May 172018
 
 May 17, 2018  Posted by at 8:40 am Finance Tagged with: , , , , , , , , , , , , ,  7 Responses »


Vincent van Gogh Daubigny’s garden 1890

 

Housing ATM is Back – But It Won’t Work Any Better This Time (Mish)
Will the New Fed Get Rid of All its Mortgage-Backed Securities? (WS)
Venezuela’s State Oil Company PDVSA Faces Collapse (PaP)
Births Plunge To Record Lows In United States (AFP)
Open Letter From M5S To The Financial Times (IBDS)
Ecuador’s Ex-President Denounces Treatment of Julian Assange as “Torture” (GG)
New Zealand ‘People’s’ Budget Puts Billions More Into Health And Education (G.)
Lords Inflict 15th Defeat On Theresa May Over EU Withdrawal Bill (G.)
Western Countries Have Known Novichok Formula For Decades – German Media (RT)
31,000 Unaccompanied Minors Applied For Asylum In EU in 2017 (K.)
DR Congo Ebola Outbreak Spreads To Mbandaka City (BBC)
Mysterious Return Of Ozone-Destroying CFCs Shocks Scientists (G.)
Startling National Geographic Cover Photo Captures The Plastic Crisis (NZH)

 

 

“People are further and further in debt and need to pull out cash to pay the bills.”

Housing ATM is Back – But It Won’t Work Any Better This Time (Mish)

With mortgage rates rising, one would expect refi activity to slow. And it has: Refi Applications are at an 8-Year Low. But why is there any refi activity all at all? In September 2017 the MND mortgage rate rate was 3.85%. In June 2016, the MND rate was 3.43%.

It makes little sense to refi at 4.70% when one could have done it less than two years ago a point and a quarter lower. At these rates, refi activity should be in the low single digits. Yet, 36% of mortgage applications are refis.

Are people pulling money out of their houses to pay bills? That’s how it appears as Cash-Out Mortgage Refis are Back. What’s Going On?
• People feel wealthy again and are willing to blow it on consumption
• People pulling money out to invest in stocks or Bitcoin
• People are further and further in debt and need to pull out cash to pay the bills.

I suspect point number three is the primary reason. Regardless, releveraging is as wrong now as it was in 2007. Totally wrong.

Read more …

Dump and dump.

Will the New Fed Get Rid of All its Mortgage-Backed Securities? (WS)

Like Powell, Clarida said he “absolutely” supports the Fed’s normalization of interest rates and the balance sheet. Like Powell, he said that the normalized balance sheet should be “a lot smaller,” and that Powell’s suggestion of a range of $2.4 trillion to $2.9 trillion, down from its peak-level of $4.5 trillion, “makes sense.” Like Powell, he said stock market volatility itself – that’s downward volatility, the only volatility that matters on Wall Street – shouldn’t determine the Fed’s policy decisions. On banking regulation too he mirrored Powell. So in this sense, what he said about mortgage-backed securities on the Fed’s balance sheet is fascinating: The Fed should shed them entirely, down to zero.

Clarida explained that there are “benefits and costs” of QE, and that as more layers of QE were piled on, “the benefits of QE diminished and the costs went up.” And as vice chairman, he’d “have to take a serious look at the costs of QE.” Then he was asked about “non-Treasury instruments, like mortgage-backed securities,” for QE – that the Fed, when selecting non-Treasury securities, would be getting into something that it shouldn’t, namely “allocating credit.” “Yes, absolutely,” Clarida replied: “My preference would be for the Fed to end up with a Treasury-only portfolio.” He then added that, “as a general proposition, my preference would be to have the balance sheet as much as possible in Treasury securities.”

Shedding MBS from the balance sheet entirely and keeping them off could have a big impact. Currently, the Fed holds $1.74 trillion of MBS. That’s about 26% of all residential mortgage-backed securities outstanding. The Fed is the elephant in the MBS room.

Read more …

“..the company that 20 years ago, was the second largest in the world..”

Venezuela’s State Oil Company PDVSA Faces Collapse (PaP)

In less than a month, Venezuela’s state oil company, Petróleos de Venezuela (PDVSA), faces three lawsuits that may end up taking all of the oil giant’s international assets, leaving it bankrupt. According to the economist and opposition congressman, Ángel Alvarado, the company that 20 years ago, was the second largest in the world, is about to disappear. Alvarado says that the state has no way to pay all its outstanding debts or the legal judgments that are looming. In an ominous sign, creditors today attempted to collect USD $2.9 billion that the oil company has failed to pay in debt obligations. The bankrupt company not only must face ConocoPhillips, after having lost a lawsuit where it was ordered to pay the US oil company USD $2 billion.

PDVSA now must also respond to a wave of similar claims, as it looks for a way to pay bondholders after default, and tries to restart refineries that are about to close because of diminished production caused by abandonment and embezzlement. In short, PDVSA faces the perfect storm for falling into bankruptcy, with no credible path for solvency. According to OPEC, Venezuela is the country with the largest proven reserves of crude oil in the world with 296 billion barrels. However, paradoxically, the export of crude oil is not a profitable business for the South American country after years of neglect by the socialist government. Recently the US company ConocoPhillips decided to seize the PDVSA’s assets in the Caribbean, a dangerous precedent that could influence other plaintiffs to take similar measures.

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Joining the rest of the world.

Births Plunge To Record Lows In United States (AFP)

Births in the United States have plunged to record lows not seen in decades, marking a profound cultural shift that could have ramifications for the future economy, experts said Thursday. The overall fertility rate, which essentially shows how many babies women are having in their childbearing years, and indicates whether the population is replenishing itself, fell to 1.76 births per woman last year, down 3% from the rate of 1.82 in 2016. That marks “the lowest total fertility rate since 1978,” said the report by the National Center for Health Statistics, part of the US Centers for Disease Control and Prevention. Meanwhile, the US birth rate plunged to a 30-year low.

The 3.85 million US births in 2017 were the fewest since 1987, as American women under 40 continued to delay childbearing. About 77,000 fewer babies were born last year than in 2016 – about a 2% drop year-on-year. The latest downward trend began around the onset of the global financial crisis in 2007 and 2008, but has not abated even as US jobs rebounded and the economy has improved. “To me the biggest surprise is the continuing decline of fertility rates among young women,” said William Frey, a demographer and senior fellow of the Metropolitan Policy Program at The Brookings Institution. “About 10 years since the Great Recession we still see this declining fertility among women in their 20s and that could be problematic if it continues for another three or four years.”

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“The last 30 years in Italy have been characterized by a constant mixture of politics, the mafia and occult affairs that have literally shattered our country to the bone..”

Open Letter From M5S To The Financial Times (IBDS)

Letter to CEO John Ridding and editors of the Financial Times. Dear Sirs, I have read your article “Rome opens its gates to the modern barbarians” and, with all due respect to an important newspaper like yours, honestly I think you need to better understand what is taking place in Italy. And I suggest you get to know the 5 Star MoVement a little more closely. The last 30 years in Italy have been characterized by a constant mixture of politics, the mafia and occult affairs that have literally shattered our country to the bone, marking every possible negative record in our history. Nowadays, Italy has about 6 million people under the absolute poverty threshold and about 100,000 young people every year expatriating to try their luck elsewhere, often in your country.

All this is the result of barbarians, old barbarians about whom I have never read as many negative things in your editorials as I am reading these days against us. The 5 Star Movement was born in 2009 with a specific aim: to bring the popular will back to the centre of the political debate and the decisions of the central government. In just 9 years we have grown so much that we can now see what we have accomplished, with over 11 million people who trusted us in the last elections. We succeeded by working hard, with our heads down, studying, always struggling to defend Italian citizens. We succeeded with the youngest, most educated and most gender-balanced parliamentary group that the history of Italy has ever seen. Italians have always believed us based on the awareness that everything we have promised or written in a program, has become a reality on the first occasion we have had to make it happen.

In your article you are talking about a contract of government that is difficult to implement and economically unsustainable: what a pity you have not read this contract yet! And this is an offence to professional journalism, also. But there is one thing you are right about. The contract we are writing is challenging and it will not be easy to remedy the damage caused by political barbarians governing our country for the past 30 years. But we are doing our best to restore hope and to give Italians a brighter future. If you want to better understand how we will acccomplish this, I suggest you do not waste time publishing false news created ad-hoc by the Italian media system, get to know the 5 Star Movement and report the truth instead. Good luck!

Read more …

On the Guardian’s hit pieces yesterday.

Ecuador’s Ex-President Denounces Treatment of Julian Assange as “Torture” (GG)

Former Ecuadorian President Rafael Correa, in an exclusive interview with The Intercept on Wednesday morning, denounced his country’s current government for blocking Julian Assange from receiving visitors in its embassy in London as a form of “torture” and a violation of Ecuador’s duties to protect Assange’s safety and well-being. Correa said this took place in the context of Ecuador no longer maintaining “normal sovereign relations with the American government — just submission.” Correa also responded to a widely discussed Guardian article yesterday, which claimed that “Ecuador bankrolled a multimillion-dollar spy operation to protect and support Julian Assange in its central London embassy.”

The former president mocked the story as highly “sensationalistic,” accusing The Guardian of seeking to depict routine and modest embassy security measures as something scandalous or unusual. On March 27, Assange’s internet access at the Ecuadorian Embassy in London was cut off by Ecuadorian officials, who also installed jamming devices to prevent Assange from accessing the internet using other means of connection. Assange’s previously active Twitter account has had no activity since then, nor have any journalists been able to communicate with him. All visitors to the embassy have also been denied access to Assange, who was formally made a citizen of Ecuador earlier this year.

[..] Correa continues to believe that asylum for Assange is not only legally valid, but also obligatory. “We don’t agree with everything Assange has done or what he says,” Correa said. “And we never wanted to impede the Swedish investigation. We said all along that he would go to Sweden immediately in exchange for a promise not to extradite him to the U.S., but they would never give that. And we knew they could have questioned him in our embassy, but they refused for years to do so.” The fault for the investigation not proceeding lies, he insists, with the Swedish and British governments.

But now that Assange has asylum, Correa is adamant that the current government is bound by domestic and international law to protect his well-being and safety. Correa was scathing in his denunciation of the treatment Assange is currently receiving, viewing it as a byproduct of Moreno’s inability or unwillingness to have Ecuador act like a sovereign and independent country.

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Hopeful.

New Zealand ‘People’s’ Budget Puts Billions More Into Health And Education (G.)

The first Labour government in close to a decade has pledged to make New Zealand a kind and equitable nation where children thrive, and success is measured not only by the nation’s GDP but by better lives lived by its people. Finance minister Grant Robertson said the Labour coalition government didn’t want to “manage” issues such as child poverty and homelessness – it wanted to end them. Although the 2018 budget was focused on rebuilding vital public services – particularly the health care sector – Robertson said next year’s budget would be the first in the world to measure success by its people’s wellbeing. “We want New Zealand to be a place where everyone has a fair go, and where we show kindness and understanding to each other,” said Robertson.

“These changes are about measuring success differently. Of course a strong economy is important but we must not lose sight of why it is is important. And it is most important to allow all of us to have better lives … the government is placing the wellbeing of people at the centre of all its work. The 2018 budget had been preceded by weeks of cautious rhetoric by the government, which repeated time and again that before embarking on its ambitious social policies such as ending child poverty, tackling climate change and housing every New Zealander, it first had to invest in upgrading public services such as hospitals and schools.

Labour’s first budget was viewed as restrained and fiscally cautious, with Robertson forecasting a NZ$3bn ($2bn) surplus this year, increasing to $7bn in 2020. Prime Minister Jacinda Ardern said her government’s first budget was not focused on the election cycle, but generational improvement in New Zealanders’ lives. “Rebuild what?” said Ardern, defending her government’s budget and rounding on the opposition leader, Simon Bridges. “Well let’s start with New Zealand’s reputation shall we? We are rebuilding a government that thinks about people.” “In 15 or 20 or 30 years’ time I want my child to look back on the history books and judge me and this government favourably, rather than deciding to change their name.”

Read more …

A sad comedy.

Lords Inflict 15th Defeat On Theresa May Over EU Withdrawal Bill (G.)

Peers have inflicted a 15th defeat on the government’s key Brexit bill, underlining the acute political challenge Theresa May faces in seeking a deal that both parliament and her warring ministers can live with. The latest amendment, aimed at bolstering environmental protection after Brexit, was carried by 294 to 244 votes on Wednesday. Peers argued that enforcement measures proposed in a consultation document published last week were inadequate and that the environment had been subordinated to housing and economic growth. With her cabinet still deadlocked over customs arrangements, the prime minister must now decide when to bring the legislation back to the House of Commons and seek to undo the changes made by peers.

Martin Callanan, the Conservative leader in the Lords, said: “During the bill’s journey through the House of Lords, some changes have been made that conflict with its purpose or are designed to frustrate the entire exit process, and so we are considering the implications of those decisions.” The backbench pro-Brexit European Research Group, chaired by Jacob Rees-Mogg, wants to see the votes brought forward as soon as possible to scotch the idea that there is a majority against hard Brexit among MPs. They point to a pair of recent Commons victories, over the release of Windrush documents and a , as evidence that the government’s majority is more secure than moderate backbenchers claim.

Read more …

“Some NATO countries were secretly producing the chemical agent in small quantities..”

Western Countries Have Known Novichok Formula For Decades – German Media (RT)

A sample of Novichok, the nerve agent allegedly used to poison the Skripals, was obtained by German intelligence back in the 1990s, local media report. The substance has since been studied and produced by NATO countries. Western countries, including the US and the UK, have long been aware of the chemical makeup of the nerve agent known as Novichok, a group of German media outlets reported following a joint investigation. The inquiry, based on anonymous sources, gives new insights into the issue of the nerve agent said to have been used in the poisoning of former double agent Sergei Skripal and his daughter Yulia in Salisbury, UK, in March.

Western governments were able to lay their hands on the formula of what is described as “one of the deadliest chemical weapons ever developed” after the German foreign intelligence service, the BND, obtained a sample of the nerve agent from a Russian defector in the early 1990s. A Russian scientist provided German intelligence with information on the development of Novichok for some time following the collapse of the Soviet Union, the German NDR and WDR broadcasters, as well as Die Zeit and Suedeutsche Zeitung dailies, report, citing unnamed sources within the BND. At some point, the man offered to bring the Germans a sample of the chemical agent in exchange for asylum for him and his family.

A sample was eventually smuggled by the wife of the scientist and sent by the Germans to a Swedish chemical lab, according to the reports. Following the sample analysis, the Swedish experts established the formula of the substance, which they then handed over to Germany. By the order of the then German Chancellor Helmut Kohl, the BND then shared the formula with Berlin’s “closest allies,” including the intelligence services of the US and the UK. Later, the UK, the US and Germany reportedly created a special “working group” tasked with studying the substance, which also included representatives from France, Canada and the Netherlands.

“Some NATO countries were secretly producing the chemical agent in small quantities,” the four media outlets reported, adding that it was allegedly done to develop the necessary countermeasures. However, it remains unclear which particular states were involved in the Novichok production.

Read more …

Let’s make sure they are protected.

31,000 Unaccompanied Minors Applied For Asylum In EU in 2017 (K.)

Some 2,500 unaccompanied minors applied for asylum in Greece last year, around 8% of the total 31,400 child refugees who sought asylum in European Union countries in 2017. Italy received a relatively large chunk of applications for asylum – more than 10,000, or 32% of the total – followed by Germany, with 9,100 applications (29%). The United Kingdom received 2,200 applications (7%), while Austria received 1,400 (4%), Sweden 1,300 and the Netherlands 1,200. The number of child refugees seeking asylum in EU countries in 2017 almost halved compared to the previous year. In 2016 there were 63,200 applications, while there were 95,200 in 2015. However, the total number of applications in the EU last year was still double the annual average of 12,000 between 2008 and 2013.

Read more …

On the river.

DR Congo Ebola Outbreak Spreads To Mbandaka City (BBC)

The Ebola outbreak in Congo has spread from the countryside into a city, prompting fears that the disease will be increasingly difficult to control. Health Minister Oly Ilunga Kalenga confirmed a case in Mbandaka, a city of a million people about 130km (80 miles) from the area where the first cases were confirmed earlier this month. The city is a major transportation hub with routes to the capital Kinshasa. Forty-two people have now been infected and 23 people are known to have died. Ebola is a serious infectious illness that causes internal bleeding and often proves fatal. It can spread rapidly through contact with small amounts of bodily fluid and its early flu-like symptoms are not always obvious.

Senior World Health Organization (WHO) official Peter Salama said the outbreak’s shift to a major city meant there was the potential for an “explosive increase” in cases. “This is a major development in the outbreak”. “We have urban Ebola, which is a very different animal from rural Ebola. The potential for an explosive increase in cases is now there.” Mr Salama, the WHO’s Deputy Director-General of Emergency Preparedness and Response, said Mbandaka’s location on the Congo river, widely used for transportation, raised the prospect of Ebola spreading to surrounding countries such as Congo-Brazzaville and the Central African Republic as well as downstream to Kinshasa, a city of 10 million people. “This puts a whole different lens on this outbreak and gives us increased urgency to move very quickly into Mbandaka to stop this new first sign of transmission,” he said.

[..] On Wednesday more than 4,000 doses of an experimental vaccine sent by the WHO arrived in the country with another batch expected soon. The vaccine from pharmaceutical firm Merck is unlicensed but was effective in limited trials during the Ebola outbreak in West Africa. It needs to be stored at a temperature of between -60 and -80 C. Electricity supplies in Congo are unreliable.

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Curious.

Mysterious Return Of Ozone-Destroying CFCs Shocks Scientists (G.)

A sharp and mysterious rise in emissions of a key ozone-destroying chemical has been detected by scientists, despite its production being banned around the world. Unless the culprit is found and stopped, the recovery of the ozone layer, which protects life on Earth from damaging UV radiation, could be delayed by a decade. The source of the new emissions has been tracked to east Asia, but finding a more precise location requires further investigation. CFC chemicals were used in making foams for furniture and buildings, in aerosols and as refrigerants. But they were banned under the global Montreal protocol after the discovery of the ozone hole over Antarctica in the 1980s. Since 2007, there has been essentially zero reported production of CFC-11, the second most damaging of all CFCs.

The rise in CFC-11 was revealed by Stephen Montzka, at the US National Oceanic and Atmospheric Administration (NOAA) in Colorado, and colleagues who monitor chemicals in the atmosphere. “I have been doing this for 27 years and this is the most surprising thing I’ve ever seen,” he said. “I was just shocked by it.” “We are acting as detectives of the atmosphere, trying to understand what is happening and why,” Montzka said. “When things go awry, we raise a flag.” Erik Solheim, head of UN Environment, said: “If these emissions continue unabated, they have the potential to slow down the recovery of the ozone layer. It’s therefore critical that we identify the precise causes of these emissions and take the necessary action.”

Read more …

Profound.

Startling National Geographic Cover Photo Captures The Plastic Crisis (NZH)

A haunting cover image on the June issue of National Geographic is circulating online, suggesting the plastic pollution we see is just the tip of the iceberg. Such is the extent of Earth’s mind-boggling plastic problem that scientists recently found a plastic bag in the Mariana Trench — the deepest point in the ocean, sitting nearly 11 kilometres below the surface. The Nat Geo cover image was shared by the magazine’s senior photo editor Vaughn Wallace on Twitter this morning who called it “one for the ages”.

[..] The latest edition of the magazine is dedicated to Earth’s plastic consumption and is filled with striking images and infographs that show the immense scale of plastic pollution plaguing our planet. As a small part of addressing the problem, the magazine has committed to delivering its issues in paper wrappers rather than plastic wrappers moving forward. One million plastic bottles are bought every minute around the globe and most of them end up in landfill where they take a significant time to break down, or in the ocean where they kill marine life.

Read more …

Mar 312015
 
 March 31, 2015  Posted by at 9:57 am Finance Tagged with: , , , , , , , , , , ,  5 Responses »


Dorothea Lange Butter bean vines across the porch, Negro quarter, Memphis, Tennessee 1938

The US Economy Is Showing Cracks (CNN)
Greek Construction Sector Crumbles By 80% In Just Five Years (Kathimerini)
Bernanke: I Didn’t Throw Seniors Under The Bus (MarketWatch)
The Fed’s Startling Numbers on Student Debt (Simon Black)
The Fed’s ‘Repression’ Has Cost Savers $470 Billion (MarketWatch)
Low US Consumer Spending Points To Slow First Quarter (MarketWatch)
Jumping On Junk: Investors Crazy For High Yield (CNBC)
19 Economists Call On The ECB To Make ‘QE For The People’ (BasicIncome.org)
Foreign Investors Are Cashing Out of China (Bloomberg)
Bank Of England Stress Tests To Include Feared Global Crash (Guardian)
Germany Says Greece Must Flesh Out Reforms To Unlock Aid (Reuters)
Yanis Varoufakis Calls For End To ‘Toxic Blame Game’ (BBC)
Greek Plans To Unlock Aid ‘Lack Technocratic Input’ (Bloomberg)
Tsipras Presses Allies for Support as Greek Cash Crunch Deepens (Bloomberg)
Repeal, Don’t Reform the IMF! (Ron Paul)
Americans See Putin As Only Slightly More Imminent Threat Than Obama (Reuters)
Fracking’s New Legal Threat: Earthquake Suits (WSJ)
Iran Deal Unlikely Before March 31 as Russia Leaves Talks (Bloomberg)
Sierra Leone Ebola Lockdown Exposes Hundreds Of Suspected Cases (Reuters)

Many. But we knew that. CNN, though? Really?: “The consumer really hasn’t kicked in at full speed ahead..”

The US Economy Is Showing Cracks (CNN)

The U.S. job market had its best year of gains last year since 1999, and economic activity hit a whopping 5% in the third quarter – the best quarter since 2003. Three months later, the U.S. economy is looking a little tired. It’s losing momentum in puzzling ways. Hiring is still strong, but experts are starting to scale back their growth forecasts. Federal Reserve chair Janet Yellen summed it up well in a speech Friday: “If underlying conditions had truly returned to normal, the economy should be booming.” Economists say there are two main problems: Workers’ wages aren’t growing much, if at all. As a result, Americans aren’t going out and spending much. On top of that, many foreign economies are slowing down, which puts pressure on the U.S. The question going forward is whether we’re just in a blip or a bigger shift is taking place.

“The consumer really hasn’t kicked in at full speed ahead,” says Peter Cardillo, chief market economist at Rockwell Global Capital. “We’re going through a soft patch.” With March’s jobs report out on Friday, this economic head-scratcher will be in full focus this week. The U.S. added over half a millions jobs in the first two months of this year alone. That’s a 50% increase from the same two-month stretch a year ago when the Polar Vortex had much of America in a funk. Job gains have come across the board: health care, construction, the service sector and retail businesses have all seen strong pick up. The unemployment rate is down to 5.5%, its lowest mark in seven years. It would be a full-steam story on jobs except for one thing: wage growth. Hourly wages only grew 2% in February. That’s a marginal bump up, but it’s too little for most Americans to notice the recovery’s progress. It’s also well below the Federal Reserve’s roughly 3.5% goal. [..]

People don’t go out and spend unless they feel confident about the future. There was hope that cheap gas would spur people to feel better about the economy and their pocketbooks. A gallon of gas was $3.53 a year ago. Now it’s $2.42, according to AAA. But a lot of people are still holding onto that savings. Retail sales and construction on new homes both fell in February, missing estimates. The latest numbers on manufacturing are also weaker than hoped for. All this could just be a winter slowdown, but it’s raising red flags. “Most of it was due to the inclement weather we had…I think that kept a lot of shoppers at home,” says Bernard Baumohl at the Economic Outlook Group.

Read more …

That’s one big number.

Greek Construction Crumbles By 80% In Just Five Years (Kathimerini)

Construction in Greece has suffered one of the biggest declines to have been recorded by any professional sector within just a few years, as business activity in the domain has dropped as much as 80% since 2008, a study by the Foundation for Economic and Industrial Research (IOBE) showed on Monday. It added that more than a third of the economic contraction recorded from 2008 to 2013 in Greece is associated with the drop in investment in construction. Employment in the sector more than halved within five years, from 589,000 people in 2008 to 287,000 in 2013, the study revealed.

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The stupidest thing in a long while: “There is “absolutely nothing artificial” about setting the Fed rate at the equilibrium rate.”

Bernanke: I Didn’t Throw Seniors Under The Bus (MarketWatch)

Former Fed Chairman Ben Bernanke unveiled a new blog on Monday and used his first post to defend his record from criticism that he kept rates artificially low and hurt savers. Bernanke said he was worried that his post was “very textbook-y” and with some reason. His blog is built around the concept of an “equilibrium real interest rate” which is the ideal level of rates minus inflation that would allow the economy to use all of its labor and capital resources. Fed Chair Janet Yellen discussed this concept in her policy speech last week. Underneath all the wonkiness in the post is a real passion to convince people that Bernanke was not “throwing seniors under the bus” as at least one of his legislative critics alleged.

During and after the financial crisis, Bernanke said, the equilibrium rate was low and even negative. If the U.S. central bank had pushed rates up to help savers, it would have likely led to an economic slowdown, Bernanke said. The best policy for the Fed is to set rates at the equilibrium rate, he added. So critics who argue that the he kept interest rates “artificially low” are also confused, Bernanke said. There is “absolutely nothing artificial” about setting the Fed rate at the equilibrium rate, he said.

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“Only 37% of total students loan balances are currently in repayment and not delinquent.”

The Fed’s Startling Numbers on Student Debt (Simon Black)

What I’m about to tell you is not my own opinion or even analysis. It’s original data that comes from the United States Federal Reserve and national credit bureaus.
• 40 million Americans are now in debt because of their university education, and on average borrowers have four loans with a total balance of $29,000.
• According to the Fed, “Student loans have the highest delinquency rate of any form of household credit, having surpassed credit cards in 2012.”
• Since 2010, student debt has been the second largest category of personal debt, just after a home mortgage.
• The delinquency rate for student loans is now hovering near an all-time high since they started collecting data 12 years ago.
• Only 37% of total students loan balances are currently in repayment and not delinquent.

The rest—nearly 2 out of 3—are either behind on payments, in all-out default, or have entered some sort of deferral program to delay making payments, with a small percentage still in school. It’s pretty obvious that this is a giant, unsustainable bubble (more on this below). But even more important are the personal implications. University graduates now matriculate with tens of thousands of dollars worth of debt. Debt is another form of servitude. Like medieval serfs, debt keeps people tied to jobs they dislike in places they don’t want to be working for bosses they hate doing things that make them feel unfulfilled. Debt makes it very difficult to walk away and start fresh. In fact, ‘starting fresh’ is almost legally impossible when it comes to student debt. Even in US bankruptcy court, student debt cannot be discharged in almost all cases.

It is an albatross that hangs over you for a decade or more if you do make the payments, and it follows you around for the rest of your life if you do not. (I’m not suggesting anyone default on what they owed—simply pointing out that nearly every other form of debt can be discharged EXCEPT for student debt.) This kind of debt has a huge impact on people’s lives. Again, according to the Federal Reserve, “[G]rowing student debt has contributed to the recent decline in the homeownership rate and to the sharp increase in parental co-residence among millennials.” So the Fed’s own analysis shows that student debt is a cause for people in their 20s and 30s to live at home with their parents. Amazing.

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How to destroy an economy in five easy lessons.

The Fed’s ‘Repression’ Has Cost Savers $470 Billion (MarketWatch)

Artificially low interest rates have cost U.S. savers $470 billion, according to a report released Thursday. The report, from reinsurer Swiss Re, argues against current high levels of so-called financial repression. Swiss Re came up with the $470 billion number by looking at rates from 2008 to 2013. The insurer argues that if the Fed had followed a policy based on the Taylor Rule — a mechanistic way of determining interest rates that some congressional Republicans advocate — the Fed funds target would have been 1.7%age points higher on average. That in turn would have boosted interest income by an average of $14,000 for the wealthiest 1%, and $160 for the bottom 90%. The report concedes that there are obvious beneficiaries of lower rates too, through lower mortgage rates, higher house prices and a rising stock market.

The boost to household wealth from house prices was an estimated $1 trillion and from the stock market was an estimated $9 trillion — dwarfing, then, the $470 billion hit on savings. The report points out, however, that since the rich are more likely to own stocks, and have pricier homes, this has aggravated inequality. Moreover, the report says it’s questionable whether there’s been a boost on actual consumption, since neither equity nor real estate gains are immediately translatable into cash. “As a result, the increase in financial and housing wealth has – at best – only marginally benefited the real economy,” the report says.

Swiss Re also has a natural, vested interest in higher interest rates. The report says U.S. and European insurers have lost around $400 billion in yield income due to financial repression. The financial repression index, shown in the chart above, is based on real government bond yields, the difference between actual yields and fair value, central bank asset purchases, the difference in policy rate vs. the Taylor rule, regulatory risk, asset encumbrance, the available of high-quality liquid assets and domestic debts holdings and capital flow. Most of the components represent an average for both the European Union and the U.S.

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It’s called deflation.

Low US Consumer Spending Points To Slow First Quarter (MarketWatch)

Forget about a strong start for the U.S. economy in 2015: Consumer spending barely rose in February after a decline in January, pointing to much slower growth in the first quarter. Consumer spending rose a scant 0.1% last month, the Commerce Department said Monday. Economists polled by MarketWatch were looking for a seasonally adjusted 0.3% gain. The small increase in spending in February and outright decline in January suggest the economy failed in early 2015 to match the pace of growth at the end of last year. Gross domestic product is forecast to expand just 1.4% in the first quarter, down from 2.2% in the fourth quarter and 5% in the third quarter. Harsh winter weather that kept people indoors and steered them away from car dealers and other retailers likely contributed to small gain in spending in February. Lower gasoline prices also were a factor in keeping spending down January and December.

Yet with the weather turning warmer and companies hiring at the fastest pace in 15 years, most economists predict the economy will accelerate in the spring. More American working will boost consumer spending, they say. A similar pattern played itself out in 2014. GDP shrank 2.1% in the first quarter but bounced back with an increase of 4.6% in the second quarter. What could also help this year are the first hints that wages are starting to rise, at least for some workers whose skills are in short supply. Personal incomes in February rose a solid 0.4% for the fourth time in five months. “Households are still flush with the money saved from the big drop-off in gasoline prices and, with the labor market still on fire, incomes should continue to increase at a solid pace,” said Paul Ashworth, chief U.S. economist at Capital Economics. “That provides the scope for a big gain in consumption in the second quarter.”

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Everybody’s vulnerable to swings.

Jumping On Junk: Investors Crazy For High Yield (CNBC)

The supply of U.S. companies with junk-rated debt is rising just as investor demand for higher yields is climbing. Moody’s reports a two-year high in company debt rated B3 negative or worse—a.k.a. junk—as part of a trend that has seen the list of 184 companies grow by 26% over the period. The rise has been led by oil and gas firms, which accounted for 12 of the 28 additions to the junk list in February. What’s more, the roster would be even longer but for companies falling off the list due to reasons including filing for bankruptcy. Of the 18 issuers no longer rated, 39% filed either for bankruptcy protection or “distressed exchange, and 33% withdrew, with just 28% getting off the list due to upgrades.” “This is a reversal from the previous two quarters, when most companies left the list via ratings upgrades,” Moody’s said.

“If this reversal continues, it could signal tough times ahead for speculative-grade issuers.” Not so far, though. Fueled by low default rates and generally favorable credit conditions, investors in 2015 have been pouring money into funds that invest in high-yield debt. In fact, the previous six weeks before the most recent week had the highest level of flows to junk funds since the financial crisis in 2008 and 2009, according to Morningstar. Flows to junk-focused funds have taken in a net $12.2 billion so far in 2015 as part of a broader interest in fixed income amid a turbulent stock market, Bank of America Merrill Lynch reported. In addition to the big cash attraction to junk, high-grade bond funds have seen net inflows of $36.4 billion.

