MARKETS WILL SWING INTO DESPAIR----By Shan Saeed
I see a lot of volatility in the global financial markets till 2015. Markets are swinging into all directions these days, not from hopeful to guarded but rather, from panic to despair, as positive news is hitting the wire with less and less frequency. Corporate profits will hit rock bottom and massive umemployment is on the way. There will be more volatility and downside risk to the market creating massive selling pressure. USA is set to hit recession by Q-1 2013 with high unemployment rates and softening retail sales and confidence numbers indicate the world's largest economy is facing something more sinister than a soft patch. UK is already in recession while Europe is a sinking ship with no life. The European debt crisis is getting worse, as borrowing costs soar in Spanish bond markets on fears the country will need a bailout. China's once red-hot growth rates are cooling but it will rebound with GDP expected to touch 8.7% in H2 going forward. With such uncertainty building, expect volatile market swings fueled by fear-based trades to continue. The market sits somewhere between panic and despair. People are worried, market policy makers have thrown everything people can expect but still the slow down continues. Europe, meanwhile, must pay down massive debt burdens, which won't happen overnight. Europe's economy will go in deep recession for the next 3 years.
A giddy mix of slow developed world growth and a meaningful cyclical slowdown in the emerging markets makes growth in the second half and therefore earnings vulnerable. The most visible sign of stress is the European crisis and this rumbles on. Talk that Greece may default on its debts and exit the euro-zone has gone on for some time now, with many hoping for policymakers to design an orderly exit for the country while keeping the larger Spain and Italy in. That might no longer be possible but will happen soon as countries will find the exit door from the euro zone. Yields on the 10-year Spanish bonds have soared beyond 7.60 percent, well above a 7 percent level branded as out of hand by the markets and suggesting the country needs a massive financial lifeline.
Euro-zone nations have created a financial firewall, known as the European Stability Mechanism, to prop up struggling economies, though a court in Germany is mulling a case to decide if bailing out other nations violates national law. That court isn't expected to decide anytime soon, which hampers policy makers' room to act. As a result, a messy Greek exit from the Eurozone is becoming increasingly likely, which could prompt the larger Spain to default and ditch the currency as well. Although it is frequently argued that a Greek exit is now manageable, no one knows what the consequences of such a development would be, especially now that Spain looks more likely than ever to have to apply for a full program and Europe's weak firewalls seem likely to be tested.
Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK.
Wednesday, July 25, 2012
Sunday, July 22, 2012
AND THE WINNER IS?
By Shan Saeed
Canada is
the winner. Canadians are richer than Americans. A study released last
week illustrates the average Canadian household is worth $363,202, while the
average American household’s net worth was $319,970. That means each Canadian
household is $43,000 richer than Americans.
Let's start
with Paul Martin, Canada's Finance Minister from 1993-2002 and Prime Minister
from 2003-2006. Martin
represented Canada's Liberal Party. But don't let that name fool you. During
his tenure in public service, Martin was credited with reducing a debt level
that reached 70% of Canada's GDP down to 50%. He successfully delivered a
balanced budget in 1998, managed a Canadian pension crisis, and reduced taxes
to spur growth. But most importantly, Paul Martin forced Canadian banks to keep
relatively high loan loss reserves. And thus prevented them from going on the
merger spree that would create over-leveraged, too-big-to-fail behemoths.
Anatomy of a Winner
Now, Canada didn't escape the
financial/housing crisis — but its real estate market has recovered more
quickly than Uncle Sam's. The average Canadian home is worth $140,000 more than
the average American home. Canada still has an unemployment rate at 7%, but
that's far better than the 8.2% we have here in the U.S.
Of course, Canada has vast natural resources
that help it sustain its economy. It has the third largest oil field in the
world, with as much as 170 billion barrels of recoverable oil in the Alberta
oil sands. It also has timber, fishing, and gold and copper mining. But these
industries make up only around 5%-6% of GDP. And Canadian GDP has risen from
$1.3 trillion to $1.7 trillion in the last three years. There's no doubt about
it: Canada is further down the road to economic recovery.. And the best thing
Americans can do to improve their own household wealth is to invest in strong
stable economies like Canada's.
How to Improve Your Household Wealth
I expect most investors would be surprised to
hear it, but Real Estate Investment Trusts (or REITs) have been among the
strongest stocks so far this year. It's an impressive turnaround for a sector
that was absolutely crushed by the financial crisis...But the combination of
large dividends and upside potential makes these stocks very attractive —
especially in the current low-growth environment.
In fact, Canadian REITs are at a five-year
high as office vacancies have dropped to just 8.2%. Even better, office
property values are expected to rise between 10% and 20% in Canada this year. I've
recommended Canadian REIT to my valued investors. It pays a 5.6% dividend
and its revenues are rock solid as it has long-term leases with some of the
world's biggest retailers.
