Blood in the financial streets...

Pablo Neruda wrote on the Spanish Civil War...
"Come and see the blood

In the streets! "

Coming events cast their shadow long before...

When the banks heaved, we should have sighed at what was coming.

Is it over? 

Not as yet. The agony is not as yet abated. 

If the Chinese bamboos turn dry and wilt, them trader animals have nowhere to hide. 

If the Bank of Japan  seeks out negative interest rates; why can't we be pessimistic? 

Quarterly results of Indian  banks are so frustrating , but then there is yet another quarter to go....

The bears have  golden swords...  

The sidelines are the best places to be there...

This blog recommends no investment. These views are expressed without any risk or responsibility. 

Flight to quality : : The Wealthy search for parking...

As the Chinese let the yuan adrift, currencies fall in fear. In the flight to safety, gold appears to be rising. This may be a temporary safe haven avenue but is not logical to expect to be bullish on gold in the wake of a global slowdown triggered by China, among the world's biggest buyers of gold. Purchasing power of the wealthy, the  Gulf upper income groups  and  use of industrial gold both stand curtailed and so one cannot bet on gold except as an immediate reaction. Chinese and Indian consumers are likely to continue to buy gold for social reasons, but sustaining gold prices seem difficult. If one buys gold in difficult days, one has to cut consumption elsewhere. So gold will be a temporary rise.

A better bet for eventual wealth accretion may be the Yen as the base of the Japanese economy seems sound technically. Similarly, the property market in Australia may be a good bet to park. The Chinese will eventually return to Australia. Australia is a resource based economy and a vast continent. Given the falling Aussie ( and with current account deficit threatening to widen, given the fall in commodity prices) it might be a good value for money proposition.

Hong Kong and Singapore look a difficult terrain as they are strongly dovetailed to China. Europe has to sort out its political and economic concerns. The Swiss policy do not welcome more.

US assets stay on top. Brace for one more currency run!


This blog recommends no investment. All views are expressed without any risk or responsibility. 

Where are you when the Fed hikes rates?

With a 75 percent chance of a rate hike by the Fed, let us have a look at the environment and the probable implications:

• ·         Oil glut  (plus for emerging economies who are importers); Short sell?
• ·         Gold Fall (should positively impact on current account of gold importers like China and India) Short Sell? 
• ·         Commodity price falls should reduce input costs of emerging economies but harm resource based economies
• ·         Emerging markets (already deserted by the FIIs)  will fall a trifling more as the last of the doubters leave for New York.
• ·         Emerging markets' corporates could have their borrowing costs high if they have resorted to dollar funding. The appreciation in the dollar could see corporates struggling to pay back.
• ·         Chinese growth rate may continue to be under pressure in a inevitable deceleration accentuated by a lack of transparency.   
• ·         India's growth rate will be under pressure from its combat loving and 'bickering petty' politicians who cannot have any consensus on reforms which need legislative sanction;
• ·         India's financial sector will start feeling the impact of latent non - performing assets which are in filibustering pipeline-  stressed assets, restructured assets. Its regulators are slow and far behind a runaway sector.
• ·         Japan may be attempting to return to growth but the tendency to revert to recession is so strong that the Japanese industry has to hollow out to other emerging economies such as India. ( bullet train diplomacy)
• ·         Natural resource endowed countries from Saudi Arabia to Australia will have to borrow at higher costs abroad. Commodity prices will look further south. 

So it looks good to buy safely in to advanced countries' assets  and the dollar. May be the Japanese Yen and Great British Pound may seem to be a parking slot for euro sceptics.  

This blog recommends no investment. All views expressed here are without any risk or responsibility. 

Yen a safe haven

As the Turks are drawn into a fight that may have no winners and what may eventually prove to be a tactical foolhardiness;
As Putin's new economic order of killing off  black marketing in oil and save Russian interests may just about see a price rise in oil;
As European allies seem caught up in internal strifes  from immigrants to Greece to fear of internal betrayals;
As oil seems to flare up with a possible supply constraints with an escalation in conflagration in the middle east;
As Switzerland still has European neighbours and an opaque banking system to overcome;
Yen looks a better bet. Gold may rise temporarily but cannot hold out against Dollar which will be brought back by a buoyant US  economy and also the ultimate return to safety; it is only yen that looks good. Then comes the dollar. 

Views expressed are without any risk or responsibility. This blog recommends no investment. 

India and the sentimental attachment to gold....

