Charlie Hebdo Archives - The Automatic Earth

The financial debacle that has befallen Russia as the price of Brent crude dropped 50% in the last four months has overshadowed the one that potentially awaits the U.S. shale industry in 2015. It’s time to heed it, because Saudi Arabia and other major Middle Eastern oil producers are unlikely to blink and cut output, and the price is now approaching a level where U.S. production will begin shutting down. Representatives of the leading OPEC countries have been saying for weeks they would not pump less oil no matter how low its price goes. Saudi Oil Minister Ali Al-Naimi has said even $20 per barrel wouldn’t trigger a change of heart. Initial reactions in the U.S. were confident: U.S. oil producers were resilient enough; they would keep producing even at very low sale prices because the marginal cost of pumping from existing wells was even lower; OPEC would lose because its members’ social safety nets depends on the oil price; and anyway, OPEC was dead.

That optimism was reminiscent of the cavalier Russian reaction at the beginning of the price slide: In October, Russian President Vladimir Putin said “none of the serious players” was interested in an oil price below $80. This complacency has taken Russia to the brink: On Friday, Fitch downgraded its credit rating to a notch above junk, and it’ll probably go lower as the ruble continues to devalue in line with the oil slump. It’s generally a bad idea to act cocky in a price war. By definition, everybody is going to get hurt, and any victory can only be relative. The winner is he who can take the most pain. My tentative bet so far is on the Saudis – and, though it might seem counterintuitive, the Russians. For now, the only sign that U.S. crude oil production may shrink is the falling number of operational oil rigs in the U.S. It was down to 1750 last week, 61 less than the week before and four less than a year ago.

Oil output, however, is still at a record level. In the week that ended on Jan. 2, when the number of rigs also dropped, it reached 9.13 million barrels a day, more than ever before. Oil companies are only stopping production at their worst wells, which only produce a few barrels a day – at current prices, those wells aren’t worth the lease payments on the equipment. All this will eventually have an impact. According to a fresh analysis by Wood Mackenzie, “a Brent price of $40 a barrel or below would see producers shutting-in production at a level where there is a significant reduction in global oil supply. At $40 Brent, 1.5 million barrels per day is cash negative with the largest contribution coming from several oil sands projects in Canada, followed by the U.S.A. and then Colombia.”

That doesn’t mean that once Brent hits $40 – and that is the level Goldman Sachs now expects, after giving up on its forecast that OPEC would blink – shale production will automatically drop by 1.5 million barrels per day. Many U.S. frackers will keep pumping at a loss because they have debts to service: about $200 billion in total debt, comparable to the financing needs of Russia’s state energy companies. The problem for U.S. frackers is that it’s impossible to refinance those debts if you’re bleeding cash. At some point, if prices stay low, the most leveraged of the companies will go belly up, and the more successful ones won’t be able to take them over because they will have neither the cash nor the investor confidence that would help them secure debt financing.

Best name ever for an analyst firm: Fat Prophets.

• Oil Extends Drop Below $45 as US Supplies Seen Speeding Collapse (Bloomberg)

Oil extended losses to trade below $45 a barrel since amid speculation that U.S. crude stockpiles will increase, exacerbating a global supply glut that’s driven prices to the lowest in more than 5 1/2 years. Futures fell as much as 2.6% in New York, declining for a third day. Crude inventories probably gained by 1.75 million barrels last week, a Bloomberg News survey shows before government data tomorrow. The United Arab Emirates, a member of OPEC, will stand by its plan to expand output capacity even with “unstable oil prices,” according to Energy Minister Suhail Al Mazrouei.

Oil slumped almost 50% last year, the most since the 2008 financial crisis, as the U.S. pumped at the fastest rate in more than three decades and OPEC resisted calls to cut production. Goldman Sachs said crude needs to drop to $40 a barrel to “re-balance” the market, while SocGen also reduced its price forecasts. “There’s adequate supply,” David Lennox, a resource analyst at Fat Prophets in Sydney, said by phone today. “It’s really going to take someone from the supply side to step up and cut, and the only organization capable of doing something substantial is OPEC. I can’t see the U.S. reducing output.”

“Energy is $7.7 billion/$9.1 billion = 84% of the decline in the dollar value of the earnings decline we have seen in the past five weeks. See why the market is so focused on oil for the moment?”

• Here’s Why Oil Is Such A Problem For Corporate Earnings (CNBC)

Oil and natural gas are sliding again to multi-year lows, and once again it is having an influence on stocks.What’s important is to understand the outsized influence this near-daily drop in oil (six months and running!) is having on corporate earnings. Even though the energy sector is only roughly 8% of the market capitalization of the S&P 500, the decline in earnings in that sector has been so dramatic that it is affecting earnings estimate for the entire S&P 500. On December 1st, analyst anticipated that Energy earnings for Q1 2015 would decline 13.8% compared to Q1 2014, according to S&P Capital IQ. As of Monday, analysts expect Energy earnings for Q1 2015 to decline 41.0%. Think about that: in 5 weeks, earnings expectations for the entire Energy group have gone from down 13.8% to down 41.0%.

That is the biggest drop in earnings for any sector since the bank stocks collapsed in Q4 2008. What does this mean for earnings for the overall S&P 500? On December 1, analysts were expecting Q1 earnings for the entire S&P 500 to be up 8.6%. As of Monday, they’re expecting earnings to be up only 4.6%. From up 8.6% to up 4.6%. That is a drop of 4 percentage points in just 5 weeks. That is a lot, and most of it is due to the decline in Energy. Here’s another way to look at it: Q1 earnings for the Energy sector were cut by $7.7 billion from December 1 through today. The S&P 500 as a whole saw a cut of $9.1 billion during the same period. So Energy is $7.7 billion/$9.1 billion = 84% of the decline in the dollar value of the earnings decline we have seen in the past five weeks. See why the market is so focused on oil for the moment? If oil keeps dropping, estimates will be lowered even more.

This is turning into a game of whack-a-mole.

• Oil Crash May Whack Earnings Of Top US Home Builders In Texas (MarketWatch)

Crashing oil prices will hurt housing demand in key Texas markets this year, shaving profits for national builders, according to a Monday analyst note. As energy companies cut spending on jobs and exploration-and-production projects because of tumbling oil, U.S.home builders will see housing demand drop, RBC Capital Markets analysts wrote. The slump will lead builders to start 5% fewer single-family homes this year in the Lone Star State, according to RBC analysts, who lowered earnings estimates for the country’s top home-construction companies. “We believe that this assumption fairly balances the effect of a decline in oil production on state employment levels with our view that improved productivity should limit vast swings in production-related employment,” according to RBC analysts. Under one scenario, Texas housing starts could fall by as much as 10%, RBC added.

“We expect that layoffs and the ripple effect on support services will have a decidedly negative impact on housing demand in Texas,” RBC analysts wrote. While Texas is just one state, here’s why real estate trends there could hit national builders’ earnings. Texas markets, led by Houston, Dallas and Austin, make up about 16% of total U.S. home-construction plans among builders. That’s true for both single-family and multi-family home-building permits, data show. When it comes to real estate, oil’s impact won’t be limited this year to new-home building. Dropping energy prices are also expected to hit home-price appreciation. The shock from dropping oil may take some time to show up in companies’ earnings. Later this week, KB Home and Lennar, two of the country’s largest home builders, could both report fourth-quarter earnings that at least meet Wall Street consensus estimates. But forward-looking investors should listen specifically to executives’ comments about how the energy crash is hitting housing demand in Texas.

Or you could just read my The Price Of Oil Exposes The True State Of The Economy from November 27.

• Falling Oil Reveals The Truth About The Market (MarketWatch)

It seems like every day some pundit is on air arguing that falling oil is a net long-term positive for the U.S. economy. The cheaper energy gets, the more consumers have to spend elsewhere, serving as a tax cut for the average American. There is a lot of logic to that, assuming that oil’s price movement is not indicative of a major breakdown in economic and growth expectations. What’s not to love about cheap oil? The problem with this argument, of course, is that it assumes follow through to end users. If oil gets cheaper but is not fully reflected in the price of goods, the consumer does not benefit, or at least only partially does and less so than one might otherwise think. I believe this is a nuance not fully understood by those making the bull argument. Falling oil may actually be a precursor to higher volatility as investors begin to question speed’s message.

Given the extent of which oil has fallen, one would think that consumer-sensitive stocks would be skyrocketing. Cheaper oil should mean more demand for stuff sold around the country. Indeed, retail stocks have been strong, but the magnitude of their outperformance is no where near as significant as it should be. Take a look below at the price ratio of the SPDR S&P Retail Index relative to the S&P 500. As at reminder, a rising price ratio means the numerator/XRT is outperforming (up more/down less) the denominator/SPY. Note that the ratio is still below it’s 2013 peak, and that while the trend is up, the speed is not an inverse crash of oil.

Maybe this is because wage growth is faltering and that is offsetting oil’s decline, or maybe it’s because oil is a signal of some kind of economic slowdown ahead. Regardless, oil is revealing the truth about the current state of markets, as junk debt falters, long-duration Treasurys counter Fed hope for reflation, and defensive sectors actually act as defense as opposed to offense starting 2015. Our alternative inflation rotation and equity-beta rotation mutual funds and separate accounts are positioned in the near term in their respective defensive positions given our quantitative models. If oil’s crash isn’t enough to cause consumer stocks to skyrocket, one needs to indeed question the narrative against inter-market movement. I welcome volatility, which is not fear, but rather doubt about current prices relative to changing growth and inflation expectations. Truth be told.

They have no more choice than the Saudis, or anyone really. With the possible exception of the US.

• U.A.E. Sticks With Oil Output Boost Even as Prices Drop (Bloomberg)

The United Arab Emirates will stick with a plan to increase oil-production capacity to 3.5 million barrels a day in 2017 even as an oversupply pushed prices to the lowest in more than five years. “In this time of unstable oil prices, we are showing in Abu Dhabi and across the country that we remain dedicated to reach our long-term production goals,” Energy Minister Suhail Al Mazrouei said in a presentation in Abu Dhabi yesterday. “Our investments remain there.”

Oil fell to the lowest level since March 2009 yesterday after Goldman Sachs and Societe Generale cut their price forecasts. Venezuela called on OPEC producers to work together to lift prices back toward $100 a barrel. The U.A.E., the fifth-largest OPEC member, produced 2.7 million barrels a day last month and has a current capacity of 3 million barrels a day, according to data compiled by Bloomberg. Oil slumped almost 50% last year, the most since the 2008 financial crisis, amid a supply surplus estimated by Qatar at 2 million barrels a day. OPEC is battling a U.S. shale boom by resisting production cuts, signaling it’s prepared to let prices fall to a level that slows American output, which has surged to a three-decade high.

“.. we’ve added 520,000 jobs in manufacturing in the last three years .. But that compares to 2.5 million jobs lost between 2007 and 2009.”

• US Manufacturing Comeback Myth ‘Tortures The Data’ (RT)

The ‘rosy scenario’ of so-called recovery in US manufacturing is a hyped media myth, and is more fiction than reality. A new study says it offers a dangerous sense of complacency to business and the public, as America faces a $458 billion trade deficit. “A lot of people are desperate for positive economic news, so articles suggesting that there’s a revival of manufacturing get a lot of traction,” Adams Nager and Robert Atkinson, from the Information Technology & Innovation Foundation, said in Monday’s report.The Washington DC-based think tank is non-partisan and not for profit, according to the group’s website. The authors claim that many reports “torture the data” by masking the decline in manufacturing output between 2007 and 2013 in order to claim a miraculous ‘recovery’.

Though employment and output are both growing, they are not at a fast enough rate to declare a US manufacturing renaissance, the report says. “Much of the growth since the recession’s lows was just a cyclical recovery instead of real structural growth that will improve long-term conditions, and there is a strong possibility that manufacturing will once again decline once domestic demand recovers,” it says. American manufacturing has lost over a million jobs net and over 15,000 manufacturers since the beginning the recession, which took hold in 2008. Based on these numbers, the US only added one new manufacturing job for every five that were lost. “It’s true that we’ve had four straight years of growth, and that we’ve added 520,000 jobs in manufacturing in the last three years,” says Nager.

But that compares to 2.5 million jobs lost between 2007 and 2009. These figures can be accounted for due to the big turnaround in the automobile industry. The study focuses on hard numbers instead of anecdotal evidence, outlining five main myths of the US manufacturing narrative, including rising Chinese wages and the gas shale revolution, “We have stretched six cool examples [of the rebirth of manufacturing] into a whole news trend,” the authors of the report wrote. By the end of 2013, real manufacturing value added was still 3.2% below 2007 levels, even though GDP grew 5.6%. The study argues that the best measure of the health of US manufacturing is real value added. “In short, it is unwise to assume that US manufacturing will continue to rebound without significant changes in national policy,” the authors conclude in warning.

Chapter 826 in the narrative for rate hikes.

• US Wages Will Rise This Year Toward Yellen’s View of Normal (Bloomberg)

The bigger wage gains that have so far eluded American workers probably will begin to materialize this year as the job market tightens, according to economists polled by Bloomberg. Hourly earnings for employees on company payrolls will advance 2% to 3% on average, according to 61 of 69 economists surveyed Jan. 5-7. They climbed 1.7% in the year through December. While still short of the 3% to 4% increases Federal Reserve Chair Janet Yellen has said she considers “normal” with 2% inflation, it would be another sign that the labor market is making headway. A jobless rate that’s quickly approaching the range policy makers say is consistent with full employment will mean employers will need to pay up to attract and keep talent.

“By mid-year we should start to see more meaningful wage gains,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, whose firm projects wage growth just below 3% this year. “We’re absorbing a lot of this slack quickly.” Wages were one disappointing element in an otherwise brightening jobs market last year. Employers added an average 246,000 workers a month to payrolls, the best performance since 1999. The jobless rate sank to 5.6% in December, the lowest since June 2008 and just shy of the 5.2% to 5.5% that the Fed has defined as full employment.

But .. But .. Cheap gas gave them all that extra cash!

• UK Retailers Have Worst December Since 2008 (Guardian)

Britain’s retailers have suffered their toughest Christmas since the financial crisis struck, according to industry figures that showed sharp discounting continuing to take its toll. Capping a tough year on the high street, the value of December sales dropped by 0.4% on a year earlier in like-for-like terms, according to the British Retail Consortium (BRC) – the worst December performance since 2008, when sales had tumbled 3.3% in the aftermath of Lehman Brothers collapse. However, the trade group noted that food sales picked up in December, rising for the first time since April. There was also some support for non-food items in end-of-season sales. The figures came after mixed trading reports so far for the industry’s most crucial month. Marks & Spencer has admitted to a dismal Christmas, while Next and John Lewis saw strong sales. Debenhams and Morrisons update investors on Tuesday.

The BRC director general, Helen Dickinson, talked about a “positive performance” overall in December. “It’s clear that targeted discounting has worked for the UK’s retailers – prices have been cut just enough to encourage customers through the doors, but not so much that sales growth has been completely choked off,” she said. The BRC-KPMG retail sales monitor showed there was a 1% rise in total sales, which are not adjusted to strip out the effect of changes in floor space as shops open and close. That was also the weakest December performance since 2008. David McCorquodale, head of retail at the report’s co-authors, KPMG, highlighted the growing role discounting has played in the runup to Christmas. He said the US-inspired Black Friday of flash sales was followed by a “challenging lull in spending” as consumers waited for future bargains. “This difficult stop/start sales environment has been undoubtedly challenging, but most retailers have managed to achieve a flat, but respectable, sales performance this Christmas. Time will tell on margins,” he said.

Back in character?

• ECB Threatens to Choke Off Funding to Greece Prior to Election (Bloomberg)

The European Central Bank is threatening to choke off funding to Greece’s lenders in the hope it won’t actually need to. Parliamentary elections on Jan. 25 hinge on whether Greek voters are willing to accept a strings-attached successor to the country’s international bailout package. Under President Mario Draghi, the Frankfurt-based ECB has made its position clear: No program means no guarantee of cash from us. Draghi is reprising an ECB tactic honed in the Irish and Cypriot stages of Europe’s debt crisis, where the prospect of vanishing central-bank funds helped prod politicians into action. Amid anti-austerity promises by the Syriza party, which leads in polls, the ECB is signaling a willingness to withdraw 30 billion euros ($35 billion) of finance even if it tips Greece into a crisis that ultimately sees it leave the single currency.

“While these things might be threatened, bandied around, it would be remarkable if such a step were actually taken,” said James Nixon, chief European economist at Oxford Economics Ltd. in London. “The negotiation starts off with the threat of mutually assured destruction. But to actually withdraw funding from Greek banks is the sort of thing that would mean Greece is well on the road to exiting the euro.” Since 2010, the ECB has accepted Greece’s junk-rated government debt and state-backed securities as collateral in its refinancing operations as long as the administration complies with austerity measures and reform pledges in its international aid agreements.

This could become an even bigger threat to the EU than the Greek elections.

• RBS Bets ECB Blitz To Reach €4.5 Trillion And Reignite Asset Boom (AEP)

The European Central Bank will be forced to boost its balance sheet to €4.5 trillion in a colossal monetary blitz to prevent deflation engulfing the eurozone, economists at RBS have warned. The figure is the most aggressive forecast issued so far by any major bank and implies quantitative easing (QE) of at least €2.3 trillion, two or even three times the level suggested so far by ECB officials. It comes amid a blizzard of leaks from Frankfurt over the size and shape of QE as the ECB prepares for a pivotal decision next week. Most analysts say sovereign bond purchases are almost certain after the currency bloc slumped into deflation in December, though legal and political barriers complicate the picture.

The RBS report, entitled “Deflation Motel: you can check in, but you can’t check out”, said the buying spree will drive 10-year yields to near zero or even lower in the core countries. The German Bund yield will continue to smash historic records, dropping to 0.13% by the end of this quarter, pulling Italian yields down to 1%. “It is very easy to make a case over coming months for negative 10-year Bund yields. We are increasingly asking ourselves the question, who on Earth is the ECB going to be buying them from,” said Andrew Roberts, the bank’s credit chief. “It is Japanification no longer. It goes even further.” Germany plans a budget surplus this year that will cause Bund issuance to dry up. The report said Germany’s debt agency will cancel a net €18bn of bonds next year with maturities from five to 30 years.

This scarcity of new debt will continue since a constitutional amendment is coming into force that makes a balanced budget obligatory. The Bundesbank may have to find other ways of conducting QE, opting instead to buy the debt of the German Lander or the state development bank KfW. The report said the first blast of QE to be unveiled next week – though not necessarily enacted immediately – will fail to stop the slide towards debt-deflation as powerful deflationary pressures from Asia and the global effects of China’s excess capacity overwhelm Europe’s defences.

“Quantitative easing “would give the ECB the function of lender of last resort toward individual states” in the euro area ..” Eh, I don’t think that’s legal.

• Ifo’s Sinn Says ECB Using Deflation Risk as Excuse for QE (Bloomberg)

European Central Bank policy makers are using the specter of deflation as an excuse to help the euro area’s weaker nations, said Hans-Werner Sinn, head of Germany’s Ifo economic institute. The argument by central bankers that the ECB needs to act because inflation is below its goal of just under 2% isn’t covered by the treaty governing the currency union, Sinn said in a phone interview. Consumer prices in the euro area posted an annual decline in December for the first time in more than five years, though core inflation rose. “The risk of deflation is just a pretext for quantitative easing, for hammering out a bailout program for southern Europe,” Sinn said. The decline in inflation is due to lower crude prices and “there’s no need for ECB action,” he said.

Buying investment-grade government bonds is among the options that staff presented to ECB policy makers last week before a meeting on Jan. 22 at which they will consider further stimulus, according to a euro-area central bank official. The bank is already buying asset-backed securities and covered bonds, part of unprecedented measures announced by ECB President Mario Draghi since June that include negative deposit rates and four-year loans to banks. To ward off deflation, the ECB intends to expand its balance sheet toward €3 trillion ($3.55 trillion) from €2.2 trillion now. Complicating Draghi’s task are Greek elections on Jan. 25 that polls suggest may be won by the Syriza alliance, which wants to restructure the nation’s debt.

Quantitative easing “would give the ECB the function of lender of last resort toward individual states” in the euro area, said Sinn, who advocates an international conference to write down Greek debt. While Bundesbank head Jens Weidmann, lawmakers in German Chancellor Angela Merkel’s coalition and economists such as Sinn criticize the ECB’s expanding role, Merkel hasn’t opposed Draghi publicly. The chancellor on Jan. 7 backed keeping Greece in the euro area as long as it fulfills its austerity commitments, saying she has “always” sought to keep the euro area from splintering.

Them’s your fighting words?! The Greek government seems reluctant to go after SYRIZA too hard, lest it costs them votes. The EU will have to throw the punches.

• Greece Could Exit the Euro by Accident, Warns Finance Minister (Bloomberg)

Greece could stumble out of the euro by accident if a new government fails to reach an agreement with international creditors soon after this month’s election, Finance Minister Gikas Hardouvelis said. The main challenge facing whichever government emerges from the Jan. 25 vote will be to close the stalled review of Greek progress in meeting the terms of its financial rescue by the euro area and International Monetary Fund, he said. If that government is led by Syriza, it would be “prudent” to reverse its stance and negotiate an extension to the bailout before the aid supporting Greece expires on Feb. 28, Hardouvelis said. The prospect of “leaving the euro area is not necessarily a bluff,” Hardouvelis, 59, said in a Bloomberg Television interview in Athens yesterday. “An accident could happen, and the whole idea is to avoid it.”

Opinion polls show the opposition Syriza party of Alexis Tsipras with a slim though consistent lead over Prime Minister Antonis Samaras’s New Democracy. Tsipras has said he’ll roll back the austerity measures tied to the bailout and seek a write down on some Greek debt, putting him on a collision course with the so-called troika of creditors including the European Central Bank, which have kept the country afloat with €240 billion ($284 billion) of loans pledged since 2010. Tsipras’s commitment to keep the country in the euro area hasn’t stopped New Democracy from stoking concerns during the campaign that a Syriza victory could force Greece out of the currency bloc. The yield on Greece’s benchmark 10-year bond, which breached the 10% mark for the first time in 15 months last week, fell the most since October yesterday, suggesting investor perceptions of Syriza may be shifting.

A bubble popped: “Local government budgets, especially in smaller cities, rely heavily on land sales, which in turn are dependent on strong property demand and prices.”

• Snake Eats Its Tail: China’s Small Cities Buy Up Their Own Land (FT)

Local governments in some of China’s smallest cities are snapping up an increasing amount of their own land at auctions, in a destructive cycle designed to prop up property prices but which is ravaging their own finances. Local government financing vehicles in at least one wealthy province, Jiangsu, which borders Shanghai, accounted for more land purchases than property developers did in 2013 — the last year for which data were available — according to research collated by Deutsche Bank. The data signal that already cash-strapped local governments are switching money from one pocket to another rather than booking real sales.

“China faces a severe fiscal challenge in 2015,” as local governments are forecast to record the first contraction in revenues since 1994 and total government revenues grow by the smallest percentage since 1981, Zhang Zhiwei, Deutsche Bank’s chief Asia economist, said on Monday. Although Deutsche Bank only reviewed data for four provinces, concerns about the health of property markets in third-tier cities across China are mounting. Local government budgets, especially in smaller cities, rely heavily on land sales, which in turn are dependent on strong property demand and prices.

A glut of new building combined with tougher credit markets has cooled interest in all but the largest cities, forcing local governments to step in and prop up their own land prices. and sales account for about a quarter of local government revenues on average across China but there is a “huge range”, said Debra Roane of Moody’s rating agency. “The issue is that land as a source of revenue is highly volatile.” LGFVs appeared about six years ago. Created to fund Beijing-mandated stimulus projects in the wake of the global financial crisis, they quickly exacerbated concerns over rising levels of local government debt. Use of the vehicles to prop up land prices would further stoke those concerns.

Big fight looming between local dealers and global car manufacturers.

• Chinese Car Dealers Find Days of ‘Printing Money’ Ending (Bloomberg)

China’s car dealers are in open revolt over industry practices that have slashed profits, threatening growth prospects for companies such as General Motors and Volkswagen in the world’s biggest auto market. Retailers are banding together under the state-backed China Automobile Dealers Association to demand lower sales targets and a bigger share of profit from vehicle sales. BMW’s agreement last week to pay 5.1 billion yuan ($820 million) to its dealers has emboldened distributors for VW and Toyota to demand similar concessions. The rising tensions means companies like VW and GM will face the choice of narrower profit margins or slower growth in China, a market that increasingly determines the fortunes of global automakers.

China vehicle sales in 2014 rose at half the pace of the preceding year, a “new normal” according to BMW after surging growth in past years triggered by government subsidies. “We can’t just keep on sucking it up,” said Richard Li, 40, a Toyota dealership owner who lost about 300,000 yuan last year after offering markdowns of as much as 16% on some models. “We have to negotiate with them and defend our rights. I will stop buying cars from them unless they step up their financial support.” Total vehicle sales are forecast to rise 7% this year, little changed from 2014, because of cooling growth and as more cities impose purchase restrictions to fight pollution, according to the China Association of Automobile Manufacturers.

Almost all retailers in the country are offering discounts and selling some models at losses to meet sales targets set by automakers, according to a survey by the China Auto Dealers Chamber of Commerce. Sales targets are crucial because dealers must meet them to qualify for year-end bonuses, which account for more than half of their annual profit from selling cars, according to the trade group. “When auto sales were booming in China, dealers would do anything the automakers asked them to do in order to gain their authorization to sell cars,” said Han Weiqi, an analyst with CSC. “With the expected slowdown in demand growth, manufacturers and dealers will have to find a way to make peace and secure their common interests.”

And this won’t help.

• Car Sales Growth Halves In China (BBC)

Growth in vehicle sales in the world’s largest car market, China, halved last year as the country’s economic expansion slowed. The China Association of Automobile Manufacturers (CAAM) said that sales rose by 6.9% in 2014, compared with growth of 13.9% a year earlier. The industry body also expects the market to expand by 7% this year, in line with China’s economic growth. Global carmakers have been grappling with slowing sales in China. On Sunday, Volkswagen, which is Europe’s biggest carmaker and the top selling global brand in China, said its sales in the country rose 12.4% to 3.67 million vehicles last year, compared with growth of 16% in 2013. Japanese carmaker Toyota missed its full-year sales target in China last year, selling 1.03 million cars compared with its aim of 1.1 million. However, despite the cooling of the car market in the world’s second-largest economy, its size is still much bigger than that of its closest competitor – the US. More than 23 million vehicles were sold in China last year, compared with an estimated 16.5 million in the US.

“The banking armature that is the dwelling place of all that debt is coming apart just as surely as the 20th century Muslim nation-states that were largely a creation of the West. The long war underway is a race to the bottom where the human project has to re-set the terms of a life above savagery.”

