The Sage of Omaha has spoken. On Fox News yesterday Warren Buffett dismissed the possibility of an interest rate rise in the middle of this year. To paraphrase this multi-billionaire, the global economy is too weak to allow it to happen: money would flow from Europe to the US disrupting the delicate balance of a global economic slowdown.

The signs of the slowdown are only too obvious if you care to look around: the slumping price of oil, iron ore and copper; falling US and Chinese order books; monetary policy easing by 13 central banks; the uneasy sight of the UK as the world’s best performing economy in a deliberating engineered pre-election boom set to end shortly after May 7th; and disappointing Q4 US economic growth. 

Global recession

All these indicators are harbingers of the next global economic recession which has probably already started. With these headwinds the US will do well to maintain its present lacklustre momentum in the worst economic recovery in its two-century history. How can the Fed possibly raise rates this summer or anytime this year?

So that probably means that the US dollar is also already past its peak valuation for the year. Twas ever thus. When everybody is on the bullish side of a trade it has nowhere else to go but down. If dollar interest rates are not going higher why would you want greenbacks or US treasuries? 

Warren Buffett told Fox News that the 30-year treasury is the asset he would least like to hold in the world. Quite an indictment from the world’s most successful investor.

What will be the major beneficiary of a weakening US dollar? There seems to be something of a rush to buy European stocks at a seven-year high so far this year. Spot another doomed consensus move. Do you really want to invest in an asset class at an all-time high just before a major recession? 

Wall Street crash

Equities will not defy gravity forever in this environment. Profits will come down across the board and share prices will fall. What’s going to be the catalyst? The tie-free Greek finance minister? An all-out assault on Kiev? A banking crisis in China? A hedge fund failing due to oil price losses? 

That leaves precious metals as the one safe haven left in town. Gold bottomed out at the end of last year along with silver and the monetary metals are on the way back up. The next 18 months to two years could see precious metals back as the last great bubble before a global currency reset.

Warren Buffett has avoided investing in precious metals thus far but he is avoiding US treasuries and sticking to US equities that will protect him from hyperinflation. He doubled his money on silver in the late 90s and perhaps that is where he ought to be putting his money right now.

http://www.arabianmoney.net/

Two weeks ago Switzerland abruptly decided that it couldn’t keep buying billions of euros every month just to maintain a somewhat arbitrary peg with that currency. It stopped trying, allowed the Swiss franc to trade according to market forces, and watched it soar.

At the time there was some question about whether an export-centric economy like Switzerland could handle a soaring currency’s impact on its major industries. In other words, is it even possible to surrender in a currency war?

This week we got an answer. At least for Switzerland, it is not possible. From Bloomberg:

Switzerland Rejoins Currency Wars

Two weeks after Switzerland stunned currency traders by abandoning the franc’s peg to the euro, it seems that the central bank is quietly getting back in the market. With central banks from Denmark to Singapore to Canada easing monetary policy in recent weeks, the Swiss authorities face an even bigger battle trying to restrain their strengthening currency.

The Schweiz am Sonntag newspaper said during the weekend that the Swiss National Bank is now targeting a corridor rate for the franc of 1.05 to 1.10 per euro, compared with the 1.20 level it abandoned Jan. 15. The bank is declining to comment; but if it is trying to keep the franc from becoming stronger than that level against the euro, it seems to be struggling to drive the currency into the desired range:

The aftershocks of the peg abandonment, which triggered squeals of horror from Swiss exporters, are still rumbling through the nation’s economy. Figures released yesterday showed that a benchmark index of manufacturing activity slumped to 48.2 in January, down from 53.6 a month earlier and undershooting economists’ expectations for a 50.6 reading. A number below 50 signals contraction, and every component from order pipelines to stocks of goods to employment declined. The manufacturing survey was taken just after the currency defense was abandoned, according to Martina von Terzi, an economist at Unicredit in Munich. She expects the Swiss economy to grow by just 0.1 percent this year, with quarter-on-quarter contractions of 0.7 percent in the first three months and 0.3 percent in the second. So it’s clear why Switzerland doesn’t want an appreciating currency to trash its economy.

