Financial Market Forecasts

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Q2 was one that did not present any significant alpha generation opportunities, in what was a relatively low volatility environment. Such environments can be very costly for alpha generators, who are effectively buyers of volatility. However, our ratchet risk methodology once more proved its worth in capital conservation. Within this context our best alpha-generating position for the quarter was Cable, with the trend higher driven by both a weaker dollar and a stronger pound, whilst sterling climbs a wall of worry supported by higher rates. We have been long Cable since the so-called Truss panic from 1.0680 and expect a test of 1.3350. A level that is the critical long-term trigger of a multi-year diagonal triangle that will see this pair reach 1.60 plus.

Q1 2023 PERFORMANCE REVIEW CONTENTS

We recommend that subscribers to our Macro CIO's View take the time to read this analysis of our performance to enhance their understanding of how we consistently extract alpha from the markets, whilst minimising our downside risk with extremely tight tactical stops.

1. Executive summary; Global Forecaster and Global Trader
2. Trade recommendation and risk methodology
3. Our key 2023 geopolitical calls
4. Our main Q2 2023 geopolitical calls
5. Q2 2023 market predictions and performance
6. Alpha capture long short fund performance.

1.0 EXECUTIVE SUMMARY

Our Global Forecaster geopolitical and market calls have once more proven on track. With respect to:

1. The dynamics of the inflationary surge and its significant range of market, geopolitical and political impacts
2. The course of the battle for Ukraine
3. The accelerating risk that bifurcation with China will provide significant lethal aid to Russia has been taken to the edge with dual use provisions
4. The continued exposure of the banking sector and risk of further collapses.

Global Trader, which covers seven macro sectors with some 80 plus markets, has been producing some exceptional alpha extraction since its inception. In summary, Q2 2023 could best be characterised as a period of consolidation and correction across the markets. Where capital preservation has been a critical part of our risk performance, based on our ratchet risk to stop methodology (explained below).

• Our best performance has come from FX and Crypto currencies.
• Our Precious Metals trades have had a rare but small negative return this quarter.
• Equities have been mixed with positive returns in the eastern indices and in the UK, and negative returns in the US during this corrective period
• Whilst bonds, after a massive phase of alpha generation in Q4 2022, gave back a relatively small amount compared to the previous gains by trading from the long side.
• EM has continued to provide excellent returns for our Rand short against Sterling and the Dollar.

2.0 TRADE RECOMMENDATIONS AND RISK METHODOLOGY

2.1 GLOBAL TRADER – DESIGNED FOR RISK-TAKERS

Global Forecaster was set up in the summer of 2019 to inform and advise professional asset managers through troubled waters. During that year, there were obvious indicators that global markets were soon to peak (in February 2020) and collapse, with the most grievous consequences. We have called this transition The Great Shift, as it is driven by the intersection of the peak of the K-wave cycle and the hegemonic challenge of China to America and the West.

We continually seek to quantify the accuracy of our trade recommendations as they translate into real-time market positions that are readily actionable by risk managers. We are pleased to report that the system we have used over the past three years (plus) has produced a very accurate representation of our market calls, in the direction, size and magnitude of the move. This has allowed risk-takers to quickly assess the accuracy of our past predictions in any market or sector, as well as benefit from our trade recommendations.

The structure of our trade recommendations allows our clients to apply them directly into their portfolios. Similarly we go a stage further for some clients, by taking our trade recommendations and applying them to specific alpha-capture platforms with outstanding results. This service is available upon request.

2.2 GLOBAL TRADER METHODOLOGY AND STRATEGY

We now have 15 quarters of performance under our belt, and the results of our geopolitical predictions, market predictions and alpha-capture fund performances have been exceptional. We believe the key to high returns and long-term success is based on:

1. Prescient market views generated within a systematic multi-timeframe and price modelling system, which combines geopolitical and market behavioural models.
2. Our strategy of trading in alignment with long-term trends and then finding short-term entry points that translate into long-term time frames, which produce tight risk rewards on entry as well as high multiple-risk returns.
3. Our tight risk rewards on entry may mean that sometimes an entry point might require several attempts. A spreadsheet is available on request to explain all the trades that are displayed on the website and in the summary tables below.
4. Good trade entry points with tight and structurally meaningful stops (entered with contrarian price modelling).
5. Appropriate position sizing – to remind you of our methodology behind each trade recommendation; each real-time idea has a risk unit, defined from the entry point to the stop level, and a trade idea in one market can have a maximum of 200%, which equates to 20 risk units at any one time. Trade recommendations can be either 33.3%, 66.6%, 100%, 133%, 166% or 200%. The 200% limit in a market can be put on all at once or in combinations of sub-trades. High-conviction trades require the time frames of short, medium and long to all be aligned. Notably, in Q2 2021, the conviction levels were very high due to the high and integrated signal strength associated with our Phase 3 Road Map.
6. Ongoing trade management following the progression of a trend.
7. Successful trade exit points that ideally replicate the dynamics of point 2 above, by precisely picking the end of the trend.

