Happy New Year

Starts with falling oil prices.Then the optimism in China. Great recovery in USA.Stronger dollar.  Japan cannot get any worse. Europe can but that is factored in. Some persuasion by the Indian PM at the bankers meet day after expected.  Reserve Bank may be bypassed. Good for make in India. Russian worries are already discounted.
It looks a day of buyers.

Thoughts without risk or responsibility!

The insignificance of being GCC markets ...

Crude oil prices further by a dollar as glut anxieties stalked the market. As Brent settles below $ 58 a barrel, the Saudi budget estimating price at $ 60 looked distant. The fall in prices could impact GCC stock markets as money circulation would slow down even as oil revenues drop off.

Dubai property market may also see pressures as investors sell off in anticipation of a falling market. Asset market falls are contagious. Dubai may have  been a destination for Asian and African and possibly Russian flight of capital. With Russia in agony, and oil markets  writing in pain, investors would be hesitant to move in. Dubai , after all is dependent on the munificence of Abu Dhabi and given that oil is heading south, Abu Dhabi may be reluctant to release Dirhams...


The views of the author are his personal views. Author recommends no investment and  is not responsible for any  suggestions made here which are purely academic. thoughts. 

The Financial Stability Report of the RBI ... Some Extracts...

"However, contagion analysis with top five most connected banks reveals that the banking system could potentially lose significant portion of its total Tier-I capital under the joint solvency-liquidity condition in the event of a particular bank triggering a contagion."

"Another aspect that impinges upon the banks’ asset quality is corporate leverage and its impact on banks’ balance sheets, particularly ‘double leveraging’ through holding company structures and the pledging of shares by promoters."

"The gross non-performing advances (GNPAs) of SCBs as a percentage of the total gross advances increased to 4.5 per cent in September 2014 from 4.1 per cent in March 2014. The net non-performing advances (NNPAs) as a percentage of total net advances also increased to 2.5 per cent in September 2014 from 2.2 per cent in March 2014. Stressed advances increased to 10.7 per cent of the total advances from 10.0 per cent between March and September 2014. PSBs continued to record the highest level of stressed advances at 12.9 per cent of their total advances in September 2014 followed by private sector banks at 4.4 per cent. "

"Real Estate Share in Total advances is 17.4 % "...

Year End Winner? Dollar?

As investors wait for 2015, and as commodities have declined, it is comeback time for the greenback. The rumblings in Greece and the drip in oil prices as also overall commodity declines all seem to have pushed up the dollar backed by what is perceived as an inherently strong economy.
The wealthy would wait for clear signals of 2015 before the brisk buying starts. The euro has long to absorb Europe's weaknesses. The markets are thin and in a holiday mood. 

Indians at their blame game...

A Central bank that believes it only knows...
A Finance Minister bogged down by his several administrators;
A Leader whom they do not permit to lead;
A bunch of opposition MPs who are stall reforms...
A whole lot of helpless unemployed youth...
An indifferent bureaucracy best at sloth...
A selfish group of politicians riddled with sectarian thoughts;
A stock market un-driven by fundamentals and driven by sentiments of a few...
A rich few who flaunt wealth, indifferent to the many poor;
Arrogance of power, arrogance of knowledge and arrogance of wealth!!!
The Wonder That Is India....

Saudi Budget: Bold, Bluff or Bluster

Saudi Arabians are likely, it is reported, to keep  oil price at $ 80 a barrel for purposes of its 2015 budgeting.  That looks rather a tall order at the given prices today. Hope grows eternally in every human breast. So while the Saudi Arabians have a right to hope, there is little data for such optimism. 

In fact, Japan prices seem declining and industrial production stalling again. This is despite the  Dubai Crude Oil - which is benchmark for Asia oil supplies, having  lost nearly half its value. Japan's Kuroda has still had to talk prices up. So there is no sign as yet of a recovery.

 

With unemployment at about 30 %, Saudi Arabians really have every reason to hope for  a rise. Their talk down strategy having taken them nowhere, Saudi Arabians are now hoping to move up the prices through indications. Domestic pressures (post Feb 2011 Arab Spring) are just too many for comfort.

According to the IMF, between 2006 and 2012, about 5.1 million jobs were created in the GCC (excluding the United Arab Emirates, for which data are unavailable). About 4.3 million of these jobs were in the private sector, while only 0.8 million jobs were in the public sector. Of the 4.3 million private-sector jobs created, nearly 88 percent were filled by foreign workers. In the public sector, nearly 85 percent of the 0.8 million new jobs were filled by nationals. The jobs created in the public sector are largely non productive or disguised unemployment  as there are jobs in sectors like police and defence just for the sake of employment. So the real beneficiaries of employment are expatriate labour. Given that local labour are relatively less efficient,  private sector prefers imported labour. That will become expensive as oil revenues fall. The worst hit would be Bahrain and Oman. Dubai would have to scale down growth projections.

GCC looks set for trying times.

 

Saudi Arabia will not curtail...

Saudi Arabia  sends yet another stern warning to suppliers that it would not curtail production:
(http://money.cnn.com/2014/12/22/news/economy/saudi-arabia-oil-production/index.html?sr=twmoney122314saudi1230story)

This bit of news is in In keeping with expectations, and oil prices should fall further, hurting wounded  Russia, Venezuela and Iran...

