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The equities rally is welcome but caution advised as markets start to look frothy again

Since its most recent low set in October, the MSCI World index has gained 20%, including around 6% since the beginning of…
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Since its most recent low set in October, the MSCI World index has gained 20%, including around 6% since the beginning of the year. The index, which covers a broad selection of mid and large cap stocks covering approximately 85% of the free float-adjusted market capitalization in each country, is designed as a proxy to global stock markets, excluding emerging markets.

MSCI World index

Source: MSCI

In the UK, the FTSE 100 benchmark index is up 2.79% for the year-to-date and up 13.76% since its own January low. Over on Wall Street the broad based S&P 500 is up 6.44% this year and 13.5% since its most recent low on September 30.

It has been an even better beginning of the year for the tech-focused Nasdaq whose heavy growth stocks weighting was hit particularly hard by last year’s bear markets and didn’t record its recent low until December 28. The index is up almost 12% for the year and 13.8% since that late December bottom.

With inflation figures around the world showing signs that price rises are finally slowing down, helped along by lower oil and gas prices, talk has turned to central banks led by the Federal Reserve taking their feet of rate rises. This week saw media speculation that the Fed could halt the rate rises that have taken the base interest rate in the USA from around zero at the beginning of last year to 4.25%-4.5%.

Market sentiment has improved to the point futures markets now show traders see a near-20% chance of rate cuts by the end of the year.

Investors should show caution before flinging themselves back into the market

There were a handful of moments throughout 2022 when the narrative that inflation is cooling and interest rate rises would be pulled back on started to gather pace. On each occasion, it proved overly optimistic.

This time markets have gathered much more of a head of steam than at any other point since the beginning of the current bear market in late 2021. That’s given rise to optimism the worst may already be behind equity investors. However, experienced heads are urging caution.

While there is always a chance of a milder global recession than feared, especially if rate rises are paused or even reversed, there are also still dark clouds on the economic horizon. Market sentiment is still frail and there is a feeling it wouldn’t take much to shatter investor confidence, sending benchmark indices into reverse again.

Is bull market optimism a mirage caused by long years of now unrealistic returns?

Many of today’s money managers, traders and retail investors have spent a huge chunk, if not the majority or entirety of their investment careers in the environment of the longest bull market in history. A period of steady gains, which fuelled by hugely loose monetary policy accelerated on a number of occasions, stretched from 2009 until late 2021.

It was only briefly interrupted twice, by a correction in late 2018 and again in early 2020 when the Covid-19 pandemic hit. On both occasions, the reversals were sharp but very short lived and powerful upwards momentum soon resumed.

The surge in valuations after the Covid crash that lasted until the start of this bear market was particularly intense. In 2020, the Nasdaq plunged almost 30% between mid-February and March 20 but November 19 2021 had gained over 130%.

The surge was fuelled by money pumped into the system by major central banks around the world to keep economies afloat during the lockdown periods that punctuated the pandemic over 2020 and 2021. Growth companies, mainly from the tech sector, yet to make a profit and some barely even making any revenues went public at valuations in the billions.

The same flood of cash catalysed a wave of inflation not seen in 40 years. It was first presumed, and forecast by central banks like the Fed and Bank of England, that this surge in inflation would be short-lived and fade as the global economy and supply chains worked out the kinks they pandemic had caused. Then Russia invaded Ukraine, sending oil and gas prices soaring, pushing inflation rates up further and locking them in for an extended period.

The equity markets meltup that held until late 2021 had shades of the 2000 dotcom bubble, with company valuations completely divorced from fundamentals such as revenues and profits. The consequences were also similar and unprofitable companies saw their valuations wiped out.

Even highly profitable companies like the Big Tech cohort of Apple, Amazon, Alphabet, Meta and Microsoft saw valuations pumped up by previously surging markets devastated. The tech giants saw over a trillion dollars wiped from their combined market capitalisation in just three days last May.

But despite the recent carnage and bleak macro-economic, many investors seem convinced a return to a bull market would again be relatively quick. With the most overvalued new market entrants knocked back down to size, or wiped out, optimism has abounded the froth has been taken out of markets and profitable companies oversold.

But some of the world’s biggest investors think optimism has returned far too quickly because investors have become too accustomed to quick recoveries from stock market downturns.

Why the recent stock market recovery could be wishful thinking

Quoted by the Financial Times, Nicolai Tangen, head of Norway’s $1.3 trillion state oil fund believes there is a high chance the Fed has not finished with its rate rises yet. He thinks that it and other major central banks such as the ECB and Bank of England will accept the consequences of a recession, even a harsh one, before risking allowing inflation to take a grip again.

