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The 2 Trillion Project to Get Saudi Arabian Economy Off Oil

Date

4/26/2016 9:19:08 AM

(MENAFN- ProactiveInvestors - UK) Fuller Treacy Money Mon

The $2 Trillion Project to Get Saudi Arabian Economy Off Oil

Here is the opening of this insightful article about Prince Mohammed bin Salman published by Bloomberg:

Early last year at a royal encampment in the oasis of Rawdat Khuraim Prince Mohammed bin Salman of Saudi Arabia visited his uncle King Abdullah in the monarch's final days before entering a hospital. Unbeknown to anyone outside the House of Saud the two men separated in age by 59 years had a rocky history together. King Abdullah once banned his brash nephew all of 26 at the time from setting foot in the Ministry of Defense after rumors reached the royal court that the prince was disruptive and power-hungry. Later the pair grew close bound by a shared belief that Saudi Arabia must fundamentally change or else face ruin in a world that is trying to leave oil behind.

For two years encouraged by the king the prince had been quietly planning a major restructuring of Saudi Arabia's government and economy aiming to fulfill what he calls his generation's 'different dreams' for a postcarbon future. King Abdullah died shortly after his visit in January 2015. Prince Mohammed's father Salman assumed the throne named his son the deputy crown princesecond in lineand gave him unprecedented control over the state oil monopoly the national investment fund economic policy and the Ministry of Defense. That's a larger portfolio than that of the crown prince the only man ahead of him on the succession chart. Effectively Prince Mohammed is today the power behind the world's most powerful throne. Western diplomats in Riyadh call him Mr. Everything. He's 31 years old.

'From the first 12 hours decisions were issued' says Prince Mohammed. 'In the first 10 days the entire government was restructured.' He spoke for eight hours over two interviews in Riyadh that provide a rare glimpse of the thinking of a new kind of Middle East potentateone who tries to emulate Steve Jobs credits video games with sparking ingenuity and works 16-hour days in a land with no shortage of sinecures.

Last year there was near-panic among the prince's advisers as they discovered Saudi Arabia was burning through its foreign reserves faster than anyone knew with insolvency only two years away. Plummeting oil revenue had resulted in an almost $200 billion budget shortfalla preview of a future in which the Saudis' only viable export can no longer pay the bills whether because of shale oil flooding the market or climate change policies. Historically the kingdom has relied on the petroleum sector for 90 percent of the state budget almost all its export earnings and more than half its gross domestic product.

On April 25 the prince is scheduled to unveil his 'Vision for the Kingdom of Saudi Arabia' an historic plan encompassing broad economic and social changes. It includes the creation of the world's largest sovereign wealth fund which will eventually hold more than $2 trillion in assetsenough to buy all of Apple Google Microsoft and Berkshire Hathaway the world's four largest public companies. The prince plans an IPO that could sell off 'less than 5 percent' of Saudi Aramco the national oil producer which will be turned into the world's biggest industrial conglomerate. The fund will diversify into nonpetroleum assets hedging the kingdom's nearly total dependence on oil for revenue. The tectonic moves 'will technically make investments the source of Saudi government revenue not oil' the prince says. 'So within 20 years we will be an economy or state that doesn't depend mainly on oil.'

David Fuller's view

Prince Mohammed bin Salman is clearly not lacking in confidence and he will certainly need it. He faces daunting challenges including a ticking clock as Saudi Arabia's gamble on flooding the market with oil supplies is burning through the country's investment reserves at a rapid rate.

The Prince has recently stemmed this haemorrhage somewhat by slashing lavish subsidies but this will create opposition including from the numerous privileged princelings to the subsidised and under motivated population of over 32 million of which between 10 to 15% are Shia mainly working in oil fields.

This item continues in the Subscriber's Area.

San Francisco Passes Law Requiring New Buildings to be Topped With Solar Panels

My thanks to a subscriber for this article from Gizmag. Here is a section:

San Francisco has passed a law requiring all new buildings below 10 stories to have solar panels installed on their rooftops. It becomes the first major US city to mandate solar panel installations on new constructions and forms part of a wider vision to generate 100 percent of its electricity via renewable energy.