Good news for growth elsewhere. Depressing for GCC stock markets, real estate and expatriates and nationals; and for all oil producers...

In an oligopoly, if one cuts prices, others have to or they will lose market share. This is Baumol's Kinked Demand Curve.

The final days of 2014...

Markets seem driven by positive sentiments. Last week ended on cheerful note; a good enough augury to the Monday traders from East to West. 

One may have to be circumspect with emerging currencies. Asset holders may park in the safe havens of Dollar and Yen as they wait for the new year. Gold does not seem included in the favored list of havens. 

Lessons I have learned from Chief Dealers...

1. It is an uncertain and volatile world.
2. The market is too big a place for anyone dealer to influence;
3. Dealers are to follow trends .
4. As the majority think alike a trend is shaped up.
5. So if one sells ,  others sell too.
6. The trend   formed is to be followed.
7. The trend is the dealer’s best friend.
8. Few dealers are out of the herd ( these "contrarians" cannot beat the market. Remember Soros? The market exacts)  .
9. No dealer can hope to end up with a success ratio of 100 percent of  the deals he undertakes. Seasoned dealers may  agree that a fairer  estimate may be that  a good trader makes his profits in only 60-7o percent of the deals. 
10. But the profits that he makes in the deals that are profitable to the business must be of such volumes as to cover up for the losses of the 30 percent that he lost out on. 
11. The internal tension levels then are quite high. At young ages the capacity to take on the recurrent stress streams is high, but it does take its toll in the long run.
12. Then there are the risk control guidelines and internal control limits which  a trader must expect to memorize to his advantage and forget to his peril . Back office/ third office are crucial to control trades.
13. Many dealers watch volatility as exciting opportunities to make a quick buck and  add onto bonuses. Perhaps then the temptation to bust limits is strong. The inner strength of the dealer is then at play.
14. The essence of this psyche  : watchful in parts, daring in greater measure.
15. The dealer is  ever oscillating between hope and fear - hope for the best possible rates and gains and fear for the worst possible tumult  in the marketplace . 

USA and its geo-economic strategies

The Cuban development is another master stroke for USA. Cubans should help bring down costing computations on the input side. Cubans will be a new market. Politically it is telling on the obsolescence of socialist thinking.

By opening up its oil taps USA has turned the heat on Saudi Arabia and Russia and other oil producers. Saudi Arabia has used the opportunity to flex its more to the discomfiture of Iraq and Iran. They were just about to get going when this downward trend accelerated. Nobody talks of Libyan oil!

In its backyard the garrulous Venezuela is silent.
China despite being the largest market does not inspire confidence at this juncture. As Europe wobbles under hesitant economic leadership, Japan under decades of strain, USA inspires confidence in the investors.It has too much of technology  lead and too many innovative brains.

It might be a good time for US strategy and assets.

The many faces of the manager

 A manager is a symbol of authority. From  the Mongols to the Greeks to the French and British colonialists, management reeks of power. Mao Zedong proclaimed that 'power comes through the barrel of a gun'. In the 1960s and 1970s this may have stirred discussions but since 1990s Chinese have proved that economic power as exercised by deft managerial moves is more powerful than the military might of the Red Army. The world is wary of China being the Workshop of the World. Mismanagement has consistently been the hallmark of Russia, Nigeria and Egypt, for example. 

 *

There is considerable pompousness attached to the position of a manager.  Technocrats feel impotent without a management degree. The highest salaries are earned by the Chief executives officers and not by the chief operating officers. While technical co-workers do the real work, these colleagues themselves,  in an attitude of servile acceptance, attribute larger than life features to this manager who is at best a coordinator but passes off as a maestro.

 *

In the co-worker's mind, the manager is what the co-worker wants to be himself: (a) a higher authority who is acknowledged as knowledgeable and diffuses knowledge; (b) a high performer in the sense he is able to coordinate organizational activities effectively and deliver to satisfaction;  (c) personally well disposed, amiable and approachable; (d) goes by given norms; (e) evolves consensus (the subordinate expects him to value the opinion of all and carry all along); (f) adheres to the given processes; (g) cares to socialize to a reasonable extent;(h) shows exemplary commitment by leading from the front. Derived expectations include that (i) he would be a fair and prompt allocator of reward; (ii) have a sense of action and recalibrate every given opportunity to suit the organization and the individual; (iii) he is to be goal specific; (iv) he continuously communicates about rights, expectations, and obligations.

 *

Management is about managing subordinates. Subordinates are people. People are fragile. Managers need to pack them well with adequate buffer space and label well that human resources have to be handled with care. Management and staff cohabit together in this Belgian stained  glass cage. The 'dome of many splendoured glass' may fragment to pieces if delicate care is not taken. A manager then has to appeal to the hearts and minds of his constituencies.

Lesson from USA - be inward focused

There is a good idea in USA policy. Be concentrating on the internal dynamics. Be outward focused only to the extent necessary. The susceptiblity to external fluctuations is reduced. Japan and China are affected by the outward looking dependence. Indian growth is also relatively less open. The existence of huge population helps. Over 60 percent of Indian  population is youth. So US and India look the best bets for now.

