Today many retired folk in the UK will be getting rather worried at the alarmist reports emanating from Royal Bank of Scotland.
There are reports that Royal Bank of Scotland has told investors to run for cover with 2016 set to be a ‘cataclysmic’ year for markets. The bank says the current crisis in China will “snowball” and lead to a downward spiral in global markets. RBS credit chief Andrew Roberts adds: “China has set off a major correction and it is going to snowball. Equities and credit have become very dangerous, and we have hardly even begun to retrace the ‘Goldlocks love-in’ of the last two years.” In particular he sounds a word of warning to those invested in oil and mining stocks for the dividends. He says: “All these people who are long oil and mining companies thinking that the dividends are safe are going to discover that they’re not at all safe.” He claims Brent crude could drop as low as US $16 a barrel, which follows on from Morgan Stanley’s prediction today that it could drop as low as US $20 a barrel.
There will of course been many ordinary people now retired, who like your Editor have a substantial part of the “nest egg” invested in a particular company: Royal Dutch Shell. They will have seen a dramatic drop in the value of their shares and will naturally be concerned. Many. Like your Editor will have also had shareholdings in Lloyds Bank and will have already experienced a similar drop and in Lloyd’s case, a loss of their dividend.
We would urge those British Gazette readers to keep calm and to take note of the wise counsel of Mr Michael Hasenstab Chief Investment Officer of Templeton Global Macro: http://citywire.co.uk/wealth-manager/news/hasenstab-on-china-this-is-no-time-to-panic/a872778?re=37941&ea=403959&utm_source=BulkEmail_WM_Daily_EAM&utm_medium=BulkEmail_WM_Daily_EAM&utm_campaign=BulkEmail_WM_Daily_EAM
British Gazette comment: Your Editor would not presume to have the insight in the market that Mr Hasenstab has. However we would suggest that readers take note of the politics surrounding the THREE aspects to take note of here:
2. The Oil Market
3. The Great CO2 scam.
Firstly: In the case of China, officially the People’s Republic of China we have a most curious situation where the world’s leading Communist (supposedly) power (the other two being Cuba and North Korea) is in a close syncopatic relationship with the world’s leading Capitalist power the USA. The central aspect of this relationship is the relationship between the Yuan and the Dollar. The Yuan is effectively pegged to the Dollar. This relationship is very deep for the Chinese have in effect been financing the US deficit. In other words, China has been lending huge amounts of money to the USA and therefore is the support behind the US economy. Their fortunes are linked. If one goes down the other goes down. Be assured Dear Reader, BOTH the Chinese government and the US government are completely aware of this! China’s economic growth – which is still continuing – is financed on borrowed money. Largely from the USA!
Secondly: The Oil Market. Here we have a classic example of the effects of Supply and Demand. An increase in supply of a commodity without a corresponding increase in demand for that commodity results in a drop in the price of the commodity. This is economics for dummies! Historically, OPEC of which Saudi Arabia is a leading member has regulated supply to equal demand – in the interest of the oil producers who wish to see a good price for their assets. This has been very important for them for many of these producers Saudi Arabia being a prime example have little other in terms of industry to provide a source of taxation for public expenditure. Here we see the fundamental difference between two significant oil producers: Saudi Arabia and the UK.
As has been mentioned in a previous article, Saudi Arabia is behind the low oil price by over producing because she wishes to put pressure on her principal competitor, Iran and also Russia that is supporting Bashar al-Assad of Syria. This is where things get dangerous! You see, it is one thing to pressure Iran by seeking to deprive them of a large part of their revenue. It is quite another thing to do the same to Russia! Mr Roberts has claimed that Brent crude could drop as low as US $16 a barrel. Were this to happen the Russian economy, already under huge strain would collapse completely. The seriousness of the consequences need no elaboration here, suffice it to say that there will be experienced and knowledgeable foreign policy professionals in the US State Department that know just how far they can push this. There will of course be another self interested aspect US policy makers will be aware of: their own fracking industry as fracked oil and gas is more expensive than the stuff that flows freely out of the sands of Arabia!
So why is Mr Roberts saying what he is saying. Well clearly, only he knows. However British Gazette readers should take note of the Third Aspect of all this: The Great CO2 scam!
A declining oil price is not only having an effect on the forecourts of the UK’s petrol stations. This is of course the principal effect reported by the BBC – when their reporters cease their near continuous obituary of the late David Bowie. What the BBC is less keen to report upon is the disastrous effect the drop in the oil price – AND the price of gas – is having on the owners of all those ridiculous wind turbines! You see, the wind farms cannot compete with gas powered generating stations. They need subsidies! This comes either energy consumers or taxpayers – who are generally one and the same! The UK needs to increase it’s generating capacity – QUICKLY! The ONLY way to do this is by building gas powered fire stations. Nuclear power stations will take 20 years. Ideally we need more power in 20 months!