Russell Lee Farmer’s truck at state rice mill, Abbeville, LA September 1938
Sometimes similarities have an entertaining effect. Noticing how the US and China deal with their similar though not identical debt levels in similar though not identical ways made me think of the “it’s turtles all the way down” version of the origins of the universe – which has an ancient Hindu version that says the earth rests on an elephant which rests on a turtle -. It seems a pretty good fit when trying to describe the global financial system, the debts that are dragging it down, and the insidious schemes with which governments and banks try to hide from the public that their part of the system is busy collapsing under the weight of its own debt.
A few days ago, I quoted David Stockman’s take on how the Fed does it.
… if [the Fed’s] $4.5 trillion balance sheet is permanent, then the Fed’s post-crisis money printing spree amounts to a massive monetization of the public debt. To be sure, all of this was done in the name of rubbery abstractions like “accommodating” recovery, supporting the “labor market” and “stimulating” consumption and investment spending, but the real world effect was quite different and far more tangible: It allowed Washington to treat the financing cost of our $17.5 trillion national debt as a free good.
In a world in which even the official inflation rate (CPI) has averaged 2.4% during the last 14-years, there is no other way to describe a policy that actually drove the 5-year Treasury note yield to a low of 75 bps, and pulled the weighted average cost of the total Federal debt down to about 2.5%—which is to say, zero, nichts, nada or nothing in real terms. And part of this fiscal scam is even more egregious than the Fed’s own acknowledgement that it’s artificially suppressing the treasury coupons. What the Fed is also doing is issuing second-hand “greenbacks” – those notorious non-interest bearing IOU’s that financed the Civil War. Since the crisis the Fed has returned $400 billion of “profits”, including $80 billion each in the last two years, to the US treasury, thereby off-setting upwards of 25% of the interest cost on the Federal debt.
… how is it that the Fed is more profitable than the wholesale, retail, entertainment, food service and hospitality industries of America combined? Self-evidently, its the magic of printing press money: The Fed buys treasuries and MBS with a coupon; pays for them by issuing new liabilities without a coupon; collects the spread which gets recorded as a “profit”; and then returns this ‘profit” to Uncle Sam at year-end. Had the Treasury Department dusted off Lincoln’s playbook, instead, it could have simply issued “greenbacks”, and dispensed with the round trip. In less polite company it might be called a fiscal circle jerk.
And then today I read Sara Hsu at The Diplomat on the Chinese version. As I said, not identical, but certainly similar. A longish quote for context.
The first step in answering this would be to examine what types of debt has gone bad in China and what is likely to continue to sour, as well as how these products have been dealt with. There are three general categories of bad debt that have been bailed out in recent years (there is other bad debt that has not been bailed out): bank loans, trust loans, and loans from smaller sectors such as informal finance and credit guarantee companies. Problems with trust loans and loans from smaller sectors have generally been handled by local governments, while bank loans have been bailed out via asset management companies funded through the Ministry of Finance.
The second step is to consider how well the central and local governments can cope with a potential increase in bad debt. While local governments are overly indebted, as revealed by a recent report by the National Audit Office, and have experienced fiscal shortfalls for some time, the central government has maintained relatively low deficits, even coming in under the projected deficit in 2013. The way in which the central government deals with non-performing loans is easy on the fiscal budget as long as the debt can be recovered ; the worst impact of this process is that it may very lightly constrain lending, as non-performing loans are taken off books and bonds are issued and purchased by banks, changing the nature of capital held on the books.
In reality, however, much of the distressed debt is not recovered, and in the past has been purchased by the Ministry of Finance. Both central and local governments, then, face issues with bailing out bad loans either directly or indirectly.
The third question we ask is whether the scale of bad debt will grow sufficiently to threaten the financial health of the central and local governments. For local governments, the question is moot. Their health is already threatened by a serious lack of revenue. [..] As it stands, it seems that the fallout from trust bailouts has been relatively low and may turn out to be less onerous on local governments than it has been on the psyche of financial analysts, but if the trust debt increases and bailouts do rise, local governments will suffer, as they have little capacity to withstand a further accumulation of debt.
The central government can bear a small increase in bad debt, but as long as the deficit is kept in check, bailouts will replace policies that spur much-needed growth, trading future prosperity for past profligacy. The recent 3-year non-performing loan amount of just less than 1.5 trillion RMB (about 500 billion per year and growing) seems like a tidy sum compared to fiscal expenditures of 7 trillion RMB (in 2013). With mounting non-performing loans and declining revenue in the short run, the gap between these numbers will only narrow. Although the government can pay down the debt later, postponing the bailout, many new nonperforming loans would present a challenge to officials as to how to classify, recover, and ultimately relieve the financial system of this burden.
