Feb 162015
 
 February 16, 2015  Posted by at 10:40 am Finance Tagged with: , , , , , , , , ,  1 Response »


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

The USA – All Systems Go? (Steve Keen)
‘China Must Guarantee Minimum 6.5% Annual GDP Growth In 5 Year Plan’ (Reuters)
Greece And Ukraine Are The Hot Spots Of A New War For Supremacy (Salon)
The Great War of the American Empire or Great War II (Michael S. Rozeff)
Greece Sticks To No-Austerity Pledge (Reuters)
Austerity Is ‘Complete Horsesh*t’ (Alternet)
Greek Postwar Alliances Show Europe Has More to Lose Than Money (Bloomberg)
Greeks Show Support for Tsipras on Eve of Brussels Talks (Bloomberg)
Greece, Creditors Extend Talks on Eve of Eurogroup Meeting (Bloomberg)
Greece May Win Compromise Offer From EU Bailout Fund (WSJ)
Syriza Leader Confident Ahead Of Eurozone Crunch Talks In Brussels (Guardian)
Greek Euro Exit Risk Signals Inadequate ECB QE Safeguards (Bloomberg)
US And Greece Helping To Save The Euro (CNBC)
Shoot Bank Of America Now – The Case For Super Glass-Steagall (David Stockman)
Low-Pay Britain, Where Working Families Have To Rent A Fridge (Guardian)
How Kids Company Feeds Britain’s Hungry Children (Observer)
Rolls-Royce Accused In Petrobras Scandal (FT)
Famous Soviet Football Champ Refuses To Fight For Kiev In East Ukraine (RT)
Why I’m Not Breaking Up with America This Valentine’s Day (John Whitehead)
Online Bank Robbers Steal as Much as $1 Billion (Bloomberg)
Spy Agencies Fund Climate Research In Hunt For Weather Weapon (Guardian)
12 Likely Causes Of The Apocalypse, As Seen By Scientists (RT)

“..the country with the bigger deficit would have the bigger problem. And conventional belief would expect this to be state-oriented France, rather than the free-enterprise-oriented USA. Guess again..”

The USA – All Systems Go? (Steve Keen)

The contrast today between Europe—the subject of my first few posts on Forbes—and the USA could not be more extreme. The crisis, when it began in 2007/08, was seen initially as a purely American phenomenon—and by some, proof that the deregulated American (and more generally, the Anglo-Saxon) model of capitalism had failed, while Europe’s more collectivist version was still going strong. One of the most voluble putting that argument was then French President Nicolas Sarkozy, who asserted that the crisis proved that the American deregulated version of finance was kaput: “A page has been turned,” he said, on the “Anglo Saxon” financial model. “Even our Anglo-Saxon friends are now convinced that we must have reasonable rules.” Well that was then. Now, it’s the European system—and its very peculiar rules—that are looking decidedly poor, while the USA seems to be powering ahead.

A simple comparison of unemployment rates tells that story well. The US unemployment rate, which briefly exceeded France’s at the depth of the crisis in 2009-2010, is now falling rapidly, while France’s rate has stagnated, and is in excess of the worst that the USA experienced during the crisis. So does the resurgence of the USA and Europe’s stagnation make the opposite point to the one Sarkozy reached in such haste? Is the deregulated US model really the superior one, in that while it succumbed to crisis, its recovery was that much more robust that rule-bound Europe? I am sure that many commentators will reach that conclusion in the next few years. But I think they will prove to be as misguided—or rather as wrongly focused—as was Sarkozy.

There’s a cliché in statistics that “correlation isn’t causation”. I’ve often seen this used to simply dismiss an argument that the interjector doesn’t like, but its spirit applies here: people often draw inferences from the correlation of two factors—American model, recovery; European model, stagnation—when there’s actually a third causal factor at work that is the real explanation. [..] part of the reason for the divergence is that the EU’s policy of austerity—which began in mid-2010—has made the crisis much worse. On that front, the conventional wisdom—as enshrined in the European “Growth and Stability Pact”—is that the country with the bigger deficit would have the bigger problem. And conventional belief would expect this to be state-oriented France, rather than the free-enterprise-oriented USA. Guess again.

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While the printing press is stuttering.

‘China Must Guarantee Minimum 6.5% Annual GDP Growth In 5 Year Plan’ (Reuters)

China needs to guarantee a “bottom line” of 6.5% annual economic growth for its 13th five-year-plan, a state newspaper quoted the director of the National Development and Reform Commission (NDRC) Department of Planning, Xu Lin as saying. That would mark the lowest annual growth rate since 1990. The comments by Xu, made on Feb. 14 at the “50 Forum Annual Meeting” – a gathering of Chinese economists – is also an acknowledgment that China is switching to a more sustainable pace of growth from the double-digit rates of the recent past. If this year’s GDP growth is 7%, then the “bottom line” for annual GDP growth in the 13th five-year-plan needs to be at least 6.5%, the China Securities Journal quoted Xu as saying.

China’s economy grew at 7.4% in 2014, its slowest pace in 24 years, dragged down by cooling property prices, slowing inflation and deteriorating domestic and foreign demand. Beijing is set to unveil China’s 13th five-year-plan after the National People’s Congress in March. The plan is an important document that outlines national priorities and sets targets for economic and social development. The International Monetary Fund said last year that China should set a less ambitious growth target of 6.5-7% in 2015 and refrain from stimulus measures unless the economy threatens to slow sharply from that level. China also needs to prioritize the systemic reform of property rights, taxation, banking, finance and rule of law, among other national priorities, Xu said.

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“There is something tragically irrational driving both of these crises. The genesis of each, at least nominally, is the question of whether markets serve society or it is the other way around.”

Greece And Ukraine Are The Hot Spots Of A New War For Supremacy (Salon)

Europe’s confrontation with Greece, the West’s with Russia as the Ukraine crisis runs nearly out of control: Why is it more useful by the week to think of these together? They are both very large, moments of history. There is this. They both reach critical moments this week, as if in concert. The outcomes in each case will be consequential for all of us. As noted with alarm last week, most Americans have by now surrendered to a blitz of propaganda wherein Russia and its leadership are cast as Siberian beasts, accepting as truth tales the National Enquirer would be embarrassed to run. In Europe, Greeks and Spaniards show us up, indeed, as a supine, spiritless people incapable of response or any resistance to the onslaught. There is this, too.

At writing, Yanis Varoufakis, Greece’s imaginative new finance minister, has just made his first formal effort to present European counterparts with new ideas to get foreign debts of €240 billion off the books and the Greek economy back in motion. These ideas can work. Even creditor institutions acknowledge that Greece cannot pay its debts as they are now structured. But at a session in Brussels Wednesday, the European Union’s arms remained folded. Also at writing, the Poroshenko government in Ukraine appears to have recommitted to a cease-fire signed last September in Minsk and promptly broken. It is not surprising given Kiev’s very evident desperation on all fronts. But neither would it be if Poroshenko once again reneges. There is a sensible solution on the table now, but these are not people who have so far been given to one.

There is something tragically irrational driving both of these crises. The genesis of each, at least nominally, is the question of whether markets serve society or it is the other way around. Economic conflict, then, has been transformed into humanitarian disasters. This is what Greece and Ukraine have most fundamentally in common. It is in search of a logical explanation of the illogic at work in these two crises that something else, something larger, emerges to bring them into a coherent whole. Washington has so many wars going now, none declared, one can hardly keep the list current. But the most sustained and havoc-wreaking of them is unreported. This is the war for neoliberal supremacy across the planet. Greece and Ukraine are best viewed as two hot fronts in this war, a sort of World War III none of us ever imagined.

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“Upon close inspection, all of these rationales fall apart. None is satisfactory. The interventions are too widespread, too long-lasting and too unsuccessful at what they supposedly accomplish..”

The Great War of the American Empire or Great War II (Michael S. Rozeff)

The Great War of the American Empire began 25 years ago. It began on August 2, 1990 with the Gulf War against Iraq and continues to the present. Earlier wars involving Israel and America sowed the seeds of this Great War. So did American involvements in Iran, the 1977-1979 Islamic Revolution in Iran, and the Iran-Iraq War (1980-1988). Even earlier American actions also set the stage, such as the recognition of Israel, the protection of Saudi Arabia as an oil supplier, the 1949 CIA involvement in the coup in Syria, and the American involvement in Lebanon in 1958. Poor (hostile) relations between the U.S. and Libya (1979-1986) also contributed to a major sub-war in what has turned out to be the Great War of the American Empire.

The inception of Great War II may, if one likes, be moved back to 1988 and 1989 without objection because those years also saw the American Empire coming into its own in the invasion of Panama to dislodge Noriega, operations in South America associated with the war on drugs, and an operation in the Philippines to protect the Aquino government. Turmoil in the Soviet Union was already being reflected in a more military-oriented foreign policy of the U.S. Following the Gulf War, the U.S. government engages America and Americans non-stop in one substantial military operation or war after another. In the 1990s, these include Iraq no-fly zones, Somalia, Bosnia, Macedonia, Haiti, Zaire, Sierra Leone, Central African Republic, Liberia, Albania, Afghanistan, Sudan, and Serbia.

In the 2000s, the Empire begins wars in Afghanistan, Iraq, and Libya, and gets into serious military engagements in Yemen, Pakistan, and Syria. It has numerous other smaller military missions in Uganda, Jordan, Turkey, Chad, Mali, and Somalia. Some of these sub-wars and situations of involvement wax and wane and wax again. The latest occasion of American Empire intervention is Ukraine where, among other things, the U.S. military is slated to be training Ukrainian soldiers. Terror and terrorism are invoked to rationalize some operations. Vague threats to national security are mentioned for others. Protection of Americans and American interests sometimes is made into a rationale. Terrorism and drugs are sometimes linked, and sometimes drug interdiction alone is used to justify an action that becomes part of the Great War of the American Empire.

On several occasions, war has been justified because of purported ethnic cleansing or supposed mass killings directed by or threatened by a government. Upon close inspection, all of these rationales fall apart. None is satisfactory. The interventions are too widespread, too long-lasting and too unsuccessful at what they supposedly accomplish to lend support to any of the common justifications. Is “good” being done when it involves endless killing, frequently of innocent bystanders, that elicits more and more anti-American sentiment from those on the receiving end who see Americans as invaders? Has the Great War II accomplished even one of its supposed objectives?

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“Any new bailout program might require several national parliamentary ratifications and could also bring Germany’s Constitutional Court into play.”

Greece Sticks To No-Austerity Pledge (Reuters)

Greek government spokesman Gabriel Sakellaridis showed no sign that Greece was backing off on its core demand. “The Greek government is determined to stick to its commitment towards the public … and not continue a program that has the characteristics of the previous bailout agreement,” he told Greece’s Skai television. He later said: “The Greek people have made it clear that their dignity is non-negotiable. We are continuing the negotiations with the popular mandate in our hearts and in our minds.” Some of the problems facing the Eurogroup are semantic. The Greeks, for example, will not countenance anything that smacks of an “extension” to the old bailout, preferring something new called a “bridge” agreement.

This is political. Tsipras rode into power on a wave of anti-austerity and anti-bailout anger last month and would have a hard time explaining a row-back so soon. Thousands of Greeks massed outside parliament in Athens on Sunday to back his strategy. But even a cosmetic change of labels could have practical consequences. An “extension” may not require many national ratifications unless it involves additional financial commitments from euro zone governments. Any new bailout program, on the other hand, might require several national parliamentary ratifications and could also bring Germany’s Constitutional Court into play. Among those requiring a parliamentary vote on a new bailout are Germany, Slovakia, Estonia and Finland, all identified by one veteran of EU meetings as part of a hard core of opponents to Greece’s plan.

