If only Gerald Celente had not been right so many times before. If you visit YouTube there is a complete library of correct predictions. He recommended gold first in 2006. Now he is talking about the breakdown of law-and-order in America as the country experiences a period worse than the Great Depression. He sees President Obama’s mission impossible for what it is – I just hope he is wrong!
Order my book online from this link
Jim Rogers always speaks his mind and knows a great deal about global investments as a veteran hedge fund manager. He thinks the dollar and yen are a hold and look better than most, but not for much longer.
Perhaps the most significant economic data to emerge yesterday was the four per cent contraction in Chinese electricity consumption in the first quarter, generally considered a better proxy for GDP growth than the official figures, and the 18.7 per cent drop in US house prices in March, according to the Case-Shiller Home Price Index of 20 cities.
These are what is known as hard economic data. Wall Street chose to focus its attention on the US Conference Board’s Consumer Confidence Index which it has successfully managed to talk up. US consumers are apparently less pessimistic about the future, which has some merit unless their perception is incorrect because they have been misled.
It is the same story in Germany. The worse GDP decline since 1990, and yet suddenly confidence has picked up. German GDP fell 6.9 per cent in Q1, and exports by 9.7 per cent, worse than expected.
Then again Russian President Dmitry Medvedev yesterday warned that his country faced a recession 50 per cent worse than in 1998. Presumably then Russians are now feeling more confident about the future. South Africa is officially in its first recession for 17 years. They must be dancing in the streets. So what is going on?
This just has to be human psychology and a response mechanism to bad news. At first there is a very nasty shock and depression. Then the mood lightens and perhaps it does not seem as bad as first feared. The danger then is becoming over optimistic about the future for no good reason.
That would appear to be where consumer confidence and stock markets stand right now. The problem is that when you think rationally there is nothing to be confident about. All that has happened is that the human mind has adjusted to worse conditions, which are still worsening but not quite as fast as at the start. This is not good news.
We have such puzzling situations. But, investments are also necessary. It is always questioned what can be other options to move on. There are auto trading robots in the cryptocurrency trading platform that can analyse the market and take smart decisions on our behalf. Bitcoin Code is one of the best.
If you now blithely behave as though nothing has happened and that things will inevitably get better then in the investment context you will put your money into the stock market, and then lose it when the truth inevitably returns to revalue the market. Or if you run a business you will carry on until your cash flow is completely exhausted.
Better to be a realist, observe those economic growth and housing figures and reflect on what it means for the outlook. Another bout of US foreclosures are expected to take house prices lower again this summer, and what do you think is happening to global demand for Chinese manufactured goods?
Templeton Asset Management chairman Mark Mobius has had a long, and at times successful career as a specialist in emerging markets. He says the next bull rally in emerging markets has just started. Should he be believed?
A Reuters report from Shanghai boldly claimed that Dr. Mobius ‘correctly predicted in December that emerging markets will rebound before developed nations’.
That might have been true for China, but Middle East investors have not seen a rally while developed countries have already enjoyed an upturn. Whether any of these rallies is sustainable is another issue entirely.
Gulf stocks up
The Gulf stock markets saw a modest rally of two to six per cent today, mainly on the back of higher oil prices in the wake of the Obama PR machine’s launch of the $500 billion toxic asset plan. That is nice to see but it is hardly a rally to speak of, let alone a new bull market.
Gulf economies are highly geared to the oil price, and there is a six-month time lag between oil price increases and an upturn in the general economy. It is a bit early to see if the Obama plan will turn out to be anything more than hot air, or more likely an expensive waste of US tax payers money.
But let us ask Dr. Mobius a simple question: how can the emerging markets lead the recovery in a year when the World Trade Organization forecasts that global trade will fall by nine per cent, its worst performance since the Second World War?
Are we to imagine that stock markets have instantly discounted this trade catastrophe, and think better times must be around the corner? This is ridiculous, there is no reason to believe that life for business in emerging markets is not going to get a whole lot worse before it gets better.
Then again the global financial system is still largely frozen. Even if, and it is quite a big if, the Obama bailouts succeed it will take several years to rev global trade up to the levels seen before the crash.
In the meantime, public companies will report losses, banks will make further write downs and asset prices decline further. How can emerging markets deliver a sustained bull market under these conditions? Dr. Mobius ought to know better after so long in the business.
Last week’s surprise move by the Federal Reserve to buy $300 billion in long-dated bonds and effectively start printing money brought a sharp fall in the US dollar, and a strong bounce in oil and gold prices.
Is this the story of things to come? Pimco CEO Bill Gross, the bond king says the Fed may need to expand its balance sheet from a projected $2-3 trillion to $5-6 trillion to get the economy moving again.
