Is Obsession with Brexit Creating a Blind-spot for Economists?

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Big Ben in Westminster, London England UK

The Brexit Effect

All Eyes on Brexit, but Has This Caused Inertia in the Markets?

The impending exit of Britain from the EU in 2019, has so absorbed the minds of the international financial community. Prior to the vote, there were many doomsday predictions, none of which have materialized to date. For instance, before the vote it was predicted that the equity and bond markets would collapse if Britain were to leave. However, post-Brexit, the global bond and equity markets are doing very well. And Britain has not become ostracized, as evidenced by GlaxoSmithKline’s announcement that it intends to invest £275 million to bring up production capacity at three of its manufacturing sites in the UK. Wells Fargo announced that it will make an investment of £300 million to construct a European Headquarters in London. Continue reading

Angela Chao’s Mixed Bag of News for the Dry Bulk Shipping Industry

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Industry analysts and shipping companies are continuing to look for hard signs of a permanent recovery in the dry bulk shipping market. However, a complex weave of influences across the globe is keeping the picture rather murky.

Baltic Dry Index

On the one hand, the Baltic Dry Index (BDI) finished last week at 745, more than twice the value it stood at in February, when it hit a record low. But do remember that this increase is off a horrendous all-time low point. Therefore, the increase is still anemic and nothing to be excited about. If anything, the record lows were so low as to be unsustainable. And at the same time China, which has traditionally been the driver of a healthy dry bulk market, continues to experience a slowing economy, primarily due to a pullback from private sector investors. By May of this year, the growth in private sector investments had fallen to 1% year-on-year. Analysts point to a number of factors, and regardless which you believe, it is undeniable that many Investors are sitting it out for now, holding onto their cash and waiting to see what happens. Continue reading

Consolidations in China’s Steelmaking Industry are Healthy and Necessary

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Big news hit the headlines this week with the announcement of the mega merger between Chinese steelmakers WISCO and Baosteel. Once merged, the two firms will become the second largest steel company in the world, causing some to fear that there will be a negative impact on iron ore demand due to a reduction in producers. But industry experts seek to assuage those concerns, pointing out that the last producers still left standing, following mergers and acquisitions, tend to be more strategically located along the coast, with easy access to global iron ore imports, which are of better quality and lower prices than domestic product. For example, high-quality Tangshan 66% ore, produced domestically, is selling for $81/ton, whereas 62% imported ore, though slightly lower in quality, is selling for $53/ton. This is an important fact for Chinese steel makers, who need to make the best use of all their operating cash. Continue reading

A Testament to Our Mother

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In a little less than a month, I will be joining my father and sisters for the grand opening of a very special educational center named in honor of my mother, Ruth Mulan Chu Chao. Our mother was a formidable woman in her own right, serving as an inspiration not only to us, but to a large community of Asian Americans who witnessed her dedication to education, history and philanthropy. Harvard Business School’s new Ruth Mulan Chu Chao Center will open its doors on June 6th, and as a fitting tribute to my mother, will be the first building on campus named for a woman and for a person of East Asian ancestry.

Ruth Mulan Chu Chao Center designed by Goody Clancy

Some Market Indicators Give Cause for Optimism, but Caution to the Wise

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“Markets are constantly in a state of uncertainty and flux, and money is made by discounting the obvious and betting on the unexpected.” (George Soros)

This may be the best piece of advice we can cling to these days, as any effort to predict and benefit from market performance is going to take a great deal of patience and daring. Across the spectrum, from raw materials to real estate, we see a shifting landscape of improvement and decline, rises and collapses.

oil barrelLet’s begin with oil prices. Brent hit a low of $27 per barrel in late January, and there were expectations of even lower prices to come. However, prices have bounced back: not to 2014’s peak levels of $115 per barrel, but this week they were hovering between $43 and $45. Some of this is due to an unwritten agreement between Russia and OPEC to freeze production at January levels, which were already much above normal. Even though Iran and Iraq are not joining the agreement, oil traders still see the market as having bottomed out and now on the way up, noting IEA’s forecast that surplus is diminishing and that US production has peaked. The consumption picture is also looking positive, with China and India leading the way. Sinopec predicts that Chinese crude oil imports will reach 7.5m-bpd by the end of this calendar year. India’s fuel consumption increased by approximately 11% over the previous fiscal year (March 2016) to 3.77m-bpd. Put all the statistics together and you can see why IEA is predicting Brent to average out at $45 for the remainder of this year and hit $80 by 2018. Continue reading

Market Volatility Is Even Throwing off the Experts

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Crude Oil Price - 6 month scale - 2015-2016

