Harris&Ewing Treasury Building, Fifteenth Street, Washington, DC 1918
We’re all a casino now.
• The Oil Industry’s $26 Billion Life Raft: Derivatives (Bloomberg)
For U.S. shale drillers, the crash in oil prices came with a $26 billion safety net. That’s how much they stand to get paid on insurance they bought to protect themselves against a bear market – as long as prices stay low. The flipside is that those who sold the price hedges now have to make good. At the top of the list are the same Wall Street banks that financed the biggest energy boom in U.S. history, including JPMorgan, Bank of America, Citigroup and Wells Fargo. While it’s standard practice for them to sell some of that risk to third parties, it’s nearly impossible to identify who exactly is on the hook because there are no rules requiring disclosure of all transactions. The buyers come from groups like hedge funds, airlines, refiners and utilities.
“The folks who were willing to sell it were left holding the bag when prices moved,” said John Kilduff at Again Capital. The swift decline in U.S. oil prices – $107.26 on June 20, $46.39 seven months later – caught market participants by surprise. Harold Hamm, the billionaire founder of Continental Resources Inc., cashed out his company’s protection in October, betting on a rebound. Instead, crude kept falling. Other companies purchased insurance. The fair value of hedges held by 57 U.S. companies in the Bloomberg Intelligence North America Independent Explorers and Producers index rose to $26 billion as of Dec. 31, a fivefold increase from the end of September, according to data compiled by Bloomberg.
Though it’s difficult to determine who will ultimately lose money on the trades and how much, a handful of drillers do reveal the names of their counterparties, offering a glimpse of how the risk of falling oil prices moved through the financial system. More than a dozen energy companies say they buy hedges from their lenders, including JPMorgan, Wells Fargo, Citigroup and Bank of America. At the end of 2014, JPMorgan had about $671.5 million worth of derivatives exposure to five energy companies, including Pioneer, Concho, PDC. and Antero, according to company records. That’s the amount JPMorgan would have owed if the contracts were settled Dec. 31, not including any offsetting trades the bank made. It’s a similar story for Wells Fargo, which was on the hook for $460.9 million worth of oil and natural gas derivatives for companies including Carrizo, Pioneer, Antero, Concho and PDC, according to regulatory filings.
Oh no! What happened? 😉
• Oil Tumbles 6.6%, Erasing This Year’s Gains (Reuters)
Oil futures settled nearly 7% lower on Wednesday after government data showed the largest weekly increase in U.S. crude inventories since 2001 and a day after Saudi Arabia reported record production in March. U.S. May crude closed down $3.56, or 6.6%, at $50.42 a barrel. The commodity has erased 2015’s gains and is now down 5.4% on the year. Meanwhile, Brent May crude was down $3.30 at $56.90 a barrel. U.S. crude oil inventories surged 10.95 million barrels to a record 482.39 million in the week to April 3, the Energy Information Administration (EIA) said in its weekly report. A Reuters survey of analysts had yielded a forecast for a build of 3.4 million barrels.
“The report is very bearish with the large crude oil inventory build and the somewhat surprising rise in gasoline inventories,” said John Kilduff at Again Capital. Crude oil inventories at the Cushing OK storage hub and delivery point for the U.S. crude contract rose by 1.2 million barrels, the EIA said, a much bigger jump than expected. U.S. crude oil imports rose by 869,000 barrels per day (bpd) to 7.7 million bpd. Gasoline inventories rose 817,000 barrels, compared with analysts’ expectations for a 1 million barrel drop, as refiners increased capacity utilization. The reported build sent U.S. RBOB gasoline futures went into sharp retreat, down 9.20 cents at $1.7689 a gallon. The EIA data arrived a day after Saudi oil minister Ali al-Naimi said that Saudi Arabia’s output would likely remain around 10 million bpd after posting a record high of 10.3 million bpd in March.
Survival of the limping.
• Exxon, BP in Deal Spotlight After Shell Buys BG Group (Bloomberg)
Now that Royal Dutch Shell Plc has made its move for BG Group, Exxon Mobil and BP could contemplate deals – perhaps even with each other. Speculation of an Exxon-BP combination surfaced last year after oil prices declined sharply, increasing the appeal of big mergers that could yield massive cost savings. BP has largely put behind it the legal morass surrounding the 2010 Gulf of Mexico spill. Still, the $124 billion company remains among the cheapest major producers relative to estimated profit, according to data compiled by Bloomberg. There are, of course, other targets for Exxon and BP that have gotten less expensive in recent months. Anadarko, Cabot, Pioneer, Occidental and Tullow are among those that have risen to the top of analysts’ lists.