He suspects we may well be in the process of transitioning from one long economic cycle of high returns in place for 40 years and into a new one of much lower returns investors will have to get used to. A period of years of inflation volatility could, he warns, lie ahead and interest rates will be used to keep it under control.

Late last year, central banks being willing to squash a market recovery with more aggressive rate rises was seen as unlikely and a relatively low risk. The big hitters are now taking that prospect much more seriously. That’s something for retail investors to consider before returning to the market with too much enthusiasm after a strong start to the year. By spring that optimism could be melting away with the last of the snow.

The post The equities rally is welcome but caution advised as markets start to look frothy again first appeared on Trading and Investment News.

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Did The Israeli-Palestinian Conflict Just Sink Ukraine As A Warhawk Darling?

Did The Israeli-Palestinian Conflict Just Sink Ukraine As A Warhawk Darling?

By most accounts from the front and according to the strategic…

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Did The Israeli-Palestinian Conflict Just Sink Ukraine As A Warhawk Darling?

By most accounts from the front and according to the strategic information currently on hand, the war in Ukraine is all but over and Russia has essentially won.  Russia continues to occupy at least 20% of Ukrainian lands and has solidified its lines.  As expected, Ukraine's much hyped counteroffensive was hot air and it is clear that their ability to field combat ready soldiers has been greatly diminished.  Without an offensive capable military, Ukraine has nothing left except whatever mid range arms NATO gives them to harass Russian forces to minimal effect.  All Putin has to do is bide his time until the money and weapons run out.  

But even worse still for Zelensky and friends is the fact that the propaganda machine driving western sentiment and monetary support is quickly dying.  Admissions of “war fatigue” among Americans and Europeans are beginning to surface and majority support for further funding has ended.  Without a clear outline of what victory in Ukraine actually looks like, and with many in the west facing stagflationary crisis, enthusiasm has floundered.  It should also be noted that the war in Ukraine never garnered any meaningful American support for the deployment of troops, and for good reason.

No one wants to jump headlong into WWIII.

With Ukraine becoming the ugly girl at the school dance, the attention of establishment warhawks (Neo-cons and Democrats) has swiftly shifted over to Israel, much to the dismay of Zelensky.  The Ukrainian leader warned in an interview with a France 2 broadcaster:

"There is a risk that international attention will turn away from Ukraine, and that will have consequences...”

Zelensky has desperately tried to associate Ukraine with Israel as if the two nations are engaged in the same fight.  He even went as far as to insinuate that Vladimir Putin was the mastermind behind the destabilization of the Middle East and insisted that NATO funding packages for Israel should be tied to funding packages for Ukraine. 

Let's not forget how disjointed and strange a Ukraine/Israel association would be, given Ukraine's Nazi leanings.  This is the same government that actually invited a real life Nazi SS officer to be applauded by Canada's parliament as a war hero just last month.  The disconnect may be the reason why the Israelis rejected military aid to Ukraine for so long.     

The Biden Administration is running with the multi-war package idea, asking Congress to approve additional funding for Ukraine, but attaching it to a plan which would include funding for Israel, Taiwan, and US border security.  In other words, if conservatives want the border to be protected, they must agree to spend hundreds of billions of dollars on two ongoing war fronts as well as a third potential front with China.

It is highly unlikely according to officials on both sides of the aisle that this will succeed.  But, when the establishment piles on a host of different projects into a single funding plan, it is usually because this allows them to enter into false negotiations.  That is to say, there are certain projects they actually want and others they don't care about.  They cut the funding programs they never intended to keep so that congress can feel like they gained something in the bargain.  The question is, which war do they really want to fund, knowing they will not get congressional approval for both?

Israel is better placed to become the new warhawk darling, given the country garners more sentiment from US and European conservatives who are increasingly wary of Ukraine.  The far-left support of Ukraine and their rabid anti-Russia propaganda has left many conservatives suspicious of the entire affair.  Leftists are revealing a similar zealotry in favor of Palestinian intifada, which might convince people on the right to support Israel by default.   

Right or wrong, it's easier to find Republicans that favor Israel simply on religious grounds than it is to find those that care about Ukraine, and this seems to be the key to the future of the establishment agenda – A conservative majority must be onboard for any new war endeavor to last.  Ukraine's failures have proven that.

There may be an overestimation, however, in terms of how many conservatives are open to funding yet another foreign quagmire.  Fears of Islamic extremism are justified, but not necessarily enough to compel Americans to ignore their own mounting problems at home.  Selling them on a plan to commit US funds and even military forces to Israel might be more difficult than the establishment thinks.

