2/11/16

A massive wealth transfer is the reason for this market crisis?

A massive wealth transfer is the reason for this market crisis? I think so. 


First of all few data and very rough calculations.
The annual Opec oil export  is equal to around 24 million barrel a day or 9 billion barrels a year.
The proceeds from this export have decreased say by 60 USD barrel since the oil price moved from say 100 to say 40 (but we know it is moving to less then 30). That means that the Opec countries are exporting the same quantity of oilbut are receiving around USD 540 billion a year lessThat is avery large amount.
To put it in contextOpec countries GDP was around 3.4 trillion in2014up from 1 trillion in 2004 when oil price was around 40 USD/b.To provide another point of reference the size of Abu DhabiInvestment Authorities and SAMA Foreign Holdings combined are estimated at around 1.6 trillion (these are the Sovereign funds of EmiratesSaudi Arabia and Qatar). If you take away around 540USD billion of exportit means at least 20of GDP disappearsIn few years the above mentioned Sovereign Funds will be very small.Note that I am not counting the effect of lower prices of natural gas.
Now consider what is really happening.
Since 2004 there has been an incredible transfer of wealth with oil moving from around 40 USD/barrel to over 100 USD/barrelTheOpec countries (and Russiasimply cashed in billionswithout any affordinvestment or even smart investing abilityThe importers(largely Europe and Chinahad to pay the oil 'taxand see their wealth decreaseThe USA is in a different situation being nowadays becoming almost self sufficient.
The Opec countries took the money and wasted away good part of it(see Venezuela), bought luxury goods and properties (see real estate prices in London), bought political support locally (see SaudiArabia), sometimes sponsored terrorist activitybut definitely almost never really invested in productive assets or sound industries or useful infrastructure in their own economiesThey also saved part of the wealth by investing abroad becoming the proud owners of trophy real estate assets in LondonParisMilan and invested heavily in financial assets.
Now the process is reversingand a massive wealth transfer is happening againnow leaving Opec poorer and Europe and China richerI don't need to discuss the role of the shale oil revolution or analyze the effect of the lift of Iran sanctions on oil pricesbut we could assume low oil prices are here to stay.
The next logical step is ... the collapse of stock markets and possibly of the price of luxury real estate assets.
The adjustment is causing a traumaOpec countries need to sell the assets they bought when they were the lucky winner of the oil price bubble lotteryI think the current dramatic fall of the stock markets is caused by the large selling pressure coming from Opec (andRussianinvestors in need of financial resources to balance their desperate situationOpec countries should prepare themselves to dramatic fall in GDP taking them back where they were few years ago (say a GDP of 1.5 trillion from the current 3.4), this is not easy or painless or even feasible without very significant social unrests.
The same is true for Russia.
In the long run Europe and China are better offbut it takes time for the benefit of lower oil prices to have an impact on financial marketsIn terms of disposable income and companiesearnings we should see the positive effect in the coming monthsa huge amount of wealth is moving from few Opec institutions and individuals to millions of European and Chinese (and IndianconsumersWealth is moving from few holders to millionsand the few have to sell large quantities of financial assets immediately depressing asset valueat the same time European consumers are enjoying the benefit of lower energy prices but this does not immediately boost new demand for financial assetsIn addition the stock markets decline is scaring the consumers and possibly causing a financial distress in the banking sector.
The wealth effect on EuropeanChinese and Indian consumers will slowly filter through the system and the stock markets will recover.But in the meantime tighten your seat belts!

4/2/15


I was looking at few old documents and I came across to this 1992 paper prepared for the Italian Treasury Ministry at the time of the very first privatisations: Pansa, Torriani, Bruno and myself. A piece worth re-reading!!!

http://www.massimoarmanini.net/sample-page/blog/

10/19/13

Silvio Scaglia dichiarato innocente dal tribunale di Roma. Silvio Scaglia aquitted from all charges.

Silvio Scaglia is innocent, but he spent three months in jail, at Rebibbia Rome, believe me not a white collar detention centre! And then 9 months at house arrest in his home on the mountains. Now, after all that the court in Rome found him innocent.
He is innocent. He has been proven innocent. We knew he was innocent. So why a one year detention while deciding what we all knew already?