… it does not appear that China can bear a very large increase in debt, and that the idea that the government can simply “bail out the financial sector” is erroneous, or at least, a stretch. China does not have the luxury of the United States, which can spend excessively because foreign countries continue to buy U.S. government debt (as the dollar is the world reserve currency). If the leadership attempts to spend down its large cache of dollar reserves, it will lose control of its currency, as a larger supply of U.S. dollars relative to the Chinese RMB would depreciate the currency unless sterilized. The only remaining option is the least savory: the Chinese government must control its debt, and this includes reducing overindulgence within the real economy. It seems that the punch bowl is empty already and the party is winding down.
It seems that if things get bad and smelly, wherever you are in the world, there’s always a carpet to sweep them under. And the Chinese make nice carpets. But everyone can figure out that this is not some sort of endless accounting innovation. If this would work, we’d all have been doing it for centuries, and we’d all be awfully rich. Instead, what Stockman calls circle jerks are mere sleight of hands, and that doesn’t change just because government accountants have become addicted to them.
One thing Hsu omits from her assessment of Chinese government debt, as many with her do, is shadow banking. And just because you can’t see it doesn’t mean you can ignore it. You need to find out, hard as it may be, how much bad debt is in the shadow system. If only because much of that debt will belong to local governments. You would also need to find a way to gauge how much leverage there is in the shadows; there’s no doubt it’s – even – higher than in the official banking sector. Without some way to incorporate this shadow banking debt in your picture of Chinese liabilities, you can’t get more than a very limited idea of what goes on. Which Beijing would prefer, obviously, just like Washington does.
Makes you wonder how China will deal with this info just in from Caixin:
The country’s property market has gotten off to a slower start this year than in 2013. The number of homes sold in the first quarter in tier-one cities – Chinese property market jargon for the major cities of Beijing, Shanghai, Shenzhen and Guangzhou – was more than 40% lower than during the same period last year, data released by China Index Academy on April 1 shows. Transactions in the capital fell the most among the four cities, by 51%, followed by Guangzhou (43%), Shenzhen (38%) and Shanghai (36%). [..] The property markets in second-tier cities – provincial capitals and the larger cities in each region – were also cooler in the first quarter than they were in the same period last year. The number of apartments sold was down 25%,
Construction and sales of real estate have been major drivers of Chinese domestic growth, the main way to get people to move their savings into tangible things. What was it, 90,000 developers of which only a third are expected to survive? And then sales are down 40%? Prices are next then. Not quite yet though:
… home prices in three of the four first-tier cities rose from the previous month. Home prices in Shanghai increased the most, by 0.99%. Beijing and Shenzhen also saw prices go up, by 0.93% and 0.77% respectively. The average price in Guangzhou fell by 0.29%.
But prices lag sales, of course. At some point people come to realize that they can’t sell for what they want, and must lower their asking prices. I’d say the Communist Party needs a real clever plan very soon, or there’ll be angry hordes at the gates of the Forbidden City. And I don’t see the tens of millions of Chinese homeowners being as gullible as Americans, and being tricked by the sleight of hand circle jerks the Fed plays. The essential issue is dead simple: can Beijing reinflate the insane housing bubble, and how long for?
The country’s property market has gotten off to a slower start this year than in 2013. The number of homes sold in the first quarter in tier-one cities – Chinese property market jargon for the major cities of Beijing, Shanghai, Shenzhen and Guangzhou – was more than 40% lower than during the same period last year, data released by China Index Academy on April 1 shows. Transactions in the capital fell the most among the four cities, by 51%, followed by Guangzhou (43%), Shenzhen (38%) and Shanghai (36%).
Despite this, home prices in three of the four first-tier cities rose from the previous month. Home prices in Shanghai increased the most, by 0.99%. Beijing and Shenzhen also saw prices go up, by 0.93% and 0.77% respectively. The average price in Guangzhou fell by 0.29%. Home prices in the large cities will increase by around 10% this year mainly because credit is harder to get than in recent years, Zhu Haibin, chief economist at JPMorgan China said in a recent report.
The property markets in second-tier cities – provincial capitals and the larger cities in each region – were also cooler in the first quarter than they were in the same period last year. The number of apartments sold was down 25%, the real estate research institution CRIC Group said in a report. The number of transactions usually falls in January and picks up in March, the report said, but the property market is off to a difficult start to 2014, CRIC Group said. Many major developers have set moderate targets and cut the number of new projects, indicating lower expectations for growth in the upcoming months, CRIC said.