Tyler Durden Mon, 10/16/2023 - 02:45

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Equifax fined more than £11m by the FCA

This action follows incidents going back to 2017, when, according to the FCA, the company’s parent, Equifax Inc. (EFX), was subject to one of the largest…

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This action follows incidents going back to 2017, when, according to the FCA, the company’s parent, Equifax Inc. (EFX), was subject to one of the largest cybersecurity breaches in history. The findings showed that hackers accessed the personal data of approximately 13.8 million people in the UK during this breach.


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Information such as names, dates of birth, phone numbers, login details, and partial credit card details were among the data accessed. The FCA maintains Equifax could have prevented this cyber attack if it treated its relationship with the US-based parent company as outsourcing.

Jessica Rusu Source: LinkedIn

Equifax did not discover the breach in UK consumer data safety until 6 weeks after Equifax Inc. became aware of the issue. The FCA said the company, which received notification only minutes before the parent company announced the incident, could not cope with the influx of queries and complaints. The regulator’s chief data, information and intelligence officer, Jessica Rusu, added:databreach

Cyber security and data protection are of growing importance to the security and stability of financial services. Firms not only have a technical responsibility to ensure resiliency, but also an ethical responsibility in the processing of consumer information. The Consumer Duty makes it clear that firms must raise their standards.

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Are Cold War Treaties Beginning To Crumble?

Are Cold War Treaties Beginning To Crumble?

Authored by RFE/RL Staff via OilPrice.com,

The CTBT, signed in 1996, aimed to reduce the threat…

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Are Cold War Treaties Beginning To Crumble?

Authored by RFE/RL Staff via OilPrice.com,

  • The CTBT, signed in 1996, aimed to reduce the threat of nuclear war and the spread of radioactive material.

  • Despite the US not ratifying it, most signatories, including Russia and the US, have adhered to its terms.

  • Tensions and increased weapon development hint at Russia's potential decision to withdraw, further eroding international arms control frameworks.

The Anti-Ballistic Missile Treaty. The Intermediate-Range Nuclear Forces Treaty. The Treaty on Open Skies. New START.

For years, the pillars of international arms control have been crumbling: agreements signed by Washington, Moscow, and others during and after the Cold War aimed at reducing the threat of nuclear war, costly arms races, or overall military tensions.

The Comprehensive Nuclear-Test-Ban Treaty may be the next to go.

Signed in 1996, the treaty was a major step to preventing the spread of nuclear weapons technology and keeping a lid on the arsenals of the world's biggest nuclear powers. Along with earlier treaties, the agreement, known as the CTBT, also aimed to reduce the spread of radioactive material that was blasted into the atmosphere and the oceans during the frenzied days of the Cold War.

Here's the problem: The treaty never went into effect because a number of countries, including the United States, never ratified it.

Still, most signatories -- including Russia and the United States, whose arsenals are by far the biggest in the world -- have abided by the ban.

Now, however, Russia is making noises about backing out and "de-ratifying" the treaty.

Here's what you need to know about the CTBT and its potential unraveling:

How'd It Come About?

The United States and the Soviet Union, as well as Britain, conducted hundreds of nuclear tests between 1945, when the world's first atomic bomb was detonated in the U.S. state of New Mexico and 1961, when Soviet officials detonated the world's most powerful weapon, the Tsar Bomba. France joined the nuclear testing club in 1960; China, in 1964.

The fallout, literal and figurative, from the testing led to a partial ban on atmospheric, oceanic, and space tests in 1963; underground tests continued to be allowed.

In 1974, India tested its first nuclear device, further expanding the nuclear club. A 1980 test by China became the last atmospheric test by any country anywhere.

Moscow's final test -- underground -- occurred in October 1990 on the remote Arctic archipelago called Novaya Zemlya. Britain, the United States, France, and China all conducted their final tests in the years that followed, prior to 1996, mainly underground.

What's It Do?

The CTBT basically bans all tests that result in a fission chain reaction, essentially a nuclear explosion.

Signed in 1996, the treaty was sent out to 187 signatory countries for ratification, but it has never come into effect because of a group of holdout countries.

Russia signed and ratified the treaty in 2000. The United States signed, but the U.S. Senate refused to ratify, citing concerns about verifying other countries' compliance with the ban. Despite nonratification, the United States has complied with the moratorium. China signed but didn't ratify.

Neither India, nor Pakistan, nor North Korea -- all of which have conducted open nuclear tests since 1996 -- is a member.

The treaty does allow for states to conduct subcritical, or zero-yield tests. Those involve explosives and nuclear materials but do not result in a fission reaction, the reaction that gives atomic weapons their terrible power. Both the United States and Russia are known to have conducted such tests.

