Research In Motion (NASDAQ:RIMM) lost its position as the top smartphone seller in its home nation Canada, according to a IDC report.The firm’s figures suggest the company shipped only 2.08 million Blackberrys during 2011, vs. 2.85 million Apple units sent out of the nation.Research In Motion (NASDAQ:RIMM) has potential upside of 11.7% based on a current price of $14.04 and an average consensus analyst price target of $15.68.
By OilPrice.com
As the world economy teeters on the brink and rising oil prices threaten to de-rail the delicate roots of recovery Oilprice.com asked legendary investor Dr. Marc Faber to join us and give his views on high gasoline prices, the shale boom, alternative energy, developments in the Middle East and much more.
In the interview Mark talks about the following:
Dr. Faber is a very well known commentator throughout the investment community. He regularly appears on CNBC and is a member of the Barrons round table.
Marc is the editor and publisher of the Gloom Boom & Doom Report, which is a very popular investment newsletter that highlights unusual investment opportunities for its subscribers. You can find out more about the Gloom Boom & Doom Report at Marc’s website: www.GloomBoomDoom.com.
OilPrice.com: A number of our readers have been enquiring about the recent oil price increases, where a few weeks ago we saw them rise to a ten month high. Where do you see oil prices going from here, and what do you see as the main reasons for the rapid increase?
Marc Faber: I think there is a risk that oil prices will go much higher. At the same time, the bullish consensus on oil is now at one of the most elevated levels it’s ever been. In other words, from a contrarian point of view, you shouldn’t buy oil right now.
I think it may go down somewhat. In general, if trouble breaks out in the Middle East, or if there is a war, I think the price of oil could go much higher.
OilPrice.com:What are your 3-5 year projections for oil prices?
Marc Faber: Well, you’ll have to give me a second. I need to call Mr. Ben Bernanke and ask him how much money he will print. Commodity prices were in a bear market from 1980 to 1998, and since then they’ve gone up. But because of expansionary monetary policies and artificially low interest rates they have increased more than would have otherwise been the case. We don’t know exactly how long this asset bubble will last – but say if you had interest rates in real terms, of five percent, instead of negative five percent, then I think all commodity prices, including gold, would be lower.
OilPrice.com:Obama is being pressured by the Democrats to use the Strategic Petroleum Reserve in order to flood the market with a large supply of oil in an attempt to drive down prices. Some commentators seem to think that this will help, although only in the short term because low supply isn’t the cause of the high prices. Do you think it’s sensible advice to use the reserves now to lower short term prices or should Obama remain strong and only use the stockpile for what it was designed for?
Marc Faber: I think selling down the reserves would be a useless strategy as one of the main reasons prices are rising is due to international tensions. It’s possible for an increase in supplies to drive down the price a little bit. But in emerging economies like China and India, the demand continues to go up. Now, it may not go up every year by the same quantity it did in the last 3 years, because in the last 15 years, oil demand in China tripled, from 3 million barrels a day to 9 million barrels a day.
So it’s conceivable that in a recessionary environment in China, oil demand will not go up substantially for one or two years. But because the per capita consumption is so low in countries like China and India compared to say the U.S. and Japan and Western Europe, I think the trend will continue to increase.
OilPrice.com: There’s a great deal of political theater going on around the Keystone XL pipeline. Do you see the pipeline as being essential to U.S. energy security and something that has to be pushed through at some point?
Marc Faber: Yes, I think it would be important to have the pipeline. But as you say, there’s a lot of political pressure and so forth. I think it would be very desirable for the U.S. to become energy self- sufficient.
Some observers and forecasters say they can achieve this goal within ten years, due to advances in natural gas extraction. I don’t believe it, but I have to respect the view of some
experts.
OilPrice.com: The media has been full of reports on the coming shale gas boom. What are your thoughts on shale gas? Is it the energy savior we are hoping for?
Marc Faber: I doubt it. But as long as the market believes it, we have to translate every forecast and every view into investment opportunities. I think a lot of people believe in shale Gas’s potential and so this may underpin some strength in equities and currencies. But as I said, I don’t believe it.
