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About Me

Darren Winters is a self made investment multi-millionaire and successful entrepreneur. Amongst
his many businesses he owns the number 1 investment training company in the UK and Europe.
This company provides training courses in stock market, forex and property investing and since
the year 2000 has successfully trained over 250,000 people.

Friday, 30 January 2015

Transatlantic Trade Deal - Good or Bad?

The Bureaucrats in Europe and across the pond are currently burning the midnight candle on both ends, they are scrambling to conclude the controversial Transatlantic Trade and Investment Partnership (TTIP) trade deal, which could be worth as much as €100 billion extra to the European Union's (EU's) Gross Domestic Product (GDP) .

With the EU's economy in stagnation and some economists hyperventilating over deflation, why then the controversy? After all, the bilateral trade deal is likely to fortify transatlantic trade. So at a glance, TTIP is likely to mean more sales and profits for businesses, jobs for households and in turn increased consumption. Why then isn't there overwhelming enthusiasm from all quarters, businesses and the public alike, for the trade deal?

The reasons cited by those who are anti TTIP, predictably tending to be drummed up from those on the political left, are as follows;

-Weaken workers’ rights and put millions of jobs at risk. The view is that it is “big business” that will be able to take advantage of economies of scale, undercut their smaller rivals and put them out of business. It is the anti-globalist argument.

-Lead to more privatization of public services like education and our prized National Health Service (NHS), which is perhaps a hot button topic amongst the British electorate. The fear is that the NHS will be sold off and run like a corporation with shareholders. Shareholders' main priority often is higher dividends which may clash with the public needs for a functioning health service. The fear is that this conflict of interests between the two stakeholders would lead to the end of free healthcare in Britain.

-Reduce environmental protection and food safety regulation. This is based on Europe's outright rejection of GM foods and the potential adverse impact that fracking could have on the environment. These are hot topics which cross the political divide.

-Give new powers for corporations to sue European governments, including the UK.

Those against TTIP argue that the world leaders are working alongside major corporations and are rushing to get the deal signed without public transparency. No information is being released to the media about TTIP. However, some information has been leaked, but it is difficult to verify at this stage if it’s accurate or not. There are rumours that what may be on the cards, is a change to the law relating to foreign investors and the state. It is known as the investor to state dispute settlement rules (ISDS), which will enable foreign creditors to sue indebted governments in the event of a sovereign debt default, or debt restructuring, in a court behind closed doors. With little or no transparency, who do you think is going to come out of the disputes better off, the governments or the creditors (commercial banks high up the food chain)? My money would be on the latter, leaving the tax paying public to mop up the mess.

Nevertheless, despite the cons of TTIP it’s hard to argue against the view that free trade ultimately benefits everyone. “It means more jobs, more trade and reduced prices. Reducing regulation will have enormous benefits to both consumers and businesses on both sides of the Atlantic”, said a European Member of Parliament.

As to whether TTIP would lead to the privatization of the NHS, that might be a bit over-done. Apparently there will be no clause in the bilateral trade treaty which dictates how national governments operate their public services.

Both sides of the UK political spectrum, Labour and Conservatives support the principles behind the negotiations and recognise that more and better trade is good for the UK and the rest of the EU.

But the devil may be in the detail.
The goal for EU Bureaucrats will be to try and strike a deal which will enable business on both sides of the Atlantic to compete on a level playing field.
For example, some US states are currently not covered by the agreement and therefore procurement at state level would not be available to the same extent as EU states. This means that the EU would be at a disadvantage to a significant amount of procurement spending in the US at the state level.
Ironically, the US promotes free trade but it is also fiercely protectionist with respect to foreign players in their market. The “Buy American” rules apply to materials used in contracts inside and outside the United States and especially projects funded by the federal government.

Take for example the UK offshore wind power scandal. It was a bonanza for foreign competitors, who snapped up the juicy contracts while UK companies were left picking up the crumbs.

The way it stands, the playing field may be tipped in US favour.
But it is worthwhile keeping the TTIP deal on your radar. Any news of a breakthrough is likely to jolly the markets on both sides of the Atlantic with maybe the US getting a lot of the froth.

Banking On The Edge

They are bankers, usually in senior positions, well paid, pretty girlfriends/wives, have a nice lifestyle and appear to be content with life. Yet this is a typical profile of a spate of suicides amongst bankers. During the last two years a total of 48 bankers took their lives in a period where financial markets were relatively calm. Already this year three bankers have taken their lives. The list of top level bankers dying under suspicious circumstances has been growing rapidly in recent months.

Who would have thought that a job in banking would be so risky? This is no joke. Banking has become one of the most dangerous industries to be involved in, with an extremely high death per employee ratio.

The causes of death have been rather strange. For example, one banker shot himself eight times with a nail gun, another ran over himself with his own Sport Utility Vehicle.

Nobody doubts that the global financial system has been under enormous strain and perhaps still is. We are in uncharted territory.

But what should we read into this? Have these people just buckled under the strain, reached their breaking point and topped themselves, or have they had a peek into something we cannot see?

Alternatively, is there something more sinister at work?

Below is a list of top level bankers who killed themselves last year in 2014 with a brief description of their cause of death, you make your mind up.

DEAD (48)

July – Julian Knott, 45, JPMorgan Executive Director,Global Tier 3 Network Operations, SELF-INFLICTED GUNSHOT WOUND

June – Richard Gravino, 49, Application Team Lead, JP Morgan, SUDDEN DEATH cause unknown/pending

June – James McDonald – President & CEO of Rockefeller & Co – apparently self-inflicted, GUNSHOT WOUND

May – Thomas Schenkman, 42, Managing Director of Global Infrastructure, JP Morgan, SUDDEN DEATH, cause unknown/pending

May – Naseem Mubeen – Assistant Vice President ZBTL Bank, Islamabad, SUICIDE jumped

May – Daniel Leaf – senior manager at the Bank of Scotland/Saracen Fund Managers, FELL OFF A CLIFF

May – Nigel Sharvin – Senior Relationship Manager Ulster Bank manage portfolio of distressed businesses, ACCIDENTAL DROWNING

April – Lydia (no surname given) 52, France’s Bred-Banque-Populaire, SUICIDE jumped

April – Li Jianhua, 49, Non-bank Financial Institutions Supervision Department of the regulator, HEART ATTACK

April – Benedict Philippens, Director/Manager Bank Ans-Saint-Nicolas, SHOT

April – Tanji Dewberry – Assistant Vice President, Credit Suisse, HOUSE FIRE

April – Amir Kess, co-founder and managing director Markstone Capital Group private equity fund, CYCLIST HIT BY CAR

April – Juergen Frick, Bank Frick & Co. AG, SHOT

April – Jan Peter Schmittmann – former CEO of Dutch Bank ABN Amro, (Possibly suicide, SHOT)

April – Andrew Jarzyk – Assistant Vice President, Commercial Banking at PNC Financial Services Group, MISSING/DEAD

March – Mohamed Hamwi – System Analyst at Trepp, a financial data and analytics firm, SHOT

March – Joseph Giampapa – JP Morgan lawyer, CYCLIST HIT BY MINIVAN

March – Kenneth Bellandro, former JP Morgan, SUICIDE jumped

Feb – John Ruiz – Morgan Stanley Municipal Debt Analyst, died suddenly, NO CAUSE GIVEN