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Steve’s own debt jubilee is still a great idea. But it goes against every banker and politician’s desire.

19 Economists Call On The ECB To Make ‘QE For The People’ (BasicIncome.org)

A letter published [Mar 26] in the Financial Times signed by 19 economists calls on the European Central Bank to adopt an alternative quantitative easing policy. The letter includes a call to distribute cash directly to citizens of the eurozone. As a response to the ECB plan to inject €60 bn a month for the next 18 months into the financial system, 19 economists have signed a letter to the Financial Times calling on the ECB to adopt a different approach which they consider a more efficient way to boost the eurozone economy. “The evidence suggests that conventional QE is an unreliable tool for boosting GDP or employment. Bank of England research shows that it benefits the well-off, who gain from increasing asset prices, much more than the poorest,” the letter reads. The signatories offer an alternative:

Rather than being injected into the financial markets, the new money created by eurozone central banks could be used to finance government spending (such as investing in much needed infrastructure projects); alternatively each eurozone citizen could be given €175 per month, for 19 months, which they could use to pay down existing debts or spend as they please. By directly boosting spending and employment, either approach would be far more effective than the ECB’s plans for conventional QE.

The idea of having central banks to distribute cash to citizens has often been called “quantitative easing for the people” – a term coined by Steve Keen, an Australian economist. Prof. Steve Keen signed the letter, along with 18 other economists, including several advocates for basic income such as BIEN’s cofounder Guy Standing, David Graeber, Frances Coppola and Lord Robert Skidelsky. Guy Standing recently wrote an article outlining a proposal for having the ECB to finance basic income pilot studies in Europe:

“Monthly payments could be provided to every man, woman and child in, say, four areas on a pilot basis, with the sole condition that they would only continue to receive them if they were residing in those areas. People would still be free to move. However, it would help them to be able to stay. Such payments could be made for a period of 12 or 24 months.”

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First the bust of the housing bubble, now the stock bubble bursts. What’s next for China’s savings?

Foreign Investors Are Cashing Out of China (Bloomberg)

International investors are cashing out of China’s world-beating equity rally Foreigners sold a net 1.7 billion yuan ($274 million) of Chinese shares via the Shanghai-Hong Kong exchange link in the week through Monday, while outflows from the two biggest Hong Kong exchange-traded funds tracking mainland shares totaled $622 million. Money flowed out of the link again on Tuesday as the Shanghai Composite Index touched a seven-year high on government plans to bolster the housing market. Global investors are losing faith in the rally even as mainland traders open stock accounts at the fastest pace on record and authorities endorse gains in equities that have doubled China’s market value over the past year to a record $6.5 trillion.

While locals are focused on the prospects for further stimulus, UBS says foreigners are concerned it hasn’t done enough to revive growth after a gauge of manufacturing contracted in March and measures of industrial output and investment trailed estimates in the first two months of 2015. “The A-share market is in a bubble stage,” said Wenjie Lu, a strategist at UBS in Shanghai. “It makes sense for foreign investors to take profits.”

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The BoE’s already preparing for the BIG China bust.

Bank Of England Stress Tests To Include Feared Global Crash (Guardian)

The Bank of England is to impose a series of tests on large UK banks to establish whether they are able to withstand a dramatic slowdown in China, a contraction in the eurozone, the worst deflation since the 1930s or a fall in UK interest rates to zero. The Co-operative bank – which failed last year’s tests – is no longer included in the annual assessments of the industry’s financial strength as it is too small, leaving six banks and the Nationwide building society to be tested. The banks are Barclays, HSBC, Santander UK, Standard Chartered and the two bailed-out banks, Lloyds Banking Group and Royal Bank of Scotland. The Bank will give more weight to international scenarios, devised after talks with the IMF, than it did in the 2014 tests, which had a domestic emphasis.

Last year’s tests were designed to meet those imposed by the European Banking Authority, which is not conducting tests this year. The City is expecting this year’s tests to focus on the strength of HSBC and Standard Chartered, although a scenario for the UK is included, under which inflation is negative for seven consecutive quarters – the largest fall in prices for 80 years – and the bank rate cut to zero from the 0.5% level at which it has been stuck since the banking crisis. Banks are being asked to test their ability to withstand shocks over a five-year period to the end of 2019 and be expected to maintain a minimum amount of capital and meet a leverage ratio – a tougher measure of financial strength – while ensuring lending to the real economy grows 10% over the five-year period.

Mark Carney, governor of the Bank, said last year’s results showed the UK banking system was stronger than it had been before the 2008 crisis. “This year’s test will have a different focus and is equally important. By assessing the resilience of the UK banking system against a major shock, we will improve further our ability to identify vulnerabilities and we will ensure that banks have plans in place to address a wider range of problems,” Carney said. The severity of the test’s imagined downturn in China – with growth falling to about 1.6% growth – is likened to the scale of the fall in house prices in the UK used last year, when house prices were assumed to collapse by 35%. Chinese economic growth is about 7%.

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“..audits of bank transfers abroad, TV license and e-gaming tenders, a value-added-tax lottery scheme, a crackdown on smuggling and the settlement of arrears owed to the state.”

Germany Says Greece Must Flesh Out Reforms To Unlock Aid (Reuters)

– Greece’s biggest creditor Germany said on Monday that the euro zone would give Athens no further financial aid until it has a more detailed list of reforms and some are enacted into law, adding to scepticism over plans presented last week. A senior official in Brussels on Sunday had dismissed the list as “ideas” rather than a plan that Greece could submit to EU and IMF lenders to avoid running out of cash next month. Euro zone states are still waiting for Greece to send a more comprehensive list, a German finance ministry spokesman said. Chancellor Angela Merkel said Athens had a certain degree of flexibility on which reforms to implement but that they must “add up” to the satisfaction of European partners. “The question is can and will Greece fulfill the expectations that we all have,” she said during a visit to Helsinki.

“There can be variation as far as which measures a government opts for but in the end the overall framework must add up.” There was no immediate reaction from Athens on whether the list would be amended further. Lenders have said it could take several more days before a proper list was ready. Greek and other euro zone officials from the Euro Working Group are due to discuss the reforms on April 1. A Greek finance ministry official said the list included a lowered target of €1.5 billion in proceeds from asset sales this year and a proposal to set up a bad bank with bailout funds returned to the euro zone in February. Among the slated asset sales is a stake in the country’s biggest port, Piraeus, in which China has expressed interest. The list also estimates Greece can raise €3.7 billion this year through audits of bank transfers abroad, TV license and e-gaming tenders, a value-added-tax lottery scheme, a crackdown on smuggling and the settlement of arrears owed to the state.

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“..but no “recessionary measures” such as wage and pension cuts.”

Yanis Varoufakis Calls For End To ‘Toxic Blame Game’ (BBC)

Greek finance minister Yanis Varoufakis has called for an end to the “toxic blame game” between Greece and Germany. He made the call as Greece prepares to finalise its list of economic reforms to present to its international creditors. The reforms are needed to unlock a new tranche of bailout cash for Greece, which could run out of money in weeks. Mr Varoufakis said that finger-pointing between Germany and Greece would only aid Europe’s enemies. Athens and Berlin have been engaged in a bitter war of words as the Greek government seeks to renegotiate the terms of its bailout. German finance minister Wolfgang Schaeuble has publicly expressed his anger, claiming last week that Greece “has destroyed all trust”. He also acknowledged that Greece could “accidentally leave the eurozone”.

Writing in the German business newspaper Handelsblatt, Mr Varoufakis said that tensions between the two countries “must stop”, adding: “Only then can Greece, with support of its partners, focus on implementing effective reforms and growth-orientated policy strategies.” Greece submitted preliminary plans to the EU, IMF and the ECB on Friday night that it says will raise some €3bn in state revenues. They include measures to combat tax evasion, more privatisations and higher taxes on alcohol and cigarettes, but no “recessionary measures” such as wage and pension cuts. However, the reforms as initially proposed do not appear to have been specific enough to win the approval of the lenders, formerly known as the “troika”.

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That definition says it all, doesn’t it?!

Greek Plans To Unlock Aid ‘Lack Technocratic Input’ (Bloomberg)

Greece’s proposed plans to bolster its finances in exchange for unlocking bailout funds still need lots of work, three European officials said. The 15-page draft, which was discussed Sunday in Brussels, requires more information and details and was a long way from serving as the basis of a deal, said one of the aides, who asked not to be named because the talks were private. Seeking a strategy that passes muster with European officials now withholding loans as the country’s cash crunch deepens, Greece’s government foresees a net increase of €3.7 billion in receipts this year. The biggest chunk would be as much as €875 million from the “intensification of audits on lists of bank transfers and offshore entities,” according to the draft.

“The implication from early on has been that the Greek side doesn’t have enough flesh on bones of some of the new proposals,” said Michael Michaelides at RBS. “The surprising thing about even current proposals given leaks is the seeming lack of technocratic input, which would have helped the Greek case.” Prime Minister Alexis Tsipras was elected Jan. 25 on a platform of easing budget cuts and restructuring debt. While he backed away from those positions to win a Feb. 20 agreement to extend the nation’s bailout until the end of June, his diplomatic maneuvering and the delays in providing a detailed economic plan are frustrating the rest of the currency bloc. They have also roiled financial markets and spurred Greeks to pull their savings from banks, derailing the economic recovery.

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Eh, yes, you can: “When the deputy prime minister is in China and making certain statements, you can’t contradict it here before he’s even returned to Greece.”

Tsipras Presses Allies for Support as Greek Cash Crunch Deepens (Bloomberg)

Greek Prime Minister Alexis Tsipras, facing euro-area demands for a credible economic plan, is fending off allies at home who are spoiling for a fight. With the 40-year-old premier due to address parliament in Athens Monday evening amid a deepening cash crunch, a pair of his ministers warned against retreating from election promises to end austerity. Underscoring the cacophony, the energy minister contradicted Tsipiras’s deputy on the sale of the country’s biggest port to China. “This speaking with two tongues has an expiration date,” said Aristidis Hatzis, associate professor of law and economics at the University of Athens. “When the deputy prime minister is in China and making certain statements, you can’t contradict it here before he’s even returned to Greece.” [..]

Greece has red lines and won’t agree to any “recessionary measures” such as cutting wages or pensions or allowing mass dismissals, Tsipras told Real News newspaper in an interview published Sunday. The only way for Greece to end its crisis is through confrontation, if not conflict, with a “Germanized Europe,” Energy Minister Panagiotis Lafazanis said in an interview with the Athens-based Kefalaio newspaper. Privatizations, especially in strategic areas, “can’t and won’t happen,” he said. [..] Adding to the confusion, Euclid Tsakalotos, international economic-affairs minister, said Greece won’t abandon its anti-austerity philosophy in return for aid. He spoke in the U.K.’s Guardian newspaper as talks were taking place in Brussels over the reform measures. Greece wants a deal but will go its own way “in the event of a bad scenario,” he said.

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I’m with Ron on this. As I said before, all supra-national organizations should be folded, because they will all over time drift towards attracting sociopaths attracted by the lack of transparency and democracy inherent in them.

Repeal, Don’t Reform the IMF! (Ron Paul)

A responsible financial institution would not extend a new loan of between $17 and $40 billion to a borrower already struggling to pay back an existing multi-billion dollar loan. Yet that is just what the International Monetary Fund (IMF) did last month when it extended a new loan to the government of Ukraine. This new loan may not make much economic sense, but propping up the existing Ukrainian government serves the foreign policy agenda of the US government. Since the IMF receives most of its funding from the United States, it is hardly surprising that it would tailor its actions to advance the US government’s foreign policy goals.

The IMF also has a history of using the funds provided to it by the American taxpayer to prop up dictatorial regimes and support unsound economic policies. Some may claim the IMF does promote free markets by requiring that countries receiving IMF loans implement some positive economic reforms, such as reducing government spending. However, other conditions imposed by the IMF, such as that the country receiving the loan deflate its currency and implement an industrial policy promoting exports, do not seem designed to promote a true free market, much less improve the people’s living standards by giving them greater economic opportunities.

The problem with the IMF cannot be fixed by changing the conditions attached to IMF loans. The fundamental problem with the IMF is that it is funded by resources taken forcibly from the private sector. By taking resources out of private hands and giving them to IMF bureaucrats, government distorts the marketplace, harming both American taxpayers and the citizens of the countries receiving the IMF loans. The idea that the IMF is somehow better able to allocate capital than are private investors is just as flawed as every other form of central planning. The IMF must be repealed, not reformed.

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“Syria’s Assad used to rank high. Only 17% see him as a threat now, but a year and half ago, John Kerry put him on a list he apparently keeps that also includes Adolf Hitler and Saddam Hussein. ”

Americans See Putin As Only Slightly More Imminent Threat Than Obama (Reuters)

People in the United States feel under threat, both from beyond our borders and within them. In fact, when asked about both U.S. President Barack Obama and Russian President Vladimir Putin, it was a pretty darn close call — 20 percent saw Putin as an imminent threat compared to 18 percent who said the same about Obama. A recent Reuters/Ipsos poll asked more than 3,000 Americans what they see as some of the biggest threats to themselves and the country. You can slice and dice the information in literally hundreds of different ways here. People were shown a range of potential threats and then asked to rate how dangerous they were with one being no threat and five meaning the threat is imminent.

I think it’s safe to say that a national security expert might not agree with the public’s choices. More people fear Boko Haram, a scary but ragged Islamic radical group in Nigeria that might have trouble paying for plane tickets to the United States, than Russia, which recently invaded a major European country. And a whopping 34 percent consider Kim Jong-un, the leader of impoverished North Korea, an imminent threat. Kim may have a couple of nukes, but otherwise his nation is a basket case, so poor that it relies on international aid to feed itself. Though considering how fast Sony Pictures pulled “The Interview” from theaters, I guess the public’s not alone in being afraid of the young man with the unique hairstyle.

Perhaps the most disturbing part, however, is how Americans view each other, simply because of the political party they favor. Thirteen percent of us see the Republican and Democratic parties as an imminent threat. That’s the same number who think the Chinese might be. Quick reality check: neither political party is the largest foreign holder of U.S. debt, nor could they cripple us economically in an afternoon. Nor has either party independently building an army that may soon be able to rival that of the United States — that we know of, anyway.

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Do Google Holland Earthquakes.

Energy’s New Legal Threat: Earthquake Suits (WSJ)

After an earthquake toppled her chimney, sending rocks crashing through the roof and onto her legs, Sandra Ladra didn’t blame an act of God. She sued two energy companies, alleging they triggered the 2011 quake by injecting wastewater from drilling deep into the ground. Ms. Ladra’s lawsuit, now before the Oklahoma Supreme Court, highlights an emerging liability question for energy companies: Can they be forced to pay for damages from earthquakes if the tremors can be linked to oil-and-gas activity? Oklahoma, with a history of mild-to-moderate seismic activity, experienced 585 earthquakes of 3.0 or greater magnitude last year—big enough to be felt indoors—according to the Oklahoma Geological Survey.

That’s more than the state had in the previous 30 years combined and the most of any state in the contiguous U.S. So far, most of the tremors under investigation in Oklahoma and other oil-producing states, including Arkansas, Kansas, Ohio and Texas, have been too small to cause major damage. But the prospect of facing juries over quake-related claims is reverberating throughout the energy industry, which fears lawsuits and tighter regulations could increase costs and stall drilling. “It’s definitely something that has risen to a level of fairly high concern,” Steve Everley at industry advocate Energy In Depth said of earthquake-related risks. “Companies recognize that there’s a problem here,” he said, adding that they are contributing data to help regulators determine what’s causing the quakes.

Most of the focus isn’t on hydraulic fracturing, which involves shooting a slurry of water, sand and chemicals into wells to let oil and gas flow out—and which helped touch off the recent U.S. energy boom. Instead, researchers say the most serious seismic risk comes from a separate process: disposal of toxic fluids left over from fracking and drilling by putting it in wells deep underground. Geologists concluded decades ago that injecting fluid into a geologic fault can lubricate giant slabs of rock, causing them to slip. Scientists say disposal wells are sometimes bored into unmapped faults. The practice isn’t new, but has proliferated with the U.S. drilling boom.

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If the US hadn’t antagonized Russia three ways to Sunday before, this would have been a whole different (storm in a) cup of tea.

Iran Deal Unlikely Before March 31 as Russia Leaves Talks (Bloomberg)

Russian Foreign Minister Sergei Lavrov left talks on Iran’s nuclear program and will only return if an accord is in sight, suggesting that negotiations will continue into the final hours before a March 31 deadline. Diplomats said obstacles remain after foreign ministers from the six powers jointly met Iranian envoys for the first time in the latest round of talks in Lausanne, Switzerland. Lavrov will return if there’s a “realistic understanding of a deal,” Russian Foreign Ministry spokeswoman Maria Zakharova said. “The main thing that gives us optimism is the determination of all the ministers to reach a result without taking a pause,” said Lavrov’s deputy, Sergei Rybakov. Russia sees positive signals at the talks, Dmitry Peskov, Putin’s spokesman, said in Moscow.

After a 12-year standoff, negotiators are divided over the pace of easing sanctions on Iran and the limits to be imposed on its nuclear program. A framework accord by March 31 would be a step toward ending Iran’s economic isolation, though another three months are envisaged to reach a detailed final agreement. Talks are stuck on how to roll back sanctions and how to reimpose them should Iran violate the agreement, a European diplomat said after Monday’s plenary meeting. No decision has been made on how to dispose of Iran’s enriched uranium, which is essential to ensuring that its nuclear program is exclusively peaceful, a U.S. official said. While the countries in talks with Iran would prefer that the uranium be transferred to a guarantor nation, other options are being discussed, the European diplomat said.

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Yikes.

Sierra Leone Ebola Lockdown Exposes Hundreds Of Suspected Cases (Reuters)

A three-day lockdown in Sierra Leone has exposed hundreds of potential new cases of Ebola, aiding efforts to bring to an end an epidemic that has already killed 3,000 people in the country. Officials ordered the country’s 6 million residents to stay indoors or face arrest during the period that ended late on Sunday as hundreds of health officials went door-to-door looking for hidden patients and educating residents about the virus. Reports to authorities of sick people increased by 191% in Western Area, which includes the capital, during the lockdown compared with the previous weekend, said Obi Sesay of the National Ebola Response Center. “Tests are being carried out on their blood samples, and the results will be in by Wednesday,” Sesay said, adding that 173 of the patients in Freetown met an initial case definition for Ebola.

In the rest of the country, there was a 50% increase in sick people reported in the lockdown’s first two days, Sesay said. Sierra Leone has reported nearly 12,000 cases since the worst Ebola epidemic in history was detected in neighboring Guinea a year ago. In all, more than 10,000 people have died in the two countries plus Liberia. New cases have fallen since a peak of more than 500 a week in December, but the government said the lockdown, its second, would help identify the last cases and reduce complacency. A source who declined to be identified said there were 961 death alerts nationwide during the lockdown’s first two days and 495 reports of illness of which 235 were suspected Ebola.

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Feb 122015
 
 February 12, 2015  Posted by at 11:38 am Finance Tagged with: , , , , , , , , , ,  1 Response »


Byron In Chinatown, Pell Street, New York 1900

Eurogroup Fails to Agree to Next Greek Bailout Steps (Bloomberg)
Rejected Eurogroup Draft Spoke Of “Extending” Greek Bailout (Reuters)
Greece And Eurozone In Stalemate Over Debt Burden (Guardian)
Greece Said to Offer Euro Area Four Principles for Talks (Bloomberg)
Germany Faces Impossible Choice As Greek Austerity Revolt Spreads (AEP)
Eurozone Leaders Believe Syriza Must Fail And Be Seen To Fail (Telegraph)
If The Greek Olive Branch Is Rejected, Europe May Fall (Pablo Iglesias)
86 Names Missing from Greek ‘Lagarde List’ (Greek Reporter)
Ukraine Gets IMF-Led $40 Billion Aid Accord to Avert Default (Bloomberg)
Ukrainian Cease-Fire Sealed After All-Night Minsk Peace Summit (Bloomberg)
Putin Top Advisor: US Eyes Ukraine for Regime Change in Russia (Zero Hedge)
Oil Firms ‘Need Fresh Strategies’ To Operate in Future of $50 Oil (BBC)
Global Oil Layoffs Exceed 100,000 (Bloomberg)
Goldman: Why Oil Crashed—and Why Lower Prices Are Here to Stay (Bloomberg)
Have Banks Overplayed Their Hand Fighting Wall Street Regulation? (Bloomberg)
Audit The Fed – And Shackle It, Too (David Stockman)
‘No Solution To Brazil’s Crisis’ (CNBC)
Sweden’s Riksbank Cuts Key Rate to Negative (Bloomberg)
Mediterranean Sinking ‘Kills 300 Migrants Bound For Europe (BBC)
New Ebola Cases Rise For Second Week In A Row (BBC)
Australia On Brink Of ‘Extinction Calamity’ (BBC)

The idea was always to stretch the meeting till Monday.

Eurogroup Fails to Agree to Next Greek Bailout Steps (Bloomberg)

Euro-area governments left tough decisions on the future of Greece’s bailout for next week, after talks failed to bridge differences over the aid program that the Greek government blames for economic hardship. With Greece’s current bailout expiring at the end of February, finance ministers met for six hours in Brussels without signing off on any conclusions on the way forward for the region’s most-indebted nation. That leaves open how Greece can avoid running out of cash and avert a possible exit from the 19-nation currency union. Attention now shifts to a summit of European Union leaders on Thursday in Brussels, a day after German Chancellor Angela Merkel and French President Francois Hollande traveled to meet Russian President Vladimir Putin to negotiate a cease-fire in Ukraine.

Merkel had left bargaining with Greece to the finance ministers. “We understand each other much, much better now than we did this morning,” Greek Finance Minister Yanis Varoufakis told reporters after the finance chiefs broke up without a deal early Thursday in Brussels. “Europe manages to find agreements even if it’s at the last moment.” The euro fell as much as 0.3% to $1.1303 after Jeroen Dijsselbloem, the Dutch finance minister who chairs the euro group’s talks, said ministers couldn’t agree on a common approach. The euro briefly spiked to as high as 1.1352 earlier, when officials suggested an accord on steps forward was within reach.

“We covered a lot of ground but didn’t actually reach a joint conclusion on how to take the next steps,” Dijsselbloem said at a press conference. “There has to be a political agreement on the way forward.” Finance chiefs will return to Brussels on Feb. 16 to try to break the deadlock after Greek negotiators were said to have wavered on a commitment to extending the country’s existing bailout from the Troika. Greek Prime Minister Alexis Tsipras’s campaign pledge to end the bailout — and its austerity mandates — hung over the talks. Agreed language on a bailout extension was within reach, only to be rejected later by Greek negotiators who said they had to consult with superiors in Athens, German Finance Ministry spokesman Martin Jaeger said.

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There will be no extension. Syriza has said that 1000 times.

Rejected Eurogroup Draft Spoke Of “Extending” Greek Bailout (Reuters)

A draft statement by euro zone finance ministers on how to handle Greece’s finances spoke of “extending” its current bailout deal as a “bridge” to a new package, according to a copy of the draft that was rejected by Athens. The new Greek government, elected on a mandate to end deeply unpopular international bailout terms, has insisted there can be no “extension” once that deal expires at the end of the month. But EU partners fear financial chaos without such an accord. A draft of the planned Eurogroup statement, seen by Reuters, read: “Today the Eurogroup took stock of the current situation in Greece and the state of the current adjustment programme. In this context, the Eurogroup has engaged in an intensive dialogue with the new Greek authorities.

“The Greek authorities have expressed their commitment to a broader and stronger reform process aimed at durably improving growth prospects”. At the same time, the Greek authorities reiterated their unequivocal commitment to the financial obligations to all their creditors. “On this basis, we will now start technical work on the further assessment of Greece’s reform plans. The Greek authorities have agreed to work closely and constructively with the institutions to explore the possibilities for extending and successfully concluding the present programme taking into account the new government’s plans. If this is successful this will bridge the time for the Greek authorities and the Eurogroup to work on possible new contractual arrangements. We will continue our discussions at our next meeting on Monday 16 February.”

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Mexican standoff.

Greece And Eurozone In Stalemate Over Debt Burden (Guardian)

The Greek government’s confrontation with its eurozone creditors over its campaign to relieve its staggering debt burden while relaxing the terms of five years of austerity resulted in stalemate late on Wednesday. The first proper negotiations between Greece and eurozone finance ministers failed to make any progress or result in a joint statement. While no immediate agreement had been expected, the emergency meeting had been tipped to produce a framework for talks to be finessed over the next few days before another meeting next Monday. Jeroen Dijsselbloem, the Dutch finance minister who chaired the Brussels meeting, announced that this aim was not met. It appeared that the new leftwing government in Athens was isolated in seeking to extract better terms from Europe.

Alexis Tsipras, the new Greek prime minister, seems to have ordered his finance minister, Yanis Varoufakis, to stand firm against the pressure to make any concessions. Tsipras is due in Brussels on Thursday for his debut on the European stage at an EU summit. Following 10 days of touring Europe in a failed attempt to woo Berlin, Frankfurt and other key capitals to alter the terms of trade between Athens and the eurozone, Varoufakis went into negotiations with the other finance ministers at a specially convened session in Brussels. Entering and leaving the meeting, he was uncharacteristically taciturn.

The stalemate could see Greece running out of cash next month, unilaterally defaulting on the bailout programme with the ECB, the European Commission and the IMF, and being forced to leave the single currency. That prospect is viewed as a disaster fraught with risks in Brussels, Paris and Rome. But Berlin, whose voice matters more than most in the negotiations, is reliably said to be “extremely relaxed” about the Greek crisis and opposed to tearing up the agreements that Greece is formally bound to under the bailout terms.

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“..popular protests “across Greece and Europe” are “the source of our strength.”

Greece Said to Offer Euro Area Four Principles for Talks (Bloomberg)

Greek Finance Minister Yanis Varoufakis presented his European counterparts with four principles for a new financing deal, according to two euro-area officials, as Greece battles to stave off a cash crunch and stay in the currency bloc. Greece wants a deal that provides for financial stability, financial sustainability and debt restructuring, while addressing Greece’s humanitarian crisis, Varoufakis said during talks Wednesday in Brussels without offering details, according to the officials, who asked not to be named because the talks are private. Finance ministers of the 19 euro nations met on Wednesday after Germany and Greece took clashing positions heading into negotiations that will continue Feb. 16 in the Belgian capital.

Dutch Finance Minister Jeroen Dijsselbloem, who heads the meetings, said the ministers wanted to hear Greece’s proposals. “I don’t expect an outcome today,” Dijsselbloem told reporters in Brussels before the talks. Extra money “is not on the table right now” and Greece needs to stick to its reform path, he said. Greece’s bailout package will expire this month if the euro area’s most-indebted nation can’t reach a deal with its creditors. Asked by a reporter before the meeting whether Greece’s exit from the euro area is on the table, Varoufakis said: “Of course not.” In Athens, thousands rallied in front of the Greek parliament in support of the government’s anti-austerity stance. Prime Minister Alexis Tsipras posted a photo of the rally on his Twitter account, saying popular protests “across Greece and Europe” are “the source of our strength.”

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“You can defend EMU policies, or you can defend your political base, but you cannot do both.”

Germany Faces Impossible Choice As Greek Austerity Revolt Spreads (AEP)

The political centre across southern Europe is disintegrating. Establishment parties of centre-left and centre-right – La Casta, as they say in Spain – have successively immolated themselves enforcing EMU debt-deflation. Spain’s neo-Bolivarian Podemos party refuses to fade. It has endured crippling internal rifts. It has shrugged off hostile press coverage over financial ties to Venezuela. Nothing sticks. The insurrectionists who came from nowhere last year – with Trotskyist roots and more radical views than those of Syriza in Greece – are pulling further ahead in the polls. The latest Metroscopia survey gave Podemos 28pc. The ruling conservatives have dropped to 21pc. The once-great PSOE – Spanish Workers Socialist Party – has fallen to 18pc and risks fading away like the Dutch Labour Party, or the French Socialists, or Greece’s Pasok.

You can defend EMU policies, or you can defend your political base, but you cannot do both. As matters stand, Podemos is on track to win the Spanish elections in November on a platform calling for the cancellation of “unjust debt”, a reversal of labour reforms, public control over energy, the banks, and the commanding heights of the economy, and withdrawal from Nato. Europe’s policy elites can rail angrily at the folly of these plans if they wish, but they must answer why ex-Trotskyists threatening to dismantle market capitalism are taking a major EMU state by storm. It is what happens when 5.46m people lack jobs, when 2m households still have no earned income, and when youth unemployment is still running at 51.4pc, and home prices are down 42pc, six years into a depression.

It is pointless protesting that Spain’s economy is turning the corner, a contested claim in any case. There comes a point when a society breaks and stops believing anything its leaders say. The EU elites themselves have run their currency experiment into the ground by imposing synchronized monetary, fiscal, and banking contraction on the southern half of EMU, in defiance of known economic science and the lessons of the 1930s. It is they who pushed the eurozone into deflation, and thereby pushed the debtor states into accelerating compound-interest traps. It is they who deployed the EMU policy machinery to uphold the interest of creditors, refusing to acknowledge that the root cause of Europe’s crisis was a flood excess capital flows into vulnerable economies.

It is they who prevented a US-style recovery from the financial crisis, and they should not be surprised that such historic errors are coming back to haunt. The revolt in Italy has different contours but is just as dangerous for Brussels. Italians may not wish to leave the euro but political consent for the project but broken down. All three opposition parties are now anti-euro in one way or another. Beppe Grillo’s Five Star movement – with 108 seats in parliament – is openly calling for a return to the lira. Mr Grillo proclaims that Syriza is carrying the torch for all the long-suffering peoples of southern Europe, as it is in a sense. “What’s happening to Greece today, will be happening to Italy tomorrow. Sooner or later, default is coming,” he said.

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How the right wing sees things.

Eurozone Leaders Believe Syriza Must Fail And Be Seen To Fail (Telegraph)

In current discussions of what Greece might or might not get in the way of concessions from the Eurozone, there has so far been relatively little appreciation of one basic political reality: as far as the governments of Spain, Portugal, Ireland, probably Italy and perhaps even France are concerned, Syriza must fail and must be seen to fail. Why? The reasons differ slightly between countries. The easiest case to see is perhaps Spain. In Spain, the governing party is the centre-right Partido Popular led by Mariano Rajoy. It is currently facing pressure from a far-left party, Podemos, allied to Syriza. Indeed the Podemos leader Pablo Iglesias even campaigned in partnership with Syriza and, following Syriza’s victory, at his own party’s rally he proclaimed: “Syriza, Podemos – we will win [venceremos]!”

Podemos is currently leading in the polls, ahead of an election later this year. The very last thing Rajoy can afford is for Syriza’s approach to be seen to succeed, emboldening and vindicating Podemos. As for Portugal and Ireland, where the governments stuck to bailout conditions despite the domestic pain, how would they sell concessions to Syriza to their own voters? Suppose they go back and say: “We were suckers. We shouldn’t have made all those cuts. Instead, what we really should have done was to raise the minimum wage, hire back the public sector staff that had been fired, say we weren’t going to pay our debts to our eurozone partners, cosy up to the Russians and tell the Germans they didn’t feel nearly guilty enough about World War II. Then everyone would have said we were ‘rock stars’ and and forgiven our debts.” Do you reckon that would go down well?

