Ok Barns time for a global economic update, whats happening with Japan and how bad would it be for the US if Venezuela joins the Brics.

oh boy, i was hoping someone would ask me about Japan, cuz MOST news articles aren't touching on it at all, or aren't focusing on the RIGHT stuff.

There were many factors that caused markets to crash Friday and Monday. One was the US unemployment number which basically signals unavoidable recession at some point, I already talked about that last week. But a really unique factor is the Japan carry trade, which I'll explain.

Markets have had to deal with the unwinding of a massive Japanese “carry trade.” In essence, with Japanese yields at ZERO, investors were able to borrow yen freely and use the proceeds to buy their favourite U.S. Artificial Intelligence (AI) stocks (this is speculation on my part, but is the most likely thing going on). With inflation now starting to bite in Japan, the BoJ (Bank of Japan) recently moved interest rates higher in the first real tightening since 2006. The fallout from these actions was a historic move higher in the yen vs the U.S. dollar to the tune of 12% since mid-July. Ultimately, if you borrowed yen to buy dollars to purchase your favourite AI stock, then suddenly you are experiencing a tremendous amount of pain on both legs of the trade. This causes widespread de-grossing as people are forced to unwind the trade.

So between the BoJ hike and the ending of QE (quantitative easing), this points directly a big wave of Japanese selling across the planet, and causes a massive Yen carry-trade unwind.

Now, unwinds and de-grossing are CONTAGIOUS. So a long de-gross is likely to be in focus in the weeks to come (through the selling of WINNERS). Who have the winners been? Technology. So while technology is generally a bastion of safety when recession fears surface, it may not act that way this time around (which is sort of good for Canada, funny enough, cuz we mostly have cyclical industries which will benefit if people flee tech). The AI theme has been super strong for some time but has been seeing resistance lately as mega cap tech co's are starting to face questions on ROI on their AI spend. They've spent an INSANE amount of capital on AI and if the main benefits are only going to be things like chatGPT, watch out. Cuz that's not going to generate nearly enough income to warrant the investment taking place.

I don't know anything about Venezuela or what Brics even are

Brics is an attempt to replace the dollars as the dominant currency for oil (well mostly).

It’s dumb, it won’t do what they want it to, and Venezuelan participation would be irrelevant, imo.

Why do you dismiss Venezuela's oil reserves?

I think you meant me.

I don’t dismiss their oil reserves. I dismiss the relevance of how they are paid for their oil reserves, assuming they ever even figure out how to produce them.

Nono I meant Barney.
Your stand is somehow clear.

how did i dismiss Venezuela oil reserves? I said I know nothing about that, which is true.

I mean you dismiss Venezuela as a whole, on the Brics thing, I was wondering what would and alliance like that would mean for the US from a economic stand, but seems this stuff is either above or bellow your radar wich kinda makes me wonder if you are not dismissing the Venezuelan oil, and the political situation there, seems to me your are lacking that angle.

ok. I think the entire world is dismissing it when it comes to financial markets. You're talking about a subset of ONE sector which is one of the least relevant sectors in finance these days. there are bigger things in play right now that people are keeping their eye on. I'm sure it's a big deal in South America. Venezuela is basically a nothing market (much like Canada).

Emerging markets have zero effect on the global economy (from a statistically significant perspective).

That being said, EM managers and Energy analysts are probably monitoring it closely

Also, requiring a different currency is irrelevant. It’s a harmless protest at best, and companies will just ignore it. Other than some minor additional accounting it makes no difference. International companies already have currency risk, and already pay and receive different currencies, what’s one more?

Even the idea of Venezuela refusing to export oil to the US, economic suicide that that would be, is already baked into energy markets, and has been for at least a decade. Venezuela stopped being seriously relevant close to 20 years ago, if not before.

As an aside, it’s **** tragic what happened to Venezuela. From energy powerhouse, to complete failure in less than two decades. The good news is I have a lot of Venezuelan friends in Houston, and they are mostly awesome people. It’s just a shame they had to escape from their formerly reasonably nice country for me to meet them.

Thanks guys, so just to get this straight Barno, you are saying that oil is not a relevant finantial market? Coz thta would be shocking to me but also very interesting.

that's not at all what I'm saying.

It's hard to explain what I'm saying.

There are major drivers (rates, GDP growth, unemployment, debt ratios), there are much smaller drivers (price of oil) and things that basically have no impact at all (Venezuela and pretty much every single EM) on financial markets.

Some things have major major impact. Most people don't understand what moves markets, including me, i only have some understanding (which is dangerous and why I don't participate blindly in them).

So it all depends on what you mean by 'relevant'. Of course Energy is an important market. These days, tech is much much more relevant. Again, it depends on what we mean by relevant.

Oh thanks that clears it up, thanks for the input.

Ps: So Venezuelan oil reserves are not playing any role ATM, that would be fair to say?

Clarification: BB and I aren't actually saying the same things, fwiw.

I'm talking specifically about Venezuela, and he's talking much more generically: oil doesn't move markets as much as it used to, tech is far more relevant. (I don't know if I agree with him on the general relevance, but that's a discussion for a different day).