• The Clash of Civilizations (Jim Kunstler)

The big turnout in Paris was bracing but it also might reveal a sad fallacy of Western idealism: that good intentions will safeguard soft targets. The world war underway is not anything like the last two. Against neo-medieval barbarism, the West looks pretty squishy. All of the West is one big fat soft target. Recriminations are flying – as if this was something like a Dancing with the Stars contest — to the effect that the Charlie Hebdo massacre should not be labeled as “France’s 9/11.” It’s a matter of proportion, they say: only 12 dead versus 2977 dead, plus, don’t forget, the shock of two skyscrapers pancaking into the morning bustle of lower Manhattan. Interesting to see how the West tortures itself psychologically into a state of neurasthenic fecklessness. The automatic cries for “unity,” only beg the question: for or against what? The same cries went up in the USA after the Ferguson, Missouri, riots and the Eric Garner grand jury commotion, pretty much disconnected from the reality of ghetto estrangement, as if unity meant brunch together.

The demonstrators quickly reminded everybody that Homey don’t play brunch. If French politicians think that some magical overnight state of fraternité will congeal between the alienated Islamic masses and the rest of the citizenry, they’re liable to be disappointed. If anything, mutual distrust is only hardening on each side, and, anyway, I think that is not the kind of unity they have in mind. Over in Germany, they don’t have to travel very far psychologically to recall the awful efficiency of Hitler in purifying the social scene according to some dark cthonic principle that remains essentially unexplained even after all these years and ten thousand books on the subject. It happened that he picked on a group that wasn’t disturbing the peace in any way; if anything, the Jews were busier than anyone contributing to Western culture, knowledge, and science.

It is at least well-understood that there are seasons in history, but they seem to have a mysterious, implacable dynamism that mere humans can only hope to ride like great waves, hoping to not get crushed. In the background of the present disturbances are not only the rise of Islamic fundamentalism, but the imminent collapse of the machinery that boosted up the greater Islamic economy of our time: the oil engine. It was oil and oil alone that allowed the populations of the Islamic world to blossom in a forbidding desert in the late 20th century, and that orgy of wealth is coming to an end. So will the ability of that region to support the populations now occupying it. The violent outreach of Islamic wrath is actually a symptom of the region’s death throes, already obvious in the disintegration of one nation-state after another across North Africa and the Middle East. Saudi Arabia will only be one of the last dominoes to fall because it is so stoutly girded by desperate American support.

“.. the opaque and ponderously bureaucratic nature of Russian governance, which the westerners, who love transparency (if only in others) find so unnerving ..”

• Peculiarities of Russian National Character (Dmitry Orlov)

Recent events, such as the overthrow of the government in Ukraine, the secession of Crimea and its decision to join the Russian Federation, the subsequent military campaign against civilians in Eastern Ukraine, western sanctions against Russia, and, most recently, the attack on the ruble, have caused a certain phase transition to occur within Russian society, which, I believe, is very poorly, if at all, understood in the west. This lack of understanding puts Europe at a significant disadvantage in being able to negotiate an end to this crisis.

Whereas prior to these events the Russians were rather content to consider themselves “just another European country,” they have now remembered that they are a distinct civilization, with different civilizational roots (Byzantium rather than Rome)—one that has been subject to concerted western efforts to destroy it once or twice a century, be it by Sweden, Poland, France, Germany, or some combination of the above. This has conditioned the Russian character in a specific set of ways which, if not adequately understood, is likely to lead to disaster for Europe and the world.

Lest you think that Byzantium is some minor cultural influence on Russia, it is, in fact, rather key. Byzantine cultural influences, which came along with Orthodox Christianity, first through Crimea (the birthplace of Christianity in Russia), then through the Russian capital Kiev (the same Kiev that is now the capital of Ukraine), allowed Russia to leapfrog across a millennium or so of cultural development. Such influences include the opaque and ponderously bureaucratic nature of Russian governance, which the westerners, who love transparency (if only in others) find so unnerving, along with many other things. Russians sometimes like to call Moscow the Third Rome – third after Rome itself and Constantinople – and this is not an entirely empty claim. But this is not to say that Russian civilization is derivative; yes, it has managed to absorb the entire classical heritage, viewed through a distinctly eastern lens, but its vast northern environment has transformed that heritage into something radically different.

The west won’t solve anything in the Arab world, ever, without Russian help.

• Russia Says Paris Terror Acts Show Need for ‘Urgent’ Cooperation (Bloomberg)

France’s worst terror attacks in more than half a century show the need for “urgent” cooperation between Russia and the U.S. and Europe, Russia’s top diplomat said. Russian Foreign Minister Sergei Lavrov criticized a continued freeze in anti-terrorist ties imposed over the Ukraine conflict, telling reporters in Moscow today that such a key matter shouldn’t be based on “personal emotions and grievances.” Lavrov also rejected conditions for a lifting of what he said were “illegitimate” sanctions against his country, including handing joint control of the border between separatist-controlled areas of eastern Ukraine and Russia to Ukrainian forces.

While Russia has condemned the attacks, which started with an assault on the offices of the satirical magazine Charlie Hebdo on Jan. 7 that killed 12 people, its expression of solidarity hasn’t eased tensions with its former Cold war foes. Lavrov was the most senior Russian official to join the largest march in French history yesterday in Paris along with leaders from dozens of countries. He said the militants behind the terror spree had ties to Islamists seeking the overthrow of Syrian President Bashar al-Assad, who’s also a target of the U.S. and its allies. Russia, which says the U.S. and Europe have encouraged the spread of militancy by their efforts to oust Assad, is locked in the worst geopolitical standoff since the Cold War over the fighting in Ukraine that’s killed more than 4,800 people since April.

Russia, a Soviet-era ally of Syria, has supported Assad through weapons sales and by blocking punitive action against him at the United Nations Security Council. Alexei Pushkov, a senior pro-government lawmaker in Moscow, said in comments published today that Europe is guilty of “double standards” in its attitude toward terrorism and Ukraine, where Russia accuses the government in Kiev of using force to suppress Russian speakers. Europe is heading toward a conflict of civilizations through the publication of cartoons mocking the Muslim prophet Muhammad in Charlie Hebdo, Pushkov, head of the foreign affairs committee of the lower house of parliament, said in an interview with Izvestia newspaper.

“.. the US and its allies have deliberately radicalized Muslim fighters in the hopes they would strictly fight those they are told to fight. We learned on 9/11 that sometimes they come back to fight us.”

• Lessons from Paris (Ron Paul)

After the tragic shooting at a provocative magazine in Paris last week, I pointed out that given the foreign policy positions of France we must consider blowback as a factor. Those who do not understand blowback made the ridiculous claim that I was excusing the attack or even blaming the victims. Not at all, as I abhor the initiation of force. The police blaming victims when they search for the motive of a criminal. The mainstream media immediately decided that the shooting was an attack on free speech. Many in the US preferred this version of “they hate us because we are free,” which is the claim that President Bush made after 9/11. They expressed solidarity with the French and vowed to fight for free speech. But have these people not noticed that the First Amendment is routinely violated by the US government? President Obama has used the Espionage Act more than all previous administrations combined to silence and imprison whistleblowers.

Where are the protests? Where are protesters demanding the release of John Kiriakou, who blew the whistle on the CIA use of waterboarding and other torture? The whistleblower went to prison while the torturers will not be prosecuted. No protests. If Islamic extremism is on the rise, the US and French governments are at least partly to blame. The two Paris shooters had reportedly spent the summer in Syria fighting with the rebels seeking to overthrow Syrian President Assad. They were also said to have recruited young French Muslims to go to Syria and fight Assad. But France and the United States have spent nearly four years training and equipping foreign fighters to infiltrate Syria and overthrow Assad! In other words, when it comes to Syria, the two Paris killers were on “our” side. They may have even used French or US weapons while fighting in Syria.

Beginning with Afghanistan in the 1980s, the US and its allies have deliberately radicalized Muslim fighters in the hopes they would strictly fight those they are told to fight. We learned on 9/11 that sometimes they come back to fight us. The French learned the same thing last week. Will they make better decisions knowing the blowback from such risky foreign policy? It is unlikely because they refuse to consider blowback. They prefer to believe the fantasy that they attack us because they hate our freedoms, or that they cannot stand our free speech. Perhaps one way to make us all more safe is for the US and its allies to stop supporting these extremists. Another lesson from the attack is that the surveillance state that has arisen since 9/11 is very good at following, listening to, and harassing the rest of us but is not very good at stopping terrorists.

But what about after this week?

• Charlie Hebdo to Print 3 Million Copies With Muhammad Cover (Bloomberg)

Charlie Hebdo will print 3 million copies of a special issue of the satirical magazine, depicting the Prophet Muhammad on the cover, a week after an attack at its headquarters left a third of its journalists dead. Publishers of the weekly magazine will put the copies on newsstands worldwide in 16 languages on Jan. 14. The issue will feature a cartoon of Muhammad, crying, on a green background, holding a board saying “Je suis Charlie” or “I am Charlie.” Above his image is written “All is Forgiven.” Millions of people in France and across the world rallied in marches in the past week to show support for the Charlie Hebdo victims. The killings by self-proclaimed jihadists are the deadliest attacks in France in half a century. France has been on the highest terrorist alert since the first attack.

More than 15,000 special forces are being deployed to protect sensitive sites across the country, including Jewish schools, tourist landmarks and Charlie Hebdo’s new headquarters in Paris. This week’s magazine will have six or eight pages instead of the usual 16. “This won’t be a tribute issue of some sort,” Richard Malka, Charlie Hebdo’s lawyer and spokesman, told France Info radio Monday. “We will be faithful to the spirit of the newspaper: making people laugh.” mThe magazine’s circulation has dropped over the years. While issues with covers depicting Muhammad sold about 100,000 copies, the magazine often printed 60,000 copies and sales sometimes didn’t exceed 30,000. After the attack, French Culture Minister Fleur Pellerin pledged €1 million ($1.2 million) of state money to help the publication. Google promised to give €250,000, U.K. daily The Guardian €125,000. The French press association opened a bank account which is attracting donations from the public.

“I joke that I drive the bus, but they’re the real rock stars ..”

• The Goats Fighting America’s Plant Invasion (BBC)

Each country has its own invasive species and rampant plants with a tendency to take over. In most, the techniques for dealing with them are similar – a mixture of powerful chemicals and diggers. But in the US a new weapon has joined the toolbox in recent years – the goat. In a field just outside Washington, Andy, a tall goat with long, floppy ears, nuzzles up to his owner, Brian Knox. Standing with Andy are another 70 or so goats, some basking in the low winter sun, and others huddled together around bales of hay. This is holiday time – a chance for the goats to rest and give birth before they start work again in the spring. Originally bought to be butchered – goat meat is increasingly popular in the US – these animals had a lucky escape when Knox and his business partner discovered they had hidden skills. “We got to know the goats well and thought, we can’t sell them for meat,” he says.

“So we started using them around this property on some invasive species. It worked really well, and things grew organically from there.” They are now known as the Eco Goats – a herd much in demand for their ability to clear land of invasive species and other nuisance plants up and down America’s East Coast. Poison ivy, multiflora rose and bittersweet – the goats eat them all with gusto, so Knox now markets their pest-munching services one week at a time from May to November. Over the past seven years, they have become a huge success story, consuming tons of invasive species. “I joke that I drive the bus, but they’re the real rock stars,” says Knox, who also works as a sustainability consultant. Typically, chemicals and/or machinery are used to clear away fast-growing invasive plants, but both methods have their drawbacks. Chemicals can contaminate soil and are not effective in stopping new seeds from sprouting.

Pulling plants out by machine can disturb the soil and cause erosion. Goats, says Knox, are a simple, biological solution to the problem. “This is old technology. I’d love to say I invented it, but it’s been around since time began,” he says. “We just kind of rediscovered it.” One of the reasons goats are so effective is that plant seeds rarely survive the grinding motion of their mouths and their multi-chambered stomachs – this is not always the case with other techniques which leave seeds in the soil to spring back. Unlike machinery, they can access steep and wooded areas. And tall goats, like Andy, can reach plants more than eight feet high. A herd of 35 goats can go through half an acre of dense vegetation in about four days, which, says Knox, is the same amount of time it gets them to become bored of eating the same thing.

The Value of Wealth

Jan 112015

January 11, 2015 Posted by Raúl Ilargi Meijer at 9:22 pm Finance Tagged with: Charlie Hebdo, empathy, France, money, politics, Uruguay, wealth 6 Responses »

Ann Rosener Reconditioning spark plugs, Melrose Park Buick plant, Chicago 1942

We need to do a lot more thinking, and take a far more critical look at ourselves, than we do at present. We’re not even playing it safe, we’re only playing it easy. And that’s just not enough. The marches in Paris and numerous other cities today were attended by people who mean well, but who should ask themselves if they want to be part of what was predictably turned into a propaganda event by ‘world leaders’. One thing is for sure; the murdered Charlie Hebdo staff would not have approved of it.

The leaders hark back to usual suspect slogans like we defend ‘Liberty’, ‘Freedom of Expression’ and ‘Our Values’. But we can’t turn our backs on the fact that ‘our values’ these days include torture and other fine ‘tactics’ that make people in other parts of the world turn their backs on us. We might want – need – to march to express our feelings about torture executed in our name, as much as to express our horror at cartoonists we never heard of being the target of automatic weapons.

There are major armed conflicts going on in 6 different Arab countries, and ‘we’ play a part in all of them. We get up in the morning and prepare to march against violence in our own streets, but we should perhaps – also – protest the violence committed in our name on other people’s streets just as much. We may feel innocent as we’re marching, but that’s simply because we refuse to look at ourselves in the mirror. And we must be able to do better than that. Both to be the best we can be (which is still a valid goal), and to prevent future attacks.

And that’s not nearly the entire story. Our governments play ‘divide and rule’ both domestically and abroad. They play nations against each other in far away parts of the globe, and poor vs rich and generation vs generation at home. If you want a better world, don’t look at your leaders to make that happen. They like the world the way it is; it got them where they are. Moreover, they’re all beholden to numerous supra-national organizations that are the real power behind the throne across the globe; NATO, IMF, EU, World Bank et al.

If you want a better world, and one in which the risk of attacks like the one this week goes down, you’ll have to look at yourself first, and take it from there. Marching in a mostly self-righteous parade in which the wrong people form the first line is not going to do it. You’re not going to solve this sitting on your couch. Our world is not just financially bankrupt, and in deep debt to boot, it’s also about as morally broke as can be.

We therefore have to rethink our world just about from scratch. Or else. We’ve lived chasing the recovery carrot for years now, but the economy won’t recover; it can’t. There hasn’t been any real growth since at least the 1980s, the only thing there’s been is increasing debt levels that we mistook for growth.

A great first example of how to do this rethinking was provided late last year, and I referred to it before, by UofM Amherst economics professor James K. Boyce:

Protecting Money or People?

Imagine that without major new investments in adaptation, climate change will cause world incomes to fall in the next two decades by 25% across the board, with everyone’s income going down, from the poorest farmworker in Bangladesh to the wealthiest real estate baron in Manhattan. Adaptation can cushion some but not all of these losses. What should be our priority: reduce losses for the farmworker or the baron? For the farmworker, and a billion others in the world who live on about $1 a day, this 25% income loss will be a disaster, perhaps the difference between life and death.

Yet in dollars, the loss is just 25 cents a day. For the land baron and other “one-percenters” in the U.S. with average incomes of about $2,000 a day, the 25% income loss would be a matter of regret, not survival. He’ll find a way to get by on $1,500 a day. In human terms, the baron’s loss pales compared with that of the farmworker. But in dollar terms, it’s 2,000 times larger. Conventional economic models would prescribe spending more to protect the barons than the farmworkers of the world.

It’s how we think. Boyce describes it perfectly. We chase money, no questions asked, and even call it no. 1. And unless we change the way we think, one Manhattan land baron will be saved, and 1000 Bangla Deshi farmers and their entire families will either drown or be forced higher inland, where there are already too many people just like them. A dollar or a person. Our present economic models know which one to choose. But we should have more than mere economic models guide us.

Michael Lewis – yes, him – provides another wonderful example in the New Republic. I tried to make the quote as short as I could, but, hey, Lewis is .. Lewis. The original title was ‘Extreme Wealth Is Bad for Everyone – Especially the Wealthy’ (Getting rich won’t make you happy. But it will make you more selfish and dishonest). The Week turned in into this:

What Wealth Does To Your Soul

When I was 14, I met a man with a talent for restoring a sense of fairness to a society with vast and growing inequalities in wealth. His name was Jack Kenney, and he’d created a tennis camp, called Tamarack, in the mountains of northern New Hampshire. The kids who went to the Tamarack Tennis Camp mostly came from well-to-do East Coast families, but the camp itself didn’t feel like a rich person’s place: It wasn’t unusual for the local health inspectors to warn the camp about its conditions, or for the mother of some Boston Brahmin dropping her child off, and seeing where he would sleep and eat for the next month, to burst into tears.

Kenney himself had enjoyed a brief, exotic career as a professional tennis player — he’d even played a doubles match on ice with Fred Perry – but he was pushing 60 and had long since abandoned whatever interest he’d had in fame and fortune. He ran his tennis camp less as a factory for future champions than as an antidote to American materialism – and also to the idea that a person could be at once successful and selfish.

Jack Kenney’s assault on teenaged American inequality began at breakfast the first morning. The bell clanged early, and the kids all rolled out of their old stained bunk beds, scratched their fresh mosquito bites, and crawled to the dining hall. On each table were small boxes of cereal, enough for each kid to have one box, but not enough that everyone could have the brand of cereal he wanted. There were Froot Loops and Cheerios, but also more than a few boxes of the deadly dark bran stuff consumed willingly only by old people suffering from constipation.

On the second morning, when the breakfast bell clanged, a mad footrace ensued. Kids sprung from their bunks and shot from cabins in the New Hampshire woods to the dining hall. The winners got the Froot Loops, the losers a laxative. By the third morning, it was clear that, in the race to the Froot Loops, some kids had a natural advantage. They were bigger and faster; or their cabins were closer to the dining hall; or they just had that special knack some people have for getting whatever they want. Some kids would always get the Froot Loops, and others would always get the laxative. Life was now officially unfair.

After that third breakfast, Kenney called an assembly on a hill overlooking a tennis court. He was unkempt and a bit odd; wisps of gray hair crossed his forehead, and he looked as if he hadn’t bathed in a week. He was also kind and gentle and funny, and kids instantly sensed that he was worth listening to and wanted to hear what he had to say.

“You all live in important places surrounded by important people,” he’d begin. “When I’m in the big city, I never understand the faces of the people, especially the people who want to be successful. They look so worried! So unsatisfied!” Here his eyes closed shut and his hands became lobster claws, pinching and grasping the air in front of him. “In the city you see people grasping, grasping, grasping. Taking, taking, taking. And it must be so hard! To be always grasping-grasping, and taking-taking. But no matter how much they have, they never have enough. They’re still worried. About what they don’t have. They’re always empty.”

“You have a choice. You don’t realize it, but you have a choice. You can be a giver or you can be a taker. You can get filled up or empty. You make that choice every day. You make that choice at breakfast when you rush to grab the cereal you want so others can’t have what they want.”

On the fourth morning, no one ate the Froot Loops. Kids were thrusting the colorful boxes at each other and leaping on the constipation cereal like war heroes jumping on hand grenades. In a stroke, the texture of life in this tennis camp had changed, from a chapter out of Lord of the Flies to the feeling between the lines of Walden. Even the most fantastically selfish kids did what they could to contribute to the general welfare of the place, and there was not a shred of doubt that everyone felt happier for it. The distinction between haves and have-nots, winners and losers, wasn’t entirely gone, of course. But it became less important than this other distinction, between the givers and the takers.

So far for the Jack Kenney story. Michael Lewis continues:

What is clear about rich people and their money — and becoming ever clearer — is how it changes them. A body of quirky but persuasive research has sought to understand the effects of wealth and privilege on human behavior — and any future book about the nature of billionaires would do well to consult it.

One especially fertile source is the University of California at Berkeley psychology department lab overseen by a professor named Dacher Keltner. In one study, Keltner and his colleague Paul Piff installed note takers and cameras at city street intersections with four-way Stop signs. The people driving expensive cars were four times more likely to cut in front of other drivers than drivers of cheap cars.

The researchers then followed the drivers to the city’s crosswalks and positioned themselves as pedestrians, waiting to cross the street. The drivers in the cheap cars all respected the pedestrians’ right of way. The drivers in the expensive cars ignored the pedestrians 46.2% of the time – a finding that was replicated in spirit by another team of researchers in Manhattan, who found drivers of expensive cars were far more likely to double-park.

In yet another study, the Berkeley researchers invited a cross section of the population into their lab and marched them through a series of tasks. Upon leaving the laboratory testing room, the subjects passed a big jar of candy. The richer the person, the more likely he was to reach in and take candy from the jar — and ignore the big sign on the jar that said the candy was for the children who passed through the department.

Maybe my favorite study done by the Berkeley team rigged a game with cash prizes in favor of one of the players, and then showed how that person, as he grows richer, becomes more likely to cheat. In his forthcoming book on power, Keltner contemplates his findings:

If I have $100,000 in my bank account, winning $50 alters my personal wealth in trivial fashion. It just isn’t that big of a deal. If I have $84 in my bank account, winning $50 not only changes my personal wealth significantly, it matters in terms of the quality of my life — the extra $50 changes what bill I might be able to pay, what I might put in my refrigerator at the end of the month, the kind of date I would go out on, or whether or not I could buy a beer for a friend. The value of winning $50 is greater for the poor, and, by implication, the incentive for lying in our study greater. Yet it was our wealthy participants who were far more likely to lie for the chance of winning fifty bucks.

There is plenty more like this to be found, if you look for it. A team of researchers at the New York State Psychiatric Institute surveyed 43,000 Americans and found that, by some wide margin, the rich were more likely to shoplift than the poor. Another study, by a coalition of nonprofits called the Independent Sector, revealed that people with incomes below 25 grand give away, on average, 4.2% of their income, while those earning more than 150 grand a year give away only 2.7%. A UCLA neuroscientist named Keely Muscatell has published an interesting paper showing that wealth quiets the nerves in the brain associated with empathy.

If you show rich people and poor people pictures of kids with cancer, the poor people’s brains exhibit a great deal more activity than the rich people’s. “As you move up the class ladder,” says Keltner, “you are more likely to violate the rules of the road, to lie, to cheat, to take candy from kids, to shoplift, and to be tightfisted in giving to others. Straightforward economic analyses have trouble making sense of this pattern of results.”

But that wouldn’t work, you think? Not for you, not in today’s world, and certainly not for the political class? Well, we happen to have the example of a real life president of a nation who questions all we tend to think is ‘normal’. Back in October, HuffPo had this portrait of Uruguayan President José Mujica. And please see this against the backdrop of US presidential candidates raising hundreds of millions of dollars even just for their preliminary campaigns.

Mujica says what I often have, that money should be kept out of a political system, because if it isn’t it will end up buying and eating that system whole. Too late for the US and Europe, but perhaps not for Uruguay.

‘World’s Poorest President’ Explains Why We Should Kick Rich People Out Of Politics

People who like money too much ought to be kicked out of politics, Uruguayan President José Mujica told CNN en Español [..] “We invented this thing called representative democracy, where we say the majority is who decides,” Mujica said in the interview. “So it seems to me that we [heads of state] should live like the majority and not like the minority.” Dubbed the “World’s Poorest President” in a widely circulated BBC piece from 2012, Mujica reportedly donates 90% of his salary to charity.

Mujica’s example offers a strong contrast to the United States, where in politics the median member of Congress is worth more than $1 million and corporations have many of the same rights as individuals when it comes to donating to political campaigns. “The red carpet, people who play – those things,” Mujica said, mimicking a person playing a cornet. “All those things are feudal leftovers. And the staff that surrounds the president are like the old court.”

“I’m not against people who have money, who like money, who go crazy for money,” Mujica said. “But in politics we have to separate them. We have to run people who love money too much out of politics, they’re a danger in politics… People who love money should dedicate themselves to industry, to commerce, to multiply wealth. But politics is the struggle for the happiness of all.”

Asked why rich people make bad representatives of poor people, Mujica said: “They tend to view the world through their perspective, which is the perspective of money. Even when operating with good intentions, the perspective they have of the world, of life, of their decisions, is informed by wealth. If we live in a world where the majority is supposed to govern, we have to try to root our perspective in that of the majority, not the minority.”

“I’m an enemy of consumerism. Because of this hyperconsumerism, we’re forgetting about fundamental things and wasting human strength on frivolities that have little to do with human happiness.”

He lives on a small farm on the outskirts of the capital of Montevideo with his wife, Uruguayan Sen. Lucia Topolansky and their three-legged dog Manuela. He says he rejects materialism because it would rob him of the time he uses to enjoy his passions, like tending to his flower farm and working outside. “I don’t have the hands of a president,” Mujica told CNN. “They’re kind of mangled.”

Mujica is the kind of man, make that human being, who should be in charge of all countries. Money and politics don’t mix, or at least not in a democracy. And I don’t see any exceptions to that rule. Mujica is right: if and when the majority of people in a country are poor, which is true just about everywhere, and certainly in the Anglo world and most EU countries, then their president should be poor too.

And inevitably, if you would follow the example of your president, so should his people. Not dirt poor, not starving, just being content with basic necessities for you and your family. And then tend to your flower farm, or your vegetable farm, your kids.

Sounds stupid. I know. But we haven’t had any real growth in decades, and the wizard’s curtain is being lifted on the fake growth we did have since too. So maybe the economy’s not all that cyclical after all, or maybe the cycles are longer than we would like, Kondratieff 70 year like. Or even longer.

Ask anyone if they would like to have $1000, or $10,000 or $1 million or more, and you know that the answer would be. But Michael Lewis shows that none of it would make you any happier, if you already have – or make – enough to survive on. Still, it’s generally accepted that more is always good.

And then you have the president of Uruguay, admittedly a small country and in South America to boot, who says that only poor people can truly represent poor people, who will always be in the majority in whichever country you may live in, and that that is the core of democracy.

Here’s thinking we are absolutely clueless when it comes to the value of wealth, and that we keep chasing more of it because we’re not smart enough to recognize that value. And that that’s why we have torture and wars and all the other things that make us so ugly. We have absolutely no clue what the value of wealth is. And as long as we don’t, we shouldn’t have any.