Having retired once with a bloody nose, however, it isn’t clear why the Swiss central bank thinks it can rejoin the fray without taking another beating. Maybe it hopes that the currency traders who lost millions of dollars when the peg was dropped won’t dare to speculate again on the franc. Maybe it considers 1.05 francs per euro defensible in a way that the old peg of 1.20 wasn’t. Maybe it anticipates less pressure now that the European Central Bank has finally conceded to the need for quantitative easing.

Bloomberg nails the two main points here. First, allowing one’s currency to soar is the same thing as importing the rest of the world’s deflation. As a consequence, your exports plunge, manufacturing slows, the economy dips into recession and leaders get tossed out in the next election.

Second, keeping a currency weak enough to be “stable” in an aggressively devaluing world depends, in part, on the markets believing that you’ll follow through. Everyone is pretty certain that the eurozone and Japan, for instance, are going to flood the world with their currencies in 2015, regardless of the consequences. But the Swiss, having burned foreign exchange traders big-time just two weeks ago, have a lot less inflationary credibility. So now, as they try to maintain their new peg (calling it a “corridor” doesn’t change the reality of the policy), foreign exchange traders are happily buying up all the new francs that the Swiss National Bank creates, assuming the same pressures that caused the last surrender will cause the next one. They’re probably right, making the franc a really good bet for another 20% pop in the year ahead.

So now the question becomes, once you’ve tried to surrender in a currency war, is it possible to rejoin the fray? We’ll see. Either way, the Swiss are earning their own chapter in future economics textbooks.

A clip on technology from Martin D. Weiss, Ph.D. – “One broad stock sector that was the single best performer when energy markets collapse — technology.

Historically, it has surged an average of 64% during major oil-price declines, plus another 35.1% within 12 months after oil prices hit bottom.

And it makes all the sense in the world: Consumers and corporations save fortunes on energy. So they promptly shift those resources to the one thing that can most efficiently improve their lives or their business — hardware and software.

Two weeks ago, I drilled down deeper and demonstrated that, in the world of technology, the single subsector that had the best performance of all was software and related services — up 77.5% during the oil-price decline and up another 49.9% twelve months later. 

And today, I’m going to tell you about one massive, explosive example of a new techno-megatrend few people are talking about. Our overarching goal:

To show you how to invest safely in the most advanced tech companies by using the most advanced investment technology. 

Why are we taking this crucial step right here and right now? For four critical reasons …

First, because that’s where all the facts are steering us — forcefully and unambiguously:

I repeat: Up 77.5% during oil-price collapses, then up another 49.9% one year later.

More ordinary investors becoming millionaires than in any other place or time.

Greater improvements to our lives than from any other material source.

Second, because, in the past, too many investors made too many fortunes on paper only … and then gave it all back. They never quite learned how to do it prudently, safely, and permanently (our forté).

Third, because technology — and especially software — is probably the only constructive megatrend on the entire planet that can pierce through the many destructive forces I told about last week — Turmoil, QE, Deflation, War and Terror.

And last, because technology has always been such an important part of (your) own life.

….read the entire article HERE

A week ago we learned that the king of Saudi Arabia, Abdullah bin Abdulaziz Al Saud, passed away at the age of 90. Following the announcement, crude oil immediately spiked 2.5 percent over uncertainty of how this might affect the Middle Eastern kingdom’s position on keeping oil production at current levels.  

But the new leader, King Salman bin Abdulaziz Al Saud, has already tamped down this uncertainty, stating that Saudi Arabia will hold to the decision made at last November’s Organization of Petroleum Exporting Country (OPEC) meeting. 

All of this speculation just shows that Saudi Arabia is indeed the 800-pound gorilla when it comes to oil. Until very recently, it was the world’s top oil producer and exporter, before the American shale boom catapulted the U.S. into first place. Now, however, with prices less than half of what they were in July, many U.S. oil companies have been forced to shut down rigs, effectively slowing down output.