Feb – Jason Alan Salais, 34, Information Technology specialist at JPMorgan, FOUND DEAD outside a Walgreens pharmacy

Feb –  Autumn Radtke, CEO of First Meta, a cyber-currency exchange firm, SUICIDE

Feb – James Stuart Jr, Former National Bank of Commerce CEO, FOUND DEAD

Feb – Edmund (Eddie) Reilly, trader at Midtown’s Vertical Group, SUICIDE

Feb – Li Junjie, JP Morgan, SUICIDE

Feb – Ryan Henry Crane, SUDDEN DEATH cause unknown

Feb – Richard Talley, UNKNOWN CAUSE

Jan – Gabriel Magee, SUICIDE

Jan – William ‘Bill’ Broeksmit, HUNG/POSSIBLE SUICIDE

Jan – Mike Dueker, SUDDEN DEATHcause unknown

Jan – Carl Slym, SUICIDE

Jan – Tim Dickenson, SUDDEN DEATH cause unknown

Dec 2013 – Robert Wilson, a retired hedge fund founder, apparent SUICIDE leaped to his death from his 16th floor residence

Dec 2013 – Joseph M. Ambrosio, age 34, Financial Analyst for J.P. Morgan, died suddenly from Acute Respiratory Syndrome

Dec 2013 – Benjamin Idim, CAR ACCIDENT

Dec 2013 – Susan Hewitt – Deutsche Bank, DROWNING

Nov 2013 – Patrick Sheehan, CAR ACCIDENT

Nov 2013 – Michael Anthony Turner, Career Banker, CAUSE UNKOWN

Nov 2013 – Venera Minakhmetova Former Financial Analyst at Bank of America Merrill Lynch, CYCLIST HIT

Oct 2013 – Michael Burdin, SUICIDE

Oct 2013 – Ezdehar Husainat – former JP Morgan banker, killed in FREAK ACCIDENT when her SUV crushed her to death

Sept 2013 – Guy Ratovondrahona -Madagascar central bank, Sudden death – cause not confirmed

Aug 2013 – Pierre Wauthier, SUICIDE

Aug 2013 – Moritz Erhardt, SUICIDE

July 2013 Hussain Najadi CEO of merchant bank AIAK Group, SHOT

July 2013 Carsten Schloter, SUICIDE

July 2013 Sascha Schornstein – RBS in its commodity finance, MISSING

April 2013 David William Waygood, SUICIDE

Mar 2013 – David Rossi – communications director of troubled Italian bank Monte dei Paschi di Siena (MPS), SUICIDE

Now the latest, Chris Van Eeghen, described as a cheerful Dutch banker, the head of ABN's corporate finance and capital markets. He "had a great reputation" at work, came from an "illustrious family", and enjoyed national fame briefly as the boyfriend of a famous actress/model. As one colleague noted, "he was always cheerful, good mood, and apparently he had everything your heart desired. He never sat in the pit, never was down, so I was extremely surprised. I cannot understand."

There is a familiar thread that goes through all these cases, that being that none of those who committed suicide gave an indication that they were planning to take their lives. But in Chris Van Eeghens there was something even more eerie. Apparently, a colleague had noticed that he had recently changed his job status on Facebook to "former".

This one has got to be for Sherlock Holmes.

Thursday, 29 January 2015

Russia's Red Line?

It would be akin to poking a wounded bear in the eye with a stick; booting Russia out of SWIFT. The likely outcome might be unnerving for the markets, since it would almost certainly cut US and Russian diplomatic relations, which could be the pretext to war.
Commenting on the issue Andrey Kostin, chairman of the Russian state bank VTB, said, "If that happens it will be a huge worsening relations between East and West".
"Ambassadors in Moscow in Washington might as well go home the next day. We would be on the verge of war and it would be a very dangerous situation, going far beyond the banking sector", added Kostin, who is a close friend of President Vladimir Putin and a member of the board of Rosneft, Gazprom’s smaller but powerful rival. Mr. Kostin is part of Mr. Putin's “inner circle” and the second most prominent politician in Russia, according to a respected Russian newspaper Vedomosti.
So what is SWIFT?
It is the economy's windpipe, enabling it to trade internationally in hard currency. SWIFT payments are a type of international transfer sent via the SWIFT international payment network. It is the largest financial messaging system in the world. Russia’s banks rely heavily on the Belgium-based payments system for both domestic and international payments. Russia does have a local equivalent for payments but it still relies heavily on the SWIFT payment network for international payments.
Most international trades are facilitated with SWIFT in hard currency, US dollars. So if Russia were to be kicked out of SWIFT, facilitating payments for such things as machine parts or consumer toiletries will be difficult. Obtaining hard currency to buy imports will become challenging, oil rich Venezuela is currently experiencing this problem.
“If there is no Swift, there is no banking. . . relationship, it means that the countries are on the verge of war, or they are definitely in a cold war”, said Mr. Kostin.

The move to exclude Russia from the International SWIFT payment system had been discussed by western diplomats last summer as a punitive measure against Russia's alleged military involvement in supporting pro-Russian separatist in Ukraine. But at the time it was considered too punitive by some western diplomats, describing it as “the nuclear option”.

Nevertheless, the Ukrainian war, which started in April shows no signs of abating with each side pointing the blame at each other. Already 5,100 people have been killed in the conflict. Fighting this week was the most intensive since a cease-fire deal was signed in September. Russian Foreign Minister Sergey Lavrov told journalists that rocket shelling Saturday in the city of Mariupol, which left at least 30 people dead, was a tragedy that was being manipulated to "whip up anti-Russian hysteria" in the West. President Vladimir Putin's spokesman, Dmitry Peskov, told Russian news agencies that Ukraine was responsible for the "barbarous shelling" and said that the crisis could only be resolved if there was "firm political will on the part of Kiev".

Western diplomats are now mulling over whether to exclude Russia from the International SWIFT payment system yet again. Is “the nuclear option” real being considered by the West?

Russia believes that their annexation of Crimea, and its support of separatist fighters in East Ukraine are a pretext for tough economic sanctions. “If all this had never happened, any other excuse would have been created” as a result of the “policy of containment [of Russia] which was invented not yesterday, but has been held against our country for decades, if not centuries.” said Mr. Kostin.

Russia also suspects that the US and Saudi Arabia are behind the fall in the oil prices, which has depleted it of export earnings. Oil and gas were worth 68 percent of Russia's total export revenues in 2013.

So what is the end game, war with Russia?

Why not trade our way out of this mess? If a system needs to destroy every now and then to survive, is it worth saving? Admittedly, WWII did help get the US out of a Depression but at what cost? More than 20 million people dead, Europe was left smouldering with half its infrastructure in ruination and most of Germany's adult males were dead. Create, destroy, create, aaand destroy. what is the point?

The market's response to Russia being excluded from SWIFT would obviously be negative, particularly for European companies trading consumer goods and machine parts. Airline stocks might also be adversely affected with air-route diversions in retaliation. If we start seeing Russian and American diplomats being sent home, it would be a clear sign of a deteriorating and concerning situation. A worsening in East-West relations would have a negative impact on equity markets, and probably boost precious metals.

But assuming that East-West relations deteriorate to a point where diplomatic relations are cut, the crisis could have the potential of being very serious. Bear in mind that while the Russian economy has taken a beating through western imposed sanctions it still has teeth and claws… and an arsenal of nuclear weapons.