These key points describe Global Trader's risk methodology. By reading the below quarterly performance appraisal, you will have a better idea of how we apply our risk-allocation methodology, as well as how we combine geopolitical predictions using various models from Breaking The Code Of History. All of these real-time predictions have been published on the Global Forecaster website and are available to our clients.

3.0 OUR MAIN 2023 GEOPOLITICAL PREDICTIONS

3.1 2023 – THE YEAR TO TAKE COVER

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In May we described this period as that of the Phoney Calm, as the geopolitical pressure builds like plate tectonics before releasing even as volatility fell in the markets. Our main predictions for 2023 were outlined in a series of posts published in early January called The Year To Take Cover (as below). They have all been quietly building momentum, much like the forces of plate tectonics before releasing their energy in an earthquake.

Part 1 - Hegemonic Challenge Continues to Increase Global Entropy
Part 2 - Why We Named 2023 The Year to Take Cover
Part 3 - WW3; The Challenge to America's Hegemony and the Bifurcation of the World
Part 4 - Inflation Will Keep Rising
Part 5 - The Collapse of the Doomsday Bubble
Part 6 - Global Political Changes

3.2 GEOPOLITICAL PREDICTIONS  FOR  Q1 

We believe that the current period is the calm before the storm, so stay alert, as this confluence of geopolitical and market events could be bigger than any other in the last 200 years. The specific forces that we highlighted for the quarter were;

The Ukraine counter offensive would see Putin and his army under pressure as his nuclear and subsea threats increase in tempo; this has indeed been so with significant advances in Bakhmut, even though the southern front has stalled. Most of all this pressure created the conditions for The Battle For Ukraine 50; Prigozhin’s Putsch which saw a brief period of market volatility.

Inflation would go higher, we argued, as it had reached the limit of its pause (in the US only) and would only increase again as wage and input inflation move higher and the unfolding dollar decline increases import costs. Whilst in Europe, where there was no such pause, we expect inflation to just keep rising. Notably we expect that commodity input inflation in the coming wave 3 could start to once more feed back into top line inflation. See Inflation Expectations Are Increasing As Predicted. This has been correct.

The Banking Crisis has not gone away, but is in pause mode and as such could be triggered at any time into a third damaging phase. Stocks to watch are Soc GEN, DB and Fifth Third Bancorp. Watch out For The Next Leg Of The European Banking Crisis. This is ongoing and causing the yield curve to steepen even more severely.

4.0 MARKET PREDICTIONS AND ALPHA GENERATION

 Q2 2023 with its suppressed volatility post the intervention over Credit-Swiss was test of capital conservation, whilst maintaining established trends in sectors like the dollar and precious metals.

4.1 TOP 20 PERFORMING MARKETS OVER PAST 39 MONTHS

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The top performing markets of Bunds and T Notes only took a small knock, compared to their recent massive gains, and hence stayed well ahead at the top of the table. However silver gave up its 3rd top slot to Bitcoin, which has become a major performer, after steadily moving up the table with some very high quality patterns to base our long analysis on. However, the safe havens of gold and silver slipped a notch in their corrective price action. Whilst US Equities lost as the wave 2 correction ground higher driven by a narrow base of few AI and tech stocks. Meanwhile, the FT100 moved up the table as the index weakens in the US/EU equity complex. Which was only just behind the Russell 2000, our preferred short medium for the US market. Notably the dollar continued to fall and the dollar index and cable both performed well. Whilst our favourite EM trade, short the Rand, climbed three places with more solid returns.

4.2 WORST 10 PERFORMING MARKETS OVER PAST 39 MONTHS

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Our poor performing markets showed a twitch in the cadavers, with the Eurodollar and especially carbon emissions all showing signs of life! Q2

4.3 SPECIFIC MACRO SECTOR PERFORMANCE

4.3.1 Equity Markets – Enduring The Ongoing Wave 2 Correction

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We remained with our short bias towards global stock markets. In the US our losses were small at the start of the quarter, before we went neutral as the wave 2 correction kept moving higher, with the exception of the Russell 2000 where its flat correction allowed us to remain short. In Europe in the Dax and Eurostoxx 50 we had small losses. But in the FTSE 100 we saw small gains. Similarly in Asia we made small gains.

