Archive for November, 2014

Stock market 2015: judgment year!

Posted: November 28, 2014 in Uncategorized

Soon it will be 2015. It will be  a very different year.

In 2014 every attempt to a serious correction became a buy opportunity. Not so in 2015.

1. For the first time since 2009 the Anglo Saxon reserve banks (US, Canada, Australia) are in tightening mode, while Europe and Japan are still in loosening mode. The first immediate consequences have been currencies. But as earnings follow currencies the US companies will have pretty hard pressed to keep the margin and sales. Usually after the spike in volatility in currencies there is a spike in volatility in the stock market.

2. The Saudis crashed the oil price. Initially with the help of the US as anti Russia move (as the main income generator for Russia is oil), but now they are turning against their master (or puppet) as the low price (target is USD50, for now) would crash the shale oil companies (30% of the SP500 are oil companies. And they issued also a lot of junk bond which could have ripple effect

3 The US Federal Reserve has projected an increase of interest rate. The repercussions are so enormous that go beyond the scope of this blog. It is a very delicate balance that, if mishandled, could even plunge the world in a new recession.

4 Russian President Putin (also with the help of China) is pushing to de-dollarize the world commerce. Again a change of world reserve currency is an event of historical proportion. I do not think it will be achieved in 2015. Anyway the New Cold War it is just at the start and now the Russians know what the US did to cripple the USSR.

5 Geopolitical tensions are every where from Ukraine to the Middle East to the South East China sea and the great forgotten Pakistan-India situation (both nuclear powers)

6 The only time when we had a high dollar/low oil price was 1986, and the Dow Jones ended down -7%

7 The Republican US Congress will have more say in the Federal Reserve actions that saved the market so many times, in 2014.

8 China will keep on trying to stimulate the economy – but each successive stimulus is less efficient than the one before.

All is all it is very possible that 2015 will be the first negative return equity market in quite a few years.

Definitely it will be a year not buy and hold, but trading for your life.

Iron Ore: the Chinese supply indicate a floor of USD65 and not much movement from there.

Oil: the Saudis definitely want to flush out the competition and are aiming at least at USD50 for at least one year (and then rise the price afterwards)

Gold: still persistently weak and manipulated, but a great diversifier in this  complex world (plus the various reserve banks are buying gold like there is no tomorrow – and usually they know more than you).





The Swiss Gold

Posted: November 27, 2014 in Uncategorized

This weekend there is an important event. A referendum in Switzerland that could compel the Swiss Reserve Bank to keep 20% of its reserves in gold (70% of the annual world gold production)!

As of now, it seems the referendum will not pass.

But a bit like the failed referendum of Scotland, it signals an alerting trend. While gold has been battered left right and centre, the Reserve Banks of the world (such as China, Russia and others) keep on increasing their holding.

Gold is still in downtrend, technically.

But is there something we do not know?

Again today Goldman and HSBC have been sued for price rigging in palladium. Another scandal, same people. I wonder what it takes to close shop.

The oil price is now in a technical downtrend to $50 a barrel. A bonus for the consumer, but a real danger for the economy.


First of all the SP500 is composed by 30% of energy stock that would suffer from such low prices as the average cost for the new shale gas is $45-50.

OPEC countries and exporters country (like Australia) will suffer as often their budget projections are set on oil levels around at least US$75 – $85.

Even more interesting a lot of these companies financed themselves via the high yield (junk) bond market, which is already under stress (but out of the media attention).

The only year where we had low oil price and high US Dollar (that again put pressure on US companies)  was the long forgotten 1986/87 where the US markets fell over 7%

China: back to the future

Posted: November 24, 2014 in Uncategorized

China, after having tried -and failed – a number of unconventional stimulatory move – went back to the old school of cutting the interest rate.

Naturally the market cheered and probably this is the start of the Christmas rally.

Also they lifted the deposit rate cap limit which is a good move that goes towards liberalization .

The issue with the old school move is that it does not help clean the imbalances and problems of China. Actually reiterate them.

So again, in order to achieve the mystical 7.5% GDP growth they gave up a pretty good strategy to solve the Chinese economy issues.

Unfortunately, the issues will represents themselves in due time and not so far in the finish as all this stimuli have a clear pattern to have a decreased effect in time (a bit like taking the same medicine over time)

The road to hell is paved with gold. None the more appropriate. At least they tried (contrary to the West)

Russia: a thin Red line

Posted: November 24, 2014 in Uncategorized

Over the weekend Russian Foreign Minister Lavrov declared that the US is pushing for regime change in Russia via economic destabilisation.

This is really what is happening and already happened in the past.

In the 1970 you had the USSR at the top of its game: they won in Vietnam, Fidel Castro in South America and Africa had subverted or created issue for a lot of American sponsored dictators and the US was reeling from the Watergate scandal.

A decade after we saw the end of the USSR in 1989.

It was the sum of bad economic decisions of a state too much dedicated to equalisation (so no one was driven to excel via monetary benefits) and with too much effort towards the military (even US Military projected that the Soviets in a full war without nuclear weapon use could have been “probably ” stopped in Italy – after losing 70% of Europe!).

Yes it was all that, but new revealed document show also a secret pact US-Saudi that flooded the market with cheap oil, killing the USSR revenues, with a combination of sanction due to Afghanistan.

Now at the resurgence of Russia, Washington is attempting the same thing.

The issue here is that now Russians have seen it all before and seen the consequences – from Superpower to Third World Country in 2 years.

They will not go down without fighting.

