Arthur Rothstein Scene along Bathgate Avenue in the Bronx Dec 1936
“The second global credit crisis is now already unfolding in China..”
The world economy stands on the brink of a second credit crisis as the vital transmission systems for lending between banks begin to seize up and the debt markets fall over. The latest round of quantitative easing from the European Central Bank will buy some time but it looks like too little too late. It was the collapse of US house prices back in 2007 that resulted in the seizure of the credit markets and banking crisis of 2008. And it would be easy to lay the blame for the 2008 financial crisis at the doorstep of American home owners, easy but wrong. The collapse of the US housing market was not the cause of the crisis, it was merely a symptom of the more insidious ills of cheap credit, low risk and the promise of another bailout round the corner.
The Keynesian pump priming that has taken place on a colossal scale across the world is failing. The Chinese economy was growing at 12pc in 2010, but that slowed to 7.7pc in 2013 and 7.4pc last year — its weakest in 24 years. Economists expect Chinese growth to slow to 7pc this year. It is the once booming property sector that has turned into a bust, and is now dragging down the wider economy as the bubble deflates. The second global credit crisis is now already unfolding in China some 6,800 miles away from the epicentre of the first in the US. The bonds of Chinese real estate companies are now falling like dominoes. Kaisa, a Hong Kong-listed developer that raised $2.5bn on international markets had to be bailed out by rival group Sunac last week after it defaulted onits debts. The bonds of other Chinese real estate groups such as Glorious Property and Fantasia have also sold off heavily as the contagion spreads.
Chinese authorities have responded to try and contain the situation. The People’s Bank of China introduced a surprise 50-point cut in the Reserve Requirement Ratio (RRR) from 20pc to 19.5pc. But this misses the point, the credit system in China is completely unsustainable unless new money is printed every year to refinance the old, simply tinkering to ease liquidity won’t cut it. The strain in its banking system is highlighted by the elevated levels of the Shanghai Interbank Offered Rate (SHIBOR), which shows Chinese banks are worried about lending to each other. There is no schadenfreude in watching China unravel. The idea that this is an isolated incident is laughable, remember the very same was said of US subprime. The problem is that banks such as Standard Chartered and HSBC have both rapidly increased their lending operations in Asia since 2008.
Prices rise 0.8%, but the economy grows at 7.4%?
Chinese inflation plunged to 0.8% in January, its lowest level for more than five years, official data showed on Tuesday, fuelling fears the world’s second-largest economy is on the brink of a deflationary spiral. The rise in the consumer price index (CPI) was sharply down from the 1.5% recorded in December, and was lower than the 1% expected by economists. It was also the weakest number since 0.6% in November 2009. Moderate inflation can be a boon to consumption as it encourages consumers to buy before prices go up, while falling prices encourage shoppers to delay purchases and companies to put off investment, both of which can hurt growth. Slowing demand, a property downturn and falling commodity prices – especially oil – have all driven prices lower and point towards persistent weakness in the world’s second largest economy.
Warmer than average weather in January also caused vegetable, fruit and fish prices to fall, the NBS said. Analysts warned of deflation in the Chinese economy, a key driver of global growth, and called for more economy-boosting measures by Beijing. A collapse in global oil prices have already unleashed a wave of monetary easing around the world as central bankers from Europe to Canada to Australia sought to defuse the deflationary pressures and bolster their economies. “The weak inflation profile suggests that the deflation has become a real risk for China, thus paving way for further monetary policy easing,” ANZ economists Liu Ligang and Zhou Hao said.
Liu Dongliang at China Merchants Bank noted that consumption may have started to feel the pain of China’s growth slowdown, as services and consumer goods prices slumped last month.“We should get vigilant about this sign and pay high attention to changes in the job market,” he said in a research note. Falling inflation is likely to keep downward pressure on the price of other commodities such as iron ore, Australia’s biggest export earner, which has fallen 50% in the past 12 months. However, the prospect of more stimulus measures in China pushed the Australian dollar higher to US78.4c. Analysts also said that factory deflation was a big concern. The data showed producer price index dropped 4.3% in January from a year earlier, worse than a 3.8% fall expected by analysts and extending factory deflation to nearly three years. Price cuts have sapped profitability of Chinese manufacturers.
Germany has been sacking Greece and other Mediterranean economies for years, and the Hellenic revolt against austerity is overdue. When the euro was established in 1999, prices were translated from the mark, franc and other currencies into euro at prevailing exchange rates. (Greece joined the euro zone in 2001, giving up the drachma.) National prices reflected differences in labor costs and efficiency across countries, but owing to a variety of social and demographic conditions, productivity improved more rapidly in Germany and other northern countries. Making goods in the South became too expensive, and Greece and others could no longer export enough to pay for imports. Without a single currency, the values of the drachma and other Mediterranean currencies would have fallen against the German mark to restore competitive balance.
