Credit Cover Photo. Joseph Chan – Unsplash.com
As we predicted, 2018 was a year of turning points : turning points in inflation, monetary policies and equity markets.
We were amongst the few to predict the end of the secular bull market in US equities and 2018 ended-up being the worst year in equities since the 2008 financial crisis.
THE FOUR MEGA TRENDS
The world seems chaotic and unpredictable.
It is a time of changes and the world we are living in is going through major structural changes. We call them MEGA TRENDS
Understanding those mega-trends is paramount to proper investment positioning as they provide the backbone of the scenarios that will unfold in the years to come.
TRADE WARS, THE TRUMP METHOD AND LIQUIDITY
Equity Markets rose sharply last week as economic indicators and the heightened trade war led investors to conclude that the world economy would slow down marginally in the next six months while the ongoing trade wars would only have a limited systemic impact.
As our readers know, we had been anticipating a break-down in the US equity market as liquidity conditions were tightening but the behavior of the bond market and the flat-to-inverted yield curve is creating an environment of marginally negative real interest rates that remains supportive of equities for now.
In other words, liquidity is clearly prevailing over trade wars for now, and the correction of the first half of the year may be over.
From a fundamental standpoint, what it really means is that as long as bond markets do not break down or the yield curve slope up sharply, monetary conditions will remain. favorable to global equities and emerging markets in particular.
In our article titled FORGET NORTH KOREA, THE NEXT WAR COULD WELL BE IN THE MIDDLE EAST published in February 2018, we highlighted the rise in tensions and analyzed the dynamics that would cause a major military conflagration in region.
Unfortunately, the acceleration of events of the past few days shows that our nightmare scenario is playing out to the dot.
Since the symbolic coordinated attack of the USA, France and the UK on Syria to “Punish” Assad for using chemical weapons against its own people, that was perceived by Iran, Bashar El-Assad and the Syrian people as : “Bad Boy ! You can continue bombing your populations with your aviation, but do not use chemical weapons please ?“, events have accelerated markedly.
Just a few days after the coordinated attack on Syria, Israel launched airborne attacks against Iranian controlled anti-aircraft defense systems in Syria, something that went relatively unnoticed by clearly weakened the Syria defense.
Last Friday, Israel’s Parliament passed a law authorizing Benyamin Netanyahu to engage Israel into war with the sole accord of his Defense Minister, a fist in the history of Israel’s democracy,
On Sunday, Lebanon has Parliamentary elections that yielded Hezbollah and its allies a “legitimate ” democratic control of the Country. Israel announced that it made no longer any difference between Hezbollah and Lebanon.
The same night, Israel attacked again Iranian operated anti-air defense systems in Syria
And yesterday, following Donald Trump’s announcement America’s withdrawal, Iranian operated missiles were launched against Israeli positions in the Golan, leading to fierce reprisal by Israel and the destruction of more Syrian defenses and Iranian military in Syria.
Escalation is there and it is gaining momentum. The fact that President Trump cancelled his visit to Israel and made his announcement on May 8th, the day after the results of the Lebanese Parliamentary elections and four days ahead of schedule indicates that timing is becoming of the essence.
What is at play today is not simply a disagreement on Iran’s Nuclear Weapons program,
but a true confrontation between the World and the Iranian Islamic Republic Regime