Their market values span Tullow’s $4.2 billion to Occidental’s $59 billion. Exxon is valued at $353 billion. The oil slump of the late 1990s sparked a merger boom. BP was the one that kicked things off when it announced plans to buy Amoco. Exxon and Chevron also struck deals at the time. Should prices remain depressed, history could repeat itself. “There’s the potential for a lower-for-longer scenario when it comes to oil prices, which suggests that the majors should at least be considering the playbook they used at the turn of the last century,” said Eric Gordon, a Baltimore-based energy analyst for Brown Advisory, which manages $52 billion. “You really have to spend time thinking about not just the next chess move, but two and three moves out.”
Who knew what?
• Shell-BG Deal Could Face Bumpy Ride From Partner Rights (Reuters)
Royal Dutch Shell’s agreed $70 billion takeover of rival BG Group could trigger pre-emption rights in key oil and gas fields that would erode the potential benefits of the deal for the Anglo-Dutch oil giant. Shell said a main driver of its bid for BG Group was the gas-focused British group’s position in Brazil. Two exploration blocks, named BM-S-9 and BM-S-11, account for almost all the value of BG’s Brazil assets. But, BG said in its annual report published last week: “In certain specific circumstances, it is possible that BG Group’s partners in BM-S-9 (Petrobras and Repsol Sinopec Brasil) have a right of first refusal to acquire BG Group’s interest .. in the event of a change of control of BG Group plc”.
When Shell Chief Executive Ben van Beurden was asked about change of control provisions on an analyst call on Wednesday, he said these could trigger pre-emption rights in relation to BG’s stake in Karachaganak, a field in Kazakhstan. He did not mention BM-S-9, which contains the Sapinhoa and Lapa fields. Analysts said that failing to secure BG’s stake in Karachaganak might not affect the key strategic drivers of the deal. However, not buying BM-S-9 would be a big loss. “Brazil is central to the acquisition,” said Neill Morton, oil analyst at Investec. “Sapinhoa is pretty important. It’s one that Shell is looking to get its hands on.”
Block BM-S-9 is estimated to contain billions of barrels of oil that can be extracted at moderate costs. Analysts at Bernstein estimated last month that Sapinhoa could be worth $6.5 billion, while Morton said the Reading-based group’s stake in the block could be worth $10 billion. Tom Ellacott, head of the corporate analysis team at research group Wood Mackenzie, said a failure to secure BM-S-9 probably would not be a deal-breaker but would likely force a rethinking of the terms of the deal.
How many jobs will be lost through this deal?
• Bankers Set To Reap $155million In Fees On Shell-BG Takeover (Bloomberg)
Robey Warshaw, a two-year-old investment bank with less than ten employees, is about to share a massive payday with two of Wall Street’s largest firms. As an adviser to BG Group on its sale to Shell, the London-based firm will split as much as $90 million in fees with Goldman Sachs, according to estimates from Freeman & Co. Because of its size, Robey Warshaw may receive a smaller chunk of that amount. Also set for a large payout is Bank of America, which was the only adviser to Shell and could reap as much as $65 million for its work. The 47 billion-pound ($70 billion) deal is the largest takeover announced in 2015, and the oil and gas industry’s biggest merger in at least a decade.
Robey Warshaw is one of a handful of boutiques – including Zaoui and LionTree – that have sprung up in recent years as some of New York and London’s top dealmakers left major institutions, winning mandates on large deals even without the resources of a major bank. Started in 2013 by London bankers Simon Robey and Simon Warshaw – veterans of Morgan Stanley and UBS – Robey Warshaw also served as an adviser to AstraZeneca as it resisted a takeover approach from Pfizer.
Shell’s purchase is adding to what’s proving to be an already robust year for M&A advisers – with about $327 billion in deals struck by European companies alone. That total is set to rise as the euro’s decline against the dollar and renewed confidence in an economic recovery make Europe appealing for global acquirers. Goldman Sachs, which also advised on Ball Corp.’s acquisition of Rexam, holds the top spot for merger advisory services in Europe this year. Bank of America is ranked second while its role on the Shell-BG deal has vaulted Robey Warshaw to third, data compiled by Bloomberg show.