Moody’s Investors Service has downgraded Ukraine’s government bond rating one notch from Caa2 to Caa3, citing the current political crisis and deepening economic instability as reasons for its negative outlook. The Caa rating is a credit risk grading pertaining to investments that are both very poor quality and entail a high credit risk. The current downgrade drops Ukraine from Moody’s “extremely speculative” rating to “default imminent with little prospect for recovery.”
Moody’s said the downgrade was driven by three factors, which “exacerbate Ukraine’s more longstanding economic and fiscal fragility.” The first factor is Ukraine’s political crisis, citing the recent regime change in Kiev and subsequent events in Crimea. The agency went on to cite Ukraine’s stressed external liquidity position, which faces continued decline in foreign currency reserves, the withdrawal of Russian financial support and a spike in gas import prices. Moody’s further noted that this assessment accounts for the near-term liquidity relief recently hammered out with the IMF. Finally, due to a “sizable fiscal deficit,” the agency expects a significant contraction of GDP and a sharp currency depreciation as the debt to GDP (Gross Domestic Product) ratio hits between 55-60% by year’s end.
On Thursday, Gazprom CEO Aleksey Miller announced Ukraine would begin paying $485 per thousand cubic meters of natural gas starting from April. The price rise followed a cancelation of the Black Sea hosting deal. On Wednesday President Vladimir Putin signed a federal law ending Russia’s commitment to the Kharkov Agreement, as the Black Sea port of Sevastopol is now under jurisdiction of the Russian Federation. This follows another steep hike on April 1, when the price Ukraine paid for gas went up 44% to $385, after Kiev failed to meet its debt repayments.
Last December, Russia offered Ukraine’s Yanukovich-led government a $15 billion loan and a 33% discount on natural gas: a lifeline to help its faltering economy. Moscow went through with the purchase of a $3 billion Eurobond from Kiev, though Russia later froze both the gas deal and the credit- line, due to events on the ground.
The European Central Bank would need to buy assets worth €1 trillion ($1.4 trillion) to lift inflation by as little as a fifth of a percentage point, according to an internal assessment of quantitative easing. The estimate, first reported by Frankfurter Allgemeine Zeitung newspaper but confirmed by a person familiar with its contents, comes a day after the ECB gave its strongest hint yet that it is prepared to embrace bond-buying to prevent the euro zone from sliding into deflation, or even a long period of low inflation. The estimate, which is based on just one of a number of options for QE that policy makers are considering, shows that €1tn of purchases of euro-denominated securities over the course of a year, or €80 billion a month, could add between 0.2 and 0.8 percentage points to inflation in 2016.
The ECB is expecting a figure of 1.5% in two years meaning QE could also potentially take inflation above the central bank’s target rate of just below 2%. The vast scale of purchases required and the uncertain effect on prices could add to concerns about the merits and risks of QE, particularly in Germany if a substantial chunk of the central bank’s funds are used to buy the debt of weaker euro zone sovereigns. The fact that the assessment was leaked to FAZ, a bastion of German economic orthodoxy, has reignited suspicions by some ECB insiders of a campaign to foment German public opposition to QE as European parliamentary elections loom at the end of May.
The word boondoggle is all over this. The US has nothing to export. But there are parties looking to make a killing on the promise.
When Big Oil began preparing last year to challenge the decades-old rules against exporting U.S. crude, the debate seemed fanciful. Then Russia took over Crimea and the idea of using American energy — oil as well as natural gas — to reshape global affairs became a Washington pet project. Here’s how the battle lines are drawn: Oil producers want to chase higher prices overseas. Refiners want to keep cheaper domestic supplies. Politicians want to balance those interests with concerns that gasoline prices would rise. Everyone invokes the goal of energy independence.
Putting the posturing aside, it’s useful to imagine what actually happens to supply, demand and prices in an oil market without the export restrictions that date to the 1970s Arab oil embargo. That’s what JBC Energy GmbH, a Vienna-based research company, offered in a report this week. The upshot? Producers win, refiners lose, global prices converge — and the question of energy independence, is, well, irrelevant.
Lifting the ban would increase U.S. crude-oil production by about 700,000 barrels a day, raise exports by about 1.5 million barrels a day and push up imports by about 500,000 barrels a day by 2020, JBC estimates. So the net effect on the country’s energy balance sheet is pretty negligible. Global supply wouldn’t change much either, as other producers would adjust, according to JBC.
Prices, however, would be transformed. West Texas Intermediate, the benchmark U.S. grade, has been cheaper than Brent, its international counterpart, since 2010 as a surplus of domestic crude developed. Even as the U.S. still imports more than 7 million barrels a day, it has too much domestic crude because the refining system wasn’t designed for the type of oil produced from hydraulic fracturing in shale formations. Right now that oil has nowhere to go, which is why domestic prices are lower. As the glut escalates, at some point the U.S. has to curtail production, expand refineries or allow exports. If it’s the latter, the gap between WTI and Brent would narrow to as little as $1 a barrel, compared with about $5.55 on April 4, according to JBC.