OilPrice.com: Do you think the shale boom could lead to a change in U.S. foreign policy priorities?
Marc Faber: Well, I don’t really believe it. But as you know, Mr. Obama has engaged in more foreign policy initiatives in Asia. For what, I’m not quite sure. The thinking is in the U.S. is that China is a threat. Therefore, they have to increase their cooperation with Asian countries, such as India and the Philippines.
Personally, I think it’s an ill-timed move, because I don’t think that China has any military ambitions in Asia. But put yourself into the chair of China’s leadership. What is the top
priority? China obtains 95% of its oil from the Middle East. The top priority is to make sure that this oil continues to flow and that the supply is secure. So they have to secure the oil shipping lanes, from the Middle East, past the southern tip of India, through the Straits of Malacca, up the Vietnamese coast, into China.
Each time they do that or attempt to do that, America and it allies in Asia perceive it as a threat. So the tensions increase.
OilPrice.com: You just mentioned that you don’t believe China has any military ambitions in Asia, but we’re seeing quite a lot of tension in the South China Seas, especially the Spratly Islands and the energy resources located there. How do you see the situation playing out between China and its small neighbors in this region who all have a good claim on the resources?
Marc Faber: As I just mentioned, China’s a huge country. They have certain views about territories in Asia, and I think the U.S. would not react particularly positively if say China or Russia or any other nation had numerous military and naval bases, in the Caribbean or in the Pacific, and military bases in Canada and Mexico.
You have to look at the world from the perspective of the Chinese. I’m not saying that because I’m super-bull about China. On the contrary, I think the Chinese economy faces numerous problems. But I’m saying that if you put yourself into their position, a top priority is to secure a regular supply of oil, iron ore, and copper. If you look at the Kondratiev Cycle where Kondratiev said it’s not a business cycle. It’s a price cycle, and certain things happen during the downward wave, and certain things happen during the upward wave.
During the upward wave, we have rising commodity prices, which is a symptom of shortages. Then countries become more belligerent, because they begin to be concerned about the supply of commodities, and so tensions increase.
I’m not saying war will break out tomorrow. I’m just saying the conditions have improved.
OilPrice.com: Aside from the South China Seas, where do you see the potential flash points in the world over resources?
Marc Faber: Well, I think a big potential flash point is obviously the Middle East and Central Asia, because neither Russia nor China wants permanent American military bases in Central Asia and to be encircled. The Chinese are encircled by the Americans in the Pacific with naval bases, plus the Americans have 11 aircraft carriers. The Chinese have just one.
Plus, in the last 12 months, Mr. Obama has made initiatives to have India as a strategic ally. The result of this is that China, which always had good relationships with Pakistan, has
strengthened their relationships with Pakistan. This of course has increased tensions in the region.
OilPrice.com: Moving off fossil fuels, what role do you see renewable energy playing in the future? Do you think government should help innovation in this area?
Marc Faber: This is a very difficult question to answer. Basically, I’m convinced that, over time, to drill a hole in the ground in the Middle East or in other emerging economies and then bringing that oil through a pipeline onto a ship into the countries that consume oil is not an elegant solution to the energy problem.
I think eventually this will go away. But in the meantime, alternative sources of energy are extremely expensive. Unless the oil price collapses to like $50, most alternative sources of
energy will not be profitable.
If someone says to me, we need alternative sources of energy for security reasons, yes, I agree. But for profitability I doubt it.
OilPrice.com: As an investor then, are there any renewable sectors you’re bullish on? Or would you stay away from the space entirely?
Marc Faber: I would stay away from it.
OilPrice.com:Following the Fukushima disaster Japan has now shut down 54 nuclear power plants. The population’s trust in nuclear energy has been shattered – but do you think this is only temporary and how would Japan make up the energy shortfall – as before Fukushima Japan met around a third of its energy demand with nuclear?