Tuesday, July 17, 2012
What could
be the best scenario for BEN—FED Chairman ? By Shan Saeed
Ben Bernanke is doing his best to ward off recession for the
US economy. Lets give credit to the gentleman who is sitting on the Hot seat
and trying to revive the economy. The current financial crisis may spark a new
depression, so severe that I don’t think our civilization could survive it. Governments
in developed countries should borrow “massive” amounts of money at the low
interest rates currently and invest in new technologies so that trade comes
back into balance and economy takes momentum. In order to understand this
crisis, it’s necessary to understand the role that credit has played in
bringing it about.
When you broke the link between money and gold, this removed
all constraints on credit creation. This explosion of credit created the world
we live in, but it now seems that credit cannot expand any further because the
private sector is incapable of repaying the debt it has already, and if credit
begins to contract, there’s a very real danger that it will collapse into a new
Great Depression. Policymakers believe that if they allow credit to contract,
there will be a new depression. So they are going to do whatever it
takes to keep credit expanding. And that means more quantitative easing (QE),
and when the Fed does QE3, everyone knows that stock prices are going to go
higher and people would start to believe to spend more.
If this credit bubble pops, the depression could be so severe that I don’t think our civilization could survive it. To prevent the credit bubble from bursting, I suggest that governments borrow money to invest in new technologies, such as energy market like shale and natural gas, renewable energy, Biotech revolution like Stem cells, Tissue culture, IVF, RFID and other genetic advanced engineering technology.
Even if this is wasted, at least the world could enjoy this civilization for another ten years before it touches the abyss of the financial system. The recent stimuli from central banks seem to be just prolonging the inevitable depression. It could keep deferring the depression, but that could just encourage the bad guys. If you do this, you possibly do more harm than good. When you throw money into the system at a rate much in excess of the requirements of the real economy, you’re trying to get people to borrow and spend, but the good guys out there won’t because they’re too cautious. It’s the bad guys who come in, the malefactors. Once the central banks realize what is happening and increase interest rates, the world economy gets thrown into a depression.
If this credit bubble pops, the depression could be so severe that I don’t think our civilization could survive it. To prevent the credit bubble from bursting, I suggest that governments borrow money to invest in new technologies, such as energy market like shale and natural gas, renewable energy, Biotech revolution like Stem cells, Tissue culture, IVF, RFID and other genetic advanced engineering technology.
Even if this is wasted, at least the world could enjoy this civilization for another ten years before it touches the abyss of the financial system. The recent stimuli from central banks seem to be just prolonging the inevitable depression. It could keep deferring the depression, but that could just encourage the bad guys. If you do this, you possibly do more harm than good. When you throw money into the system at a rate much in excess of the requirements of the real economy, you’re trying to get people to borrow and spend, but the good guys out there won’t because they’re too cautious. It’s the bad guys who come in, the malefactors. Once the central banks realize what is happening and increase interest rates, the world economy gets thrown into a depression.
Tuesday, July 10, 2012
Gold to skyrocket---But Why? Few good reasons.
By Shan Saeed
According
to Michael Pento:
“Spanish
and Italian bond yields have now risen back up to the level they were before
last week’s EU Summit. We also learned last Friday that U.S. job growth
remains anemic, producing just 80k net new jobs in June. The global
manufacturing index dropped to 48.9, for the first time since 2009. And
emerging market economies have seen their growth rates tumble, as the European
economy sinks further into recession”
It isn't much of a surprise
to learn that central banks in China, Britain, Europe and America have
indicated that more money printing is just around the corner. In fact, we
have recently witnessed the People's Bank of China cut their one-year lending
rate by 31 bps to 6 percent. The European Central Bank cut rates 25 bps,
to .75 percent and dropped their deposit rate to zero percent. And the Bank of England restarted
their bond purchase program just two months after ending the previous program,
which indicates the central bank will buy another 50 billion pounds of
government debt....
Last week’s Non-farm payroll
report in the U.S. virtually guarantees the Fed will take action to compel
commercial banks into expanding loan output within the next few months.
It would be unrealistic to believe Ben Bernanke would watch U.S. inflation
rates fall, the major averages significantly decline, employment growth
stagnate; and do nothing to increase the money supply--especially while his
foreign counterparts are aggressively easing monetary policy and trying to
lower the value of their currencies.
As I predicted, as far back as June of 2010, the Fed will soon
follow the strategy of ceasing to pay interest on excess reserves. Since
October 2008, the Fed has been paying interest (25 bps) on commercial bank
deposits held with the central bank. But because of Bernanke's fears of
deflation, he will eventually opt to do whatever it takes to get the money
supply to increase.