I wonder where Monsanto and Ukraine’s black earth will collide.
Russia will not import GMO products, the country’s Prime Minister Dmitry Medvedev said, adding that the nation has enough space and resources to produce organic food. Moscow has no reason to encourage the production of genetically modified products or import them into the country, Medvedev told a congress of deputies from rural settlements on Saturday.
“If the Americans like to eat GMO products, let them eat it then. We don’t need to do that; we have enough space and opportunities to produce organic food,” he said. The prime minister said he ordered widespread monitoring of the agricultural sector. He added that despite rather strict restrictions, a certain amount of GMO products and seeds have made it to the Russian market. Earlier, agriculture minister Nikolay Fyodorov also stated that Russia should remain free of genetically modified products.
At the end of February, the Russian parliament asked the government to impose a temporary ban on all genetically altered products in Russia. The State Duma’s Agriculture Committee supported a ban on the registration and trade of genetically modified organisms. It was suggested that until specialists develop a working system of control over the effects of GMOs on humans and the natural environment, the government should impose a moratorium on the breeding and growth of genetically modified plants, animals, and microorganisms.
Earlier this month, MPs of the parliamentary majority United Russia party, together with the ‘For Sovereignty’ parliamentary group, suggested an amendment of the existing law On Safety and Quality of Alimentary Products, with a norm set for the maximum allowed content of transgenic and genetically modified components. There is currently no limitation on the trade or production of GMO-containing food in Russia. However, when the percentage of GMO exceeds 0.9 percent, the producer must label such goods and warn consumers. Last autumn, the government passed a resolution allowing the listing of genetically modified plants in the Unified State Register. The resolution will come into force in July.
In more than 40 years driving trains in South Africa, Jacobus Cornelius van der Merwe has never seen anything like the Shongololo. The train, whose name means millipede in Zulu, carries 200 coal wagons, is as long as eight Eiffel Towers laid end-to-end and can haul 16,800 metric tons of coal at 80 kilometers (50 miles) an hour non-stop to the country’s main export port. “It’s a massive improvement,” Van der Merwe, 59, said of 580-kilometer journeys from mines in Mpumalanga southeast to Richards Bay Coal Terminal on the coast, without having to change locomotives because some lines use alternating current and some direct.
About 110 dual-powered trains made by Toshiba Corp. been put in service since 2009, while diesel locomotives on the coal route will be replaced with General Electric Co. models. The Shongololo is part of a 201 billion-rand ($18.8 billion) rail overhaul and expansion plan aimed at boosting exports of coal, manganese and other commodities from Africa’s biggest economy. It’s being rolled out by Transnet SOC Ltd., the state-owned ports and rail operator, tapping the expertise of GE, Bombardier Inc., CSR Zhuzhou Electric Locomotives Co. and China CNR Corp. to manufacture the locomotives locally and increase freight capacity.
It has been estimated that the U.S. economy loses approximately 9,000 jobs for every $1 billion of goods that are imported from overseas, and according to the Economic Policy Institute, America is losing about half a million jobs to China every single year. Considering the high level of unemployment that we now have in this country, can we really afford to be doing that?
Overall, the United States has accumulated a total trade deficit with the rest of the world of more than $8 trillion since 1975. As a result, we have lost tens of thousands of businesses, millions of jobs and our economic infrastructure has been absolutely gutted. Just look at what has happened to manufacturing jobs in America. Back in the 1980s, more than 20% of the jobs in the United States were manufacturing jobs. Today, only about 9% of the jobs in the United States are manufacturing jobs.
And we have fewer Americans working in manufacturing today than we did in 1950 even though our population has more than doubled since then… Many people find this statistic hard to believe, but the United States has lost a total of more than 56,000 manufacturing facilities since 2001. Millions of good paying jobs have been lost. As a result, the middle class is shriveling up, and at this point 9 out of the top 10 occupations in America pay less than $35,000 a year.
For a long time, U.S. consumers attempted to keep up their middle class lifestyles by going into constantly increasing amounts of debt, but now it is becoming increasingly apparent that middle class consumers are tapped out. In response, major retailers are closing thousands of stores in poor and middle class neighborhoods all over the country. You can see some amazing photos of America’s abandoned shopping malls right here. If we could start reducing the size of our trade deficit, that would go a long way toward getting the United States back on the right economic path.
