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2014.01 IceCap Global Market Outlook

2014.01 IceCap Global Market Outlook

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Published by zerohedge
2014.01 IceCap Global Market Outlook
2014.01 IceCap Global Market Outlook

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Categories:Types, Brochures
Published by: zerohedge on Jan 29, 2014
Copyright:Attribution Non-commercial

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02/01/2014

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Our view on global investment markets:
 January 2014 – The Shoe
Keith Dicker, CFA Chief Investment Officer keithdicker@IceCapAssetManagement.com www.IceCapAssetManagement.com 
 
1
Size 9
www.IceCapAssetManagement.com
January 2014 The Shoe
 
As leader of the world’s most powerful communist country, Nikita Khrushchev commanded respect, fear and most of all – your attention. In Stalingrad, he stared down the Nazis and willed his comrades to victory. Next, his “Secret Speech” gained him supreme power and crushed his political enemies for good. For a finale, Khrushchev rescued a floundering Soviet Space Agency and helped launch it past the Americans. Khrushchev will forever be immortalised but not as the brave soldier or as a rocket scientist – instead, his place in history was firmly planted the moment he beat the heck out of his desk at the United Nations -
 with his shoe
. A few generations later, then President George W. Bush had his very own shoe encounter. Apparently, someone registered his disagreement with America’s presence in Iraq by hurling the Muslim insult – a shoe, straight at the President’s head. There was nothing slow moving about the Texan and his lightning quick reflexes helped him dodge the oncoming size 9 projectile. The latest shoe drop, occurred just a few days ago at supposedly, the most peaceful place on earth – the United Nations. To tell you the truth, the UN has always been bit of an odd place. It was created in 1945 to achieve ever lasting world peace. Ironically it has been home to many of the most interesting attempts to destroy it. Khrushchev’s table banging tirade was certainly un-peaceful. Perhaps the most astonishing act within the curved walls at 46
th
 Street, was on October 18, 2013 when Saudi Arabia flipped not a shoe but a bird at the entire UN Security Council and declined an appointment to this highly respected group. Saudi Arabia wasn’t the first (nor will it be the last) to commit such a bold act towards the world’s most powerful leaders. But its especially noteworthy because it provides insight into the politics of middle east, oil and sand. Dynamics in this region are changing very quickly, and the impact on financial markets will be significant meaning it could very well be the next shoe to drop.
Not too long ago
Our world has always needed oil to grease the big wheel. It seems that at some point in time, everyone strikes a big gusher and then the party really starts. In the early 1900s, the discovery of tea in Texas launched the US into its very own gusher age. At the same time, Mexico also fell into a major discovery and it too became an oil exporting machine. Some 50 years later, Norway discovered they had the black stuff and quickly became slick at selling it to anyone and everyone. Yet, like all good things, the Americans, Mexicans and Norwegians
 
2
The bottom of the barrel
www.IceCapAssetManagement.com learned that oil drums do indeed have a bottom as their production peaked and was followed by swift declines. Now, it was at this point the global economy was starting to truly become global. Oil was needed, and no one really cared where it came from. As long as it could be refined into gasoline and heating fuel people were happy. As a result, the happiest place in the whole world was about to be – Saudi Arabia. Not only did Saudi Arabia have enormous oil discoveries, it was also fully on board with becoming America’s primary provider forever and ever. Naturally, in exchange for providing America with its energy fix, Saudi Arabia needed the Americans to set-up a few military bases, just in case someone else had their own ideas about the Saudi oil fields and the riches that went with it. All in all, this America-Saudi marriage has been pretty good for both sides. America receives its oil, and Saudi Arabia hasn’t had to worry about any of the Shenanigans taking place in the Middle East. Until today…
American Shale Boom
Just when you thought America had finally dug its last economic grave, once again it rose from the almost-dead to change the game. Up until the late 1960s, America’s oil production increased at a steady pace. But then, the inevitable happened and over the next 40 years, America was unable to pump out more oil than the year before, making it increasingly dependent upon foreign oil to survive. This is about to change. Just a few years ago, US regulation changed in favour of allowing exploration and development of shale oil and natural gas from government protected lands. The result – America should be able to produce up to 10 million barrels/day in total oil. Considering America consumes about 20 million barrels/day, there is still a shortage. But wait, American uber optimism combined with hope (there’s that word again) and oil from their Canadian neighbours in the great white north has created the
 potential 
 for America to rid itself of all the headaches associated with depending upon oil from the Middle East. This is good for America, but not so good for Saudi Arabia, and the real reason behind them throwing the metphorical shoe at the United Nations Security Council. Yet, to better understand Saudi Arabia and the Middle East, investors must first start in of all places – Pakistan.
Pakistan
Saudi Arabia has provided financial assistance to Pakistan for decades. In exchange, Pakistan’s army has provided near-bullet-proof
January 2014 The Shoe
 

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