Nov 152014
 
 November 15, 2014  Posted by at 11:53 am Finance Tagged with: , , , , , , , , , ,


DPC Elephants in Luna Park promenade, Coney Island 1905

Oil Price Slump To Trigger New US Debt Default Crisis (Telegraph)
How Low Can the Price of Oil Plunge? (WolfStreet)
Russia Braces for ‘Catastrophic’ Drop in Oil Prices (Bloomberg)
What Really Happened In Beijing Between Putin, Obama and Xi (Salon)
Can Low Oil Prices Be Good for the Environment? (AP)
More Than 4 In 10 Americans Still Exhaust Unemployment Benefits (MarketWatch)
Most Americans Make Less Than $20 Per Hour (MarketWatch)
The Reason Small Businesses Are Disappearing (Zero Hedge)
Italy’s Crazy New Economy from Hell Suffocates Small Businesses (WolfStreet)
Beppe Grillo: The Euro Is Destroying The Italian Economy (Zero Hedge)
Eurozone Dodges Recession But Submerges In ‘Lost Decade’ (AEP)
Who Will Pay for China’s Bust? (Bloomberg)
China Slowdown Deepens as Targeted Stimulus Fails (Bloomberg)
Take Cover Now – They Don’t Ring A Bell At The Top (David Stockman)
Asset Bubbles Are Top Concern for US Heartland’s Fed Banker (Bloomberg)
Fed’s Bullard Still Wants Rate Rise in Q1 2015 (Dow Jones)
Turkish Hackers Crack Electric Utility; Delete $670 Billion Of Pending Bills (ZH)
California Pension Funds Are Running Dry (LA Times)
Pope Francis’s ‘Holy War’ On Capitalism And Toxic Inequality (Paul B. Farrell)

The end of shale as we know it.

Oil Price Slump To Trigger New US Debt Default Crisis (Telegraph)

Remember the global financial crisis, triggered six years ago when billions of dollars of dodgy loans – doled out by banks to subprime borrowers and then resold numerous times on international debt markets – began to unravel and default? Stock markets plunged, banks collapsed and the entire global financial system teetered on the brink of catastrophe. Well a similarly chilling economic scenario could be set off by the current collapse in oil prices. Based on recent stress tests of subprime borrowers in the energy sector in the US produced by Deutsche Bank, should the price of US crude fall by a further 20pc to $60 per barrel, it could result in up to a 30pc default rate among B and CCC rated high-yield US borrowers in the industry. West Texas Intermediate crude is currently trading at multi-year lows of around $75 per barrel, down from $107 per barrel in June. “A shock of that magnitude could be sufficient to trigger a broader high-yield market default cycle, if materialised,” warn Deutsche strategists Oleg Melentyev and Daniel Sorid in their report.

Five years ago at the beginning of what has become known as the US shale oil revolution, drillers started to load up on debt to fund their operations and acquire new acreage as vast areas of North America started to open up for exploration. In 2010, energy and materials companies made up just 18pc of the US high-yield index – which tracks sub-investment grade borrowers – but today they account for 29pc of the measure after drilling firms spent the past five years borrowing heavily to underwrite the operations. The result of this debt splurge has been a spectacular rise in US oil and gas output. Latest estimates suggest that by the end of the decade the US will have outstripped even Saudi Arabia and Russia in terms of oil production. The development of new shale resources in North America and the opening up of fields in the Arctic seas off Alaska could see the country pumping 14.2m barrels per day (bpd) of oil and petroleum liquids by 2020, up from 7.5m bpd in 2013.

This rush to pump more oil in the US has created a dangerous debt bubble in a notoriously volatile segment of corporate credit markets, which could pose a wider systemic risk in the world’s biggest economy. By encouraging ever more drilling in pursuit of lower oil prices, the US Department of Energy has unleashed a potential economic monster and pitched these heavily debt-laden shale oil drilling companies into an impossible battle for market share against some of the world’s most powerful low-cost producers in the Organisation of Petroleum Exporting Countries (Opec). It’s a battle the US oil fracking companies won’t win.

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Excellent piece by Wolf Richter. If you want to know where oil is going, read it.

How Low Can the Price of Oil Plunge? (WolfStreet)

It is possible that a miracle intervenes and that the price of oil bounces off and zooms skyward. We’ve seen stocks perform these sorts of miracles on a routine basis, but when it comes to oil, miracles have become rare. As I’m writing this, US light sweet crude trades at $76.90 a barrel, down 26% from June, a price last seen in the summer of 2010. But this price isn’t what drillers get paid at the wellhead. Grades of oil vary. In the Bakken, the shale-oil paradise in North Dakota, wellhead prices are significantly lower not only because the Bakken blend isn’t as valuable to refiners as the benchmark West Texas Intermediate, but also because take-away capacity by pipeline is limited.

Crude-by-rail has become the dominant – but more costly – way to get the oil from the Northern Rockies to refineries on the Gulf Coast or the East Coast. These additional transportation costs come out of the wellhead price. So for a particular well, a driller might get less than $60/bbl – and not the $76.90/bbl that WTI traded for at the New York Mercantile Exchange. Fracking is expensive, capital intensive, and characterized by steep decline rates. Much of the production occurs over the first two years – and much of the cash flow. If prices are low during those two years, the well might never be profitable. Meanwhile, North Sea Brent has dropped to $79.85 a barrel, last seen in September 2010.

