THE BEGINNING OF THE END IN THE MARKETS

THE BEGINNING OF THE END IN THE MARKETS

Despite the fact that the BoJ has disappointed the investors, because there is an abundance of liquidity in the marketplace, not a single investor would like to miss the bonds of emerging countries which have a high yield, if there isn't any financial crisis. And if the rally in the bonds continue, it will support the currencies of the emerging markets against the dollar and also the stocks. At the same time, the loose financial conditions and high oil prices will carry on supporting the risky assets of the emerging countries during May.

The risks start in June. According to the latest poll, those who want the Brexit in England are leading by 46% compared to those who want to stay in the EU who are %44. China's economic growth is pumped up with a very dangerous credit boom, the rise in the price of oil is in an extent due to the weak dollar; but these are passive variables. The most important reason for the change in the direction of the markets will probably still be the United States. In the first scenario, we will see that the increased employment and the rise in the inflation will go beyond the endurance limits of the Fed, the signal will be given in June and the second interest hike will take place in July. In this case, the dollar will once again enter into the appreciation trend and this will trigger a hard sell in the emerging countries. In the second scenario, the Hillary Clinton-Donald Trump race will damage the confidence in the economy and the economic growth of the United States will remain below %1 throughout the year. In this case, the dollar will continuously remain weak, and the global growth story will take an end and this time, the sales which will start in Wall Street will spread to the emerging countries.

Thus, for the June-August period, the most likely scenario is: the Fed will raise once more its interest rate and the speculative funds will leave the emerging countries. Due to this, one should hold its positions in order to catch the last buy wave in May but pass to gold in June.

AN EXPENSIVE OIL WOULD BE A BLOW TO THE US ECONOMY

AN EXPENSIVE OIL WOULD BE A BLOW TO THE US ECONOMY

The rise of price of oil could be much larger than expected. In this case, it would become a serious threat to the US economy.

The increase in the barrel price could carry a heavy blow to the economy of the United States. Given the growth of prices of the black gold, the balance between supply and demand is likely to return soon to normal. In this case, prices should stabilize between 40 and 60 dollars, the cost of a barrel.

However, some factors may prevent this scenario to occur, as many situations where the US oil market may not have time to adapt to the growing demand. This could be the case if the OPEC countries finally manage to find a compromise or if the United States reduced their oil production faster than expected.

To date, the production of oil exceeds the demand only one or two percent. In this context, if demand continues to climb and some countries cut the production slightly, the surplus will disappear.

Therefore, the oil price should rise and in this case, the United States will be deprived of all the benefits offered by a cheap oil.

Turkey: the new monarchy of the Gulf (!)

TURKEY: THE NEW MONARCHY OF THE GULF (!)

Turkey that is about to take over the temporary presidency of the Organisation of Islamic Cooperation (OIC), accentuates the rhetoric of political Islam in its internal affairs and on the international stage. The official visit of the Saudi King to Turkey became further evidence.

The events of the Arab Spring have pushed Turkey to regress within the Islamic world. The Persian Gulf monarchies, currently regarded by Ankara as its closest allies, have played an important role. The international community is worried by the attempts of Turkey to incorporate in its political strategy, ideas such as moderate Islam and democracy.

From 2011, the Turkish authorities have started making plans to boost their influence in the Middle East and to become a regional leader. The essential purpose of this political strategy was to bring the Muslim Brotherhood from Tunisia to Turkey. However, the Turkish ambitions to push the Muslim Brotherhood to the centre stage in the Islamic world have been destroyed by the joint efforts of the UAE and Saudi Arabia, and Turkey was left alone with her despair.

Regarding the situation in domestic politics in Turkey, everything is also very sad. Currently, the situation in the country is such that free and democratic elections are impossible, and the opposition parties are in effect deprived of the right to hold rallies and protest.

The Muslim Brotherhood, unlike Saudi Arabia, not only based its policy on a religious basis; this movement had long been supported by the West. Western countries call this strategy "moderate political Islam", "the Turkish model", but what is happening in Turkey, causes severe criticism from the Western press. The authoritarian government, violations in the field of freedom of expression, press, assembly, all this shows that the Turkish model is not working, even in Turkey. A particular important sign is the presence of financial resources coming from the Gulf countries to Turkey which have increased significantly since the 1980s.

