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. 

Another warning from IMF Chief

Christine Lagarde[1] cautions   “low-low, high-high” scenario: the risk of low growth-low inflation, and high debt-high unemployment persists for a number of advanced economies.

(Excerpts Only)
Quote

Forecasts for most emerging and developing economies are slightly worse than last year, with lower commodity prices one of the main drivers. While they still represent more than two-thirds of global growth this year, there is tremendous diversity within this group. For example:

• India is a growth bright spot;
• China is slowing but growing more sustainably;
• Sub-Saharan Africa continues to perform strongly;
• Russia, on the other hand, is experiencing economic difficulties;
• Brazil is also stagnating;
• And many parts of the Middle East are beset by political and economic turmoil.

So we should not think of emerging economies as just one single group. Each country faces very specific circumstances, some of them easier, some of them more difficult.

*

Clearly, all policy space and levers must be utilized. It begins with demand support.

Continued monetary accommodation is needed, especially in the Euro Area and Japan.

*

Fiscal policy also needs to be calibrated to the strength of the recovery, without losing sight of debt sustainability over the medium term.

• Effective insolvency frameworks are crucial to tackle the private debt overhang and deal with the total stock of €900 billion in non-performing loans that is blocking credit channels.
• In Japan, the authorities need to sustain the momentum of the second and third “arrows”—fiscal consolidation and structural reforms—if the first arrow of monetary easing is to have the intended effect of lifting inflation and growth.
• By leveraging lower oil prices to reduce energy subsidies, emerging and developing oil-importers could save, on average, a full one percent of GDP in 2015—resources that could be reallocated to growth-enhancing investments such as infrastructure, education, or health.

These are some of the macroeconomic dimensions. What about the financial stability dimensions?

The bottom line is that risks to global financial stability are rising. The “new mediocre” growth environment is not a comfortable place with respect to financial stability.

Financial risks may have declined in some areas, but they have also been migrating to others—for example, from banks to non-banks, and from advanced economies toward emerging markets.

 Unquote 

Note: Without any risk or responsibility

[1] Managing Director, International Monetary Fund at Atlantic Council, April 9, 2015

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.

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.

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

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/

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.

Gold, China and Euro

With the Chinese and Euro talk and moves towards further stimulus to avoid deflation, gold seemed set to strengthen. The People’s Bank of China cut the one-year benchmark lending rate by 40 basis points to 5.6% and the one-year deposit rate by 25 basis points to 2.75%. This is expected to accelerate Chinese growth and thus shore up gold. The submission here is that it can only be technical buying and not sustained buying as 

a) deflation is the global worry, not inflation;

b) China might yet take time to restore its high growth rate;

c) India has introduced Kisan Vikas Patra bonds which will see unaccounted money flow in to that route and not so much in to gold;

d) oil prices are weak and oil sellers would hesitate to invest in gold for some time yet;

e) Swiss referendum looks set to be not so benign for gold;

f) Russian buying at this point looks more geo-political rather than pure economics.

It may be a good idea for the day to sell and buy. 

Strategic re-invention of the US economy...

Falling oil prices is good news for all except oil producers.
The United States has quietly re-positioned itself. It has become a great geo-strategic force once again on the back of its technology and its oil reserves. Iran earlier and now Russia are realizing that the world can do without its oil.
Soon enough, Saudi Arabia which is trying to hold on to its market share will realize that it is committing price harakiri.
Its discriminatory pricing strategy will adversely affect it; selling cheaper to America at the cost of Asia will leave it with few buyers in the long run. Dubai will feel the impact of slowing growth if oil producers slow down.
If India carries its efforts at bringing money stashed away abroad, just as USA has been doing, there will be quite a few money centres and real estate prices shaken up gradually, if not suddenly. 

A Tale of 2 Emerging Economies: Brazil & India

Brazil decided to  travel left of center.
India chose to travel right of center.
Brazil has to reassure markets, and Brazil might be sold off for a few sessions unless there are strong statements.
India, post election looks a winner. With the reforms back slowly though, on course, India is sought after by other economies as a potential growth area.
Brazil will face foreign investors exiting. If Mexico (1994) is an example, the nationals will leave before the foreigners!. Brazil losses have to be recouped elsewhere.

So BRICS is weakened a shade: China slowing, South Africa under gold declines, and Russia affected by oil declines and Ukrainian politics.