So the US Energy Information Administration, in its monthly short-term energy outlook a week ago, chopped down its forecast of the average price in 2015: WTI from $94.58/bbl to $77.55/bbl and Brent from $101.67/bbl to $83.24/bbl. Independent exploration and production companies have gotten mauled. For example, Goodrich Petroleum plunged 71% and Comstock Resources 58% from their 52-week highs in June while Rex Energy plunged 65% and Stone Energy 54% from their highs in April. Integrated oil majors have fared better, so far. Exxon Mobil is down “only” 9% from its July high. On a broader scale, the SPDR S&P Oil & Gas Exploration & Production ETF is down 28% from June – even as the S&P 500 set a new record. So how low can oil drop, and how long can this go on?

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Did they know beforehand it would come?

Russia Braces for ‘Catastrophic’ Drop in Oil Prices (Bloomberg)

President Vladimir Putin said Russia’s economy, battered by sanctions and a collapsing currency, faces a potential “catastrophic” slump in oil prices. Such a scenario is “entirely possible, and we admit it,” Putin told the state-run Tass news service before attending this weekend’s Group of 20 summit in Brisbane, Australia, according to a transcript e-mailed by the Kremlin today. Russia’s reserves, at more than $400 billion, would allow the country to weather such a turn of events, he said. Crude prices have fallen by almost a third this year, undercutting the economy in Russia, the world’s largest energy exporter.

Even the central bank’s forecast of zero growth next year may be in danger as the International Energy Agency forecasts a deepening rout in oil prices as the market enters a period of weaker demand. Brent crude, the grade traders look at for pricing Russia’s Urals main export blend, has collapsed into a bear market as leading members of the Organization of Petroleum Exporting Countries resisted calls to cut production and U.S. output climbed to the highest level in three decades because of the shale boom. Brent is heading for its eighth weekly decline after sliding below $80 for the first time in four years. Futures were at $78.29 a barrel in London today, down 6.1% this week and 29% this year.

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Must read from Patrick Smith at Salon.

What Really Happened In Beijing Between Putin, Obama and Xi (Salon)

By way of events on the foreign side, the past few weeks start to resemble some once-in-a-while event in the heavens when everyone is supposed to go out and watch as the sun, moon and stars align. There are lots of things happening, and if we put them all together, the way Greek shepherds imagined constellations, a picture emerges. Time to draw the picture. The situation on the ground in Ukraine is getting messy again. Equally, events of the past year now leave Ukraine’s economy not far from sheer extinction. You have not read of this because it does not fit the approved story, but Ukraine’s heart barely beats. Further east, we hear in the financial markets that the ruble’s decline brings Russia to the brink of another financial collapse. Let’s see. Oil prices are now below $80 a barrel. It costs me nearly $20 less to put gasoline in my car than it did a year ago, and good enough. But why has the price of crude tumbled in so short an interval? It makes little sense when you gather the facts, and – goes without saying – you get no help with that from our media.

Let’s keep on trucking. Secretary of State Kerry went to Oman for another round of talks on the Iranian nuclear question last weekend. Russia recently emerged as a potentially key part of a deal, which will be the make-or-break of Kerry’s record. In effect, he now greets Russian Foreign Minister Sergei Lavrov with one hand and punches him well below the belt with the other. Somewhere beyond our view this must make sense. En avant! Obama went to Beijing last week for a sit-down with Xi Jinping, who makes Vladimir Putin look like George McGovern when he wants to, which is not infrequently. Still in the Chinese capital, our president then attended a meeting with other Asian leaders to push a trade agreement, one primary purpose of which is to isolate China by bringing the rest of the region into the neoliberal fold. (Or trying to. Washington will never get the overladen, overimposing Trans-Pacific Partnership off the ground, in my view.)

A big item on Xi’s agenda — he was in on the Pacific economic forum, too — was the recent launch of an Asians-only lending institution intended to rival the Asian Development Bank, the World Bank affiliate doing the West’s work in the East. Being entirely opposed to people helping themselves advance without American assistance and all that goes with it, Washington used all means possible to sink this ship. When Obama got off the plane in Beijing, the Asian Infrastructure Investment Bank had $50 billion in capital and 20 members, more to come in both categories. Xi, meantime, had a productive encounter — another — with the formidable Vlad. My sources in attendance tell me both put in strong performances. In short order, Russia will send enough natural gas eastward to meet much of China’s demand and — miss this not — in the long run could price out American supplies in other Pacific markets, which are key to the success of the current production boom out West.

This is a lot of dots to connect. As I see it, the running themes in all this are two: There is constructive activity and there is the destructive. Readers may think this oversimplifies, but for this there is the ever-lively comment box below. I am willing to listen. Let’s go back to early September. On the 5th, Germany brokered a cease-fire between the Ukraine government in Kiev and the rebels in the eastern Donbass region. Washington made it plain it wanted no part of this, preferring to continue open hostilities. And then strange things happened. Less than a week after the Minsk Protocol was signed, Kerry made a little-noted trip to Jeddah to see King Abdullah at his summer residence. When it was reported at all, this was put across as part of Kerry’s campaign to secure Arab support in the fight against the Islamic State.

