All economic eyes this week are on Davos, and according to The Wall Street Journal, the “Mood is Somber as Many CEOs Question Economy’s Future.”

Yes, “Somber” that the biggest of the Bigs and richest of the Rich will see some profit declines in the coming months. With forecasts that at least a third of the world’s economies will slump into a recession, “Many businesses are cutting costs—and in some cases jobs—to be prudent,” several business leaders said, according to the WSJ. 

According to the World Economic Forum (WEF), the “chief” economists it surveyed predict there will be a global recession this year.  And according to a PwC Global poll published yesterday, 73 percent of CEOs around the world expect the global economy to decline this year.

Among the Davos “Bigs” there is deep sorrow after their deal-making schemes hit a record of $5.7 trillion in 2021 but slumped in 2022.  

According to Refinitiv and reported by WSJ, “$1.4 trillion of transactions was agreed in the second half of last year, compared with $2.2 trillion the first, the biggest sign from one six-month-period to the next since records began in 1980.” 

Correct, “since records began in 1980.” Before that time, no one ever heard of private equity firms, venture capitalists, and hedge funds.  And back then, there were drug stores, stationery stores, hardware stores, grocery stores, etc., that have now become “chains” controlled by the “firms,” “capitalists” and “funds” that are members of the Davos Money Junkie Club.

Equating the spiraling levels of inequality, in celebration of the Davos meeting, Oxfam reported that the 1 percent got richer, gobbling up $26 trillion in new wealth since 2020, the Chinese Lunar New Year, the Year of the Rat, and the start of the COVID War that destroyed the lives and livelihoods of billion across the globe. 

While the top nine percent got 27 percent of the $42 trillion in new wealth created since 2020, the 7.2 billion plantation workers of Slavelandia—the bottom 90 percent—got just $5 trillion. And with wages sinking below inflation, and the prices of food and housing skyrocketing since then, in real dollar terms, the plantation workers got nothing. 

Will History Repeat Itself?

As we have been reporting, following the past 40 midterm elections in the United States, the S&P 500 has increased some 16 percent in the following 12 months. And as history shows, the S&P 500 Index has historically underperformed in the year leading up to midterm elections… which it did, slumping 19.4 percent in 2022.

So where are the markets heading and what to expect? For the plantation workers of Slavelandia, it makes no difference because the bottom 90 percent of Americans only own around 10 percent of stocks. 

But according to the U.S. Central Bank, the stock portfolios of the top 1 percent own a record 53.9 percent of stocks, while in total, the wealthiest 10 percent of American households now hit a record high of owning some 90 percent of individually held shares. 

TREND FORECAST: Since the facts and data prove the rich own the world and they own the equity markets, they are the ones that will be calling the shots. And the shot that will be fired that will determine whether equity markets spike or dive will be the basis-point-bullet. 

Should the U.S. Federal Reserve raise interest rates 50 basis points on 1 February following their two-day meeting, we forecast that equities and the 2023 economy will both plunge. And while some 63 percent of Main Street Americans are living paycheck-to-paycheck and are suffering high inflationary pressures daily, it won’t be until Wall Street crashes that they will truly recognize just how bad it really is. 

However, according to Reuters, the bet on The Street is that “Markets are now pricing in a 91% chance of a 25-basis point increase when the Fed announces its policy decision in February, with a 9% chance of a 50-bp hike.”

As to what the Fed will do and what it will not do, “Central Banks Have Declared WAR On We The People of The World,” says Gregory Mannarino in this week’s Trends Journal. 

LAST WEEK: SHARE PRICES RISE WITH STRONG BANK EARNINGS REPORTS

Share prices climbed Thursday and Friday as major banks posted fourth-quarter earnings that were better than expected. 

Bank of America and JPMorgan Chase saw higher revenues, thanks to the U.S. Federal Reserve’s steadily rising interest rates. Stock prices for both banks gained about 2 percent last week.

