Investments

Traditionally economists and policy makers as well as the man on the street worry about inflation and not so much deflation (which to many just mean cheaper prices) but lately the talk has swung around to deflation being the bigger of the two evils as the world economies shrink and people lose their jobs as a result.

This post looks into which of these two monsters are likely to prevail in the short-medium and long term and also what the experts have to say about each as governments right now ready themselves to fight the deflation monster.

A Reuters article  has this quote on the issue :

“Deflation is as dangerous as inflation, and we will take every step to counteract it,” Richard Fisher, president of the Federal Reserve Bank of Dallas, told reporters after a speech at Bryant University in Smithfield, Rhode Island.

So while deflation seems to be the present evil Mr Fisher is very aware of the fact that soon he could be figthing inflation again :

As companies across the country cut jobs and consumers spend less, many economists are worried about the potential for a sustained decline in prices.

 

The Dallas Fed calculates price pressures based on personal consumption expenditures, or PCE, and in the bank’s December report, the bank found that more than 50 percent of the market basket was going down in price, Fisher said.

 

But Fisher cautioned it was far from certain whether this decline will continue in coming months.

 

“There are price pressures on the downside, but we will make sure that deflation does not take hold,” Fisher said.

 

At the same time, Fisher said U.S. central bankers are keeping a watchful eye on inflation. Some economists have voiced concern about the potential for inflation down the road as the Fed has cut interest rates to near zero and pumped hundreds of billions of dollars into the financial system to unfreeze key credit markets.

Mark Crosby of TheAge.com.au has these comments to make on the subject :

Two questions that arise are what is the purpose of an inflation target, and why adopt an inflation target now, when there is no sign of inflation?

Inflation targeting started in the late 1970s and 1980s, when the Bundesbank in Germany, and the Swiss central bank used targets for inflation to guide their decisions about growth in the money supply.

At this time, many central banks were targeting the money supply, with the view that reducing money growth would reduce inflation from then high levels. But the Bundesbank was much more successful than other central banks in keeping inflation low, and tended to follow the strategy of using an inflation rate of about 2 per cent to guide its money growth targets.

And the article continues to explain :

Since being given inflation targets, and the independence to pursue these targets, central banks have been very successful in maintaining low inflation.

The main purpose of explicit targets is to anchor expectations of businesses and unions: if businesses believe that inflation will stay at around 2 per cent they will tend to increase prices by around that amount. Similarly unions will know that to increase wages significantly above 2 per cent plus a margin for productivity will put jobs at risk. These expectations of businesses and unions will then help sustain the low inflation target.

The reason for targeting inflation above zero is that there is a feeling among economists that a small amount of inflation “greases the wheels” of the economy. Furthermore, deflation can be very damaging to an economy, and so it is best to keep clear of a zero inflation rate or lower.

John Lonski, who is chief economist of of Moody’s Investors Service, is also more worried about the deflationary economy and explains why :

I’m still more worried about price deflation looking ahead than I am about inflation. We still have a ways to go yet as far as forming a top for the unemployment rate. And I wouldn’t be surprised if to an unprecedented extent, many employers both in the public and private sector decided to freeze wages, if not cut wages.

Senior Economist Milton Ezrati  sees the issue somewhat differently :

Well for the short term, for the intermediate term the next six or 12 or even 18 months, I don’t think we have to fear very much either from inflation or deflation. For the longer term, however, inflation is the threat largely because of the tremendous liquidity the Federal Reserve has poured on our markets.

Andy Serwer provides this brilliant overview of the inflation vs deflation issue at hand at The Captain’s Blog from CNN Money :

High inflation is bad of course, but a little bit of inflation is a good thing and actually optimal. A moderate rate of inflation seems to make it easier for businesses to raise prices (which is good for growth) and allows employees to ask for raises. A little bit of inflation also encourages folks to invest their money instead of leaving it in their mattress. On the other hand, deflation, or falling prices, is a bad thing since it causes people to freeze up and delay purchases until prices are lower. This can induce a death spiral of deflation and economic contraction, which is what happened in Japan. Right now economists are much more concerned about deflation than inflation. No question, we are pulling in our spending horn right now, which seems to have eradicated inflation, now the question is, will prices fall?