Stop right there. That is not all there was to the visit, my trustworthy sources tell me. The other half of the visit had to do with Washington’s unabated desire to ruin the Russian economy. To do this, Kerry told the Saudis 1) to raise production and 2) to cut its crude price. Keep in mind these pertinent numbers: The Saudis produce a barrel of oil for less than $30 as break-even in the national budget; the Russians need $105. Shortly after Kerry’s visit, the Saudis began increasing production, sure enough – by more than 100,000 barrels daily during the rest of September, more apparently to come. Last week they dropped the price of Arab Light by 45 cents a barrel, Bloomberg News just reported. This has proven a market mover, sending prices to $78 a barrel at writing.

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No worries, mate, we’ll find a way to screw that up too.

Can Low Oil Prices Be Good for the Environment? (AP)

Deepwater drilling rigs are sitting idle. Fracking plans are being scaled back. Enormous new projects to squeeze oil out of the tar sands of Canada are being shelved. Maybe low oil prices aren’t so bad for the environment after all. The global price of oil has plummeted 31% in just five months, a steep and surprising drop after a four-year period of prices near or above $100 a barrel. Not long ago a drop of that magnitude would have hit the environmental community like a gut-punch. The lower the price of fossil fuels, the argument went, the less incentive there would be to develop and use cleaner alternatives like batteries or advanced biofuels.

But at around $75 a barrel, the price is high enough to keep investments flowing into alternatives, while giving energy companies less reason to pursue expensive and risky oil fields that also pose the greatest threat to the environment. “Low prices keep the dirty stuff in the ground,” says Ashok Gupta, director of programs at the Natural Resources Defense Council. Economists and environmentalists caution that if the price goes too low, and stays there, consumption could swell and the search for alternatives could stop. They say a good price range for the environment could be somewhere between $60 and $80. As oil demand in developing countries began rising in the last decade, drillers struggled to keep up and prices began to rise. It seemed the world might be running out of oil. Investors poured money into advanced biofuels companies and battery-makers betting high oil prices would make it cheaper to drive on plant waste or electricity.

It hasn’t happened, despite some headway. Even after years of growth, electric cars accounted for just 0.4% of new vehicle sales so far this year, according to Edmunds.com. Biofuels from plant waste account for even a smaller percentage of the nation’s fuel mix. The high prices instead inspired drillers and investors to pursue oil wherever it might be found no matter the expense. They developed projects in environmentally-sensitive areas or using environmentally-destructive methods. They developed technology that has unlocked vast resources once thought out of reach. What was once a shortage now looks to be a surplus. “It was a net negative from a climate perspective,” says Andrew Logan, director of oil and gas programs at the environmental group Ceres. “It locked us into long-term dependence on oil.”

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That’s when we stop counting them.

More Than 4 In 10 Americans Still Exhaust Unemployment Benefits (MarketWatch)

The number of Americans applying for unemployment compensation is near a 15-year low, but a higher percentage than usual still don’t find jobs before their benefits run out. The percentage of people who received unemployment benefits each week until they were no longer eligible stood at a 12-month average of 41.5% in September, according to Labor Department data. In other words, more than four in 10 unemployed Americans still exhaust their benefits before finding a job. Granted, the rate has fallen sharply from a postrecession peak of 55.8% in March 2010 – the highest level since the government began keeping track in 1972. But the rate is still markedly higher vs. a 34.7% low point reached during the 2002-2006 expansion. The percentage who exhaust benefits is also well above the historical average of 35.9%. The U.S. labor market is improving, but a variety of measures such as the exhaustion rate for unemployment benefits shows that a lot more work needs to be done.

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Let’s get a mortgage, shall we? And a car loan.

Most Americans Make Less Than $20 Per Hour (MarketWatch)

According to data compiled by Goldman Sachs, most American workers earn below $20 per hour. Goldman Sachs economists David Mericle and Chris Mischaikow crunched Labor Department data that is used to generate the monthly jobs report that the market closely watches, in particular from the survey of employers. 19% of workers make less than $12.50 per hour, 32% of workers make between $12.50 and $20 per hour, 30% make between $20 and $30 an hour, 14% make between $30 and $45 per hour, and 5% make over $45 an hour. (It’s important to note that this includes all workers covered by the establishment survey, not just hourly workers; to convert annual pay to hourly pay, divide by 2080, for a standard 40-hour week.) The economists also found that, while wage growth has been soft, the fastest growth in income has come to the lowest-paid workers. And they found that the biggest driver to income growth has been rising employment, with help from rising wages and more hours worked.

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See also the following article, this is not just happening in the US.

The Reason Small Businesses Are Disappearing (Zero Hedge)

Confused why despite endless daily propaganda that the US economy is getting better – after all “just look at the record high S&P 500” – fewer and fewer Americans believe the narrative, as the Democrats and Obama found out the very hard way in last week’s midterm elections? Then the following explanation written by the owner of a small business – the segment of the US economy that has historically led every single recovery but this time was left behind – should help answer some questions.

