WORLD TRENDS FOR 2016 SEEM NEGATIVE, BUT THERE IS ENCOURAGING PROGRESS IN SOME AREAS
We continue to interview banking and finance leaders and pass these interesting items that are impacting trends in in U.S. Economy in early 2016.
- Dollar strength. This one is a two edged sword. A lower dollar seems to help U.S. exports, and help our "service economy". A high dollar, means petrodollars for oil, and this tends to distort oil/dollar appeal. Many nations, including Korea, Saudi Arabia, Cuba, and Iraq (just before our war with Iraq) promoted alternative currencies, especially for oil. Thus far, the dollar rules. The world has learned, that it is a bad idea to bet against the U.S. Dollar.
- Commodity weakness. In 2014, and most of 2015 commodities were rising. Farm, mining and other commodities seemed strong. In late 2015 we saw more aggressive efforts by the Chinese, to flood the market and drive prices of coal, uranium, copper and a host of commodity prices down, so that they could ultimately break global competition and gain control of the markets. In Early 2016 Saudi Arabia tried the same tactic with oil and drove prices down to 30 year lows, by increasing production.
In economic history we see that artificial manipulation of commodity prices by governments is of only temporary power.
- The policy has caused China billions in losses and Saudi Arabia showed the largest budget losses in decades as a result of their oil policies. Oil prices are slowly coming back. But the Chinese recession and a lack of buying power in that sector has hurt agricultural and other commodity prices world wide.
- Bad IPO market. New offerings for new enterprises have dropped, while investment bankers as well as deep pocketed speculators have run for the hills. Thus, fewer new enterprises, less new capital flowing into the economy. Where are they investing? Safe havens! Gold for example has reached new highs!
- Banks are under pressure. The same big banks, which were institutionally weak anyway, have loan issues. Bank of America, Citi Bank, the largest European Banks. Most of the banks in China are in trouble. Dubai and AbbaDhabi have issues with their own banks, plus they also own huge stock holdings in U.S. Banks. By and large, regional and local community banks, are outperforming the "big boys". This is one to watch because it might bring on tougher regulatory exams and cause lending to tighten. Are there spots of new liquidity in the world? Believe it or not, banks and new businesses in India seem to be doing very well. Banking and economic expansion in Latin America is encouraging.
- Weakness in the transport industries. Here we are not talking of consumer travel, but actual transport of goods, commercial goods, commodities and so on. This trend impacts dozens of other industries of manufacturing and should be watched.
An international meeting, is it a "rubber stamp" of Saudi Arabia's will, or a true give and take?
Saudi Arabia has a group of nations that it has high influence with and has called an international gathering of it's band of nations to meet and discuss the future of world oil production. Oddly Saudi Arabia's oil policies have caused the nation it's larges losses in decades. It's policies have been devastating to the "friends" of Saudi Arabia. It is interesting that Saudi Arabia timed a release stating that it would created the largest investment pool in history to diversify it's investments into alternative "non oil" related industries. 2 Trillion $ in a fund could buy almost any thing they want. The question is simple, "Can buying other companies, make the long term stable for their nation?" Who knows how this might work!?
It is most informative who has decided to attend, or not and why.
1. Iran, a large producer, at first seemed to want nothing to do with anything Saudi Arabia controls. But then, Iran put out a message that it would be interested in a dialogue, and would participate. Thus while the two nations are very competitive, they are "holding their noses" as they will be together in OPEC meetings. Iran thinks a voice of reason, may bring it some hope for working together with the lessor nations. Saudi Arabia has essentially created an "OPEC" within "OPEC" in which Saudi Arabia is the controller. Iran has the potential to be a more influential leader in the region. The Saudi's are taking every opportunity to block or step in the way of Iran's growth. Many Americans believe that Iran, especially the young and educated population, can become good friends and business partners with Americans. Many in America want to open up trade with Iran. It is a historically rich culture, with many values that we share in common. Watch Iran, as the next decade will bring progress. This of course, is threatening to the desert culture of Saudi Arabia, which has only one large product, a depleting oil economy, and an intolerant, violent religious leadership in Wahhabi philosophy.
2. Russia, a huge oil producer, is not attending. Saudi Arabia's policies have punished Russia's cash flow which is based upon oil greatly. Russia has no love for the Saudi's and seems to be in conflict with them for promoting terrorism. OPEC needs global players in this meeting, but Russia has not indicated any desire to crash the party.
3. The United States is not attending, nor does it wish to step in, but for different reasons than Russia. The USA is sending a signal to Saudi Arabia that the Saudi's already know. "We don't need your oil and gas now. We will prevail whatever you decide to do." This message is of great concern to Saudi Arabia, since we are responsible for much of their wealth and development over the last 70 years.
4. Libya is not going to the meeting. Hmmmm a regional player is snubbing the Saudi's.
More information on China:
As Chinese exports have declined, U.S. personal savings rates have increased.
As more facts filter out of China, slipping past the great wall that hides economic fact, the reality of the Chinese recession indicates an economy far worse than the government has admitted. The 6% growth in GDP that China's government boasts is now under scrutiny. The numbers appear to have been cooked and manipulated to the point that most economists find them of little credibility. What is known is that China is having to dip into foreign reserves to bolster faltering industries and keep social discontent at a minimum. We feel the economic decline of China because China simply is not buying things. And China is selling U.S. bonds by the hundreds of millions to garner in cash to cover it's bills. China is pulling in cash and selling investments.
Vibrations around the world, can you feel them?:
Various wars, conflicts and terrorist attacks suggest that fringe groups are more desperate than ever to gain attention, seeking media hoping for an image of power. Many believe it suggests a panic, even admission that they are losing. Every new terrorist attack in the west is a signal that ISIS and associates are in trouble.
We and many others believe that these random attacks on the west, are a signal that the various radical end of the ideologies, most of them Muslim vs other Muslims, Muslim vs non Muslims, Muslim vs anyone that can bring media attention, have caused such outrage that moderate Muslims are finally being vocal and critical of radical Muslim terrorists. The extremists are essentially destroying themselves, and in desperation, seeking the world to believe that they have more power than they have. An attack at Easter on children at a eastern egg party, ended up killing far more Muslim children than anyone else.
The Easter attack upon children, killing so many, suggests that they are desperate. They are losing and taking desperate measures to appear to be powerful. IT DEMONSTRATES THEIR WEAKNESS.
The impact is psychological, but the entire civilized world has turned against them. There appears to be no redeeming value to their existence, thus their own people have turned backs on ISIS. We predict the obvious, that has been proven repeatedly in history. Despots, tyrants, radicals, and thugs, all go down. They are marked, their time is limited. Europe, which opened it's arms in compassion has turned against them. Latin America, Russia, America and most of the Muslim world has turned against them. Asia and the Pacific want nothing to do with them. India's population has rejected them in mass. Who are their friends. A few pathetic tribal gangsters in Africa, and a few bearded grey haired clerics and their sad radical followers who are still fighting a revolution that lost its vigor decades ago.
People have become more wise and sophisticated in viewing the manipulations of explosive mixtures of intolerant religion and politics wedded in unholy alliances just to gain power and control. Only fools accept the myth that holy religious teachings promote war, rape, murder, torture, and the random terrorist killing of children, women, who are innocent and helpless.
Sadly, those volunteers who have joined and fought with ISIS and other terrorist groups thinking it was a Holy cause, are quietly slipping back home, filled with shame and horrid memories. They must live with the terror that they thrust upon others.
ISIS and sister "terrorist groups" are being systematically destroyed.