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 ABRAHAM GULKOWITZ
abe@gulkowitz.com
917-402-9039
2015 issue 1January 12, 2015
 AwkwardBeginnings…Withallduerespect…
What a way to start the year. The crash in oil prices is no small matter. The previous down sweep in energy prices occurred in the midst of the financial crash0f 2008 and Great Recession. Oil prices soon reversed afterwards and climbed back to dizzying heights, even as world economic and financial recoveryremained fragile. This time it would be foolish to bet solely on such a similarly quick snapback. The current bear market for oil may actually be the beginning of a longer and extended period of low commodity prices. First, the price of oil at $100/bl or above had been an absurdity. Second, many nations simply cannotafford to curtail pumping oil, even at a loss in the short run. Third, global growth is proving to be woefully inadequate and uncertain. Even as growth in the U.S.economy is becoming more firmly entrenched, the rest of the major economic engines remain mired, as we have argued for some time, in subpar growthtrajectories. The Euro area may be facing another soft patch and remains entangled in both economic and geopolitical crises. The recovery in Japan hasbeen slower than expected. And China continues to grow well below its previous super- track; and it obviously faces headwinds from a volatile real estatesector, awkward debt buildups and massive stockpiles of high-priced commodities. Fourth, the shale gas revolution has transformed America’s energymarkets, with profound effects for economic growth, competitiveness, security, and environmental quality. And the extensiveness of the oil rush in America isalso playing a big role in pushing the adjustment on prices. Naturally, the new weakness in commodity prices will bolster the economies of some countries, butclearly damage others. The strength of the U.S. dollar in the face of a stronger U.S. economy and shift in Fed policy this year, combined with the sharp drop incommodities could expose severe underlying vulnerabilities in situations with significant currency mismatches. The effects of exchange rate movements for thedeveloping world may also become more marked if the duration of the upward climb of the U.S. dollar becomes extended even more. The variousrepercussions will be extensive; this extremely tense business picture will be detailed herein in 2015. Stay tune…
 OPEC
 
leader
 
vows
 
not
 
to
 
cut
 
oil
 
output
 
even
 
if 
 
price
 
hits
 
$20
 Brent
 
oil
 
hits
 
new
 
low
 
as
 
OPEC
 
price
 
war
 
deepens
 
slump
Oil prices crash amid concerns over oversupply and weakening demand for crude
U.S.economypostsfastestgrowthinmorethan adecadeU.S. Posts Best Job Growth Since’99…
 U.S. employers added to payrolls ata solid pace last month, a sign of steadymomentum for the labor market after thestrongest year of job growth in 15 years. Theunemploymentratefellto5.6%
China is stepping up its role as the lender of last resort to some of the world’s most rogue and financially strapped countries.
US Oil Rigs are Shutting Down
Greece exit fears rise after failed vote
Greek lawmakers have failed to elect a new president in afinal round of voting. As Sonia Legg reports it leaves thecountry facing a January 25th election that could derailthe international bailout program it needs to keep payingits bills. For the first time since the foundation of themodern Greek state nearly 200 years ago, radical leftists – marginalized, tortured and tormented for the best part of the 20th century – were on course to assume power.
TheECBwilldefyGermanyinlaunchingQEBrinkmanshipofGreekCrisisReturns
The ECB Governing Council on December 4 discussed thepossibility of conducting a quantitative easing (QE) programmethrough the purchase of government bonds, together withother bonds and asset classes. The Governing Council is notunanimous on the necessity of such a programme, but,according to ECB President Mario Draghi, this will not prevent itsimplementation. Most market participants would welcome sucha move; the ECB is likely to unveil these new measures at its nextmeeting on January 22, as technical preparation has stepped up.
The cost of insuring Russian bonds againstdefault rose to the highest levels in manyyears on concerns that the collapse in oil and commodity prices will damage the economyand its finances…
Deflation is Stalking the Euro Area
Attack Reflects 'Dangerous Moment' for Europe...
China:
 
a
 
survey
 
index
 
for
 
business
 
expectations
 
for
 
the
 
year
 
ahead
 
dipped
 
to
 
its
 
lowest
 
reading
 
since
 
August
 
2014.
 
The PunchLine...
2January 12, 2015
In This Issue
 Headlines and data appearing in The Punch Line came from widely available publications including national and international newspapers, trade journals, economic and industrial bulletins and news websites.
U.S. Wake Up
(pg 7)
The Likelihood of Unlikely Events...
 (pg 8)
Engines of Growth
Despite a broadening U.S. growth potential, most of the global economy faces woefully inadequate growth prospects. Risks from the crash in commodity prices only raises the dangers for many sectors, nations and currencies. Very obvious financial vulnerabilities, and serious geopolitical concerns are aggravating the dangers. And let
s not forget that many of the challenges are not fleeting and cannot be resolved easily
(pg 9)
Households…
(pg 10)
You Can
 