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4.3.2 FX Markets Solid Returns as the Dollar Continued to fall

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We maintained a dollar bearish stance all quarter, with good gains in Cable, the Dollar index and Dollar Swiss, but with some market results worse than we would like, with losses in Dollar Yen and Dollar Krone. The later pair being linked to our bullish view on oil that was deferred all quarter.

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4.3.3 Crypto Markets Make A Major Low

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We commenced the quarter long this sector and were rewarded with solid gains across the sector, in what we believe to be a new bull market that targets signifiant new highs. i.e 100k in Bitcoin. Notably our recent crypto 10 index trade was made with a very tight risk reward entry so could be blockbuster trade going forward.

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4.3.4 Bond Markets – The Correction continued

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The rally in March 2023, which was in five waves, put the bond markets into a wave 2 corrective pattern, signalling a hold on long-term rates increases despite the bearishness. Since the spike linked to the Credit Swiss failure bonds have traded in the B wave for the whole of Q2. During which we have consistently traded from the long side. Returns were negligible losses of less that 20 trading units compared to the massive gains over previous quarters. However, in Gilts, which were super weak, and BtpS, where our analysis is less frequent, we made moderate losses, but still very small compared to previous gains.

4.3.5 EM Markets

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The most notable alpha generators in this sector were the Dollar and Sterling Rand, which are our favourite EM currency to be short of in 2023.

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3.3.6 Commodity Markets

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Silver and gold fell from the end of March causing small losses, over a moderate corrective period.

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Oil had a lovely surge higher at the start of the quarter but then fell back and continued basing in a relatively tight range. It is now set up to commence the next bull phase, but not before it it cost us dearly in the oil-related complex.

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5.0 ALPHA CAPTURE FUND PERFORMANCE

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Our two short positions in our portfolio hurt this quarter with banks rallying/correcting and precious metal companies declining whilst bench mark indices rallied.

German Bunds have for the second quarter in a row, been our top alpha generating market. We have effectively traded a giant price range. First by catching a major bear fall and covering at the lows in early October. Then reversing at the lows to go long, capturing the movements within the zig-zag correction. Then finally in early December repositioning at the high of the correction to go max short and capturing the next big fall into year-end and new lows. A performance that within our 35-year trading track record stands out as exceptional.

Q4 2022 PERFORMANCE REVIEW CONTENTS

We recommend that our subscribers take the time to read this analysis of our performance to enhance their understanding of how we consistently extract alpha from the markets, whilst minimising our downside risk with extremely tight strategic stops.

1. Executive summary; Global Forecaster and Global Trader
2. Trade recommendation and risk methodology
3. Our Key 2022 geopolitical calls
4. Our main Q4 2022 geopolitical calls
5. Q4 market predictions and performance
6. Alpha capture funds and their performance

1.0 EXECUTIVE SUMMARY

Our Global Forecaster geopolitical and market calls, have once more proven powerfully prescient. With respect to;

1. The dynamics of the inflationary surge and its significant range of market, geopolitical and political impacts
2. The path of UK politics with the demise of Johnson and rise and fall of Truss
3. The course of the battle for Ukraine and its turning point at the end of July
4. The downward path of equities, bonds and crypto currencies and the rally of precious metals. Note that we predicted that there would not be a Santa Claus rally, but that the very opposite would occur.

Global Trader, which covers seven macro sectors with some 80 plus markets; has in Q1, Q2 and Q3 of 2022 produced exceptional and record alpha extraction. So we are pleased to report that Q4, continued to produce exceptional alpha extraction, as shown in the tables below. The highest returns came from the bond markets, initially by being short and then reversing our position to being long, then short and then long in the correction, and finally going short at the top of the correction. We then ran our maximum-size short positions into new lows at the end of the quarter. In equities we maintained our maximum short positions through the quarter's squeeze and into the lows at quarter end. Similarly, we maintained our shorts across the crypto sector and in EM equities and EM currencies. In precious metals we successfully captured the first rally off the multi-month corrective lows. In the commodity sector we traded from the long side as the wave 2 based, a decline which had been driven by demand contraction. Our desire to go long was to be portioned for the anticipated supply-side constriction as the war in Ukraine escalated.

2.0 TRADE RECOMMENDATIONS AND RISK METHODOLOGY

2.1 GLOBAL TRADER – DESIGNED FOR RISK-TAKERS

Global Forecaster was set up in the summer of 2019 to inform and advise professional asset managers through troubled waters. During that year, there were obvious indicators that global markets were soon to peak (in February 2020) and collapse, with the most grievous consequences. We have called this transition The Great Shift as it is driven by the intersection of the peak of the K-wave cycle and the hegemonic challenge of China to America and the West.

