Oil Prices, Middle East Tensions & The World Economy

"Writing in the Financial Times, Roubini said the recession that began in the autumn of 2008 was caused not only by the Lehman Brothers insolvency but also by the fact that oil prices had doubled in the previous 12 months.

While no one should feel any sympathy for rulers associated with corruption, poverty, high unemployment and inequality, recent experience of “free elections” and “democracy” in the Middle East has been sobering, Roubini wrote.

The U.S. invasion of Iraq has brought civil war and an unstable pseudo-democracy, now at risk of falling under the control of radical and Shia groups, he said.

Because of the latest turbulence, oil prices are close to $100 a barrel and more radical regimes in Egypt and Tunisia can’t be ruled out; meanwhile, the world economy is recovering only tentatively from its worst crisis in decades, Roubini concluded." - in Bloomberg

Related ETFs: SPDR Gold Trust (ETF) (NYSE:GLD), iShares Silver Trust (ETF) (NYSE:SLV), United States Oil Fund LP (ETF) (NYSE:USO), SPDR S&P 500 ETF (NYSE:SPY) , ProShares UltraShort S&P500 (ETF) (NYSE:SDS), iShares Russell 2000 Index (ETF) (NYSE:IWM) , SPDR Dow Jones Industrial Average ETF (NYSE:DIA), PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQQ), ProShares UltraShort QQQ (ETF) (NYSE:QID)

Changes In The Middle East

"I am all for democracy/elections & against autocrats. But so far change in Middle East (Iran, Gaza, Iraq and Lebanon) hasn't led to stable democracy." - in Twitter

Middle East Has Two Thirds Of World`s Oil Reserves

"Middle East has two thirds of world oil reserves and almost half of the gas reserves. So political instability there impacts global economies/markets." - in Twitter

Related stocks and ETFs: United States Oil Fund LP (ETF) (NYSE:USO), iPath S&P GSCI Crude Oil Total Return (NYSE:OIL), Exxon Mobil Corporation (NYSE:XOM), BP plc (ADR) (NYSE:BP), ConocoPhillips (NYSE:COP), Marathon Oil Corporation (NYSE:MRO), United States Natural Gas Fund, LP (NYSE:UNG)

Three Past Global Recessions Caused By Middle East Political & Oil Shocks: `73, `79 And `90

"Three past global recessions caused by MidEast political & oil shocks: Yom Kippur War '73; Iran's revolution '79; Iraq invaiding Kuwait '90" - in Twitter

Related ETFs: SPDR Gold Trust (ETF) (NYSE:GLD), iShares Silver Trust (ETF) (NYSE:SLV), United States Oil Fund LP (ETF) (NYSE:USO), SPDR S&P 500 ETF (NYSE:SPY) , ProShares UltraShort S&P500 (ETF) (NYSE:SDS), iShares Russell 2000 Index (ETF) (NYSE:IWM) , SPDR Dow Jones Industrial Average ETF (NYSE:DIA), PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQQ), ProShares UltraShort QQQ (ETF) (NYSE:QID)

Geopolitical Risk Is On The Rise

"There's already political contagion from Tunisia to Egypt...geopolitical risk is on the rise. It has a negative effect on growth or rising inflation. All this is not good." - in CNBC

Related: United States Oil Fund LP (ETF) (NYSE:USO), Market Vectors Egypt Index ETF (NYSE:EGPT), PowerShares DB Agriculture Fund (NYSE:DBA), SPDR S&P 500 ETF (Public, NYSE:SPY), iShares MSCI Emerging Markets Indx (ETF) (NYSE:EEM)

A G-Zero World

"A world where countries see global problems as a Zero Sum Game is a G-Zero World rather than a G20 World" - in Twitter

Some Upside Risks To Global Growth And Several Downside Risks

I was a speaker in the Davos initial panel on the global economic outlook: some upside risks to global growth and several downside risks

Downside risks for growth: sovereign risk; Eurozone crisis; inflationary rise in commodity prices; US risks (housing, labor market, budget deficit)

