy…

…And on Thursday the Supreme Court blocked Mr. Biden’s “vaccine or test” mandate for large businesses, perhaps taking away the last effective tool in his Covid toolbox. That same day Mr. Biden’s last-minute push for voting rights bills was dealt a likely fatal blow. Democratic Senator Kyrsten Sinema said again what she’s been saying for months. She is opposed to changing the filibuster to pass the legislation. So, now what? All of this came just as the president was heading, by the way, to Capitol Hill to lobby fellow Democrats to change the Senate rules. So it was quite the exclamation point on a terrible week.


Todd’s comments are the latest in a slew of leftist media outlets jumping ship on the Biden administration.

Even SNL

And then there’s this…

Maybe Kamala can rearrange the deck chairs on the Titanic?

Tyler Durden
Sun, 01/16/2022 – 16:00

Author: Tyler Durden

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Dow Jones, the S&P 500, and Nasdaq price forecast at the start of the Q4 earnings season

The Dow Jones, the S&P 500, and the Nasdaq weakened on a weekly basis as investors traded cautiously at the start of the Q4 earnings reporting season….

The Dow Jones, the S&P 500, and the Nasdaq weakened on a weekly basis as investors traded cautiously at the start of the Q4 earnings reporting season.

Next week, Procter & Gamble, Alcoa, United Airlines Holdings, Bank of America, Goldman Sachs Group, Union Pacific, and Netflix ​are among the companies scheduled to report quarterly results.

Investors will watch guidance carefully from these companies to determine if inflation will crimp profit margins or if costs can be passed through.

They will also pay close attention to the companies’ outlooks and how U.S. companies coped with staffing and supply-chain issues last quarter.

U.S. policymakers finally concluded that price pressures were not just transitory, and the U.S. Federal Reserve increased the reduction in bond-buying on a monthly basis from $15 billion to $30 billion.

Pulling off support programs is the first step towards tightening, and according to Fed Chair Jerome Powell, the U.S. central bank will consider three rate hikes in 2022. Kim Forrest, chief investment officer at Bokeh Capital Partners, said:

Higher interest rates could pressure the stretched valuations of tech stocks, so companies need to deliver impressive numbers in the coming weeks. The tech sector is trading at about 27 times earnings estimates for the next 12 months, near its highest in 18 years, compared to 21 times for the overall S&P 500.

The rising inflation represents a threat to the economy, while the prospect of renewed lockdowns and rising COVID-19 cases also made investors nervous.

The U.S. continues to fight with high numbers of new daily infections, leading to staffing issues across industries; investors have seen that the virus still has the ability to disrupt business.

S&P 500 down -0.30% on a weekly basis

S&P 500 (SPX ) slipped 0.30% last week, marking its second weekly drop in a row, and closed at 4,662 points.

Data source:

The strong support level stands at 4,500 points, and if the price falls below this level, it would be a strong “sell” signal.

DJIA down -0.88% on a weekly basis

The Dow Jones Industrial Average (DJIA) weakened -0.88 % for the week and closed below 36,000 points.

Data source:

The decline for 2022 thus far has come amid concerns about inflation and the COVID-19 pandemic, and the upside potential remains limited for the week ahead.

Nasdaq Composite down -0.25% on a weekly basis

Nasdaq Composite (COMP) has lost -0.25% on a weekly basis and closed at 14,893 points.

Data source:

If the price jumps above 15,500 points, the next target could be around 15,700, but if the price falls below the 14,500 support level, it would be a firm “sell” signal.


Wall Street’s three main indexes weakened on a weekly basis as investors traded cautiously at the start of the Q4 earnings reporting season. Investors will watch guidance carefully from companies to determine if inflation, staffing, and supply-chain issues will crimp profit margins or if costs can be passed through.

The post Dow Jones, the S&P 500, and Nasdaq price forecast at the start of the Q4 earnings season appeared first on Invezz.

Author: Stanko Iliev

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