Aug 222019
 
 August 22, 2019  Posted by at 9:07 am Finance Tagged with: , , , , , , , , , , , , , ,  6 Responses »


Marc Chagall Blue lovers 1914

 

Trump’s Idiotic, Immoral Rhetorical Attack On Denmark (WE)
WHO Claims Microplastics In Water Not Harmful To Humans (G.)
Negative-Yielding Debt Poses Major Risk To Investors (CNBC)
The Dog Whistle Heard Around The World (RIA)
China’s Economy Slows To 4.6% In June (ZH)
White House Preps GOP Elite For “Mild Recession” Before Election Day (ZH)
Johnson Accepts Merkel Challenge To Replace Irish Backstop In 30 Days (Ind.)
France Dampens Brexit Deal Hopes As Johnson Visits (BBC)
UK Health Leaders Issue New No-Deal Brexit Warning (BBC)
Greece Says It Won’t Aid Iranian Tanker (K.)
MIT Professor Quits In Protest Over Lab Links To Epstein (AFP)

 

 

A prime example of idiotic writing, this one from the Washington Examiner. And these people do not understand that this is why Trump won. Half the nation is addicted to its daily dose of Trump is stupid, and so the ‘media’ provide that. Article after article after article. Been doing it for three years straight now.

Trump’s Idiotic, Immoral Rhetorical Attack On Denmark (WE)

Denmark’s frustration is understandable, and Trump’s disrespect to Denmark is both idiotic and immoral. Idiotic, because Denmark is a committed and capable ally. The Danish military is well-trained and supported by increasingly advanced capabilities. Danish maneuver infantry, air strike, cyber, and anti-ship forces are especially impressive. They attest to a nation that intends to fight alongside keystone NATO forces if Russia ever attacks the alliance. The same cannot be said of many other European powers, including Belgium, Germany, and perhaps soon, Italy. But Trump’s words will only spark Danish public anger and empower left-wing politicians who want to weaken our alliance.


The stakes here are potentially great. What, for example, if Denmark now chucks the U.S. military out of Greenland? That would greatly reduce our ability to detect and defend against Chinese and Russian nuclear attacks. Trump’s words are also immoral. Unlike many U.S. allies, Denmark has fought alongside us in both Afghanistan and Iraq. Seven Danes gave their lives in Iraq. In Afghanistan, 43 Danes died, and hundreds more were wounded. There, Denmark chose to operate in the restive Helmand Province, taking the fight to the enemy. We should thank Danes for giving their sons’ and daughters’ lives for our common cause.

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And this is equally idiotic. Let’s have more plastics! If ever science need to stick to the precautionary principle, this must be it.

WHO Claims Microplastics In Water Not Harmful To Humans (G.)

Microplastics are increasingly found in drinking water, but there is no evidence so far that this poses a risk to humans, according to a new assessment by the World Health Organization. However, the United Nations body warned against complacency because more research is needed to fully understand how plastic spreads into the environment and works its way through human bodies. There is no universally agreed definition of microplastics but they are generally considered to be smaller than half a millimetre across. Plastic production has grown exponentially in recent decades and is predicted to double again by 2025, said the report, which means more beads and threads are breaking down into minute particles and winding up in water supplies, pipes, cups, throats and bellies.

Studies suggest bottled drinking water even contains minuscule elements of the polymers used in the container and cap. This has prompted concerns that humans might be contaminated by the chemicals used in plastics or the pathogens that ride on the particles. More alarming still are suggestions that vital systems could be overwhelmed by the alien matter, conjuring up images of seabirds, fish and other wild animals with their innards choked with plastic waste. These fears are not grounded in science, according to the WHO report, which summarises peer-reviewed research on the subject.

Counterintuitively, the report said larger microplastics (those bigger than 150 micrometres – about the diameter of a hair) are of least concern because they pass straight through the human body. Smaller particles could potentially pass through the walls of digestive tracts and get stuck, but researchers believe they are unlikely to accumulate in harmful quantities. Not enough is known about the tiniest nanoplastics (those less than 1 micrometre) to be sure of their impact. “Based on the limited evidence available, chemicals and microbial pathogens associated with microplastics in drinking water pose a low concern for human health. Although there is insufficient information to draw firm conclusions on the toxicity of nanoparticles, no reliable information suggests it is a concern,” the conclusion stated.

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Investors in the casino?!

Negative-Yielding Debt Poses Major Risk To Investors (CNBC)

Government bonds aren’t the only instruments producing negative yields these days, with corporate debt recently passing the $1 trillion mark in a continuing sign of global financial displacement. Investors these days are facing huge amounts of fixed income instruments that carry no yield. Various estimates of sovereign debt in that category put the total in excess of $15 trillion, a number that has been escalating over the past several years while central banks drive interest rates to zero and below. Negative-yielding corporate debt, though, is a relatively new thing, rising from just $20 billion in January to pass the $1 trillion mark recently, according to Jim Bianco, founder of Bianco Research.

The trend poses a potentially dangerous threat, especially if market winds shift and bond holders looking for price gains rather than yield get stuck holding too much risk. “The interest rate risk that these bonds carry is huge,” Bianco said in a recent interview. “The financial system doesn’t work with negative rates. If the economy recovers, the losses that investors would take are unlike anything they’ve ever seen.” Negative yields have been confined to places outside the U.S., though some Federal Reserve officials have toyed with the idea at least in a hypothetical sense. Former Fed Chairman Alan Greenspan recently jolted some investors when he said there was nothing actually standing in the way of negative U.S. rates.

Most of the negative-yielding corporate debt is in Switzerland, while some also is in Japan, Bianco said. Investors don’t actually pay to borrow money, but the negative yield is symbolic of how much above par investors are willing to pay for these bonds. That’s because those who buy negative-yielding bonds are essentially making a bet that rates will stay low and prices will rise, which is the traditional relationship when it comes to fixed income. Should rates start to rise even a little, that will start to eat into the capital appreciation that bond holders have been enjoying. For instance, Bianco said, if yields on Swiss bonds go up just 2 percentage points, it would amount to a 50% loss for holders. While some individual investors might be able to absorb such losses, they would be catastrophic for institutions.

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Perception trumps facts. Stating the obvious.

The Dog Whistle Heard Around The World (RIA)

On August 15, 2019 the Washington Post led with a story entitled Markets sink on recession signal. The recession signal the Post refers to is the U.S. Treasury yield curve which had just inverted for the first time in over ten years. We have been highlighting the flattening yield curve for the past six months. As we have discussed, every time the ten-year Treasury yield has fallen below the two-year Treasury yield, thus inverting the yield curve, a recession has eventually developed.


Blaming the yield curve for market losses because it inverted by a couple of basis points is a nonsensical narrative for talking heads on business television. This article is about a different concern, a second-order effect caused by headlines like the one shown below. The story in the Post and similar ones in many major publications have awoken the public to the real possibility that a recession may be coming. It is a dog whistle that may cause the public to alter their behavior, and even slight changes in consumption habits can produce outsized effects on economic activity.

The 2s/10s yield curve stood at 265 basis points on January 1, 2014, meaning the ten-year yield was 2.65% higher than the two-year yield. From that date forward, as shown below, it has steadily declined. Like the changing of the seasons, as the days passed, that spread steadily fell. Unlike the seasons, investors are somehow now suddenly shocked to learn that economic winter follows fall. Since the beginning of 2019, the curve has been as steep as 25 basis points but has flirted with inversion on numerous occasions.

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“..reflects a strategic decision by China to rebalance the economy…?”

China’s Economy Slows To 4.6% In June (ZH)

According to Fathom Consulting, a global independent macro research consultancy, its proprietary China Momentum Indicator 2.0 has slowed to 4.6% in June, the lowest reading since Aug. 2016. There is also a growing gap between the China Momentum Indicator 2.0 at 4.6% and official GDP data at 6.2%. Might suggest China’s economy hasn’t yet bottomed, could continue to decline through 2H19 into 1H20. Gary Cohn, the former chief economic advisor to Donald Trump, has said the slowdown predates the trade war and reflects a strategic decision by China to rebalance the economy. Fathom notes that China’s economy was even slowing before the rebalancing.


The global macro research firm said, “with the consumer share of total import demand on a downward trend since 2016, we also find little evidence to suggest that China is successfully rebalancing.” To combat dangerous crosscurrents of the trade war disrupting global supply chains in and out of China, Chinese policymakers resorted to the same playbook as before, pump the economy with record amounts of the stimulus earlier in the year. Currency depreciation came into the picture when President Trump escalated the trade war by raising tariffs to 25% from 10% on $200 billion of Chinese goods in May. Then a massive devaluation of the renminbi followed in early August, when the president slapped 10% tariffs on $300 billion worth of Chinese goods, effective Sept. 1.

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Not just the elite.

White House Preps GOP Elite For “Mild Recession” Before Election Day (ZH)

President Trump’s polls show that the issue that voters most trust him on is the economy. But on Wednesday, Politico reported that Trump and his team have been quietly prepping donors, other key Republican power brokers and members of the GOP elite for a mild downturn between now and the election, something that economists believe to be increasingly likely. According to Politico, Trump and his aides are aware that his biggest selling point heading into 2020 is the economy. But now that he’s gotten drawn in to this trade war with Beijing, Trump needs to find a way to prepare people for a mild or moderate recession as a matter of course, to ensure that his reputation as a businessman and as a populist who puts the economy first isn’t tarnished.

But without control of the House, the administration is examining its limited options to shore up the economy or assuage voters’ concerns if a recession arrives soon than economists expect. President Trump’s attacks on the Fed have worked so far, but whether the central bank delivers the 2-3 more cuts that markets are pricing in remains to be seen. And those reports about a payroll tax cut and shaving another few points off the corporate rate represent serious policy considerations. Trump famously said he’s been behind payroll tax cuts “for a long time.”

Then, there’s the trade war. The administration is also urging the Federal Reserve to cut interest rates sharply, a move Trump has long sought in his public attacks on the central bank, and it is pursuing a trade deal with China amid various tariffs that some businesses say are posing substantial economic risks. “The only thing they have in their control is China and putting out regulatory rules,” said one former senior administration official. “Beyond that, there is very little that they can do – but that does not mean people are not brainstorming options.”

[..] Trump spent Tuesday stridently defending his administration’s trade standoff with China, which many economic experts and Republicans pinpoint as the main driver of any U.S. economic troubles. “You should be happy that I’m fighting this battle, because somebody has to do it. We couldn’t let this go. I don’t even think it’s sustainable to let go on what was happening,” Trump told reporters as he detailed the way China steals U.S. intellectual property and argued none of his presidential predecessors were willing to confront China as he has. “My life would be a lot easier if I didn’t take China on. But I like doing it because I have to do it. And we’re getting great help. China’s had the worst year they’ve had in 27 years, and a lot of people saying the worst year they’ve had in 54 years,” he added.

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A headline similar to that in many UK papers today. Except it’s largely nonsense; there’s no such challenge. Merkel said it could take two years or 30 days, but until there is a solid plan she will not let go of the backstop. Maybe she shouldn’t have said 30 Days at all, but it’s mostly moot.

Johnson Accepts Merkel Challenge To Replace Irish Backstop In 30 Days (Ind.)

Boris Johnson has pledged to come up with a plan to replace the Irish backstop within 30 days, after Angela Merkel warned that time was running out to prevent a no-deal Brexit. The prime minister agreed that the “onus” was on his government to set out a solution, telling a joint press conference with the German chancellor: “You have set a very blistering timetable of 30 days – if I understood you correctly, I am more than happy with that.” Ms Merkel said her side was “prepared” for a no deal but struck a conciliatory tone during the trip, which is Mr Johnson’s first to a foreign country as prime minister. He will travel to Paris on Thursday for similar talks with Emmanuel Macron, the French president.

The prime minister claimed there were “abundant solutions” to the border problem in Ireland and that they had only not come to the fore because the British government had not pushed them hard enough in talks. He reiterated that the backstop needed to be removed from the withdrawal agreement and “plainly has to go”, and rejected even accepting a time-limited version of the policy. Ms Merkel, along with all other EU leaders, has said the withdrawal agreement cannot be reopened and that any solution has to be found in the future relationship. “The backstop has always been a fall-back option until this issue is solved and one knows how one wants to do that,” Ms Merkel said.

“It was said we will probably find a solution in two years. But we could also find one in the next 30 days, why not?” British and EU officials tried in vain to find alternative solutions to the withdrawal agreement backstop, but have so far drawn a blank. Technological solutions mooted by some Brexiteers are not thought to currently exist.

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“It was said we will probably find a solution in two years,” she said. “But we could also find one in the next 30 days, why not?”

France Dampens Brexit Deal Hopes As Johnson Visits (BBC)

Boris Johnson is to meet Emmanuel Macron later, hours after the French president seemed to downplay hopes of solving the Irish backstop problem. On Wednesday, German Chancellor Angela Merkel suggested a solution to the backstop – a key Brexit sticking point – might be achievable within 30 days. The PM said he was “more than happy” with that “blistering timetable”. But later on Wednesday, Mr Macron insisted reopening negotiations on the issue was “not an option”. Mr Johnson has said that the backstop – which aims to prevent a hard Irish border after Brexit – must be ditched if a no-deal exit from the EU is to be avoided. The EU has repeatedly said the withdrawal deal negotiated by former PM Theresa May, which includes the backstop, cannot be renegotiated.


But at a news conference in Berlin with Mr Johnson on Wednesday, Mrs Merkel indicated that an alternative might be possible, stressing that the onus was on the UK to find a workable plan. “It was said we will probably find a solution in two years,” she said. “But we could also find one in the next 30 days, why not?” A Downing Street spokesman described the meeting of the two leaders as “constructive”. However, hours later, Mr Macron appeared to downplay the prospects of a breakthrough, telling reporters in Paris: “Renegotiation of the terms currently proposed by the British is not an option that exists, and that has always been made clear by [EU] President Tusk.”

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“More than two-thirds of the UK’s pharmaceutical imports come from the EU.”

UK Health Leaders Issue New No-Deal Brexit Warning (BBC)

Health leaders have written to Boris Johnson issuing new warnings on the impact of a no-deal Brexit. In a letter to the prime minister, the heads of 17 royal colleges and health charities across the UK say clinicians are “unable to reassure patients” their health and care will not be affected. They go on to say they have “significant concerns about shortages of medical supplies”. Government said it was working with the health sector on “robust preparations”. The letter, co-ordinated by the Royal College of Physicians, is signed by the heads of organisations including the British Dental Association, the Royal Pharmaceutical Society, Kidney Care UK and the Royal College of Emergency Medicine.

It calls for the Health and Social Care Secretary Matt Hancock to be put on the EU exit strategy committee chaired by Michael Gove, who is in charge of no-deal planning. The signatories argue that – given the scale of the NHS – without sufficient planning, even the smallest of problems could have “huge consequences on the lives of millions of people”. And they say: “The public rightly expects candour from us, and we are simply unable to reassure patients that their health and care won’t be negatively impacted by the UK’s exit from the EU.” There are also, despite ongoing conversations with the Department of Health and Social Care, “significant concerns about shortages of medical supplies”, the letter adds.

“Delays at the border could exacerbate current supply issues and create the very real possibility that life-saving medication is delayed from making it across the Channel.” There have been concerns there will be tailbacks of lorries at Dover and Calais with longer customs checks, if there is a no-deal Brexit. The government has said it is drawing up contingency plans to create more ferry capacity for medicines and other vital supplies on other routes. More than two-thirds of the UK’s pharmaceutical imports come from the EU.

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Like Gibraltar, Greece must stick to EU rules, not US ones. But yes, in Gibraltar it took a judge to point that out, politics was silent.

