According to the media, the expectations that the Federal Reserve would raise interest rate is pushing commodities down due to the rising value of the US$.
We have economists and analysts saying that this is the beginning of a tightening cycle. Gold has lost its shine as it does not earn its investors any dividends or interest.
We have Goldman Sachs predicting that the Federal Reserve will raise its rate in December followed by a 100 basis point increase in 2016 and gold will fall to US$1,000 per oz.
Some even predicted that gold will fall below $1,000 per oz in 2016. The bearish signals are rather overwhelming.
Then incredibly, on 10 August, Speaking Alpha reported that on 6 August, Goldman Sachs bought 3.2 tons of gold while HSBC bought 3.9 tons. Both purchases were recorded as being for the benefit of the banks' own house account.
It leads one to wonder why the bearish call from Goldman Sachs when they are urging traders to sell gold. Reminds me of the CDOs fiasco back in the 2007-2008 period.
Incidentally, while traders have been most bearish on gold, Russia and China have been steadily accumulating as well. Now if gold is going to be worthless, one also wonders why the central bank of both countries are buying gold.
Link http://www.bloomberg.com/news/articles/2015-10-22/fed-getting-started-on-rates-will-hurt-bullion-goldman-predicts
Link: http://seekingalpha.com/article/3421396-the-big-long-goldman-sachs-and-hsbc-buy-7_1-tons-of-physical-gold
Sunday, November 29, 2015
Friday, November 27, 2015
LGO UPDATE
LGO announced that it has reached an agreement with BNP Paribas to terminate the prepaid swap at its current value of US10.8M including all future interests and fees.
LGo will have a schedule of repayments, starting with the next three months (December 2015 - February 2016) at a reduced rate of US$75,000 per month, after which the remaining outstanding balance will be recovered over the following 19 months at at rate of approximately 5% per month.
LGO and BNP will continue to have regular constructive discussions aime d at assisting LG to establish a secure and sustainable platform for future investment.
Meanwhile, LGO is working closely with its US advisors, Wellford capital markets and height Securities ons trategic investments in the business. LGO expects to be actively discussing with potential investments with clients of Wellford and Height in the next two months.
The agreement reached with BNP is pivotal to LGo to maintain the momentum in their oil production operations in Trinidad.
My disclosure: I own shares of LGO
LGo will have a schedule of repayments, starting with the next three months (December 2015 - February 2016) at a reduced rate of US$75,000 per month, after which the remaining outstanding balance will be recovered over the following 19 months at at rate of approximately 5% per month.
LGO and BNP will continue to have regular constructive discussions aime d at assisting LG to establish a secure and sustainable platform for future investment.
Meanwhile, LGO is working closely with its US advisors, Wellford capital markets and height Securities ons trategic investments in the business. LGO expects to be actively discussing with potential investments with clients of Wellford and Height in the next two months.
The agreement reached with BNP is pivotal to LGo to maintain the momentum in their oil production operations in Trinidad.
My disclosure: I own shares of LGO
CHINA'S YUAN IS DEPRECIATING AGAIN
China's Yuan is almost back to its devaluation level in August. And I think China's troubles are just beginning.
From Bloomberg website
China has a huge debt problem, almost 300% of its GDP, over capacity in state owned heavy industries such as copper, aluminium and steel. Only as recently, it was reported in the news that many are asking the government to absorb their excess capacity. Several are in default of their debt obligations. Here are some examples in 2015:
1) Kaisa Group interest default (US$52M)
2) Baoding Tianwei Group Co interest default (85.8M Yuan)
3) Sinosteel default on 5.3% interest on 2B Yuan notes
4) Winsay Enterprises Holdings failed to meet interest payment on US$ notes for a second time this year
5) Yunan Coal Chemical Industry Group has 1.31B Yuan of overdue loans
6) Shanshui Cement announced on November 5 that it could default on its interest payment
I am expecting more defaults to come by early next year as manufacturing continues to contract. China's PMI has fallen below 50 for the past few months. 50 signals expansion while below 50 signals contraction. This is amidst a wave falling exports which crimped revenue in the manufacturing sector.
It is best to stay off any investment in China, and that include mainland Chinese stocks, bonds and currency. The worst is yet to come. If you should invest in China, go for companies listed in the US or HK instead, but only companies with very strong balance sheets.
From Bloomberg website
China has a huge debt problem, almost 300% of its GDP, over capacity in state owned heavy industries such as copper, aluminium and steel. Only as recently, it was reported in the news that many are asking the government to absorb their excess capacity. Several are in default of their debt obligations. Here are some examples in 2015:
1) Kaisa Group interest default (US$52M)
2) Baoding Tianwei Group Co interest default (85.8M Yuan)
3) Sinosteel default on 5.3% interest on 2B Yuan notes
4) Winsay Enterprises Holdings failed to meet interest payment on US$ notes for a second time this year
5) Yunan Coal Chemical Industry Group has 1.31B Yuan of overdue loans
6) Shanshui Cement announced on November 5 that it could default on its interest payment
I am expecting more defaults to come by early next year as manufacturing continues to contract. China's PMI has fallen below 50 for the past few months. 50 signals expansion while below 50 signals contraction. This is amidst a wave falling exports which crimped revenue in the manufacturing sector.
It is best to stay off any investment in China, and that include mainland Chinese stocks, bonds and currency. The worst is yet to come. If you should invest in China, go for companies listed in the US or HK instead, but only companies with very strong balance sheets.
