Central Banks Will Stay Easy in 2015 Because They Have No Choice

(MENAFN- ProactiveInvestors) Central Banks Will Stay Easy in 2015 Because They Have No Choice 

Here is the opening of this informative article from Bloomberg: The world’s central bankers could be forgiven for thinking that things are never going to get back to normal. More than six years after the financial crisis plunged the world into recession monetary policy looks nothing like it did before those events.

Even as economists predict that the U.S. Federal Reserve and Bank of England will finally begin to raise benchmark rates in 2015 the central banks are unlikely to push borrowing costs anywhere near pre-crisis inflation-fighting levels. And even though the Fed in October ended the bond-buying campaign it undertook when the U.S. economy was weaker it isn’t shedding the assets it bought. The European Central Bank and Bank of Japan for their part are stepping up purchases.

Central bankers know that global growth is shaky that debt is rising and that they’re getting little help from government fiscal policies Bloomberg Markets magazine will report in its January issue. Economic progress will again depend on the monetary spigot in the coming year - as will stock prices bond yields commodities demand and currency rates.

“Given the slow and unsteady nature of the recovery supportive policy remains necessary” Fed Chair Janet Yellen said on Nov. 7 at a conference of central bankers in Paris. Monetary officials should keep trying extraordinary measures Yellen argued especially because fiscal policy today remains “somewhat contractionary.”

David Fuller's view 

Severe credit crisis recessions are very deflationary and take a long time to recover from as I have often said before.  A credit crisis forces corporations and the public to deleverage which lowers their respective governments’ tax receipts curtailing government spending.  Banks adversely affected by bad debts are reluctant to lend which further slows the recovery. 

A unique factor in this cycle but one that we are certain to see in future is that an accelerated rate of technological innovation is also deflationary.  Smart machines replace people faster than they can find new jobs and limit salary increases for many who are employed.  Of course there is a small minority who make vast fortunes but they are atypical relative to what is happening in the broader economies. 

This item continues in the Subscribers’ Area.

 

Oil the Ruble and Putin Are All Headed for 63. A Russian Joke for the Moment 

Here is the opening of this revealing article from Bloomberg: Heard the one about Vladimir Putin the oil price and the ruble’s value against the dollar They will all hit 63 next year.

That’s the joke doing the rounds of the Kremlin as the Russian government digs in to weather international sanctions over the conflict in Ukraine. According to at least five people close to Putin pressure from the U.S. and Europe is galvanizing Russians to withstand a siege on their economy.

The black humor is part of an image of defiance not seen since the Cold War. As the economy enters its first recession in more than five years the ruble depreciates to records and money exits the country Putin’s supporters are closing ranks and say he’s sure to run for another six-year term in 2018.

“We are becoming poorer our savings vanish prices grow however we see an opposite effect to the one that is wanted by people who wish to see Putin knocked down” said Olga Kryshatanovskaya a sociologist studying the elite at the Russian Academy of Sciences. The jokes just underline their determination to stand till the end she said.

Putin celebrates his 63rd birthday on Oct. 7. The price of Brent crude sank to a five-year low of $67.53 a barrel this week. The ruble has dropped to near 54 to the dollar from as strong as 34 less than six months ago meaning it needs to lose another 14 percent to complete the joke.

David Fuller's view 

Who are they kidding  This black humour is certainly not flattering for Putin.

This item continues in the Subscribers’ Area and contains another article which charts Russia’s economic collapse.

 

My personal portfolio 

Some changes in my long-term investment portfolio

David Fuller's view 

This is a timing and quality upgrade.  Details are in the Subscribers’ Area.  

 

The Markets Now 

Monday January 12th 5:30pm to 8:30pm at East India Club 16 St. James Square London SW1Y 4LH

David Fuller's view 

Here is the new brochure.  I am looking forward to this opening session for 2015.  There are certainly plenty of opportunities in the markets in addition to some inevitable risks which we all hope to avoid.  We have an interesting new guest speaker - Charles Elliott - who will talk about the exciting field of technology in which we all have an interest.  Our November session at the East India Club was a sell-out attracting plenty of knowledgeable delegates who contributed to a lively session.  I expect the same in January and suggest that you book early for the better rate and to ensure seats for yourself and any guests.  If you have the time do join us for a drink and further chats at the Club’s cash bar after 8:30pm.   

 

Gold miners in trouble Hambro/Raw 

This article by Lawrence Williams for Mineweb may be of interest to subscribers. Here is a section:  One has to add though that the previous speaker Peter Boockvar of the US’s Lindsey Group was more positive on current prospects for the gold price pointing to the continuing scale of central bank money printing despite the US Fed’s withdrawal; the Fed’s worries about dollar strength impacting the US economy; the symbolism of the Swiss gold referendum despite the ultimate low vote the loosening of import restrictions by the Indian government and with his comment that demand for physical gold is off the charts. He predicted that the gold price has bottomed – but warned that he also said that a year ago too!