Greece Says It Won’t Aid Iranian Tanker (K.)

As an Iranian oil tanker which Washington wants seized heads toward Greece, officials Wednesday indicated that Athens would not help the ship reach Syria while seeking to play down the prospects of such a development. In comments to ANT1 TV Wednesday, Alternate Foreign Minister Miltiadis Varvitsiotis said Greece has “sent out a clear message, that there is no way we want to facilitate the transfer of oil to Syria.” “We don’t want to facilitate the course of that ship toward Syria,” he said. He added that the vessel, the Adrian Darya 1, was too big to dock at any Greek port. If it were to enter Greek territorial waters, Greek authorities would respond accordingly, he said, without elaborating. “There is no way that Greece wants to affect its relationship with the US, with which it has a close cooperation,” he added.


Varvitsiotis said the US had been in contact with authorities in Athens, pressing them not to aid the vessel. He added that the Iranian government had not sent any request for the vessel to dock in Greece, noting that the port of Kalamata has been mentioned only in shipping tracking data. Late on Tuesday, Secretary of State Mike Pompeo said the US will take every action it can to prevent the tanker from delivering oil to Syria in contravention of US sanctions. “We have made clear that anyone who touches it, anyone who supports it, anyone who allows a ship to dock is at risk of receiving sanctions from the United States,” Pompeo said. He added that if the tanker’s oil was sold, the revenue would be used by elite units of Iran’s Revolutionary Guards, which the US has designated a terrorist organization.

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Pecunia non olet.

MIT Professor Quits In Protest Over Lab Links To Epstein (AFP)

The head of a research center at the Massachusetts Institute of Technology has said he will quit in protest after the revelation of financial ties between the institution and disgraced hedge fund manager Jeffrey Epstein. Ethan Zuckerman, director of the Center for Civic Media at the MIT Media Lab, said he would leave at the end of the 2019-2020 academic year after finding out that lab director Joi Ito took money from Epstein, who committed suicide in prison on August 10 as he awaited trial on sex trafficking charges. “My logic was simple: the work my group does focuses on social justice and on the inclusion of marginalized individuals and points of view,” Zuckerman wrote in a message posted on the Medium forum Tuesday and added to Wednesday.


“It’s hard to do that work with a straight face in a place that violated its own values so clearly in working with Epstein and in disguising that relationship.” Zuckerman said he had apologized to the three recipients of the Media Lab’s 2018 “Disobedience Prize” who were recognized for their fight against sexual harassment in the science world. “For me, the deep involvement of Epstein in the life of the Media Lab is something that makes my work impossible to carry forward there,” Zuckerman said.

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The Amazon is burning.

 

 

 

 

 

Aug 182019
 


Pablo Picasso Dora Maar 1937

 

A Global Recession May Be Coming A Lot Sooner Than Anyone Thought (Henrich)
Why Negative Rates Will Devastate The World (ZH)
US National Debt Spiked $363 billion in 2 Weeks, $1 Trillion in 12 Months (WS)
UK Parliament Cannot Stop Brexit, Johnson To Tell Macron And Merkel (R.)
Leaked Docs : UK Faces Food, Fuel And Drugs Shortages In No-Deal Brexit (R.)
Jeremy Corbyn Has Called the Extreme Centrists’ Bluff (Jacobin)
The Gall of Ghislaine Maxwell
Hong Kongers Brave Rain To Join Anti-Government Rally (R.)
Kiwi Publishers Face Censorship Demands From Chinese Printers (Stuff)
Denmark Offers to Buy U.S. (Borowitz)
World’s Nations Gather To Tackle Wildlife Extinction Crisis (O.)

 

 

I think it’s not so much the US inverted yield curve that hints at a global recession, but the fact that many countries have such curves.

A Global Recession May Be Coming A Lot Sooner Than Anyone Thought (Henrich)

On Tuesday, equity markets across the globe jumped at the news that the Trump administration would delay some of the new tariffs on China it had announced earlier this month. But just one day later, global stock markets sold off hard due to ever-weakening economic data in Europe and Asia and further yield curve inversions. Call it a major hangover. The reversal in tariffs did not come from a position of strength. It came as a result of global economic reality sinking in and crushing US markets. Turns out trade wars are not easy to win and the global growth picture is not looking good. Last week, the UK announced negative GDP growth for the past quarter.

This week, it’s Germany announcing shrinking GDP with its 10-year bond hitting a record negative 0.62% yield. Then there’s Europe seeing negative industrial production, and China announcing its lowest industrial production growth in 17 years. The collapse in global bond yields has been a theme since October of last year, with 10-year US Treasury bonds dropping to 1.6% from their October 2018 high of 3.23%. Now that the two-year/10-year Treasury yield curve has inverted, the recession alarm bells are ringing. Why? Because every single recession in the past 45 years has seen a yield curve inversion preceding it.

History suggests that on average a recession begins 22 months after a yield curve inversion. It’s not until about 18 months after an inversion that the stock market turns negative. Yet Bank of America Merril Lynch numbers indicate that we have less time. For the 10 yield curve inversions since 1956, the S&P 500 peaked within approximately three months of the inversion six times. Following the other four, the S&P 500 took 11 to 22 months to peak. Twenty-two months of growth vs. three months? That’s quite a big gap. Both of these historical studies suggest there is room for markets to make new highs in the next few months. In fact, one can imagine several scenarios on how these new highs could come about.

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Deflation. Aka “a “Japanification” of every major bond market…”

Why Negative Rates Will Devastate The World (ZH)

It has been a thesis over 20 years in the making, but with every passing day, SocGen’s Albert Edwards – who first coined the term “Ice Age” to describe the state of the world in which every debt issue ends up with a negative yield as capital markets and economies collapse into a deflationary singularity – is that much closer to having the victory lap of a lifetime. Although, we doubt he is happy about it. Commenting on the interest rate collapse he has been (correctly) predicting ever since he first observed Japan’s great bubble bust of the 1980s and which resulted in both NIRP and QE, and which he (correctly) expected would spread across the rest of the world, leading to a “Japanification” of every major bond market…

… Edwards said that what bond markets are telling us is “that the cycle is ending with the central banks having failed to drive core CPI inflation higher. So Japanese-style outright deflation lies ahead at a time when western economies have piled debt sky high.” Needless to say that’s not good, not least of all because we now live in a world in which the bond universe with negative yields continued to grow at an exponential pace, rising rapidly over the past two weeks and reaching a record $16.4 trillion…

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Really? Your pension fund?

US National Debt Spiked $363 billion in 2 Weeks, $1 Trillion in 12 Months (WS)

The US Gross National Debt has jumped by $363 billion in the two weeks since President Trump signed the law that suspended the debt ceiling. This surge pushed the total debt to $22.39 trillion. That’s up by $1.01 trillion from 12 months ago. And these are the good times. Watch this debt balloon during an economic downturn! Whoopee! Note the technical term at the top right of the chart:

The question, “Who the heck is buying all this debt” – because every dime has to be bought by some entity – is becoming increasingly nerve-wracking, particularly as the trade war with China puts the possibility out there that Chinese entities might dump their US Treasury securities, much like Russia has already done. But Russia was only a small-ish holder. China is – or rather was – the largest one. So we got some answers on Thursday when the Treasury Department disclosed in its TIC data how much of this debt was held, bought, and dumped by foreign investors through June. Foreign investors bought hand-over-fist. But not the Chinese!


All foreign investors combined – so “foreign official” holders, such as central banks, and foreign private-sector investors such as banks and Mexican billionaires – held $6.64 trillion in US Treasury bonds and bills, having raised their holdings in the month of June by $97 billion, and over the 12-month period by $411 billion, all of it driven by frantic buying over the past seven months. In dollar terms, this $6.64 trillion held by foreign investors is a record (blue line). In terms of the percentage share (red line) of total debt, it’s a far cry from the record maintained from July 2012 through May 2015, when it maxed out at 34.1% of total Treasury debt. The share dropped to 28.5% at the end of last year. Under the recent surge in buying, it has ticked up to 30.1%:

The chart below shows [the] three big groups of holders of US Treasury securities through June: US government-administered funds, such as the Social Security Trust Fund and US government pension funds (gray), US individuals and entities other than the government (red), and foreign holders (blue):

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They’re not going to take his word for it.

UK Parliament Cannot Stop Brexit, Johnson To Tell Macron And Merkel (R.)

Prime Minister Boris Johnson will tell French President Emmanuel Macron and German Chancellor Angela Merkel that the Westminster parliament cannot stop Brexit and a new deal must be agreed if Britain is to avoid leaving the EU without one. In his first trip abroad as leader, Johnson is due to meet his European counterparts ahead of a G7 summit on Aug. 24-26 in Biarritz, France. He will say that Britain is leaving the European Union on Oct. 31, with or without a deal, and that the British parliament cannot block that, according to a Downing Street source. The United Kingdom is heading towards a constitutional crisis at home and a showdown with the EU as Johnson has repeatedly vowed to leave the bloc on Oct. 31 without a deal unless it agrees to renegotiate the Brexit divorce.


After more than three years of Brexit dominating EU affairs, the bloc has repeatedly refused to reopen the Withdrawal Agreement which includes an Irish border insurance policy that Johnson’s predecessor, Theresa May, agreed in November. The prime minister is coming under pressure from politicians across the political spectrum to prevent a disorderly departure, with opposition leader Jeremy Corbyn vowing to bring down Johnson’s government in early September to delay Brexit. It is, however, unclear if lawmakers have the unity or power to use the British parliament to prevent a no-deal Brexit on Oct. 31 – likely to be the United Kingdom’s most significant move since World War Two.

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Apparently older docs, things have improved since. But only to the extent that it’s not “up to 85% of trucks using the main channel crossings “may not be ready“, now it’s ‘just’ 50-60%.

Leaked Docs : UK Faces Food, Fuel And Drugs Shortages In No-Deal Brexit (R.)

Britain will face shortages of fuel, food and medicine if it leaves the European Union without a transition deal, jamming ports and requiring a hard border in Ireland, official government documents leaked to the Sunday Times show. The Times said the forecasts compiled by the Cabinet Office set out the most likely aftershocks of a no-deal Brexit rather than the worst case scenarios. They said up to 85% of trucks using the main channel crossings “may not be ready” for French customs, meaning disruption at ports would potentially last up to three months before the flow of traffic improves. The government also believes a hard border between the British province of Northern Ireland and the Republic will be likely as current plans to avoid widespread checks will prove unsustainable, the Times said.


“Compiled this month by the Cabinet Office under the codename Operation Yellowhammer, the dossier offers a rare glimpse into the covert planning being carried out by the government to avert a catastrophic collapse in the nation’s infrastructure,” the Times reported. “The file, marked “official-sensitive” — requiring security clearance on a “need to know” basis — is remarkable because it gives the most comprehensive assessment of the UK’s readiness for a no-deal Brexit.” The United Kingdom is heading towards a constitutional crisis at home and a showdown with the EU as Prime Minister Boris Johnson has repeatedly vowed to leave the bloc on Oct. 31 without a deal unless it agrees to renegotiate the Brexit divorce.

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“Healing bitter division is one of two great preoccupations haunting politics in the United Kingdom since the 2016 Brexit referendum — the second is hating Jeremy Corbyn. ”

Jeremy Corbyn Has Called the Extreme Centrists’ Bluff (Jacobin)

Healing bitter division is one of two great preoccupations haunting politics in the United Kingdom since the 2016 Brexit referendum — the second is hating Jeremy Corbyn. On Wednesday, the Labour leader wrote a letter to the other main opposition parties proposing an alliance to block a No Deal Brexit, a prospect that has now become uncomfortably plausible with Boris Johnson as prime minister. Under the proposal, Corbyn would call a vote of no confidence in Johnson’s government; once the motion is carried he would step in to become a caretaker prime minister for a brief term. Corbyn’s powers would be limited; he couldn’t introduce new legislation. The sole purpose of his tenure as prime minister would be to negotiate a postponement of the Brexit deadline and call a general election.

Labour would then campaign for a new EU referendum with a Remain option on the ballot. The suggestion is calm, serious, and thoughtful. Most importantly, it includes a promise of a campaign for that second vote that so many centrists have loudly rallied for; the election everyone on the Left has longed for; and as mentioned, it severely limits Corbyn’s powers, but importantly, also blocks No Deal. It should bring everyone on board. Sensible parties were furtively positive: Plaid Cymru (the Welsh nationalist party) and the Scottish National Party said they were interested in discussing the idea when they appeared on the BBC Radio 4 Today programme.

But with this proposal, Corbyn has called the bluff of the extreme centrists and the obsessive Remainers. Since his scheme involves an election in which Labour would campaign for a second referendum, with Remain on the ballot, attacking Corbyn now means attacking the very ideas they claim to be fighting for. Sure enough, the Liberal Democrats shot the proposal down immediately, stating they would never countenance backing Jeremy Corbyn as prime minister, even if it meant stopping a No Deal Brexit ..

[..] the hideous truth is now revealed, confirming what many on the Left have long been saying about the Liberal Democrats, the Independent Group, and a huge number of highly vocal centrist ultras on social media: for all their yelling that stopping Brexit is their sole concern, as long as stopping Brexit means Corbyn in a position of power — however minor and effectively powerless — they would prefer economic obliteration. Given the choice between Corbyn spending a few weeks merely acting out a pre-agreed script, on the one hand, and medicine and food shortages, a tanked pound, an economy in ruins, and widespread social panic, many centrists would choose the latter. Their hatred for Corbyn really does expand to fill so much of their mind as to incapacitate them.

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Interesting thing here is not the article, but the wider setting of the photo. C’mon Bill Barr, have her picked up. Your credibility melts away while you sleep.

The Gall of Ghislaine Maxwell

On Thursday afternoon, the New York Post published a picture that, the newspaper reported, was taken at an In-N-Out Burger in the San Fernando Valley, on Monday, and sent in by an anonymous source in Los Angeles. The photo showed Ghislaine Maxwell sipping a shake and munching on fries and a burger while sitting alone at one of the restaurant’s outdoor tables. [..] the central figure of the Epstein affair in the past week has been Maxwell. The youngest of Robert Maxwell’s nine children, and reportedly his favorite, Ghislaine attended Marlborough, a boarding school in England, and Oxford. Her father sent her to New York as his emissary, in 1991, to foster the Daily News, which he had recently purchased.

After his ignominious death, she was left with a mere hundred thousand dollars per year to live on. She began to sell real estate, and soon started dating Epstein, who was well connected. A multitude of pictures from the past three decades in which the socialite is seen beaming, cheek to jowl, wearing gaudy Upper East Side-lady finery, with a variety of bold-faced names at various galas, give the impression that she would have attended the opening of an envelope as long as it was gold-embossed. But, in 2016, not long after Giuffre’s defamation suit, Maxwell abruptly disappeared from public view. On Wednesday, the Daily Mail reported that she was residing in a mansion outside Boston, in Manchester-by-the-Sea. But before the surprise of that revelation had abated, the picture from Los Angeles delivered a new jolt.

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8.18

Hong Kongers Brave Rain To Join Anti-Government Rally (R.)

Thousands of protesters, most clad in black, gathered under a downpour for an anti-government rally at a Hong Kong park on Sunday, in the eleventh week of what have been often violent demonstrations in the Asian financial hub. The turnout for the rally could show whether the movement still has broad-based support after the ugly scenes witnessed during the past week when protesters occupied the city’s airport, for which some activists apologized. Anger over a now-suspended bill that would allow criminal suspects in Hong Kong to be extradited to mainland China erupted in June, but the rising unrest is fueled by broader worries about the erosion of freedoms guaranteed under the “one country, two systems” formula put in place after Hong Kong’s return from British to Chinese rule in 1997.


