What Surprise is in Store for the 2025 Year of the Wooden Snake?

 

Mundus vult decipi, ergo decipiatur (The world wants to be deceived, so let it be deceived) —Sebastian Brant (also Brandt) 

In this issue

What Surprise is in Store for the 2025 Year of the Wooden Snake?

I. 2025: The Year of the Wooden Snake, Zodiac Cycles and Sociology

II. Trump 2.0 and Current Geopolitical Developments

III. Geopolitical Milestones in the Year of the Snake

IV. The Influence of the Year of the Snake on the Global Economy and Financial Markets

V. The Impact of the Year of the Snake on Philippine Politics and Economy

VI. A Comparative Analysis of the Year of the Snake's Impact on the Philippines

VII. Conclusion

What Surprise is in Store for the 2025 Year of the Wooden Snake?

How will the 2025 Year of the Snake impact geopolitics, the global economy, and financial markets? Will it be a year of upheaval or opportunity for the Philippines?

I. 2025: The Year of the Wooden Snake, Zodiac Cycles and Sociology

2025 is the Year of the Wooden Snake. To gain insight into what this might signify, a quote from the article offers a succinct summary. 

Chinese new year 2025 is an especially fortuitous one as it is ruled over by the wood snake, a sign associated with wisdom, intuition, and renewal. It’s a combination of an animal (the snake) and an element (wood) that occurs once every 60 years. It promises to be a period full of unique energy with some distinct characteristics…The combination of snake and wood creates a special synergy in which the introspective and transformative energy of the snake is paired with wood’s expansive and balanced nature. (Mendoza, 2025)

Optimism consistently pervades the annual forecasts for the Chinese zodiac calendar. The zodiac embodies a 12-year cycle, each year symbolized by an animal and its associated attributes.

While we remain agnostic about this tradition (and its geomantic counterpart, feng shui), significant events occurring within the year might appear as circumstantial coincidences or could indeed signal potential cyclical patterns within the political economy. 

In other words, certain aspects of astrology might intersect with sociological phenomena. 

For instance, our analysis of geopolitical developments through the lens of the Chinese zodiac cycles fortuitously resulted in our accurate prediction of the outbreak of the Russia-Ukraine War in February 2022. 

Aside from the eroding concerns over the pandemic, potential geopolitical flashpoints for a hot war may occur.  

For instance, the US-Russian impasse over Ukraine (Russia’s vehement objection over the slippery slope of NATO’s expansion into her borders) (Prudent Investor, January 2022) 

Thus, an examination of global and local developments over 12-year cycles may provide valuable clues for 2025. 

II. Trump 2.0 and Current Geopolitical Developments

Donald Trump’s inauguration as the 47th President of the United States will be held on January 20th, just 9 days ahead of the Chinese New Year on January 29th. This timing suggests that at the start of his term, he will busily sign numerous Executive Orders (EOs) that could significantly influence the geopolitical landscape this year. 

Even before taking office, geopolitical developments have already moved in anticipation of his potential actions.

Israel and Hamas have agreed to a ceasefire, which takes effect on Sunday, January 19th—469 days after the conflict began on October 7, 2023. President-elect Trump reportedly had significant influence over this deal. 

Still, Israeli Prime Minister Netanyahu has publicly stated that the ceasefire with Hamas, as discussed with Trump, is intended to be "temporary." 

The incoming president is also reportedly considering easing sanctions on Russian oil exports in exchange for a peace deal with Ukraine, while simultaneously exerting pressure on Iran and Venezuela. 

While the incoming cabinet has reportedly been filled with pro-Israel lackeys and are hostile towards relations with China and Russia, Trump recently posted a video on his X account suggesting that the Syria and Iraq wars were orchestrated by Israel’s Netanyahu. 

Trump also had a phone call with China’s President Xi on January 17th, where both leaders declared on X.com they would “do everything possible to make the world more peaceful and safe.”

Following the sudden collapse of Assad-led Syria, Russian President Putin and Iranian President Raisi signed a “comprehensive partnership agreement” on January 17th, likely aimed at deterring any potential aggression from the U.S.-Israel alliance

Donald Trump has added complexity to geopolitics by exerting pressure on his allies. 