t Handle the Truth…
(pg 11)
Credit…
(pg 12)
More Credit…
(pg 13)
 A New Geography of Business
 (pg 14)
Pumping Iron …
 (pg 15)
The DNA of Business
(pg 16)
Real Estate and Construction…
(pg 17)
More Real Estate…
(pg 18)
Will Life Ever be the Same?
 (pg 19)
 Awkward Beginnings… With All Due Respect….
What a way to start the year. The crash in oil prices is no small matter. Theprevious down sweep in energy prices occurred in the midst of the financialcrash 0f 2008 and Great Recession. Oil prices soon reversed afterwards andclimbed back to dizzying heights, even as world economic and financialrecovery remained fragile. This time it would be foolish to bet solely on such asimilarly quick snapback. The current bear market for oil may actually be thebeginning of a longer and extended period of low commodity prices. First,many nations simply cannot afford to curtail pumping oil, even at a loss in theshort run. Second, global growth is proving to be woefully inadequate anduncertain. Even as growth in the U.S. economy is becoming more firmlyentrenched, the rest of the major economic engines remain mired, as wehave argued for some time, in subpar growth trajectories. The Euro area maybe facing another soft patch and remains entangled in both economic andgeopolitical crises. The recovery in Japan has been slower than expected. And China continues to grow well below its previous super- track; and itobviously faces headwinds from a volatile real estate sector, awkward debtbuildups and massive stockpiles of high-priced commodities. Third, the shalegas revolution has transformed America’s energy markets, with profoundeffects for economic growth, competitiveness, security, and environmentalquality. And the extensiveness of the oil rush in America is also playing a bigrole in pushing the adjustment on prices. Naturally, the new weakness incommodity prices will bolster the economies of some countries, but clearlydamage others. The strength of the U.S. dollar in the face of a stronger U.S.economy and shift in Fed policy this year, combined with the sharp drop incommodities could expose severe underlying vulnerabilities in situations withsignificant currency mismatches. The effects of exchange rate movements for the developing world may also become more marked if the duration of theupward climb of the U.S. dollar becomes extended even more. The variousrepercussions will be extensive; this extremely tense business picture will bedetailed herein in 2015. Stay tune…… (pg 1)
InThisIssue
 (pg 2)
Dislocation, Dislocation…
(pg 3)
The Return to Normal…
(pg 3)
Extreme Sports…
(pg 5)
Go Figure…
(pg 6)
Contact information:
 Abraham Gulkowitz
phone: 917-402-9039
 email:
 
abe@gulkowitz.com
 
The PunchLine...
3January 12, 2015
Dislocation, Dislocation, Dislocation
A couple of weeks ago, Claudio Borio told investors to wake upto the threat posed by
 urren ymism t hes
. In the past few years,the chief economist at the Bank for International Settlementsobserved, companies in places such as Russia, China, Brazil andIndia have rapidly increased their borrowing, particularly indollars. And though nobody fretted about this until recently, if — or when — the dollar suddenly rises, this debt pile could triggershocks, since much of it is serviced by revenues in domesticcurrencies.
As the U.S.’s emergence as a big oil producer combineswith OPEC’s refusal to cut production, a budding rivalrywith Saudi Arabia, economic slowdown in China andEurope and emerging technologies, is the marketfundamentally altered?
Sliding oil prices leave socialist Venezuela on brink of financial collapse
Russia and four other ex-Soviet nationscompleted the creation of a new economicalliance intended to bolster their integration, butthe ambitious grouping immediately showed signs of fracture as the leader of Belarus sharplycriticized Moscow. The Eurasian EconomicUnion, which includes Russia, Belarus,Kazakhstan, Armenia and Kyrgyzstan, comes toexistence on Jan. 1. In addition to free trade, it'sto coordinate the members' financial systemsand regulate their industrial and agricultural policies along with labor markets and transportation networks.
 Nigeriaslashescapitalbudgetto copewithoilshock
Finance Minister Ngozi Okonjo-Iweala onDecember 17 presented the government'srevised 'transition and hope' budget proposal for 2015. It aims to cutgovernment spending by 10.6% to around 4.5 trillion naira (24.5 billion dollars), fromnearly 5 trillion naira in 2014. However, theimpact of austerity will be muted by a sharpreversal of development outlays towards therecurrent budget. This is unlikely to be popular with voters -- who are nowexpected to fund a much greater share of government spending.
First tuna auction of the year at Tokyo's famed Tsukijimarket came in below a year ago
The first tuna auction of the year at Tokyo's famed Tsukiji market isa competitive event. Winning the bid for the first fish is believed to bring good luck for the coming year. The winner landed the 180 kilo-- or nearly 400 pound -- blue fin at a bargain 25-thousand yen per kilo --
abouta20percentdiscounttolastyear'sprice.
BrokenEurozonehitscurrencies…
 Mario Draghi,President of the European Central Bank, said in an interview published Jan. 2 that he couldn’t exclude the risk of deflation in the euro-area,igniting a selloff in the euro amid prospects he’ll embark on large-scalequantitative easing. The euro slid to an almost nine-year low againstthe dollar amid prospects the European Central Bank will embark onlarge-scale government-bond purchases to ward off deflation. Asianstocks fell with oil as silver climbed. The euro slid to an almost nine-year low against the dollar amid prospects the European Central Bank will embark on large-scale government-bond purchases to ward off deflation. Asian stocks fell with oil as silver climbed.
Having lost 12% of its value against a resurgent greenback since the start of September,the
 Mexican peso
 fell again trading to 14.87 per dollar—its weakest level since March2009. Although Mexico is seen to be among the least affected by the ongoing slide incrude prices, the market has been concerned about the impact of falling oil prices onforeign direct investment in the country as the government opens up its energyindustry.
87% OF NATION TO DIP BELOW FREEZING...
Oil Crash -Pipe and Tubing
UnitedStatesSteelCorp.
 will lay off roughly 750 employees between two plants, undoubtedly the result of fallingoil prices. It is worth noting that thesefacilities are not being shut downcompletely but temporarily idled. Thelayoffs are taking place in a tubulatesting and finishing facility in Houston,Texas and a manufacturing facility inLorain, Ohio. The tubular products thatare produced and tested by thesefacilities are associated with drilling and construction in the oil-and-gas industry.Lorain has an annual productioncapability of 780,000 tons of steel.

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