This is a slow motion process. The more immediate impact, apart from lowering the cost of borrowing, is a lower dollar. Then by 2011 or so Mr. Gross sees the return of inflation, and is buying inflation-protected bonds called TIPS – which also jumped in price last week.
For Middle Eastern investors in particular this scenario has important implications for the oil market: a lower US dollar generally means a higher oil price. Remember it was dollar weakness that helped to drive oil prices to $147 last July, and dollar strength popped that bubble (see graph above).
But hold on a moment, how are stock prices going to react to quantitative easing or money printing by any other name? Last week the 20 per cent rally in the Dow Jones stopped and reversed on news of the Fed’s action.
The US stock market will be nervously watching statements this week for more detail of the Fed and Treasury’s plans. However, if you look at share valuations then they are back to the lows of 2003 and that hardly appears low enough for the profit depression now certainly ahead for major companies.
When markets go under such drastic revolutions, we have to be very cautious on our investments. We should seek other means of investments, just like the cryptocurrency to make use of the best in the economic world. We have well developed software systems like the Crypto CFD Trader to ensure profits.
Now what happens if shares sell-off again, perhaps in a probably not unjustified panic about the three-year outlook for profits? Then the dollar will rally, precisely as it did last autumn, because stocks will be sold for cash, increasing the demand for the dollar.
That would lower oil and gold prices, just like last autumn. So it might still be too early to go back into stocks, and even to abandon US treasuries. For there is another down leg in the stock market to endure before such a shift should be considered.
All the same, with inflation definitely on the horizon – albeit at some distance – oil and gold will eventually come out on top, and may not suffer as much in the next bear market down shift.
The surprise move to quantitative easing by the Federal Reserve yesterday caught the market unaware. The $300 billion bond purchase sent gold prices jumping $50 an ounce and must have given a few gold bears a nasty awakening.
Gold prices will surely now go higher as the market digests what the start of printing dollars means for the USA. The Bank of England started printing money a week earlier and its success in lowering yields perhaps encouraged the Fed to take this step into the abyss.
For an inflationary abyss is what opens up if these central banks have got their calculations wrong. Or is it that the central banks now think their banking systems are in such bad shape that a good dose of inflation is the only thing that will sort them out?
The Fed sent bond yields tumbling 0.5 per cent just as the Old Lady of Threadneedle Street managed to accomplish. However, the US dollar also took a three per cent tumble, following the pound in yet another competitive global devaluation.
Bond holders gained capital value as yields fell but that gain was immediately eroded by the currency fall. Is this a pattern that we are going to see repeated with more and more printing of money via quantitative easing?
There really is no such thing as a free lunch in economics. Countries with massive budget deficits should be cutting expenditure, and not borrowing more.
Puzzled here are the common people due to these market influencers, inflation especially. Those who are active investors in the cryptocurrencies for example, have to take extensive strategic steps to plan their moves in the highly volatile market. But, auto trading robots such as the Ethereum Code have been a complete guidance.
Buying up your own debt is no more useful that swapping one credit card for another. It is nothing close to sound finance. It is the last act of desperation when there is nothing else left to do.
Inflation and debt
You do not need to be highly qualified in economics to see where this is leading. You flood an indebted banking system with money, you get inflation and the relative value of fixed debt goes down.
But this is not a magic bullet. You get inflation back in the system, and anybody on a fixed income becomes poorer as prices rise. If you are an investor your dollars become worth less, and eventually worthless.
That is why the gold price jumped yesterday. And it is going to go a lot higher as investors reach for a safe haven. Beware being left sat on cash when you should be owning gold and silver as a hedge against desperate actions by the central banks.
UAE stocks picked up yesterday on news that the UAE Central Bank is about to lower interest rates as a part of its strategy for handling the global financial crisis.
On the same day it was reported that Abu Dhabi Commercial Bank is to convert $1.8 billion of federal government deposits into Tier II capital and that the Commercial Bank of Dubai is also converting $500 million of federal deposits in the same fashion.
The calm and measured response of the UAE Central Bank to the global financial crisis shows federal institutions responding well to the slump in the world economy. The contrast with fellow GCC member Kuwait, with its current political chaos and bank defaults is notable.
UAE bankers say an even more comprehensive response is coming, in particular to address the imbalance between loans and deposits, a matter already highlighted by the Governor of the Central Bank in a recent speech.
This complicated is the world as far as the economic forefront is considered. Investments in such platforms also becomes difficult especially in the cryptocurrency arena. Auto trading robots such as the Bitcoin Loophole have been considered the best in terms of assisting in such tough market fluctuations.