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Venezuela was much more relevant when they still produced 3 million barrels of oil a day. When the government of Venezuela killed that industry and caused its production to drop below 1 million barrels of oil a day, the relevance of what Venezuela does or does not do also dropped drastically.

The US would not want to lose Venezuelan oil, it would not be a non-event, but we are nowhere near as reliant on it as we used to be, mostly because it's not nearly as much as it used to be. And, importantly, the threat of a currency change for oil purchased from Venezuela is a non-threat. Nobody cares, least of all refiners in the US, who would be the companies purchasing Venezuelan oil.

Even if ALL of the oil produced in the world were denominated in some new currency, it would impact almost nothing. Oil is not the reason why the dollar is so dominant, globally, as a foundational currency for the world markets.

edit: and the EURO cares even less.

Thanks DJ that also clears more the point.

I wonder how something as important as oil that moves stuff around is less relevant for markets than tech tho, by teach we are talking about ia or Facebook or both + Tesla... Sorry for the noobing

They are playing a role in the Energy industry, that's for sure.

But they're not playing a role to markets overall, no. There are four major things affecting markets at the moment and driving them. It's not one of those four things.

btw, the unrest in the Middle East is one of those four.


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On the venezuela situation, I'm seeing a lot of blame placed on the US for it. What's weird to me is the US would have a MAJOR interest in securing non-middle-eastern oil (or any oil for that matter), so it's right there, at one point a friendly nation.... i don't know why the US would want to blow that up and risk losing that oil.


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for tech, we are talking about a lot more than just FB and Tesla. Tech is also one of the four current major things going on. The top 10 stock weights in the US are 37% of the entire market. That is STAGGERING. So if you were to be complacent and say tech was just FB, Tesla, Amazon, Apple, Microsoft and NVIDIA and Google, you would be MOSTLY right lol. You should say "AI" as well.

you can n00b all you want. Very few people know this stuff, you're not asking dumb questions or anything close to dumb questions. Here's a dumb question/observation that I hear a lot: Isn't the stock market basically one big casino? lol, happy retirement planning fella.

Tbf Barno I think your are about the one guy here who has that retirement figured out, that said, thanks a bunch for the input, I as always will continue to ask stuff around.

But this makes sense to me towards Venezuela.

crazy

"Taylor Swift concerts in Vienna canceled due to suspicion of terrorism"
https://www.derstandard.de/story/300000 ... s-in-focus

That's a weird position that probably should be addressed at some level.

The US has not been friendly to Venezuela since Chavez was first elected. But the reasons for that lack of friendliness were not caused by us. Chavez nationalized the oil industry, stole equipment and privately owned assets, canceled contracts and obligations, fired a large portion of the former engineers and employees of the national oil company, forced a significant amount of Americans to withdraw from the country, and really caused a whole hell of a lot of trouble. (The result of all of this was something like a 70% loss to their oil productivity, and it happened fast).

In response (not the other way around), Venezuela lost its favorable status with the United States.

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So I find it absolutely hilarious when people try to blame the US for the problems in Venezuela. No, we didn't force them to become more friendly with China or Russia (who honestly couldn't give two **** about Venezuela, except that it has an anti-American stance now of which, of course, they approve). No we didn't damage their oil industry - they did that to themselves (with disastrous consequences, given that their economy was mostly driven by oil). And the fact that the country has gone to **** has nothing to do with the US, whatsoever, IMO. Or, perhaps nothing is too strong... it's mostly their fault, we played at most a minor role.

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They (edit: actually, I'm not sure I should even use the word they, because that implies the totality of the Venezuelan people. What I really mean is Chavez) wanted independence from US influence, they got what they asked for, and everything that comes with it.

Like I hinted at above, I'm a big fan of Venezuelan people. They, like Cubans, are the victims of extremist politicians (with borderline dictatorial control of the country), and deserve pity rather than dislike.

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While I'm on the subject, a thought or two about Brics. Brics is, at its core, an anti-Western coalition. I have no real problem with it, in fact it may even be a good thing for some of the countries involved. But for Venezuela this is doubling down on failed international/economic policy. Their economy has collapsed because of their intended collaboration with Brics type countries, so it would be a wild decision to put their hands further into the fire after already being burned. I don't see any benefit for them, unless they just want to, over-time, end up in the same kind of relationships they had with the US, but now with other countries who will treat them even less favorably than we did.

Thanks for that! I figured it was just the usual blaming the US for everything

I read another piece that blamed Cuba for Venezuela’s situation

I like your point, « they got their independence from the US and everything that comes with it. » such a good point

If Canada lost our trade relationship with the US, we’d be totally screwed. Socialist country with no money. Good luck


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Speaking of Canada, I wanted to congratulate nighthawk as Canada has upgraded its travel advisory to the UK. « exercise a high degree of caution. » I don’t think they even did that during the Troubles but I could be wrong.

I hear the riot protests are mostly chanting « stop the boats » lol. Wtg UK!

Btw I’m in a bit of a glass house here cuz Quebec has some embarrassing anti Muslim laws