HEADING TOWARDS THE MEGASTORM

HEADING TOWARDS THE MEGA STORM

The recent plunge in stock prices and the slowdown in global growth are taking place at the same time that investor confidence in central banks is waning. Underlying some of the turbulence of the past few months was a growing perception in financial markets that central banks might be running out of effective policy options. The global central banks have already used their most powerful weapons and are currently trying to put forward the untested, experimental policies like negative rates that cut bank profitability while having little impact on lending. But the sluggish performance of the global economy, the massive debt overhang, and the erratic behaviour of the stock market are all directly attributable to the cheap money policies coordinated and implemented by central banks following the Great Recession in 2008. While it's true that China is facing slower growth, oil prices are plunging, emerging markets have been battered by capital flight, and yields on junk bonds are relentlessly rising, it’s also true that central bank policy is not primarily designed to address these problems, but to ensure the continued profitability of its main constituents,  the big banks and mega-corporations. Keep in mind, the global economy has been sputtering for the last 6 years, but major financial institutions have only expressed alarm just recently.  Why? What’s changed? 

What’s changed is profits are down, and when profits are down,  Wall Street and its corporate allies lean on the central banks to work the levers to improve conditions. 

"There’s a big difference between companies’ advertised performance in 2015 and how they actually did. How big? S&P earnings per share fell by 12.7%, according to S&P Dow Jones Indices. That is the sharpest decline since the financial crisis year of 2008. Plus, the reported earnings were 25% lower than the pro forma figures—the widest difference since 2008 when companies took a record amount of charges. The implication: Even after a brutal start to 2016, stocks may still be more expensive than they seem. Even worse, investors may be paying for earnings and growth that aren't anywhere near what they think. The result could be that share prices have even further to fall before they entice true value investors." (Wall Street Journal)

Profits are down and stocks are in trouble. Also, corporate earnings have dropped for two straight quarters which is a sign that the economy is headed for a slump. 

“Recessions have followed consecutive quarters of earnings declines 81 percent of the time, according to an analysis from JP Morgan Chase strategists, who said they combed through 115 years of records for their findings.”(CNBC)

“The increasing desperation of corporate CEOs is clear, as accounting gimmicks and attempts to manipulate earnings in 2015 has resulted in the 2nd largest discrepancy between reported results and GAAP results in history, only surpassed in 2008…..Based on fake reported earnings per share, the profits of the S&P 500 mega-corporations were essentially flat between 2014 and 2015…..earnings per share plunged by 12.7%, the largest decline since the memorable year of 2008….With approximately $270 billion of “one time” add-backs to income used to deceive the public, the true valuation of the median S&P 500 stock is now the highest in history – higher than 1929, 2000, and 2007. Wall Street’s latest con game, with the active participation of corporate CEO co-conspirators, is a last ditch effort to fend off the inevitable stock market crash….All economic indicators are flashing red for recession. Stocks are poised for a 40% decline faster than you can say Wall Street criminal banks." (Jim Quinn at Burning Platform) 

When the profitability of the world’s biggest corporations are at stake, the central banks will move heaven and earth to lend a hand. This was the basic subtext of the discussions at the recent G-20 summit in Shanghai, China. The finance ministers and central bankers wrecked their brains for two days to see if they could settle on new strategies for boosting earnings. In fact, the austerity-minded IMF even called on the G-20 to support a coordinated plan for fiscal stimulus to  boost activity and decrease the risks to the equities markets. Unfortunately, finance ministers balked because fiscal stimulus puts upward pressure on wages and shifts more wealth to working classes. That’s why the idea was shelved, because the oligarchs can’t stand the idea that workers are getting a leg-up. What they want is a workforce that scrapes by on minimum wage and lives in constant fear of losing their job.  