Europe has few of the mechanisms that facilitate adjustment in the United States, which has a single currency across a similarly wide range of competitive circumstances. A single language permits workers to go where the jobs are, whereas most Greeks and Italians are stuck where they are born. New Yorkers’ taxes subsidize public works, health care and the like in Mississippi through the federal government in ways the European Commission cannot accomplish. Germany uses its size and influence to resist changes in EU institutions that could alter fiscal arrangements. Hence, the Greeks and other southern Europeans were forced to borrow heavily from private lenders in the north—mostly through their commercial banks—to provide public services, health care and similar services that were hardly overly generous when measured by German standards.
All this kept German factories humming and German unemployment low. When the financial crisis and meltdown of global banking made private borrowing no longer viable, Greece and other southern states were forced to seek loans directly from Germany and other northern governments. Bailouts implemented by Germany through the ECB, the IMF and the European Commission required labor market reforms, cuts in wages and pensions, higher taxes, and less government spending. All to restore Greek competitiveness, growth and solvency—and all have absolutely failed. Starved for investment, the Greek industry is now even less capable of exporting to pay for the imports of everyday items Greeks need. GDP is down 25%, unemployment is about 25%, and health care spending is down 40%. When austerity began, Greece’s sovereign debt was 110% of its GDP. Now it is 160%, grows larger by the day and can never be repaid.
“..if we see that Germany remains rigid and wants to blow apart Europe, then we have the obligation to go to Plan B. Plan B is to get funding from another source..”
Greece warns that if informal EU leader Germany remains rigid on granting Athens a new deal, it will seek assistance elsewhere. The US, Russia and China are the possible candidates. The warning came from new Greek Defense Minister Panos Kammenos, who assumed office after the populist Syriza party won a general election in January and its leader Alexis Tsipras took over as prime minister from Antonis Samaras. “What we want is a deal. But if there is no deal – hopefully (there will be) – and if we see that Germany remains rigid and wants to blow apart Europe, then we have the obligation to go to Plan B. Plan B is to get funding from another source,” Kammenos told Greek television on an overnight show running into early Tuesday, as reported by Reuters. “It could be the United States at best, it could be Russia, it could be China or other countries,” he said.
Syriza gained a plurality of votes thanks to its EU-skeptic platform and a promise to oppose austerity measures imposed on the ailing Mediterranean nation by the “Troika” of foreign creditors in exchange for a debt bailout. Kammenos is not a member of Syriza, but comes from the Independent Greeks, an ally in the coalition government. In the program he said his party and Syriza had converging views on “80% of issues” and that the way of dealing with the debt is among those they agree on. The new Greek cabinet wants part of the national debt written off, a demand that Germany has rejected. Athens also opposes some of Brussels’ policies, most notably the anti-Russian sanctions over the Ukrainian crisis, which led to a painful trade war between Russia and Europe. In the wake of Syriza’s victory, Moscow indicated that it may consider offering a loan to Greece.
“..Mr Tsipras vowed to implement the party’s radical Thessaloniki Programme in its “entirety”, including a demand for €11bn of war reparations from Germany, a move deemed deeply offensive in Berlin.”
Europe’s creditor powers have reacted with fury as Greece presses ahead with plans to smash its EU-IMF Troika programme and demand war reparations for Nazi occupation, raising the risk of a traumatic rupture with Athens by the end of the month. Wolfgang Schauble, Germany’s finance minister, said there could be no bridging agreement for the radical Syriza government, insisting that it must stick rigidly to the terms of Greece’s €245bn bail-out package and secure a negotiated extension, or face the consequences. “If they want to deal with us, they need a programme,” he said. He issued a clear warning to the new Greek premier Alexis Tsipras that his country will be left penniless in a hostile world. “I don’t know how financial markets will handle it, but maybe he knows better,” he said.
Jean-Claude Juncker, the European Commission’s chief, urged Syriza not to trifle with the EU or to overplay its hand after winning a landslide mandate last month to end austerity. “Greece shouldn’t assume that the overall mood in Europe has changed,” he said. The EU authorities have told Mr Tsipras that a series of crucial meetings in Brussels this week are his last chance to retreat from hot campaign rhetoric and agree to an extension of the Troika bail-out. The clear threat is that the European Central Bank will cut off €60bn of emergency liquidity support for the Greek financial system when the existing Troika arrangement expires on February 28. This would force Greece to impose capital controls, nationalize the banks, and reintroduce the drachma within days.
Even if the ECB agrees to a stay of execution, Athens will start to run out of money in March, when it faces repayments to the IMF, followed by other creditors. Tax revenues have dried up over recent weeks as Greeks wait to see what Syriza does in office. The treasury’s cash reserves have fallen to €1.5bn. Fears of an imminent collision set off fresh alarm in Greek markets on Monday. The yield on three-year Greek bonds jumped over 300 basis points to 21pc, while bank stocks fell 9pc. Greek lenders are under serious stress. The ECB’s shock decision last week to stop letting them use Greek bonds and Greek-guaranteed debt as collateral for loans has forced them to take on emergency liquidity that is more costly. It also imposes greater “haircuts”, effectively contracting of credit.
