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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.


Tuesday, 3 February 2015

So what have the bulls got to run with?


We know that a Quantitative Easing (QE) inspired rally will eventually lose its lustre. When central banks around the globe buy financial assets such as bonds and sovereign debt, which is known as QE, it has little or no impact on the real economy. Be patient they tell us, but Japan has been patient for the last 20 years… Of course, if you assemble a panel of talking head bankers to discuss QE, they will sell it to the moon. That is no surprise, since they are the recipient of all that “funny money”, which then just gets recycled in the Goldilocks economy for those high-up the food chain. Then, what you get is billion dollar starts ups and rampant speculation in real estate, creating property bubbles and thereby turning would be first time buyers into a class of permanent renters. QE has done wonders for depriving those who have worked hard, saved hard and are now deprived in retirement of a decent return on their savings. It is cheap money for the elites and austerity for everyone else. Never before in history have we witness the largest transfer of wealth from the masses to a tiny few. We’re not not talking 1 percent, it’s more like .0001 percent. Those tiny few are getting intoxicated on an orgy of QE, spending record amounts on superyatchs, supercars, mansions, and millions on decadent parties, while the masses bleed out. The middle class has been turned into a new burgeoning herd of dollar store shoppers. They are worried about how to fund their retirements and whether their children can find work after years of an expensive education and rising health care costs, in a world where public services are dwindling. A scarcity of well paying stable jobs has meant that they’ve forgotten what a pay rise means. Moreover, the Great Recession has depleted middle class household savings and their wealth is withering. A recent Us Federal Reserve Survey comprising of 4,000 adults 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.

So household savings from cheaper oil at the gas pump is more likely to be saved rather than spent. In a climate of stagnating wages, job insecurity and dwindling public services, the trend may be to save rather than spend. The velocity of money is still at a recession level, households and businesses are hoarding cash. The Great Recession had caught so many people off guard that it may have had a psychological impact on household consumption. Perhaps for an entire generation it has become the new trend to hoard cash rather than spend it for fear of what may be around the corner? Recent consumption data doesn't support the view that households are spending the savings from cheaper oil prices.

Meanwhile, the adverse impact that lower oil price is having on the macro economy is no longer speculation, it is regretfully a reality. Billions of dollars of investments, directly and indirectly associated with oil at higher prices, are being slashed. Moreover, many projects that were viable when oil was at 80-100 USD are losing, making businesses such as the entire fracking industry, likely to be tomorrow’s new sub-prime crisis. The recent slump in oil prices, from 110 USD a barrel in the summer to below 50 USD, could see a repeat of the wave of defaults following the 1980’s collapse. In 1986, 7 percent of energy bonds defaulted, compared to around 1 percent at the turn of the decade. Investors might need to brace themselves not only for poor energy stock earnings but also a wave of energy bond defaults.

With US oil inventories at their highest level in 80 years and the global economy showing signs of slowing down, if the Saudi don't cut output, it can only mean further falls in the oil price going forward. Oil is current trading at 44 USD per barrel, at the time of writing, and if we don't hear news from Saudis about an output cut, we can expect prices to go even lower.

Banks with investment portfolios weighted heavily in energy, wind, solar, oil, fracking and commodities may be ripe for shorting. Also, auxiliary companies supporting the industry either with machinery, heavy earth moving equipment, oil drilling and rigs or services, or related banking and insurance are likely to be hit going forward.

Standard Chartered is heavily exposed to the commodities downturn than many other banks, with such loans making up 15percent of its book. Commodity loans are estimated to have increased at roughly 20 percent a year between 2007 and 2014.

As I said previously, I wouldn't be surprised to soon hear about some major investor in commodities, be it a hedge fund or a commercial bank, going belly up. You don't get such movements in oil and commodities without casualties.

I also envisage liquidity becoming tighter, particularly in the secondary market as energy bonds start to default, although that might be mitigated with QE.

There really isn't much to give the bulls a good run going forward. I can hear the bears growling in the background. It might be prudent to bug out into safe havens for a while.


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