“Hong Kongers are tired of protesting, this is really the last thing they want. It’s bloody hot and it’s raining. It’s a torture just to turn up, frankly,” said a 24-year-old student named Jonathan. “But we have to be here because we have no other choice. We have to continue until the government finally shows us the respect that we deserve,” he said. Seated on concrete soccer fields in the sprawling Victoria Park in the city’s bustling Causeway Bay district, protesters held placards with slogans including “Free Hong Kong!” and “Democracy now!”, and umbrellas to shield them from the heavy rain.


Victoria Park almost completely filled up as of 2pm, the official starting time of the rally.

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Print your own books.

Kiwi Publishers Face Censorship Demands From Chinese Printers (Stuff)

It seems innocent enough: a map of the US on the inside cover of a young adult novel. The kind that teenagers would use to trace a fictional character’s journey. But a China-based printer told Kiwi publisher One Tree House that there would be a one-month production delay while the map was vetted by Chinese authorities. In order to get Brian Falkland’s Cassie Clark: Outlaw published in time to ship an Australian order, One Tree House had to get the book printed in Auckland at double the cost. It’s one example of several Stuff uncovered of publishers running into hold-ups as Chinese printers get maps checked over to ensure they adhere to Beijing policy – whether they’re textbooks or works of fiction.


Printing books in China is cheaper than in other countries, with quality and service also said to be first-rate. But Chinese printing companies are subject to censorship laws, with books combed for references that might be politically sensitive to Beijing, such as Taiwan and Tibet. One Tree House co-director Jenny Nagle, who’s also the NZ Society of Authors chief executive, said the policy meant her business had to take a cost hit when Cassie Clark: Outlaw was printed late last year. “I was surprised because it’s such an innocuous thing. It’s a simplified map showing a fictional character’s journey across America,” said Nagle. Mary Varnham, editor-in-chief at publisher Awa Press, also met with a one-month production delay during a 2018 re-print of the travel book Antarctica Cruising Guide.


Young adult novel Cassie Clark: Outlaw contains a map of the US that a Chinese printer took exception to.

Again, the offending item was a map. “The book has a map of Antarctica which doesn’t mention China at all, but it still had to go through this vetting process,” Varnham said. “I’m assuming they’re checking references to Taiwan and things, but obviously they want to check all maps.” She said it was “much more expensive” to print books in Australia or New Zealand, but the quality was also much better in China. “It’s obvious that you just wouldn’t send a book to China if it’s highly critical of China in some way, because they would definitely, I imagine, refuse to print it. So there’s a kind of self-censorship there.”

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Not bad. But Trump made his offer mostly in jest, and only when he heard Denmark had trouble meeting its obligations (whether that’s true I don’t know). Also, US congress tried to buy Greenland in 1867, and Harry Truman tried again in 1946.

Denmark Offers to Buy U.S. (Borowitz)

After rebuffing Donald J. Trump’s hypothetical proposal to purchase Greenland, the government of Denmark has announced that it would be interested in buying the United States instead. “As we have stated, Greenland is not for sale,” a spokesperson for the Danish government said on Friday. “We have noted, however, that during the Trump regime pretty much everything in the United States, including its government, has most definitely been for sale.” “Denmark would be interested in purchasing the United States in its entirety, with the exception of its government,” the spokesperson added.


A key provision of the purchase offer, the spokesperson said, would be the relocation of Donald Trump to another country “to be determined,” with Russia and North Korea cited as possible destinations. If Denmark’s bid for the United States is accepted, the Scandinavian nation has ambitious plans for its new acquisition. “We believe that, by giving the U.S. an educational system and national health care, it could be transformed from a vast land mass into a great nation,” the spokesperson said.

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Guaranteed failure. The same world’s nations want economic growth.

World’s Nations Gather To Tackle Wildlife Extinction Crisis (O.)

From giraffes to sharks, the world’s endangered species could gain better protection at an international wildlife conference. The triennial summit of Convention on International Trade in Endangered Species (Cites), that began on Saturday, will tackle disputes over the conservation of great beasts such as elephants and rhinos, as well as cracking down on the exploitation of unheralded but vital species such as sea cucumbers, which clean ocean floors. Extraordinary creatures being driven to extinction by the exotic pet trade, from glass frogs to star tortoises, may win extra protection from the 183-country conference. It may even see an extinct animal, the woolly mammoth, get safeguards, on the grounds that illegal elephant ivory is sometimes laundered by being labelled as antique mammoth tusks.


The glass frog is among the species being driven to extinction by the exotic pet trade. Photograph: Alamy.

Ivonne Higuero, the secretary general of Cites, said: “Cites is a powerful tool for ensuring sustainability and responding to the rapid loss of biodiversity – often called the sixth mass extinction – by preventing and reversing declines in wildlife populations.” The destruction of nature has reduced wildlife populations by 60% since 1970 and plant extinctions are running at a “frightening” rate, according to scientists. In May, the world’s leading researchers warned that humanity was in jeopardy from the accelerating decline of the planet’s natural life-support systems, which provide the food, clean air and water on which society ultimately depends.

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Carol Steele “Dancing On Ice – Dalmatian Pelican” 2019. Location: Lake Kerkini, Northern Greece

 

 

 

 

 

Feb 022015
 
 February 2, 2015  Posted by at 10:24 am Finance Tagged with: , , , , , , , , , ,  6 Responses »


DPC Fifth Avenue after a snow storm 1905

EU’s Juncker Wants To Scrap Troika’s Mission To Greece (Reuters)
Croatia Just Canceled The Debts Of Its Poorest Citizens (WaPo)
Greece’s Problems Result From Eurozone Having No Fiscal Policy (Guardian)
Greece Asks ECB to Keep Banks Afloat as Debt Deal Sought (Bloomberg)
Greece Wants Special ECB Help While Going ‘Cold Turkey’ on Aid (Bloomberg)
My Friend Yanis, The Greek Minister Of Finance (Steve Keen)
Obama Expresses Sympathy for New Greek Government (WSJ)
France Open to Easing Greek Debt Burden (Bloomberg)
Eurozone Alarm Grows Over Greek Bailout Brinkmanship (FT)
Syriza’s Cleaners Show Why Economics Needs A New Broom (Guardian)
Americans Are Failing To Pump Gas-Price Savings Back Into The Economy (WSJ)
Oil Workers in US on First Large-Scale Strike Since 1980 (Bloomberg)
Falling Prices Spread Pain Far Across The Oil Patch (WSJ)
Oil Companies Draw on Creative Financing to Stay Afloat (Bloomberg)
BP To Follow Shell In Cutting Spending (Guardian)
China’s Feeling the Pressure to Join Global Easing (Bloomberg)
ECB Bond-Buying Plan Has Investors Questioning How It All Works (Bloomberg)
Automakers Can’t Make Air Bags Work (Bloomberg)
Currency War Claims Another Casualty: Denmark (Bloomberg)
Is Reserve Bank of Australia The Next Central Bank To Ease? (CNBC)
US Companies Face Billions In Venezuela Currency Losses (Reuters)
Fleeing Capital Clips Wings On US Yields (CNBC)
Obama Targets Foreign Profits With Tax Proposal (Reuters)

Note that one down for Syriza. It’s the IMF that has the most detrimental impact, getting them out is a very good development.

EU’s Juncker Wants To Scrap Troika’s Mission To Greece (Reuters)

European Commission President Jean-Claude Juncker wants to scrap the troika mission from international lenders that governs Greece’s €320 billion bailout, German daily Handelsblatt reported, quoting unnamed Commission sources. “We have to find an alternative quickly,” it quoted the sources as saying, in an extract from an article released ahead of publication on Monday. Berlin was also prepared to reform arrangements between the European Commission, ECB and IMF and Athens, seen by its new government as ‘insulting’ to Greek sovereignty, and establish more general economic targets, the paper quoted unnamed German government sources as saying.

However, this would only be possible if Greece accepted the need to stick to previously agreed reform and savings targets, the business newspaper said. The new left-wing government of Greek Prime Minister Alexis Tsipras has said it wants to end the bailout deal and will not cooperate with troika inspectors in Athens. It says it wants to negotiate directly with European authorities and the IMF over a new accord that will allow a reduction in its debt, which is equivalent to more than 175% of its gross domestic product. Juncker, who is due to meet Tsipras in Brussels on Wednesday, has said he was not prepared to accept any direct write-off of Greece’s public debt.

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More countriess should consider this. Restructuring, jubilee, call it what you want, it as old as society.

Croatia Just Canceled The Debts Of Its Poorest Citizens (WaPo)

Starting Monday, thousands of Croatia’s poorest citizens will benefit from an unusual gift: They will have their debts wiped out. Named “fresh start,” the government scheme aims to help some of the 317,000 Croatians whose bank accounts have been blocked due to their debts. Given that Croatia is a relatively small Mediterranean country of only 4.4 million inhabitants, the number of indebted citizens is significant and has become a major economic burden for the country. After six years of recession, growth predictions for Croatia’s economy remain low for this year. “We assess that this measure will be applicable to some 60,000 citizens,” Deputy Prime Minister Milanka Opacic was quoted as saying by Reuters. “Thus they will be given a chance for a new start without a burden of debt,” Opacic said earlier this month.

To be eligible, Croats need to fulfill certain criteria: Their debt must be lower than 35,000 kuna ($5,100), and their monthly income should not be higher than 1,250 kuna ($138). Those applying for the scheme are not allowed to own any property or have any savings. Among economists, the scheme is regarded as unprecedented and exceptional. “I can’t think of anything comparable,” Dean Baker at Center for Economic and Policy Research said. Although the program is expected to cost between 210 million and 2.1 billion Croatian kuna ($31 million and $300 million), according to conflicting reports by Austrian press agency APA and Reuters, the Croatian government expects economic long-term benefits that will outweigh the short-term investment.

Prime Minister Zoran Milanovic has convinced multiple cities, public and private companies, the country’s major telecommunications providers, as well as nine banks to clear some of their citizens of their debt. The government will not refund the companies for their losses. Overall, the debt of all Croats amounts to $4.11 billion – and the debt that is about to be wiped out accounts for about 1 to 7% of that. However, for those who are eligible the agreement will make a significant difference by enabling them to gain access to their bank accounts. By reducing debt by less than 10%, Croatia frees nearly 20% of the country’s debtors from their obligations.

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“Isn’t it the case that using Greece as a laboratory mouse for an austerity experiment has been a failure?”

Greece’s Problems Result From Eurozone Having No Fiscal Policy (Guardian)

Greece and Germany are on a collision course. Alexis Tsipras’s new Syriza-led government in Athens wants a big chunk of its debt written off. Angela Merkel is saying “nein” to that. If this were a western, Tsipras and Merkel would be the two gunslingers who have decided in time-honoured fashion that “this town ain’t big enough for the both of us”. But this isn’t Hollywood. There is no guarantee that this shootout will have a happy ending. Things look like getting nasty and messy. The five-year crisis in the eurozone has entered a dangerous new phase. How can this be? Isn’t Greece a small country, which accounts for less than 2% of the output of the European Union? Wouldn’t it be relatively easy and not particularly expensive for its creditors to write off its debts, mostly owned by governments or international bodies?

Isn’t it the case that using Greece as a laboratory mouse for an austerity experiment has been a failure? The answer to all three questions is yes. Greece is a small country. Writing off part of its debts or easing the repayment terms would be simple and painless. The obsession with deficit reduction has depressed growth not just in Greece, but in the whole of the eurozone. What’s more, the lesson from the last five years is that those countries that use the euro are paying a heavy price for the lack of a common system for transferring resources from one part of the single-currency area to another. There is one currency and one interest rate, but there is no fiscal union to stand alongside monetary union. So, unlike in the US or the UK, there is no large-scale method for recycling the taxes raised in those parts of the eurozone that are doing well into higher spending for those parts of the eurozone that are doing badly.

Mark Carney pointed out this weakness in a lecture in Dublin last week when he said: “It is difficult to avoid the conclusion that, if the euro were a country, fiscal policy would be substantially more supportive.” The governor of the Bank of England added that a “more constructive fiscal policy” would help mitigate the negative impact that structural reforms have on demand and would be consistent with the longer-term aim of closer integration. All this is music to the ears of Tsipras and his finance minister, Yanis Varoufakis, who will be in London for talks with George Osborne on Monday. Varoufakis, judging by his comments on Newsnight last week, thinks Germany should soften its approach not just because the current policy is not working but also as an act of European solidarity.

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This will not be denied.

Greece Asks ECB to Keep Banks Afloat as Debt Deal Sought (Bloomberg)

Greek Prime Minister Alexis Tsipras began the hunt for allies against German demands for austerity as his week-old government appealed to the European Central Bank not to shut off the money tap. Finance Minister Yanis Varoufakis said his country won’t take any more aid under its existing bailout agreement and wants a new deal with its official creditors by the end of May. While Greece tries to wring concessions on its debt and spending plans, it needs the ECB’s help to keep its banks afloat, Varoufakis said at a briefing in Paris late Sunday. “We’re not going to ask for any more loans,” Varoufakis said after meeting his French counterpart, Michel Sapin. “During this period, it is perfectly possible in conjunction with the ECB to establish the liquidity provisions that are necessary.”

Tsipras, who issued a statement Saturday promising to stick by Greece’s financial obligations, is seeking to repair damage after a rocky first week. Bond yields spiraled and banks stocks plummeted after German Chancellor Angela Merkel stonewalled his plans to ramp up spending and write down debt. The Greek leader visits Cyprus on Monday before trips to Rome, Paris and Brussels. He’s not scheduled to see Merkel, the biggest contributor to Greece’s financial rescue, until a EU summit on Feb. 12. Merkel wants to avoid getting drawn into a direct confrontation with Tsipras and is unlikely to agree to a face-to-face meeting with him at next week’s gathering of leaders, according to a German government official who asked not to be named because the discussions are private.

The chancellor’s goal is to show Tsipras that he is isolated, the official said. What’s more, she sees little margin for maneuver on the conditions of any further support for Greece and is skeptical about Tsipras’s claims that he can raise revenue by cutting corruption and increasing taxes on the rich, the official added. “Europe will continue to show solidarity with Greece, as well as other countries particularly affected by the crisis, if these countries undertake their own reforms and savings efforts,” Merkel said in an interview with Hamburger Abendblatt published Saturday.

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“During this period, it is perfectly possible in conjunction with the ECB to establish the liquidity provisions that are necessary.”

Greece Wants Special ECB Help While Going ‘Cold Turkey’ on Aid (Bloomberg)

Greece is counting on the European Central Bank to maintain a financial lifeline while the week-old government in Athens negotiates new terms on its international bailout package, Finance Minister Yanis Varoufakis said. While the country is “desperate” for funds, it will forgo further disbursements of emergency aid until negotiating a “new social contract” with its creditors, he said. He set an end-May deadline for reaching a deal on a revamped rescue with the euro area and the IMF. “For that period, we’re not going to ask for any more loans,” Varoufakis told reporters today in Paris after meeting French Finance Minister Michel Sapin. “During this period, it is perfectly possible in conjunction with the ECB to establish the liquidity provisions that are necessary.”

The danger for Prime Minister Alexis Tsipras, who won power on Jan. 25 following pledges to undo more than four years of austerity tied to emergency aid, is that both the country’s banks and the government could be left without funding as soon as next month. Greece has until end-February to qualify for an aid payment of as much as €7 billion and hasn’t indicated any willingness to seek an extension. Letting the review lapse under Greece’s €240 billion aid program could result in its banks effectively being excluded from ECB liquidity operations while the government is still shut out of international bond markets. At the moment, Greece has a special dispensation from the ECB because the country is considered to be complying with the bailout pact. That means its debt can be used in central-bank refinancing operations even though it is rated junk.