This comes at a time when non-performing loans are already the highest in the world at over 40pc and still rising. Greek property prices fell a further 5pc in the fourth quarter of 2014, pushing large numbers of mortgage holders yet deeper into negative equity. Data released today showed that Greece’s industrial output fell 3.8pc in December. Europe’s leaders were stunned by the aggressive tone of Mr Tsipras’s address to the Greek parliament on Sunday night. They had assumed that Syriza would hold out an olive branch once it was safely in office, shifting its stance in time-honoured EU fashion. Instead Mr Tsipras vowed to implement the party’s radical Thessaloniki Programme in its “entirety”, including a demand for €11bn of war reparations from Germany, a move deemed deeply offensive in Berlin.
“..the ECB largely makes up its own rules about what to accept as collateral. If it wanted to, it could continue to accept Greek bonds as collateral after the bailout program ends. There was certainly no need to announce that, even before the program ends, Greek bonds would no longer qualify.”
Has the European Central Bank made itself the judge of which countries remain members of the euro area? That would be an amazing assertion of power — on the face of it, completely at odds with its usual insistence that it stands outside politics. Yet that is more or less what the ECB seemed to do with its pronouncements on Greek debt last week. Greece’s new government has promised voters not to renew the European Union’s bailout program, due to expire at the end of this month. It wants new terms, and a financial breathing-space while they’re negotiated. Last week the ECB said that since it can no longer assume a program will be in place, it would stop accepting Greek government bonds and government-guaranteed debt as collateral for lending to Greek banks. After February 11th, it would no longer act as a lender of last resort for Greece.
If that was all there was to it, the ECB announcement would have been tantamount to expelling Greece from the euro system. Greeks have been pulling money out of their banks in recent weeks and months. If a full-scale run developed, and the banks could no longer call on the ECB for liquidity, Greece would need to close its banks and, in short order, begin issuing its own currency. No more monetary union. As you might expect, it’s a bit more complicated than that. For now, the ECB said, Greek banks could continue to access “emergency liquidity assistance” from the Bank of Greece, its local subsidiary. At some point, a supermajority of the ECB’s governing council could vote to suspend that privilege as well. Until that happens, Greece still has a lender of last resort – albeit a quasi-national one, which heightens doubts about the long-term integrity of the euro system.
So what on earth did the ECB hope to achieve with its announcement last week? The ECB said the move was “in line with existing euro system rules.” No doubt that’s true: The ECB hasn’t broken any rules. But the implication that the rules obliged it to act as it did is also wrong. It didn’t need to say anything. That’s why the announcement surprised the markets. Note, too, that the governing council was split on the decision. When it comes to liquidity assistance, the ECB largely makes up its own rules about what to accept as collateral. If it wanted to, it could continue to accept Greek bonds as collateral after the bailout program ends. There was certainly no need to announce that, even before the program ends, Greek bonds would no longer qualify.
“..Tsipras’ insistence on sticking to his pre-election promises is playing very well at home..”
Vaso Vouvani, a quiet and determined middle-aged mother, had long wanted a leader who stood up for the interests of Greeks, “not bankers, Eurocrats or German politicians.” “We need fighters, not servants of the troika,” she said, referring to the international lenders who had given Greece billions in bailout loans in exchange for punishing austerity measures that deflated the Greek economy. “We have lost our money and our dignity these last five years. We can’t let leaders in Brussels and Berlin continue to hit us with austerity. It’s not working!” During the crisis, Vouvani lost her business, and she hasn’t worked in four years. So she’s been relieved and heartened to see 40-year-old Prime Minister Alexis Tsipras, whose leftist, anti-austerity party Syriza came to power two weeks ago, stand up to everyone from eurozone finance chief Jeroen Dijsselbloem to Greek oligarchs evading taxes.
“I hope he fights them all,” she said. “I will be really disappointed if he backs down. I don’t want to see another Greek politician lower his head to people who treat us like we’re nothing.” In his first address to parliament, Tsipras said exactly what she wanted to hear. He promised to end austerity measures, help impoverished Greeks get sustenance and electricity, reform a corrupt political system, go after big-money tax evaders, even sell the taxpayer-funded luxury cars used by cabinet members and parliamentary deputies. “Our government wants to be the voice of the people, to express the people’s will,” he declared in a long, emotional speech that earned him a standing ovation.
Nick Malkoutzis, editor of the Athens-based economic and political analysis website macropolis.gr, told DW that Tsipras’ insistence on sticking to his pre-election promises is playing very well at home. “This is driven by his belief that, unlike previous governments, this Syriza-led administration should live up to as many of the election pledges that it can,” said Malkoutzis. “And unlike previous leaders, that he shouldn’t cave in at the first sign of pressure from Greece’s lenders.” That pressure has already come. The European Central Bank, for instance, has cut off credit to Greek banks. And the leaders of Germany, which has provided most of the bailout loans to Greece, have refused to back debt relief or any renegotiation of its debt deal.
The Greeks voted out a government because it made certain deals, but the new government is still bound by the same deals. Certainly that’s not 100% democratic.