Fed will take decisions on basis of what is best for them. 

Readings on the Internet of Things...

1. The Internet of Things  and the Connected Person 
By Dr. Charlton Adams Jr

Article emphasizes the need for standards.


 http://www.wired.com/2014/12/iot-connected-person/

2. The Internet  of Things Best Kept Secret 
By Gil Pres

On Service Life Cycle Management (SLM) and the Changing Business Models.

http://www.forbes.com/sites/gilpress/2014/12/15/the-internet-of-things-best-kept-secret-2/

Need for creative destruction...

When corporates make profits they take them away. When they make losses, they expect the fiscal authorities and bankers to fund them. Why should it be so? Valueless managements seem to hold the public institutions to ransom. Airlines in India are a classic example of accumulated non performing assets. Kingfisher Airlines, SpiceJet and Air India- public or private are in the same league. The invoke the 'too big to fail' syndrome or 'employee protection' argument to let this sores fester further. Wounded entities cannot fight a battle for growth. The future generation cannot be responsible for the misdeeds of a corrupt management. Governments and regulators have to enforce business discipline. Let market competitiveness decide. Dilatory tactics at prolonging agony on the part of management must not be encouraged. 

Fed has always been inclusive

It is aware of the precarious position of the world economy. Emerging markets are already reeling. So market may have factored in ' no rate increase' from the Fed. Some relief , we hope.

Wall Street waits for some good news...

But it still has to wait...

1. Banking stocks will be under pressure as a fallout of world slippages;
2. Russian trouble will spill over to Eurozone.
3. Eurozone businesses are already cutting prices.
4. Shale producers may seek restructuring even as oil recedes;
5.USA Housing Starts and Permits were not positive.
6.Southeast Asian currencies are wobbly and will continue to threaten Asia which is the hub of growth now.
6.Indian Parliament is stuck in political wrangling so the only growth oriented BRICS country has lost an advantage in implementing reforms.
7. Geopolitical tensions will slow growth.
8. UK property prices are falling. 

Impact of Oil

Oil: Impact:

Losers/ Winners	Impact in $ billion
Russia	-282
Venezuela	-76
Saudi Arabia	-321
Iran	-62
India	91
China	270
Japan	236
USA	199
Eurozone	406
Nigeria	65

http://www.ft.com/intl/cms/s/2/3f5e4914-8490-11e4-ba4f-00144feabdc0.html?segid=0100320#axzz3M3skikIT

 Financial Times

Winners and losers of oil price plunge

Chris Giles

Indian Rupee falls as expected...

As India's trade deficit widened and as the Dollar strengthened in response to global woes, Rupee fell.  Sensex too appears under pressure. 

India's Unaccounted Wealth...

"the cumulative illicit money moving out of the country over a ten-year period from 2003 to 2012 has risen to $439.59 billion (Rs 28 lakh crore), as per the latest estimates released by the Global Financial Integrity (GFI)."

http://timesofindia.indiatimes.com/india/India-3rd-on-black-money-list-440bn-flows-out-in-10-years/articleshow/45530949.cms?utm_source=twitter.com&utm_medium=referral&utm_campaign=timesofindia

After Russia, Iran?

The way the economy crumbles.  With oil prices headed south, the world economy looks rattled and the slide in its wake seems bent on severely hurting some of the oil producers. Indonesia Rupiah has been falling heavy too; low levels since 1998; so also Malaysian Ringitt. The South East Asians will see pressures. India cannot be so oblivious of the context and the Indian Rupee could be under renewed pressure given IT companies are affected by slowing growth and volatility in stock markets. China, led that it is by export model, is also affected adversely. 

Pyrrhic Victory in oil for GCC?

As Saudi Arabia works out a strategy for a long term foothold in the market, it may well see a large chunk of its reserves down. It would disturb allies too. Countries like Oman would be raising dissident voices as they would feel the heat of slide much  more. Bahrain too would be under serious pressure. Dubai ( a city state within UAE dependent on Abu Dhabi's funding in exigencies) may not totally concur with the UAE's   official version that UAE does not care if oil slides to $ 40 . So Saudi's allies themselves may question it even though all except Oman may welcome a weaker Iran. Money matters! Less money matters more when you are used to more money...

Good news from USA  on factory output shows it is back on track despite a strong dollar. Some good news for the markets. Will Wall Street reverse the trend  of the previous week? 

Europe might follow Asia

It is quite natural  to think that Europe would follow Asia in market falls. On lines expected in these columns, the Indonesian Rupiah has slid to worrying levels. The South East Asian currencies cannot be far behind. Claims of decoupling do not seem to stand the test in a convergent world. So none can claim to be 'nternaluzed'.

Greek political uncertainty adds to the woes.  So it looks that there is nothing for the moment to lift up assets in Europe. 

Bloomsberg reports Australian budget gap widens...

http://www.bloomberg.com/news/2014-12-15/australia-s-budget-deficit-widens-to-a-40-4-billion-on-iron-ore.html (Michael Heath and Jason Scott)

Commodity price falls are impacting adversely. As revenues fall and fisc is constrained,  unemployment will rise by mid 2015 to 6.5 %. The Reserve Bank's hope of a falling currency is coming in faster. The most worrying is that it is the worst 'terms of trade since 1959'...

