Pick Your Poison

  • Russia-related financial crisis (1998 or 2008?)
  • JPM’s latest predicament
  • Putin: “We will not tolerate stabs in the back”
  • New COVID lockdowns threaten Apple
  • War in Ukraine sparks a U.S. powder keg
  • Umm… the “breadbasket of Europe”?

Yeah, we’re filing this one away for future reference…

stock figures

Yes, Russia might default on its national debt — an interest payment is due Wednesday — but no, it won’t trigger a global financial crisis. Not according to Kristalina Georgieva, chief of the International Monetary Fund.

“For now, no,” she said yesterday. “When you look at the total exposure of banks to Russia, it is about $120 billion. Not negligent [sic], but definitely not systemically relevant,” Georgieva told CBS’ Face the Nation host Margaret Brennan.

But it’s not the gross amount of exposure that counts — it’s where the exposure is concentrated.

When Russia last defaulted in 1998, the exposure was concentrated in an American hedge fund, Long Term Capital Management — whose collapse in turn threatened to take down 14 major banks. Amid the turmoil, the Dow took an 18.2% spill in seven weeks.

Alas, Ms. Brennan didn’t have the presence of mind to ask Georgieva about that — even though Brennan has a background in business news with Bloomberg and CNBC.

Then again, at the time all that was going down in 1998, Brennan was still only a few months out of prep school in Greenwich, Connecticut.

As we mention from time to time, our Jim Rickards watched that near-meltdown up close and personal as the top lawyer for Long Term Capital Management. He negotiated a rescue with those 14 banks and the Federal Reserve, ensuring the crisis could be resolved with no harm to taxpayers.

As it happens, Jim just wrapped up an exclusive briefing in front of the White House — where he clued in readers about another, entirely separate trigger for a global financial crisis.

If you missed the premiere at 2:00 p.m. EST, you can be among the first to watch the replay and learn how to brace for the incoming impact. Click here for immediate access. Seriously, watch it now — because events will start moving in less than 48 hours. You can always come back to today’s 5 Mins. later.

Then again, pick your poison: Maybe the better analogue to a pending Russia-related financial crisis isn’t 1998 — but rather 2008. And you remember what fun that was, right?

“There is a known $41 billion in credit default swaps (CDS) on Russian debt,” explain Pam Martens and Russ Martens at Wall Street on Parade. “There is likely many billions more in unknown amounts. There are also billions more in credit default swaps on state-owned Russian corporate debt and non state-owned Russian corporate debt.

“In addition to Wall Street not knowing which global banks and other financial institutions are on the hook to pay out on the credit default swap protection they sold in case of a Russian sovereign debt default (or Russian corporate debt default), there is also approximately $100 billion of Russian sovereign debt (whose default is looking more and more likely) sitting on the balance sheets of foreign banks.

“Put it all together and you have the makings of a replay of the 2008 banking crisis when banks backed away from lending to each other because they didn’t know who would fall next from toxic subprime exposure.

“That led to a liquidity crisis and the unprecedented involvement of the Federal Reserve secretly pumping trillions of dollars into the megabanks on Wall Street and their foreign derivative counterparties.”

Now imagine a rerun later this spring. Only this time it would be far worse. Remember, on Wednesday the Fed will embark on a new cycle of raising interest rates. But what if the Fed has to suddenly reverse course because the markets and the economy are going south in a hurry?

That’s exactly what Jim Rickards was warning about this afternoon in his video briefing from the White House. If you haven’t watched the replay yet, what are you waiting for?

More financial fallout from the war: The nickel trade on the London Metals Exchange remains frozen in amber as we learn more about who’s potentially holding the bag.

“JPMorgan Chase & Co. is the largest counterparty to the nickel trades of the Chinese tycoon caught in an unprecedented short squeeze,” according to Bloomberg.

Amazing how JPM always finds itself in the middle of stuff like this…

Anyway, a week ago today, JPM was owed as much as $1 billion in margin from Tsingshan Holding Group — the outfit whose founder is known in Chinese financial circles as “Big Shot.”

Now JPM is taking the lead in trying to sort everything out. “The talks between Tsingshan’s creditors,” says The Wall Street Journal, “have focused on extending the Chinese company’s credit lines so that it can pay them the margin it owes.”

But in the meantime, operations are being disrupted at a host of Chinese producers and manufacturers that rely on nickel — whether for stainless steel, electric vehicle batteries or other uses. And all because the London Metals Exchange decided to junk its rulebook to protect Big Shot.

As economic warfare rages, Moscow is warning all those American businesses pulling out of Russia that it might well nationalize their factories, offices and such.

Nothing certain yet, but a leader of Vladimir Putin’s United Russia Party says, “We will not tolerate stabs in the back, and we will protect our people.”

So far, that’s news to the likes of Coca-Cola: “We have had no indications from Russian authorities that they intend to nationalize our assets,” a spokesman says.

But Washington is performatively outraged anyway: “Any lawless decision by Russia to seize the assets of these companies will ultimately result in even more economic pain for Russia,” says White House press secretary Jen Psaki.