Marc Faber: Well, I guess they’ll lean towards more natural gas and more oil so they can offset this shortfall of nuclear energy. Now I don’t think that this will change the nuclear energy prospects long term in the world, because other countries like India and China will build their numerous nuclear energy plants. In the case of Japan, I think the power plants which had the problemswere antiquated. In other words, they were not up to modern standards.
OilPrice.com: Iran has finally offered to resume talks about its nuclear program and has agreed to allow UN inspectors from the International Atomic Energy Agency to visit its Parchin military complex where a nuclear weapons program is suspected of be being developed.
How do you see events developing here and how can investors protect themselves from an escalation in this region?
Marc Faber: Well, if there are escalations, then obviously you have to be long, oil and gold. My sense is that the Iranians are playing the same game the Japanese played in the ’70s and ’80s. They always negotiated but never did anything about the changing balances – they just want to delay the hour of truth. Every day, I think the Iranians are getting closer to having nuclear weapons. I can understand why. The whole world is hostile towards Iran, and they are encircled.
In the west, France has nuclear weapons and Britain and the U.S., and their neighbor Israel, towards the west. Then in the east, India and Pakistan and of course China. So why shouldn’t they have nuclear weapons?
Mind you, either there is all around abandonment of nuclear weapons by all the powers, or every country should be allowed to have them. We in the Western World, we have the misguided belief that we are there to judge which countries may have and which countries should not have nuclear weapons.
But maybe our view is wrong. My view is that if I were looking after Iran, for sure I would want to have nuclear weapons. For sure!
OilPrice.com: Okay. So on to investments – you’ve mentioned oil and gold, but which other sectors are you bullish on, and what would you advise investors to avoid?
Marc Faber: Basically, since March 2009, equities have doubled in value by and large. Some have gone up more than 100%, some a little bit less, we’ve had a huge bull market. Last year, almost a year ago on May 2nd, the S&P reached a high of 1,370. Then we dropped into August and into October, and we bottomed out on the S&P at 1,074 on October 4th. Since then, we have a 25% rally. The mood in October and November of last year was extremely negative.
I think this is the time to be rather cautious. Personally, if I had heavy exposure to equities, I would take some money off the table.
OilPrice.com: Where do you see the best opportunities for investors in Asia at present?
Marc Faber: Right now, for the next one or two months, I don’t think that stocks will go up a lot. I personally think they will correct.
But long term, I still like Asia. My concern is if the Chinese economy slows down meaningfully that we could have economic weakness spreading around Asia as well, as well as in countries that supply commodities to China, like Australia, Brazil, Argentina, and so forth.
Right now, say for the next two months, I’m very cautious.
OilPrice.com: I was looking through some of your previous interviews as well, and in one of them, you mentioned Barack Obama. You said he was by far one of the worst presidents that the U.S. has had, and that you still believe he’ll be re- elected. In what ways do you think he is unsuitable as a president? I mean, are you fundamentally against his ideas and position on certain topics?
Marc Faber: I don’t want to get into an overly political discussion, but I think that first of all, we have in the U.S. and elsewhere highly expansionary fiscal and monetary policies, but we have restrictive regulatory policies. In other words, Obamacare is a big problem for many medium sized and even large companies, because they don’t know exactly how much it will cost them. That has retarded hirings of people.
Mr. Obama has intervened into the economy massively, left, right, and center. Every government intervention has consequences. Just to give you an example, the U.S. government debt – I’m only speaking about the government debt, not the prime debt – has gone from essentially zero 200 years ago, to a trillion dollars in 1980.
By the year 2000, we were roughly at $5 trillion. Now in 12 years, we’ve gone to close to $16 trillion. That excludes the unfounded liabilities. Under Mr. Obama, the fiscal deficit has
exploded.
The big question is: Will we ever, in the U.S., have a fiscal deficit of less than $1 trillion or $1.5 trillion? I don’t see it.
Under Mr. Obama, spending has gone up and tax revenue has gone down. Change, if there was any change under Mr. Obama, it was for the worse. In my view, he’s a very disappointing president.
OilPrice.com: Marc, thank you for taking the time to speak with us. It’s been a pleasure speaking with you.
