Wednesday, July 25, 2012


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. 

Sunday, July 22, 2012

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.

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

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.
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...
1. cheap money;
2. affordable labor; and
3. cheap energy.)
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.
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 clich├ęs 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.
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.