Category Archives: General

Russia’s Putin calls for regional currency union

Reuters, Mar 20, 2015

Russian President Vladimir Putin proposed on Friday creating a regional currency union with Belarus and Kazakhstan, Russia’s main partners in a union of ex-Soviet states facing growing economic challenges.

Putin made his proposal at a meeting with the Belarussian and Kazakh presidents, who did not respond in public but have been lukewarm about such proposals.

“The time has come to start thinking about forming a currency union,” Putin told reporters after the talks in the Kazakh capital Astana with Belarussian President Alexander Lukashenko and Kazakh President Nursultan Nazarbayev.

He gave no details but suggested it would be beneficial for the three countries to work closely together as they try to overcome their economic difficulties.

Kazakhstan, the second-largest post-Soviet oil producer and economy after Russia, has said the three nations should synchronize their monetary policies before considering adopting a single currency.

Grigory Marchenko, a former head of Kazakhstan’s central bank, has estimated that it would take 10 to 12 years before such a currency was introduced.

“Two days ago we met with our prime minister,” another former Kazakh central bank chief, Oraz Jandosov, told Reuters. “We asked him about this and he said: ‘We know nothing about this. This is their (Russia’s) initiative. We haven’t spoken about this (with the Russians)’,” he said.

TOUGH TIMES

Independent analysts doubt the idea will get off the ground.

“A currency union would be a bad mistake in many ways. Luckily, we can be confident that Belarus and Kazakhstan will never agree to it,” said Christopher Granville, managing director of consultancy Trusted Sources in London.

“Lukashenko did in fact sign up to a monetary union with Russia in the 1990s and spent the best part of a decade wriggling out of that commitment since he realized that it meant the end of Belarusian sovereignty.”

The three leaders made clear it would be a tough year for countries in the Eurasian Economic Union, the Russia-led political and economic bloc they have formed with Armenia, with Kyrgyzstan set to join later this year.

Putin dream of the Eurasian Economic Union matching the economic muscle of the European Union, the United States and China is a long way from fruition, though it has an integrated single market of more than 170 million people.

The fall in oil prices and Western economic sanctions over Ukraine have worsened an economic slowdown in Russia, and the rouble has declined by about 40 percent against the dollar since midway through last year.

Belarus devalued its own rouble in January and there has been speculation on markets that Kazakhstan may soon devalue its currency, the ten, little more than a year after a more than 19 percent devaluation.