Unfortunately, Barack Obama has been negotiating a treaty in secret which is going to send the deindustrialization of America into overdrive. The Trans-Pacific Partnership is being called the “NAFTA of the Pacific”, and it is going to result in millions more good jobs being sent to the other side of the planet where it is legal to pay slave labor wages. According to Professor Alan Blinder of Princeton University, 40 million more U.S. jobs could be sent offshore over the next two decades if current trends continue.
Bananas are a staple food for many millions of people.
Scientists have warned that the world’s banana crop, worth £26 billion and a crucial part of the diet of more than 400 million people, is facing “disaster” from virulent diseases immune to pesticides or other forms of control. Alarm at the most potent threat – a fungus known as Panama disease tropical race 4 (TR4) – has risen dramatically after it was announced in recent weeks that it has jumped from South-east Asia, where it has already devastated export crops, to Mozambique and Jordan.
A United Nations agency told The Independent that the spread of TR4 represents an “expanded threat to global banana production”. Experts said there is a risk that the fungus, for which there is currently no effective treatment, has also already made the leap to the world’s most important banana growing areas in Latin America, where the disease threatens to destroy vast plantations of the Cavendish variety. The variety accounts for 95% of the bananas shipped to export markets including the United Kingdom, in a trade worth £5.4bn. The UN Food and Agriculture Organisation (FAO) will warn in the coming days that the presence of TR4 in the Middle East and Africa means “virtually all export banana plantations” are vulnerable unless its spread can be stopped and new resistant strains developed.
Conventional wisdom, as expressed through the noisiest channels (Federal Reserve officials’ daily speeches, Wall Street TV experts), believes Quantitative Easing (QE) has been of negligible effect. As such, this opinion expresses little concern, indeed, little interest, in reversing the inflation of the Federal Reserve’s balance sheet, which has increased in size from $900 billion in 2007 to $4.5 trillion today. Conventional wisdom will state “it’s only accounting.” As every student of elementary accounting knows, a balance sheet has two sides: assets and liabilities. The Federal Reserve composition will be discussed below.
Conventional wisdom describes stock market gains as the fruit of great profits, and does not acknowledge the trillion dollars of QE in 2013 as boosting markets. Conventional wisdom expresses confidence in the economy, since, in its view, the stock market is an expression of the economy. Conventional wisdom believes QE has not done much of anything. The Fed’s “liquidity” sits “inertly” as “reserves” on the banking system’s balance sheet. This representation reminds Doug Noland, author of the weekly Credit Bubble Bulletin at the Prudent Bear website, of conventional wisdom (circa 1994-2004) that held the explosion of Fannie Mae and Freddie Mac’s balance sheets were inconsequential because “only banks create credit”.
In 1990, the combined balance sheets of Fannie and Freddie held $132 billion of assets: 5.6% of the single-family house market. In April 2003 (that month, alone), Fannie (alone) bought $139 billion of mortgages. By 2003, the two agencies’ balance sheets held 23% of the U.S. home mortgage market. This interference pushed up house prices, created collateral, home-equity lines of credit (HELOC), boosted the stock market, Home Depot’s profits, the employment of plumbers, electricians, and realtors. It inflated prices and instigated activity across and within the economy. Most of this busyness wilted when mortgage inductees failed the draft board. Whatever the age, the product could no more make a long march than late-stage mortgagees made their payments.
At that point, the temporary and illusionary portion of the economy receded, along with the temporary and illusionary asset prices, including stocks, houses, and bonds of such little merit, we were sure these derangements would not reappear in our lifetimes. Doug Noland disagrees with the experts. He covers the ground in his March 28, 2014, Credit Bubble Bulletin. “It’s only accounting” only tells us the “level” of reserves, but nothing about the “flows.” A transaction takes place in which the (a) Fed purchases securities from (b) financial institutions. The liabilities “by design are held by financial institutions that have a clearing relationship with the Fed, largely U.S.-operated financial institutions.”
This purchase is a “deposit” in the banking system. Quoting Noland: “[T]he Fed “credits” accounts with new purchasing power as it consummates purchases of Treasury and MBS securities in the marketplace. Essentially, the Fed creates new electronic liabilities (‘IOUs’) that provide immediate liquidity/purchasing power (‘money’) to the seller of securities.” Graham Towers, Governor of the Bank of Canada from 1934 to 1954, described how modern, central banking-created “money” is no more than accounting: “Banks create money. That is what they are for…The manufacturing process to make money consists of making an entry in a book. That is all. Each and every time a Bank makes a loan… new Bank credit is created – brand new money.”
The asset side of the Fed’s balance sheet holds the securities it has bought (and about 12 ounces of gold). The liability side of the Fed’s balance sheet acknowledges the dollars it has issued. The dollars are redeemable – each, into another dollar. This is not terribly interesting, but, is where the whirlwind of economic activity inspired by Fannie’s and Freddie’s expansion helps explain the financial and economic distortions driven by the Federal Reserve’s expanding balance sheet.