The reason small businesses are disappearing written by a small business owner. I want to start out by saying that i am a 27 year old male with a small business in Sacramento CA. I started this business a few years ago with savings of 15k. With a lot of hard work and determination i have succeeded, but it sure as hell was not easy. I am a long time lurker and have never seen anyone go in depth about what its like to own a small business and the reason why they are disappearing. Without going into to much detail, i own a furniture store so obviously things are different then other businesses but a lot of the things are the same. I wanted to begin with the things that are killing small businesses. Also only my opinion.

Small Business Loans – Although they are not killing small business they sure as hell don’t help anyone. Unless you are opening a unique small business you are not going to get any funding. By unique i mean something along the lines of creating solar panels. According to a recent investigation by the SBA Inspector General (ill post the article if you would like), over 75% of SBA loans went to large businesses. So basically if you want to open a normal business you need a ton of collateral and a miracle to get a loan.
Permits and Licensing – In opening my specific business the first year totaled about $2000.00.
Advertising – Many small business’s cant afford to take out pages or flyers in the news paper or TV ads so they only have a few choices such as Yelp or the Penny-saver. (Don’t get me started in Yelp).
Street Advertising – While this used to be a good portion of how you get business it is now off limits. Code enforcement will not allow you to put anything outside. No balloons, signs, anything with your store name, window paint more than 50%, or any mattresses. Also delivery vehicles can not be closer than 50 feet from the curb. In my case that means behind the building.
Board of Equalization – Cant go into to much detail here but they sure as hell aren’t here to help.
Health Insurance – Now obviously with the people that have a large work force working full time they will be hit hard by obamacare, but i wanted to give you a perspective on a single person. The cheapest rate for myself and me only, and believe me i have looked around, is $250.00/month. Some might say oh that’s not bad, but let me explain what that covers, NOTHING lol. Basically if something happens to me i have to shell out 6K before insurance gets involved. Also 100 dollar co pay every time i go.
The economy – While many know that when the President comes on TV and says the economy is doing great, we all know it is not, some people don’t. Every month more people drop out of the Labor Force and the number of families on food stamps is sky rocketing. So for those of you who don’t know the economy is terrible because of all the top stories of Kim Kardashian and whoever else, lots of people in america are struggling.
Merchant Fees – This is for credit card processing machines. The machine itself costs 600.00 plus the percentages on sales and cards. Companies such as BofA charge once a year on top of the regular fees $150.00 to protect you from fraud (which they can’t even stop) and yes its mandatory. Paypal or Square seem to be the best options these days.
Fire Department – Yes even the Fire Department wants a piece. Starting last year you must do your own visual inspection and send them a check for 150! Basically if you don’t they will come to your store and give you a million violations for wasting there time.

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I quoted Beppe Grillo yesterday as saying that 25% of Italy’s industry has gone sine the country joined the eurozone in 1997. That’s a scorched earth-type devastation.

Italy’s Crazy New Economy from Hell Suffocates Small Businesses (WolfStreet)

Italy is a country of entrepreneurs and of vibrant small enterprises. Or was. Now these businesses are dying. Of its 5.3 million companies (as of December 31, 2013), 3.3 million are small, often family-owned outfits, according to Rome-based credit information provider Cerved Group. And another 900,000 are sole proprietorships, or 17% of all companies, a larger percentage than anywhere else in the EU, ahead of France (12%), Spain (10%), and Germany (10%). The remaining 1 million companies are corporations of all sizes. And life in Italy has been exceedingly tough for small outfits. Consumer spending has dropped sharply since the onset of the crisis. Industrial production continued its downward spiral in September and is down 0.5% for the first nine months of 2014 over the same period a year ago. Unemployment is 12.6%, and rising. Youth unemployment is at a catastrophic 43%, up from an already terrible 26% in 2010.

It doesn’t help that the government refuses, and I mean refuses – due to “technical” problems, as a minister explained – to pay its long overdue bills to these already strung-out businesses. It’s a shell game to lower Italy’s overall indebtedness and thus pacify the financial markets and Italy’s masters in Brussels. So this shouldn’t come as a surprise, given that the largest customer in the country, the government, refuses to pay its bills to the members of the private sector which then can’t pay their own bills: in September, non-performing loans held by Italian banks jumped 19.7% from a year ago, according to the Bank of Italy. At the same time, loans to the private sector dropped 2.3%. Economic “growth” has been negative or zero for the last 13 quarters. And this is what Italy’s glorious “recovery” from hell looks like:

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My man Beppe. Perhaps still the only man in Europe who makes real sense. He says 2/3 of the Italian Parliament supports his plan for a referendum on the euro. Martin Armstrong suggests the EU may kill him before letting it happen.
See yesterday’s: The Only Man In Europe Who Makes Any Sense.

