Dec 122014
 
 December 12, 2014  Posted by at 11:59 am Finance Tagged with: , , , , , , , , ,


Jack Delano Atchison, Topeka & Santa Fe train at Emporia, Kansas Mar 1943

IEA Warns On Social Unrest As It Cuts 2015 Oil Demand Growth Forecast (CNBC)
Oil Drops Below $60 After Saudis Question Need to Cut (Bloomberg)
Oil Pressure Could Sock It To Stocks (CNBC)
Fed Bubble Bursts in $550 Billion of Energy Debt (Bloomberg)
Oil Bust Contagion Spreads to Wall Street and the Banks (WolfStreet)
Ruble Consolation Gets Putin Record Oil Income (Bloomberg)
This Has Never Happened Before Without A Drop In Stock Prices (Napier via ZH)
France Drifts Into Deflation As ECB ‘Pea-Shooter’ Falls Short (AEP)
WTF Chart Of The Day: Explaining The Surge In US Retail Sales (Zero Hedge)
China’s Slowdown Deepens as Factory Output Growth Wanes (Bloomberg)
China Tells Banks To Step Up Lending To Lift Flagging Growth (Reuters)
Skepticism Jumps in Options as VIX Rises 70% in Four Days (Bloomberg)
NY Regulator Probing Barclays And Deutsche Over Forex Algorithms (FT)
US House Narrowly Passes Spending Bill, Averts Government Shutdown (Reuters)
US Prosecutors Face New Fallout From Insider Trading Ruling (Reuters)
Welcome To The UK: DIY Burials And Payday Loans For Kids (CNBC)
Crystal Ball: Top 10 Economic Predictions For 2015 (CNBC)
These Are Lies The New York Times Wants You To Believe About Russia (Salon)
Full Scale Of Plastic In The World’s Oceans Revealed For First Time (Guardian)

“Venezuela needs to fill a capital shortfall of around $29 billion next year ..” “.. a currency devaluation would not do much to alleviate the pain. “This is a country really facing a perfect storm.”

IEA Warns On Social Unrest As It Cuts 2015 Oil Demand Growth Forecast (CNBC)

Weak demand and oversupply in oil markets raise the risk of global social instability and the potential for financial defaults, the International Energy Agency (IEA) warned on Friday, as it cut its forecasts for global oil demand growth in 2015. The report came as oil prices slid to new multi-year lows, with Brent crude hitting a 5.5-year low of $63.33 a barrel on Friday. “Continued price declines would for some countries and companies make an already difficult situation even worse,” the IEA said in its new monthly report. Global oil inventories are projected to build by around 300 million barrels in the first half of 2015 in the absence of any disruption, the group said. It estimated that stocks in major global economies could start to “bump” against storage capacity limits.

“The resulting downward price pressure would raise the risk of social instability or financial difficulties if producers found it difficult to pay back debt,” it said. Singling out Russia and Venezuela, the IEA said that further price drops would heighten the financial risks to “highly leveraged” producers, and countries that are heavily dependent on oil revenues. It warned on the threat to international financial stability should the situation in Russia deteriorate to the point of a default. Bond yields and the cost of insuring Russia against a default have risen in recent weeks amid fears over falling oil prices and intensifying sanctions from the West. Oil the country’s biggest export – is crucial for its economy, and influence in the world.

“Lower oil prices significantly dent potential export revenues in net oil exporting countries, slashing their income streams and in turn denting demand,” it said. “In particularly cash strapped economies, such as Venezuela and Russia, this impact is likely to be magnified as the risk of default escalates,” it said, adding that Venezuela’s capital Caracas was currently struggling to make bond payments, fund social programs and pay debts to oil partners. Venezuela needs to fill a capital shortfall of around $29 billion next year, according to Bradford Jones at hedge fund Sagil Capital. He told CNBC Friday that the country was facing a number of very tough decisions and believed a currency devaluation would not do much to alleviate the pain. “This is a country really facing a perfect storm,” he said.

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“When you see a persistent trend like this you can be sure there are a lot of investors caught on the wrong side ..”

Oil Drops Below $60 After Saudis Question Need to Cut (Bloomberg)

Benchmark U.S. oil prices dropped below $60 a barrel for the first time since July 2009 as Saudi Arabia questioned the need to cut output, signaling its priority is defending market share. West Texas Intermediate crude slid 1.6% in New York. The market will correct itself, according to Saudi Arabian Oil Minister Ali Al-Naimi. Global demand for crude from the Organization of Petroleum Exporting Countries will drop next year by about 300,000 barrels a day to 28.9 million, the least since 2003, the group predicted yesterday. Oil’s collapse into a bear market has been exacerbated as Saudi Arabia, Iraq and Kuwait, OPEC’s three largest members, offered the deepest discounts on exports to Asia in at least six years. The group decided against reducing its output quota at a meeting last month, letting prices drop to a level that may slow U.S. production that’s surged to the highest level in more than three decades.