India is trying to build on the advantage of a falling oil price. A rule of thumb is that a US$10 reduction in the price of oil helps improve the net trade and hence current account balance by US$ 9.4 billion[1].  Fall in oil prices has helped narrow current account.

Restraining  gold imports will sustain a manageable current account deficit. Gold imports have fallen below the high  levels seen in 2013. To substitute imports India has announced a scheme by which gold can be deposited in banks and interest earned

The objective of the scheme is to mobilize a part of an estimated 20,000 tons of gold held by households and institutions in the country and to reduce India's reliance on the import of gold- attempting to get  gold worth about Rs.  5,40,000 crores (1 billion = 100 crores) into the banking system. 

Previous schemes on similar lines have not succeeded. Families are too sentimental about traditional jewellery. They are reluctant to part with family jewellery  and at this moment the monetization effort may have a long way to go.  

[1] Economic Survey 2014-15

From: Business Standard

One cannot expect gold to rise even as oil falls!!!

• Gold and oil are normally positively correlated.  More recent talk of divergence does not have historic backing. 
• Commodities' markets  should move together.
• If stock markets collapse, there is a wealth effect and there cannot be a flight to gold as is anticipated. 
• If there are are losses in one market, there will be sales of other assets to recoup losses.
• With deflation staring (in the event of bearish trends) gold loses attractiveness. 
• It is a different story if US  interest rates are hiked and inflations looks likely to rear. 
• The international scenario may hold the Fed's hands.
• Political imbroglio in Greece adds to European woes.
• If the Government of India cannot come out with a marketable plan for ensuring the transfer of gold holdings to banks (as is proposed) then there could be some stimulus for international gold.  The Indian banks seem  reluctant to offer more than 0.75 % interest to gold bonds. 
• If the Indian growth rate falls, following China, that would imply less purchasing power. 
• The Chinese stock market falls may have hit local Chinese hard given that 80 to 85 % of stock holders are nationals. 
• Against such a scenario, any move up in gold prices does not necessarily reflect real moves but expectations.
• If the Indian festive season picks up in October- November and if the Fed moves rates up, there could be a rebound of gold. Until then  any investor has to be cautious. 

This blog does not recommend any investment. This is only an academic blog without any risk or responsibility to the blog's author. 

The return of Gold as an investment avenue might synchronize with the Fed hike...

If the Fed expects
full employment and
it senses growth on track, and
it sees a likely raise of the inflation head and
it increases the interest rates,
then gold investors might see stability.
As the higher the expected price rise, the better gold as a hedge.
In emerging economies, interest rates have to move up  to attract investment and there could be money price  induced real inflation. 
Gold then becomes a stabilizer.

Note: This blog offers no investment advice. The views expressed here are without any risk or responsibility. 

It rains Gold

Gold prices are falling...
Reasons ?
USD moves up. Fear of a rate hike.
Previous experiential scarring
Commodity prices down.
Oil prices falling. Middle East buyers hesitant.
Understated Chinese holdings.
India's internal gold mobilization moves.
No technical support.
Forex reserves seem to have only a small percentage in gold.
With China in a state of stock shock, consumers would defer buying gold.

Sell on the fact.

This blog offers no investment advice. The views expressed are without risk or responsibility. 

Gold falls to 2015 lows...

As the market braces for the Fed move upwards , Gold seeks to retreat. All metals and commodities could be under strain.
There was quietude on the European front. Gold was not glittering as a safe haven.
Indians and Chinese are not so keen to buy despite the falling prices.
India's non banking financial intermediaries will face acute loan to value issues. This in turn might affect some of India's banks' loan portfolios.


This blog does not offer any investment advice. The views expressed are without any risk or responsibility.

USA has a winning Strategy and no competitors....

"What is most important  is not what happens but what it means"...

Of late,  USA displays  rare political acumen; its foreign policy strategies are so sagacious and so quietly successful. It has tactically withdrawn from battle fronts in Asia. It has refused to be drawn back despite hidden and direct invitations. It has extended a hand of friendship to Cuba. It is mending fences with a broken Venezuela and its Lat Am neighbours.  It makes the right noises on Africa but does not overtly meddle any more. It lets Israel blast its policies in its Congress even as it delays signing a treaty with Iran. In Asia, while recognizing China as its  major trade partner, it is  laying out a network of potential allies  ranging from India to Japan in an attempt to contain Chinese growth ambitions. USA geo-political strategy manages contradictions so well. 