We continually seek to quantify the accuracy of our trade recommendations as they translate into real-time market positions that are readily actionable by risk managers. We are pleased to report that the system we have used over the past three years has produced a very accurate representation of our market calls, in the direction, size and magnitude of the move. This has allowed risk-takers to quickly assess the accuracy of our past predictions in any market or sector, as well as benefit from our trade recommendations.

The structure of our trade recommendations allows our clients to apply them directly into their portfolios. Similarly we go a stage further for some clients, by taking our trade recommendations and applying them to specific alpha-capture platforms with outstanding results. This service is available upon request.

2.2 GLOBAL TRADER METHODOLOGY AND STRATEGY

We now have 13 quarters of performance under our belt, and the results of our geopolitical predictions, market predictions and alpha-capture fund performances have been exceptional. We believe the key to high returns and long-term success is based on:

1. Prescient market views generated within a systematic multi-timeframe and price modelling system, which combines geopolitical and market behavioural models.
2. Our strategy of trading in alignment with long-term trends and then finding short-term entry points that translate into long-term time frames, which produce tight risk rewards on entry as well as high multiple-risk returns.
3. Our tight risk rewards on entry may mean that sometimes an entry point might require several attempts. A spreadsheet is available on request to explain all the trades that are displayed on the website and in the summary tables below.
4. Good trade entry points with tight and structurally meaningful stops (entered with contrarian price modelling).
5. Appropriate position sizing – to remind you of our methodology behind each trade recommendation; each real-time idea has a risk unit, defined from the entry point to the stop level, and a trade idea in one market can have a maximum of 200%, which equates to 20 risk units at any one time. Trade recommendations can be either 33.3%, 66.6%, 100%, 133%, 166% or 200%. The 200% limit in a market can be put on all at once or in combinations of sub-trades. High-conviction trades require the time frames of short, medium and long to all be aligned. Notably, in Q2 2021, the conviction levels were very high due to the high and integrated signal strength associated with our Phase 3 Road Map.
6. Ongoing trade management following the progression of a trend.
7. Successful trade exit points that ideally replicate the dynamics of point 2 above, by precisely picking the end of the trend.

These key points describe Global Trader's risk methodology. By reading the below quarterly performance appraisal, you will have a better idea of how we apply our risk-allocation methodology, as well as how we combine geopolitical predictions using various models from Breaking The Code Of History. All of these real-time predictions have been published on the Global Forecaster website and are available to our clients.

3.0 OUR MAIN 2022 GEOPOLITICAL PREDICTIONS

3.1 2022 – THE NIGHTMARE ‘DON’T LOOK UP’ YEAR

We predicted from the outset that 2022 would be a tumultuous, year as the K-wave crisis took hold, impacting through wars, inflation, energy and food security challenges, with growing political unrest. All of which have come to pass and never have our geopolitical predictive models been more in tune with the unfolding reality and entropic shocks.

Our advice at the start of 2022 was to position short equity bond and crypto trades early, which we managed to do in all the crypto currencies, and main the equity indices (1% from the Thanksgiving highs) and bonds. We then advised to run the positions as prices cascaded lower and accelerated. We have been running those positions since then, lowering stops as applicable, whilst trading the other macro sectors from both the long and short sides.

For those who have not seen the recent film Don’t Look Up, we recommend you do so even now, as rarely has a film so captured a society's mental state of total delusion and denial. If it was a comedy that came out of the blue then it would be very amusing; however, it’s not a comedy, but a representative satire of America’s collective psychology and culture today, which is in total denial of the risks inherent in the country's decline. Instead, the leaders and population prefer to occupy themselves with insignificant issues hoping that denial will solve the inescapable existential problems. However, the evidence is that 2022 will be the year to look up, as the threats to America impact all at once. We forecast that 2022 would be a tumultuous year for everyone, but especially for asset managers and market participants. This has proven correct and we believe that worse is yet to come in 2023 which could be 2022 squared!

3.2 GEOPOLITICAL PREDICTIONS THAT HAVE COME TRUE in 2022

1. The COVID Pandemic Is Over. Our prediction at the onset of the pandemic was that it would last for 18–24 months (from March 2020) until a vaccine was applied globally en masse, or herd immunity was reached. Calling the end of the COVID pandemic was the only good news that we could offer in 2022. As we predicted in our Murrinations Insight on 4th December, Omicron – Darkest Before The Dawn, we believed that this was the fourth attenuated wave of the pandemic, the one that inoculates populations without significant deaths and serious illness and thus ends the pandemic. So far, the evidence strongly supports our hypothesis. The Lockdown Brigades across all the Western nations will, in time, be judged as having over-responded to the Omicron threat and will suffer the political consequences. (Also read: The Failures of Lockdowns and Boris Johnson) This has proven correct.
    