Source

John Browne: European QE Creates Distortions in World Economy

By John Browne, Mar 19, 2015

In the closing months of 2014, Germany faced a difficult dilemma. Although its own economy was holding up well, incoming data showed that the rest of the Eurozone was rapidly slipping into recession. As a result, the calls for the European Central Bank (ECB) to unleash its own quantitative easing campaign grew louder. However, the policy had always been unpopular in Germany, both among high financial officials and rank and file Germans, where a strong euro has been prized. But in the end, Berlin was ‘persuaded’ to drop its efforts to forestall a QE campaign that everyone else in the world seemed to want.
On January 22, 2015, Mario Draghi, president of the ECB, announced a QE program of 1.1 trillion euros. Such a move could never have occurred without the approval of the Germans. Larger than expected, it sent the euro down to $1.14. On March 5th, Draghi announced the program in more detail. This helped send the euro plunging further to close at $1.05 on March 13th, a 12-year low against the dollar, for a total drop of 20% since September 1st, 2014. The Germans may have started to wonder what kind of a deal with the devil they had made.
The Bank of Japan (BOJ) christened the term Quantitative Easing (QE) as a term to describe the creation of fiat money in order to buy bonds on the open market, thereby pushing down long dated yields, in an environment where short yields have already approached zero. Even as it launched this policy, primarily due to pressure from Japanese politicians, the BoJ doubted it would be “effective.” Fourteen years later, evidence indicates that they were right. QE appears to have worked for financial markets but not the economy.
Despite the evidence of failure in Japan, the U.S. Federal Reserve nevertheless came to adopt a $3.8 trillion QE policy when the American economy entered a deep recession in 2008. The results were met with mixed reviews, but many other central banks, including the Bank of England (BoE) followed suit. Only the reticence of the Germans prevented the ECB from joining the QE party. Their reasons are historic and particular.
Germany had suffered the rigors of wealth destruction, economic chaos and acute human suffering caused by massive currency debasement in the 1919-1933 Weimar Republic. In 1914, 4.2 German ‘gold’ Marks bought one U.S. dollar. By 1918, one U.S. dollar commanded 8.4 ‘fiat’ Reichsmarks.
In an effort to pay the massive French-inspired war reparations, Germany printed huge amounts of paper Marks. By November 1923, one German gold Mark was worth one trillion paper Marks. One U.S. dollar was worth 4,210,500,000,000 German paper Marks, or almost exactly 4.2 German gold Marks, the exchange rate of 1914! (sourced from Thorsten Polleit.“Hyperinflation, Money Demand, and the Crack-up Boom”, Mises Daily, January 2010. Referenced 2010-06-26.) There may be a valuable message here for those who continue to eschew holding gold.
With this experience burned into the German collective memory, the German government assured its people that it would drop the Deutsche Mark in exchange for the euro only if the euro remained a ‘sound’ currency and protected savings and retirement funds. It remains to be seen how angry German citizens will become if the euro falls much further. Perhaps the monetary authorities believe that monetary anxiety will be overcome by stock market euphoria, which inevitably follows the appearance of QE.
From mid-December to mid-March, the German DAX index was up a stunning 27%. Such performance may buy a lot of support inside Germany. But, looked from outside the fog of QE, the performance is not nearly as impressive. Over the same timeframe the euro has lost about 16% of its value, thereby blunting the magnitude of the stock gains. As happened with QE in the United States, much of the money in Draghi’s QE likely will find its way into stock and bond markets, boosting prices.
For the price of debasing the euro and boosting European share prices, the QE move by the ECB threatens to create global instability that may unfold over the medium to long term.
Clearly, non-Eurozone tourists will flock to Europe, boosting tourism. Conversely, the numbers of Europeans coming to tour America likely will drop. This will shake up the outlook for many very large public companies. In recent years, Eurozone countries and corporations have been tempted by low interest rates and a relatively strong euro to borrow from the vast pool of cheap U.S. dollars created by the Fed. If those borrowing costs increase substantially, it may lead to serious problems down the road, threatening even defaults.
Meanwhile, non-euro based corporations looking to buy European business assets likely will look quite aggressively for acquisition targets, boosting M&A activity.
It is not just the level of the euro’s fall, but also the speed of its fall which can prove to be so challenging. Even U.S. companies have been given little opportunity to hedge their euro-denominated revenues. As Jim Cramer said recently on CNBC, “You have to really steer clear from companies that are 35 to 40 percent Europe, of which there are a bunch”. Also, U.S. corporations, which for tax reasons hold an estimated aggregate of over $2 trillion worth of cash offshore, may now be faced with significant currency losses.
Clearly, a fall of twenty percent in the euro, the world’s second currency, is a most important event. If such a debasement proves successful in reversing the recessionary trend in the EU (in essence succeeding where Japan and the U.S. have failed), it could have a major positive impact on the attractiveness of investment in Europe and perhaps globally. Conversely, should Draghi’s QE fail, the world could be facing an increasing threat of a fiat currency crisis and a rising gold price.

 

This article is written by John Browne of Europac and with their kind permission, Gecko Research has been privileged to publish their work on our website. To find out more about Europac, please visit:

How low can they go? Central bank policy easing in 2015

Reuters, Mar 19, 2015

Sweden’s central bank surprised markets on Wednesday by cutting interest rates further below zero and increasing its bond-buying stimulus program, reflecting its determination to prevent the crown’s recent rise from snuffing out a pick-up in inflation.