For a few weeks there, as the Baltic Dry Index rose, talking-heads were ignominous in their praise of the shipping index as a leading indicator of an awesome future ahead for the world economy. The last 9 days have smashed that ‘hope’ to smithereens (and yet the talking-heads have gone awkwardly silent, having moved on to some other bias-confirming meme). The Baltic Dry is down 25% in the last 2 weeks, back near post-crisis lows, and has just suffered the worst start to a year in over a decade. But apart from that, seems global trade is all-good and about to take off any minute now… The worst start to a year in over a decade…
As Baltic Dry has fallen 9 days in a row, down 25%, and is back near post-crisis lows…
It seems the demand for shipping dry bulk is not strong…
Sort of funny ..
There is a chance you missed an excellent story by Bloomberg News reporter Asjylyn Loder about the inherently unreliable methods energy companies use to measure how much oil they have in the ground. The article focused on shale-oil reserves. The problem it described: Many drillers apply a formula developed in 1945 called the Arps equation to shale technology, which didn’t exist then. (The method is named for Jan Arps, the petroleum engineer who created it.) As a result, future energy production is being exaggerated.
But there is more to this story. And here’s where I can add some value, along with some ancient oil-patch humor. Estimates of companies’ petroleum reserves always have been sketchy, no matter what kind of crude or natural gas. The stuff sometimes is buried miles underground, often beneath deep water. It can be hard to measure. One incident that comes to mind occurred a decade ago, when Royal Dutch Shell admitted that top executives had overstated reserve data. The financial press treated it like a big scandal. But investors mostly it shrugged off, which was understandable, because they knew that reserve numbers are far from precise.
Indeed, when U.S. accounting rulemakers back in the early 1980s first wrote the standards for disclosing companies’ proved oil-and-gas reserves, they decided that the figures should be reported as “supplementary” information outside the companies’ official financial statements. The reason they cited at the time: the numbers weren’t reliable enough to justify the cost of having them audited independently.
This brings me to the real purpose for this column: To share some old jokes with you. These have been around a long time. I’m not sure who first wrote them, and I’ve seen many variations over the years. This one comes from a slide presentation on the website of Ryder Scott Co., a Houston-based petroleum-consulting firm that does reserves certifications. And it goes like this:
Reserves are like fish . . .
• Proved developed: The fish is in your boat. You have weighed him. You can smell him, and you will eat him.
• Proved undeveloped: The fish is on your hook in the water by the boat, and you are ready to net him. You can tell how big it looks…and they always look bigger in the water.
• Probable: Fish are in the lake. You may have caught some yesterday. You may be able to see them today, but you have not yet caught any.
• Possible: The lake has water. Someone may have told you there are fish in the lake. You have your boat on the trailer, but you may go play golf instead.
A couple of things struck me about today’s jobs report. One was the regularity of the straight line trend in non farm payrolls. I mean, even casual observers know that markets and the economy move in trends, (which are your friends) but come on! This steady state 1.6% annual gain for the past 4 years is a bit ridiculous, even for a normally credulous guy like me who is willing to believe almost any statistic the government publishes. But now… NOW… they have just gone too far.
This chart shows the actual, not seasonally adjusted nonfarm payrolls number for the month. The headline, seasonally adjusted payrolls number was reported higher by 192,000 which was a little less than conomists’ consensus guess of 195,000. That’s a fake number, a smoothed and stylized attempt to represent the trend. It will get a big revision next month, the month after, and then when the data is benchmarked to the tax data once a year. Then it gets revised 4 more times in following years as they try to fit the number to what actually happened. It’s amazing that it actually does, on occasion, more or less accurately reflect the trend of the data. Whether the data represents reality is certainly arguable.
For example, take the birth/death adjustment. Please. I won’t get into all the statistical arcana. It bores me. I track the real time Federal withholding tax data, and based on tremendous strength in that data in March, I have no quarrel with this jobs data as reported. It might even be too low, to be revised upward next month. But even if so, it won’t be enough. Which brings me to the other thing I noticed in the data, which is that in spite of the steady trend of improvement for the past 4 years, in terms of a truer measure of employment, the US is still in a Depression. That’s right, not a recession, a Depression. There has been virtually no recovery in the percentage of Americans with full time jobs since the pits of the crash in 2008.