Both sides in the increasingly heated debate over the future of Greece in the euro zone have to respect the each other’s views to reach an agreement, French finance minister Michel Sapin has told CNBC. “There is another way, as long as we respect two principles,” he told CNBC Tuesday on the sidelines of the G-20 finance meeting in Istanbul. “First: we have to respect the Greek vote. A new government was chosen. It is not possible to ask this government to do exactly the same thing we asked from the previous government. Second: Greeks need to know that rules exist in Europe, in the relationship with the IMF, with the ECB, with the European Union. We all have to respect each other and there will be room for an agreement.”
However, Sapin warned, Greece will have to abide to the conditions of the €240 billion bailout agreement. “Greeks can’t behave as if they arrived in a game where there was no rule. In Europe, there are rules. Greeks have always been part of the IMF; Greeks have been part of the EU almost from the beginning. Greeks say themselves that the ECB is their central bank. So it is in that framework that they have to work.” Time is rapidly running out for Greece. The “troika” of organizations overseeing the country’s loans —the ECB, IMF and EC – have said Greece will not receive a final tranche of aid if it does not comply with the conditions of its bailout program, which is due to end at the end of February.
In addition, the government has asked the ECB for a bridging loan, which the bank has refused. As global markets show no signs of calming over the future of the bailout program, all eyes are on the Greek government’s “Plan C” to find a compromise with lenders. On Wednesday, Greek Finance Minister Yanis Varoufakis is expected to meet his euro zone counterparts in Brussels – the eurogroup of finance ministers – to discuss a new set of reform proposals. As well as what has been called “10 surprise reforms” to replace some current austerity measures that the government does not like, Varoufakis is expected to ask for a “bridge program” to cover the government’s funding needs while a new debt pact is agreed, Greek newspaper Protothema reported Monday.
Despite repeated insistence from the euro zone that Greece must continue with austerity measures, miniters in the anti-austerity government led by Syriza told CNBC they are confident a solution can be found Wednesday. “We think we’ve made a very reasonable set of proposals about what we could take from the old program and what we add to the new program,” Euclid Tsakalotos, alternate minister for International Economic Relations for Syriza, told CNBC Monday. “What we’re saying is, yes, there can be a compromise, yes, we have a mandate (to govern) and yes, there are 18 other mandates in the euro zone so we accept that but to listen to our mandate needs time and we think we have been reasonable asking for that time.”
Kaletsky thinks he’s mighty smart.
Greece’s idealistic new leaders seem to believe that they can overpower bureaucratic opposition without the usual compromises and obfuscations, simply by brandishing their democratic mandate. But the primacy of bureaucracy over democracy is a core principle that EU institutions will never compromise. The upshot is that Greece is back where it started in the poker contest with Germany and Europe. The new government has shown its best cards too early and has no credibility left if it wants to try bluffing. So what will happen next? The most likely outcome is that Syriza will soon admit defeat, like every other eurozone government supposedly elected on a reform mandate, and revert to a troika-style programme, sweetened only by dropping the name “troika”.
Another possibility, while Greek banks are still open for business, might be for the government to unilaterally implement some of its radical plans on wages and public spending, defying protests from Brussels, Frankfurt, and Berlin. If Greece tries such unilateral defiance, the ECB will almost certainly vote to stop its emergency funding to the Greek banking system after the troika programme expires on 28 February. As this self-inflicted deadline approaches, the Greek government will probably back down, just as Ireland and Cyprus capitulated when faced with similar threats.
Such last-minute capitulation could mean resignation for the new Greek government and its replacement by EU-approved technocrats, as in the constitutional putsch against Italy’s Silvio Berlusconi in 2012. In a less extreme scenario, Varoufakis might be replaced as finance minister, while the rest of the government survives. The only other possibility, if and when Greek banks start collapsing, would be an exit from the euro. Whatever form the surrender takes, Greece will not be the only loser. Proponents of democracy and economic expansion have missed their best chance to outmanoeuvre Germany and end the self-destructive austerity that Germany has imposed on Europe.
“Fear breeds bargains. You cannot have a bargain in the absence of fear.”
Rob Arnott, chief executive and co-founder of Research Affiliates LLC, recently picked up the phone to share some thoughts on the current state of the stock market. Arnott is a pioneer of investing strategies that could be considered “unconventional” if they weren’t slowly but surely becoming more conventional. Among them is the idea of “fundamental indexing,” or weighting stock portfolios by economic metrics like sales, dividends and cash flows rather than the market value of the companies. (The term “smart beta” came later.) As such, fundamental indexes tend to lean toward value stocks instead of growth stocks. How are they doing? Well, the FTSE RAFI U.S. 1000 Total Return Index returned 140% in the 10 years through 2014 compared with 114% for the Russell 1000 Index, even though growth far outperformed value in the same decade. Anyway, when talking to a person like this, sometimes it’s best for a reporter to just shut the heck up, save the bad jokes for the next happy hour, and let the smarter person do all the talking. So here goes.
Q: Does it seem like the market will move back to a value orientation?