The “failed” G-20 summit was clearly a turning point for the markets. Now that the central banks are out of ammunition, the only hope to keep stock prices artificially high rested on Keynesian fiscal stimulus injected directly into the real economy. That hope was extinguished at the meetings. The prospect that equities can continue to climb higher in the face of shrinking profits, tighter credit, slower growth and bigger corporate debtloads is unrealistic to say the least. 

“Companies still have a little time left before they must pay down the bulk of $9.5 trillion of debt maturing in the next five years….But it’s not getting any easier for these corporations to borrow, at least not in the U.S. In fact, many of these obligations are becoming harder and more expensive to repay at a time when companies face a historic pile of bonds and loans coming due. It’s not terribly surprising that companies have a bigger debt load to pay down. They borrowed trillions of dollars on the heels of unprecedented stimulus efforts started by the Federal Reserve at the end of 2008 during the worst financial crisis since the Depression. They kept piling on the leverage as central banks around the world doubled down on low-rate policies and kept purchasing assets to encourage investors to buy riskier securities..." (Bloomberg)

The central bank policy seduced corporations into borrowing tons of money that they frittered-away on stock buybacks and dividends, neither of which create the revenue streams necessary to repay their debts. So rather than build their companies for the future, (Business investment is at record lows) corporations have been behaving the same way the Wall Street banks acted before the Crash of ’08. They've been borrowing trillions from the average investors via the bond market, rising their share prices through stock buybacks, increasing executive compensation, and dumping the money in offshore accounts. Now the bill is coming due, and they don’t have the money to repay the debt or the earnings-potential to avoid default. Something’s gotta give.

Like the gigantic asset-price bubble in stocks, it’s a sign that the economy and the markets are headed for a long and painful period of adjustment...

FED laid down on the table the interest rate hike route…

FED laid down on the table the interest rate hike route…

US Federal Reserve has finally raised the interest rate to 0.50 by increasing them by 25 basis point, the first time since 2006. FED has cited the following reasons for the rate hike: a notable improvement in the labor market and an assuring view regarding the reaching of the 2 percent in the rise of the inflation. In the statement issued after the meeting, in fact a road map for the interest rate hikes has been put forward. It has been emphasized that the FED’s stance would be consistent with the economy’s pattern and will be based again on data and this continuation of the interest rate hike will be progressive.

The 10 out of 17 members of the FED’s Open Market Committee’s decision making body see the interest rates as 1.40 at the end of 2016. If we consider this emphasis on the gradual increase and that the FED will meet 8 times in 2016, it means that it will bring the interest rates to 1.50 percent by the end of the year through 25 basis points increases.

Judging by the forecasts, within this outlook, the interest rates will also continue to increase in 2017 too and will reach 2.75 percent at the end of the year with an additional 1.25 increase. But an acceleration in the inflation may cause further increases while a deterioration in the employment may cause a suspension in the increase of the interest rate.

By pointing out the improvement in the labor market, the FED stated that the decline in oil process was effective to have the inflation rate staying below 2 percent and after the passing of these impacts, it is estimated that the inflation will be close to 2 percent at the end of 2016.

The FED is raising the interest rate gradually in order to avoid having to make a sudden high increase in the future and if necessary to be able to lower it again. Yellen says “the interest rate increase should be seen as a sign of confidence”.

The FED drew his sword and laid down its route on the table. On this route, it will slow down or accelerate in case of a different situation that may arise in this route. Without any changes in the current state, the FED will not stop in its interest rate increases.

As of today, the questions such as “will it raise the interest rate?”, “when will it raise?” are replaced by the question “will the Fed’s interest rate increase’s dose change?”. And this will be scrutinized deeply by the high yield bond market and the emerging countries. Because the extreme section of the capital markets which took advantage of the FED’s interest rate cut and its monetary expansion performed in three phases were these high yield bonds and bonds of emerging countries. Now that the FED is exiting this policy, the first effects will be seen in these markets.

In this view, the emerging countries will be forced to raise their interest rates in order to protect the interest rate difference in terms of dollars as well as to keep the value of the domestic currency. The most unprepared and which follows a loose monetary policy will be the one which will be affected the most. The fingers point out the fragile quintet. And the formula is quite simple: whoever stalls in the interest rate will see its national currency lose substantial value.