In the world of investing, it seems that even the Church of England believes in a good rate of return. That became blatantly obvious when it was revealed in the UK press recently that the Church had ties with Wonga, the high interest online payday lender, which it later severed. Not being able to let a good investment go to waste, this hardnosed investor is now dabbling in the no less controversial Industry of British Fracking.

But put the controversy aside for a minute and let’s ponder over the likelihood of Fracking being Britain’s next big energy revolution. Many historians would argue that centuries ago, when the world moved from wood to coal as a form of energy, it was Britain’s largest coal reserves that powered the country to lead the way during the Industrial revolution. Moreover, look how the discovery of vast reserves of a more energy dense fossil fuel, oil, have transformed the Middle East. This is particularly apparent in the UAE where they’ve turned desert into ultra-modern cities of the 21 century in just four decades. It’s transformed the local populations from Bedouins (a more or less nomadic people) to now boasting one of the highest GDP per capita in the world.

Now the energy has another development in fossil fuel extraction: Fracking.

Fracking might be a solution to the demographic time bomb looming in developed economies, with ballooning dependant elderly populations and shrinking taxpaying workforce base. In the US state of Pennsylvania, who have taken on fracking in a big way, the senator running for re-election is proposing to tax fracking. The revenue would go solely towards the state’s public pension debt. For the outsider or the retail investor, like any grand investment opportunity in its infancy, getting in at the early stage (a more risky entry point) could pull off enormous profits if fracking becomes an accepted main energy source. Paradoxically, the current deteriorating geopolitical situation with Russia and Europe is probably going to give the British fracking industry a big boost. Russia, the largest supplier of gas in Europe is starting to look wobbly as a reliable supplier in light of the cooling relations over the Ukrainian crisis.

The world’s biggest shale basin is not in China or the USA but in Britain. That’s according to 2013’s survey by the British Geological Survey (BGS) report, which estimates there may be as much as 1,300 trillion cubic feet (tcf) of shale gas trapped in the Bowland shale basin alone. In fact, the BGS’s upper estimate is almost twice that figure, 2,281 tcf. To give us a prospective on this, Britain has almost double the amount of shale gas than in China, which has 1,275tc the USA 862 tcf, Brazil 226 tcf and France 180 tcf. So by a sizable figure Britain’s shale gas reserves lead the world, according to the British Geological Survey. “10% of Bowland Shale would equal 130 trillion cubic feet – or about 50 years of total UK consumption.”

Such vast reserves cannot be ignored from a national security standpoint for obtaining energy security independence, particularly at a time when energy supplies from Russia now look less reliable. Moreover, fracking cannot be overlooked from an economic standpoint either in a climate of rising budget deficits and falling exports. To put some flesh on the bonds, in economic terms, if just a fraction of those gas resources are realized at today’s prices, they would be worth more than one trillion pounds, or worth £16,000 to each person in Britain, according to the report. It is an undisputable fact that Norway’s oil revenue has propelled its people to enjoy the world’s highest living standards.

British fracking has won the backing of the country’s most powerful institutions, the Church and parliament. It’s a moon eclipse event when you get the country’s main political parties sharing the same view on an issue; they are all backing fracking. Indeed, the last Queen’s Speech back in June was used to path the way for changes to the laws of trespass that require land- and homeowners to give permission for shale gas and oil drilling under their land. This means that it would allow drilling to take place 300 meters vertically and extend up to 3km (1.86 miles) horizontally underground from a central well pad. As a sweetener local communities would also receive up to 20,000 pounds for each horizontal well drilled.

But here is the cold shower bit about fracking. Hydraulic fracking, the process of drilling and injecting fluid into the ground at a high pressure in order to fracture shale rocks to release natural gas, creates earth tremors and could even contaminate drinking water. During the process methane gas and toxic chemicals leach from the system and contaminate the water table. There have been 1,000 documented cases of water contamination next to areas of gas drilling. Ingesting the contaminate water can cause sensory, respiratory and neurological damage. Approximately, 40,000 gallons of chemicals are used per fracturing. The industry argues that when fracking is properly regulated the environmental effects are minimal. So investors need to weigh up the environmental issue and what impact this could have in the development of the industry. Moreover, increasing the gas supply means lower prices and profits. This could rattle big energy suppliers with money muscle power to lobby government to halt fracking.

Nevertheless, for those who think fracking is going to be a big part of Britain then there are several ways to invest in it. At the riskier end are the aim-listed shale-gas companies. Another option could be on junior markets. Egdon Resources is a UK oil and gas minnow, but its intentions for growth are clear. A safer play could be through Centrica, British gas owner, who has a Bowland license. Companies providing engineering expertise might also be a good play.

Wednesday, 28 January 2015

"The Brady Bunch Trade"

Remember that 70s show, The Brady Bunch (the US comedy revolving around a large blended family with six children)? The father, single, has three boys and meets his partner who is widowed with three girls. The couple move in together and in true American style its one big happy family, six kids, a dog and a big car.

You're probably wandering what the relevance is. After all, a traders' goal is to spot the trend, get ahead of the curve and make a profit. We want to go with the trend, either bullish or bearish and profit from it. Our success is based on being able to see reality before the other players around us. To trade profitably we need the true picture, not the illusion that the mass media spins for the ‘sheeple’, which serves to manufacture mass consent for their proprietors so that their political, economic interests can be propelled forward.

Even consuming the economic data fed to US by the Statistic Office can lead us astray, because sometimes there's a conflict of interest between the investor and the monetary authorities.

The investor/trader wants to see the situation as it is, warts and all. Without a true picture, trading decisions, in other words, risking capital with the aim of making profits, would be sloppy with losses likely to rack-up. But the monetary authorities have another goal; to maintain financial stability. They know that the whole fiat system is based on one thing, confidence!

So the pressure is on them to make the data look good, or not that bad, even if the reality is the reverse. Sometimes they are literally putting lipstick on a pig. Does anyone believe the official economic data coming out of say, Argentina? Frankly, you'd be wasting your time even analysing it because it is meaningless. A book entitled, “How to Lie with Statistics,” by former journalist Darrell Huff tells the story.

Assuming you don't own the corporate media, or you’re not a fly on the wall in those central bank meetings, then you have a handicap, but you can still make profits.


By thinking outside the box, by looking at the world in a non-conventional way.

Take the Greek economy over the past year; mainstream painted a picture of a recovery, but in a healthy economy, do people chop-down trees and use the wood to keep themselves warm or for cooking?

When Tesco overstated its profits by 250 million pounds in its fraudulent accounting scandal, while the Board Directors were flying around in a private jets; why did the company not pay dividends to its shareholders?

When a company is liquid and bullish about the future it pays its shareholders' dividends.

Take the recent US economic data. If quarter of a million jobs have been created, then why has US labour participation rate dropped to 62.7 percent, the lowest in 38 years? Does that mean that people have stopped wanting to pay their utility bills, buy food or put shoes on their children's feet? It doesn't tally.

What about these pending US retail figures? Some pundits are optimistic about US retail consumption; their rationale being that lower oil price has resulted in more disposable income for consumers. The argument might hold water, but why have there been so many US retail closures lately? Macy's, the world’s largest store, is closing 14 departments laying off 2200 workers. Radio Shack, JC Penney, Sears and Kmart are all closing down stores. When the economy is doing well, retailers tend to expand capacity, they open more stores, hire more workers, but they are doing the reverse.