“The path of least resistance is lower,” Mike Wittner, head of oil research at Societe Generale in New York, said by phone. “This week we’ve had the Saudis cut prices to Asia, OPEC reduced the call on its crude and al-Naimi reiterated that they aren’t cutting output and letting the market do its work. They all reinforce the bearish message.” WTI for January delivery dropped 99 cents to close at $59.95 a barrel on the New York Mercantile Exchange. It was the lowest settlement since July 14, 2009. Total volume was 14% above the 100-day average for the time of day. The U.S. benchmark is down 39% this year. [..] “When you see a persistent trend like this you can be sure there are a lot of investors caught on the wrong side,” Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $2.4 billion, said by phone. “They are looking for any glimmer of green as an opportunity to get out of positions. Any moves higher will be of short duration.”

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“It’s (oil) actually much weaker than the futures markets indicate. [..] The Canadian crude, if you go into the oil sands, is in the $30s, and you talk about Western Canadian Select heavy crude upgrade that comes out of Canada, it’s at $41/$42 a barrel. Bakken is probably about $54.” Kloza said there’s some talk that Venezuelan heavy crude is seeing prices $20 to $22 less than Brent ..”

Oil Pressure Could Sock It To Stocks (CNBC)

With crude sliding through the key $60 level, oil pressure could stay on stocks Friday. West Texas Intermediate futures for January closed at $59.95 per barrel, the first sub-$60 settle since July 2009. The $60 level, however, opens the door to the much bigger, $50-per-barrel level. Besides oil, traders will be watching the producer price index Friday morning, and it’s expected to be off 0.1% with the fall in energy. Consumer sentiment is also expected at 10 a.m. EST. Consumers stepped up and spent in November, as evidenced in the 0.7% gain in that month’s retail sales Thursday. That better mood should show up in consumer sentiment. Stocks on Thursday gave up sizeable gains after oil reversed course and fell through $60. Traders also were nervously watching the progress of a spending bill in Washington, which was delayed. The Dow was up 63 at 17,596, wiping out much of a 225-point intraday gain.

“Oil has pretty much spooked people,” said Daniel Greenhaus, chief global strategist at BTIG. “There just isn’t a bid. With everything in energy and the oil price collapsing as it is, who is going to step in and be a buyer now? The answer is nobody.” Oil continued to slide in after-hours trading. “The selling appears to have accelerated a little bit after the close with really no bullish news in sight,” said Andrew Lipow, president of Lipow Associates. WTI futures temporarily fell below $59 in late trading. “The big level is going to be $50 now in terms of psychological support. Much as $100 is on the upside,” said John Kilduff of Again Capital. Oil stands a good chance of getting there too. Tom Kloza, founder and analyst at Oil Price Information Service, said the market could bottom for the winter in about 30 days, but then it will be up to whatever OPEC does. The cartel in November voted to keep its production unchanged in an effort to hold market share.

“It’s (oil) actually much weaker than the futures markets indicate. This is true for crude oil, and it’s true for gasoline. There’s a little bit of a desperation in the crude market,” said Kloza. “The Canadian crude, if you go into the oil sands, is in the $30s, and you talk about Western Canadian Select heavy crude upgrade that comes out of Canada, it’s at $41/$42 a barrel. Bakken is probably about $54.” Kloza said there’s some talk that Venezuelan heavy crude is seeing prices $20 to $22 less than Brent, the international benchmark. Brent futures were at $63.20 per barrel late Thursday. “In the actual physical market, it’s fallen by even more than the futures market. That’s a telling sign, and it’s telling me that this isn’t over yet. This isn’t the bottoming process. The physical market turns before the futures,” he said.

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A portrait of a bloodbath.

Fed Bubble Bursts in $550 Billion of Energy Debt (Bloomberg)

The danger of stimulus-induced bubbles is starting to play out in the market for energy-company debt. Since early 2010, energy producers have raised $550 billion of new bonds and loans as the Federal Reserve held borrowing costs near zero, according to Deutsche Bank AG. With oil prices plunging, investors are questioning the ability of some issuers to meet their debt obligations. Research firm CreditSights Inc. predicts the default rate for energy junk bonds will double to 8% next year. “Anything that becomes a mania – it ends badly,” said Tim Gramatovich, chief investment officer of Peritus Asset Management. “And this is a mania.”