As for the Italians, the Syriza leaders are terribly keen to claim that Greece and Italy are in much the same position and that there should therefore be a general debt amnesty across the eurozone. The Italians, on the other hand, are less keen on this comparison. Over the weekend, the Greek finance minister stated: “Let’s face it, Italy’s debt situation is unsustainable”. The Italian Finance Minister Pier Carlo Padoan replied on Twitter that his Greek counterpart’s remarks were “out of place” and that Italy’s debt is “solid and sustainable”. If the Italians, at any point, seek any relaxation of the fiscal strictures their eurozone partners have placed upon them, you can rest assured they will not be claiming that they are just like Greece or that anything that happens in Greece sets a precedent for them.

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Letter from Spain’s oppostion leader: “..the diktats of those who still appear to be running things in Europe have failed, and the victims of this inefficiency and irresponsibility are Europe’s citizens.”

If The Greek Olive Branch Is Rejected, Europe May Fall (Pablo Iglesias)

During his swearing-in speech as Greece’s prime minister, Alexis Tsipras was clear: “Our aim is to achieve a solution that is mutually beneficial for both Greece and our partners. Greece wants to pay its debt.” The European Central Bank’s (ECB) response to the Greek government’s desire to be conciliatory and responsible, was also very clear: negative. Either the Greek government abandons the programme on which it was elected, and continues to do the very thing that has been disastrous for Greece, or the ECB will stop supporting Greek debt. The ECB’s calculation is not only arrogant, it is incoherent. The same central bank that recognised its mistakes a few weeks ago and began to buy government debt is now denying financing to the very states that have been arguing for years that the role of a central bank should be to back up governments in protecting their citizens rather than to rescue the financial bodies that caused the crisis.

Now, instead of acknowledging that Greece deserves at least the same treatment as any other EU member state, the ECB has decided to shoot the messenger. Excesses of arrogance and political short-sightedness cost dear. The new despots who are trying to persuade us that Europe’s problem is Greece are putting the European project itself at risk. Europe’s problem is not that the Greeks voted for a different option from the one that led them to disaster; that is simply democratic normality. Europe’s threefold problem is inequality, unemployment and debt – and this is neither new nor exclusively Greek. Nobody can deny that austerity has not solved this problem, but rather has exacerbated the crisis.

Let’s spell it out: the diktats of those who still appear to be running things in Europe have failed, and the victims of this inefficiency and irresponsibility are Europe’s citizens. It is for this precise reason that trust in the old political elites has collapsed; it is why Syriza won in Greece and why Podemos – the party I lead – can win in Spain. But not all the alternatives to these failed policies are as committed as Syriza and Podemos are to Europe and to European democracy and values. The Greeks have been pushed to the point of disaster, yet the Greek government has reached out and shown great willingness to cooperate. It has requested a bridge agreement that would give both sides until June to deal with what is little short of a national emergency for the majority of the Greek population.

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Interesting to see how hard Syriza will go after these guys.

86 Names Missing from Greek ‘Lagarde List’ (Greek Reporter)

The notorious “Lagarde List” should include a total of 2,148 names and not the 2,062 that are listed so far, according to a report in Ta Nea newspaper. The Lagarde List is a spreadsheet containing over 2,000 names of possible Greek tax evaders with undeclared deposits at Swiss HSBC bank’s Geneva branch. It is named after former French finance minister Christine Lagarde who passed it to the Greek government in October 2010 to help them tackle tax evasion. Lagarde is now Managing Director of the International Monetary Fund. The list was hidden by Greek officials and it became known two years later when it was exposed by investigative journalist Costas Vaxevanis.

The newspaper report says that after research by the International Consortium of Investigative Journalists, there are 86 new names of Greeks who have undeclared deposits in the Swiss bank. They are all natives of Greece, but have declared residency in other countries, thereby not listed on the original list. Also, the investigation shows that there are another 41 names who are linked to the accounts of potential tax evaders already on the list. So far, very few names on the list have been audited. Former finance minister Giorgos Papaconstantinou is accused of distorting the spreadsheet and erasing names of his relatives on the list and will be referred to the Special Court.

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Even deeper into debt slavery.

Ukraine Gets IMF-Led $40 Billion Aid Accord to Avert Default (Bloomberg)

Ukraine reached a preliminary accord to expand an International Monetary Fund-led bailout to $40 billion to avert a default as the 10-month conflict in the nation’s east damages the economy and drains resources. An IMF team, which has been in the Ukrainian capital since Jan. 8, will recommend the Washington-based lender’s board sign off on the package, Managing Director Christine Lagarde said Thursday in Brussels. The package includes contributions from other sources, including the EU, Lagarde told reporters. Ukraine, rocked by a pro-Russia insurgency in its industrial heartland, is struggling with the deepest recession since 2009, foreign reserves at an 11-year low and the world’s worst-performing currency.

The country’s fiscal and economic condition will help determine whether it remains oriented toward the U.S. and EU or is drawn into Russia’s orbit amid the worst standoff since the end of the Cold War. “It’s an ambitious program, it’s a tough program and it’s not without risk,” Lagarde told reporters. “But it’s also realistic.” Ukraine’s April 2023 Eurobond was little changed at 53.19 cents on the dollar at 10:23 a.m. in Kiev, lowering the yield two basis points to 19%. The government of Ukraine faces debt repayments of $11 billion this year and has said it will approach foreign bondholders over easier terms once IMF financing is in place. The accord still needs IMF board approval. Ukraine’s allies stepped in with funding pledges in the run-up to the IMF talks being completed.

The U.S. promised as much as $2 billion in loan guarantees, while the European Union said it would disburse €1.8 billion euros. Leaders of Russia, Ukraine, France and Germany are meeting in Minsk, Belarus on Thursday to reach a peace deal in the conflict that has killed at least 5,400 people, the United Nation estimates. The U.S., EU and Ukraine blame Russia for aiding the rebels. President Vladimir Putin denies the charges. “The hope will be to send a signal to Putin and to Ukrainians that the West stands behind Ukraine and will not let it fail financially,” Timothy Ash at Standard Bank said.

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Meaningless?!

Ukrainian Cease-Fire Sealed After All-Night Minsk Peace Summit (Bloomberg)

The leaders of Russia, Ukraine, Germany and France agreed on a cease-fire to stem the conflict that’s devastated eastern Ukraine and triggered the worst crisis in more than 20 years between Russia and its former Cold War foes. The deal envisages a truce starting Feb. 15 and reaffirms some commitments from a failed September bid to end the conflict, Russian President Vladimir Putin told reporters in the Belarusian capital of Minsk. The accord was struck early Thursday after all-night talks between Ukrainian President Petro Poroshenko, Putin, German Chancellor Angela Merkel and French President Francois Hollande.

The collapse of previous cease-fires has stoked skepticism as to whether this one will hold. Ten months of fighting have killed more than 5,000 people, ravaged Ukraine’s economy and propelled Russia toward recession through U.S. and European sanctions. Raising pressure to deliver a settlement, the run-up to the summit was accompanied by escalating violence and calls for the U.S. to supply weapons to Ukraine’s struggling army. “The conflict will continue, even with this agreement,” Joerg Forbrig, a senior program director at the German Marshall Fund in Berlin, said by phone. “Eastern Ukraine is now basically lost to central government control.”

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“The situation in Ukraine is being used as a pretext for the active ‘repression’ of our country..”

Putin Top Advisor: US Uses Ukraine To Get Regime Change in Russia (Zero Hedge)

Following the humiliation of tonight’s much anticipated Eurogroup meeting in which for the first time ever the ensuing disarray was so profound the panicked European finance ministers couldn’t even find a quorum consensus to produce even the tersest of official statements, there was some hope that the second round of negotiations currently taking place in Minsk to find a solution to the Ukraine civil war would at least partially redeem Europe’s faltering negotiating reputation. Alas, as of this moment, that does not appear to be the case, and as Reuters reports citing a Kiev presidential aide, that Minsk talks on Ukraine crisis could last six more hours. “We’ve got another 5-6 hours of work. At least. But we should not leave here without an agreement on an unconditional ceasefire. There’s a battle of nerves underway,” aide Valeriy Chaly said in a Facebook post.

Well, if it is indeed a “battle of nerves”, something tells who the victor will be, considering all his peers are just a little more preoccupied with the potential collapse of their artificial monetary and political union. Yet, just like the previous Minsk “agreement”, even if by some miracle there is a solution this time around, the probability peace will be maintained is slim to none. The reason is not simply because the Ukraine civil war will go on until there is a terminal partition between the pro-western West part of the country, and the pro-Russian eastern regions. The real reason may be what one of Vladimir Putin’s top security advisors, the secretary of the Security Council, Nikolai Patrushev said earlier today, when he told a Russian state newspaper that the U.S. was orchestrating events in Ukraine in a bid to overthrow Mr. Putin’s government.

He also expressed certainty that the West’s financial aid for Kiev would only bring the Ukrainian economy to a “dead end.” “The situation in Ukraine is being used as a pretext for the active ‘repression’ of our country,” Mr. Patrushev, who ran Russia’s Federal Security Service during Mr. Putin’s first eight years as president, said in an interview with the Rossiyskaya Gazeta, published Wednesday. And, if accurate, Patrushev’s assessment is that the US will not stop short of what effectively will be world war: “The Americans are trying to involve the Russian Federation in an interstate military conflict, cause regime change [in Russia] and ultimately dismember our country via events in Ukraine,” he said.

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Most won’t be able to.

Oil Firms ‘Need Fresh Strategies’ To Operate in Future of $50 Oil (BBC)

Many oil and gas firms will need to transform the way they operate in order to grasp future opportunities in the sector, according to a report. PwC said companies should be looking to deploy fresh strategies, following a sustained fall in the price of oil. It suggested they should look to reduce costs “in a sustainable manner” and find efficiencies by keeping tax costs in control. Other suggestions included divesting non-core parts of their business. PwC argued that firms might also want to identify and invest in strategic acquisitions to secure market position in key areas. The report’s authors said the UK oil and gas sector would have been in a much better place “to weather the oil price maelstrom”, had it heeded 30%-40% cost reduction warnings which surfaced 12-18 months ago.

The report said there was still time for firms to “learn the harsh lessons of past languor” by adopting fresh strategies. But it also warned that to achieve that, they needed to get away from “short term knee-jerk reactions” seen in previous downturns – or risk damaging the long term future of the industry. PwC cited significant downsizing undertaken during the downturn of 1999-2000, arguing that the industry had struggled since then with talent retention. It said “aggressive price negotiation” and contract revisions with the oil services sector would also do little to create a collaborative environment. The report argued that companies must answer “hard questions” about whether they can continue to invest in the sector, or if they should instead “move on”.

But it stressed the need for the industry to take a long-term view, adding that “intelligent and strategic cost-cutting” could “position players well through this turmoil”. Brian Campbell, oil and gas capital projects director at PwC and co-author of the report, said: “With economists predicting low oil prices throughout 2015, UK oil and gas firms are not out of the woods by any means. “They are still at risk of an economic triple-whammy: as the falling oil price reduces income, incremental investment may no longer be economic with a risk that field life diminishes and decommissioning is accelerated. “The stark reality is that firms need to be able to operate in an environment where oil averages at $50 per barrel – only then can it be truly fit for the future.”

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Just starting.

Global Oil Layoffs Exceed 100,000 (Bloomberg)

The promise of plentiful jobs and salaries as high as a quarter-million dollars a year lured Colombia native Clara Correa Zappa and her British husband to Perth, Australia, at the height of the continent’s oil and gas frenzy. Engineers were in high demand in 2012, when oil prices exceeded $100 a barrel, making the move across the world a no-brainer. Within two years, though, oil plunged to less than half the 2012 price and Zappa lost her job as a safety analyst. Now she’s worried her husband, who also works in the commodities industry, could also lose his job. Such anxieties are rising at a time when the number of energy jobs cut globally have climbed well above 100,000 as once-bustling oil hubs in Scotland, Australia and Brazil, among other countries, empty out, according to Swift Worldwide Resources, a staffing firm with offices across the world.

“It’s shocking,” Zappa, 29, said in a telephone interview. There is “so much pressure for him to keep his job and even work extra.” Her concerns mirror those of tens of thousands of workers who migrated to oil and gas boomtowns worldwide in the years of $100-a-barrel crude, according to Tobias Read, Swift’s chief executive officer. While much of the focus on layoffs has centered on the U.S., where the shale fields that created the glut have seen the steepest cutbacks, workers in oil-related businesses across the globe are suffering, he said. “The issue is one of uncertainty, of whether there’s a job out there,” Read said in a phone interview. “For seven years, there was a shortage of staff. Now for the first time, there’s a surplus. Currently almost no one is hiring.”

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“The idea is that the stock market is a pretty good indicator of economic demand.” Really? Nothing to do with QE?

Goldman: Why Oil Crashed—and Why Lower Prices Are Here to Stay (Bloomberg)

Oil prices have gotten crushed for the last six months. The extent to which that was caused by an excess of supply or by a slowdown in demand has big implications for where prices will head next. People wishing for a big rebound may not want to read farther. Goldman Sachs released an intriguing analysis on Wednesday that shows what many already suspected: The big culprit in the oil crash has been an abundance of oil flooding the market. A massive supply shock in the second half of last year accounted for most of the decline. In December and January, slowing demand contributed to the continued sell-off. Goldman was able to quantify these effects.

Goldman’s model is simple on its face, looking at just two variables over time: the price of oil and the value of U.S. stocks (as measured by the S&P 500). The idea is that the stock market is a pretty good indicator of economic demand. So when stocks move in tandem with oil prices, demand is in the driver’s seat. When the price of oil moves in the opposite direction of stocks, the shock is coming from supply.

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“The message is clear that Warren’s attacks on the industry have made even moderate Democrats skittish to stand up for banks..”

Have Banks Overplayed Their Hand Fighting Wall Street Regulation? (Bloomberg)

The financial industry is finding that winning in Washington comes at a cost. Wall Street lobbied aggressively and succeeded late last year in persuading lawmakers to roll back rules for the $700 trillion derivatives market. Instead of generating momentum for further changes to the Dodd-Frank Act, the victory sparked a populist uprising among Democrats that’s had wide-ranging consequences, including stymieing less controversial requests from regional banks like Capital One Financial Corp. “A short while ago there was bipartisan agreement on a number of common sense improvements,” said Rob Nichols, president of the Financial Services Forum that represents the chief executives of Wall Street’s biggest banks. “Unfortunately, that bipartisan agreement is gone.”

Financial companies and their employees spent $169 million on the November elections and had expectations that their bid to loosen regulations would get easier with Republicans in control of both the House and Senate. Now, there is second-guessing that banks overplayed their hand, according to lobbyists. The December win on swaps rules has become a rallying cry for Senator Elizabeth Warren, a frequent critic of Wall Street, and spurred repeated White House vows to defend Dodd-Frank. The fallout has frustrated banks, which hope it’s temporary. Democrats who previously said they wanted to revise the law now won’t even discuss it. Republicans are altering their strategy for attacking Dodd-Frank. And lobbyists have been hindered in their efforts to persuade Senate Democrats to champion changes to financial rules.

A sign of the political headwinds has been regional banks’ difficulty winning bipartisan support for a bill that would free them from stringent oversight imposed on lenders with at least $50 billion of assets. Capital One considers getting the threshold increased a top legislative goal this year, according to people with knowledge of the matter. The company’s inability to persuade Democrats to lead the charge in the Senate, particularly home state Senator Mark Warner of Virginia, has reverberated through the ranks of financial lobbyists, according to two people involved in the talks. The message is clear that Warren’s attacks on the industry have made even moderate Democrats skittish to stand up for banks, the people said. Capital One’s discussions with Warner aren’t unique, said company spokeswoman Tatiana Stead. “We have had identical and multiple discussions with his Senate colleagues and other elected officials,” she said.

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“..this whole chorus of Fed governors – yesterday’s lineup included Richard Fisher and Charles Plossner – defending the sacred “independence” of the Federal Reserve is downright Kafkaesque.”

Audit The Fed – And Shackle It, Too (David Stockman)

The reason to be fearful about the economic and financial future is that we are in the thrall of a mainstream consensus that is downright meretricious. In attacking Rand Paul’s audit legislation, for instance, one of the time-servers on the Fed Board of Governors, Jerome H. Powell, let loose the following gem: “As recent U.S. history has shown, elected officials have often pushed for easier policies that serve short-term political interests…..” Perhaps Mr. Powell is a descendent of Rip Van Winkle – and missed the last 20 years of history while doing LBOs at the Carlyle Group and helping Congress improve upon its enviable record of fiscal management while at the Bipartisan Policy Center. But whatever he was doing—snoozing or otherwise distracted – it most assuredly was not gathering evidence that “elected officials” were putting undue pressure on the Fed for “easier policies”.

For crying out loud there is exactly zero evidence that “politicians” had anything to do with zero interest rates. And ZIRP defines the ultimate level of “ease” according to Bernanke himself, who famously described his policies as positioned at the “zero bound”. Indeed, given the very earliest expected date for “lift-off” in June, the Fed will have pinned the money market rate at zero for 80 months running. This unprecedented tsunami of “easy money”, of course, happened with nary a Congressman or Senator darkening the door at the Eccles Building. Folks, this whole chorus of Fed governors – yesterday’s lineup included Richard Fisher and Charles Plossner – defending the sacred “independence” of the Federal Reserve is downright Kafkaesque.

Rather than protecting the Fed from meddling politicians, it is the American public that desperately needs protection from the depredations of an unelected monetary politburo that runs the entire financial system. Let’s say you have saved a quarter million bucks over a lifetime of working and scrimping, but wish to keep it safe and liquid in your retirement years. Well thank you “independent” governors of the Fed for the privilege of owning a bank CD that generates 40 bps or the grand sum $2.75 per day. That’s one visit to Starbucks each morning, but forget the cappuccino. It’s just black coffee for you!

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When will this bomb burst?

‘No Solution To Brazil’s Crisis’ (CNBC)

Brazil’s central bank won’t be able to save the country with monetary policy, economists warned, after downgrading their 2015 growth outlook to zero as stagflation drags the once vibrant economy. “There is no near-term solution to deepening stagflation,” said Dev Ashish, Latin America economist at Societe Generale in a note on Wednesday. “Fiscal and monetary orthodoxy is not expected to yield any fruit in the near to medium term.” Annual inflation shot up to a twelve-year high of 7.1% in January, according to official data on Friday, well above the central bank’s 4.5% target range. With inflation widely expected to remain elevated, analysts in Brazil revised their 2015 gross domestic product (GDP) growth forecast to zero, according to a central bank survey this week.

South America’s largest nation is estimated to have grown less than 1% last year. Brazil’s central bank – the Banco Central do Brasil (BCP) – engaged in an aggressive tightening cycle last year to combat inflation. It pushed the benchmark short-term interest rate, the Selic, to its current multi-year high of 12.25%. Markets widely expect more rate hikes in the coming months. Analysts don’t have faith in the central bank’s toolbox. Rate hikes dampen economic growth, so the success of additional monetary tightening depends on how effectively the government manages its finances, but that depends on economic growth, SocGen said. The bank expects public debt to rise nearly 70% over the next two years on the back of weak GDP.

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Panic.

Sweden’s Riksbank Cuts Key Rate to Negative (Bloomberg)

Sweden’s central bank cut its main interest rate below zero and unexpectedly unveiled plans to start buying government bonds to jolt the largest Nordic economy out of a deflationary spiral. The Riksbank lowered its repo rate to minus 0.10% from zero. A cut had been predicted by six of the 18 economists surveyed by Bloomberg, while the remainder forecast no change. Policy will “soon” be made “more expansionary” by buying 10 billion kronor ($1.2 billion) in government bonds with maturities of one to five years, the Stockholm-based bank said. It pledged to keep the repo rate negative until underlying inflation is close to 2%, which the bank predicts will happen in the second half of 2016. Policy makers will take further steps if necessary, the bank said.

“To ensure that inflation rises toward the target, the Riksbank is prepared to quickly make monetary policy more expansionary, even between the ordinary monetary policy meetings, should the need arise,” it said. Policy makers are delving deeper into their toolbox, joining the European Central Bank in unleashing unconventional measures as deflation risks becoming entrenched. The bank, led by Governor Stefan Ingves, last year reversed course and scrapped a policy of keeping rates up to guard against a build-up in household debt. The reluctance to ease in the face of slowing inflation and high unemployment was characterized as “sadomonetarist” by Nobel laureate Paul Krugman.

The krona slumped as much as 2.1%, and was down 1.4% at 9.62 per euro as of 10:33 a.m. in Stockholm. The yield on Sweden’s benchmark five-year note fell 10 basis points to 0.8%. Two-year yields slid to minus 0.24%. “We didn’t expect the Riksbank to buy government bonds as early as now, but rather that they would wait and see if this would be needed,” said Olle Holmgren, an analyst at SEB. “They are also maybe even clearer in signaling willingness to do even more if needed. This is softer than we thought.”

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Europe’s biggest disgrace is still not being tackled.

Mediterranean Sinking ‘Kills 300 Migrants Bound For Europe (BBC)

At least 300 migrants are feared dead after the boats carrying them from the North African coast sank in the Mediterranean Sea, the UN says. UNHCR regional director Vincent Cochetel called the incident a “tragedy on an enormous scale”. Nine survivors who were brought to Lampedusa by the Italian coast guard are believed to be from West Africa. Initial reports on Monday suggested that at least 29 migrants had died after their dinghy overturned. The UNHCR said the migrants had departed from Libya on Saturday in four dinghies. Mr Cochetel said, “Europe cannot afford to do too little too late”, and called the tragedy, “a stark reminder that more lives could be lost if those seeking safety are left at the mercy of the sea.” In November, Italy ended a year-long operation aimed at rescuing seaborne migrants.

Known as Mare Nostrum, it was launched in October 2013 in response to a tragedy off Lampedusa in which 366 people died. The aim of the mission was to look for ships carrying migrants that may have run into trouble off the Libyan coast. There is no way of knowing for sure whether these men, women, and children would have been saved if the former Italian search-and-rescue operation known as Mare Nostrum was still running. But having spent a week on board an Italian navy frigate, I can be sure they would have done their utmost to save as many lives as possible. The EU’s Triton border patrol is not designed to do that. It cannot pre-empt trouble in international waters – it can only act when lives are immediately at risk. The Italian operation was set up differently. The naval crews knew they had one single purpose – to prevent death.

Some time back, EU leaders pledged that not a single life would again be lost as a result of these large scale tragedies at sea. The EU now runs a border control operation, called Triton, with fewer ships and a much smaller area of operations. The UNHCR says almost 3,500 people died attempting to cross the Mediterranean Sea to reach Europe in 2014, making it the world’s most dangerous sea crossing for migrants. More than 200,000 people were rescued in the Mediterranean during the same period, many under the Mare Nostrum mission prior to its abolition, and the UNHCR expects the figure to remain high in 2015. In a speech before the European Parliament in November, Pope Francis called for a “united response to the question of migration”, warning that the Mediterranean could not be allowed to become a “vast cemetery”.

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“In another development, US President Barack Obama has said he will withdraw nearly all US troops helping to combat the disease in Liberia.”

New Ebola Cases Rise For Second Week In A Row (BBC)

The number of new cases of Ebola has risen in all of West Africa’s worst-hit countries for the second week in a row, the World Health Organization (WHO) says. This is the second weekly increase in confirmed cases in 2015, ending a series of encouraging declines. The WHO said on Wednesday that Sierra Leone had registered 76 of the 144 new cases, Guinea 65 and Liberia three. More than 9,000 people have died from Ebola since December 2013. The WHO said that the increase highlights the “considerable challenges” that must still be overcome to end the outbreak. “Despite improvements in case finding and management, burial practices, and community engagement, the decline in case incidence has stalled,” the UN health agency said in a statement. In another development, US President Barack Obama has said he will withdraw nearly all US troops helping to combat the disease in Liberia.

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“No other country has had such a high rate and number of mammal extinctions over this period, and the number we report for Australia is substantially higher than previous estimates..”

Australia On Brink Of ‘Extinction Calamity’ (BBC)

Australia has lost one in ten of its native mammals species over the last 200 years in what conservationists describe as an “extinction calamity”. No other nation has had such a high rate of loss of land mammals over this time period, according to scientists at Charles Darwin University, Australia. The decline is mainly due to predation by the feral cat and the red fox, which were introduced from Europe, they say. Large scale fires to manage land are also having an impact. As an affluent nation with a small population, Australia’s wildlife should be relatively secure from threats such as habitat loss. But a new survey of Australia’s native mammals, published in the journal Proceedings of the National Academy of Sciences, suggests the scale of the problem is more serious than anticipated.

Since 1788, 11% of 273 native mammals living on land have died out, 21% are threatened and 15% are near threatened, the study found. Marine mammals are faring better. “No other country has had such a high rate and number of mammal extinctions over this period, and the number we report for Australia is substantially higher than previous estimates,” said conservation biologist John Woinarski, who led the research. “A further 56 Australian land mammals are now threatened, indicating that this extremely high rate of biodiversity loss is likely to continue unless substantial changes are made. “The extent of the problem has been largely unappreciated until recently because much of the loss involves small, nocturnal, shy species with [little] public profile – few Australians know of these species, let alone have seen them, so their loss has been largely unappreciated by the community.”

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Jan 052015
 
 January 5, 2015  Posted by at 1:06 pm Finance Tagged with: , , , , , ,  4 Responses »


Lewis Wickes Hine Child Labor in Magnolia Cotton Mills spinning room, Mississippi Mar 1911

Being Poor Is Getting Scarier in the US (Bloomberg)
The Euro In 2015: A Very Bad Start (CNBC)
Tsipras Says ECB Cannot Shut Greece Out Of Stimulus (Reuters)
Samaras Warns of Euro Exit Risk as Greek Campaign Starts (Bloomberg)
Worried About The UK In 2015? You’re Not Alone (CNBC)
The Credit Boom Is A Ticking Timebomb For UK Plc (Guardian)
Oil’s Future Hangs Between The Emirates And The Shales Of Eagle Ford (Observer)
Plunging Oil Prices Test Texas’ Economic Boom (WSJ)
From Boom To Bust In Australia’s Mining Towns (BBC)
The Bubble to End All Bubbles (Phoenix)
Russia’s ‘Startling’ Proposal To Europe: Dump The US, Join Us (Zero Hedge)
Knowing It Will End Badly And Turning A Blind Eye (Mark St.Cyr)
Czech President Condemns Kiev ‘Nazi Torchlight Parade’, EU’s Silence (RT)
France Seeks End To Russia Sanctions Over Ukraine (BBC)
‘More Russia Sanctions To Provoke ‘Dangerous Situation’ In Europe’ (RT)
North Korea/Sony Shows US Media Still Regurgitate Government Claims (Greenwald)
UK Ebola Patient Zero In Critical Condition (FT)
Scientists Target ‘Universal’ Protein To Treat Brain Cancer And Ebola (RT)
13 Species We Might Have To Say Goodbye To In 2015 (GlobalPost)
Earth’s Magnetic Field Now Flips More Often Than Ever (BBC)

“It’s hard to imagine how anyone can survive at 50% of the poverty level. As of 2013, that corresponded to $9,384 a year for a family of three. [..] more than 7 million people were living below it.

Being Poor Is Getting Scarier in the US (Bloomberg)

By any measure, the U.S. is among the wealthiest countries in the world. Judging from new research, though, it’s becoming an increasingly hazardous place to be poor. Every advanced nation has a mechanism to protect its most vulnerable members from economic shocks. In the U.S., government transfer programs such as unemployment insurance, food stamps and the earned income tax credit act to offset the impact of recessions, particularly for the poorest families. By putting much-needed money in the pockets of the people most likely to spend it, these “automatic stabilizers” also help the broader economy recover.

In a paper presented over the weekend at the annual meeting of the American Economic Association, economists Hilary Hoynes of the University of California at Berkeley and Marianne Bitler of UC Irvine explored how well automatic stabilizers in the U.S. are working. Using state-level data on unemployment rates and a measure of household income that accounts for taxes and transfers, they compared the effects of the most recent recession to those of the last deep recession in the 1980s. The result: The U.S. is doing a significantly worse job of protecting its most vulnerable households than it did a few decades ago.

Specifically, the economists estimate that during the 2008 recession, a one-percentage-point increase in the unemployment rate was associated with a nearly 10% increase in the share of 18- to 64-year-olds with household incomes of less than half the poverty level. That’s roughly double the effect of unemployment in the 1980s recession. It’s hard to imagine how anyone can survive at 50% of the poverty level. As of 2013, using the measure of income employed by Hoynes and Bitler, that corresponded to $9,384 a year for a family of three. Nonetheless, more than 7 million people were living below it. [..] Over the past three decades, economic output per person in the U.S. has increased more than 60%, to an estimated $54,678 in 2014. Surely such a rich country can afford to do better for the poor.

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Nothing left to prop it up.

The Euro In 2015: A Very Bad Start (CNBC)

The euro can’t seem to catch a break, starting 2015 with a drop to a nine-year low against the U.S. dollar as the timetable for central bank action appears to step up amid a storm of other negatives for the common currency. “The market was divided over when the ECB would undertake QE,” David Forrester, a foreign-exchange strategist at Macquarie, said. But comments from ECB President Mario Draghi changed that, he said, adding expectations are now for a policy adjustment possibly at the year’s first meeting on January 22. In an interview with German newspaper Handelsblatt, Draghi said he believes the risk that the central bank won’t be able to fulfill its mandate to preserve price stability had risen compared with six months ago. “It moves the timetable for QE potentially forward,” he said, but he noted that other factors are also weighing. “You also have U.S. dollar strength and the Fed potentially raising rates – that’s what’s feeding the euro weakness now.”

Weakness abounds, with the euro fetching $1.1936, after trading as low as $1.1860, its lowest since 2006. The ECB likely wants the euro to decline to help spur the economy and inflation, noted Jesper Bargmann, head of trading for Asia at Nordea. But he added, “I’m not sure they would like the euro to collapse in the short term.” Just how low could the euro fall? Willem Nabarro at Exane BNP Paribas, believes $1.1760 is the first target – the level where the common currency was first introduced, although he noted that consensus forecasts range from $1.10-$1.15. There are other ingredients likely spoiling the euro stew. For one, the euro’s attractiveness as a reserve currency appears to be slipping, with the IMF saying that the share of global central banks’ currency reserves held in the common currency was at 22.6% in the third quarter of last year, the lowest in a decade and off by more than a fullpercentage point from the previous quarter.

Another headwind: the price of oil has also started off the year with a run downward to fresh more than five year lows. U.S. crude futures extended declines to a third day on Monday, trading as low as $51.40 a barrel, while London Brent crude for February delivery fell as low as $55.36 a barrel, levels last seen in 2009. “In trying to anticipate the possible extent of further euro depreciation, it is worth remembering that inflation and inflation expectations lie at the crux of ECB policy initiatives,” Brian Martin, an economist at ANZ, said in a note Friday. “The trend in EUR/USD has been closely correlated with the trend in the oil price and is likely to remain so for the foreseeable future.”

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Let’s see Draghi address this issue. Or Merkel.

Tsipras Says ECB Cannot Shut Greece Out Of Stimulus (Reuters)

Greek leftwing opposition leader Alexis Tsipras said the European Central Bank (ECB) could not exclude Greece if it decides to move to a full «quantitative easing» programme to stimulate the euro zone’s faltering economy. Speaking at a party congress on Saturday, three weeks before a Jan. 25 general election, Tsipras also said his Syriza party would ensure much of Greece’s debt was written off as part of a renegotiation of its international bailout deal. The election takes place three days after a Jan. 22 policy meeting at which the ECB may decide to proceed with a quantitative easing (QE) programme to pump billions of euros into the euro zone economy by buying government bonds.