Mumbai Stock Exchange: Low on expectations?

Mumbai may be drifting lower today:

1. Asian stock markets are under pressure
2. Oil has been falling
3. The dollar will strengthen on geo-political tensions.
4. Near term bullish outlook for the US Dollar over the Indian Rupee on technical factors. 

A Requiem for OPEC? OIl at $ 40?

As was submitted here , oil continues to retreat in run. UAE has said that it would not care less if it falls to $ 40.
http://www.bloomberg.com/news/2014-12-14/u-a-e-says-opec-won-t-change-output-even-if-price-drops-to-40.html

That seems to be talking it down... quite effectively. The $150 billion of value loss on Gulf capital markets  since the end of October ...
Reuters: http://in.reuters.com/article/2014/12/14/us-opec-oil-badri-idINKBN0JS06F20141214.

That does not seem to have bothered not so much. 

Markets like Oman will fall faster than others as they have nowhere the reserve staying power of the Saudis.  Reserves cannot be used in the short run and capital markets are in the short run. 

Is this aimed at Iran in a joint Saudi- UAE effort? There goes the dysfunctional  cartel of OPEC then.


This brings power shift in the Middle East back  to Saudi Arabia and GCC rather than Iran .

Sell and buy oil? It seems cruising towards$ 50 for now and now that UAE has set it at $ 40!!!

The insignificance of being OPEC...

OPEC's key official, addressing a news conference  in Dubai, stated that oil price fall was not in keeping with the fundamentals.   (http://in.reuters.com/article/2014/12/14/us-opec-oil-badri-idINKBN0JS06F20141214). 

He is not powerful enough to talk up the oil price. With Saudi Arabian strategy for a supposed market share, not going anywhere; and with Chinese slow down, oil prices have nothing to shield it from further falls. The West will also be happy to see the pressures on a defiant Russia. The Saudi lead in not prescribing a cut, also appears  indirectly  aimed at Iran as the latter  country will reel under the price fall; s Saudi Arabia has quite a large quantum of national reserves as a cushion; Iran does not have much staying power. Given the desperation of the non- reserve holding oil producers, to maintain revenues,  there will be quite a glut in the market in the coming week. Imagine Nigeria, Angola, Venezuela and similar!

The Japanese election results surprise none; it had already been factored in by the markets. The unpleasant surprise is the lower than usual turnout, which ignites cynicism in some measure and dampens Abenomics. So the results are not potent enough to trigger a move up.

It looks set of short on oil.

Gcc economies and the paradox of a dollar peg

Gcc countries are seeing the oil prices fall like sad and mad. So the Government revenues are seriously constrained by falling  inward flows. Except Kuwait,  the GCC countries have their currency pegged to the US  dollar. As dollar increases in international markets, their- GCC household purchasing power goes up and real incomes go up because of appreciation.  So even as national income falls the households experience counter party values rising as their pegged currency rises on the back of dollar. They import more. This affects the trade figures. Imports are cheap and so marginal propensity to consume more. You import and consume more even as national incomes fall. The paradox of a peg. 

Oil price fall hits Oman

1. Oman has drawn up  its 2014 budget on the average price of oil of $85 per barrel and the deficit was forecast at OMR 1.8 billion. (1 OMR = $ 2. 58 )

2. The deficit is  6 per cent of its Gross Domestic product (GDP) and 15 per cent of its total revenues expected to be OMR 11.7 billion. 

3. Last year, Oman earned an average $116 per barrel from its oil production.

4. S&P lowered its long-term outlook for Oman to negative from stable. The agency currently has  Oman with a  rating of A.

5. Oman has few oil reserves. Extracting oil is a costly affair in Oman. So it may not be worthwhile to drill anymore. 

6. The Sultan Of Oman is reportedly unwell and away in Germany on medical  treatment. Absence of his direct presence will aggravate the economic impasse because for several decades they are used to his wisdom.  

The Economist explains Why the oil price is falling

Effective Reading :

http://www.economist.com/blogs/economist-explains/2014/12/economist-explains-4?fsrc=scn/tw_ec/why_the_oil_price_is_falling

Inferences from current economic situation.

In the current Scenario inferences for policy makers would seem:

a)      Markets do not relate to abnormal profits. Regulators should be proactive.

b)   If the financial sector grows at an accelerated pace than the real sector, bubbles could follow.

c)      Consumers are still absorbing the wealth effects of declines across asset classes.

d)    There are losses  in output and  jobs. Such colossal losses to output call for intellectual rethink at a coordinated level. 

e)     The paradox of policy has an implication for the Central banks like ECB  which are trying to tame inflation with its successive rate hikes.

f)     There is the Schumpeterian element of creative destruction at play. Old sources of advantage have not been replaced by new innovations in Europe.

g)   Europe suffers perhaps as there is ‘bounded rationality’ - limits on the capacity of policy makers to process information or to deal with complexity and thus pursue rational aims of integration.

h)      Contracting of Europe with all its convergence criteria, in retrospect, appears to have been incomplete. There were difficulties in measuring or signaling early warning indicators for performance of nations. In today’s market place with all the information load, there was a certain asymmetry which appears to have afflicted growth patterns.