And he has these words when it comes to what we can expect on price developments in 2009 :

So if you were a betting person, would you wager that prices overall will fall this year? Well, the wild card is energy, but other than that, it’s tough to see prices going up. Just how badly this hurts the economy is a huge unknown. Hey, we made it through 1955, we will most likely make it through 2009.

Christopher Grey of TheStreet.com explains why the US Government is dead scared about the looming deflation :

In just a few months, the Fed has effectively printed trillions of dollars and the Treasury has spent more than a trillion dollars trying to increase the supply of money. That should demonstrate their seriousness about preventing deflation.

According to Grey there is also an even bigger agenda as to why the US Government has a strong incentive to create a strong inflationary economy and hence fight deflation tooth and nail :

Second, it is in the national interest of the U.S. and the personal interest of most American consumers to create inflation. The U.S. government owes trillions of dollars to foreigners. It has a strong financial incentive to destroy the value of the dollar in order to repay that foreign debt with cheaper currency. Similarly, most Americans are deeply in debt and would benefit from inflation that would effectively reduce that debt burden on their households.

Grey finishes off his insight into the inflation vs. deflation issue with some sound reasoning why the consumer should look at inflation as a positive thing and also what can be done now to ensure financial success assuming of course that Grey is right and that inflation will soon prevail :

Another way to benefit from future inflation is to take advantage of low-interest rates and lock in long-term financing to buy income property such as apartments in supply-constrained markets that will benefit from future inflation through increased rental rates and higher cash flow to the owner.

Do not believe the hype about deflation. It could be dangerous to your financial health. Right now is the best time to start hedging against future inflation because most people don’t believe it’s going to happen. Now is the classic time to buy a straw hat in winter, because people are just giving them away.

So let battle commence between these two giants ! It does, however, seem that major economies such as the US, Japan and China have more to lose by allowing deflation to take over from the traditional inflationary economies and hence we should expect strong efforts by Obama and Co to fight deflation on all fronts which hence is likely to be major theme for 2009 and probably also 2010.

How it all works, US Investments China, consumer spending, deflation, inflation, Japan, US Economy

Amidst Doom & Gloom and negative results and share price meltdowns, one company has shown the way with impressive 2008 profits and growth despite its industry suffering heavily as consumer demand dropped.

Danish toy maker LEGO is that company and they have just announced their 2008 results with an impressive 32% increase in year-on-year profits and 19% increase in its revenue from 2007.

How did that come about ?

BusinessWeek reports :

Lego said it saw strong sales in its City, Star Wars and Indiana Jones product lines, even though the global toy market declined because of the economic downturn.

The Telegraph elaborates on how this impressive result has been brought about by pointing to LEGO’s venture into well-known film brands and blockbuster movies :

Lego, which estimates that children spend 5 billion hours a year playing with its multicolored bricks, has bought licenses from movie makers including Lucasfilm and Walt Disney to fend off competition from electronic toys and computer games.

The article also highlights that some of the success in 2008 was derived, in LEGO’s own words, from the company having been through a major crisis some years before which had now put the company in a good position to weather the storm :

“We’re dodging much of the effect of the financial crisis, probably because we went through our own crisis a few years ago and now have a strong, streamlined company,” Chief Executive Officer Joergen Vig Knudstorp said.

The toymaker cut costs and more than 1,000 jobs after reporting its two biggest net losses in 2003 and 2004.

Lego’s share of the global toy market rose to a record 3.6pc last year, from 2.9pc in 2007, Mr Knudstorp said.

Global market share of the toy market rose to a record 3,6% from previous 2,9% and the company is also moderately optimistic when it comes to 2009 :

The company expects to increase its share further this year as revenue will grow between 3pc and 7pc amid a “moderate decline in the overall market, he said.

Lego’s royalty payments to license holders rose 32pc to 639 million kroner. The company also produces “Batman” and “Harry Potter” building block sets.

“We’ve had much success with ‘Indiana Jones,’ but now we’re looking for new license products,” Mr Knudstorp said. Lego will introduce its first building block sets based on a Disney Pixar animation movie in 2010, after signing a license agreement with Burbank, California-based Disney this month.

