The old man has spoken

The old man has spoken

12. april 2021 fra CarlsquareLæsetid: 6 minutter

Henry Kissinger warns US to escalate the conflict with China. He advocates that the United States accept the existence of an additional world power.

China continues its plan to be the leading world power in 2049. It will be interesting to follow the world stock market indices until then.

The 20th century began with Britain and Europe being forced to hand over the baton to the United States as the leading power in the world. The Soviet Union was the great rival after World War II but was broken in the arms race against the United States in the 1980s where a push from US President Ronald Reagan made the decision.

Now the 21st century has begun, it is China that is seriously challenging the United States. This is happening at all levels, not only economically but it also includes official prosperity, democracy, health, the environment, and harmony. To this must, of course, be added the unofficial plan to be the strongest force in Asia. China has already achieved this or is at least at equilibrium with the United States.

China has developed a plan until 2049, which marks the 100th anniversary of the Communist Party’s takeover of power following the second phase of the Chinese Civil War 1945-1949. Mao Tse Tung would not recognize his old China, but would probably be pleased that the one-party state has taken power of the whole society. Whenever this is challenged, as in Hong Kong or from new economic power centers like Alibaba, they are effectively crushed.

For the United States, China is major headache.

Chinese have generally been viewed positively in the United States. But the growing economic challenge that President Donald Trump began to repeal created a negative trend. This negative trend was further exacerbated by the outbreak of Covid 19, as illustrated above. See:

https://www.pewresearch.org/global/2020/04/21/u-s-views-of-china-increasingly-negative-amid-coronavirus-outbreak/pg_2020-04-21_u-s-views-china_0-01/

It remains to be seen how Joe Biden will act in practice. So far, it has mostly been harsh words, but Democrats in general tend to be softer in major international politics. At the same time, it should be remembered that Democratic presidents have historically started more wars than Republican presidents.

In an interesting panel debate with the now 97-year-old Henry Kissinger, he lays out the text concerning his views about the role of the United States. He urges the United States to realize that there is a new world power and that it cannot not be prevented or stopped. Instead, the United States must formulate a new doctrine in which both countries can live side by side.   

https://www.newsweek.com/endless-us-china-contest-catastrophic-conflict-henry-kissinger-1579010

Our own view is that with the current course, the United States and China will sooner or later test their military muscles against each other in a local conflict. The closest at hand is of course Taiwan. However, the efforts in such a conflict are very large, which is why a local conflict in the South China Sea, where China may be attacking a couple of US ships to test their preparedness, is closer at hand. Or why not a local attack on the Philippines or one of the other countries where there are ongoing disputes over who owns which waters in the South China Sea? The United States’ response to these efforts will tell us how world politics will develop in the coming decades.

More about Taiwan can be found here:

https://www.taiwannews.com.tw/en/news/4034891

The graph above is a GDP forecast in various large countries until 2060.

Based on this picture, you should put all your savings in funds in the US and China and spice it up a bit with Indian stocks. But note that the relationship between GDP and the stock index is not 1:1 but can vary greatly, so you must study them separately. The old economies of Europe and Japan are in a real dilemma according to this picture.

The graph above shows the stock market development for China (Shanghai), Taiwan and Hong Kong. It irritates, of course, the political leadership in China that the Taiwan Stock Exchange has developed so much better in recent times.

This development is seen even more clearly in the graph below.

However, a large part of the explanation is assignable to Taiwan Semiconductor, which has emerged as the world’s leading manufacturer of circuits. The company has focused on being a contract manufacturer and Intel has now been passed in this field. It opens for other manufacturers like AMD to bypass Intel. Although the battle between these three rivals for market favor is fierce, they are all highlighted by the fact that the IT sector has benefitted under Covid 19. All these support billions benefit these shares even more… Read more here:

https://www.bloomberg.com/news/articles/2020-07-24/intel-considers-what-was-once-heresy-not-manufacturing-chips?sref=WGM0lp81

Last week, we went through the reporting season for the S&P500 companies quite thoroughly, with forecasts and revisions ahead of the major bank interim reports that are now being presented from 14 April. Five companies have reported their Q1 2021 figures over the past week, so that a total of 21 companies out of 504 have reported. The outcome has deteriorated slightly to 81 percent better than anticipated results and, as before, 81 percent better than the forecasts in terms of revenue.

Otherwise, the debate on inflation continues. The 10-year government bond yield in the US appears to be stabilizing at just under 1.8 percent, which provides support for the stock market. However, a test of MA200 trading just below 2.0 percent may be in the cards.

Given the consolidation in interest rates, the broad S&P 500 index has been rallying. As shown in the graph below, S&P 500 is approaching the ceiling of the narrow rising trend established back in November 2020. RSI indicates that the index is clearly over bought. This is not stand-alone a sell signal but realizing some profits at these levels would not be considered as a too bad idea at least. On the other hand, given the momentum – buying the dips has historically been the winning concept.

Tech heavy Nasdaq is trading around its previous high. Again, RSI are at over bought levels. This may be a good place to reduce long positions.

The Apple share can be found among last week’s winners. On Friday, Fibonacci 50 was broken. The next Level on the upside can be found around 134 USD, followed by 137,5 USD. A break up above the two levels and previous highs can be approached.

Seen from a long perspective, the share is in a huge consolidation phase after an exponential rise. Soon it must choose direction…

In Sweden, the OMXS30 index once again set a new all-time-high. A consolidation of the interest rate levels is likely to be more in favor for Nasdaq than OMXS30 given the index composition (where banks that have large weights in OMXS30 gain from rising interest rates).

The DAX index is consolidating. The German auto-heavy industries may be more exposed to the lack of semiconductors than e.g., the OMXS30 industrial companies.

The currency pair EUR/USD is wrestling with MA200 and Fibonacci 61.8:

The correlation between a stronger USD and a falling gold price has been relatively strong since the beginning of January 2021. A continued weak USD may be a trigger for the gold price to break the falling MA50. In such a scenario, MA100 currently trading around 1 807 USD per troy ounce is the next level:

Legal notice

This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

The products are not capitalprotected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.

08-12-2021 17:09:25

 

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