Marc Faber: It was my pleasure.
Interview originally published at: Oil, Alternatives, and Nuclear Weapons – An Interview with Marc Faber
Interviewer: James Stafford, Editor Oilprice.com
By MoneyMorning.com.au
Ed Note: At “After America“, business futurist David Thomas made a strong case in favour of investing in the four BRIC nations. It’s an interesting idea but not everyone agrees. Investing in Russia, for example, has its dangers, as Martin Hutchinson points out.
The re-election of Vladimir Vladimirovich Putin means even more crony capitalism in Russia.
With Putin in power nothing will change.
In fact, it’s laughable that Russia is still even considered among the group of the world’s most glamorous emerging markets – otherwise known as the “BRICs.”
The truth is Russian prosperity will last only as long as the price of oil keeps rising by 25% a year, and not one second longer.
Of course, that hasn’t stopped one of Russia’s boosters, Moscow broker Prosperity Capital Management from claiming that Russia is the third fastest growing economy in the world.
But since Russian growth is only expected to be 3.2% in 2012, according to The Economist, Prosperity’s definition of the word “world” is as little suspect.
Presumably Prosperity is only including the wealthy countries, most of which are much richer than Russia and should be expected to grow more slowly.
The Economist actually ranks Russia 18th of the 58 countries it surveys, based on projected 2012 growth rate.
That looks reasonably impressive, until you realise that this modest growth is being achieved in a period of sharply rising oil prices. Oil is Russia’s largest export.
After all, one of the countries that beat Russia, with a 4.2% growth rate, is Venezuela. Needless to say, few people outside Hugo Chavez’ immediate family would claim that country was economically well run.
Apart from corruption and cronyism, Russia’s main problem is its state budget, which depends crucially on oil revenues and hence on the oil price.
Before 2008, its budget was balanced at an oil price of around $90 per barrel, already up from a break-even of $30 per barrel earlier in the decade. Now according to the Finance Ministry as reported in Atlantic Monthly, today the oil price must be $117 per barrel for Russia to balance its budget.
In reality, since Putin announced $260 billion of spending programs during the election, plus a defense program totaling $763 billion, the oil price needed for balancing next year’s budget is likely to be around $140 a barrel, rising continually thereafter.
Needless to say, the rest of the world is likely to be tipped into recession by any oil price that will make Russian budget managers happy.
In terms of oil, Russia is playing a game that will never add up.
Russia needs to diversify from energy into high-skill industries; after all it has a relatively well-educated workforce.
However, at present it’s going the other way. Energy exports have risen since 2000 from 45% to 69% of exports, while at the same time equipment and machinery exports have declined.
As well as this imbalance in the economy, Russia suffers badly from its corruption.
Russia ranked an appalling 143rd on Transparency International’s 2011 Corruption Perceptions Index, along with such trustworthy stalwarts as Nigeria and Belarus and well below Syria and Nicaragua.
It’s a long-standing problem, but in 2001 Russia ranked 79th, and in 2005 90th, which while not good were considerably more respectable.
While two other BRICs, India and China, can manage economic growth with fairly high corruption levels, Russia is currently well beyond the levels compatible with prosperity – except for the oligarchs extorting from the system.
Meanwhile, Russians themselves are voting, if not with their feet then with their rubles. Capital flight from Russia totaled $38 billion in the fourth quarter of 2011, and there is no sign of it slowing.
Whereas President Reagan had to undertake a very expensive defense buildup to defeat the USSR, taming Russia today is much simpler and cheaper: fire Ben Bernanke, and maybe free up offshore oil drilling and onshore oil fracking.
Once Bernanke is gone, and interest rates revert to a more normal level of around 5%, say 2% above today’s inflation rate of 3% or so (they may have to go higher if we delay) there will no longer be the cheap-money-driven upward pressure on commodity and energy prices.
If interest rates are allowed to move naturally, the price of oil will decline, because with $100 oil over the last few years, we have found gigantic new sources, especially through the development of fracking technology to extract oil and gas from shale.