But back to Evy Hambro’s update since his last Mines & Money presentation two years ago. He commented that the gold mining sector faces huge challenges with cash flows for most having fallen dramatically which means that there are ongoing strictures on the sector in repaying the vast debt levels built up when they were being pushed into in retrospect debilitating hugely expensive new mine developments and expansion programmes. They also dropped grades which was part of the reason for the ever ongoing cost pressures they found themselves under when the gold price started falling three years ago. 

Some of the cost pressures have indeed been addressed and there have been non-core asset sales to try and mitigate some of the debt problems although given that some have been at low valuations which may provide some great opportunities for perhaps more flexible junior and mid-tier purchasers they will probably not have helped much in terms of debt reductions. 

Eoin Treacy's view 

Gold miners have been underperforming the gold price and the wider market for years as a result of the issues outlined in the above paragraphs. Declining ore grades a dearth of new discoveries and rising costs have all taken their toll while the advent of ETFs has sapped a major source of demand for gold shares.  

The NYSE Arca Gold BUGS Index fell to a new low relative to the gold price in November emphasising just how deep the crisis is for the sector. 

 

Musings From the Oil Patch December 2nd 2014 

Thanks to a subscriber for this edition of Allen Brooks ever informative report. Here is a section:

Given the monetary policies recently adopted the central banks in the European Union Japan and now China one has to assume that the U.S. dollar’s value will continue to strengthen putting increased downward pressure on global oil prices. A strong dollar is additive to the downward demand pressures from weak economic activity demographic challenges changes in attitudes toward the use of oil and inroads from renewables. The combination of these forces is likely to keep annual oil consumption growth to one million barrels a day or less for the next few years. It is quite possible that we could be living in a world where more than a million barrels a day growth in consumption represents a boom rather than the norm.

In that environment the question becomes what will substantially lower prices – as a result of the OPEC meeting decision of last week – mean for global economic growth in the short-term In our view the Saudi Arabia and OPEC game plans are less about targeting Russian Iranian and U.S. shale production although those are beneficial outcomes but more about restarting European and Chinese economic activity. Demand growth is what OPEC needs for its long-term future. Low oil prices will also help Saudi and OPEC limit the growth of new long-term oil supplies such as Canadian oil sands and deepwater output that should also help improve the relative attractiveness of Middle Eastern oil. Unfortunately restarting demand may take longer to accomplish than many anticipate. Therefore the pain petroleum companies are just beginning to experience will need to be endured for some period before the industry fundamentals change sufficiently to restore the good times we have recently enjoyed.

Eoin Treacy's view 

A link to the full report is posted in the Subscriber's Area.

Technological innovation across a whole range of sectors and the productivity growth that is being achieved as a result the USA’s lower cost of energy particularly natural gas which is attracting industry the demographic dividend of the millennials and immigrants as well as the effect on asset prices of loose monetary policy have all helped stabilise the US economy. Its relative strength at the present time when other major economies are still easing has helped the Dollar appreciate meaningfully. 

 

Growth but not as we know it 

Thanks to a subscriber for this interesting report from Deutsche Bank focusing on the IT Services sector. Here is a section: 

The introduction of digital technologies (social mobility analytics and cloud)  heralds the start of a new decadal tech cycle which could potentially lead to significant changes to the existing revenue streams of the Indian vendors.

We believe the Indian IT services industry could still report healthy growth rates over the long term. The IT services market is still fairly underpenetrated from an offshore standpoint (see Figure 10 and Figure 11) and we believe vendors need to follow a three-pronged strategy to gain share: 

1. Deepen existing relationships by achieving strategic vendor status 

2. Geographic and vertical expansion 

3. Capability enhancement to address the threat/opportunities from digital technologies

Eoin Treacy's view 

A link to the full report is posted in the Subscriber's Area.

India’s service sector has been competing successfully on the world stage for more than a decade and was among the greatest beneficiaries of a weak Rupee. As the global outsourcing sector responds to growth in networked services/cloud computing there will be a requirement for more technically proficient staff but also potential for margin expansion given India’s increasingly well education work force.  

 

Email of the day on BMW and Novartis 

Would you kindly add BAMXF to the chart library Much appreciated. Also following TCS I have been on a quest to identify promising looking charts. I'd be interested in you view on the weekly chart of NVS. Thank you

Eoin Treacy's view 

Thank you for this suggestion and we have added the US listing of BMW to the Chart Library. Both BMW and Novartis are global Autonomies not least because of their truly global footprints dominant positions within their respective niches and strong balance sheets.