Crude Oil prices over last 6 month – graph from Nasdaq

The market continues its rollercoaster performance, leaving investors and their advisers dizzy from the predictions and actualities. A case in point is the performance of crude oil. When prices dropped to $27 per barrel, the conventional wisdom coalesced in pessimism and that this trend was heading only in one direction—downward. Combined with gloomy reports about faltering economies around the world, especially China’s slowdown and the abundance of crude oil on the market, it seemed to be the perfect time to invest in shorts, which many hedge fund managers did. However, in late January, crude oil prices rebounded, by as much as 52%, with prices leaping from $27 per barrel to $41. Hedge funds scrambled to cover their shorts. A slingshot effect ensued, pushing crude oil prices even higher. This scenario played out in other commodity markets as well, such as copper, iron ore and aluminum. Investors raced to catch up with the new momentum, only to find themselves facing falling prices once again guaranteeing that the only certainty is that nothing about the market these days is anywhere near certain. Continue reading

Flooding the Oil Market: OPEC’s Strategy is Having Its Desired Effect

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OPEC’s aggressive strategy of flooding world markets with an abundance of oil appears oil barrelto be meeting its target goals of deflating competition from other producers. Primarily concerned about what was a booming shale oil market, OPEC’s strategy has impacted all oil producers in a multitude of sectors. Success is giving OPEC the incentive to continue to squeeze producers working in the Caspian, Arctic and Brazilian waters, and shale oil is definitely showing the results in America, where it accounts for as much as 45% of total spending cuts. Large companies have announced significant reductions in capital spending and delays in new projects. Total, for instance, is delaying projects in Norway, Italy and Australia by two years, and over that period of time has projected a reduction in expenditure of $3 billion per year — in order to stabilize revenue and ensure dividends are paid. OPEC is willing to pay the price to see its strategy succeed, even if oil prices reach $20 per barrel.

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A Lot of Action but Does It Mean the Market Is Improving?

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It is too soon to know for sure if we have turned the corner on the gloom period, but there are many interesting benchmarks from the first quarter of 2015 to give cause for a little optimism.

Growing Market

Crude Oil

Let’s look at the American crude oil situation, for example. In spite of predictions of a weakening or flattening market, US crude oil output actually rose in May to a level not seen in 43 years. Output reached 9.6m b/d. End-user demands, such as from US refineries is pushing this surge, as is evidenced by the fact that more than 1m b/d of oil is being consumed than supplied from imports and domestic producers. These positive indicators have caused a slight uptick in the futures market, but it is yet to be borne out if this is warranted, as inventory remains flush.

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Are There Too Many Ships in the Sea?

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Dry bulk shipping industry’s negative performance is cause for alarm

One of the most watched commodities these days is the Baltic Dry Index. The Index has fallen by 90% since reaching a high in 2008, and in February 2015 we saw the worse performance in three decades.Many ships and yachts in the  Phuket harbor.

In 2008, shipping vessels were earning around $200,000 daily. Today, shipping companies are earning less than half the total amount of their costs. Consider this: capesize rates equate to approximately $4,300 per day, while the daily operating costs are averaging at $6,500. Once all the additional operating costs are included, owners are spending $13,000 each day. Just four months into the year, eight shipping companies have filed for bankruptcy and under present circumstances, more could follow. The question is: why and will things turn around?

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Angela Chao Will be a Speaker at the 2015 CMA International Shipping Conference

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Shipping 2015 CMA - Angela Chao SpeakingOn March 25, 2015, Angela Chao, Deputy Chairman of Foremost Group, will be a featured speaker at the annual Connecticut Maritime Association (CMA) Shipping 2015 Conference and Trade Exhibition. Angela will be joined by four other leaders of the international maritime industry on a panel discussing the topic of “Generational Shift.” Her co-panelists will be: Phrixos B. Papachristidis, CEO and Managing Director of Hellespont Ship Management GMBH & Co. KG, Vassals Kertsikoff, Chairman and CEO of Eletson Gas LLC, Nikolas P. Tsakos, President and CEO of Tsakos Energy Navigation Ltd. and Chairman of INTERTANKO, and Fritz Heidenreich, President and CEO of Q88 LLC. Dagfinn Lunde, Chairman of Executive Ship Management and former Shipping Head of DVB Bank, will moderate the panel discussion. The session will delve into generational dynamics within family businesses of the shipping industry, and present panelists with questions such as “What did you learn from your father? Was he right? What have you taught your father?” — and other subjects sure to inspire debate in and outside of the Conference facilities. Continue reading

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