In a very few years, possibly even within months, the re-imposition of normal interest rates would cause the oil price to decline to $50-60 a barrel, just enough to allow the most efficient tar sands and shale extraction companies to run at a profit.
And a bunch of very unpleasant regimes, notably those of Hugo Chavez and Vladimir Putin, will be left gasping for money, as their state budgets careen into bankruptcy.
Suddenly, $763 billion defense budgets will become completely unaffordable.
If Putin is not thrown out he will have to learn real economics, and allow the superbly educated Russian entrepreneurs (the real ones, not the billionaire crooks) to create engineering export giants.
Once that’s done, Russia will be a much happier and more stable society, and most of its oligarchs would be left only with their Swiss bank accounts.
At that point, and only at that point, will Russia be worth investing in.
Today, Russia remains a threat to the world, and a source of endless criminal activity. Putin’s election changes nothing.
How Russia is still one of the BRICs is mystery to me.
Martin Hutchinson
Global Investing Strategist, Money Morning (USA)
Publisher’s Note: This article originally appeared in Money Morning (USA)
The “After America” Archives…
‘After America’: The World Reset
2012-03-17 – Callum Newman
‘After America’: Threats and Opportunities
2012-03-16 – Callum Newman
China and The Revolution
2012-03-15 – Callum Newman
Cocktails and Central Banks
2012-03-14 – Callum Newman
Prelude to ‘After America’
2012-03-13 – Callum Newman
With Putin in Power it’s Laughable Russia is One of the BRICs
By MoneyMorning.com.au
After we reversed out of our driveway yesterday morning and over our limelight shrub (again) we noticed we only had a quarter of a tank of petrol.
As we drove past a couple of service stations, something became obvious. Petrol was almost $1.60 per litre. “We’re not paying that!” We said to ourselves. So we let our V8 cough and splutter its way to the Money Morning office here in St Kilda.
Yes – it’s getting too costly to travel. However, if history is anything to go by, high petrol prices could be giving you an important investment signal…
Back in June 2008, petrol prices nudged $1.60 a litre in Melbourne before the crude oil price fell 71.73% from its peak. The knock-on effect didn’t take long. By November, petrol prices had dropped to $1.15.
But before you start watching the news every night for information on the oil price, know this…
The benchmark for Australian fuel prices is the Singaporean Tapis Crude Oil contract. And while the Tapis price is derived from the Brent Crude oil price, it’s always slightly higher because it includes the ‘cost of carry’. A fancy economic term that factors in the cost of storage and transport.
Currently, Tapis is trading at USD$133.80 per barrel, compared to Brent’s USD$124.24 per barrel.
So, let’s look at what happened last time petrol prices pushed above $1.50.
Between 29 May and 24 July 2008, the Melbourne petrol price was above $1.50. It peaked at 1.58 on 9 July.
Why the spike? Well, oil prices were high for several reasons: political risk, Middle East tension, terrorist risk and supply fears. Another reason was that investors were flocking to oil as a hedge against inflation and a weakening US dollar.
In fact, the US dollar Index was down 12% during this period… while the price of Brent crude was up 112%!
But not long after the oil price hit a high of $150.70 per barrel, it fell to $49.93 a barrel.
And it looks like the market is ready to fall again, with similar reasons as 2008 behind the fall.
You see, the dollar index is 4 % higher since November last year. As the US dollar gains some strength, the oil price will start to weaken.
And just as it warned 4 years ago, the Organisation of Petroleum Exporting Countries (OPEC) is worried about the impact of the higher oil price on developed economies.
Twice this year, OPEC has lowered its forecast for oil consumption. It dropped it to 88.76 million barrels per day (mbpd) in February. And less than a month later, it lowered it to 88.63 mbpd.
On top of that, OPEC reported non-OPEC members have increased production by 300,000 barrels a day. Meaning stockpiles are growing while use is declining.
The International Energy Agency is concerned the higher prices are already hurting developed economies. It said last week, ‘Demand growth will likely remain stunted by weaker economic prospects, the more so if prices stay high.’