i)   The more recent problem is simply one of technical inefficiency where advanced nations except United States have not been able to maintain ‘least cost production’ process.  This is despite falling input  costs both in fuel and human resources.  

j)    The theory of Heckscher- Ohlin that countries will export those that make intensive use of the factors of production that are locally abundant. Lower wages  in developing countries will result in non–competitiveness among advanced countries who have been used to higher wage bills. This theory also largely explains the migrant movements as industry attempts to keep wage bills by seeking out migrants. Off shoring, hollowing out companies, take all except coordination jobs abroad; it restricts tax revenues from the corporate sector  as production flies abroad. If production has to return, wage bill has to be lower and the answer would seem to be in inducing controlled migration. Populous countries like India, China and migrant economies like USA, Australia and Canada should  outperform others.USA also has research and technology on its side. Europe and Japan have to reinvent themselves.

Of monkeys and nuts.

Are we monkeys to discuss so much about the Korean Air packet of nuts?

Family owned businesses  always have a problem of potential arrogance at the top. Power corrupts the mind and percolates to the behavior pattern. Disconnect with the reality of human dimensions is latent. A lesson in management. Grooming is vital.

Oil supply exceeds demand....

http://www.washingtonpost.com/blogs/wonkblog/wp/2014/12/12/the-basic-reason-oil-keeps-getting-cheaper-and-cheaper/?Post+generic=%3Ftid%3Dsm_twitter_washingtonpost

Read : 'The basic reason oil keeps getting cheaper and cheaper'By Chris Mooney 

International Energy Agency: Oil Report bearish...

"The IEA Oil Market Report (OMR) for December cut the outlook for 2015 global oil demand growth by 230 000 barrels per day (230 kb/d) to 0.9 million barrels per day (mb/d) on lower expectations for the Former Soviet Union and other oil‐exporting countries."

http://www.iea.org/newsroomandevents/news/2014/december/iea-releases-oil-market-report-for-december.html

The Youth of the World! Its a World of words!!!

IMF  release  of South Africa:
Unemployment remains high at 25.5 percent.

Look at the solution suggested: 

"Given the risks facing the outlook and reduced policy space, (IMF) Directors called for decisive structural reforms to unblock supply-side constraints, lift growth, and rebalance the economy towards exports and investments."

Words! Well prepared draft! Specifics?

http://www.imf.org/external/np/sec/pr/2014/pr14561.htm?hootPostID=bf4b34ad9c16a25310386c70dc52c08b

It's not oil that holds Wall Street but other nations fundamentals...

Wall Street is rightly circumspect.  Attribution to energy may not be just. It has more to do with the reluctance of ECB to heed to Draghi's pleas ; with the drop in Chinese growth rate; and with the weaknesses of the Japanese. It kills the decoupling theory. Its a convergent world. USA  cannot do things by itself when recessionary winds are so strong. It calls for coordinated action both by regulators and political leadership. There appears to be an abdication of responsibility by the Europeans. And then came the producer prices data which is not quite encouraging.

Over an unsure weekend, none may like to hold a position of assets. Short sellers seem wiser. 

No Market surprises...Charge of the OPEC Brigade?

Why did it take so long for the Indonesian Rupiah to fall? The Market should have seen it coming earlier.  The market, experience and seasoned as it is, should have discounted a fall in the  Norwegian Krone too.

South East Asia might get infected by the selling bug unless things improve next week.

German bunds  Royal Dutch and BP, all European caught between a slippery oil and the reluctant ECB had to fall.

Saudi Arabians  is caught in its Charge of the OPEC Brigade... Someone has blundered...It looks like Oil will slip all over the way to $ 50  in coming week(s)...

There is nothing that surprises in this market. Real reason for G- 20 to get its act together? 

Aussie Reserve Bank Guv says Aussie must fall further...

He suggested Aussie Dollar should be around  US75¢.

read: 

http://www.afr.com/p/national/glenn_stevens_interview_the_full_FiihZ41I8IrOls4Yh6D8wK

Of Coal Cracks

With oil prices down and cheap and heading further south, coal prices and investment returns will be headed in that direction too. To add to woes, solar power too is becoming cheaper.

Adani's Galilee Basin project 'not commercially viable', predicted Michael West in September 2014 in the Sydney Morning Herald. The article seems more relevant now. 

http://www.smh.com.au/business/adanis-galilee-basin-project-not-commercially-viable-20140905-10cyc3.html

Hari Pulakkak in Economic Times (11 December 2014) says coal will be unattractive. 

http://articles.economictimes.indiatimes.com/2014-12-11/news/56955223_1_thermal-power-plants-coal-prices-grid-parity

Oil Shorts

Oil keeps on falling and falling? The price levels look shakier by the day. Below $ 60.00 Looks heading south. Next week may see a further fall. Would not be surprised at around $ 50 in coming week .Strategic reserves look good. 
Winners are the non producers, the motorists and the households whose real incomes should increase.

"Be short on oil ; be short on commodities" may be the mantra... 

Europe's woes continue

ECB loans: Borrowings by banks aggregated  129.84 billion euros ($161.71 billion) in the ECB’s second cheap -funding operation, as compared to  expectations of an offtake of around €150 billion in the targeted longer-term refinancing operation, or TLTRO.