If the UAE is serious about realizing the objective of becoming the region’s banking centre then this is exactly the right way to go about it, and bankers in London and New York will be taking note. It is only in a crisis that systemic strength is tested.
They will be watching the next steps with interest. It seems that far from disengaging from heavily indebted Dubai, Abu Dhabi is seeking a harmonious federal solution to the benefit of all citizens, and residents with employment.
Harnessing the financial strength of Abu Dhabi to the commercial and entrepreneurial dynamism of Dubai sounds like a winning formula. This is the dream ticket that larger and more systemically challenged countries could only hope to emulate.
That said the UAE is hardly out of the woods entirely with oil revenues set to tumble by half in 2009 and the six-year real estate boom obviously over. Banks will need recapitalizing to meet the strain on their balance sheets and to assist customers through a very tough time.
But looking forward this could still prove to be a seminal moment in the emergence of the UAE federation into an admired, respected and again highly profitable business model.
Order online from this link
The Nasdaq Dubai and World Gold Council launched its long awaited gold exchange traded fund today, which is both Shariah compliant for Islamic investors and 100 per cent backed by physical gold.
‘This is not a derivative product because it is 100 per cent backed by allocated gold held in London vaults by HSBC, and audited both by traditional and shariah auditors,’ CEO of the WGC Aram Shishmanian told ArabianMoney.Net.
He said it was important to understand the difference between unallocated and allocated gold. ‘The Dubai ETF has allocated gold, so there is no third party between the metal and its owner. The ETF certificate is an entitlement to one-tenth of an ounce of gold.’
It is just similar to the cryptocurrencies being traded economically the world over. There are no intermediaries involved and the security is well ensured through cryptocurrencies. As it is a new concept to invest and earn in such platform, we have entrusted trading robots as the Crypto Code.
Trading under the ticker symbol GOLD, the new ETF is the first new launch on the Nasdaq Dubai this year, and the one-time 60 basis point charge is exactly the same as other existing ETFs.
Will this make the Dubai ETF sufficiently different to attract regional investors who already have the exchanges of the world at their finger tips?
‘We have launched a series of ETFs around the world and have always found that a regional product stimulates new demand,’ said Simon Village, executive director of Dubai Commodities Asset Management.
Dubai is a logical choice for the ETF as the financial hub of the Middle East and the regional ‘City of Gold’, handling around 20 per cent of the world’s trade in physical metal.
‘It is an opportune time to launch in Dubai,’ said Mr. Shishmanian. ‘There is substantial latent demand from investors. Gold is a safe haven and protection against inflation and a weaker US dollar as well as a risk mitigator for investment portfolios.
‘Gold and bonds are the only asset classes to show a positive performance in the past 12 months. We are seeing a structural shift in gold as an investment immune from third party failures at a time of systemic risk in the financial sector.’
Only time will tell how GOLD on the Nasdaq Dubai is received but this regionally tailored product is likely to be considered as a low cost method of diversifying local portfolios at a time when very few asset classes offer much upside potential.
How low can the Dow go in this bear market? Yesterday the index dropped to 7,114, a 12-year low, and there is no sign of a market bottom in sight. It was notable that almost all stocks tumbled without exception, so there was again no place to hide like last November.
Bank nationalization is the new fear on the street. Taking over bankrupt banks, stripping out the toxic assets and them returning them to public ownership is increasingly seen as a logical solution.
But it will annihilate shareholder capital, and the worry is that a legion of risk-averse state banks will not provide the entrepreneurial support to revive American business. Or more cynically, state banks will not offer loans that can be used to buy stocks and fire up prices again.
Oil and gold
At some point commodities and basic resources stocks are going to be a major buy. Gold and black gold look obvious beneficiaries from the near-panic global creation of paper money and inflation to come.
This has created a lot of commotion among the commodity traders after the recent fall in the price of crude oil.
The crude oil price on Qprofit System fall occurred because of an increase in the supply of crude oil. However this was without any extra demand created for this commodity.
If these stock prices continue to fall with everything else – due to automatic panic disposals of entire portfolios – then they will be the obvious buys at the bottom. But how long until we get there?
Wall Street is not known for its patience, but it does have a considerable capacity for self-delusion and hot air to support prices. There is also plenty of hot air coming from the new Obama administration and Americans love to talk.
However, there is nothing else to sustain price levels. Profit forecasts for the year ahead are still too optimistic, and the outlook is increasingly for big losses from major companies and low or no dividends.