“But I think the problem is that we’ve got double-digit delinquencies on student loans, and the problem only seems to be getting worse.”
• The US Government’s $800 Billion Gamble on Student Loans (Bloomberg)
One of the big potential costs to U.S. taxpayers over the next years is an enterprise that’s currently estimated to be even a bit profitable for them: financing student loans. Right now, the federal government borrows money at interest rates that are lower than the rates it charges students. That means the U.S. makes about 14 cents on every dollar lent, according to the Congressional Budget Office. It’s a win-win for the government – make a little cash while helping young Americans pursue an education so they can earn more down the road. There’s no guarantee this will stay this way, however, if more students start to delay or renege on their obligations. While the CBO expects the government to continue to make money on the business until at least 2025, gains are forecasted to shrink.
On subsidized student loans (the most basic kind), the government is forecast to start losing money as early as next year. The CBO already revised up its estimate of how much the loans will cost the government for 2016-2025 by 30%, citing higher estimates of the number of loans in default (which in turn would mean the government won’t be able to collect on as many payments as initially thought). There’s already almost $800 billion in student loans that’s directly on the government’s balance sheet, according to Wall Street experts who advise the U.S. Treasury on its borrowing strategy. And that represents a ballooning share of the debt that the government has issued. Student loans loans in February were worth more than half the value of outstanding Treasury debt with a maturity of 10 years or more.
“If you were fairly confident that all those loans are going to be paid back, then it wouldn’t be that big of an issue,” said Stephen Stanley at Amherst Pierpont. “But I think the problem is that we’ve got double-digit delinquencies on student loans, and the problem only seems to be getting worse.” Data from the Federal Reserve Bank of New York show that 11.3% of student loans were delinquent in the final three months of 2014, up from 11.1% in the prior quarter. The federal student loan default rate declined to 13.7% for borrowers who would have begun paying in 2011, the Education Department said in September. The rate was 14.7% a year before.
Steve at his finest: “..even I didn’t fully appreciate how tiny the intellectual gene pool behind these ideas was.
• Bernanke-Summers II: Savings Glut, Investment Shortfall or Monty Python? (Keen)
A Twitter follower accused me of being “a little nasty” with my last blog post. He was right, and I don’t apologize. I’ve spent 40 years trying to highlight just how limited the dominant ideas in economics are. But even I didn’t fully appreciate how tiny the intellectual gene pool behind these ideas was. Then, as I started to write a post on the economic issues in the Bernanke-Summers debate, I re-read Summers’ original secular stagnation post and realized that, not merely were the ideas coming from a single perspective, most of the major proponents of these ideas came not only from the same University (MIT), and even the same seminar (Class 14462, conducted by Stanley Fisher). Think of the dominant names in economics and there are a few obvious entries: Ben Bernanke; Larry Summers; Paul Krugman; Olivier Blanchard; Ken Rogoff.
Summers acknowledged all of them (bar Krugman) as classmates from Stanley Fisher’s seminar, while Krugman did his PhD at MIT (as did the other dominant macro textbook author—and ex-advisor to George W. Bush and Mitt Romney—Gregory Mankiw). This goes well beyond the dominance of economics by a single school of thought, and I felt that “in-breeding” was a nasty but evocatively accurate way to express just how narrow the so-called “economic debate” had become—and therefore how justified were student calls for pluralism in economics. Hell, we don’t simply need pluralism: we need to hear opinions from people who didn’t attend Stanley Fisher’s lectures. Maybe being nasty about this might get people to realize why economics needs to change.
To see how inbred this Bernanke-Summers debate really is, let’s look at the explanations they’re putting forward for the persistently disappointing growth rates being experienced around the world—even in countries that, like America, can now claim to have recovered from the financial crisis of 2007. Bernanke is blaming a “savings glut”, and directs the blame at savers in countries like China:
My conclusion was that a global excess of desired saving over desired investment, emanating in large part from China and other Asian emerging market economies and oil producers like Saudi Arabia, was a major reason for low global interest rates. (Bernanke in “Why are interest rates so low, part 3: The Global Savings Glut”)
Summers, on the other hand, argued that there is a secular decline in the level of investment, coming from a number of long-term factors, including lower population growth, lower rates of technical progress, and rising inequality:
Slower population and possibly technological growth means a reduction in the demand for new capital goods… Rising inequality operates to raise the share of income going to those with a lower propensity to spend… (Summers in “Reflections on the ‘New Secular Stagnation Hypothesis’”.
