Saudi Arabia Announces Fiscal Deficit of $135 Billion
Yesterday, Saudi Arabia announced that 2015 would produce as budget deficit amounting to $135 billion (367 billion riyals). A royal decree, it was announced that petrol prices would be increased by 50% effective Tuesday. This will only bring gasoline to 33 cents (0.90 riyals) for a liter whereas one liter equals 0.264172 of a gallon.
Market Talk December 28th, 2015
Holiday volume and poor order-flow was the name of the game today and can probably be expected for the rest of the run-in to New Year. In Asia China’s Shanghai lost 2.5% whilst the Nikkei made a small gain of 0.56%.
In European trade the Oil market was again the topic of conversation as it declined yet again. Both WTI and Brent were lower by 3.5% on average. The FTSE was closed for a national holiday but the DAX and CAC both suffered as a result of Oil’s decline and saw negative returns of at -0.75% on the day.
In the US too, equity market’s drifted lower as the oil price continued south. With much of the big money already placed for year end, traders used much of the day to catch-up on paper-work, overdue emails and an excuse for an early night! Prices for all Indices hit their lows shortly after the open and spent the rest of the day clambering to return to unchanged. Unfortunately, time got the better of them and we closed with small losses across the board.
Bonds were heavy at the front end but saw support at the longer end of the curve. The two year auction was poorly bid (Treasury auctioned $26Bn) with the average rate at 1.056% with bid-to-cover at 2.8 versus a recent 3.29. Tomorrow we see $35bn 5yr notes auctioned – watch the ratio between Direct and Indirect bidders for who has been told to step-forward! Indirect are major Central Banks while Directs are Primary Dealers domestic Money Managers. 10yr’s closed around 2.23%. The spread between US/Germany at 5yr closed +165bp and 10yr closed 166.5bp.
Precious Metals were also hit today with losses seen for Gold (-0.75%), Silver (-3.2%) and Copper (-1.9%).
China to Stimulate by Cutting Taxes
China is demonstrating that it is more practical than anyone else in the industrialized world. They have announced that they will “reasonably” set limits on new local government debt in 2016. Finance Minister Lou Jiwei said at a work conference in Beijing on Monday that they will actually limit local debt; something nobody else does. China will also adopt a much more flexible fiscal policy that will include gradually increasing the fiscal deficit ratio and expanding its budget deficit. So China will increase its debt in a gradual manner to try to stimulate the economic decline it is facing.
These policies are to be supplemented by a cut in taxes to help companies reduce their burdens and to prevent rising unemployment. While the Republicans effectively forced tax reduction in the year-end budget, there is little doubt that the Democrats alone would never adopt such a measure. The idea of cutting taxes in Europe is up there with treason.
We can see that China is taking a far more practical approach in trying to manage its economy than we see in the West. Perhaps when they too come to realize that debt is not the answer, and instead compete with the money that would otherwise expand the economy, then the day will come when public debt is forbidden.
The Conspiracy of Collapse
QUESTION:
Hi Mr Armstrong,
I’m still an avid reader of your blog. A question occurred to me when I read your article on vulture funds.
Do you think that it is possible that a general failure of the economy is organized (or at least pushed )? I mean it would create a captive market for the benefit of USA . If countries start to become autocratic and start stealing money directly from private bank accounts i m pretty sure the money will flee to “safe” countries (or supposed safe).
thanks
ANSWER: There is no real conspiracy. You are attributing way too much intelligence to these people. Vulture funds are simply out to make money to produce high returns by screwing anyone they can. They are now playing this game with Puerto Rico, and will try to do the same to states and municipalities. These funds will often buy debt at a huge discount and then use teams of lawyers to try to force full payment. Vulture funds play the same role as the Roman army during the collapse of Rome — cannibalizing their on country for immediate gains.
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