1. He has cited the need to pursue the acquisition of the Panama Canal.

2. Beyond securing access to critical mineral resources, Trump has proposed the acquisition of Greenland and the annexation of Canada, potentially to extend the U.S. sphere of influence in the Arctic Circle, competing with Russia. This strategy might also serve to divert attention from escalating war tensions with Russia and China.

As historian Eric Margolis suggested, "Trump has started a scramble of imperial rebranding"

3. Additionally, Trump has urged NATO members to increase their defense spending to 5% of GDP.

4. Could the alleged snubbing of the Philippine leadership at Trump’s inauguration signal a potential shift in US-Philippines foreign relations?

Trump's presidency promises to be a period of intense geopolitical activities, where traditional alliances might be tested, and new power dynamics could emerge, all under the ambitious and often unpredictable deal-making leadership of the 47th President of the United States.

III. Geopolitical Milestones in the Year of the Snake

Based on historical analysis and considering the cyclical nature of the Chinese zodiac, here are significant geopolitical milestones that occurred in various Years of the Snake: 

1917: The United States joined the Allies and entered World War I in April 1917. This was a pivotal moment that contributed to the eventual end of the war.

1941: The Bombing of Pearl Harbor on December 7, 1941, prompted the U.S. entry into World War II, significantly altering the course of the conflict.

Operation Barbarossa: Launched on June 22, 1941, this was Nazi Germany's invasion of the Soviet Union, marking the beginning of a massive Eastern Front campaign in World War II. This operation was one of the largest military operations in history and had profound effects on the war's outcome.

The Battle of Moscow, marking a turning point on the Eastern Front for the Russians against the invading Germans in World War II, also took place in (October 2) 1941-42. This battle was crucial for halting the German advance into the Soviet Union.

1953: The Korean War concluded with an armistice agreement on July 27, 1953, ending three years of conflict and setting the stage for the division of Korea that persists today.

1965: The U.S. significantly escalated its involvement in the Vietnam War in 1965, marking a major expansion of American military presence in Southeast Asia.

1989: The Tiananmen Square Massacre in China, from April 15 to June 4, 1989, involved the violent suppression of pro-democracy protests, impacting China's international image and domestic politics.

The Fall of the Berlin Wall on November 9, 1989, marked the end of the Cold War and was a precursor to the reunification of Germany, signaling the decline of the Soviet sphere of influence in Eastern Europe. 

2001: The 9/11 Terrorist Attacks on September 11, 2001, devastated the U.S., leading to the initiation of the War on Terror. This event reshaped global security dynamics.

The War in Afghanistan began 1-month later that year as the U.S. response to the 9/11 attacks, marking the start of a long-term military engagement in the region.

2013: The Syrian Civil War saw increased international involvement in 2013, with discussions around chemical weapon use and subsequent military actions, further complicating the conflict.

The Snake is often linked with transformation, introspection, and unpredictability, suggesting that geopolitical tensions might rise or escalate. The Wood element, associated with growth and expansion, could also signify potential for new power struggles. On the other hand, the introspective nature of the Snake might promote diplomatic efforts and peace negotiations, leading to the conclusion of ongoing conflicts.

In sum, the impact of the Year of the Wood Snake will depend on a complex array of interdependent factors, including global political dynamics, the influence of vested interest groups such as the military-industrial complex, hegemonists, and political elites, as well as leadership decisions and international diplomacy. This year tends to bring significant changes, with the potential for new conflicts to emerge, existing wars to escalate, and the possibility of resolving ongoing disputes, reflecting the intricate interplay of forces during this zodiac cycle.

IV. The Influence of the Year of the Snake on the Global Economy and Financial Markets

The influence of the Year of the Snake on the global economy and financial markets have been significant

1929: The U.S. stock market crash of 1929 precipitated the Great Depression, causing global economic devastation, massive unemployment, and profound financial instability. 

1941: U.S. economic mobilization for World War II marked a shift toward a war economy. This also resulted in increased U.S. wartime financing through the issuance of war bonds, a growing national debt and the Fed’s financial repression policies.

World War II also led to the U.S. Lend-Lease Act, which strengthened economic ties between the U.S. and Allied nations. 

1965: Often cited as part of the Golden Age of capitalism, 1965 marked a peak in the post-WWII economic boom in Western nations, particularly the U.S. and Europe.