What we are witnessing is the march of the middle-class into poverty and the trend is picking up momentum. 

Now back to the Brady Bunch, in the 70s a working man, even blue collar, could afford to maintain a family, a wife and six children.

Today, 2015, a white collar worker doesn't have that same earning capacity. The family needs two people at work. Today, in the UK a white collar worker, say Solicitor can't afford to send his children to a private school.

The middle class is rapidly disappearing, and you can see it in the new retail landscape that is emerging. The cheap and cheerful retailers are doing fine. Their new customers are the millions of the disenfranchised masses, once belonging to the middle-class.

Likewise, the upmarket retailers are also doing well and the losers in this brave new world are the middle-class shops, which are falling like flies.

But with a widening wealth/income gap at levels not seen since the Victorian era, it is no surprise that consumption patterns are changing. In the US the top 10 percent control 86 percent of all the wealth. This phenomenon isn't unique to only the US. The widening wealth gap is occurring too in other advanced economies around the globe.

Wealth inequality is more visible in larger cities, with examples such as the ‘poor doors’ in places like London and New York, which segregate city dwellers from the poverty. Yes, can you believe it in 2015, poor people are segregated from the rich. We have wealth apartheid.

So what is the trading strategy for the new reality?

Be bullish, or trade long on the two extremes, companies that cater for the poor and the top one percent earners.

Sell out, or go short on those companies catering for the middle-class market, they are likely to continue struggling going forward.

But there is a caveat with this trading strategy. The monetary policy, quantitative easing, has aided and abetted asset price rises, which has contributed to a widening wealth gap in the economy. So more QE would mean more profits in this new reality, however, this trading strategy, "The Brady Bunch Trade", might not pay off if QE were to be abandoned by the central banks going forward.

Tuesday, 27 January 2015

US Employment Data, Savings and Rates Forecast

There is a mix bag of news out from the US regarding the latest employment data. The good news is that the unemployment rate fell to 5.6% from 5.8% with the economy generating 252,000 new jobs in December, The US Bureau of Labour Statistics.

Average hourly earnings was the disappointing piece of data, registering a fall of 0.2 percent in December. That is plunging wage growth back to 1.7%Year on Year from 1.9%.

Some pundits believe that the continuing fall in US unemployment will fuel consumption going forward, which might provide the US Treasury with a reason to raise interest rates in second or final half of the year.

But while the US economy appears to be absorbing labour, household savings remain low. That might dampen consumption and deter the Fed from raising rates.

The US household savings picture, frankly, isn't good. Apparently, near two thirds of Americans are unprepared for a financial shock, such as a loss of job due to an illness, or redundancy because of a downturn in the economy. In other words, in the most wealthy nation on earth, most Americans are living a hand to mouth existence. Only 38 percent of Americans have enough money on hand to cover “a $500 repair bill or a $1,000 emergency room visit”, according to a recent survey. So 62 percent of the people in the US don’t have an emergency fund. That’s a sobering thought in a country where health care costs can be crippling.

Despite the financial crisis of 2008 and the worst recession in living memory that followed, people are still living from one pay check to the next.

The majority of people are just one pay check from the street and are totally unprepared in the event of a major economic downturn.

What this could mean is that if costs fall, due to lower input costs such as low oil prices or wage rises (in actual fact real wages are falling according to the latest data), then households might defer consumption and instead use the surplus income to build up emergency saving reserves.

Bear in mind the last recession was a major wake-up call for millions of people. Suddenly, they lost their jobs in the sharp economic downturn. Then millions couldn't pay their daily household expenses because they had no emergency funds to fall back on.

Financial planners recommend households to build emergency fund reserves, a safety nest egg to cover at least six months of expenses to weather the rainy days.

Regretfully, a recent poll in the Wall Street Journal confirmed that only 38% of those polled said they could cover a $500 repair bill or a $1,000 emergency room visit with funds from their bank accounts, a new Bankrate report said. Most others would need to take on debt or cut back elsewhere.

“A solid majority of Americans say they have a household budget”, said Bankrate banking analyst Claes Bell. “But too few have the ability to cover expenses outside their budget without going into debt or turning to family and friends for help.”

The survey found that an unexpected bill would cause 26% to reduce spending elsewhere, while 16% would borrow from family or friends and 12% would put the expense on a credit card. The remainder didn’t know what they would do or would make other arrangements.

Another poll from the US Federal Reserve Survey also confirmed the same worrying findings. The Fed surveyed 4,000 adults last year and the survey confirmed the following;

“Savings have been depleted for many households after the recession”, it found. Among those who had savings prior to 2008, 57% said they’d used up some or all of their savings in the Great Recession and its aftermath. What’s more, only 39% of respondents reported having a “rainy day” fund adequate to cover three months of expenses and only 48% of respondents said that they would completely cover a hypothetical emergency expense costing $400 without selling something or borrowing money.

So it would appear that the Great Recession has taken its toll on household finances.

“They’re 40% poorer today than they were in 2007. The net worth of American families — that is, the difference between the values of their assets, including homes and investments, and liabilities — fell to $81,400 in 2013, down slightly from $82,300 in 2010, but a long way off the $135,700 in 2007”, according to a report released last month by the non profit think tank Pew Research Center in Washington, D.C.

The US jobs market may have improved and the Affordable Care Act has given an estimated 15 million American access to medical care. Nevertheless, many have come out of the Great Recession with a lot less wealth, depleted savings and no emergency cushion to fall back on.

In view of the above, I don't envisage a US rates rise for the foreseeable future. Real wages would need to improve and that’s not happening. Saving rates would also need to rise to a point where most households have built emergency savings provisions and that is a long way off. Unless that happens, consumption is unlikely to take off and a rise in US rates would seem unreal.

A low US rate environment is likely to support US equities and Treasuries going forward.

Santander Shopping Spree?

Written on the 9th January but I think still relevant:

Europe's largest bank, Banco Santander is making waves this morning with its recommendation to the Board of Directors for a 7.5 billion euros ($8.88 billion) capital raising program. The news is sending the stock price sharply lower, down 9.71 percent at 6.19p in morning trading, which means Santander shares have shed more than 10 percent of their value since the start of the year.

But buoyant profits have been posted at the banking giant. Record profits were generated in 2013 and in Q3 2014, Santander was well in the black, earning EUR 1.6bn in net profit.

So why a run on Santander's stock price?

Raising capital through an accelerated placement of shares at institutions will pull the stock price down.

It’s a supply and demand issue. When more stocks are created and traded on the market, it increases the supply of Santander shares in circulation, which reduces their value.

There are fundamental reasons why a stock price falls in value. For example, when the number of shares in circulation increases, it dilutes the net asset value per share (NAVPS), which is the intrinsic value of the share. It is calculated by dividing the total net asset value of the fund or company by the number of shares outstanding. So if the bank's total net asset value (this figure can be found on the balance sheet) remains the same and more shares are issued, the NAVPS falls.

NAVPS is the old school way of gauging whether the current market value of a share is fair value, oversold or overvalued. When NAVPS falls, more often than not the stock price also falls.

Another fundamental reason why a stock price falls when a company issues more shares is that it dilutes the Earnings Per Share (EPS).

EPS has been defined as the portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability. It is calculated by (Net Income less dividends on Preferred stock) divided by (average outstanding shares). With more shares in circulation, given no change in net income less dividends, the EPS figure falls. If the EPS falls below last year’s figure, it is often interpreted by investors as a negative signal.