Profit next year will be “satisfactory compared with 2008’s level, when considering the global situation,” Mr Knudstorp said.

The Danish company remains privately owned and its main shareholder, Mr Kjeld Kirk Kristiansen, is according to Forbes.com  now the 145th- richest man in the world with a net worth about $6.5 billion.

Not bad for a company that produces plastic  bricks and who estimates that that children spend 5 billion hours a year playing with its multicolored bricks.

How it all works, Investment News Forbes.com, Kjeld Kirk Kristiansen, LEGO, Toy Industry

The world’s luxury property markets have taken a massive hit lately due to the economic downturn and financial global crisis and none more so than Dubai - the once home to the Miracle Boom.

Lately, Morgan Stanley has come out with some very dire predictions on Dubai claiming that “”it is worse than expected”" - this post looks into their arguments and where they have these from.

The Luxury Property Blog reorts :

The latest Morgan Stanley UAE property sector report is out and is not pretty reading. “Fallen off a cliff,” and “Worse than expected,” are not words one usually associates with the Dubai luxury market. So if Morgan Stanley have come clean, it might actually be accurate. The issue with Dubai is always lack of transparency and even MS are resorting to “anecdotal evidence,” of which there is no shortage.

Around $263 billion worth of real estate projects have been delayed or canceled as the UAE’s property sector is dealt a “worse than expected” blow by the global financial crisis, according to their report.

HSBC research reported recently that cancellations had reached $75 billion in Dubai alone, but a Morgan Stanley spokesperson said HSBC had failed to include three further large projects in its assessment.

The author of the blog does emphasize what this blogger has also personally witnessed lately namely that most of the information on Dubai and its troubled real estate sector is indeed anecdotal and not factual though there is admittedly so much of it that one would believe that something is not right :

Some of the project cancellations that have been officially announced are Sunland Group’s $654 million Atrium project and the $790 million Trump Tower project by Nakheel on Palm Jumeirah. Prices are falling dramatically as the sector is hit by job losses and project delays. A few choice quotes:

“Real estate prices in UAE capital Abu Dhabi are down by an average of 20% since a peak last summer as the UAE’s property sector is hit particularly hard by the global economic situation.”

“Residential property prices in Dubai have also fallen, by 25% in the last 4 months alone, with high-end real estate units taking the biggest hit.”

“Since September, Dubai apartment prices have fallen 25% and villa prices are off 26%, “belying the argument of some developers about the price resilience of villas and low-rise building segment.”

“Anecdotal evidence suggests sharp falls in transaction volumes in the fourth quarter due to deteriorating economic conditions, the disappearance of speculative buying and the lack of financing.”

“Prices of high-end Dubai properties including those at the Burj Dubai development that includes the world’s tallest tower, which reached its final height last week, as well as the man-made Palm Jumeirah are down 35% since their peak”

Emaar Properties is likely to be the “worst affected” among Dubai developers by the sudden plunge in prices.

“We believe that Emaar runs a high risk of sales returns and defaults among its recent launches.”

“The company’s high-end developments, the Burj area and The Old Town, have taken the biggest hit since the peak.”

Many analysts are predicting further falls in prices in 2009 for luxury property in Dubai, Khajeel Times is suggesting 50%, The Global Financial house only 30%.

Gulf Times of Doha, Qatar reports that property investors have called on Dubai’s real estate watchdog to act quickly to avoid a “complete collapse” of the sector :

“”amid growing fears on the financial strength of some developers and their ability to deliver more than $1tn worth of projects. “”

The article goes on to suggest that The Dubai Property Investors Group wants the official Dubai real estate authority, RERA, to rid of the fly-by-night investors and bring some order to the sector :

The Dubai Property Investors Group, made up of more than 300 local and international investors, lawyers and real estate developers, has delivered a petition to Dubai’s Real Estate Regulatory Authority, or RERA, to urge the watchdog to clamp down after a slue of corruption scandals raised concerns over standards.
The group is targeting “fly-by-night developers” that aren’t able to deliver projects amid tightening liquidity and project financing, even though they’ve taken down payments from investors.
“Any measure short of announcing which developers are bankrupt will continue to let real estate prices free fall,” the petition seen by Zawya Dow Jones says. “We do not want to make any more payments until we have proof that the developers have the financial ability to deliver our units.”