Beppe Grillo: The Euro Is Destroying The Italian Economy (Zero Hedge)

Next week, Italy’s Beppe Grillo – the leader of the Italian Five Star Movement – will start collecting signatures with the aim of getting a referendum in Italy on leaving the euro “as soon as possible,” just as was done in 1989. As Grillo tells The BBC in this brief but stunning clip, “we will leave the Euro and bring down this system of bankers, of scum.” With two-thirds of Parliament apparently behind the plan, Grillo exclaims “we are dying, we need a Plan B to this Europe that has become a nightmare – and we are implementing it,” raging that “we are not at war with ISIS or Russia! We are at war with the European Central Bank,” that has stripped us of our sovereignty.

Beppe Grillo also said today:

It is high time for me and for the Italian people, to do something that should have been done a long time ago: to put an end to your sitting in this place, you who have dishonoured and substituted the governments and the democracies without any right. Ye are a factious crew, and enemies to all good government; ye are a pack of mercenary wretches, and would like Esau sell your country for a mess of pottage, and like Judas betray your God for a few pieces of money. Is there a single virtue now remaining amongst you? A crumb of humanity? Is there one vice you do not possess? Gold and the “spread” are your gods. GDP is you golden calf.

We’ll send you packing at the same time as Italy leaves the Euro. It can be done! You well know that the M5S will collect the signatures for the popular initiative law – and then – thanks to our presence in parliament, we will set up an advisory referendum as happened for the entry into the Euro in 1989. It can be done! I know that you are terrified about this. You will collapse like a house of cards. You will smash into tiny fragments like a crystal vase. Without Italy in the Euro, there’ll be an end to this expropriation of national sovereignty all over Europe. Sovereignty belongs to the people not to the ECB and nor does it belong to the Troika or the Bundesbank. National budgets and currencies have to be returned to State control. They should not be controlled by commercial banks. We will not allow our economy to be strangled and Italian workers to become slaves to pay exorbitant interest rates to European banks.

The Euro is destroying the Italian economy. Since 1997, when Italy adjusted the value of the lira to connect it to the ECU (a condition imposed on us so that we could come into the euro), Italian industrial production has gone down by 25%. Hundreds of Italian companies have been sold abroad. These are the companies that have made our history and the image of “Made in Italy”.

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Ambrose sees is happening, but doesn’t know why.

Eurozone Dodges Recession But Submerges In ‘Lost Decade’ (AEP)

The eurozone has averted a triple-dip recession but remains stuck in a deep structural slump, with too little momentum to create jobs or to stop a relentless rise in debt ratios. The region eked out growth of 0.2pc in the third quarter, yet Italy’s economy shrank again and has now been in contraction for over three years. Stefano Fassina, the former Italian finance minister, said “Titanic Europe” is heading for a shipwreck without a radical change of course. He warned that contractionary policies are destroying the Italian economy and called on the country’s leaders to “bang their fists of the table”. He said they should threaten an “orderly break-up” of the euro unless policies change. His comments have made waves in Rome since he is a respected figure in the ruling Democratic Party of Matteo Renzi.

While France rebounded by 0.3pc, the jump was due to a rise in inventories and a 0.8pc spike in public spending, mostly on health care. The previous quarter was revised down to minus 0.1pc. “It flatters to deceive,” said Marc Ostwald from Monument Securities. “France was basically horrible. How anybody could celebrate this as a recovery story is beyond me.” “A close reading of details is sobering. Just about all the drivers of growth are near-dead,” said Denis Ferrand, head of the French research institute Coe-Rexecode. Michel Sapin, the French finance minister, said the economy remains “too weak” to make a dent on unemployment. France’s brief rebound in employment has already sputtered out. The economy shed 34,000 jobs in the third quarter. This will not be easy to reverse since Paris has pledged to push through a further €50bn of fiscal cuts over three years to meet EU deficit targets.

Maxime Alimi from Axa said France’s public debt is likely to reach 100pc of GDP by 2017, warning that investor patience may not last. He said bond yields could rise in a “non-linear, abrupt fashion” in the next downturn. Europe is caught in limbo. The data is not weak enough to force a radical change in EMU policy, whether that might be a ‘New Deal’ blitz of investment or full-fledged quantitative easing by the European Central Bank. The risk is that the currency bloc will drift into another year in near deflationary conditions, without any catalyst for real recovery. The US Treasury Secretary, Jacob Lew, warned this week that Europe faces a “lost decade” unless surplus countries such as Germany do more to stimulate demand. “The eurozone is the epicentre of a global Keynes liquidity trap,” said Lena Komileva from G+Economics. “For the markets, the previous consensus of a periphery-led recovery has crumbled.”

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” Over the past several years, loans outstanding and other exposure to China have roughly quadrupled to more than $800 billion.” Wanna bet it’s more than that?

Who Will Pay for China’s Bust? (Bloomberg)

One reason not to worry about a Chinese credit bubble is that most of the lenders are inside the country. If there’s a wave of defaults, the logic goes, it won’t affect the global financial system in the same way as the U.S. subprime crisis in 2008.

Judging from data on global bank exposures to China, this argument is rapidly becoming less convincing.

Over the past several years, loans outstanding and other exposure to China have roughly quadrupled to more than $800 billion, according to the Bank for International Settlements, an international organization of central banks (see chart). Add in about $170 billion in derivatives, credit commitments and guarantees, and the total comes to about $1 trillion.

