Archive for May, 2014

Well, when I found this news scouring the net this morning I could not write about it.

Both Businessweek and Bloomberg report (for us in Australia also NINE and SMH)

Italy will include prostitution and illegal drug sales in the gross domestic product calculation this year, a boost for its chronically stagnant economy and Prime Minister Matteo Renzi’s effort to meet deficit targets.

Drugs, prostitution and smuggling will be part of GDP as of 2014 and prior-year figures will be adjusted to reflect the change in methodology, the Istat national statistics office said today. The revision was made to comply with European Union rules, it said.

Well, as usual Italy does things in style (or let’s say they have the ability to tease themselves). While US, UK and also Australia recur to all dodgy system to improve the data (otherwise why would you feel poorer by the day? – for example if the Dow Jones 30 constituents of 1982 we re the same (only 2 companies are the same from 1982) the Dow Jones would be now approximately 4,000).

Again, the US last year changed the base year for GDP calculations

at least Italy has fun with it.

PS The news is true!

UPDATE

– Apparently this new calculations will be implemented in  all EUROPE!

– Finally Italy will have a GDP growth even better then China (real GDP growth -0.5%, estimated illegal activities (by the various Mafias) 17%)….Italian GDP +16.5% (well in reality, averaged out would be more a +11%…take that China at just 7.2%!! Too funny. And they complained of Berlusconi!

Gold

Posted: May 22, 2014 in Uncategorized
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Gold tried to breakthrough spurred by Ukraine by failed and now it looks like consolidating around USD 1,280/1,325.

It is very difficult, but it looks like prepping for moving higher (USD1,400/1,480). But it needs a catalyst that could be

– New Indian Government stopping the restrictions on gold purchases (it looks like they will do, so to sop the gold smuggling

– A geopololitical risk like Ukraine being invaded (I do not think so – Putin just need to destabilise it.

– Deflation in Europe

-Real interest rate spike in the US (hard to tell, but food inflation in the US is high and skilled job unemployment is under the long range term…these two factors are currently hidden from the macro data…but if they come out in the media they could wreak havoc)

– A stock related risk event, that we are still missing

– (remote) the financial details of the Russia-China deal that could agree that the settlement will be in Yuan Rouble rather than US Dollar (it would be a crucial decision, but I do  not think that people will realize the systemic shift that such an event could provoke. Practically a serious dent in the US Dollar as reserve currency)

Cold War Reloaded

Posted: May 21, 2014 in Uncategorized
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What Ukraine has done for the world is to push all the world in a Cold War scenario.

The fear is fortunately not nuclear – world war 3 …but financial.

Putin is trying not to invade Ukraine, but his red line is that Ukraine must not be coherently under the US influence. Chaos or a federalisation will be enough.

But already Mevdev (now Russian PM) already told us that we are back in the Cold War 2.0.

But now the Russian are smarter. They understand that the core of the US Power is the US Dollar as reserve currency and that is what they are aiming at.

Putin is almost signing a mega contract for a Russian -Chinese pipeline. Maybe it will push for the price to be paid in Yuan.

Already Hong Kong banks like HSBC and Standard Chartered have a lot or reserves in Chinese Yuan.

In July there is a BRICS conference in Brasil (and Brasil is quite against US due to the currency war) where the BRICS Development Bank (sort of IMF for third countries) will be launched. And maybe now in USD.

Russia is studying an alternative to the VISA/Mastercard system payment, after the sanctions .

The fact is that the US Dollars in 2000 was the currency of choice for 55% of global transaction and in 2013 was 33%. Other currencies increased, in the same time, 400% (China does not disclose that data so other will include certainly Euro…but you could guess the Yuan increased a lot – China is aiming to make it fully convertible in 2018).

The US certainly knows this and replicates old Cold War scenario weaponizing all the Balcanic and ex USSR country and helping the Pacific Rim (Philippines, Vietnam, Australia mainly). It is quietly pushing Japan to leave its pacifist constitution. And UK is “leaving” Europe for the US.

Europe is struggling as military and “democratically” is linked to the US. But economically and energy is linked to Russia.

So back to the future!

European elections

Posted: May 20, 2014 in Uncategorized
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The 25 May there are the European election (also a vast arrays of local elections (28 national one for the EU, One Europe wide plus the Ukrainian election).

The polls indicate a big rise of the “anti” party (against Euro, against immigration, against Europe…but not very constructive).

Economically Europe is improving, but normal people are still struggling. Specially the fiscal pressure in South Europe is unbearable.

Also Draghi (EU Central bank) of ECB will look closely.