Transparency is also something that is needed and demanded :

“Sentiment amongst real estate investors in Dubai is very poor right now,” said Eric Swats, a partner at Dubai-based investment bank Rasmala Investments. “RERA needs to be as transparent as it possibly can, but also to allow the market to adjust to the new realities as quickly as possible.”
Last week, a Morgan Stanley report said $263bn worth of the UAE’s $1.25tn construction projects have been delayed or canceled.
Separate research carried out by the Dubai-based market research firm Proleads said $582bn worth, or 45%, of the Emirates’ projects are currently on hold.
Sentiment has worsened since a spate of damaging real estate scandals that led to the arrest of several prominent executives in the industry over the last year in Dubai.

The article concludes through quotes that lack of real demand and huge over-supply are two of the worst enemies to bring the market back to parity :

In the petition, the investor group urges RERA to cancel more mega-projects such as the $110bn Dubailand development and Nakheel’s Waterfront “until real demand exists.”
It says with thousands of people leaving Dubai on a daily basis as financial and real estate firms lay people off, oversupply is a real concern. “Cancelling of projects will reduce supply, increasing prices, but more importantly will increase confidence in the emirate that government is prudent,” investors say.
The group is also concerned that some developers are abusing recently introduced laws, which say that all money deposited into escrow accounts must be used for construction.
They say some developers are “illegally siphoning money” from the accounts for administrative or marketing costs, or for land payments to master developers.
Investors add that the new interpretation of existing laws by RERA in November no longer protect them if they default on payments.
At one time, investors were entitled to a minimum of 70% of any money paid to a developer if they defaulted, but the group says RERA’s new interpretation of the law means the developer will keep 30% of the total contract value if an investor defaults.

Will Dubai get it right and rectify what is a potentially devastating situation for the once famed Miracle City, or instead keep, to a large extend, pretending that nothing is wrong and cannot be saved by improved market conditions, or will it in fact become a ghost town thanks to the exodus of expatriates and workers, or perhaps even be bailed out by an oil rich Big Brother from Abu Dhabi or Saudi Arabia ?

Time will show and options are plenty but it remains a fact that if Dubai wants to remain a point of attraction for private as well as institutional investors it has to act now and with full force and transparency.

How it all works, Middle East Business, Real Estate Investment Dubai real estate, Emaar, Luxury Real Estate, Morgan Stanley, Nakheel, RERA

Dr Marc Faber

The renowned expert on economies’ & markets’ downfall, Dr Marc Faber, has recently made his views on the state of the world economies known in an interview with CNBC and he is not all that optimistic either :

The new bank bailouts are not likely to work because they are run by the same people who prolonged the economic agony by throwing money at weak companies rather than allowing them to fail and encouraging the strong ones, Marc Faber, the publisher of the Gloom, Doom and Boom Report, told CNBC Monday.

Britain threw its troubled banks another multi-billion pound lifeline Monday by allowing them to insure against steep losses and guaranteeing their debt, while an adviser for U.S. President Elect Barack Obama said the rest of the TART money will be used to clean out bad assets from the financial system.

“The financial crisis has occurred because of government interventions,” Faber told “Squawk Box Europe.”

It is not all bad news, however, says the man who dislikes bail-out packages :

“The contractions actually serve to build for the future growth, because the weak competitors are eliminated. If you support the weak competitors you essentially penalize the strong competitors and therefore I am very much against these bailout packages.”

Not surprisingly Faber predicts a tough 2009 with a possibility that the second half could prove even worse than the first half and he seems not to share some of the optimism expressed by many experts that the world economies and markets are set for a recovery in the 2nd half of 2009 :

Investors counting on the fact that stock prices are very low for long-term growth should bear in mind the Japan lesson, where prices are virtually at the same level they were in 1981, Faber noted.

Commodities may be a better play as some time, when the global economy picks up, prices will rise because investment in new exploration or mining has all but stopped, he said.