Just like 2008, there’s some speculation at play. The Mexican standoff between Iran and the US is helping to sustain oil prices.
Even so, the current high petrol price could be your signal to get ready for a fall in oil prices. If we see a repeat of 2008, now could be the time to get ready for short selling crude oil.
Shae Smith
Editor, Money Weekend
The Most Important Story This Week…
Joseph Schumpeter, an Austrian economist once said: “Early in life I had three ambitions. I wanted to be the greatest economist in the world, the greatest horseman in Austria, and the best lover in Vienna. Well, I never became the greatest horseman in Austria.” His general fame in all areas has sadly fallen since his death in 1950. But his famous phrase lives on: “creative destruction”. His lesson was that at the edge of every economy are innovators ready to hijack the established way of doing things.
Today, with the headlines full of troubled news, it’s easy to forget these entrepreneurs are still there. These are the companies you want to discover. You can take a speculative position in them with the hope of making ten times (or more) your money. But which industry now? Maybe one of the oldest of them all – manufacturing. This story is not only fascinating but could be a trend to bet big on for the next decade, as it says in 3D Printing: How “Desktop Factories” Will Create the Next $1 Trillion Industry.
Other Highlights This Week…
Kris Sayce on Investing 2012: Property, Dividends and Warren Buffett: “Warren Buffett – the world’s greatest investor – wouldn’t be half the investor if it wasn’t for a quirk of fate. Until the start of the credit boom, Buffett was an average-to-good businessman. When the boom kicked off in the 1970s, he was simply in the right place at the right time.”
Aaron Tyrrell on How to Invest in the Fastest-Growing Energy Business of the 21st Century – Before it’s Worth $96.4 Billion Dollars: “Because, as you’ll soon see, this opportunity has nothing to do with buying the last of the beat-down uranium stocks from the ‘Fukushima Fire Sale’… Giving terrorists access to nuclear fuel… Or subjecting anyone, anywhere, to the risk of radiation poisoning.”
Shae Smith on A Surprising Way to Offset Your Electricity Bill Thanks to the Mining Tax: “Because brown coal can blow up for no reason, most power stations are located within a very short transporting distance from the coal… some companies have developed ways to press out brown coal’s high moisture content – the main reason behind the spontaneous combustion. But most importantly, it makes coal safe to transport.”
Dr. Alex Cowie on Oil Getting Ready For Its Next Rally: “The ‘Iran situation’ has been the tipping point, sending oil prices soaring. Iran was threatening to close the busiest oil-shipping waterway in the world, which would send oil prices above $200. But the real reason prices has climbed is that sanctions on Iran are biting, and they are exporting less oil. This leaves a gap in the market – which no one else can fill.”
Shah Gilani on how “Jerry Maguire” Waves Goodbye to Goldman Sachs and its Muppets: “There are always sacred cows at every firm that aren’t messed with and are treated with white gloves. Why? Because they’re either too big to lose, too lucrative to mess with, or too high profile to ever get into a pissing match with. As far as the rest of the clients?”
To End the Week…
This twelfth trading week of 2012 comes to a close with investors analyzing the latest housing data indicating that the housing market may be a long way from a recovery. Hi.
The past week in monetary policy saw 8 central banks announcing monetary policy decisions. Of those that changed interest rate levels, Mauritius cut its rate -50bps to 4.90%, and Ukraine cut -25bps to 7.50%, while Iceland increased +25bps to 5.00%. Those that held interest rates unchanged were: Nigeria 12.00%, Egypt 9.25%, Thailand 3.00%, Taiwan 1.875%, and Colombia 5.25%. On the required reserves front, Egypt cut its banks required reserve ratio by 200 basis points, Ukraine also eased reserve requirements, and the People’s Bank of China selectively eased reserve requirements for 396 branches of the Agricultural Bank of China.
Looking at the central bank calendar, the week ahead sees the central banks of Israel, Hungary, Turkey, and South Africa meeting to review monetary policy settings. The base case would be for no change among all of these emerging market central banks. Elsewhere next week features speeches from Fed Chairman Ben Bernanke, ECB president Mario Draghi, Bank of Canada Governor, Mark Carney, and the Bank of England puts out its quarterly bulletin.