With rates already at zero percent and the Fed's balance sheet
already at an unprecedented and intractable level, the next logical step in
Bernanke’s mind is to remove the impetus on the part of banks to keep their
excess reserves laying fallow at the Fed. Heck, he may even charge interest
on these deposits in order to guarantee that banks will find a way to get that
money out the door. The move
would be much more politically tenable than to increase the Fed’s balance sheet
yet further, most likely because people don’t understand the inflationary
impact it would have. Ceasing to pay interest on excess reserves would
allow the Fed to lower the value of the dollar and vastly increase the amount
of loan creation, without the Fed having to create one new dollar.
If commercial banks stop getting paid to keep on their dormant
money at the Fed, they will surely find somebody to make a loan to. They
may even start shoving loans out through the drive-up window with a
lollipop. Banks need to make money on their deposits (liabilities).
If banks no longer get paid by the Fed, they will be forced to
take a chance on loans to consumers, at the exact time when they should be
getting rid of their existing debt. But it has already been made very
clear to them that the government stands ready to bail out banks. So in
reality, they don’t have to worry very much at all about once again making
loans to people that can’t pay them back.
Commercial banks currently hold $2.17 trillion worth of excess
reserves with the central bank. If that money were to be suddenly
released, it could, through the fractional reserve system, have the potential
to increase the money supply north of $15 trillion! As silly as that
sounds, I still hear prominent economists calling for just
such action. If they get their wish, watch for the gold market to explode
higher in price as the dollar sinks into the abyss. Bet on Gold
Thursday, July 5, 2012
US IS ENERGY INDEPENDENT: WHAT IS NEXT?
By Shan Saeed
BREAKING NEWS IN THE GLOBAL OIL MARKET
Oil
is getting very important for some people. Last month, I headed to New York to
speak at the networking event on Oil & Gas forum at Grand Hyatt Hotel. These
days, oil in the ground is like money in the bank. I’ve probably spoken at many
events during my career, and I have never received one question so frequently
at a single event/ conference...
“Is Peak Oil dead?” Peak Oil is as much an economic event as it is a geologic one...
I
can understand why this question has entered the mind of the market. Oil
supplies re declining globally. I see average oil prices over $107/barrel in
the next 15–months. When asked if Saudi
Arabia can increase oil production above 10 million barrels per day and sustain
that level of production, I said:
Few
people know this fact that I am sharing now. The more relevant question is that
there are a lot of other Saudi Arabias out there. America is becoming more
energy independent. Spare capacity will eventually come from the U.S. News for
all people sitting in the event.
APACHE DISCOVERY OF SHALE GAS:I am bullish on
Shale Gas
It seems every week
there comes news of a massive new discovery of shale oil and shale gas. Recently announced that Apache discovered a shale gas field in British Columbia bigger
than the Marcellus — making it the largest in North America. According to
Apache, the discovery is estimated to contain enough gas in itself to justify doubling the size of the Kitimat
terminal it's proposing with partners Encana and EOG Resources. The company is
calling it the best and highest-quality shale gas reservoir in North America,
based on the volume of gas three test wells are producing.
The
second largest U.S. independent oil and natural gas producer by market value,
Apache said the tests suggest it has 48 trillion cubic feet of marketable gas
within its Liard Basin properties. The discovery in British Columbia dovetails
on news that Russia has discovered a shale oil play it claims is 80 times
bigger than the Bakken. Now that’s a very bold statement for some people. s
North
Dakota has gone from just 60,000 barrels per day in 2007 to close to 600,000
barrels per day right now. And of those 600,000 barrels, 210,000 have come
online just in the past year. According to the current estimates, current estimates point to the Bakken producing more than 1
million bpd by the end of the decade — a level that could be maintained
for halfway through the century.
Throw
in the Eagle Ford, and oil production just
from these two tight oil plays could be between three and four million barrels
per day by 2020. If the same success can be duplicated in Russia, the world
will undergo an oil and gas renaissance the likes of which haven’t been seen
since the 1950s and 60s, when cheap oil ushered in a wave of global
prosperity...
3 MOST POWERFUL STIMULANTS FOR THE ECONOMY.
1.
cheap money;
2.
affordable labor; and
3.
cheap energy.)
RUSSIA IS THE LARGEST OIL PRODUCER
Russia's
“Bakken” is called Bazhenov. It's an enormous formation spanning over 570
million acres in the frigid environment of Western Siberia. To put that into
perspective, that's the size of Texas and the Gulf of Mexico combined. But while all this is
going on, the price of oil has remained high. Remember, Peak Oil is as
much an economic event as it is a geologic one...