Tuesday, November 24, 2015
GLOBAL DEBT HAS REACHED US$230T.
Global debt has reached US$230T whcih is 313% of the gloabl annual GDP. Financial derivatives market itself is worth some US$700T!
So who thinks the federal reserve will continue to raise rates?
There could be a Q4 sooner than we think.
Link: http://www.mybudget360.com/global-debt-total-amount-of-debt-world-gdp-to-debt-ratios/
So who thinks the federal reserve will continue to raise rates?
There could be a Q4 sooner than we think.
Link: http://www.mybudget360.com/global-debt-total-amount-of-debt-world-gdp-to-debt-ratios/
Monday, November 23, 2015
US OIL RIGS COUNT FELL 10 FOR WEEK ENDING 20 NOVEMBER, 2015
US oil rigs count fell by 10 for the week ending 20 November, 2015. Despite the drop in oil rigs count, oil price remained in the US$40 - US$42 range.
Oil price could potentially fall below US$40 in the near term as the glut in supply refuses to give way. This could put many US shale oil companies in jeopardy of defaulting on their heavy debt loads. Re-financing options are thin as many investors and private equity funds got burned, investing billions of dollars in US shale oil companies in spring, believing that oil price would recover towards the end of the year.
As early as Q1 2016 we could witness another round of bankruptcies.
The ball is very much in OPEC's court as many members are facing a squeeze on budget and many more could see their sovereign wealth funds deplete to troublesome levels should oil price fall into the US$30s range.
A proclamation of war on US shale oil has reached a level where there will be no winners but all could wind up as losers.
Oil price could potentially fall below US$40 in the near term as the glut in supply refuses to give way. This could put many US shale oil companies in jeopardy of defaulting on their heavy debt loads. Re-financing options are thin as many investors and private equity funds got burned, investing billions of dollars in US shale oil companies in spring, believing that oil price would recover towards the end of the year.
As early as Q1 2016 we could witness another round of bankruptcies.
The ball is very much in OPEC's court as many members are facing a squeeze on budget and many more could see their sovereign wealth funds deplete to troublesome levels should oil price fall into the US$30s range.
A proclamation of war on US shale oil has reached a level where there will be no winners but all could wind up as losers.
Sunday, November 22, 2015
DOLLAR INDEX BRIEFLY TOUCHED 100
The Dollar Index briefly touched 100 this morning. In view of its momentum, it could well go above that mark in expectation of the Federal Reserve hiking the US interest rate for the first time in almost a decade.
Many economists are predicting in a 25 - 50 basis point increase in December while some said it could be a gradual 25 basis point increase every quarter in 2016.
I think there could be a possible rate hike in December but after that, the Federal Reserve will be done raising interest rate. I don't think there will be any rate increase in 2016.
The global economic indicators and risks do not support further rate increases.
1) EU, Japan and China will continue their easing policies. This will make US goods more expensive and likely widen the trade deficit between US and the rest of the world
2) Multinationals will suffer a drop in earnings in US$ terms. In fact, many companies in the S & P 500 are already facing earnings recession. This will not support the lofty valuations in the S & P and likely we will see a major correction in the coming months
3) EU GDP growth remains weak, and Japan is in a recession. China could face a hard landing. Despite expanding the monetary base, these countries are not registering the expected growth and this is a clear sign that the global economy is facing a deflation risk
4) Commodity prices are falling to multi-year lows. This is a sign that manufacturing is in recession. There is simply not enough demand to boost prices. To gauge, look no further than the Baltic Index which has fallen below 600
5) The global economy is awash with liquidity and high level of debt. The US has been raising the debt ceiling 6 times since 2009. Tax revenues are falling behind expenditure. To raise interest rates further is akin to borrowing at a higher cost to pay for borrowing at a lower cost. No economy can ever do well when the debt level is more than 100% of the GDP.
All the above does not support a strong Dollar Index. I could only term it as pure speculation. The momentum while strong, will not last.
Many economists are predicting in a 25 - 50 basis point increase in December while some said it could be a gradual 25 basis point increase every quarter in 2016.
I think there could be a possible rate hike in December but after that, the Federal Reserve will be done raising interest rate. I don't think there will be any rate increase in 2016.
The global economic indicators and risks do not support further rate increases.
1) EU, Japan and China will continue their easing policies. This will make US goods more expensive and likely widen the trade deficit between US and the rest of the world
2) Multinationals will suffer a drop in earnings in US$ terms. In fact, many companies in the S & P 500 are already facing earnings recession. This will not support the lofty valuations in the S & P and likely we will see a major correction in the coming months
3) EU GDP growth remains weak, and Japan is in a recession. China could face a hard landing. Despite expanding the monetary base, these countries are not registering the expected growth and this is a clear sign that the global economy is facing a deflation risk
4) Commodity prices are falling to multi-year lows. This is a sign that manufacturing is in recession. There is simply not enough demand to boost prices. To gauge, look no further than the Baltic Index which has fallen below 600
5) The global economy is awash with liquidity and high level of debt. The US has been raising the debt ceiling 6 times since 2009. Tax revenues are falling behind expenditure. To raise interest rates further is akin to borrowing at a higher cost to pay for borrowing at a lower cost. No economy can ever do well when the debt level is more than 100% of the GDP.
All the above does not support a strong Dollar Index. I could only term it as pure speculation. The momentum while strong, will not last.
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