Finance

• Capital Leaving Middle East Looking For Safe Havens In Hard Assets and Oil

  Last week I warned of a flare-up in Egypt and a reversal in oil and gold. The media are transmitting pictures of street scenes in Egypt that for the most part appear benign. However, riptides of anti-Americanism are squirreling ominously beneath the surface. There are reports that El Baredei is to form a unity government with the Muslim Brotherhood. Business leaders, Westerners, and major shipping companies have rerouted their ships away from Egypt. Egypt has been an ally of the United States for more than 30 years but the new leadership may move the country more extreme. President Hosni Mubarek…

• Egypt’s Problems and Their Affect on the Rest of the World

  We have all been reading about Egypt in the newspapers, and wonder what is behind their problems. Let me offer a few insights. At least part of Egypt’s problem is the fact that in the past the government has threatened to reduce food subsidies. Now it is planning to hold food subsidies level and raise energy subsidies, but it is not clear that the dollar amount of subsidy will be enough. The government is taking steps to make food and energy affordable for most, but there is worry that the steps being taken will not be enough. Egypt’s Declining Financial…

• Swiss Banks in for a Pounding Over Banking Secrecy – Why you Should Go Long Gold

  The blow up in Egypt is going to create ripples all over the globe. It will certainly be disruptive for equities and the dollar. It will influence global bond yields and the PM markets. The oil market could be in for a short-term shock. It could have a significant affect on European GDP prospects. So there is a lot of uncertainty. I will make only one forecast of the lasting impacts of what is unfolding. Swiss banks and the Swiss government are in for another pounding over the issue of banking secrecy. I’m sure that you have heard about the…

• Modernizing the Russian Economy

  The wildfires and heat wave that ravaged Central Russia last year brought Russia’s super centralized political and fiscal system to the forefront of the country’s domestic agenda. The severe impact of the fires which caused more than fifty deaths and destroyed more than one third of Russia’s wheat crop offers an opportunity for the country’s leaders to rethink its priorities and devote urgent attention to becoming a global leader as Russia modernizes its economy. An anonymous blogger  from the rural Tver region northwest of Moscow has captured the mood of many Russians when stating, “Under the communists….we had three fire…

• The Great Currency Game

  In the 1800s, Great Britain and Imperial Russia fought for riches at the ends of the world. In the deserts and mountains of Central Asia, young men played as knights and pawns in the Great Game, searching desperately for glory, and in doing so redrew the map of the world. Central to the Game was the expansion of the homeland’s economic reach. Men like Sir Henry Rawlinson and Henry Pottinger helped open new markets for British and Russian goods, which flowed into present day Afghanistan, Pakistan, and Uzbekistan. It was zero-sum, with Russia’s victories coming at the expense of Britain,…

• Baltic Dry Index Set for a Big Fall?

  A friend calls from Athens this morning moaning and groaning about the sorry state of the shipping industry. I ask, “What’s new that makes you so grumpy?” He points me to this story concerning the bankruptcy of a Korean shipping company called Korean Lines (“KL”) . My friend made the following points on this development: - KL owns about 30 ships and manages another 120. As a result of the chapter filing almost all of these ships are coming back onto the spot market. The KL financial status was known by many insiders (bankers/brokers/shippers). This was a contributing factor in…

• A Look at Pakistan’s Deep Economic Weaknesses

  In a recent White House meeting with President Asif Ali Zadari of Pakistan, US President Barack Obama underscored the importance of the US-Pakistani relationship and emphasized continued US support for the country. Unfortunately, the prospects for a payoff to US strategic commitments in Pakistan remain clouded by deep economic weaknesses that have their origins as much in demographics and political factors as in the more widely publicized natural disasters and security issues. Just a few years ago, Pakistan's future looked brighter. Its economy seemed to be taking off after years of stagnation. The World Bank was applauding wide-ranging economic reforms.…

• When will the Commodities and Chinese Real Estate Bubbles Pop?

  During a presentation last week a questioner asked me what I thought about predictions that gasoline prices would reach $5 a gallon this summer. I offered this critique. I said that the oil prices implied by $5-a-gallon gas could probably not be attained in such a weak global economy. And, something short of that price would probably send the economy into a tailspin. I don't foresee such an event soon, but it does seem to me that at some point high energy prices will lead to another economic decline. Perhaps there might even be a crash since the financial sector--which…

• Another Nail in the Market’s Coffin

  I think it was very interesting not to see what happened today, but what didn’t. The Federal Reserve announced that it would continue its purchase of $600 billion in debt securities and keep interest rates low for the indefinite future. What did the markets do? The Dow rose by 0.07%, the S&P 500 by 0.42%, and yields on ten year Treasury bonds rose by five basis points. Everyone was expecting a bang, and got a whimper instead. To me, the muted reaction is another nail in the coffin of the current rally in global asset prices. We could get a…

• Watch out for the Black Swans

  It is not my intention to ruin your day. But I may well do that if you read this piece. While traders pile on their longs with reckless abandon, and retail flows into equity mutual funds turn positive for the first time in two years, I am hearing a rising tide of negativity from the jungle telegraph. There are “black swans” circling out there everywhere, and the risk is that they alight upon us in great unexpected flocks, like a scene out of Alfred Hitchcock’s classic film, The Birds. Let me give you a list of things that can go…