Tsipras said he hoped ECB President Mario Draghi would decide to go ahead with the programme and said Greece could not be shut out, as some economists and politicians from countries including Germany have suggested. “Quantitative easing by the ECB with direct purchases of government bonds must include Greece,» Tsipras said. The comments underline the pressures facing Draghi ahead of the decision, with many in Germany opposed to full-scale QE which they fear will create asset bubbles and remove incentives for reform-shy governments to act. Syriza, which holds a slim opinion poll lead over Prime Minister Antonis Samaras’ centre-right New Democracy party, has moderated its tone in recent months, pledging to keep Greece in the euro and not to unilaterally repudiate the bailout deal.

But the prospect of a Syriza-led government has set financial markets on edge and caused alarm in Germany, where a succession of politicians and economists have argued the euro zone could cope with Greece’s exit. In a speech laced with barbs against German Chancellor Angela Merkel and finance minister Wolfgang Schaeuble, Tsipras said his party would roll back many of the austerity policies imposed by the bailout «troika». “Austerity is both irrational and destructive. To pay back debt, a bold restructuring is needed,» he said. Repeating many policy pledges first laid out last year, he promised to do away with a real estate tax, freeze house foreclosures, raise the minimum wage and reinstate a €12,000 ($14,400) tax-free threshold to help low earners. He said he would abandon the goal of achieving primary budget surpluses, aimed at cutting Greece’s debt burden equivalent to more than 175% of gross domestic product. But he pledged to protect bank deposits and ensure public finances remain on a sound footing.

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Greece needs to fight its corruption, and that won’t happen under Samaras.

Samaras Warns of Euro Exit Risk as Greek Campaign Starts (Bloomberg)

Greece’s political parties embarked on a flash campaign for elections in less than three weeks that Prime Minister Antonis Samaras said it will determine the fate of the country’s membership in the euro currency area. Samaras used a Jan. 2 speech to warn that victory for the main opposition Syriza party would cause default and Greece’s exit from the 19-member euro region, while Syriza leader Alexis Tsipras said his party would end German-led austerity. Der Spiegel magazine reported Chancellor Angela Merkel is ready to accept a Greek exit, a development Berlin sees as inevitable and manageable if Syriza wins, as polls suggest. The high-stakes run-up to the Jan. 25 vote returns Greece to the center of European policy makers’ attention as they strive to fend off a return of the debt crisis that wracked the region from late 2009, forcing international financial support for five EU countries.

While Greek 10-year bond yields rose to about 9% last week from a post-crisis low of 5.57% in September, the relative improvement in yields from Italy to Ireland suggests that the contagion has been contained. “Many European officials believe a Greek exit would be manageable, and in contrast to 2010-2011, we wouldn’t see the same cascading effect on countries like Spain or Ireland,” Fredrik Erixon, director of the European Centre for International Political Economy in Brussels, said by telephone. Tsipras, in a speech on Jan. 3, vowed to restructure his nation’s debt and end what he called the “unreasonable and catastrophic” austerity policies. Greece will “write down on most of the nominal value of debt, so that it becomes sustainable,” Tsipras said, according to the e-mailed transcript of a speech in Athens. “That’s what was done for Germany in 1953, it should be done for Greece in 2015.”

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EU referendum pushed forward.

Worried About The UK In 2015? You’re Not Alone (CNBC)

The shadow of a general election and a possible exit from the European Union are already making investors nervous about the UK in 2015. On Monday, traditionally the first back-to-work day of the New Year, sterling fell slightly against the dollar and the FTSE was flat, as traders warily eyed the UK. The new year also saw all of the main parties launch their campaigns for May’s general election and for what many pundits predict will be the most unpredictable poll in living memory. “The traditional metrics in how the poll will turn out are being thrown out of the window,” Jeremy Stretch, head of currency strategy at CIBC, told CNBC. He argued that sterling is likely to come under continued pressure ahead of the elections. “All of a sudden, investors are saying they want to look back and see how the smoke clears before committing to the UK”

While the left-leaning Labour Party is leading most recent polls, it looks increasingly likely that either it or the Conservative Party may have to enter a coalition with one or more of the smaller parties to ensure a majority. Another option is that one of the parties governs in what is known as a “hung parliament”, where it doesn’t have a majority and is reliant on the support of other parties to pass laws. Either of these options may lead to the Liberal Democrats party, which got the third-biggest share of the vote in the last election, or minority parties like the Scottish National Party, the U.K. Independence Party (UKIP) or Northern Ireland’s Democratic Unionist Party (DUP) holding the key to running of the country.

The other cloud hanging over investors is whether the UK chooses to stay in the European Union or not. Back in 2013 Prime Minister David Cameron, under pressure from euro-skeptic members of his own party and the increasingly popular UKIP, promised to hold a referendum on the UK’s membership of the EU, which is seen as meddlesome, bureaucratic and expensive by a large number of voters. In an interview with the BBC, Cameron said Sunday that, if his party is in power after the next election, a referendum on the U.K.’s EU membership may come earlier than 2017, the year previously promised. Ministers who are against the U.K.’s continued membership of the trading bloc will have to step aside from their posts if they want to campaign for a “no” vote, he announced.

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A divide between rich and poor, as well as one between old and young.

The Credit Boom Is A Ticking Timebomb For UK Plc (Guardian)

There is a warning buried in the economic figures that appeared last week. While most of the focus was on the steady decline in house buying and numbers showing Britain’s national income grew more slowly last year than previously estimated; the latest borrowing figures set alarm bells ringing. Consumer credit figures from the Bank of England revealed Britons ended the year slapping their credit cards on shop counters as if the financial crisis was a distant memory. Borrowing on credit cards and unsecured loans grew in November at its strongest pace since 2008. We knew that retail sales had surged that month and now we knew why. Mortgage borrowing added to the credit boom, piling another £2.1bn on the debt mountain in November.

The increase was higher than expected and came despite a fall in the number of mortgage approvals. At the same time the central bank was publishing its credit figures, a survey of factory managers could only be described as depressing. Yet again, just as the sector appeared to be finally recovering from the great crash, the momentum has tailed off. The survey of manufacturers found expansion eased back in December after picking up in October and November. And that little period of early winter joy was shortlived, coming after a September that represented a 17-month low. Output and new orders growth moderated in December, and most importantly exports remained lacklustre.

Those economists who found reasons to be cheerful from the figures suggested that the UK’s strong domestic demand would keep the sector growing. The same economists look at the borrowing figures and discern a more benign outlook from the total UK household debt burden, which is continuing a trend since the crash and still coming down. What was once a household debt to income ratio of 175% is now nearer 130%. Yet the overall figure depends on the over-50s paying off their mortgages at an accelerated rate. By contrast, the under-40s take on bigger mortgages to buy a home with an inflated price and borrow on credit cards to fund a lifestyle ravaged by six years of below inflation pay rises.

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No, it really is a race to the bottom.

Oil’s Future Hangs Between The Emirates And The Shales Of Eagle Ford (Observer)

The decision by president Barack Obama to open the door to US oil exports seeped out of Washington in a low-key manner last week, but the impact could be as explosive as a New Year’s Eve firework display. The ban – imposed after the Middle East oil embargoes in the 1970s – has made it close to impossible to ship abroad the fruits of America’s shale bonanza. It also long looked wrong-headed in the home of free trade. The US department of commerce quietly overturned the four-decade-old policy by saying it had started to approve a backlog of requests to sell processed light oil to foreign buyers. The issue is tremendously sensitive, which is possibly why the announcement came out at a time of year when most policymakers were still at home enjoying the Christmas holidays with their families.

Many manufacturers and many domestic consumers are totally opposed to domestic oil or gas production being exported, on the grounds that it could bring an end to cheaper local energy supplies and competitive advantages. But prospectors from the shales in Eagle Ford, Texas and Marcellus, Pennsylvania have been campaigning in Washington for a change in the law for some time, their calls growing more urgent now that some face potential financial trouble as the price of oil plunges from $115 per barrel down to $56. Meanwhile American oil sometimes sells at $15 per barrel less on the local market as supply exceeds demand: not good for the frackers already burdened by their relatively high-cost operations.

But by opening the door to exports – of slightly refined products – Washington has struck a more serious blow to its export rivals in Saudi Arabia, Russia and elsewhere. Ed Morse, global head of commodities research at Citigroup bank, had no trouble predicting that the move would “open up the floodgates to substantial increases in [US] exports by end 2015”.

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Bubble.

Plunging Oil Prices Test Texas’ Economic Boom (WSJ)

Retired Southwest Airlines co-founder Herb Kelleher remembers a Texas bumper sticker from the late 1980s, when falling energy prices triggered an ugly regional downturn: “Dear Lord, give me another boom and I promise I won’t screw it up.” Texas got its wish with another energy-driven boom, and now plunging oil prices are testing whether the state has held up its end of the bargain. The Lone Star State’s economy has been a national growth engine since the recession ended, expanding at a rate of 4.4% annually between 2009 and 2013, twice the pace of the U.S. as a whole. The downturn in energy prices now has triggered a debate over whether Texas simply got lucky in recent years, thanks to a hydraulic-fracturing oil-and-gas boom, or whether it hit on an economic playbook that other states, and the country as a whole, could emulate.

One in seven jobs created nationally during the 50-month expansion has been created in Texas, where the unemployment rate, at 4.9%, is nearly a percentage point lower than the national average. But a big dose of the state’s good fortune comes from the oil-and-gas sector. Midland, which sits atop the oil-rich Permian Basin, had the fastest weekly wage growth in the country among large counties: 9% in the 12 months ending June 2014. Now that oil prices have plunged nearly 51% from their June peak to $52.69 a barrel, some Texans sobered by memories of past energy busts are bracing for a fall. The argument among economists and business leaders isn’t whether the state will be hurt, but how badly.

Mr. Kelleher is among the Texans predicting this won’t be a replay of the 1980s oil bust and banking crisis, which drove the state unemployment rate to 9.3%. As evidence, he and others cite a more cautious banking sector, a tax and regulatory environment favorable to business, and a state economy less dependent on energy and other resources. “Texas has become a well-rounded state,” Mr. Kelleher said. “People did remember not to overextend themselves.”

Michael Feroli, a New York-based economist at J.P. Morgan Chase & Co., is one of the skeptics of the “this-time-is-different” camp. Although the oil-and-gas industry today makes up a smaller share of Texas’ workforce than it did in the mid-1980s, it accounts for roughly the same share of its economic output, he said. So a decline in oil prices similar to the plunge of more than 50% seen in the mid-1980s, he said, could have a similar result: recession. “Texas is, if oil prices stay where they are, going to face a more difficult economic reality,” Mr. Feroli said.

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Another bubble.

From Boom To Bust In Australia’s Mining Towns (BBC)

After 23 years of growth, including one of the biggest mining booms in the nation’s history, tumbling iron ore and coal prices have put a brake on Australia’s economy – and mining towns are paying the price. Peter Windle is a casualty of the mining slowdown. The New South Wales mining employee has lost a well-paid job, a company car and an annual bonus that in some years was as high as A$60,000 ($48,800; £31,300). A termination package from the mining company he used to work for has helped soften the blow. But Mr Windle still had to sell his investment property to keep his head above water. Once part of a vast army of workers in what was Australia’s booming resources sector, Mr Windle now gets up at 5.30 am five days a week to clean and drive school buses in the small town of Muswellbrook.

For decades, the town had ridden the waves of Australia’s coal boom. “It’s the worst I’ve seen it in 28 years in the mining industry,” says Mr Windle. “Everyone is getting out. Three hundred houses are for sale in my town, three in my street, and rental prices have collapsed on older weatherboard houses from A$1,000 a week to A$200,” he says. Mr Windle was the purchase and compliance manager at Glennies Creek Coal Mine. Earlier this year, however, Brazilian company Vale – which owns the underground mine and an open-cut mine at nearby Camberwell – suddenly announced it was sacking 500 workers and mothballing the mines. Mr Windle’s story is not unusual. Across Australia, coal and iron ore mines are laying off staff, shutting down operations or putting new investments on hold.

Resource analysts say it is the end of a long and lucrative mining boom that was mostly fuelled by demand from China. The number of people employed in coal mining alone rose from 15,000 to 60,000 between 2001 and 2014, according to the Australian Bureau of Statistics. Mining companies offered high wages to entice workers from other industries, and to mines that were often in remote locations such as outback Western Australia. Preliminary estimates suggest that this year, Australia exported over A$40bn of coal, much of it to China. But as China’s economy has slowed, the price of coal used for power generation has fallen, from US$142 a tonne in January 2011 to US$67 a tonne in November 2014, according to the World Bank. In the case of iron ore, in mid-December it was trading at about US$70 a tonne, the lowest level since 2009.

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And The Bubble to End All Bubbles.

The Bubble to End All Bubbles (Phoenix)

If your job is to sit in front of a camera selling the notion of getting rich from investing, you’re not going to talk about bonds or currencies (maybe the latter is of interest but only with insane amounts of leverage which usually bankrupts a trader in his or her first trade). However, today stocks are in fact a very minor story. They are, in a sense, the investing equivalent of picking up pennies in front of a steamroller. That steamroller is the $100 trillion bond bubble. For 30+ years, Western countries have been papering over the decline in living standards by issuing debt. In its simplest rendering, sovereign nations spent more than they could collect in taxes, so they issued debt (borrowed money) to fund their various welfare schemes. This was usually sold as a “temporary” issue. But as politicians have shown us time and again, overspending is never a temporary issue. This is compounded by the fact that the political process largely consists of promising various social spending programs/ entitlements to incentivize voters.

This type of social spending is not temporary… this is endemic. The US is not alone… Most major Western nations are completely bankrupt due to excessive social spending. And ALL of this spending has been fueled by bonds. This is why Central Banks have done everything they can to stop any and all defaults from occurring in the sovereign bonds space. Indeed, when you consider the bond bubble everything Central Banks have done begins to make sense. 1) Central banks cut interest rates to make these gargantuan debts more serviceable. 2) Central banks want/target inflation because it makes the debts more serviceable and puts off the inevitable debt restructuring. 3) Central banks are terrified of debt deflation (Fed Chair Janet Yellen herself admitted that oil’s recent deflation was an economic positive) because it would burst the bond bubble and bankrupt sovereign nations.

The bond bubble, like all bubbles, will burst. When it does, everything about investing will change. Bonds have been in bull market since the early ‘80s. Thus, an entire generation of investors and money managers (anyone under the age of 55) has been investing in an era in which risk has generally gotten cheaper and cheaper. This, in turn, has driven the rise in leverage in the financial system. As the risk-free rate fell, so did all other rates of return. Thus investors turned to leverage or using borrowed money to try to gain greater rates of return on their capital. Today, that leverage has resulted in $100 trillion in bonds with over $555 trillion in derivatives based on bonds. This bubble, literally dwarfs all other bubbles. To put this into perspective, the Credit Default Swap (CDS) market that nearly took down the financial system in 2008 was only a tenth of this ($50-$60 trillion). When this bubble bursts, 2008 will look like a picnic.

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Makes sense.

Russia’s ‘Startling’ Proposal To Europe: Dump The US, Join Us (Zero Hedge)

Slowly but surely Europe is figuring out that as a result of the western economic and financial blockade of Russian, it is Europe itself that is suffering the most. And while Germany was first to acknowledge this late in 2014 when its economy swooned and is now on the verge of a recession, now others are catching on. Case in point: the former head of the European Commission, and Italy’s former Prime Minister, Romano Prodi who told Messaggero newspaper that the “weaker Russian economy is extremely unprofitable for Italy.” The other details from Prodi’s statement:

Lowered prices in the international energy markets have positive aspects for the Italian consumers, who pay less for the fuel, but the effect will be only short-term. In the long-term however the weaker economic situation in countries producing energy resources, caused by lower oil and gas prices, mostly in Russia, is extremely unprofitable for Italy, he said. “The lowering of the oil and gas prices in combination with the sanctions, pushed by the Ukrainian crisis, will drop the Russian GPD by five% per annum, and thus it will cause cutting of the Italian export by about 50%,” Prodi said. “Setting aside the uselessness or imminence of the sanctions, one should highlight a clear skew: regardless of the rouble rate against dollar, which is lower by almost a half, the American export to Russia is growing, while the export from Europe is shrinking.”

In other words, just as slowly, the world is starting to grasp the bottom line: it is not the financial exposure to Russia, or the threat of financial contagion should Russia suffer a major recession or worse: it is something far simpler that will lead to the biggest harm for Europe’s countries. The lack of trade. Because while central banks can monetize everything, leading to an unprecedented asset bubble which if only for the time being boosts investor and consumer confidence, they can’t print trade – that all important driver of growth in a globalized world long before central banks were set to monetize over $1 trillion in bonds each and every year to mask the fact that the world is deep in a global depression.

Which is why we read the following report written in yesterday’s Deutsche Wirtschafts Nachrichten with great interest because it goes right to the bottom line. In it Russia has a not so modest proposal to Europe: dump trade with the US, whose call for Russian “costs” has cost you another year of declining economic growth, and instead join the Eurasian Economic Union! From the source:

Russia has presented a startling proposal to overcome the tensions with the EU: The EU should renounce the free trade agreement with the United States TTIP and enter into a partnership with the newly established Eurasian Economic Union instead. A free trade zone with the neighbors would make more sense than a deal with the US.

It surely would, but then how will Europe feign outrage when the NSA is found to have spied yet again on its “closest trading partners?”

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Funny. St. Cyr writes exactly what I did last November in Making Money While The World Burns and Hugh Hendry And The Deflationary Zeitgeist.

Knowing It Will End Badly And Turning A Blind Eye (Mark St.Cyr)

As 2014 came to an end I like many of you probably felt a brief sigh of relief that maybe, just maybe, we could move into 2015 with a little more sanity shoved back into the financial markets. Now with QE as a know certain (at least for this moment) that indeed the spigot to the fire-hose has been shut off albeit there is still the “reinvestment” sprinkler system still at play. We might possibly get back to a little bit of sanity within the capital markets. I watched a great many pundits take to both the financial air-wave cameras, as well as radio and print with fervent breath to make more or less a blanket statement that all the so-called “doom crew” (this is what you are now branded if you dare make a cogent case against fairy-tales and pixie-dust) were proven to be, without a doubt – totally wrong.

Added to this near foamed mouthed expression of glee was the added generalized diatribe, “when will these people just admit they were wrong and go away?!” Every time I heard or read a statement reminiscent of this I burst out into laughter. Until I read Hugh Hendry’s Eclectica Fund’s “Letter to Investors.” Here is where I went from laughter – to outright stupefaction. Before I go any further let me make this point clear: I am, and have been a fan of Mr. Hendry’s investing prowess, his willingness to point out in public whether an Emperor is clothed or not, and more. However, I have also made my opinion clear about my uneasiness when he originally turned his investing thesis onto its head and became by his own words “a Bull.”

Although I understood the thesis I believed (and still do) that there is an inherent danger when this view is accepted and codified based on this market. So strongly do I feel about this I suggest we turn the danger scale up more towards perilous. Or, in simple terms – the danger knob has just been turned to 11 in my view after reading his latest letter. The opening paragraph was nearly all one had to read as to know both the direction and the stance that seems now fully embraced by more than just Mr, Hendry – but everyone currently on this Keynesian fueled bandwagon. To wit:

“There are times when an investor has no choice but to behave as though he believes in things that don’t necessarily exist. For us, that means being willing to be long risk assets in the full knowledge of two things: that those assets may have no qualitative support; and second, that this is all going to end painfully. The good news is that mankind clearly has the ability to suspend rational judgment long and often.”

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“The Czech President said something is “wrong” not only with Ukraine, but also with the European Union, which did not protest or condemn this action.”

Czech President Condemns Kiev ‘Nazi Torchlight Parade’, EU’s Silence (RT)

The chilling slogans and a flagrant demonstration of nationalist symbols during the neo-Nazi march in Kiev reminded the Czech President Milos Zeman of Hitler’s Germany. He said something was “wrong” both with Ukraine and the EU which didn’t condemn it. Zeman was commenting on the appalling scenes, which showed thousands of Ukrainian nationalists holding a torchlight procession across the Ukrainian capital on Thursday to commemorate the 106th birthday of Stepan Bandera, a Nazi collaborator and the Ukraine nationalist movement’s leader during World War II. “There is something wrong with Ukraine,” the Czech Republic’s leadertold radio F1 on Sunday. “Yesterday evening I was browsing the Internet and discovered a video showing the demonstration on Kiev’s Maidan on January 1.”

“These demonstrators carried portraits of Stepan Bandera, which reminded me of Reinhard Heydrich,” Zeman said referring to one of the main architects of the Holocaust and at the time a Reich-Protector of Czech Republic’s territories. The parade itself was organized similar to Nazi torchlight parades, where participants shouted the slogan: ‘Death to the Poles, Jews and communists without mercy,”Zeman explained. Bandera was the head of the Organization of Ukrainian Nationalists (OUN), which collaborated with Nazi Germany, and was involved in the ethnic cleansing of Poles, Jews and Russians. “Glory to the nation! Death to enemies!”, “Ukraine belongs to Ukrainians” and “Bandera will return and restore order”, were the repeated slogans during the neo-Nazi march. Some of the participants wore World War II Bandera’s insurgent army uniforms while others paraded with red and black nationalist flags.

The Czech President said something is “wrong” not only with Ukraine, but also with the European Union, which did not protest or condemn this action. “Don’t forget that Bandera is considered a national hero in Ukraine, his image is hanging in the Maidan, his statue is in Lvov. In reality, he was a mass murderer,” Zeman said last summer on Czech Television. Russia too has on numerous occasions condemned the resurgence of neo-Nazi traditions in Ukraine and considers such displays of militant nationalism as means to fabricate history. “Torch-lit marches in Ukraine demonstrate that it is continuing to move along the path of the Nazis!” Konstantin Dolgov, the foreign ministry’s human rights envoy, said last week. “And this is in the center of civilized Europe!”

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They need to throw out Yats and the other US agents.

France Seeks End To Russia Sanctions Over Ukraine (BBC)

French President Francois Hollande says he wants Western sanctions on Russia to be lifted if progress is made in talks on the Ukraine conflict this month. He did not specify which sanctions – imposed by the EU, US and Canada – could be lifted. The sanctions began after Russia annexed Crimea in March. Mr Hollande said Russian President Vladimir Putin “doesn’t want to annex eastern Ukraine – he told me that”. Germany’s vice-chancellor has warned against further sanctions on Russia. Sigmar Gabriel – a centre-left politician like Mr Hollande – said the sanctions were aimed at making Russia negotiate to resolve the Ukraine conflict. But some “forces” in Europe and the US wanted sanctions to cripple Russia, which would “risk a conflagration”. “We want to help get the Ukraine conflict resolved, but not to push Russia onto its knees,” he told Bild am Sonntag newspaper.

The OSCE security organisation has reported sporadic shelling between Ukrainian forces and pro-Russian separatists in eastern Ukraine despite a ceasefire agreement. In late December several hundred prisoners were exchanged. There have been calls elsewhere in the EU for an easing or lifting of the sanctions on Russia, which have hit Russia’s banks, energy industry and arms manufacturers, as well as targeting powerful figures close to Mr Putin. Politicians in Italy, Hungary and Slovakia are among those who want the sanctions eased. “The sanctions must be lifted if there is progress. If there is no progress the sanctions will stay in place,” Mr Hollande told France Inter radio. He confirmed that a France-Germany-Russia-Ukraine summit would be held in Astana, Kazakhstan, on 15 January, focusing on the Ukraine conflict.

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“.. additional sanctions may exclude Moscow from partnership in the resolution of conflicts which “will have very dangerous consequences for the entire world.”

‘More Russia Sanctions To Provoke ‘Dangerous Situation’ In Europe’ (RT)

Tougher sanctions against Russia could destabilize the country and provoke an “even more dangerous” situation in Europe and have negative consequences for the entire world, German Vice-Chancellor Economic Affairs and Energy Minister has warned. “Those who want it, provoke an even more dangerous situation for all of us in Europe,” Sigmar Gabriel said in an interview with the Bild am Sonntag newspaper on Sunday. “Those who are seeking to even more destabilize Russia from the economic and political point of view are pursuing quite different goals.” The goal of sanctions against Russia was to return Moscow to the negotiating table to find ways for a peaceful resolution to the crisis in Ukraine, he said. He elaborated that additional sanctions may exclude Moscow from partnership in the resolution of conflicts which “will have very dangerous consequences for the entire world.”

Though there are some in the US and EU that “would like to floor their superpower rival,” but it is not in the interest of Germany or Europe, he stated. “We want to help solve the conflict in Ukraine, not to force Russia to its knees,” he stressed. The US and EU slapped Russia with several rounds of sanctions, starting in March after Crimea joined Russia. Western nations have accused Russia of annexing Crimea, though Moscow has denied the claims stressing that residents of the peninsula voted in favor of the notion in a referendum that was in line with the international law and the UN Charter. The first round of Western sanctions targeted Russian officials and companies and included visa bans and asset freezes. The second round of sanctions that put pressure on financial, energy, and defense sectors was announced in July with the US and EU blaming Moscow for involvement in the unrest in eastern Ukraine.

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Amen.

North Korea/Sony Shows US Media Still Regurgitate Government Claims (Greenwald)

This government-subservient reporting was not universal; there were some noble exceptions. On the day of Obama’s press conference, MSNBC’s Rachel Maddow hosted Xeni Jardin in a segment which repeatedly questioned the evidence of North Korea’s involvement. The network’s Chris Hayes early on did the same. The Guardian published a video interview with a cyber expert casting doubt on the government’s case. The Daily Beast published an article by Rogers expressly arguing that “all the evidence leads me to believe that the great Sony Pictures hack of 2014 is far more likely to be the work of one disgruntled employee facing a pink slip.” He concluded: “I am no fan of the North Korean regime. However I believe that calling out a foreign nation over a cybercrime of this magnitude should never have been undertaken on such weak evidence.”

Earlier this week, the NYT‘s Public Editor, Margaret Sullivan, chided the paper’s original article on the Sony hack, noting – with understatement – that “there’s little skepticism in this article.” Sullivan added that the paper’s granting of anonymity to administration officials to make the accusation yet again violated the paper’s own supposed policy on anonymity, a policy touted by the paper as a redress for the debacle over its laundering of false claims about Iraqi WMDs from anonymous officials. But – especially after that first NYT article, and even more so after Obama’s press conference – the overwhelming narrative disseminated by the U.S. media was clear: North Korea was responsible for the hack, because the government said it was.That kind of reflexive embrace of government claims is journalistically inexcusable in all cases, for reasons that should be self-evident. But in this case, it’s truly dangerous.

It was predictable in the extreme that – even beyond the familiar neocon war-lovers – the accusation against North Korea would be exploited to justify yet more acts of U.S. aggression. In one typical example, the Boston Globe quoted George Mason University School of Law assistant dean Richard Kelsey calling the cyber-attack an “act of war,” one “requiring an aggressive response from the United States.” He added: “This is a new battlefield, and the North Koreans have just fired the first flare.” The paper’s own writer, Hiawatha Bray, explained that “hackers allegedly backed by the impoverished, backward nation of North Korea have terrorized one of the world’s richest corporation” and approvingly cited Newt Gingrich as saying: “With the Sony collapse America has lost its first cyberwar.”

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“.. the hospital was unable to obtain ZMapp, the drug used to treat fellow British volunteer nurse William Pooley, because “there is none in the world at the moment ..”

UK Ebola Patient Zero In Critical Condition (FT)

The condition of Pauline Cafferkey, a Scottish nurse who this week became the first person to be diagnosed with Ebola on UK soil, has deteriorated and is now critical, the Royal Free Hospital said on Saturday, as it emerged that another patient had tested negative for the deadly virus at a hospital in Swindon The 39-year-old’s sudden change in condition comes after her doctor described her as sitting up, eating, drinking and communicating with her family on New Year’s Day. Michael Jacobs, one of the medics treating her, warned that she faced a “critical” few days while she was treated with the blood from a survivor and an experimental antiviral drug which is “not proven to work.” Great Western Hospitals NHS Foundation Trust said on Sunday that an individual with a history of travel to west Africa had tested negative for Ebola but remained under observation at the hospital.

“The test results have come back negative. The patient is continuing to stay within the hospital for treatment,” the trust said. Ms Cafferkey was initially admitted to a hospital in Glasgow, the city in which she works as part of a public health team, after she returned from west Africa having flown via Morocco to London’s Heathrow airport. As her condition worsened she was transferred to an isolation unit at the Royal Free Hospital in Hampstead, north London. However, the hospital was unable to obtain ZMapp, the drug used to treat fellow British volunteer nurse William Pooley, because “there is none in the world at the moment,” Dr Jacobs said. Mr Pooley, who was also treated at the Royal Free, made a full recovery and has since returned to Sierra Leone to continue treating those affected by the virus.

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Too good to be true?

Scientists Target ‘Universal’ Protein To Treat Brain Cancer And Ebola (RT)

US researchers have identified a protein, which they believe is a universal therapeutic target for treating a number of deadly human diseases. They used a drug combination which included Viagra to effectively target the protein. Researchers at Virginia Commonwealth University (VCU) have figured out a protein – GRP78 – that may be a possible target to rid humans of such viral and bacterial infections as Ebola, Influenza and Hepatitis, as well as be a way to cure brain cancer. The pre-clinical study which was led by the US University, and published in the Journal of Cellular Physiology, used a drug combination – with Viagra being one of its elements – to target GRP78 and related proteins. As a result, researchers managed to prevent replication of a variety of major viruses in infected cells, and made some antibiotic-resistant bacteria vulnerable to common antibiotics. Evidence that brain cancer stem cells were killed was also found.

“Basically, we’ve got a concept that by attacking GRP78 and related proteins: (a) we hurt cancer cells; (b) we inhibit the ability of viruses to infect and to reproduce; and (c) we are able to kill superbug antibiotic-resistant bacteria,” said the study’s lead investigator, Paul Dent. After studying the effect in cancer cells, the researchers applied the same drug combination to target the protein for infectious diseases. Viral receptor expression on the surface of target cells was reduced, which decreased infectivity, and replication of a virus in infected cells was also prevented. By proving GRP78 to be a “drugable” target, researchers say the findings open new possibilities in treating various viral infections – “that certainly most people would say we’ll never be able to treat.” According to Dent, scientists already know that in mice the same Viagra treatment can kill tumor cells without harming other tissues, and the next steps in further discovering the possibilities of the method have already been taken.

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How to make me sad on a Monday morning.

13 Species We Might Have To Say Goodbye To In 2015 (GlobalPost)

British broadcaster and naturalist Sir David Attenborough once asked: “Are we happy to suppose that our grandchildren may never be able to see an elephant except in a picture book?” This year marked the 100th anniversary of the death of the last passenger pigeon, Martha, who managed to survive only 14 years in captivity after her species became extinct in the wild. More recently, Angalifu, a 44-year-old northern white rhinoceros, died at the San Diego Zoo, leaving just five other white rhinos worldwide, all in captivity. Chances are our grandchildren will never get to see this remarkable creature. In fact, the world is losing dozens of species every day in what experts are calling the sixth mass extinction in Earth’s history.

As many as 30 to 50% of all species are moving toward extinction by mid-century – and the blame sits squarely on our shoulders. “Habitat destruction, pollution or overfishing either kills off wild creatures and plants or leaves them badly weakened,” said Derek Tittensor, a marine ecologist at the World Conservation Monitoring Centre in Cambridge. “The trouble is that in coming decades, the additional threat of worsening climate change will become more and more pronounced and could then kill off these survivors.” About 190 nations met last month at the United Nations climate talks in Lima, Peru to discuss action needed to curb rising greenhouse gas emissions. It ended with a watered-down agreement that seems unlikely to help much in the battle against global warming.