“There will be no surprises if we find out that a country is below that rating and there’s no longer a program that that waiver disappears,” ECB Vice President Vitor Constancio said at an event in Cambridge, England, on Saturday. Varoufakis, whose Paris visit was the first of a series of trips to European cities to press his case, said he intends travel to Frankfurt to seek support for Greek banks from the ECB while a political accord on an aid overhaul is negotiated with the euro area and the IMF. He’s scheduled to see British Chancellor of the Exchequer George Osborne in London tomorrow. A revamped rescue for Greece, where unemployment is more than 25%, would address a “humanitarian crisis,” the need for investment and the country’s debt mountain of about 180% of gross domestic product, he said. “What this government is all about is ending the addiction” to funds that are tied to demands for austerity, Varoufakis said. The government is willing to “go cold turkey for a while, while we’re deliberating,” he said.

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Steve paints a nice protrait.

My Friend Yanis, The Greek Minister Of Finance (Steve Keen)

I first met Yanis Varoufakis when he was a senior lecturer (the 3rd step in the 5-tiered Australian system, equivalent to a Professor in the USA) at Sydney University in the late 1980s, and I was a tutor (the 1st step) at the University of New South Wales. We’ve been friends ever since, and now he has become globally prominent as the Finance Minister of the most troubled and high profile economy on the planet, Greece. Yanis the man as well as Yanis the economist will come under intense scrutiny and pressure from the media and other politicians now. Much of this will have the intention of either cutting him down, or turning the dilemmas he faces in his serious role into a source of media entertainment. I want to describe the man and economist I know with neither objective in mind.

I’ll start with the man—since without doubt the first attacks on him will focus on his character rather than his intellect. Very few people make so strong an impression on you at first meeting that, decades later, you can still vividly remember the meeting itself. Yanis had such an impact. I went to attend a seminar at Sydney University where Yanis was the presenter. Most academic seminars are dull affairs; despite the fact that being an academic involves effectively being on stage, very few academics actually have stage presence. They will mumble, look around evasively, wander about talking as if in a madman’s monologue, or talk to their slides rather than the audience in what has rightly been called “Death By Powerpoint”. Yanis, in contrast, filled the stage as soon as he began to speak, engaged the audience with direct eye contact, and spoke like an orator rather than a mere academic.

His face also had a perennial wry smile to it, and his presentation included plenty as ironic humour as he pulled apart the conventional wisdom in his own field. That humour – and the penchant for oratorical expression – proved to be intimate aspects of his persona, as well as a general warmth and generosity of spirit towards humanity. Backing that generosity up is substantial strength – physical as well as intellectual and emotional. He can be angered by misanthropic individuals, as I can, but in confrontation with them he will attack their intellectual pretensions rather than the individuals themselves. This is reading like a hagiography, but only because Yanis is a genuinely good man. This was manifested in how he has reacted to the toughest experience in his life: having his daughter taken to Sydney against his will in 2005 by his Australian partner, after his return to Greece in 2000.

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Angela will not be amused.

Obama Expresses Sympathy for New Greek Government (WSJ)

President Barack Obama expressed sympathy for the new Greek government as it seeks to rollback its strict bailout regime, saying there are limits to how far its European creditors can press Athens to repay its debts while restructuring the economy. “You cannot keep on squeezing countries that are in the midst of depression. At some point there has to be a growth strategy in order for them to pay off their debts to eliminate some of their deficits,” Mr. Obama said in an interview with CNN’s Fareed Zakaria aired Sunday. He said Athens needs to restructure its economy to boost its competitiveness, “but it’s very hard to initiate those changes if people’s standards of livings are dropping by 25%. Over time, eventually the political system, the society can’t sustain it.” Mr. Obama expressed hope that an agreement would be reached so Greece can stay in the eurozone, saying, “I think that will require compromise on all sides.”

The comments come as Athens’s new antiausterity government begins a push this month to convince eurozone countries to ease the terms under which it received large international financial rescues in recent years. Options include reducing Greece’s budget constraints and debt-service burdens. Relations between Greece and the rest of the eurozone have been rocky since the left-wing Syriza party won Greek elections on Jan. 25. “More broadly, I’m concerned about growth in Europe, ” he added. He said fiscal prudence and structural changes are important in many eurozone countries, but “what we’ve learned in the U.S. experience…is that the best way to reduce deficits and to restore fiscal soundness is to grow. And when you have an economy that is in a free-fall there has to be a growth strategy and not simply the effort to squeeze more and more from a population that is hurting worse and worse.”

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Big opening.

France Open to Easing Greek Debt Burden (Bloomberg)

France is ready to offer Greece concessions on its debt to help the country’s new government revive its economy, Finance Minister Michel Sapin said. The French government is willing to discuss ways to ease Greece’s financial burden including extending the maturity of its debt, Sapin said Sunday in an interview with Canal Plus television before meeting with his Greek counterpart Yanis Varoufakis. He ruled out a full write-off and said the French government’s total exposure to Greece is €42 billion. “They say we cancel it, we just cancel it – no,” Sapin said. “We can discuss, we can postpone, we can alleviate. But we won’t cancel it.” The comments may offer encouragement to Greek Prime Minister Alexis Tsipras who begins a tour of European capitals tomorrow as he seeks support for a plan to ease the country’s debt burden to help him pay for a program of public spending to boost gross domestic product.

Tsipras said Saturday that Greece would repay its debts to the European Central Bank and the International Monetary Fund, leaving the focus of any debt reduction on the other euro-area governments. Varoufakis appointed Lazard as adviser on issues related to public debt and fiscal management on Saturday. “There is a range of possible solutions: extending the maturities, lowering interests rates, and the much more radical solution, the haircut,” Matthieu Pigasse, the head of Lazard’s Paris office who has advised Greece in the past, said in a Jan. 30 interview on BFM Business television. “If we could cut the debt by 50%” he said, “it would allow Greece to return to a reasonable debt to GDP ratio.” He said Greece’s debt to public creditors was about €200 billion. “That people in Greece say ‘we need a bit of air’ I can understand that,” Sapin said. “It’s legitimate for them to say we want to discuss how we can lower the weight of this debt.”

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The FT, on the side of the banks, tries to spread the fear, but “The finance chief said Athens would make proposals within a month for a “new contract” with the euro zone, which would be in place by the end of May.”

Eurozone Alarm Grows Over Greek Bailout Brinkmanship (FT)

Eurozone officials are increasingly worried that Greece’s brinkmanship over its bailout will plunge the country into financial chaos after its finance minister said on Sunday that it would take up to four months to agree a “new contract” with creditors. Yanis Varoufakis, Greece’s newly appointed finance minister, said Athens would reject any further loans under its international rescue plan, despite Greece’s €172bn bailout expiring at the end of the month. He also said he expected the ECB to prop up the country’s weakened banking system until a longer-term settlement could be reached. Mr Varoufakis said Greece had been living for the next loan tranche for the past five years. “We have resembled drug addicts craving the next dose. What this government is all about is ending the addiction,” he said, noting it was time to go “cold turkey”.

His comments on Sunday underscored the fears of euro zone officials that the Greek government was unaware of the precariousness of its financial situation. “Everybody [in the euro zone] wants a deal,” said one senior euro zone official. “But through their actions and their rhetoric, the new government is making a lot of people upset. They are putting themselves in an impossible situation.” Mr Varoufakis was speaking in Paris on the first leg of a European tour intended to garner support for a renegotiation of its debt burden. Greece’s anti-austerity government roiled markets during a tumultuous first week in power with 40% being wiped off the value of Greek banks following announcements to reverse spending cuts and privatizations.

Despite a more emollient tone from Alexis Tsipras, Greece’s radical left-wing prime minister, over the weekend, EU officials have been dismayed by Athens’ repeated rejection of a bailout extension — and refusal to co-operate with the troika of international creditors. German officials were also irritated at its refusal to engage with Berlin, although Mr Varoufakis said he had now been invited to the German capital. The finance chief said Athens would make proposals within a month for a “new contract” with the euro zone, which would be in place by the end of May. “We are not going to ask for any loans during this period. It is perfectly possible to establish liquidity provisions with the ECB.”

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The role of women.

Syriza’s Cleaners Show Why Economics Needs A New Broom (Guardian)

Among the most uplifting images from Syriza’s victory in Greece last week were the elated faces of a small group of fiercely determined women: the public sector cleaners who were laid off during the country’s brutal budget cuts and had been told they would be swiftly re-hired by the new government. The fate of a few low-paid mop operatives is a world away from the cut and thrust of international negotiations on debt relief for Greece. Yet it has so often been the fate of working-class women – standing in the bread queues, scrabbling to feed their families, laid off in their droves in the public sector job cuts mandated by the country’s troika of creditors – that has best illustrated the despair to which many in the recession-ravaged country have been driven.

Syriza had promised that “hope is coming”, injecting the language of emotion into dry debates about deficits and debt repayments. It remains to be seen how successful they will be in the high-stakes negotiation they must now enter with their eurozone partners, under the minute-by-minute scrutiny of the financial markets. But the party’s triumph – and the cleaning women’s plight – underlines the fact that economics is about not just the state of the public finances (improving, in Greece’s case) or GDP (on the up), but raw human experience in homes and families. One lesson from the crises that have roiled the eurozone over the past five-plus years is that anyone who tells you the only response to a public debt crisis is to slash spending and embark on “structural reform” is either masochistic or downright mad.

But we could take a more profound lesson away too, which so far most economists have failed to learn from the Great Recession and its long-drawn-out aftermath: the individualistic, neoliberal perspective on the world that bleaches out humanity in favour of equations needs to be junked too. Margaret Thatcher’s promise in 1979, “where there is despair, let us bring hope”, may have prefigured Syriza’s language, but her arrival in No 10 marked the start of an era in which we have increasingly come to see ourselves as “aspirational”, atomised individuals, scrabbling to make our way in a world without the support of the society Thatcher notoriously dismissed.

This approach was underpinned and apparently vindicated by the proliferation of economic models that conceived of people as cool, rational, drastically simplified robots who beetle around trying to maximise their utility. The market became seen as the ultimate expression of this calculating rationality, and its values – competition, self-interest, even greed – as the fundamental driving forces of life. Behavioural economists have spiced up this dull world with concepts such as irrational exuberance, helping to explain why even financial markets – supposedly the embodiment of hardnosed rationality – can experience moments of madness. And others show why the qualifier ceteris paribus – “all things being equal” – that always applies to these elegant mathematical constructions is a nonsense, because all things are never, ever equal.

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Economists are incapable of getting their head around the possibility that people may simply not have anything to spend.

Americans Are Failing To Pump Gas-Price Savings Back Into The Economy (WSJ)

Americans are taking the money they are saving at the gas pump and socking it away, a sign of consumers’ persistent caution even when presented with an unexpected windfall. This newfound commitment to frugality was illustrated this past week when the nation’s biggest payment-card companies said they aren’t seeing evidence consumers are putting their gasoline savings toward discretionary items like travel, home renovations and electronics. Instead, people are more often putting the money aside for a rainy day or using it to pay down debt. That more Americans are saving their bounty at the pump comes as a surprise, because the personal savings rate, after rising during and after the recession, has declined steadily over the past two years. “We haven’t seen the extra savings from lower gas prices translate into additional discretionary consumer spending,” said MasterCard CEO Ajay Banga on a conference call Friday.

The new data are perhaps the best indication to date that the pain of the recession remains fresh in the minds of many Americans, even as the economy picks up steam. The Commerce Department said Friday that the U.S. economy grew at a 2.6% annual rate in the fourth quarter. Personal consumption expenditures rose 4.3% at a seasonally adjusted annual rate in the last three months of 2014, representing the biggest increase since the first quarter of 2006. Also on Friday, the University of Michigan said consumer sentiment in January reached its highest level in 11 years. The closely watched index has increased in each of the past six months, rising 20% since July. But that positive outlook doesn’t mean consumers feel emboldened to splurge with their savings at the pump, and card-company executives said spending growth would have been higher if consumers had put their gas savings toward more big-ticket items rather than savings.

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“They continue to value production and profit over health and safety, workers and the community.”

Oil Workers in US on First Large-Scale Strike Since 1980 (Bloomberg)

The United Steelworkers union, which represents employees at more than 200 U.S. oil refineries, terminals, pipelines and chemical plants, began a strike at nine sites on Sunday, the biggest walkout called since 1980. The USW started the work stoppage after failing to reach agreement on a labor contract that expired Sunday, saying in a statement that it “had no choice.” The union rejected five contract offers made by Royal Dutch Shell Plc on behalf of oil companies including Exxon Mobil and Chevron since negotiations began on Jan. 21. The steelworkers’ union hasn’t called a strike nationally since 1980, when a stoppage lasted three months. A full walkout of USW workers would threaten to disrupt as much as 64% of U.S. fuel production. Shell and union representatives began negotiations amid the biggest collapse in U.S. oil prices since 2008.

“The problem is that oil companies are too greedy to make a positive change in the workplace,” USW International Vice President Tom Conway said in the statement. “They continue to value production and profit over health and safety, workers and the community.” Ray Fisher, a spokesman for Shell, said by e-mail on Saturday that the company remained “committed to resolving our differences with USW at the negotiating table and hope to resume negotiations as early as possible.” The USW asked employers for “substantial” pay increases, stronger rules to prevent fatigue and measures to keep union workers rather than contract employees on the job, Gary Beevers, the USW international vice president who manages the union’s oil sector, said in an interview in Pittsburgh in October.

The refineries called on to strike span the U.S., from Tesoro’s plants in Martinez, California; Carson, California; and Anacortes, Washington, to Marathon’s Catlettsburg complex in Kentucky to three sites in Texas, according to the USW’s statement. The sites in Texas are Shell’s Deer Park complex, Marathon’s Galveston Bay plant and LyondellBasell’s Houston facility, according to union. The walkout also includes Marathon’s Houston Green cogeneration plant in Texas and Shell’s Deer Park chemical plant. The refineries on strike can produce 1.82 million barrels of fuel a day, about 10% of total U.S. capacity, data compiled by Bloomberg show. “There will be a knee-jerk reaction in gasoline and diesel prices because we don’t know how long this is going to be or how extended it might be,” Carl Larry, director of oil and gas at Frost & Sullivan, said. “It’ll be bearish for crude, but we’ve already accounted for a lot of the fact that refineries are maintenance.”

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“Cutbacks aren’t yet reflected in broad data on employment, home sales or tax collections. For example, the federal Bureau of Labor Statistics says that employment in oil and gas extraction rose in December to 216,100, the highest level since 1986.”

Falling Prices Spread Pain Far Across The Oil Patch (WSJ)

Rumor became reality here last week when dozens of workers lost their jobs at Laredo. The Oklahoma-based energy outfit said it closed its regional office to cope with plunging oil prices. The layoffs were “kind of like a death in the family,” says Robert Silver, age 62, a geophysicist who had helped Laredo decide where to drill in the Permian Basin in West Texas. Trouble has been looming over the oil patch since crude prices began falling last summer, from over $100 a barrel to under $50 today. But only now are the long-feared effects of a bust starting to ripple through the complex energy ecosystem, affecting Houston executives, California landowners and oil old-timers in Oklahoma. Many big energy companies have said they plan to slash billions of dollars in spending along with thousands of jobs; energy giant ConocoPhillips told employees Thursday to expect a salary freeze and layoffs.

