Currencies

Brexit a disaster for the UK, Europe and the world

First, the good news.  It has long been recognised that the UK economy is over-dependent on financial services, and that its housing market – particularly in London – is wildly over-priced in relation to earnings.  The Brexit vote should ensure that both these problems are solved: Many banks and financial institutions are already planning to […]

UK’s May election will create major political and economic uncertainty

Nobody can guess the outcome of the UK’s general election on 7 May.  This is astonishing, as it is only 4 months away. Currently, it seems most unlikely that either of the main parties, Conservative or Labour, will be able to form a government on their own.  Indeed, 7 different outcomes have been identified as possible by the […]

Great Unwinding of policymaker stimulus creates interest rate risk

Interest rate risk is rising in the developed economies as the Great Unwinding of policymaker stimulus continues.  Since the blog first highlighted this Unwinding last month: Oil prices have continued to tumble, with Brent now down over $15/bbl from its late-June peak The US$ has continued to rise from multi-year lows versus the yen, euro and pound And of course, […]

“Disaster is still some way off” for Cyprus, as Germany prepares to vote

Back in April, the blog suggested that capital controls might remain for rather longer in Cyprus than the “few days or weeks” suggested by the central bank.  And a month later, the bank was still unrealistically claiming they would be lifted “as soon as possible”. Today, the blog’s own view that they could be in place “for […]

Global interest rates surge as Newton’s 3rd Law continues to operate

Newton’s 3rd Law of Motion states, “To every action there is always an equal and opposite reaction“.  Thus the forces of two bodies on each other are always equal and are directed in opposite directions.

Policymakers forgot this Law in …

"A word means just what I choose it to mean"

‘When I use a word,’ Humpty Dumpty said, in rather a scornful tone, ‘it means just what I choose it to mean — neither more nor less.’

This quotation from Lewis Carroll’s great novel ‘Through the Looking-Glass’ rather seems to sum up policymakers’ cur…

Eurozone politicians have built a Tower of Babel

Last week saw the 20th EU ‘Crisis Summit’. Like the previous 19, it achieved little. Yet everyone at the meeting knew what had to be agreed:

• A banking union which operates across national borders
• The issuing of joint Eurozone bonds, guarante…

The Eurozone train crash heads for the buffers

For 25 years, Western policymakers coasted to electoral success on the back of an economic Supercycle. The BabyBoomers’ arrival in the Wealth Creator 25 – 54 age group meant there was just 16 months of recession between 1982-2007. Politics and policy…

Leaving the Eurozone would be very difficult

Last December, the blog raised the question of how a country like Greece could actually leave the Eurozone. Many people believe this is inevitable. But how would the practical issues be solved?

Now Wolfgang Münchau has taken up the challenge in the…

Leaving the Eurozone creates practical problem

There is much discussion of countries such as Greece being likely to leave the Eurozone.

Some even believe it is inevitable.

But on a practical basis, how would it happen?

This is a question that has been bothering the blog for some months.

Q3 results show companies cautious over the outlook

6 months ago, when reporting Q1 results, the blog strongly disagreed with the rosy outlook being offered by most analysts. It warned then that:

“The history of the past 40 years shows high oil prices have always led to:

• An initial boom in volume…

"This is far worse than the banking crisis of 2008"

Long-standing readers will remember that then-UK Finance Minister Alastair Darling was the first Western politician to recognise in August 2008 the disaster that was about to hit financial markets.

Now out of office, his warning today therefore deserv…

USA’s PE exports decline despite shale gas

As promised, the blog looks today at the USA’s trade position in polyethylene (based on data for the January-August period from Global Trade Information Services, the leading global supplier).

The chart shows US net trade (exports less imports). This…

Investors prefer JUUGS to PIIGS

Financial markets have become increasingly nervous in recent weeks, since the blog last reviewed developments in global bond markets.

Its conclusion then was that investors are worrying more about return of capital, than return on capital, as we trans…

EU’s plan to borrow from the poor boosts S&P 500

The brave new world of modern finance continues to amaze the blog.