Now let's put some flesh on the bones.

CEO Chairman, maybe I should say Chairwoman, Ana Botín, will go to the Board of Directors and ask them to accept the issue of 1,213,592,234 ordinary shares of Banco Santander, which will be placed with institutional investors at a price of 6.18 euros per share. If we do the simple maths, we can work out that the share placement will raise the banking group 7.5 billion euros.

But why does a profitable bank need to raise all that capital, particularly when profits are buoyant?

Moreover, the bank passed the last European Banking Authority (EBA) stress test in October. The idea was to simulate a worst case scenario for the European economy and test whether the banks would be robust enough to withstand the shock. European Banks were tested on their ability to withstand a 5 percent contraction in European Union (EU) Gross Domestic Product (GDP) by 2016 and a sharp rise in EU unemployment which shot up to around 13 percent, from its current level of 10.1 percent. And of course, a bond market crash was thrown into the “doom” equation.

Banco Santander wasn't on the list of the 25 European banks that were deemed to be under-capitalised to withstand a future financial shock.

Three months on and the Euro zone’s economy is looking in a slightly better shape, benefiting from lower input costs, particularly cheaper oil prices.

Nevertheless, Santander's chief, Ana Botín is apparently concerned that the bank's capital cushion is too thin. Ana Botín was appointed to the helm of the bank in September following the death of her father, Emilio Botin, who built the bank into a major international player. Since Ana Botín’s appointment to CEO, she has increased the number of independent directors on the board, shaken up the management team and shored up the lender’s capital base.

“Analysts estimated that the share sale would put Santander’s capital level—under international regulations known as “fully loaded” Basel III criteria—at around 10%, more in line with its European peers. A bank’s capital ratio is the amount of equity it holds in relation to risk-weighted assets on its balance sheet, and it provides a buffer against potential losses,” according to the Wall Street Journal.

“Santander plans to end 2015 with a capital ratio above 10% and maintain its cushion between that figure and 11% in the “medium to long term,” Chief Financial Officer José García Cantera told reporters Thursday.

There are two ways of reading into this.
The bearish view would be that if things are as rosy as they appear in the financial statements, then why is the bank undertaking a massive recapitalisation? Furthermore, why are dividends being cut? The bank is lowering annual dividend to 20 euro cents a share from its previous dividend of 60 cents a share. When there's a bumper harvest there should be a lot more to go around. Might there be an element of Tesco in all this?
Remember, the Tesco scandal, profits overstated by 250 million pounds, dividends cut, then the realisation that the Board was cooking the books, leaving investors with collapsing share price.
Another view is that Ms Botín is just about to embark on a shopping spree, but doesn't want to excite the market with acquisition speculations because it would jack prices upwards. So the strategy might be to let the market believe that the 7.5 billion euros is just a safety cushion, but in reality it is raised capital for acquisitions.

Last year Santander was busy doing deals. They got involved in a joint venture with a payroll-lending company in Brazil. Then there was the purchase of a consumer-finance business that operates in Norway, Sweden and Denmark. Chief Executive José Antonio Álvarez Álvarez said Santander will analyse deals that could bolster the bank’s units in countries where Santander’s presence is weaker.

So it might be about raising 7.5 billion euros to expand the banking empire. Is there a smell of takeover acquisitions in the air?

Monday, 26 January 2015

On The Cusp of a New Secular Bull Market?

It’s the first week of trading of 2015 and the stock-markets have been going down, then up, up and away. This makes me wonder whether we might just be on the cusp of a new secular bull market.

So why are the bulls charging?

For some pundits the motive is that Mario Draghi, Govonor of the European Central bank, is going to kick start a new massive one trillion euro round of quantitative easing (QE).
The Eurozone is officially in deflation and some pundits are jumping up and down saying, come on, do something. So what else can the ECB Governor do but pump the system with more liquidity?
But don't hold your breath waiting for QE because it might just not come as soon as you think.
Don't expect QE to prop up the market in 2015. Last year was a QE orgy, but it may not play out like that this time around.
When the bears came charging out at the bulls, the central banks would come to the bulls rescue with a QE fix. Maybe the central banks had to play it this way. After all, the economic fundamentals weren't strong enough to keep the bulls running. The financial market was like the central banks perpetual motion machine. When it looked like it was running out of momentum the central banks would pump it with QE.
Stocks were rising and it just didn't make sense. We had a situation of negative divergence, the economic fundamentals heading south and the stock markets going north.

But this year we may start seeing fundamentals, particularly in the eurozone starting to pick-up with some momentum.

Why the optimism?

The wild card, lower oil prices (an engineered crash in oil prices) are now showing some early signs of boosting consumption. German retail figures support this view with sales expanding by 1.0% on the month in November, according to the statistics office.

Furthermore, there’s historic evidence to support the view that cheap oil accommodates a boom for economies that are consumer, manufacturing based. Alternatively, during periods of high oil prices, such as the early seventies, these economies experienced sharp recessions. There is a correlation between oil price and the economic cycle. Low oil price, the economy booms, high oil price the economy goes into recession. This is the case with consumer, manufacturing based economies.

So the argument that the EU might experience an upturn in its economic cycle in this new environment of low oil prices is beginning to hold water.

What about the 0.2 percent deflation in the Eurozone? Surely that should be enough ammunition for the the ECB Governor, Draghi, to kick start his massive trillion euro QE program.

It is not as bad as it looks. Why? Employment is buoyant in Germany and starting to pick-up in some parts of the peripherals, such as Spain. Moreover, there are signs that consumption is starting to gain momentum in Europe's largest economy, Germany.

So the disappointing deflation figures are not down to deteriorating consumption during that period, but rather due to falling input costs, particularly oil and commodities.

In other words, don't read too much into a set of disappointing euro bloc Consumer Price Index (CPI) figures. As consumption picks up momentum moving forward, it should drive demand and push prices back into positive territory. It is just a question of time. 

So this year the euro stock market is likely to have better economic fundamentals to keep it propped up. It's unlikely to need the crutches of QE.

The next few weeks will be crucial, now the Greek election is done, how that plays out will probably determine whether the EU needs a shot of QE.

The last piece I wrote, “A Greek Play”, provided some insight into the saga.

Across the pond the Fed has given the bulls the green light. No rate hike until 2016? That is what Charles Evans, president of the Federal Reserve Bank of Chicago, said he wants.

So a new secular bull market?

Apply the duck test. If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck. Certainty, the fundamentals are starting to look brighter.
But there is no guarantee that improving fundamentals equate to higher stock markets going forward.
Sometimes the fundamentals can improve and the stock-markets go the other way. That would be positive divergence and a signal to buy. There's a lot of cash sitting on the side-lines, a little good news or a good reason for hope could get the party rocking.

Tesco - A Story Within A Story

Tesco stock has been lit up like a Christmas tree, up 9.8 percent at 199p on heavy volume trading (at the time of writing this piece).

After a dismal 2014 with the accounting scandal, where the company overstated it profits by £250m, and dismal trading figures, Tesco is now determined to show investors that it is starting 2015 on the right foot. There is certainly change in the air at. A change of the guard has taken place. Out with the old Tesco Chairman Richard Broadbent, tainted by the accounting scandal, or better said ‘fraud’, and in with Tesco's new great white hope, Matt Davies, Group Chief Executive of Halfords Group plc which will be effective 1st June.