Debt Rattle January 11 2015

Jan 112015

January 11, 2015 Posted by Raúl Ilargi Meijer at 11:58 am Finance Tagged with: Charlie Hebdo, default, deflation, legal challenges, subprime, Ukraine, US equities, yen 4 Responses »

DPC Sloss City furnaces, Birmingham, Alabama 1906

• Foreign Ownership Of US Equities Hits 69-Year High (MarketWatch)

• US Retakes the Helm of the Global Economy (Bloomberg)

• Fed’s Lockhart Says Jobs Report No Reason to Raise Rates Sooner (Bloomberg)

• Legal Challenge Shows Rocky Path To ECB Money-Printing (Reuters)

• Voices Join Greek Left’s Call for a New Deal on Debt (NY Times)

• Anxiety Rises Over Eurozone’s Falling Prices (Observer)

• Spectre Of Deflation Horrifies Bankers, But Japan Has A Taste For It (Observer)

• Princes of the Yen: Central Banks and the Transformation of the Economy (YouTube)

• Here They Go Again: Subprime Delinquencies Rising In Autoland (David Stockman)

• Investors Put Their Hopes, and Money, in Modi (Reuters)

• Russia, Ukraine and Greece – Default Probabilities (Acting Man)

• Russia May Demand Early Repayment Of $3 Billion Loan To Ukraine (RT)

• Creationism Vs. Evolution: Whose God Is Making America Richer? (Paul B. Farrell)

• Paris Attacks: Don’t Blame These Atrocities On Security Failures (Cockburn)

• Curious Charlie Carnage (StealthFlation)

• German Paper Target Of Arson Attack After Printing Charlie Hebdo Cartoons (DW)

• French Unity Against Terrorism May Not Last Far Beyond Paris March (Observer)

• Charlie Hebdo Cartoonist Slams Hypocritical ‘New Friends’ Of Magazine (AFP)

Bringing the dollar home!

• Foreign Ownership Of US Equities Hits 69-Year High

The U.S. stock markets are globalizing, and the British and Canadians are leading the charge. Foreign ownership of U.S. stocks totaled 16% in 2014, the highest in 69 years since such records have been kept, according to a Goldman Sachs report. The equity markets’ global diversification trend is expected remain intact in 2015, said Goldman’s Amanda Sneider. She didn’t elaborate on specific numbers. Britons and Canadians were the biggest foreign investors in U.S. stocks, each accounting for 12%, while Japanese investors checked in at 6%. Another one-third were from tax havens such as Luxembourg, Switzerland, and the Cayman Islands.

In 2015, net foreign inflow of funds into U.S. equity is expected to hit $125 billion, up from net $103 billion in 2014. That compares to total net equity inflow of $220 billion projected for 2015 versus $178 billion last year. U.S. investors are also likely to step up investment in foreign stocks to the tune of $250 billion this year versus $231 billion in 2014. Americans favored European (excluding the U.K.) and Caribbean securities. Among domestic players, corporations will continue to dominate the market with net purchases of $450 billion, equivalent to 2% of market capitalization. Inflow from equity-linked exchange-traded fund will total $170 billion and mutual funds will account for $125 billion.

““The economy is looking stellar ..”

• US Retakes the Helm of the Global Economy (Bloomberg)

The U.S. is back in the driver’s seat of the global economy after 15 years of watching China and emerging markets take the lead. The world’s biggest economy will expand by 3.2% or more this year, its best performance since at least 2005, as an improving job market leads to stepped-up consumer spending, according to economists at JPMorgan, Deutsche Bank and BNP Paribas. That outcome would be about what each foresees for the world economy as a whole and would be the first time since 1999 that America hasn’t lagged behind global growth, based on data from the International Monetary Fund. “The U.S. is again the engine of global growth,” said Allen Sinai, chief executive officer of Decision Economics in New York. “The economy is looking stellar and is in its best shape since the 1990s.”

In the latest sign of America’s resurgence, the Labor Department reported on Jan. 9 that payrolls rose 252,000 in December as the unemployment rate dropped to 5.6%, its lowest level since June 2008. Job growth last month was highlighted by the biggest gain in construction employment in almost a year. Factories, health-care providers and business services also kept adding to their payrolls. About 3 million more Americans found work in 2014, the most in 15 years and a sign companies are optimistic U.S. demand will persist even as overseas markets struggle. U.S. government securities rose after the report as investors focused on a surprise drop in hourly wages last month. “We are still waiting to see the kind of strengthening of wage numbers we would expect to be consistent with what we are seeing elsewhere in terms of growth and the absolute jobs numbers,” Federal Reserve Bank of Atlanta President Dennis Lockhart said in a Jan. 9 interview.

The Fed continues to reinforce the narrative of dissent.

• Fed’s Lockhart Says Jobs Report No Reason to Raise Rates Sooner (Bloomberg)

Federal Reserve Bank of Atlanta President Dennis Lockhart said today’s strong jobs report is no reason to speed up the timing of an interest-rate increase that he sees occurring in the middle of the year or later. “I don’t see a reason yet to accelerate my assumption of when a policy move might be appropriate,” Lockhart, who votes on monetary policy this year, said in a telephone interview from Atlanta. At the same time, “clearly this added to accumulated progress with very healthy numbers.” Employment rose more than forecast in December, and the jobless rate declined to 5.6%, capping the best year for the labor market since 1999, a Labor Department report showed today.

The Fed last month said it would be “patient” in raising rates from close to zero, with Chair Janet Yellen saying an increase was unlikely before late April. “The report confirms my sense of how the economy is progressing,” said Lockhart, 67, who has been a consistent supporter of record stimulus. “If the committee is to err on the side of being a little late as viewed by history writers or maybe a little early, I prefer to take the risk of being a little bit late.” A lack of wage growth suggests slack remains in the labor market, Lockhart said. “All the wage measures remain well below historical norms, and I think I would have to say they are not consistent yet with particularly tight labor markets,” he said.

He called a monthly decline in average hourly earnings in December “potentially noise” and inconsistent with other data on compensation. Average hourly earnings for all employees dropped by 0.2% in December from the prior month, the biggest decline since comparable records began in 2006, today’s Labor Department report showed. Earnings increased 1.7% over the 12 months ended in December, the smallest gain since October 2012. “We are still waiting to see the kind of strengthening of wage numbers we would expect to be consistent with what we are seeing elsewhere in terms of growth and the absolute jobs numbers,” Lockhart said.

Will the ECB dare pre-empt court decisions?

• Legal Challenge Shows Rocky Path To ECB Money-Printing (Reuters)

A landmark legal opinion this week will remind the European Central Bank of the limits it faces as it advances towards money printing, while a tumbling oil price saps inflation in debt-strained Europe. With expectations high that the ECB is on the verge of buying government bonds with new money to shore up the economy, an influential adviser to Europe’s top court will give his view on Jan. 14 about an earlier unused bond-buying scheme. It is the latest chapter in a long-running and increasingly bitter dispute about QE between the ECB and Germany, the largest member of the 19-country bloc, that is likely to limit the size or scope of such a program. As the debate continues, the euro zone economy is all but grinding to a halt. Germany is expected to announce modest growth on Jan. 15 for last year.

In the United States, fresh data on rising employment as well as retail sales is set to show just how much its recovery has overtaken Europe. “The global economy is at a precarious point,” said Jacob Kirkegaard of Washington think tank, the Peterson Institute. “The falling oil price is a huge shot in the arm. Nonetheless, it is clear that the ECB will have to do something. There is no growth and the debt burden is too high. The world will be flying on one engine, the U.S., for quite some time.” [..] Low price inflation, a symptom of the global slowdown, has led some to question the rule of thumb for measuring economic health, namely that there should be a steady up-tick in prices.

British inflation will be watched on Tuesday, with analysts betting it will hit a fresh 12-year low below 1%. Those looking for respite elsewhere may be disappointed. The People’s Bank of China cut the cost of borrowing in November and loosened loan restrictions to encourage lending. It is expected to take further such steps, as the country’s property market downturn continues and local governments and companies grapple with heavy debts. Bank lending data and a readout on economic output in the final three months of last year are likely to paint a glum picture. Hopeful eyes are turning to the ECB. But German opposition to money printing could put a fly in the ointment. Its Bundesbank has warned that buying bonds issued by euro zone governments – including politically brittle Greece – could leave it on the hook for losses.

Next week, an adviser to Europe’s top court will give his opinion on a challenge by a group of Germans to an earlier ECB bond-buying program. If he shares any of the concerns of Germany’s constitutional court, which referred the case to European judges, it would be significant. Alain Durre, an economist with Goldman Sachs, said this could lead to the ECB setting a fixed limit on its bond-buying plans or to take priority over other investors when it buys state bonds. Whatever the outcome, the German protest is likely to get louder. “The ECB has stepped beyond its remit. The European court should forbid the ECB from doing this,” said Dietrich Murswiek, a lawyer representing one of the plaintiffs. “You can draw parallels with quantitative easing. From my point of view, QE is also beyond its remit. This can also lead to legal action.”

If only the PIIGS would unite.

• Voices Join Greek Left’s Call for a New Deal on Debt (NY Times)

The concern now is that Mr. Tsipras, in challenging Europe on these thorny issues, will force Greece into default and perhaps a messy exit from the euro — an event that could unleash a new wave of investor contagion. Some analysts, however, are advancing an alternate view: that a radical new Greek government would not be that radical after all. Jens Bastian, a financial analyst based in Athens, notes that Mr. Tsipras’s core argument — that Greece’s onerous debt is not sustainable and should be reduced — has also been put forward by one of Greece’s larger creditors: the IMF. “It was the I.M.F. that kick-started the idea of restructuring Greece’s debt with Europe,” Mr. Bastian said.

“Mr. Tsipras can say we are in line with the IMF — we just want to talk to our European partners about the debt.” This is hardly a radical notion, Mr. Bastian argues. Perhaps. But that also means that European taxpayers — particularly those in Germany — will have to absorb the full brunt of the haircut as the IMF, by tradition, does not allow its debts to be restructured. Greece’s official creditors in the eurozone hold 65% of the country’s debt load of €317 billion. Private sector investors, whose bonds were restructured in 2012, hold just 15%. These investors range from mutual funds like Putnam Investments and Capital Group, which own the restructured bonds, to vulture funds that did not participate in the bond swap. The I.M.F. and the European Central Bank make up the rest.

Yanis Varoufakis, an economist and adviser to Mr. Tsipras, says that a Tsipras-led government would not make a private sector haircut a priority — an outcome that many foreign investors now fear. Instead, Mr. Varoufakis proposes a grand bargain of sorts by which Europe agrees to exchange its current obligations for new Greek bonds that are linked directly to Greece’s economy. If the economy grows, as it is expected to this year, bondholders receive a nice return; if it does not, the bonds pay nothing. “We are turning Europe into a partner for growth as opposed to a partner for austerity,” Mr. Varoufakis said in a recent interview. “This fiscal waterboarding has to end.”

“Before the crisis we probably had excessively high growth expectations. Now it is the opposite.”

• Anxiety Rises Over Eurozone’s Falling Prices (Observer)

Consumers who believe that prices are going to continue falling tend to sit on their hands, postponing spending in the belief that their money will go further in the future. This weak demand can cause businesses to cut back on investment and stint on wages and a vicious spiral sets in. This is particularly dangerous for heavily indebted countries, as deflation increases the real value of their debts. In Japan, policymakers have spent more than two decades trying to jolt the economy out of just this kind of deflationary trap: the country’s debt-to-GDP ratio has rocketed to well over 200%. HSBC’s Henry warns that some in the eurozone are already responding to the uncertain climate and the prospect of declining prices. “For companies in particular, there’s already evidence of deflationary behaviour. Why are they going to invest if they think things are going to be even cheaper tomorrow?”

Peter Praet, the ECB’s chief economist, said in an interview last month: “What we are increasingly worried about … is the high risk that after seven years of crisis and poor economic performance in the euro area, businesses and households are reducing their long-term growth expectations and adapting to weak growth and low inflation. To some extent this risk is already materialising: companies are starting to adjust to a 1% growth/1% inflation economy.” Behavioural changes like these are notoriously hard to forecast: the impact on workers’ pay of their employers’ chastened mood will depend partly on the specifics of wage-bargaining, for example.

But if the onset of deflation adds to the downbeat mood, it may take a long time to shift. As Praet put it: “Before the crisis we probably had excessively high growth expectations. Now it is the opposite. The big risk is that this growth pessimism perpetuates the current situation.” Danny Gabay of Fathom Consulting, warns that in some ways, the situation in the eurozone is worse than Japan’s at the start of what used to be known as its “lost decade” – before the 10-year stretch became 20 years and more. “Japan didn’t fall into deflation with debts of 100% of GDP, unemployment in double digits and recession,” he said. “It started from a pretty good point compared with Europe.” Average unemployment across the eurozone is 11.5%, more than twice Japan’s historical maximum.

“Visitors from London and Sydney can barely believe how little they pay, comparatively, for a decent meal and a few drinks in Tokyo.”

• Spectre Of Deflation Horrifies Bankers, But Japan Has A Taste For It (Observer)

Europeans wondering what life might be like under sustained deflation need look no further than a bowl of gyudon – the Japanese comfort food of rice topped with beef and onions. The price of gyudon has become an unofficial bellwether for the health of the world’s third biggest economy, which has been beleaguered by more than two “lost decades” of stagnation as consumers have resolutely refused to start spending and lift their economy out of trouble. Which is why last month’s decision by Yoshinoya, Japan’s largest chain of gyudon restaurants, to raise the price of a standard-size dish by a whopping 27% is not all it seems. Far from heralding a new era of inflation, the price rise, to a still very affordable ¥380 (about £2.11), simply highlights the deflationary depths into which Japan has sunk: this, after all, was the first gyudon price hike for almost a quarter of a century. If Japan’s experience is any indication, living in a deflationary spiral can be complicated.

Conventional wisdom tells us deflation is bad for jobs and growth, and that it causes the debt burden to weigh more heavily on households, companies and governments. But for the average Japanese person, life under two decades of falling prices has had its compensations. Having seen so many false dawns, consumers have reached their own accommodation, of sorts, with the scourge that is now threatening the eurozone. First, it has shattered Tokyo’s undeserved reputation as a prohibitively expensive city. It wasn’t so long ago that McDonald’s there was selling a ¥100 hamburger (that’s about 56p), and clothing retailer Uniqlo has built a global empire on selling cheap, no-fuss garments. Expensive hostess clubs, harking back to Japan’s 1980s bubble era, still exist, but they share premises with izakayas (pubs) where a glass of beer costs a paltry ¥180 (£1). Visitors from London and Sydney can barely believe how little they pay, comparatively, for a decent meal and a few drinks in Tokyo.

Great video.

• Princes of the Yen: Central Banks and the Transformation of the Economy

“Princes of the Yen” reveals how Japanese society was transformed to suit the agenda and desire of powerful interest groups, and how citizens were kept entirely in the dark about this. Based on a book by Professor Richard Werner, a visiting researcher at the Bank of Japan during the 90s crash, during which the stock market dropped by 80% and house prices by up to 84%. The film uncovers the real cause of this extraordinary period in recent Japanese history.

Making extensive use of archival footage and TV appearances of Richard Werner from the time, the viewer is guided to a new understanding of what makes the world tick. And discovers that what happened in Japan almost 25 years ago is again repeating itself in Europe. To understand how, why and by whom, watch this film. “Princes of the Yen” is an unprecedented challenge to today’s dominant ideological belief system, and the control levers that underpin it. Piece by piece, reality is deconstructed to reveal the world as it is, not as those in power would like us to believe that it is. “Because only power that is hidden is power that endures.”

“Central bank interest rate repression either encourages households to supplement income based spending with incremental borrowings— or it has no direct impact on measured GDP.”

• Here They Go Again: Subprime Delinquencies Rising In Autoland (David Stockman)

Yesterday’s WSJ article on rising auto loan delinquencies had a familiar ring. It focused on sub-prime borrowers who were missing payments within a few months of the vehicle purchase. Needless to say, that’s exactly the manner in which early signs of the subprime mortgage crisis appeared in late 2006 and early 2007.

More than 8.4% of borrowers with weak credit scores who took out loans in the first quarter of 2014 had missed payments by November, according to the Moody’s analysis of Equifax credit-reporting data. That was the highest level since 2008, when early delinquencies for subprime borrowers rose above 9%.

To be sure, subprime auto will never have the sweeping impact that came from the mortgage crisis. The entire auto loan market is less than $1 trillion compared to a mortgage market of more than $10 trillion at the time of the crisis. Yet the salient point is the same.The apparent macro-economic recovery and prosperity of 2004-2008 rested on the illusion of an unsustainable debt fueled housing boom; this time its the auto sector. Indeed, delete the auto sector from the phony 5% GDP SAAR of Q3 2014 and you get an economy inching forward on its own capitalist hind legs. Q3 real GDP less motor vehicles was up just 2.3% from the prior year (LTM); and that’s the same LTM rate as recorded in Q3 2013, and slightly lower than the 2.4% growth rate posted in Q3 2012. Aside from autos, there has been no acceleration, no escape velocity.

Furthermore, the 2%+/- growth in the 94% balance of the economy after the 2008-09 plunge has nothing to do with the Fed’s maniacal money printing stimulus and the booster shot from cheap credit that is supposed to provide. The reason is straight forward. There is no such thing as Keynesian monetary magic. Central bank interest rate repression either encourages households to supplement income based spending with incremental borrowings— or it has no direct impact on measured GDP. The fact is, outside of autos and student loans, households have reached peak debt. That is after a 30-year spree of getting deeper and deeper into hock, middle class households stopped adding to leverage on their wage and salary incomes at the time of the financial crisis; and since then they have actually deleveraged slightly—albeit at levels that are still way off the historical charts.

Overblown expectations.

• Investors Put Their Hopes, and Money, in Modi (Reuters)

Global statesmen and business titans descended on the home state of Prime Minister Narendra Modi of India on Sunday to pay homage to the man they count on to unleash big-bang economic changes. Big business cheered Mr. Modi when he won India’s strongest election mandate in 30 years in May, and he has caught its attention with eye-catching initiatives like his Make in India campaign. Now, in his home state of Gujarat, he has turned the assembly he founded as the state’s chief minister in 2003, called Vibrant Gujarat, into a pitch to put his nation firmly on the investment map. “India is marching forward with a clear vision to become a global power, even as most of the world is struggling with low growth,” the country’s richest man, Mukesh Ambani, told an audience of hundreds of chief executives and politicians.

A roll call of world leaders – including the United Nations secretary general, Ban Ki-moon; the World Bank head Jim Yong Kim; and Secretary of State John Kerry – converged on Mr. Modi’s hometown, Gandhinagar, for Vibrant Gujarat, a three-day Davos-style meeting. President Obama will also visit India this month. Eight months into Mr. Modi’s rule, the failure of India to emerge from its longest growth slowdown in a generation is raising questions about how much substance there is behind the premier’s promise of “red carpet, not red tape.” The Make in India campaign has drawn comparisons to the manufacturing miracle that turned China into the world’s second-largest economy. But skeptics argue that India’s competitive strengths are not in making things, but in areas like information technology and business process outsourcing, in which it is a world leader.

Vibrant Gujarat, held every two years, has yielded billions of dollars in investment promises, but only a fraction of the deals announced have come to fruition. In keeping with tradition, Mr. Ambani said his conglomerate, Reliance Industries, would invest 1 trillion rupees, or $16 billion, in its home state of Gujarat over the next year to 18 months. “There is an air of optimism in the air of India,” said Sam Walsh, the chief executive of the global mining giant Rio Tinto, who flagged two potential projects: a $2 billion iron ore project in Odisha State and an investment in Madhya Pradesh that could employ 30,000 diamond cutters. Mr. Modi needs investors to fulfill their monetary commitments to end the stagnation in capital investment that has held India’s growth to 5.3%.

“Ukraine’s government will need an additional 15 billion dollars to remain afloat, but there is currently no-one who wants to provide the money.”

• Russia, Ukraine and Greece – Default Probabilities (Acting Man)

Currently there are a number of weak spots in the global financial edifice, in addition to the perennial problem children Argentina and Venezuela (we will take a closer look at these two next week in a separate post). There is on the one hand Greece, where an election victory of Syriza seems highly likely. We recentlyreported on the “Mexican standoff” between the EU and Alexis Tsipras. We want to point readers to some additional background information presented in an article assessing the political risk posed by Syriza that has recently appeared at the Brookings Institute. The article was written by Theodore Pelagidis, an observer who is close to the action in Greece. As Mr. Pelagidis notes, one should not make the mistake of underestimating the probability that Syriza will end up opting for default and a unilateral exit from the euro zone – since Mr. Tsipras may well prefer that option over political suicide.

Note by the way that the ECB has just begun to put pressure on Greek politicians by warning it will cut off funding to Greek banks unless the final bailout review in February is successfully concluded (i.e., to the troika’s satisfaction). The stakes for Greece are obviously quite high. There are two ways of looking at this: either the ECB provides an excuse for Syriza, which can now claim that it is essentially blackmailed into agreeing to the bailout conditions “for the time being”, or Mr. Tsipras and his colleagues may be enraged by what they will likely see as a blatant attempt at usurping what is left of Greek sovereignty, and by implication, their power.

We have already discussed Russia’s situation in some detail in recent weeks. As regards Ukraine, its economy is already doing what observers are merelyexpecting to happen with Russia’s economy in light of the recent decline in crude oil prices. In other words, It is no exaggeration to state that Ukraine’s economy is in total free-fall. The country’s foreign exchange reserves have declined precipitously, most of the central bank’s gold has been mysteriously “vaporized”, and what is left of it has turned out to be painted lead (no kidding, the central bank’s vault in Odessa was found to contain painted lead bars instead of gold bars – the thieves didn’t even bother with using tungsten).

Last year Ukraine’s GDP contracted by an official 7% and this year another contraction of 6% is expected. Ukraine’s government will need an additional 15 billion dollars to remain afloat, but there is currently no-one who wants to provide the money. The EU is itself short on funds, and JC Juncker let it be known that: “There is only a small margin of flexibility for additional financing next year. And if we fully use our margin for Ukraine, we will have nothing to address other needs that may arise over the next two years.” Somewhat earlier, the authorities in Kiev asked Brussels for a third program of macro-financial aid in the amount of €2 billion. European commissioner for neighborhood and enlargement policies, Johannes Hahn, said the EU was prepared to continue aid to Kiev but only in exchange for concrete results of reforms. Finland’s Prime Minister Alexander Stubb said the EU would not take any decisions on extra financial aid to Ukraine right now because the country had not implemented the essential structural reforms yet.”

“Ukraine, indeed, has violated the terms of the loan, namely because its national debt exceeds 60% of its GDP ..”

• Russia May Demand Early Repayment Of $3 Billion Loan To Ukraine (RT)

Ukraine has violated the terms of the $3 billion Russian loan by allowing its national debt to exceed 60% of its GDP. This makes Moscow eligible to demand an early repayment of the debt, Anton Siluanov, Russia’s finance minister, said. “Ukraine, indeed, has violated the terms of the loan, namely because its national debt exceeds 60% of its GDP,” Siluanov said, commenting on earlier media reports of Kiev’s loan violation. The minister stressed that now Russia has “every reason” to demand an early repayment of the debt, but added, “at the moment, a decision to do so hasn’t been made.” “It’s also surprising that the federal budget of Ukraine doesn’t foresee the settlement of the $3 billion obligations [to Russia]. But Ukraine is fulfilling and will keep fulfilling its obligations to other borrowers, including the IMF,” Siluanov is cited as saying by TASS.

Viktor Suslov, who was Ukraine’s finance minister from 1997 to 1998, confirmed to RIA Novosti that Moscow is, in fact, eligible to demand repayment from Kiev. “Yes, in accordance with the terms of the loan, they may demand it or they may not demand it. However, in late 2014 the Russian authorities said that they won’t be pushing for an early repayment,” Suslov said. In December 2013, Vladimir Putin and then president of Ukraine, Viktor Yanukovich, agreed that Moscow would provide Kiev financial assistance of $15 billion. However, only the first tranche of $3 billion was forwarded, with Russia buying out Ukrainian Eurobonds, which had a maturing date in 2015 and a coupon rate of 5% per annum.

“Today every member of the GOP controlling the Senate, House and their state governors are all de facto mutant capitalists ..”

• Creationism Vs. Evolution: Whose God Is Making America Richer? Paul B. Farrell

The defining war of this century is being waged by “mutant capitalists, whose obsession with perpetual growth and material wealth, is destroying the planet’s ecosystem, will end our civilization.” Jack Bogle warned us of this virus in his classic, “The Battle for the Soul of Capitalism.” Now, a decade later, mutant capitalism is mutating further, becoming a pandemic among conservative politicians. Today every member of the GOP controlling the Senate, House and their state governors are all de facto mutant capitalists, thanks to big money donations, and like robots all linked to one master machine that renders them incapable of independent thinking when it comes to their lockstep march as climate-science deniers.

Yes, they’re mindless robots at odds with over 2,500 scientists who now warn, after more than two decades of research, that they are 97% “certain humans are causing climate change, that the damage is accelerating 10 times faster than the past 65 million years and soon we will self-destruct our civilization and disappear like dinosaurs, forever.” Bill Nye “the science guy” is the new warrior challenging antiscience robotic senators like the GOP’s James Inhofe, who’ll soon be chairman of the Senate Environment and Public Works Committee. Nye says America needs a new generation of leaders savvy in science and technology. Inhofe and fellow Republicans are Luddites trapped in a 19th century Wild West time warp. Fortunately Bill Nye, “the science guy” believes that while deniers are a lost cause, too incapable of rational thinking, their kids are not.

Nye’s “biggest concern is about creationist kids” whose parents are science deniers. “They’re compelled to suppress their common sense, to suppress their critical-thinking skills at a time in human history,” Nye recently told New York Times reviewer Jeffery DelViscio about his new book, “Undeniable: Evolution and the Science of Creation.” So Nye’s just stepped into the science denialism war zone, and on a rigid ideological land mine. Maybe Nye and his 2,500 “science guy” friends on the UN Intergovernmental Panel on Climate Change are worried about the education of the next generation of creation kids. But unfortunately, the fact is that 42% of all Americans don’t agree with Bill Nye when it comes to science. So Nye, Pope Francis and all climate-science believers have an enormous fight on their hands with the parents, teachers and their state education officials of these creation kids.

Here’s a profile of the everyday world their creation kids live and learn in:
• Gallup says 42% of Americans believe in creationism
• And 76% believe climate is not a major national priority
• Half of Americans say climate change is a “sign of the Apocalypse”
• Those who do believe will pay only about $5 to stop global warming

Check the facts: According to Gallup polling, “more than four in 10 Americans continue to believe that God created humans in their present form 10,000 years ago, a view that has changed little over the past three decades. Half of Americans believe humans evolved, with the majority of these saying God guided the evolutionary process.” Moreover, another Gallup poll says only 24% of Americans think “climate change” is a problem, put it near the bottom of 15 national problems polled. So today, 76% of Americans (that’s about 235 million!), say climate change, global warming and the environment are not the nation’s top priority. What is? Social Security, jobs, immigration, crime, big government, etc. But not overheating the planet.