Figure 1

The Bretton Woods System started showing signs of strain mounting due to inflationary pressures and vastly increased spending related to the Vietnam War. (Figure 1, upper graph)

1977: Following the Nixon Shock in 1971, the post-Bretton Woods era led to U.S. dollar weakness and inflationary pressures.

1989: The fall of the Berlin Wall paved the way for Germany's economic reunification. 

Global market liberalization advanced, emphasizing free trade and deregulation.

Despite the Bank of Japan's monetary tightening, the Nikkei 225 reached an all-time high of 38,957.44 on December 29, 1989, amidst a Tokyo land price crash. 

2001: The bursting of the Dot-Com Bubble led to a recession, with considerable stock market losses, particularly in tech stocks, and an eight-month U.S. economic contraction.

The 9/11 attacks further destabilized global markets.

China's accession to the WTO significantly expanded its global trade presence.

2013: The "Taper Tantrum" occurred when Federal Reserve Chairman Bernanke announced a potential reduction in bond purchases, causing U.S. bond yields to rise and leading to instability in emerging markets.

The U.S. Dollar Index (DXY), which tracks the value of the U.S. dollar against a basket of six major trading partners' currencies, began its nearly 12-year uptrend in 2013. (Figure 1, lower image) 

Meanwhile, the Eurozone crisis persisted, with Greece and other nations continuing to face financial instability.

The Year of the Snake has historically been associated with heightened volatility in both geopolitics and domestic politics, and its interconnectedness with economics reveals similar underlying dynamics.

Historically, periods marked by surging asset bubbles, financial system pressures, recessions, and rapid economic expansion have all been part of this recurring cycle.

Looking ahead to 2025, uncertainties abound. However, the growing deep-seated economic imbalances—characterized by unprecedented debt levels, record deficits, and central bank policies favoring easy money—along with rising protectionism, the weaponization of finance, and speculative asset bubbles, all point to an increased risk of significant downside volatility.

V. The Impact of the Year of the Snake on Philippine Politics and Economy

How has the year of the Snake affected the Philippines.

1929: The Great Depression severely impacted the Philippine economy, which was still a U.S. colony, due to its dependence on U.S. markets.

1941: Imperial Japan launched a surprise attack on Clark Field and Iba Field on the opening day of hostilities in the Philippines, a day after the attack on Pearl Harbor. This paved the way for the Japanese occupation, causing massive socio-economic devastation.

1953: Former Defense Secretary Ramon Magsaysay was elected as the seventh President of the Philippines. The post-World War II economic recovery was still underway, with the country grappling with the repercussions of the war, including ongoing rebuilding efforts.

1965: Ferdinand Marcos Sr. was elected the tenth President of the Philippines. His victory marked the beginning of a long tenure in power, eventually leading to the declaration of martial law in 1972.

1977: Since the establishment of Martial Law in 1972, the administration of Ferdinand Marcos Sr. had suppressed political dissent and controlled growing unrest, which resulted in widespread human rights violations.

During this period, the Philippine economy was characterized by massive government spending on infrastructure projects, largely funded through loans. This led to rising external debt, which became a significant issue in the later years of Marcos' rule. In 1977, Marcos issued Presidential Decree 1177, which mandated automatic appropriations for debt servicing. 

The imposition of Martial Law coincided with economic instability, partly exacerbated by the global oil crisis, high inflation, and escalating debt levels.

1989: The late 1980s were marked by political turmoil and growing opposition to the regime of Corazon Aquino, who had assumed power after the 1986 People Power Revolution (People Power I).

In 1989, the Reform Armed Forces of the Philippines (RAFP) launched the most serious coup attempt against the Aquino government, among many previous attempts, highlighting dissatisfaction with her leadership and resistance to her reforms.

Despite Aquino's efforts to stabilize the economy, the country continued to face persistent challenges, including high levels of foreign debt and inflation. However, Aquino’s administration made significant strides in implementing market-oriented reforms and privatizing state-run enterprises, though the country still struggled due to global economic conditions and internal political instability.

2001: In January 2001, President Joseph Estrada was ousted in a second People Power Revolution, also known as People Power II, after being accused of corruption. Estrada’s impeachment and subsequent removal from office, amid widespread public protests, marked a significant political transition. Vice President Gloria Macapagal Arroyo was sworn in as the new president, though the transition was accompanied by significant political unrest and instability.