It was the Riksbank’s second decisive move in a month, but startled markets because it came between scheduled policy meetings.

The central bank is one of 24 monetary authorities around the world to have eased policy this year.

Below is a chronological list of central bank actions taken to counter the global deflationary pressures stemming largely from collapsing oil prices, or to boost flagging growth:

Jan. 1 UZBEKISTAN

Uzbekistan’s central bank cuts its refinancing rate to 9 percent from 10 percent.

Jan. 7/Feb. 4 ROMANIA

Romania’s central bank cuts its key interest rate by a total of 50 basis points, taking it to a record low of 2.25 percent. Most analysts polled by Reuters had expected the cut.

Jan. 15 SWITZERLAND

The Swiss National Bank stuns markets by scrapping its three-year-old on the franc’s value against the euro, leading to a surge in the currency. The de facto tightening, however, is in part offset by a cut in the interest rate on certain sight deposit account balances of 0.5 percentage points, to -0.75 percent.

Jan. 15/March 4 INDIA

The Reserve Bank of India unexpectedly lowers its policy rate for the second time this year, backing the 10-month-old government of Prime Minister Narendra Modi in its push to revive economic growth as inflation cools.[ID:nL4N0W61KW]

Jan. 15 EGYPT

Egypt’s central bank makes a surprise 50-basis-point cut in its main interest rates, reducing the overnight deposit and lending rates to 8.75 and 9.75 percent, respectively.

Jan. 16 PERU

Peru’s central bank unexpectedly cuts its benchmark interest rate to 3.25 percent from 3.5 percent after the country posts its worst monthly economic expansion since 2009.

Jan. 20 TURKEY

Turkey’s central bank lowers its main interest rate, but draws heavy criticism from government ministers, who say the 50- basis-point cut, five months before a parliamentary election, is not enough to support growth.

Jan. 21 CANADA

The Bank of Canada cuts interest rates to 0.75 percent from 1 percent, where they had been since September 2010, ending the longest period of unchanged rates in Canada since 1950.

Jan. 22 EUROPEAN CENTRAL BANK

The ECB launches a government bond-buying program which will pump over 1 trillion euros into the sagging euro zone economy, starting in March and running to September next year and perhaps beyond.

Jan. 24 PAKISTAN

Pakistan’s central bank cuts its key discount rate to 8.5 percent from 9.5 percent, citing lower inflationary pressure because of falling global oil prices. Central Bank Governor Ashraf Wathra says the new rate will be in place for two months, until the next central bank meeting to discuss further policy.

Jan. 28 SINGAPORE

The Monetary Authority of Singapore unexpectedly eases policy, saying in an unscheduled policy statement that it will reduce the slope of its policy band for the Singapore dollar because the inflation outlook has “shifted significantly” since its last review in October 2014.

Jan. 28 ALBANIA

Albania’s central bank cuts its benchmark interest rate to a record low 2 percent. This follows three rate cuts last year, the most recent in November.

Jan. 30/March 13 RUSSIA

Russia’s central bank cuts its one-week minimum auction repo rate by 100 basis points to 14 percent, less than two months after cutting it by two points to 15 percent, as fears of recession mount following the fall in global oil prices and Western sanctions over the Ukraine crisis.

Feb. 3 AUSTRALIA

The Reserve Bank of Australia cuts its cash rate to an all-time low of 2.25 percent, seeking to spur a sluggish economy while keeping downward pressure on the local dollar.

Feb. 4/28 CHINA

China’s central bank cuts interest rates for the second time in one month to fight off economic slowdown and rising deflation risks. Following a system-wide cut to bank reserve requirements in early February, policy makers followed up with a cut in benchmark interest and saving rates at the end of the month.

Jan. 19/22/29/Feb. 5 DENMARK

The Danish central bank cuts interest rates four times in less than three weeks and intervenes regularly in the currency market to keep the crown within the narrow range of its peg to the euro.