Indicators like drilling permits in Texas have fallen sharply. Cutbacks aren’t yet reflected in broad data on employment, home sales or tax collections. For example, the federal Bureau of Labor Statistics says that employment in oil and gas extraction rose in December to 216,100, the highest level since 1986. But fallout is beginning to affect people, starting with the legions working as suppliers to the energy industry. Eric Herschap is COO at Exclusive Energy a private company in Orange Grove, Texas, that offers services, including equipment rentals, to exploration companies. His customers are demanding price cuts of 15% to 25%, and Exclusive offers additional discounts beyond that, he says. So the company laid off 10 of its 45 employees and is cutting bonuses for those who remain. Mr. Herschap says his brightest engineers are now fielding phone calls from customers with technical questions.

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Casino.

Oil Companies Draw on Creative Financing to Stay Afloat (Bloomberg)

North America’s small and mid-sized energy companies are searching for creative ways to stay afloat as investors smell blood in the water from the almost 60 percent fall in the price of oil since June. Oil and natural gas companies are straining for solutions before cuts in credit lines and increases in lending rates hit home in April, when banks re-price the collateral used to secure revolving credit lines. Some are turning to more creative forms of financing as familiar sources of money dry up. That financing is coming from hedge funds, private equity shops and mega-wealthy investors like billionaire Carl Icahn who have the cash to weather a prolonged downturn and are on the hunt for deals among the wounded, bankers and analysts say. Oil operators, meanwhile, are laying off staff, freezing salaries and deferring investments to conserve cash.

“Companies have lived in a state of outspending cash flow, and the markets have facilitated that,” said Gregory Sommer at Deutsche Bank “But if prices persist at this level, you’re going to see some companies pulling back significantly” more than they already have. Eclipse turned to private equity investors in December after the cost to issue unsecured debt to fund capital spending became prohibitively expensive, according to Matthew DeNezza, the company’s chief financial officer. “Traditional, high-yield debt markets were not available” at reasonable prices, DeNezza said in a telephone interview. “The debt markets were closed to us.” Shares of the driller have fallen by 77% since it raised $818 million in its initial public offering on June 20, when U.S. oil prices were $107 a barrel.

In a deal announced three days before the new year, Eclipse sold $325 million in additional equity to its largest investor, EnCap Investments, and brought in extra money from private-equity firm KKR & Co. to help fund drilling operations in 2015, DeNezza said. Private equity investors, he said, can look past the market turmoil and “take a longer term view of what these assets are really worth.” The firms have already raised $15 billion for general energy investing in recent years. Carlyle Group LP, Apollo Global Management LLC, Blackstone Group LP and KKR are raising billions more for new funds created in the past few months to invest in distressed oil producers.

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As staff gets fired, “Bob Dudley, BP’s chief executive, is expected to further sweeten the pill for investors by making no changes to the dividend..”

BP To Follow Shell In Cutting Spending (Guardian)

BP will on Tuesday unveil plans to slash billions of pounds off its capital spending programme in a bid to counter the impact of plunging oil prices and a 40% fall in its fourth quarter profits. The company, which has already cut hundreds of jobs in Aberdeen and thousands around the world, is expected to announce spending reductions of over 10% bringing the official target below $22bn for 2015. Bob Dudley, BP’s chief executive, is expected to further sweeten the pill for investors by making no changes to the dividend while not making any further specific redundancies. BP said in December that it was taking a $1bn charge to pay for restructuring – almost all for job cuts – and has since made local announcements about new staffing levels in Houston, Trinidad and Azerbaijan. The latest cost-reductions come as BP is expected to report profits of around $1.5bn for the last three months of its financial year.

Peers such as Shell will reduce expenditure by $15bn over the next three years, Chevron is to cut 13% of spending to $35bn after reporting a 30% plunge in final quarter earnings, while ConocoPhillips slashed its capital expenditure by 33% to $11.5bn. ExxonMobil, the world’s largest quoted oil company, will also unveil its strategy for dealing with a Brent blend oil prices which has fallen to around $50 a barrel from $115 in June last year. BP’s previous target was to spend between $24bn and $25bn in 2014 although the final outturn for the year was expected to have already fallen to $23bn and the company is now expected to try to ensure the official target in 2015 is even lower. The company is particularly vulnerable to lower commodity prices because it is still suffering financially from ongoing fallout from the Deepwater Horizon accident of 2010 in the Gulf of Mexico and from its risky investments in Russia.

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As if it hasn’t yet?!

China’s Feeling the Pressure to Join Global Easing (Bloomberg)

The case for China to join the latest wave of global monetary easing has increased, with a manufacturing gauge signaling the first contraction in more than two years. The government’s Purchasing Managers’ Index fell to 49.8 last month from 50.1 in December, missing the median estimate of 50.2 in a Bloomberg survey of analysts and below the 50 level separating expansion and contraction. The slide follows the biggest weekly stock market drop in a year and fiscal data that showed the weakest revenue growth since 1991. Central banks from the euro zone to Canada and Singapore last month added monetary stimulus as slumping oil prices damp the outlook for inflation and global momentum outside the U.S. moderates.

China’s central bank, which cut interest rates in November for the first time in two years, has since added liquidity in targeted measures rather than with follow-up rate reductions or cuts to banks’ required reserve ratios. “We expect such data will weaken further and push the government to take further easing actions,” said Zhang Zhiwei, chief China economist at Deutsche Bank in Hong Kong. Zhang and Lu Ting of Bank of America have been among economists who said the People’s Bank of China would delay lowering banks’ RRRs for risk of stoking an equities bubble. The benchmark Shanghai Composite Index fell for a fifth day and was 2% lower at 10:17 local time. The yuan weakened.

Seasonal reasons, falling commodity prices, and weak domestic and international demand caused the decline in manufacturing PMI, Zhao Qinghe, senior statistician at NBS, said in a statement on the bureau’s website. Most sub-indexes fell, including new orders and new export orders. The sub-index of raw material purchasing prices decreased to 41.9, the lowest in at least a year, on the decline in commodity prices “China’s manufacturing sector is still facing de-leveraging pressure,” said Liu Li-Gang, head of Greater China economics at Australia & New Zealand Bank in Hong Kong. “Deflation in the manufacturing sector continues and the destocking process has not yet completed.”

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In the end, it’s all just words. ‘Whatever it takes’ worked wonders too, after all.

ECB Bond-Buying Plan Has Investors Questioning How It All Works (Bloomberg)

Mario Draghi’s trillion-euro puzzle is missing some key pieces. When the European Central Bank president announced a program on Jan. 22 to buy €60 billion of assets a month for at least 19 months to avert deflation, he surprised investors with the size of the stimulus. He also provided more details than anticipated. Yet analysts poring over the ECB’s statements are finding that several critical points remain unclear. “The ECB had to present a lot of details right from the beginning as they wouldn’t have been credible without them,” said Johannes Gareis at Natixis. “What is missing somewhat is the fine print, which might have quite an impact on the implementation.” Here’s what the ECB has and hasn’t revealed about Europe-style quantitative easing.

What will the asset mix be? The ECB’s monthly spending will include its existing programs to buy covered bonds and asset-backed securities. Of the added purchases, Draghi said 12% will be debt issued by European Union institutions and agencies, and the rest will be government bonds. The question is: how much does the ECB envisage spending on each type of asset? Draghi also said officials will buy bonds with maturities from 2 years to 30 years, without specifying an average target that could affect yield curves and borrowing costs. And while the central bank said eligible debt includes inflation-linked bonds, floating-rate notes and securities with a negative yield, it hasn’t given any indication of what the breakdown of purchases might be.

How transparent will the purchasing be? The ECB hasn’t said much about the mechanics of QE. When it bought sovereign debt from 2010 to 2012 under its now-halted, and far smaller, Securities Markets Program, it dipped into the market without prior announcement. ABS and covered-bond purchases are carried out by external asset managers. Those strategies contrast with the Federal Reserve, which issued a calendar for when it would make purchases under its QE programs and what type of securities it would buy. A public calendar would “ensure greater transparency and minimize market distortion,” said Riccardo Barbieri Hermitte at Mizuho in London.

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More recalls than sales.

Automakers Can’t Make Air Bags Work (Bloomberg)

U.S. regulators’ push for a second recall of 2.1 million cars and trucks whose air bags could go off while driving delivered more cautionary tales about a complex life-saving technology that’s had a very bad year. The National Highway Transportation Safety Administration held an unusual Saturday press briefing to warn the public that an earlier recall of nine models from Fiat Chrysler, Honda and Toyota didn’t work entirely. The agency is asking vehicle owners who haven’t completed the first repair to do so now. That may mean a second trip to the dealership for consumers, assuming replacement parts for the new fix are available, which they may not be until year-end.

Added to the mix: Some of the cars being recalled for a second time were part of last year’s massive 10-automaker recall of Takata air bags for a different defect: inflators that could explode with deadly results. “If you own an affected vehicle, this means driving around with the knowledge your air bag might still randomly deploy,” said Karl Brauer, a senior analyst at Kelley Blue Book. “And just to keep it interesting, some of these vehicles are equipped with Takata air bags, meaning the random deployment could include metal shrapnel. What a mess.” It’s the biggest challenge to the technology since the mid-1990s, when NHTSA began investigating reports that first-generation air bags deployed with such force that children and small adults riding in front seats were being killed and, in some cases, decapitated.

“TRW is supporting its customers in these recalls fully, and will cooperate with NHTSA and provide information to the agency if requested,” John Wilkerson, a spokesman for TRW, said in an e-mailed statement. About 1 million of the Honda and Toyota vehicles listed on Saturday were previously recalled for defective Takata air bags, the agency said. “This is unfortunately a complicated issue for consumers, who may have to return to their dealer more than once,” said NHTSA Administrator Mark Rosekind. “But this is an urgent safety issue, and all consumers with vehicles covered by the previous recalls should have that remedy installed.” General Motors recalled at least 7 million vehicles in North America last year to fix faulty ignition switches that could cut power and disable air bags.

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“At some point, Denmark may well decide the fight isn’t worth it.”

Currency War Claims Another Casualty: Denmark (Bloomberg)

After half a decade of growing ever sleepier, the currency market has started the year with its most volatile period since 2011. As the victims of the Swiss franc detonation lick their wounds, Denmark is battling to avoid its krone becoming the next victim of the global currency wars, wielding a combination of negative interest rates plus market interventions to sell its own currency plus scrapping government bond sales as it defends its peg to the euro. I’ve seen this movie before; it never ends well. Denmark sprang a rate-cut surprise last week; the central bank will now charge you 0.5% for the privilege of having kroner on deposit. The bank’s third easing in less than two weeks came after it spent as much as 100 billion kroner ($15 billion) this month trying to weaken its currency, according to estimates by Scandinavian lender Svenska Handelsbanken. Taking on traders is an expensive business.

The Swiss National Bank reminded us a fortnight ago that nothing is ever truly sacred in financial markets, abandoning its cap to the euro just days after declaring the policy sacrosanct. Since then, keeping the Danish krone close to a central rate against the euro of 7.46 – the official wiggle room is a 2.25% corridor around that level, the actual room for maneuver has been more like 1% – has kept the central bank’s trading desk busy. The central bank shocks have certainly come thick and fast this year, from the European Central Bank finally getting religion on quantitative easing, to the Federal Reserve adding “international developments” to its list of metrics to watch, to the deployment of negative official interest rates as a deterrent to speculators. No wonder overall volatility in foreign exchange has spiked higher.

The genesis of the present currency war is the desire of every country for a weaker currency to boost exports and growth. That, of course, can’t happen, any more than you can mix heavy-metal music by making everything louder than everything else. So far, Denmark is a casualty of these wars, wounded but still in the fight. Economists are betting, though, that it will need to drive interest rates even further into negative territory to prevent speculators from bidding up the currency, which effectively punishes the nation’s savers. At some point, Denmark may well decide the fight isn’t worth it.

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Yes.

Is Reserve Bank of Australia The Next Central Bank To Ease? (CNBC)

Speculation is high that the Reserve Bank of Australia (RBA) will be the next central bank to ease monetary policy at its meeting this week following a month of surprise policy changes across the globe. January saw unexpected loosening measures from a handful of central banks including Denmark, India and Singapore against a backdrop of increasing deflationary pressures as crude oil prices continue their descent. “Judging by price action in the market, there is a real belief the RBA are going to join New Zealand, Europe, Denmark, Switzerland and Canada in easing policy,” said Chris Weston, chief market analyst at IG in a note last week, adding that swaps markets are now pricing a 65% chance of a rate cut.

The RBA has held rates at 2.5% since August 2013. Many analysts expect the RBA to announce a 25 basis-point interest rate cut at Tuesday’s policy meeting to tackle 6% unemployment and sliding iron ore prices, one of the country’s biggest exports. Comments by Australian journalist Terry McCrann last week that a rate cut is “almost certain” heightened expectations, sending the Australian dollar to fresh five-and-a-half year lows at 77.22 U.S. cents on Friday. McCrann, a long-time RBA watcher, reasoned that the RBA will forecast inflation to be lower than the mid-point of its 2-3% target range, opening the way for further easing.

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“The official rate is at 6.3 bolivars to the dollar… The black market rate, though, was at about 190 bolivars to the dollar on Sunday..”

US Companies Face Billions In Venezuela Currency Losses (Reuters)

At least 40 major U.S. companies have substantial exposure to Venezuela’s deepening economic crisis, and could collectively be forced to take billions of dollars of write downs, a Reuters analysis shows. The companies, all members of the S&P 500, and including some of the biggest names in Corporate America such as autos giant General Motors and drug maker Merck, together carry at least $11 billion of monetary assets in the Venezuelan currency, the bolivar, on their books. The official rate is at 6.3 bolivars to the dollar and there are two other rates in the government system – known as SICAD 1 and SICAD 2 – at about 12 and 50. The black market rate, though, was at about 190 bolivars to the dollar on Sunday, according to the website dolartoday.com.

The problem is that the dollar value of the assets as disclosed in many of the companies’ accounts is based on either the rates at 6.3 or 12 and only a limited number of transactions are allowed at those rates. The assets would be worth a lot fewer dollars at the 50 rate in the government system and the dollar value would almost be wiped out at the black market rate. The currency system is also about to be shaken up following an announcement by Venezuela President Nicolas Maduro on Jan. 21, leading to fears of a further devaluation. American companies will also have additional exposure to the bolivar that isn’t disclosed because they don’t see the size of that exposure as material to their results. The Reuters analysis also doesn’t look at the thousands of publicly traded and private American companies that aren’t in the S&P 500 and will in some cases have bolivar assets.

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Bring home the buck.

Fleeing Capital Clips Wings On US Yields (CNBC)

The relentless fall in longer term U.S. Treasury yields doesn’t signal declining U.S. inflation expectations, but instead is a side effect of funds fleeing low yields elsewhere, say analysts. “Yields of U.S. Treasury’s have actually become increasingly appealing relative to those of government bonds in other developed countries,” Capital Economics Chief Markets Economist John Higgins said in a note published last week. “Increased appetite from overseas investors” have contributed – along with the now-phased out asset purchases by the Federal Reserve and extra demand from banks in response to the launch of Basel 3 – to the downward pressure on U.S. Treasury yields, he said. At the longer end, 10-year Treasury yields broke below the key 1.7% level and closed at 1.6329%.

The 10-year Treasury’s are just a tad off levels seen in early March 2013, before the Fed first broached the idea that it would begin tapering its purchases of Treasury’s, a process it completed in October of last year. The 30-year was seen at 2.2229%, close to a record low. In comparison, massive central bank bond purchase operations in Japan and Europe have sent yields tumbling, especially in Germany and Japan, where they are still hovering around record lows: the 10-year German bund yields just 0.304% and the 10-year Japanese Government Bonds (JGB) are at 0.290%. At the 30-year end, German yields are at 0.887% and its Japanese equivalent at 1.280%. Another central bank joined in two weeks ago – yields on Swiss government bonds sunk into the negative after a surprise rate cut and scrapping of its currency peg to the euro.