The Eurogroup’s main debate with Greece’s “no austerity” stance will revolve around the funding of a bridge program, Greece’s request to reduce the ‘primary’ budget surpluses, excluding interest payments, that it is required to reach, and privatizations and labor reform. Greece said on Saturday that it was reviewing a €1.2 billion deal for Germany’s Fraport to run 14 regional airports, one of the biggest privatization deals since Greece’s debt crisis began in 2009. It has also pulled the plug on the privatization of the ports of Piraeus and Thessaloniki. On the question of liberalizing labor markets, government spokesman Sakellaridis remained tough: “We will discuss it with workers and with pensioners. Whatever we do, we will do through dialogue. We will not legislate at the sole behest of outside factors.”

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” Europe’s been expanding up to the borders of Russia and there’s a country called Ukraine, and, essentially, that means that Europe is writing a put option, which Ukraine has now decided to cash in. Which is why, basically, Europe’s now on the hook for all the crap that is Ukraine. That’s a put option contract.”

Austerity Is ‘Complete Horsesh*t’ (Alternet)

What is it about austerity that you take personally?

Part of it is because what I think the financial crisis is best seen as — and we’re still dealing with the aftermath of it, whether we like it or not — is that there’s a class-specific put option. Let me explain what I mean by this: A put option is a contract that’s very common in finance where essentially someone is selling insurance and the other person is taking the income for payments. At some point, they get to basically cash in the put. One way to think about this is, Europe’s been expanding up to the borders of Russia and there’s a country called Ukraine, and, essentially, that means that Europe is writing a put option, which Ukraine has now decided to cash in. Which is why, basically, Europe’s now on the hook for all the crap that is Ukraine. That’s a put option contract.

What has this got to do with the financial crisis and why do I feel passionately about it? Well, remember all those banks that got bailed [out]? In order to get bailed out you need to have assets, and my liabilities are the bank’s assets. The bank doesn’t give a damn about my condo because they’ve got an income stream coming from the mortgage. The assets and liabilities of the bank and the private sector sum up to zero, so when you bail that out, what you’re doing is you’re bailing out the private sector’s assets, which basically means the top 20% – if not about the top 10%, the top 1% – of the income distribution.

How do you pay for those bailouts? You pay for those bailouts with cuts. And who are the people that use government services? Well, it’s not the top 20% or above of the income distribution, it’s the bottom 70% and below. That’s what I mean by a class-specific put option. The people at the top get their assets bailed; the government says, Oh my God, look at all that spending! It’s out of control! We need to cut policemen and fire brigades and healthcare and various public services.

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Strategic considerations may expose EU’s bluff.

Greek Postwar Alliances Show Europe Has More to Lose Than Money (Bloomberg)

As Prime Minister Alexis Tsipras focuses on the economic arguments for a new bailout deal for Greece, the country’s strategic importance to the European Union may do as much to persuade Germany to grant him concessions. With war in Syria to the east, the failure of the Libyan state to the south and a nascent cease-fire in Ukraine to the north adding to the perennial tensions between Israel and its neighbors, the value of Greece as a NATO member and its ports on the eastern Mediterranean is rising. “One would be justified to ask whether Europe, the U.S. and NATO could afford the creation of a security vacuum and a black hole in a critical region,” Thanos Dokos, director of the Hellenic Foundation for European and Foreign Policy said. “That may not be “an acceptable loss for an EU with any ambitions to play a meaningful global and regional role,” he said.

The diplomatic effort that persuaded Russia to halt the violence in Ukraine was punctuated by Tsipras’s own, far more amicable exchanges with President Vladimir Putin. It signaled to German Chancellor Angela Merkel that European powers have more than just 195 billion euros ($223 billion) of bailout funds at stake in its standoff with Greece. The country, among a handful that complies with the North Atlantic Treaty Organization’s defense spending recommendations, has more than 200 fighter jets and 1,000 tanks. NATO facilities include a military base in Crete that was used during the airstrikes on Libya in 2011. That role may be Tsipras’s strongest weapon in negotiations with the rest of the euro area, according to Dimitris Kourkoulas, a former deputy foreign minister. “This is probably the last bargaining card Tsipras has,” Kourkoulas said.

Western powers recognized Greece’s strategic importance during and after World War II. The country’s resistance to Italy under Benito Mussolini scored the first allied ground victories against the axis powers and is marked annually by a national holiday in Greece on Oct. 28. The U.S. and Britain then intervened in the civil war to help defeat the communists as the rest of eastern Europe fell under the influence of the Soviet Union. The Greeks joined NATO in 1952, three years before the Federal Republic of Germany and at the same time as Turkey. In 1981, Greece became the 10th member of the EU, joining before countries like Spain and Austria, and adopted the euro two decades later.

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An important signal going into the new talks.

Greeks Show Support for Tsipras on Eve of Brussels Talks (Bloomberg)

Thousands of Greeks gathered in central Athens Sunday in support of Prime Minister Alexis Tsipras’s government, as officials prepared for a crunch meeting with creditors aimed at breaking an impasse over financing Europe’s most indebted state.
Police said more than 20,000 people assembled in front of the Greek Parliament as of about 8 p.m. in Athens, with more expected to join during the evening. The show of support was directed at a government delegation led by Finance Minister Yanis Varoufakis that will return to Brussels early Monday to try and negotiate a bridge agreement with euro-area peers that allows time and financing to discuss Greece’s post-bailout era. Greek stocks and bonds rose on Friday as officials on both sides signaled a willingness to compromise.

With Greece’s current bailout running out at the end of February, discussions continued at technical level into the weekend to prepare the ground for the Brussels meeting of finance chiefs. “We’re looking at difficult negotiations on Monday,” Tsipras was cited as saying in a weekend interview with Germany’s Stern magazine. “Nevertheless, I’m full of confidence.” Talks took place on Saturday between officials from Greece’s finance and foreign ministries and technical delegations from the Troika. The focus was on identifying common ground and those areas of divergence rather than on negotiating, according to Greek and EU officials. Varoufakis said that both sides have agreed on many issues already, according to an interview with Kathimerini newspaper published on Saturday.

It still isn’t certain that a final agreement will be reached Monday, the Greek official said. Tsipras’s Syriza party was elected Jan. 25 on a platform of ending austerity, a partial debt writedown and no more audits by the troika of the commission, the ECB and the IMF. It is seeking a bridge agreement for the next six months that will replace its current bailout, which it blames for the country’s economic hardship, and secure the country’s financing needs to give officials time to discuss “a new deal” with the euro area, Tsipras said last week. The government is “determined to abide by its commitment to the Greek people and its fresh mandate to end austerity,” government spokesman Gabriel Sakellaridis told Skai TV Sunday.

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“We need time rather than money to put into effect our reform plan,” [..] “I promise you, within six months Greece will then be a different country.”

Greece, Creditors Extend Talks on Eve of Eurogroup Meeting (Bloomberg)

Greek officials and the country’s creditors extended discussions through the weekend, as they raced to make progress ahead of the meeting of euro-area finance ministers in Brussels on Monday. While negotiators sought an agreement, government leaders back home reiterated their markers. For Greece, that means no discussions to continue its current bailout program, government spokesman Gabriel Sakellaridis told Skai TV this morning. French Foreign Minister Laurent Fabius, meantime, said that even as officials hold talks over Greece’s debt load, they aren’t willing to write it off. The government is “determined to abide with its commitment to the Greek people and its fresh mandate” for ending austerity,’’ Sakellaridis said.

Meetings dragged on in Athens, where the government held preparative discussions, and Brussels, where officials from Greece’s Finance and Foreign Ministries held “technical” talks with the EU, IMF and ECB, with the goal of laying the groundwork for a successor program. Greek Prime Minister Alexis Tsipras said it’s too early to say if there’s a deal in the making. Since coming to power in an election last month, Tsipras has maintained his pledge to help Greeks by reversing the austerity imposed under the country’s bailout. That’s led to clashes with other European governments. Germany, the biggest country contributor to bailouts, has led calls for Greece to stick to its political promises regardless of any change in government, while France and Italy have been more sympathetic to Greece’s efforts to secure bridge financing while it works out a longer-term plan.

In the face of opposition, the Greek government has already watered down its position on the debt, ditching a pre-election pledge for a writedown in its nominal value. Greece has more than €320 billion euros in debt outstanding, about 175% of GDP, mostly in the form of bailout loans from the euro area and the IMF. Frustration over the insurmountable pile of debt – even after the world’s biggest-ever restructuring in 2012 – and the dismal economic state helped Tsipras and his anti-austerity Syriza party topple former PM Samaras’s New Democracy in last month’s elections. “We’re looking at difficult negotiations on Monday,” Tsipras told Germany’s Stern magazine. “Nevertheless, I’m full of confidence.” [..] “We need time rather than money to put into effect our reform plan,” Tspiras said after convening a meeting of his cabinet in Athens Friday night, Stern reported. “I promise you, within six months Greece will then be a different country.”

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“An exit from the eurozone would be “the most expensive solution both for Greece and for the euro area..”

Greece May Win Compromise Offer From EU Bailout Fund (WSJ)

A Greek exit from the eurozone would be the worst of all options for everybody involved, the head of the European bailout fund said in a televised interview aired Sunday, signaling willingness to compromise over some conditions that have been linked to the country’s existing bailouts. The comments come a day before a crucial meeting of eurozone finance ministers in Brussels, where officials will aim to lay the foundation of a financing deal for struggling Greece, whose existing bailout expires at the end of February. An exit from the eurozone would be “the most expensive solution both for Greece and for the euro area,” said Klaus Regling, the head of the European Stability Mechanism, in a transcript of an interview with German broadcaster Phoenix. “That’s why we try to prevent precisely this.”

Greece’s new leftist government wants to end the austerity course and reduce the country’s debt burden, and is refusing to complete the existing bailout program. Instead of extending its current program, Athens wants a bridge arrangement to keep it afloat until September while it negotiates less onerous terms for long-term assistance. “That a newly elected government has different priorities than the previous government is understandable and nothing new,” said Mr. Regling. “We have for instance seen this too when the government in Ireland changed in the middle of the [bailout] program. It was also possible there to change individual measures but the main direction was kept in place.”

He stressed that countries must embrace reforms to help generate more economic growth in the medium term. “The European Central Bank’s monetary measures can of course be supportive and have an effect,” he said. “With its recent decisions, the ECB has done the maximum to buy time. Now it’s up to the governments.”

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“If our so-called partners insist, in any way, on extending the existing programme, that is to say the sinful memorandum because that is what they mean by the programme, there can be no agreement,”

Syriza Leader Confident Ahead Of Eurozone Crunch Talks In Brussels (Guardian)

Greece’s new prime minister Alexis Tsipras is “full of confidence” his country can secure a deal to ditch strict austerity measures while still satisfying Athens’ international creditors, despite warning that crunch talks in Brussels today would be “difficult”. As a key deadline approaches for Greece to either agree to stick to its existing bailout programme or reach a compromise with its lenders, eurozone finance ministers meet again on Monday in an attempt to hammer out an agreement. The new leftist Greek government is arguing for an end to relentless cuts imposed as a condition of the country’s rescue funding and wants more time to prove that a more pro-growth approach will work better. But it faces opposition from other eurozone countries, most notably Germany, which have pushed for the strict terms of Greece’s €240bn bailout programme to stay in place.