Admittedly it’s a selective Depression, but if you are among the selected, your suffering is real. And the drag that millions of unemployed Americans exert on the economy is real. The downward pressure they put on middle class wages is real. Jobs that paid well in the past no longer do. With labor oversupplied, the plutocrats, empowered by the courts and friendly legislators have wiped out the bargaining power of labor in the economy. ZIRP/QE have encouraged unproductive speculation, not job creation. So there are simply far too many millions of Americans so selected to be the losers, to experience the Depression. All of the money printing in the world, all of the ZIRP, has not helped them and has not reduced their numbers. Nor can it ever do so.
Isn’t it lovely?
They operate in the green glow of night vision in Southwest Asia and stalk through the jungles of South America. They snatch men from their homes in the Maghreb and shoot it out with heavily armed militants in the Horn of Africa. They feel the salty spray while skimming over the tops of waves from the turquoise Caribbean to the deep blue Pacific. They conduct missions in the oppressive heat of Middle Eastern deserts and the deep freeze of Scandinavia. All over the planet, the Obama administration is waging a secret war whose full extent has never been fully revealed — until now.
Since September 11, 2001, U.S. Special Operations forces have grown in every conceivable way, from their numbers to their budget. Most telling, however, has been the exponential rise in special ops deployments globally. This presence — now, in nearly 70% of the world’s nations — provides new evidence of the size and scope of a secret war being waged from Latin America to the backlands of Afghanistan, from training missions with African allies to information operations launched in cyberspace.
In the waning days of the Bush presidency, Special Operations forces were reportedly deployed in about 60 countries around the world. By 2010, that number had swelled to 75, according to Karen DeYoung and Greg Jaffe of the Washington Post. In 2011, Special Operations Command (SOCOM) spokesman Colonel Tim Nye told TomDispatch that the total would reach 120. Today, that figure has risen higher still.
In 2013, elite U.S. forces were deployed in 134 countries around the globe, according to Major Matthew Robert Bockholt of SOCOM Public Affairs. This 123% increase during the Obama years demonstrates how, in addition to conventional wars and a CIA drone campaign, public diplomacy and extensive electronic spying, the U.S. has engaged in still another significant and growing form of overseas power projection. Conducted largely in the shadows by America’s most elite troops, the vast majority of these missions take place far from prying eyes, media scrutiny, or any type of outside oversight, increasing the chances of unforeseen blowback and catastrophic consequences.
Yay! See Nicole’s Thursday article.
Britain’s farmers – not Mayfair property speculators – were the big financial winners of the last decade with new research showing the value of their land almost quadrupling. Rising global food demand, climate change and foreign investment attracted by liberal British land ownership laws have helped to make a hectare of British farmland bought in 2002 one of the best performing investments in the country, according to new research from Savills. Up to 2012, good agricultural land in the UK had grown 270% in value from 10 years earlier to $25,575 (£15,415), outstripping gains in prime central London, which rose by 135% over the same period, according to Savills.
“The general view is that growth is going to continue in the UK, though values are very high and how long it can be sustained is unclear,” said James Cairns, from Savills international land markets. Britain’s green pastures are worth three times the price of a hectare of farmland in the US and more than 15 times the cost of an equivalent paddock in Australia, two of the world’s largest food producers The high retained value of farmland in the UK has also attracted the interest of large sovereign wealth funds seeking a secure investment in which to park their capital, according to Savills. “The UK is seen as a stronghold of capital preservation and if they can put their wealth into a UK farm, that’s very interesting to them”, said Mr Cairns.
However, British farmland – which has delivered an annual 14% growth rate – is still behind the average global trend. International farmland values – based on 15 key markets – have increased by an average 20%, according to Savills. Demand overseas is being driven by climate change and rising demand for food from Asia’s rapidly growing emerging economies. “If climate change is having an impact on production in places like Australia and America and harvests are affected by flooding or drought, then worldwide supplies are affected, which means it’s more important to develop farming activity in new areas like the emerging markets”, said Mr Cairns.
The highest growth rates are in countries such as Romania, Hungary, Poland, Zambia, Mozambique and Brazil. Romanian farmland values grew by 40% per year over the decade to 2012, double the global average and the fastest growth of any country since its accession to the EU. “As a general rule, the emerging markets like Romania and Zambia are growing very quickly and looking at the next ten years, they’re going to be the countries I would expect to have the most growth, both in terms of income and capital”, said Mr Cairns.
Overseas investment in UK arable land fell from 9% in 2003 to 2% in 2012, as overseas investors seek better value per acre on home soil. But the UK is still seen as attractive to international buyers, as the UK and Ireland are the only entirely free markets for farmland out of those surveyed by Savills. Nearly every other country restricts foreign ownership of land. Overseas buyers of British farmland enjoy liberal land ownership laws and business property relief, with the ability to pass down holdings to the next generation without incurring inheritance tax.