At the time, the Philippines was grappling with substantial economic challenges, including the aftermath of the 1997 Asian Financial Crisis and declining investor confidence during Estrada's administration.

Figure 2

2013: The Philippine economy showed robust growth, reaching a significant milestone with an upgrade to an investment-grade credit rating by major rating agencies.  (Figure 2, topmost chart)

The economy grew at an impressive rate of 6.8% for the year.

Simultaneously, Philippine assets reached key milestones, reflecting strong investor confidence in the market during this period.

The Philippine Stock Exchange’s PSEi 30 had a record-breaking year, hitting new highs in May 2013. (Figure 2, middle diagram)

The Philippine peso rallied to a five-year high, or the US dollar-to-Philippine peso exchange rate fell to a five-year low. (Figure 2, middle chart)

In April 2013, Philippine 10-year bond yields hit all-time lows or Philippine bonds rallied to historic highs. (Figure 2, lowest graph)

In my humble opinion, 2013 signified the genuine bull market peak of the PSEi 30, which has been affirmed by both the USD-PHP exchange rate and the bond markets.

Once again, like its global counterparts, the Year of the Snake in the Philippines has historically coincided with moments of political upheaval, such as the rise and fall of leaders, coup attempts, and the People Power Revolution, as well as economic challenges and heightened volatility like inflation, debt, instability, and periods of market euphoria.

VI. A Comparative Analysis of the Year of the Snake's Impact on the Philippines

Finally, let us provide a concise analysis of the comparative performances during the Year of the Snake.

Nota Bene: The underlying dynamics behind each economic statistic differ from period to period.

Figure 3

The headline GDP experienced its best performance post-independence from the U.S. and post-bellum or post-war recovery in the Water Snake year of 1953, which saw an 8.9% GDP growth. (Figure 3, upper window)

With the exception of 2001, the headline GDP has been rising since then, with 2013 representing its highest level.

However, the Water Snake year of 1953 was followed by a sharp decline in the Wooden Snake year of 1965. If history follows its pattern, could we witness a sharp drop in GDP? Or will the uptrend since 1965 continue?

The average headline GDP during the Year of the Snake since 1953 stands at 5.4%.

Could the Year of the Snake also reflect trends in the Consumer Price Index (CPI) cycle?

The CPI surged from its trough in the Wooden Snake year of 1965 to its peak of 10.7% in 1989, before descending to 2.6% in the Water Snake year of 2013.

Does this suggest a cyclical pattern of three Snake years (or every 24 years)? Or could the CPI rise sharply in the upcoming Wooden Snake year? (Figure 3, lower chart)

The average CPI during the Year of the Snake since 1965 is 6%.

Figure 4

The USD-PHP exchange rate seems inclined to appreciate during the Year of the Snake. It gained in three of the last four Snake years, averaging 4.6%, particularly due to the 2001 return, which coincided with the weakest GDP performance among Snake years. (Figure 4, upper pane)

Moving to the PSE. Since its largest return of 31.24% in 1989, the Philippine’s major equity benchmark, the PSEi 30 has struggled. However, despite its mixed performance, the five Year of the Snake episodes since 1965 have yielded an average return of 4.1%, thanks in large part to the notable gains in 1989. (Figure 4, lower graph)

The Snake years reveal that the USD-PHP's largest returns, the weakest GDP, and the most significant decline in the PSEi 30 share a common denominator: the Metal Snake year of 2001.

Key global events—such as the bursting of the dot-com bubble, the dot-com recession in the U.S., the 9/11 attacks, and local political upheaval in the Philippines marked by People Power 2, alongside the country's post-Asian Crisis economic challenges in 2001—contributed to this outcome. 

VII. Conclusion

In examining the economic patterns associated with the Year of the Snake in the Philippines, we observe a tapestry of significant historical events and economic indicators. From the peak GDP growth in 1953 to the financial turbulence of 2001 and to the financial euphoria of 2013, these years have often been marked by notable shifts in political power, economic policy, market cycles and external shocks with each year adding a unique chapter to the country's economic and political story.