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“Given Washington’s current political division, much of what will be laid out on Monday is unlikely to become law.”

Obama Targets Foreign Profits With Tax Proposal (Reuters)

President Barack Obama’s fiscal 2016 budget will seek new taxes on trillions of dollars in profits accumulated overseas by U.S. companies, and a new approach to taxing foreign profits in the future, but Republicans were skeptical of the plan on Sunday. Reviving a long-running debate about corporate tax avoidance, Obama will target a loophole that lets companies pay no tax on earnings held abroad, the White House said. But his proposal was certain to encounter stiff resistance from Republicans. In his budget plan to be unveiled on Monday, Obama will call for a one-time, 14% tax on an estimated $2.1 trillion in profits piled up abroad over the years by multinationals such as General Electric, Microsoft, Pfizer and Apple.

He will also seek to impose a 19% tax on U.S. companies’ future foreign earnings, the White House said. At present, those earnings are supposed to be taxed at a 35-percent rate, but many companies avoid that through the loophole that defers taxation on active income that is not brought into the United States, or repatriated. The $238 billion raised from the one-time tax would fund repairs and improvements to roads, bridges, transit systems and freight networks that would replenish the Highway Trust Fund as part of a $478 billion package, the White House said. The annual budget proposal is as much a political document as a fiscal roadmap, requiring approval from Congress. Given Washington’s current political division, much of what will be laid out on Monday is unlikely to become law.

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Jan 202015
 
 January 20, 2015  Posted by at 10:44 am Finance Tagged with: , , , , , , , , , , ,  5 Responses »


DPC The steamer Cincinnati off Manhattan 1900

IMF Lowers Global Growth Forecast by Most in Three Years (Bloomberg)
Chinese Growth at 7.4% Is the Slowest Since 1990 (Bloomberg)
China’s $20 Trillion Headache Underscored by Stock Swings (Bloomberg)
Warning! Volatility May Await If ECB Launches QE (CNBC)
Draghi Weighs QE Compromise Showcasing Unity Shortfall (Bloomberg)
Endgame for Central Bankers (Steen Jakobsen)
Denmark Strikes Back at Speculators and Burnishes Peg Defenses (Bloomberg)
Denmark Should Cut Loose From Euro (Bloomberg)
Swiss Upending Polish Mortgages Unnerves Bank Bondholders (Bloomberg)
Iraq Back From The Brink With Largest Oil Output Since 1979 (CNBC)
Price Collapse Hits Scavengers Who Scrape the Bottom of Big Oil (Bloomberg)
The Keystone XL Pipeline (Energy Matters)
A Huge Credit Line Reset Looms Over Oil Drillers (Bloomberg)
Janjuah On 2015: Oil At $30; Bonds To Go Crazy (CNBC)
U.S. Won’t Intervene in Oil Market (Bloomberg)
Saudi Arabia Can Last Eight Years On Low Oil Prices (Guardian)
Europe ‘Faces Political Earthquakes’ (BBC)
If The Fed Has Nothing To Hide, It Has Nothing To Fear (Ron Paul)
A Solemn Pause (Jim Kunstler)
Whiplash! (Dmitry Orlov)
Why New Zealand Can Handle Europe, Oil Troubles (CNBC)
Bleak Future For Retirees As Savings Slashed (CNBC)
Disease Threat To Wild Bees from Commercial Bees (BBC)

All that’s wrong, put in just a few words: “We want to make sure that when there’s an announcement, that it’s as large as what the market’s expecting.” The ECB should do what’s good for people, not what markets expect. That’s insiduous.

IMF Lowers Global Growth Forecast by Most in Three Years (Bloomberg)

The IMF made the steepest cut to its global-growth outlook in three years, with diminished expectations almost everywhere except the U.S. more than offsetting the boost to expansion from lower oil prices. The world economy will grow 3.5% in 2015, down from the 3.8% pace projected in October, the IMF said in its quarterly global outlook released late Monday. The lender also cut its estimate for growth next year to 3.7%, compared with 4% in October. The weakness, along with prolonged below-target inflation, is challenging policy makers across Europe and Asia to come up with fresh ways to stimulate demand more than six years after the global financial crisis.

“The world economy is facing strong and complex cross currents,” Olivier Blanchard, the IMF’s chief economist, said in the text of remarks at a press briefing Tuesday in Beijing. “On the one hand, major economies are benefiting from the decline in the price of oil. On the other, in many parts of the world, lower long-run prospects adversely affect demand, resulting in a strong undertow.” The IMF cut its outlook for consumer-price gains in advanced economies almost in half to 1% for 2015. Developing economies will see inflation this year of 5.7%, a 0.1 percentage point markup from October’s projections, the fund said. The growth-forecast reduction was the biggest since January 2012, when the fund lowered its estimate for expansion that year to 3.3% from 4% amid forecasts of a recession in Europe.

The IMF marked down 2015 estimates for places including the euro area, Japan, China and Latin America. The deepest reductions were in places suffering from crises, such as Russia, or for oil exporters including Saudi Arabia. IMF Managing Director Christine Lagarde outlined the sobering outlook in her first speech of the year last week, saying that oil prices and U.S. growth “are not a cure for deep-seated weaknesses elsewhere.” The U.S. is the exception. The IMF upgraded its forecast for the world’s largest economy to 3.6% growth in 2015, up from 3.1% in October. Cheap oil, more moderate fiscal tightening and still-loose monetary policy will offset the effects of a gradual increase in interest rates and the curb on exports from a stronger dollar, the fund said.

In Europe, weaker investment will overshadow the benefits of low oil prices, a cheaper currency and the European Central Bank’s anticipated move to expand monetary stimulus by buying sovereign bonds, according to the IMF. The fund lowered its forecast for the 19-nation euro area to 1.2% this year, down from 1.3% in October. The ECB should go “all in” in its bond-buying program, Blanchard said on Bloomberg TV. “We want to make sure that when there’s an announcement, that it’s as large as what the market’s expecting.”

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Why anyone would believe numbers like these is beyond me.

Chinese Growth at 7.4% Is the Slowest Since 1990 (Bloomberg)

China’s stimulus efforts began kicking in late last year, boosting industrial production and retail sales, and helping full-year economic growth come close to the government’s target. Gross domestic product rose 7.3% in the three months through December from a year earlier, compared with the median estimate of 7.2% in a Bloomberg News survey. GDP expanded 7.4% in 2014, the slowest pace since 1990 and in line with the government’s target of about 7.5%. The yuan and local stocks advanced after the release. A soft landing for China would help a global economy contending with weakness that spurred the IMF’s steepest cut to its world growth outlook in three years.

China’s central bank cut interest rates for the first time in two years in November and has added liquidity in targeted steps to buoy demand. “The economy’s performance in 2014 stands out against the widespread hard-landing fears that prevailed early last year,” said Tim Condon at ING in Singapore. “That the authorities were able to sustain close-to-target growth and increase the tempo of economic reforms –- shadow banking, local government finances -– and sustain the property-cooling measures demonstrates the effectiveness of the targeted measures.” “Markets should breathe a sigh of relief as the economy enters 2015 in a better shape than had been expected,” said Dariusz Kowalczyk at Credit Agricole in Hong Kong.

“The data lowers the need for further stimulus, but there remains some room for easing as risks are skewed to the downside.” [..] Quarter-on-quarter, China’s performance was less robust, slowing to 1.5% growth in the three months through December from 1.9% in the third quarter. “Growth momentum eased in the fourth quarter from the previous three months due to property-related weakness,” said Wang Tao, chief China economist at UBS Group AG in Hong Kong. “Property starts deepened their decline, which also dragged down heavy industry and related investment. Property will continue to drag down growth this year.”

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China imitates the west: “Funds aren’t flowing into economic activities on the ground. Instead, people are adding leverage to speculate.”

China’s $20 Trillion Headache Underscored by Stock Swings (Bloomberg)

For China’s central bank, the 36% stock market rally through Jan. 16 spurred in part by a surprise November interest-rate cut is the latest reminder that it’s easier to unleash money than to guide it to the right places. Since Zhou Xiaochuan became People’s Bank of China governor in late 2002, the broad money supply base has expanded almost seven times to 122.8 trillion yuan ($20 trillion) while the economy has grown about five times. That translates to a M2/GDP ratio of about 200% versus about 70% in the U.S. That liquidity springs up like a jack-in-the-box, driving property prices, then shifting to stocks, before moving on to whatever may be next. Such sprees help explain the PBOC’s reluctance to cut banks’ required reserve ratios even as the economy slows. Instead, it’s trying targeted tools to guide money to preferred areas such as farming and small business.

“The central bank will continue to face structural challenges in 2015 and beyond,” said Shen Jianguang at Mizuho. “Funds aren’t flowing into economic activities on the ground. Instead, people are adding leverage to speculate.” China’s benchmark stock index plunged the most in six years on Monday in Shanghai, led by brokerages, after regulatory efforts to rein in record margin lending sparked concern that speculative traders will pull back from the world’s best-performing stock market in 2014. The move to control margin lending was to “pave the way for more monetary easing,” according to Zhu Haibin at JPMorgan in Hong Kong. The action was to stop future monetary easing from flowing into the stock market, Zhu said in an interview with Bloomberg Television today.

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“If we want to help governments that are in trouble let’s do it – but let the parliaments decide rather than this technocratic body, the ECB council.”

Warning! Volatility May Await If ECB Launches QE (CNBC)

One of Europe’s most influential economists has warned that the quantitative easing measures seen being unveiled by the ECB this week could create deep market volatility, akin to what was seen after the Swiss National Bank abandoned its currency peg. “There was so much capital flight in anticipation of the QE to Switzerland, that the Swiss central bank was unable to stem the tide, and there will be more effects of that sort,” the President of Germany’s Ifo Institute for Economic Research, Hans-Werner Sinn, told CNBC on Monday. This week, the ECB holds its two-day policy meeting and is widely seen unveiling a U.S. Federal Reserve-type government bond-purchasing program, known as quantitative easing or QE. Sinn, a fierce critic of QE, said the launch of such a program would bring more market volatility, of the kind seen on Thursday after the Swiss National Bank abandoned its euro/Swiss franc floor.

“He (ECB President Mario Draghi) will do it, and what will the markets do, they will happy to be able to sell the government bonds, which they consider as partly toxic and they will have a lot of cash. What will they do – they will buy real estate, there could be a revival of the real estate market but they will primarily try to take it abroad. And they have already begun doing that – what you see in Switzerland,” Sinn told CNBC. Sinn said that a ECB government bond-buying program would make markets “happy”, but that it was not the right way to go about bailing out the euro zone. “If we want to help governments that are in trouble let’s do it – but let the parliaments decide rather than this technocratic body, the ECB council. All these (QE) measures go way beyond monetary policy – these are bailout operations to help banks and states which are unable to cope with normal rates of interest,” Sinn told CNBC.

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What an incredible mess even before it’s been announced.

Draghi Weighs QE Compromise Showcasing Unity Shortfall (Bloomberg)

Mario Draghi is weighing how much a compromise on euro-area stimulus would reveal about the currency bloc’s fault lines. As the European Central Bank president and his Executive Board sit down today to formulate a bond-buying proposal to fend off deflation, one option is to ring-fence the risks by country. While that may win over some of Draghi’s opponents when the Governing Council meets on Jan. 22, it might also shine a spotlight on the lack of unity within the union. “An absence of risk-sharing could be taken as a bad signal by the market with respect to the singleness of monetary policy and could be self-defeating,” said Nick Matthews at Nomura. “However, it may prove to be a necessary compromise to make the design of QE more palatable for Governing Council members, and is preferable to having to limit the size of the program.”

Investors are banking on Draghi to announce quantitative easing at his press conference after the council meets, with economists in a Bloomberg survey estimating the package at €550 billion euros. What remains unclear is how far he’ll go to mollify critics who say unelected central-bank officials are transferring risk from weaker nations to stronger ones. The tension surfaced again yesterday at a conference in Dublin. Irish Finance Minister Michael Noonan said having national central banks buy government bonds would be “ineffective,” drawing a response from ECB Executive Board member Benoit Coeure.

“The discussion is how to design it in a way that works, in a way that makes sense,” Coeure said. “If this is a discussion about how best to pool sovereign risk in Europe, and how to make the pooling of sovereign risk take a step forward in an environment where the governments themselves have decided not to do it, then this is not the right discussion.” Klaas Knot, the Dutch central-bank governor, told Der Spiegel last week that “we have to avoid that decisions are taken through the back door of the ECB.”

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“Studies show that the business cycle was less volatile before the Federal Reserve was born. The presence of the Fed means that the implicit backing of the Fed allows excess leverage..”

Endgame for Central Bankers (Steen Jakobsen)

The SNB suddenly abandoning the CHF ceiling had wide consequences last week as we were all taken by surprise. The fact that it would and should happen eventually was not lost on the market, but the SNB was, as late as last weekend, talking tough and telling the market that the floor was an integral part of Swiss monetary policy. Then suddenly it was not. I fully understand the rationale for the move but, like most of the market, I remain extremely disappointed in the SNB’s communication and handling of the issue. But isn’t the bigger lesson or bigger question: Why is it that most people trust or bother to listen to central banks? Major centrals banks claim to be independent, but they are all ultimately under the control of politicians.

Many developed countries have tried to anchor an independent central bank to offset pressure from politicians and that’s well and good in principle until an economy or the effects of a monetary policy decision beginning spinning out of control. At zero bound for growth and for interest rates, politicians and central banks switch to survival mode, where rules are bent or even broken to fit an agenda of buying more time. Just look at the Eurozone crisis over the past eight years: every single criteria of the EU treaty has been violated, in spirit of not strictly according to the letter of the law, all for the overarching aim of “keeping the show on the road”. No, the conclusion has to be that are no independent central banks anywhere! There are some who pretend to be, but none operates in a political vacuum. That’s the reality of the moment.

I would not be surprised to find that the Swiss Government overruled the SNB last week and the interesting question for this week of course will be if the German government will overrule the Bundesbank on QE to save face for the Euro Zone? Likely…. The most intense focus for the last few years in central banking policy-making has been on “communication policy”, which boiled down to its essentials is merely an appeal to “believe us and act accordingly”, often without any real policy action. Look at the Federal Reserve’s forward guidance: They are constantly too optimistic on growth and inflation. Constantly. The joke being to get the proper GDP and inflation forecast you merely take the Fed’s own forecasts and deduct 100-150 bps from both growth and inflation targets and Voila! You have the best track record over time.

Studies show that the business cycle was less volatile before the Federal Reserve was born. The presence of the Fed means that the implicit backing of the Fed allows excess leverage (gearing), and this has resulted in bigger and bigger collapses in financial markets as each collapse triggers yet another central bank “put” that then enables the next bubble to inflate. And the trend of major crashes has been increasing in frequency: 1987 stock crash, 1992 ERM crisis, 1994 Mexico “Tequila crisis”, 1998 Asian crisis and Russian default, 2000 NASDAQ bubble, 2008 stock market crash, and now 2015 SNB, ECB QE, Russia and China, which will lead to what? I don’t know, but clearly the world of finance and the flow of money is increasing in velocity, meaning considerably more volatility.

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“Denmark’s three-decades-old peg is backed by the ECB, unlike the SNB’s former currency regime..” And that’s supposed to make us feel better?