Talks in Brussels last week made no headway in resolving the standoff. But Tsipras also faces growing criticism from hard-left militants in his own party for appearing to row back on some pre-election pledges to ditch austerity measures. Asked about the Brussels talks, the 40-year-old prime minister told German news magazine Stern: “I expect difficult negotiations on Monday. But I am full of confidence. “I am in favour of a solution where everyone wins. I want a win-win solution. I want to save Greece from tragedy and Europe from a split.” “I promise you: Greece will, in six months’ time, be a completely different country,” he said. His finance minister Yanis Varoufakis told Greek newspaper Kathimerini at the weekend that a deal between Athens and the eurozone will be found, even if that may well be at the last minute.

But Tsipras not only has to persuade Berlin that debt-stricken Athens will keep along the path of reform, but assure his own hard-left militants that red lines will not be crossed in any compromise. There was mounting disquiet at the weekend that Varoufakis had gone too far by saying the new government was willing to implement 70% of the hated memorandum outlining Greece’s bailout accords. Firing a warning shot over the government’s bows, the energy minister Panagiotis Lafazanis, who represents Syriza’s radical wing, said there could be no solution if foreign lenders insisted on Athens adopting the “sinful memorandum”. “If our so-called partners insist, in any way, on extending the existing programme, that is to say the sinful memorandum because that is what they mean by the programme, there can be no agreement,” he told the state news agency ANA-MPA on Sunday.

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“Should a nation build up liabilities and then leave the currency union, the remaining members may have to share the bill.”

Greek Euro Exit Risk Signals Inadequate ECB QE Safeguards (Bloomberg)

Mario Draghi’s assurance that the European Central Bank has ring-fenced the risks of its bond-buying program has a caveat. While the ECB president says the euro area’s 19 national central banks will buy and hold their own country’s debt, the money they create – at least €1.1 trillion – can flow freely across borders through the region’s Target2 payment system. Should a nation build up liabilities and then leave the currency union, the remaining members may have to share the bill. The risks have been thrown more sharply into focus by the standoff between European governments and a newly elected Greek administration, which has prompted a deposit flight and put the country’s future in the euro in doubt.

As ECB officials join politicians gathering in Brussels on Monday to seek a solution to the crisis, Greece ultimately threatens to expose the weakness of measures to address legal constraints and public concern over central-bank stimulus. “There’s a political signal that comes out of the suspension of risk sharing: there’s no willingness in the ECB to build up fiscal risks via the back door if politicians aren’t,” said Nick Matthews at Nomura in London. “At the same time, asset purchases will create reserves that permeate through the Target2 system. The question of what happens if a country exits hasn’t been addressed.” Whatever happens in Brussels on Monday, Draghi and his Governing Council will meet in Frankfurt on Wednesday to nail down the details of quantitative easing.

Before buying starts in March, policy makers must sign off on the legal act and decide on key elements such as how assets will be bought and how to calculate self-imposed limits. ECB-style QE will be more complicated than programs by the Federal Reserve and Bank of England because it’ll happen in a currency union that isn’t backed by a fiscal union, with debt mutualization and central-bank financing of governments banned. That makes Target2, the Eurosystem’s financial plumbing, a potential indicator of where risks are building up.
When a lender in one country settles an obligation with a counterparty in another, the assets and liabilities are registered on the central-bank balance sheets. Those balances are aggregated each business day at the ECB, the Eurosystem’s hub, and reflected in Target2.

All five bailout countries are running negative Target2 balances, as are six others including Italy and France, according to data compiled by Germany’s Osnabrueck University. Greece had liabilities of 49 billion euros at the end of last year. The biggest creditor is Germany, which saw claims on the ECB jump to 515 billion euros at the end of January from 461 billion euros the previous month.

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“Is the euro zone just a branch office of the Federal Republic of Germany?”

US And Greece Helping To Save The Euro (CNBC)

Greece’s pleas to stop the “fiscal waterboarding” of its devastated economy are substantively no different from President Obama’s repeated warnings to Germany to stop bleeding the euro area economy with excessive fiscal austerity. Sadly, the president’s reportedly more than a dozen phone calls to the German Chancellor Merkel in 2011 and 2012 urging supportive economic policies in the euro area fell on deaf ears. These calls were not just brushed aside; they were plainly ridiculed as Chancellor Merkel kept telling the media that “it made no sense to be adding new debt to old debt.” But – worrying about one-fifth of U.S. exports going to Europe – Washington kept trying.

The former U.S. Treasury Secretary Timothy F. Geithner went as far as visiting his German counterpart Wolfgang Schaeuble at his summer retreat on a North Sea island on July 30, 2012 to talk about relief to euro area economies. That’s where Geithner was in for a big shock. He writes in his book “Stress Test: Reflections on Financial Crises” that he was “frightened” by the German talk of Greece leaving (i.e., being pushed out of) the monetary union. President Obama, he says, was “deeply worried” about Berlin’s designs. In the end, Geithner had to settle for his host’s assurances that everything was going to plan, and that the heavily indebted euro area countries were making progress on their structural reforms.

Indeed they were: At the time of that meeting, the Greek economy was sinking at a rate of 6.9%, followed by economic downturns of 3.5% in Portugal, 2.4% in Italy, 1.6% in Spain and a continuing economic stagnation in France. These five countries represent 53.1% of the euro area economy, but Germany would not relent in its firm insistence on fiscal retrenchment. For the German Chancellor, these countries’ plight was just a case of self-inflicted wounds because “they did not respect the budget rules and failed to supervise their banks.” That message played well with domestic audience in the run-up to German elections in September 2013. Obviously, it was important to be seen as a stern guardian of German finances bent on protecting taxpayers from southern spendthrifts and fiscal miscreants.

That policy exasperated so much Jean-Claude Juncker to push him into an unheard of attack on German leadership. Currently serving as the president of the European Commission (EU’s executive body), Mr. Juncker was Luxembourg’s prime minister and the chairman of the Eurogroup (a forum of the euro area finance ministers) when he aired his concerns on July 29, 2012. Here is what he said: “… how can Germany have the luxury of playing domestic politics on the back of the euro? If all other 16 euro area countries did the same thing, what would remain of our common project? Is the euro zone just a branch office of the Federal Republic of Germany?”

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“In this case, the abuse consisted of BAC funded and enabled tax avoidance schemes with respect to stock dividends – arrangements which happen to be illegal in the US.”

Shoot Bank Of America Now – The Case For Super Glass-Steagall (David Stockman)

The mainstream narrative about “recovery” from the financial crisis is a giant con job. And nowhere does the mendacity run deeper than in the “banks are fixed” meme—an insidious cover story that has been concocted by the crony capitalist cabals that thrive at the intersection of Wall Street and Washington. So this morning comes yet another expose in the Wall Street Journal about the depredations of Bank of America (BAC). Not surprisingly, at the center of this latest malefaction is still another set of schemes to grossly abuse the deposit insurance safety net and enlist the American taxpayer in the risky business of financing high-rolling London hedge funds. In this case, the abuse consisted of BAC funded and enabled tax avoidance schemes with respect to stock dividends – arrangements which happen to be illegal in the US.

No matter. BAC simply arranged for them to be executed for clients in London where they apparently are kosher, but with funds from BAC’s US insured banking entity called BANA, which most definitely was not kosher at all. As to the narrow offense involved – that is, the use of insured deposits to cheat the tax man – the one honest official to come out of Washington’s 2008-2009 bank bailout spree, former FDIC head Sheila Bair, had this to say: “I don’t think it’s an appropriate use.. Activities with a substantial reputational risk… should not be done inside a bank. You have explicit government backing inside a bank. There is taxpayer risk there.” She is right, and apparently in response to prodding by its regulator, BAC has now ended the practice, albeit after booking billions in what amounted to pure profits from these illicit trades.

But that doesn’t end the matter. This latest abuse by BAC’s London operation is, in fact, just the tip of the iceberg – the symptom of an unreformed banking regime that is rotten to the core and that remains a clear and present danger to financial stability and true economic recovery. And not by coincidence there stands at the very epicenter of that untoward regime a $2 trillion financial conglomerate that is a virtual cesspool of malfeasance, customer abuse, operational incompetence, legal and regulatory failure, downright criminality and complete and total lack of accountability at the Board and top executive level. In short, BAC’s six-year CEO, Brian Moynihan, is guilty of such chronic malfeasance and serial management failure that outside the cushy cocoon of TBTF he would have been fired long ago.

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“In 2012 one in five children lived in a home that was cold or damp; one in 10 lacked a necessary clothing item, such as a warm winter coat; and one in 20 households couldn’t afford to feed their kids properly.”

Low-Pay Britain, Where Working Families Have To Rent A Fridge (Guardian)

There’s a minor domestic crisis in any family when the fridge-freezer breaks down. Wasted food; no fresh milk; pools of water on the kitchen floor. But for some households, the demise of the washing machine, the tumble dryer or the telly is more than a hiccup – it throws up a major financial challenge. That’s where firms like BrightHouse come in: pop into one of its 291 stores, and instead of having to find several hundred pounds up front, you can replace a busted appliance for a much more manageable £10-£15 a week. Except there’s a sting in the tail. When MPs on the all-party parliamentary group on debt and personal finance looked into these “rent-to-own” retailers, of which BrightHouse is the leader, they found that by the time delivery charges, insurance and servicing are loaded on, consumers who can ill afford it end up paying several times over.

One fridge-freezer with a five-year service plan, which sells for £644 at middle-class favourite John Lewis, ended up costing £1,716. They have now asked the regulator, the Financial Conduct Authority, to investigate. But, like disgraced payday lender Wonga, BrightHouse’s appeal is a sharp reminder of the precariousness of many families’ lives. Perhaps BrightHouse’s customers should have read the small print. But signing up to a usurious loan deal because of the temptingly low upfront payment is hardly a rare mistake in today’s credit-fuelled economy. Many rent-to-own customers – half of whom receive benefits, and who have on average £19 a week spare for one-off costs – have little or no alternative. According to Breadline Britain, a salutary new book from poverty researchers Stewart Lansley and Joanna Mack, a growing proportion of families are unable to afford the things – such as a working fridge – that most of us would define as essential.

In 2012, their large-scale research project found, one in five children lived in a home that was cold or damp; one in 10 lacked a necessary clothing item, such as a warm winter coat; and one in 20 households couldn’t afford to feed their kids properly. These children’s chances are hobbled long before they reach the school gates – and in many cases their parents are not in the dole queue, but juggling jobs. Many of the adults suffering this kind of “deprivation poverty” – more than half, in fact – are in work. Yet these are the people who have been on the receiving end of a pernicious rhetorical onslaught since 2010. In the Tory lexicon, they are the “troubled families” whose behaviour blights their neighbourhoods: the “skivers”, rather than “strivers”; the people whose blinds are down when their “hardworking” neighbours drag themselves out to work in the morning.

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No rich western society should ever be allowed to stoop this low: “Normal. It’s like… don’t know… it’s normal.”

