Saturday, December 20, 2014

Santa Karma is Sending You Money in 2015

Putin Claus
This is a wonderful time of year to be a banker in the wine business, or more specifically, it's a wonderful time to be me! ...... holiday parties, presents, my office filling with client wine gifts keeping me in a jolly mood through the holidays, and then my birthday  - which falls on Christmas Eve just in case that slipped your mind this year?
The birthday part was a mixed blessing growing up in a family of six kids, and that cost me years of therapy. But I'm better now. I've learned to be thankful for all things, and this year in particular I'm getting my birthday AND Christmas wish; about $2 trillion in stimulus from World Despots.
                  The Grinch
The story is almost too good to be true. Vladimir Putin assimilated the Crimean Peninsula in March for which he received a stern warning by World leaders. Well that sure showed him! Then he stirred up and funded Russian separatists in the Ukraine with his eyes cast on taking the country's military production capabilities and their massive mineral and coal deposits.

President Obama then instituted economic sanctions but his diplomacy was ineffective with Putin giving him the equivalent of the diplomatic finger. The Ukraine conflict destabilized further when a Russian made surface to air missile blew a Malaysian Airlines Boing 777 out of the sky in July killing nearly 300 civilians. The response? Stern warnings and more sanctions.
                  Playing Marbles instead of Chess
Mr. Putin was strangely admired by many in the world for his strategic and critical thinking, knowing the West wouldn't dare intervene with military force, and Europe wasn't in a place to put heavy sanctions on them because they depended on Russian oil.
House Intelligence Committee Chairman Mike Rogers said, Russia was "running circles around the U.S.. Putin is playing chess and we are playing marbles, and I don't think it's even close!"  Ouch!
The sum of Russian operations in 2014 had many people wondering what former Soviet satellite country Putin would next invade and Latvia started getting nervous. Our own President's approval rating particularly on foreign policy dropped as fast as Santa coming down the chimney.
                #*@!?&! Fracking OPEC 

Over the past 50 years, OPEC has conspired to control the price of oil, and all of the worlds emerging and industrial countries who have to import oil have been cursing under their collective breaths since.
While Russia is the world's largest oil producer and not an OPEC member, their entire economy is heavily weighted to petroleum and over the years they have cooperated with OPEC on output discussions. But two things happened on the way to the holidays this year.

First, we have seen a slowdown in world economic output with the Eurozone, Japan, and China leading the list of troubled nations. That lowered demand for oil. Second, is the reality of fracking, with the US becoming a world leader in supplying oil once again. The consequence of those two events is a rapid drop in oil prices as you can see in the chart. (Click on the chart for a larger image.)
              Putin Claus
A 45% drop in oil prices since June is being felt at the pump now and we are seeing gas prices we couldn't imagine at the start of the year.
While you are the winner in this, you may have been too busy gleefully spending your fuel savings on Christmas to think about who the losers are in this oil price collapse. It turns out our favorite despot-eries: Russia, Iran, and Venezuela are the biggest losers.
All told the oil producing countries are transferring trillions in wealth to oil consuming countries and in particular that benefits the USA, Japan, Europe, China and India. For U.S. families, that stimulus is between $1,000 to $2,000 per family annually and as of now is responsible for somewhere between 0.50% to 1.00% in added GDP.
For the USA who already showing growing economic strength, this gift from our friendly despots might be the final impetus that gets the Nation fully back on track.
              Karma Is Coming to Town

Now there is no way Russia is going to lower their production nor will Venezuela and Iran who are in the same oil based bind given their petroleum dominated economies. Without those countries cooperation OPEC can't raise prices and this price drop has a secular component, meaning price won't be headed up to $4.00 next year.

In a perfect example of karma, Russia's currency is taking a pounding as noted in the chart (Click on the chart for a larger imaged.) - it's taking a lot more Ruble's to buy a dollar.
While Vladimir Putin is blaming the breadlines and impeding recession in Russia on sanctions the West has implemented, he's now without the kind of money needed to operate a war and is starting to talk in code about opening discussions to end the crisis in Ukraine.

While our President can't claim any credit for a foreign policy victory in forging this economic transfer of wealth, his approval ratings are improving while the Russian President's home approval ratings are going in the opposite direction. Maybe Vlady- as President Bush liked to call him, isn't quite as smart as many thought earlier this year?
                        2015 Wine Demand

The 2015 State of the Industry report will be out January 21st [register here], but the above analysis of what's happening with oil gives you a preview of some of the economic forecast that will be addressed.

Bottom line, high-end wine demand is going up next year for many reasons, but one of them is this gift in declining energy costs we are all getting from Russia and OPEC. Karma is a bitch in this case, and that karma might lead us into peace on earth and goodwill to men .... as well as improving economies in Japan, the US, Europe and India next year.
The ironies are endless but what a wonderful Christmas and birthday present!
  • Thanks for reading the blog this past year.
  • Don't forget to register for the State of the Industry live telecast on the 21st of January
  • Feel free to join the site at the top and get noticed of new blog posts.
  • Please log in and offer any thoughts you have about this piece, or any predictions you care to make for 2015.

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