“.. there are six major conflicts in Muslim countries between India and the Tunisian border that provide fertile ground for fanatical Sunni al-Qaeda type groups to take root and flourish.”

• Paris Attacks: Don’t Blame These Atrocities On Security Failures (Cockburn)

Will France make the same mistake the US did, when the Bush administration, the neo-conservatives and state security agencies exploited 9/11 to increase their power and implement their agendas? It could easily happen. Former President Nicolas Sarkozy has already spoken twice about the “war of civilisations” that sounds suspiciously like a French version of Bush’s “war on terror”, which in present circumstances is the sort of demagoguery that will be music to the ears of jihadis. There is already a potential constituency for jihadism among France’s 6 million Muslims, who have been pushed to the margins and see themselves as the victims of old-fashioned racism disguised as a confrontation between progressive secularism and medieval Islamic practices. War exposes and exacerbates such divisions in any country but France is especially vulnerable, because of the legacy of hatred stemming from the Algerian war of independence.

Some of the rhetoric immediately after the Paris massacre included melodramatic slogans such as “France is at war”. Again this echoes President Bush over a decade ago. And, of course, France is not at war, but, while the slogan is untrue as it stands, it does lead the way to an important but little appreciated truth about French security that applies equally to the rest of Europe. France may not be at war but it is suffering from the effects at a distance of the four wars now raging in the wider Middle East. Three of these – Syria, Libya and Yemen – have started since 2011, and a fourth in Iraq has massively escalated since that time. In addition, there are continuing wars in Afghanistan and Somalia, which means that there are six major conflicts in Muslim countries between India and the Tunisian border that provide fertile ground for fanatical Sunni al-Qaeda type groups to take root and flourish.

In the wake of the Paris killings there is much speculation about what links there may have been with foreign jihadis in the shape of Isis or al-Qaeda in Yemen. But this rather misses the point. Attacks on civilians require weapons, ammunition and the ability to use them, but no great level of combat training. What is really driving these attacks in Europe, and will go on doing so, is the collapse of so many Muslim states into violence and anarchy providing an ideal environment for Sunni jihadism to grow. Unsurprisingly, extreme fanatical Sunni jihadis, whom sympathisers might see as “holy warriors” and one Afghan journalist described as “holy fascists”, do well in wartime conditions. The Isis, in particular, relates to the world around it almost solely through acts of violence.

How much choice did they have, though?

• Curious Charlie Carnage (StealthFlation)

Just a few random thoughts on Charlie. I never can quite understand why these crack S.W.A.T teams don’t strategically hold off for 24-48 hours so as to exhaust the terrorists and attempt to gas them out, or at the very least, equipped with the latest military grade night vision, aim to catch them off guard overnight. Instead, they choose to impetuously storm the building by barging and charging, which virtually assures that hostages are also killed during the ensuing mayhem. One would assume the pros know what they’re doing, but it sure as hell seems questionable. C’mon now, slowly mechanically raising a shop’s street level security gate, are you kidding me??? You can’t be serious! Whatever happened to the element of surprise, isn’t that like terrorist manhunt school 101?

Don’t get me wrong, it’s just that I would much rather see these crazed craven characters professionally tortured, effectively interrogated and only then summarily executed, so that at least we stand a fighting chance to find out who and what was really behind them………and certainly the hostages spared at all costs. I mean once they have them completely cornered with thousands of expert anti terrorist police surrounding the perimeter, what’s the big rush to go in there guns a blazing…… Seriously, these crazed undisciplined young terrorist couldn’t stay awake for days on end, yet the expert S.W.A.T teams can, as they would rotate shifts. Just seems so ill-considered and outright reckless when hostages are involved.

It would be surprising not to see more of this.

• German Paper Target Of Arson Attack After Printing Charlie Hebdo Cartoons (DW)

A German newspaper in the northern city of Hamburg that reprinted Prophet Muhammad cartoons from French paper Charlie Hebdo has been the target of an apparent arson attack. Authorities said no one was injured. Police said “rocks and then a burning object” were thrown through rear court-yard windows into archive rooms of Hamburg’s daily newspaper, the Hamburger Morgenpost around 0200 a.m. local time (0100 UTC). Two people seen acting suspiciously in the area had been taken into custody, as authorities investigated further, police added, refusing to give more information about those detained. The investigation had been handed to Hamburg city state’s protection service.

The Hamburger Morgenpost had printed three Charlie Hebdo cartoons following last Wednesday’s massacre in Paris. The Morgenpost headline on Thursday had read, “this much freedom must be possible.” The “key question” authorities said early on Sunday was whether there was a connection between with the reprinting of the caricatures, adding that it is “too soon” to confirm such speculation. “Thick smoke is still hanging in the air, the police are looking for clues,” the Hamburger Morgenpost wrote briefly in its online edition early on Sunday. The German news agency DPA reported that contents in the newspaper’s archive rooms were destroyed in the apparent attack. No one had been injured in the incident. Two rooms on the lower floors were damaged but the fire was put out quickly,” police said.

“While almost everyone is Charlie when it comes to defending the fundamental values of the French republic, there is less unity when it comes to dealing with threats to those values.”

• French Unity Against Terrorism May Not Last Far Beyond Paris March (Observer)

Je suis Charlie. Nous sommes Charlie. La France est Charlie. Under the banner Tous Unis! (All United), France’s Socialist government has called for a show of national unity after three days of bloodshed that were seen as a direct blow to the republican values of liberté, égalité and fraternité. On Sunday, David Cameron and Angela Merkel, as well as the Ukrainian president Petro Poroshenko, Matteo Renzi, prime minister of Italy, and the Spanish premier, Mariano Rajoy – among 30 world leaders in all – will take part in one of the most significant public occasions in the history of postwar France. Behind what is sure to be an impressive, emotional show of solidarity, however, cracks have already appeared, suggesting political unity in France is unlikely to hold out much beyond the three-kilometre march from Place de la République to Place de la Nation. While almost everyone is Charlie when it comes to defending the fundamental values of the French republic, there is less unity when it comes to dealing with threats to those values.

It was almost inevitable that the far-right Front National – which has linked immigration from France’s former north African colonies to Islamist terrorism – was the first to break ranks. The party’s leader, Marine Le Pen, complained of being banned, or at least not formally invited to Sunday’s march. And her father, Jean-Marie, the provocative former paratrooper and the FN’s honorary president, showed that, at 86, he is still spoiling for a scrap. “Keep Calm and Vote Le Pen,” he tweeted. Later he told journalists: “National unity my arse, we [FN] have been sidelined. I deplore the deaths of 12 French people, but I’m not Charlie at all. I’m Charlie Martel, if you know what I mean.” The reference to the first-century Frankish leader Charles Martel, who is credited with halting the Islamic advance into Christian western Europe at the Battle of Tours in 732, was picked up by other far-right supporters.

“We vomit on all these people who suddenly say they are our friends.” Holtrop refused extra protection.

• Charlie Hebdo Cartoonist Slams Hypocritical ‘New Friends’ Of Magazine (AFP)

A prominent Dutch cartoonist at Charlie Hebdo heaped scorn on the French satirical weekly’s “new friends” since the massacre at its Paris offices, in particular far-right National Front leader Marine Le Pen. “We have a lot of new friends, like the pope, Queen Elizabeth and (Russian President Vladimir) Putin. It really makes me laugh,” Bernard Holtrop, whose pen name is Willem, told the Dutch center-left daily Volkskrant. “Marine Le Pen is delighted when the Islamists start shooting all over the place,” said Willem, 73, a longtime Paris resident who also draws for the French leftist daily Liberation. He added: “We vomit on all these people who suddenly say they are our friends.”

Commenting on the global outpouring of support for the weekly, Willem scoffed: “They’ve never seen Charlie Hebdo.” “A few years ago, thousands of people took to the streets in Pakistan to demonstrate against Charlie Hebdo. They didn’t know what it was. Now it’s the opposite, but if people are protesting to defend freedom of speech, naturally that’s a good thing.” Willem was on a train between northwestern Lorient and Paris when he learned of Wednesday’s attack by two Islamist gunmen as the paper was holding its weekly editorial meeting. He told Liberation: “I never come to the editorial meetings because I don’t like them. I guess that saved my life.” Willem stressed that Charlie Hebdo must continue to publish. “Otherwise, (the Islamists) have won.”

Debt Rattle January 10 2015

Jan 102015

January 10, 2015 Posted by Raúl Ilargi Meijer at 11:36 am Finance Tagged with: Anonymous, Charlie Hebdo, jobs, junk, oil, Russia, supertanker 2 Responses »

DPC “Steamer loading grain from floating elevator, New Orleans 1906

• Global Economy On The Verge Of A Once-in-a-Generation Transformation (Telegraph)

• Oil Derivatives Explosion Double 2008 Sub-Prime Crisis (ETF Daily News)

• Energy Stocks Brace For Many Quarters Of Earnings Pressure (MarketWatch)

• Don’t Bank on Oil Rebound Says Fund That Foresaw Collapse (Bloomberg)

• Oil Glut Spurs Top Traders To Book Supertankers For Storage At Sea (Reuters)

• The Oil Industry Still Managed To Add Jobs In December (MarketWatch)

• Oil-Price Drop Takes Shine Off Steel Town (WSJ)

• Oil Losses Force Norway to Consider Measures to Back Economy (Bloomberg)

• Russia Cut to One Step Above Junk by Fitch on Oil, Sanctions (Bloomberg)

• Gorbachev Warns Of Major War In Europe Over Ukraine (Reuters)

• Empirical Proof of the Giant Con (Beversdorf)

• Inner City Turmoil And Other Crises: My Predictions For 2015 (Ron Paul)

• Greece’s Leftist Candidate: ‘Markets Won’t Be Rooting for Us’ (Bloomberg)

• Eurozone Hit By Germany’s Sliding Exports And Industrial Production (Ind.)

• Dutch Pension Fund Giant Drops Use Of Hedge Funds (Reuters)

• #OpCharlieHebdo: Anonymous Declares War On Terrorist Websites (RT)

• What Radicalized The Charlie Hebdo Terrorists – Try Abu Ghraib (Ray McGovern)

• ‘Bent Time’ Tips Pulsar Out Of View (BBC)

• Would You Be Beautiful In The Ancient World? (BBC)

“There is only so much cost-cutting companies can do to compensate for absent demand.”

• Global Economy On The Verge Of A Once-in-a-Generation Transformation (Telegraph)

Few things illustrate the 35-year boom in Western asset prices better than the cost of a London house. In 1980, according to Nationwide data, you could have bought the average home for little more than £30,000. Today, the same property would set you back £407,000, or more than 13 times as much. Even adjusting for inflation, the gains are spectacular. Relative to average earnings – which are themselves up by a lot more than ordinary inflation – house prices have doubled. But it is not just residential property. Equities, bonds, agricultural land, even personalised number plates – virtually all asset prices have sky-rocketed. There have been ups and downs, admittedly, but the direction of travel has been clear. It is as if all the inflation that used to go into consumer prices has been diverted into financial assets and real estate instead.

All this, however, may be about to change – for we could be on the cusp of one of those seminal, once-in-a-generation shifts that completely alters the way we experience, and respond to, the world around us. For the past three and a half decades, the balance of advantage has resided unambiguously with capital. Now, it may be turning back to labour. Such a change has been predicted many times before, only for those prophecies to be proved wrong. It could be that past trends continue for a while longer yet. But a unique array of unfamiliar factors is fast coming into play. So here are the five primary reasons for believing that the long boom in asset prices – on many measures, the biggest the world has ever seen – may finally be drawing to a close. First, low inflation in Europe. The eurozone this week confirmed that it has essentially lost the battle against deflation (in truth, it never really bothered to fight it), with the headline rate turning negative in December.

It is true that “core inflation” – excluding fluctuating costs such as energy and food – remains positive. But even this is very low by historic standards, and has been for a long time now. Companies perform best when inflation is predictable and steady, which is what we had during the “Great Moderation” of the pre-crisis period. Static or falling prices, on the other hand, are always extremely bad for corporate profits in the long term. There is only so much cost-cutting companies can do to compensate for absent demand. In this low-inflation environment, business models that have relied for decades on rising prices begin to look highly vulnerable. New forms of retail competition, both online and physical, have been a blessing for consumers, but for corporate profits they are a nemesis. In a deflationary environment, equities and property will inevitably perform badly: only fixed-interest sovereign bonds, the least risky form of investment, do well.

“Derivatives can tie a financial instrument to another financial instrument or a financial derivative can be tied to an oil derivative.” “This is just a flavor of how complicated these mathematical equations really are, and no one really knows the risk in them.”

• Oil Derivatives Explosion Double 2008 Sub-Prime Crisis (ETF Daily News)

Precious metals expert David Morgan says the plunge in oil prices is not good news for big Wall Street banks. Morgan explains, “The amount of debt that is carried by the fracking industry at large is about double what the sub-prime was in the real estate fiasco in 2008.” “In summary, we’re looking at an explosion in potential that is greater than the sub-prime market of 2008 because, number one, oil and energy are the most important sectors out there.” “Number two, the derivative exposure is at least double what it was in 2008. Number three, the banking sector is really more fragile and we have less ability to weather the storm.” Morgan, who is also “a big-picture macroeconomist,” says oil derivatives could take down the system just like mortgage-backed securities back in the last financial meltdown.”

“The Fed said the sub-prime crisis would be “contained.” It was not. So, could oil derivatives take down other derivatives in a daisy chain type of collapse? Morgan says, “Absolutely, there is no question about it. The main problem is the overleverage of the system as a whole.” “Warren Buffett calls derivatives weapons of financial mass destruction, which is a true statement. Secondly, look at how derivatives are interconnected. Derivatives can tie a financial instrument to another financial instrument or a financial derivative can be tied to an oil derivative.” “This is just a flavor of how complicated these mathematical equations really are, and no one really knows the risk in them.” So, underwater oil derivatives in one bank could bring down the financial system?” “Morgan says, “Absolutely, because it is all tied together, all the banks are interconnected.”

“.. deeper losses are likely to surface down the road, when companies report first-quarter or second-quarter earnings.“

• Energy Stocks Brace For Many Quarters Of Earnings Pressure (MarketWatch)

Wall Street is bracing for a 20% decline in energy companies’ earnings in the fourth quarter — and that’s the good news. “This quarter is not going to be the trough of profitability,” said Pavel Molchanov, an analyst with Raymond James. Rather, deeper losses are likely to surface down the road, when companies report first-quarter or second-quarter earnings. Perhaps more than the sheer numbers, investors will want to hear about belt-tightening measures at companies exposed to the rout in oil prices over the last few months. The giant oil companies will report at the tail end of this earnings season, in the last days of January and the first days of February (Metals manufacturer Alcoa kicks off earnings season on Monday).

Meanwhile, Schlumberger on Thursday will be the first among oil-field services companies to report, while other companies, such as machinery maker Caterpillar, which reports on Jan. 27, are also expected to report pain from falling oil prices. Of course, all the fourth-quarter numbers will reflect the days when New York-traded WTI and London’s Brent, the global crude benchmarks, averaged $73 a barrel and $76 a barrel, respectively. The picture has only worsened. On Friday, Brent crude fell under $50 a barrel, while New York-traded oil struggled to keep above $48 a barrel. With the world awash in oil at least through the first half of the year and no indication that OPEC is even contemplating a production cut in the face of weak global demand, Wall Street has braced for more declines in the price of crude, and therefore gloomy outlooks from energy-related plays.

Falling oil prices, of course, are bound to help some companies — be it airlines, through lower fuel costs, or retailers, as consumers have more in their wallets for other items. Burt White, chief investment office for LPL Financial, said in a note Friday he expects “another good earnings season overall” despite the drag from the energy sector. Consensus estimates call for a 4% year-over-year increase in S&P 500 earnings per share for the quarter, even while absorbing the expected 20% decline in energy-sector earnings, he said.

The casino goes full steam.

• Don’t Bank on Oil Rebound Says Fund That Foresaw Collapse (Bloomberg)

A hedge fund that returned almost 60% last year by betting on oil’s collapse says the slump may have further to run. Crude may drop below $40 a barrel in the next few months without a substantial slowdown of production growth in the U.S. and Canada, said Doug King, London-based chief investment officer of Merchant Commodity Fund. Bearish oil wagers in the second half of 2014 helped the $260 million fund gain 59.3%, the best performance since its June 2004 start. Brent futures lost 48% last year, the most since 2008, as OPEC resisted calls to cut output.

The U.S. is pumping the most crude in more than three decades as horizontal drilling and hydraulic fracturing unlock shale reserves, adding to a global supply glut that Qatar estimates at 2 million barrels a day. “Unless we see real slowdown in production growth in the U.S. and Canada, there’s no point in trying to bottom fish as you are getting no help from the fundamental picture,” King said in an interview in Singapore on Jan. 8. “I wouldn’t be surprised to see the 2008 low of $35 to $30.” Merchant made 19.5% in December by forecasting a slump in crude and coal prices, King said. Brent fell 18% last month, while benchmark European thermal coal for next-year delivery lost 8.4%, according to broker data compiled by Bloomberg.

Floating casino’s.

• Oil Glut Spurs Top Traders To Book Supertankers For Storage At Sea (Reuters)

Some of the world’s largest oil traders have this week hired supertankers to store crude at sea, marking a milestone in the build-up of the global glut. Trading firms including Vitol, Trafigura and energy major Shell have all booked crude tankers for up to 12 months, freight brokers and shipping sources told Reuters. They said the flurry of long-term bookings was unusual and suggested traders could use the vessels to store excess crude at sea until prices rebound, repeating a popular 2009 trading gambit when prices last crashed. The more than 50% fall in spot prices now allows traders to make money by storing the crude for delivery months down the line, when prices are expected to recover.

The price of Brent crude is now around $8 a barrel higher for delivery at the end of 2015, with its premium rising sharply over spot prices this week due to forecasts for a large surplus in the first half of this year, in a market structure known as contango. Brent hit a 5 1/2-year low of $49.66 a barrel on Wednesday. It was trading around $51 a barrel on Thursday. While major energy traders will often hire vessels for long periods as part of their day-to-day operations, industry sources said the fixtures booked in the last week had the option to hold oil in storage. Some could still be used for conventional oil transportation. Vitol, the world’s largest independent oil trader, has booked the TI Oceania Ultra Large Crude Carrier, a 3 million barrel capacity mega-ship that is one of the biggest ocean going vessels in the world by dead weight tonnage (DWT).

Time lag.

• The Oil Industry Still Managed To Add Jobs In December (MarketWatch)

It wasn’t by much, but oil and gas explorers expanded their workforce in December even as energy prices tumbled, according to government data released Friday. The oil and gas extraction industry added roughly 400 positions in December. That is the lowest monthly showing since August, for an industry that employs some 216,000. The industry added 12,000 jobs last year. With crude-oil prices tumbling — down roughly half from a July high — job losses may well be in store.

That’s particularly worrying, because these positions, which include geoscientists, engineers and laborers, pay above-average wages. In November, workers in this sector earned $40.59 per hour, compared to the national average that’s under $25. It’s also a sector that’s been aggressively adding jobs. There’s been jobs growth of 39% over the last five years, compared to 8% for the U.S. overall. The rapid growth in the energy industry — driven by techniques like fracking that have ratcheted up growth in places like North Dakota — has also helped spill over into other sectors, like construction.

And there go the jobs.

• Oil-Price Drop Takes Shine Off Steel Town (WSJ)

Lorain, Ohio—The collapse of oil prices in the past six months is threatening to end a recent industrial revival in manufacturing centers like this town of 64,000 people on the banks of Lake Erie. The U.S. shale-drilling boom lifted Midwest manufacturing economies, enriched property owners with mineral rights and even brought back the fat blue-collar paychecks that once were harder to find. But as drilling and exploration for new oil and gas slow with the drop in energy prices, cutbacks at heavy-industry companies are cropping up. The U.S. Steel Corp. plant here, which depends heavily on oil and gas companies to buy its steel pipe and tubes, warned on Monday it might have to idle the plant in March and lay off 614 of the plant’s 700 workers. The company also said it could temporarily end work at a plant in Houston, affecting 142 workers.

The Pittsburgh-based steelmaker, the second-biggest employer in Lorain after Mercy Regional Medical Center, had recently invested $95 million in a plant upgrade. When energy prices were high and orders robust, workers received generous overtime, sometimes pushing annual salaries into six figures. “We thought this time the going was going to be good for a while,” said Chase Ritenauer, the town’s 30-year-old mayor. “But now Lorain is going to feel the impact of the global economy.” U.S. Steel bet heavily on the energy industry. The company invested $215 million in capital expenditure in its so-called tubular division over the past three years, compared with $113 million in the five years before that. U.S. Steel is trying to get back in the black after five straight unprofitable years, including a $1.7 billion loss last year.

“Right now, there’s somewhat of a state of emergency in the oil industry – some would call it a panic ..”

• Oil Losses Force Norway to Consider Measures to Back Economy (Bloomberg)

Norway is considering tapping reserve funds to shield western Europe’s biggest oil producer from the worst slump in crude prices in more than half a decade. Prime Minister Erna Solberg said the government is now “on alert” to respond to the rout. “If the economic situation requires it, we can react quickly,” she said yesterday at a conference in Oslo organized by Norway’s confederation of industry. A 56% plunge in the price of Brent crude since a June high has undermined Norway’s currency and beaten back its stock market. The krone has lost 20% against the dollar over the period. Norway’s benchmark equity index is down 9%. Oil producers including the country’s biggest, Statoil, and service companies have already cut thousands of jobs to adjust and unions are calling for government measures to protect the industry.

“The decline has been stronger and gone faster than we had expected,” Eldar Saetre, chief executive officer of state-backed Statoil, said yesterday in an interview. “The development we’re seeing is a reminder that we’re in a cyclical industry, and that we need to have a cost level in this industry that can sustain these types of cycles and let us be competitive over time.” Scandinavia’s richest economy is now facing the flipside of an oil reliance that has supported an economic boom over the past decade. Though successive governments have sought to avoid overheating by channeling oil income into the country’s $840 billion sovereign wealth fund, Norway’s plight now shows those efforts weren’t enough to wean it off oil.

“Right now, there’s somewhat of a state of emergency in the oil industry – some would call it a panic,” Walter Qvam, CEO of Kongsberg, a Norwegian defense and oil services company, said in an interview. “Norway needs this reminder, and it’s very good that we’re getting it now. We’re going to stay an oil nation, but we now need to create the next version of Norway, because the version we’ve been living in for the past 35 years is on the wane.” Solberg said her government is working on models that will help the $510 billion economy speed up its shift away from fossil fuels and over to other industries.

The war on Russia continues: “It will be very difficult to escape being junked.”

• Russia Cut to One Step Above Junk by Fitch on Oil, Sanctions (Bloomberg)

Russia’s credit rating was cut to the lowest investment grade by Fitch Ratings after plummeting oil prices and the conflict over Ukraine triggered the worst currency crisis since the country’s 1998 default. Fitch, which last downgraded Russia in 2009, cut the sovereign one step to BBB-, according to a statement issued Friday in New York. The grade, on par with India and Turkey, has a negative outlook. “The economic outlook has deteriorated significantly since mid-2014 following sharp falls in the oil price and the ruble, coupled with a steep rise in interest rates,” Fitch said in the statement. “Plunging oil prices have exposed the close link between growth and oil.” The world’s biggest energy exporter is on the brink of a recession after crude fell more than 50% since June and the U.S. and its allies imposed sanctions following President Vladimir Putin’s annexation of Crimea from Ukraine in March.

The penalties have locked Russian corporate borrowers out of international debt markets and curbed investor appetite for the ruble, stocks and bonds. The downgrade by Fitch puts it in line with the nation’s assessment by Standard & Poor’s, which cut Russia to BBB- in April. Authorities have responded to the currency crisis with emergency moves that included the biggest interest-rate increase since 1998, a 1 trillion-ruble ($17 billion) bank recapitalization plan and measures to force exporters to convert more of their foreign revenue into rubles. “This decision is showing Russia is now caught in a vicious cycle in which the plunge in oil prices, the much harsher sanctions regime, the uncertainty about the entire policy regime and the depth of the recession are all feeding on each other,” Nicholas Spiro, managing director at Spiro Sovereign Strategy, said in a telephone interview from London. “It will be very difficult to escape being junked.”

“We won’t survive the coming years if someone loses their nerve in this overheated situation ..”

• Gorbachev Warns Of Major War In Europe Over Ukraine (Reuters)

Former Soviet leader Mikhail Gorbachev warned that tensions between Russia and European powers over the Ukraine crisis could result in a major conflict or even nuclear war, in an interview to appear in a German news magazine on Saturday. “A war of this kind would unavoidably lead to a nuclear war,” the 1990 Nobel Peace Prize winner told Der Spiegel news magazine, according to excerpts released on Friday. “We won’t survive the coming years if someone loses their nerve in this overheated situation,” added Gorbachev, 83. “This is not something I’m saying thoughtlessly. I am extremely concerned.” Tensions between Russia and Western powers rose after pro-Russian separatists took control of large parts of eastern Ukraine and Russia annexed Crimea in early 2014. The United States, NATO and the European Union accuse Russia of sending troops and weapons to support the separatist uprising, and have imposed sanctions on Moscow.

Russia denies providing the rebels with military support and fends off Western criticism of its annexation of Crimea, saying the Crimean people voted for it in a referendum. Gorbachev, who is widely admired in Germany for his role in opening the Berlin Wall and steps that led to Germany’s reunification in 1990, warned against Western intervention in the Ukraine crisis. “The new Germany wants to intervene everywhere,” he said in the interview. “In Germany evidently there are a lot of people who want to help create a new division in Europe.” The elder statesman, whose “perestroika” (restructuring) policy helped end the Cold War, has previously warned of a new cold war and potentially dire consequences if tensions were not reduced over the Ukraine crisis. The diplomatic standoff over Ukraine is the worst between Moscow and the West since the Cold war ended more than two decades ago.

h/t @PhenomTriune

Crucial topic. The turning point in debt fueled economies is when additional debt can no longer produce growth.

• Empirical Proof of the Giant Con (Beversdorf)

[..] it is important then that we ensure our debt is being allocated effectively so as to avoid devastation. But how do we do that? How do we know debt is being effectively put to work in the economy so that it actually returns both principal and some additional positive return at least sufficient to cover the interest payment on the principal borrowed? Well, I’ve put together a chart. The chart depicts something I’m calling Debt Delta Velocity and M2 Delta Velocity. All I’ve done is used the change in GDP and money stock to get the delta velocity. That is, for each dollar we ve added to money supply in a given period (and I used annual periods) we gauge how much additional output was generated. So then it s change in GDP divided by change in M2 Stock (whereas M2 Velocity is total GDP/total M2).