“The main goal of the reforms is not to dramatically reduce the state sector. It is to have a better-performing state sector.”
• How China Wants to Overhaul its $16 Trillion Corporate Monster (Bloomberg)
How do you dismantle a $16 trillion government behemoth that controls everything from nuclear power plants to tourism kiosks? That’s the task facing Chinese President Xi Jinping as part of the biggest shake-up of state-run companies since the late 1990s, when millions lost their jobs as unprofitable units were sold or shuttered and bigger companies listed their best parts on the stock market. This time, instead of using the shock therapy of mass privatizations championed by Britain in the 1980s, China is trying to improve state industries without putting thousands out of work during an economic slowdown. Policymakers are proposing to strip government holdings from the State-owned Assets Supervision and Administration Commission, or Sasac, the agency that also regulates the more than 100 non-financial companies.
“When China today talks about SOE reform they do not have in mind anything like what we saw in Eastern Europe in the 1990s or other emerging markets or the U.K. in the Thatcher era,” said Andrew Batson at GaveKal Dragonomics in Beijing. “The main goal of the reforms is not to dramatically reduce the state sector. It is to have a better-performing state sector.” The proposed overhaul would bundle companies by industry and hand their control to state asset-management firms, the people familiar with the plans said last month, asking not to be identified because the talks are private. The changes would reduce Sasac’s role to that of regulator.
Sasac was created in 2003 under the State Council, China’s cabinet, to oversee government conglomerates. The commission supervises non-financial companies that build weapons and spacecraft, fly planes, forge steel, mine coal, distribute salt, trade silk and buy art, among much else. Many of its units have stakes in joint ventures with private firms, spreading their tentacles throughout the economy. “Sasac is a gigantic failure,” said Nicholas Lardy, who’s studied China for more than three decades and is a senior fellow at the Peterson Institute for International Economics. The return on assets is going down at state-owned firms under Sasac’s watch and that’s translating into a “big drag on economic growth,” he said in an interview in Beijing.
Long piece from Ambrose. He can’t make up his mind who he dislikes more, Brussels or Putin. “The Greek government has understood that it cannot find any common ground with the Eurogroup and the ECB, unless it accepts unconditional capitulation..”
• Europe’s Manhandling Of Greece Is A Strategic Gift To Putin (AEP)
The European Union has presented Vladimir Putin with an irresistible strategic prize, on a platter. By insisting rigidly that Greece’s radical-Left government repudiate its electoral pledges and submit to ritual fealty – even on demands of little economic merit, or that might be unwise in the particular anthropology of a post-Ottoman society – it has pushed the Greek premier into the arms of a revanchist Kremlin. The visit of Alexis Tsipras to Moscow has been a festival of fraternity. On Wednesday he laid a wreath at the Tomb of the Unknown Soldier and spoke of the joint struggle against Fascism, and the unstated foe. The squalid subject of money was of course avoided. “Greece is not a beggar,” he said. “The visit could not have come at a better time,” said Mr Putin, purring like the cat who ate the cream.
EU sanctions against Russia will expire in June unless all 28 states agree to roll them over, and Mr Tsipras has already signalled his intent. “We need to leave behind this vicious cycle,” he said. “Greece is a sovereign country with an unquestionable right to implement a multi-dimensional foreign policy and exploit its geopolitical role,” he added, for good measure. A Greek veto on sanctions will embolden Hungary’s Viktor Orban to join the revolt, this time in earnest. His country has just secured a €10bn credit line from Russia to expand its Paks nuclear power plant, a deal described as a “purchase of political influence” by a leading critic. Slovakia is quietly slipping away from what was once a united (if fractious) EU front to deter further Kremlin moves into Ukraine. There is safety in numbers for this evolving constellation, what Mr Putin’s foes would call the EU’s internal “Fifth Column”.
Brussels can bring one to heel, but not a clutch of rebels. It is becoming powerless. Needless to say, a failure to renew sanctions at a time when the Donbass is still under the control of Mr Putin’s proxy forces would drive a wedge between the US and Europe, further draining the life-blood from the Atlantic alliance and what remains of the Western security structure. But it does not stop there. The EU project is close to unravelling in the East. We thought we knew where we stood when the final decision was made in June of 2003 – in Athens of all places – to admit the former captive nations of the Soviet bloc, all clamouring to join what seemed to be an enlightened club of democracies under the rule of law.