The Fed’s decision to keep benchmark interest rates at record lows for six years has encouraged investors to funnel cash into speculative-grade securities to generate returns, raising concern that risks were being overlooked. A report from Moody’s Investors Service this week found that investor protections in corporate debt are at an all-time low, while average yields on junk bonds were recently lower than what investment-grade companies were paying before the credit crisis. Borrowing costs for energy companies have skyrocketed in the past six months as West Texas Intermediate crude, the U.S. benchmark, has dropped 44% to $60.46 a barrel since reaching this year’s peak of $107.26 in June.

Yields on junk-rated energy bonds climbed to a more-than-five-year high of 9.5% this week from 5.7% in June, according to Bank of America Merrill Lynch index data. At least three energy-related borrowers, including C&J Energy Services, postponed financings this month as sentiment soured. “It’s been super cheap” for energy companies to obtain financing over the past five years, said Brian Gibbons, a senior analyst for oil and gas at CreditSights in New York. Now, companies with ratings of B or below are “virtually shut out of the market” and will have to “rely on a combination of asset sales” and their credit lines, he said.

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“Six years of the Fed’s easy money policies purposefully forced even conservative investors to either lose money to inflation or venture way out on the risk curve. So they ventured out, many of them without knowing it because it happened out of view inside their bond funds. And they funded the fracking boom and the offshore drilling boom, and the entire oil revolution in America ..”

Oil Bust Contagion Spreads to Wall Street and the Banks (WolfStreet)

Oil swooned again on Wednesday, with the benchmark West Texas Intermediate closing at $60.94. And on Thursday, WTI dropped below $60, currently trading at $59.18. It’s down 43% since June. Yesterday, OPEC forecast that demand for its oil would further decline to 28.9 million barrels a day next year, after having decided over Thanksgiving to stick to its 30 million barrel a day production ceiling, rather than cutting it. It thus forecast that there would be on OPEC’s side alone 1.1 million barrels a day in excess supply. Hours later, the US Energy Information Administration reported that oil inventories in the US had risen by 1.5 million barrels in the latest week, while analysts had expected a decline of about 3 million barrels. So the bloodletting continues: the Energy Select Sector ETF is down 26% since June; S&P International Energy Sector ETF is down 34% since July; and the Oil & Gas Equipment & Services ETF is down 46% since July.

Goodrich Petroleum, in its desperation, announced it is exploring strategic options for its Eagle Ford Shale assets in the first half next year. It would also slash capital expenditures to less than $200 million for 2015, from $375 million for 2014. Liquidity for Goodrich is drying up. Its stock is down 88% since June. They all got hit. And in the junk-bond market, investors are grappling with the real meaning of “junk.” Sabine Oil & Gas’ $350 million in junk bonds still traded above par in September before going into an epic collapse starting on November 25 that culminated on Wednesday, when they lost nearly a third of their remaining value to land at 49 cents on the dollar. In early May, when the price of oil could still only rise, Sabine agreed to acquire troubled Forest Oil Corporation, now a penny stock. The deal is expected to close in December.

But just before Thanksgiving, when no one in the US was supposed to pay attention, Sabine’s bonds began to collapse as it seeped out that Wells Fargo and Barclays could lose a big chunk of money on a $850-million “bridge loan” they’d issued to Sabine to help fund the merger. A bridge loan to nowhere: investors interested in buying it have evaporated. The banks are either stuck with this thing, or they’ll have to take a huge loss selling it. Bankers have told the Financial Times that the loan might sell for 60 cents on the dollar. But that was back in November before the bottom fell out entirely. As so many times in these deals, there is a private equity angle to the story: PE firm First Reserve owns nearly all of Sabine and leveraged it up to the hilt. [..]

Six years of the Fed’s easy money policies purposefully forced even conservative investors to either lose money to inflation or venture way out on the risk curve. So they ventured out, many of them without knowing it because it happened out of view inside their bond funds. And they funded the fracking boom and the offshore drilling boom, and the entire oil revolution in America, no questions asked.

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Makes it look less awful.

Ruble Consolation Gets Putin Record Oil Income (Bloomberg)

While Russia’s plunging currency is becoming a growing concern for policy makers in Moscow, the benefits for the Treasury are swelling as it receives more and more rubles for each dollar of oil export revenue. The CHART OF THE DAY shows that Brent crude sold for an average 3,759 rubles a barrel this year, the most on record, even after the mean dollar price of $101.74 dropped to the lowest since 2010. Russia’s fiscal accounts are benefiting from this year’s more than 40% decline in the ruble as it kept pace with a similar slide in oil, which is priced in dollars.