JPMorgan Chase’s profits from loans rocketed up 48 percent to a record $20.2 billion. Citigroup’s take from managing corporate cash and lending to businesses was up 36 percent. 

JPMorgan posted a profit 6 percent greater in 2022’s last quarter than in the same period a year earlier. Bank of America’s profit was 2 percent higher.

For the week, the Dow Jones Industrial Average grew by 1.9 percent, the NASDAQ 3.8 percent, and the Standard & Poor’s 500 index 2.2 percent.

The S&P is up about 4 percent already this year.

“It’s been a strong start to the year for bank stocks, supported by a combination of higher interest rates and the economic contraction being not as severe as expected,” UBS strategist Kiran Ganesh told The Wall Street Journal.

“That’s the Goldilocks scenario for banks,” he added.

Also, the University of Michigan’s monthly survey of consumer sentiment posted its most optimistic reading since last April, puffing markets even more.

That sunny outlook is buoyed by the inflation rate’s continued decline, falling from 7.1 percent in November to 6.5 last month.

TRENDPOST: At the same time, wage growth has reached its slowest speed in more than 18 months, which is a delight to The Street. “Investors are celebrating the fact that the average hourly earnings number was less than expected. There was fear going in that wage inflation would remain hot.” Michael Arone, chief investment strategist at State Street Global Advisors told The Wall Street Journal.

The spurt of lower inflation data and lower wages has convinced market players that the Fed will begin cutting interest rates later this year.

Again, as we note, the bet is that the Fed is widely expected to lift its key rate by a quarter point when it meets on 1 February. It bumped the rate by three-quarters of a point four times last year and by a half-point twice.

Expectations of a kinder, gentler Fed dropped bond prices last week, pushing up the yield to 3.510 percent Friday from 3.446 Thursday. Bond yields rise as bond prices fall.

Gold added 2.2 percent through the week to reach $1,920.16 at 5 p.m. U.S. EST last Friday. The price rose mostly on Thursday and Friday.

Brent crude oil crossed back above the $80 mark to trade at $85.34 at 5 p.m. U.S. EST Friday. West Texas Intermediate, which sets U.S. oil prices, jumped 6.3 percent to $79.86.

Bitcoin shot up 10.2 percent last week, also adding most of its gains on Thursday and Friday. It traded at $19,134 at 5 p.m. U.S. EST Friday.

Abroad, stocks rose along with U.S. markets.

The London FTSE took on another 1.9 percent over the week and Europe’s Stoxx 600 index gained 1.6 percent. Stocks across the region perked up on expectations that any recession will be less severe than predicted now that energy prices are easing.

The Japanese Nikkei grew by 1.4 percent, and South Korea’s export-sensitive KOSPI expanded by 3.1 percent.

Hong Kong’s Hang Seng rose 2.1 percent.  The mainland’s CSI Composite added 1.8 percent and the tech-heavy SSE Composite 0.8 percent.

YESTERDAY:  CHINA’S GDP RISES ONLY 3 PERCENT 

In honor of Martin Luther King day, U.S. markets were closed yesterday.

EUROPEAN/ASIAN MARKET: The FTSE 100 rose 0.21 percent yesterday to close at 7,860 and the pan-European STOXX 600 closed up 0.5 percent to 454. In Asia, the benchmark Hang Seng Index was up 8.06 points, or 0.04 percent, to 21,746.72 and South Korea’s Kospi gained 13.77 points, or 0.58 percent, to close the day at 2,399.86. Japan’s Nikkei fell 1.14 percent to close at 25,822.32, its lowest close since 5 January.

Trading volumes were lighter in Europe yesterday since the U.S. stock market was closed for the Martin Luther King Jr. Day holiday. European stocks hit their highest level since Spring 2022 due to optimism over a reopening of China.