It still has problems with the idea that the answer to having too much debt is to borrow some more. But last week’s Eurozone summit not only did this (as noted by the German central b…

Budgeting for Austerity – the Opportunities

The 2012-14 Budget period offers great opportunities, as well as great challenges.

Will companies continue to focus on short-term developments in financial markets? Michael Porter’s Shared Value concept instead offers us a powerful model for creat…

US financial markets defy gravity

Blog readers can choose their favourite leading indicator this week.

In financial markets, the US S&P 500 index continued its recent rally. If you believe the bullish analysts; a Greek default, lengthy arguments between Germany and France, and the ne…

Europe’s austerity packages start to bite

Its the ‘big picture’ issues that we need to watch these days, no longer detailed forecasts of individual product growth rates. They are driving chemical product sales in every major region.

The chart above from the Financial Times highlights Europ…

Financial markets party whilst petchems remain weak

Financial markets continued their start of quarter rally last week. But their volatility amazes even seasoned observers. The US Dow Jones Index has moved at least 100 points in 57 of the last 58 days, for example, whilst crude oil jumped $3/bbl on Fr…

2012 Budgets

The blog will publish its fifth annual Budget Outlook next weekend. As usual, it is therefore time to review last year’s Outlook. Past performance may not be a perfect guide to future outcomes. But it is one of the best that we have.

The blog’s 2008 O…

Politics, beliefs return to dominate economics

The 10000 readers who downloaded the blog’s first Budget White Paper in December 2009, ‘Budgeting for a New Normal’, will remember the issues highlighted in the triangle above.

At the time, they were being widely ignored, as policymakers assumed that …

Critical Success Factors in the New Normal

Yesterday’s Scenarios hopefully provided valuable insight into the challenges ahead for companies and individuals. They also suggest some Critical Success Factors for achieving a successful transition to the New Normal, as set out in the chart above:

Scenarios for the transition to the New Normal

The transition to the new Normal is likely to be painful and long-lasting.

Future demand growth will be slower as the ageing Boomers spend less and save more.

More regular and deeper recessions are likely to become a feature of the global economy o…

A 4-point Action Plan for chemical companies

Today’s economic situation is getting worse, not better. The blog believes this is because most policymakers still refuse to accept the wisdom contained in the Beatles’ ‘When I’m Sixty-Four’ song on their iconic Sgt Pepper album.

The Western BabyBoo…

Time for leadership at EPCA

The chemical industry has a turnover of $3.4trn, and is the world’s 3rd largest industry. It matters to the global economy.

Many of its leaders are about to meet next weekend in Berlin for the annual European Petrochemical Association (EPCA) meeting….

August highlights

Many readers have been taking a well-earned break over the past few weeks. The blog also continues to gain large numbers of new readers, as the financial crisis intensifies. As usual, therefore, it is highlighting key posts during August, to help you…

Investors rush to save with the JUUGS

Most of us have now heard of the PIIGS countries (Portugal, Ireland, Italy, Greece, Spain). They are the ones causing the Eurozone debt crisis.

Today, the blog introduces the JUUGS (Japan, UK, USA, Germany, Switzerland). These are the major countrie…

Downturn continues as financial markets sink

ICIS pricing is a very valuable resource, particularly at market turning points. It highlighted the start of the current downturn in April, when reporting that buyers had moved to operating on a ‘hand to mouth’ basis.

Now, its market editors are high…

Policymakers remain in the Denial phase

A year ago, the blog feared we were “still towards the beginning of the crisis”, not at its end. Sadly, its judgement seems to have been correct.

2 weeks after that post, the US Federal Reserve launched its now infamous $600bn QE2 programme. The aim…

China’s bank lending nears its Minsky Moment

China’s credit bubble is one of the largest the world has ever seen. This is true not only of its total size, but also in relation to GDP.

The history of credit bubbles is very clear about what happens next. Anyone who has followed the US subprime l…

Protectionism moves closer as countries try to devalue

A year ago, a panicked Federal Reserve introduced its QE2 programme. One of its key aims was to kick-start US growth via driving down the value of the US$ and boosting exports.