Much as the US   strategists might like (if not love) it, the middle east is split through  the centre in schism. The division between Saudi Arabia and Iran as respective leaders has vertically split the Middle East.  Heard disbeliefs are severe, unheard discontent elements are several. The post Feb -2011 events have disturbed the very fabric of the Arab society. Democracy  is seeking an agonizing birth.  The polity seems caught between 2 worlds, one refusing to die and the other not bold enough to be born.  Egypt is a classic example of dilapidated nations, fast sinking to be of the status of Jordan, a  dignified dependent on others. It is a self destructive path so often seen previously in Lebanon. As the USA withdraws tactfully in Afghanistan and Asia, there is a rush of power to fill in that vacuum. The power brokers will see destructive engagement.

Economically, Europe is split asunder between the haves and have-nots. Greece imbroglio  has shown off the lack of leadership skills in Germany, and the Germans are USA's economic major competitor at all times. Any peace brokered through the acceptance of Greek proposal would be ephemeral.  It would be a humiliated, restive and helpless Greece that accepts austerity. The mental perspective in an average Greek mind is that Greece has been pushed into a blind alley by Germany. That is not a perspective that would help the integration of / fusion of Europe.  The other peripheral countries have already indicated a resurgence of nationalism. Britain, which has more in cyclical patterns in common with USA and which sulks at Teutonic dominance, would wait to move away from a weakened Europe, with a tacit support from across Atlantic. Bid European Banks too seem to do negatively , thanks to its non adherence to norms of US regulators.

Any semblance of a victory for Germany would strengthen the euro and that should help USA exports.  ( "In particular, the higher foreign exchange value of the dollar that I mentioned, as well as weak growth in some foreign economies, has restrained the demand for U.S. exports." - Janet Yellen  at the City Club of Cleveland, Cleveland, Ohio, July 10, 2015 Recent Developments and the Outlook for the Economy")

Oil is in a situation of glut. So the inventory levels take USA  to a situation of  comfort zone. Even though it might speak  of falling investment in the petroleum sector, it has benefited the USA  customer and left him a wealth effect as real incomes go up. There will be consequential spending in USA which should buoy up the economy further. The wealth effect on the Gulf countries will reduce the accelerated growth of city states like Dubai. Football issues and labour issues have dogged the prosperous Qatar. USA just has to keep it all simmering. With Russians licking economic wounds, and economic bubble woes holding back China, USA  does not have to worry so much. It is far too ahead in the lead of economic strategy.

China, the Asian giant is in a state of limbo with its asset prices falling. The wealth effect of a $3 trillion loss incurring Chinese economy is stupendous. There is more to it than meets the eye in the Chinese policemen enquiring as to who all short sold. Chinese consumers will feel less prosperous after stock market wounds and refrain from buying. It will add to social disquiet too. Internationally, the image is  of a state intervening, fickle tock market in China. Chinese have also to encounter its unstructured capital market products which are patently over-leveraged.   

The Japanese are still recovering from the local  economic harakiri inducing inertia , nay stupor triggered by a recession older than decades. Neither monetary policy nor fiscal policy seems to revive confidence in a fatalistic society.

India , despite good leadership, is held back by a splintered polity. Reforms are delayed by a difficult opposition.  Thus the growth rate of 7.5 % looks great but the economy's moving further, like its infrastructure, is on slow and often pothole ridden roads.  If only its central bankers could talk less and concentrate on banking sector's  non performing and stressed assets, and only if there was more professionalism among its civil servants!

With commodity prices down, (from copper to coal to gold, it is a shortening scenario) and the tigers struggling, there is nowhere to turn to except the dollar assets. May be the Yen may hold some safe haven status being least problematic among competitors. The Swiss are on to negative interest!

Janet Yellen has  indicated that there is a fair  likelihood of a rate hike. The global markets have long factored this in. With the rate hike quarters pruned to probable last quarter, and with just data supported evidence of growth needed, there will be a bee line for US assets. The rest of the world will see a compensatory sell off as the institutional investors shift to USA. The cost burden of the rate hike will be factored in by US  corporations , which are among the most productive technologically.

USA has, it appears,  for its  strategy 'Carpe noctem': 'Seize the night'

Without any  risk or responsibility.

Even if US Data is good...

Square positions. The payrolls' data may be reassuring on US hiring but there are more dangerous curves in the global market.

Weekend and coming week seem unpredictable given the oscillations of frustrated Tsipras and the possible knock on effect of the Chinese stock market. One cannot risk a build up ... although dollar positions may hold, risk mitigation is the key. Commodity prices seem headed south. Gold rises have all been temporary.

As it is a long weekend, long positions are riskier.


Without risk or responsibility. 