ChinaOne20141113

It’s hard to know how much of that money is used to finance the construction of buildings that won’t be filled, excess steelmaking capacity or other misadventures. The BIS does know that the cash is mostly going to Chinese banks, followed by non-bank companies.

ChinaTwo20141113

Australian banks have increased their exposure to China at the fastest pace over the past five years, though U.K. banks still account for the largest share of lending.

ChinaThree20141113

Knowing more about who stands to take the biggest losses would be crucial to managing the global repercussions of a Chinese credit bust. Unfortunately, six years after the financial crisis of 2008, the world’s regulators are still very far from possessing an early-warning system that would allow them to identify – in anything close to real time – concentrations of risk. This weekend’s Group of 20 summit in Brisbane, Australia, would be a good place to try to make some progress in building that system.

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It’s getting hard(er) for China to hide behind its official numbers.

China Slowdown Deepens as Targeted Stimulus Fails (Bloomberg)

Credit growth in China weakened last month, adding to signs that the world’s second-largest economy slowed further this quarter and testing policy makers’ determination to avoid broader stimulus measures. Aggregate financing in October was 662.7 billion yuan ($108 billion), the People’s Bank of China’s said in Beijing yesterday, down from 1.05 trillion yuan in September and lower than the 887.5 billion yuan median estimate in a Bloomberg survey of analysts. Earlier this week, reports showed deceleration in industrial output and fixed-asset investment. The evidence underscores concern that, outside the U.S., the global economic outlook is deteriorating. For Premier Li Keqiang, the question is whether to stick with targeted liquidity injections or embrace nationwide monetary or fiscal easing that reignites the risk of a jump in debt. “The key is not to further expand credit, given the weak credit demand, but to lower funding costs,” said Wang Tao, chief China economist at UBS in Hong Kong. A benchmark interest rate cut “is more urgent.”

The central bank has added liquidity while refraining from broad-based interest rate or reserve requirement ratio cuts. China’s benchmark money-market rate fell for a second week on speculation it will conduct more targeted fund injections. New local-currency loans were 548.3 billion yuan, and M2 (CNMS2YOY) money supply grew 12.6% from a year earlier. New yuan loans, which measure new lending minus loans repaid, compared with economists’ median estimate of 626.4 billion yuan, while the M2 figure compared with the median estimate of 12.9%. “Sluggish domestic demand and risk-aversion among commercial banks dragged credit growth,” said Zhou Hao, a Shanghai-based economist at Australia & New Zealand. “Disappointing monetary data suggest overall growth will remain soft in the last quarter.”

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And don’t you forget it. Nobody’s holding your hand anymore.

Take Cover Now – They Don’t Ring A Bell At The Top (David Stockman)

This is getting downright stupid. After the minor 8% correction in October, the dip buyers came roaring back and the shorts got sent to the showers still another time. Earlier this morning the S&P 500 was pushing 2050 – or up 12% in less than a month. So the great con game remains in tact. The casinos run by the Fed and other central banks can’t go down for more than a few of days – until one or another central banker hints that more free money is on the way. A few weeks ago it was James Bullard hinting at a QE extension. Next was Mario Draghi pronouncing that the whole ECB is unified behind a plan to expand its already swollen balance sheet by another $1.2 trillion.

And then Haruhiko Kuroda, the certifiable madman running the BOJ, not only announced his 80 trillion yen buying scheme, but soon averred that falling oil prices – a godsend to Japan – were actually a threat to his mindless 2% inflation goal that might necessitate even more money printing. That is, after buying up 100% of the massive Japanese government bond market, the BOJ would not hesitate to monetize ETF’s, stocks, securitized real estate debt and, apparently, sea shells, if necessary. Accordingly, bounteous wealth is seemingly to be had by the three second exercise of clicking “buy” on the SPU (basket of S&P 500 stocks). Indeed, for the past 68 months running, the stock market has blown through every mini-correction, and has been traversing a near parabolic rise.

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Big call for imminent rate hike from a so far pretty quiet voice inside the Fed.

Asset Bubbles Are Top Concern for US Heartland’s Fed Banker (Bloomberg)

As a Federal Reserve bank examiner in the mid-1980s, Esther George delivered bad news to a Nebraska banker: she was downgrading overdue loans, putting his firm’s survival on the line. The owner “broke down and said, ‘This was my life’s work and your decisions are taking my bank away from me,’” George, now president of the Federal Reserve Bank of Kansas City, said in an interview. “I was absolutely sympathetic. I knew what it meant for the community.” The man was a victim of the early 1980s speculative bubble that George witnessed firsthand. Today, after the crisis of 2008-9, she sees aggressive lending and lofty asset-price valuations as evidence that financial excesses may again pose a risk to the economy. To forestall another bubble, George, 56, says it’s time for the Fed to start raising interest rates it has kept near zero since 2008. She argues that ultra-cheap credit is no longer needed to support an expansion that’s in its sixth year after the worst recession since the 1930s.