As we look towards 2025, while historical trends provide valuable insights, the future remains uncertain. Given the current global and domestic economic imbalances, the Year of the Snake may again usher in another period of heightened risk and potential volatility. As always, the interplay of external events, governmental actions, and market responses will determine whether the Snake’s legacy of upheaval or opportunity will prevail. 

____

References

Corina Mendoza Architectural Chinese new year 2025: Here's what to expect in the year of the Wood Snake January 1 2025 

Prudent Investor, What Surprise is in Store for the 2022 Year of the Water Tiger? January 23, 2022 

Other Zodiac series

What Surprise is in Store for the 2023 Year of the Water Rabbit? January 22, 2023

What Surprise is in Store for the 2024 Year of the Wooden Dragon? February 11, 2024

 

US Sanctions Russia’s Gold Miners: A War Against Global Central Banks Accumulation of Gold?

Are the sanctions on Russian gold miners aimed at slowing global central bank purchases of gold?

This short post deals with the growing trend of global fragmentation or de-globalization. 

The above sanctions on Russian gold miners translate to the increasing weaponization of natural resources, which could lead to more resource nationalism.

 

And the injunction does not seem to be directed only against Russia—the 2nd largest producer w/ a 10% share of world production—but implicitly also against buyers/consumers of gold. 

 

Since central banks have been significant buyers of gold—which hit a record last 2022—as shown by the chart from the Economist—the intent of this prohibition could be to slow its accumulation. 

Could this signify a countermeasure against the mounting activities of the Global South to establish a rival currency against the US dollar standard?

And as the chart of @VCElements also shows, Australia, Canada & US have only an aggregate 22% share of total production, which means the Global South/emerging markets control the rest. 

The escalation of sanctions could lead to more supply constraints, which scarcity could fuel higher prices as intensifying uncertainties could increase demand for gold. 

What Surprise is in Store for the 2023 Year of the Water Rabbit?

The problem is not people being uneducated. The problem is that people are educated just enough to believe what they have been taught, and not educated enough to question anything from what they have been taught—Prof. Feynman (Twitter) 

 

In this issue 

What Surprise is in Store for the 2023 Year of the Water Rabbit?  

I. Recalling the Year of the Tiger and the Outbreak of the Russia-Ukraine War 

II. Year of the Rabbit: A Return to Global Peace in 2023? Or Will Geopolitical Strife Escalate? 

III. Year of the Rabbit: A History of Mixed Global Financial and Economic Climate  

IV. Which Force will Dominate China’s Economic Landscape: Reopening and the Housing Rescue Package or the Deflating Housing Bubble? 

V. Will the Bank of Japan Overpower Market Forces or Will its Policies Backfire? 

VI. Skating on Thin Ice: Inversions in Treasury Spreads of Advance Economies Herald a Global Recession? 

VII. Has the Year of the Rabbit Been Favorable to The Philippines? 

 

What Surprise is in Store for the 2023 Year of the Water Rabbit?  

 

Chinese astrology believes that Rabbit year will bring about peace, rationality, and luck. We hope so. But history and current developments oppose such projections. Will the Rabbit prevail? 

I. Recalling the Year of the Tiger and the Outbreak of the Russia-Ukraine War 

 

Remember this?  The following excerpt emanates from our post about a week before the Chinese New Year in 2022. 

 

Aside from the eroding concerns over the pandemic, potential geopolitical flashpoints for a hot war may occur.  

 

For instance, the US-Russian impasse over Ukraine (Russia’s vehement objection over the slippery slope of NATO’s expansion into her borders), China’s flexing of its military muscles over Taiwan (Figure 2, topmost pane) while simultaneously asserting its sphere of influence at the disputed territories of the South China Sea and the Senkaku Islands. There are also ongoing border disputes between China and India at the Himalayan Aksai Chin and the south of the McMahon Line and between India and Pakistan over Kashmir.  

 

So yes, if diplomacy fails, the higher the risks that standoffs morph into a hot war.  

 

The Year of Tiger has been no stranger to such events, historically.  

 

… 

 

Finally, with deteriorating economic growth, will governments shift the blame to other nations by escalating the geopolitical divide to preserve their hold on power? 

 

Specifically, will the Communist Party of China advance its claim on territorial disputes or on Taiwan to save its skin? Will US Democrats push for a showdown with Russia over Ukraine to cover their plummeting approval ratings? 