Denmark Strikes Back at Speculators and Burnishes Peg Defenses (Bloomberg)

Denmark is trying to silence currency speculators as the government and central bank insist the Nordic country won’t follow Switzerland in severing its euro ties. “Circumstances significantly different from Denmark’s” were behind the Swiss National Bank’s decision, Danish Economy Minister Morten Oestergaard said in a phone interview. “Any comparison between Denmark and Switzerland is impossible.” The comments followed yesterday’s surprise decision by the Danish central bank to cut its deposit rate by 15 basis points to minus 0.2%, matching a record low last seen during the darkest hours of Europe’s debt crisis in 2012. Like the Swiss, the Danes lowered rates after interventions in the market proved insufficient.

Denmark will probably deliver another rate cut on Jan. 22 as krone “appreciation pressure prevails” with the European Central Bank set to present details of its bond-purchase program, Danske Bank reiterated today. Danske, Denmark’s biggest bank, says it’s been inundated by calls from offshore investors and several hedge funds seeking advice on how to profit from the latest developments in currency markets. SEB, Scandinavia’s largest currency trader, says it’s fielded similar calls. Their response has been to tell investors that Denmark’s three-decades-old peg is backed by the ECB, unlike the SNB’s former currency regime. Denmark has “a long-lasting and politically firmly anchored fixed-currency policy,” Oestergaard said. “This situation should not be overly dramatized.”

To underline the point, the central bank yesterday sought to reassure investors that its monetary policy arsenal is big enough should speculators try to test its resolve. “We have the necessary tools” to defend the peg,Karsten Biltoft, head of communications at the central bank, said by phone. Asked whether Denmark could ever consider abandoning its currency peg, he said, “Of course not.” Biltoft described as “somewhat off” any attempt to draw parallels between the Danish and Swiss currency pegs. “I don’t think you can make a comparison between the two cases,” he said. Yet the speculation is proving hard to put to rest. Defending Denmark’s euro peg “might be easier said than done in the current environment,” Ken Wattret at BNP Paribas, said. “The next test will of course be the upcoming ECB policy announcement on Thursday.” Given BNP’s estimate that the ECB will purchase €600 billion ($697 billion) in sovereign bonds, “further upward pressure on the DKK is likely,” he said.

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As if they have a choice.

Denmark Should Cut Loose From Euro (Bloomberg)

Europe’s currency war is picking up speed. On Monday, with the Danish krone appreciating against the euro, the Danish central bank sought to make the currency less attractive to safe-haven investors by cutting the deposit rate to -0.2% and the lending rate to 0.05%. After the Swiss National Bank abandoned its peg to the euro and cut interest rates, bankers and traders wondered which country would be the next to follow suit. No sooner had the franc zoomed upward than the Danish central bank prepared for an onslaught. Defending the krone’s peg to the euro could get a lot harder once the ECB begins its government bond-buying program, widely expected on Thursday. Yet maintaining the peg is an act of faith in Denmark.

The central bank should rethink its commitment. With a more flexible monetary policy, it could have done more to stimulate the economy since the global financial crisis, just as it could have prevented some of the overheating that took place in the years running up to the crisis. The krone has been pegged to the euro since 1999, and to the deutschemark before that. It’s allowed to fluctuate no more than 2.25% from 7.46038 to the euro. In practice, the central bank tries to keep the fluctuations within 0.5%. It also marches to the ECB’s monetary drum, including changing interest rates on the same day as ECB decisions, or in response to exceptional pressures on the euro-krone exchange rate. The peg was put in place to stabilize Danish monetary policy after a period of high inflation, which peaked at 12.3% in 1980.

It’s not clear that the peg is a good idea now. Unlike Sweden, which has a floating currency and until 2010 had a more sensible monetary policy, Denmark hasn’t fully recovered from the global economic crisis. Real gross domestic product per capita is still more than 7% below the pre-crisis peak. The desirability of the peg, however, is beyond debate in political and economic policy circles. When a prominent economist and former Danish government economic adviser was asked to compare the performance of the Danish economy with Sweden’s in December 2013, he was unable to name any area of economic policy where the Swedes did better. Monetary policy wasn’t mentioned at all; only structural reforms such as marginal tax rates and labor market policies were.

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Poland and especially Hungary have huge amounts of mortgages denominated in Swiss francs.

Swiss Upending Polish Mortgages Unnerves Bank Bondholders (Bloomberg)

Among the victims of last week’s shock surge in the Swiss franc are bond investors in Polish banks, which hold $35 billion in mortgages denominated in the currency. Yields on Eurobonds for lenders including Bank Polski and MBank jumped to five- and nine-month highs after the Swiss National Bank unexpectedly ditched its currency cap. The move sent the zloty tumbling against the franc on concern more Poles will fall behind on repaying franc-denominated home loans. JPMorgan said the nation’s banks may need to make additional provisions for non-performing mortgages in the currency, whose value is equivalent to 6.7% of gross domestic product.. While the zloty plunged 20% against the franc following the SNB action, Polish lenders have adequate capital to withstand a drop of more than twice that, the financial markets regulator said last week, citing results of October stress tests.

“This is clearly negative and increases the risks in the banking sector, which may or may not materialize,” Marta Jezewska-Wasilewska at Wood & Co., wrote in a research note Jan. 15. “Polish banks have managed to deal with the FX mortgage issue relatively well since 2008.” The yield on PKO’s 2019 euro-denominated bonds rose 40 basis points in the last three days to 1.56%, the highest since Aug. 22. The rate on similar-maturity MBank debt soared 83 basis points to 2.34% in the same period. The currency swing pushed banking stocks on the Warsaw Stock Exchange down by the most in more than three years, with Getin Noble Bank, owned by billionaire Leszek Czarnecki, leading declines after a 16% drop on Jan. 15. Getin’s Swiss-franc loans accounted for “slightly” above 20% of total loans at the end of last year, spokesman Wojciech Sury said in an e-mail last week. The bank sees no threat its liquidity levels will fall below the required minimum and is “ready for different scenarios,” he said.

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“They are not subject to an OPEC quota at the moment, and could flood the market”.

Iraq Back From The Brink With Largest Oil Output Since 1979 (CNBC)

In spite of still struggling to recover from the 2003 war and the continuing Islamic State (IS) insurgency, Iraq produced a record amount of oil last month, the country’s oil minister announced at the weekend. Unveiling production of 4 million barrels of crude per day in December, Adel Abdel Mehdi told reporters that the total was ” a historical figure, and the first time Iraq has achieved this.” Speaking at a joint press conference with his Turkish counterpart Taner Yildiz in Baghdad, the Iraqi minister added the production increase would “make up” for the recent slump in oil prices. Iraq, where lawmakers are now looking at a 2015 draft budget based on an average of $60 dollars a barrel, depends on crude exports to generate over 90% of government revenues. The barrel export count, if confirmed, also trumps estimates of 3.7 million b/d by the International Energy Agency (IEA) published last week.

The agency’s report also identified Iraq as the main driver behind a rise in OPEC supply in December by 80,000 b/d to 30.48 million b/d. Iraq has not pumped as much crude oil since 1979, when the previous record was set with 3.56 million b/d . The December total would make Iraq OPEC’s second largest producer, behind Saudi Arabia at around 7 million b/d and ahead of Iran, the United Arab Emirates and Kuwait which each produce 2.7 b/d. “It’s quite a significant increase, but in-line with all the investment that was done over the last 10 years,” Samir Kasmi at Dubai-based advisory firm CT&F, told CNBC. “They are not subject to an OPEC quota at the moment, and could flood the market”. Abdel Mehdi explained production in the region of Kirkuk, which was held by IS troops last year before being liberated in June, would reach 375,000 b/d for the first three months of 2015. Production would eventually rise to 600,000 b/d by April.

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10% of US production.

Price Collapse Hits Scavengers Who Scrape the Bottom of Big Oil (Bloomberg)

In the $1.6 trillion-a-year oil business, there are global titans like Exxon Mobil that wield more economic might than most of the nations on Earth, and scores of wildcatters scouring land and sea for the next treasure troves of crude. Then there are the strippers. For these canaries in the proverbial coal mine, the journey keeps going deeper and darker. Strippers are scavengers who make a living by resuscitating once-prolific oil fields to coax as little as a bathtub full of crude a day from each well. Collectively, the strippers operate almost half-a-million oil wells that produced more than 730,000 barrels a day in 2012, the most recent year for which figures were available.

That’s one of every 10 barrels produced in the U.S. – equivalent to the entire output of Qatar, or half the crude Shell, Europe’s largest energy company, pumps worldwide every day. With oil prices down 57% since June, these smallest of producers will be the first to succumb to the Great Oil Bust of 2015. “This is killing us,” said Todd Shulman, a University of Colorado-trained geologist who ran fracking crews in the Rocky Mountains before returning to Vandalia, Illinois, in 1984 to help run the family’s stripper well business. Stripper wells – an inglorious moniker for 2-inch-wide holes that produce trickles of crude with the aid of iconic pumping machines known as nodding donkeys – were a vital contributor to U.S. oil production long before the shale revolution.

Though a far cry from the booming shale gushers that have pushed American crude production to the highest in a generation, stripper wells are a defining image of the oil business, scattered throughout rural backwaters abandoned by the world’s oil titans decades ago. With the price of crude dipping so low, there’s no way Shulman will be able to drill a new well that regulators have already permitted. Nor is he even going to turn on a well finished last month that’s ready to start production. It would be foolhardy to harvest crude from wells that won’t pay for themselves, said Shulman, who scrapes remnants from old Texaco (CVX) and Shell fields 310 miles south of Chicago, in the heart of what had been a booming oil region in the 1930s. He’ll wait for prices to rebound.

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“The crude Keystone XL delivers will make no difference to US crude imports; it will simply displace crude imports from elsewhere.”

The Keystone XL Pipeline Makes No Difference (Energy Matters)

Lobbyists are mobilizing to advance it. Environmentalists are mobilizing to stop it. The newly-elected Republican House has already voted to approve it. So has the newly elected Republican Senate. Obama has threatened a veto. The media are having a field day. What’s so important about Keystone XL? Well nothing, really. Keystone XL is basically just another pipeline; a little longer and larger than most, but not unusually so, and it goes nowhere pipelines don’t already go. All it does is increase the capacity of the existing Keystone pipeline system, which has already transported over 550 million barrels of Canadian heavy crude from Alberta to the US. The crude Keystone XL delivers will make no difference to US crude imports; it will simply displace crude imports from elsewhere.

And if Keystone XL doesn’t get built the crude it would have carried will go somewhere else, meaning that no CO2 emissions would be saved by not building it. (Although building it probably would save CO2 emissions because much of the Canadian crude that now moves south on trucks and rail tankers would pass through Keystone instead.) So what’s all the fuss about? What’s happened, of course, is that Keystone XL has been blown totally out of proportion, to the point where it’s become a cause célèbre. But how it got to this point is something for the psychologists, sociologists and political scientists to argue about. Here we will confine ourselves to the facts.

First, the purpose of Keystone XL. Its purpose is simply to supply more Canadian heavy crude to US Gulf Coast refineries that are facing potential feedstock shortages because of declining heavy crude production from Mexico and Venezuela, their main historic suppliers. This is a perfectly reasonable business proposition. Canada is motivated to sell, the refineries are motivated to buy and both will profit from the transaction. (Scotland has the same motivation in wishing to sell its surplus wind power to England. The difference is that Canada can deliver a product the client wants when the client wants it.) Second, the Canada-US pipeline system. There’s a perception that Keystone XL will be the first pipeline to bring Canadian crude to the US, but as shown in Figure 1 a substantial network of oil pipelines linking the two countries already exists. (Keystone XL is the blue line running northwest of Steele City):

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“I call it a liquidity spiral. They’ll start burning right through cash.”

A Huge Credit Line Reset Looms Over Oil Drillers (Bloomberg)

Oil and gas companies have April circled on their calendars. That’s when their lenders will recalculate the value of properties that energy companies staked as loan collateral. With those assets in decline along with oil prices, banks are preparing to cut the amount they’re willing to lend, crimping the ability of U.S. drillers to keep production growing. “This could start a downward spiral for some of these companies because liquidity will dry up,” said Thomas Watters, managing director of oil and gas research for Standard & Poors in New York. “I call it a liquidity spiral. They’ll start burning right through cash.” More than 20 U.S. exploration and production companies have used at least 60% of their credit lines, according to Bloomberg analyst Spencer Cutter. The energy industry is facing a cash squeeze after U.S. oil prices fell 60% since June.

Drillers have already cut spending to conserve cash. If credit lines are cut, the most indebted producers will be left scrambling to raise money elsewhere. New loans will be expensive – if they’re available at all. The credit lines, which typically are reset each spring and fall based on the value of borrowers’ petroleum reserves, operate like credit cards. To pay them off, companies have in the past sold off assets or issued bonds. The value of oil properties has declined at the same time that the borrowing environment for energy companies has gotten worse. At least one junk-rated company, Breitburn, has gotten an early jump on discussions with its lender. Breitburn’s credit limit was raised to $2.5 billion from $1.6 billion on Nov. 19 as a result of the acquisition of another energy company.

About three months ago, Los Angeles-based Breitburn attempted to sell $400 million of bonds to pay down its $2.5 billion credit line, but canceled the offering as oil falling below $90 a barrel roiled credit markets. The credit line is 88% drawn, according to regulatory filings. With the high-yield energy market still “challenged,” Breitburn is considering tapping the loan market, Jim Jackson, the oil producers’ chief financial officer, said in a phone interview. If its credit line is reduced to below what’s already been borrowed, “we would have six months to close that gap,” he said. “We’re being very pro-active.” Last week, S&P said it might downgrade Breitburn’s credit rating over concerns the company would face cash shortfalls if it couldn’t replace money from a reduced credit line.

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“There is a point in time where disinflation turns into deflation and then you start worrying about that potential car crash..”

Janjuah On 2015: Oil At $30; Bonds To Go Crazy (CNBC)

If you thought 2014 was volatile, hold on to your hats this year as the price of oil could hit $30 a barrel and the bond markets will outperform, according to Bob Janjuah, a closely-watched strategist from Nomura Securities. He told CNBC on Monday that there was little chance of Saudi Arabia changing its decision not to cut oil production, despite the 60% fall in prices since June 2014, and the cost of a barrel could head even lower. “Oil can go up in the short-term but I think actually that there’s some political motivations at play here and Saudi Arabia is at risk of losing its position as the marginal price-setter and I don’t think they want to lose that position,” Janjuah, co-head of cross-asset allocation strategy at Nomura, told CNBC Monday.

“I think the Saudis will potentially carry on (with their policy of not cutting production) and production will remain high but my head target is $30 – $35 as where we could get to. Where prices are now, I think a twenty dollar move is more difficult but I think that’s the risk and out there,” he told CNBC Europe’s “Squawk Box.” Janjuah believed that Saudi Arabia – the leading member of OPEC – would be content to maintain that pressure on the U.S. along with other major oil producers such as Russia. While some economies could benefit from lower oil prices, such as major importer Europe, Janjuah warned about the U.S. whose energy industry has grown thanks to its “fracking” of shale oil.

“If you look at the U.S. economy, the bulk of capital expenditure and jobs growth has been in and around the shale and energy-related sectors so if crude is down around the $30-$35 mark for a significant period of time I think you’re going to see a default cycle in the U.S. energy sector.” “I think disinflation is the key theme (this year) so you have to like bonds,” Janjuah said. “There is a point in time where disinflation turns into deflation and then you start worrying about that potential car crash where we start to worry about growth and earnings and how that hits the equity trade.”

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Translation: frack on!