The new CEO reckons he can turn around the UK giant retailer. Indeed the Tesco Board of Directors has big plans, but it is not going to be a walk in the park.

"We have some very difficult changes to make", said Chief Executive Dave Lewis. "Our recent performance gives us confidence that when we pull together and put the first we can deliver the right results."

So what is on the cards at Tesco?

The retailer will be launching an aggressive cost cutting program.
43 unprofitable stores will be closed, most of them will be the small metro stores with hundreds of job losses. Administrative staff will also be reduced with the consolidation of head office locations.
Some divisions of the business will be sold, for example the sale of its Blinkbox movie streaming service to TalkTalk PLC for an undisclosed fee.
The retailer also said it would launch a cost-savings program and reduce capital expenditure to GBP1 billion in the 2015/16 financial year.
Moreover, balance sheet building will also be part of the Board's strategy. There will be no dividend payments for shareholders this financial year and no pay rise for workers either.
Then there is the re-establishing of its identity as a value for money grocery store, being in the middle, between an upmarket food grocery and a discounter was like operating in no man's land. So Tesco will be embarking on aggressive discounts similar to its near rival Asda, which is pumping £300m into lower prices.

So the new CEO has a plan to turn the giant retailer around. Although, behind all this euphoria of change in the air at Tesco, the question is whether the new CEO can pull it off.

In a sense, Tesco's problem is a story within a much bigger story. What we have witnessed, following the 2008 financial crisis (the worst in living memory) is a radical change in wealth distribution, not just in the UK, but in all of the western developed world economies.

The monetary policy followed by the major central banks to tackle the 2008 financial crisis has saved the financial markets, but it has come at a huge cost. Quantitative easing (QE) doesn't actually do much for the real economy. It hasn't made credit more available for small businesses and it hasn't boosted real economic activity. If QE worked, Japan would not be in a depression right now. Admittedly, QE has been remarkably successful in fuelling asset bubbles and enriching a tiny elite group who are near the source of the money creation. This has created a Goldilocks economy, where the money just circulates around an elite circle, excluding those in the real economy.

That is why consumption in the real economy is down but demand for luxury goods is high.

In other words, this has created a two tier system of consumption. Businesses offering super luxury products have performed beyond their wildest dreams. The luxury car market has never had it so good. Rolls Royce has had a record year. Art Galleries selling multi-million dollar paintings also had a record breaking year in 2014. Diamonds being sold for record figures in the tens of millions. Meanwhile, businesses catering for the middle range customer have been struggling to keep afloat. However, on the lower end (which is now the new middle) sales have been going up. So the super luxury and cheap and cheerful are doing well but the middle range retailers are shivering.

That is why, in food grocery talk, upmarket Waitrose has done well and equally the discount supermarket Asda has had a good trading year.

However, make no mistake about it, the cheap oil is going to do what QE failed to do. Put money in the pockets of people living in the real economy, which is already boosting consumption.

“In Europe, total sales increased by 0.4% at constant rates for the 19 week period, excluding fuel. The like-for-like sales performance for the region, though still held back by our performance in Ireland, improved from (2.5)% in the second quarter to (1.2)% in the third quarter. Further improvement in all markets resulted in positive like-for-like sales growth of 1.0% for the Christmas period,” according to recent Tesco statement.

I wouldn't be surprised to hear more good news from Tesco soon as cheap oil starts feeding through to the economy, bearing in mind that more people just might take the car and drive to Tesco for a few items, rather than use the local convenience store, now that fuel is cheaper.

However, keep optimism in check. The caveat is that Tesco is not operating in a monopoly market so they can't extract monopoly profits. Attracting more customers by lowering prices is good for the consumer, but for the retailer it could trigger a price war and that will eat into their bottom-line.

Friday, 23 January 2015

A Greek Play... Do we see an opportunity?

A contrarian would be looking at the Greek stock market right now and be wandering whether the current stock market valuations, which are hovering around some of the lowest in the world, represent a mega buying opportunity.

Have investors overreacted to the Greek political crisis, panicked, run for the exit door on mass and driven Greek stock valuations to gift levels?

Here's a brief run-down on the situation.

The country is set to go to the polls on January 25 with the financial issue centred around the four year bailout loans, which expired in December 2014. Logically, the creditors want their money back, plus interest. Usually that wouldn't be a problem, but in Greece's case, as we all know, the economy still remains in a sorry state four years on from the crisis. The current governing party, New Democracy, want to continue along the lines of more austerity and public cuts in order to honour their debt commitments.

However, the Greeks have had austerity up-to their eyeballs. In other words, peddling austerity is not going to be a vote winner for New Democracy, which would be the financial market’s preferred political party. So it is no surprise that the ultra left Syriza party is ahead in the polls and is likely to gain power on the premises that it will do away with austerity and restructure Greece's debt.

But what actually happens in the Greek election might not have a medium longer term impact on the Greek stock markets.

What are the likely scenarios?

The New Democracy could be voted back into power. However, if opinion polls are anything to go by, this is unlikely to occur, unless by some miracle the Greek electorate get cold feet on the prospects of voting the Syriza party to power. Not entirely impossible bearing in mind that Syriza is advocating Greece exit the Eurozone and reinstate the drachma, which is considered a radical idea. On the day, the Greek electorate might decide that an exit would be too much of a risk to take and swing back to the New Democracy. But the economic situation has deteriorated to a great extent. Already the country is experiencing a great depression style situation, with mass unemployment. Around one in four of the working population are without a job and around fifty percent of the youth are regretfully unemployed. Public services are deteriorating etc... Many of the electorate may believe that they are already in a zero state. So what can they lose by voting in the radical Syriza party?

Frankly, the odds of the New Democracy being elected are pretty remote, but assuming they did, the Greek stock market would surely rally. Again, that would be an unlikely scenario. 

So a more likely outcome is that the Greek electorate vote into power the charismatic Alexis Tsipras of the Syriza party. 

But we all know that political parties touting for votes in an election campaign is one thing and when elected to power their actions often don't tally-up.

Do you really think that Alexis Tsipras of the Syriza party would pull Greece out of the Euro zone and reinstate the drachma if he were elected to power on January 25?

Remember Labour Party Gordon Browns election pledge, ‘no tax-breaks for millionaires’? When elected to power he did the reverse. What about Lib Dems leader Nick Clegg’s campaign promise to abolish student tuition fees? What happened? Student tuition fees went up! Politicians are expert liars, they actual convince themselves that they are telling the truth, that is why they are so convincing. 

Assuming Alexis Tsipras of the Syriza party gets voted in, a meeting would soon take place behind closed doors with Tsipras and the Troika, which consists of international creditors, the European Central Bank, European Commission and the International Monetary Fund. After all, Syriza party has been voted in with the view that they would renegotiate Greece's debts with the Troika. 

There is no need to be a fly on the wall, it’s more than likely that Tsipras will cut a deal with the Troika. Greece’s total debt is approximately 300 billion euros. That sounds like a lot of dosh but when that figure is put into context of the total eurozone, with a combined GDP of almost 10 trillion euros, it’s a relatively small sum. 

There is a lot of leeway for negotiating, the Troika could pardon, say, half the amount or a third, leaving 200 billion to be paid back and interest rates could be postponed for say two, or five years. Moreover, if the Troika has got muck on Tsipras, maybe a skeleton or two in the closet, that could seriously damage the Syriza party’s reputation if made public. Then the Syriza party might even be blackmailed into signing on the dotted line on Troika's terms. 