The government’s budget surplus is 1.27 trillion rubles ($23 billion) through November, compared with 600 billion rubles in the same period last year and 789 billion rubles in 2012, according to Finance Ministry data. It was 1.34 trillion in 2011. “A weak ruble is good for the government budget,” Dmitry Postolenko, a money manager at Kapital Asset Management in Moscow, said Dec. 10 by e-mail. “It’s in the government’s interest to let the ruble devalue but it should do it in a way that will not lead to a panic among Russians who keep money in rubles.”

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” The consensus, it would seem, views this deflationary move as one without tears. With US equities trading at 27X CAPE , that’s one hell of a bet!!”

This Has Never Happened Before Without A Drop In Stock Prices (Napier via ZH)

The Solid Ground has long flagged the importance of falling inflation expectations when nominal interest rates are so low. The Fed cannot lower nominal rates, so its control over real rates of interest rests entirely with its ability to create actual inflation or manage inflation. After five and a half years of QE, inflation expectations are very near their lows. Over the next five years investors now expect inflation to average just below 1.3%. This level of expected inflation has always previously been associated with a decline in US equity prices. There have been no exceptions until today.

THE PROWLER: Which force is currently depressing the corporations share of GDP? It is a question worth asking, because if such suppression lifts then the corporates share of GDP can go higher and, the likelihood is, share prices will go with it. While most questions in finance are difficult to answer this one is really easy because nobody and nothing is depressing the corporations share of GDP. The usual suspects for depriving the corporation of higher profits — labour, creditors and the state — are all “quiescent”, to use a word favoured by the man formerly known as ‘The Maestro’. Indeed, these forces are so quiescent that most equity investors consider them to be demons which have been slain.

THE SLEEPING TIGER: There is nothing in the historical record to equate dormancy with death when it comes to the future path of wages, interest rates or corporate taxation. For the equity bulls who choose to believe in the prolonged dormancy of labour, creditors and the state, all at the same time, history has a very clear warning that there is another potent force which can drive mean reversion of corporate profits and equity valuations – deflation. [..]

BOOM! Ultimately, just such a shock would come to many places if China tired of the monetary tightening implicit in its link to the world’s strongest currency, the USD. At some stage China will need to relax the monetary reins and this will be virtually impossible if it is tethered to a rising USD. The 1994 devaluation of the RMB wreaked havoc with the finances of China’s competitors and a similar, in fact even more powerful, dynamic is evident today. A devaluation of the RMB would thus be another trigger for a credit crisis. The consensus, it would seem, views this deflationary move as one without tears. With US equities trading at 27X CAPE , that’s one hell of a bet!!

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“The ECB is presiding over a deflationary disaster. They need to act fast and aggressively or else markets will start to attack Italian debt.” Well, and Greece, and Spain etc. Perhaps even France this time. The vigilantes played European whack-a-mole before.

France Drifts Into Deflation As ECB ‘Pea-Shooter’ Falls Short (AEP)

France is sliding into a deflationary vortex as manufacturers slash prices to keep market share, intensifying pressure on the European Central Bank to take drastic action before it is too late. The French statistics agency INSEE said core inflation fell to -0.2pc in November from a year earlier, the first time it has turned negative since modern data began. The measure strips out energy costs and is designed to “observe deeper trends” in the economy. The price goes far beyond falling oil costs and is the clearest evidence to date that the eurozone’s second biggest economy is succumbing to powerful deflationary forces. Headline inflation is still 0.3pc but is expected to plummet over the next three months. French broker Natixis said all key measures were likely to be negative by early next year.

Eurostat data show prices have fallen since April in Germany, France, Italy, Spain, Holland, Belgium, Portugal, Greece and the Baltic states, as well as in Poland, Romania and Bulgaria outside the EMU bloc. Marchel Alexandrovich, from Jefferies, said the number of goods in the eurozone’s price basket now falling has reached a record 34pc. “Eurozone deflation is now inevitable. There is no way around it,” said Andrew Roberts, at RBS. “We think yields on German 10-year Bunds will fall to 0.42pc next year.” “The ECB is presiding over a deflationary disaster. They need to act fast and aggressively or else markets will start to attack Italian debt. Italy’s nominal GDP is falling faster than their borrowing costs and that is pushing them towards a debt spiral,” he added. The Bank of Italy’s governor, Ignazio Visco, said any further falls in prices at this stage could have “extremely grave consequences for economies with very high public debt levels, such as Italy”.