“The Fed took pretty aggressive action because we were in a fairly desperate situation,” George said. “Once we saw the economy turn, we might have removed some of those emergency measures, including zero interest rates.” Her concern with financial stability prompted her to dissent against the Fed’s accommodative policy at seven of eight Fed meetings last year. Now her warnings, along with those of fellow regional Fed bank presidents including Richard Fisher of Dallas and Charles Plosser of Philadelphia, are starting to resonate at a central bank dominated by its Washington-based Board of Governors. St. Louis Fed President James Bullard today called financial imbalances “my biggest worry going forward,” and said the Fed must avoid fanning a boom like the one in housing that could lead to another bust.

“Asset-price bubbles are the elephant in the room for monetary policy in the U.S.,” he told reporters after a speech in St. Louis. Fed officials including Chair Janet Yellen have said they are watching deteriorating leveraged-loan underwriting standards, and the central bank in September created a committee on financial stability under Vice Chairman Stanley Fischer. ‘Esther George has centered attention on the issue,’’ said Lawrence Goodman, a former U.S. Treasury official who is now president of the Center for Financial Stability in New York, an independent research organization. “There are an increasing number of converts at the Fed that financial stability matters.”

Read more …

Bullard follows up on Esther George’s remarks and makes sure they’ll keep on guessing. As I said before, all Fed utterances are carefully scripted.

Fed’s Bullard Still Wants Rate Rise in Q1 2015 (Dow Jones)

Federal Reserve Bank of St. Louis President James Bullard said low inflation in the U.S. economy is no longer enough to justify the current rock bottom setting for short-term interest rates, and he repeated his view that rates should be lifted off their current near zero levels early next year. “Inflation at the current level is not enough to justify remaining at a near-zero policy rate,” Mr. Bullard said in a speech in St. Louis. “Low inflation can justify a policy rate somewhat lower than normal, but not zero.” “Labor markets continue to improve and are approaching or even exceeding normal performance levels,” Mr. Bullard said. “Over the next year, it will become more and more difficult to point to labor market performance as a rationale for a near-zero policy rate.” He told reporters after his formal remarks that his continued expectation of 3% growth and job gains through next year means “that the best time to raise the policy rate will be at the end of the first quarter of 2015.” Mr. Bullard added, “That’s based on a forecast; data could come in differently.”

In his speech, Mr. Bullard took stock of the robust gains seen in the job market, which have come at a time where inflation has run persistently below the Fed’s 2% price rise target. In a speech Thursday, New York Fed President William Dudley said ongoing labor market weakness and inflation that is falling short of the Fed’s goal argue in favor of patience when it comes to raising rates. He, like many other Fed officials, expects short-term rates to be raised from near zero levels some time next year. In his speech Friday, however, Mr. Bullard said that the job market had recovered enough to reach long-term trend levels, and that justifies changing Fed policy. Mr. Bullard expressed some caution about the current level of inflation, which is currently at a tepid 1.4% rise, having persistently fallen short of the Fed’s goals. But he also said that despite some warning signs, he still expects prices to move back toward 2%.

Read more …

Big smile on my part.

Turkish Hackers Crack Electric Utility; Delete $670 Billion Of Pending Bills (ZH)

RedHack – a Turkish hacker collective – has hacked the website of the Turkey Electricity Transmission Company, and, as TechWorm reports, claim to have deleted the pending bills of Turkish citizens amounting to Turkish Lira 1.5 trillion (a stunning $668.5 billion). The collective, which has many hacktivism projects against Turkey’s internet censorship laws, posted a video of how they deleted the debt of millions of Turks. As TechWorm reports,

RedHack the Turkey’s number one hacker collective today hacked into the website of the Turkey Electricity Transmission Company website. They then did something which will cheer a lot of Turkish citizens who owe large amounts to the Electricity department. They have claimed that they have deleted the pending bill of Turkish citizens amounting to Turkish Lira 1.5 trillion.

Redhack, are a Turkish hacker collective. They follow the Marxist–Leninist ideology and were founded in 1997. The RedHack has so far hacked several high profile Turkish websites like Council of Higher Education, Turkish police forces, the Turkish Army, Türk Telekom, and the National Intelligence Organization and many other websites.

Read more …

“Somebody who is knowledgeable and interested, is several clicks away from the ugly mess that will define California’s financial future,”

California Pension Funds Are Running Dry (LA Times)

A decade ago, many of California’s public pension plans had plenty of money to pay for workers’ retirements. All that has changed, according to a far-reaching package of data from the state controller. Taxpayers are now on the hook for billions of dollars more to cover the future retirements of public workers, with the bill widely varying depending on where they live. The City of Los Angeles Fire and Police Pension System, for instance, had more than enough funds in 2003 to cover its estimated future bill for workers’ retirement checks. A decade later, it is short $3 billion. The state’s pension goliath, the California Public Employees’ Retirement System, had $281 billion to cover the benefits promised to 1.3 million workers and retirees in 2013. Yet it needed an additional $57 billion to meet future obligations.

The bill at the state teachers’ pension fund is even higher: It has an estimated shortfall of $70 billion. The new data from a website created by state Controller John Chiang come at a time of growing anger from taxpayers over the skyrocketing cost of public workers’ retirements. Until now, the bill for those government pensions was buried deep in the funds’ financial reports. By making this data available, Chiang is bound to stir debate about how taxpayers can afford to make retirement more comfortable for public workers when private-sector employees’ own financial futures have become less secure. For most non-government workers, fixed monthly pensions are increasingly rare.

