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Market Update
July 4, 2023

How Time Flies

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Week Ending 30 June, 2023

First, a Russia update:

Following last weekend’s events in Russia, nothing has changed – at least on the surface and beyond Russian borders. It has had negligible impact on markets. Within Russia, there seems to be an eerie feeling of wait-and-see. Given Yevgeny Prigozhin’s (YP) outbursts towards the likes of defence minister Sergei Shoigu, Putin had started a process of trying to “control” the Wagner forces by having them put under the control of defence minister Shoigu while, all along, Putin had publicly praised YP for their courage. Suddenly, now, he wants to bring YP under control. So YP’s reaction was swift as evidenced by last week’s activity – and YP knew he had the support of so many in the armed forces. Many of them know the real truth of this war (that’s how YP has publicly referred to it as opposed to Putin’s idea of a “special operation”) and they know how badly it is going. Now, Putin is staring down a multiple-barrelled shotgun – his military, his people, his allies, his foes, and a continuing war in Ukraine. Along the way, Putin has created so many enemies ranging from oligarchs to prime ministers. Think of all the assassinations he has ordered within and outside Russian soil. Under Joseph Stalin’s rule, a brutal era, Stalin submitted his resignation on several occasions just to see who would accept it – and then went on to murder them. The “coup” on him happened in the most unlikely way in 1953 – having collapsed at his second home into a state of unconsciousness, his “close colleagues” refrained from giving him medical attention! Nikita Khrushchev (NK) succeeded him and, in 1964 having had enough of him, his Politburo members removed him after a vote. NK was deemed arrogant, displayed economic mismanagement and made a real botch of the Cuba missile crisis against Kennedy. Russia’s history doesn’t end there either. There was a coup against Gorbachev (Aug. 1991) – the orchestrators all disappeared into oblivion. The best Putin can hope for now is that he is able to stretch things out and hope slowly, but surely, people start to see him as the best of the worst options. He has created his own mess – all dictators do. Key to power in Russia are the military and security services……and right now, both are far from impressed with Putin!

Second, the first half of 2023 is over:

How time flies. Here’s a quick snapshot of performance (courtesy of Deutsche Bank) with a few hours left to COB:

Source: Deutsche Bank, Bloomberg Finance LP, Mark-It

We viewed in this format you really get to see both the disparity by asset class as well as the illusion of recovery. Of all those financial assets shown, all remain under water since the end of 2021….in spite of the rallies witnessed in 2022. The notable exceptions are Commodities (CRB Index), the FTSE-MIB and Gold – since the rate-hiking environment began some 18 months ago. Adjust for US inflation and only commodities leave you slightly in the money. This is why the inflation and rate outlook matters.

Finally, US Student Loans:
The US Supreme Court strikes again – this time, they have thrown out President Biden’s student loan relief scheme by 6 votes to 3. They (we should say the dominant conservative, majority) held the government had no authorisation for the programme under the Heroes Act. FYI, the latter was passed following 9/11 allowing the Administration to grant student relief in a national emergency. This is a blow to Biden – it would have erased hundreds of billions in student debt by scrapping up to $10,000 in debt for most individuals earning up to $125,000. The upshot is that it will be a further headwind to consumer spending to the tune of almost $16bn (source: Barclays) per month. Student debt accounts for some 8% to 9% of their salaries. When it comes to student debt, most people think “oh it’s just the young ones”. Unfortunately, that’s not the case. Research from Barclays and data from the US Census Bureau shows student borrowers are across the age spectrum. The majority fall into the 25y to 34y category (14.7 million borrowers) followed by the 35y to 49y category (12 million borrowers). However, over the age group of 50y, there are 6.6 million borrowers! With a little over a year to go till the general election, it’s hard to see how this benefits the Republicans.


Source: Refinitiv Datastream/Fathom Consulting
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