The trade-weighted exchange rate of the euro has risen by 2pc over the past two months as the rouble plummets and currencies buckle across the emerging market nexus, despite the ECB’s efforts to talk it down. This is a form of monetary tightening. The German-led hawks at the ECB are running out of excuses for opposing quantitative easing after demand for the ECB’s second auction of cheap four-year loans (TLTROs) fell short of expectations. “The TLTRO is a peashooter rather than a bazooka,” said Nick Kounis, at ABN Amro.
Lenders took up just €129.8bn of fresh credit, far less than €270bn of old loans due to be repaid. This means that the ECB’s balance will continue to contract – rather than expanding by €1 trillion as intended – unless it embraces full-blown QE.

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Holiday seasonal adjustment?!

WTF Chart Of The Day: Explaining The Surge In US Retail Sales (Zero Hedge)

Confused at how such awesome retail sales headlines can lead to the kind of weakness we are seeing in stocks now that Lending Club’s IPO has started trading? Wondering why bonds are now lower in yield on the day in the face of ‘proof’ that the US consumer is back? Wonder no more, as STA Wealth Management’s Lance Roberts points out, November’s seasonal adjustment for retail sales was – drum roll please – the 3rd largest on record… so maybe, just maybe, the ‘market’ is seeing through that pure riggedness, wondering about the huge surge in continuing claims, and agog at the blowout in credit spreads and collapse in crude… Seriously?!! The 3rd largest November seasonal adjustment on record… why? and remember retail sales only beat by 0.1ppt!

Speechless, yet? Well look at this…

Rigged much?

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“.. factory production will continue to slow in the first quarter of next year, while a gauge of manufacturing activity will fall below the 50 expansion-contraction line ..”

China’s Slowdown Deepens as Factory Output Growth Wanes (Bloomberg)

China’s economy slowed in November as factory shutdowns exacerbated weaker demand, raising pressure on the central bank to add further stimulus. Bloomberg’s gross domestic product tracker came in at 6.78% year-on-year in November, down from 6.91% in October and a fourth month below 7%, according to a preliminary reading. Factory production rose 7.2% from a year earlier, retail sales gained 11.7%, and investment in fixed assets expanded 15.8% in January through November from a year earlier, official data showed. The government ordered some factories to close in Beijing and surrounding provinces during the Asia-Pacific Economic Cooperation forum in early November to curb pollution. China’s central bank cut benchmark interest rates last month as a property slump weighs on the world’s second-biggest economy.

“The major reason for the slowdown is weak demand,” said Ding Shuang, senior China economist at Citigroup Inc. in Hong Kong. “Both external and internal demand are relatively weak.” Ding said he expects factory production will continue to slow in the first quarter of next year, while a gauge of manufacturing activity will fall below the 50 expansion-contraction line, prompting the central bank to cut banks’ required reserve ratios. “The data adds to evidence of weakness in China’s economy,” Bloomberg’s Beijing-based economist Tom Orlik wrote in a note. “The People’s Bank of China’s hands may be tied by the speculative surge on the mainland’s equity markets. Fear of adding further fuel to the fire appears to have constrained the PB0C to return to targeted measures, at least temporarily.”

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“The amount of new loans issued by Chinese banks fell by more than a third in October.”

China Tells Banks To Step Up Lending To Lift Flagging Growth (Reuters)

China has told its banks to lend more in the final months of 2014 and relaxed enforcement of loan-to-deposit ratios to expand credit, sources told Reuters, as Beijing prepares to release data that could confirm the relentless slowing of its economy. Figures on inflation, imports and fiscal spending in November have already undershot expectations since the People’s Bank of China (PBOC) sprang a surprise interest rate cut on Nov. 21, raising fears that the bid to boost lending could foreshadow more weak figures on industrial activity for the month, due on Friday, and on lending, due in the next few days. “I wouldn’t be surprised by that at all,” said Andrew Polk, resident economist for the Conference Board in Beijing. “It seems pretty clear activity is continuing to weaken throughout this fourth quarter.” Two sources with knowledge of the matter said China’s central bank increased the annual new loan target to 10 trillion yuan($1.62 trillion) for 2014, up from what Chinese media have said was a previous target of 9.5 trillion yuan.

Banks have disbursed 8.23 trillion yuan of loans between January and October, so they will have to quicken the pace in the last two months if they are to meet the new target. If upcoming data also proves worse than expected, some analysts say the PBOC could cut banks’ reserve requirement ratio (RRR) as soon as this weekend, allowing them to further increase lending. Bank lending is a crucial part of China’s monetary policy as the government instructs commercial banks, most of which are directly or indirectly controlled by the state, how much to lend and when to lend each year. The amount of new loans issued by Chinese banks fell by more than a third in October. “If credit supply is increased, it will certainly help economic growth in the first quarter,” said Chang Chun Hua, an economist at Nomura in Hong Kong. “If this is true, it shows that the government is quite concerned about growth.”

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Inevitable.