“Somebody, who is knowledgeable and interested, is several clicks away from the ugly mess that will define California’s financial future,” said Dan Pellissier, president of California Pension Reform, a Sacramento-area group seeking to stem rising statewide retirement costs. Chiang has assembled reams of data from 130 public pension plans run by the state, cities and other government agencies. It’s now accessible at his website, ByTheNumbers.sco.ca.gov. In nearly eight years as controller, essentially the state’s paymaster, Chiang has made good on a commitment to make government financial records more transparent and accessible.

Read more …

” .. he speaks with a powerful moral authority — something totally missing from American political leaders who are ideologically guided by atheist Ayn Rand.”

Pope Francis’s ‘Holy War’ On Capitalism And Toxic Inequality (Paul B. Farrell)

Big first-year anniversary for anticapitalist, anticonservative, socialist Pope Francis. Fortune magazine ranks him first among the “World’s 50 Greatest Leaders.” Tenure unlimited. Now he’s in an ideological war with U.S. Senate Majority boss Mitch McConnell’s Big Oil backed GOP as well as conservative ideologues. At war in America’s unstable, endlessly fickle, myopic, rigged political arena. At least till 2016. Then another twist. Warren Buffett predicts Hillary Clinton is next, probably till 2024. In a long war. Big picture: Economics trumps the political soap opera. Lurking in the shadows, a new crash. Inevitable.

And like 2000, nobody will hear it coming … hidden under irrational exuberance, dot-com mania, millennium celebrations … followed by a 30-month bear recession … later the 2008 crash … Alan Greenspan, Henry Paulson clueless … two crashes already this century … $10 trillion losses each … next one coming in 2016 election cycle, with echoes of the McCain/Palin loss … yes, a bigger badder bear than 2000 and 2008 … because once again bulls and optimists, traders and leaders fall into denialism … blinded by a new wave of irrational exuberance.

What about the promise of big political changes? House Speaker John Boehner and McConnell talk a good game, but their anxious, conservative GOP base is sitting on the shifting tar sands of Big Oil cash threatened by higher costs, long-term risks. Yes, talk is cheap, but once partisan conflicts blow up, climate disasters will bury the GOP’s aggressive energy agenda, support will fade. Yes, Pope Francis is celebrating his one-year anniversary since laying down his anticapitalism manifesto for his army of 1.2 billion Catholics worldwide. He’s also been removing conservative cardinals and bishops from leadership roles. He’s hell-bent on changing the world fast. And his mandate is unwavering and unequivocal. He’s drawing clear moral and political battle lines against repressive capitalism, excessive consumerism, rigid conservatism.

Listen: “Inequality is the root of social ills … as long as the problems of the poor are not radically resolved by rejecting the absolute autonomy of markets and financial speculation and by attacking the structural causes of inequality, no solution will be found for the world’s problems or, for that matter, to any problems.” Yes, it sure sounds like a declaration of war: The anticapitalist Pope Francis versus America’s self-destructive amoral capitalism. Bet on Mitch? Pope Francis’s target is clear: economic inequality is the world’s No. 1 problem. Capitalism is at the center of all problems of inequality. And he speaks with a powerful moral authority — something totally missing from American political leaders who are ideologically guided by atheist Ayn Rand, patron saint of the GOP’s capitalism agenda in this moral war. Without moral grounding, the GOP is no match for Francis’ vision, his principled mandate, his long-game strategy to raise the world’s billions out of poverty, to eliminate inequality, to attack the myopic capitalism driving today’s economy, markets and political system.

Read more …

Home Forums Debt Rattle November 15 2014

This topic contains 2 replies, has 3 voices, and was last updated by  Raleigh 4 years, 4 months ago.

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    DPC Elephants in Luna Park promenade, Coney Island 1905 • Oil Price Slump To Trigger New US Debt Default Crisis (Telegraph) • How Low Can the Price of
    [See the full post at: Debt Rattle November 15 2014]

    #16620

    jal
    Participant

    https://www.cbc.ca/news/world/stephen-harper-at-g20-tells-vladimir-putin-to-get-out-of-ukraine-1.2836382
    2892 Comments
    (I’ll keep my comments to myself and reserve them for a serious situation)

    Stephen Harper had a showdown with Vladimir Putin on Saturday, telling the Russian leader to “get out of Ukraine” in a dustup at the Group of 20 summit in Australia.

    Harper’s spokesman, Jason MacDonald, said the prime minister was speaking to a group of G20 leaders at a private leaders’ retreat on Saturday morning when Putin approached and extended his hand.
    MacDonald said Harper told Putin: “I guess I’ll shake your hand but I have only one thing to say to you: You need to get out of Ukraine.”

    According to MacDonald, Putin did not respond positively. He didn’t provide further details.
    But a spokesman for the Russian delegation said Putin’s response was: “That’s impossible because we are not there.”

    #16628

    Raleigh
    Participant

    jal – hopefully Harper’s days are numbered.

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