Feb. 13/March 18 SWEDEN

Sweden’s central bank cuts the key repo rate 0.15 percentage points to -0.25 percent and says it will buy 30 billion Swedish crowns ($3.40 billion) of government bonds after already completing 10 billion crowns of purchases.

Feb. 17 INDONESIA

Indonesia’s central bank cuts its benchmark interest rate by a quarter of a percentage point to 7.5 percent, the first rate cut in three years, surprising all 20 economists in a Reuters poll, who had expected no change.

Feb. 18 BOTSWANA

Botswana’s central bank cuts its benchmark lending rate by 100 basis points to 6.5 percent, saying the state of the economy and inflation outlook provided scope for easing monetary policy.

Feb. 23 ISRAEL

The Bank of Israel lowers its benchmark interest rate to 0.1 percent from 0.25 percent, its first reduction in six months, amid persistent deflation and a strengthening shekel.

March 4 POLAND

Poland’s central bank cuts interest rates by 50 basis points — a bigger-than-expected reduction that brings rates to an all-time low of 1.50 percent, to curb deflation and prevent excessive gains of its currency.

March 11 THAILAND

Thailand’s central bank cuts its benchmark interest rate by 25 basis points to 1.75 percent in a bid to spark the stubbornly sluggish economy. The cut was the first rate change in a year and expected by only five of 21 analysts in a Reuters poll.

March 12 SOUTH KOREA

South Korea’s central bank cuts interest rates for the first time in five months in a surprise move, lowering its base rate by 25 basis points to a record low of 1.75 percent. It is the second surprise cut from an Asian central bank in 24 hours, following Thailand’s move the day before.

March 12 SERBIA

Serbia’s central bank cuts its benchmark interest rate for the first time since November to 7.5 percent from 8 percent, as expected, in a move to ward off deflation and support economic growth after a new IMF loan deal.

Source

Clif Droke: The double-edged sword of a strong dollar

By Clif Droke, Mar 18, 2015

Until the latest pullback on Wednesday, the U.S. dollar index had been on a rip-and-tear for most of this year.  Earlier this week the dollar hit a new multi-year high as concerns over Europe and China have fueled foreign interest in U.S. assets.  The greenback’s relentless strength is also a cause for concern among investors who fear that a stronger dollar will erode corporate profits this year.  Since much of the bull market of the last few years was based on the bull market in corporate profits, this point is being taken seriously by Wall Street pros.  It’s also worth examining in this our latest installment.

Also of concern to investors is the weak oil sector.  The WTI crude oil price (basis May futures) fell to a nominal 5-year low of $44.84/barrel earlier this week after testing the January bottom.  A decisive break below this level would likely catalyze another selling event in crude oil as protective stops are taken out, but if the crude price can stabilize above this pivotal low the market will get a needed reprieve.

oil
Weakness in the oil market has also put significant pressure on oil and gas stocks for much of this year to date.  Most of the new 52-week lows on the NYSE recently have been in the oil/gas sector.  This in turn put some short-term downward pressure on the overall stock market; remember that a persistently high number of new 52-week lows (i.e. above 40) is often a sign of internal weakness.  That may soon change, however, now that the Fed has once again given its assurance that it won’t be hiking interest rates anytime soon.

The strengthening dollar is actually a double-edged sword.  While it hurts the profitability of corporations in the export market, it also helps consumers by lower prices for goods on the domestic level.  It also encourages inflows of foreign capital, i.e. “hot money,” which often has the effect of lifting U.S. financial markets.  U.S. equities have been prime recipients of the weakness in foreign currency markets in the last year or so, but certain municipal real estate markets in the U.S. have been huge recipients of foreign investment.  A substantial part of the demand in U.S. commercial real estate in several major cities, for instance, is coming from Chinese nationals.