I was there for The Telegraph when Tony Blair stood at the Stoa of Attalos, near the colonnades of Socrates and Plato, and exalted in their newly-won freedom from “dictatorship and repression”. Now we have a government in Budapest that scoffs at press freedom and judicial independence, and a government in Athens that is desperately defending its own democracy against the EU itself. Mr Putin merely has to bide his time and the EU’s southeastern flank will fall apart. Europe’s creditor powers have warned Greece not to trifle with them, or to play off Brussels against Moscow, but seem strangely unaware that they too must make concessions to prevent matters spinning out of control, for them as well as for Greece.
Got to love it. If confusion is their aim, boy are they doing a fine job.
• Athens Welcomes Germany’s Response To ‘War Debt’ Demand (Guardian)
The row between Germany and Greece over war reparations has intensified after Athens hit back at Berlin’s description of its demand for a staggering €278.7bn (£202bn) in compensation as “stupid”. Insisting that Greece’s leftist-led administration had “a historical duty” to seek compensation for atrocities committed by Nazi forces between 1941-44, the politician in charge of the campaign said on Wednesday that he welcomed the German reaction. “The response may have been ‘this is foolish, you have plucked this number out of the blue’ but for me it was also very positive,” Costas Isychos, the deputy defence minister, told the Guardian. “There was an admission that despite disagreeing with the figure a debt is owed, and that is very good.”
On Tuesday, Germany’s economy minister and vice-chancellor, Sigmar Gabriel, not only branded the demand boneheaded, but suggested it had been motivated by Athens’ interest in squeezing a bit of leeway out of its eurozone partners to overcome its debt crisis. “And this leeway has nothing to do with the second world war or reparations,” said Gabriel, who leads the Social Democrats, the junior partner in the ruling coalition of the chancellor, Angela Merkel. Berlin has provided the bulk of the €240bn bailout that has kept the insolvent Greek economy afloat since 2010. But while the claim exceeds that amount, Isychos vehemently denied it was linked to the country’s economic plight, or the tough austerity measures Berlin has pressed for in exchange for international aid.
He implied the figure could in fact be much bigger when interest payments were also taken into account. “We will push for this as much as we can,” he said, describing the war reparations as “an open wound” for a country that had suffered one of the most brutal occupations under Hitler. “We have to close this wound. It is not related, whatsoever, to Greek debt or any policies connected to the memoranda,” he said, referring to the deeply unpopular bailout accords. “They are two very different issues. The left has always been sensitive to this issue.” The timing of the demand was coincidental, he said. “It is a very good coincidence for the Greek people but a very bad coincidence for those who want to connect it to the memoranda.”
Thomas, you’re not an authority on every topic.
• Piketty Says EU Politics Risks Driving Greece Out of Euro (Bloomberg)
Thomas Piketty, the French economist whose 2013 book on wealth inequality became an international bestseller, said he sees a risk of politicians in the European Union forcing Greece out of the euro area. “The attitude of a number of people in Brussels and Berlin looks like: push Greece out,” Piketty said in an interview with Bloomberg Television in Paris. Greece, Europe’s most-indebted state, is negotiating with euro-area countries and the IMF on the terms of its €240 billion rescue. The standoff, which has left Greece dependent upon ECB loans, risks leading to a default within weeks and its potential exit from the euro area.
German Chancellor Angela Merkel has repeatedly said that she wants Greece to stay in the euro and along with French President Francois Hollande last week expressed concern that time is running short. “There’s no time to lose,” Merkel said at a news conference with Hollande after they met in Berlin March 31. Hollande said too much time has been lost already, adding that he would like an agreement and “the sooner, the better.” Piketty said that lack of institutional coherence has damaged the euro area. Germany and France aren’t just mistreating Greece, “they’re mistreating themselves,” Piketty said. “We need more political integration, more democratic institutions. You can’t just do it with summits of finance ministers.”
Separately, the 43-year-old Piketty said that the main cost of a British exit from the EU would be to Britain and not its continental partners. Prime Minister David Cameron has promised to hold a referendum on the U.K.’s membership in the European Union if he’s re-elected next month. “Many people on the continent are a little bit tired with Britain’s attitude and will say ‘if they leave, it’s too bad for them,’” Piketty said. “The main cost will be incurred by Britain, not by the continent.”