Europe is struggling through a bleak market winter with Greece haunting the economic corridors. Russian economic act is still unable to impact. The Russian central bank raised its key rate to 10.5% from 9.5%, even as Ruble slid, which has has declined  about 40% against the U.S. Dollar in 2014. 

Achtung ! Deutschland!

The Lone Ranger...

The US data  on jobless and retail sales are quite optimism generating. Yet the markets will tend to shrug off these as USA appears to be a lone ranger. Apprehensions of contagion impact is worrisome among investors. Oil price falls are clearly depicting a crisis of confidence in the markets.

With news of Deutsche Bank and Barclays being under investigation by New York regulators for indulging in  manipulating foreign exchange rates, investors are likely to retreat further.


http://www.reuters.com/article/2014/12/11/usa-banks-forex-probe-idUSL1N0TV0QX20141211

Banks may be under pressure...

With energy stocks on a retreat, the contagion impact on banks which have lent to energy entities will be under pressure. They would have to call for enhanced margins or treat the credit granted  as NPAs as payment is unlikely from cash flows. The quantum may be huge, given that this was an expanding industry. Allied businesses like natural gas and distribution agencies may also feel the pressure. We may have to wait for some time for any good news. Banks in the Middle East will see wholesale business slowdown. 

Mumbai Stock Exchange keeps on falling...

In line with Asia. it is convergence of markets and in sympathy with the Asian and other global markets. Overseas investors sold Indian equity derivatives worth 19.15 billion rupees  yesterday. So it looks a difficult day for Europe as it opens. 

Oil Balance of Supply and Demand estimates for a tanking global economy: 
Demand for OPEC crude is estimated at 29.4 mb/d in 2014. In 2015, required OPEC

crude is forecast at 28.9 mb/d.

http://www.opec.org/opec_web/static_files_project/media/downloads/publications/MOMR_December_2014.pdf

Asian markets wobbly...

  Reuters reports:

Asia down as falling oil hits risk sentiment, dollar pressured

BY SHINICHI SAOSHIRO

http://www.reuters.com/article/2014/12/11/us-markets-global-idUSKBN0JP02I20141211?feedType=RSS&feedName=businessNews

Why GCC is under seige ...

The budget balancing price for oil for Saudi Arabia is $ 106 ; UAE is $ 77.30  according to the  Wall Street Journal. Read on

http://graphics.wsj.com/opec-break-even-prices/

Dubai beware!!!

Is a big bear wave coming?

Even as the budget deficit shrank to 2.8 % of the US GDP ($ 483 billion) -September 2014 data, (which indicates that fiscal reforms are on course) and even as US employment trends are positive, Dow Jones fell. As investors scramble out on European and Asian worries, the situation is one of 'nowhere to go' : Yen seems to be one reluctant option. Oil is tipped to fall further, and the trend is buttressed by Saudi comments who are on to a oligopolistic price cuts where the market leader cuts and others follow!. Yen falling is bad news for export oriented Japanese corporates. So is a strengthening Euro for the Europeans. OPEC producers will find their budgets in imbalance. Non OPEC members like Oman will find it even harder. Public projects will fall and construction will slow down as Government led project funding will turn to a trickle. Finance centres like Dubai which is external driven will be among the first hit perhaps as the wealthy will exit on finding falling real estates. Banks are likely to face stress too as non performing assets might increase as borrowers find their fund flows choked. In a falling scenario , commodities are hard hit. So one cannot move on to gold either.

It looks like a day of sellers exceeding buyers. The best is to be on the beach; if riding the waves, try to stay afloat; not swim. 

Asia slows...

The fear of a Chinese slowdown when coupled with the reluctance of India to be more bold in reform orientation tend to smother growth urges.  Japan is weak if not wobbly. Asia, which was expected to lead in growth story, seems to be hesitant.

India, can its sloth bureaucracy get its act together? Can its  expedite anti corruption / money laundering cases to their logical and just conclusions? Could we have the reforms on track? 

Should investors be value based?

If companies are in some manner connected to tainted or unaccounted income (either through accounting jugglery or through not too transparent promoter investment ) should investors indulge in trade of those stocks? Would investors have the innate inner strength to overlook profits and disown such promoters/ companies?  

Internet of Things: Intel's New Platform

Intel has released a new platform. "It's clear to us that big data analytics is the next big technology disruptor," Diane Bryant, Intel's Software  Senior VP and General Manager

Please find info on: 

1.http://www.forbes.com/sites/aarontilley/2014/12/09/intel-releases-new-platform-to-kickstart-development-in-the-internet-of-things/ (article by Aaron Tilley) 

2. http://in.reuters.com/article/2014/12/09/intel-connectivity-idINKBN0JN28T20141209 (article by Noel Randewich) 

3. http://www.theregister.co.uk/2014/12/09/intel_iot_platform/

4. http://www.zdnet.com/article/intel-links-up-internet-of-things-agenda-with-new-platform/

Reliance sells stake in Vimal Brand

Idols have feet of clay: first Infosys and now Reliance. Who holds the 'hot potato' now?  The small investor who has an information asymmetry in so far as  the news of sale reaches him after the deal!!!