And so in order to measure the effectiveness of our debt utilization I take change in GDP divided by change in debt. Now the issue with debt is that it needs to be paid back. And so if we are generating anything less than the principle + real interest rate we are actually losing money on each dollar of debt despite official total GDP increasing due to the inclusion of debt principal. So let’s have a look at the chart.

And so what we see is M2 Delta Velocity (green line) showing a positive trend from the late 1960s through the late 1990s at which point it goes into a nose dive that continues today. This means that we re being forced to print proportionately more dollars to generate the same amount of output. But one dollar of additional supply is still generating more than a dollar of output. However that does not appear to be the case with debt delta velocity. The Debt Delta Velocity (blue line) is the change in GDP/ (change in debt + cumulative change in annual interest payments). The idea is that the cost is not only the additional principal debt but the annual interest payment as well. And so even a linear accumulation of debt results in an exponential growth in obligations requiring significantly more GDP growth than does M2 Delta Velocity to generate positive returns. The significance of this chart is that it shows us for every dollar of debt we take on we are generating less than a dollar of GDP.

“Reality is now setting in for America and for that matter for most of the world. The piper will get his due even if “the children” have to suffer.”

• Inner City Turmoil And Other Crises: My Predictions For 2015 (Ron Paul)

If Americans were honest with themselves they would acknowledge that the Republic is no more. We now live in a police state. If we do not recognize and resist this development, freedom and prosperity for all Americans will continue to deteriorate. All liberties in America today are under siege. It didn’t happen overnight. It took many years of neglect for our liberties to be given away so casually for a promise of security from the politicians. The tragic part is that the more security was promised — physical and economic — the less liberty was protected. With cradle-to-grave welfare protecting all citizens from any mistakes and a perpetual global war on terrorism, which a majority of Americans were convinced was absolutely necessary for our survival, our security and prosperity has been sacrificed. It was all based on lies and ignorance. Many came to believe that their best interests were served by giving up a little freedom now and then to gain a better life. The trap was set.

At the beginning of a cycle that systematically undermines liberty with delusions of easy prosperity, the change may actually seem to be beneficial to a few. But to me that’s like excusing embezzlement as a road to leisure and wealth — eventually payment and punishment always come due. One cannot escape the fact that a society’s wealth cannot be sustained or increased without work and productive effort. Yes, some criminal elements can benefit for a while, but reality always sets in. Reality is now setting in for America and for that matter for most of the world. The piper will get his due even if “the children” have to suffer. The deception of promising “success” has lasted for quite a while. It was accomplished by ever-increasing taxes, deficits, borrowing, and printing press money. In the meantime the policing powers of the federal government were systematically and significantly expanded. No one cared much, as there seemed to be enough “gravy” for the rich, the poor, the politicians, and the bureaucrats.

As the size of government grew and cracks in the system became readily apparent, a federal police force was needed to regulate our lives and the economy, as well as to protect us from ourselves and make sure the redistribution of a shrinking economic pie was “fair” to all. Central economic planning requires an economic police force to monitor every transaction of all Americans. Special interests were quick to get governments to regulate everything we put in our bodies: food, medications, and even politically correct ideas. IRS employees soon needed to carry guns to maximize revenue collections. The global commitment to perpetual war, though present for decades, exploded in size and scope after 9/11. If there weren’t enough economic reasons to monitor everything we did, fanatics used the excuse of national security to condition the American people to accept total surveillance of all by the NSA, the TSA, FISA courts, the CIA, and the FBI. The people even became sympathetic to our government’s policy of torture.

“Holding to a budget balance goal is really a key point in our strategy, as it gives us the possibility to negotiate from a strong position.”

• Greece’s Leftist Candidate: ‘Markets Won’t Be Rooting for Us’ (Bloomberg)

Greek anti-austerity Syriza party leader Alexis Tsipras isn’t “frightened” by possible market turmoil in case of victory at the Jan. 25 general election. “We know markets certainly won’t be rooting for us and there’s a chance that initially they will show some aggressiveness toward a left government,” he said, according to excerpts of “Alexis Tsipras, My Left,” a book scheduled to be published in Italy next week. “The more you need money, the higher is the interest markets require.” Prime Minister Antonis Samaras was forced to ask for snap elections on Dec. 29 after failing to get enough lawmakers to support his candidate for the country’s ceremonial presidency.

Greek 10-year government bond yields climbed back above 10% this week as Syriza’s lead in polls was confirmed less than three weeks before the ballot. Samaras has warned the election will determine Greece’s euro membership and raised the specter of default in case of a victory by Tsipras, who advocates higher wages and a write-off of some Greek debt. “Additionally, as to markets perception, the issue of debt negotiation is fundamentally important,” Tsipras told Teodoro Andreadis Synghellakis in the question-and-answer style book. Syriza vows to write down most of the nominal value of Greece’s debt once elected. “That’s what was done for Germany in 1953, it should be done for Greece in 2015,” Tsipras said in a speech in Athens Jan. 3.

“The solution is balanced budgets to strongly limit the need to borrow money,” Tsipras said in the book. “Holding to a budget balance goal is really a key point in our strategy, as it gives us the possibility to negotiate from a strong position. That said, we need to say that budget balance doesn’t mean resorting to austerity per se.” Stavros Theodorakis, leader of To Potami, which is polling in third place ahead of elections, said in an interview in Athens yesterday that he won’t support any coalition willing to gamble with the country’s place in the euro. “The goal is to create a majority of social forces where the Left can be the main actor that will be able to play a fundamental role in changing citizens condition,” Tsipras said, according to the transcripts.

Germany is losing much of its shine.

• Eurozone Hit By Germany’s Sliding Exports And Industrial Production (Ind.)

Germany’s faltering output and exports have capped a week of pain for the eurozone. Germany – which narrowly avoided a triple-dip recession last year – saw industrial output dip 0.1% in November, according to official figures, far weaker than the 0.4% advance pencilled in by pundits. In another blow, Germany’s exports to the rest of the world also tumbled 2.1% over the month. The fall was echoed by a 0.1% decline in the UK’s industrial production during November. Warm weather hit electricity demand, although manufacturers fared better, growing output 0.7%. Britain’s builders sank into reverse, however, as output dropped 2% over the month.

The fresh signs of weakness in the German economy – the eurozone’s biggest – come just days after the struggling single-currency bloc slid into deflation territory for the first time since 2009, heightening speculation that European Central Bank boss Mario Draghi will launch a full-scale, money-printing programme later this month. Germany’s exporters are struggling against a backdrop of Russian sanctions and a weaker Chinese economy. Meanwhile, Greece’s looming election and potential victory for the anti-austerity Syriza party is adding to the uncertainty, although the euro’s collapse to nine-year lows against the dollar should eventually help exporters.

“Today’s data provides further evidence that the German economy has not yet fully recovered from the soft spell of the summer. In fact, the German economy still counts its bruises. Nevertheless, in our view, the economy should gain more momentum in the coming months,” ING Bank’s Carsten Brzeski said. But German economist Alexander Krueger at Bankhaus Lampe added: “Things are certainly not rosy. The geopolitical situation, especially the Russia conflict and the related economic uncertainty, is limiting growth.”

All pensions funds should.

• Dutch Pension Fund Giant Drops Use Of Hedge Funds (Reuters)

The Netherlands’ PFZW has become the latest major pension fund to announce it will no longer use hedge funds to manage investments, citing excessive costs, complexity and a lack of performance. The fund, which represents around 2 million workers in the health care sector, had 156.3 billion euros ($184.7 billion) in assets under management as of September 2014. About 2.7% of the fund’s assets had been invested with hedge funds in the year 2013, but the pension fund said on Friday that it had “all but eradicated” their use by the end of 2014. “With hedge funds, you’re certain of the high costs, but uncertain about the return,” the company’s manger for investment policy Jan Willem van Oostveen said. He added that PFZW wanted to have greater control over of its investments, and that hedge funds’ methods were too complex because of their diverse investment strategies. In September, the $300 billion California Public Employees’ Retirement System said it had scrapped its hedge fund programme, pulling out about $4 billion.

“Disgusted and also shocked, we cannot fall to our knees. It is our responsibility to react ..”

• #OpCharlieHebdo: Anonymous Declares War On Terrorist Websites (RT)

Hacktivist group Anonymous has threatened to avenge the recent terrorist attacks in France by tracking and bringing down jihadist websites. The group’s YouTube message directly confronts Al-Qaeda and Islamic State on the Charlie Hebdo massacre. “We are declaring war against you, the terrorists,” says a figure wearing the symbolic Guy Fawkes mask in a new online clip, released with a statement. The hashtag #OpCharlieHebdo is visible in the video that dedicates the message to: “Al-Qaeda, the Islamic State and other terrorists.” It says that the hacktivist group will be going after and shutting down all terrorist accounts on social media in a mission to avenge those killed in the Charlie Hebdo attacks. The video was uploaded to the group’s Belgian YouTube account.

Earlier, Anonymous posted a statement on Pastebin, titled: “Message to the enemy of the freedom of speech.” “Freedom of speech has suffered an inhuman assault … Disgusted and also shocked, we cannot fall to our knees. It is our responsibility to react,” the statement says. The group has successfully attacked many websites in the past, including government, military, religious, and commercial pages. Anonymous’ signature move is to overwhelm the servers with traffic by sending out distributed denial-of-service (DDoS) attacks, which knocks out the websites.

Can we learn?

• What Radicalized The Charlie Hebdo Terrorists – Try Abu Ghraib (Ray McGovern)

First, a hat tip to Elias Groll, assistant editor at Foreign Policy, whose report just a few hours after the killings on Wednesday at the French satirical magazine Charlie Hebdo, included this key piece of background on the younger of the two brother suspects: “Carif Kouachi was previously known to the authorities, as he was convicted by a French court in 2008 of trying to travel to Iraq to fight in that country’s insurgent movement. Kouachi told the court that he wished to fight the American occupation after viewing images of detainee abuse at Abu Ghraib prison.” The next morning, Amy Goodman of Democracynow.org and Juan Cole also carried this highly instructive aspect of the story of the unconscionable terrorist attack, noting that the brothers were well known to French intelligence; that the younger brother, Cherif, had been sentenced to three years in prison for his role in a network involved in sending volunteer fighters to Iraq to fight alongside al-Qaeda; and that he said he had been motivated by seeing the images of atrocities by U.S. troops at Abu Ghraib.

An article in the Christian Science Monitor added: “During Cherif Kouachi’s 2008 trial, he told the court, ‘I really believed in the idea’ of fighting the U.S.-led coalition in Iraq.” But one would look in vain for any allusion to Abu Ghraib or U.S. torture in coverage by the Wall Street Journal or Washington Post. If you read to the end of a New York Times article, you would find in paragraph 10 of 10 a brief (CYA?) reference to Abu Ghraib. So I guess we’ll have to try to do their work for them. Would it be unpatriotic to suggest that a war of aggression and part of its “accumulated evil” – torture – as well as other kinds of state terrorism like drone killings are principal catalysts for this kind of non-state terrorism? Do any Parisians yet see blowback from France’s Siamese-twin relationship with the U.S. on war in the Middle East and the Mahgreb, together with their government’s failure to speak out against torture by Americans? Might this fit some sort of pattern?

Well, duh. Not that this realization should be anything new. In an interview on Dec. 3, 2008, Amy Goodman posed some highly relevant questions to a former U.S. Air Force Major who uses the pseudonym Matthew Alexander, who personally conducted more than 300 interrogations in Iraq and supervised more than a thousand. AMY GOODMAN: “I want to go to some larger issues, this very important point that you make that you believe that more than 3,000 U.S. soldiers were killed in Iraq — I mean, this is a huge number — because of torture, because of U.S. practices of torture. Explain what you mean.” MATTHEW ALEXANDER: “Well, you know, when I was in Iraq, we routinely handled foreign fighters, who we would capture. Many of — several of them had been scheduled to be suicide bombers, and we had captured them before they carried out their missions.

“They came from all over the area. They came from Yemen. They came from northern Africa. They came from Saudi. All over the place. And the number one reason these foreign fighters gave for coming to Iraq was routinely because of Abu Ghraib, because of Guantanamo Bay, because of torture practices. “In their eyes, they see us as not living up to the ideals that we have subscribed to. You know, we say that we represent freedom, liberty and justice. But when we torture people, we’re not living up to those ideals. And it’s a huge incentive for them to join al-Qaeda.

Wow.

• ‘Bent Time’ Tips Pulsar Out Of View (BBC)

A pulsar, one of deep space’s spinning “lighthouses”, has faded from view because a warp in space-time tilted its beams away from Earth. The tiny, heavy pulsar is locked in a fiercely tight orbit with another star. The gravity between them is so extreme that it is thought to emit waves and to bend space – making the pulsar wobble. By tracking its motion closely for five years, astronomers determined the pulsar’s weight and also quantified the gravitational disturbance. Then, the pulsar vanished. Its wheeling beams of radio waves now pass us by, and the researchers have calculated that this can be explained by “precession”: the dying star wobbling into the dip in space-time that its own orbit created. A pulsar is a small but improbably dense neutron star – the collapsed remnant of a supernova.

“They pack more mass than our Sun has in a sphere that’s only 10 miles across,” said the study’s lead author Joeri van Leeuwen, from the Netherlands Institute for Radio Astronomy (Astron). When they occur as binaries, neutron stars come hard up against Einstein’s theory of general relativity, and should generate space-time ripples called gravitational waves, which astronomers hope one day to detect. This particular specimen, Pulsar J1906, popped up unexpectedly during a survey Dr van Leeuwen and colleagues were conducting at the Arecibo Observatory, Puerto Rico. “That was a real Eureka moment that night,” he told journalists at the conference. “It was strange, because that part of the sky’s been surveyed lots of times – and then something really bright and new appears.” They soon discovered the pulsar had a companion star, and that it was pushing the boundaries of what astronomers know of these bizarre systems.

The pair circle each other in just four hours – the second fastest such orbit ever seen – and the pulsar spins seven times per second, sweeping its two beams of radio waves across space to Earth. Dr van Leeuwen’s team set about monitoring those waves, nearly every night for the next five years, using the world’s five biggest radio telescopes. All told, they clocked one billion rotations of the pulsar. “By precisely tracking the motion of the pulsar, we were able to measure the gravitational interaction between the two highly compact stars with extreme accuracy,” said co-author Prof Ingrid Stairs of the University of British Columbia, Canada. Each is approximately 1.3 times heavier than our Sun, but they are only separated by about one solar diameter.“The resulting extreme gravity causes many remarkable effects,” Prof Stairs said. Chief among those is the time-space warp and the wobble that has now caused J1906 to shine its light elsewhere – for the time being.

About as off-topic as I could find.

• Would You Be Beautiful In The Ancient World? (BBC)

In ancient Greece the rules of beauty were all important. Things were good for men who were buff and glossy. And for women, fuller-figured redheads were in favour – but they had to contend with an ominous undercurrent, historian Bettany Hughes explains. A full-lipped, cheek-chiselled man in Ancient Greece knew two things – that his beauty was a blessing (a gift of the gods no less) and that his perfect exterior hid an inner perfection. For the Greeks a beautiful body was considered direct evidence of a beautiful mind. They even had a word for it – kaloskagathos – which meant being gorgeous to look at, and hence being a good person. Not very politically correct, I know, but the horrible truth is that pretty Greek boys would have swaggered around convinced they were triply blessed – beautiful, brainy and god-beloved.

So what made them fit? For years, classical Greek sculpture was believed to be a perfectionist fantasy – an impossible ideal, but we now think a number of the exquisite statues from the 5th to the 3rd Centuries BC were in fact cast from life – a real person was covered with plaster, and the mould created was then used to make the sculpture. Those with leisure time could spend up to eight hours a day in the gym. An average Athenian or Spartan citizen would have been seriously ripped – thin-waisted, small-penised, oiled from his “glistening lovelocks” down to his ideally slim toes. A rather different story though when it comes to the female of the species. Hesiod – an 8th/7th Century BC author whose works were as close as the Greeks got to a bible – described the first created woman simply as kalon kakon – “the beautiful-evil thing”. She was evil because she was beautiful, and beautiful because she was evil. Being a good-looking man was fundamentally good news. Being a handsome woman, by definition, spelt trouble.

And if that wasn’t bad enough, beauty was frequently a competitive sport. Beauty contests – kallisteia – were a regular fixture in the training grounds of the Olympics at Elis and on the islands of Tenedos and Lesbos, where women were judged as they walked to and fro. Triumphant men had ribbons tied around winning features – a particularly pulchritudinous calf-muscle or bicep. My favourite has to be the contest in honour of Aphrodite Kallipugos – Aphrodite of the beautiful buttocks. The story goes that when deliberating on where to found a temple to the goddess in Sicily it was decided an exemplar of human beauty should make the choice. Two amply-portioned farmer’s daughters battled it out. The best endowed was given the honour of choosing the site for Aphrodite’s shrine. Fat-bottomed girls clearly had a hotline to the goddess of love.

Debt Rattle January 8 2015

Jan 082015

January 8, 2015 Posted by Raúl Ilargi Meijer at 11:41 am Finance Tagged with: Abenomics, antibiotics, Charlie Hebdo, deflation, euro, fossil fuels, Greece, paycheck, Ron Paul 17 Responses »

DPC Old Absinthe House, bar, New Orleans 1906

• Most Americans Are One Paycheck Away From The Street (MarketWatch)

• Ron Paul On Paris Attack: Bad Foreign Policy ‘Invites Retaliation’ (Breitbart)

• Why Oil Will Go Even Lower (CNBC)

• The Worrying Math From US Shale Plays (Ron Patterson)

• White House Doesn’t Feel Pressure To Expand US Crude Exports (Reuters)

• Oil Investors Pour Most Money Into Funds in 4 Years (Bloomberg)

• World’s Best Forecaster Targets Euro-Dollar Parity (Bloomberg)

• Are Bond Yields Flashing A Panic Signal? (CNBC)

• Eurozone Deflation Is The Final Betrayal Of Southern Europe (AEP)

• A Tale Of Two Record Unemployments: Italy vs Germany (Zero Hedge)

• German Unemployment Falls to Record Low on Strengthening Economic Recovery (Bloomberg)

• Italy Jobless Rate Rises to Record Amid Growth Outlook Concerns (Bloomberg)

• Greek Crisis Jolts QE Juggernaut as ECB Ponders Deflation (Bloomberg)

• German Lawmakers Say Greek Debt Talks Possible After Vote (Bloomberg)

• ECB Wants New Greek Government To Quickly Reach Deal With Creditors (Reuters)

• Here’s One Road Map For A Greek Eurozone Exit (MarketWatch)

• We Are Entering An Era Of Shattered Illusions (Alt-Market)

• Fed Bullish On US Recovery (Reuters)

• Japan Household Mood Worsens To Levels Before ‘Abenomics’ (Reuters)

• China Steps In To Support Venezuela, Ecuador As Oil Prices Tumble

• Lawmakers Up Pressure On Obama To Release Secret 9/11 Documents (Fox)

• ‘France Wants To Mend Ties With Russia’ (RT)

• Fight Over Keystone Pipeline is Completely Divorced From Reality (Bloomberg)

• Most Fossil Fuels Are ‘Unburnable’ (BBC)

• The ‘Untouchable Reserves’ (BBC)

• US Antibiotics Discovery Labelled ‘Game Changer’ For Medicine (BBC)

A gutted society.

• Most Americans Are One Paycheck Away From The Street (MarketWatch)

Americans are feeling better about their job security and the economy, but most are theoretically only one paycheck away from the street. Approximately 62% of Americans have no emergency savings for things such as a $1,000 emergency room visit or a $500 car repair, according to a new survey of 1,000 adults by personal finance website Bankrate.com. Faced with an emergency, they say they would raise the money by reducing spending elsewhere (26%), borrowing from family and/or friends (16%) or using credit cards (12%). “Emergency savings are not just critical for weathering an emergency, they’re also important for successful homeownership and retirement saving,” says Signe-Mary McKernan, senior fellow and economist at the Urban Institute, a nonprofit organization that focuses on social and economic policy.

The findings are strikingly similar to a U.S. Federal Reserve survey of more than 4,000 adults released last year. “Savings are depleted for many households after the recession,” it found. Among those who had savings prior to 2008, 57% said they’d used up some or all of their savings in the Great Recession and its aftermath. What’s more, only 39% of respondents reported having a “rainy day” fund adequate to cover three months of expenses and only 48% of respondents said that they would completely cover a hypothetical emergency expense costing $400 without selling something or borrowing money. Why aren’t people saving? “A lot of people are in debt,” says Andrew Meadows, producer of “Broken Eggs,” a documentary about retirement. “Probably the most common types of debt are student loans and costs related to medical issues.”

He spent seven weeks traveling around the U.S. and interviewed over 100 people about why they haven’t saved enough money. “People are still feeling the heat from the Great Recession.” Some 44% of senior citizens have enough savings to cover unexpected expenses versus 33% of millennials, Bankrate.com found. On the upside, the Bankrate survey found that 82% of Americans keep a household budget, up from 60% in 2012. Even in the age of the smartphone, most people keep a budget the old-fashioned way, either with a pen and paper (36%) or in their heads (18%). Just 26% of those surveyed say they use a computer program or smartphone app.

That’s exactly what I said yesterday in I Follow Charlie.

• Ron Paul On Paris Attack: Bad Foreign Policy ‘Invites Retaliation’ (Breitbart)

On Wednesday’s “The Steve Malzberg Show” on NewsMax TV, former Rep. Ron Paul (R-TX) tied the Paris shooting, along with other Western domestic terrorist attacks to the bad foreign policies of those countries. “Partially what the Secretary of State said is true,” Paul said. “This is pretty obscene, when it comes to violence, and libertarians are pretty annoyed by anybody who initiates violence. “The context of things, France has been a target for many, many years, because they’ve been involved in foreign affairs in Libya, and they really prodded us along in — recently in Libya, but they’ve been involved in Algeria, so they’ve had attacks like this, you know, not infrequently,” he added.

“So, it does involve, you know, their foreign policy as well. When people do this, you know, the rejection of the violence has to be made, and with that I agree. I put blame on bad policy that we don’t fully understand, and we don’t understand what they’re doing because the people who are objecting to the foreign policy that we pursue, they do it from a different perspective. They see us as attacking them, and killing innocent people, so yes, they, they have — this doesn’t justify, so don’t put those words in my mouth — it doesn’t justify, but it explains it.” Paul cited U.S. involvement in the Middle East that helped to inspire the rise of ISIS.

“And this is why we say if we had somebody do to us what we have done to so many countries in the Middle East, and how many people we’ve killed, and sending over drones, and bombing, being involved in all these wars, and supporting dictators one week, and taking away the support — and the stupidity of us sending all those weapons into Syria, ending up in the hands of ISIS — and right now we’re even sending more weapons. You know, because ISIS took all the American weapons. It’s that overall policy which invites retaliation, and they see us as intruders. But it’s a little bit more complex, you know, when they hit us, either here at home, and hit civilians, and what’s happening in France. But I don’t think you can divorce these instances from the overall foreign policy.”

“The median estimate of more than 30 forecasters in a Bloomberg survey is $1.15 by the end of 2016.”

• World’s Best Forecaster Targets Euro-Dollar Parity (Bloomberg)

Being more bearish on the euro than the consensus helped ING become the world’s most accurate currency forecaster in 2014. The Dutch bank sees no reason to change its strategy now, breaking from the pack to predict a drop to parity with the dollar within two years. After watching the 19-nation currency slide as low as $1.1792 today from last year’s high of $1.3993 in May, ING sees it continuing to weaken all the way to $1, a level last seen in 2002. The median estimate of more than 30 forecasters in a Bloomberg survey is $1.15 by the end of 2016. ING expects measures by the European Central Bank to boost the euro zone’s flagging economy and avoid deflation will have direr consequences for the currency than most other firms. Few investors will want the euro as policy makers expand the money supply, especially as the Federal Reserve makes dollar assets more attractive by raising interest rates.

“We are one of the most bearish houses on euro-dollar,” Petr Krpata, a foreign-exchange strategist at ING in London, said yesterday by phone. “It looks as if the Fed will start hiking rates sooner rather than later, potentially even late in the second quarter, and this will further fuel the divergence on policy.” ING topped Bloomberg’s rankings of foreign-exchange analysts for the four quarters ended Dec. 31, rising from second place previously and supplanting German lender Landesbank Baden-Wuerttemberg in the No. 1 slot. In one of its best calls, ING predicted at the start of 2014 the euro would fall 13% to $1.20 by Dec. 31, compared with a median estimate in a Bloomberg survey of $1.28 at the time. The shared currency ended the year at $1.2098, and traded at $1.1798 as of 9:39 a.m. in London.

Or is it a loss of sanity signal?

• Are Bond Yields Flashing A Panic Signal? (CNBC)

Government bond yields in the U.S., Europe and Japan are plumbing lows, suggesting a flight to safety, but analysts aren’t ready to hit the panic button. “This is the first time ever that rates are this low, as even during the 1930s rates were well above current levels,” Steven Englander, head of G-10 foreign-exchange strategy at Citigroup, said in a note this week, noting the average G-3 10-year government bond yield is below 1%. The 10-year U.S. Treasury yield was trading around 1.98% late Tuesday in the U.S. after starting the year around 2.17%. Germany’s 10-year bund was around 0.47%, around all-time lows, after ending 2014 around 0.54%, while the Japanese government bond (JGB) was around 0.30%, a tad up from the record low 0.265% touched earlier this week. Bond prices move inversely to yields.

“This is not happening during the panic phase of a crisis, but after the panic is over and we have had significant recoveries in asset prices globally,” he said. But rather than a panic signal, he calls it “more a sign that investors think we are going nowhere for a long time.” Others are also disregarding the idea that declines in already low bond yields may be a warning signal. “The markets seem to be suggesting that you have perhaps even a recessionary environment, not dissimilar to an emerging market crisis, an Asian crisis or even the GFC (global financial crisis),” Piyush Gupta, CEO of DBS, said at a presentation for the bank’s private banking clients. He cited the 30-year U.S. Treasury’s around 40 basis point drop in yield in the first three trading days of this year, saying it may be the biggest drop in the 30-year’s yield since records began.

“U.S. oil production rose again—to 9.132 million barrels a day, on par with the largest output in more than three decades.”

• Why Oil Will Go Even Lower (CNBC)

New data showing a surge in U.S. gasoline and diesel fuel supplies spell more trouble for oil prices but is good news for consumers. The Energy Information Administration on Wednesday reported that U.S. gasoline stocks rose by 8.1 million barrels last week, compared with expectations for a 3.4 million barrel build. Distillate stocks, including diesel fuel and heating oil, rose by 11.2 million barrels, more than five times the amount expected. Gasoline futures for February slumped more than 2% on the Nymex to $1.32 per gallon, but West Texas Intermediate oil futures rose slightly to $48.62 per barrel even though the large supply of refined products means lower demand for oil in coming weeks.