War reparations, odious debt, they’ve been studying the books.
• ‘Odious Debt’ Is Finally Here: Greece To Write Off ‘Illegal’ Debt (Zero Hedge)
It was back in June 2011 when we first hinted that the time of Odious Debt is rapidly approaching. As a reminder, this is what Odious Debt is: In international law, odious debt is a legal theory which holds that the national debt incurred by a regime for purposes that do not serve the best interests of the nation, should not be enforceable. Such debts are thus considered by this doctrine to be personal debts of the regime that incurred them and not debts of the state. In some respects, the concept is analogous to the invalidity of contracts signed under coercion.
Today, nearly four years later, Odious Debt is now a reality in Greece, where Zoi Konstantopoulou, the head of the Greek parliament and a SYRIZA member, released two videos which have promptly gone viral, designed to promote the investigative parliamentary committee to look into the circumstances surrounding the signing of the country’s two bailout agreements that led Greece to implement its austerity measures. That this concept emerges now is perhaps confusing: it was just a few days ago when the Greek FinMin promised to the IMF that Greece would honor all of its debt commitments. Should Greece decide that some (or all) of its debt was illegal and unenforceable, this will clearly not happen.
Then again, this is the same political party that made pre-election promises whose execution would require about €30 billion according to German calculation, so the relentless flipflopping is not very surprising. On the other hand, while perhaps Greece was hoping for a more favorable outcome from Tsipras’ meeting with Putin today, the resultant outcome which led to virtually nothing (that was revealed at least) may embolden the Greek nation to push on with this track which is certain to infuriate the Troika. According to Greek Reporter, Konstantopoulou has said that the newly established “Debt Truth Committee,” will investigate how much of the debt is “illegal” with a view to writing it off.
Proving that this is more than just a populist stunt, during a vote that took place early yesterday, out of the 300 Greek MPs, 156 voted in favor of establishing the public debt auditing committee. “The committee will examine how Greece entered into the bailout agreements with its international lenders, as well as any other matter related to the memoranda’ implementation,” SYRIZA Parliamentary Secretary Christos Mantas had explained earlier. “We are fulfilling our commitment and the social demand to explore the causes and responsibilities of an unprecedented crisis that devastated the vast majority of society,” Mantas added.
And he’s damn right too.
• Tsipras Asks Europe To End Russia Sanctions, Cites ‘New Cold War’ (Guardian)
The Greek prime minister has called on Europe to end its sanctions against Russia during a visit to Moscow, warning that they could lead to a “new cold war”. Alexis Tsipras also rebuked other European leaders who had criticised his two-day visit to the Russian capital, after meeting Vladimir Putin in the Kremlin on Wednesday. Brussels is nervous that the new Greek government is breaking European unity over Russia’s actions in Ukraine, and Tsipras’s words in the Kremlin would have been music to Putin’s ears. However, fears that the Russian president might seek to build closer economic ties with Greece by offering a loan – a possibility floated in a Russian newspaper report this week – or by lifting a ban on Greek food imports, proved unfounded.
Tsipras, speaking at a press conference alongside Putin after their talks, expressed his opposition to the sanctions imposed by the EU and US on Russia over its intervention in Ukraine. “The counter-sanctions imposed by Russia have inflicted pain on the Greek economy. But we know the retaliations were a response to sanctions [against Russia], the logic of which we do not entirely share,” he said. “We openly disapproved of the sanctions. It is not an efficient solution. We think it could bring about a new cold war between Russia and the west. “To get out of this profound crisis we need to leave behind this vicious cycle of sanctions,” he said. Tsipras also emphasised that Greece is a “sovereign country with an irrevocable right to conduct a multi-faceted foreign policy”. Putin said he welcomed the Greek position, while Tsipras said it was “springtime for Russian-Greek relations”.
Love it.
• Turkish Stream Will Make Greece Europe’s Energy Hub – Putin (RT)
Greek PM Alexis Tsipras said he is hopeful Greece will play a big role in the Turkish Stream pipeline project, making it a hub between Turkey and the European gas market, after meeting Russian President Vladimir Putin Wednesday. “The new route will provide for European fuel needs, and would allow Greece to become one of the main power distribution centers on the continent, and could help attract significant investment into the Greek economy,” Putin said at a joint news conference with Tsipras. The new Turkish Stream pipeline will travel to the Turkish town of Ipsila close to the Greek border. The possibility is that 47 billion cubic meters (bcm) of gas can be delivered to Central Europe, the Balkans, and possibly Italy via the new pipeline.