“I have shares in Asia, mining stock, exploration companies, physical gold,” Faber said.

“As far as currencies are concerned, I think the dollar is a disastrous currency but the others are even worse. I am leaning more towards the view that the dollar could strengthen even more.”

Watch and listen to the entire interview here

Asian Investments, Equity Investment, Gold Investment, How it all works, Investment opportunities Gold vs Equity, Marc Faber, US Dollar

Lately, Dubai’s much talked about real estate sector has been badly hit by the Credit Crunch, perhaps more so than its neighbour Abu Dhabi whose future looks brighter due to its enormous oil & gas reserves.

Credit Suisse has just published their outlook on Dubai realty firms’ profit  for 2009 in International Property Investment for the 4th quarter of 2008 :

Credit Suisse expects earnings of Dubai-based developers to reflect the impact of the the global liquidity crunch that has slowed down the sector drastically.

In its fourth quarter preview on UAE real estate, Credit Suisse said it is projecting higher earnings for Abu Dhabi-based Aldar Properties and Sorouh Real Estate but expects the opposite for Dubai’s Union Properties and Emaar Properties.

“We expect earnings for Union Properties to decrease by 50% and Emaar 43%.” Credit Suisse said net profit for the fourth quarter of Emaar Properties, the region’s biggest property company, is expected to drop from the previous quarter to Dh855 million on slower revenue growth. Emaar posted a net profit of Dh1.51 billion in the third quarter of 2008.

The article goes on to conclude that CS expects Abu Dhabi to fare better in times of crisis due to the under supply of finished real estate projects unlike Dubai which seems to have over supply of both finished and off plan projects :

Dubai property developers are feeling the pinch of a global economic slump, with property prices dropping 23%  last December and continuing to fall, as thousands of expatriates lost jobs, leaving a huge oversupply of housing units.

Abu Dhabi developers will fare better than their Dubai counterparts with visible undersupply sustaining property prices and demand.

Abu Dhabi will fare slightly batter, thanks to massive injections of cash by the government, and the top property company, Aldar Properties’ net profit for the period is expected at Dh1.2 billion, 62% higher from the third quarter, with full year earnings expected at Dh4.6 billion.

Credit Suisse said, however, that about 40% of Aldar’s full year earnings is coming from a gain of revaluation of investment priorities, “which we expect to decrease in first quarter of 2009.”

2009 seems to be a real testing year for Dubai and its mega ambitions, not least so for its hyper real estate sector and this blog will continue to monitor the ups and down of the same.

How it all works, Real Estate Investment Abu Dhabi, Dubai, Middle East Business, Real estate crisis

This author was amazed to read that UBS of all banks were voted Forecaster of the Year by MarketWatch given the fact that UBS has been one of the biggest losers of the Credit Crunch and also caused massive losses for its investors.

MarketWatch reports on their recently released results:

U.S.-based economists at two Swiss banks took top honors in MarketWatch’s forecasting contest, MarketWatch announced Monday.

A team of economists at Credit Suisse led by chief economist Neal Soss had the most accurate forecasts of economic data released in December among 44 economists surveyed, winning its third Forecaster of the Month award.

And the team at UBS led by chief economist Maury Harris had the most accurate forecasts over the course of 2008, winning the team’s second Forecaster of the Year award in the past three years. Harris and O’Sullivan have won five monthly contests, including this past September’s. They also garnered the full-year title in 2006.

Is it not a fair question to ask then : How could things go so bad if they could see it coming ?

How it all works, Investment Banking, Investment Company, Investment Management MarketWatch, UBS, UBS credit crunch & executive bonuses

Every retailer expect and need surging sales in Q4 peaking with Xmas sales and it is no different for the E-tailers, traditionally led by eBay and Amazon.com.

Lately, however, whilst traffic and revenue figures have continued to grow for fixed-price online E-tailer Amazon.com, the picture is quite different for auction site eBay who is seeing a drop in year-on-year traffic and sales figures. this year. And that worries observers of the industry who are now asking themselves whether eBay has got what it takes to turn around this negative trend and win back its lost market share and end-users.

This post looks into the problems at the heart of eBay and what experts and analysts have to say about this falling giant who only a few years back was synonymous with E-tailing.