The data showed a bigger-than-expected drop of 3.1 million barrels in crude inventories last week, but it also showed that U.S. oil production rose again—to 9.132 million barrels a day, on par with the largest output in more than three decades. Production was at 9.12 million barrels a day last week, and has been above 9 million barrels daily since early November. The surge in U.S. production, largely from shale drilling, is what set off a price war between OPEC and other producers as U.S. crude displaced that of other competitors. OPEC, at its last meeting on Thanksgiving, adopted a strategy of standing back and letting the market determine price. That has helped drive oil down further and faster than many analysts had expected.

Analysts see oil prices weakening further through the second quarter before leveling off and rising in the fourth quarter. “Despite the falling rig count, we tend to hover near 30-year highs in output,” said John Kilduff of Again Capital. He said Wednesday’s weekly data reaffirmed his negative outlook for oil prices. U.S. oil production is expected to continue to grow over the next several months, as producers pump at current levels and some even more, particularly if they are cash strapped. Analyst say it will be several months before cutbacks in capital spending start to show up in decreased oil output. “My outlook’s pretty bearish. I don’t know if it can possibly get more bearish,” Kilduff said. “I still think we’re going to punch the clock on $33 and see what happens from there.”

Decline rates even worse than thought.

• The Worrying Math From US Shale Plays (Ron Patterson)

There has been considerable dispute over how many new wells required to keep production flat in the Bakken and Eagle Ford. One college professor posted, over on Seeking Alpha, figures that it would take 114 rigs in the Bakken and 175 in Eagle Ford to keep production flat. He bases his analysis on David Hughes’ estimate that the legacy decline rate for Bakken wells is 45% and 35% for Eagle Ford wells. And he says a rig can drill 18 wells a year, or about one well every 20.3 days. The EIA has come up with different numbers. The data for the chart below was taken from the EIA’s Drilling Productivity Report. The EIA has current legacy decline at about 6.3% per month for Bakken wells and about 7.7% per month for Eagle Ford wells. That works out to be about 54% per year for the Bakken and 62% per year for Eagle Ford. I believe the EIA’s estimate of legacy decline, in this case, is fairly accurate.

“If you look at what’s going on in the market and actions that the Department took, I think that … there’s not a lot of pressure to do more.”

• White House Doesn’t Feel Pressure To Expand US Crude Exports (Reuters)

The White House does not feel pressure to loosen restrictions on U.S. oil exports further and views debate over the issue as resolved for now, John Podesta, a top aide to President Barack Obama, told Reuters in an interview. The drop in oil prices and the Commerce Department’s move to allow companies to ship as much as a million barrels per day of ultra-light U.S. crude to the rest of the world has taken pressure off the administration to do more. “At this stage, I think that what the Commerce Department did in December sort of resolves the debate. We felt comfortable with where they went,” Podesta said from his West Wing office in the most substantive comments yet from a White House official on the contentious issue of exporting abundant U.S. shale oil. “If you look at what’s going on in the market and actions that the Department took, I think that … there’s not a lot of pressure to do more.”

His comments may disappoint some Republicans and energy companies such as Hess Corp. which have lobbied for more relief from a ban they view as a relic of the 1970s Arab oil embargo. While few analysts expected Obama to make a serious effort to repeal the ban – a delicate political topic due to widespread fears among Americans that doing so could inflate gasoline prices – some had hoped that further modest measures to ease its impact might emerge this year. By standing pat, however, Obama may avoid clashing with his environmentalist supporters who have begun to campaign against lifting the restrictions, hoping that might keep a lid on domestic oil drilling by depressing local prices. Some refiners such as PBF Energy, which have benefited from the abundance of U.S. shale oil, also oppose easing the ban. Podesta, who plans to leave the administration in early February and help Hillary Clinton if she decides to run for president, has played a critical role on energy and climate policy during his one-year tenure with Obama.

Well, if you need to gamble ..

• Oil Investors Pour Most Money Into Funds in 4 Years (Bloomberg)

Investors betting oil will rebound from the lowest prices in 5 1/2-years poured the most money in more than four years into funds that track crude. The four biggest oil exchange-traded products listed in the U.S. received a combined $1.23 billion in December, the most since May 2010, according to data compiled by Bloomberg. Another $109.9 million was added this month through Jan. 5. Investors are piling into oil ETFs even after West Texas Intermediate crude tumbled the most since 2008 last year amid signs of rising supply and weak demand. Shares outstanding of the four funds surged to the highest since 2009. “Commodity investors can be contrarian investors,” said Matt Hougan, president of research firm ETF.com. “There are a lot of true believers in the commodity space. A lot of people are attached to the idea that oil’s natural price should be $100, not $50.”

The U.S. Oil Fund (USO), the biggest oil ETF, attracted $629.9 million in December and $100.4 million so far this month. The fund (DBO), which follows WTI prices, added 1.8% to $18.369 yesterday on the New York Stock Exchange. The number of U.S. Oil Fund shares on loan to short sellers was 3.93 million on Jan. 5, down from as high as 9.53 million last month, data compiled by Markit and Bloomberg show. Money is pouring into oil ETFs even as commodity-linked index liquidations surged to a record $17 billion in the first 11 months of last year, Barclays said in a report yesterday. Total commodity assets under management fell to $276 billion in November, the lowest since early 2010, according to the bank.

“There is a risk of a real economic vicious cycle: less investment, which in turn reduces potential growth, the future becomes even grimmer and investment is reduced even further ..”

• Eurozone Deflation Is The Final Betrayal Of Southern Europe (AEP)

The eurozone has let it happen. Europe’s authorities have so mismanaged monetary and fiscal strategy that the whole currency bloc has tipped into deflation. The drop in the eurozone’s headline price index to -0.2% in December scarcely captures the significance of what is happening. Deflationary forces have been gaining a grip on all the crisis states of the South for 18 months. A chorus of economists began warning two years ago that the region was sailing close to the wind by letting inflation drift ever lower, leaving itself one shock away from a loss of policy traction. That shock is now hitting in successive waves: the Russia crisis; China’s over-investment glut; and now the collapse of oil prices. Textbook theory suggests that a halving of energy costs should be cause for celebration, a tax cut for consumers. It is very different calculus when inflation is already zero, bond yields are plummeting to 14th century lows across the world, and market psychology is becoming “unhinged” – to use central banking vernacular.

“Normally, any central bank would prefer to look through a positive supply shock,” said Peter Praet, the European Central Bank’s chief economist. “But we may not have that luxury at present. Shocks can change: in certain circumstances supply shocks can morph into demand shocks via second-round effects.” Mr Praet said families and firms are already adapting pre-emptively to the new order, describing what amounts to a classic deflation trap. “There is a risk of a real economic vicious cycle: less investment, which in turn reduces potential growth, the future becomes even grimmer and investment is reduced even further,” he told Börsen-Zeitung. Mr Praet warned that an “underemployment equilibrium” is setting in, invoking the term used by Keynes in the 1930s. He exhorted “all the authorities”, including governments, to step up to their responsibilities and take “urgent action”. This is a man who knows that monetary union is in deep crisis.

His boss, Mario Draghi, has been bending every sinew for a long time to head off this awful moment. He went to Berlin as far back as November 2013 to plead for understanding from Germany’s economic elites, warning even then that radical measures were needed to secure a “safety margin against deflationary risks”. He feared that the downward slide was pushing EMU crisis countries into a deeper rut as they tried to claw back competitiveness. “Real debt burdens rise,” he said. Mr Draghi did not invoke Irving Fisher’s classic text published in 1933 – Debt-Deflation Theory of Great Depressions – but his message was the same. Falling prices are not benign in highly-leveraged economies. There comes a point when the sailing ship does not right itself by the normal swing of the cycle. It tips too far and capsizes. Try to right it then. The Japanese are still trying 15 years later.

Zero Hedge noticed the same phenomenon I did earlier in yesterday’s I Follow Charlie. As I said: “If the European economy doesn’t magically recover, the north will – continue to – save its economies by strangling the south.”

• A Tale Of Two Record Unemployments: Italy vs Germany (Zero Hedge)

For the first time ever, Italy’s unemployment rate is more than twice that of its European Union (one region, one monetary policy) neighbor Germany. As Germany’s jobless rate fell for the 3rd month in a row to 6.5% (the lowest level in records going back more than two decades), Italian unemployment unexpectedly rose to a record high at 13.4% (well above the euro-region rate of 11.5%). Of course, while these two nations ‘economic’ state diverges by the most on record, bond yields are at record lows in both – leaving us (and everyone else) questioning, just what it is that ECB QE will do to help Europe’s economies?

Here’s the German part:

German Unemployment Falls to Record Low on Strengthening Economic Recovery (Bloomberg)

German unemployment fell for a third month in December to a record low, signaling that growth in Europe’s largest economy will accelerate in 2015. The number of people out of work fell a seasonally adjusted 27,000 to 2.841 million in December, the Federal Labor Agency in Nuremberg said today. The adjusted jobless rate dropped to 6.5%, the lowest level in records going back more than two decades.

The rest of that article is just a whole load of nonsense, hubris and whale blubber. But then you contrast it with this:

Italy Jobless Rate Rises to Record Amid Growth Outlook Concerns (Bloomberg)

Italy’s unemployment rate increased more than forecast to a new high of 13.4% in November as companies failed to hire on concern the country’s longest recession on record isn’t about to end. The jobless rate rose from a revised 13.3% in October, the Rome-based national statistics office Istat said in a preliminary report today. The November reading is the highest since the quarterly series began in 1977.

Two more weeks of this endless discussion …

• Greek Crisis Jolts QE Juggernaut as ECB Ponders Deflation (Bloomberg)

Mario Draghi has more evidence than ever to start quantitative easing as soon as this month – if only he can find a way to deal with Greece. Two weeks before the first monetary-policy meeting of the year on Jan. 22, governors gathered yesterday and discussed the decision over dinner. Hours earlier, data showed the first annual drop in consumer prices since 2009 and stubbornly high unemployment, handing the European Central Bank president a stronger case for buying government bonds. Overshadowing their meal was the return of Greek tensions, with the prospect that elections three days after the meeting will bring a party to power that wants to restructure the nation’s debt. That threat adds a new dimension to the argument for Draghi, whose chief challenge in convincing opponents of quantitative easing is to show it won’t turn into a bailout for recalcitrant governments.

“The case for further ECB action is strong and the negative rates of inflation will provide great mood music for Draghi to push QE through the Governing Council,” said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. “The Greek issue could complicate the announcement and the ECB may well hold off from providing the details until March, giving it a chance to see how the situation turns out.” Euro-area consumer prices dropped an annual 0.2% in December as oil costs plunged, and November unemployment remained near a record at 11.5%. Draghi has argued that slumping energy prices may worsen inflation expectations, a development the ECB won’t be able to ignore. A decision in favor of large-scale government-bond purchases still has hurdles to overcome.

Policy makers including Bundesbank President Jens Weidmann have spoken publicly against them, citing legal risks and the likelihood that a program would reduce the incentive for governments to reform their economies. The treatment of Greek bonds, which are rated junk by the three major credit-rating companies, demands particular attention by officials. The ECB already owns 8% of the nation’s debt, and has committed to accept it as collateral in refinancing operations as long as the country stays in a program to ensure its reform efforts stay on track. Greek opposition party Syriza, which leads in opinion polls, has campaigned on an anti-austerity platform that includes relief on the nation’s debt. That leaves the ECB facing a dilemma over whether to buy the bonds.

Greece can get anything it wants, as long as Germany’s interests are secured. And that’s the whole problem.

• German Lawmakers Say Greek Debt Talks Possible After Vote (Bloomberg)

Germany is leaving the door open to discussing debt relief with Greece’s next government, lawmakers in Chancellor Angela Merkel’s coalition said, signaling a more flexible stance than her administration has taken publicly. While writing off Greek debt isn’t on the table, talks on easing the repayment terms on aid that Greece received from European governments are possible after the country’s parliamentary elections on Jan. 25, the lawmakers from Germany’s two biggest governing parties said. The condition is that Greece sticks to its austerity commitments, they said.

The potential opening reflects scenarios under discussion in Merkel’s coalition for how to respond if Greek voters oust Prime Minister Antonis Samaras, a Merkel ally who has enforced German-led demands for austerity, and elect anti-austerity leader Alexis Tsipras’s Syriza party. “There should be talks with any government that emerges from the election,” Ingrid Arndt-Brauer, a Social Democrat who chairs the lower house’s finance committee, said in an interview. “You can talk about extending maturities and easing the interest rate on loans with a left-wing government, too.” A senior lawmaker from Merkel’s Christian Democratic Union said Germany will talk with any elected Greek government, including about an easing of aid conditions, as long as Greece doesn’t renege on its austerity commitments.

If the creditors are willing to forgive enough debt, this shouldn’t be a problem. 😉

• ECB Wants New Greek Government To Quickly Reach Deal With Creditors (Reuters)

The European Central Bank wants Greece’s new government to soon reach an agreement with its European partners to enable the country’s banks to continue to have access to funding, Greek newspaper Kathimerini reported on Thursday. “The ECB sent clear and stern messages to Athens yesterday through Bank of Greece Governor Yannis Stournaras asking for an agreement with European partners soon after the election so that liquidity access to banks can continue,” the paper said. ECB funding to Greek banks rose 2.3% to €44.85 billion in November. Banks have reduced their exposure but still depend on ECB funding for liquidity.

Citing the country’s central banker, the paper said the ECB will maintain its funding access to the nation’s lenders as long as Athens remains under a bailout program and continues to meet its obligations. “As regards the upcoming election, the ECB is not taking any side but wants whatever government emerges to be formed soon and complete negotiations with the (EU/IMF/ECB) troika so that there is agreement on the day after,” Kathimerini said. The paper said business and household deposits dropped by about €2.5 billion in December, according to estimates by bankers who do not see the situation as a cause for concern.

“.. preparations must be made in secret by a small group of officials and then acted on more or less straightaway ..”

• Here’s One Road Map For A Greek Eurozone Exit (MarketWatch)

Remember Grexit? Looming elections in Greece have people again talking about the possibility of a country leaving the euro. If it were to come to that, it wouldn’t be a simple task. And some economists fear the turmoil that would surround a breakup could trigger another global financial crisis. While financial markets aren’t exactly up in arms over the prospect, it’s worth a closer look at exactly how a Greek exit might play out. One possible path was detailed by economist Roger Bootle, the founder of London-based research firm Capital Economics. In fact, the plan won the 2012 Wolfson Economics Prize, which was a contest for proposals on how to dismantle the eurozone. Here are some of the plan’s highlights:

Secret preparations, capital controls: This would be necessary because word of an exit would prompt a run on the banks. After all, who would want to leave their euros parked in a Greek bank to see them converted overnight into drachmas? “Accordingly, preparations must be made in secret by a small group of officials and then acted on more or less straightaway,” wrote Bootle and his associates. Temporary capital controls, including temporary closure of the banks, would be essential just before departure. Parity with the euro (at first): In order to maintain price transparency and boost confidence, it would be best to introduce the new currency at parity with the euro. In other words, if the price of an item was €1.35, it would now be 1.35 drachmas. They note that the drachma would, of course, be free to fall on foreign exchange markets and that it is actually crucial that it does so.

Redenominated debt, substantial default: The government should redenominate its debt in the new currency and make clear it plans to renegotiate the terms, which would likely include a “substantial default,” they wrote, while also making clear the intention to resume servicing remaining debt as soon as possible. Bootle and his team offered several other recommendations, including a call for the national central bank of an exiting country to implement inflation-targeting and stand ready to inject liquidity into its own banking system, using quantitative easing, if necessary. They must also make clear they’re ready to recapitalize banks, the plan recommends.

“.. the idea that such things can happen despite a consensus of social and geopolitical health does not seemed to have soaked into the thick skulls of average people.”

• We Are Entering An Era Of Shattered Illusions (Alt-Market)

The structure of history is held together by two essential and distinct kinds of links, two moments in time to which no one is immune: moments of epiphany, and moments of catastrophe. Sometimes, both elements intermingle at the birth of a singular epoch. Men often awaken to understanding in the midst of great crisis; and, invariably, great crises can erupt when men awaken. These are the moments when social gravity vanishes, when the kinetic glue of normalcy melts away, and we begin to see the true foundations of our world, if a foundation exists at all. Catastrophe occurs when too many people refuse to accept that around us always are two universes at work. There is the cold, hard reality that underlies everything. And on the surface is a veil of deceit and compromise. The more humanity compromises vital truths in order to enjoy the comfort of illusions, the more mind-shattering it will be when those illusions fall away. These two worlds can coexist only for short periods of time, and they will always and eventually collide. There is no other possible outcome.

I think it could be said that the more polarized our realities become, the more explosive and disastrous the reaction will be when the separation is removed. I feel it absolutely necessary to relate this danger because today humanity is living so historically far from the bedrock of reality, political reality, social reality and economic reality that the stage has been set for a kind of full spectrum destabilization that has never been seen before. Though my analysis tends to lean toward the economic side of things, I am not only speaking of shattered illusions in the financial realm. In my next article, one last time I plan to go over nearly every mainstream economic statistic used today to misdirect the public (from national debt to unemployment to inflation to retail sales and corporate profits) and expose why they are false while giving you the real numbers. For now, I want to discuss the core problem of self-deception, the problem that makes all the rest of our problems possible.

When the initial phase of the global collapse was triggered in 2007 and 2008, there was a substantial explosion in interest and education in terms of liberty issues and alternative economic awareness. I remember back in 2006 when I had just begun writing for the movement that the ratio of people on any given Web forum or in any given public discussion was vastly opposed to alternative viewpoints and information — at least 50-1 by my observations. We were at the height of the real estate frenzy; everyone was buying houses with money they didn’t have and borrowing on their mortgages to purchase stuff they didn’t need. Life was good. The shock of the credit crisis came quickly and abruptly for most people, and there has been a considerable shift in the kinds of discussions many are willing to entertain about our future. Yet the idea that such things can happen despite a consensus of social and geopolitical health does not seemed to have soaked into the thick skulls of average people.

Setting the stage for rate hikes.

• Fed Bullish On US Recovery (Reuters)

U.S. central bankers have looked beyond a global deflation threat, fear of energy-sector bond defaults, and a surge of oil patch layoffs to reach what appears to be a firm conclusion: the U.S. recovery is here to stay. New trade data released on Wednesday and signs of ever-stronger consumer spending confirmed the United States remains the bright spot in a global economy plagued by uncertainty. The trade deficit shrank in November to less than $40 billion, providing a boost to growth as Americans spent less on imported oil. Meanwhile, the first corporate reports from the Christmas season showed at least some of that money trickling into stores as J.C. Penney said same-store sales rose 3.7% in November and December, pushing the company’s stock up nearly 20%.

At its December policy-setting meeting, according to minutes released on Wednesday, the Federal Reserve took close stock of plunging world oil prices and turmoil in Europe and decided that those negative trends would not undo that underlying strength. “Several participants … suggested that the real economy may end up showing more momentum than anticipated, while a few others thought that the boost to domestic spending coming from lower energy prices could turn out to be quite large.” The minutes set the stage for what could be a key economic theme this year: how the global system will react as Fed policy diverges from that of other major central banks. The European Central Bank and the Bank of Japan are expected to further loosen monetary conditions in coming weeks or months, while the luster has fallen from emerging markets that had been attracting record levels of investment in recent years.

“These minutes defined the environment post-tapering,” said Robert Tipp, chief investment strategist at Prudential Fixed Income in New Jersey. “If the Fed moves aggressively it would suck up capital from emerging markets.” Global conditions have arguably weakened since the Fed’s Dec. 16-17 meeting, and the minutes note that the United States would not be immune if the world economy turns sharply down. There is already fallout. Credit analysts have honed in on the debts of companies involved in oil and gas exploration and production, with Standard & Poor’s downgrading half a dozen firms at the end of 2014 and concluding the entire sector will be under pressure if prices remain so low.

Abecomics has been far worse than a mere failure.

• Japan Household Mood Worsens To Levels Before ‘Abenomics’ (Reuters)

Japanese households’ sentiment worsened in December to levels last seen before premier Shinzo Abe unleashed radical stimulus policies two years ago, a central bank survey showed, underscoring the challenges he faces reviving the economy. The diffusion index measuring how households felt about the current state of the economy stood at minus 32.9 in December, down 12.5 points from September, the Bank of Japan’s quarterly survey on people’s livelihood showed on Thursday. Abe’s ruling party won a landslide victory in a snap poll in December last year, giving the premier a fresh mandate to proceed with his “Abenomics” mix of massive fiscal, monetary stimulus and structural reforms dubbed “Abenomics.”

That is the lowest level since December 2012, when Abe won the previous election and launched his radical program aimed at breaking the economy free of a long deflationary phase. While the policies helped weaken the yen and boost stock prices, the effect on the economy has been disappointing as companies remain hesitant over boosting wages and capital spending. Another index gauging households’ livelihood fell 3.1 points to minus 47.2, the worst level since 2011, the survey showed. A negative reading means respondents who feel they are worse off than three months ago exceed those who fell better off.

Many of those who replied that they are worse off complained of rising costs of living and stagnant wage growth, a sign households are feeling the pinch from a sales tax hike in April 2014 and rising import costs due to the weak yen. The weak reading suggests Abe’s decision last November to delay a second sales tax hike, initially planned for October 2015, did little to brighten sentiment. It also highlights the dilemma of the BOJ, which is printing money aggressively to achieve its 2% inflation target sometime during the fiscal year beginning in April. More than 80% of respondents expect prices to rise a year from now, roughly unchanged from September. But 83.8% of households consider rising prices as undesirable, up from 78.8% in September, the survey showed.

More than happy to.

• China Steps In To Support Venezuela, Ecuador As Oil Prices Tumble

China stepped up its courtship of Latin American countries Thursday, promising to double trade with the region by 2025 and offering fresh loans to support left-wing governments in Venezuela and Ecuador. At a meeting in Beijing with the Community of Latin American and Caribbean States, or CELAC, President Xi Jinping said that annual bilateral trade would rise to $500 billion over the next 10 years, and that China would invest some $250 billion in the region in that period. That would threaten the U.S.’s traditional pre-eminence as the region’s biggest trading partner, inevitably diluting its political clout there. However, it’s not clear quite how Xi arrived at his figures. Although trade and investment have rocketed in the last 20 years as China has sucked up natural resources from around the world to fuel its industrialization, growth slowed sharply in the first 11 months of last year, as China refocused its economy on domestic demand.

According to CELAC figures, trade volumes grew only 1.3% year-on-year in the first 11 months of 2014. Despite that, China remains the biggest buyer for Venezuelan oil, Chilean copper and Argentinian soybeans, among other things. Of more immediate impact than Xi’s promises Thursday were agreements to bankroll the governments of Venezuela and Ecuador, two of the most viscerally anti-U.S. regimes in the region and two oil exporters who are struggling with the consequences of the 60% drop in oil prices since the start of last year. Venezuelan President Nicolas Maduro was reported as saying that he had secured over $20 billion in investment from the state-owned institutions Bank of China and China Development Bank, adding to over $45 billion in the last 10 years. He didn’t give details of the loans’ terms. Ecuador, meanwhile, said it had agreed a new $5.3 billion credit line with China’s Export-Import Bank and $2.2 billion in other funding.

Saudi involvement in the attacks.

• Lawmakers Up Pressure On Obama To Release Secret 9/11 Documents (Fox)

Congressional lawmakers on Wednesday ramped up efforts to get President Obama to release 28 top-secret pages from a 9/11 report that allegedly detail Saudi Arabia’s involvement in the terror attacks. Lawmakers and advocacy groups have pushed for the declassification for years. The effort already had bipartisan House support but now has the backing of retired Florida Democratic Sen. Bob Graham, a former Senate Intelligence Committee chairman whom supporters hope will help garner enough congressional backing to pressure Obama into releasing the confidential information. “The American people have been denied enough,” North Carolina GOP Rep. Walter Jones said on Capitol Hill. “It’s time for the truth to come out.”

Jones has led the effort with Massachusetts Democratic Rep. Stephen Lynch, among the few members of Congress who have read the 28 redacted pages of the joint House and Senate “Inquiry into Intelligence Activities Before and After the Terror Attacks,” initially classified by President George W. Bush. They introduced a new resolution on Wednesday urging Obama to declassify the pages. Jones and other lawmakers have described the documents’ contents as shocking. That 15 of the 19 hijackers were Saudi Arabian citizens is already known. But Graham and the congressmen suggested the documents point to Saudi government ties and repeatedly said Wednesday that the U.S. continues to deny the truth about who principally financed the attacks – covering up for Saudi Arabia, a wealthy Middle East ally.

Don’t be surprised if France moves quickly on this.

• ‘France Wants To Mend Ties With Russia’ (RT)

France intends to take a lead in de-escalating the confrontation with Russia as a face-saving measure while the EU is facing big economic challenges, John Laughland, Director of studies at the Institute of Democracy and Cooperation in Paris, told RT.

RT: Francois Hollande on Monday said that sanctions against Russia “must stop now.” What does this statement from the French leader mean for the upcoming talks?

John Laughland: I think that means that France is intending to take a lead in deescalating the confrontation with Russia and in seeing an end to sanctions, in seeing the sale of the Mistral helicopter carrier ships and also in seeing a de facto – at least – recognition of the annexation of Crimea. I said this back in December when Francois Hollande, the French president visited Vladimir Putin on the way back from Kazakhstan. It was clear that he was taking the lead then, taking a lead against Germany and against Mrs. Merkel of who many people thought that she would be pro-Russian force in Europe. She’s turned out to be very opposite. And we are seeing France assuming a relatively traditional position now in foreign policy and reassuming and reasserting its traditional friendship with Russia. So I’m relatively optimistic about these latest statements.

RT: Hollande added that progress has to be made at the talks. Moscow has been actively engaged in the peace process in eastern Ukraine. The latest talks saw hundreds of prisoners returned by both Kiev and eastern militias, but the sanctions still remain. So what exactly constitutes progress?

JL: He is saying that he wants to sell the Mistral, he wants to get rid of the problem, he would like, as he said, the end of the sanctions and so on. He assured himself, extremely understanding for the Russian position. He didn’t mention Crimea. He implied that Crimean annexation would be accepted, and he showed understanding as well for Russian opposition to NATO membership for Ukraine. When he says “progress” I regard that as purely a face-saving phrase. The fact is that Ukraine is off the headlines now. We haven’t had much news from Ukraine for many weeks now in the Western media. Quite frankly it is off people’s radar screen. Providing it stays off the radar screen, providing it stays off headlines it would be a good time – if that is indeed his intention – to move on from this unfortunate episode.

As I said: why bother?

