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Honest Information, Profitable Trading

Durudarshan - Investment Analysis

My Blog


Today, the U.S. and European markets looked optimistic

Posted on February 12, 2016 at 2:51 PM Comments comments (11)
Recently, there has been a lot of volatility in the financial and stock markets.  Whether real or imagined, the fears have been about the likelihood of the U.S. Federal Reserve raising the rate.
Come on, a quarter percent move up after nine years of near-zero, and just that set the market downwards in the last two months.  People fearing another hike at the FOMC meeting were put at ease,
Dr Yellen announcing the possibility of 'negative rates being on the table'. 

That, I would suggest, would be a disastrous scenario. 

Perhaps the rate hike was premature, but it was implemented as a show of confidence that the economy was growing.  And yes, the U.S. economy has grown magnificently, thanks to the Quantitative Easing rounds one two and three.  The banks and huge corporations bailed out after 2008, first under President Bush, then under President Obama, have grown to profitability and turned around completely, being able to repay the bailout funds and now showing healthy profits, maintaining massive employment.  That has been no mean feat.  Now when you imagine that corporations like Apple and Oracle and Microsoft hold many billions of dollars in cash reserves, you know that everyone has done well in the period of the Great Worldwide Recovery (to call it something negative is a misnomer).  Many more people have jobs, are doing well with their enterprises, are buying their own houses, purchasing or leasing automobiles and work vans, consumer demand for durable products has increased, for furniture, TVs, clothes, high-end electronic brands...unabashed consumer spending that shows a growing confidence. 

Negative interest rates (i.e. the bank charging customers to keep their money in deposit accounts) would be unpalatable.  For the U.S., for the time being, I believe it is most unlikely, for the foreseeable future. 

Yes, of course, there are signs of what might turn into a global slowdown, or even a recession, but I believe we can hope that scenario will be averted, for the whole global community.  In this regard, I believe the OPEC and other Oil producing nations will have to agree on production cuts, so the Oil glut can clear, and by the same token the Oil price could be restored to what would be an economically viable number for the producers, perhaps $45 to $50 in a few months.  This is dependent on perhaps Saudi Arabia suggesting a cutting or quota-setting meeting, with a similar response from Russia, as the biggest Oil exporters.  With controlled Oil supply, a better price can prevail, enabling the Oil producers sustain their economies with a realistic breakeven price.  Where was 2012 when the breakeven price for Russia was $110, and $80 for Saudi Arabia?  Now it seems around $30 for all, all due to fall in demand from China, where the are repositioning their economy....China is now like a major, developed economy, save for the fact that their social security and healthcare systems will need to expand a provide for a great number more before they could fairly assume they have equalled those standards.  It is my impression that their President Xi Jinping is fully committed to raising their standards of living. 

While there is work to be done, and there always is, no nation will stand idle. They will make and consume at home if they don't export, and standards of living will increase.  There will be work, and there will be more time for leisure; with programmes of education, training and social welfare, more people will be lifted up to enjoy the nation's wealth.  It is apparent that China will continue with their programme of investments overseas, as they have done in the United States and Portugal, as well as in the United Kingdom, and some of the African nations.  It can be considered a benign expansion of Chinese influence. 

Today, the United Arab Emirates Oil Minister has asked for the OPEC and other Oil producing nations to consider some production cuts.  In the current atmosphere of the price dwindling while supplies remain unsold, storage beginning to be fully booked, and the dreadful picture that people may even have to fill it in the swimming pools (ugh!) can only suggest some sensible decisions being made.  And if the magic works, and the Oil price is restored, that will be a blessed relief to some many economies.  And the train of the Worldwide Economic Recovery can once again start to gather pace, leaving the dreaded scenario of a recession well behind.  If such a decision is made within a few days, that may just produce the leading indicators that can restore confidence.  I sincerely pray for this, and in fact it was yesterday evening that I wrote an open letter to the King of Saudi Arabia on my website on this, and was thrilled to read the UAE's response this morning. 

Everything being equal, as I believe common sense will prevail, and peace too will be restored for many people (with the ceasefire agreement, or 'cessation of hostilities' within Syria), the whole world may be able to enjoy a future of confidence. 

As for the imminent launch of a big missile by North Korea, I believe China must use their influence to bear and jolly the Hon. Kim Yung-un to act with due consideration and responsibility.  It would be better for him to ask for help from the international community for his nation, as his Father was trying to do before his death, then to try to cause a scare for his neighbours.  Just as Japan helped South Korea to become a powerhouse of production, much loved by all trading nations, there is no lack of means or goodwill for various nations to do something similar for North Korea.  On that, the friendly nations must reassure the Hon. Kim Yung-un.

I feel optimistic for the future, with the goodwill that exists in all human hearts.

Kind regards,
Durudarshan H. Dadlani

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