We’ll leave it there pending further developments — other than to point out our musings in 2018 anticipating “the day China kicked out Apple and GM” look a lot less far-fetched these days.

And as if there’s not enough to worry about: China’s “zero COVID” policy has prompted a lockdown in the high-tech hub of Shenzhen.

That’s 17 million people ordered to stay home for the next week while mass testing gets underway.

Among the companies affected — Apple supplier Foxconn. It has two factories in Shenzhen, one of which makes iPhones…

And with all that as the backdrop, markets are looking weird and volatile as a new week begins.

The big mover is crude — down another 7% even though there’s no “new news” from Ukraine that would suggest combat is easing. At $101.63, a barrel of West Texas Intermediate is its cheapest in nearly two weeks.

The major U.S. stock averages are mixed. At last check, the Dow is up more than half a percent and back above 33,000… the S&P 500 is down slightly and below 4,200… and the Nasdaq is down more than 1%, below 12,700.

Bonds are selling off hard, pushing yields higher; the yield on a 10-year Treasury note is up to 2.12%, a level last seen in mid-2019.

Precious metals are also selling off hard — gold off $33 to $1,958 and silver down 85 cents to $25.10.

Crypto went into free fall last night — only to recover all those losses as we write.

For weeks now, the European Union parliament has been mulling over crypto legislation. “A last-minute addition to the bill was made over the weekend,” reports the Euronews site — “which aimed to limit the use of cryptos that are powered by the energy-intensive process called proof of work (PoW).”

In other words, it was a “green” thing: Bitcoin could have been banned on the grounds that Bitcoin mining uses a lot of electricity.

But a parliamentary committee rejected the proposal today. Bitcoin traded as low as $37,800 last night… but now it hovers near $39,000.

Ethereum — which is moving from a proof-of-work model to one called proof of stake — also took a spill last night but is now back within $25 of $2,600.

For whatever reason, U.S sales of ammunition have spiked big-time since Russia’s invasion of Ukraine — at least for one of the major online retailers.

In a two-week span, Ammo.com reports site traffic jumping 59%… the number of transactions more than doubling by 110%… and sales leaping 166%.

Of course, supply-chain snags have affected ammo like everything else… and there’ve been periodic runs on ammo at times of looming or actual civil unrest. So why now?

“American gun owners are watching visceral, daily reminders of one reason why an armed populace is important: to defend against enemies, both foreign and domestic,” suggests Sam Jacobs — one of the contributors to the website’s excellent “Resistance Library.”

“Weary following two years of a pandemic, protests and the Biden presidency, the recent spike in sales indicates they are again worried about their capacity to buy ammo when they need it.

“This could be caused by a fear that the Biden administration could use the Russian invasion of Ukraine as a clever means by which to ‘temporarily’ ban private ammo sales by executive fiat in order to ostensibly send those rounds to NATO members and/or Ukraine in order to ‘support the war effort.’

“After all, who knew before the pandemic that the CDC could unilaterally put a nationwide moratorium on evictions, eviscerating private property rights and contracts for over 18 months, until the Supreme Court finally curbed their previously unknown power because Congress was gridlocked, per usual?”

Who, indeed?

“Come on you guys. I expect sensationalist headlines from MSNBC and CNN, but not The 5!a reader chides after our Saturday edition.

“Russia being a supplier of potash is not really significant because, to my knowledge, and I will be corrected if so, Canada has the world’s largest supply of potash (something like 40 years worth in prevailing conditions) and can export to the world. Hell, it could even be more.

“I’m pretty sure food supply will be an important metric in the coming months but you do a disservice by not noting that there are available supplies close at hand.

“I enjoy your column every day — keep pumping!”

The 5: Yeah, we’re going to be OK in North America. We’ll pay through the nose for food and fertilizer alike, but at least it’ll be available. It’s elsewhere in the world we’re worried about.

For instance, Washington’s sorry-ass client state in Egypt relies on 80% of its wheat from Russia and Ukraine. Recall it was food unavailable at any price that took down the dictator Hosni Mubarak in 2011. (Real elections followed — only to be overturned by a military coup in 2013, an event Secretary of State John Kerry had the temerity to call the “restoration of democracy.” But we digress…)

Anyway, the latest guesses — reliable estimates are impossible in the fog of war — are that Ukrainian crop yields will be about 50% of normal this year.

Remember, they call Ukraine “the breadbasket of Europe”…

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. It’s one of the most accurate harbingers of a stock market crash.

It appeared in 1987 – shortly before the Dow crashed 23% in a single day. It appeared again before the dot-com bubble burst in 2000 – and the Nasdaq cratered 75%. And yet again in 2006 – foreshadowing the global financial crisis.

We’re talking about a one-of-a-kind chart pattern – and it’s all but certain this pattern will begin to recur in less than 48 hours.

That’s why our Jim Rickards wanted to host a special briefing for our readers from outside the White House – a briefing that wrapped up moments ago.

Don’t get caught short – click here to watch the replay of this event right now.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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