Positives for growth: global recovery; profitable corporations; strong emerging markets; less tail risk of double dip; asset reflation/risk on

in Twitter

Related: iShares MSCI Emerging Markets Indx (ETF) (NYSE:EEM) , Market Vector Russia ETF Trust (NYSE:RSX) , iShares MSCI Japan Index (ETF) (Public, NYSE:EWJ) , SPDR S&P 500 ETF (NYSE:SPY), iShares MSCI Brazil Index (ETF) (NYSE:EWZ), ProShares UltraShort 20+ Year Trea (ETF) (NYSE:TBT) , iShares Barclays 20+ Yr Treas.Bond (ETF) (NYSE:TLT), Lennar Corporation (NYSE:LEN) , D.R. Horton, Inc. (NYSE:DHI) , PulteGroup, Inc. (NYSE:PHM) , Toll Brothers, Inc. (NYSE:TOL) , Bank of America Corporation (NYSE:BAC) , Citigroup Inc. (NYSE:C) , Wells Fargo & Company (NYSE:WFC) , Morgan Stanley (NYSE:MS), Fifth Third Bancorp (NASDAQ:FITB), SunTrust Banks, Inc. (NYSE:STI), iShares Dow Jones US Home Const. (ETF) (NYSE:ITB)

A World Without Global Leadership And International Cooperation

"It is not a G7 world; it is not a G20 world; it is a G0 world without global leadership and international cooperation" - Nouriel Roubini in Twitter

The United Kingdom Is Already Double Dipping

"United Kingdom already double dipping while inflation is rising: a whiff of stagflation with fiscal and monetary policies not helping growth recovery." - in Twitter

India May Grow Faster Than China

"In the next few years, it is possible that the growth of India might surpass that of China, with India maintaining a close to double-digit growth, while China might slow down to eight per cent or so" - in www.sify.com

Related: WisdomTree India Earnings Fund (ETF) (NYSE:EPI), iPath MSCI India Index ETN (NYSE:INP), iShares FTSE/Xinhua China 25 Index (ETF) (NYSE:FXI)

How Could China Maintain Its 8 Percent Plus Growth?

"How has China been able to maintain its high—8 percent–plus—growth despite the collapse of its net exports? It did not do it by reducing its saving and consuming more; rather, it has boosted further fixed investment in real estate (commercial and residential), in infrastructure (roads, airports, bullet trains), and in manufacturing capacity, which already suffers from a glut. Fixed investment in China is now close to 50 percent of GDP.

But no country can be so productive that it can take, every year, half its GDP and reinvest it into more capital stock without eventually ending up with a huge excess capacity and a mountain of bad loans. Thus, China needs to radically change its growth model from net exports and investment to reduced saving and more consumption." - in Newsweek

A Likely Double Dip In The Housing Market

"The U.S. faces a likely double dip in the housing market, weak job creation and gaping budgetary holes at the state and local levels this year. Credit growth on both sides of the Atlantic will be restrained as many financial institutions maintain a risk-averse stance." - in Bloomberg

Growth In Advanced & Emerging Economies

"Global growth this year will be shaped by “an anemic, below trend, U-shaped recovery in advanced economies” and a “V-shaped recovery” in emerging countries due to their stronger macroeconomic, financial and policy fundamentals. That means about a 4 percent global expansion, with advanced economies growing by about 2 percent and emerging-market countries by about 6 percent." - in Bloomberg.com

Related: iShares MSCI Emerging Markets Indx (ETF) (NYSE:EEM) , Market Vector Russia ETF Trust (NYSE:RSX) , iShares MSCI Japan Index (ETF) (Public, NYSE:EWJ) , SPDR S&P 500 ETF (NYSE:SPY)

The Risks Of Financial Contagion In Europe

“One of the most important risks is financial contagion in Europe if the euro zone’s problems spread, as seems likely, to Portugal, Spain and Belgium.” - in Bloomberg

China Needs To Radically Change Its Broken Growth Model.