The Better Roofs Ordinance was passed unanimously by the city's Board of Supervisors and will apply to new constructions both commercial and residential from January next year according to theSan Francisco Examiner.

"Activating underutilized roof space is a smart and efficient way to promote the use of solar energy and improve our environment" says Supervisor Scott Wiener who introduced the legislation in February. "We need to continue to pursue aggressive renewable energy policies to ensure a sustainable future for our city and our region."

Other governments around the world have adopted similar policies including the states of Maharashtraand Haryanain India. Dubai also plans to make rooftop solar panels mandatory for all buildings starting in 2030 as part of the Dubai Clean Energy Strategy 2050. More locally the smaller Californian cities of Lancaster and Sebastopol introduced compulsory rooftop solar panels in 2013.

David Fuller's view

Hardly a month goes by without reports of new developments within the solar industry which increase the variety flexibility and overall efficiency of these installations. Our ability to capture and generate power from the sun's rays is limited only by our imagination.

(See also: 3D solar towers offer up to 20 times more power output than traditional flat solar panels and Solar Panels made three times cheaper and four times more efficient.)

A Personal View From Peter Bennett: Spring Strategy

My thanks to this most experienced analyst investor/trader for his latest report. Here is a brief sample:

For the umpteenth time do not touch US equities on an investment basis. Trading of course varies. Last bulletin February 8th pointed out that bear markets spend little time actually falling and the market then was very over-sold. I modestly participated for clients in the subsequent sharp rally with the silver share Strategy 2016 recommendation doing particularly well. As I write it has exploded. More than 100% this year. The industrial metals investment trust that I wrote positively about also did well. And not in previous bulletins there was modest trading success in an oil share and a diamond mining one.

Given the size and speed of these rallies off monster over-sold I have cleared all the positions bar a modest one in the diamond company where trading fortunes could about double over the next couple of years ceteris paribus (which they seldom are). The major capital development programme is giving way to explosive cash flow growth.

Otherwise I continue to run high yield equities (UK utilities plus/minus 15% of portfolios plus other high yield). This covers my refusal to touch quality bonds being expensive as never before in history (yes I have missed three trades there that I considered!) Most expensive ever. Per below.

David Fuller's view

Needless to say there are plenty of risk warnings in this refreshing letter from someone who is vastly experienced and not afraid to say what he thinks.

You may or may not agree but I do not think any subscriber will be bored by Peter's comments. He also has a great section on Brexit.

A Personal View From Peter Bennett is posted in the Subscriber's Area..

The Markets Now

Monday 25thApril at London's East India Club

David Fuller's view

Iain Little guest speaker Charles Elliott and I look forward to discussing these interesting and challenging markets with subscribers and their friends. Both Iain and I will have plenty to say about precious metals. Charles will talking about promising UK technology shares.

If our mainly UK delegates at Markets Now are interested in a general discussion of Brexit we will allow some time for this before heading for additional conversations at East India Club's excellent cash bar. Do stay on and join us if you have the time.

Here isthe brochure.

Record VIX Bets Keep Surging Amid Wall Street Mixed Signals

This article by Joseph Ciolli and Inyoung Hwang for Bloomberg may be of interest to subscribers. Here is a section:

To Rocky Fishmanof Deutsche Bank the recent lack of equity volatility has convinced some investors that price swings may return. With the volatility on the VIX itself likely to remain high he recommends investors buy Standard & Poor's 500 Index put spreads -- a strategy that involves purchasing and selling bearish contracts on the measure simultaneously.

'Investors don't believe this low-volatility environment will continue' said Fishman an equity derivatives strategist at Deutsche Bank. 'Seeing how low the VIX is it's an opportunity to buy inexpensive S&P 500 options.'

The CBOE VVIX Index has climbed 5 percent this quarter and its average this year is about 8 percent higher than its historical average data going back to 2006 show.