Christopher Lawton of Wall Street Journal points to the dropping performance by eBay as being primarily caused by customers who now seem to favour the fixed-priced sites such as Amazon.com and where eBay has less of an edge and also because of continued problems with unscrupulous sellers which make customers turn to other sites with better control over the purchase process:

Weekly traffic to the auction site fell 16% between Nov. 3 and Dec. 14 from a year ago, according to research firm comScore Inc. In contrast, Amazon.com had 6% more unique visitors during the same period.

The weakness is showing up in the sales of eBay sellers such as Gary Meyer. Mr. Meyer owns Gem Enterprises Inc. in Merchantville, N.J., which lists more than $300,000 in tech equipment such as printers on eBay. So far this holiday season, Mr. Meyer’s sales on eBay are down 30% to 40% from a year ago, he says. “We’ve geared up our Web site more and started listing on Amazon.com and other venues,” Mr. Meyer says.

Mr Lawton continues by hinting that after the change a year ago of their CEO from Meg Whitman to Mr John Donahoe, the company’s strategy and course are now more confusing to users and analysts alike as new initiatives trying to win back lost clients seem to have led to mixed results and so far not encouraging financial results:

EBay performance this quarter could be a referendum on the changes Mr. Donahoe has made this year. Since taking over for former CEO Meg Whitman in March, Mr. Donahoe has sought to rev up growth and reclaim buyers who had stopped visiting the Web site.

His most significant move has been to make eBay less of an auction house and more like Amazon, Walmart.com and Sears.com, selling fixed-priced goods, which consumers now prefer for speed and convenience. Among other changes, Mr. Donahoe has cut the fee to list fixed-price items on eBay and boosted the fee charged when an item sells, a model that helps fixed-price sellers better set profits.

Yet the changes have so far had little financial impact — and have angered many loyalists. Transaction revenue per listing between October and the end of November plunged 28% from a year ago to $1.44, according to Majestic Research. Wall Street analysts now estimate the San Jose, Calif., company will post its first year-over-year revenue decline when it reports fourth quarter earnings next month. Seattle-based Amazon has forecast an at least 6% increase in fourth quarter revenue over last year.

“We haven’t observed…any material positive changes on the buyers’ side of the equation,” at eBay, says John Aiken, managing director with Majestic Research.

The fact that the purchase process is faster and less complicated on fixed-priced sites such as Amazon.com should not in some experts’ views make eBay abandon their core strategy which is all about offering consumers the chance to sell and buy at flexible prices. Lately, however, eBay has under its new leadership of John Donahoe been encouraging sellers to offer items at fixed prices, making it appear more like a traditional online retailer.

Stephen Foley of UK-based The Independent quotes Laura Martin, a media analyst at Soleil Securities for putting the blame for this wavering strategy at the top of the company:

Consumer spending numbers are going down for all retailers, but eBay has particular problems because it is becoming increasingly difficult for customers to find the deals that they want on there, amidst all the clutter of fixed-price items. I don’t understand why eBay is making itself more like their competitors instead of less.”

Michael Fowlkes of Bloggingstocks  reminds us that eBay is still the King of e-commerce but he does acknowledge that there are problems facing the giant especially as Amazon’s traffic and revenue numbers continue to grow despite financial crises:

While it is true that eBay has been seeing a large number of users defecting to other popular e-commerce sites such as Amazon, Walmart.com and Sears.com, it is also important to note that eBay is still the king when it comes to e-commerce, and the site is still sitting on three times the volume of its competition. Regardless, the writing is on the wall, and the site is doing all it can to move quickly into the fixed-price marketplace that has been gaining steam over the past couple of years.

Mr Fowlkes goes on to point out that eBay could find themselves in the classic stuck-in-the-middle strategy if they are not quick to clearly define what their business and service is all about to end-users and investors alike:

It is a tough situation for eBay as it tries to aggressively redefine itself. For a company that has built itself on the back on the auction business, a too rapid and aggressive move into the fixed-price business is definitely going to ruffle a few feathers. The company has to try its best to appease its current sellers while at the same time moving as strongly as it can to keep and regain buyers, all the while trying to entice new shoppers into the site.