How Kids Company Feeds Britain’s Hungry Children (Observer)

Kids Company is a rare children’s charity in that the people it feeds and looks after are self-referring. Children come to them by themselves, and later they bring others who are also in need. “Between 2011 and 2012 we saw a 233% increase in these self-referrals,” Guinness says. As a result they launched the Plate Pledge, a fundraising drive built around the £2 cost of a meal. While they get some funding from central government they get none from the boroughs of Lambeth or Southwark whose kids they look after, and still have to raise more than £24m a year to keep services running. The Plate Pledge has meant they have been able to serve another half a million meals. “But we’re not meeting demand,” Guinness says.

Not that anyone is clear what that demand actually is, because it’s hard to get definite numbers. “We tried to get real hard figures on child food poverty when we were researching our report into school food,” says Henry Dimbleby, founder of the Leon healthy fast-food chain, who co-authored the recent School Food Plan. “We found it impossible to do so.” It requires getting deep inside the private domain, into the tight weft and weave of the home and that is a very secretive and emotionally charged place. A team from Reading University recently conducted interviews with children who came to Kids Company, which painted a dismal portrait of need. One child, asked how they deal with hunger, said, with a brutal logic, “I just want to sleep cos… when I [go] to bed hungry and sleep, I’m not hungry.”

Another child, asked how common she found cupboards empty when she got home from school, just shrugged. It was, she said, “Normal. It’s like… don’t know… it’s normal.” Guinness is dismissive of the idea that it’s impossible to get data on these experiences. He has an email from a Department of Health official who admits that, while they do undertake nutrition surveys of the population, they don’t analyse the lowest income groups because “the sample size is too small”. Guinness knows from the demand they are seeing that the sample cannot be too small. I ask him, slightly desperately, if there is any sunlight in this story. “Yes, of course. When you feed a child, when you provide a family-like environment, they thrive. They turn in to fine young people. And it doesn’t cost much.”

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Expect many more to follow.

Rolls-Royce Accused In Petrobras Scandal (FT)

Rolls-Royce has been accused of involvement in a multibillion-dollar bribery and kickback scheme at Petrobras, Brazil’s state-controlled oil producer, as more foreign companies are dragged into the country’s largest corruption scandal. The British engineering company, which makes gas turbines for Petrobras oil platforms, allegedly paid bribes via an agent in exchange for a $100 million contract as part of a scheme in operation during much of the past decade, according to testimony from a former Petrobras executive. Pedro Barusco, the Petrobras veteran who has emerged as one of the investigation’s key informants, told police he personally received at least $200,000 from Rolls-Royce — only part of the bribes he alleged were paid to a ring of politicians and other executives at the oil company.

The admission was buried in more than 600 pages of documents released by Brazil’s federal court system this month, detailing the testimonies of Mr Barusco who struck a plea bargain in November. Responding to Mr Barusco’s accusations, Rolls-Royce said: “We want to make it crystal clear that we will not tolerate improper business conduct of any sort and will take all necessary action to ensure compliance.” The accusations come as Rolls-Royce also faces a Serious Fraud Office investigation in the UK over allegations of bribery and corruption in China and Indonesia. They also come as the company is undergoing a painful restructuring, revealing its first fall in underlying sales in a decade and predicting a bigger than expected fall in profits in 2015.

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Kiev is losing on all fronts except the IMF and EU/US.

Famous Soviet Football Champ Refuses To Fight For Kiev In East Ukraine (RT)

Soviet football legend Aleksandr Zavarov said he will not fight in the eastern Ukraine conflict, after reports surfaced that a draft notice bearing the 53-year-old’s name was delivered to the Football Federation of Ukraine (FFU) last week. Zavarov, who was born in Lugansk, has categorically refused to comply with the notice. “I will say one thing, I will never fight where my family and kids live, where my parents are buried,” the assistant coach for the Ukraine national team said. “I just want peace.” In 1986, Zavarov was named the best football player in the USSR, and is widely considered to be one of the best players in Soviet history. The FFU received a conscription notice for 89 members of the organization, Ukrainian sports papers reported last week.

FFU representative Pavel Ternovoy confirmed the reports to R-Sport agency. “I can confirm that many members of the Football Federation of Ukraine received draft notices. Alexandr Zavarov and Yuriy Syvukha were among them,” he said. Yuriy Syvukha is a former goalkeeper and current assistant coach for the Ukraine national team. Ternovoy said that each conscript will have to decide for himself how to respond to his notice. “There is a war going on right now. Every citizen should understand what’s going on. What those who got the notices will do is entirely up to them,” he said. In January, Ukraine began a multi-stage military draft in the hope of enlisting 100,000 new recruits.

Reserve servicemen between the ages of 25 and 60 are eligible under the new guidelines. However, a Ukraine army spokesperson admitted late last month that the new draft has faced some problems as potential conscripts attempt to dodge the wave of mobilization. “The fourth wave of mobilization is problematic,” Vladimir Talalay said. “The biggest difficulties are seen in Sumy, Kharkov, Cherkassy, Ternopol, Zakarpatye, and other regions.” Almost 7,500 Ukrainians are already facing criminal charges for evading military service. Russian President Vladimir Putin has said that Ukrainian draft dodgers are welcome in Russia. He has promised to legalize longer stays in the Russian Federation for those facing conscription.

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“.ot only do we put up with a laundry list of tyrannies that make King George III’s catalogue of abuses look like child’s play, but most actually persist in turning a blind eye to them..”

Why I’m Not Breaking Up with America This Valentine’s Day (John Whitehead)

Almost every week I get an email from an American expatriate living outside the country who commiserates about the deplorable state of our freedoms in the United States, expounds on his great fortune in living outside the continental U.S., and urges me to leave the country before all hell breaks loose and my wife and children are tortured, raped, brutalized and killed. Without fail, this gentleman concludes every piece of correspondence by questioning my sanity in not shipping my grandchildren off to some far-flung locale to live their lives free of fear, police brutality, and surveillance. I must confess that when faced with unmistakable warning signs that the country I grew up in is no more, I have my own moments of doubt.

After all, why would anyone put up with a government that brazenly steals, cheats, sneaks, spies and lies, not to mention alienates, antagonizes, criminalizes and terrorizes its own citizens and then justifies it in the name of safety, security and the greater good? Why would anyone put up with militarized police officers who shoot first and ask questions later, act as if their word is law, and operate as if they are above the law? Why would anyone put up with government officials, it doesn’t matter whether they’re elected or appointed, who live an elitist lifestyle while setting themselves apart from the populace, operate outside the rule of law, and act as if they’re beyond reproach and immune from being held accountable?

Unfortunately, not only do we put up with a laundry list of tyrannies that make King George III’s catalogue of abuses look like child’s play, but most actually persist in turning a blind eye to them, acting as if what they don’t see or acknowledge can’t hurt them. The sad reality, as I make clear in my book A Government of Wolves: The Emerging American Police State, is that life in America is no bed of roses. Nor are there any signs that things will get better anytime soon, at least not for “we the people,” those of us who belong to the so-called “unwashed masses”—the working class stiffs, the hoi polloi, the plebeians, the rabble, the riffraff, the herd, the peons and the proletariats.

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And that’s just the one(s) we actually hear about. Most will never be told.

Online Bank Robbers Steal as Much as $1 Billion (Bloomberg)

A hacker group has stolen as much as $1 billion from banks and other financial companies worldwide since 2013 in an “unprecedented cyber-robbery,” according to computer security firm Kaspersky Lab. The gang targeted as many as 100 banks, e-payment systems and other financial institutions in 30 countries including the U.S, China and European nations, stealing as much as $10 million in each raid, Kaspersky Lab, Russia’s largest maker of antivirus software, said in a report. The Carbanak gang members came from Russia, China, Ukraine and other parts of Europe, and they are still active, it said The criminals infected bank employees’ computers with Carbanak malware, which then spread to internal networks and enabled video surveillance of staff.

That let fraudsters mimic employee activity to transfer and steal money, according to Kaspersky Lab, which said it has been working with Interpol, Europol and other authorities to uncover the plot. “These bank heists were surprising because it made no difference to the criminals what software the banks were using,” said Sergey Golovanov, principal security researcher at Kaspersky Lab’s global research and analysis team. “It was a very slick and professional cyber-robbery.”

Criminals also used access to banks’ networks to seize control of ATMs and order them to dispense cash at certain times to henchmen, Kaspersky Lab said. In some cases the gang inflated the balance of certain accounts and pocketed the extra funds without arousing immediate suspicion, according to the report. U.S. President Barack Obama convened a national summit on Friday to encourage cooperation between federal and private security specialists to combat hackers and data breaches. The event included executives and security officials from companies such as Microsoft, Google, Yahoo! and Facebook and followed hacks at companies including Sony and JPMorgan last year.

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‘We are working for the CIA and we’d like to know if some other country was controlling our climate, would we be able to detect it?’ Meaning: could we control their climate?

Spy Agencies Fund Climate Research In Hunt For Weather Weapon (Guardian)

A senior US scientist has expressed concern that the intelligence services are funding climate change research to learn if new technologies could be used as potential weapons. Alan Robock, a climate scientist at Rutgers University in New Jersey, has called on secretive government agencies to be open about their interest in radical work that explores how to alter the world’s climate. Robock, who has contributed to reports for the intergovernmental panel on climate change (IPCC), uses computer models to study how stratospheric aerosols could cool the planet in the way massive volcanic eruptions do. But he was worried about who would control such climate-altering technologies should they prove effective, he told the American Association for the Advancement of Science in San Jose.

Last week, the National Academy of Sciences published a two-volume report on different approaches to tackling climate change. One focused on means to remove carbon dioxide from the atmosphere, the other on ways to change clouds or the Earth’s surface to make them reflect more sunlight out to space. The report concluded that while small-scale research projects were needed, the technologies were so far from being ready that reducing carbon emissions remained the most viable approach to curbing the worst extremes of climate change. A report by the Royal Society in 2009 made similar recommendations. The $600,000 report was part-funded by the US intelligence services, but Robock said the CIA and other agencies had not fully explained their interest in the work.

“The CIA was a major funder of the National Academies report so that makes me really worried who is going to be in control,” he said. Other funders included Nasa, the US Department of Energy, and the National Oceanic and Atmospheric Administration. The CIA established the Center on Climate Change and National Security in 2009, a decision that drew fierce criticism from some Republicans who viewed it as a distraction from more pressing terrorist concerns. The centre was closed down in 2012, but the agency said it would continue to monitor the humanitarian consequences of climate change and the impact on US economic security, albeit not from a dedicated office. Robock said he became suspicious about the intelligence agencies’ involvement in climate change science after receiving a call from two men who claimed to be CIA consultants three years ago. “They said: ‘We are working for the CIA and we’d like to know if some other country was controlling our climate, would we be able to detect it?’

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People’s favorite topics.

12 Likely Causes Of The Apocalypse, As Seen By Scientists (RT)

Filmmakers, authors, and media have widely speculated about how human life on Earth will end. Now scientists have come up with the first serious assessment, presenting 12 possible causes of the Apocalypse. Scientists from Oxford University’s Future of Humanity Institute and the Global Challenges Foundation have compiled the first research on the topic, drawing a list of 12 possible ways that human civilization might end. The idea of the study is not quite new. However, due to its treatment in popular culture, the possibility of the world’s infinite end provokes relatively little political or academic interest, making a serious discussion harder, according to researchers. “We were surprised to find that no one else had compiled a list of global risks with impacts that, for all practical purposes, can be called infinite,” said co-author Dennis Pamlin of the Global Challenges Foundation. “We don’t want to be accused of scaremongering but we want to get policy makers talking.”