Veteran market analyst Bert Dohmen points out that flight capital can result in major economic booms/bubbles, but since it represents far less than the amount of total wealth of foreign investors, when the flight capital is exhausted demand dries up.  Concerning the flood of foreign hot money into U.S. markets, Dohmen writes:  “Those foreigners who have most of their assets in their own countries are growing poorer.  They will eventually start conserving capital and defer all new purchases.”

The dollar bull market is reminiscent of the strong dollar environment of the late 1990s.  Back in 1998-99, relentless strength in the dollar index – and a corresponding crash in several foreign currencies – led to a flood tide of capital into U.S. financial markets.  U.S. stocks and bonds were highly sought after and the Internet stock bubble of those days was at least partly fueled by foreign flight capital.  The late ‘90s dollar bull market also led to a veritable bull market for U.S. consumers as retail prices plunged to levels not seen in many years.  Gasoline pump prices fell to just under $1/gallon as crude oil dropped to $10/barrel.

At that time the strong dollar was also part of President Clinton’s fiscal policy as then Treasury Secretary Robert Rubin, a former Goldman Sachs partner, masterminded the currency policy in the wake of the East Asian financial crisis.  The strong dollar, however, eventually led to its own set of financial problems as the economies of several countries imploded in 1998 and nearly kicked off a global commodities price collapse.  It also ignited a mini bear market in the U.S. stock market in the summer of ’98, which lasted all of 10 weeks.

1998

So, we can see from history that while a strong dollar can definitely fuel a strong domestic economy and an equities bull market for a while, it eventually evokes its own reversal.  As Dohmen points out, since the dollar’s strength comes at the expense of foreign currency weakness.  And persistent weakness in foreign countries means that “hot money” capital flows from those countries into the U.S. will eventually cease.  When the flight capital coming into U.S. markets ceases so does the upside momentum in financial prices.

I believe we’re still probably at least a year or two away from the proverbial “danger zone” when persistent dollar strength creates major problems for the U.S.  If anything, we’re probably closer to the “sweet spot” of the currency cycle where a strengthening dollar provides economic leverage for consumers as well as investors.  But as with any persistent trend, the pendulum will swing too far in one direction and will eventually swing back in the other direction.  Let’s keep that in mind as we look for opportunities in the coming months.

Mastering Moving Averages

The moving average is one of the most versatile of all trading tools and should be a part of every investor’s arsenal.  The moving average is one of the most versatile of all trading tools and should be a part of every investor’s arsenal.  Far more than a simple trend line, it’s a dynamic momentum indicator as well as a means of identifying support and resistance across variable time frames.  It can also be used in place of an overbought/oversold oscillator when used in relationship to the price of the stock or ETF you’re trading in.

This article is written by Clif Droke and with his kind permission, Gecko Research has been privileged to publish his work on our website. To find out more about clifdroke.com, please visit:

 


NEWS: GulfSlope Energy Is Apparent High Bidder on 3 Offshore Gulf of Mexico Federal Lease Blocks

Mar 19, 2015

GulfSlope Energy (OTCQB: GSPE) (“GulfSlope or the “Company”), an independent oil and natural gas company focused on exploring offshore U.S. Gulf of Mexico, today announced the results of its participation in offshore lease sale 235, central Gulf of Mexico, conducted by the Bureau of Ocean Management (BOEM).

GulfSlope was apparent high bidder on 3 out of 4 bids. The sum of the high bids is $428,600.

GulfSlope bid on all blocks at 100% working interest. All bid blocks are located on the outer shelf and upper slope of the offshore Gulf of Mexico, in water depths of less than 1000′.

The blocks with GulfSlope high bids are as follows:

  1. Vermillion South Addition Block 378
  2. Ship Shoal South Addition Block 285
  3. Grand Isle South Addition Block 102

All bids are subject to review and final approval by the BOEM, which may take up to 120 days before award decision, and there can be no assurance of receiving BOEM approval.

John Seitz, Chairman and Chief Executive Officer, commented, “These 3 lease blocks in our core area, upon award, will add to our existing portfolio of high impact exploration opportunities.”

Full release