Unstable equilibrium

It’s becoming a full time job to follow up on all the events that are going on in the world the first week of the year. The pace is frenetic. On the domestic front, the job market is deteriorating, with less job openings than unemployed people for the first time in almost 4 years. This helps the president lower rates, but it may become dangerous if it continues to worsen. And since it seems no more government jobs will be added, and corporate america is embracing AI, we’re going to have a social shock. If that’s not enough, institutions will be banned from buying single family homes for rent, and defense companies will be told what to do with their dividends, buybacks, and cash flow. But the US defense budget will be increased to $1.5Tn. In other words, the cake is bigger, but I’ll tell you when and how to eat it. Or not. If that’s not enough, the nations guard is ready to be deployed on the streets of Minnesota, after an ICE incident regarding arrest of illegal aliens is provoking social unrest. On the international front, the US has seized a Russian oil tanker in the GIUK passage, with links to Iran, which seems to be under a violent regime change. All these almost make investors forget about Venezuela, which is now under Secretary Rubio tutelage, apparently controlling every drop of oil that gets out of the country. That oil may no longer go to Cuba or China. And if it does, it will have a negotiating bill attached. What’s the market doing with all that? Equities are bps away from All time highs, and if you look at the lower chart below, credit markets are the tightest and fluid they’ve ever been. In that context, gold has quietly become the biggest global reserve currency in the world, bigger than the dollar. This seems to be a very unstable equilibrium that will not remain like this for a long time.

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