Below is the list of threats, ranked from least to most probable.
• Asteroid impact Probability: 0.00013%
• Super-volcano eruption Probability: 0.00003%
• Global pandemic Probability: 0.0001%
• Nuclear war Probability: 0.005%
• Extreme climate change Probability: 0.01%
• Synthetic biology Probability: 0.01%
• Nanotechnology Probability: 0.01%
• Unknown consequences Probability: 0.1%
• Ecological collapse Probability: N/A
• Global system collapse Probability: N/A
• Future bad governance Probability: N/A

And lastly, the most probable of all the mentioned causes of the Apocalypse is…
• Artificial Intelligence Probability: 0-10%

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Jan 062015
 
 January 6, 2015  Posted by at 11:27 am Finance Tagged with: , , , , , , , ,  3 Responses »


DPC Unloading bananas, New Orleans 1903

Oil Below $49 As Sector Faces Its ‘Hunger Games’ (CNBC)
Brent Falls Below $52 As Oil Hits New Five And A Half Year Lows (Reuters)
Oil Drama Drives Shares Lower In Asia And Europe (Reuters)
Some Traders Are Betting On $20 Oil (MarketWatch)
Caterpillar Is Latest Victim Of Sliding Oil Price (MarketWatch)
Saudi Slashes Monthly Oil Prices To Europe; Trims US., Ups Asia (Reuters)
Saudi Arabia Raises Price of Main Oil Grade for Asian Buyers (Bloomberg)
Oil Below $55 May Force Norway to Cut Rates Again (Bloomberg)
Oilfield Writedowns Loom as Market Collapse Guts Drilling Values (Bloomberg)
Greece vs Europe: Who Will Blink First? (AEP)
The Black Hole Theory Of The Eurozone (Coppola)
As Goes Greece, So Goes the Euro (Bloomberg ed.)
A New Year, A New Europe? Don’t Count On It (CNBC)
Goldman Says JPMorgan Should Break Itself Into Pieces (Bloomberg)
China Fast-Tracks $1 Trillion in Projects to Spur Growth (Bloomberg)
Venezuelan Leader Maduro Seeks Economic Help On Tour (BBC)
The Demise of UK’s Lucky Years Pits Winners Against Losers (Bloomberg)
The Economics (and Nostalgia) of Dead US Shopping Malls (NY Times)
Forecast 2015 – Life in the Breakdown Lane (Jim Kunstler)
2015: Grounds for Optimism (Dmitry Orlov)
The People Pushed Out Of Ethiopia’s Fertile Farmland (BBC)
Does CNN Really Have A Video Ready For The Apocalypse? (BBC)

“.. a dystopian post-apocalyptic future where the main protagonists battle each other to survive.”

Oil Below $49 As Sector Faces Its ‘Hunger Games’ (CNBC)

Oil’s dramatic fall in price will have serious effects on revenues and spending in the sector, according to some industry analysts, with one investment firm predicting a sector-wide “recession” that will last for several years. Both U.S. crude and Brent futures fell to fresh 5-1/2-year lows on Tuesday, with the former slipping below $49. Weak global demand and booming U.S. oil production are seen as the key reasons behind the price plunge, as well as OPEC’s reluctance to cut its output. This sector slump will lead to a fight to the death for oil firms, according to analysts at Bernstein Research. The research firm likened the current environment to the Hollywood movie “The Hunger Games”, which portrays a dystopian post-apocalyptic future where the main protagonists battle each other to survive.

“Our research convinces us an oil services recession is largely unavoidable at even $80 a barrel…The Hunger Games have begun,” Nicholas Green, a senior analyst at the company, said in a note on Tuesday morning. Bernstein’s Green believes that offshore activity will also face a “structural recession.” He predicts that there will be only half of the new work available in 2015, compared to last year, and forecasts no material recovery before 2017. Other possible casualties of the sector’s struggle for survival are the high-risk and reward exploration and oil production companies (E&P), ratings agency Moody’s said Tuesday. If oil prices average $75 a barrel in 2015, then North American E&P companies would likely reduce their capital spending by around 20% from last year, according to Moody’s.

It could even be cut by 40% it oil starts at below $60 a barrel, it added. Oilfield services companies, or OFS, are companies that provide services to the E&P industry, and could face an earnings crunch of 12% to 17% if oil averages $75 a barrel in 2014, according to Moody’s. An average price below $60 a barrel in 2015 could drive earnings down by 25 to 30%, it added. Meanwhile, midstream operators – which are involved in the transportation of oil – would come under significant earnings pressure if this spending is cut, according to the ratings agency.

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“When the Saudis are cutting prices, the markets are not going to go higher.”

Brent Falls Below $52 As Oil Hits New Five And A Half Year Lows (Reuters)

Oil prices sank to fresh 5-1/2-year lows on Tuesday, extending losses after a 5% plunge in the previous session as worries over a global supply glut intensified. Brent crude fell by 3% to below $52 a barrel as cuts to monthly oil selling prices for European buyers by top OPEC producer Saudi Arabia heightened worries about oversupply. “Saudi Arabia is showing no signs of pulling back,” said Bjarne Schieldrop, chief commodity analyst with SEB in Oslo. “Stocks are continuing to build, and there is an increase in contango.” While Saudi Arabia increased its selling price to Asia, some analysts said the cuts to Europe reflect the kingdom’s deepening defense of market share. This added to bearish data over the weekend showing that Russia’s 2014 oil output hit a post-Soviet-era high and exports from Iraq, OPEC’s second-largest producer, reached their highest since 1980.

On Tuesday, the UAE’s Abu Dhabi National Oil Company set the December retroactive selling price for its benchmark Murban crude at $60.65 a barrel, its lowest level since May 2009. “It’s hard to pinpoint a specific downward pressure,” Schieldrop said. Brent crude fell as low as $51.23 a barrel on Tuesday, its lowest level since May 2009. It was trading at $51.31 at 0942 GMT (0442 ET), down $1.80. U.S. crude was at $48.54, down $1.50, after falling to $48.47, its lowest since April 2009. Jitters over political uncertainty in Greece added to an already faltering eurozone economy, raising questions about energy demand in Europe and compounding the bearish sentiment. A slew of factors was keeping up the downward pressure on prices, analysts said, pointing to concerns about the Greek economy, high oil output from Russia, Iraq and the United States, and a stronger dollar. “The weak euro should be one of the reasons,” said Tamas Varga of PVM, adding: “When the Saudis are cutting prices, the markets are not going to go higher.”

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As I said yesterday, this oil thing is the real deal.

Oil Drama Drives Shares Lower In Asia And Europe (Reuters)

European shares sank for a third day on Tuesday as a slide in oil prices showed no sign of easing off, supporting traditional safe-haven assets such as top-rated government bonds, the Japanese yen and the Swiss franc. Asian shares had slumped overnight after another day of drama on oil markets that drove U.S. crude to less than $50 a barrel for the first time since the first half of 2009 and handed Wall Street its worst losses in three months. The resulting bid for safety drove the average of yields on German, U.S. and Japanese 10-year debt to less than 1% for the first time. Also hit by a poor reading from a purchasing managers’ survey in Italy, all of Europe’s major exchanges were in negative territory an hour into morning trade.

“Global risk sentiment has been hurt by sliding stocks and oil prices. That is leading to a perception that there is a lack of demand and that has implications for global growth,” said Jeremy Stretch, head of currency strategy at CIBC World Markets. The FTSEuroFirst 300 index of leading shares, along with France’s CAC40 and Germany’s DAXI, were all down 0.8%. Britain’s oil and gas heavy FTSE index lost 1.3%. Japan’s Nikkei dropped 3%, its largest fall in almost 10 months while South Korean shares fell 1.7% to a 1-1/2-year low. Even high-flying mainland Chinese shares pulled back after hitting 5-1/2-year highs earlier in the session.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.4%. The slide in oil prices has shown little sign of abating in the new year, plunging as much as 6% on Monday as investors continue to reprice for broadly lower global demand and the impact of heavy U.S. shale drilling. Brent crude fell by another 1.5% to less than $53 after data showed Russian oil output at post-Soviet era highs and Iraqi oil exports near 35-year peaks. “Falls in oil prices are going beyond many people’s expectations. This will put pressure on the earnings of U.S. energy firms,” said Hirokazu Kabeya, senior strategist at Daiwa Securities in Tokyo.

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“.. the pickup in interest in far out-of-the money calls is noteworthy for what it says about market psychology.”

Some Traders Are Betting On $20 Oil (MarketWatch)

Here’s how bearish some traders are getting on oil these days. Even before Nymex WTI crude futures on Monday dipped below $50 a barrel in the latest stage of the crude rout, Stephen Schork, editor of the widely followed Schork Report, took note of trading in well out-of-the-money put options (puts give you the right, but not the obligation, to sell the underlying futures contract at a specific strike price). Unsurprisingly, open interest (the number of open contracts) in $50 strike-price puts on the February WTI futures contract had risen to 22,537 as of Friday’s close from 193 contracts at the beginning of December. Open interest on $45 puts rose from 8 to 36,113, while open interest in $40 puts rose from 1 to 9,864.

Here’s where it gets interesting: Open interest on $30 puts on the March futures contract rose to 2,127 from 34, while $30 puts on the June contract rose from 35 to 51,252. In addition, there has even been some light trading in June $20 puts, with open interest at 176 as of Friday’s close. “In other words, bets on sub-$30 crude oil in June are now 1.7 times greater than physical inventory at the Nymex terminal complex in Cushing,” Schork said in a note, referring to the Oklahoma delivery point for WTI oil. Of course, a trader can make money on a put even if the price of the underlying contract doesn’t fall below the strike price. The value of the option can rise as the price of the commodity declines. But the pickup in interest in far out-of-the money calls is noteworthy for what it says about market psychology.

Is it a sign that market sentiment has moved to an extreme, setting the stage for a rebound? The economics of the oil market are effectively “broken” and that’s left “psychology” to drive price action, Schork said. Even though the market is oversold according to technical measures, that’s been the case for the past three months, he said. “We could get a rebound to $70, but we could see $30 before we see $70, so why do you risk $20 to win $20,” he said. “So no picking the bottom here.”

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All suppliers hurt. A lot.

Caterpillar Is Latest Victim Of Sliding Oil Price (MarketWatch)

Caterpillar shares tumbled Monday as the company became the latest victim of the sliding price of oil. Caterpillar’s stock umbled almost 6% after J.P. Morgan downgraded it to underweight from neutral on concerns about the company’s direct exposure to oil and gas, and indirect exposure to mining, U.S. construction and emerging markets. The maker of diggers and dozers’ direct exposure to the sector is equal to about $6.5 billion, or 12% of revenue, while its indirect exposure may be as much as 15% of revenues, analysts wrote in a note. That means almost 30% of its total revenue is facing pressure in 2015 and 2016.

Caterpillar supplies turbines to offshore rigs, as well as reciprocating engines and transmissions for on-site drilling. It also provides construction equipment that is used in infrastructure development, along with aftermarket and other services. “Its indirect exposure may be greater than anticipated,” said the note. “Our analysis suggests that since 2010 U.S. construction equipment demand has been strongly correlated with the expansion of fracking and, as a result, we would expect to see a slowdown in equipment demand in 2015.” The North American construction market accounts for about 17% of Caterpillar’s revenue, and about 5% of its total revenue may be tied to oil and gas states.

