Excitement has no end this week as Chinese stock exchange has experienced a huge crash. Instead of giving you the scale and numbers for this crisis I will show you what happened with Chinese stock exchange last two years. This is typical example of investors’ behaviour. We went from long period of cheap shares then, rapid growth through pumping speculative bubble. Now we can see last phase: Panic.
Chinese stock exchange recent years was very cheap compared to its competitors in Europe, the US or other developing markets. This is because of quantitative easing and lowest in history interest rates. Against rapid climb only two – Moscow and Shanghai exchanges defended for long time.
Deutsche Bank hit headlines two years ago. Since then significant share of its assets were cashed in, few thousands of employees were sacked and the problems were gone. Gone or only forgotten? One is for sure, they did not disappear.
Deutsche Bank is the second largest investment bank in the world. Cumulatively its assets are worth 2 trillion EUR and deposits peak over 570 billion EUR.
The real problem of Deutsche Bank is its exposure on derivative market. The sum of just under 55 trillion EUR is 20 times bigger than the GDP of Germany. Majority – 70% - of all derivatives are interest rate derivatives and they are secured with government bonds.
All around the world we can see a fierce offensive against cash. There are two evident examples – the US and the EU. The proponents of cash transactions are equaled to criminals – if you have nothing to hide then why are you scared?
In my November article I pointed out that gas again turned cheap and “I am changing my position to long-term, hoping for the third raid this year”. After big falls and with 4 USD it was good point to start investment at the moment of writing this article.
Life has verified this prediction and it turns out that gas now is even cheaper falling in the areas of two-year lows at 2,67USD/mmBTU. Frankly I wasn’t suspecting that this is possible.
After dropping below 3,5USD I intensified my purchases and now I am in the red. What to do in this situation? Definitely, not panicking! Get back to basics and use common sense.
I will start my financial assets forecast for 2015 with words of founder and long lasting manager of Pimco – Bill Gross.
“Beware the Ides of March, or the Ides of any month in 2015 for that matter. When the year is done, there will be minus signs in front of returns for many asset classes. The good times are over.
Timing the end of an asset bull market is nearly always an impossible task, and that is one reason why most market observers don’t do it. The other reason is that most investors are optimists by historical experience or simply human nature, and it never serves their business interests to forecast a decline in the price of the product that they sell. Nevertheless, there comes a time when common sense must recognize that the king has no clothes, or at least that he is down to his Fruit of the Loom briefs, when it comes to future expectations for asset returns.”
Preparing forecast for this year was even harder than a year before. Global economy keeps changing into battlefield of the West lead by Anglo-Saxon camp and rising to power East with China in the centre and former allies of the US seeing a way to matter again.
What is worse most of the events and economic processes are a result of central planning and decisions made behind closed doors. You cannot predict that from obvious reasons.
Therefore designing the plan of 2015 in advance is hard work. Let us use below analysis not strictly as ordinary forecast but rather open-ended study of geopolitical future.
Since 18 months we have very interesting situation in the market of noble metals. What we can observe is intermittent but stable backwardation. Backwardation is a phenomenon when metal which is available a vista is significantly more expensive than futures contract. To explain this phenomenon I will start from basics
Since the 2008 economic meltdown central banks all over the world are printing money in huge volumes. Part of those funds will cover humongous deficits. The rest will be used to buy toxic assets and junk bonds – the same ones commercial banks were bingeing on during the economic boom.
You heard this from me many times – QE (quantitative easing) has NOTHING to do with stimulating the economy but rather it is a covert form of saving the bank sector from responsibility of their actions. The second goal of printing currency is to buy bonds of an insolvent government. No one in their right mind would have done it but the bankrupt government which chooses to bankrupt the state (instead of reforming the budget). It is with money created out of thin air that politicians are buying more time for themselves making bad situation even worse.
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