• Fight Over Keystone Pipeline is Completely Divorced From Reality (Bloomberg)

In the six years since TransCanada Corp. first sought U.S. approval to build the pipeline, the debate over Keystone XL pipeline has, somewhat strangely, become one of the central fights in U.S. politics. It’s about to get even bigger. On Wednesday, Republicans will inaugurate the new Congress by taking up a Senate bill to approve the Keystone XL pipeline that would connect oil producers in Western Canada to U.S. refineries on the Gulf Coast. The House will vote on the measure on Friday. Several years ago, liberals looking for a cause to rally around settled on Keystone because the oil it would transport, extracted from tar sands, is especially damaging to the environment. James Hansen, then the director of NASA’s Goddard Institute for Space Studies, famously declared that if the pipeline goes forward and Canada develops its oil sands “it will be game over for the planet.”

Conservatives seized on Keystone because it offered a clear example of liberals prioritizing the environment over the jobs the pipeline’s construction would create, an effective political attack in a lousy economy. President Obama’s anguish over whether or not to approve it only added to the appeal. As a result, Keystone has attained tremendous symbolic importance for both Democrats and Republicans. But this is the opposite of how it should be — the political fight has become completely divorced from reality. The pipeline’s actual importance to oil markets, the economy and the environment has steadily diminished. Whoever wins, the “victory” will be pointless and hollow. The liberal claim that blocking Keystone would limit Canadian oil sands development, or even slow Canadian oil exports to the United States, has turned out to be wrong.

Over the last four years, Canadian exports to the Gulf Coast have risen 83%. Last year, U.S. oil imports from Canada hit a record. This year, Canadian oil producers expect shipments to double. One way producers achieved this is by building new pipelines, such as the Flanagan South pipeline, which can transport 600,000 barrels a day of heavy crude, and expanding old ones. At the same time, the Canadian government has approved two new lines as a fallback to Keystone—one running east to Quebec, the other west to the Pacific—that avoid the U.S. entirely. Collectively, these projects dwarf Keystone’s 800,000 barrel-a-day capacity. “Keystone is kind of old news,” Sandy Fielden, director of energy analytics at Austin, Texas-based RBN Energy, told Bloomberg News. “Producers have moved on and are looking for new capacity from other pipelines.”

“Policy makers must realise that their instincts to completely use the fossil fuels within their countries are wholly incompatible with their commitments to the 2C goal.”

• Most Fossil Fuels Are ‘Unburnable’ (BBC)

Most of the world’s fossil fuel reserves will need to stay in the ground if dangerous global warming is to be avoided, modelling work suggests. Over 80% of coal, 50% of gas and 30% of oil reserves are “unburnable” under the goal to limit global warming to no more than 2C, say scientists. University College London research, published in Nature journal, rules out drilling in the Arctic. And it points to heavy restrictions on coal to limit temperature rises. “We’ve now got tangible figures of the quantities and locations of fossil fuels that should remain unused in trying to keep within the 2C temperature limit,” said lead researcher Dr Christophe McGlade, of the UCL Institute for Sustainable Resources.

“Policy makers must realise that their instincts to completely use the fossil fuels within their countries are wholly incompatible with their commitments to the 2C goal.” Past research has found that burning all of the world’s fossil fuel resources would release three times more carbon than that required to keep warming to no more than 2C. The new study uses models to estimate how much coal, oil and gas must go unburned up to 2050 and where it can be extracted to stay within the 2C target regarded as the threshold for dangerous climate change. The uneven distribution of resources raises huge dilemmas for countries seeking to exploit their natural resources amid attempts to strike a global deal on climate change:
• The Middle East would need to leave about 40% of its oil and 60% of its gas underground
• The majority of the huge coal reserves in China, Russia and the United States would have to remain unused
• Undeveloped resources of unconventional gas, such as shale gas, would be off limits in Africa and the Middle East, and very little could be exploited in India and China
• Unconventional oil, such as Canada’s tar sands, would be unviable.

The research also raises questions for fossil fuel companies about investment in future exploration, given there is more in the ground than “we can afford to burn”, say the UCL scientists. “We shouldn’t waste a lot of money trying to find fossil fuels which we think are going to be more expensive,” co-researcher Prof Paul Ekins told the BBC. “That almost certainly includes Arctic resources. It will certainly include a lot of the shale gas resources in Europe, which have not really been explored or exploited at all.”

Different take on same story.

• The ‘Untouchable Reserves’ (BBC)

Is the “carbon bubble” wobbling in the face of a new assault? A paper in the journal Nature has lent support to the notion that combating climate change and developing more fossil fuels are mutually contradictory. Its key message is that keeping global temperature rise within 2C means leaving in the ground 80% of known coal reserves, 50% of gas and 30% of oil. The University College London authors invite investors to ponder whether $670bn, the amount they say was spent last year on seeking and developing fossil fuels, is a wise use of money if we can’t burn all the fuel we’ve already found.

The movement to divest from fossil fuel companies is being prompted by the small but increasingly influential NGO Carbon Tracker, which argues that investment has created a carbon bubble of fossil fuel assets that will be worthless if climate change is taken seriously. The managers of the Rockefeller fortune have heard its message and already divested from coal. The University of Glasgow’s investment fund will avoid fossil fuels altogether. NGO 350.org is gathering support for a similar campaign in the US, and Norway’s vast government pension fund is seeking to pressure companies to take their climate responsibilities more seriously.

Surprisingly, the Bank of England has also chipped in. It is conducting an enquiry into the risk of an economic crash if future climate change rules render coal, oil and gas assets worthless. The findings will be interesting; even if the enquiry team are alarmed by the potential extent of stranded assets, they can hardly make their case bluntly for fear of creating a stampede. To heap on the pressure, the talks leading to the prospective climate deal in Paris in December will debate whether fossil fuels can be completely phased out by 2050. Oil firms like Shell have stated their confidence in the energy status quo that has formed the economic bedrock of modern society and helped billions out of poverty. They say they see no risk to their business model (because executives privately do not believe that politicians will keep their promises on carbon limits). And they have hopes that technology to capture and store carbon will give their products a new lease of life.

This would save a lot of lives in the future. Then again, we’d start feeing them to farm animals, and restart the whole cycle.

• US Antibiotics Discovery Labelled ‘Game Changer’ For Medicine (BBC)

The decades-long drought in antibiotic discovery could be over after a breakthrough by US scientists. Their novel method for growing bacteria has yielded 25 new antibiotics, with one deemed “very promising”. The last new class of antibiotics to make it to clinic was discovered nearly three decades ago. The study, in the journal Nature, has been described as a “game-changer” and experts believe the antibiotic haul is just the “tip of the iceberg”. The heyday of antibiotic discovery was in the 1950s and 1960s, but nothing found since 1987 has made it into doctor’s hands. Since then microbes have become incredibly resistant. Extensively drug-resistant tuberculosis ignores nearly everything medicine can throw at it. The researchers, at the Northeastern University in Boston, Massachusetts, turned to the source of nearly all antibiotics – soil. This is teeming with microbes, but only 1% can be grown in the laboratory.

The team created a “subterranean hotel” for bacteria. One bacterium was placed in each “room” and the whole device was buried in soil. It allowed the unique chemistry of soil to permeate the room, but kept the bacteria in place for study. The scientists involved believe they can grow nearly half of all soil bacteria. Chemicals produced by the microbes, dug up from one researcher’s back yard, were then tested for antimicrobial properties. The lead scientist, Prof Kim Lewis, said: “So far 25 new antibiotics have been discovered using this method and teixobactin is the latest and most promising one. “[The study shows] uncultured bacteria do harbour novel chemistry that we have not seen before. That is a promising source of new antimicrobials and will hopefully help revive the field of antibiotic discovery.”

I Follow Charlie

Jan 072015

January 7, 2015 Posted by Raúl Ilargi Meijer at 8:00 pm Finance Tagged with: Charlie Hebdo, EU, France, Muslim, NATO, US 11 Responses »

French magazine Charlie Hebdo’s website now shows the image above. In French, Je Suis Charlie doesn’t only translate as I Am Charlie, but also as I Follow Charlie. Let’s. And let’s not allow the US and all the other western governments to blemish the memories of those who were killed today by using their deaths to promote empty slogans about liberty. Because that’s not what Charlie Hebdo stood for, empty slogans.

There’s a long-running gag in the Anglo world that claims French people are not very courageous. We can now once and forever erase that claim. The people who were shot and killed today were exceptionally brave. Of course the comparison with the North Korea/Sony hack situation will be made, but it really shouldn’t. It would take away way too much from the staff at Charlie Hebdo, and add way too much undeserved praise to Seth Rogen, Sony and Obama.

One thing is now sure: you can pencil in Marine Le Pen as the next president of France. And I doubt she’ll wait till 2017, when François Hollande’s term is up. Hollande looks done. That means the testosterone suffering idiots who shot two dozen people in the center of Paris today will end up making the lives of Muslims in France a lot harder. Be careful what you wish for. And no, they haven’t avenged any prophet either. No prophet worth his/her stature can be wounded by a cartoon.

The men and women at Charlie Hebdo would have been the first to take the side of French Muslims, and undoubtedly have done so on many occasions. They stood up against any sort of hubris, of which there happens to be a lot in France. A certain interpretation of Islam was just one of many things.

Now the French people, including the Muslim population, are short a whole editorial staff full of people who believed in the idea of fighting anything that’s just plain stupid. And, don’t let’s forget, had the courage to do to engage in that fight. Religion was but a small part of that. In terms of American comedy, I guess you’d have to think along the lines of Lenny Bruce or George Carlin.

There are between 5 and 7 million Muslims living in France, perhaps some 10% of the population (in the US, it’s less than 1%). There is a long history of Muslims living in the country. But if you’ve ever been to Paris, and seen the banlieues, the slumps, you know how these people are still being treated. France, as I said, is a country full of hubris, hiding under banners like ‘tradition’. That’s where France has been wrong for many decades now, and the price will be paid for that. You can’t create ghettos and expect to be just left alone forever to enjoy yet another good vintage.

The French political class are all, left or right, educated at the same handful of schools. Just like they are in the US and Britain. They know nothing about ghettos, and they don’t care. They just want to play their little games and enjoy the attention and the money that come with the job.

But even more than the ignorance and hubris of the French themselves, things like the attack today are the result of US-induced and executed politics in the Middle East and North Africa over the past decades -at least -, politics today forced upon allies through such organizations, way past their best before date, like NATO and the IMF. And the EU.

There are many reasons why the EU should cease to exist, and ironically today’s bloodshed will bring its end closer, since Marine Le Pen wants nothing to do with it. What’s more important, though, is that the increasing centralization of power in Brussels takes away from that in Paris and Berlin. There is now one voice that speaks for Europe when it comes to international politics, and it’s fully dictated by Washington.

We’ve seen where that can lead last year in Ukraine. The diplomatic relationships that historically existed, and took many years to build, between separate European nations and the ‘outside world’, for instance between Germany and Russia, or France and North Africa, don’t mean much anymore now that Brussels determines diplomacy – and the lack thereof -, and simply parrots the US.

That is an unintended consequence of establishing the already horribly failed pan-European model that we will all pay for dearly. What happened in Paris is just the beginning. These diplomatic channels still exist today, but before long the people who are pivotal to maintaining them will be gone.

Then it will be just Brussels talking to Putin, and to Assad, and all these other people who we don’t have to fight as long as we keep talking to them, and point to what our ancestors on both sides said and did in days of old. Brussels and Washington today stand for a scorched earth strategy in diplomacy, and that does not bode well. France wouldn’t have instigated the current Russian sanctions, nor would Germany; they would have used their long-established and cherished diplomatic channels. These are now going to waste. A very scary development indeed. It’s like the whole world is losing an entire dimension.

Perhaps we should feel fortunate that this is not the only reason to blow up – figuratively speaking – Brussels. Obviously, the Greek elections in 18 days are on many people’s minds when it comes to threats to Brussels, but it’s certainly not the only one. Two separate Bloomberg headlines today make that clear:

German Unemployment Falls to Record Low on Strengthening Economic Recovery

German unemployment fell for a third month in December to a record low, signaling that growth in Europe’s largest economy will accelerate in 2015. The number of people out of work fell a seasonally adjusted 27,000 to 2.841 million in December, the Federal Labor Agency in Nuremberg said today. The adjusted jobless rate dropped to 6.5%, the lowest level in records going back more than two decades.

The rest of the article is just a whole load of nonsense, hubris and whale blubber. But then you contrast it with this:

Italy Jobless Rate Rises to Record Amid Growth Outlook Concerns

Italy’s unemployment rate increased more than forecast to a new high of 13.4% in November as companies failed to hire on concern the country’s longest recession on record isn’t about to end. The jobless rate rose from a revised 13.3% in October, the Rome-based national statistics office Istat said in a preliminary report today. The November reading is the highest since the quarterly series began in 1977.

It doesn’t need much explaining, does it? Europe’s north continues to squeeze its south, and there’s no end in sight. The eurozone as a whole fell into deflation in December, the first time since September 2009, even if the media don’t call it that. Where is this going to end? There’s only one answer, isn’t there? If the European economy doesn’t magically recover, the north will – continue to – save its economies by strangling the south. With France squeezed in an unenviable position somewhere in between. That’s not going anywhere good.

So what to do? First, the EU needs to be dismantled, starting with the eurozone. European countries can work wonderfully together as long as they can make their own economic and fiscal decisions, without having their monetary policies – increasingly – dictated by a Brussels politburo. There are far too many people operating in Brussels who can’t be held accountable for their actions, as there are in Washington. Never a good thing.

Then, France has to treat it Muslims better. All European countries need to. And they need to treat their relationships with Muslim countries better. If you want Muslims to stay where they are, instead of coming to Europe, something many people clamor for, give them the tools to do that with. Give them a future in Iraq, Syria, Algeria, Libya.

The first step towards achieving that is to tell the US to stop interfering in all these countries, or at least to stop supporting its actions (dismantle NATO as well as the EU). And to let France use its ties with that part of the world to a mutual benefit, and for Germany, Italy, Britain to do the same.

It’s frankly sickening to see all these leaders, the American and British ones loudest of all, use today’s attack to once again promote their empty messages about liberty and freedom, over the dead bodies of a group of people who certainly wouldn’t have liked them doing that.

There are far too many people in the world who only have been granted – by us – the liberty to be dirt poor, to be shot by drones, and to have their resources exploited by western businesses and governments and their local cronies, without ever seeing a penny in return.

That is not how you build a peaceful world. The guys who shot Charlie Hedbo to bits today are just banal idiots, but they didn’t come from nowhere. We in the west have built our wealth on the suppression of other people, and on taking their resources away without paying anything near a fair price. It’s known as colonialism, and it is really not that complicated a model. It takes but a few seconds to understand.

Debt Rattle January 7 2015

Jan 072015

January 7, 2015 Posted by Raúl Ilargi Meijer at 1:10 pm Finance Tagged with: Bill Gross, BoE, Charlie Hebdo, eurozone, Greece, helicopter, Keystone, oil 3 Responses »

DPC Foundry, Detroit Shipbuilding Co., Wyandotte, Michigan 1915

• Attack at Paris Satirical Magazine Office Kills 12 People (WSJ)

• Is Attack Linked to Novel Depicting France Under Islamist President? (Bloomberg)

• Bill Gross Calls It: 2015 Is Going to Be Terrible (Bloomberg)

• Bill Gross Says the Good Times Are Over (Bloomberg)

• Not Just Oil: Are Lower Commodity Prices Here To Stay? (CNBC)

• Oil Price Slump Deepens As Drillers Seen Slashing Spending (Telegraph)

• How the Bear Market in Crude Oil Has Polluted Non-Energy Stocks (Bloomberg)

• As Oil Drops Below $50, Can There Be Too Much of a Good Thing? (BW)

• ECB Considering Three Approaches To QE (Reuters)

• Germany Prepares For Possible Greek Exit From Eurozone (Reuters)

• Germany, France Take Calculated Risk With ‘Grexit’ Talk (Reuters)

• Greece On the Cusp of a Historic Change (Alexis Tsipras, SYRIZA)

• Eurozone Inflation Turns Negative For First Time Since October 2009 (Reuters)

• Greek 10-Year Bond Yields Exceed 10% for First Time Since 2013 (Bloomberg)

• Euro’s Drop is a Turning Point for Central Banks Reserves (Bloomberg)

• Eurozone Prices Seen Falling as Risk of Deflation Spiral Mounts (Bloomberg)

• Operation Helicopter: Could Free Money Help the Euro Zone? (Spiegel)

• Russia’s ‘Perfect Storm’: Reserves Vanish, Derivatives’ Default Warnings (AEP)

• Obama Threatens Keystone XL Veto (BBC)

• Bank Of England Was Unaware Of Impending Financial Crisis (BBC)

Insanity. Marine Le Pen will become a lot more popular now in France.

• Attack at Paris Satirical Magazine Office Kills 12 People (WSJ)

Armed men stormed the Paris offices of French satirical magazine Charlie Hebdo on Wednesday morning, killing 12 people and injuring more, French President François Hollande said. The men opened fire inside the magazine’s offices using automatic AK-47 rifles before fleeing, a police officer said. In November 2011, Charlie Hebdo’s headquarters were gutted by fire, hours before a special issue of the weekly featuring the Prophet Muhammad appeared on newsstands. The weekly has often tested France’s secular dogma, printing caricatures of the prophet on several occasions. Since the arson attack, the weekly has moved to a new location, which was guarded by police. Two of the victims in Wednesday’s shooting were police, an officer on the scene said.

The 2011 fire caused no injuries but spurred debate over press freedom and religious tolerance in France, which is home to Europe’s largest Muslim population. The special issue put a caricature of the prophet on its front page, quoting him as promising “100 lashes if you don’t die from laughter.” Several journalists received anonymous threats and its website was hacked, according to French officials. In 2012, France closed embassies and French schools in 20 countries after the weekly published a series of cartoons. In 2006, the paper reprinted images of Muhammad that had appeared in a Danish magazine a year before. The next year, it published a picture of Muhammad crying, with the tagline “It’s hard to be loved by idiots.” The Grand Mosque of Paris and the Union of Islamic Organizations of France filed slander charges, but a French court cleared the paper.

Suggestive title. Answer: no. What happened is an editorial meeting was going on to prepare a special issue, named Sharia Hebdo, with the prophet Mohamed as guest editor.

• Is Attack Linked to Novel Depicting France Under Islamist President? (Bloomberg)

“Submission,” a book by Michel Houellebecq released today, is sparking controversy with a fictional France of the future led by an Islamic party and a Muslim president who bans women from the workplace. In his sixth novel, the award-winning French author plays on fears that western societies are being inundated by the influence of Islam, a worry that this month drew thousands in anti-Islamist protests in Germany. In the novel, Houellebecq has the imaginary “Muslim Fraternity” party winning a presidential election in France against the nationalist, anti-immigration National Front. “A pathetic and provocative farce,” is how Liberation characterized the book in a Jan. 4 review that scathingly said the novelist is “showing signs of waning writing skills.”

Political analyst Franz-Olivier Giesbert in newspaper Le Parisien yesterday was kinder, calling it a “smart satire,” adding that “it’s a writers’ book, not a political one.” National Front’s leader Marine Le Pen, who appears in the 320-page novel, said on France Info radio on Jan. 5 that “it’s fiction that could become reality one day.” On the same day, President Francois Hollande said on France Inter radio he would read the book “because it’s sparking a debate,” while warning that France has always had “century after century, this inclination toward decay, decline and compulsive pessimism.” In an interview on France 2 TV last night, Houellebecq denied that he was being a scaremonger.

“I don’t think the Islam in my book is the kind people are afraid of,” he said. “I’m not going to avoid a subject because it’s controversial.” Hollande and German Chancellor Angela Merkel plan to discuss their respective countries’ struggle with Islamophobia, anti-immigration protests and the rise of Europe’s nationalist parties at an informal dinner in Strasbourg on January 11 organized by the European Parliament President Martin Schulz. Houellebecq’s book is set in France in 2022. It has the fictional Muslim Fraternity’s chief, Mohammed Ben Abbes, beating Le Pen, with Socialists, centrists, and Nicolas Sarkozy’s UMP party rallying behind him to block the National Front.

Wow: “Gross is putting himself way out on a limb: Not one of Wall Street s professional forecasters predict the S&P 500 will drop in 2015.” Wow.

• Bill Gross Calls It: 2015 Is Going to Be Terrible (Bloomberg)

Bill Gross, bond king, ousted executive, self-styled poet of the markets, has a bold, depressing prediction for 2015, and he’s not couching it in any of his usual metaphor: The good times are over, he wrote in his January investment outlook note. By the end of 2015, he goes on, there will be minus signs in front of returns for many asset classes. Gross is putting himself way out on a limb: Not one of Wall Street s professional forecasters predict the S&P 500 will drop in 2015. Their average estimate calls for an 8.1% rise. And while the global economy looks weak, the U.S. has been heating up, with GDP up 5% in the third quarter. These gloomy predictions come without Gross s usual colorful commentary. At Pimco, his monthly notes made reference to Flavor Flav and Paris Hilton. Since leaving for Janus Capital Group in September, he’s riffed on domestic violence in the NFL, the porosity of sand and the joys of dancing with his wife.

This month, Gross is almost all business. The trouble for the world s economy is that ultra low interest rates are holding back growth rather than stimulating it, he warns. After years of rising markets, investors are facing too much risk for the prospect of low returns. The time for risk taking has passed, he writes. Gross admits he’s taking his own risk with this call. Even if he’s completely right that the bear market is over, he could very well be a year or two early. And even if he’s right about economic growth, he could be wrong about how the market reacts to it. Gross advises buying Treasury and high-quality corporate bonds, but they could be hurt if U.S. interest rates rise this year.

He also puts a word in for stocks of companies with low debt, attractive dividends and diversified revenues both operationally and geographically. But as Causeway Capital Management s Sarah Ketterer warned, those high-quality dividend payers have already soared and could have trouble meeting expectations in the next few years. Gross has been wrong before, most famously in his predictions that bond yields would rise when the Federal Reserve ended quantitative easing. But maybe this time he sees something other market observers don’t. As Gross writes, deploying the commentary’s only off-color metaphor: There comes a time when common sense must recognize that the king has no clothes, or at least that he is down to his Fruit of the Loom briefs.

Perhaps when he says it people actually will wake up.

• Bill Gross Says the Good Times Are Over (Bloomberg)

Bill Gross, the former manager of the world’s largest bond fund, said prices for many assets will fall this year as record-low interest rates fail to restore sufficient economic growth. With global expansion still sputtering after years of interest rates near zero, investors will gradually seek alternatives to risky assets, Gross wrote today in an investment outlook for Janus Capital, where he runs the $1.2 billion Janus Global Unconstrained Bond Fund. “When the year is done, there will be minus signs in front of returns for many asset classes,” Gross, 70, wrote in the outlook. “The good times are over.” Six years after the end of the financial crisis, borrowing costs in the world’s richest nations are stuck near zero, a sign investors have little confidence that their economies will strengthen.

Gross, the former chief investment officer of Pacific Investment Management Co. who left that firm in September to join Janus, has argued the Federal Reserve won’t raise interest rates until late this year if at all as falling oil prices and a stronger U.S. dollar limit the central bank’s room to increase borrowing costs. The benchmark U.S. 10-year yield fell to 1.99% today, and bonds in the Bank of America Merrill Lynch Global Broad Market Sovereign Plus Index had an effective yield of 1.28% as of yesterday, the lowest based on data starting in 1996. The all-time 10-year Treasury low is 1.379% on July 25, 2012. Economists predict the yield will rise to 3.06% by end of 2015, according to a Bloomberg News survey with the most recent forecasts given the heaviest weightings.

Stocks plunged yesterday, with the Standard & Poor’s 500 Index dropping 1.8% to 2,020.58 and the Chicago Board Options Exchange Volatility Index increasing for the fifth time in six days. Declines spurred by tumbling oil and concerns Greece will exit the euro have sent American equities to the biggest decline to start a year since 2005, data compiled by Bloomberg show. While timing the end of a bull market is difficult, the next 12 months will probably see a turning point, Gross wrote. “Knowing when the ‘crowd’ has had enough is an often frustrating task, and it behooves an individual with a reputation at stake to stand clear,” he wrote. “As you know, however, moving out of the way has never been my style.”

Yes.

• Not Just Oil: Are Lower Commodity Prices Here To Stay? (CNBC)

Oil isn’t the only commodity that’s gotten cheaper. From nickel to soybean oil, plywood to sugar, global commodity prices have been on a steady decline as the world’s economy has lost momentum. That lower demand helps explain, in part, why nearly everything from crude oil to cotton has been getting cheaper. Sure, some commodity prices are rising. Local supply constraints have pushed prices higher in some parts of the world; transportation costs can also have a big impact on local prices. In the U.S., for example, a drought in California caused the price of vegetables and other food products to spike last year. Prices are also rising for some commodities, especially meats such as beef and chicken, thanks to growing demand from an expanding middle class in the developing world. But the global cost of most commodities has been on a long-term, downward trend since the Great Recession. The chart below is based on global prices, in dollars, assembled by the World Bank.

Now, as much of the world slogs through a faltering recovery, there are fears that falling prices in slow-moving economies such as Europe and Japan could spark and extended period of deflation, when the consumer prices of finished goods fall over an extended period. Deflation can be difficult to reverse if businesses and consumers start to cut back on spending and investment, waiting for prices to fall further, setting off an economic contraction that can deepen. European central bankers are scrambling to avoid that amid signs that prices in the euro zone have all but flattened. On Monday, the latest data showed that German inflation slowed to its lowest level in over five years in December; prices inched up at an annual rate of 0.1%, down from 0.5% in November. A widely watched inflation index of the entire euro zone is due out Wednesday. Some analysts think it could show a negative reading for the first time since October 2009.

We’ve seen nothing yet.

• Oil Price Slump Deepens As Drillers Seen Slashing Spending (Telegraph)

Brent crude has slumped to a new five-and-a-half-year low as leading ratings agency Moody’s warns that oil companies could be forced to slash spending by up to 40% this year. The benchmark crude contract fell to as low as $51.64 per barrel in early trading, while West Texas Intermediate oil traded in the US fell 2.2% to $48 per barrel. Earlier, Moody’s Investors Service issued a report warning of broad cuts in spending that could soon hit the entire oil and gas industry as companies move to protect their dwindling profit margins. The agency fears that, should prices remain below $60 per barrel for a significant period, companies in North America will slash capital spending by up to 40%.

“If oil prices remain at around $55 a barrel through 2015, most of the lost revenue will hit the E&P [exploration and production] companies’ bottom line, which will reduce cash flow available for re-investment,” said Steven Wood, managing director for corporate finance at Moody’s. “As spending in the E&P sector diminishes, oilfield services companies and midstream operators will begin to feel the stress.” However, Moody’s believes that oil majors such as ExxonMobil, Royal Dutch Shell, BP, Chevron and Total are in a stronger position to weather the financial storm caused by lower prices because they have already trimmed their capital expenditure for 2015.