Caterpillar also has exposure to Canadian Oil Sands, which is likely to experience a significant slowdown in demand. Emerging markets and the Middle East are other key markets that are expected to be hurt by the falling oil price. “Finally, the stronger dollar may also weigh on [Caterpillar’s] competitiveness against its international competitors and, given that senior executive compensation is based partly on market share, we would expect pricing to come under increasing pressure as we go forward,” said the note. Shares of the Dow Jones Industrial Average component have fallen 5.6% in the last three months, while the Dow has gained 2.9%.

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This is how Reuters reports the Saudi move, scroll down to see how Bloomberg does it.

Saudi Slashes Monthly Oil Prices To Europe; Trims US., Ups Asia (Reuters)

Saudi Arabia made deep cuts to its monthly oil prices for European buyers on Monday, a move some analysts said reflects the kingdom’s deepening defense of market share, although it also hiked prices in Asia from record lows. State oil firm Saudi Aramco cut the official selling price (OSP) for its Arab Light crude to Northwest Europe, a region that buys only a small proportion of Saudi Arabia’s crude, by $1.50 a barrel for February, putting it at a discount of $4.65 a barrel to the Brent Weighted Average (BWAVE), the lowest since 2009. However, Aramco also raised its February price for its Arab Light grade for customers for Asia – the largest of its major markets, accounting for more than half of its exported crude – by 60 cents a barrel versus January to a discount of $1.40 a barrel to the Oman/Dubai average.

The $2 discount to Asia in January was the largest in records going back more than a decade, but traders had been expecting Aramco to hike prices by at least 20 to 30 cents due to the narrowing spread in the Dubai market. The Arab Light OSP to the United States, the fifth consecutive monthly cut, was set at a premium of 30 cents a barrel to the Argus Sour Crude Index (ASCI) for February, down 60 cents from the previous month. The Kingdom’s move to cut its OSPs has been perceived by many traders as a signal of its decision to abandon efforts to shore up falling crude oil prices and, instead, focus on maintaining its share of key markets.

“The moves are reinforcing that the Saudis just don’t intend to do anything to rebalance (price) levels,” said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut. Benchmark Brent oil prices held on to earlier deep losses following the publication of the Saudi OSPs on Monday, trading at around $53.50 a barrel, down $3 on the day. Some analysts, however, have said they see the changes in monthly differentials as a simple reflection of deteriorating market conditions, not an indicator of policy. One trader said that the cuts to Europe may be a result of trying to price out West African barrels from Europe.

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Bloomberg intentionally cherrypicks ithe headline, but does state in the article: “It decreased 11 prices globally and increased six ..” Journalism? You tell me.

Saudi Arabia Raises Price of Main Oil Grade for Asian Buyers (Bloomberg)

Saudi Arabia raised the cost of its oil sales to Asia in February, prompting speculation the world’s biggest exporter is retreating from using record price discounts to defend market share. Saudi Arabian Oil will sell its Arab Light grade for $1.40 a barrel less than a regional average next month, the company said yesterday in a statement. That’s a narrowing from January, when the discount was $2, the biggest in at least 14 years. It decreased 11 prices globally and increased six. Brent oil fell 5.9% yesterday.

Oil prices collapsed 32% since OPEC decided to maintain its output target on Nov. 27, amid signs Saudi Arabia and other members are determined to let North American shale drillers and other producers share the burden of reducing an oversupply. When Aramco lowered prices for November it prompted speculation the nation was seeking to preserve market share. “They’re putting the brakes on a little bit,” Leo Drollas, a London-based independent consultant and former chief economist at the Centre for Global Energy Studies, said by phone. “It’s a little message that maybe prices are going down too far too quickly, and this is a little signal that they’re looking at things.”

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Not doing so well.

Oil Below $55 May Force Norway to Cut Rates Again (Bloomberg)

As oil drops below $55 a barrel, speculation is growing that the central bank of western Europe’s biggest crude producer will need to cut rates again. A 54% slump in Brent crude since a June high has pummeled the offshore industry in Norway, where oil and gas make up 22% of gross domestic product. Over the same period the krone has lost about 20% against the dollar and 8% against the euro. The OBX benchmark stock index is down about 12%. The central bank delivered a surprise rate cut last month it said was triggered by plunging crude prices. Since then the oil price development has proven even worse than the central bank anticipated. In an interview yesterday, Governor Oeystein Olsen said $55 oil is “clearly lower” than expected in December.

At Norway’s biggest bank, DNB, economists say Olsen will need to reduce rates again in June from 1.25%. “The weaker krone buys Norges Bank some time before they make another cut,” Kjersti Haugland, an analyst at DNB, said by phone. After lowering rates for the first time in almost three years on Dec. 11, Olsen said he sees a “50-50 chance” of more easing this year. Nordea Bank, Scandinavia’s biggest bank, says that means another two reductions, bringing the benchmark deposit rate to 0.75%. The central bank, which also oversees Norway’s $850 billion sovereign wealth fund, plans to provide more detail on how oil prices will shape its policy in March, Olsen said. Brent crude will need to trade above $70 a barrel before pressure on monetary policy abates, Olsen said in a Dec. 12 interview. Since then, the price of oil has dropped 14% to its lowest level in more than five years.

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Slaughterhouse.

Oilfield Writedowns Loom as Market Collapse Guts Drilling Values (Bloomberg)

Tumbling crude prices will trigger a flood of oilfield writedowns starting this month after industry returns slumped to a 16-year low, calling into question half a decade of exploration. With crude prices down more than 50% from their 2014 peak, fields as far-flung as Kazakhstan and Australia are no longer worth pumping, said a team of Citigroup analysts led by Alastair Syme. Companies on the hook for risky, high-cost projects that don’t make sense in a $50-a-barrel market include international titans such as Royal Dutch Shell and small wildcatters like Sanchez Energy. The impending writedowns represent the latest blow to an industry rocked by a combination of faltering demand growth and booming supplies from North American shale fields.

The downturn threatens to wipe out more than $1.6 trillion in earnings for producing companies and nations this year. Oil explorers already are canceling drilling plans and laying off crews to conserve cash needed to cover dividend checks to investors and pay back debts. “The mid-cap and small-cap operators are going to be hardest hit because this is all driven by their cost to produce,” said Gianna Bern, founder of Brookshire Advisory, who also teaches international finance at the University of Notre Dame. An index of 43 U.S. oil and gas companies lost about one-fourth of its value since crude began its descent from last year’s intraday high of $107.73 a barrel on June 20. The price dipped below $50 on Jan. 5, the lowest since April 2009.

The decline represents a $4.4 billion drop in daily revenue for oil producers, which equates to $1.6 trillion on an annualized basis, Citigroup researchers led by Edward Morse said in a Jan. 4 note to clients. The oil-market rout is exposing projects dating as far back as 2009 that were either poorly executed or bad ideas to begin with, Syme’s team said in a note to clients. Shell, Europe’s largest energy producer, may have as much as 5% of its capital tied up in money-losing projects. For U.K.-based BG Group, the figure could be as high as 8%, according to the Citi analysts. The biggest swath of asset writedowns probably will happen among U.S. explorers such as Sanchez, Matador and Clayton Williams that don’t have the same financial discipline as bigger producers such as Marathon Oil, Bern said.

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Very true, Ambrose: “Mr Draghi can hardly agree to buy Greek bonds three days before the likely election of a party that has vowed to repudiate that same debt.”

Greece vs Europe: Who Will Blink First? (AEP)

There is a whiff of 1914 to the latest Balkan showdown. Everybody thinks everybody else is bluffing, all of them betting that a calamitous chain reaction will be averted. In Germany, Der Spiegel reports that Angela Merkel thinks Greece can be ejected safely from the euro, if the rebel Syriza party wins the elections on January 25 and carries out its pledge to tear up Greece’s hated “memorandum” with the EU-IMF “Troika”. The German Chancellor’s team are blanketing the airwaves in what looks like a campaign to drive the threat home. “We are past the days when we still have to rescue Greece,” said Michael Fuchs, the parliamentary leader of Mrs Merkel’s Christian Democrats. “The situation has completely changed. It is entirely different from three years ago when we didn’t have the backstop defences in place. Greece is no longer ‘systemically relevant’ for the euro.” He added wickedly that the single currency might actually be stronger without the Balkan troublemaker.

It was revealed last week that Germany offered Greece a “friendly” return to the drachma in 2011. Months later, Mrs Merkel was prepared to eject Greece from EMU altogether. Tim Geithner, the former US Treasury Secretary, said the Europeans seemed determined to teach Greece a lesson: “They lied to us, and we’re going to crush them,” was the gist of it. Mrs Merkel retreated only after it became clear that Spain and Italy would be engulfed by contagion if Greece was thrown out. This time, Berlin seems almost eager to finish the job. Yet Syriza’s ice-cool leader, Alexis Tsipras, is equally convinced that the EU elites will back down, knowing that they have invested too much political capital in Greece’s salvation to walk away. After all, the sums involved now are tiny compared to the €245 billion in loans already dispersed since the crisis erupted in May 2010. Surely, after having claimed so confidently that the crisis was essentially over, Mrs Merkel can hardly admit that her strategy has failed?

Syriza itself is a neo-Marxist mélange, an ideological work in progress. Mr Tsipras no longer has a picture of Che Guevara in his office and has quickly mastered the Brussels vernacular – so much so that EU leaders and City economists presume, rightly or wrongly, that his rhetoric is just for domestic consumption. Yet the ultra-Left Aristeri Platforma still holds the biggest bloc of votes on Syriza’s central committee, and has stated that the movement must “be ready to implement its progressive programme outside the eurozone” if the EU refuses to yield. Mr Tsipras clearly wants Greece to remain in the euro. But he continues to insist on terms that negate that. He says: “We will cancel austerity. Under a Syriza government Greece will exit the bailout. This is not negotiable.” Twisting his knife into the German psyche, he wants the same level of debt relief – 50% – that Germany secured in 1953, which Greece signed up to despite the death of some 300,000 of its citizens under Nazi occupation.

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“.. if markets have already priced in QE, why would actually doing QE make any difference?”

The Black Hole Theory Of The Eurozone (Coppola)

Jean Pisani-Ferry tells the ECB to get a grip:

On the face of it, the ECB has many reasons to launch QE. For two years, inflation has consistently failed to reach the 2% target. In November, the annual price growth was just 0.3%, while the recent collapse in oil prices will generate further downward pressure in the coming months. Even more important, inflation expectations have started to de-anchor: forecasters and investors expect the undershooting of the target to persist over the medium term. Low inflation is already a serious obstacle to economic recovery and rebalancing within the eurozone. Outright deflation would be an even more dangerous threat.

So far, so good. Deflation risk is a legitimate reason for a central bank to loosen monetary policy. The ECB has already pushed funding rates close to zero and deposit rates into negative territory, as well as throwing money at banks and buying ABS and MBS in an attempt to get banks to lend. All this appears to have done is slow the rate at which M3 lending is falling (in a credit-money economy, I regard M3 lending as the best indicator of future NGDP growth). It’s hard to argue that the ECB has done anything like enough to counter deflationary pressures and restore growth. But I’m really not sure about this. He seems to think that the ECB must do QE because it has already been priced in by markets:

Should the ECB disappoint expectations, bond and foreign-exchange markets would confront an abrupt and damaging unwinding of positions: long-term interest rates would rise, stock markets would sink, and the exchange rate would appreciate.

