Where to find growth in the post QE era?

The market turmoil over the last few weeks has indicated that businesses are uncertain where they will see growth, now that the QE has ended in America and the interest rates are on the rise. The Chinese economy which had overheated, is now cooling off and the demand for oil, iron ore, copper and other commodities are dropping along with their prices. China is suffering from an over-capacity problem right now.

I think in this environment, the input costs for manufacturers would be very low since the price of oil is at an all time low and the price of copper and iron ore are also close to their all time lows. This should boost the margins for the manufacturers if their sales are constant. So all else being same, the manufacturers should be able to report better profits. 

But the demand side is weak as the consumer is not spending a lot of money. This is due to the fact that they are cautious in this uncertain environment. In this situation, lowering the prices could be a good solution to increase sales. Considering the low input prices, manufacturers of goods should be able to sell their goods at a much lower price now vis a vis one year ago. Price of oil has dropped from the $50-60 range in 2015 to $30 per barrel today.   Iron ore prices have dropped to a third of where they were one year ago.  Copper prices are down 8% year over year. 

There could be demand for commodities from building heavy infrastructure such as a rail road in Afghanistan or solar power farms in Sahara in Africa. India, which is facing a power deficit right now, is planning to build 5 new nuclear reactors in collaboration with the French. I think there are business opportunities and investing opportunities present today that could yield dividends going forward.

The Root Of ISIS

ISIS or the Islamic State in Iraq and al-Shamam is also referred to as ISIL (Islamic State in Iraq and Lavant) by some. The grey shaded area in this map (Link) is the area controlled by ISIS today. How ISIS came in power over such a large region is one question and why it did so is another. I want to try to answer the why part in this blog post because I feel it is not being paid sufficient attention to in the media.

The roots of the ISIS movement lie in the toppling of the Saddam Hussein government in Iraq in 1990s. Saddam had become an autocratic leader and had defied the Western powers after he went to war with Kuwait over its oil. The George Bush Government in USA decided to capture Saddam Hussein based on intelligence that he had weapons of mass destruction. Saddam had used chemical warfare in the Kuwait War.

In the new government that was set up after the fall of Saddam Government, the majority power went to the Shias and the Sunnis and Saddam loyalists were not given any representation. The Saddam loyalists put a stiff fight to the Americans and established government and till the very end of the American occupation in Iraq, Fallujah, Tikrit and Mosul were on the verge of a civil war and the Americans gave up hope and left. 

The Saddam loyalists were heavily marginalized in Iraq after the funds from America and the NATO started pouring in to help in the post war reconstruction in Iraq. These Saddam loyalists became the separatists and are at the root of the ISIS movement. 

ISIS started expanding by gaining control of large territories in Iraq. The American troops had withdrawn now to focus their attention on Afghanistan and the Al Qaeda, getting Osama Bin Laden was now their sole focus. As the Americans and NATO focussed all of their might on decimating Al Qaeda and on the man hunt for Osama Bin Laden, ISIS faced little resistance in gaining territories in Iraq which did not have a full fledged army till now. 

As Arab Spring came and many of the autocracies in the Middle East were overthrown, ISIS found it easy to gain support from some of the separatists in Syria and Libya. Today, the ISIS controls large territories in the Middle East and the Americans are facing the same stiff opposition they faced in 1990s when they had to retreat from Fallujah without setting up a full civic order.

Here is a good article from The Atlantic on what the ISIS really wants: Link

Sunnis are still being marginalized in Iraq: Link to story