Market Overview [40] - Changing our Newsletter
Dear readers,
The reason we haven’t posted a lot of content in the last couple of weeks is because we are changing the Patellic Newsletter. Upcoming Market Overviews will be available for everyone and will now also contain information about world-wide financial developments and fundamental analysis of interesting stocks. Also the newsletters will be longer to dive further into our research what we are developing.
We hope you, our readers, will enjoy and benefit greatly from our upcoming newsletters to bring your investment decisions to a whole other level.
But for now we are providing our thoughts on the rising tensions between China & United States.
Tensions are rising
Since Nancy Pelosi visited Taiwan, China unleashed the biggest military training operation ever around the independent island.
Despite China’s warnings not to go to ‘their renegade province’. Pelosi’s actions created another conflict between the two most powerful countries in the world. Making the friction even greater between the US and China.
So why did Pelosi go? The House of Representatives speaker is a big defender of Taiwan and critic of China’s human rights abuses. During the visit, she pointed to a global struggle between autocracy and democracy, a favourite theme of Joe Biden’s, and told reporters in Taipei: “We cannot back away from that.”
But to make things worse, yesterday (August 14th) five members of the US Congress arrived in the Taiwanese capital Taipei, where they met President Tsai Ing-wen today, among others. The visit, which was not officially announced in advance, is again a thorn in the side of China. At the moment of writing, China restarted military drills around the island.
One thing you can ask yourself, would it be wise to invest in the United States, China or even Taiwan? We don’t think so. If China decides to invade Taiwan in the coming weeks, months or even years, the global economy would freeze with especially the technology sector. This is because Taiwan has the most most-advanced chip factory in the world, Taiwan Semiconductor Manufacturing Company (TSMC). In a recent interview with Mark Liu, the chairman of TSMC, said the following statement if Taiwan were invaded by China.
“Nobody can control TSMC by force. If you take a military force or invasion, you will render TSMC factory not operable,” Liu said. “Because this is such a sophisticated manufacturing facility, it depends on real-time connection with the outside world, with Europe, with Japan, with U.S., from materials to chemicals to spare parts to engineering software and diagnosis.”
Since Russia invaded Ukraine, the world (especially the West) added sanctions on Russia to ‘crash its economy’ so it couldn’t fund the war further. However, if we look at the image below, we can see that Russia is not experiencing huge economic pain from all the sanctions imposed by the West. We can all but guess, but we believe that China is making notes to deal with those sanctions if it decides to ‘free’ Taiwan in the coming years.
So what is a saver alternative to invest in? We believe that precious metals like gold and silver and bonds are slowly making a comeback after months of selling off. This is because investors have faith in central banks to make a ‘soft landing’ with their hiking cycle. So while it looks like we have a great comeback rally in financial assets right now, we expect that the economic damage of high interest rates will take full effect in the start to middle of next year. And that is the exact time when gold and other safe-haven assets are likely going parabolic while global indices are crashing.
But at what price should you buy like the commodity gold? Let’s take a look at the chart below
While the chart includes a bunch of indicators, the important thing you need to know is that gold is likely to make a small pullback before making higher moves. This is because the price got rejected from the upper declining black line and the small rise in the value of the dollar (bad for gold). This means that gold didn’t break through its downtrend yet since the top of the small parabolic run around February.
We believe that gold’s price is going back to $1730 before breaking the downtrend and starts a new uptrend. If both things happen simultaneously it is a big buy signal. This is highlighted in the chart with the green and red blocks with the buy word in it.
If gold’s price falls below the red block (under $1675) we can assume that bullish price action is over and more downside is ahead for gold. But we believe that is not going to happen because investors are slowly getting it that the global economy is slowly faltering and uncertainty is rising.
We would like to thank you for your time reading our newsletter, if you found something interesting, consider to subscribe and share this newsletter with your friends. We would highly appreciate it!
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