The long war for them is to kill the US Dollar as a reserve currency (which is the “thing” that allows the US to have a multi trillion debt without impunity).

But if they cannot last the game, the situation could get uglier.

They would have two scenario of choice

– Going on a full on attack in the ex Soviet Republic (Would the US sacrifice over 5,000 Marines for Estonia? I guess the answer is not really.)

– More likely going on a full on cyber attack and close the oil to Europe that would send the economy back to the stone age.

Beware of the Bear.

Funny enough in Russia if there is a regime change, historically it has always been for the worst. So if President Putin goes, we could remember him as a nice, pacific Russian President.

Now the frenzy for Medibank Private really starts.

The Government even raised the offer to $2 to $2.30 with an assured profit for the average investor!

This will be marketed as a great success for the Government (cashing in over AUD $6 billion for the Australian Budget) and for the retail investor.

What nobody is telling you is that, at current levels, each investor will be given approximately 10% to 20% of  what requested. So the typical request of $20,000 will give you just $2,000 to $4,000 of stock.

And if the new price is the real one, it means that the price will be 24 times the forecasted profits by Medibank for  June 2015.

It is very hard to see any upside to that….but a lot downside.

The tempo and sophistication of the terrorist operations in Egypt points that something is going on.

Egypt has a special place in the Middle East.

It is one of the heaviest populated with over 80 million people, mostly poor. It is practically in the brink of bankruptcy surviving from loan from the Saudi Kingdom and associates.

The Saudis are helping Egypt as they are terrified by the Muslim Brotherhood – a previous Islamist terrorist organization that now is trying the democratic way – a terrifying concept for the kingdom (interestingly enough is considered a terrorist organization in the Arabic Peninsula and not in the US).

The extremist group – not Brotehrhood in Egypt are actually pledging alliance to IS and IS needs some media coup after, at least in the news*, for months has been battered from the Allied war planes.

So by deduction the area of Sinai with the Suez Canal is becoming more under focus. The Suez Canal with its traffic has also economic and oil price consequences. But the Egyptian Army is not without teeth and very ruthless and it has very strange and powerful allies (Israel and Saudis in this bit, collaborate).

* Yes it has been battered and suffered heavy casualties, but it is very little to be found the amount of new recruits from all over the world they are getting. So it is difficult to estimate. The New York Times in September estimated 1,000 persons joined from Turkey alone. UN estimates of inflows during 2014 to Iraq/Syria (not divided per terrorist group),  as of 30 September, were 15,000

Medibank Private!

In a market with very low volume and direction like ours, the main reason of the weak market is the new Initial Public Offering.

Listed at approximately AUD 5 billion, it actually sucks money out of other investments ….so practically cripples the entire market until quotation.

As quotation is expected to be high, some fund managers (apparently there has not be such a great institutional request – (the Government threat to fund managers in regards to devious way to buy the share was mostly a marketing ploy – as it could not be enforced) will sell and restart buying the market.

But to be fair, the market is now fair value and without a general economic improvement….there is not much direction, apart the classic Christmas rally with a target 5,700

Cold War reloaded

Posted: November 11, 2014 in Uncategorized

It is quite a while that I say that we are now at the first stages of a new cold war.

Now my theory has been backed by Henry Kissinger and Michael Gorbachev, both actually accusing the West of excessive triumphalism versus Russia after the fall of the USSR.

In the last year there have been over 40 “close call” between Russian and US/NATO forces and next month, apparently, the 2015 Russian Defence Doctrine will identify US and NATO forces as adversary forces.

The Russians also are building an anti-NATO alliance (Shangai Co-operation alliance) which include Russia, China and a few of the ex Soviet Republics.

The flashpoints are logically Ukraine (and most of the ex soviet republics), Syria, Iran, ex Yugoslavia.

Russia is also looking at new friends between the non US aligned, such as Brasil, Venezuela, India.

The US, specially with the new Congress, will bolster the weapon sales to Ukraine and especially to the Baltic Republics.

A new field of was (in respect of the Cold War 1.0) is financial war.

The US is hitting Russia in the pocket with sanctions, low oil price and low gold price.

Russia has a long game of de-dollarising the world  systems, growing the trade in non US Dollar currencies (one of the reason why the FED could rescue the US in 2008 is that the US Dollar is the world reserve currency).

Definitely Putin will not stand idle to the financial pressure as he knows that the fall of the USSR was caused mainly by financial strategies.

I am pretty sure that some readers will think that I see conspiracy theory all over the place.

In reality what I see is not conspiracy theory, but realpolitik (or realekonomic) in the real world.

It is a bit like blue pill or red pill of Matrix, do you really want to see the reality.

Or as John Le Carre, master novelist of the real spy world, would say it is just “Little (intended as of little morality) men  with great power chasing their personal objectives.

The LIBOR market (that settles all mortgage rates) had been found rigged by the UK Court of Law (Barclays Bank).

Then the Forex (JPM, BofA, Citi, UBS)

Now we found that also Gold and Silver are manipulated (FT article, US/UK Court of Law) -UBS

The FED in an article in June 2014 in an article of The Economist admitted to intervene directly on the share market, together with all the main world reserve banks (US, UK, EU, Japan and China).

And in the US Treasury there is a little known Office of Foreign Assets Control that is the Financial War Department of US Government.

In the surface is just responsible of the sanctions imposed by the US, but in reality has much more meaningful powers.

Russia has the largest reserves of gold, and gold falls like a stone.

Russia has 80% of revenues from oil, and oil falls like stone.

I do not believe in coincidences.