A: “I think the market’s stretched both in terms of valuation levels and the spread between growth and value. It doesn’t feel like the tech bubble to me, it feels a little bit more like ’98 or early ’99 in terms of the magnitude by which things are stretched. But you do have some relatively extreme examples, companies that are trading at large multiples to revenue, let alone multiples of earnings or cash flow. And that hearkens back to the ’98-’99 experience. So I think we’re seeing echoes of the bubble in today’s global market behavior.
“There is a flight to safety and the snapback from that, when it comes, will reward the value investor handily. You also see a huge spread between the comfort markets, the United States at a Shiller P/E ratio of 27 times earnings, and the fear markets, emerging markets, where a fundamental index in emerging markets is currently at a Shiller P/E ratio of 10 and a half. My goodness, 60% discount to the S&P 500. That’s startling. Why would it trade at such a vast discount? Because people are afraid. Fear breeds bargains. You cannot have a bargain in the absence of fear.”
Ideal situation for digging an even deeper debt hole.
Japan’s outstanding national debt is more than 1 quadrillion yen ($8.4 trillion) and more than twice the size of the economy. That’s way more even than Greece, which is fighting with the rest of Europe for some relief over its debt load. Yet Japan has the world’s fourth-lowest borrowing costs, even as its borrowings continue to rise. Weird, right? Here’s why Japan, home to the world’s largest debt burden, can borrow massive amounts of money at little or no cost.
Borrow from domestic investors, mostly banks and consumers Foreign ownership of Japanese government bonds and treasury bills was 8.9% at the end of September, according to central bank data. That compares with 48% of U.S. treasuries held by foreigners, according to data compiled by Bloomberg.
Have a few giant public entities that invest long-term in your debt At the end of September, the following three public institutions held at least 46% of Japan’s debt. The central bank: The Bank of Japan has bought government bonds since 2001 in an attempt to stimulate the economy and beat deflation, with its holdings doubling since the current monetary easing policy started in April 2013. At the end of September it had 23% of government bonds and treasury bills. And this has continued to rise. The post office: Japan Post Holdings held 167 trillion yen of the government’s debt, about 16% of the total and the most after the central bank. About 70% was at the Japan Post Bank, and the rest was at Japan Post Insurance. The pension system: Public pension funds held 62 trillion yen of the government’s securities, more than 6% of the total. Most of these were at the Government Pension Investment Fund, the world’s biggest pension manager. Almost half of its 130.9 trillion yen in assets were in domestic bonds at the end of September, with the GPIF aiming to cut this to 35%.
Have a low rate of inflation and slow growth When growth and inflation are low, this encourages investors to purchases government bonds, which guarantee a risk-free return. Japan’s economy grew an average of 0.8% in the 10 years through 2013 and probably expanded 0.2% last year after a sales tax hike pushed it into recession mid-year. By comparison, the U.S. grew an average 1.6% in the 10 years through 2014. Japan’s consumer prices excluding fresh food rose to 0.5% in December from a year earlier, once you strip out the effect of the sales-tax rise. In the five years through the end of 2014, price were little changed, rising an average 0.04%.
Citi’s all over the map. Goal seeked.
The recent surge in oil prices is just a “head-fake,” and oil as cheap as $20 a barrel may soon be on the way, Citigroup said in a report on Monday as it lowered its forecast for crude. Despite global declines in spending that have driven up oil prices in recent weeks, oil production in the U.S. is still rising, wrote Edward Morse, Citigroup’s global head of commodity research. Brazil and Russia are pumping oil at record levels, and Saudi Arabia, Iraq and Iran have been fighting to maintain their market share by cutting prices to Asia. The market is oversupplied, and storage tanks are topping out. A pullback in production isn’t likely until the third quarter, Morse said.
In the meantime, West Texas Intermediate Crude, which currently trades at around $52 a barrel, could fall to the $20 range “for a while,” according to the report. The U.S. shale-oil revolution has broken OPEC’s ability to manipulate prices and maximize profits for oil-producing countries. “It looks exceedingly unlikely for OPEC to return to its old way of doing business,” Morse wrote. “While many analysts have seen in past market crises ‘the end of OPEC,’ this time around might well be different,” Morse said. Citi reduced its annual forecast for Brent crude for the second time in 2015. Prices in the $45-$55 range are unsustainable and will trigger “disinvestment from oil” and a fourth-quarter rebound to $75 a barrel, according to the report. Prices this year will likely average $54 a barrel.
“In the absence of successful consolidation, we expect that as many as 50 companies in the sector face administration in the next eighteen months.”
The number of British oil and gas related companies at risk of going bankrupt has increased by almost three quarters amid a steep decline in the fortunes of the North Sea following a plunge in the price of crude. Data from insolvency specialists Begbies Traynor released exclusively to The Telegraph shows that the number of UK oil and gas businesses experiencing “significant” financial distress increased by 69pc to 486 in the fourth quarter, compared with 288 companies a year earlier. “We expect there to be a major wave of consolidation in the industry as businesses race against time to deliver cost synergies or face falling into greater distress,” said Julie Palmer, partner at Begbies Traynor.