"Clearly China needs to radically change its broken growth model in the direction of reduced exports, investment and savings, and increased consumption. But there are structural—and cultural—reasons why the Chinese save so much and consume so little. Radical policy reforms may take more than a generation to rebalance the Chinese economy toward a more sustainable growth model." - in www.newsweek.com

Emerging Markets Outlook

"In China and other emerging-market economies, delays in policy tightening could fuel a rise in inflation that forces a tougher clampdown later, with China, in particular, risking a hard landing. There is also a risk that capital inflows to emerging markets will be mismanaged, thus fueling credit and asset bubbles." - in Project Syndicate

Related ETFs: iShares MSCI Emerging Markets Indx (ETF) (NYSE:EEM), iShares FTSE/Xinhua China 25 Index (ETF) (NYSE:FXI), iShares MSCI Brazil Index (ETF) (NYSE:EWZ)

There Are Upside And Downside Risks To The Global Economic Outlook

"The outlook for the global economy in 2011 is, partly, for a persistence of the trends established in 2010. These are: an anemic, below-trend, U-shaped recovery in advanced economies, as firms and households continue to repair their balance sheets; a stronger, V-shaped recovery in emerging-market countries, owing to stronger macroeconomic, financial, and policy fundamentals. That adds up to close to 4% annual growth for the global economy, with advanced economies growing at around 2% and emerging-market countries growing at about 6%.

But there are downside and upside risks to this scenario. On the downside, one of the most important risks is further financial contagion in Europe if the eurozone’s problems spread – as seems likely – to Portugal, Spain, and Belgium. Given the current level of official resources at the disposal of the International Monetary Fund and the European Union, Spain now seems too big to fail yet too big to be bailed out." - in project syndicate

Europe Needs Growth To Prevent A Disorderly Collapse Of The Euro Area

Europe needs growth to prevent a disorderly collapse of the euro area. The stringent cost-cutting measures that the EU and the International Monetary Fund are imposing on countries such as Greece and Ireland are, in principle, the right way to get a handle on their debt. However, these measures also strangle an economy. Higher taxes mean people have less money to spend. If the government cuts spending it cannot make investments to stimulate growth. This creates huge difficulties for the governments concerned: If people cannot see the light at the end of the tunnel they will start to withdraw their support for reforms. In the interests of Europe as a whole, Germany should do all it can to bolster growth -- at home and in Europe. Germany should, therefore, postpone its austerity strategy. - In Der Spiegel

Belgium Is Effectively On The Way To Political Break-up

"Belgium is effectively on the way to political break-up. Will the political chaos lead to financial turmoil & banking/sovereign debt stress?" - in Twitter

Related: iShares MSCI Belgium Investable Mkt(ETF) (Public, NYSE:EWK)

Neither Of The Two Biggest Players In The Euro Zone Is Pursuing Policies Consistent With Restoring Sustained Growth In The Euro Zone’s Periphery

In the periphery of the eurozone, the problem is the opposite: bond vigilantes are demanding that Greece, Ireland, Portugal, Spain, and Italy front-load fiscal consolidation or watch their borrowing costs go through the roof, risking them their market access and triggering a public-debt crisis. Markets don’t care that front-loaded fiscal consolidation is exacerbating recession and thus making the goal of reducing debt and deficits as a share of GDP near-impossible to achieve.

To avoid a persistent and destructive recession, the fiscal and structural reforms imposed by the bond vigilantes should be accompanied by other euro-zone policies that restore growth and prevent vicious debt dynamics. The European Central Bank should ease monetary policy in order to weaken the value of the euro and bootstrap the periphery’s growth. And Germany should cut taxes temporarily – rather than raising taxes, as planned – in order to increase disposable income and stimulate German demand for the periphery’s goods and services.

Alas, neither of the two biggest players in the euro zone is pursuing policies consistent with restoring sustained growth in the euro zone’s periphery. The ECB’s monetary policy is too tight; and Germany is front-loading fiscal austerity. Thus, the periphery is destined to a destructive deflationary and recessionary adjustment that will exacerbate the risks of recession, insolvency, eventual defaults and, possibly, exit from the euro.

Related: Telefonica S.A. (ADR) (NYSE:TEF), iShares MSCI Spain Index (ETF) (NYSE:EWP), Banco Santander, S.A. (ADR) (NYSE:STD), Banco Bilbao Vizcaya Argentaria SA (ADR) (NYSE:BBVA), Bank of Ireland (ADR) (NYSE:IRE) , Allied Irish Banks, plc. (ADR) (NYSE:AIB), National Bank of Greece (ADR) (NYSE:NBG), Portugal Telecom, SGPS (ADR) (NYSE:PT) , Banco Comercial Portugues SA (ELI:BCP)