Despite not ratifying the treaty, the United States does provide $33 million annually in funding for a system set up to monitor possible nuclear tests, as well as the Vienna-based organization charged with overseeing it.

What's The Problem Now?

As relations between Washington and Moscow have worsened, major treaties between them have also frayed or collapsed entirely.

Washington unilaterally pulled out of the Anti-Ballistic Missile (ABM) treaty in 2002, angering Moscow. Washington for years accused Moscow of trying to cheat on the Intermediate-Range Nuclear Forces (INF) treaty until it effectively collapsed in 2019. In 2021, Russia withdrew from the Treaty on Open Skies, which allows countries to conduct surveillance flights over one another's territories in order to observe weapons and military sites.

Both countries have adhered to New START, which capped the number of warheads and "delivery vehicles" each could possess.

New START's extension, by both Russia and the United States in early 2021, was a lone bright spot in the continuing erosion of arms control.

But the agreement expires in 2026 and cannot be extended. Unless a successor treaty can be agreed upon and ratified, there will be no limits on the countries' arsenals after that year. Tensions over Ukraine have kept the two sides from even sending inspectors to one another's countries, as stipulated for in New START.

Both countries have also moved to modernize and upgrade their arsenals. But in a sign of deepening distrust, the U.S. State Department suggested in a 2022 report that Russia had not adhered to the standard of "zero-yield" testing.

So Russia Wants To Pull Out Then?

For more than a decade, the Kremlin has increased spending not only on conventional weapons and force strength but also on modernizing and expanding its strategic arsenal.

In 2018, Putin boasted that Russia was developing new weapons like an unmanned, nuclear-capable, underwater torpedo, and a hypersonic "glide" missile. He also bragged of the development of a nuclear-powered cruise missile -- the Burevestnik, which has had major problems.

In recent years, researchers have been monitoring a surge of activity on the Novaya Zemlya archipelago: satellite imagery showing an uptick of construction at one or possibly two settlements that researchers had identified as sites for a possible test of a nuclear device or the trouble-plagued Burevestnik.

A top Russian nuclear researcher called for Russia to resume testing, and on October 5 Putin announced a successful test of the Burevestnik, though he provided no details.

Putin also opened to the door to Russia resuming nuclear testing, saying it could "de-ratify" the CTBT. A week later, on October 12, the speaker of the State Duma, the lower house of parliament, introduced legislation to withdraw ratification.

The prospect of Russia withdrawing prompted alarm bells, including from the CTBTO, the Vienna-based organization charged with monitoring compliance.

What Happens Next?

Even if "de-ratification" ends up happening, as is likely in the Kremlin-controlled parliament, that does not necessarily mean Russia will start blowing up uranium or plutonium again, on Novaya Zemlya or otherwise.

"I think that withdrawal of ratification is a strictly political step -- leveling status with the U.S.," said Nikolai Sokov, a former Russian Foreign Ministry official and arms control expert.

"I think the main motive is the perception that 'Russia tried too hard in the past and made too many concessions' and now 'We're not interested in arms control more than other countries.'"

Leonid Slutsky, head of the Duma's foreign affairs committee, emphasized that Russia would not be withdrawing its signature under the treaty or "withdrawing from the voluntary moratorium on nuclear testing."

"We are withdrawing the ratification, thus restoring legislative parity with the U.S. Congress," he told the newspaper Kommersant.

"It was especially important for [the CTBTO] to hear that revoking ratification does not mean that Russia intends to resume nuclear tests and implies that Russia will continue to fully participate in the work being done for the Treaty's entry into force," Mikhail Ulyanov, Russia's ambassador in Vienna, told the state news agency RIA Novosti.

Still, it's not a good sign, experts say -- all the more so, given the demise of other treaties.

Russia or any major nuclear power backing out of the CTBT "would be a huge blow to the [global nonproliferation] regime and would undoubtedly lead to a cascade of nuke testing by other states," Lynn Rusten, a former U.S. arms control negotiator, told RFE/RL.

There could also be other nonproliferation or arms control treaties that are at risk, since, according to Sokov, the Kremlin has initiated a review of all similar agreements.

One strong candidate for "de-ratification" or a downgrading of Russia's involvement, he said, is the 1992 Chemical Weapons Convention, which obligates members to destroy their stocks of chemical weapons.

Russia's compliance with that treaty has been in question since the near-fatal poisonings of former Russian intelligence agent Sergei Skripal in England in 2018 and opposition activist Aleksei Navalny in Siberia in 2020.

In both cases, Western scientists identified a powerful Soviet-era nerve agent and suggested that Russia had maintained a secret, undeclared chemical weapons program.

Tyler Durden Mon, 10/16/2023 - 02:00

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