“In the absence of successful consolidation, we expect that as many as 50 companies in the sector face administration in the next eighteen months.” The oil industry is lobbying Chancellor George Osborne hard for tax breaks and financial incentives to boost the North Sea amid fears of cut backs by operators and falling production. Oil prices have bounced recently but remain down around 50pc at just under $60 per barrel when compared with levels achieved in June last year. “Smaller oil and gas companies will be hardest hit by historically low oil prices and major cuts to investment in the industry as they lack the cash reserves the big players have to weather the storm.
In particular, we expect service firms to face rapidly deteriorating trading as oil rigs are taken offline and extraction firms race to reduce their cash burn in an environment where it is increasingly challenging to raise new funds,” said Ms Palmer. Around 16bn barrels of oil are thought to remain in the region, which started being exploited in the early 1970s. But rates of decline have increased in recent years as the cost of production has increased. More than 450,000 jobs in the UK are thought to depend on the industry, which is estimated to be worth £35bn to the British economy.
“Last month was more than seven times as bad as the next-worst January for energy industry layoffs..”
It’s been a Spindletop-like five years for the American oilman. As fracking projects mounted from the expanse of south Texas to North Dakota’s Drift Prairie, hiring did too. Last year, about 198,000 workers were employed in oil and gas extraction, the most since 1987. Another 325,500 were working in the industry’s support services, the most since the Labor Department began tracking those figures in 1990. Combined, some 523,500 were on company payrolls in 2014, more than twice the number a decade earlier. That’s likely to change this year. A report last week from global outplacement firm Challenger, Gray & Christmas showed 20,193, or 38%, of the 53,041 announced job cuts in January were in the energy industry. Oilfield service company Schlumberger last month said it will eliminate 9,000 jobs; Baker Hughes and Halliburton have said they expect to cut 7,000 and 1,000 positions, respectively.
Not all of those will occur in the U.S., and the Challenger announcements have to be taken with a grain of salt because they include foreign affiliates of American companies. Also, many job cuts are carried out through early retirement and some may not even occur at all. Still, exploration and production customers have so far slashed spending budgets by as much as 30% for this year, Halliburton CEO Dave Lesar said in January, and that doesn’t bode well for the industry’s employment picture. More than 37% of the announcements in January originated from the nation’s No. 1 oil-producing state – Texas. Mine Yucel, head of research at the Federal Reserve Bank of Dallas, said last month that 140,000 Texas jobs directly and indirectly tied to energy will be lost this year if oil stays near $50 a barrel.
North Dakota is conspicuously absent from Challenger’s state breakdown of job-cut announcements, though that too may change. “The economies throughout the northern United States that have been thriving as a result of the oil boom could experience a steep decline in employment across all sectors, including retail, construction, food service and entertainment,” John A. Challenger, the firm’s CEO, said in the report. The January job-cut announcements in the Challenger report are particularly stark when measured against data from the same month going back to 2004. Last month was more than seven times as bad as the next-worst January for energy industry layoffs, in 2009, when companies announced 2,590 job cuts. In 2009, the last year of the recession, oil and gas extraction payrolls declined by 11,800 – and that occurred when crude prices nearly doubled from a January average of around $42.
She better retire.
By making administration loyalist Aldemir Bendine the new head of Brazil’s state-run oil giant Petrobras, President Dilma Rousseff has demonstrated that she’s more interested in protecting her party’s interests than restoring the crown jewel of Brazil’s economy. At the news, investors have dumped Petrobras shares, and you can’t blame them: The company is engulfed in a monumental corruption scandal involving billions in inflated construction contracts, which has implicated scores of executives and politicians. And Bendine, who has been running Banco de Brasil, is closely tied to Rousseff’s Workers’ Party, which has turned Petrobras into a piggy bank for pet programs. Bendine’s reputation is further clouded by an investigation into irregular loans and a large unexplained fine he paid to Brazil’s tax agency in 2012.
Of course, even if Rousseff had named more market-friendly executives to Petrobras’s top management team (after the company’s previous leaders defenestrated last week), they would still be reporting to her, which is enough to make the market nervous. As the chairman of Petrobras from 2003 to 2010, Rousseff either a) did not see, b) chose to ignore or c) took part in the dodgy deals that have caused the company to rack up more than a billion dollars in alleged graft losses and incinerate tens of billions in its market value. Since taking power in 2002, the Workers’ Party has steadily eroded Petrobras’s managerial autonomy, a process that accelerated with the 2007 discovery of enormous oil deposits off the coast of Brazil. At this point, the only thing that can reassure Brazilian investors and restore Petrobras’s luster is a reversal of the most damaging policies the administration has put in place.
“We can see from the forward rates that the market views the current upward pressure on the krone as the greatest ever.”