He (backed by the French) wants a Quantitative Easing also for Europe, but Germany, as usual, is recalcitrant. But in a sense is looking at the strength of the Euro and could start otherwise. But QE for Europe, due to the Germans, will always be a weapon of last resort in case of risk of deflation

We all know that the Budget says that the pension age will increase.

What is actually more worryingly is that looks like the Preservation Age will increase.

We naturally will take care of the issue for our clients. The other better watch out – that would be a change that affect you more than the Pension Age itself.

Appearing on the ABC’s Q&A program, Mr Hockey said he suspected the change would be in this term of government, but that we need to have a “national conversation” first about retirement savings.

The age at which super can be accessed, the preservation age, is on its way to 60, depending on birth date.

And It practically means lifting the preservation age to 65 by 2035 to mirror the increase in the pension age.

But any increase in the access age would compound the difficulties for those working in physically demanding jobs or for who wants retire before 70 independently by the Pension Age! It will even encourage more people to save outside of superannuation in trusts so that they have access to the money when they want to retire.

Iron Ore plunged under USD100 (AUD 98.50).

This is the consequence of the ongoing crisis (well nobody says crisis and China in the same sentence, apart me) in China and it will put pressure both in Australia and China.

 

Australia is quite logical ….half of our sharemarket is iron ore.

China is more subtle …yes they depend a lot from iron ore – but in more ways than one as a lot of loans are secured by commodities (as in Australia are secured by houses).

So China is racketing up the scaremongering with Vietnam (The Epoch Times signals even troop movement at the Chinese Vietnam border, apart the naval issues).

Probably it will use the usual technique to build up pressure, until the US Navy gets really interested and then “go away” to find another conflict spot (it is pretty much the pattern they used in the last three years).

In reality is mainly for internal purpose (the classic strategy: when there are too many domestic economic issues, create a scaremongering monster outside).

Well I did some theoretical studies.

Here we have two powerful forces.

– Negative: geopolitical events and the traditional “sell in May and go away”

-Positive: Federal Reserve intervention (since the banks do not lend, the FED is trying to create a positive bias in the market in order to turn the consumer confidence) and political meddling (mid year there are the all important US Mid Term election…who wins that round is the clear favourite for the next “after Obama” election.

As a Calendar go, statistically) the most scary period is 25 May till the 7 July with a crucial period 6 June – 1 July.

So in this period pays to be conservative. I am not saying that something will happen – I just say it is not worth the risk.

Well I did some theoretical studies.

Here we have two powerful forces.

– Negative: geopolitical events and the traditional “sell in May and go away”

-Positive: Federal Reserve intervention (since the banks do not lend, the FED is trying to create a positive bias in the market in order to turn the consumer confidence) and political meddling (mid year there are the all important US Mid Term election…who wins that round is the clear favourite for the next “after Obama” election.

As a Calendar go, statistically) the most scary period is 25 May till the 7 July with a crucial period 6 June – 1 July.

So in this period pays to be conservative. I am not saying that something will happen – I just say it is not worth the risk.

Japan’s Rising Sun

Posted: May 19, 2014 in Uncategorized
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Japanese PM Abe finally did what a lot of observers wee waiting for: asked for a review to the limits of military action as imposed by the 2 World War re drafted constitution, paving the way for a full re-militarization of Japan.

It is a clear consequence of the bold Chinese moves in the South China Sea.

Naturally China gave a stern reprimand ‘reminding’ the Japanese counterpart of what happened with militarism in the early 1930.

Funny enough they are right, but they also missed the point that the behaviour displayed by Japan in the 1930s is actually very similar to the current Chinese behaviour.

 

On a related thought. Logically as a number game Japan cannot defeat the Chinese. As they have some of the most advanced robotic development programs (even toys and dolls), it would be logically that they could decide to build combat droids if the situation continues to deteriorate.

USA and inflation

Posted: May 19, 2014 in Uncategorized
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That is one thing you just do not hear about.

Well they cannot make you hear this uncomfortable truth as all the paradigms of growth via low interest would automatically fail if there was inflation.

But inflation is there.

Thomson-Reuters /University of Michigan consume confidence dropped from a 9 month high in May from 84.4 to 81.8 , as American are shaken by rising grocery and fuel bills at record high.

US Bureau of Labor statistics (yoy)

Price of shrimp +61%

Price of bacon +13.1%

Price of pork meat (end of 2014 projection) +20%

Ground chuck beef +5.9%

Chicken breast +12.4%

This is a time bomb.

While the super wealthy Americans (and in the world in general, BBC stated on Sunday that UK Billionaires last year improved their fortune by a massive +15%) – the average John Doe is struggling to have a plate of meat on his table. 

 

You do not know when it will hit the main media…but soon or later (now to 3 years), it will. And it will not be just the financial market to have an issue.