Since then:

• The US$ has fallen, and US exports have increased
• …

Goldman halves global ethylene growth estimate

Goldman Sachs today halved its estimate for global ethylene growth to ~2.5%, and slashed its earnings estimates for some major US companies. Analyst Robert Koort warns:

“Our outlook for earnings growth has decelerated substantially in recent weeks …..

ACS webinar tomorrow

The blog was delighted to learn last night that 400 people have already registered for the next American Chemical Society ‘Chemicals and the Economy’ webinar. This takes place tomorrow, July 7, at 14:00-15:00 pm US EDT. It will focus on …

ACS webinar tomorrow Read More

European auto sales fall 4%

EU auto sales have been a two-speed market recently. Strong growth in Germany, France, Benelux and the Netherlands kept sales moving forward versus 2010 levels. But other key markets, including the UK, Spain and Italy have been weak. April’s sales …

European auto sales fall 4% Read More

Boom/Gloom Index at a crossroad

The blog’s Boom/Gloom Index presents a fascinating picture this month. The main Index (blue column) remains strongly positive, in keeping with the solid performance of most stock markets. It confirms evidence from other sentiment indices that investors are optimistic about …

Boom/Gloom Index at a crossroad Read More

The $600bn man

In October 2008, the blog featured the US Treasury official responsible for running the $700bn TARP rescue fund. He was 35 years old, and just 6 years out of business school. Apparently there was nobody available with more experience to …

The $600bn man Read More

Budgeting for Uncertainty

When elephants fight, those around them need to be cautious. And this is the prospect for 2011-13, as the Western countries try to force the BRICs (Brazil, Russia, India and China) to export less and import more, the so-called ‘rebalancing’ …

Budgeting for Uncertainty Read More

Q3 may see seasonal weakness

6 months ago, the blog suggested that normal seasonal demand patterns could resume in 2010. And it optimistically forecast “a strong H1“, on the basis that “consumers should need to restock ahead of the usual Q2 demand peak in autos/construction“. …

Q3 may see seasonal weakness Read More

Top 10 posts in 2009

Blog readers have a wide range of interests. That is clear from the list below of the Top 10 posts in 2009. It also confirms the complexity of the chemical industry, and its fascination. In alphabetical order, it is as …

Top 10 posts in 2009 Read More

The blog in 2009

The blog is now 2.5 years old. Readership continues to grow, both within the chemical industry and its investment community. It is now read in 121 countries, and 2735 cities, versus 89 countries and 1244 cities a year ago. Readers …

The blog in 2009 Read More

Budgeting for a new normal

2010 should be a better year for the chemical industry, as demand grows in line with a recovery in global GDP. But a quick V-shaped return to the 2003-7 Boom years in terms of volumes/margins seems unlikely. Governments will worry …

Budgeting for a new normal Read More

The Latvian canary

Coal miners used to take a canary with them, to help detect poisonous fumes. If the canary stopped singing, then they knew there was a problem. This led to the concept of “the canary in the coalmine acting as a …

The Latvian canary Read More

Exporting is no fun anymore

Japan and Germany are the great exporting countries of the industrialised world. They didn’t have the consumer booms seen in the USA and UK. Yet their economies are plunging, as export opportunities dry up. Yesterday, the Japanese finance minister, Kaoru …

Exporting is no fun anymore Read More

The cycle of deflation

US fund managers Comstock Partners reported a 50+% gain on their flagship Capital Value Fund in 2008. The logic behind their out- performance is summarised in the chart, which depicts their belief that we are now in a global cycle …

The cycle of deflation Read More

The man with a plan

Yet again, as in October, ‘buy on the rumour, sell on the news’ has been the financial markets’ reaction to the latest efforts to solve the financial crisis. A 5% fall on Wall Street last night, in response to the …

The man with a plan Read More

Eurozone under pressure

Early last year, the blog flagged up a warning from Gillian Tett in the Financial Times that Iceland could go bankrupt, as its banks were “too big to rescue”. Yet at the time, the United Nations had listed it as …