A failure to deliver what markets expect is a central bank failure, is it? Really? More importantly, if markets have already priced in QE, why would actually doing QE make any difference? The price effects are already there, and yet M3 lending is falling, unemployment remains stubbornly high, manufacturing PMI is on the floor and so are inflation expectations. I can accept Pisani-Ferry’s argument that the ECB must now do QE because otherwise things will get much worse, but I can’t see how it is going to reverse the current deflationary trend unless it is far larger than the programme the market has already priced in. “Shock and awe” is needed. Where is the political will for this?

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“Any country exiting the euro would throw the common currency’s continued existence into doubt.”

As Goes Greece, So Goes the Euro (Bloomberg ed.)

German Chancellor Angela Merkel is said to view Greece’s exiting the euro as a manageable risk that would pose no existential crisis for the common currency. That opinion, if she indeed holds it, is misguided at best and dangerous at worst. It’s true that Greece poses a less naked financial risk to the rest of the euro region than it did in 2009, when revelations about the true size of its deficit triggered the ongoing crisis. Today, only about a fifth of Greek government debts are owed to the private sector, thanks to the country’s bailout by the European Union, the European Central Bank and the International Monetary Fund. And borrowing by Greek private companies accounts for less than 1% of loans made by Europe’s biggest banks, according to JPMorgan.

So it’s true that, if Greek elections later this month produce a new government prepared to default on its debts rather than continue with austerity, the financial repercussions will be limited. That says little, however, about the chaos that could accompany the country’s departure from the euro. Contagion is never predictable. Once inclusion in the euro is shown to be ephemeral – despite the EU treaty’s insistence that membership is “irrevocable” – then other of the currency’s weaker members will be vulnerable to speculation about their staying power. Investors may be driven to short the bonds of Italy, Portugal or Spain – no matter how strong the economic or political arguments against their leaving the currency union – driving their borrowing costs to levels they can’t afford.

To be sure, Der Spiegel’s report about Merkel’s intentions might not accurately reflect Germany’s attitude to a Greek exit. Joachim Poss, a German coalition lawmaker, said today that the consequences would be “incalculable.” And German government spokesman Steffen Seibert noted the region’s policy is “to stabilize and strengthen the euro area, the euro area with all of its members, including Greece.” Nevertheless, the mere discussion of a potential fracture in the euro zone should be a warning to European leaders that their path to ever-closer union is anything but assured. The euro has slumped to its weakest value against the dollar since 2006. Although there are other factors involved, it is a reminder that investors aren’t keen on putting their money into a currency with an uncertain future. Make no mistake: No matter how much some politicians might claim that they’ve contained a potential Greek crisis, they have not. Any country exiting the euro would throw the common currency’s continued existence into doubt.

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“.. even if Draghi does unveil what the market is anticipating, the question is, will further easing measures be the solution to Europe’s economic malaise?

A New Year, A New Europe? Don’t Count On It (CNBC)

A new year is upon us and that means investors will take a fresh look at European stocks. Unfortunately, Europe’s gloomy picture hasn’t changed. Not enough growth. Inflation is too low. And unemployment is still too high in parts of Europe. Enter stage right: Mario Draghi. Arguably the most powerful European official, investors are betting on the European Central Bank President to unveil a full-blown program of quantitative easing to stimulate the region’s stagnant economy. “Will the ECB join in the fun? If yes – then that should bring stability to the Eurozone and help investors feel better – if not then watch out as global markets [to] adjust,” said Kenneth Polcari, Director at O’Neil Securities. The decision on full blown QE could come at the next governing council meeting on January 22th.

If the ECB does not join the party, then markets could be set for a steep decline. Already financial markets have been moving on the expectation that Draghi will deliver the goods. But if this is a classic –overpromise and underdeliver – something Draghi is quite good at, then traders say expect markets to react negatively. But even if Draghi does unveil what the market is anticipating, the question is, will further easing measures be the solution to Europe’s economic malaise? Sure, it worked in the U.S. but does that mean it will work in Europe? Some traders say no. An economic recovery takes more than just quantitative easing. Each individual economy needs to work on structural reform – policies to help revive their own respective countries. And while each country says it’s working on a plan – some analysts say more work can be done.

Less reliance on ECB and more action from individual country leaders is needed, they say. Despite what is most likely going to be a slow and drawn-out path to recovery, there are some investors who are bullish on Europe. In fact, Morgan Stanley writes that it is positive on European equities for 2015. Analysts there expect a pick-up in economic momentum, and 10% earnings per share (EPS) growth. One of the factors that should help earnings this year is a weaker euro. The single currency is currently trading at a multi-year low against the US dollar. “A key component in our 10% EPS forecast is the likely currency tailwinds that European companies will enjoy next year. Our foreign exchang strategists expect EUR/USD to reach 1.12 by the end of 2015,” writes Graham Secker, Morgan Stanley’s Chief European Equity Strategist.

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All big banks should be broken up.

Goldman Says JPMorgan Should Break Itself Into Pieces (Bloomberg)

JPMorgan Chase’s parts are probably worth more to investors than the whole after regulators proposed tougher rules penalizing firms for size and complexity, according to Goldman Sachs. JPMorgan could unlock value by splitting its four main businesses or dividing into consumer and institutional companies, Goldman Sachs analysts led by Richard Ramsden wrote today in a research note. Units of New York-based JPMorgan trade at a discount of 20% or more to stand-alone peers, they wrote. “Our analysis suggests that a breakup into two or four parts could unlock value in most scenarios, although the range of outcomes we assessed is wide, at 5% to 25% potential upside,” the analysts wrote. The move would reverse much of Chief Executive Officer Jamie Dimon’s work since taking over JPMorgan in 2006.

Under Dimon, 58, the firm grew to become the largest U.S. lender by assets and the world’s biggest investment bank after acquiring ailing firms during the 2008 financial crisis. Dimon has said the firm’s size creates opportunities to cross-sell products and better serve clients. “Each of our four major businesses operates at good economies of scale and gets significant additional advantages from the other businesses,” Dimon wrote in a letter to shareholders last year. “This is one of the key reasons we have maintained good financial performance.” The logic of a breakup would rely on the consumer business, commercial bank, investment bank and asset management unit being valued closer to so-called pure-play financial companies, the Goldman Sachs analysts wrote.

The parts probably could operate with lower capital levels as stand-alone firms, resulting in higher returns on equity, they wrote. The maneuver would risk some of the $6 billion profit JPMorgan says it makes tied to synergies between businesses, though a split into halves would preserve much of those benefits, the analysts wrote. The Federal Reserve laid out a plan last month that may require JPMorgan to add more than $20 billion to its capital by 2019. The rules could get even stricter, prompting banks to consider new business models, the Goldman Sachs analysts wrote. “JPMorgan – and other money centers – would strongly consider strategic alternatives, providing shareholders with a breakup ‘put option’ if capital requirements get tougher,” they wrote.

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It’s going to need the shadow banking system to make this work, the very same it’s trying to curb.

China Fast-Tracks $1 Trillion in Projects to Spur Growth (Bloomberg)

China is accelerating 300 infrastructure projects valued at 7 trillion yuan ($1.1 trillion) this year as policy makers seek to shore up growth that’s in danger of slipping below 7%. Premier Li Keqiang’s government approved the projects as part of a broader 400-venture, 10 trillion yuan plan to run from late 2014 through 2016, said people familiar with the matter who asked not to be identified as the decision wasn’t public. The National Development and Reform Commission, which will oversee the projects, didn’t respond to a faxed request for comment. The move illustrates concern among officials that China’s planned shift to a domestic-consumption driven economy has yet to produce enough growth momentum.

The yuan rose, halting a two-day decline, and Australia’s dollar – a proxy for China – climbed after the news. “It’s part of China’s efforts to stabilize growth, and the news will help to boost market confidence,” said Julia Wang, a Hong Kong-based economist with HSBC. “Infrastructure investment will continue to be a major driver for China’s economic growth.” The approvals contrast with past moves to boost growth via infrastructure in which the government gave the green-light to projects individually. They are part of efforts to respond to weak output, according to the people. The projects will be funded by the central and local governments, state-owned firms, loans and the private sector, said the people.

The investment will be in seven industries including oil and gas pipelines, health, clean energy, transportation and mining, according to the people. They said the NDRC is also studying projects in other industries in case the government needs to provide more support for growth. The NDRC’s spokesman, Li Pumin, said last month China would encourage investment in those areas. The Economic Observer newspaper reported Dec. 26 on its website that an official from the NDRC’s Zhejiang provincial bureau said the government had approved more than 420 infrastructure projects needing investment of more than 10 trillion yuan.

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China will step in.

Venezuelan Leader Maduro Seeks Economic Help On Tour (BBC)

Venezuelan President Nicolas Maduro is beginning an international tour to try to stem the impact of falling oil prices and a deepening recession. Mr Maduro goes first to China – a major source of loans for Venezuela – for talks with the Chinese President, Xi Jinping. He will then travel to various Opec member countries to press for cuts in oil output that would boost prices. Venezuelan oil prices have dropped by half since June. The country gets most of its foreign currency from oil exports and is estimated to have the largest oil reserves in the world. Before he left Venezuela Mr Maduro announced a number of new mechanisms aimed at addressing the country’s economic crisis.

He said he would create a strategic reserve, appoint a new board to run the organisation that manages currency exchange controls, and create new agencies to manage the distribution of commodities. President Maduro has said his country is suffering the consequences of an economic war launched by US President Barack Obama “to destroy” the oil producers’ cartel, OPEC. He has also accused the US of flooding the markets with oil as part of an economic war against Russia. The Venezuelan opposition blames the country’s economic crisis and shortages of many staples, such as corn oil and milk, on the socialist policies of Mr Maduro and his late predecessor, Hugo Chavez.

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“Across the U.K., real weekly earnings – adjusted for inflation – dropped by 10.3% on average between 2008 and 2014 ..”

The Demise of UK’s Lucky Years Pits Winners Against Losers (Bloomberg)

Out shopping one winter weekday morning in the southern English town of Eastleigh, 58-year-old Steve Fryer has reason to smile. Hired at 16 by J Sainsbury Plc, he stayed with the retailer for four decades, ascending from the shop floor to management. With a pension that generates more than his final salary at retirement two years ago, he’s paid off his mortgage, owns a second home in a nearby coastal resort and is helping the last of three daughters on to the property ladder. Asked if he could secure the same prosperity starting out today, Fryer shakes his head. “I got through by hard work, but I was also working in the lucky years,” he says. “I don’t see a light at the end of the tunnel for the younger ones.” It’s an indictment heard across the U.K. four months from a general election that threatens to redraw the British political landscape.

As Prime Minister David Cameron campaigns for a second term on the U.K.’s economic recovery, his chances of re-election are undermined by a sense that things aren’t getting better for many voters after more than 4 1/2 years of austerity under the Conservative-led coalition. Take John Harcourt. At 21, he’s hunting for work in Eastleigh to lift him off welfare benefits before he goes to university later this year. He’s chosen to study motor-vehicle engineering, in part to avoid what he says is a lackluster labor market and to secure the skills he thinks he’ll need if he’s to find long-term employment. “It’s very difficult as there’s just not much turnover in jobs,” he says. “I’m happy to do anything. I’d do administration, retail, flip burgers.” You don’t have to walk far in Eastleigh, a town of about 125,000, to run into the two faces of the modern-day British economy.

