The Price of Oil. Where to Next? Russia. Russian Stocks.

Dear Reader,


WTI Crude Oil futures are currently priced at 50.42 USD while Brent Crude Oil futures would trade at 58.80. Both oil benchmarks are down circa 30% from their recent peaks.

Are the current prices a near-term bottom? In my opinion, Yes. Why? Because the global economy is simply too strong in order for WTI Oil, for example, to stay at 50 USD. USA, Israel and Saudi Arabia are intent on containing Iran which is the fifth largest oil producer with the largest proven oil and gas reserves in the world.

If Iran oil deliveries are disrupted this could make WTI oil shoot up to 70 USD again. But my main thesis is that the global economy, although slowing down, is too vibrant at the moment to keep oil prices around 50 USD. What is more, even for the USA it is nice to have somewhat higher oil prices. Much of the gains in industrial output in the USA in the last 10 years are due to oil production. One of the most vibrant regions economically in the USA is Texas. People without college degrees could earn up to 100 000 USD a year in the oil industry. Houston and Texas constantly grow their populations due to the influx of people looking to earn higher wages and lead a good lifestyle. So, relatively higher oil prices from the current levels are good for almost everyone. There are strikes and protests against high oil prices at gas stations in various countries, but the economic benefits of producing more oil at higher prices are better.

I forecast that in 2019 WTI Oil and Brent Oil prices would go to 70 and 80 USD respectively.

This would make Russian oil and gas majors stocks go up substantially. Russian oil stocks and the Russian stock market are grossly undervalued at the moment. Yes, there are sanctions but the Russian population is well educated and the current wages make producing and exporting from Russia hugely profitable. The Russian economy has already adjusted to the new realities.

A rising oil price in 2019 would lift the sails of other large oil producing markets such as Brazil and Mexico.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Kind regards,

Petar Posledovich

Emerging Markets. The Effect of Rising US Dollar and Rising US Rates!

Dear Reader,


The current level of the target for Federal Funds Rate is 2.25%. The Federal Funds Rate is the main policy tool and target of the Federal Reserve, the Central Bank of the United States and undeniably the most powerful Central Bank in the world which exerts great influence over financial markets globally.

Currently the EUR/USD exchange rate is 1.14. The US dollar keeps appreciating against all major currencies and especially against emerging markets currencies as the Russian Ruble, Turkish Lira, Indonesian Rupiah, Argentine Peso, Indian Rupee, Chinese Yuan and others. Since many of these emerging markets countries and their corporations have borrowed in United States Dollars the rising USD rates and appreciating USD threaten to increase emerging market real debt exponentially and cause many of the above countries to go bankrupt.

Will there be a LARGE emerging markets crisis as in 1997? No. Why? Because many of the above countries have low Debt/GDP levels and their economies are much more sound, relatively larger and more flexible than in 1998. Brazil, Russia, India and China's economies are much larger and with flexible exchange rates to the United States dollar which provided an adjustment cushion which would soften any exorbitant blow to their economies. Will there be a smaller crisis in emerging markets? Yes. Why? Because as sound as emerging markets economies are still the appreciating USD, rising dollar rates and rising emerging market debt will cause pain in the economies of Brazil, Russia, India, China, Turkey, Indonesia, Argentina and others.

China - a wild card? But still there is China. The total debt to GDP ratio is 240% compared to 140% before 2008. The Chinese government has much less room to maneuver this crisis around, There is also the shadow banking sector in China which worries many analysts, Nobody really knows what is the total debt in China due in part to unreliable statistics. There have been studies that if GDP growth in China slows below 6% the Chinese workers from smaller cities will not be able to find jobs and move in the bigger cities. The Chinese economy will not be able to quickly replenish itself if growth falls below 6%.

So in short, if there is global crisis soon, I would bet that the trigger and fundamental reason will be an economic crisis in China!

Disaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Kind regards,

Petar Posledovich

Emerging Markets. Brazil, Russia, India, China, South Africa!

Dear Reader,


The major emerging markets as Brazil, Russia, India, China and South Africa are in a bear market.

The trade war the USA is waging with China took its toll on the Chinese stock market and the main gauge for Chinese equities CSI 300 suffered a fall of more than 30%.

The US levied sanctions on Russia and the Russian stock market tanked. What is more, the US is widely expected to levy new sanctions on Russia which will hit banks, financials and even may touch Russian government bonds.

The US is slowly 'dealing', 'handling' its opponents. Will such behaviour fly? Yes, as long as the united states dollar is king, the US will win, even when battling on many fronts.

But the current dip is a buying opportunity for long-term emerging markets investors. Especially Russia looks quite undervalued. When the pending crises connected with US sanctions fades, Russian stocks will look especially cheap. The world will continue to need larger and larger resources of energy to feed its insatiable appetite for economic growth. And Russia with its huge oil and gas reserves, leading position in nuclear energy generation is uniquely position to benefit. The economy of Russia has the potential to  double from the current circa 1.76 trillion USD in the next 5 to 10 years. Due to the huge depreciation of the Russian Ruble, labor in Russia is cheap, the market is relatively large, untapped and the quality of human resources is of a very high level and at the current wages it is a huge bargain to produce, sell and develop in Russia.

India, currently, has evidently no enemies in Washington. India's IT sector is growing exponentially, payments services have huge adoption in India. India's economy is poised to grow faster than even China's economy. So long-term India's equities do look very undervalued. The standard is low,labor is cheap and relatively highly qualified. So the future of India looks bright.

Disaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Kind regards,

Petar Posledovich

Walmart Valuation!

Dear Reader,

Here I am going to attempt to value Walmart Inc., the worlds largest retailer.

In short, the company is 25% undervalued. Why?

Because Walmart grew its revenue in the last fiscal year. No, I do not believe Walmart is in a declining industry. People will always shop in retail outlets. Amazon is good for books, may be electronics and a lot of other stuff. But "brick and mortar" outlets like Walmart and Bestbuy are indispensable. The world's population and income are growing so it is safe to assume that the revenue of retail chains of the type of Walmart will grow in line with the world's GDP - 3% to 5% a year.

Last fiscal year Walmart realized 500 billion USD of revenue, which is a staggering sum. Yes, I know Walmart mainly resells other firms' products, but doesn't Amazon also? Major retail chains have their own product lines, so they are still producing stuff, not only service. Wallmart is trading at a trailing 12 month Price/Earnings ratio of 58.20, but the profit for the last fiscal year was 9.86 bln. USD and Wallmart's market capitalization is 296.8 bln. USD, so the real Price/Earnings ratio is close to 30. What is more, the declining profit speaks that Wallmart is reinvesting in its business. The acquisition of Jet.com gave Walmart a foothold in a younger demographic and a platform to really compete with Amazon. In addition, Walmart acquired a range of hip clothing brands which again will attract the younger audience of millenials.

Walmart has been suffering from the Amazon effect. Everybody seems to think Amazon will evaporate the retail industry and everything will move online. As recent years have shown this is not going to happen or at least not to such a large extent as Wall Street analysts seem to assume. Recently, Amazon's stock fell 25% while Walmart's stock rose 5%. If a recession ensues or a bear market in stocks Wallmart will provide the proverbial margin of safety and fall much less than the stocks of major technology stocks. Since I forecast a global recession and a US stocks bear market somewhere in 2021 or 2022, I believe Walmart's stock has the potential to go up by 25% between now and 2021/2022.

Disaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Kind regards,

Petar Posledovich