But let's assume that Tsipras is more catholic than the pope and he can get the debt pardoned to 100 billion for example, on those terms he would probably cut a deal and run. Why jeopodize Greece being pulled out of the EU and exiting the euro for say 100 billion euros. That would be a huge gamble, for relatively little gain, which is why when push comes to shove Tsipras is likely to strike a deal with the Troika. 

Syriza party could then go to the electorate and brag about how he saved the nation 200 billion euros and he would be hailed a Greek hero by the electorate. Greece would still remain in the euro and the Greek stock market would most likely rally.

In short, the Greek General election might have little or no impact with respect to the local financial market. With that in mind, the current price of Greek Stocks might represent a buying opportunity for an investor with a high tolerance to risk. As I conclude this piece, latest news flashes on my screen. "The lead that Greece's anti-bailout party Syriza has over the ruling conservatives has narrowed." 

Greek stocks are looking juicy.

Thursday, 22 January 2015

Zero in Euro Data

A raft of EU economic data was recently released by the European Union's statistics agency and Markit Eurozone news release.

Let's try and put the pieces together with the aim of getting a picture of where the European market might be heading in the short to medium term.

The image I get is of an astronaut walking on the moon. The good news is that the situation hasn't deteriorated into an economic meltdown. In fact, the data suggests that the economy has stabilized, albeit at a lower level. The wheels of industry are turning, consumers are spending, but economic activity is moving in ultra slow motion.

In Europe's largest economy, Germany, there’s been some good news. German Unemployment fell by 27,000 in December after seasonal variations in the data, following November's 16,000 drop. Consumption is picking up too, retail sales expanded by 1.0% on the month in November, according to the statistics office, which anticipates retail sales to have expanded by 1.2 percent in real terms in 2014.
German consumption is likely to gain momentum in 2015, with consumers having more disposable income due to the new low oil price environment.
The latest retail sales data indicates that household savings on energy are being spent on goods and services.

But the thorn in the side of EU economic data is the December consumer prices inflation of negative 0.2%, which is below their December 2013 levels. The latest EU inflation figure represents the first year-over-year fall since October 2009 and it marked the last in a sequence of five months during which prices were lower than a year earlier.

It is also well below the ECB's target of under 2.0%. Inflation has been easing since Aug. 2012, falling below 1.0% in Oct. 2013, and below 0.5% in July 2014.

The falling inflation rate indicates sluggish consumer demand. The worry is that if the EU Consumer Price Inflation (CPI) continues along a downward trajectory it will lead to continuing deflation, which is a typical symptom of a depression. Falling prices put off consumers from spending and deter businesses from making investments. The falling consumer demand, due to falling prices, can in itself create a vicious circle with dire consequences for an economy.

"If inflation remains low for a long time, people might expect prices to fall even further and postpone their spending," ECB President Mario Draghi warned in a newspaper interview published at the beginning of the month. "We are not there yet. But we need to tackle this risk."

However, if we put the EU's December inflation rate into context, it might not be all that bad.
Oil price has fallen by more than 50 percent in the last six months. The black gold isn't just a fuel to power the lights and the auto-mobiles, it’s also used in the manufacturing of countless products. So a rapid fall in the oil price is likely to skew the inflation figures.

Moreover, with unemployment falling in Europe's largest economy and consumption picking up, the increasing consumer demand will probably start pushing prices up as we move forward. So it might still be premature trying to read too much into a few negative inflation figures, particularly in an environment of rising employment and consumption data combined with falling input costs from oil.

January 6th news release from Markit confirms that the Eurozone posted the slowest economic growth for over a year in the fourth quarter.
Eurozone economic activity increased for the eighteenth successive month in December, with the latest PMI data signalling a mild gain in growth momentum at year end. However, the rate of expansion remained among the weakest seen over the past year.

The slight improvement in growth momentum in December was centred on the service sector, where business activity rose at a faster pace. Manufacturing production also continued to increase.

Markit's news release confirmed sluggish growth in 2014 for the big economies in the Euro bloc i.e. Germany, France and Italy.
The German economy showed a slight pick-up in December.
Output in France fell for the eighth month running, as a slight recovery in service sector business activity failed to offset the deepening downturn in production at manufacturers. Italy, meanwhile, fell back into contraction, as levels of output and new business both decreased over the month.

More upbeat data was registered in Ireland and Spain, which both saw strong and accelerated increases in economic activity and total new business.

The Eurozone employment rose for the second month in a row during December. Workforce numbers increased in Germany, Spain and Ireland, offsetting further
reductions in France and Italy.

The Eurozone Services Business Activity Index remained above the neutral 50.0 mark for the seventeenth month in a row but came in below the flash estimate of 51.9
December saw the big-three economies continue to report lacklustre service sector performances.
Output growth in Germany stabilised at November’s 16 month low, while Italy fell back into contraction for the first time since September

Germany and Italy were both impacted by declining
inflows of new business, with new orders falling for the first time in one and a
half years. France reported an increase in activity and new orders for the first time in three months.
Chris Williamson, Chief Economist at Markit sums up, “The eurozone economy ended 2014 with its worst quarter for over a year. There’s some relief in that the rate of growth picked up slightly in December, rather than easing further.”

“2014 as a year in which recession was avoided by the narrowest of margins, but the weakness of the survey data suggests there’s no guarantee that a
renewed downturn will not be seen in 2015”, he added.

But the clue might be in the slight upturn in December, the benign impact of cheap oil on the Euro bloc economies is now visible. Germany retail sales are rising and consumption is moving upwards. The cheap oil, the lifting of sanctions with Russia and a favourable Greek outcome might be enough to put the bear back into hyphenation and fuel a bull run.

Wednesday, 21 January 2015

EU Turning Cold on Russian Sanctions

This might be the beginning of a more assertive and independent EU (European Union) foreign policy, which is at odds with that of the US. A number of EU heavyweight officials have spoken out publicly against ratcheting up further economic sanctions on Russia.

Senior EU policy makers from the core member countries Germany and France, have recently, bluntly rejected implementing a policy which would impose more economic sanctions on Russia. The EU's opposition for more sanctions is likely to lock swords with the US who have been rallying the EU to implement tougher sanctions on Russia over its alleged military involvement in the Ukraine.

"The goal was never to push Russia politically and economically into chaos... We want to help solve the conflict in Ukraine, not to force Russia to its knees,” said Sigmar Gabriel, Germany's Economics Minister and also Vice Chancellor in an interview on Sunday with Bild am Sonntag, Germany's leading Sunday mass-tabloid.

More severe sanctions on Russia would be counter-productive and a threat to Europe, according to the senior Germany official.

"Anyone who wants that will provoke a much more dangerous situation for all of us in Europe," said Gabriel, pointing out that Russia is a nuclear power.

The EU initially agreed to sanctions with the aim to getting Russia back to the Ukraine negotiating table, explained Gabriel.

"Those who want to destabilize Russia economically and politically even more are pursuing completely different interests," said Gabriel, charging "some in Europe and in the United States" with wanting to force "the old arch-rival Russia to its knees.... That is not in Germany's or Europe's interest. We want to help solve the conflict in Ukraine, not to force Russia to its knees."

Sigmar Gabriel is a big gun in Germany politics, not only is he a cabinet minister but also lead the Social Democrats in the Coalition with Christian Democratic Chancellor Angela Merkel.