Peak
Oil doesn’t mean we are running out of oil. It means we’re running out of
cheap, easy-to-get oil. It will simply cost more money and resources to get
less. To wit, the average Bakken well costs $7 million to drill and averages
150 barrels a day, whereas a single gusher from the Gulf of Mexico can produce
250,000 barrels of oil per day.
HARD FACTS TO KNOW ABOUT OIL MARKET
I
told the networking attendees to watch the price of oil, or “the wisdom of
price.” This illustrates you everything you need to know...
Since
the market bottom in March of 2009, oil has reentered its uptrend. Since March
2009, oil has been above $50 a barrel for 39 straight months.
It’s
been above $60 for 36 straight months.
It’s
been above $70 a barrel for 25 straight months.
It
reached a high of $115 a barrel in May of last year... and a high of $110 in
March of this year.
Ten
years ago, oil sustaining these prices this long would have been unthinkable. It
would’ve been a crisis. But every crisis contains the blueprint for
its own solution...And right now we’re witnessing the solution, as human
innovation responds to price and the profit motive. The original bull on
America. Happy investing in the oil market.
Disclaimer: This is just a research piece and not an
investment advice. All financial transactions carry a RISK.
Monday, July 2, 2012
1.
US credit downgrade is
heading soon
By Shan Saeed
Last
August 2nd 2011, Standard & Poor’s downgraded the U.S.
government from its triple-A rating, sparking a plunge in stocks.. By the way, rating agencies have been behind the curve most of the time. All big banks /governments are the major clients of S&P, Moody's & Fitch. They don't want to make their clients [ big banks/governments ] to get angry with them. Otherwise, most of the employees of these ratings agencies would be on the road carrying their CVs for the jobs elsewhere. Ratings agencies are the puppets of big banks and governments. They get their reports vetted by their clients before sharing with media. All wordings of the reports [ of rating agencies ] are approved by the banks and governments.
I see a lot of uncertainty
till 2014 in the global financial markets. When I shared this thing in 2009
that I see lot of chaos , uncertainty and blood in the global market, people thought
I was talking about clichés and jokes from the books. Time has proved that I am
on the right side of the table.
One thing is pretty likely eventually, because there’s plenty of [government] borrowing continuing and not much plan about how to pay it back. QE, government borrowing and continued division among congressmen about tax benefits roll over will make things difficult for USA. But one of my friends said, USA can continue to print the money even to the amount of USD 100 trillion and the value worth less than 5 cents. With this quantum of cash, many policy makers will find ways for them to find a solution to survive.
That’s the normal course of business in terms of governments all over the world. Some are a little faster than others, such as Greece, Spain, and Italy, but USA is in the same pack. Obama government spends money it doesn’t have. I call printing money as fantasy money with no legs. U.S. government debt is equal to $15.77 trillion, slightly higher than GDP size of $15.32 trillion. The outcome will be higher interest rates and low standard of living and decreasing in purchasing power of average merican.
After 31 years the bond market may be ending a long-term uptrend and getting ready to turn down. While some economists worry about the possibility of higher deflation, I rule out the possibility of Japanese style of deflation. Deflation is the source of many of the economic problems and low consumer confidence. It’s why the stock market is finally caving in. And deflation will ultimately mean higher interest rates on the bad debt, just like in Europe.
One thing is pretty likely eventually, because there’s plenty of [government] borrowing continuing and not much plan about how to pay it back. QE, government borrowing and continued division among congressmen about tax benefits roll over will make things difficult for USA. But one of my friends said, USA can continue to print the money even to the amount of USD 100 trillion and the value worth less than 5 cents. With this quantum of cash, many policy makers will find ways for them to find a solution to survive.
That’s the normal course of business in terms of governments all over the world. Some are a little faster than others, such as Greece, Spain, and Italy, but USA is in the same pack. Obama government spends money it doesn’t have. I call printing money as fantasy money with no legs. U.S. government debt is equal to $15.77 trillion, slightly higher than GDP size of $15.32 trillion. The outcome will be higher interest rates and low standard of living and decreasing in purchasing power of average merican.
After 31 years the bond market may be ending a long-term uptrend and getting ready to turn down. While some economists worry about the possibility of higher deflation, I rule out the possibility of Japanese style of deflation. Deflation is the source of many of the economic problems and low consumer confidence. It’s why the stock market is finally caving in. And deflation will ultimately mean higher interest rates on the bad debt, just like in Europe.
In
a recent survey conducted by the Blue Chip Economic Indicators found that 93
percent of top Wall Street strategists and economists aren’t factoring a plunge
over the fiscal cliff into next year’s economic forecasts.
Disclaimer: this is just a
research piece and not an investment advice. All financial transactions carry a
RISK.
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