Skepticism Jumps in Options as VIX Rises 70% in Four Days (Bloomberg)

Options traders aren’t buying the stock market’s message. While the Standard & Poor’s 500 Index posted its first gain of the week on Dec. 11, rising 0.5%, the Chicago Board Options Exchange Volatility Index also jumped, climbing 8.4% to cap its biggest four-day advance since 2011. The two gauges, one measuring share prices and the other anxiety among traders, only move in unison about 20% of the time. Investors watching oil plunge day after day are growing concerned the decline will destabilize financial markets and that’s boosting demand for hedges, according to Bob Doll, the chief equity strategist at Nuveen Asset Management. Gains in the VIX picked up after House Minority Leader Nancy Pelosi said Republicans lack the votes to pass a $1.1 trillion U.S. spending bill and urged fellow Democrats to force removal of some banking and campaign-finance provisions.

“I’d put oil front and center,” Doll said by phone. “We’ve had a move from $100 to $60, and if that had happened over a year or two that’s one thing, but this has been so much so fast that it creates higher uncertainty, which creates higher volatility, and that’s the reason you’re seeing people buy protection.” The S&P 500 and VIX haven’t posted a bigger lockstep advance since at least 2000, according to data compiled by Bloomberg. They’ve both gained on the same day on only 22 other times this year, the data show.

U.S. stocks rebounded from the worst day in eight weeks as an improvement in retail sales helped overshadow a drop in West Texas Intermediate crude below $60. The S&P 500 rose 0.5% at 4 p.m. in New York, paring an earlier rally of 1.5%. “It is unusual to see stocks rally like they did and premiums rise on the same day,” Jared Woodard, a New York-based equity derivatives strategist at BGC Partners LP, said by phone. “When the index gave back a lot of these gains you saw more demand for put protection. As stocks reversed a bit, people thought there may be another leg down.”

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“The probe into the possible use of algorithms is one of the reasons why DFS, led by Benjamin Lawsky, declined to participate in a broad forex settlement with banks.”

NY Regulator Probing Barclays And Deutsche Over Forex Algorithms (FT)

New York’s top banking regulator is investigating whether Barclays and Deutsche Bank used algorithms to manipulate foreign exchange rates, which could increase the penalties they face, a person familiar with the probe said. The state’s Department of Financial Services is reviewing whether the use of computer algorithms in bank currency trading platforms suggests a systemic problem at the lenders, as opposed to wrongdoing by several rogue traders, the person said. If the algorithms are seen as a bank-wide issue, DFS could seek to impose bigger penalties, the person added. The probe into the possible use of algorithms is one of the reasons why DFS, led by Benjamin Lawsky, declined to participate in a broad forex settlement with banks.

In November, UBS, Citigroup, JPMorgan Chase, HSBC, Royal Bank of Scotland and Bank of America were fined more than $4bn for their role in a forex rate-rigging scandal. The UK’s Financial Conduct Authority and the US’s Commodity Futures Trading Commission were part of that settlement. But the US Department of Justice and DFS did not participate and their investigations are ongoing. The DOJ’s probe includes the six banks that were part of the broad settlement, and the investigation is expected to result in large penalties and criminal findings. DFS is investigating about a dozen banks in its forex probe. Deutsche said it had “received requests for information from regulatory authorities that are investigating trading in the foreign exchange market. The bank is co-operating with those investigations, and will take disciplinary action with regards to individuals if merited.”

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“.. both Obama and JPMorgan chief executive Jamie Dimon were calling Democrats to support it. “It is very strange, very strange that the two of them would be working for the support of this bill ..”

US House Narrowly Passes Spending Bill, Averts Government Shutdown (Reuters)

The U.S. House of Representatives averted a government shutdown on Thursday, narrowly passing a $1.1 trillion spending bill despite strenuous Democratic objections to controversial financial provisions. The vote followed a long day of drama and discord on Capitol Hill that highlighted fraying Democratic unity and featured an uneasy alliance between President Barack Obama and House Speaker John Boehner, enemies in past budget battles but on the same side this time in pushing for passage. A vote on the measure was delayed for hours after Democrats revolted against provisions to roll back part of the Dodd-Frank financial reform law and allow more big money political donations, while conservative Republicans objected because the measure did not block funds for Obama’s immigration order.

Democrats said Republican leaders, flexing their new political muscle after big wins in the midterm elections that will give them control of both chambers of Congress next year, had gone too far in trying to roll back Dodd-Frank. “We have enough votes to show them never to do this again,” Democratic House Leader Nancy Pelosi told members of her party, behind closed doors, according to a source in the room. Some Democrats also demanded the removal of a provision that allows a massive increase in individual contributions to national political parties for federal elections, potentially up to $777,600 a year.