Corruption and illegal online trafficking also threaten conservation efforts. The illegal wildlife trade is an estimated $10-billion-a-year industry. It’s the fifth largest contraband trade after narcotics, fueled by the rising demand for animals as pets, trophies, and ingredients in medicine, food and other products. There’s no doubt that we’re facing an uphill battle against mankind’s unsustainable greed and consumption, but it’s a battle we can’t afford to lose. “The thought of having to explain to my children that there were once tigers — real, wild tigers, out there, in the great forests of the world – but that we let them die out, because we were busy – well, it was bad enough explaining about the Tooth Fairy, and that wasn’t even my fault,” said English comedian Simon Evans.

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Yikes!

Earth’s Magnetic Field Now Flips More Often Than Ever (BBC)

The Earth’s magnetic field, which protects us from potentially dangerous solar radiation, is gradually losing its stability. No need to move underground or build space colonies just yet, though: the changes are taking place over millions of years. You might assume that compasses will always point north, but in fact the magnetic poles have swapped places many times in the Earth’s history. Earth scientists have long suspected that these flips are becoming more frequent, and that the magnetic field was less prone to pole reversals in the distant past. Now the most detailed analysis of the geological evidence to date suggests that the field really is slowly destabilising. Whereas in the distant past it reversed direction every 5 million years, it now does so every 200,000 years.

Earth’s magnetic field is powered by the heart of the planet. At its centre is a solid inner core surrounded by a fluid outer core, which is hotter at the bottom. Hot iron rises within the outer core, then cools and sinks. These convection currents, combined with the rotation of the Earth, are thought to generate a “geodynamo” that powers the magnetic field. Because of changing temperatures and fluid flows, the strength of the magnetic field varies, and the positions of the north and south magnetic poles shift. These shifts leave traces in rocks. When lava cools, metal oxide particles within the rock become frozen in the direction of the prevailing magnetic field. So scientists can work out the historic positions of the magnetic poles by examining and dating lava samples. As a result we know there have been about 170 magnetic pole reversals during the last 100 million years, and that the last major reversal was 781,000 years ago.

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Jan 012015
 
 January 1, 2015  Posted by at 12:37 pm Finance Tagged with: , , , , , , , , ,  8 Responses »


DPC Gillender Building, corner of Nassau and Wall Streets, built 1897, wrecked 1910 1900

Third Of Listed UK Oil And Gas Drillers Face Bankruptcy (Telegraph)
Occam’s Oil (Alhambra)
AAA Says Motorists May Save $75 Billion on Gasoline in 2015 (Bloomberg)
Bottom On Oil’s Plunge Unknown (CNBC)
US Eases Oil Export Ban In Shot At OPEC As Crude Price Slumps (Telegraph)
Even $20 Oil Will Struggle To Save Self–Harming Eurozone (Telegraph)
ECB’s Draghi Says Eurozone Must ‘Complete’ Monetary Union (Reuters)
Greek Expulsion From The Euro Would Demolish EMU’s Contagion Firewall (AEP)
Europe’s Shadow Budget Venture Could Lead To Spiralling Debt (Sinn)
Implications for the ECB and Its Preparation for Sovereign QE (Elga Bartsch)
Seven Shocking Events Of 2014 (Ugo Bardi)
For the Wealthiest Political Donors, It Was a Very Good Year (Bloomberg)
Pension Funds Triple Stake In Reinsurance Business to $59 Billion (NY Times)
Inside Obama’s Secret Outreach to Russia (Bloomberg)
Italian President to Resign, Posing Challenge for Renzi (Bloomberg)
Rousseff Begins Second Term as Brazil Economic Malaise Hits Home
Eyes On Saudi Succession After King Hospitalized (CNBC)
Saudi Succession Plan About Continuity (CNBC)
Sony Hackers Threaten US News Media Organization (Intercept)
Next Year’s Ebola Crisis (Bloomberg ed.)

“.. 70% of the UK’s publicly listed oil exploration and production companies are now unprofitable..” We can all see what that means for the global industry.

Third Of Listed UK Oil And Gas Drillers Face Bankruptcy (Telegraph)

A third of Britain’s listed oil and gas companies are in danger of running out of working capital and even going bankrupt amid a slump in the value of crude, according to new research. Financial risk management group Company Watch believes that 70% of the UK’s publicly listed oil exploration and production companies are now unprofitable, racking up significant losses in the region of £1.8bn. Such is the extent of the financial pressure now bearing down on highly leveraged drillers in the UK that Company Watch estimates that a third of the 126 quoted oil and gas companies on AIM and the London Stock Exchange are generating no revenues. The findings are the latest warning to hit the oil and gas industry since a slump in the price of crude accelerated in November when the OPEC decided to keep its output levels unchanged.

The decision has caused carnage in oil markets with a barrel of Brent crude falling 45% since June to around $60 per barrel. The low cost of crude has added to the financial pressure on many UK listed drillers which are operating in offshore areas such as the North Sea where oil is more expensive to produce and discover. Ewan Mitchell, head of analytics at Company Watch, said: “Many of the smaller quoted oil and gas companies were set up specifically to take advantage of historically high and rising commodity prices. The recent large falls in the price of oil and gas could leave the weaker companies in difficulties, especially the ones that need to raise funds to keep exploring.” Losses are expected to be much deeper among privately-owned oil and gas explorers, which traditionally have more debt.

Company Watch has warned that almost 90% in the UK are loss making with accounts that show a £12bn accumulated black hole in their finances. Mr Mitchell said: “Investors in this sector need to focus primarily on the strength and structure of the balance sheet. A critical question is whether the balance sheet is sufficiently robust to keep the company in business until revenues are expected to flow and, crucially are they likely to be able to rely on existing funding lines while they wait? “Our fear is sustained low oil and gas prices will put an intolerable financial burden on the weaker companies, jeopardising many livelihoods.”

The findings of the Company Watch research are the latest downbeat analysis to hit the industry, which is preparing itself for oil prices to fall below current levels of $60 per barrel. Sir Ian Wood, founder of the oil and gas services giant Wood Group, warned earlier this month that the North Sea oil industry could lose 15,000 jobs in Scotland alone and that production could fall by 10% as drillers cut back. According to energy consultancy firm Wood Mackenzie, around £55bn of oil and gas projects in the North Sea and Europe could be shelved should prices fall below their current levels. Ratings agency Standard & Poor’s recently flagged its concern of some of Europe’s biggest oil and gas groups such as Royal Dutch Shell, BP and BG Group. Its primary worry is debt levels which it says have jumped from a combined $162.9bn (£105bn) for the five largest European companies in the sector at the end of 2008 to an estimated $240bn in 2014.

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It’s about demand, not supply.

Occam’s Oil (Alhambra)

As my colleague Joe Calhoun continually reminds us, everything that happens has happened before. The ongoing “struggle” to define what is driving crude oil prices lower is perhaps another instance of a past “cycle” being reborn. With oil prices now heading much closer to the $40’s than the $60’s, consistent commentary is increasingly swept aside. The move in crude these past six months is now nothing short of astounding. At about $52 current prices (which will probably move in either direction significantly by the time this is posted) the collapse from the recent peak now equals only past, significant global recessions under the oil regime that began in the mid-1980’s.

That comparison includes the 1997-98 Asian “flu” episode where the mainstream convention was also totally convinced of only massive oversupply defining price action. This was incorporated even into the International Energy Agency’s (IEA) estimates of oil inventories, as described shortly thereafter by certain incredulous oil observers:

Fourteen months have passed since the International Energy Agency’s oil analysts alerted the world to the mystery of the “missing barrels.” This new term referred to the discrepancy between the “well-documented” imbalance between supply and demand for oil and the lack of any stock build in the industrialized world’s petroleum supply. In April last year [1998], the IEA’s “missing supply” totaled only 170 million barrels. At the time, the IEA described this odd situation an “arithmetic mystery,” but assured us that these missing barrels would soon show up. As months passed by, stock revisions occasionally too place, but often in the wrong direction. Rather than shrink, the amount of “missing barrels” grew by epochal proportions.

By the publication date of the IEA’s April 1999 Oil Market Report, the unaccounted for crude needed to confirm the IEA’s extremely bearish views of massive oversupply of oil throughout 1997 and 1998 ballooned to an astonishing 647 million barrels of oil. Two months later, the IEA’s June report still presumes that 510 million barrels of oil is still “missing”, and the IEA has officially opined that it all resides in the un-traded storage facilities in the developing countries of the world.

As the author of that analysis points out in another piece, those “un-traded storage facilities” being blamed were sometimes ridiculous notions, such as “slow-steaming tankers”, South African coal mines or even Swedish salt domes. In other words, the idea that there was this massive oversupply of oil production driving the almost 60% collapse in global crude prices in 1997 and 1998 was total bunk. Instead, what was driving prices lower was the simple fact of supply and demand balancing to achieve a physical clearing price. That meant, in the broader context far and away from Swedish salt domes, the price of oil was really trading on the collapse in global demand for it. The Asian “flu” was not simply a financial panic among “unimportant”, far-flung isolated economies of tiny nations, but rather a global slowdown across nearly every economy – which sharply lower oil prices simply confirmed.

[..] today, the Saudis are supposedly up to the same tricks, now trying to drive US shale production out of business. The fact that all those increased marginal suppliers more than survived the Asia flu tells you everything you need to know about this wild assertion of “intentional” Saudi action. It is a convoluted rumor that survives solely because it is convenient to those economists and commentators that refuse to accept these more basic connections.

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“We’re buying more of it from ourselves, which is a great economic multiplier.” Well, until you start losing 1000s of jobs.

AAA Says Motorists May Save $75 Billion on Gasoline in 2015 (Bloomberg)

Drivers in the U.S. may save as much as $75 billion at gasoline pumps in 2015 after a yearlong rout in crude oil sent prices tumbling, AAA said today. Americans already saved $14 billion on the motor fuel this year, according to Heathrow, Florida-based AAA, the country’s largest motoring group. Pump prices have dropped a record 97 consecutive days to a national average $2.26 a gallon today, the lowest since May 12, 2009, AAA said by e-mail. A global glut of crude oil and a standoff between U.S. producers and the Organization of Petroleum Exporting Countries over market share has been a boon for consumers. U.S. production climbed this year to the highest in three decades amid a surge in output from shale deposits.

Oil is heading for its biggest annual decline since the 2008 financial crisis. “Next year promises to provide much bigger savings to consumers as long as crude oil remains relatively cheap,” Avery Ash, an AAA spokesman, said by e-mail today. “It would not be surprising for U.S. consumers to save $50-$75 billion on gasoline in 2015 if prices remain low.” U.S. benchmark West Texas Intermediate crude dropped 46% this year while Brent oil, the international benchmark that contributes to the price of gasoline imports, fell 49%. “It’s getting lower because what happened? We drilled in the United States,” Peyton Feltus, president of Randolph Risk Management in Dallas, said today in a telephone interview.

“We’re buying more of it from ourselves, which is a great economic multiplier.” There is “significant uncertainty” over the cost of crude next year as lower prices may force companies to curb production and may also lead to instability in other oil-producing countries, the motoring group said. Gasoline futures fell 48% this year to close at $1.4353 a gallon today on the New York Mercantile Exchange. The average U.S. household will save about $550 on gasoline costs next year, with spending on track to reach the lowest in 11 years, the Energy Information Administration said Dec. 16. “They’ve got more disposable income and they’re going to have even more in the coming months,” Feltus said. “Gasoline prices are going to go lower than anybody thought they could.”

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“It’s similar to 2008 when we knew oil at $120, $130 and $140 made no sense, but high prices became the reason for higher prices. It’s the same thing in reverse.”

Bottom On Oil’s Plunge Unknown (CNBC)

Oil’s massive price drop continues to befuddle industry experts. “We’re at the stupid range,” Stephen Schork, editor and founder of The Schork Report, said in an interview with CNBC’s “Squawk Box.” Schork added this situation is similar to oil’s price spike in 2008 in terms of its uncertainty. “We don’t know how much lower oil can go,” Schork said. “It’s similar to 2008 when we knew oil at $120, $130 and $140 made no sense, but high prices became the reason for higher prices. It’s the same thing in reverse.” Schork also said oil’s price plunge is attracting many investors. “Bets for oil below $30 by June traded over 46,000 contracts over the past two weeks,” he said.

Also on “Squawk Box,” Boris Schlossberg, founding partner of B.K. Asset Management, said an entire year of oil selling at $50 per barrel will create problems for Russia. “Russia is in very serious trouble if oil just stays low,” he said. “We had a bounce in the ruble, and it sort of stabilized right now, but if you have oil staying at $54 for a whole year, it’s really going to create problems over there.” Schlossberg added that this could lead to more capital leaving Russia for other currencies, including the Swiss franc. “There’s a lot of money being moved into the Swiss franc as a safety trade,” he said.

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“The move could signal that a full opening of the export ban, which has existed since the oil shock of the 1970s, is imminent.”

US Eases Oil Export Ban In Shot At OPEC As Crude Price Slumps (Telegraph)

President Barack Obama has fired a shot at the Organisation of Petroleum Exporting Countries (OPEC) in the war to control global oil markets by quietly sanctioning the easing of America’s 40-year ban on exporting crude. The US government has reportedly told oil companies they can begin to export shipments of condensate – a high-grade crude produced as a by-product of gas – without going through the formal approval process. The move could signal that a full opening of the export ban, which has existed since the oil shock of the 1970s, is imminent. Brent crude fell sharply on the news, first reported by Reuters. The global benchmark opened down almost 2% in London at $56.85 per barrel as it closes in on its biggest annual drop since the financial crisis in 2008. Brent has lost 50% of its value since reaching its year-long high in June. The ending of America’s self-imposed embargo on oil exports would mark a serious escalation in the unfolding oil price war with OPEC led by Saudi Arabia.

The kingdom has made it clear that it is willing to watch the price of oil fall lower in order to protect its share of the global market. OPEC share has fallen to about a third of world supply, down from about half 20 years ago as the flood in shale oil drilling in the US and new supplies from Russia and South America have created a global glut. Meanwhile, the sharp fall in the value of oil is placing economies in major producing nations such as Venezuela and Russia under extreme strain. Venezuela – also a member of OPEC – has fallen into recession after its economy contracted for the first three quarters of the year, while inflation topped 63% in the 12 months to November. The South American oil giant’s economy shrank 2.3% in the third quarter, after contracting 4.8% in the first quarter and 4.9% in the second, the central bank has said.

Recession also looms in Russia, where the economy has fallen into decline for the first time in five years, according to official figures, which show that GDP contracted by 0.5% in the year to November. Falling oil prices are helping the US to exert pressure on the Kremlin over President Vladimir Putin’s support for separatists in Ukraine. Oil also came under pressure on the final day of the year after new data showed that China may miss its growth target for 2014. China manufacturing PMI fell to 49.6, down from final 50.0 in November. This is the first time in the second half of the year that China’s factory sector has contracted and has increased the possibility that 2014 GDP will miss the official 7.5% target. “Weak Chinese manufacturing data also damaged demand sentiment around oil as Brent breached the $57 handle,” said Peter Rosenstreich, head of market strategy at Swissquote.

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“When the future arrives, prices will still be low, confounding those who have bought forward.”

Even $20 Oil Will Struggle To Save Self–Harming Eurozone (Telegraph)

Revisiting the past year’s predictions is, for most columnists – yours truly included – a frequently humbling experience. The howlers tend to far outweigh the successes. Yet, for a change, I can genuinely claim to have got my main call for markets – that oil would sink to $80 a barrel or less – spot on, and for the right reasons, too. Just in case you think I’m making it up, this is what I said 12 months ago: “My big prediction is for $80 oil, from which much of the rest of my outlook for the coming year flows. It’s hard to overstate the significance of a much lower oil price – Brent at, say, $80 a barrel, or perhaps lower still – yet this is a surprisingly likely prospect, the implications of which have been largely missed by mainstream economic forecasters.” If on to a good thing, you might as well stick with it; so for the coming year, I’m doubling up on this forecast.

Far from bouncing back to the post crisis “normal” of something over $100 a barrel, as many oil traders seem to expect, my view is that the oil price will remain low for a long time, sinking to perhaps as little as $20 a barrel over the coming year before recovering a little. I’ve used the word “normal” to describe $100 oil, but in fact such prices are in historic terms something of an aberration. The long term, 20–year average is, in today’s money (adjusting for inflation), more like $60. It wasn’t that long ago that OPEC was targeting $25 oil, which back then seemed a comparatively high price. Be that as it may, for 15 years prior to the turn of the century Brent traded at around the $20 mark in nominal terms. Oil at $20 is a much more “normal” price than $100. The assumption of much higher prices is in truth a very modern phenomenon, born of explosive emerging market demand. For the time being, this seems to be over. Chinese growth is slowing and becoming less energy intensive.

By the by, however, the relatively high prices of the past 10 years have incentivised both a giant leap in supply – in the shape of American shale and other once marginal sources – and continued paring back of existing demand, as consumers, under additional pressure from environmental objectives, seek greater efficiency. Lots of new technologies have been developed to further these aims. Personally, I wouldn’t read much into the present deep “contango” in markets – an unusual alignment whereby futures prices are a lot higher than present spot prices. Some cite this as evidence that the price will shortly rebound. I’d say it’s just a leftover from the old “peak oil” mindset of permanently high prices. When the future arrives, prices will still be low, confounding those who have bought forward. In any case, for now we are faced with an oil glut, and there is no reason to believe that this mismatch between supply and demand is going to close any time soon.

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Draghi must leave.

ECB’s Draghi Says Eurozone Must ‘Complete’ Monetary Union (Reuters)

Euro zone countries must “complete” their monetary union by integrating economic policies further and working towards a capital markets union, European Central Bank President Mario Draghi said. In an article for Italian daily Il Sole 24 Ore on Wednesday, Draghi said structural reforms were needed to “ensure that each country is better off permanently belonging to the euro area”. He said the lack of reforms “raises the threat of an exit (from the euro) whose consequences would ultimately hit all members”, adding the ECB’s monetary policy, whose goal is price stability, could not react to shocks in individual countries.

He said an economic union would make markets more confident about future growth prospects – essential for reducing high debt levels – and so less likely to react negatively to setbacks such as a temporary increase in budget deficits. “This means governing together, going from co-ordination to a common decisional process, from rules to institutions.” Unifying capital markets to follow this year’s banking union would also make the bloc more resilient. “How risks are shared is connected to the depth of capital markets, in particular stock markets. As a consequence, we must proceed swiftly towards a capital markets union,” Draghi wrote.

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“An army of critics retort that the underlying picture is turning blacker by the day. Europe’s rescue apparatus is not what it seems. The banking union belies its name. It is merely a supervision union.”

Greek Expulsion From The Euro Would Demolish EMU’s Contagion Firewall (AEP)

We know from memoirs and a torrent of leaks that Europe’s creditor bloc came frighteningly close to ejecting Greece from the euro in early 2012, and would have done so with relish. Former US Treasury Secretary Tim Geithner has described the mood at a G7 conclave in Canada in February of that year all too vividly. “The Europeans came into that meeting basically saying: ‘We’re going to teach the Greeks a lesson. They are really terrible. They lied to us, and we’re going to crush them,’” he said. “I just made very clear right then: if you want to be tough on them, that’s fine, but you have to make sure that you’re not going to allow the crisis to spread beyond Greece.” German chancellor Angela Merkel did later retreat but only once it was clear from stress in the bond markets that Italy and Spain would be swept away in the ensuing panic, setting off an EMU-wide systemic crisis.

The prevailing view in Berlin and even Brussels is that no such risk exists today: Europe has since created a ring of firewalls; debtor states have been knocked into shape by their EMU drill sergeants. The democratic drama unfolding in Greece this month is therefore a local matter. If Syriza rebels win power on January 25 and carry out threats to repudiate the EU-IMF Troika Memorandum from their “first day in office”, Greece alone will suffer the consequences. “I believe that monetary union can today handle a Greek exit,” said Michael Hüther, head of Germany’s IW institute. “The knock-on effects would be limited. There has been institutional progress such as the banking union. Europe is far less easily blackmailed than it was three years ago.” This loosely is the “German view”, summed up pithily by Berenberg’s Holger Schmieding: “We’re looking at a Greece problem, the euro crisis is over. I do not expect markets to seriously contest the contagion defences of Europe.”

It sounds plausible. Bond yields in Italy, Spain and Portugal touched a record low this week. Yet it rests on the overarching assumption that the Merkel plan of austerity and “internal devaluation” has succeeded. An army of critics retort that the underlying picture is turning blacker by the day. Europe’s rescue apparatus is not what it seems. The banking union belies its name. It is merely a supervision union. Each EMU state bears the burden for rescuing its own lenders. Europe’s leaders never delivered on their promise to “break the vicious circle between banks and sovereigns”. The political facts on the ground are that the anti-euro Front National is leading in France, the neo-Marxist Podemos movement is leading in Spain, and all three opposition parties in Italy are now hostile to monetary union.

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Creative accounting intended to fool the German court system(s). Good luck with that.

Europe’s Shadow Budget Venture Could Lead To Spiralling Debt (Sinn)

More details about the European commission’s €315bn (£247bn) investment plan for 2015-17 have finally come to light. The programme, announced in November by the commission’s president, Jean-Claude Juncker,amounts to a huge shadow budget – twice as large as the EU’s annual official budget – that will finance public investment projects and ultimately help governments circumvent debt limits established in the stability and growth pact. The borrowing will be arranged through the new European fund for strategic investment, operating under the umbrella of the European Investment Bank. The EFSI will be equipped with €5bn in start-up capital, produced through the revaluation of existing EIB assets, and will be backed by €16bn in guarantees from the European commission. The fund is expected to leverage this to acquire roughly €63bn in loans, with private investors subsequently contributing around €5 for every €1 lent – bringing total investment to the €315bn target.

Though EU countries will not contribute any actual funds, they will provide implicit and explicit guarantees for the private investors, in an arrangement that looks suspiciously like the joint liability embodied by Eurobonds. Faced with Angela Merkel’s categorical rejection of Eurobonds, the EU engaged a horde of financial specialists to find a creative way to circumvent it. They came up with the EFSI. Though the fund will not be operational until mid-2015, EU member countries have already proposed projects for the European commission’s consideration. By early December, all 28 EU governments had submitted applications – and they are still coming. An assessment of the application documents conducted by the Ifo Institute for Economic Research found that the nearly 2,000 potential projects would cost a total of €1.3tr, with about €500bn spent before the end of 2017. Some 53% of those costs correspond to public projects; 15% to public-private partnerships (PPPs); 21% to private projects; and just over 10% to projects that could not be classified.

The public projects will presumably involve EFSI financing, with governments assuming the interest payments and amortisation. The PPPs will entail mixed financing, with private entities taking on a share of the risk and the return. The private projects will include the provision of infrastructure, the cost of which is to be repaid through tolls or user fees collected by a private operator. Unlike some other critics, I do not expect the programme to fail to bolster demand in the European economy. After all, the €315bn that is expected to be distributed over three years amounts to 2.3% of the EU’s annual GDP. Such a sizeable level of investment is bound to have an impact. But the programme remains legally dubious, as it creates a large shadow budget financed by borrowing that will operate parallel to the EU and national budgets, thereby placing a substantial risk-sharing burden on taxpayers.

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A note from Morgan Stanley h/t Durden.

Implications for the ECB and Its Preparation for Sovereign QE (Elga Bartsch)

Even though my colleagues, Daniele Antonucci and Paolo Batori, do not expect the ECB and the National Central Banks (NCBs) to be subject to haircuts in the event of a Syriza-led debt restructuring, this is unlikely to be clear-cut for some time to come. As a result, the Greek political turmoil complicates matters for the ECB and its preparation of a sovereign QE programme. In my view, a sovereign default in the eurozone and the prospect of the ECB potentially incurring severe financial losses is likely to intensify the debate on the Governing Council, where purchases of government bonds remain highly controversial. This could make a detailed announcement and the start of a buying programme already at the January 22 meeting look even more ambitious than it seemed. The spectre of default does not only make the issue of sovereign QE less certain again than the market believes, it also could create new limitations in its implementation.

One of the decisions that the Governing Council will need to take is whether to include the two programme countries (Greece and Cyprus), the only ones that are not investment grade at the moment, in its sovereign QE. In our view, it is unlikely that the ECB will deviate from the conditions imposed in the context of the ABSPP and CBPP3, i.e. the countries need to have under a troika programme (and the programme needs to be broadly on track). This would mean though that for some eurozone countries, sovereign QE would become conditional – just as OMT was. If governments across the eurozone and the financial constructs they are backing with off-balance sheet guarantees are being haircut and the resulting losses start to show up in national budgets, the political opposition to sovereign QE might increase materially.

In fact, elected politicians in creditor countries might have a preference for the ECB taking a hit as well given that the Bank has considerable risk provisioning that could absorb these losses which national budgets don’t have. This debate could also materially influence how a sovereign QE programme by the ECB is structured, notably on whether the risks associated with such a programme should be shared by all NCBs. Even ahead of the latest developments in Greece, the Bundesbank was already pushing for there not being risk-sharing in a sovereign QE programme. This position is unlikely to only relate to Greece though, I think. It is much more likely to relate to the concerns voiced by the German Constitutional Court regarding the implicit fiscal transfers between countries in the event of purchases of government bonds. In the view of Court, this could amount to establishing a fiscal transfer mechanism that is outside the ECB’s mandate.

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Ugo!

Seven Shocking Events Of 2014 (Ugo Bardi)

Being involved with peak oil studies should make one somewhat prepared for the future. Indeed, for years, we have been claiming that the arrival of peak oil would bring turmoil and big changes in the world and we are seeing them, this year. However, the way in which these changes manifest themselves turns out to be shocking and unexpected. This 2014 has been an especially shocking year; so many things have happened. Let me list my personal shocks in no particular order

1. The collapse of oil prices. Price oscillations were expected to occur near the oil production peak, but I expected a repetition of the events of 2008, when the price crash was preceded by a financial crash. But in 2014 the price collapse came out of the blue, all by itself. Likely, a major financial crisis is in the making, but that we will see that next year.

2. The ungreening of Europe. My trip to Brussels for a hearing of the European parliament was a shocking experience for me. The Europe I knew was peaceful and dedicated to sustainability and harmonic development. What I found was that the European Parliament had become a den of warmongers hell bent on fighting Russia and on drilling for oil and gas in Europe. Not my Europe any more. Whose Europe is this?

3. The year propaganda came of age. I take this expression from Ilargi on “The Automatic Earth”. Propaganda is actually much older than 2014, but surely in this year it became much more shrill and invasive than it had usually been. It is shocking to see how fast and how easily propaganda plunged us into a new cold war against Russia. Also shocking it was to see how propaganda could convince so many people (including European MPs) that drilling more and “fracking” was the solution for all our problems.

4. The Ukraine disaster. It was a shock to see how easy it was for a European country to plunge from relative normalcy into a civil war of militias fighting each other and where citizens were routinely shelled and forced to take refuge in basements. It shows how really fragile are those entities we call “states”. For whom is the Ukraine bell tolling?

5. The economic collapse of Italy. What is most shocking, even frightening, is how it is taking place in absolute quiet and silence. It is like a slow motion nightmare. The government seems to be unable to act in any other way than inventing ever more creative ways to raise taxes to squeeze out as much as possible from already exhausted and impoverished citizens. People seem to be unable to react, even to understand what is going on – at most they engage in a little blame game, faulting politicians, immigrants, communists, gypsies, the Euro, and the great world conspiracy for everything that is befalling on them. A similar situation exists in other Southern European countries. How long the quiet can last is all to be seen.

6. The loss of hope of stopping climate change. 2014 was the year in which the publication of the IPCC 5th assessment report was completed. It left absolutely no ripple in the debate. People seem to think that the best weapon we have against climate change is to declare that it doesn’t exist. They repeat over and over the comforting mantra that “temperatures have not increased during the past 15 years”, and that despite 2014 turning out to be the hottest year on record.

7. The killing of a bear, in Italy, was a small manifestation of wanton cruelty in a year that has seen much worse. But it was a paradigmatic event that shows how difficult – even impossible – it is for humans to live in peace with what surrounds them – be it human or beast.

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“Our democracy just isn’t going to survive in this type of atmosphere ..”

For the Wealthiest Political Donors, It Was a Very Good Year (Bloomberg)

Here’s a bit of perspective on the ever-rising cost of elections, and the big-money donors who finance them: Three of the country’s wealthiest political contributors each saw their net worth grow in 2014 by more than $3.7 billion, the entire cost of the midterm elections. And as the 2016 presidential election approaches, almost all of those donors have even more cash to burn. The only top political donor who lost money in 2014, Sheldon Adelson, still has a fortune greater than the annual gross domestic product of Zambia, so playing in U.S. politics remains well within his financial range. The Bloomberg Billionaires Index tracks the daily gains and losses in the net worth of the financial elite, and with the final hours of trading for this year ticking away, we’ve reviewed the bottom line for 2014 for the politically active super-wealthy. In total, 11 of the donors that Bloomberg tracks added a combined $33 billion to their wealth in a single year. (The index does not include Michael Bloomberg, founder and majority owner of Bloomberg LP.)

The tab for the House and Senate elections came to $3.7 billion, according to the nonpartisan Center for Responsive Politics in Washington. Warren Buffett, Larry Ellison, and Laurene Powell Jobs each could have covered all of that with the wealth they accumulated in the past 12 months. James Simons and George Soros would have come pretty close. Some of that wealth, combined with loosening campaign-finance restrictions and a political class growing ever more comfortable with the new world of virtually unlimited donations, could start flowing to campaigns in the next few months as candidates prepare for the 2016 presidential race. Wealthy donors will have even more giving options after Congress voted to raise the limits on how much individuals can give to political parties, creating a political landscape that horrifies some good-government groups.

They point to a reality: A wealthy donor can now almost singlehandedly bankroll a candidate, as Adelson did for former House Speaker Newt Gingrich in 2012, raising questions about whether these financial commitments ultimately will influence future policy. “Our democracy just isn’t going to survive in this type of atmosphere,” said Craig Holman, a lobbyist for Public Citizen, a group that advocates for stricter campaign-finance limits. “The United States, throughout history, has worked on a very delicate balance between capitalism in the economic sphere and democracy in the political sphere. We no longer have that balance. The economic sphere is going to smother and overwhelm the political sphere.”

David Keating, president of the Center for Competitive Politics, a group that argues the limits on political spending are arbitrary, sees it differently. “Big money in politics can actually make the electorate better informed,” he said. Besides, he added, there are enough billionaires to go around. For example, “you’ve got billionaires funding gun control and billionaires paying for groups that oppose gun control. It’s all pretty much a wash.” The sheer amount of money some donors made on paper in 2014 rewrites the context of “big” money in politics. For a political race, a $1 million cash infusion could change the outcome. For America’s big-money clique, it’s a fraction of what some billionaires can make or lose in a single day.

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That’s your money.

Pension Funds Triple Stake In Reinsurance Business to $59 Billion (NY Times)

Billions of dollars from pension funds and other nontraditional players have been moving into the reinsurance business in recent years, according to a report released on Wednesday by the Treasury Department. The report did not identify individual pension funds or other providers of what it called “alternative capital” for reinsurance. But it found that such newcomers had put about $59 billion into the $570 billion global reinsurance market as of June 30. That was more than three times their stake in 2007. The report also said that more than half the capital standing behind reinsurance innovations now comes from “pension funds, endowments and sovereign wealth funds, generally through specialized insurance-linked investment funds.” By contrast, hedge funds and private equity firms now provide about one-fourth of the money for such investments.

The report said that alternative reinsurance arrangements were increasingly being pitched to investors as “mainstream products” and said that “exposure to such risks could be problematic for unsophisticated investors.” The purpose of the Treasury report was not to assess risks or spotlight potential problems but to describe the overall state of the reinsurance industry, which is familiar to experts but almost unknown to everyone else. In fact, the report stressed that reinsurance brings many benefits and that some reinsurance programs are operated by the states, like Florida’s Hurricane Catastrophe Fund and California’s Earthquake Authority. The report was issued by the Federal Insurance Office, an arm of the Treasury established in the wake of the 2008 financial crisis.