“Sovereign wealth funds in the Middle East and Asia are looking to acquire large funds and arable areas to grow food for their own food security. There’s investment interest from America, Europe, Australia,” said Mr Cairn. Hugh Coghill, director of land markets at Savills, said that although investment in global farmland markets was increasingly popular, predictions are uncertain as there’s little long term data on the area. “Investment in global agriculture, and to a degree in global forestry, has only been on the agenda since about 2005. The markets of the world are immature”, he said. Last year it was revealed that the cost of UK prime arable land rose by 10.7% to £7,594 an acre in 2012, with growth of 40% to £10,631 forecast by 2018.
First, let me say what you read here is going to be wrong in several ways. HFT covers such a wide path of trading that different parties participate or are impacted in different ways. I wanted to put this out there as a starting point . Hopefully the comments will help further educate us all
1. Electronic trading is part of HFT, but not all electronic trading is high frequency trading. Trading equities and other financial instruments has been around for a long time. it is Electronic Trading that has lead to far smaller spreads and lower actual trading costs from your broker. Very often HFT companies take credit for reducing spreads. They did not. Electronic trading did. We all trade electronically now. It’s no big deal
2. Speed is not a problem People like to look at the speed of trading as the problem. It is not. We have had a need for speed since the first stock quotes were communicated cross country via telegraph. The search for speed has been never ending. While i dont think co location and sub second trading adds value to the market, it does NOT create problems for the market
3. There has always been a delta in speed of trading. From the days of the aforementioned telegraph to sub milisecond trading not everyone has traded at the same speed. You may trade stocks on a 100mbs broadband connection that is faster than your neighbors dial up connection. That delta in speed gives you faster information to news, information, research, getting quotes and getting your trades to your broker faster. The same applies to brokers, banks and HFT. THey compete to get the fastest possible speed. Again the speed is not a problem.
4. So what has changed ? What is the problem What has changed is this. In the past people used their speed advantages to trade their own portfolios. They knew they had an advantage with faster information or placing of trades and they used it to buy and own stocks. If only for hours. That is acceptable. The market is very darwinian. If you were able to figure out how to leverage the speed to buy and sell stocks that you took ownership of , more power to you. If you day traded in 1999 because you could see movement in stocks faster than the guy on dial up, and you made money. More power to you.
What changed is that the exchanges both delivered information faster to those who paid for the right AND ALSO gave them the ability via order types where the faster traders were guaranteed the right to jump in front of all those who were slower (Traders feel free to challenge me on this) . Not only that , they were able to use algorithms to see activity and/or directly see quotes from all those who were even milliseconds slower. With these changes the fastest players were now able to make money simply because they were the fastest traders. They didn’t care what they traded. They realized they could make money on what is called Latency Arbitrage. You make money by being the fastest and taking advantage of slower traders.
It didn’t matter what exchanges the trades were on, or if they were across exchanges. If they were faster and were able to see or anticipate the slower trades they could profit from it. This is where the problems start.
If you have the fastest access to information and the exchanges have given you incentives to jump in front of those users and make trades by paying you for any volume you create (maker/taker), then you can use that combination to make trades that you are pretty much GUARANTEED TO MAKE A PROFIT on. So basically, the fastest players, who have spent billions of dollars in aggregate to get the fastest possible access are using that speed to jump to the front of the trading line. They get to see, either directly or algorithmically the trades that are coming in to the market.
And we’ll find a way to blame Putin for this.
Domestic prices in Europe will go up by at least 50 percent, if it cuts supplies from Russia, according to Russia’s Energy Minister Alexandre Novak. “Moving away from pipeline transportation of natural gas, construction of terminals and deliveries of liquefied natural gas will lead to an increase in gas prices in Europe from the current $380 per 1,000 cubic metres to at least $550,” Novak said in an interview to the Russia 24 TV Channel. “And the question arises: are the economies of European countries ready to supply and consume gas at such a price?” the Minister asked.
The US has insisted that Europe needs to urgently cut its dependence on Russian gas, with the US Secretary of State John Kerry saying Moscow shouldn’t use energy exports as a political weapon. “It really boils down to this: no nation should use energy to stymie a people’s aspirations,” Kerry said in Brussels on Thursday, the same day Russia’s Gazprom increased the price to Ukraine another $100 per 1,000 cubic metres. On Wednesday the US and EU reaffirmed their plan to move away from Russian gas, stressing that developments in Ukraine “have brought energy security concerns to the fore” .
Meanwhile, Russian energy companies have started to feel the pulse in markets outside Europe, mostly focusing on Asia. Gazprom talked to Kuwait and Egypt about increasing LNG supplies and hopes to sign a long-term supply deal with China next month. Also, the president of Russia’s oil major Rosneft has toured Japan, South Korea, Vietnam and India.