The Greek PM sees the project as a way to boost jobs and investment in the Greek economy, which has been in recession for the last six years. “Our pipelines will receive gas from the Turkish border, and will provide energy security for both Greece and the European market,” Tsipras said. Greece is interested in attracting investment, from Russia and others, to construct the pipeline on Greek territory. Russia is considering giving Greece funds based on future profits that Athens would earn from shipping gas to Europe, Reuters reported on Wednesday, citing a Greek government official. The source added that Greece would pay back the prepayment after the pipeline started operating. Lower prices for Russian gas would also be linked to the project, the source said.
And the follow-up. We can’t give you money. Oh, wait…
• Russia Weighs Pre-Payment To Greece For Turkish Stream Pipeline (Reuters)
Russia is considering soon giving Greece funds based on future profits Athens would earn from shipping Russian gas to Europe as part of an extension of the Turkish Stream gas pipeline project, a Greek government official said. Plans for the pipeline taking Russian gas from Turkey to Europe via Greece would be linked to lower Russian gas prices, the official added. Greece would pay back the Russian prepayment after the pipeline started operating, the official said.
Thought provoking?!
• Khazin: Global Recession To Exceed The Great Depression By 2.5 Times (FRU)
The trend of centralization of the global economy will remain in the past. It will be replaced by regionalization. In today’s economic instability, only systems with 0.5 to 1 billion people can be effective, says the economist, member of the Izborsky Club, Mikhail Khazin. According to him, the formation of such systems will begin after the onset of the crisis, and the first prototypes have already appeared. Khazin noted that the world economy has developed in the framework of expanding markets over the last 400 years. As a result, today it is in a very unstable state, since household spending is several times higher than income: by $3.3 trillion in the US and $2.5 trillion in the EU. The purchasing power of the average salary in the U.S. is at the level of 1958, all the rest – is induced demand due to the growth of private and public debt, said Khazin.
“The global economy harbors a potential recession, exceeding the scale of the Great Depression by 2.5 times,” said Khazin. Globalist tendencies are replaced by regionalization trends, smaller systems become more cost-effective. “A norm is an economic system with 0.5 to 1 billion people. This means that the world economy should fall into 5-6 relatively independent units as a result of the crisis. An additional factor is that the dollar ceased to be the investment asset for the world economy. The value added generated by the economy today, is insufficient to ensure the normal investment process,” explains Khazin. In this situation, the trend will be the creation of regional emission centers. This issue is raised in Russia: President Vladimir Putin at the regular meeting of the leaders of the Eurasian Economic Union talked about the necessity of creating a monetary union.
The prototype of the regional economic zone is now the EEU. “We see that, despite all the talk that it is nonsense, in spite of all the opposition to the IMF, the trends are there. Moreover, not only in the EEU. China is creating its own periphery, the EU has long been engaged in it, Brazil is active in Latin America and South Africa. Processes are caused by objective circumstances and they will continue”, – said Khazin, adding that the EEU is only a “fetus”, from a geo-economic point of view, it should be joined by Turkey, Vietnam, United Korea and Japan. “They have nowhere else to go, because Vietnam, and Korea, and Japan, and Turkey are export countries. If Turkey’s main partner is the EU, for the rest – it’s the US. Once the demand in these regions falls, and they begin to close their borders, these countries will be left “hanging”.
“.. the deaths follow a national pattern: suspects were mostly people of color, mentally ill, or both.”
• US Cops Killed More People In One Month Than The UK Did In 100 Years (TFTP)
A new report by ThinkProgress.com unearthed disturbing figures when it came to the number of police-related deaths that occurred in America in the month of March alone. Just last month, in the 31 days of March, police in the United States killed more people than the UK did in the entire 20th century. In fact, it was twice as many; police in the UK only killed 52 people during that 100 year period. According to the report by ThinkProgess, in March alone, 111 people died during police encounters — 36 more than the previous month. As in the past, numerous incidents were spurred by violent threats from suspects, and two officers were shot in Ferguson during a peaceful protest. However, the deaths follow a national pattern: suspects were mostly people of color, mentally ill, or both.