 

If so, will the 2022 Year of Tiger usher in Fat-Tailed risks? (Prudent Investor, 2022) 

 

On February 24, 2022, or three weeks after our note, the Russian government launched a massive military campaign, which it called the Special Military Operation (SMO), against the NATO-supported Ukraine government.   

 

People-driven events don't occur in a vacuum.  Most are products of long-drawn political-economic processes.   In the case of the Russo-Ukraine conflict, it represents a "hegemonic war" or a struggle over the dominance of the international distribution of power.  

 

In our humble opinion, the conflict wasn't incited by the year of the tiger but instead coincided with it. 

 

So, will the year of the rabbit bring forth peace? 

 

Nota Bene: This author is agnostic on Feng-shui or zodiac signs. But the insights from these may not be from the zodiac signs but the cyclical episodes embedded in the evolution of the (international and domestic) political economy.  

 

II. Year of the Rabbit: A Return to Global Peace in 2023? Or Will Geopolitical Strife Escalate? 

 

But what does the Year of the Water Rabbit really mean for us? According to Chinese Astrology, the Rabbit represents peaceful and patient energy. The Rabbit is a gentle creature known for thinking things through before acting. This energy will encourage us to approach challenges and opportunities calmly and rationally.  

 

In addition to the Rabbit’s peaceful energy, the Water element brings intuition and inner peace.  Water is all about tapping into our inner wisdom and trusting our instincts. It encourages us to be more in tune with our emotions and sensitive to those around us. (The Chinese Zodiac, 2023) 

 

Historical precedents indicate that the year of the rabbit hasn't been exactly peaceful.  

 

World War II began in its watch with the invasion of the Hitler-led German government of Poland on September 1, 1939.  Two days after, France and Germany declared war on the German government. 

 

The assassination of former US President John F. Kennedy occurred in the year of the Water Rabbit in 1963. 

 

The Year of the Rabbit also saw the outbreak of the Arab Spring protests in 2011.   Although the trigger for the unrest started with the self-immolation of a street vendor in Tunisia in December 2010, the social strife spread like wildfire throughout several Middle East nations in 2011 (Bahrain, Saudi Arabia, Egypt, Syria, Libya, Tunisia, United Arab Emirates, and Yemen).     

Figure 1 

One of the contributing factors could have been the surge in food prices. (Figure 1, topmost pane) 

 

Yet, the most peaceful development in the Year of Rabbit occurred with the closure of the Vietnam war, which climaxed with the Fall of Saigon on April 30, 1975, highlighted by the final withdrawal of US troops and the unconditional surrender of the South Vietnamese government to its communist Northern rival.  

 

Today, there are barely any signs that primary participants in the "hegemonic war" will sue for peace.   

 

The lack of interest in negotiations by opposing parties, the sustained shipment of arms, the continued provocations and counter provocations, the widening coverage of the war to include economic and trade protectionism, and the weaponization of finance (US dollar) and commodities, and intensifying political propaganda—all point to mounting risks of escalation (nuclear exchange).   

 

While trade protectionism has been on the rise, the war aggravated it. (Figure 1, middle chart) 

 

Further, with the global economy skating on thin ice, wars serve as a convenient scapegoat to extend or expand the political tenures of the leaders.   

 

Even worse, with expanding vested interests of the politically influential "triumvirate" sectors, perhaps the backbone of the deep state—the military-industrial complex, oil and energy, and finance industries—benefiting immensely from the "proxy" conflict, amicable settlement becomes less of an option for their political leaders. 

 

The surprising path that may end the war this year is when one party succeeds in subjugating the other.   

 

But from our understanding, one of the protagonists has been engaged in a grinding "war of attrition." 

 

Perhaps, this excerpt from a CNN op-ed represents the zeitgeist of the present state of geopolitics.  

 

It’s an arms race bigger than anything Asia has ever seen – three major nuclear powers and one fast-developing one, the world’s three biggest economies and decades-old alliances all vying for an edge in some of the world’s most contested land and sea areas. 

 

In one corner are the United States and its allies Japan and South Korea. In another corner, China and its partner Russia. And in a third, North Korea. 

 

With each wanting to be one step ahead of the others, all are caught in a vicious circle that is spinning out of control. After all, one man’s deterrence is another man’s escalation. (CNN, 2023) 

 

So, the roadmap to a truce is as elusive as the warring factions' demonstrated preference (choice of actions).   