U.S. Won’t Intervene in Oil Market (Bloomberg)

The U.S. won’t intervene in the oil market amid falling crude prices, according to Amos Hochstein, the U.S. State Department’s energy envoy. The U.S. will let “the market” decide what happens, Hochstein said in an interview at a conference in Abu Dhabi yesterday. Hochstein is special envoy and coordinator for international affairs at the State Department’s Bureau of Energy Resources. “When people ask the question ‘what will the U.S. do?,’ it’s really the market that’s going to have to decide what happens,” Hochstein said. “This is about a global market that is addressing the supply-demand curve.” Asked what the U.S. could do about falling prices and instability in oil markets, he said: “We do have mechanisms to work with our partners around the world if something extreme happens, but that’s not where I think we are and I think the markets so far can adjust themselves.”

Oil prices have dropped 53% in the past year as growing production from the U.S., Russia and OPEC overwhelmed demand. The International Energy said last week that the effects on U.S. production are so far “marginal.” “One of the most remarkable aspects of this recent period has been the resilience of the American energy market,” Hochstein said. U.S. oil production growth has swelled to its fastest pace in more than three decades, driven by output from shale deposits. Cheaper oil prices won’t stop development of alternative energy sources, he said. “We have really switched paradigms here where renewable energy really can continue to grow, even when there are low oil prices,” he said. “That’s true globally.”

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Not politically, it can’t.

Saudi Arabia Can Last Eight Years On Low Oil Prices (Guardian)

A former adviser to Saudi Arabia has said the country can withstand eight years or more of low oil prices as tensions over the price slump simmered between the world’s biggest oil exporter and Iran. Mohammad al-Sabban told the BBC that Saudi Arabia was concerned about the falling oil price but its cash reserves and planned budget cuts meant it could cope with a long period of depressed prices. “Saudi Arabia can sustain these low oil prices for at least eight years. First, we have huge financial reserves of about 3tn Saudi riyals (£527bn). Second, Saudi Arabia is embarking now on rationalising its expenditure, trying to take all the fat out of the budget. I think [Saudi Arabia] is worried but we [have to] wait for the full medicine that we have prescribed for ourself to take its course.”

Without cuts in spending on infrastructure, sports stadiums and new cities, Saudi Arabia can withstand low oil prices for at least four years, said Sabban, a former adviser to the Saudi minister for petroleum. He also suggested that lower oil prices could have long-term benefits for Saudi Arabia. Saudi Arabia has refused to cut production despite a more than 50% fall in the price of oil since last summer. “To shorten the cycle, you need to allow prices to go as low as possible to see those marginal producers move out of the market on the one hand, and also if there is any increase in demand that will be welcomed.” His comments were a further signal that Saudi Arabia was prepared to use its financial strength to ride out depressed oil prices now piling pressure on other producers, including Iran, which also faces western sanctions over its nuclear programme.

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Thank you Brussels for bringing back extremism.

Europe ‘Faces Political Earthquakes’ (BBC)

Political earthquakes could be in store for Europe in 2015, according to research by the Economist Intelligence Unit for the BBC’s Democracy Day. It says the rising appeal of populist parties could see some winning elections and mainstream parties forced into previously unthinkable alliances. Europe’s “crisis of democracy” is a gap between elites and voters, EIU says. There is “a gaping hole at the heart of European politics where big ideas should be”, it adds. Low turnouts at the polls and sharp falls in the membership of traditional parties are key factors in the phenomenon. The United Kingdom – going to the polls in May – is “on the cusp of a potentially prolonged period of political instability”, according to the Economist researchers.

They say there is a much higher than usual chance that the election will produce an unstable government – predicting that the populist UK Independence Party (UKIP) will take votes from both the Conservatives and Labour. The fragmentation of voters’ preferences combined with Britain’s first-past-the-post electoral system will, the EIU says, make it increasingly difficult to form the kind of single-party governments with a parliamentary majority that have been the norm. But the most immediate political challenge – and test of how far the growing populism translates into success at the polls – is in Greece. A snap general election takes place there on 25 January, triggered by parliament’s failure to choose a new president in December. Opinion polls suggest that the far left, populist Syriza could emerge as the strongest party. If it did and was able to form a government, the EIU says this would send shock waves through the European Union and act as a catalyst for political upheaval elsewhere.

“The election of a Syriza government would be highly destabilising, both domestically and regionally. It would almost certainly trigger a crisis in the relationship between Greece and its international creditors, as debt write-offs form one of the core planks of its policy platform,” the EIU says. “With similar anti-establishment parties gaining ground rapidly in a number of other countries scheduled to hold elections in 2015, the spill-over effects from a further period of Greek turmoil could be significant.” Other examples of European elections with potential for unpredictable results cited by EIU include polls in Denmark, Finland, Spain, France, Sweden, Germany and Ireland. “There is a common denominator in these countries: the rise of populist parties,” the EIU says, “Anti-establishment sentiment has surged across the eurozone (and the larger EU) and the risk of political disruption and potential crises is high.”

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“The audit revealed that between 2007 and 2008 the Federal Reserve loaned over $16 trillion — more than four times the annual budget of the United States — to foreign central banks and politically-influential private companies.”

If The Fed Has Nothing To Hide, It Has Nothing To Fear (Ron Paul)

Since the creation of the Federal Reserve in 1913, the dollar has lost over 97% of its purchasing power, the US economy has been subjected to a series of painful Federal Reserve-created recessions and depressions, and government has grown to dangerous levels thanks to the Fed’s policy of monetizing the debt. Yet the Federal Reserve still operates under a congressionally-created shroud of secrecy. No wonder almost 75% of the American public supports legislation to audit the Federal Reserve. The new Senate leadership has pledged to finally hold a vote on the audit bill this year, but, despite overwhelming public support, passage of this legislation is by no means assured. The reason it may be difficult to pass this bill is that the 25% of Americans who oppose it represent some of the most powerful interests in American politics.

These interests are working behind the scenes to kill the bill or replace it with a meaningless “compromise.” This “compromise” may provide limited transparency, but it would still keep the American people from learning the full truth about the Fed’s conduct of monetary policy. Some opponents of the bill say an audit would somehow compromise the Fed’s independence. Those who make this claim cannot point to anything in the text of the bill giving Congress any new authority over the Fed’s conduct of monetary policy. More importantly, the idea that the Federal Reserve is somehow independent of political considerations is laughable. Economists often refer to the political business cycle, where the Fed adjusts its policies to help or hurt incumbent politicians.

Former Federal Reserve Chairman Arthur Burns exposed the truth behind the propaganda regarding Federal Reserve independence when he said, if the chairman didn’t do what the president wanted, the Federal Reserve “would lose its independence.” Perhaps the real reason the Fed opposes an audit can be found by looking at what has been revealed about the Fed’s operations in recent years. In 2010, as part of the Dodd-Frank bill, Congress authorized a one-time audit of the Federal Reserve’s activities during the financial crisis of 2008. The audit revealed that between 2007 and 2008 the Federal Reserve loaned over $16 trillion — more than four times the annual budget of the United States — to foreign central banks and politically-influential private companies.

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”Next time around, the federals are going to have to confiscate stuff, break promises, take away things, and rough some people up.”

A Solemn Pause (Jim Kunstler)

Events are moving faster than brains now. Isn’t it marvelous that gasoline at the pump is a buck cheaper than it was a year ago? A lot of short-sighted idiots are celebrating, unaware that the low oil price is destroying the capacity to deliver future oil at any price. The shale oil wells in North Dakota and Texas, the Tar Sand operations of Alberta, and the deep-water rigs here and abroad just don’t pencil-out economically at $45-a-barrel. So the shale oil wells that are up-and-running will produce for a year and there will be no new ones drilled when they peter out — which is at least 50% the first year and all gone after four years.

Anyway, the financial structure of the shale play was suicidal from the get-go. You finance the drilling and fracking with high-yield “junk bonds,” that is, money borrowed from “investors.” You drill like mad and you produce a lot of oil, but even at $105-a-barrel you can’t make profit, meaning you can’t really pay back the investors who loaned you all that money, a lot of it obtained via Too Big To Fail bank carry-trades, levered-up on ”margin,” which allowed said investors to pretend they were risking more money than they had. And then all those levered-up investments — i.e. bets — get hedged in a ghostly underworld of unregulated derivatives contracts that pretend to act as insurance against bad bets with funny money, but in reality can never pay out because the money is not there (and never was.) And then come the margin calls. Uh Oh….

In short, enjoy the $2.50-a-gallon fill-ups while you can, grasshoppers, because when the current crop of fast-depleting shale oil wells dries up, that will be all she wrote. When all those bonds held up on their skyhook derivative hedges go south, there will be no more financing available for the entire shale oil project. No more high-yield bonds will be issued because the previous issues defaulted. Very few new wells (if any) will be drilled. American oil production will not return to its secondary highs (after the 1970 all-time high) of 2014-15. The wish of American energy independence will be steaming over the horizon on the garbage barge of broken promises. And all, that, of course, is only one part of the story, because there is the social and political fallout to follow.

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“Production can only be maintained through relentless drilling, and that relentless drilling has now stopped.”

Whiplash! (Dmitry Orlov)

Over the course of 2014 the prices the world pays for crude oil have tumbled from over $125 per barrel to around $45 per barrel now, and could easily drop further before heading much higher before collapsing again before spiking again. You get the idea. In the end, the wild whipsawing of the oil market, and the even wilder whipsawing of financial markets, currencies and the rolling bankruptcies of energy companies, then the entities that financed them, then national defaults of the countries that backed these entities, will in due course cause industrial economies to collapse. And without a functioning industrial economy crude oil would be reclassified as toxic waste. But that is still two or three decades off in the future.

In the meantime, the much lower prices of oil have priced most of the producers of unconventional oil out of the market. Recall that conventional oil (the cheap-to-produce kind that comes gushing out of vertical wells drilled not too deep down into dry ground) peaked in 2005 and has been declining ever since. The production of unconventional oil, including offshore drilling, tar sands, hydrofracturing to produce shale oil and other expensive techniques, was lavishly financed in order to make up for the shortfall. But at the moment most unconventional oil costs more to produce than it can be sold for. This means that entire countries, including Venezuela’s heavy oil (which requires upgrading before it will flow), offshore production in the Gulf of Mexico (Mexico and US), Norway and Nigeria, Canadian tar sands and, of course, shale oil in the US.

All of these producers are now burning money as well as much of the oil they produce, and if the low oil prices persist, will be forced to shut down. An additional problem is the very high depletion rate of “fracked” shale oil wells in the US. Currently, the shale oil producers are pumping flat out and setting new production records, but the drilling rate is collapsing fast. Shale oil wells deplete very fast: flow rates go down by half in just a few months, and are negligible after a couple of years. Production can only be maintained through relentless drilling, and that relentless drilling has now stopped. Thus, we have just a few months of glut left. After that, the whole shale oil revolution, which some bobbleheads thought would refashion the US into a new Saudi Arabia, will be over.

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New Zealand PM does hollow propaganda.

Why New Zealand Can Handle Europe, Oil Troubles (CNBC)

New Zealand’s exports may face headwinds from the decline in oil price and strengthening of its currency against the euro, but the country’s prime minister told CNBC that the “Kiwi economy” is set to carry on booming. The New Zealand dollar has appreciated just over 8% against the euro since in the last three months as expectations have risen that the European Central Bank (ECB) will announce a full-blown quantitative easing program when it meets this Thursday. The kiwi dollar, as it is known, strengthened further to a record high against the euro on Friday after the Swiss National Bank made a surprise policy move to abandon its minimum exchange rate against the euro. New Zealand Prime Minister John Key told CNBC that a stronger currency would not hinder the economy, one that is currently outperforming many developed nations.

“Obviously it’s had an impact as it’s pushed up the kiwi-euro rate and that makes it a little bit more difficult for our exporters but overall our economy is still very strong. We think we’ll grow 3.25% every year for the next three years, so about ten% over the next three years so we’re still confident we can get there, even with a higher exchange rate.” In December, Statistics New Zealand said the economy was growing faster than expected and had accelerated in the third quarter. Gross domestic product increased 1% in the third quarter from the previous quarter, according to the statistics body. Key said that the New Zealand economy was being helped by economic activity in the U.S. and he brushed aside concerns over a slowdown in growth in Asia. Europe was another matter, however.

“The U.S. is much stronger than people think now, we see a lot of activity out of the U.S. both in terms of tourists coming and the buying activity. Asia is still quite strident and there is some concern that China is going to fall over but I don’t think that’s going to happen. It’s still Europe that’s got to deal with its fundamental issues.” New Zealand’s third-quarter growth was driven by its primary industries, including the dairy industry and oil and gas exploration and extraction, which grew by 5.8%. After dairy, meat and wood, oil is the fourth-largest export for New Zealand and, as such, the steep decline in global oil prices could hit the country’s economy. Indeed, exploration companies like New Zealand Oil and Gas, TEG Oil and Key Petroleum are all looking to defer projects in the region.

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Thank ZIRP.

Bleak Future For Retirees As Savings Slashed (CNBC)

Millions of workers around the world could enter retirement with savings diminished by a fifth or more after getting into debt or financial difficulty, HSBC warned in a new report. According to the bank, the impact of the global economic downturn could be felt for decades by the vast number of people who raided their retirement funds and accumulated debt during the financial crisis. In a study of 16,000 people into global retirement trends, HSBC found that two in five workers stopped or reduced their savings for retirement during the downturn that began in 2007. The situation is particularly bad in the U.K. and Canada, the bank warned, where retirement savings have been nearly halved as a result of debts or financial constraints.

“Despite the fact that close to 70% of people feel like they will run out of money or not have enough to live on day-to-day in retirement, 40% of people today are either not saving for retirement or significantly reduced their savings for retirement,” Michael Schweitzer, head of sales and distribution for group wealth management at HSBC, told CNBC on Monday. “And that is going to cause a shortfall for millions of people – as much as a fifth when they do get to retirement.” Even with a recovery in the global economy, which the International Monetary Fund expects to grow 3.8% this year from 3.3% in 2014, debt accumulated during the financial crisis will continue to weigh on workers’ ability to save, HSBC said. According to the study, this gloom is being felt across the globe, with almost a quarter of working-age people anticipating living standards in retirement to be worse than they are today.

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Did anyone realize this?: “Wild honey bees can no longer be found in England or Wales ..”

Disease Threat To Wild Bees from Commercial Bees (BBC)

The trade in bees used for honey or to pollinate crops could have a devastating impact on wild bees and other insects, say scientists. New measures are needed to stop diseases carried by commercial bees spilling over into the wild, says a University of Exeter team. Evidence suggests bees bred in captivity can carry diseases that could be a risk to native species. Bees are used commercially to pollinate crops such as peppers and oilseed rape. Species of bees used for this purpose, or in commercial hives, are known to suffer from parasite infections and more than 20 viruses. Many of these can also infect wild bumble bees, wasps, ants and hoverflies.

The study, published in the Journal of Applied Ecology, reviewed data from existing studies to look at the potential for diseases to jump from commercial bees to insects in the wild. “Our study highlights the importance of preventing the release of diseased commercial pollinators into the wild,” said lead researcher Dr Lena Wilfert. “The diseases carried by commercial species affect a wide range of wild pollinators but their spread can be avoided by improved monitoring and management practices. “Commercial honey beekeepers have a responsibility to protect ecologically and economically important wild pollinator communities from disease.”

Several diseases of honey bee colonies are known. They include a parasite called the Varroa mite and a virus that leads to deformed wings, which has also been found in wild bumble bees. Vanessa Amaral-Rogers of the charity, Buglife, said the results of the study showed an urgent need for changes in how the government regulates the importation of bees. “Wild honey bees can no longer be found in England or Wales, thought to have been wiped out by disease,” she told BBC News. “Now these studies show how diseases can be transmitted between managed honey bees and commercial bumble bees, and could have potentially drastic impacts on the rest of our wild pollinators. “

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