Normally the states regulate insurance, but the Federal Insurance Office has been looking at parts of the industry that extend beyond state regulators’ reach. Reinsurance frequently transfers risks offshore, for example, to jurisdictions where the states’ capital and other requirements do not apply. Increasingly, some states have been creating alternative regulatory frameworks to attract some of the offshore reinsurance business back to the United States. That can bring investment and jobs to those states, but it has also raised concerns that a poorly understood and risky “shadow insurance” sector is taking shape. “Regulatory concerns about this widespread practice continue to receive attention within the national and international insurance supervisory community,” the report said.

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Whatever anybody says, the Russians feel deeply betrayed by the west. That’s what drives their actions.

Inside Obama’s Secret Outreach to Russia (Bloomberg)

President Barack Obama’s administration has been working behind the scenes for months to forge a new working relationship with Russia, despite the fact that Russian President Vladimir Putin has shown little interest in repairing relations with Washington or halting his aggression in neighboring Ukraine. This month, Obama’s National Security Council finished an extensive and comprehensive review of U.S policy toward Russia that included dozens of meetings and input from the State Department, Defense Department and several other agencies, according to three senior administration officials. At the end of the sometimes-contentious process, Obama made a decision to continue to look for ways to work with Russia on a host of bilateral and international issues while also offering Putin a way out of the stalemate over the crisis in Ukraine.

“I don’t think that anybody at this point is under the impression that a wholesale reset of our relationship is possible at this time, but we might as well test out what they are actually willing to do,” a senior administration official told me. “Our theory of this all along has been, let’s see what’s there. Regardless of the likelihood of success.” Leading the charge has been Secretary of State John Kerry. This fall, Kerry even proposed going to Moscow and meeting with Putin directly. The negotiations over Kerry’s trip got to the point of scheduling, but ultimately were scuttled because there was little prospect of demonstrable progress.

In a separate attempt at outreach, the White House turned to an old friend of Putin’s for help. The White House called on former Secretary of State Henry Kissinger to discuss having him call Putin directly, according to two officials. It’s unclear whether Kissinger actually made the call. The White House and Kissinger both refused to comment for this column. Kerry has been the point man on dealing with Russia because his close relationship with Russian Foreign Minister Sergei Lavrov represents the last remaining functional diplomatic channel between Washington and Moscow. They meet often, often without any staff members present, and talk on the phone regularly. Obama and Putin, on the other hand, are known to have an intense dislike for each other and very rarely speak.

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Draghi for president!

Italian President to Resign, Posing Challenge for Renzi (Bloomberg)

Italian President Giorgio Napolitano said he’ll resign “soon,” setting up a challenge for Premier Matteo Renzi, who will now need to form alliances among lawmakers to push through his own candidate for the job. “It’s my duty not to underestimate the signs of fatigue,” Napolitano, 89, said in his traditional Dec. 31 end-of-year speech, giving his age among the reasons for his resignation. He also cited the need to “return to constitutional normalcy” putting an end to his prolonged term. He gave no exact date for his resignation in the televised address. Napolitano, who took office in 2006, reluctantly accepted a second term in April 2013 after inconclusive elections led to a hung parliament which failed to strike a deal on his successor for days. The president had signaled from the start that he wouldn’t serve a full seven-year term.

Now Renzi, 39, will have to find a name appealing enough to at least half of an over 1000-member electoral college in order to push through a candidate of his liking. While Italy’s head of state is largely a ceremonial figure, the role and powers are enhanced at times of political crisis as the president has the power to dissolve parliament and designate prime minister candidates. Napolitano picked Renzi to lead a new government in February and his efforts to guarantee political stability have supported the prime minister’s reform package aimed at lifting Italy out of recession. After Napolitano steps down, Senate Speaker Pietro Grasso will act as caretaker head of state until his successor is elected.

National lawmakers and 58 regional delegates make up the electoral college of more than 1,000 members that will vote for the new president. The procedure can take several days as just two rounds of voting are held each day by secret ballot. To win in any of the first three rounds, a candidate must secure two-thirds of the vote, whereas from the fourth round a simple majority suffices. [..] Names circulated for the post so far in the Italian press include European Central Bank President Mario Draghi, former Italian Prime Minister Romano Prodi, Finance Minister Pier Carlo Padoan, and Bank of Italy Governor Ignazio Visco. Napolitano, a former communist, known for once praising the Soviet Union’s crushing of the 1956 reformist movement in Hungary, is credited with helping restore market confidence in Italy during Europe’s 2011 debt crisis.

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Can she save her ass from the Petrobras scandal? She headed the company for years, for Pete’s sake.

Rousseff Begins Second Term as Brazil Economic Malaise Hits Home

Dilma Rousseff will be sworn in today for her second term as Brazil’s president as a corruption scandal involving the country’s biggest company, above-target inflation and the slowest economic expansion in five years undermine her support. Since Rousseff took over from her mentor Luiz Inacio Lula da Silva four years ago, the budget deficit has more than doubled to 5.8% of gross domestic product and economic growth has come to a standstill from 7.5% growth in 2010. Inflation has remained above the center of the target range throughout her first term. Rousseff, who won an Oct. 26 runoff election by the narrowest margin of any president since at least 1945, has appointed a new economic team and announced spending cuts.

The central bank increased the key lending rate twice since the election to contain consumer price increases. While such measures are a first step to prevent a credit rating downgrade, the question is whether Rousseff will have the political support to hold the course, said Rafael Cortez, political analyst at Tendencias, a Sao Paulo-based consulting firm. “The economic malaise will spread to consumers and the corruption scandal will impose a negative legislative agenda,” Cortez said in a phone interview. “In a best-case scenario, she’ll manage to recover some investor credibility and pave the wave for moderate growth; the worst case is that we’ll have a lame duck president in a year or two.”

Rousseff is scheduled to be sworn in today and address Congress in Brasilia this afternoon. Designated Finance Minister Joaquim Levy pledges to pursue a budget surplus before interest payments of 1.2% of gross domestic product this year and at least 2% of GDP in 2016 and 2017, after Brazil’s credit rating in 2014 suffered a downgrade for the first time in more than a decade. The primary budget balance turned to a deficit of 0.18% of GDP in the 12 months through November, the first such annual shortfall on record. On Dec. 29 the government announced cuts to pension and unemployment benefits that will save an estimated 18 billion reais ($6.8 billion). Authorities also have increased the long-term lending rate for loans granted by the state development bank BNDES to 5.5% from 5%.

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A 79-year old crown prince. And millions of unemployed 16 to 24-year old testosterone bombs. Nice contrast.

Eyes On Saudi Succession After King Hospitalized (CNBC)

The Saudi stock market fell after King Abdullah bin Abdulaziz Al Saud was hospitalized Wednesday, but any succession for the throne would likely be smooth for the country. The Saudi royal family announced in March that 79-year-old Crown Prince Salman would succeed the king, and experts said those plans have eased most concerns about an impending transition. In fact, Saudi watchers told CNBC that the country’s oil, domestic and geopolitical policies should remain virtually unchanged when Salman takes over. “This is very predictable,” Bilal Saab, senior fellow for Middle East security at the Atlantic Council, said of the transition. Still, he reflected, “the markets just react in unpredictable ways.” Although King Abdullah has been perceived as a champion of domestic reform, his departure would not signal the reversal of any of his (relatively) progressive policies, Saab said.

Salman, who has assumed many state duties while currently serving as deputy prime minister and minister of defense, is relatively well-liked by regional neighbors and in Washington, according to Karen Elliott House, author of “On Saudi Arabia: Its People, Past, Religion, Fault Lines—and Future.” Given that the transition of duties has partially begun, experts said that there would likely be little political drama when Salman takes the throne. Still, the issue of his successor could prove a contentious moment for the perpetually stable kingdom. The royal family officially announced in March that Prince Muqrin bin Abdulaziz, the youngest surviving half brother of the king and Salman, would be given the role of deputy crown prince – in effect naming him the successor to Salman.

House said that could provide a moment of tension for the royal family: A successor has traditionally been picked by an ascending king, and some family members were reportedly less than pleased about Muqrin’s appointment. Still, those concerns pale in comparison to the current succession worries in Oman, Saab said. That country’s sultan, Qaboos bin Said Al Said, has no formal successor plan, and political chaos after his death could be problematic for the region, he said. “This is someone who has a much more influential role, not just in his country, but in the region with the Iranians,” Saab said. “The concerns over succession are much more pronounced in Oman than in Saudi Arabia”

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A bit of infighting among the family’s scores of princes would be funny. Whatever happens in the family, the House of Saud faces domestic turmoil.

Saudi Succession Plan About Continuity (CNBC)

Oil investors are closely watching the health of Saudi Arabia’s king, who was hospitalized Wednesday. However, while some wonder about how an eventual change in leadership might impact the global oil markets, two Middle East experts told CNBC they don’t expect much difference in how a new monarch would govern. “They’ll pursue the same security arrangements with the United States. They’ll maintain Saudi Arabia’s commitment to fight the Islamic State. They’ll also be pumping oil because there are broader strategic interests the kingdom is pursuing,” David Phillips, former senior advisor to the State Department and a CNBC contributor, said in an interview with “Street Signs.”

King Abdullah bin Abdulaziz Al Saud, thought to be 91, was admitted to the hospital on Wednesday for medical tests, according to state media, citing a royal court statement. A source told Reuters he had been suffering from breathing difficulties, but was feeling better and in stable condition. The news sent the Saudi stock exchange down as much as 5%, before it recovered slightly to close almost 3% lower. The king has “been in bad health for the past several years,” and the government has been anticipating his passing for some time, said Phillips, now the director of the Peace-building and Human Rights Program at Columbia University. “There are policies and personalities in place in order to maintain continuity,” he added.

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From Glenn Greenwald’s people.

Sony Hackers Threaten US News Media Organization (Intercept)

The hackers who infiltrated Sony Pictures Entertainment’s computer servers have threatened to attack an American news media organization, according to an FBI bulletin obtained by The Intercept. The threat against the unnamed news organization by the Guardians of Peace, the hacker group that has claimed credit for the Sony attack, “may extend to other such organizations in the near future,” according to a Joint Intelligence Bulletin of the FBI and the Department of Homeland Security obtained by The Intercept. Referring to Sony only as “USPER1”and the news organization as “USPER2,” the Joint Intelligence Bulletin, dated Dec. 24 and marked For Official Use Only, states that its purpose is “to provide information on the late-November 2014 cyber intrusion targeting USPER1 and related threats concerning the planned release of the movie, ‘The Interview.’ Additionally, these threats have extended to USPER2 —a news media organization—and may extend to other such organizations in the near future.”

In the bulletin, titled “November 2014 Cyber Intrusion on USPER1 and Related Threats,” The Guardians of Peace threatened to attack other targets on the day after the FBI announcement. “On 20 December,” the bulletin reads, “the [Guardians of Peace] GOP posted Pastebin messages that specifically taunted the FBI and USPER2 for the ‘quality’ of their investigations and implied an additional threat. No specific consequence was mentioned in the posting.” Pastebin is a Web tool that enables users to upload text anonymously for anyone to read. It is commonly used to share source code and sometimes used by hackers to post stolen information. The Dec. 20 Pastebin message from Guardians of Peace links to a YouTube video featuring dancing cartoon figures repeatedly saying, “you’re an idiot.”

No mention of a specific news outlet could be found by The Intercept in any of the GOP postings from that date still available online or quoted in news reports. “While it’s hard to tell how legitimate the threat is, if a news organization is attacked in the same manner Sony was, it could put countless sensitive sources in danger of being exposed—or worse,” Trevor Timm, executive director of the Freedom of the Press Foundation, told The Intercept. Timm points out, however, that media are already commonly targeted by state-sponsored hackers.“This FBI bulletin is just the latest example that digital security is now a critical press freedom issue, and why news organizations need to make ubiquitous encryption a high priority,” he said.

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“Consider, first, how a competent response to Ebola might have played out ..”

Next Year’s Ebola Crisis (Bloomberg ed.)

One of the many ways the world failed to distinguish itself in 2014 was with its response to the Ebola crisis. It cannot afford to be so late, slow and fatally inadequate next year — with Ebola, which continues to kill people in West Africa, or with the next global pandemic. Consider, first, how a competent response to Ebola might have played out: A year ago, the health workers in Guinea who saw the first cases would have had the training to recognize it and the equipment to treat it without infecting themselves and others. They didn’t, and the disease spread quickly to Liberia and Sierra Leone. Ideally, then, doctors there would have diagnosed Ebola, and traced and quarantined everyone who had contact with the victims. Crucially, they would have alerted the World Health Organization. As it happened, the WHO wasn’t told of the outbreak until March.

At that point, in a best-case scenario, with local health-care systems overwhelmed, the WHO would have intervened with a team of well-equipped doctors and nurses. Such a team didn’t exist, and it took the WHO until August even to declare a public-health emergency, and several weeks beyond that to come up with a response plan. And so the total number of infections is now more than 12,000, with some 7,700 dead. This might-have-been story reveals how countries and the WHO need to change before the next outbreak – of Ebola, SARS, bird flu or whatever it turns out to be. Every country needs hospitals and laboratories capable of diagnosing, safely treating and monitoring disease. The WHO needs improved surveillance and reporting systems, as well as the capacity to send medical teams when needed. The World Health Assembly, the international body that sets policy for the WHO, cannot waste any time seeing that these changes are made.

What’s frustrating is that world leaders have long recognized the need to be ready for outbreaks of infectious disease. In 1969, they signed a pact known as the International Health Regulations, meant to make sure preparations would be in place. The most recent update to this accord – in 2005, after the SARS epidemic – called for all 196 countries to have the laboratories, hospitals and medical expertise to detect, treat and monitor epidemics. One glaring weakness in this framework, however, is that countries have been allowed to monitor their own readiness. An outside body – either the WHO or an independent organization – must be appointed to keep track of their progress toward building sturdy medical infrastructure. And at least until all 196 countries are up to snuff, the WHO needs to have the authority to step in.

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Dec 312014
 
 December 31, 2014  Posted by at 11:40 am Finance Tagged with: , , , , , , , ,  1 Response »


NPC “Poli’s Theater, Washington, DC. Now playing: Edith Taliaferro in “Keep to the Right” Jul 1920

US Opening Door to More Oil Exports Seen Foiling OPEC Strategy (Bloomberg)
The Market Chart Of The Year: Nope, It’s Not Oil (CNBC)
Commodities Head for Record Losing Run on Oil to Dollar (Bloomberg)
As Oil Prices Fall, Alaska Governor Halts Project Spending (AP)
Falling Energy Costs And Economic Impacts (STA)
Chart Shows How US Drillers Respond To Oil Price Drop (MarketWatch)
Chinese Stocks, Dollar And Debt The Stars Of 2014 (Reuters)
We’re Not Communists, Greek Opposition Insists (CNBC)
‘Snap Elections Will Be Decisive For Greece’s Eurozone Future’ (Guardian)
Europe Deflation Fears Back After Weak Spain, Greece Data (CNBC)
Will the Real Angela Merkel Please Stand Up? (Bloomberg)
Obama Suggests Putin ‘Not So Smart’ (BBC)
China Factory Activity Shrinks (BBC)
Japan Is Writing History As A Prime Boom And Bust Case (Grass)
The Rigging Triangle Exposed: The JPMorgan-BP-BOE Cartel (Zero Hedge)
BP Probes In-House Foreign Exchange Traders (FT)
The Prison State of America (Chris Hedges)
Recolonizing Africa: A Modern Chinese Story? (CNBC)
Ebola Wrecks Years Of Aid Work In Worst-Hit Countries (Reuters)
Protecting Money or People? (James K. Boyce)
Goodbye To One Of The Best Years In History (Telegraph)

Hilarious. Flood the markets even more, bring down the price further, and then find you can’t make any money with your exports. And stop talking about OPEC ‘strategy’ already. Start thinking about US strategy.

US Opening Door to More Oil Exports Seen Foiling OPEC Strategy (Bloomberg)

The Obama administration’s move to allow exports of ultralight crude without government approval may encourage shale drilling and thwart Saudi Arabia’s strategy to curb U.S. output, further weakening oil markets, according to Citigroup Inc. A type of crude known as condensate can be exported if it is run through a distillation tower, which separates the hydrocarbons that make up the oil, according to U.S. government guidelines published yesterday. That may boost supplies ready to be sold overseas to as much as 1 million barrels a day by the end of 2015, Citigroup analysts led by Ed Morse in New York said in an e-mailed report. Saudi Arabia led the Organization of Petroleum Exporting Countries to maintain its production quota at a meeting last month even as a shale boom boosted U.S. output to the highest in more than three decades. That prompted speculation OPEC was willing to let prices fall to force some companies with higher drilling costs to stop pumping.

“U.S. producers are under the gun to reduce capital expenditures given lower prices,” Citigroup said in the report. “Now an export route provides a new lease on life that can further weaken crude oil markets and throw a monkey wrench into recent Saudi plans to cripple U.S. production.” Current U.S. export capacity is at about 200,000 barrels a day, which could be expanded to 500,000 a day by the middle of 2015, according to the bank. While the guidelines on the website of the Commerce Department’s Bureau of Industry and Security are the first public explanation of steps companies can take to avoid violating export laws, they don’t mean an end to the ban on most crude exports, which Congress adopted in 1975 in response to the Arab oil embargo. “While government officials have gone out of their way to indicate there is no change in policy, in practice this long-awaited move can open up the floodgates to substantial increases in exports by end-2015,” Citigroup said.

The U.S. produces about 3.81 million barrels a day of light and ultralight crude, according to the bank. West Texas Intermediate in New York dropped as much as 1.4% today to $53.38 a barrel, down 46% this year. Brent, the global marker crude, slid 1.8% to $56.87 in London, bringing losses in 2014 to 48%. Both benchmark grades are headed for the biggest annual slump since 2008. Oil producers have been testing the prohibition on crude exports as U.S. output surged amid technological advances that have opened up shale rock formations to development in Texas, North Dakota and elsewhere. The government earlier this year signaled a new way to export oil by approving permits for Pioneer and Enterprise to sell processed condensate. The guidelines seek to clarify how the Commerce Department will implement export rules and follow a “review of technological and policy issues,” Eric Hirschhorn, the under secretary for industry and security, said in a statement.

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“This time though it’s not about a flight to safety. Investors are flocking to the dollar because they like it. The U.S. economy has outperformed and American assets are in vogue.”

The Market Chart Of The Year: Nope, It’s Not Oil (CNBC)

There are many strong contenders to be the chart of the year. Some point to oil prices, which shockingly plunged 50% in a matter of months. Others would look to the S&P 500, which exploded higher for a third year in row and has closed at a record high 53 times (so far), more than 20% of 2014’s trading days. They’re each compelling stories, but neither is as impactful nor as important as the breakout of the U.S. dollar. Presenting the chart of 2014: the broad trade-weighted dollar. The trade-weighted dollar tracks the U.S. greenback’s value against a basket of other currencies, representing both developing and emerging markets. It’s a broader measure than the regularly cited dollar index and the best indication of how a strong dollar hurts American companies that do business overseas.

The broad trade-weighted dollar is up 9% this year, now at the highest point since March 2009, when financial crisis fears had risk-averse investors pouring into the U.S. currency. It’s well above its average historical price over the last 15 years and now just 3.6% away from reaching those crisis highs. This time though it’s not about a flight to safety. Investors are flocking to the dollar because they like it. The U.S. economy has outperformed and American assets are in vogue. The move has been absolutely stunning. Break apart the trade-weighted dollar into individual pairs – the currency has strengthened nearly 12% against the euro this year, 13% against the yen and 18 to 19% against the Norwegian and Swedish currencies. The move is more dramatic when weighed against the trouble spots of 2014. The dollar has gained 44% versus the Russian ruble and 24% versus the Argentine peso. In fact, the U.S. greenback has strengthened against all developed and emerging currencies in the past 12 months.

“The rise of the U.S. dollar in 2014 is remarkable both by its intensity and weak support from expectations of Fed tightening,” according to Sebastien Galy, FX strategist at Societe Generale. “It tells us much about the intensity with which other central banks have tried to weaken their currencies,” he said. In other words, it’s not just a story of U.S. economic strength in the face of global weakness, but also the contrast to major central banks seeking to weaken their own currencies in the name of growth and export competitiveness. That trend should continue in the new year and ultimately fuel more worrisome trade tensions.

“The odds are that the U.S. dollar strength can go much further than currently expected, similarly the odds of … trade barriers are steadily rising,” Galy warned. As if that wasn’t enough, expectations that the Fed will begin to raise interest rates in the second half of 2015 have many believing the dollar has plenty of room to run. “The strength of the U.S. labor market and U.S. economy are making the Fed more confident that it can begin to raise rates next year,” wrote Lee Hardman, currency strategist at Bank of Tokyo Mitsubishi in a note after the last Fed meeting in mid-December. “The market is still not convinced that the Fed will tighten even at that more modest pace … leaving scope for U.S. short rates to continue to increase in the year ahead, supporting a stronger U.S. dollar.” Beyond the stunning breakout of the buck, the move is significant because the dollar is the backbone of the global financial system. It influences prices of all major commodities, the largest and most liquid debt and equity markets, and the world’s largest economy.

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Much more to come.

Commodities Head for Record Losing Run on Oil to Dollar (Bloomberg)

Commodities headed for the biggest annual loss since the global financial crisis in 2008, retreating for a record fourth year, as a global glut spurred a rout in oil prices and a stronger dollar cut the allure of raw materials. The Bloomberg Commodity Index dropped to the lowest level since March 2009 earlier today. It’s lost 16% this year, with crude, gasoline and heating oil the biggest decliners. A fourth year of losses would be the longest since at least 1991. Energy prices retreated in 2014 as a jump in U.S. drilling sparked a surge in output and price war with OPEC, which chose to maintain supplies to try to retain market share. The dollar climbed to the highest level in more than five years as a U.S. recovery spurred speculation that the Federal Reserve will start to raise borrowing costs next year. Commodities are set for a volatile year in 2015, with crude oil poised to extend its slump, according to Australia and New Zealand Bank.

“What we’re seeing is that supplies from North America have really outpaced worldwide demand growth and as a result, we have a supply glut,” Andy Lipow, president of Lipow Oil, said by phone. “And that of course has put pressure on prices over the last several months. And as a result, it’s dragging down commodities indexes as well.” Brent for February settlement traded at $57.01 a barrel on the London-based ICE Futures Europe exchange, with rice 49% lower this year. West Texas Intermediate dropped 1.1% to $53.55 a barrel on the New York Mercantile Exchange. Gasoline sank 49% this year. A slowdown in China also hurt demand for raw materials as policy makers grappled with a property slowdown, and data today showed a factory gauge at a seven-month low in December. The world’s biggest user of metals is headed for its slowest full-year economic expansion since 1990. China’s central bank cut interest rates last month for the first time since 2012.

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Bring back Sarah!

As Oil Prices Fall, Alaska Governor Halts Project Spending (AP)

With oil prices dropping, Alaska Gov. Bill Walker has halted new spending on six high-profile projects, pending further review. Walker issued an order Friday putting the new spending on hold. He cited the state’s $3.5 billion budget deficit, which has increased as oil prices have dropped sharply. With oil prices now around a five-year low, officials in Alaska and about a half-dozen other states already have begun paring back projections for a continued gusher of revenues. Spending cuts have started in some places, and more could be necessary if oil prices stay at lower levels. How well the oil-rich states survive the downturn may hinge on how much they saved during the good times, and how much they depend on oil revenues.

Some states, such as Texas, have diversified their economies since oil prices crashed in the mid-1980s. Others, such as Alaska, remain heavily dependent on oil and will have to tap into sizeable savings to get by. The projects Walker halted spending on include a small-diameter gas pipeline from the North Slope, the Alaska Dispatch News reported. The other projects are the Kodiak rocket launch complex, the Knik Arm bridge, the Susitna-Watana hydroelectric dam, Juneau access road and the Ambler road. “The state’s fiscal situation demands a critical look and people should be prepared for several of these projects to be delayed and/or stopped,” Walker’s budget director Pat Pitney said in an email.

According to Walker’s order, the hold on spending is pending further review. The administration intends to decide on project priorities near the start of Alaska’s legislative session Jan. 20, and no later than a Feb. 18 legal budgeting deadline, Pitney said. State lawmakers have final authority to decide whether the projects should continue to be funded, Pitney said. Contractually required spending and employee salaries will continue. Walker’s order asks each agency working on the projects to stop hiring new employees, signing new contracts and committing any new funding from other sources, including the federal government. The action follows a letter sent Tuesday by the state Legislature’s Republican leadership, who urged the governor to immediately cut spending levels in light of the budget crunch.

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Why is this so hard to understand?

Falling Energy Costs And Economic Impacts (STA)

“If you repeat a falsehood long enough, it will eventually be accepted as fact.” In the financial markets and economics it is a common occurrence that the media and commentators will latch on to a statement that supports a cognitive bias and then repeat that statement until it is a universally accepted truth. When such a statement becomes universally accepted and unquestioned, well, that is when I begin to question it. One of those statements has been in regards to plunging oil prices. The majority of analysts and economists have been ratcheting up expectations for the economy and the markets on the back of lower energy costs. The argument is that lower oil prices lead to lower gasoline prices that give consumers more money to spend. The argument seems to be entirely logical since we know that roughly 80% of households in America effectively live paycheck-to-paycheck meaning they will spend, rather than save, any extra disposable income. As an example, Steve LeVine recently wrote:

“US gasoline prices have dropped for more than 90 straight days. They now average $2.28 a gallon, which is remarkable considering that just a few months ago, some of us were routinely paying $4 and sometimes close to $5. Not so coincidentally, the US economy surged by 5% last quarter, and does not appear to be slowing down. “

If you read the statement, how could one possibly disagree with such a premise? If I spend less money at the gas pump, I obviously have more money to spend elsewhere. Right? The problem is that the economy is a ZERO-SUM game and gasoline prices are an excellent example of the mainstream fallacy of lower oil prices.

Example:
• Gasoline Prices Fall By $1.00 Per Gallon
• Consumer Fills Up A 16 Gallon Tank Saving $16 (+16)
• Gas Station Revenue Falls By $16 For The Transaction (-16)
• End Economic Result = $0

Now, the argument is that the $16 saved by the consumer will be spent elsewhere. This is the equivalent of “rearranging deck chairs on the Titanic.” Increased consumer spending is a function of increases in INCOME, not SAVINGS. Consumers only have a finite amount of money to spend.

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If you ask me, if there’s one thing this chart shows, it’s how much further the rig count has to fall.

Chart Shows How US Drillers Respond To Oil Price Drop (MarketWatch)

It’s no surprise that the number of U.S. oil rigs moves up and down with the price of oil, but the chart above offers an interesting glance at the relationship. Baker Hughes on Monday said the total number of U.S. rotary rigs fell by 35 to 1,840 in the week ended Dec. 26, the fifth consecutive weekly decline, bringing the total to its lowest level since April. “If OPEC’s goal is to slow U.S. oil production by dumping cheap oil into our market, they are having some success,” said Phil Flynn, senior market analyst Price Futures in Chicago. OPEC in November accelerated oil’s free fall when it refrained from cutting crude production. Saudi Arabia’s oil minister said earlier this month that a plunge to as low as $20 wouldn’t be enough to prompt a production cut.

The move has been described as a price war aimed primarily at North American shale producers, who had responded to high oil prices by ramping up production in recent years at a breakneck clip. Oil’s slide, which has seen Nymex futures, the U.S. benchmark, fall 50% from their June high above $107 to trade at five-and-a-half year lows below $54 a barrel, has been the fastest since 2008. That means rig counts will continue to decline, but the impact on supply will likely take “weeks if not months” to be reflected in hard production figures, said analysts at Commerzbank.

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“Europe’s government bond markets all closed on Tuesday after another stellar year that has seen Italian and Spanish borrowing costs hit record lows and unglamorous but ultra-safe German debt enjoy its strongest year in six.”

Chinese Stocks, Dollar And Debt The Stars Of 2014 (Reuters)

Chinese and U.S. stocks headed the list of 2014 top performers while markets elsewhere ended the year on Wednesday on a cautionary note as worries about Greece’s future served as an excuse to take profits. The U.S. dollar lost a little of the recent gains that have made it the year’s star major currency, but European bonds yields scored all-time lows following a shockingly sharp fall in Spanish inflation on Tuesday. European stocks had a steady start as they wrapped up a year that has seen a 3.5% rise for the region as a whole but also sharp divergence, with near 30% losses for debt-strained Greece and Portugal. The stand-out global equity performer has been China, where the CSI300 index looked set to end 2014 with gains of nearly 50%.

Almost all of China’s rise came in the last couple of months, as hopes for more aggressive policy stimulus to counter its economic slowdown boosted banks and brokerages. Featuring on Wednesday were hefty gains for China’s biggest train makers, China CNR and CSR Corp, after they confirmed a $26 billion merger. “China stocks have done really well this year and the dollar move has also been very interesting,” said Alvin Tan, an FX strategist at Societe Generale in London. “It barely moved against the other major currencies in the first of the year and all the big gains came in the second half.” Trade elsewhere was thinned by holidays in Japan, Thailand, South Korea and the Philippines, while many markets in Europe were either shut or finishing early.

Europe’s government bond markets all closed on Tuesday after another stellar year that has seen Italian and Spanish borrowing costs hit record lows and unglamorous but ultra-safe German debt enjoy its strongest year in six. Among the scraps of news in Europe, two polls in Greece published late on Tuesday showed the anti-bailout party Syriza’s lead over the ruling conservatives had narrowed. The dollar was on track to end 2014 with a gain of 12% against a basket of major currencies, its best performance since 2005, and anticipated U.S. interest rate hikes may strengthen its appeal in the new year. It eased against the safe haven yen to stand at 119.64 from Tuesday’s peak of 120.69, as futures prices pointed to small gains for Wall Street when trading resumes following its 13% jump to an all-time high this year. The euro was undermined by sliding European yields amid intense speculation the European Central Bank will have to start buying government bonds to avert deflation. The single currency was stuck at $1.2154 having touched a 29-month trough of $1.2123.

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But it’s how they’ll be portrayed.

We’re Not Communists, Greek Opposition Insists (CNBC)

Accusations that Greece’s far-left opposition party Syriza is “worse than communism” are propaganda, its head of economic policy insisted on Tuesday, arguing instead that the party would solve Greece’s “humanitarian crisis” if it came to power in January. Speaking to CNBC on Tuesday, John Milios said Syriza planned to stabilize Greece’s society and boost the economy. “We have to combat first the humanitarian crisis, people who don’t have the necessities — houses, food or the money for transportation,” he said. “We are confident that if we do this the economy will start to stabilize and the present turmoil will be past.” Greece’s political establishment was thrown into chaos on Monday, when its parliament’s failure to elect a president triggered an early general election – something that credit ratings agency Fitch warned on Tuesday would increase the risks to the country’s credit worthiness.

Anti-austerity Syriza appears confident that it can win the forthcoming election in January, however. Opinion polls released late on Monday showed Syriza had a 3% lead over Prime Minister Antonis Samaras’ party, although the lead has narrowed of late. But although attractive to voters, the party does not appear to be popular within the investment community. In November, an email written by Joerg Sponer, an investment analyst at Capital Group, was leaked in which he said Syriza’s policies were “worse than communism.” Sponer reportedly wrote the email after attending a conference in London in which Milios presented the party’s economic manifesto. But Milios was quick to defend his policies, saying that such comments were “government propaganda.” “This saying that we are worse than communists was not something that represented the whole climate of discussions in London. I think this… had to do with the present government and to do with propaganda,” he told CNBC Europe’s “Squawk Box” on Tuesday.