2. The Doomsday Stock Market Bubble Will Collapse. The evidence is that the biggest bubble in the history of the Western Christian Super Empire made its Thanksgiving highs in November 2021 and is now in the process of building momentum to the downside. It will collapse catastrophically this year, creating a reduction in asset prices of between 50% and 60% (more details are given below in the Market Risks section). This will coincide with a US dollar fall and a US debt crisis that will spread to the EU. As prices fall and the super Doomsday Bubble switches from feeding the American population with dopamine to feeding it cortisol, America will move into a threat-sensitive psychological state, that will, in all probability, come too late to deter outside aggression from Russia and China. Western politicians will consequently face a wave of unpopularity. This collapse is well and truly on track (40% down) and our greatest alpha extraction has been in the stock markets and bonds, strongly supporting our thesis. Initial predictions have proven correct with the worst equity market performance in 14 years. However, we believe that there is much worse to come.
    
3. Inflation Will Remain High As Assets Fall, Creating Stagflation And Social Unrest. We expect that the increased supply chain constriction from China will only worsen and supply will at some point stop totally as hostilities build. This upward inflationary pressure will more than compensate for any demand collapse, driving inflation higher. We also expect the dam to break concerning the huge devaluation of the dollar through money printing, which will feed into inflation dynamics. Consequently, we could then see the post-collapse bottom of the Doomsday cycle accompanied by high inflation, making rampant stagflation a terrible reality. Inflation on this scale will no doubt translate to a cost-of-living crisis across the Western economies, causing widespread social unrest and political upheaval that strongly supports socialist and trade unionist policies. This prediction has been accurate and is still unfolding and driving markets and political change. 
    
4. War In Ukraine Is A Certainty based on the K-wave cycle and the weakness of Biden's presidency. This rare and bold prediction was made many months in advance of the invasion and was spot-on, as has been our analysis of the military situation and the fundamental shift into a new age of war which has proven correct.
    
5. The Judgement On The Lockdown Strategy Will Be Politically Damning. A prediction that we made at the start of the pandemic crisis, and stand by today, is that the lockdown strategy of Western governments will, in time, be viewed as a misguided response that equated to economic suicide. This is because lockdowns failed to balance the overall relatively low death rate of the majority of the older demographic versus the high magnitude of economic destruction. By focusing on the preservation of the older, less-productive population, governments have sacrificed the futures of the younger population. The failure by Western governments to respond holistically illuminates both the predominant linear thinking process and the influence of the madness of collective behaviour. Governments should have resisted this with clear strategic leadership, and those that did not will suffer the consequences (also read: The Failures of Lockdowns and Boris Johnson). The collapse of the Doomsday bubble will, in future, bring about clear recognition as to how recklessly the Lockdown Brigade handled economies, by pushing them into collapse. This has proven correct.
    
6. Johnson Will Be Removed By His Party. – This has proven correct.
    
7. The Year Of Precious Metals. If you choose one horse to ride in 2022, we recommend our precious metals strategy. For those that subscribe to our Global Trader product, we have been advocating the main financial survival strategy to be focused in precious metals and their mining stocks. We believe, this year, this strategy will prove to be the only game in town. The strongest rate of price rise in precious metals will be coincident with the dollar decline. In time, we expect that, as the prices rise, there will at some stage be insufficient gold to deliver into ETF and futures structures, placing a massive premium on physical metals and mining stocks. In a year when bonds and equities have fallen precious metals have held their value and completed a base from which they now ready to rally.
    
8. The Year The Dollar Will Dive. This will be the year the dollar collapses and will be seen as the point when America finally lost its hegemonic and reserve status, much as the pound did in the year of the Suez crisis. We are targeting 30–40% lower on the dollar against the major currencies over the next three years. The dollar rallied for the first half of the year, but has put in a major high from which a precipitous fall is expected to unfold.

3.3 PREDICTIONS STILL TO UNFOLD IN 2023

1. The Invasion Of Taiwan Is Highly Probable – The Invasion of Taiwan is a very high-risk event that could take place at any time going forward, as we believe that Xi will be much more aggressive than the timelines that are generally talked about in the West. Notably, the signals from Beijing are increasingly aggressive and bellicose, potentially creating at best a 4th Taiwan Straits crisis and at worst an invasion. This was partially correct with a practice blockage in Q2, but we fear this crisis is ongoing in 2023.
    