So if Merkel where to pursue a policy of tougher sanctions on Russia she would risk a coalition break up. The German coalition Government cannot have two separate foreign policies on a strategic issue like tougher sanctions on Russia-the constitution would not permit it. In other words, any US move to get Europe's political and economic heavyweight, Germany, to approve further sanctions on Russia is effectively in stalemate.

France has also spoken out against further economic sanctions on Russia. “If Russia has a crisis, it is not necessarily good for Europe”, said French President Francois Hollande, during a two-hour interview with radio station France Inter. “I'm not for the policy of attaining goals by making things worse, I think that sanctions must stop now”.

French President Hollande is wary of the impact economic crisis in Russia might have on Europe and is calling for sanctions imposed against Moscow to be lifted as soon as there is progress in peace talks over Ukraine.

The next summit will be in Astana, Kazakhstan on January 15 where Russian, EU and US delegates will aim towards finding a solution to the Ukrainian crisis. Russia’s Foreign Minister Sergey Lavrov has sarcastically described western sanctions, also announced in September, as “a ‘reward’ for Russia’s role in the Minsk agreements and more generally for its part in organizing the meeting.”

Hollande is hopeful there will be signs of mutual understanding and common interest reached at the summit, which is being hosted by Ukrainian President Petro Poroshenko. Russian President Vladimir Putin and German Chancellor Angela Merkel are expected to be among the delegation attending the summit.

Hollande said he understands that Kiev’s striving for NATO membership can hardly contribute to the peace process.

“Mr. Putin does not want to annex eastern Ukraine. I am sure. He told me so”, Hollande told France Inter. “What he wants is to remain influential. What Mr. Putin wants is that Ukraine does not become a member of NATO. The idea of Mr Putin is not to have an army at Russia’s borders.”

It is in France's economic interests that the Ukrainian crisis is resolved swiftly and diplomatically.

The Ukrainian crisis has perturbed relations between Russia and France, which has put on hold the delivery of Mistral helicopter-carrying amphibious assault ships to Moscow.

Hollande’s decision, most probably under US duress, suspended the delivery of the first such ship "until further notice" in late November. It was not an easy decision for Hollande to make, bearing in mind that the deal is worth billions of US dollars and desperately needed for the stagnating French economy.

France is also facing the prospects of a multibillion-dollar fine if it fails to deliver the ships under the terms of the contract. The delay of the warships’ delivery has already entailed additional costs for Paris.

So with Europe's economy in a quagmire and Russia, also enduring a collapse in the rouble and plunging state revenue from oil deflation, the likelihood of smoothing over the Ukraine crisis in the January 15 Kazakhstan summit and removing Russian sanctions seems like a real prospect.

Both parties have a real incentive to do so.

The EU Russian trade is worth 330 billion US dollars, so a breakthrough in Kazakhstan would be good news for EU commerce and the European equity markets.

Tuesday, 20 January 2015

Greece: What Happened to Bailout Billions?

The current Greek situation underscores the fact that a debt crisis cannot be resolved with more debt.

The 179 billion US dollar rescue package for the Greek economy, which was negotiated by the monetary authorities back in 2011, was anything but a rescue package. In reality it just kicked the can down the road.

But 179 billion US dollars isn't small change, particularly for a relatively small economy like Greece. After all, it is not and never was an industrial powerhouse of Europe.

So you would expect that when billions of dollars are thrown at a problem, it should be enough cash to at least keep the street lights burning for a number of years and the local civil servants in jobs with a bit of change left over. Additionally, there were no major national events to splash the money on and austerity had been imposed on the local population to the bone. 

Yet despite the multi-billion dollar rescue package, Greece remains in a sorry state, with youth unemployment over 50 percent, one in four of the workforce without a job, falling real wages and crumbling social services. But the so called billion dollar “rescue package” and severe cost cutting austerity programs didn't appear to be enough to keep the state afloat. So an unprecedented national asset stripping program has taken place too. Cash strapped Greece has been forced to even sell its Islands.

Its paradise Islands have been sold.

The Greek government is in the process of selling off 70,000 lots of state assets - everything from ancient palaces, to stretches of coastline, to the state gambling company to entire idyllic islands. These are up for grabs to the highest bidder.

The gorgeous island of Rhodes is unusual in that more than a third of its land is government owned and has been sold. The world famous Mandraki Marina in Rhodes town - the location, legend has it, of the Colossus of Rhodes – SOLD! 

Other stretches of the Rhodes coast - mile after mile of pristine beach on the turquoise waters of the Aegean Sea - are also up for grabs. They include a large tranche of land near the resort at Afandou, popular with hundreds of thousands of tourists each year.

The peninsula of Prasinisi, one of the best wind surfing venues in Europe has been sold.

Elsewhere in Greece the royal palace where Prince Philip, the husband of Queen Elizabeth II of Great Britain was born, was sold. The billionaire emir of Qatar has just finalized the purchase of six Greek islands and a Russian oligarch bought the island of Skorpios for $100m, as a birthday present for his daughter.

With Greece being stripped naked, an obvious question arises that mainstream never asks, what happened to the 179 US billion “rescue package”? Where has all the money gone?

Anyone seen an audit of the accounts? Surely, this information should be made publicly available? Public finances should be transparent, unless there is something fishy to hide. 

A private limited company is required to file accounts at a public office. But when it involves the state and billions of dollars, public access to accounts is made “complicated”.

The Greek public believes they know where the money has gone. It is also conjuring up old anti German sentiment.

A massive 80 percent of the bailout money is going back to German and French banks. The Greeks are rattled by the fact that most of the bailout money is going back to European banks. But it is Germany that is being blamed. 

What about the possibility of Greek politicians mismanaging or, let's be more blunt, embezzling some of the funds. That doesn't get airing and it just seems more convenient to make Germany a scapegoat. 

A journalist asks Greek protestors why they have targeted the German embassy and business interests. “Well, there is a lot of ill feeling [among] Greeks against Germany, because of the austerity measures which have been forced on the Greek people. And it is thought in Greece that it is by the Germans and therefore there is resentment,” said Robert Harneis.

On February 12, 2013 extremists calling themselves a 'group of popular fighters' declared that they are at war with 'the German capitalist machine' and made a rocket attack against the headquarters of Mercedes Benz. Is this just another example of a political drift toward extremes?

“This is a country that was occupied by Germany in WWII, which should never be forgotten, in a most savage way. It was followed by the bitterest civil war for a number of years between left and right – communists and non-communists – and then later on they had dictatorship of the colonels which incidentally was much encouraged by the US and NATO. So you have a very difficult record politically,” said Harneis. 

“One must remember that this whole crisis started with the Greek prime minister saying: “Well, we are going to have a referendum to decide whether or not we accept these austerity measures.” And he lasted about 48 hours after that, before the new prime minister came in and guess where he worked before he became the Greek prime minister? He worked for Goldman Sachs, the very bank that caused a lot of this trouble by allowing or persuading the Greek government to adopt all sort of dodgy manoeuvres so that they can disguise their true figures of their national accounts,” he said.

“The Greeks know all this, they are educated, informed and qualified people,” said Harneis.

So there is a lot cynicism and surprisingly old wounds going way back to WWII. Perhaps this is causing a tad of friction between some EU states, which might also be complicating a unified economic policy on the continent.

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