Welcome to QE4: Asset Classes will be Distorted Again
Who made the first call in December 2018 about QE4? IQI Global did. Alchemy of financial markets has changed dramatically in the last 10 years. FED has turned from hawkish to dovish in its outlook and tone. In 2018, fancy people were talking about 2 rate hikes in 2019 and US economy would be growing above 3%. Tabloid stories. Infatuation and enamored with USA.
Stanley Drunkenmiller – respected hedge fund manager for his credibility and integrity shared in his article on Dec 16-2018 in Wall Street Journal that FED should hold the interest rate hikes since economy did not have the strength to take the pressure.
President Trump did not like higher interest rates and warned FED to revisit its strategy to spur growth in the economy. That was December and January -2019 discussion in the market. Market landscape has changed now. Trump is now talking about firing people due to policy disharmony with FED. If Fed chairman J Powell is shown the exit door, four things can happen very quickly in the markets:
- Rally in stock is expected
- Gold [AU ] is getting out of roof in price outlook
- Markets don’t like deadwood or liabilities in the landscape
- Weaker dollar is coming in the market since Yuan would stay in the depreciating mode
Rate Cuts Scenario: Post July 28-29/ 19 Financial Markets
Lower interest rates are generally better for stocks and opportunity for companies to move ahead with expansionary plan due to lower cost of borrowing.
Powell is living in a conventional world. According to a market expert who used a baseball analogy to explain. “The president is the Yankees and Powell is the Toledo Mud Hens.”
In my opinion, FED interest rate hold decision should have on the table since last year. FED is behind the curve most of the time. Welcome to QE4. Who made the first call in December-2018. U-shaped recession? US economy is in for a long haul in terms of economic recovery.
What is the Floor Price of the Oil Market? $75 or $80/barrel
Oil Market Outlook——Geo-Political Risk goes Deeper Into the Energy Markets
I have shared my thoughts on CNBC Dubai on March 12 -2019 and new development taking places in the energy market. We at IQI Global continue to maintain our stance that oil prices would meander around $73 to $107/barrel in 2019, documented in Gulf Today newspaper on October 5-2018. Premises are simple:
- a) Demand is going to touch 100 mbpd by Q-3/2019 [Already happened on June 25-2019]
- b) Geo-political risk [ St of Hormuz ]
- c) Weaker dollar in the market, Dollar Index would then touch 90-92
- d) Financialization of commodities. Endowment, hedge funds, institutional investors and SWF are entering into the market
Oil market is making sharp movement due to many risk variables including geo-political and strategic maneuvering by the global players. Price of oil as of July 2-2019 when I am writing the piece.
Oil Market Movement from June 15-30/2019.
Oil was down by 4% in 9 days
Oil was up by 2% in 4 days
Oil is up 18% YTD on July 2-19
Sources: Economist magazine, WSJ, FT.COM
Right now, OPEC has just got oil over $65 and is going to allow prices to increase up to $80 before trying again to curb crude costs. As I shared in December-18, OPEC announced supply cuts to boost prices. But just a few months earlier, with crude trading above $75 per barrel, the cartel announced supply increases. OPEC is still calling the shots in the energy market.
Geopolitical Risk: What’s in the Store for Global Energy Markets?
Geopolitical risk is adding a new dimension in the global energy market. The contentious issue at the present moment. Skirmishes between Iran and USA. Potential conflict cannot be ruled out but premature to say.
Main issue: Strait of Hormuz:
- St of Hormuz [ 19 million barrel per day]. 20-25% of the global oil supplies
- Energy market investors are feeling the pressure in the market.
- Why understanding geography has become significant for market players.
Market Intelligence Report: On the Ground. ——Energy Market Reality
- West Texas is producing 30% less oil and gas [ Permian / Marcellus ]
- Eagle Ford becomes important in South Texas for few investors
- US is producing 12.5 million barrel per day as per latest figures i.e July 1-2019
- Oil prices had plummeted 77% from 2014 and 2016 and glut stories
- Shale gas forecast was overly optimistic from the period 2014-2017 by two-thirds
- Estimated Ultimate Recovery—EUR is the new Metrix used by energy companies in USA for wall street investors
- Oil, Natural Gas and Coal remain the major energy mix 60% in the next 25-30 years
- LNG CAPEX would touch $100-150 billion in the next 5-7 years in ASEAN region
- OPEC remains relevant for the energy market ——next 30-40 years easily
- Why billionaires Boone Pickens and Jerry Jones are investing in natural gas
- Russia and Saudi Arabia are calling the shots in the global energy market
- BRI would drive the energy demand for the next 10-15 years. Infra-structure investment and GDP correlation stands solid
Europe’s Energy–Relying on USA and Moving Away from Russia
Europe has always been rhapsodizing bad things about Russia. I feel Russia phobia is a deluge in every other article from the western press.
NATO has become irrelevant in the global equation. Europe fulfills 50% of its energy needs through Russia. But in the last 18 months, the energy game in Europe is coming out with a new color and diplomatic dimension.
According to the data back in May-2019, European Commission (EC) LNG imports from the U.S. increased by 272% since 2018. EC data showed record U.S. LNG imports in March of this year totaling 49 Bcf.
Moreover, U.S. Energy Secretary Rick Perry signed two export orders that will more than double America’s LNG exports to 112 Bcf by next year. EC said LNG imports could increase from there to 282 Bcf by 2023. This is going to be massive development in the LNG market and for the American energy exporters.
Brexit Means Economic Chaos. It has Created Havoc for Many People: Crestfallen Economic Repression is Ahead
Headlines reflect all. Brexit has created havoc for the markets and panic among smart investors. It boils down to poor leadership. Investors and market players are pricing in Oct 31-2019 deadline and preparing for CONTINGENCY PLAN.
CRITICAL REASONING: Classic case study of how capital leaves the country due to political impasse among the legislative or MPs. It is extrapolated that UK will lose $2 trillion in assets by Oct 31-2019. UK’s economy GDP growth outlook will remain under 0.5% in 2019.
“Our political class remains paralyzed by its commitment to delivering the undeliverable,” Time magazine shared on June 17-19.
Final Thoughts for Sophisticated Investors
Global economy will witness #CUT in 2019 and 2020 i.e. Chaos, uncertainty and turmoil. How to protect your wealth in these tempestuous times by taking a position in 3 assets classes:
- Real estate
Sophisticated investors who fathom history and economics have always invested in tangible assets. Stay relevant and keep yourself updated with market intelligence report to make strategic decisions. Happy investing in these treacherous times.