Less than a week after Denmark resorted to its deepest rate cut ever amid historic currency interventions, forward rates suggest some traders and investors still aren’t convinced the central bank can save its euro peg. SEB, the largest Nordic currency trader, says capital flows into AAA-rated Denmark forced the central bank to dump about $4.6 billion in kroner in the first three days of February alone, almost a third the record amount it sold in all of January. Nordea Bank AB, Scandinavia’s biggest lender, says Denmark will need to deliver another 25 basis-point cut to fight back demand for kroner, bringing the benchmark deposit rate to minus 1%.
“The pressure on the krone hasn’t eased yet,” Jens Naervig Pedersen, an economist at Danske Bank, said by phone. “We can see from the forward rates that the market views the current upward pressure on the krone as the greatest ever.” Governor Lars Rohde addressed speculators last week in what he characterized as a verbal intervention to persuade them he won’t let the krone’s peg to the euro collapse. Such a scenario is “unthinkable” and the central bank will do “whatever it takes” to avoid it, he said after delivering a fourth rate cut in less than three weeks. Denmark’s largest institutional investor, ATP, sent a clear message of trust in the peg the same day, revealing it hasn’t bothered to hedge its $110 billion in assets against the possibility that the nation’s currency regime might break.
“Next: do we make the arbitrary leap of judgment and declare that that’s all the lies we will have ever been told, or do we admit the possibility that this is only the tip of an iceberg of lies, that lying is a modus vivendi for the operatives behind them?”
Oddly enough, such quantum effects are quite normal to observe within the political space. Here the physical objects involved are far too large to give rise to the parallel universes of quantum physics, but the narratives they give rise to are not. This is because the narratives are a matter of perception, and there can be historical periods, such as the present one, when the peephole through which the political establishment and the mainstream media allow us to see the world becomes so tiny that it becomes a toss-up as to whether or not any given photon will manage to find its way through it. Here, reality becomes fractured into parallel universes as soon as we make the realization that we are being lied to. Were there weapons of mass destruction in Iraq? No, and the vial of white powder which Colin Powell menacingly held up at the UN was fake.
The Iraqi mobile biological weapons factories did not exist. Was Al Qaeda active in Iraq prior to the US invasion? No, we know that it wasn’t. These lies are now known to be factual—uncontested, commonplace knowledge. Next: do we make the arbitrary leap of judgment and declare that that’s all the lies we will have ever been told, or do we admit the possibility that this is only the tip of an iceberg of lies, that lying is a modus vivendi for the operatives behind them? If we do, then, to be conservative, for every official narrative we must construct one or more unofficial but also plausible (and perhaps much more plausible) narratives. Each of them constitutes a parallel universe, and we can’t know which of them we inhabit until some happy accident—a leak, an investigation, a damning bit of physical evidence, or an outright admission of complicity or guilt—collapses the probability waveform, destroying all the parallel universes but the real one.
“What a shock it would be if Americans began to witness acts of fortitude and valor among us.”
The Romans, on their journey to decadence, lacked the voltage and the wiring to amplify the anomie overtaking them. We’re bathed and bombarded with the images of exactly how disgusting we are. People of WalMart, throw off your chains of debt, indeed! Imagine trying to govern a land of such vicious dolts. Well, here’s a news flash: no one is really trying — whether from a lack of conviction or courage or intelligence, or out of sheer contempt, it is hard to say. It is heartening, finally, to see Europe attempt to creep away from the intrigues of our Klown Konfederacy at least in the current matter of Ukraine, that poor perpetually over-trodden land of potato-eaters lately torn asunder by America’s idiotic wish to wrest it away from Russia’s 1000-year sphere of influence.
Merkel and Hollande stole over to Moscow last week to confab with Mr. Putin. They evidently omitted to inform the haircut-in-search-of-a-brain, Secretary of State John Kerry. Who would want that mule-faced ninny at the table? The Europeans are beginning to say some sane and arresting things, such as: Russia and Europe are part of the same civilization – note the implication that perhaps America is not so much in that club anymore. Perhaps it should be left twerking out on one of its fabulous lost highways until it is all twerked out. Europe, of course, has its own problems and they are very grave, and they are hard to understand because they derive from a financial system grown so abstruse and impenetrable that the ancient black magic arts look like a game of Go Fish in comparison.
At this late stage, they can only pretend to figure out where all the entwined obligations really lead, and what might happen if someone starts to yank on a thread somewhere. The question for the moment therefore is: can they continue to succeed in pretending? A sickening sense of look-out-below spreads through the sentient ranks. This week will be a doozy. One thing is clearing up: Europe does not want or need to start a war with Russia at America’s insistence. What America needs is a war with itself, a war against the lazy narcissism that has left it susceptible to armies of grifters and racketeers, because ordinary people were too busy twerking and jerking to pay any real attention to the systematic dismemberment of their culture. Waiting in the wings is a whole category of human endeavor quaintly known as virtue, lately absent in the collective consciousness. What a shock it would be if Americans began to witness acts of fortitude and valor among us.
“Eighty-five massive Dutch supertrawlers have now been equipped with electric pulse gear, at a cost of around £300,000 per ship.”
