A perfect storm is hitting the markets

Very much Dystopian The scenario that investors envisioned has been unfolding before our very eyes in the past few hours. Over the weekend, in their interviews, discussions and analyses, there were not a few financial analysts who likened the current situation to a perfect storm about to hit the markets.

For a storm to erupt, three basic conditions must be met conditions. First a large temperature difference between the ground and the upper atmosphere must be presented. The second is the presence of increased humidity. The third is the movement of an unstable gas mass. The eruption cycle of a storm has three phases. The first is the growth stage, the second is the maturity stage and the third is the dissolution stage.

to cause confusion in Stock markets Until an unexpected event occurs, the data investors process every day is not factored into the equation. For example, it could be the announcement of unfavorable data on unemployment, growth and inflation. This could be an extension of economic confidence indicators.

It could be the outbreak of a pandemic like we experienced in 2020, or the appearance of an energy crisis like 2022. This could be a sharp change in fiscal policies of governments and monetary policies of central banks. It can still be unfavorable valuations and outlooks of the fundamentals of stocks or entire industries. These are the key elements that lead to disruption and change in the course of both stocks and indices.

Data today is not only disruptive but creates the conditions for a perfect storm to erupt in the markets. No, past stock market years have been uneventful. In the last four years, we have had a startling and fresh start to the pandemic, which has led to disruption of supply chains, profound changes in production and work patterns, and unprecedented subsidies to prevent policy and the economy from collapsing completely.

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continuously Invasion Russia in Ukraine brought war back to Europe for the first time since World War II. Putin's regime's war on democracy, freedom and European values ​​has been accompanied by a denial of Europe's energy security, renewed supply chain disruption and strong inflationary pressures. Target prices set by central bankers and pressures that have not yet subsided to bearable levels. The central bank and ECB are postponing any thoughts of an immediate interest rate cut for now.

After yesterday's attack on Israel by Iran, things got very complicated. The possibility of a response from Israel should not be ruled out, and a general outbreak is just around the corner. Be that as it may, a new oil crisis is upon us.

Insecurity in the Strait of Hormuz, increase in attacks Houthi In the Red Sea, and the possibility of a severe embargo on Iranian oil, could push oil prices to $96 or even $100 a barrel. A fact that acts as a stumbling block in efforts to reduce inflation and, consequently, interest rates. A high cost of money undermines the real economy's return on investment, thus inhibiting its quantitative growth.

Uncertain weather conditions for the next day will obviously contribute to the bullish trend in the gold market. Despite the slight correction from $2431/oz to $2333/oz seen last Friday, a move towards $2500/oz should no longer be ruled out.

This climate of insecurity and anxiety is not only about developments in the Middle East and the escalation of responses by its allies. Israel and are isolated to a specific geographical area Iranians. Already the Russians had attacked the West and were undefeated. Iran's mullahs have attacked and the G7 wants to tone down the intensity. Who guarantees is its third partner Anti-Western Alliance, meaning China won't attack Taiwan? The fact that chip manufacturer DSMC has moved its units to the US perhaps rightly attests to this possibility.

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We live at a point in history where trade and technological warfare are unfolding. In the return phase of globalization and protectionism. In the West's battle for survival, as we know it, events today “creep” rather than shape. And there are not a few who believe we are entering a period of heightened tension, which will lead to increases in defense spending, an increase in resources to deal with migration, and an increase in investments needed to transform global manufacturing and logistics. Chain. The cost to the West would be significant.

It will burden tax-paying citizens who are already bearing the costs of green transition, zero emissions and others, unlike the anti-Western front whistling nonchalantly as they grab an ever-increasing share of world production. , consumption and prosperity. Western citizens are voting, protesting and demanding rights variation Russia's citizens disappeared, China displaced, Iran stoning and beheading. The cost of new balances between Western democracies and authoritarian regimes of all kinds will put severe pressure on economies and citizens.

So the conditions are piling up for a perfect storm to erupt in the markets. Optimists argue that even the storm will soon dissipate, as it did in Ukraine. And the pessimists estimate that we will be in the storm for a long time. The reality is that the unlimited capital liquidity in the system is hungry for returns and constantly and permanently undervalued. danger. Let's prepare for the worst and hope for the best.

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