Recovery

Recovery

Recovery could be insight following the worst year for investors in more than four decades which has seen trillions of dollars wiped off all asset classes across the risk spectrum.

The bubble of everything which burst in 2022 left no haven for investors, with even holders of prime sovereign bonds and precious metals nursing heavy losses. 

Great pivot, asset price support, and the recovery

Staring down the barrel of a systemic crisis, a meltdown in the sovereign debt market, a currency collapse, and an economy in free fall, the Fed and its western-aligned central banks have walked back from the abyss and pivoted.  

The Bank of England (BOE) reverted to buying gilts, quantitative easing light, to prevent an illiquid gilt market from crashing and triggering pension funds forced to sell in an illiquid market to meet margin calls.

September’s Gilt crisis and the BOE’s rapid intervention have so far prevented a gilt meltdown, the 10Y GB yields from spiraling, a UK government default, a GBP currency collapse, and global contagion.

Recovery in play the BOE has their PM

The new British Prime MininsterRishi Sunak, a Goldman Sachs alumni, is the BOE’s choice. So rest assured Sunak will do a splendid job to ensure the banks remain solvent. Sunak, ex-UK chancellor knows the state of the UK accounts like no other. He knows what holes to plug and what to say to keep the gilt market jolly. Sunak will be an obedient servant to his master, the BOE. 

Remember what I said central banks run the show, they are our unelected rulers, and the BOE has their man in place.

India is the fast-growing economy in the world, with a pool of talented young educated population. Sunak’s appointment in the eyes of India is good optics. It shakes off the arrogant Imperial British with a white bowler hat image scrambling to do deals with its former colony. Sunak would be the best man to persuade India to pivot, the second most populous country in the world, to the Western-aligned system. 

Moreover, with the UK out of the EU, the UK is at liberty to make bilateral trade deals with India and other Commonwealth countries. 

So it might be prudent to do some bargain hunting, picking up distressed UK assets. I have now turned bullish on GBP.  

The Federal Reserve pivot and the recovery 

Flying under the radar, the Fed has been conducting stealth bailouts.

The largest USD swap in history, dollar squeeze panic is currently playing out. “The Federal Reserve has sent a record $6.3 billion to Switzerland via Swap lines, agreements between central banks to exchange their countries’ currencies,” I wrote on October 20.

So the Fed pivot is in play. The first phase of the Fed pivot will be a reduction in Fed fund rate hikes, then a pause, and eventually a cut.

Sane geopolitics and the recovery 

So the expansion of NATO five times near Russia’s border stops with MAD. No nation has conquered Russia despite attempts by the French and the Germans over the centuries. But why did four million Ukrainian refugees head to the West, Poland, and not East to Russia? The west is seductive.