When he was at house detention, I was one of the two person who could go and visit him twice a week for three hours. So I think I know a bit of how he felt and how unjustly he was treated.

Today is a day of joy since justice at the very end has won, BUT.....

5/19/13

A book on Art

Just read a super book on the Art Business by Sarah Thorton. A great insight in what some people consider an investment.

Seven Days in the Art World.

Massimo Armanini: Going back to the Deutsche Mark? No way.....

Massimo Armanini: Going back to the lira?

Still pretty much a subject of debate, a very interesting article yesterday was suggesting that Japan, UK, US, and Germany are engaging in competitive devaluation. Yes even Germany de facto has a devalued 'DM' within the Euro. In other terms if Germany was not in the Eurozone its currency would appreciate say 30% at least?  The real loosers are of course France, Italy, Spain, Greece, Portugal, Ireland....
A very strange way of committing suicide!!!!!

8/4/12

How Monti could win the game

The great Monti move? A quick comment on recent developments.

It seems clear that Monti is taking the leadership in designing the rescue of the Euro and to some extend of Europe. In the last few days he visited all the relevant european capital cities and most probably is closing the gap to reach an agreement.

 Monti has played the card we mentioned few weeks ago. An anti europe consensus is growing in Italy. If Europe continues to be subject to the German egotistic attitude, the Italian government resulting from next election could end up with a strong anti europan bias. The same in Spain.

The governor of ECB mr Draghi was the first to understand the situation, and the risk it brings to the future of Europe. I think this is now widely understood.

So what is the deal? Monti is offering the guarantee that any future Italian government will continue the rigour policies and will not be tempted to go back to relaxation after being saved.

How? Both Spain (first) and Italy ( say mid August) will ask for the shield against the spread to be used and as a consequence enter into binding agreements with EU Commision and ECB. These agreements will be binding also any new goverment. This will reassure the German goverment and possibly public opinion.

Well done Mario and Mario... checkmate!!!

7/22/12

Berlusconi wins on Euro disillusion


How Berlusconi will win the next election and.... 


Last December (see my previous post) I suggested that Monti should have adopted a tougher negotiation stance in Europe.
I, provocatively, explained why, after a thorough modernisation of the Italian society, the majority of the Italians would be better off with the lira.

Six months later, I still think that Monti should be much tougher in his negotiations: the cost the Italian Republic have to pay to refinance her debt is simply too high and makes the pain the population is going through de facto useless. In addition even the competition among companies is distorted since the cost of capital for almost any German (or Dutch) corporate is much lower than for any Italian blue chip.

Given the inability of the present government to be assertive enough in Europe, and of the German government to be able to overcome their short term selfishness, I think we are heading for very dangerous times.

In few months we will be having elections in Italy and it seems that Mr Berlusconi will run again for the Prime Minister position.
The most logical step for Berlusconi will be to position himself as the strong man (does it ring a bell?). He will  most probably run as the leader of a  new party and become the only choice for the euro unhappy fast growing minority. 
He will most likely support a strong confrontation with the Germans, he will highlight their selfish attitude, the incredible advantage they are enjoying in paying negative yields. He will suggest that Germany should leave the Euro. Berlusconi will explain why without a central bank as a lender of last resort there is no future for the Italian (or Spanish) economy.

And.... Berlusconi will win!

At least 35% of the votes will go to him as antieuro hero, as the only man with the stamina to stand strong in front of the German Prime Minister, he is the man who called nazist capo a german euro mp. He will also try to have a personal vendetta on Mrs Merkel who, in his eyes, humiliated him.

This will be very dangerous: for Europe, for the Euro and for Italy.
Italy might go back to the worst of the Berlusconi times. The opposite of what we need. The opposite of what Germany needs.

Do we want to see this happening?
What is needed now is a proper firewall: unlimited resources to limit the spread for countries with a serious primary deficit reduction program in place.
It's so clear, it's so simple, it's so necessary.