The debate pitted Obama against Pelosi, one of his most loyal allies in Congress, as Obama and his administration waged a last-ditch campaign to persuade Democrats to set aside their objections, arguing that if it failed, the party would get a worse spending deal next year under Republican control. The effort to save the bill angered some Democrats, who complained that both Obama and JPMorgan chief executive Jamie Dimon were calling Democrats to support it. “It is very strange, very strange that the two of them would be working for the support of this bill,” said Representative Maxine Waters, the top Democrat on the House Financial Services Committee. In the 219-206 vote, 67 Republicans rejected the spending bill, largely because it failed to take action to stop Obama’s executive immigration order. But that was offset by 57 Democrats who voted in favor.

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“The three-judge panel not only found that prosecutors needed to prove a trader knew that the original source of non-public information has received a benefit in exchange for the tip, but also narrowed what actually constituted such a benefit.”

US Prosecutors Face New Fallout From Insider Trading Ruling (Reuters)

U.S. prosecutors, already smarting from an appeals court ruling that weakens their ability to crack down on future insider trading, on Thursday faced widening fallout from the decision as some existing cases threatened to unravel. Lawyers for some defendants hinted they might seek to withdraw guilty pleas, and a Manhattan federal judge questioned if four such pleas were affected. The moves were the latest repercussions from the 2nd U.S. Circuit Court of Appeals finding that prosecutors presented insufficient evidence to convict Todd Newman, a former portfolio manager at Diamondback Capital Management, and Anthony Chiasson, co-founder of Level Global Investors. Speaking at a conference, U.S. Securities and Exchange Commission Chair Mary Jo White said Thursday “there is no question it’s a significant decision,” adding her agency was reviewing the Wednesday ruling, which she called “overly narrow.”

Some defendants who cooperated and pleaded guilty in the prosecution of Newman and Chiasson are now considering taking the extraordinary step of withdrawing their pleas, two lawyers said Thursday. The three-judge panel not only found that prosecutors needed to prove a trader knew that the original source of non-public information has received a benefit in exchange for the tip, but also narrowed what actually constituted such a benefit. In several such cases, the defendants were tipped based on information they received third- or fourth-hand, rather than straight from the source, which made it tougher to prove their awareness that source had obtained something tangible in return. The ruling threatens to challenge a broad insider trading crackdown underway since 2009 under Manhattan U.S. Attorney Preet Bharara, whose office during his tenure has secured 82 other convictions.

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As another headline today at the Guardian says: “UK standard of living rises to fourth highest in EU”.

Welcome To The UK: DIY Burials And Payday Loans For Kids (CNBC)

The tight financial conditions faced by Brits were highlighted again this week with reports on how cash-strapped young people are using payday loans and impoverished relatives are burying their loved ones at home. One in eight young people say they have borrowed money from lending firms, according to a new report released Thursday by the U.K. children’s charity Action for Children. The report interviewed 1,058 people in focus groups between the ages of 12 and 18 and found that 41% of those that had borrowed had done so with payday loan providers. The charity also found that store cards are also be used more and more, with over a third of the young people saying they had used them. Its anecdotal evidence suggested that young people were using the debt to replace household goods, set up their first home or to keep up with their friends.

“Baffling financial jargon and a lack of knowledge will dramatically create a vicious circle of debt, increasing the risk of mental health problems and unemployment,” said Tony Hawkhead, the chief executive of Action for Children, in Thursday’s report. Payday loan companies have been heavily criticized by policymakers in the U.K. for the four-figure interest rates they tie to cash advances. Regulators have moved to introduce new rules to cap charges and these firms have made changes to their lending criteria in response. The companies stress they have strict rules on who can receive loans, with the minimum age being 18 years. However the breakdown within Thursday’s study shows that minors are receiving these loans with 46% of the 12-year-old respondents saying they had borrowed money from a payday lender.

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Take your pick. Much more of this to come in the weeks ahead.

Crystal Ball: Top 10 Economic Predictions For 2015 (CNBC)

The global economy muddled along this year, with the resurgence in the U.S. economy helping to offset slowing growth in Europe, Japan and China. So, where does this leave the world economy in 2015? “Positive fundamentals are in place for the momentum in the global economy to improve during 2015,” said Nariman Behraves, Chief Economist at IHS, which expects global growth to pick up to 3% from an estimated 2.7% this year.