Some sellers have voiced disapproval, stating that the company is moving too quickly into the fixed-price business, and that their loyal customers are still more interested in finding the lowest price merchandise available, which is often achieved through the auction side of the business.

Though it remains a fact that eBay has many loyal users and bidders, there seems to be a trend among consumers lately to prefer the no-nonsense fixed-price sites to the auction based ones with speed, convenience and assurance to get the item one wants being the key reasons for consumers preferring an Amazon type online offering to the auction based ones which eBay invented and still rules.

So when Amazon is about to officially record its best ever Xmas sales, eBay is about to record declining sales for the first time in its operating history and one has to ask the question if eBay’s strategy is the right one moving forward?

How it all works, Investment Company, Investment News, Online Investment, US Investments Amazon, E-Tailers, eBay, Online shopping

Year end is approaching fast and it is common to find analysts and experts trying to predict what will happen in the coming year. Not less so this year after what has been a very turbulent and difficult year with several large economies sliding into full blown Recession, the stock markets globally having lost in excess of a third of their value, some more, the property market having collapsed in major countries and several large commercial companies being threatened with bankruptcy and closure. Not to mention the financial sector which has seen some astounding collapses or bail outs in the last minute by governments.

One company, SAXO Bank who is a leading player in the Forex market, has made it a kind of tradition to come out with what they boldly call: “10 Outrageous Claims 2009″ which in their own analysts words is :

(A) thought provoking and controversial “Black Swan” exercise (that) always factors in the less likely scenarios as perceived by the market.

The primary reason for doing this “Black Swan” exercise every year is to counter-balance human psychology, which is usually skewed towards optimism. We tend to be somewhat more pessimistic in our Yearly Outlook than the average analyst in the market, and believe that it is important for the investor to always factor in the less likely scenarios (as perceived by the market). Please keep in mind that this is more of a thought exercise than a set of outright predictions – we do not consider the chances are better than 50-50 for all of these claims.

So what are the Danes’ predictions of doom and gloom then ? Well is has everything from Revolutions to Crude Oil falling belwo US$ 25 to the Euro falling below 1 US$ - here is a list of the 10 Outrageous Claims as summarized by Michael Haltman of Gather.com :

1. An Iranian Revolution
2. Crude dropping to $25 a barrel
3. The S&P 500 falling to 500 (880 now)
4. Italy dropping the Euro
5. Australian dollar slumping versus the Yen
6. The Euro falling below $1.00
7. Chinese GDP growth falling to 0% (current estimates range from 6-10%)
8. Eastern European Forex Pegs to Fail
9. Sharp declines in commodities prices
10. Yen could become the Asian currency peg over the dollar

MarketWatch quotes one of their team leaders from their Research & Strategy Division, David Karsbol, Chief Economist at Saxo Bank:

It is not even outrageous to call this the worst economic crisis ever. We have, regrettably, been rather precise in almost all predictions from last year. What used to be outrageous now seems to be the norm”, says Karsbol.

“In a year when markets and economies have fluctuated more widely than ever before nothing seems out of the ordinary or impossible. We believe that 2009 will be equally unpredictable and therefore have made ten outrageous predictions largely focusing and what might happen to global indices and currencies. The good thing is, overall, we predict 2009 will be a turning point because it can’t get much worse” says Karsb0l.

“In 2008 the S&P 500 has fallen well over 25% below its 1182 high of 2007, world oil prices got close to the predicted high of $175, and UK growth has turned negative. Who knows which of our 2009 forecasts will prove to be right but judging by previous years some of them most certainly will,” he adds.

     “When it comes to the future, there are three kinds of people: those who let it happen, those who make it happen, and those who wonder what happened.” (John M. Richardson, Jr)

“The best thing about the future is that it comes only one day at a time.” (Abraham Lincoln)

     “Stop acting as if life is a rehearsal. Live this day as if it were your last. The past is over and gone. The future is not guaranteed.” (Wayne Dyer)

My interest is in the future because I am going to spend the rest of my life there” (Charles F. Kettering)

He who laughs last laughs longest

 

Currency, Equity Investment, How it all works, Investment Banking, Investment Company, Investment Management, Investment News, Investment Services 2009 Forecast, Australian Dollar, Commodity prices, Crude Oil, Euro, Iran, SAXO Bank, Yen

With a very troubled 2008 soon behind us and many private as well as institutional investors breathing a short sigh of relief, the big question facing the world is of course: will 2009 be a year of recovery or will the crisis worsen and prolong the Recession or even, as some fear, slide further into a full blown Recession ?