2. The Iranian Bid For Nuclear Weapons – this is ongoing in 2023.
    
3. Biden Will Not Survive 2022 In-Office – this is ongoing in 2023.

3.4 GEOPOLITICAL PREDICTIONS IN Q4 2022

1. The War Against Russia: WW3 Will Continue to Escalate. Our warning that we would see the war in Ukraine escalate during Q4 2022 proved correct. History will, we believe, reveal that 60 years to the week after the peak of the Cuban crisis, the world only narrowly avoided a similar crisis over Ukraine, as Western leaders finally realised that Putin was not bluffing and would, if cornered, use a tactical nuclear weapon. The consequence of these raised tensions was a far more aggressive and effective use of the language of nuclear deterrence by NATO, and a now raised threshold of the first Russian nuclear release. See The Battle for Ukraine 19 – Putin’s Nuclear Threats Slow Ukrainian Progress. This does not mean the world is now safe, but rather that we are experiencing a pause in nuclear tensions. Meanwhile, Ukraine’s speed of advance on the ground has been constrained by Putin's nuclear threats. See The Battle for Ukraine 20 – Boiling the Frog Slowly and Safely. Meanwhile, our prediction that Ukraine would reclaim Kherson before the onset of the severe winter came to pass. Looking forward, we expect the winter months to allow the Ukrainians to steadily continue to erode the territory occupied by the poorly equipped Russian forces, whose plight will be significantly worsened by poor winter clothing and equipment. The recapture of Crimea is very much on the cards, and well within Ukraine's capability. Consequently, we expect the pressure on Putin to keep increasing and NATO-Russian tensions to keep rising. This was correct.
    
2. Inflation to Continue Rising and Bond and Equities will keep falling and social unrest will increase. We continue to predict that we have entered the age of super stagflation, especially in America, Europe and Japan. To understand the potential impact of the super-high inflation ahead, we suggest one studies Turkey's current economic predicament. See The K Wave Cost Of Living Crisis; Part 1; The K wave Context and The K Wave Cost Of Living Crisis; Part 2; The Three Inflationary Drivers. Despite the wave-2 retracements over the past six months in energy and commodities, inflation levels have been rising, as secondary effects drive the process of endemic inflation. To further exacerbate the inflation situation, we are now entering another phase when commodities will rally to massively new highs, as wave 3 unfolds in the weeks and months ahead and wartime supply constriction starts to take hold with a vengeance. Future expectations for inflation have now become widely optimistic i.e. that we are seeing a decline that will become permanent and end the rate-rise sequence. Both our long-term K-wave cycle count and inflation expectations suggest that this is an end of a pause/correction within an ongoing trend of higher/much higher inflation. One that will see both bonds and equities fall significantly. This was correct in terms of lower bonds and equities, whilst core CPI has been marginally lower in Q4 in the USA due to demand contraction. However, social unrest is rising, as seen with the strikes in the UK.
    
3. The Fed and the Other Central Banks Have Lost Control. The Fed Put is now clearly dead, and any talk that they will pivot is just the wishful thinking of trapped bulls. We expect the Fed and other central banks to keep raising rates, which will drive bonds to keep falling and stock markets to accelerate in their decline, and at some point crack in a crash/dislocate. History will view this point as the end of the US financial empire. A point where the financial leverage that has kept the American Empire alive for two decades finally fails. Based on the evidence of the last K-wave cycle peak in 1975, we predict that central banks will end up driving 10-year rates to match CPIs in the US, UK, and many other Western nations, before any chance that the peak is close at hand. This is ongoing.
    
4. The Collapse of the Doomsday Bubble is Ongoing. Despite the consistent talk of the Fed pivoting and a Santa Claus rally, the market ended up on its lows by year end. This was especially true for the Fang and NASDAQ, which are leading the bear market. Indeed, it is now 13 months since we precisely called the high of the Doomsday Bubble in the NASDAQ and all other US indices. The signals from the price behaviours since then are that the move lower is being led by the Fang index and NASDAQ, with the other indexes following suit. Only in the Fang are we anywhere close to a midpoint of the fall, so we expect the acceleration is still ahead of us and indeed not far away in the weeks and months to come. The acceleration and collapse of this Doomsday Bubble will be of such magnitude that it will cause an inevitable political earthquake. This is correct and ongoing.
    
5. The Migration to Western Command-Based Wartime Economies. The collapse of the Doomsday Bubble, a bond implosion caused by super-high inflation, and an escalating path to WW3, are all signs that Western capitalism as we know it is over, for now. As such, we expect a migration to a command-led wartime-type economy, but more on that in the months to come. Ongoing with very few seeing the trend unfolding.
    
