Every four years, most people around the world are captivated by the FIFA World Cup, which recently began in Qatar. Although soccer unlike “Polo”, which is considered “the sport of kings,” is not a “high class” game, it is by far the most popular game around the world and the FIFA World Cup is the most watched show on earth. According to FIFA, the average live TV audience for the 64 matches at the 2018 World Cup in Russia was 191 million. That’s significantly more than estimates for the Super Bowl’s TV viewership, which was just short of 100 million in the U.S. this year plus an estimated 30 to 50 million across the globe.
The World Cup final is at another level altogether, with the 2018 clash between France and Croatia drawing an average TV audience of 517 million people, as live coverage of the game reached more than a billion people in total.
All in all, and despite no beers in stadiums, the 2022 Qatar World Cup was so far successful and should be regarded positively in a world full of bad news.
In Europe, economic conditions are even worse than in the US with real incomes of people diminishing and with the European current account having just turned negative. However, there is some hope. The in German speaking areas influential paper Die Weltwoche, recently published an article, which stated that according to Thierry Breton, EU-Commissioner for the domestic economy, the US was Europe’s most dangerous enemy because its policies and NATO had led to an existential challenge for Europe.
The article is indeed noteworthy because it indicates that the EU bureaucrats are no longer supporting the war effort unconditionally, and that within NATO differences are arising. Moreover, the last two sentences are interesting: “Does anyone still ask why the Americans love the war in Ukraine?” Concerning Europe the article added, “Who needs enemies if you have friends like that?” This immediately reminded me of the saying which is attributed to Henry Kissinger: “To be an enemy of the US is dangerous, but to be a friend is fatal,” and suggests that if you are an American enemy then that can be a danger but at least you know where you stand. But if you are a friend then the US will destroy you - not necessarily from malice but because of just how America operates. [Through the Law of the Strongest.]
As we have just seen at the FIFA World Cup, the Law of the Strongest does neither always apply nor does it apply forever (see Saudi Arabia’s and Japan’s win over respectively Argentina and Germany).
Therefore, a gradual shift in sentiment in Europe away from economic suicidal policies and towards “Common Sense” could lift the Euro against the US dollar.
I need to point out that the average European man has already been skeptical for a long time about NATO, the EU leadership, the WHO and the WEF and its close connection to Anglo Saxon and European leaders. Skepticism has increased remarkably following the publication of several studies which question the entire lockdown and vaccine policies during the COVID outbreak. People are also sick and tired of leaders such as socialist WEF prodigy Jacinda Ardern of New Zealand who exclaimed: “Unless you hear it from us, it is not the truth. Dismiss anything else. We will continue to be your single source of truth.” Therefore, a miracle could occur and lead to more “common sense” policies (including the conclusion of the war in Ukraine), which would likely be very positive for German equities. German stocks are no higher than in 2007 in dollar terms. Let us briefly consider the implication for asset markets should a meaningful decline in the rate of inflation occur as investment advisor Alpine Macro suggests.
Diminishing rates of consumer price inflation (brought about by demand destruction) would likely lead to additional gains in asset prices, and especially in government bonds. Based on above and on last month’s observations, I would like to conclude this discussion as follows: from a near-term perspective I have a slight preference for government bonds over stocks, which seem to have become somewhat overbought. From a longer-term perspective, stocks are probably more attractive than bonds because it is likely that we are in an early phase of a rising inflation and rising interest rate cycle.
A year ago, right near the peak of the FAANG stock and Crypto bubbles I wrote several times about the world’s most unpopular stock market, which was at the time Turkey. Turkey’s monetary policy had destroyed the value of the Turkish Lira (it continues to do so) and therefore, stocks in dollar terms had collapsed. Now, a year later the Turkish Fund (TUR) is up by 83% in dollar terms. I am not suggesting that buying unpopular assets is always a recipe for success but that on some occasions out of favor stocks, commodities or other assets can performs superbly.
Currently, the most unpopular markets among international investors are Hong Kong (EWH) and China (FXI). I have had an office in Hong Kong since 1973 and I have never ever seen the mood as negative as it is now. Other neglected markets include Argentina and Brazil.
2022 was not a good year for investors around the world. One of football’s best ever player and also coach, Algerian born Zinedine Zidane exclaimed that:
“I once cried because I had no shoes to play soccer, but one day, I met a man who had no feet.”
Let us all be grateful for what we have and remember Zidane’s words.
I wish my readers Merry Christmas and a Happy New Year.
With kind regards
Yours sincerely
Marc Faber
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