 

Will the essence of the rabbit change their priorities? How? 

 

III. Year of the Rabbit: A History of Mixed Global Financial and Economic Climate  

 

Let us move on to the economic and financial world. 

 

The Year of the Rabbit showed some silver lining in this space.   

 

In the economy, the Year of the Rabbit coincided with the end of the Great Depression in 1939.  It also saw the terminal phase of the 1973-1975 US recession.  

 

But in finance, the Year of the Rabbit hosted the biggest stock market crash (in %) in the US: Black Monday, October 19, 1987. 

 

The embedded risks vented via economic and financial volatilities have hardly subsided from last year.   

 

Although the world appears to be banking on a goldilocks outcome—the tempering of inflation amidst a mild economic downturn—decades of malinvestments, outsized debt growth, "higher for longer" inflation and interest rates, hissing asset bubbles, public spending increasingly diverted into the defense industry, the accelerated developments of geopolitical, economic, and financial "fragmentation" (diminished cooperation and collaboration) instead magnify the risk profiles of the world.  (Defense industry spending, Figure 1, lowest window) 

 

And once again, geopolitical evolution will have a significant role in shaping the global economic, financial and monetary landscape.  Credit Suisse Zoltan Pozsar gives us a clue. 

 

If we are drifting from a unipolar world to this multipolar one, and if the G20 fractures into the camps of the G7 plus Australia, Brics+ and the non-aligned, it’s impossible that these rifts will not affect the international monetary system. Growing macroeconomic imbalances in the US further add to these risks. 

 

 The dollar-based monetary order is already being challenged in multiple ways, but two in particular stand out: the spread of de-dollarisation efforts and central bank digital currencies (CBDCs). (Pozsar, 2023) 

 

(Even) Assuming that only a part of this scenario comes true, will the ensuing feedback loops or the transitional phase be smooth, disorderly, or a mixture of both?  

 

Or, to what extent will these developments impact the Year of the Rabbit?  

 

IV. Which Force will Dominate China’s Economic Landscape: Reopening and the Housing Rescue Package or the Deflating Housing Bubble? 

 

In the meantime, let us scan the international risk climate. 

 

China's deflating property bubbles remain a critical concern. 

 

Public unrest compelled authorities to abandon its rigid Zero-Covid policies abruptly.   But that could have signified the surface only.   

Figure 2 

The communist leadership, perhaps, realized that constricted mobility could worsen its dire real estate conditions that could trigger a financial crisis.  

 

The heavily levered property sector accounted for about 45% of household net worth (2019 estimates) and could represent the largest asset class in the world. (Figure 2, topmost chart) 

 

So, the Chinese authorities have not only "reopened," they launched a massive rescue package for the industry.   

 

The property sector has languished in 2022, as exhibited by the negative growth of the average home price index. (Figure 2, middle pane) 

 

Likewise, authorities reported that their GDP grew by 2.9% in 2022, the lowest in 46 years. 

 

A slump in economic growth diminishes the ability of households and firms to support mortgages and acquire new property.  

 

So, last week, its central bank, the PBoC, flooded the banking system with unprecedented liquidity.  (Figure 2, lowest chart)  

 

And though this may perk up activities in the interim, its benefits will likely fade out.  And thus, the need for repeat injections will arise.  Yet, authorities appear to be buying for time. 

  

The thing is, how will the reopening and liquidity infusions impact the global marketplace and the economy in 2023?  Will China "export" inflation? Or will the unfolding housing bust dominate? 

 

V. Will the Bank of Japan Overpower Market Forces or Will its Policies Backfire? 

 Figure 3 

And then, the attempt by the Japanese government through its central bank, the Bank of Japan (BoJ), to sustain its easy money regime via Yield Curve Control (YCC).   

 

Its ramifications include the sharp weakening of the yen, draining the Japanese Government Bond (JGB) market of liquidity (as the BoJ monetized a record amount of public debt to inflate its assets), the combusting of inflation (December inflation reached a 41-year high!), and the market forcing the BoJ to raise its cap on the curve. (Figure 3) 

 

Despite this, the yen recently has tagged along with its peers to stage a substantial rally against the USD. 