There may be another reason that call activity has continued to swell amid the stock rally according to Deshpande.

Credit investors may be looking to protect recent gains delivered by a 29 percent contraction in the credit spread for investment-grade bonds since Feb. 11. That's pushed more investors into fixed income trading.

'Credit spreads have rebounded and people are investing in the space again' Deshpande said. 'So they need hedging.'

Eoin Treacy's view

Following the sharp pullback in January many investors woke up to the idea that hedging was a good idea which probably explains subsequent demand for VIX calls despite the fact equities were rallying and volatility measures contracting. The question now however is that while owning VIX hedges was a losing strategy for the last 10 weeks whether that will remain the case over the next 10 weeks.

The Volatility of the VIX Index (VVIX) has been relatively inert since late January but the lows are rising within its range albeit modestly. That suggests a move above 100 is looking more likely than no

Yen Falls Most in 17 Months as BOJ Considers More Negative Rates

This article by Lananh Nguyen and Anooja Debnath for Bloomberg may be of interest to subscribers. Here is a section:

'Japan's economy seems even more ripe for monetary stimulus" said Joe Manimbo an analyst with Western Union Business Solutions a unit of Western Union Co. in Washington.

That alongside 'reports of a rising risk of BOJ action next week" are causing the yen to plunge he said.

The currency which tends to gain in times of market turmoil as investors seek its relative safety has appreciated almost 8 percent against the dollar this year as equity and commodity markets faltered. The yen's gains have prompted analysts to weigh in on the prospect for Japanese officials to act to curb the currency's strength. As of late February Japan hadn't intervened in currencies since 2011.

The yen weakened 1.9 percent to 111.59 per dollar as of 12:46 p.m. in New York. It reached a level where a close would be the biggest decline since October 2014. It's headed for a 2.6 percent weekly decline after a 0.6 percent slide the previous week. Japan's currency depreciated 1.4 percent to 125.27 per euro on Friday.

Eoin Treacy's view

Japan is moving further down the path of experimenting with untried monetary measures with the potential for loans to be marked at negative rates. Yes that means allowing investors to borrow money with the commitment to give less back. That's the definition of helicopter money and is unlikely to be a tailwind for the Yen. The ECB is probably the only other major central considering similar moves while the Fed is a lot further away from those kinds of polices.

TerraForm Power Believes It Has Sufficient Liquidity to Operate

This note by Will Daley for Bloomberg may be of interest to subscribers.

Even if some SUNE obligations are not fulfilled TERP expects to continue operating

Defaults may now exist under many of TERP's non-recourse project-debt financing pacts (or such defaults may arise in the future) due to SUNE bankruptcy filing delays in preparation of audited financial statements

Defaults 'are generally curable"; TERP will work with its project lenders to obtain waivers and/or forbearance agreements

No assurances can be given that waivers forbearance agreements will be obtained

Eoin Treacy's view

SunEdison rallied impressively from its 2012 lows following the adoption of a quickstep leveraged strategy aimed at acquiring or building solar energy power plants while simultaneously divesting of the completed assets into two MLPs. This saddled the parent with the risk of acquisition and building without holding onto the residual cash flows from a working utility once completed. The strategy was predicated on the rapid pace of solar installations persisting indefinitely. They do not appear to have factored in the role a drop in oil prices would have on that business model.

The Chart Seminar 2016

Eoin Treacy's view

Thank you to everyone who has expressed interest in The Chart Seminar this year. Our plans are to hold a webinar sometime in June and I will share details of this as we firm up how best to conduct it. The timing of the seminar will be catered to where the majority of delegates sign up from but we'll try to pick a time when the most possible people can tune in live.

We also plan to hold two seminars in physical locations this year. From some subscriber feedback I was thinking of holding one in Los Angeles during the summer and another in London during the fourth quarter. If you would like to express interest in any of our events please message Sarah Barnes at[email protected]/* */.

Fuller Treacy Money

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