Investors are particularly concerned that a Syriza-led government could result in the undoing of the austerity policies implemented under Samaras’ present government. The party has always said it would “tear up” the tough conditions of Greece’s bailout, which were required by the troika of international creditors, the EU, IMF and ECB. The Athens stock exchange fell up to 10% on Monday, before paring some losses, and was trading 0.3% lower on Tuesday. Meanwhile, Greece’s borrowing costs remained above 9.5%. With a public debt to GDP ratio of 175.5%, the country has the highest debt in the euro zone, but Greece’s politicians are keen to calm European lenders that Greece isn’t about to default – or leave the single currency union.

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Start the horror campaign.

‘Snap Elections Will Be Decisive For Greece’s Eurozone Future’ (Guardian)

Next month’s snap elections in Greece will be decisive for the country’s future in the eurozone, the prime minister, Antonis Samaras, said on Tuesday after requesting parliament’s dissolution. “People don’t want these elections and they aren’t necessary,” the beleaguered leader told the nation’s outgoing head of state Karolos Papoulias. “They are happening because of party self-interest … and this struggle will determine whether Greece stays in Europe.” Signalling market concerns, credit rating agency Fitch said prolonged political uncertainty could “increase the risks to Greece’s creditworthiness”. The country was forced into holding early elections after parliament failed on Monday to endorse Stavros Dimas, the government’s candidate for president.

With the debt-burdened country dependent on international rescue funds, officials said the radical left main opposition Syriza party would “pay a heavy price” for triggering the elections after joining forces with the far-right Golden Dawn to block Dimas from becoming president. Late on Monday the IMF said it would suspend aid instalments until after the 25 January poll. “People will punish those who have triggered this unnecessary turmoil, because it is obvious that Syriza has no solution [to economic problems]. It neither says where it will find the money, nor will it find the money,” said government spokeswoman Sophia Voultepsi, referring to the party’s pledge of wide-ranging social benefits if it wins power.

On the back of popular discontent over gruelling austerity, the price of €240bn (£188bn) in aid, Syriza has led polls since European elections in May. But the gap has narrowed since Samaras gambled by bringing forward the presidential election. An opinion poll on Tuesday showed a 3% lead for Syriza over Samaras’ New Democracy party. This followed the Greek finance minister Gikas Hardouvelis’ warning of economic sanctions by the European Central Bank if the anti-austerity Syriza won. Analysts predicted that Samaras, who has better personal ratings than Syriza’s leader, Alexis Tsipras, could win the elections yet.

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Deflation is a fact, not a fear.

Europe Deflation Fears Back After Weak Spain, Greece Data (CNBC)

Fears of deflation in the euro zone were heightened once again on Tuesday, after both Spain and Greece reported worse-than-expected price declines. A flash reading for consumer price index (CPI) inflation in Spain showed that prices fell by 1.1% year-on-year in December. This was below forecasts of a 0.7% drop, and followed November’s decline of 0.5%. Analysts said this month’s fall was mainly driven by weakening oil prices which could mean that other large euro zone members fall victim to deflation soon. “With a Spanish reading this low, euro area inflation might well turn negative as early as December,” said Robert Kuenzel, director of euro area economic research at Daiwa Capital Markets, in a research note on Tuesday.

Meanwhile, data out from Greece showed that producer prices declined 2.3% year-on-year in November way below October’s 0.9% fall. Consumer prices in the country fell by 1.2% in the same period. Kuenzel told CNBC that the producer price drop in Greece was worse than he expected, and was “one of the largest fall we have seen for years.” “As producer prices are more energy price-sensitive, this is still not out of line with today’s downside Spanish CPI surprise, even though that was numerically smaller,” he said via email. Brent crude oil prices fell to a 5-1/2-year low under $57 per barrel on Tuesday, extending losses into a fourth trading session. Oxford Economics has warned that a multitude of European countries face deflation next year if oil prices remain below $60, including the U.K., France, Switzerland and Italy.

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Bloomberg has it all upside down.

Will the Real Angela Merkel Please Stand Up? (Bloomberg)

If anything is certain about the new year, it is that much of the world’s stability and economic health will depend on what is done, or not done, in Europe. And what happens in Europe will depend, in large part, on German Chancellor Angela Merkel. Merkel’s leadership in 2014 was a curious mixture of boldness and timidity. It fell to her, more than any other European leader, to confront Russian President Vladimir Putin. And her efforts are what secured the unanimity among the European Union’s 28 fractious nations that was needed to impose meaningful economic sanctions to deter further Russian aggression in Ukraine. Regardless of whether those sanctions ultimately succeed, they have already served an important purpose by helping to hold the EU – with its Russophile Italians and Austrians, its Russophobe Poles and Balts – together.

As helpful as Merkel has been with Russia, however, she has so far only harmed efforts to address the faltering European economy. In 2015, as new elections in Greece bring fresh turmoil, she will need to apply some of the clarity and decisiveness she has showed in dealing with Putin to the euro zone. On both fronts, next year will be harder. Europe’s Russia challenge will get tougher, because the pressure to repeal sanctions will rise. The current measures against Russia begin to expire in March, and many European leaders will be looking for reasons not to renew them as long as something resembling a cease-fire is in place; the reduction in lending, investment and sales to Russia has hurt the European economy as well as the Russian one. Yet until there is a more meaningful settlement that ensures Putin can’t continue his semi-covert war in Ukraine, sanctions need to stay.

As for the EU, new forces for disunion will emerge. U.K. Prime Minister David Cameron will be pushing for changes in the way the bloc works that help him persuade Britons to vote against leaving it. Merkel will need to simultaneously rein Cameron in and convince other EU leaders that it would be in their interests, too, to return some powers to national governments. At the same time, the euro crisis threatens to heat up again. The favorite to win early elections in Greece next month, the neo-Marxist Syriza party, says it will refuse to carry out the further austerity measures required for the country’s remaining bailout funds. Syriza also promises to roll back economic reforms that were put in place under the terms of the country’s 240 billion euro loan program, as well as to demand a restructuring of the country’s enormous public debt. Europe’s banking system may not be as vulnerable to a Greek default as it once was, but markets have been jittery at the revived possibility of a Greek exit from the euro.

So far, Merkel has resisted relenting on austerity policies for Greece. She has been unwilling to stimulate demand in the euro area, either by boosting investment in Germany’s own low-growth economy or by letting the European Central Bank engage in large-scale quantitative easing. She should not wait for the dawn of a new government in Greece to change course on all fronts. Otherwise, Merkel may end next year not as the German leader who held Europe together, but as the one who put such strain on Europe’s currency and democracies that they began to break apart.

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Sure, Barry …

Obama Suggests Putin ‘Not So Smart’ (BBC)

President Barack Obama has said Vladimir Putin made a “strategic mistake” when he annexed Crimea, in a move that was “not so smart”. Those thinking his Russian counterpart was a “genius” had been proven wrong by Russia’s economic crisis, he said. International sanctions had made Russia’s economy particularly vulnerable to changes in oil price, Mr Obama said. He also refused to rule out opening a US embassy in Iran soon. “I never say never but I think these things have to go in steps” he told NPR’s Steve Inskeep in the Oval Office. Mr Obama was giving a wide-ranging interview with NPR shortly before leaving for Hawaii for his annual holiday. He criticised his political opponents who claimed he had been outdone by Russia’s president.

“You’ll recall that three or four months ago, everybody in Washington was convinced that President Putin was a genius and he had outmanoeuvred all of us and he had bullied and strategised his way into expanding Russian power,” he said. “Today, I’d sense that at least outside of Russia, maybe some people are thinking what Putin did wasn’t so smart.” Mr Obama argued that sanctions had made the Russian economy vulnerable to “inevitable” disruptions in oil price which, when they came, led to “enormous difficulties”. “The big advantage we have with Russia is we’ve got a dynamic, vital economy, and they don’t,” he said. “They rely on oil. We rely on oil and iPads and movies and you name it.”

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“There’s still bit of way to go before we see the Chinese economy reviving ..”

China Factory Activity Shrinks (BBC)

China’s manufacturing activity shrank for the first time in seven months in December, a private survey showed on Wednesday. The final HSBC/Markit Purchasing Managers’ Index (PMI) was at 49.6, just below the 50 level that separates growth from contraction in the sector. The reading was slightly higher than an initial “flash” number of 49.5 released earlier this month. But, the result was still down from a final reading of 50 in November. The most recent data paints an even weaker picture of the slowing Chinese economy, which has been heralded as the “factory of the world”. New factory orders contracted for the first time since April. The economic data also backs the series of surprising moves by its government to boost growth in the past two months.

In November, the country’s central bank unexpectedly cut interest rates to 2.75% for first time since 2012 in an attempt to revive the economy. Whether the world’s second biggest economy will be able to reach its growth target of 7.5% after not missing the mark for 15 years has economists questioning if more needs to be done by policymakers. While the downbeat data is not a surprise considering the preliminary reading released earlier this month, Ryan Huang, market strategist at broker IG Asia said it just adds more pressure on Beijing to introduce more measures. “There’s still bit of way to go before we see the Chinese economy reviving,” he told the BBC. “They [the central bank] have been doing [banks’] reserve requirement ratio cuts, loan to deposit ratios have been lowered to help lending conditions – we’ll probably see more of this happening.”

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Boom and bust and basket.

Japan Is Writing History As A Prime Boom And Bust Case (Grass)

Recently, we wrote a paper about the dynamics behind the boom and bust cycles, based on the view of the Austrian School (the Austrian Business Cycle Theory, or ABCT). The key takeaway was that central banks don’t help in smoothing the amplitude of the cycles, but rather are the cause of cycles. Business cycles are a direct result of excessive credit flow into the market, facilitated by an intentionally low interest rate set by the government. The problem with ongoing monetary policies is that the excessive money supply sends the wrong signals to the market, which ultimately leads to misallocation of investments or ‘malinvestments’.

On the one hand, entrepreneurs invest more and increase the depth of the production process. On the other hand, consumers spend more as saving becomes unattractive. When the excess products created through the cheap money-induced investments reach the market, consumers are unable to buy them due to the lack of prior savings. At this point the bust occurs. It is key to understand that by manipulating interest rates (particularly by lowering them), central banks create bubbles that end in busts. Japan is an excellent case study depicting the scenario discussed by the Austrian Business Cycle Theory (ABCT). In this article, we will examine the course of the economic and monetary situation in Japan from the ABCT’s point of view.

The latest quarterly GDP release in Japan was a real disaster. Economists had forecast a GDP growth between 2.2% and 2.5% but the result was a contraction of 1.6% on an annualized basis (i.e., -0.5% on a quarterly basis). That comes after a quarter in which GDP had already fallen 7.3% on an annualized basis (i.e., -1.9% on a quarterly basis). The money printing frenzy has taken gigantic proportions, and the (lack of) effectiveness of the excessive money creation is visible in the charts. The first chart below shows the annual monetary base expansion (the black line) since 1990. The GDP year-on-year growth is shown in the green line. Notice how the monetary base had exploded in 2013 but the steepness of the rise was slightly reduced in 2014. Even with this slight pull back in monetary growth, the GDP growth is truly collapsing.

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The Bloomberg piece is in yesterday’s Debt Rattle. Zero Hedge has a go at digging deeper.

The Rigging Triangle Exposed: The JPMorgan-BP-BOE Cartel (Zero Hedge)

The name Dick Usher is familiar to regular readers: he was the head of spot foreign exchange for JPMorgan, and the bank’s alleged chief FX market manipulator, who was promptly fired after it was revealed that JPM was the bank coordinating the biggest FX rigging scheme in history, as initially revealed in “Another JPMorganite Busted For “Bandits’ Club” Market Manipulation.” Subsequent revelations – which would have been impossible without the tremendous reporting of Bloomberg’s Liam Vaughan – showed that JPM was not alone: as recent legal actions confirmed, virtually every single bank was also a keen FX rigging participant. However, the undisputed ringleader was always America’s largest bank, which would make sense: having a virtually unlimited balance sheet, JPM could outlast practically any margin call, and make money while its far smaller peers were closed out of trades… and existence.

But while the past year revealed that FX rigging was a just as pervasive, if not even more profitable industry for banks than the great Libor-fixing scandal, the conventional wisdom was that it involved almost exclusively bankers at the largest global banks including JPM, Goldman, Deutsche, Barclays, RBS, HSBC, and UBS. Now, courtesy of some more brilliant reporting by Vaughan, we can finally link banks with the other two facets of what has emerged to be an unprecedented FX-rigging “triangle” cartel: private sector companies that have no direct banking operations yet who have intimate prop trading exposure, as well as central banks themselves. By “banks” we, of course, refer to the ringleader itself: JP Morgan, and its former head of spot forex trading in London, Dick Usher. As for the company that benefited from its heretofore secret participation in the biggest FX rigging scandal in history, it is none other than British Petroleum.

We learn about all this thanks to a story that begins with, of all thing, a story about freshwater fishing at a lake in Essex called “Wharf Pool.” As Bloomberg reports, “an hour away by train, in London’s financial district, the lake’s owners ply their trade. Wharf Pool was purchased for about 250,000 pounds ($388,000) in 2012 by Richard Usher, the former JPMorgan Chase & Co. trader at the center of a global investigation into corruption in the foreign-exchange market, and Andrew White, a currency trader at oil company BP Plc. ” The plot thickens: was there more than a passing connection between the head FX trader at JPM and White “who’s known in the market as Tubby, is one of half a dozen spot currency traders working for British Petroleum (BP) in London. He and his colleagues, most of them ex-bankers, decide which firms will carry out their foreign-exchange transactions. That makes them prized clients for banks seeking a slice of the business and a glimpse into potentially market-moving trades. Passing on information was a way to curry favor.”

In short, a typical Over The Counter relationship between a banker and a buyside client, one which is largely unregulated and where the bank hopes to be able to frontrun the client’s orders by providing the client with confidential market moving information, thus generating more business with the client in the future. In this case, however, the buyside client was not a typical hedge fund, but the FX trading group at one of the world’s largest energy companies: a group which trades enormous amounts of FX every single day, both with intent to hedge, and to generate a profit.

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Because BP had no idea!

BP Probes In-House Foreign Exchange Traders (FT)

BP is investigating whether in-house financial traders at the oil and gas group were involved in a foreign exchange manipulation scandal that has led regulators to levy $4.3 billion in fines on six banks. The UK group launched an internal review of its currency trading operations in London last year when regulators first started probing banks over their foreign exchange activities. A person familiar with the situation said the inquiry was “ongoing”. Additional questions about the potential involvement of BP’s traders in alleged attempts to rig the world’s $5.3 trillionn-a-day forex markets have been prompted by a Bloomberg report that bank employees tipped off the oil and gas group ahead of some big currency trades.

Bloomberg cited three undated messages sent to BP’s traders by the powerful network of senior foreign-exchange traders calling themselves “The Cartel” at four banks — JPMorgan, Barclays, UBS and Citigroup. It said BP was given “valuable information” about planned currency trades “sometimes hours before they happened”. But it could not be determined whether any BP employees acted on any information received. BP is not being investigated by financial regulators, said people familiar with the situation. But the report raises uncomfortable questions for the group at a time when it is being scrutinised as part of the European Commission probe into potential price fixing in oil markets.

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Familiar topic, good story.

The Prison State of America (Chris Hedges)

Prisons employ and exploit the ideal worker. Prisoners do not receive benefits or pensions. They are not paid overtime. They are forbidden to organize and strike. They must show up on time. They are not paid for sick days or granted vacations. They cannot formally complain about working conditions or safety hazards. If they are disobedient, or attempt to protest their pitiful wages, they lose their jobs and can be sent to isolation cells. The roughly 1 million prisoners who work for corporations and government industries in the American prison system are models for what the corporate state expects us all to become. And corporations have no intention of permitting prison reforms that would reduce the size of their bonded workforce. In fact, they are seeking to replicate these conditions throughout the society.

States, in the name of austerity, have stopped providing prisoners with essential items including shoes, extra blankets and even toilet paper, while starting to charge them for electricity and room and board. Most prisoners and the families that struggle to support them are chronically short of money. Prisons are company towns. Scrip, rather than money, was once paid to coal miners, and it could be used only at the company store. Prisoners are in a similar condition. When they go broke—and being broke is a frequent occurrence in prison—prisoners must take out prison loans to pay for medications, legal and medical fees and basic commissary items such as soap and deodorant. Debt peonage inside prison is as prevalent as it is outside prison.

States impose an array of fees on prisoners. For example, there is a 10% charge imposed by New Jersey on every commissary purchase. Stamps have a 10% surcharge. Prisoners must pay the state for a 15-minute deathbed visit to an immediate family member or a 15-minute visit to a funeral home to view the deceased. New Jersey, like most other states, forces a prisoner to reimburse the system for overtime wages paid to the two guards who accompany him or her, plus mileage cost. The charge can be as high as $945.04. It can take years to pay off a visit with a dying father or mother.

Fines, often in the thousands of dollars, are assessed against many prisoners when they are sentenced. There are 22 fines that can be imposed in New Jersey, including the Violent Crime Compensation Assessment (VCCB), the Law Enforcement Officers Training & Equipment Fund (LEOT) and Extradition Costs (EXTRA). The state takes a percentage each month out of prison pay to pay down the fines, a process that can take decades. If a prisoner who is fined $10,000 at sentencing must rely solely on a prison salary he or she will owe about $4,000 after making payments for 25 years. Prisoners can leave prison in debt to the state. And if they cannot continue to make regular payments—difficult because of high unemployment—they are sent back to prison. High recidivism is part of the design.

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The gift that never stops giving.

Recolonizing Africa: A Modern Chinese Story? (CNBC)

China, one of the world’s largest ’emerging’ investors, is ramping up investment in Sub Saharan Africa as it searches for natural resources, but whether the benefits are mutually beneficial is questionable. China’s economic growth has been a key narrative in the story of economic miracle over the past two decades. (Its foreign direct investment) FDI in particular has played a prominent role in economic interactions with many developing countries. Once a major recipient of FDI, it’s now one of the largest ’emerging’ investors, especially in Sub Saharan Africa countries, it has investments being in Nigeria, Sudan, South Africa and Angola among others.

The Asian economic super power is in pursuit of oil, gas, precious metals and mining to diversify its energy resource import’s pool; it requires other resources to sustain its manufacturing capabilities. Africa can offer all of these things to the world’s second largest economy: about 40% of global reserves of natural resources, 60% of uncultivated agricultural land, a billion people with rising purchasing power and a potential army of low-wage workers. Like many emerging markets, African countries are one of the fastest growing markets and profitable outlets for exported manufactured goods. In the past, the U.K. and France were the prime trade partners for Africa, however, today, China is Africa’s top bi-lateral trading partner with trade volume exceeding $166 billion. Between years 2003 and 2011, its FDI in the continent has increased thirty fold from $491 million to $14.7 billion.

This is more than just a trend. Not a long time ago, China eyed areas in Africa where resources were abundant and easy to extract. It focused on resource-rich countries such as Algeria, Nigeria, South Africa, Sudan and Zambia. Today, Sino-African investment focus has become broader. China is branching out into non-resource-rich investments, focusing on countries such as Ethiopia and Congo. Higher margins have attracted many state-owned enterprises and private companies to compete on gaining dominion in the vast continent. Oil, gas, metals and minerals constitute three-quarters of African-exports to China. Chinese Imports to Africa are more diverse, mostly comprised of manufactured goods.

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The impact of Ebola will take us completely back to it being a basket case ..”

Ebola Wrecks Years Of Aid Work In Worst-Hit Countries (Reuters)

Ebola is wrecking years of health and education work in Sierra Leone and Liberia following their civil wars, forcing many charity groups to suspend operations or re-direct them to fighting the epidemic. More than a decade of peace and quickening economic growth had raised hopes that the nations could finally reduce their dependency on foreign aid and budgetary support; now Ebola has undermined those achievements, charity workers and officials say. “The impact of Ebola will take us completely back to it being a basket case,” said Rocco Falconer, CEO of educational charity Planting Promise in Sierra Leone. “The impact on some activities have been simply catastrophic.”

The two countries worst hit by Ebola have struggled to recover from the wars that raged through the 1990s until early in the 21st century, killing and maiming tens of thousands, and devastating already poor infrastructure. In Sierra Leone, aid made up one-fifth of economic output in 2010, according to officials, though this had been shrinking as growth accelerated thanks to a boom in the country’s commodities exports. Britain and the European Union are the main donors with funds directed to health, education and social assistance. But Planting Promise’s experience typifies the problems of non-government organisations (NGOs) since Ebola hit West Africa, infecting more than 20,000 people and killing nearly 8,000.

It had spent six years in Sierra Leone developing farms and using the profits to fund local schools. The project had just become self-financing for the first time when the outbreak was detected in March. After that, things fell apart. Planting Promise was forced to withdraw its expatriate staff in June and the following month it closed its five primary schools where nearly 1,000 pupils had studied. It has also shut down its food processing factory. Though sales have dived, it continues to pay about 120 staff, eating into its reserves. This has forced the group to return “cap in hand” to donors to ask for more money, Falconer said.

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MUST. READ.

Protecting Money or People? (James K. Boyce)

The latest round of international climate talks this month in Lima, Peru, melting glaciers in the Andes and recent droughts provided a fitting backdrop for the negotiators’ recognition that it is too late to prevent climate change, no matter how fast we ultimately act to limit it. They now confront an issue that many had hoped to avoid: adaptation. Adapting to climate change will carry a high price tag. Sea walls are needed to protect coastal areas against floods, such as those in the New York area when Superstorm Sandy struck in 2012. We need early-warning and evacuation systems to protect against human tragedies, such as those caused by Typhoon Haiyan in the Philippines in 2013 and by Hurricane Katrina in New Orleans in 2005.

Cooling centers and emergency services must be created to cope with heat waves, such as the one that killed 70,000 in Europe in 2003. Water projects are needed to protect farmers and herders from extreme droughts, such as the one that gripped the Horn of Africa in 2011. Large-scale replanting of forests with new species will be needed to keep pace as temperature gradients shift toward the poles. Because adaptation won’t come cheap, we must decide which investments are worth the cost. A thought experiment illustrates the choices we face. Imagine that without major new investments in adaptation, climate change will cause world incomes to fall in the next two decades by 25% across the board, with everyone’s income going down, from the poorest farmworker in Bangladesh to the wealthiest real estate baron in Manhattan. Adaptation can cushion some but not all of these losses.

What should be our priority: reduce losses for the farmworker or the baron? For the farmworker, and a billion others in the world who live on about $1 a day, this 25% income loss will be a disaster, perhaps the difference between life and death. Yet in dollars, the loss is just 25 cents a day. For the land baron and other “one-percenters” in the U.S. with average incomes of about $2,000 a day, the 25% income loss would be a matter of regret, not survival. He’ll find a way to get by on $1,500 a day. In human terms, the baron’s loss pales compared with that of the farmworker. But in dollar terms, it’s 2,000 times larger.

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Here’s what increasing debt can give you – until it no longer can.

Goodbye To One Of The Best Years In History (Telegraph)

Newspapers can seem like a rude intrusion into the Christmas holidays. We celebrate peace, goodwill and family – and then along come the headlines, telling us what’s going wrong in the world. Simon and Garfunkel made this point in 7 O’Clock News/Silent Night, a song juxtaposing a carol with a newsreader bringing bad tidings. But this is the nature of news. Whether it’s pub gossip or television bulletins, we’re more interested in what’s going wrong than with what’s going right. Judging the world through headlines is like judging a city by spending a night in A&E – you only see the worst problems. This may have felt like the year of Ebola and Isil but in fact, objectively, 2014 has probably been the best year in history.

Take war, for example – our lives now are more peaceful than at any time known to the human species. Archaeologists believe that 15% of early mankind met a violent death, a ratio not even matched by the last two world wars. Since they ended, wars have become rarer and less deadly. More British soldiers died on the first day of the Battle of the Somme than in every post-1945 conflict put together. The Isil barbarity in the Middle East is so shocking, perhaps, because it comes against a backdrop of unprecedented world peace. We have recently been celebrating a quarter-century since the collapse of the Berlin Wall, which kicked off a period of global calm.

The Canadian academic Steven Pinker has called this era the “New Peace”, noting that conflicts of all kinds – genocide, autocracy and even terrorism – went on to decline sharply the world over. Pinker came up with the phrase four years ago, but only now can we see the full extent of its dividends. With peace comes trade and, ergo, prosperity. Global capitalism has transferred wealth faster than foreign aid ever could. A study in the current issue of The Lancet shows what all of this means. Global life expectancy now stands at a new high of 71.5 years, up six years since 1990. In India, life expectancy is up seven years for men, and 10 for women. It’s rising faster in the impoverished east of Africa than anywhere else on the planet. In Rwanda and Ethiopia, life expectancy has risen by 15 years.

This helps explain why Bob Geldof’s latest Band Aid single now sounds so cringingly out-of-date. Africans certainly do know it’s Christmas – a Nigerian child is almost twice as likely to mark the occasion by attending church than a British one. The Ebola crisis has led to 7,000 deaths, each one a tragedy. But far more lives have been saved by the progress against malaria, HIV and diarrhoea. The World Bank’s rate of extreme poverty (those living on less than $1.25 a day) has more than halved since 1990, mainly thanks to China – where economic growth and the assault on poverty are being unwittingly supported by any parent who put a plastic toy under the tree yesterday.

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Dec 302014
 
 December 30, 2014  Posted by at 11:35 am Finance Tagged with: , , , , , ,  6 Responses »


DPC Times Square seen from Broadway 1908

Greece Comes Back To Haunt Eurozone As Anti-Troika Rebels Scent Power (AEP)
Syriza Can Transform The EU From Within (Costas Lapavitsas)
‘Perfect Storm’ Could Send Euro Even Lower (CNBC)
Oil Falls Further But Saudi Arabia Doesn’t Care (CNBC)
Oil Industry Set For Year Of Mergers And Takeovers, Says PwC (BBC)
The Cartel: How BP Used a Secret Chat Room for Insider Tips (Bloomberg)
Iron-Ore Slump Fails to End Glut as Australia Mines Grow (Bloomberg)
Bernanke Tells UK’s King: We Saved Our Economies (MarketWatch)
Goldman Sachs Set for Fight Over $835 Million Loan to Banco Espírito Santo (WSJ)
Petrobras Deadline Prompts Bondholders To Push For Default (Reuters)
Foreign Automakers Taken To Task In China Over Dealers’ Inventories (Reuters)
Ditching Dollar: China, Russia Launch Financial Tools In Local Currencies (RT)
Jeb Bush and the Making of a $236 Million Federal Contract (Bloomberg)
Inside the NSA’s War on Internet Security (Spiegel)
Bill Cosby Hires PI’s To Dig Up Dirt On Women Who Accuse Him of Rape (Ind.)
Large Hadron Collider To Switch Back On At Double Power (Ind.)
The Trigger (James Howard Kunstler)
Ebola Spurs Call for Global Health Reserve Corps, Challenging WHO (Bloomberg)
Ebola in UK: One Patient Diagnosed With Ebola, Two More Tested (Independent)

“The conflict over austerity is politically explosive because it is becoming a conflict between Germany and Italy, and worse, between Germany and France …”

Greece Comes Back To Haunt Eurozone As Anti-Troika Rebels Scent Power (AEP)

The eurozone’s long-simmering crisis has returned with a vengeance as snap elections in Greece open the way for an anti-austerity government and a cathartic showdown over the terms of euro membership. Yields on 3-year Greek debt surged 185 basis points to 11.9pc on Monday amid default fears after premier Antonis Samaras failed to win the extra votes in parliament needed to avert a general election on January 25, despite dire warnings that such an outcome risked “bankruptcy and exit from the euro.” The upset opens the door for the hard-Left Syriza movement, which has vowed to tear up Greece’s hated ‘Memorandum’ with EU-IMF Troika creditors “on its first day in office”, and threatened to default on up to €245bn of rescue loans unless the EU grants debt relief.

Syriza is leading by 29.9pc to 23.4pc in the latest Palmos Analysis poll, though other surveys are closer. It is likely to become the first truly radical group to take power in any EMU state since the creation of monetary union. A quirk in Greece’s electoral law gives the winning party an extra fifty seats in parliament. Alexis Tsipras, the bloc’s firebrand leader, vowed to overthrow of the austerity regime and launch a new era of social salvation, claiming the government’s campaign of “blackmail and terror” had failed. “There will be an end to austerity. The future has started,” he said. Markets were caught off-guard. Flight to safety drove yields on German 10-year Bunds to an historic low of 0.54pc, while the Athens bourse crashed 10pc before partly recovering in late trading.

German finance minister Wolfgang Schauble warned Greeks not to play with fire by pressing impossible demands. “Fresh elections won’t change Greece’s debt. Each new government must fulfil the contractual obligations of its predecessors. If Greece chooses another way, it’s going to be tough,” he said. JP Morgan said any Syriza-led coalition is likely to soften its line once in office. It is certain to ditch many of the extreme measures unveiled at a disastrous roadshow in London last month, deemed “Communist” by one hedge fund. Yet it will be hard to settle the core dispute over debt relief, likely to be centred on calls for “Bisque bonds” where payment is linked to GDP growth. The IMF said Greece faces “no immediate financing needs” yet the issue will turn serious once Greece runs out of Troika money in February.

“We could have a problem at the beginning of March,” said finance minister Gikas Hardouvelis. It will be even more serious in July and August when Greece must repay €6.7bn to the European Central Bank. Capital markets are effectively closed. The Greek banking system remains on life-support, kept afloat by $40bn of ECB liquidity. Frankfurt has a duty to safeguard the money of other eurozone members and cannot lightly prop up lenders in a country that is at the same time threatening to default on EU debt. Mr Hardouvelis warned that the ECB could “strangle the Greek economy in a split second” if it switched off funding. Holger Schmieding from Berenberg Bank said there is now a 30pc risk that Greece could stumble into a rolling crisis and a potential euro exit. “That is a big risk,” he said.

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Not going to happen. What we’ll see is lots of Brussels chest-thumping. The ‘leaders’ don’t want to be transformed.

Syriza Can Transform The EU From Within (Costas Lapavitsas)

The Greek parliament has failed to elect a new president and the country’s constitution dictates that there should now be parliamentary elections. These will be critical for Greece and also important for Europe. A victory for Syriza, the main leftwing party, would offer hope that Europe might, at last, begin to move away from austerity policies. But there are also grave risks for Greece and the European left. The rise of Syriza is a result of the adjustment programme imposed on Greece in 2010. The troika of the European Commission, the ECB and the IMF provided huge bailout loans, with the cost of unprecedented cuts in public expenditure, tax increases and a collapse in wages. It was a standard, if extreme, austerity package, with one vital difference: austerity could not be softened by devaluing the currency as, for instance, had happened in the Asian crisis of 1997-98. Greek membership of the euro had closed all escape routes.

Brutal austerity succeeded in stabilising Greece and keeping it in the economic and monetary union by destroying its economy and society. The budget deficit has been drastically reduced, the current account deficit has turned into a surplus and the prospect of default on foreign debt has receded. But GDP has contracted by 25%, unemployment has shot above 25%, real wages have fallen by 30% and industrial output has declined by 35%. The human cost has been immeasurable, amounting to a silent humanitarian crisis. Homelessness has rocketed, primary healthcare has collapsed, soup kitchens have multiplied and child mortality has increased. Since the summer of 2014, the depression has been drawing to a close, helped by the strong performance of the tourist sector. Yet, the damage from troika policies is so severe that growth prospects are appalling.

The weakness is manifest in foreign trade, which the IMF expected to act as the “engine of growth”. In 2014, Greek exports will probably contract, while imports began to rise as soon as the depression showed signs of ending. This is a deeply dysfunctional economy. In the midst of this catastrophe, the troika is insisting on further austerity to achieve massive primary budget surpluses of 3% in 2015, 4.5% in 2016 and even more in future years. Its purpose is to service the enormous foreign debt, which has risen to 175% of GDP from about 130% in 2009. Astonishingly, the IMF still expects Greece to register average growth of 3.4% during the next five years – provided, of course, that it goes full speed ahead with privatisation, deregulation of labour and market liberalisation. The troika has truly embraced the economics of the absurd.