 "The Mukesh Ambani-led Reliance Industries (RIL) has decided to  sell a 49% stake in the textiles business—the group's very first foray under the founder—to Chinese textile firm Shandong Ruyi Science and Technology Group (Ruyi) for an undisclosed sum. "

http://timesofindia.indiatimes.com/business/india-business/RIL-to-sell-49-in-Vimal-to-Chinese-company/articleshow/45445047.cms

An Italian Perspective...

 From Mr Salvatore Rossi's speech:  Monetary policy and the independence of central banks - the experience of the European Central Bank in the global crisis

 Mr Salvatore Rossi, is Senior Deputy Governor of the Bank of Italy. 

http://www.bis.org/review/r141209f.htm

"The sovereign debt crisis was a watershed. It made it glaringly clear that the incompleteness of European integration could compromise monetary policy, hindering its transmission between countries and undermining the central bank's functional independence. This for three principal reasons. First, the sovereign debt crisis stirred fears that the euro could break up. An eventuality that until then had been judged to be of probability zero now, in international eyes, entered the sphere of possibility. The consequence, which materialized mostly in 2011, was investors' demand for high premiums on government bonds in the countries of southern Europe. The lack of fiscal union thus came to the fore, and the policy limp could be seen in all its destabilizing potential."
"Second, this resulted in an accentuated segmentation of the European financial market along national lines, marking a brusque regression in the laborious process of integration that had been advancing for a decade-and-a-half..."
"Third, all of this engendered a corresponding segmentation of the banking market. The banks whose balance sheets abounded in the government securities that were under fire in the marketplace were subject to the same fears as their "sovereigns"

"...the political line of reasoning cannot be ignored. The structural reforms in the euro-area countries that have lagged behind in competitiveness, Italy to start with, are vital for two reasons: the first is that they are the only way to unblock the jammed mechanisms of economic development; the second, equally important, is that they help to increase trust among nations. If the present diffidence should put down roots the entire European construction would be in peril."

Bloomberg says Brazil stocks to be in bear hug... .

Bloomberg News says Brazil will enter bear phase after 20% fall from September high...

Greece: markets crumbling?

After the announcement  that the  Greek presidential elections will be on 17th December , stocks are down and bond yields are up!  Sovereign yields were up from 7.2% to nearly 7.7%.  

Europe's agonies continue 

http://www.businessinsider.in/Snap-Election-Fears-Are-Tanking-The-Greek-Stock-Market/articleshow/45432211.cms

Oil producers and stemming efforts...

Oil corporations reportedly are planning to slow down on shale investments as they become unprofitable in a falling market scenario. Matt Egan writes so, http://money.cnn.com/2014/12/08/investing/shale-oil-spending-america-opec/


2. The chart below is quite a telling depiction of  the slide in prices; rises are followed deeper falls.

http://www.infomine.com/investment/metal-prices/crude-oil/all/

US markets cannot ignore others...

It is a convergent world. One cannot but be concerned with the falls elsewhere. With uncertainty in Greece, falls in Asia and Europe and in oil, can Wall Street withstand a fall? Highly improbable. 

Winners and losers as Oil falls...

Oil Price Winners and Losers Around the Globe - according to Wall Street  Journal  Blog

Good reading: suggests major losers as:
Kuwait $32 billion, almost one-fifth of the country’s GDP
UAE $ 34 billion
Iraq $ 31 billion

S. Arabia $117 billion loss in revenues for Saudi Arabia if oil prices hold for another six to eight months.

Russia, $100 billion in revenues, almost 5% of the country’s GDP.  

http://blogs.wsj.com/economics/2014/12/08/oil-price-winners-and-losers-around-the-globe/

European remedy will exacerbate ...

European zone ministers followed the German Chancellor in seeking urgent fiscal reforms in Italy and France. While it might be sound advice  in normal days, with recession looming large, any contraction in deficit implies a lesser quantum of spending. With double digit unemployment  staring hard, the move may recoil on these economies and the euro zone. Yet another example of how policy coordination costs of Europe are affecting economies and markets adversely. 

European markets should close lower?

Japan's Nikkei share average fell 0.8 %.
The yen rose to 119.99 to the dollar , and Australians and New Zealand currencies weakened.

Australian shares dropped 1.7 per cent.

Shanghai shares posted their biggest one-day percentage fall in five years

Oil prices receded to fresh five-year lows  

German imports declined 3.1 percent in October from date of the previous month. Exports dropped 0.5 percent.

Infosys sale and philanthropy

The founders of Infosys who sold block have tried to suggest philanthropist motives for the sale. Despite the explanation of  lofty value driven sale, one has a nagging feeling that the sharp acumen of the businessmen sensed a storm coming.  Buyers have to be cautious as to the timing and scale of the divestment.  

Brent hits new lows ...

It hits 5 year lows.
It falls nearly 4 % in a day
Now reportedly trading below $ 66

http://in.reuters.com/article/2014/12/09/markets-oil-idINKBN0JM1HI20141209

Dubai expected to turn dull for investors...

