Thought for the day
"I like nonsense, it wakes up the brain cells. Fantasy is a
necessary ingredient in living, it's a way of looking at life through the wrong
end of a telescope. Which is what I do, and that enables you to laugh at life's
realities."
-
Dr. Seuss (American,1904-1991)
Word for the day
Subrogate (v)
To
put into the place
of another; substitute for
another.
(Source: Dictionary.com)
Teaser for the day
Obama bhai is gone. Let's sit and count tangibles -
"kya khoya, kya paya".
Swinging between reason and hope
The sunrise cottage industry in US - the shale oil - has
reportedly begun to feel the heat of crashing oil prices. If media reports are
to be believed "Collapsing crude prices are confronting scores of smaller
U.S. oil producers with the grim choice of either shutting older high-cost
wells or burning through cash in the hope of riding out the downturn".
In Asia, last month the Chinese industrial companies’ reported
their steepest decline in profits in at least three years, underscoring the
challenge facing the nation’s former growth drivers as the economy slows and
commodity prices slump. As per the National Bureau of Statistics Industrial profits fell 8 percent in
December from a year earlier, the biggest drop since at least October 2011,
according to data compiled by Bloomberg.
The most credible cue to slack in global economy however was
presented by the Catterpillar management in their latest earnings call:
"We expect world economic growth to only improve
modestly in 2015. The relatively slow growth in the world economy and
continued weakness in commodity prices—particularly oil, copper, coal and iron
ore—are expected to be negative for our sales."
"The recent dramatic decline in the price of oil is the
most significant reason for the year-over-year decline in our sales and
revenues outlook. Current oil prices are a significant headwind for Energy
& Transportation and negative for our construction business in the oil
producing regions of the world. In addition, with lower prices for
copper, coal and iron ore, we've reduced our expectations for sales of
mining equipment. We've also lowered our expectations for construction
equipment sales in China. While our market position in China has improved,
2015 expectations for the construction industry in China are lower".
Many, including myself, believe that the Fed’s QE programs
didn’t work as expected, and it took huge bond purchases to achieve modest to
moderate results. In fact to make it sound successful, Fed had to tout it as an
interest rate too, inasmuch as it did put downward pressure on longer-term
interest rates.
As Bob McTeer noted in his recent post
"the impact of the ECB’s new program depends on how euro banks treat their
new reserves. If they hoard them as in the U.S., it will take a lot of bond
purchases to provide a little stimulus.
If they use their excess reserves for new lending, their program
will be more successful than the U.S. program and need not last as long. A
difference that may prove to be key is that, while the U.S. pays 25 basis
points on bank reserves (including excess reserves), the ECB has a negative 75
basis point rate. The “return” on excess reserves will thus be lower in Europe
by a full percentage point. The behavior of the European banks, especially vis-à-vis
reserve utilization will be instructive."
The equity market excitement on ECB QE may therefore be not without reason
and hope
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