These events got me curious to dive deeper into Saudi Arabia’s economy and the extent to which it’s dependent on crude revenues. Below are some of the most interesting facts, gathered from a September case study by Richard Vietor and Hilary White of Harvard Business School. 

1. Despite beliefs to the contrary, Saudi Arabia requires a breakeven price of $80 per barrel of oil. True, the stuff is easy and inexpensive to extract in Saudi Arabia’s desert—the prevailing notion is that one need only stick a straw in the ground and oil comes gushing out—but to afford its bloated social spending program, the government needs prices to be much higher. Right now, oil revenues make up a whopping 90 percent of the country’s budget.

2. Recognizing that its economy and energy portfolio are too oil-dependent, the kingdom is seeking ways to diversify. Before his death, King Abdullah ordered that other sources of energy be pursued, including nuclear and renewable energy. State-owned Saudi Aramco, the largest oil producer in the world, is currently ramping up exploration for natural gas. The company estimates that only 15 percent of all land in the nation’s borders has been adequately explored for the commodity.  
3. Saudi Arabia is nearing completion of a 282-mile high-speed rail line connecting the holy cities of Mecca and Medina. It’s unclear how many Saudis will use the trains, though, since fuel prices are extremely low as a result of government subsidization. Prices are so low, in fact—a gallon of diesel is less than $0.50—that it has led to excessive and wasteful use of energy resources that could be reserved or exported instead.

4. Saudi Arabia maintains a strong pro-business climate to reel in foreign investors. It offers low corporate taxes (20 percent), no personal income taxes and attractive perks, including land, electricity and free credit. Because of these efforts, the country boasts the highest amount of foreign investment in the Middle East—$141 billion in the past five years alone.
5. Saudi Arabia, believe it or not, has the largest percentage of Twitter users in the world. One of the main reasons for this is that more than half of its 29 million citizens are under the age of 25. As is the case in India, which also has a high percentage of young people, this is seen as an opportunity for the country’s future productivity. 

6. However, the kingdom has high unemployment among not just young people but also women. About 30 percent of working-age young people are without jobs; the figure is 34 percent for women. The country also has a shockingly low labor force participation rate of 35 percent. Saudi Arabia relies on cheap migrant workers, who now make up about 30 percent of the population.
7. A vast majority of Saudis work for the government.  Only about 10 percent of working Saudis are employed by private companies. Why? Workers can make either $400 a month on average in the private sector, where working conditions tend to be dubious at best, or $2,000 a month in the public sector. In 2011, about 800,000 new private-sector jobs were created, but of these, 80 percent went to foreign workers.

But this trend is not restricted to Saudi Arabia. As you can see in the chart below, here in the U.S., government jobs growth has broadly outpaced all other industries over the years. 

This saps intellectual capital from the real engine of innovation and ingenuity, the private sector. A robust private sector is necessary to create and foster successful companies such as Apple, held in our All American Equity Fund (GBTFX) and Holmes Macro Trends Fund (MEGAX). The tech giant’s iPhone 6 sales led the way to a record earnings report of $74.6 billion—the largest corporate quarterly earnings of all time. 

http://www.usfunds.com/

Most of the major stock indices around the globe are signaling that the bear might be scratching at the door. Our chart of the S&P 500 Index (SPX) shows why the present area is important for deciding the market’s tone going into February. A breakdown from here could be the start of something much larger.

For two years, SPX has recognized the channel we have drawn on the weekly chart below. You know a channel is meaningful when the market responds not only to the channel’s boundaries, but also to fractional multiples (harmonics) of the channel width. In the weekly chart shown below, note how price responded to the initial breach of the center line in October.

In December and January, SPX has encountered the center line two more times and is now on the verge of a third test. This is not a pattern one should see if there were still much appetite for buying, especially with price coming down from a lower high.

If SPX breaks decisively through support (estimated to be near 2,002 at the end of the current week), then the most likely near-term target will be the lower edge of the channel. Depending on time, that could put the index near the 1,900 level in February.

You can see similar patterns in other U.S. indices. At our website, you will find an additional chart for IWM, the fund that tracks the Russell 2000 Index. It shows likely target levels if IWM and the Russell 2000 break downward.