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On This Day - 4 NOVEMBER 2011
Is this the new Saudi Arabia of energy sector?
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Will Buffett once again prove himself right in the long term? Well, we don't know for sure. But his case has definitely become stronger if a recent report in Bloomberg is to be taken seriously. It should be noted that for the US to regain its lost stature, a manufacturing revival has to happen and happen fast. And the recent discovery of its enormous shale gas reserves promises to do just that. And how big is this potential? Well, some people are already calling US the Saudi Arabia of gas. Reports are awash with how energy giants like Exxon Mobil and Conoco Philips are diverting billions towards developing shale gas reserves. And this could be just a tip of the iceberg. As more of this cheap source of gas is exploited, energy intensive manufacturers of chemicals, plastics, and steel could well bring their operations back home from emerging nations and in the process, re-create tens of thousands of jobs. And if this were not enough, shale gas is environmentally far friendlier than other sources like coal. Little wonder, it is touted to be the next big game changer for the US economy.
Do not get us wrong here. We don't think the US economy will jump straight from below par growth to above par. It has had its share of excesses in the past and will certainly have to pay the price for it by growing at a slow pace over the next few years. But courtesy its system of unleashing enormous human potential like Buffett mentioned, it could well be a force to reckon with in the long term as well. After all, its universities are still the hot bed of innovation and its Government still interferes far less in the free market system than other countries. Thus, while Uncle Sam could be down, it would be dangerous to count it out just yet.
Do you think the US is the new Saudi Arabia of energy and will thus regain its lost competitiveness or it has entered a permanent long term decline? Share your views with us or you can also comment on our Facebook page.
Indra Nooyi made it clear that doing business in such an environment of negative uncertainty was going to be extremely challenging. Consumer demands are changing. Trust in established brands and instituting is declining. Competition is getting more and more intense. While growth expectation are declining, high commodity prices are disturbing cost structures. So what do investors have to take home from this? Plain old value investing principles still remains the best strategy. One, invest in companies that are run by honest and dynamic leaders. Two, invest in brands that have a strong moat. Three, don't overpay. As the world gets more complex and messier, a simple yet sound investing strategy will help you survive and thrive.
With respect to the biggest issue dominating headlines today, notably the Europe crisis, Roubini has a very bearish view indeed. He believes that there is a significant risk of Eurozone breaking up which does not only include Greece and Portugal exiting but Spain and Italy ultimately leaving as well. Addressing problems of growth and trade deficits is a very serious and difficult one and Roubini opines that reforms and more stimulus and monetary easing might still work. But this goes against German culture which is not in favour of more stimulus. Meanwhile, in the US, Roubini is reluctant to join the bandwagon of those who believe that US is out of a recession.
Although big firms may have reported better numbers, small and medium enterprises are still struggling, which means that the Q3 GDP estimates may get revised downwards. And China is not out of the woods either. Although the dragon nation may escape pain this year and next, FY14 may see it in trouble. This is because of a build-up of non-performing loans at banks, rising government debt and asset bubbles bursting eventually. All of which makes for a very gloomy scenario, indeed!
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