Those at the end of their work life with a pension and property are coping with the tepid recovery from the 2008-2009 recession, while those starting out struggle to be hired, then face low wage growth once they have a job. Across the U.K., real weekly earnings – adjusted for inflation – dropped by 10.3% on average between 2008 and 2014, according to the Office for National Statistics. The opposition Labour Party says that equates to the biggest drop in real incomes since the time of Queen Victoria and the advent of industrialization more than a century ago. [..] Four years since Cameron declared “we’re all in this together,” the economic divide is not simply geographical but increasingly defines the country. While the government boasts of the fastest economic growth of any major developed nation, an Ipsos MORI poll in November found that eight in 10 Britons say they’ve felt little, if any, impact on their standard of living. [..]

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I’ve always thought that if a community’s center evolves around shopping, it has negative value.

The Economics (and Nostalgia) of Dead US Shopping Malls (NY Times)

Inside the gleaming mall here on the Sunday before Christmas, just one thing was missing: shoppers. The upbeat music of “Jingle Bell Rock” bounced off the tiles, and the smell of teriyaki chicken drifted from the food court, but only a handful of stores were open at the sprawling enclosed shopping center. A few visitors walked down the long hallways and peered through locked metal gates into vacant spaces once home to retailers like H&M, Wet Seal and Kay Jewelers. “It’s depressing,” Jill Kalata, 46, said as she tried on a few of the last sneakers for sale at the Athlete’s Foot, scheduled to close in a few weeks. “This place used to be packed. And Christmas, the lines were out the door. Now I’m surprised anything is still open.” The Owings Mills Mall is poised to join a growing number of what real estate professionals, architects, urban planners and Internet enthusiasts term “dead malls.”

Since 2010, more than two dozen enclosed shopping malls have been closed, and an additional 60 are on the brink, according to Green Street Advisors, which tracks the mall industry. Almost one-fifth of the nation’s enclosed malls have vacancy rates considered troubling by real estate experts — 10% or greater. Over 3% of malls are considered to be dying — with 40% vacancies or higher. That is up from less than 1% in 2006. Premature obituaries for the shopping mall have been appearing since the late 1990s, but the reality today is more nuanced, reflecting broader trends remaking the American economy. With income inequality continuing to widen, high-end malls are thriving, even as stolid retail chains like Sears, Kmart and J. C. Penney falter, taking the middle- and working-class malls they anchored with them.

“It is very much a haves and have-nots situation,” said D. J. Busch, a senior analyst at Green Street. Affluent Americans “will keep going to Short Hills Mall in New Jersey or other properties aimed at the top 5 or 10% of consumers. But there’s been very little income growth in the belly of the economy.” At Owings Mills, J. C. Penney and Macy’s are hanging on, but other midtier emporiums like Sears, Lord & Taylor, and the regional department store chain Boscov’s have all come and gone as anchors. Having opened in 1986 with a renovation in 1998, Owings Mills is young for a dying mall. And while its locale may have contributed to its demise, other forces played a crucial role, too, like changing shopping habits and demographics, experts say. “I have no doubt some malls will survive, but major segments of our society have gotten sick of them,” said Mark Hinshaw, a Seattle architect, urban planner and author.

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“Stock buybacks boost share prices, of course, but they don’t represent any real increased value in a given company. They’re just snakes eating their own tails.”

Forecast 2015 – Life in the Breakdown Lane (Jim Kunstler)

As 2014 closed out, that kit-bag of frauds, swindles, Ponzis, grifts, bait-and-switches, and three-card-monte scams is looking at least as wobbly as it did in 2007 when Wall Street was busy manufacturing booby-trapped MBSs and CDOs. Except we know the true aggregate risk at stake has only grown larger and more hazardous due to all the strenuous efforts by authorities since the panic of 2008 to evade any natural process for clearing mal-investment and debt gone bad. A lot of that stank was simply shoveled into the Federal Reserve’s basement, where it sits to this day, composting steamily. As to be expected (and averred to in my previous books and blogs) financial repression, market intervention, and statistical distortion will produce ever more financial perversity.

That is the hazard in decoupling truth from reality. Imposed dishonesty will always express itself in unexpected ways. Who expected the price of oil to fall by nearly half in a few months? These days, perversity expresses itself in a morbidly obese dollar gorging on junk while bulimic currencies elsewhere projectile-vomit their value away as the economies attached to them die of malnutrition. Perhaps this comes as a surprise to central bankers standing at their control panels like recording engineers at the soundboard, tweaking all the dials and slides expecting to achieve a perfect repressive inflation rate of 2%+ so they can melt away the onerous debt of sovereign balance sheets and Too Big To Fail banks — incidentally squeezing the citizenry of purchasing power in small annual increments that add up, after a while, to worthless money.

They did manage to extend the inflation of stock market indexes another year, which the public is supposed to interpret as “prosperity.” Half a trillion dollars in stock buybacks of S&P companies were executed in 2014, much of it done with money, i.e. “leverage,” borrowed at zero interest. Stock buybacks boost share prices, of course, but they don’t represent any real increased value in a given company. They’re just snakes eating their own tails.

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“3. The United States is still quite powerful and can cause massive damage on its way down.”

2015: Grounds for Optimism (Dmitry Orlov)

To my mind, the really interesting development of 2014 is that the world as a whole (with a few minor exceptions) has become quite lucid on the topic of what the United States, as a global empire, is and stands for. It is now very commonly and completely understood that: 1. The United States is an evil empire, attempting not so much to rule the world as to disrupt it to its short-term advantage, 2. The United States is failing, as an empire and as a country, and no amount of fraud, mayhem, torture and murder is going to save it, 3. The United States is still quite powerful and can cause massive damage on its way down. This damage must be contained, while plans are drawn up for an international arrangement that will arise upon its demise.

Looking back on 2013 and before, such sentiments were already being expressed, but on the fringes and quietly. The difference is that in 2014 they became commonplace knowledge, and their expressions thundered from presidential podiums. What’s more, there just isn’t that much of a counterargument being voiced. I don’t hear a single voice out there arguing that the US is a benevolent force that is on the up-and-up, would never hurt a fly and is the permanent center of the universe. Yes, some people can still think that, but it’s hard to see value in such “thought.” There are still a few holdouts: the UK, Canada and Australia especially. But even there the true picture is being distorted because of their Murdockified national media.

Judging from what I hear from the people there, they are almost uniformly nauseated by the subservient pro-US antics of their national leaders. As for the EU, the image of political uniformity presented by Brussels is largely a fiction. In the core countries of Western Europe, business leaders are almost uniformly in favor of close cooperation with Russia and against sanctions. Along the fringe, entire countries appear to be on the verge of switching sides. Hungary—never a friend of Russia—now seems more pro-Russian than ever. Bulgaria, which has had a love/hate attitude toward Russia for centuries now, seems to be edging back closer to love. Even the Poles are scratching their heads and wondering if close cooperation with the US is in their national interest.

Another major shift I have observed is that a significant percentage of the thinking people in the US no longer trusts their national media. There is a certain pattern to the kinds of messages that can go viral and spread wildly via tweets and social media. Fringe messages must, by definition, stay on the fringe. And yet last year something snapped: a few times I ran a story in an attempt to plug a gaping hole in the US mass media’s coverage of events in the Ukraine, and the response was overwhelming, with hundreds of thousands of new readers showing up. What’s more, a lot of them have kept coming back for more. I take this to mean that what I have to say, while by no means mainstream, is no longer on the fringe, and that bloggers have an increasingly important role in helping plug the giant holes in national media coverage.

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We’ll keep going till there’s nothing left.

The People Pushed Out Of Ethiopia’s Fertile Farmland (BBC)

The construction of a huge dam in Ethiopia and the introduction of large-scale agricultural businesses has been controversial – finding out what local people think can be hard, but with the help of a bottle of rum nothing is impossible. After waiting several weeks for letters of permission from various Ethiopian ministries, I begin my road trip into the country’s southern lowlands. I want to investigate the government’s controversial plan to take over vast swathes of ancestral land, home to around 100,000 indigenous pastoralists, and turn it into a major centre for commercial agriculture, where foreign agribusinesses and government plantations would raise cash crops such as sugar and palm oil. After driving 800km (497 miles) over two days through Ethiopia’s lush highlands I begin my descent into the lower Omo valley.

Here, where palaeontologists have discovered some of the oldest human remains on earth, some ancient ways of life cling on. Some tourists can be found here seeking a glimpse of an Africa that lives in their imagination. But the government’s plan to “modernise” this so-called “backward” area has made it inaccessible for journalists. As my jeep bounces down into the valley, I watch as people decorated in white body paint and clad in elaborate jewellery made from feathers and cow horn herd their cows down the dusty track. I arrive late in the afternoon at a village I won’t name, hoping to speak to some Mursi people – a group of around 7,000 famous for wearing huge ornamental clay lip plates. The Mursi way of life is in jeopardy. They are being resettled to make way for a major sugar plantation on their ancestral land – so ending their tradition of cattle herding.

Meanwhile, a massive new dam upstream will reduce the Omo River, ending its seasonal flood – and the food crops they grow on its banks. It is without doubt one of the most sensitive stories in Ethiopia and one the government is keen to suppress. Human rights groups have repeatedly criticised schemes like this, alleging that locals are being abused and coerced into compliance. I’d spoken to local senior officials in the provincial capital of Jinka, before travelling into the remote savannah. The suspicion is palpable as the chief of the south Omo zone lectures me. Local people and the area’s reputation have been greatly harmed by the negative reports by foreigners, he says. Eventually a frank exchange takes place and I secure verbal permission to report on the changes taking place in the valley.

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How crazy would you like it?

Does CNN Really Have A Video Ready For The Apocalypse? (BBC)

If the end of the world arrives, chances are you aren’t going to be watching CNN. But just in case you are, the cable news network has a video ready for the Big Sign-off. That’s according to blogger Michael Ballaban who posted the purported footage online. The clip isn’t much, really – just low-res footage of a US Army band playing a mournful rendition of Nearer My God to Thee, which takes a little over a minute. Then fade, presumably, to the rapture, apocalypse, giant comet impact or whatever coup de grace fate has in store for our little blue marble. Writing on the Jalopnik blog, Ballaban says he first heard about the video from a college professor who worked at CNN. He was then able to confirm its existence when he was an intern at the network in 2009. The video, he reports, is available on CNN’s MIRA archiving system under the name “TURNER DOOMSDAY VIDEO” – the lingering legacy, it seems, of now-departed CNN founder Ted Turner.

Of course, it’s existence shouldn’t be a total shock. Mr Turner has said that the same tune that serenaded the doomed passengers of the sinking Titanic would usher the world’s population into the great hereafter. Still, Ballaban writes, he was a bit sceptical. “It sounded mostly like a mythic joke, the kind of thing that Ted Turner, the all-around ‘eccentric billionaire’ archetype, would mention offhand. Bison ranches, the America’s Cup, four girlfriends at once, the last word on the last day on earth – why not?” he writes. Just in case there is any confusion, the video clip is marked, in bright red letters, with an HFR – “hold for release” – warning: “HFR till end of the world confirmed.” “CNN, once ever so thorough in its fact-checking, knew that the last employee alive couldn’t be trusted to make a call as consequential as one from the Book of Revelation,” Ballaban writes. “The end of the world must be confirmed.”

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