The Party is Over

If you are reading this article, you may think it is about the retail investors’ party that started during the spring of 2020. It is about another party that began in the early 1990s when developed countries decided to externalise all industrial production to China. But, fast forward 30 years, the project of a globalised efficient marketplace turns out to be unrealistic. China has a monopoly on the supply of goods, and its industry drives the commodity prices. What will happen next?

After thirty years of de-industrialisation and de-localisation of the means of production, Western developed countries are facing a double-edged sword dilemma. On the one hand, the last two crises pushed central banks to loose monetary policies, leading to a massive increase in the monetary mass. On the other hand, China has gradually become the world’s goods factory, and the pandemic outbreak reinforced its monopoly. The recent shortages in microchips, raw materials and other products speak for themselves.

Thus, one part of the world is producing physical goods, and another part is having a big party fueled by ephemeral services industries. The party will soon be over for the latter because money printed with no limit might not suffice to buy products. Let’s not forget that the initial role of currencies since ancient Babylon was to facilitate the trade of goods and services. In the current situation, one side has no goods to trade, only money.

China’s recent crackdown on cryptocurrencies is a statement in itself. Beijing leaders are clearly aware they have the upper hand in the relationship with the West and try to cut all leeways that could fragilise their strategy. China aims to play its role as a superpower by weakening all leading fiat currencies.

China is not a superpower, nor will she ever seek to be one. If one day China should change her colour and turn into a superpower, if she too should play the tyrant in the world, and everywhere subject others to her bullying, aggression and exploitation, the people of the world should identify her as social-imperialism, expose it, oppose it and work together with the Chinese people to overthrow it. Deng Xiaoping, a Chinese politician

Market overview

Eurozone inflation climbs to its highest level since 2008 amid soaring energy prices. Reported inflation jumped to 3.4% last month, the highest value since September 2008, which was 3.6%. Higher energy costs drive consumer prices. For example, the Dutch gas prices increasing by 400% since January. A few European governments took measures to block any future price increase in response to this unforeseen rise.

September was for the stock market the worst month since the beginning of the year.,However, clearly, the wind is turning, and the expected slowdown of quantitative easing could mark the beginning of consolidation across markets.

The yield on the 10-year U.S. Treasury bonds climbed above 1.5% for the first time since June. The optimism created by the economic recovery, as well as the perspective of more restrictive monetary policy, lifted the long term cost of fiat money.

Focus:

Facebook

In 2020 we thought that East Coast mainstream media and West Coast tech giants were allies. However, a series of articles in The Wall Street Journal tackling Facebook shows that friends could quickly become foes. The articles significantly impacted Facebook’s share, its price dipping by 11% in September. While the company is very profitable and all financial indicators are green, many controversies surround its success. Regulators and politicians from the US and overseas are pointing at Facebook for its aggressive data policies, the spread of misinformation on its platforms, and its role in how information stemming from its platforms are influencing public opinion. Facebook has a good perspective, but politicians may push for its dismantling in smaller entities.

Commodities:

Cotton

Cotton prices climbed in September to 9 years high. Cotton had a rally to its highest price since January 2012 amid crop concerns, increased demand from China and falling US stocks. A short-squeeze strategy for the December futures is also believed to be behind this unforeseen increase in prices. The weather conditions in the US may not favour good cotton production. In the short term, the increasing cost of production may not impact the end consumers, but if the bubble settles at a high level, we could witness an increase in clothing prices.

Market outlook

The Dow Jones Index ended the week on a positive note, ending the last trading session above 34,300 after dipping as low as 33,800. However, September brought a bearish momentum on the stock market, and the foreseeable market pullback is putting investors in a risky spot.

Bitcoin’s price hovered near 48,000 USD, finding a second wind after a period marked by losses. The perspective of a tighter monetary policy for the main fiat currencies brings more traction to cryptocurrencies.

The energy crisis triggered by a bubble in power, gas, and coal prices impacts oil prices. Thus, there are sound reasons to believe that Brent could climb above 100 USD before the end of the year.

The Gold ounce continues to surf around the 1,760 mark.  Nevertheless, if the Fed's announced bonds tapering is confirmed, the gold ounce could move back into the green.