Eurozone under pressure Read More

The blog in 2008

The blog is now 18 months old. It has a truly global readership, and as shown in the above map, is now read in 1244 cities and 89 countries. Its aim has always been to identify ‘the influences that may …

The blog in 2008 Read More

The impact of banking crises

The blog has been searching the websites of the major central banks, such as the IMF, World Bank, Federal Reserve and Bank of England, for research on the history of credit crises. Several readers, including Paul Noble of Parsons Brinckerhoff, …

The impact of banking crises Read More

Lesson from Japan

Japan went through its “bubble years” in the 1980’s, with the Nikkei index peaking at 39000 (versus 8664 today). The blog well remembers standing in front of Tokyo’s Imperial Palace in Tokyo in 1988, when its land was said to …

Lesson from Japan Read More

Canada suspends Parliament

The downturn is starting to impact politics all over the world. As an example, take the recent sequence of events in Canada: • In October, Prime Minister Harper increased his vote, but still ended 12 seats short of a majority, …

Canada suspends Parliament Read More

China focuses on domestic growth

In September, the blog wondered whether “China’s interest in remaining the manufacturing capital of the world may be starting to wane”. Yesterday, Lou Jiwei, the chairman of China’s sovereign wealth fund (China Investment Corporation) confirmed the new focus on domestic …

China focuses on domestic growth Read More

A low-key G-20 meeting

The first-ever G-20 meeting of Heads of State was a relatively quiet event, without the presence of President-elect Obama. Two main areas seem to have been discussed: • Regulatory reform, where finance ministers have been given until the end of …

A low-key G-20 meeting Read More

Survival tips for CFOs

The Financial Times series on surviving the downturn focuses this week on CFOs. It includes advice from Feike Sijbesma, CEO of DSM, who suggests that “you need to see how creditable your debtors are, very quickly”, and advises that “maintaining …

Survival tips for CFOs Read More

Russia’s economy stalls

A few months ago, Russia’s economy seemed to be recovering from its problems in the late 1990’s. High prices meant oil revenues were increasing, and the currency was strong. Now, the combination of the oil price collapse and the credit …

Russia’s economy stalls Read More

The “crystal blog”

The blog’s forecasting record is reviewed in ICIS Chemical Business this week. Click here if you would like a copy. The blog’s aim is to “highlight relevant information for the busy executive, and to provide relevant and actionable analysis of …

The “crystal blog” Read More

G-20 tries to support growth

The G-20 was created in 1999, after the financial crises that had hit emerging countries from 1997 onwards. It includes the G7 group of major industrial companies, plus the main emerging economies, including the BRIC countries (Brazil, Russia, India, China). …

G-20 tries to support growth Read More

A fistful of dollars

The US Federal Reserve used just to manage monetary policy for the 12 ‘districts’ of the USA. But now, it is going global. First, it opened unlimited “swap lines” with other G7 countries through the European Central Bank, the Bank …

A fistful of dollars Read More

A downturn, not a dip

The blog first raised this issue last December, when noting that global chemical industry production growth had already “slowed significantly”. At that time, it questioned whether “central bankers will be able to wave the magic wand that restores us to …

A downturn, not a dip Read More

2009 Budgets

It is nearly time for the blog’s annual forecast of chemical industry prospects. Of course, past performance is not necessarily a guide to future outcomes. But it is one of the better guides that we have. So before publishing the …

2009 Budgets Read More

The last few days

Many new readers have turned to the blog, to better understand what is happening in the financial world, and to chemicals demand. They might like to start with the 7 September posting, which forecast the current collapse: ‘The price of …

The last few days Read More

Iceland calls in IMF

As the blog predicted, Iceland has been forced to call on the IMF for help. Finally, the country’s leaders have recognised that their $20bn economy couldn’t support the level of debt built up during the ‘go-go’ years. The pity is …

Iceland calls in IMF Read More

The Swedish model

The blog has given up counting the number of US banks that have failed in recent weeks, away from the headlnes. Ken Lewis, CEO of Bank of America, predicted last month that half of all US banks would fail, and …

The Swedish model Read More

‘The biggest bailout in US history’

Does the US Treasury read the blog? Just hours after the chart below was posted, rumours began to circulate of a major government initiative to try and stabilise financial markets.