The Long and the Short of It : Crystal Gazing the market for the week

The Long and the Short of the Markets:

Markets seem likely to be more volatility prone this week .

The moment of truth moment for Greece with the probability of a debt debacle  and the Europeans' frustrating lack of consensus.

Australia is languishing in the Chinese shadow. The number of people trapped in long-term unemployment in Australia hit a 16-year high,  unemployed for a year or more has risen by 18 per cent over the past year to 188,000 ; that is almost three times more than mid-2008. Yet Melbourne and Sydney property prices are high, possibly because the Chinese are letting go off domestic property to invest in Australia , riding on the back of a falling Australian dollar which is being encouraged further south.

 John Cryan in Frankfurt as  CEO of  Deutsche ,  (replacing Jain and Fitschen in the latest of a series of leadership crisis among Western banks indicates how there is divergence between the governance of companies and investors expectations. . Banking stocks may see further pressures.

IMF pointed out that the first quarter was a  'shaky' one for the U.S. economy. Revised IMF growth forecast was down to 2.5 percent for 2015.  Data on the labor market has steadily improved with the job growth averaging  about 250,000 per month.  Cheaper oil prices may boost consumption . However, delay in  the housing recovery and the strong dollar  may keep the inflation pressures quiet  so that the Fed needs to raise rates in the last quarter. Global investment activity indicates that even easy liquidity policy is not enthusing investment.

Source - BIS Statistics

Russia and Qatar could lose the right to host the 2018 and 2022 World Cups if evidence is found of corruption in the bidding process. About 14 FIFA officials and sports marketing executives are accused by US prosecutors of taking part in a sweeping kickbacks scheme going back 20 years involving a total of $150 million in bribes. Would sponsor corporate entities  be involved  and would they be sold off on world equity markets?

Gold seems to continue to be gathering dust.  

Emerging economies seem too hot for now. 

G7 meet in Germany seems to have a Russian contain agenda rather than economics. They will speak more on Ukraine and just a whisper  on Greece. 

Schloss Elmau, Germany G-7 Meet 

So the hesitant investor seems to  look to USD  assets for the coming week. When in doubt, get to the safe haven.

Without any risk or responsibility. 

The Long and the Short of It : The Week Ahead

Source:www.oecd.org/economy/economicoutlook.htm.

The Long : Prospects  Good 

• The OECD projects that the US will grow by 3.1 percent in 2015  and by 3 percent in 2016, 
• UK is projected to grow at 2.6 percent in 2015 and 2.5 per cent in 2016. 
• Canadian growth is projected at 2.2 percent this year and 2.1 percent in 2016.
• Japan is projected to grow by 1 percent in 2015 and 1.4 percent in 2016.
• The euro area is projected to grow at a 1.4 percent rate in 2015 and a 2 percent pace in 2016. 
•  major euro area economies. 
• Germany is forecast to grow by 1.7 percent in 2015 and 2.2 percent in 2016, France by 1.1 percent in 2015 and 1.7 percent in 2016, while Italy will see a 0.6 percent growth rate in 2015 and 1.3 percent in 2016. 
• China is expected to grow by about 7 percent annually in both 2015 and 2016.
• India will grow by 7.7 percent in 2015 and 8 percent in 2016.
• Brazil’s economy is expected to shrink by 0.5 percent in 2015 before returning to a 1.2 percent growth rate in 2016.

 The Short : An equity market buy and a Japan buy Week? 

The United States,  the major driving force of global growth, has a decelerated  real GDP growth rate for the January-March quarter. This was  in part, due,  to effects of adverse weather conditions. The Texan floods add to economic impacting of nature further. Inflation is being held in check  by the slow recovery and, also by lower prices of imported goods as also the fall in oil prices. Unless there are clear indicators of a reversal, the Fed will not hike rates any time soon. 

Structural fragilities in Europe seem to persist. Europe may get its act together on the Greek tragedy, but its dithering and dallying policy makers are not so inspiring. A temporary truce is not likely to help and structural reforms seem so far away. France and Italy are still laggards to Germany. European banks seem to be too big to fail but seem arthritic in reactions with the agony of misfeasance.  

Global growth will have to be primarily led mainly by Asian  private demand, with  firm households spending. The Chinese economy remains sluggish against the backdrop of the deceleration in fixed asset investment and continued inventory adjustments. India is still slow on its reforms and its Prime Minister appears to be a lone ranger for infrastructural growth. Dreams to reality is India's challenge. Its central bank might reduce the interest rate this week but this might have already been factored in last week by investors. Further, the transmission mechanism is slow and halting. Its bureaucracy is sluggish and archaic so FDI will be slow and in fits. China  is ahead of India by at least a decade, (although "Comparisons are odious palabra' said Shakespeare). The fact remains that the Indian Government is aware that it has to accelerate growth through infrastructure trigger. 