Moody’s is the latest ratings agency to issue a major warning about the impact that falling oil prices will have on exploration and production companies. Standard & Poor’s said last month that the dramatic deterioration in the oil price outlook had prompted it to take a number of “rating actions” on European oil and gas majors including Shell, BP, and BG Group. Meanwhile, Saudi Arabia’s King Abdullah bin Abdul-Aziz al-Saud has said that a weak global economy was to blame for the current slide in prices, which will place his kingdom under severe economic stress. In a speech read out on state television by Crown Prince Salman, the king said that Saudi will deal with the current fall in oil prices “with a firm will”. The 91-year-old monarch of the world’s largest oil exporter was recently admitted into hospital, raising concerns over succession in the kingdom.

Saudi Arabia was instrumental in convincing the other members of OPEC not to cut output in November, a decision which triggered the current sharp falls in prices. The kingdom, which has the capacity to pump up to 12.5m barrels per day (bpd) of crude), this week discounted its oil heavily to European and US customers as it seeks to protect its market share. European buyers can now pay $4.65 per barrel less than for the Brent reference price for Saudi crude. “There is little reason at present to expect any end to the nose-diving oil prices,” said analysts at Commerzbank.

Fifth Third Bancorp 2 years ago: “The oil and natural gas sector represents a tremendous growth opportunity.”

• How the Bear Market in Crude Oil Has Polluted Non-Energy Stocks (Bloomberg)

Perusing the list of the biggest stock-market losers since the price of oil peaked in June yields some predictable results. You have your large-cap energy companies like Transocean, Denbury, Naborsm Noble and Halliburton, all down at least 45%. Yet mixed in with all the obvious ugliness are some names that bring to mind the question asked of Billy Joel by those drinkers at the piano bar, or perhaps even some of the wedding guests who watched him walk down the aisle with Christie Brinkley: Man, what are you doing here? The answer illustrates how much of an impact the energy industry has had on the bottom line of corporate America, whether it’s companies profiting from the boom in domestic production or those that made big investments based on the premise that fuel will always be expensive. As such it helps explain why the entire stock market, not just the energy companies, tends to freak out when oil heads lower rapidly.

The big bets on high energy prices made by companies like Ford (down 13% since oil peaked on June 20) or Tesla Motors (down 10%) or Boeing (down 3.9%) jump immediately to mind. Not so obvious, unless you follow the stock closely, is the investment made by Fifth Third Bancorp, one of the regional lenders that tried to chase the fracking boom. (It’s down 12% since June 20.) Here’s how the company’s management described the rationale for the launch of a new national energy banking team two years ago: “The energy sector is a rapidly growing industry,” said the announcement. The new team “demonstrates our commitment to providing dedicated banking services to this evolving sector. The oil and natural gas sector represents a tremendous growth opportunity.” The sector certainly is “evolving.” Fitch Ratings last month identified regional banks lifted by the shale boom that now face potential credit pressures in loans related to the industry. Oil prices below $50 a barrel, like now, would likely trigger a jump in credit losses, Fitch said.

Fitch’s list of banks with high concentrations of loans to the industry is topped by BOK Financial, which is down 13% since June 20.; Cullen/Frost, down 16%; Hancock, down 19%; Comerica, down 14%; and Amergy Bank of Texas, which is down 13%. Losses are even worse among the industrial companies that provide the services and sell the pipes, valves and assorted doodads used to pump oil and gas. Fluor Corp. an engineering, maintenance and project management firm that counted on the oil and gas industry for 42% of its revenue in 2013, is down 27% since June 20. Flowserve Corp., whose pumps and valves are used in refineries and pipelines, is off about the same amount. Caterpillar, Joy Global, Allegheny, Dover, Jacobs Engineering and Quanta Services are all down more than 20% since oil peaked at almost $108.

Oh come on, let’s get real.

• As Oil Drops Below $50, Can There Be Too Much of a Good Thing? (BW)

Oil falls below $50 a barrel on Jan. 5, and the Dow Jones Industrial Average plunges nearly 330 points. Seems like an open-and-shut case that the price plunge is getting to be a problem. People remember that in 1998, a sharp decline in the price of oil contributed to a Russian default that rocked the global financial system. Not quite. Cheaper oil is still creating more winners than losers. Far more people live in oil-importing countries than live in oil-exporting countries. The U.S., for one, remains a net importer. The well-publicized travails of U.S. shale oil producers are small compared with the gains by American consumers and businesses that are paying less for gasoline, diesel, jet fuel, petrochemicals, and the like. With fuel prices down, people are driving more miles and buying more cars and trucks.

Do the math: Close to 70% of the U.S. economy is consumer spending, which will gain from cheaper crude. Only about 10% is capital spending, of which 10% to 15% is the energy sector. That comes to roughly 1% of U.S. output, which might decline 20% this year, making it a relative drop in the bucket of U.S. gross domestic product, says Nariman Behravesh, chief economist for IHS Global Insight. Why, then, did stock prices fall when West Texas Intermediate for February delivery dropped nearly $3 a barrel on Jan. 5, to $49.89? Mostly because of market fears about global growth, which weighed down both stocks and oil prices, says Gus Faucher, a senior economist at PNC Financial Services. In other words, the latest drop in oil is a symptom, not a cause, of economic weakness, Faucher says. “Anyone who thinks that lower oil/gasoline prices is a net negative for the U.S. (and the global economy) is brain dead, economically speaking!” argues a Dec. 23 report by Faucher’s boss, PNC Chief Economist Stuart Hoffman.

Try and trick the Germans?!

• ECB Considering Three Approaches To QE (Reuters)

The European Central Bank is considering three possible options for buying government bonds ahead of its Jan. 22 policy meeting, Dutch newspaper Het Financieele Dagblad reported on Tuesday, citing unnamed sources. As fears grow that cheaper oil will tip the euro zone into deflation, speculation is rife that the ECB will unveil plans for mass purchases of euro zone government bonds with new money, a policy known as quantitative easing, as soon as this month. According to the paper, one option officials are considering is to pump liquidity into the financial system by having the ECB itself buy government bonds in a quantity proportionate to the given member state’s shareholding in the central bank.

A second option is for the ECB to buy only triple-A rated government bonds, driving their yields down to zero or into negative territory. The hope is that this would push investors into buying riskier sovereign and corporate debt. The third option is similar to the first, but national central banks would do the buying, meaning that the risk would “in principle” remain with the country in question, the paper said.

Hot air.

• Germany Prepares For Possible Greek Exit From Eurozone (Reuters)

Germany is making contingency plans for the possible departure of Greece from the euro zone, including the impact of any run on a bank, tabloid newspaper Bild reported, citing unnamed government sources. The newspaper said the government was running scenarios for the Jan. 25 Greek election in case of a victory by the leftwing Syriza party, which wants to cancel austerity measures and a part of the Greek debt. In a report in the Wednesday issue of the paper, Bild said government experts were concerned about a possible bank collapse if customers storm Greek institutions to secure euro deposits in the event that Greece leaves the zone.

The European Union banking union would then have to intervene with a bailout worth billions, the paper said. Der Spiegel magazine reported on Saturday that Berlin considers a Greek exit almost unavoidable if Syriza wins, but believes the euro zone would be able to cope. Vice Chancellor Sigmar Gabriel said on Sunday that Germany wants Greece to stay and there are no contingency plans to the contrary, while noting the euro zone has become far more stable in recent years. As the euro zone’s paymaster, Germany is insisting that Greece stick to austerity and not backtrack on its bailout commitments, especially as it does not want to open the door for other struggling members to relax reform efforts.

Right. And they have their pet hamsters doing the calculating.

• Germany, France Take Calculated Risk With ‘Grexit’ Talk (Reuters)

Evoking a possible Greek exit from the euro zone, Germany and France are taking a coordinated and calculated risk in the hope of averting a leftist victory in Greece’s general election on Jan. 25. The intention, according to Michael Huether, head of Germany’s IW economic institute, is to make clear that other euro area countries “can get on well without Greece, but Greece cannot get on without Europe”, and to warn that the left-wing Syriza party would bring disaster on the country. Syriza leader Alexis Tsipras, whose party leads in opinion polls, insists he wants to keep Greece in the euro. However, he has promised to end austerity imposed by foreign creditors under the country’s bailout deal if he wins power, and wants part of the €240 billion lent by the EU and IMF written off.

The risk is that the European Union’s two main powers are seen by Greeks as interfering and threatening them, provoking a backlash after a six-year recession that shrunk their economy by 20% and put one in four workers out of a job. French President Francois Hollande said on Monday it was up to the Greek people to decide whether they wanted to stay in the single currency, while a German magazine reported that Berlin no longer feared a “Grexit” would endanger the entire euro area. Chancellor Angela Merkel’s spokesman did not explicitly deny the weekend “Der Spiegel” report but said: “The aim has been to stabilize the euro zone with all its members, including Greece. There has been no change in our stance.”

Merkel and Hollande conferred by telephone during the winter holidays and will meet in Strasbourg on Sunday with European Parliament President Martin Schulz for what a French diplomatic source insisted were not crisis talks on Greece. Should center-right Prime Minister Antonis Samaras lose power in the election, the real issue was how a Syriza-led government might seek to reschedule Greece’s debt, not its place in the euro, the French source said. Paris and Berlin have underlined that any new government in Athens would have to honor the country’s obligation to repay the bailout loans received since 2010. In an article in the Huffington Post, Tsipras accused German conservatives of spreading “old wives’ tales”, singling out Finance Minister Wolfgang Schaeuble. Syriza, a coalition of former communist and independent leftist groups, “is not an ogre, or a big threat to Europe, but the voice of reason,” he wrote.

Tsipras himself sees it this way:

• Greece On the Cusp of a Historic Change (Alexis Tsipras, SYRIZA)

Greece is on the cusp of a historic change. SYRIZA is no longer just a hope for Greece and the Greek people. It is also an expectation of a change of course for the whole of Europe. Because Europe will not come out of the crisis without a policy change, and the victory of SYRIZA in the 25th of January elections will strengthen the forces of change. Because the dead end in Greece is the dead end of today’s Europe. On January 25th, the Greek people are called to make history with their vote, to trail a space of change and hope of all people across Europe by condemning the failed memoranda of austerity, proving that when people want to, when they dare, and when they overcome fear, then things can change. The expectations alone of political change in Greece, has already begun to change things in Europe. 2015 is not 2012

SYRIZA is not an ogre, or a big threat to Europe, but the voice of reason. It’s the alarm clock which will lift Europe from its lethargy and sleepwalking. This is why SYRIZA is no longer treated as a major threat like it was in 2012, but as a challenge to change. By all? Not by all. A small minority, centered on the conservative leadership of the German government and a part of the populist press, insists on rehashing old wives’ tales and Grexit stories. Just like Mr. Samaras in Greece, they can no longer convince anyone. Now that the Greek people have experienced his government, they know how to tell the lies from the truth. Mr. Samaras offers no other program except continuing with the failed MOU of austerity.

It has committed itself and others to new wage and pension cuts, new tax increases, in the framework of accumulated income cuts and over- taxation of six whole years. He asks Greek citizens to vote for him so that he can implement the new memorandum. It is precisely because he has committed to austerity, that he interprets the rejection of this failed and destructive policy as a supposedly unilateral action. He is essentially hiding that Greece as a Eurozone member is committed to targets and not to the political means by which those targets are achieved. For this reason, and unlike the ruling party of Nea Dimokratia, SYRIZA has committed to the Greek people to apply from the first days of its’ administration a specific, cost-efficient and fiscally balanced program, “The Thessaloniki Program” regardless of our negotiation with our lenders.

The editor told them not to call it deflation.

• Eurozone Inflation Turns Negative For First Time Since October 2009 (Reuters)

Euro zone consumer prices fell by more than expected in December because of much cheaper energy, a first estimate by the European statistic office showed in data that is likely to trigger the European Central Bank’s government bond buying program. Eurostat said inflation in the 18 countries using the euro in December was -0.2% year-on-year, down from 0.3% year-on-year in November. The last time euro zone inflation was negative was in October 2009, when it was -0.1%. Economists polled by Reuters had expected a -0.1% year-on-year fall in prices. The ECB wants to keep inflation below but close to 2% over the medium term. Eurostat said that core inflation, which excludes the volatile energy and unprocessed food prices, was stable at 0.7% year-on-year in December – the same level as in November and October. But energy prices plunged 6.3% year-on-year last month and unprocessed food was 1.0% cheaper, pulling down the overall index despite a 1.2% rise in the cost of services.

The ECB is concerned that a prolonged period of very low inflation could change inflation expectations of consumers and make them hold back their purchases in the hope of even lower prices, triggering deflation. Because the ECB’s interest rates are already at rock bottom, the bank is preparing a program of printing money to buy government bonds on the secondary market to inject even more cash into the economy, boost demand and make prices rise faster. Economists expect the decision to launch such a bond buying program could be made as soon as the ECB’s next meeting on January 22. “We are in technical preparations to adjust the size, speed and compositions of our measures early 2015, should it become necessary to react to a too long period of low inflation. There is unanimity within the Governing Council on this,” ECB President Mario Draghi said on January 1. Inflation in the euro zone has below 1% – or what the ECB calls the danger zone – since October 2013.

There we go again. Maybe the ECB is behind this.

• Greek 10-Year Bond Yields Exceed 10% for First Time Since 2013 (Bloomberg)

For the first time in 15 months, Greek 10-year government bond yields are back above 10%. The rate on the securities climbed to 10.18% today as investors abandoned the bonds in the run-up to a Jan. 25 election that Prime Minister Antonis Samaras said will determine Greece’s euro membership. Greek stocks also fell, posting the biggest decline among 18 western-European markets. The double-digit yield is reminiscent of the euro region’s debt crisis. In 2012, Greece’s 10-year rates climbed as high as 44.21% before the nation held the biggest reorganization of sovereign debt in history.

Greek 10-year yields increased 44 basis points, or 0.44 %age point, to 10.18% at 11:02 a.m. London time. The 2% bond due in February 2024 fell 1.885, or 18.85 euros per 1,000-euro ($1,185) face amount, to 60.585. The nation’s three-year rate jumped 60 basis points to 14.65%. The ASE Index of stocks fell 2.7%, set for the lowest close since November 2012. With a 29% slump, the ASE posted the world’s worst performance among equity indexes after Russia last year.

We said long ago that the dollar would rise.

• Euro’s Drop is a Turning Point for Central Banks Reserves (Bloomberg)

Central banks and reserve managers are breaking from past practice by showing little appetite to add euros as the currency tumbles. The total amount of reserves held in euros fell 8.1% in the third quarter, more than the currency’s 7.8% decline in the period against the dollar, according to the most recent figures from the International Monetary Fund. The last two times the euro depreciated 7% or more in a quarter, 2011 and 2010, holdings declined much less. The data suggest reserve managers are passing up the chance to buy euros while they’re cheap, removing a key pillar of support. In August, European Central Bank President Mario Draghi cited the drop in central banks’ euro holdings as a factor that would help weaken the exchange rate and ultimately boost the region’s faltering economy.

“Central banks have found new reasons not to feel comfortable with the euro,” Stephen Jen, managing partner and co-founder of SLJ Macro, said. “Nobody wants to have a negative yield. You’re not keeping a currency to lose money.” The ECB has experimented with negative interest rates on deposits in an attempt to draw money out of safe government debt and into the broader economy. Yields on two-year notes in Germany, the Netherlands and France are all below zero on speculation the ECB is losing the battle against deflation. Policy makers are signaling they are ready to step up the fight by expanding the money supply through further stimulus, such as purchasing government debt, that typically weigh on a currency’s value.

Adding to the pressure is concern that Draghi won’t be able to hold the currency bloc together amid signs Greece may quit the euro area after its Jan. 25 election. The 19-nation euro fell in each of the past six months, dropping to $1.1843 today, its lowest level since February 2006. A spokesman for the Frankfurt-based ECB, who asked not to be identified, said yesterday by e-mail that the international role of the euro is primarily determined by market forces and the central bank neither hinders nor promotes it. The amount of euros held in allocated reserves – or those where the currency is specified – fell to $1.4 trillion in the third quarter, or 22.6% of the total, from $1.5 trillion, or 24.1%, at the end of June, according to figures published by the IMF on Dec. 31. The proportion is the lowest since 2002 and down from as much as 28% in 2009.

“We expect the ECB to announce a broad-based asset-purchase program including government bonds.”

• Eurozone Prices Seen Falling as Risk of Deflation Spiral Mounts (Bloomberg)

Consumer prices in the euro area probably fell for the first time in more than five years last month, pushing the European Central Bank closer to adding stimulus as it battles to revive inflation. Prices dropped an annual 0.1% in December, according to the median forecast of economists in a Bloomberg survey. That would be the first decline since October 2009. ECB officials are working on a plan to buy government bonds as they strive to prevent a deflationary spiral of falling prices and households postponing spending, a risk President Mario Draghi has said can’t be “entirely excluded.” They may use a gathering tomorrow to weigh options for a quantitative-easing program that may be announced at their Jan. 22 policy meeting.

“Inflation will most likely fall even further in January and remain extremely low all year long,” said Evelyn Herrmann, European economist at BNP Paribas SA in London. “We expect the ECB to announce a broad-based asset-purchase program including government bonds.” A sluggish economy and plunging oil prices are damping inflation across the euro region. Consumer prices are falling on an annual basis in Spain and Greece, while data yesterday showed inflation in Germany at 0.1%, its weakest since 2009. Crude oil prices have fallen about 50% in the past year amid a supply glut. Core euro-zone inflation, which strips out volatile items such as energy, food, tobacco and alcohol, is forecast to have increased 0.7% year-on-year in December.

Eurostat, the EU’s statistics office, will publish the data at 11 a.m. in Luxembourg, along with its unemployment report for November. ECB officials have taken different approaches in analyzing the impact of plunging oil prices on the economy. While Draghi has warned of a dis-anchoring of inflation expectations and signaled support for QE, Bundesbank President Jens Weidmann favors not acting at this time, arguing that the drop could prove to be a “mini-stimulus package.”

“Daniel Stelter at think tank Beyond the Obvious has even called for giving €5,000 to €10,000 to each citizen. “It has to be massive if it is going to have any effect,” he says.”

• Operation Helicopter: Could Free Money Help the Euro Zone? (Spiegel)

It sounds at first like a crazy thought experiment: One morning, every resident of the euro zone comes home to find a check in their mailbox worth over €500 euros ($597) and possibly as much as €3,000. A gift, just like that, sent by the ECB in Frankfurt. The scenario is less absurd than it may sound. Indeed, many serious academics and financial experts are demanding exactly that. They want ECB chief Mario Draghi to fire up the printing presses and hand out money directly to the people. The logic behind the idea is that recipients of the money will head to the shops, helping to turn around a paralyzed economy in the common currency area. In response, companies would have to increase production and hire more workers, leading to both economic growth and a needed increase in prices because of the surge in demand.

Currently, the inflation rate is barely above zero and fears of a horror deflation scenario of the kind seen during the Great Depression in the United States are haunting the euro zone. The ECB, whose main task is euro stability, has lost control. In this desperate situation, an increasing number of economists and finance professionals are promoting the concept of “helicopter money,” tantamount to dispersing cash across the country by way of helicopter. The idea, which even Nobel Prize-winning economist Milton Friedman once found attractive, has triggered ferocious debates between central bank officials in Europe and academics. For backers, there’s more to this than just a new instrument. They are questioning cast-iron doctrines of monetary policy. One thing, after all, is becoming increasingly clear: Draghi and his fellow central bank leaders have exhausted all traditional means for combatting deflation.

The failure of these efforts can be easily explained. Thus far, central banks have primarily provided funding to financial institutions. The ECB provided banks with loans at low interest rates or purchased risky securities from them in the hope that they would in turn issue more loans to companies and consumers. The problem is that many households and firms are so far in debt already that they are eschewing any new credit, meaning the money isn’t ultimately making its way to the real economy as hoped. Sylvain Broyer at French investment bank Natixis, says, “It would make much more sense to take the money the ECB wants to deploy in the fight against deflation and distribute it directly to the people.” Draghi has calculated expenditures of a trillion euros for his emergency program, funds that would be sufficient to provide each euro zone citizen with a gift of around €3,000.

Daniel Stelter at think tank Beyond the Obvious, has even called for giving €5,000 to €10,000 to each citizen. “It has to be massive if it is going to have any effect,” he says. Stelter freely admits that such figures are estimates. After all, not a single central bank has ever tried such a daring experiment. Many academics have based their calculations on experiences in the United States, where the government has in the past provided cash gifts to taxpayers in the form of rebates in order to shore up the economy. Oxford economist John Muellbauer, for one, looks back to 2001. After the Dot.com crash, the US gave all taxpayers a $300 rebate. On the basis of the experience at the time, Muellbauer calculates that €500 per capita would be sufficient to spur the euro zone. “It (the helicopter money) would even be much cheaper for the ECB than the current programs>],” the academic says.

Ambrose doesn’t like Putin.

• Russia’s ‘Perfect Storm’: Reserves Vanish, Derivatives’ Default Warnings (AEP)

Russia’s foreign reserves have dropped to the lowest level since the Lehman crisis and are vanishing at an unsustainable rate as the country struggles to defends the rouble against capital flight. Central bank data show that a blitz of currency intervention depleted reserves by $26bn in the two weeks to December 26, the fastest pace of erosion since the crisis in Ukraine erupted early last year. Credit defaults swaps (CDS) measuring bankruptcy risk for Russia spiked violently on Tuesday, surging by 100 basis points to 630, before falling back slightly. Markit says this implies a 32% expectation of a sovereign default over the next five years, the highest since Western sanctions and crumbling oil prices combined to cripple the Russian economy. Total reserves have fallen from $511bn to $388bn in a year. The Kremlin has already committed a third of what remains to bolster the domestic economy in 2015, greatly reducing the amount that can be used to defend the rouble.

The Institute for International Finance (IIF) says the danger line is $330bn, given the dollar liabilities of Russian companies and chronic capital flight. Currency intervention did stabilise the exchange rate in late December after a spectacular crash threatened to spin out of control, but relief is proving short-lived. The rouble weakened sharply to 64 against the dollar on Tuesday. It has slumped moe than 20% since Christmas, with increasing contagion to Belarus, Georgia and other closely-linked economies. There are signs that Russia’s crisis may undermine President Vladimir’s Putin’s Eurasian Economic Union before it has got off the ground. Belarus’s Alexander Lukashenko is already insisting that trade be carried out in US dollars, while Kazakhstan’s Nursultan Nazarbayev warned that the Russian crash poses a “major risk” to the new venture.

The rouble is trading in lockstep with Brent crude, which has continued its relentless slide this week, falling to a five-year low of $51.50 a barrel. “If oil drops to $45 or lower and stays there, Russia is going to face a big problem,” said Mikhail Liluashvili, from Oxford Economics. “The central bank will try to smooth volatility but they will have to let the rouble fall and this could push inflation to 20%.” Under the Russian central bank’s “emergency scenario”, GDP may contract by as much as 4.7% this year if oil settles at $60. The damage could be worse following the bank’s contentious decision to raise rates from 9.5% to 17% in December. BNP Paribas says that each 1% rise in rates cuts 0.8% off GDP a year later. BNP’s Tatiana Tchembarova said the situation is more serious than in 2008, when Russia had to spend $170bn to rescue its banks. This time it no longer has enough reserves to cover external debt, and it enters the crisis “twice as levered”.

Why bother?

• Obama Threatens Keystone XL Veto (BBC)

President Barack Obama will veto a bill approving the controversial Keystone XL pipeline if it passes Congress, the White House has said. It is the first major legislation to be introduced in the Republican-controlled Congress and a vote is expected in the House later this week. Spokesman Josh Earnest said the legislation would undermine a “well-established” review process. The $5.4bn (£3.6bn) project was first introduced in 2008. Mr Obama has been critical of the pipeline, saying at the end of last year it would primarily benefit Canadian oil firms and not contribute much to already dropping petrol prices. Environmentalists are also critical of the project, a proposed 1,179-mile (1,897km) pipe that would run from the oil sands in Alberta, Canada, to Steele City, Nebraska, where it could join an existing pipe.

And the project is the subject of a unresolved lawsuit in Nebraska over the route of the pipeline. “There is already a well-established process in place to consider whether or not infrastructure projects like this are in the best interest of the country,” Mr Earnest said on Tuesday. He added that the question of the Nebraska route was “impeding a final conclusion” from the US on the project. Despite the veto threat from the White House, the bill sponsors say they have enough Democratic votes to overcome a procedural hurdle to pass in the Senate.

“The Congress on a bipartisan basis is saying we are approving this project,” said Republican John Hoeven, one of the bill’s sponsors. But Mr Hoeven and Democratic Senator Joe Manchin said they would be open to additional amendments to the bill, a test of the changing political realities of the Senate. Democratic critics of the bill are said to be planning to add measures to prohibit exporting the oil abroad, use American materials in the pipeline construction and increased investment in clean energy. It is unclear if those amendments would gather the two-thirds of votes needed in both chambers to override Mr Obama’s veto.

But took decisions costing trillions of pounds anyway.

• Bank Of England Was Unaware Of Impending Financial Crisis (BBC)

A month before the start of the financial crisis, the Bank of England was apparently unaware of the impending danger, new documents reveal. In a unique insight of its workings, the Bank has published minutes of top-secret meetings of the so-called Court that took place between 2007 and 2009. The minutes show that the Bank did identify liquidity as a “central concern” in July 2007. However no action was taken as a result. The documents show that the Bank also used a series of code names for banks that were in trouble. Royal Bank of Scotland was known as “Phoenix”, and Lloyds as “Lark”. Following publication, Andrew Tyrie MP, the chairman of the Treasury Select Committee, was highly critical of some of the Court’s non-executive directors. He said they had failed to challenge senior executive members, like the then governor, Mervyn King, whom some accuse of failing to prioritise financial stability.

The minutes show that in July 2007, the Court – akin to a company board – spent time discussing staff pensions, open days and new members of the Monetary Policy Committee. Members heard that the Bank was working on a new model to detect risks to the financial system, but there was little suggestion of any impending trouble. Less than a month later, on 9 August, the French bank BNP Paribas came clean about its exposure to sub-prime mortgages, in what some believe was the start of the financial crisis. Six weeks later, despite some turmoil in financial markets, Court members were told to have confidence in the triple oversight of the Bank of England, the Treasury and the then Financial Services Authority (FSA). “The Executive believed that the events of the last month had proven the sense and strength of the tripartite framework,” the minutes asserted for the 12th September, 2007. The next day the banking crisis began in earnest.