6. Xi's Red Peril – Pearl Harbour V2.0 will be Unleashed Across Asia Without Warning. The Red Peril caused by Xi’s Total Power is now a very real danger to the world, paving the way for the next stage of WW3. Instead of a localised invasion of Taiwan, we should be braced for a war against America and its allies across the Pacific Basin. The opening Pearl Harbour 2-type attack could take place without warning, using the PLAN’s missile forces, at any time going forward. We have outlined in The Red Peril – and the Inevitability of Xi’s War why the risk of war is so great. See more about The 4th Taiwan Straits Crisis and War and the potential course of WW3 in the Pacific in an extended series of Lessons From The Falklands War Applied to Taiwan. Notably, the signals from Beijing are increasingly bellicose, in what is now the 4th Taiwan Straits crisis. However, unlike the Russian invasion of Ukraine that was proceeded by bellicose threats, we don't expect Xi to telegraph his plans beforehand, so in this case, silence is not golden. At some point, when China makes its move, we expect a coincident invasion of South Korea, and before that for North Korea to become very belligerent indeed. Note our trade recommendation of being short the Taiwan index has been hugely profitable. This is correct and ongoing. We have seen Beijing become increasingly bellicose, as has North Korea.
    
7. The EU Economy is a Very Exposed Construct. The high inflation levels have now exposed the EU economic zone as a disaster area, engulfed by significant negative real growth. Consequently, the whole of the EU including Germany and France are now on a political cliff edge as a result of Putin's Gas Stranglehold Over Germany and the EU. A precarious situation that has been made worse by Germany in particular's energy dependence on Russia, which has now almost completely been cut off as we go into winter. The social upheaval in Sweden will in all probability be the first wave of a revolution that could in the months ahead spread across Europe and see its current political structures swept aside. This is ongoing.
    
8. Italy is in Deep Trouble as Default Beckons. Italy is the most likely ignition point, along with Spain, for an EU debt crisis. The recent price correction looks to be complete so we are now in the next phase of the bond bear market, with political turmoil and a default event in the months ahead. Correct and ongoing, with the fall of BTPs showing how exposed Italy is to a debt crisis.
    
9. The Sterling Safe-Haven Play. Going forward, we expect sterling to appreciate against the majority of the FX pairs and especially against the Dollar, which seems to have completed its bull surge. This was correct. In our view, sterling remains one of the few long-term safe-haven currencies, which we expect to reach 1.60 and 2.00 in the years ahead. This is ongoing. However, we expect the UK gilt markets to keep falling in line with other bond markets, and as such UK gilts will inevitably trigger another leveraged pension-fund crisis at slightly lower price levels. This is correct and ongoing.

4.0 MARKET PREDICTIONS AND ALPHA GENERATION

4.1 TOP 20 PERFORMING MARKETS OVER PAST 39 MONTHS

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Q4 continued to produce exceptional overall alpha extraction, with the highest returns coming from the bond markets (Bunds, T-Notes and BTPs) which as a result are now in the top 4 of our 20 all-time best-performing markets. We were initially short in the major bond decline and then reversed our position to being long, then short and then long in the correction and finally going short at the top of the correction. We then ran our maximum size short positions into new lows at the end of the quarter.

In equities we maintained our maximum short positions through the quarter's squeeze and into the lows at quarter end. Similarly we maintained our shorts across the crypto sector and in EM equities and EM currencies. We captured the high in the dollar and extracted some great alpha from the first move in what we believe will be a major unfolding trend in 2023. Assuming the risk of correlation of equities-down and dollar-up is finally broken.

In precious metals we successful captured the first rally off the multi-month corrective lows, with silver being the best performer. In the commodity sector we initially traded from the long side as the wave 2 based, which was driven by demand contraction. Positioning ourselves for the anticipated supply side constriction, as the war in Ukraine escalated. Notably corn and soya produced some nice alpha returns.

4.2 WORST 10 PERFORMING MARKETS OVER PAST 39 MONTHS

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The Euro Dollar is at the top of the bad-boy table, because it is a pair that we are wary of, being composed of two weak currencies in race to the bottom. Hence we have more success in the Dollar Index. Carbon emissions is one that we have just not been correct on, and Sterling Euro is a messy pattern that we think long term is going much lower, but it moves in an overlapping way. The base metals, with the exception of copper, have not been productive, whilst wheat is a recent addition with only few trades and the Vix is expected to lose money gradually and then suddenly make it as volatility increases.