China’s benchmark Shanghai Composite Index was up 1.01 percent on Monday and the Shenzhen Component Index rose 1.58 percent.China announced Monday that its economic growth slowed to 3 percent, its second-lowest level in at least 40 years, easily missing its target of about 5.5 percent growth. 

The world’s second-largest economy was hit hardest by its “zero-COVID” policy and a downturn in its property sector. In 2021, the economy grew by 8.1 percent and hit its peak growth in 2007, when its GDP reached 14.2 percent. 

The International Monetary Fund said it expects China’s economic growth to reach no higher than 4 percent in the next 10 years. Yet, the oil prices are moving higher because there are expectations that with the end of its zero COVID policy, the economy will bounce back.

TRENDPOST: The Trends Journal has reported extensively on China’s economy as it navigates its self-imposed “zero-COVID” policy. We alerted readers in December that China’s factory output fell to its lowest level since February 2020.

In November, China’s economic activity in construction, manufacturing, and services slowed more than expected, hobbled by continuing, widespread anti-COVID lockdowns, an unresolved financial crisis in the real estate sector, and fewer orders for the country’s factory output.

We noted that month that Xi Jinping, the Chinese president, when accepting his third term, vowed no letup in the country’s “zero-COVID” policy, saying it has “protected the people’s health and safety to the greatest extent possible.”

He told the fifth annual China International Import Expo in Shanghai that China will pursue a “mutually beneficial strategy” of opening up and adhering to the “right course of economic globalization.”

China has since changed its tune and told the world it is open for business. Last month Beijing lifted its COVID policy.

“The data came in stronger than our expectation. Nevertheless, it reveals the hard hit to the Chinese economy from a zero-Covid policy and a property rout in 2022,” Jacqueline Rong, deputy China economist from the BNP Paribas bank, told the BBC.

China’s Vice-Premier Liu He told the World Economic Forum’s (WEF) annual meeting in Davos on Tuesday that Beijing is looking to international investors to resuscitate its economy. 

“Foreign investments are welcome in China, and the door to China will only open up further,” Liu said, according to Reuters.

BITCOIN: The world’s most popular cryptocurrency continued its 2023 winning streak and was trading as high as $21,343 yesterday, which is about 30 percent higher since the start of the year. Ether is up 30 percent year-to-date.

TRENDPOST: Bitcoin tends to follow optimism on The Street. Last year equities were down and so was Bitcoin. And with the bet on The Street that inflation is cooling and the Fed may take its foot off the gas in its interest rate hikes, it may bode well for the non-yielding crypto asset. The Nasdaq Composite is up about 7 percent since the start of the year and the S&P 500 is also up about 5 percent. 

TODAY: DOW TAKES HIT AFTER GOLDMAN REPORTS WORST EARNINGS MISS IN DECADE

The Dow Jones Industrial Average slumped 391.76 points today, the S&P 500 slipped 8.12 points while the Nasdaq Composite inched up 15.96 points.

Both Goldman Sachs and Morgan Stanley reported significant drops in profits. Goldman saw its shares fall 6.44 percent. Morgan Stanley’s profits fell 40 percent, which amounted to $1.26 per share, which topped the $1.25 that The Street was anticipating. The company benefited from its wealth-management arm which saw its revenue rise 6 percent.

In the meantime, money managers have been taking a new look at bonds, as we detail in this Trends Journal, instead of stocks since yields have reached their highest levels in more than a decade.

The Wall Street Journal noted that major firms like the Vanguard Group and BlackRock see these high-quality corporate and mortgage bonds as attractive when compared to equities—especially given recession fears. The report noted that recession fears are so high, that some money managers are urging clients to shift from a 60-40 stock-to-bond portfolio to a 60-40 bond-to-stock portfolio.