 

So, will the BoJ succeed in its derring-do campaign to trample market forces and maintain its easy money regime?  Or will risks via unforeseen consequences emerge in the Year of the Rabbit, which could ripple into the world?  

 

Something has got to give. 

 

VI. Skating on Thin Ice: Inversions in Treasury Spreads of Advance Economies Herald a Global Recession? 

 

The economies of other developed countries (the US and Europe) have been struggling too. 

 

And inverting bond markets have been signaling the likelihood of a recession. 

Figure 4 

Lately, the inversion has covered 90% of the US yield curve (higher short-term yields relative to the long-term), while the spread of the 2-and 10-year German bund has also turned negative.  (Figure 4, topmost and second to the highest window) 

 

And as central banks sop liquidity off the marketplace through higher rates, housing prices fell in response.  The marginal decline in the ECB's assets have also prompted a plunge in Germany's housing prices.  And the global housing bubble appears to have been pricked. (Figure 4, second to the lowest and lowest charts) 

 

The IMF also predicts that a third of the world will fall into recession this year, which means many emerging markets will be affected.   

 

If so, how will their central banks and political leadership respond?  Will they be immersed in foolhardy policies such as bold fiscal stimulus financed by the printing press of their central banks? 

 

The point of these is that risks have been mounting from multiple fronts. 

 

Will the Water Rabbit be lucky enough to defer or alter the possible outcomes? 

 

VII. Has the Year of the Rabbit Been Favorable to The Philippines? 

 

Has the Year of the Rabbit been favorable to the Philippines? 

 

As for political events, 1987, 1999, and 2011 signified post-presidential elections years.  

 

But on August 28, 1987, the Reform the Armed Forces Movement (RAM) launched a deadly but unsuccessful coup attempt against the newly seated Aquino Government that resulted in 53 deaths and more than 200 wounded.  

 

Other than the botched coup attempt, the political events of these years were not as compelling to be of note.   

 

How about the domestic economy and financial markets? 

Figure 5 

 

Inflation signified the defining characteristic of the Rabbit year.   

 

The contrasting eras (inflation and deflation) underlying the year didn't matter.  The highest CPI of 7.6% occurred in 1963, which like today, represents the year of the Water Rabbit. (Figure 5, topmost window) 

 

The average CPI of the last five Rabbit years was 5.5%. 

 

Another hallmark of the year was the unanimity of positive returns of the USD Php.  (Figure 5, second to the highest chart) 

 

But the 2011 gain of .1% was almost negligible and seemingly representative of declining returns.  The high inflation rates have likely been the primary driver of the positive returns in the USD Php.  

 

As an aside, the USD Php data was based on the BSP's end-of-period calculation. 

 

Another key feature of the five Rabbit years appears to be the diminishing returns of the GDP. (Figure 5, second to the lowest chart) 

 

The high rates of the headline GDP of the earlier years had mainly been due to the Nominal GDP—powered by high rates of the CPI.   

 

The average GDP of the last five Rabbit years was 4.82%. 

 

Finally, another vital aspect of the Year of the Rabbit has been extensive volatility in stock market returns. (Figure 5, lowest window) 

 

On the positive side, 1963's 138.4% equity headline returns ranked the fourth highest, while 1987's 91.4% was the sixth highest since 1959. 

 

On the other hand, the PSEi 30 (previously the Phisix) suffered a 29.3% deficit in 1975. 

 

Since 1987, the rate of return of the headline bellwether reflected the overall long-term dynamic of diminishing returns.  The PSEi 30 posted returns of 8.9% and 4.1% in 1999 and 2011, respectively.  

 

Nonetheless, the average return of the five Rabbit years was 42.8%. 

 

Will the elements of high inflation, positive but diminishing returns of the USD-Php and GDP, as well as the extensive volatility of the stock market, be carried over to the Rabbit year of 2023? 

___ 

References 

 

Prudent Investor Newsletter, What Surprise is in Store for the 2022 Year of the Water Tiger? January 23, 2022 

 

The Chinese Zodiac, The Year of the Rabbit, 2023, thechinesezodiac.org 

 

Lendon, Brad Why Asia’s arms race risks spinning out of control, January 15, 2023, CNN.com 

 

Poszar, Zoltan Great power conflict puts the dollar’s exorbitant privilege under threat Financial Times, January 20,2023