AIG rescued

‘A disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth, and materially weaker economic performance,’ according to the US Federal Reserve last night. As a …

AIG rescued Read More

August highlights

Many readers have been out of the office during August on a well-deserved break. I am therefore highlighting below the main postings over the past month, in the hope this will help them to catch up quickly on key developments …

August highlights Read More

A sombre outlook

Housing is a vital market for chemical companies. It boomed in the US and other Western countries as credit standards were relaxed between 2003-7. Now it is at the centre of the credit crunch. Martin Feldstein, Harvard economics professor, and …

A sombre outlook Read More

Global inflation on the rise

Pimco, the world’s largest bond investors, are worried about rising inflation. Their main concern is that many Asian and Middle Eastern countries had ‘anchored’ their currency to the US$. ‘With that anchor gone’, they comment, ‘due to the US Federal …

Global inflation on the rise Read More

The blog’s first birthday

Its now a year since the blog started. Since then, 213 postings have appeared. It is now read in 72 countries and 620 cities (shown above). Most encouragingly, readership continues to steadily increase. Since January, it has risen a further …

The blog’s first birthday Read More

Interesting quotes (5)

Every now and then, a few interesting quotes come along, which seem to recent summarise developments, and set the tone for the next few months. Recent days have been a good example of this process at work: ‘The era of …

Interesting quotes (5) Read More

Russia’s oil trader

Increases in Russian oil supply have played a major role in balancing world oil markets, at a time when other non-OPEC sources such as the N Sea have been declining. Production rose from 6.2mbd in 1999 to 9.6mbd by 2006. …

Russia’s oil trader Read More

China exports inflation (2)

I noted back in February that China is no longer exporting price deflation, and is instead causing global prices for commodities and manufactured goods to rise. A reader has now kindly sent me an interesting report from Credit Suisse, commenting …

China exports inflation (2) Read More

We all make mistakes

Anthony Bolton’s investment column this weekend contains another nugget of wisdom. Coincidentally, it is linked with Archie Norman’s ‘tip for management’ which I quote below. Bolton is the UK’s most successful fund manager. And he certainly shares Norman’s sense about …

We all make mistakes Read More

OPEC suggests $200/bbl oil

OPEC used to believe that its fortunes were tied to the health of the global economy. But as I noted last month, its current policy is more reminiscent of ‘the difficult times of 1973/4 and 1979/80’. The evidence for this …

OPEC suggests $200/bbl oil Read More

‘Longer, deeper, wider’

Singapore is one of the global economic success stories of recent decades. Its sovereign wealth fund, GIC, is one of the world’s largest fund management companies, with assets of over $100bn. And GIC has already been active during the early …

‘Longer, deeper, wider’ Read More

‘Too big to rescue’

Readers will know that I am a great admirer of Gillian Tett’s analyses of banking issues in the Financial Times. Today, she has another thought-provoking article, this time on the emergence of Iceland as ‘the world’s first country run like …

‘Too big to rescue’ Read More

FT’s subprime jokes page

Those who liked my earlier posting about Margin calling, might like to look at the new online Financial Times page devoted to subprime jokes. For example, ‘What’s the definition of an optimistic investment banker?’ ‘Someone who irons 5 business shirts …

FT’s subprime jokes page Read More

Oil price volatility rises

Volatility has been rising in the crude oil and feedstocks markets. This is because individual players have completely different strategies. In turn, this makes it difficult for chemical companies to forecast short-term feedstock costs. It also makes it difficult to …

Oil price volatility rises Read More

The US$ tumbles

The US$ took a major tumble yesterday, as traders decided the Bear Stearns news meant there was little risk of central bank intervention. Against the Japanese yen it fell almost 2.5% during the day, closing at ¥97.35, as shown on …

The US$ tumbles Read More

“The good times are behind us”

Central bankers are slowly recognising that inflation is becoming a serious problem. But their responses differ. So chemical companies will find it harder to predict interest and exchange rate policies.