This post looks into what some of the analysts have to say about 2009 and whether to world economies and all its dependants are in for a recovery or if indeed we shall have another very tough year to face up to.

MarketWatchpoints out that whilst the downturn is gathering pace in Europe and The US, the same crisis has now also spread in full to The Far East and Asia with the pace of the economic downturn in China being the most surprising factor to economists and experts.

Quoting experts on the development of the economic downturn in Asia, the article says:

Experts painted a grim picture for the Asian region in 2009.

“Asia is not doing well at all,” said Son Won Sohn, an economist at the Martin Smith School of Business at California State University, Channel Islands.

“Decoupling, which looked for a while like it was going to work — turned out to be a myth.”

Japan is mired in a recession, South Korea will be lucky to reach 2% growth this year and Chinese growth could fall below 6%.

The downturn in global trade has just begun to have a negative impact on China’s economy, but it is pressure that will last for most of 2009, according to Brad Setser, an expert on China at the Council of Foreign Relations in New York.

“The latest data for November was off-the-charts bad,” Setser said.

In addition, China’s own domestic cycle looks to have turned, he said.

“The pace of the downturn has been a little bit of a surprise,” he said.

Asian Investments, How it all works, Investment Management, Investment News, Investment opportunities, UK Investment, US Investments 2009 Recovery, China, Depression, Europe, Recession, US Economy

Yesterday The Federal Reserve cut the main U.S. interest rate to as low as zero for the first time ever in an attempt to boost credit and try to end the financial crisis, causing the bond market to collapse and the stock markets to soar.

While this may be a blessing for those consumers looking to buy a house or a car, and hence a boost to the deflationary and slumping US economy, analysts are divided as to the long-term effect of this drastic move will have on consumer spending and the economy overall.

This post looks into some of the prevailing arguments surrounding the historic Fed cut.

MarketWatch quotes an economic team at Wells Fargo for being very optimistic about the cut:

This latest change in monetary policy strategy by the Fed has the potential to be highly effective in our view, and will better reduce the cost of borrowing for a vast majority of consumers and businesses,”

The same article also quotes Stephen Gallagher, Chief Economist of SocGen:

Bank confidence in its ability to finance itself today and in the future is an essential for making loans,”

Bloomberg quotes The Federal Open Market Committee for saying that:

“The focus of the committee’s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level,” the FOMC said.

The Fed “will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability,” the Federal Open Market Committee said today in a statement in Washington. “Weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.”

According to Wlliam Poole, former president of the St. Louis Fed:

The Fed is sending a message that it will print money to an unlimited extent until it starts to see the economy expanding,”

Associated Press quotes  an impressed Mark Zandi who feels that The Fed is ahead of the game this time:

The Fed has taken some very historic steps and for the first time since this crisis began, they have gotten ahead of expectations instead of trailing behind them,” said Mark Zandi, chief economist at Moody’s Economy.com.

The article, however, suggests that the crisis is not over and may go on for some time due to the depth of same:

Economists cautioned that even with the Fed’s bold moves it will take months for the economy to stabilize given that it is confronting the worst financial crisis since the Great Depression and a year-long recession that is already the longest in a quarter century.

The news on the economy is expected to get worse before it gets better. Businesses, which have already cut nearly 2 million jobs since January, keep laying off workers in the face of slumping demand.

And AP’s article concludes that at least when it comes to the US Government’s inflationary fears things are on the up:

The weak economy is helping to keep a lid on prices. The government reported Tuesday that consumer prices fell by a record 1.7 percent in November as gasoline and other energy prices continued to plunge. The Fed noted that “inflation pressures have diminished appreciably,” a development that gives the central bank maneuvering room to focus on boosting growth.

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