In Europe, London’s FTSE was down 9.04 points, or 0.12 percent, to 7,851.03, and the benchmark STOXX600 was up 1.83, or 0.40, or 456.46. In Asia, Japan’s Nikkei was up 316.36, or 1.23 percent, to 26,138.68, and South Korea’s Kospi was down 20.47, or 0.85 percent, to 2,379.39. Hong Kong’s Hang Seng was down 169.08, or 0.78 percent, to 21,577.64. The Shanghai Composite was down 3.35, or 0.10 percent, to 3,224.24. The Shenzhen Component was up 14.79, or 0.13 percent, to 11,800.55. 

TREND FORECAST: The Trends Journal identified “MARKET MELTDOWN, ECONOMIC CALAMITY” as a TOP TREND for 2023.

We noted that the International Monetary Fund (i.e., The International Mafia Federation) forecasts that 2023 will be a “tough year,” with one-third of the world’s economies expected to fall into recession “because the three big economies, [the] US, EU, China, are all slowing down simultaneously.”

As we continue to detail in this and previous Trends Journals, as goes the Fed, so goes the equity markets. If the Fed raises interest rates just 25 basis points on 1 February, we forecast the markets will go up. If they raise them 50 basis points the markets… and the economy go down.

OIL: Brent crude gained $2.10, or 2.49 percent, to $86.56, and West Texas Intermediate was up $1.06, or 1.33 percent, to $80.92, on increased demand due to China’s reopening and a weakening U.S. dollar.

Oil prices benefited from China’s recent change in COVID-19 policies and its decision to reopen its economy. Beijing is the world’s second-largest economy and the world’s biggest oil importer. 

The U.S. dollar has also weakened against world currencies, which makes oil purchases more attractive internationally. 

Saudi Foreign Minister Prince Faisal bin Farhan attended the World Economic Forum in Davos and said the price stability in the oil market is evidence that OPEC+ was correct in its move to reduce output. 

TREND FORECAST: The Trends Journal has identified “GOING GREEN” as a TOP TREND of 2023. Bin Farhan seemed to agree, and noted in Davos that while these renewable resources continue to develop, it is important for the world economy to “maintain a stable supply of traditional energies and one that is priced in a way that ensures that stability and that I think we have been able to do.”

Indeed, new technologies will take years to develop. The U.S. Energy Information Administration estimated that there will be a nearly 50 percent increase in global energy use by 2050. Oil and gas will still be the most consumed sources of energy at that time.

We maintain our forecast that the longer the Ukraine War wages the higher oil prices will rise. And as we noted, should the Middle East Meltdown escalate and there is a military confrontation between the United States/Israel vs. Iran, oil prices will spike above $130 a barrel… which will crash economies and equities. 

Filling the Tank

GasBuddy, citing price reports from 150,000 gas stations, noted that gas prices in the U.S. have increased every week for about a month and rose 2.5 cents from last week. The national average price of diesel has fallen 7.2 cents in the last week, Gas Buddy said. Diesel stands at $4.56 per gallon.  

GOLD: The precious metal was trading down $10.70 an ounce to $1,911 as of 5:05 p.m. ET., after hitting its eight-month peak. 

TRENDS FORECAST: As the world sinks deeper into a recession and the dollar loses its value compared to other top currencies, watch for gold prices to continue to rise. Again, as we forecast in November, gold prices had bottomed and we had forecast they would rise. Should the Fed raise interest rates only 25 basis points on 1 February, that will immediately push gold prices higher. If they raise interest rates 50 basis points, gold prices will slump. However, as economic conditions deteriorate as a result of higher interest rates, gold prices will sharply rise as investors seek safe-haven assets.  

BITCOIN: The world’s most popular crypto currency was up 220.60 today, or 1.04 percent, to $21,343.30 as of 3:45 p.m. ET, continuing its 2023 winning streak.  

TREND FORECAST: We maintain our forecast that on the upside, should bitcoin remain in its current trading range and move up above $25,000 per coin, we forecast bitcoin prices will continue to rise. 

On the downside, should it break down into the $15,000 per coin range, we hold to our forecast that it will decline to around $10,000 per coin.