USA is entering in to the troubled waters.

Will the the Fed begin or postpone the implementation in 2015 of its plan of interest rate increase as the first step of the monetary tightening? Financial markets complains of mixed signals from the Fed. Even if the slowdown of the Chinese economy is seen as responsible for the late activity in the international stock markets, the main problem is stated to be the US economy. Is there any doubt behind the conflicting messages from the Fed?Is it concerned about the overheating of the economy?

If so, their worries cannot be considered as unfounded. After all, the US undertook in the last 40 years, four times the monetary tightening, and all of them ended in a crisis. Each time employment and production collapsed beyond the Fed's forecasts. The biggest disaster was brought by the fourth tightening implemented between 2004-2007. Now USA is entering into the troubled waters again.

Between the years 1979-1982, Federal Reserve Chairman Paul Volcker, had convinced the political authority. He was hoping to take greater steps in combating  unemployment and idle capacity by controlling the money in circulation instead of the Keynesian policies which had been applied for a long time. But the cost was great. Citi and other financial institutions were difficultly saved from bankruptcy. In those years, Latin American countries that were under the direct influence of the United States were plunged into a crisis for five years.

It applied in another monetary tightening program had been applied during the 1988-1990 period. Federal Reserve Chairman Alan Greenspan dragged into debt the money and credit institutions who were already struggling to survive. In order to avoid recession and save the bankrupting companies, the federal authorities made great efforts. At that time, it is said that the state of Texas had consumed all of quarterly government revenue.

Alan Greenspan, undertook another monetary tightening in 1993-1994. He hoped to obtain significant results upon the long term assets and borrowing costs through small-scale tightening. Fortunately, upon the opposition of major members of the Federal Open Market Committee, Greenspan gave up shortly the application. The US economy was saved from entering into a new recession.

The last one (2004-2007), was the most devastating. After the implementation, neither Greenspan nor his successor Bernanke understood how the financial system and the housing sector had become fragile. The world economy is still not able to get rid of the effects of the 2008 crisis started in the US. In the US, the policies, deregulations and tightenings upon which everybody is clinging to, continue but until when?

THE GREAT CRISIS OF THE CAPITALISM

THE GREAT CRISIS OF THE CAPITALISM

The beginning of the affecting of the world economy by the neoliberalism coincides with the end of the '40s. Its main tools have been the World Bank and the IMF. It showed itself in the political arena and came to power through Thatcher (1979) and Reagan (1981). In fact, by making their first appearance in the Third World countries before the developed countries, neoliberalism manifested itself in Chile with the Pinochet's coup.

The disabling of the applications such as welfare state which belonged to the "Golden Age" of the capitalism, enabled the strengthening and spreading of neoliberal policies. The surrender of the Social Democrats to the neoliberalism permitted the change of policy of the SPD, headed by Schröder, thus took effect in Europe in the same line. In fact, a return had started in another guise to the wild capitalism that the Marxists had meticulously analysed.  The circle was being closed by the neoliberals.

The neoliberal do not comprehend that the neoliberal policies cannot be sustained without pressure or tyranny, nor do they understand the causal relation between neoliberal politics and the civil or military coups. They are opposed to the coup d'etat but they don't want to abandon the neoliberalism. Now, once again the circle is closing; capitalism is in the grip of a crisis on a world scale. The resort is also likely to call on bullying.

The crisis is crushing upon the all the countries with a great noise; the ones who will bare the most pain will be the employees and the people who were pushed to the bottom rows of the income distribution during the neoliberal era. The imperialists who have began to take measures on a global scale in order to extend the life of the bankrupt policies,  are putting up a bullying on an international scale.

Trans-Pacific Partnership TPP, foresees an almost unlimited freedom through large and versatile arrangements in favour of the international capital in many areas. One does not know whether this agreement which plans to cover the northern half of the sphere will be a remedy the crisis of the capitalism. But there is one thing we are sure of: unless the persons who will put their hand in a revolutionary way upon the system, the imperialists will always be successful in overthrowing the burden of the capitalist crisis on the developing countries.