4.3 SPECIFIC MACRO SECTOR PERFORMANCE

4.3.1 Equity Markets – Survived Another Correction

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The NASDAQ in Q4 traded in the blue box, in a correction driven by more waves of optimism that burst and fell back to the lows. Notably growth stocks remained weak, whilst value stocks mounted a bigger correction/rotation and did not get back to their lows by Q4 end, and hence the losses.

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One of our ongoing super-big calls in 2021/22 was on the NASDAQ, which were made at 15000, predicting the precise high at 16640. A high that was made just before the Thanksgiving holiday in 2021 and one that should stand for at least a decade, if not longer, ending what we call the Doomsday Bubble . This has proven spot-on and continues to be reflected in returns across the index spectrum from Asia to Europe to America. Q4 was dominated by an equity correction that saw the value stocks correct the most, like the DJI, SP500 and Eurostoxx 50 and hence the give back from Q322 (which was still small compared to the profits of the previous three quarters). Whilst the weakest growth indices remained marginally profitable. Our call that Santa Claus would not appear was correct and allowed us to remain short, and well set for the start of 2023.

4.3.2 FX Markets Solid Returns as the Dollar Turned

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The Dollar Yen looks to have put in a major multi-year high and from here we expect to see major dollar weakness  unfold.

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The Dollar NOK looks to have put in a major multi-year high. From which point we expect to see dollar weakness and NOK strength unfold. This is one of our preferred FX pairs, as if we are correct about oil rallying to new highs, it could be a supercharged move lower on a pair that embodies both the weakest and strongest currencies.

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The Dollar Index looks to have put in a major multi-year high (best viewed on a weekly chart) and from here after a correction we expect to see both dollar weakness and sterling strength unfold.

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After a period where the Dollar rallied for longer and higher than we expected, our perseverance paid off, as we captured the highs in the Dollar Index, Dollar Krone, Dollar Yen and the lows in Cable to make some great returns. After we see a wave 2 bounce linked to an equity fall in early Q122, we expect this trend to continue as the Dollar suffers a major collapse.

4.3.3 Crypto Markets Steady Returns Remaining Short

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Bitcoin has been trading lower as expected in a final 5th wave of the C wave of a wave IV. Meaning that at some point it will start to rally to 100K once more!!

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The decline in Cryptos continued as expected in Q4, and we expect more downside as equities accelerate their decline in Q122. Solid if not modest returns compared to other sectors! For now!

4.3.4 Bond Markets – Once More Knocked The Ball Out Of the Park

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The above Bund market chart, shows the moves from which we extracted our highest ever alpha returns. Essentially from the down, the zig zag up and then the down to new lows. Entering trades at or near the tops and bottoms of the moves.

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The above T Note chart shows the moves from which we extracted our significant alpha returns, which however were less than for the Bunds.

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Q4 continued to produce exceptional overall bond (Bunds, T-Notes, Gilts  and BTPs) alpha extraction, with the highest returns coming from the Bund market which as a result are now in the top 4 of all our 80 marco markets. We were initially short for the major decline and then reversed our position to being long, then short and then long in the correction, and then finally went short at the top of the correction with three failed attempts before the big winner. We then ran our maximum size short positions into new lows at the end of the quarter. For those that would like to better understand how we achieved such a remarkable result in Bunds, making some 1749 trade points ,which is a 44X return on a 400% (40 unit trade recommendation), please see each trade recommendation in the table below. Note that it took three attempts to set the Bund short at the end of the correction in trades T50, T51 and T52, which then in T53 made 980 units. Each trade recommendation can be found at Financial Market  Analysis. Notably Bunds provide exceptionally tight entry points to stops and then big moves, which is our perfect market to trade.

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4.3.5 EM Markets

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With the equities in a bull correction in Q4, there were no surprises that EM produced slightly negative results. But we expect this to change in Q122.

3.3.6 Commodity Markets

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Silver and Gold rallied as we expected, allowing us a nice alpha capture opportunity.

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Oil was in the process of basing and hence we had only small returns as we looked to position for what should be a major rally ahead.

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Copper rallied nicely as part of what we believe is supply constriction/war demand coming into play.

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The sector is coming alive, as we anticipate it being a huge focus in 2023. Silver, Gold and Platinum all produced excellent results, as part of our long precious metals strategy. Oil was neutral as we looked for the bottom of the correction. With Copper and Soya putting in some solid returns.

4.0 ALPHA CAPTURE FUND PERFORMANCE

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All our long-short alpha capture commodity and long-short equity funds performed exceptionally well in Q4 – the long-short was in the top 2%, of 216 contributors. It is an unleveraged 200 million nominal long-short fund. We made our money in Q422 long gold and oil stocks and short tech stocks.