There is no reason to risk capital in equities at this point. Money is better taken out of the market and kept in cash or precious metals. Bonds have an increasingly toxic feel, for reasons of supply if nothing else, and will surely crash once stocks hit rock bottom.
The dollar is probably safe as long as the markets are selling down. But the moment markets hit bottom any investor with brains ought to be out of the US dollar whose crash, along with bonds, is inevitable, and actually the next part of the economic recovery cycle.
Bond holders need to be driven out of bonds and into stocks, and dollar devaluation will make US exports competitive again.
Order my book online from this link
Order my book online from this link
Yesterday this blog explored the emerging market business cycles as suggested by Dr Marc Faber in his book ‘Tomorrow’s Gold’ and saw Dubai situated in phase five and entering phase six.
The real dilemma is looking forward to the next phase: phase zero. The last time Dubai came anywhere close to this phase was in 1999 with oil prices at $10 and local stock prices on the floor, at the tail-end of the Asian Financial Crisis.
The fear at that time contrasted with the much more modest business slowdown of 2000, and a quick resumption of growth back through the business cycle to our present position. Will it be the same again this time?
Certainly a long phase zero is a nasty business. Dr Faber identifies its characteristics as: flat per capita income; high unemployment; low capital spending; domestic instability; falling profits; capital flight; no foreign investment; hotels empty; stock market at a bottom base; stocks very undervalued; press very negative; credit tight; Swiss bankers give up.
Oil economies are perhaps a little different to this general model for all emerging markets. Capital spending is generally sustainable, and an exit of foreign guest workers leaves less scope for internal unrest.
Indeed, what is needed to quickly exit phase zero is also available. Dr Faber says it needs a ’spark’ or ‘catalyst’ to start the recovery cycle. For oil economies an upturn in oil prices is the usual catalyst, although the long stretches of low oil prices in the 80s and 90s should not be forgotten.
However, if you believe in a commodities super-cycle that began around 2000 then today’s oil price crash should not last long. The supply and demand economics of oil favor a higher price to encourage more oil exploration to replace dwindling reserves, which must sooner or later impact price levels.
It would also have an impact on all the markets in the financial sector, especially in foreign exchange and cryptocurrency market. To save your situation, it is best you should take the help of automated software. Our site will guide you through the entire process and benefits of choosing the trading software.
Oil is king
It should be no surprise to realize that recovery prospects in the region depend on oil prices. Dubai, as the regional logistics, commercial and financial capital takes about six months to feel an upturn in oil prices as it feeds through the orders pipeline.
But will the world’s economy get quickly back on its feet? That is a far more difficult question to answer. Clearly if that took several years, and not just until Q3 as some hope, then it would be bad news all round.
However, the global stimulus packages look hugely reflationary, and oil prices would surely be one of the first signs it was working. That would make buying assets associated with oil economies at this time a wise move, especially for those who can afford to wait a while.
January 27, 2009
Dubai in phase five of the business cycle
Order my book online from this link
Reading Dr Marc Faber’s investment classic ‘Tomorrow’s Gold’ it is interesting to note how Dubai has moved into phase five of his seven phases of the emerging market business cycle.
The symptoms of phase five are: tight credit; falling consumption; profits collapse; stocks crash; real estate prices fall sharply; big players go bankrupt; companies issue bonds or shares to raise cash; hotel vacancies rise; unemployment up; brokers lay off staff; tourism declines.
Of this list Dubai has yet to see any big players going bankrupt, and emergency fund raising is in its early stages. But all the rest of the list apply. For what lies ahead then we need to turn to the description of phase six of the cycle.
This comprises: investors give up on stocks; capital spending falls; interest rates fall; foreigners exit; currency weakens; press very negative; equity funds down 90%; hotels, flights empty; taxi drivers discuss how much they have lost; men go out for work in suits but sit in parks.
Dubai is not quite in phase six. But lower interest rates could be on the cards soon, and a weakening of the US dollar due to money supply growth is very likely. Job losses are clearly mounting but UAE labor law will not allow people to sit on park benches, they will go back to their countries of origin.
However, Marc Faber notes that the down cycle in emerging markets does not have to be very long, and he points to the Asian Financial Crisis of the late 90s which took a year to bottom out and a couple of years to start a recovery: phase zero.
In the oil-rich Middle East there ought to be considerable room for optimism about a similar early recovery on the back of higher oil prices. But that would still not seem to mean that phase six can be avoided. It just means that anybody buying assets in that period will not have long to wait to be rewarded.
No doubt many would argue ‘it is different this time’ in Dubai. However, as the great investor Sir John Templeton explained these are often the most expensive words in the English language for investors who believe them. It might be different this time but if you bet against history the odds are stacked against you.