One of the biggest jokes in conservation is the Japanese government’s claim to be engaged in “scientific whaling”. All the killing by its harpoon fleet takes place under the guise of “research”, as this is the only justification available, under international rules. According to Joji Morishita, a diplomat representing Japan at the whaling negotiations, this “research programme” has produced 666 scientific papers. While we must respect Mr Morishita’s right to invoke the number of the Beast, which may on this occasion be appropriate, during its investigation of Japanese whaling, the International Court of Justice discovered that the entire “research programme” had actually generated just two peer-reviewed papers, which used data from the carcasses of nine whales.
Over the same period, the Japanese fleet killed around 3,600. So what were the pressing scientific questions this killing sought to address? Here are the likely research areas: • How much money can be made from selling each carcass? • Does whale meat taste better fried or roasted? • To what extent can we take the piss and get away with it? We are rightly outraged by such deceptions. But while we focus our anger on a country on the other side of the world, the same trick – the mass slaughter of the creatures of the sea under the guise of “scientific research” – is now being deployed under our noses.
Our own government, alongside the European commission and other member states, is perpetrating this duplicity. Fishing in Europe with poisons, explosives and electricity is banned. But the commission has gradually been rescinding the ban on using electricity. It began with one or two boats, then in 2010, after ferocious lobbying by the government of the Netherlands, 5% of the Dutch trawler fleet was allowed to use this technique. In 2012 the proportion was raised to 10%. Eighty-five massive Dutch supertrawlers have now been equipped with electric pulse gear, at a cost of around £300,000 per ship.
The NSA is not going to like this.
This may be a quantum-leap year for an initiative that accelerates data transfers close to the speed of light with no hacking threats through so-called “quantum communications” technology. Within months, China plans to open the world’s longest quantum-communications network, a 2,000-kilometer (1,240-mile) electronic highway linking government offices in the cities of Beijing and Shanghai. Meanwhile, the country’s aerospace scientists are preparing a communications satellite for a 2016 launch that would be a first step toward building a quantum communications network in the sky. It’s hoped this and other satellites can be used to overcome technical hurdles, such as distance restrictions, facing land-based systems.
Physicists around the world have spent years working on quantum-communications technology. But if all goes as planned, China would be the first country to put a quantum-communications satellite in orbit, said Wang Jianyu, deputy director of the China Academy of Science’s (CAS) Shanghai branch. At a recent conference on quantum science in Shanghai, Wang said scientists from CAS and other institutions have completed major research and development tasks for launching the satellite equipped with quantum-communications gear. The satellite program’s likelihood for success was confirmed by China’s leading quantum-communications scientist, Pan Jianwei, a CAS academic who is also a professor of quantum physics.
The satellite would be used to transmit encoded data through a method called quantum key distribution (QKD), which relies on cryptographic keys transmitted via light-pulse signals. QKD is said to be nearly impossible to hack, since any attempted eavesdropping would change the quantum states and thus could be quickly detected by data-flow monitors. A satellite-based quantum-communications system could be used to build a secure information bridge between the nation’s capital and Urumqi, a city that’s the capital of the restive Xinjiang Uyghur Autonomous Region in the west, Pan said. It’s likely the technology initially will be used to transmit sensitive diplomatic, government-policy and military information. Future applications could include secure transmissions of personal and financial data.
Scientists say they have gained new insight into what lies at the very centre of the Earth. Research from China and the US suggests that the innermost core of our planet has another, distinct region at its centre. The team believes that the structure of the iron crystals there is different from those found in the outer part of the inner core. The findings are reported in the journal Nature Geoscience. Without being able to drill into the heart of the Earth, its make-up is something of a mystery. So instead, scientists use echoes generated by earthquakes to study the core, by analysing how they change as they travel through the different layers of our planet. Prof Xiaodong Song, from the University of Illinois at Urbana-Champaign said: “The waves are bouncing back and forth from one side of the Earth to the other side of the Earth.”
Prof Song and his colleagues in China say this data suggests that the Earth’s inner core – a solid region that is about the size of the Moon – is made up of two parts. The seismic wave data suggests that crystals in the “inner inner core” are aligned in an east-to-west direction – flipped on their side, if you are looking down at our planet from high above the North Pole. Those in the “outer inner core” are lined up north to south, so vertical if peering down from the same lofty vantage point. Prof Song said: “The fact we are discovering different structures at different regions of the inner core can tell us something about the very long history of the Earth.” The core, which lies more than 5,000km down, started to solidify about a billion years ago – and it continues to grow about 0.5mm each year.
The finding that it has crystals with a different alignment, suggests that they formed under different conditions and that our planet may have undergone a dramatic change during this period. Commenting on the research, Prof Simon Redfern from the University of Cambridge said: “Probing deeper into the solid inner core is like tracing it back in time, to the beginnings of its formation. “People have noticed differences in the way seismic waves travel through the outer parts of the inner core and its innermost reaches before, but never before have they suggested that the alignment of crystalline iron that makes up this region is completely askew compared to the outermost parts. “If this is true, it would imply that something very substantial happened to flip the orientation of the core to turn the alignment of crystals in the inner core north-south as is seen today in its outer parts.”