Commodity exporting economies like Australia are  yet to gain  momentum.Mining firms are likely to cut investment against the backdrop of sluggish  demand. Australia has become so China linked that it is  waiting for the Asian giant to lead. The Australian unemployment rate  is forecast to rise further and wage growth is unlikely to move up, thus affecting purchasing power or saving potential. The official stance seems to be to talk the Aussie dollar down.   

Crude oil prices might  rise a shade on political tensions in the Middle East and uncertainty in US (read Texas ) supplies but is likely to be  pulled  back because of the 30 million barrels of oil per day supplies yet to meet equivalent demand. The weaker economies among the oil suppliers  open up their taps  on the sly  to meet internal income demands; so the price of WTI might languish at around $60 per barrel. 

There is little to revive gold - neither inflation nor Asia seems poised to extend a hand. India's ambitious gold deposit scheme might, if it takes off, add in volumes to the supply and might off set any rise in the global  gold demand. India's many temples, if not households,  could  monetize gold. So supply side economics will keep gold prices down for quite some time. 

Europe has been  the epi-center of the global bond-market quake since mid-April. About  $375 billion was wiped off the value of euro-zone-government bonds when prices fell abruptly after rising for several months to record levels. So investors might be hesitant to return to bonds so soon.There are monetary policy excesses at play. Players like the Swedish central bank (Riksbank) face a risk of bond shortages as they intend to enhance market liquidity. Substituting sovereign with mortgage bonds might just about fuel a bubble in the housing market. 

So the short of it is that equity markets might host investors this week despite possible volatility. Japan looks to be the week's favourite economy with some dissipation of the deflation sentiment in view. The tremors off its coast may not have had much of an economic  effect. 

Without any risk or responsibility on the part of the author. 

“We’re in the dark like everybody else on this. We don’t have any information at all, a lot of curiosity.” (Richard Hart, Police Chief , Yorkville)

World Gold Council, Q1 Report

"Global gold demand was down just 11 tons compared with Q1 2014. Moderate changes in demand at the sector level broadly cancelled out, as did variations in demand across different markets."

Gold radiates optimism

Gold is riding on the back of optimism. Given that Greece is still hesitant and Euro is still weak, and that Swiss Franc is negative in return and dollar is hesitant with the debt traders challenging it Gold is a parking bay. The slow rise of oil encourages gold too. Indian gold demand is largely inelastic.  So are the Chinese in love with yellow metal. So there is support for gold. At least for some days.

(Views expressed without any risk or responsibility)

GCC and falling oil prices

Oil-rich GCC has been diversifying for some time - with the development of economic cities, housing complexes, maritime ports and through encouraging the small and medium enterprises. They have been attempting to break the resource curse.  Not so successful. The impact of current low oil prices on Gulf Co-operation Council economies will be a severe economic slowdown as the transmission mechanism through public spending can now operate only if they dip into their reserves. 

The break-even prices for oil have been estimated to be much higher than given prices. and with sunk costs in the hydro carbon sector,  GCC states would have to struggle to balance  their revenues and expenditures. Liquidity will decline as oil revenues fall and with pegs to the dollar, (except Kuwait)  authorities are  left with few monetary policy tools. Given the low skills of the nationals and the unduly high dependence on expatriates, factor productivity is bound to decline. Distorted economic incentives do not  encourage investment. There is an aversion to risk-taking with nationals relatively comfortable with  a state employment culture and undue dependence on expatriates in the private sector.   

The number of unemployed nationals in the Gulf Cooperation Council (GCC) is projected to exceed 1 million over the next five years. This is a serious social issue already felt since  post 2011. 

Gold will also be impacted as there appears to be a correlation (positive ) between oil and gold. 

Views expressed without any risk or responsibility. 

The Dollar has no rival?

Swiss Franc Interest Rates

Source Swiss National bank

Swiss Franc Current Interest Rates

Source Swiss National Bank

Gold

Source: www. kitco.com

Without any risk or responsibility

Gold after ECB Move

Gold Chart Source: www.kitco.com

Gold as it moves in anticipation of ECB's QE

Gold chart from

www.kitco.com

without any risk or responsibility

Gold Waiting for ECB

SOURCE: "www.kitco.com" 

without risk or responsibility