Mar-26 | ILS | Israel | Bank of Israel |
Mar-27 | HUF | Hungary | The Magyar Nemzeti Bank |
Mar-27 | TRY | Turkey | Central Bank of Turkey |
Mar-29 | ZAR | South Africa | South African Reserve Bank |
The Central Bank of Colombia held its monetary policy interest rate unchanged at 5.25%. The Bank said [translated]: “The risks to inflation from expectations have moderated. Which may arise from the behavior of credit demand or remain. According to the present assessment of the balance of these risks, the Board decided to keep interest rate unchanged for intervention. The new information will enable new monetary policy actions to follow. The Board will continue careful monitoring of the international situation, behavioral, and projections of inflation, growth, behavior of asset markets and reiterated that monetary policy will depend the new information.”
The Central Bank of Colombia last hiked the rate 25 basis points at its January and February meetings this year, while its previous change was an increase of the interest rate by 25 basis points to 4.50% at its July monetary policy meeting, following a 25bp increase in June last year. Colombia reported annual inflation of 3.55% in February, 3.6% in December, 3.96% in November, 3.73% in September, 3.27% in August, 3.42% in July, 3.23% in June, 3.02% in May, and 2.84% in April; which compares to the Bank’s inflation target of 3% (+/- 1%).
The National Bank of Ukraine cut its discount rate by 25 basis points to 7.50% from 7.75% previously. The bank also cut the rate for transactions backed by treasury bills and the rate for non-collateral transactions by the same margin to 8.50% and 10.50% respectively. The bank also eased reserve requirements in order to boost lending to the real sector of the economy. Ukraine reported inflation of 3% in February and 3.7% in January this year. The Ukrainian economy grew 4.6% on an annual basis in the December quarter (6.6% in Q3, 3.8% in Q2). Ukraine’s currency, the Ukrainian hryvnia (UAH), last traded around 8.03 against the US dollar.
In an interview with Henry Blodget this week, Gary Shilling expained that the “Japan train wreck was accelerating.”
It is easy to dismiss Shilling as just another Japan doomsayer. They have been plenty of analysts and money managers over the past 20 years who have forecast the country’s impending collapse, and yet Japan continues to muddle along.
You should listen to what Shilling has to say, however. I covered many of Shilling’s points in an article earlier this year (see “Japan’s Endgame Nears“), and I agree with his basic premise: Once Japan has to access the international bond markets, the country is looking at a debt crisis that makes Europe’s look mild by comparison.
Japan has been able to roll over its gargantuan debts–220% of GDP–because its large pool of domestic savers were willing to accept low yields in a deflationary environment. International bond investors are not likely to be as generous. Just look at the pressure faced by Italy and Spain last year–two countries whose sovereign debt loads are a fraction of Japan’s.
Take a look at what Shilling has to say:
If you cannot view the embedded video, please click here: Shilling on Japan
As an aside, I reviewed Shilling’s The Age of Deleveraging, and I highly recommend that you pick up a copy (see “Book Review: The Age of Deleveraging“).
Shilling may prove to be early on Japan. My own timeline on Japan’s demise is in the range of 1-5 years. The fall in the yen’s value that Shiller highlights is not a warning signal in my view. If anything, it is a sign of investor risk appetites returning; the yen had risen over the preceeding years due to the unwinding of the carry trade and a deleveraging of the financial sector.
The key in my view will be the 10-year Japanese bond yield. When Japanese yields enter a prolonged rise, the game is up. Japan will not be able to roll over its debts at an affordable rate, and Japan will be looking at a debt and currency crisis that would make the Greeks blush.
Keep an eye on the Japanese 10-year bond.
Coventry Health (CVH) was upgraded today by Goldman Sachs (GS) to buy from neutral with a price target of $42, as the firm believes that it is gaining market share in the public sector managed care business. Shares are about even in afternoon trading.