IHS outlined its top 10 economic predictions that make up its global outlook:
1. U.S. economy will power ahead
2. Euro zone’s struggle to continue
3. Japan to emerge from recession
4. China will keep slowing
5. EMs: a mixed bag
6. Commodities slide to extend
7. Disinflation threat
8. Fed will be the first to hike rates
9. Dollar will remain king
10. Perennial downside risks easing

The global recovery has been plagued by a multitude of “curses” during the past few years, including high public- and private-sector debt levels that have necessitated deleveraging by households corporates and governments, says IHS. But these obstacles to growth are easing in some countries, notably the U.S and U.K., which explains their better-than-average performance.

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Strong piece from Patrick Smith, former Asia bureau chief of the Herald Tribune.

These Are Lies The New York Times Wants You To Believe About Russia (Salon)

You can look at the Russian economy two ways now and you should. So let’s: It is an important moment in the destruction of something and the construction of something else, and we had better be clear just what in both cases. The world we live in changes shape as we speak. Truth No. 1: Russians are besieged. Sanctions the West has insisted on prosecuting in response to the Ukraine crisis — Washington in the lead, the Europeans reluctant followers — are hitting hard, let there be no question. Oil prices are at astonishing lows, probably if not yet provably manipulated by top operatives in the diplomatic and political spheres.

Truth No. 2: Russians are hot. With an energetic activism just as astonishing as the oil prices, Russian officials, President Putin in the very visible lead but with platoons of technocrats behind him, are forging an extensive network of South-South relationships — East-East, if you prefer — that are something very new under the sun. Some of us were banging on about South-South trade and diplomatic unity as far back as the 1970s; I have anticipated the arriving reality since the early years of this century. But I would never have predicted the pace of events as we have them before us. Stunning. Holiday surprise: There is a Truth No. 3 and it is this: Truth No. 1, the siege of the Russian economy, is proving a significant catalyst in the advance of Truth No. 2, the creative response of a nation under ever-mounting pressure.

Timothy Snyder, the Yale professor whose nitwittery on the Ukraine crisis is simply nonpareil (and praise heaven he has gone quiet), exclaimed some months ago that Putin is threatening to undermine the entire postwar order. I replied in this space the following week, Gee, if only it were so. Already it seems to be. But miss this not: Russia is advancing this world-historical turn with a considerable assist from its adversaries in the West, not alone. For all the pseuds who pretend to know Schumpeter but know only one thing, the creative destruction bit, how is this as a prime example of the phenom? Details in a sec, but this thought first: We are all bound to pay close attention to these events because they matter to everyone, whether this is yet obvious or not. Probably in our lifetimes — and I had it further out until recently — we will begin to inhabit a different planet.

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We deserve all we’ve got coming.

Full Scale Of Plastic In The World’s Oceans Revealed For First Time (Guardian)

More than five trillion pieces of plastic, collectively weighing nearly 269,000 tonnes, are floating in the world’s oceans, causing damage throughout the food chain, new research has found. Data collected by scientists from the US, France, Chile, Australia and New Zealand suggests a minimum of 5.25tn plastic particles in the oceans, most of them “micro plastics” measuring less than 5mm. The volume of plastic pieces, largely deriving from products such as food and drink packaging and clothing, was calculated from data taken from 24 expeditions over a six-year period to 2013. The research, published in the journal PLOS One, is the first study to look at plastics of all sizes in the world’s oceans.

Large pieces of plastic can strangle animals such as seals, while smaller pieces are ingested by fish and then fed up the food chain, all the way to humans. This is problematic due to the chemicals contained within plastics, as well as the pollutants that plastic attract once they are in the marine environment. “We saw turtles that ate plastic bags and fish that ingested fishing lines,” said Julia Reisser, a researcher based at the University of Western Australia. “But there are also chemical impacts. When plastic gets into the water it acts like a magnet for oily pollutants. “Bigger fish eat the little fish and then they end up on our plates. It’s hard to tell how much pollution is being ingested but certainly plastics are providing some of it.”

The researchers collected small plastic fragments in nets, while larger pieces were observed from boats. The northern and southern sections of the Pacific and Atlantic oceans were surveyed, as well as the Indian ocean, the coast of Australia and the Bay of Bengal. The vast amount of plastic, weighing 268,940 tonnes, includes everything from plastic bags to fishing gear debris. While spread out around the globe, much of this rubbish accumulates in five large ocean gyres, which are circular currents that churn up plastics in a set area. Each of the major oceans have plastic-filled gyres, including the well-known ‘great Pacific garbage patch’ that covers an area roughly equivalent to Texas.

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Home Forums Debt Rattle December 12 2014

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    Jack Delano Atchison, Topeka & Santa Fe train at Emporia, Kansas Mar 1943 • IEA Warns On Social Unrest As It Cuts 2015 Oil Demand Growth Forecast (CNB
    [See the full post at: Debt Rattle December 12 2014]

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