With oil prices falling, Dubai is likely to feel the impact. 

http://www.thenational.ae/business/markets/dubai-financial-market-slips-into-bear-territory

http://www.thenational.ae/business/markets/emaar-shares-tumble-in-dubai-trading


According to Reuters " Dubai's bourse fell 3.3 percent to 4,031 points and Emaar tumbled 7.0 percent late in the session to 8.32 dirhams; both hit five-month lows." 
Reuters : http://www.reuters.com/article/2014/12/08/mideast-markets-wrap-idUSL6N0TS2HY20141208

MIDEAST STOCKS-Dubai leads losses as oil drags Gulf down

Pressure on the Indian Rupee?

With Current Account deficit widening, there is likely pressure on the Indian Rupee. With recession like situation in Europe and Japan and oil prices receding fast, Indian merchandize exports are likely to be hit. There is also a fear that future invisible exports in the form of remittances from the migrants will be under pressure as their hosts reel under price fall strains. Nationalization of workforce in GCC which normally follows an oil recession will see some Indians return home. Unless there is an efficiency breakthrough,  Indian Rupee would be under pressure. Dollar continues to be strong. 

Internet of Things : The future of business

We are passing through a phase of creative destruction.

 Amidst all the gloom of a probable recession in business, the real hope is in the Internet of Things.  Articles by Mike Kavis (Forbes)  and Stefan Farber (Harvard Business Review)

1. http://www.forbes.com/sites/mikekavis/2014/07/21/dont-underestimate-the-impact-of-the-internet-of-things/2/

2. https://hbr.org/2013/05/how-the-internet-of-things-cha/

Recession Fear creates its ghosts. . .

Australia is on to income recession.
China's growth is slow.
Japanese agony continues.
Indian reforms are slow. Its current account has widened. Its key IT company , Infosys is sold off by its promoters.
Italy is down in ratings.
ECB is slow on quantitative easing.
France is slow on reforms says Germany.  
Sell on the ghost, buy on the fact?

Indian Current Account Deficit widens...

As gold imports went up and merchandise exports slowed CAD  widened to 2.1 % of GDP. at $ 10 .1 billion from 1.7 % and $7.8 billion in the previous quarter. 

US winning strategic battles...

1. The Russian Front: The collapse of Ruble
2. The Middle East Front: The decline of oil prices.

Both these help the medium and long term geo-econ-political strategic interests of USA. Germany and Europe are affected more by the Russian plight; while UK (strategic advisory role would be weakened plus exports both visible and invisible)  and Asia (migrant labor remittances more than exports)  and Europe  exports , both visible and invisible) would be affected adversely by a weak oil income dependent GCC.

USA may just not have much to lose at all.

Italy will pressurize Euro zone

and United Kingdom too. One could expect euro and pound to recede. French and other European bonds could also be under pressure. As ECB is still in its 'masterly inactivity ' , the road to USA will be an express motorway. 

Italy downgraded...

S & P downgrades Italian to one level above junk. This BBB- is a non investment grade rating. This should have an impact on other economies in Europe. France may also be under pressure soon. 

Infosys share sale

Example of My idol has feet of clay?
When promoters who pass on as leaders in entrepreneurial talent sell their ownership,  one feels there is an abdication. So much has been the emphasis on their qualitative content and direction that one felt inspired.  Now investors might feel like a child left behind by parents.
While they have a financial right to earn and sell, the average investor could feel adrift.  A day of loser thought?  

Gold: Dissecting declines

Gold Statistics : Source: http://www.gold.org/supply-and-demand/gold-demand-trends

			2012	2013				2014			Q3'14 vs Q3'13
Tonnes	2012	2013	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	% chg
Jewellery	2,007.3	2,369.6	553.9	550.5	690.1	556.3	572.7	574.4	512.9	534.2	-4
Technology	415.3	408.2	98.0	103.5	103.5	103.1	98.1	98.1	100.5	97.9	-5
Electronics	284.4	278.8	66.9	70.9	69.9	70.9	67.1	67.4	69.5	67.4	-5
Other Industrial	92.3	93.1	21.8	23.7	24.2	23.2	22.0	22.2	22.1	22.0	-5
Dentistry	38.6	36.3	9.3	8.9	9.5	9.0	8.9	8.6	8.8	8.5	-5
Investment	1,622.5	893.3	469.0	286.3	230.6	192.0	184.3	280.0	226.1	204.4	6
Total bar and coin demand	1,343.4	1,773.3	380.8	462.9	632.8	312.3	365.3	282.6	266.0	245.6	-21
Physical Bar demand	1,039.2	1,388.5	297.5	356.5	502.2	254.2	275.6	222.7	204.8	185.7	-27
Official Coin	190.9	281.0	48.9	75.6	92.3	42.2	70.9	45.9	44.2	35.4	-16
Medals/Imitation Coin	113.4	103.8	34.3	30.8	38.4	16.0	18.8	14.0	17.0	24.5	53
ETFs & similar products1	279.1	-880.0	88.1	-176.5	-402.2	-120.2	-181.0	-2.6	-39.9	-41.3	-
Central bank net purchases	544.1	409.3	150.4	130.8	92.1	101.5	85.0	124.3	117.8	92.8	-9
Gold demand	4,589.2	4,080.5	1,271.2	1,071.1	1,116.3	952.8	940.2	1,076.9	957.3	929.3	-2
London pm fix, $/oz	1,669.0	1,411.2	1,721.8	1,631.8	1,414.8	1,326.3	1,276.2	1,293.1	1,288.4	1,281.9	-3