This high number in March increased the average for police killings from every 8.5 hours, to nearly 1 police killing every 6.5 hours in the US. These numbers are staggering and show a serious problem of the violent tendencies within the US policing apparatus. Let’s look at our immediate neighbors to the north, Canada. The total number of citizens killed by law enforcement officers in the year 2014, was 14; that is 78 times fewer people than the US. From 2010 through 2014, there were four fatal police shootings in England, which has a population of about 52 million. By contrast, Albuquerque, N.M., with a population 1% the size of England’s, had 26 fatal police shootings in that same time period. China, whose population is 4 and 1/2 times the size of the United States, recorded 12 killings by law enforcement officers in 2014. On average, US police kill people at a rate 70 times higher than any of the other first world countries as they “protect and serve” the American citizens.
Clueless ‘R’ Us.
• New Zealand’s Top Economic Risk Is Australia: PM Key (CNBC)
While the drivers for New Zealand’s economy remain largely intact, a sharper-than-anticipated slowdown in neighboring Australia poses a threat to growth, Prime Minister John Key warned. “The big drivers of economic growth are net migration being strong, the Christchurch rebuild adding a lot of stimulus and huge investment in Auckland happening in infrastructure, and generally, putting dairy to one side, commodity prices being quite strong, it’s all going to help us,” Key told CNBC. “But if you say what can trip us up, unquestionably Australia is a big factor, because [it’s] a big part of our economy,” he added. Other risks stem from a continued loss of momentum in China’s economy as well as the domestic housing market, he said.
Australia – New Zealand’s largest trading partner – is a critical destination for Kiwi producers and manufacturers. Last year, New Zealand exported almost $9 billion of goods to Australia, creating 18 cents of every dollar of export revenue New Zealand received, according to the New Zealand Institute of Economic Research. Its top bilateral exports are oil, gold, wine and cheese. As such, the strengthening of the New Zealand dollar against the Australian dollar has become a headache for the country’s export and tourism sector.
“[Australia is] our largest source of tourists by quite some margin. It won’t stop them coming, the question is will they just spend a little less when they’re here.If they bring $5,000 to spend over the weekend, they’d probably still bring $5,000 but if the exchange rate is a little worse, they will spend less in local currency,” he said. “So we do worry about that with Australia.” The Kiwi dollar, as it is known, has strengthened 6% against the Aussie over the past year. New Zealand’s economy has been the envy of the developed world with steady growth, falling unemployment and low inflation. The economy expanded 3.3% last year, the fastest since 2007, underpinned by its tourism sector, construction activity and net immigration – which has supported jobs growth and spending.
No, this is not a comedy sketch. This is New Zealand’s own douchebag.
• House Prices Represent Success In Life (NZ Herald)
It is hard to know what I am more excited about this week, our dollar or our houses. Records all over the place. But both signs of just how well we are doing. Barfoot & Thompson, who sell the bulk of Auckland’s homes, saw an average price of 776 grand. And in one of those lines with an appropriate amount of flourish, they said that “never had there been a March to compare” to the month just past. I, like so many, am obsessed with housing, but unlike so many I have loved every bit of it. With the possible exception that young people are being locked out. My wife told me of yet another person she knows, a young person, who just can’t afford to buy here. So she and her partner have worked out it’s cheaper back in the home town of Palmerston North, so they’re off. They won’t be alone.
Buying your first home where the average price is over $700,000 is a sobering experience and one made worse by the control freaks at the Reserve Bank who saw LVRs as some sort of pricing solution. What fools they are being shown to be as investor after investor steps into the young couples’ place at the auction and snaps up the fresh pickings. Mind you, having said that, a family friend the other day secured their first home for $335,000. No it’s not in Remuera or Parnell, and no, it doesn’t have a lot of indoor-outdoor flow leading to any pool. But then again nor did my first house. But they are proof you can still do it if you want to … just.
What the house prices represent is not dissimilar to what the dollar represents: success. Success is the outworking of demand. People want what you’ve got, they want the houses because they have decided to live here, or they feel confident enough to borrow more money because their jobs are going well and they want a bigger or better place, or they want a second home. They want our dollar because they see the fundamentals are sound. They see the growth and investment, they see the expansion. They look to the big country to the left and see all its problems. And they compare their lot with our lot, and they like the look of our lot, so they buy … they buy the currency, they buy the housing.
Home › Forums › Debt Rattle April 9 2015