The Telegraph: The stock markets will collapse

A.V. (translated by Cosmin Ghidoveanu)
Ziarul BURSA #English Section / 24 august 2015

The Telegraph: The stock markets will collapse

Soros massively cuts his investments in the oil sector, Buffett makes acquisitions in defense

The current economic evolutions show that the stock markets all over the world will collapse and it is just a matter of time until that happens, according to The Telegraph.

The British publication reminds that, at the time the banking crisis was paralyzing the global markets, seven years ago, central banks intervened as last resort lenders. Back then, The Telegraph writes, that major loans granted to the private sectors have been redirected to the public sector, and the money printing policies gave the world economy room to heal.

But the publication wars that now, Central banks, - from China to Brazil -, have lost control, and the global economy is stagnating. Under the circumstances, the FTSE 100 index of the London Stock Exchange, for instance, has lost this year's gains and there are signs that things could get worse.

The Telegraph brings up some signs that anticipate the crisis.

The slowdown in China's economy

China was the savior of the world's economy in 2008. The country launched unprecedented financial stimulus packages, which caused a boom of infrastructure investments. The very high demand for commodities to fuel the construction boom was also felt in the oil sector and in that of mineral resources from the emerging markets.

Now China's GDP has fallen below 7% for the first time in the last 25 years, according to the official figures, which means that the real economy is a lot weaker.

The central bank took some stimulus measures, and the fact that it resorted to the devaluation of the currency (yuan), shows that the end of the high economic growth era is getting near.

The real estate market in China is getting weaker as well, with home prices dropping after rising for decades.

The collapse of the commodities market

The slowdown in China sent shockwaves on the commodity markets. The Bloomberg Global Commodity Index, which measures the evolution of 22 commodities, reached levels that have never been reached since the beginning of this century.

The price of oil is the best barometer of the growth of the global economy, as this commodity fuels almost every industry and manufacturing sector of the global markets. The price of oil has dropped by more than half in a year, now getting closer to 40 dollars / barrel on the US market.

Also, the price of iron ore, an essential commodity for the Chinese foundries and the construction sector, has reached 56 dollars a ton, from 140 dollars a ton in January 2014.

The crisis of investing in resources

In the context of the decline of the price of oil and metals, many mining projects which have major loans have been taken out for are now in the red, and investors may never get profits from them.

the most affected are the American exploitations of shale gas.

As the needs for refinancing in the sector are increasing, in the future there is the risk of quick contagion.

The domino effect

The pillars of the world's economy are beginning to fall. China is weakening, and the emerging markets that have consumed such huge volumes of commodities are being affected by the weakening of currencies. Brazil, Russia, India, China and South Africa, the BRICS which seemed that they were going to uphold the growth of the world's economy, are now in "disarray".

Central banks are quickly losing control.

The stock market in China has already crashed, and a real disaster was avoided only through the government's intervention, which bought billions of shares. In Greece, the markets are having problems, amid the turbulences in the country.

In the currency sector, investors have flocked to the Swiss franc in the beginning of the year, but the quantitative easing of 1,100 billion Euros announced by the Central Bank (ECB) has devalued the Euro, causing the Swiss National Bank to drop peg it had imposed four years ago on the EUR/CHF exchange rate.

The interest rate shock

The interest rates have been kept very low, in an emergency regime, in the UK and the US, for six years. The United States seem to be the first that will raise the interest rate which is currently at 0-0.25%, towards the end of the year. Investors have already begun buying dollars, anticipating the strengthening of the American currency after the rise of the interest rates.

All time highs in the markets

The British market is in its 77th month of rising, a process which began in March 2009. Only on two other occasions in history did the market rise for such long periods of time: before the Great Crash of 1929 and prior to the bubble in the IT sector, in the beginning of the years 2000.

The US market, overvalued

The stock exchange indices of the American market have only seen rises like this on three occasions in history: before the crises of 1929, 2000 and 2007.

In this environment which, according to analysts, precedes a major crisis, major investors are making notable moves.

According to a recent piece of news, Soros Fund Management, the company which manages the wealth of American billionaire George Soros, cut its stock holdings in oil companies in the second quarter, as the price of the oil barrel has reached its peak this year, of approximately 60 dollars, after which it fell heavily, currently sitting at approximately 42 dollars a barrel.

Soros' company, with assets of approximately 30 billion under management, has liquidated its stakes in "Cenovus Energy" and "Suncor Energy", while the stakes in EQT and "Noble Energy" were reduced.

In the second quarter, Soros Fund Management has also completely sold its stake in "Alibaba Group Holding" Ltd., the biggest IT company in Asia. The American investor sold almost all of its shares in "Alibaba", amid the decline in the price of the stock of the company, which was affected by the slowdown in the Chinese economy.

"Alibaba" has lost about 100 billion dollars of its valuation since November, when shares of the company were at an all time high.

Also in times of crisis, American conglomerate "Berkshire Hathaway" Inc., owned by billionaire investor Warren Buffett (advisor to US president Barack Obama), decided to buy a company in the defense sector - aircraft parts maker "Precision Castparts" Corp., in a deal valued at 37.2 billion dollars.

The deal is one of the biggest for Buffett, who consolidated his company, over the last few years, by acquiring industrial companies.

Martin Armstrong, analyst: "The world's governments, in a gigantic crisis in October 2015"

Two well known financial analysts claim that every government in the world will be hit by a "gigantic" economic crisis in the month of October 2015.

Martin Armstrong, a controversial analyst who anticipated the collapse of the market of 1987, as well as other events, but who has been in jail for 11 years for fraud and the involvement in a Ponzi scheme, says that starting in October, governments all over the world will collapse into a crisis of insolvency crisis and lack of confidence, according to washingtonsblog.com.

Armstrong predicts that a major cycle will begin on October 1st, 2015, when investors' confidence will turn from the public and government sectors to the private one. In that context, Armstrong says that huge amounts of capital will leave the bond markets and the Euro to go into American stocks, so that the US stock market will rise significantly.

Armstrong's statements come after another analyst, Larry Edelson, recently anticipated that "on October 7, 2015, we will enter a new phase of the global economy, a phase when everything will turn into a scandal". He also claims that the government bonds market, which have begun to drop, will become, in the coming years, "a disaster area".

According to his predictions, a "roller-coaster through hell", over a period of five years is coming.

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