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Doesn’t need to be perfect.

‘Perfect Storm’ Could Send Euro Even Lower (CNBC)

The euro traded near a 28-month low on Monday, and analysts forecast its decline could continue, after a last-dash vote in Greece failed to secure a new president for the country. A snap general election was called for January following the result, which could potentially jeopardize this year’s economic progress, as well as delicate negotiations with the country’s “troika” of international loan brokers. The currency fell to $1.2165 in early trading—the nadir for the single currency since European Central Bank President Mario Draghi pledged to do “whatever it takes” to save the euro zone in July 2012. It recovered a little following the results of the Greek vote, but remained subdued at $1.2180, below a key resistance level of $1.2300.

“A perfect political and economic storm is brewing,” said BBH currency strategists led by Marc Chandler in a research note published Monday. Despite the small bounce in the euro after the results were out, SocGen’s Kit Juckes said the currency could continue to decline against the dollar this week. He predicted the euro could move to, or through, $1.20, taking it to lows last seen at the apex of the euro zone debt crisis in 2010. “The failure (of Monday’s vote in Greece) was widely expected, so the immediate response is minimal, despite Greek yields being higher and Greek stocks having failed to bounce,” the macro strategist told CNBC via email. “I think if the euro starts to fall, it could gather some downward momentum, given the uncertainty about the outcome of the elections.”

Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi, forecast that the currency would fall below $1.20 in the first three months of 2015. The euro has typically bottomed around $1.20 over the last 10 years, and Hardman warned of the risk of a sharp adjustment downwards if the currency fell through that level. “Our base case is for the euro to continue to grind lower,” Hardman told CNBC on Monday. “We are looking for a move down below $1.20 within the first quarter, and then our year-end level is $1.14, deeper into undervalued territory.”

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Vying for stupidest headline of the season. The Saudis face civil unrest on a huge scale. They care a lot, but they can’t do anything. There’s too much oversupply.

Oil Falls Further But Saudi Arabia Doesn’t Care (CNBC)

The oil price hit a 5-1/2-year low on Tuesday, in a move likely to wreak yet more economic havoc on countries like Russia and Venezuela but major oil producer Saudi Arabia looked to be relatively unscathed. In fact, despite prices extending losses into a fourth session, one analyst told CNBC that Saudi Arabia – the largest producer in OPEC – was enjoying a “perfect storm”, enabling it to take on its rivals. Brent oil for February delivery fell to under $57 per barrel Tuesday, despite ongoing output disruptions in Libya that had briefly appeared to support prices on Monday. And there is no sign of production being cut any time soon, with Saudi Arabia standing by OPEC’s November decision not to reduce output. “By dint almost of an accident Saudi Arabia is seeing Russia and Iran face some financial pain, and (falling prices) are causing trouble in Canada and some parts of the U.S. as well,” Malcom Graham-Wood, independent oil and gas analysts, told CNBC Tuesday.

“Having this perfect storm of events unwind gave them the chance to play the market share card at the OPEC meeting (in November),” he said. Saudi Arabia is in a stronger position than a number of its fellow oil producers because it is a low-cost producer and can withstand lower prices as it has stockpiled revenues from previous peaks in the oil price in the last five years. But other major oil producers – both inside and outside OPEC – have been hard hit by lower oil revenues. Investment in U.S. shale oil is starting to look threatened, and economic growth forecasts in countries like Russia have been hastily revised lower. Venezuela’s President, Nicolas Maduro, said on Monday that the country’s petroleum export price had halved during the second half of 2014 to $48, Reuters reported. But rather than blame its fellow OPEC member Saudi for failing to back a producing cut, Maduro blamed the oil price decline on the U.S., saying the country was trying to hurt Russia and Venezuela.

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You bet. There’ll be an earthquake in the industry.

Oil Industry Set For Year Of Mergers And Takeovers, Says PwC (BBC)

The oil and gas industry is set for a year of mergers and takeovers as a result of the plummeting oil price, a business consultancy has predicted. PwC said 2015 may bring the first hostile takeover in the sector in living memory. It warned of “uncertain times” for the estimated 440,000 people employed in the UK’s oil and gas industry. The oil price has fallen from $115 a barrel in the middle of the year to about $60. Drew Stevenson, PwC’s UK energy deals leader, said: “Oil prices remaining at the current level for a sustained period will light the touch-paper for mergers and acquisitions in 2015. “As the UK industry positions itself for a more uncertain future, we expect to see deal activity levels pick up throughout the year ahead.” PwC said the industry would be “increasingly cash-constrained” with new debt coming at a cost, and existing debt coming under increased scrutiny.

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Lovely.

The Cartel: How BP Used a Secret Chat Room for Insider Tips (Bloomberg)

Halfway down a muddy, secluded road on marshland in suburban Essex sits Wharf Pool, a lake stocked with some of the biggest freshwater fish you will ever see. A white sign with red lettering reads: “Private Syndicate: Strictly Members Only.” A metal gate, a barbed-wire fence and two CCTV cameras bar the way. Anglers hoping to spend time on the lake’s carefully tended banks must join a waiting list. Those who make it to the top pay a membership fee that buys them the chance to catch a carp that weighs more than a Jack Russell. There are hundreds of them swimming beneath the surface. It’s close to shooting fish in a barrel. An hour away by train, in London’s financial district, the lake’s owners ply their trade.

Wharf Pool was purchased for about £250,000 ($388,000) in 2012 by Richard Usher, the former JPMorgan trader at the center of a global investigation into corruption in the foreign-exchange market, and Andrew White, a currency trader at oil company BP. With revenue of almost $400 billion last year and operations in about 80 countries, BP trades large quantities of currency each day. Traders at the company regularly received valuable information from counterparts at some of the world’s biggest banks – including tips about forthcoming trades, details of confidential client business and discussions of stop-losses, the trigger points for a flurry of buying or selling – according to four traders with direct knowledge of the practice. Copies of messages sent to BP traders over the course of a year were provided to Bloomberg News by a person with access to the online conversations.

The person, who redacted the names of banks sending the messages and dates of conversations, said they came from firms whose senior foreign-exchange traders belonged to a chat room called “The Cartel” that was set up by Usher and included dealers at JPMorgan, Citigroup, Barclays and UBS. The information offered an insight into currency moves minutes, sometimes hours before they happened. The messages could drag the U.K.’s biggest energy company into a scandal that has enveloped 11 banks and led to more than 30 traders from London to Singapore losing or being suspended from their jobs. Last month six banks were fined $4.3 billion for passing along information about their clients and working together to rig foreign-exchange markets.

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Gambling on China growth that isn’t there.

Iron-Ore Slump Fails to End Glut as Australia Mines Grow (Bloomberg)

The collapse in global iron-ore prices isn’t chasing Gina Rinehart away from the red soil of Western Australia that made her a billionaire. Like producers in Brazil and some in China, she can still profit from the metal. At the $8 billion Roy Hill mine Rinehart is building in the Pilbara region, where her father made the first discoveries in the 1950s, ore must sell for about $56 a metric ton at Chinese ports to avoid losses, and costs are even lower for Australian output from Rio Tinto and BHP Billiton, UBS data show. Even with prices down 65% from a record in 2011, top buyer China pays $67 for the steel-making ore today.

While some high-cost operations have closed and demand is slowing, there are enough producers making money to extend a global surplus for another four years, after companies spent about $120 billion since 2011 to expand mines, according to Goldman Sachs. More than 80% of global production is still profitable, Bloomberg Intelligence says. “We did base this project on long-run iron-ore prices, which admittedly were higher than what they are today,” Barry Fitzgerald, the chief executive officer of Rinehart’s Roy Hill, told reporters during a tour of the site last month. “There’s going to be an awful lot of impact on the rest of the industry” before Roy Hill is affected, he said.

The iron-ore glut emerged this year after a record expansion of mine capacity and as China, the world’s second-largest economy, grew at the slowest pace in two decades. The surplus will reach 300 million tons by 2017, because Chinese steel production is unlikely to expand fast enough to absorb the excess supply, Goldman Sachs said in a Nov. 6 report. Rising output of low-cost ore will boost shipments from Australia, the largest producer, said Wayne Calder, deputy executive director of the government’s Bureau of Resources and Energy Economics. Supply from Rio, BHP, Fortescue and Roy Hill will add about 100 million tons a year to exports, Calder said in September. Rinehart, the richest woman in the Asia-Pacific region, is pushing ahead with plans to start shipments by September and produce 55 million tons a year.

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And the BBC just lets them say these things?

Bernanke Tells UK’s King: We Saved Our Economies (MarketWatch)

Former Federal Reserve Chairman Ben Bernanke believes history has already vindicated the novel efforts of the U.S. central bank to revive the economy after the financial crisis of 2008. The Fed and the Bank of England offered financial aid to beleaguered banks and deployed tools such as quantitative easing – creating new money – on a massive scale to help heal badly damaged economies. The result has been that the U.S. and Britain have grown much faster than the European Union, whose response has been less aggressive. “By stabilizing the financial system, we avoided much, much worse, persistently bad consequences for our economies,” Bernanke said in an interview with Mervyn King on BBC. King was head of the Bank of England during the crisis and was a constant ally of Bernanke, a longtime friend whom he had first met at MIT three decades earlier.

Critics of quantitative easing contend it’s too early for the Fed to declare victory. The central bank still has to successfully manage the reduction in historically large balance sheets without causing any severe economic side effects, they say. In a Pattonesque way, Bernanke said he found dealing with the crisis “incredibly stimulating” because he was able to draw on a lifetime of academic study about the causes of the Great Depression and how to avoid another one. “I feel that the work I did as a academic paid off and that I was able to use that to help solved these problems,” he said. “That’s very satisfying, though it’s not an experience I would voluntarily repeat.” No surprise there. Bernanke spent countless hours managing the crisis through 2008 and 2009 and had to see a doctor after experiencing episodes of physical discomfort. “There certainly was a lot of stress. I once went to a gastroenterologist,” Bernanke recounted. “He said, ‘Do you think your problem might be caused by stress?’ ‘Well, I said, it’s possible.’ ”

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Golman vs the entire nation of Portugal. We’ll take your bets now.

Goldman Sachs Set for Fight Over $835 Million Loan to Banco Espírito Santo (WSJ)

Goldman Sachs is squaring up for a fight with the Bank of Portugal over repayment of an $835 million loan made to Banco Espírito Santo weeks before the Portuguese lender’s collapse. The four-year loan, arranged by Goldman Sachs through a finance vehicle called Oak Financ, had been transferred in August to Novo Banco, the “good bank” carved out of Banco Espírito Santo. Last week, the Bank of Portugal decided that transfer was a mistake, and that the loan should instead remain at the “bad bank” that kept the Banco Espírito Santo name and its worst assets. The decision means Goldman Sachs and its clients could lose hundreds of millions of dollars from investments in Oak Finance notes backed by the loan, because assets at the bad bank are estimated to be worth less than $100 million in liquidation.

The Bank of Portugal’s move also puts at a disadvantage junior bondholders at Banco Espírito Santo, who are already embroiled in legal efforts to improve their potential payout. A Goldman Sachs spokeswoman said the Bank of Portugal’s unexpected announcement would harm its clients and financial markets generally, and that it plans to pursue remedies. Banco Espírito Santo failed in August after the central bank started untangling a web of cross-funding between the bank and other companies in the vast Espírito Santo family empire. The Bank of Portugal and the Portuguese prosecutor’s office are conducting separate probes into the matter, and authorities in at least three other countries are investigating individuals and group companies over alleged wrongdoing. The Oak Finance transaction stood out in the wreckage of Banco Espírito Santo, both for its timing and because of the companies involved.

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2015 will be tough on Brazil.

Petrobras Deadline Prompts Bondholders To Push For Default (Reuters)

Petrobras, Brazil’s state-run oil company, could be declared in technical default on some of its foreign debt as early as Tuesday if bondholders pursue efforts to force it to speed up its assessment of losses in a giant corruption scandal. The push, led by New York-based Aurelius Capital, applies to $54 billion of Petrobras bonds governed by U.S. law in New York state. Aurelius, a “distressed debt” fund, is asking investors to put the company into default as “a precautionary step,” according to a Dec. 29 letter from the firm reviewed by Reuters. Under the terms of those bonds, Petrobras is required to provide third-quarter financial statements within 90 days of the end of a quarter, in this case by Monday, Dec. 29. Petrobras has not published those accounts because allegations of contract-fixing and bribery at the company have raised doubts about the true value of its assets.

For the default declaration to take effect on any of the more than 20 U.S. law bonds outstanding, investors holding at least 25% of any one series must request the action, Aurelius said in the letter to fellow bondholders. Aurelius was a leading member of a group of investors that refused to accept a debt restructuring with Argentina, taking the country to court. Petrobras, which first planned to release results in early November, has extended the deadline to Jan. 31 as new corruption allegations came to light, saying it had a waiver from investors but not giving any details. “We believe bondholders should immediately take the prudent precaution of giving formal notice of default,” Aurelius managing director Eleanor Chan wrote.

“While mere notice of default should not itself cause a crisis, bondholders cannot avoid a crisis merely by sticking their heads in the sand and accepting Petrobras’ assurances as a certainty.” Distressed debt funds specialize in buying the debt of companies or countries at risk of default. Such hedge funds, also known as vulture funds, often use top flight lawyers to gain favorable terms in any bankruptcy. Few have suggested Petrobras will be unable to pay its debts in the short or medium term. It has huge oil resources and the backing of the Brazilian government, whose officials have said they will backstop the company. Petrobras, though, is already frozen out of capital markets because of the scandal and is in danger of losing its investment-grade debt rating, a situation that would reduce the pool of potential investors and raise its borrowing costs.

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Slow growth.

Foreign Automakers Taken To Task In China Over Dealers’ Inventories (Reuters)

Foreign automakers in China may struggle to dictate sales goals in the future after dealers complained to the government that inflexible targets set during a market boom obliged them to buy too much stock and bear the brunt of a drop in demand. Automakers largely stuck to targets throughout 2014, selling cars to dealers on schedule. But dealers slashed retail prices and booked losses as sales growth in the world’s biggest auto market halved from the previous year’s 14%. “Carmakers have high market expectations. But the reality is: supply exceeds demand,” said Luo Lei, deputy secretary general of the China Automobile Dealers Association (CADA).

“In the past, dealers were angry, but dared not speak out. But now, they have to shout because the situation is getting so unbearable,” said Luo, whose body this month filed a report with authorities on the practice of transferring stock to dealers. The report from China’s biggest dealer body could help change the balance of power at a time when automakers are starting to alter expectations in an economy expanding near its slowest rate in 24 years. Japan’s Honda and Nissan cut their China sales forecasts last month while executives say Toyota Motor Corp is likely to miss its 2014 goal. Germany’s BMW said it expects profit margins to narrow as the market “normalizes” from the growth spurt of the past few years.

“Carmakers are making a compromise to dealers” in their worst-ever spat, said Yale Zhang, managing director of consultancy Automotive Foresight. “Over the past years, carmakers, especially luxury brands, have been too aggressive in their quest for China market share. Now with the problem fully exposed, I expect to see an obvious slowdown in their pace of expansion next year.” Honda has been helping dealers “adjust” inventories since the middle of the year, a company spokesman said. Honda’s China sales have fallen every month since July. BMW China head Karsten Engel said in an interview last month that the luxury carmaker had “listened” to dealers saying stockpiles were building up, and that it had started “reducing wholesale supplies”.

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A $25 billion swap is no threat to the dollar.

Ditching Dollar: China, Russia Launch Financial Tools In Local Currencies (RT)

China and Russia have effectively switched to domestic currencies in trading using financial tools as swaps and forwards, as they seek to reduce the influence of the US dollar and foreign exchange risks. The agreement signed in the end of October comes into force Monday, December 29, and provides a currency swap of CNY150 billion (up to US$25 billion). The country’s Foreign Exchange Trade System will carry out similar transactions with the Malaysian ringgit and the New Zealand dollar. From now on yuan swaps are available for 11 currencies on the foreign exchange market. “China won’t stop yuan globalization or capital account opening because of the volatility in emerging market currencies,” Ju Wang, a senior currency strategist at HSBC in Hong Kong told Bloomberg.

China has set up bilateral currency swap lines with more than 20 countries and regions since 2009, including Switzerland, Brazil, Hong Kong, Indonesia and South Korea, Xinhua News reported in July. A swap is a financial tool to ease transactions by exchanging certain elements of a loan in one currency, like the principal or interest payments into an equivalent loan in another currency. Currency forward is an obligation of two parties to convert an agreed amount of one currency into another by a certain date at an exchange rate specified at the moment of signing the deal. Russia and China have long been looking for ways to cut the dollar’s role in international trade. The question is significant for China as 32%, or $4 trillion of its foreign exchange reserves are in US bonds, which means there is a vulnerability to fluctuations in the exchange rate.

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Business as usual.

Jeb Bush and the Making of a $236 Million Federal Contract (Bloomberg)

Republican donor Ric Cooper had a straight line to Florida Governor Jeb Bush, and days after Hurricane Katrina used the access to help secure a $236 million deal that Democrats later called a “boondoggle contract,” according to a trove of e-mails released last week by the Democratic opposition research group American Bridge. The chummy exchange began with a previously unreported direct appeal from Cooper on behalf of Carnival Cruise Line two days after Katrina smashed into the Gulf Coast. “None of us have any idea how to reach out to FEMA or whoever is appropriate,” wrote Cooper in an Aug. 31, 2005, e-mail to Bush. “I decided to do my usual ‘I’ll give Jeb a heads-up.’” The Miami-based company wanted a federal contract for “two or three” of their ships to be used in the response effort, he wrote.

Cooper, who at the time was working in Miami at an advertising agency that Carnival used, said in his e-mail that the ships could provide housing for between 6,000 and 10,000 people and “could feed if needed as well.” Once in place, the ships could stay for weeks or months, he offered. “They would minimize costs involved,” pledged Cooper, who during the 2004 election cycle had donated $50,000 to the Republican National Committee to help re-elect the governor’s brother, President George W. Bush. What followed became public as Democrats began to investigate the Katrina response in early 2006. Jeb Bush, who was famously responsive to e-mail as governor, replied to Cooper within 13 minutes.“I will pass on to Mike Brown,” Bush wrote, referring to the then-director of the Federal Emergency Management Agency. “I can’t believe they haven’t asked as of yet but Mike will respond quickly.”

About three hours later, Brown responded to Bush and Cooper with his cell phone number. “Ric, thanks for the note that Jeb sent,” the FEMA director wrote. “I personally think this is a great idea.” Within days, three Carnival ships steamed to the Gulf Coast. It wasn’t a happy ending: The ships sat half empty. Use of them turned out to be rather expensive, and lawmakers used the contract as an example of post-Katrina waste. “This boondoggle contract, which comes to an end this week, has cost federal taxpayers an enormous amount to provide temporary six-month housing aboard Carnival’s ships,” Representative Henry Waxman, a California Democrat, wrote in a February 2006 letter to Jeb Bush. Waxman calculated that the contract cost taxpayers almost $240,000 to shelter a family of five. “At this price, the federal government could have built permanent homes for the families,” Waxman wrote.

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“The Snowden documents reveal the encryption programs the NSA has succeeded in cracking, but, importantly, also the ones that are still likely to be secure.”

Inside the NSA’s War on Internet Security (Spiegel)

US and British intelligence agencies undertake every effort imaginable to crack all types of encrypted Internet communication. The cloud, it seems, is full of holes. The good news: New Snowden documents show that some forms of encryption still cause problems for the NSA.

When Christmas approaches, the spies of the Five Eyes intelligence services can look forward to a break from the arduous daily work of spying. In addition to their usual job – attempting to crack encryption all around the world – they play a game called the “Kryptos Kristmas Kwiz,” which involves solving challenging numerical and alphabetical puzzles. The proud winners of the competition are awarded “Kryptos” mugs. Encryption – the use of mathematics to protect communications from spying – is used for electronic transactions of all types, by governments, firms and private users alike. But a look into the archive of whistleblower Edward Snowden shows that not all encryption technologies live up to what they promise. One example is the encryption featured in Skype, a program used by some 300 million users to conduct Internet video chat that is touted as secure.

It isn’t really. “Sustained Skype collection began in Feb 2011,” reads a National Security Agency (NSA) training document from the archive of whistleblower Edward Snowden. Less than half a year later, in the fall, the code crackers declared their mission accomplished. Since then, data from Skype has been accessible to the NSA’s snoops. Software giant Microsoft, which acquired Skype in 2011, said in a statement: “We will not provide governments with direct or unfettered access to customer data or encryption keys.” The NSA had been monitoring Skype even before that, but since February 2011, the service has been under order from the secret US Foreign Intelligence Surveillance Court (FISC), to not only supply information to the NSA but also to make itself accessible as a source of data for the agency.

The “sustained Skype collection” is a further step taken by the authority in the arms race between intelligence agencies seeking to deny users of their privacy and those wanting to ensure they are protected. There have also been some victories for privacy, with certain encryption systems proving to be so robust they have been tried and true standards for more than 20 years. [..] The Snowden documents reveal the encryption programs the NSA has succeeded in cracking, but, importantly, also the ones that are still likely to be secure. Although the documents are around two years old, experts consider it unlikely the agency’s digital spies have made much progress in cracking these technologies. “Properly implemented strong crypto systems are one of the few things that you can rely on,” Snowden said in June 2013, after fleeing to Hong Kong.

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I wouldn’t normally address topics like this, but women in rape cases deserve more respect than having someone spent hundreds of thousands of dollars digging into their lives.

Bill Cosby Hires PI’s To Dig Up Dirt On Women Who Accuse Him of Rape (Ind.)

Bill Cosby hired private investigators to “dig up dirt” on several women who claimed the comedian had raped them, according to a report by the New York Post. More than two dozen women have come forward in recent weeks to allege that Mr Cosby, 77, drugged and sexually assaulted them between the 1960s and 2000s. But Mr Cosby has reportedly been fighting back behind the scenes, spending hundreds of thousands of dollars to scour the women’s pasts in a bid to discredit his accusers. At a recent meeting of his legal and public relations representatives, an insider told the Post, Mr Cosby said: “If you’re going to say to the world that I did this to you, then the world needs to know, ‘What kind of person are you? Who is this person that’s saying it?’”

This counter-attacking strategy is not new to Hollywood scandals generally, nor to Mr Cosby in particular. At the weekend, the New York Times also reported that in 2005, the comedian’s team presented a dossier of “damaging information” to one newspaper about Tamara Green, a California lawyer who accused Mr Cosby of having drugged and sexually assaulted her during the 1970s. The Times described Mr Cosby’s response to his accusers past and present as: “an organised and expensive effort that involved quashing accusations as they emerged while raising questions about the accusers’ character and motives, both publicly and surreptitiously.”

Mr Cosby’s lawyer, Martin Singer, suggested that the investigators were merely doing the work that the press had failed to, telling the Post: “You don’t need private investigators to find out information about the accusers. A simple Google search will obtain the information.” Mr Cosby himself has avoided addressing specific allegations, but did ask journalists to approach the women’s stories with a “neutral mind”. Though his Netflix stand-up special and an NBC sitcom project were both cancelled in the wake of the accusations, Mr Cosby still has several concert dates in place for the coming months. On Friday, comedy writer-director Judd Apatow took to Twitter to confront two Canadian venues for not having cancelled Cosby’s coming appearances, asking one: “are you really going to let Bill Cosby perform on your stage January 7?”

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God particle.

Large Hadron Collider To Switch Back On At Double Power (Ind.)

CERN’s Large Hadron Collider is set to be switched back on in March — hoping that a £97 million upgrade could push it to even greater discoveries, after it found the “God particle” in 2012. The second three year run of the huge atom smasher will begin in March 2015. The Large Hadron Collider has been switched off since its last run finished in 2012. The world’s largest particle collider has been undergoing a £97 million upgrade since then, as scientists comb through the data found during the last run. It is being cooled back down ready for the switch on, and is almost at its operating temperature of 1.9 degrees above absolute zero, or about minus 271.25 degrees Celsius.

Scientists are also testing out the equipment and earlier in December activated one of the magnets required to fire atoms around the collider. Scientists are now gearing up to turn both on at once, in 2015. That will produce collisions of a scale never achieved by any accelerator in the past, equivalent with 154 tons of TNT. The extra power will allow the CERN’s numerous experiments to look into deep mysteries of the universe, such as dark matter. The Large Hadron Collider was used in 2012 to confirm the existence of the Higgs boson, known as the God particle, which explains the very beginning of the universe.

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“I don’t know whether Mr. Obama was a hostage, an empty suit, or a fool, but he broadened and deepened the acquiescence to lying about just about everything.”

The Trigger (James Howard Kunstler)

The futility of politics in America these days has driven the public into exactly the dream-state of zombie blood-lust depicted in so many popular video fantasies, a nightmare of decay, powerlessness, and degeneracy matching the actual condition of a disintegrating polity that has lost collective consciousness and seeks only to infect the dwindling numbers of the still-sentient. Almost nobody in this country believes we can manage our affairs anymore. Well, can we? One of the hallmarks of an imploding culture is that people lose a sense of consequence. Things just seem to happen and unhappen, and nobody really cares about chains of decision and event. Anything goes and nothing matters.

One reason this is happening to us is that we allowed reality to be divorced from truth. Karl Rove wasn’t kidding back in the Bush-2 days when he quipped that “we create our own reality.” The part old Karl left out is that there’s a price for doing that. In the short run, it allows you to pretend that you have superpowers and can act in defiance of the way things really are. In the longer run, your view of the world comports so poorly with the facts of the world that things stop working. The tragedy of Barack Obama is that he continued the basic Karl Rove doctrine only without bragging about it. I don’t know whether Mr. Obama was a hostage, an empty suit, or a fool, but he broadened and deepened the acquiescence to lying about just about everything. Did criminal misconduct run rampant in banking for years?

Oh, nevermind. Is the US economy actually contracting instead of recovering? We’ll just make up better numbers. Did US officials act like Nazi war criminals in torturing prisoners? Well, yeah, but so what? Did the State Department and the CIA scuttle the elected Ukrainian government in order to start an unnecessary new conflict with Russia? Maybe so, but who cares? Was the Affordable Care Act a swindle in the service of insurance and pharmaceutical racketeering? Oh, we’ll read the bill after we pass it. Shale oil will make us “energy independent.” (Not.) Has anyone noticed the way these incongruities percolate into the public attention and then get dismissed, like daydreams, with no resolution.

I’ve harped on this one before because it was, to my mind, Obama’s greatest failure: When the Supreme Court decided in the Citizens United case that corporations were entitled to express their political convictions by buying off politicians, why didn’t the President join with his then-Democratic majority congress to propose legislation, or a constitutional amendment, more clearly redefining the difference between corporate “personhood” and the condition of citizenship? How could this constitutional lawyer miss the reality that corporations legally and explicitly do not have obligations, duties, and responsibilities to the public interest but only to their shareholders? How was this not obvious? And why was there not a rush to correct it?

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IMF policies, too, have been blamed for allowing ebola to spread after squeezing health care systems.

Ebola Spurs Call for Global Health Reserve Corps, Challenging WHO (Bloomberg)

While Ebola rages on in West Africa, world leaders are debating ways to snuff out future contagions. The question they’re asking is: How? The World Bank, headed for the first time by a doctor, wants to create a cadre of outbreak specialists who could be sent anywhere to end deadly epidemics. A similar idea, floated by a World Health Organization panel three years ago in the wake of the swine flu pandemic, didn’t get enough support. The WHO says the idea might not be practical and countries should ideally have the capacity to respond themselves. The Ebola outbreak, which has so far sickened more than 20,000 people in eight countries, shows major weaknesses in global health security. The 2003 SARS outbreak and the 2009 swine flu pandemic were reminders, too, yet the measures necessary to stop Ebola from mushrooming into a three-continent scourge weren’t in place.

World Bank President Jim Yong Kim is determined to ensure lessons are learned this time. “What the Ebola epidemic has taught every single one of us is that we were not prepared for an outbreak of this size,” Kim, a Harvard University-trained physician and anthropologist, told reporters in Liberia on Dec. 2. “I for one, as president of the World Bank Group, will continue to remind all of the leaders that this flaw that was exposed must be taken care of and must be taken care of as quickly as possible.” The virus has killed at least 7,842 people, mostly in Sierra Leone, Liberia and Guinea, according to the WHO. If it continues to spread further in Africa, it could cost as much as $32.6 billion by the end of 2015, the Washington-based World Bank estimated in October.

Kim, who previously headed the WHO’s HIV/AIDS department, has voiced publicly his opinions on Ebola more than a dozen times in op-eds, speeches, statements, media briefings and in webcasts detailing the World Bank’s response and what needs to be done. He’s also been critical of the initial global response, describing it as “late, inadequate and slow.” “Our president is responding to a crisis that he sees first and foremost as a major impediment to the twin objectives of the bank, which are to eliminate extreme poverty and to share prosperity,” said Tim Evans, the World Bank’s senior director of health, nutrition and population. “The fact that he’s had experience with pandemics before and global health perhaps increases his legitimacy as an advocate to bring this epidemic to an end as soon as possible.”

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TIME was right: these courageous people are the Persons of the Year.

Ebola in UK: One Patient Diagnosed With Ebola, Two More Tested (Independent)

Two more patients are being tested for Ebola in Scotland and Cornwall. One patient is being examined for possible symptoms at the Royal Cornwall Hospital in Truro, Cornwall, and the other – a female heath worker – at Aberdeen Royal Infirmary. The virus, which had its first case confirmed in the UK yesterday in Glasgow, is just one of several illnesses they could be suffering from. Nicola Sturgeon, the First Minister, said the Scottish woman had recently returned from West Africa but was “low risk” and had no known contact with the virus. “Although this is another returning healthcare worker from West Africa, the patient here has had no, as far as we’re aware, direct contact with people infected with Ebola,” she told BBC radio. “This patient over the course of today will be transferred for tests.”

A spokesperson for the Royal Cornwall Hospitals Trust would not give any further details of their patient but said he or she arrived at the hospital, known locally as Treliske, in the early hours of the morning and is being treated in isolation. “It could be nothing but this patient has possibly been at risk,” he added. “We are in contact with Public Health England (PHE) but it could be 24 hours before we know.” The person is understood to have viral symptoms, which are shared by Ebola and many other illnesses including malaria, and samples are undergoing testing at PHE’s national facility. An NHS worker who has been diagnosed with Ebola after returning to Glasgow from Sierra Leone is believed to be on the way to a specialist unit in London this morning.

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Dec 262014
 
 December 26, 2014  Posted by at 12:27 pm Finance Tagged with: , , , , , , , , , ,  3 Responses »


Marion Post Wolcott “Center of town. Woodstock, Vermont. Snowy night” 1940

SF Fed Warns US Stock Values Will Be Cut In Half In Next Decade (Zero Hedge)
Dipping Into Auto Equity Devastates Many US Borrowers (NY Times)
First Oil, Now US Natural Gas Plunges Off The Chart (WolfStreet)
China Eases Again, Sets Non-Bank Deposit Reserve To Zero (Zero Hedge)
Russia Says Ruble Crisis Over As Reserves Dive, Inflation Climbs (Reuters)
Reuters Objectively Sees Russia’s Options as Losing or Losing Badly (Beversdorf)
Japan No A Longer Nation Of Savers, For First Time Ever (MarketWatch)
Japan’s Savings Rate Turns Negative, Wages Fall in Abe Challenge (Bloomberg)
Japan Struggles to Escape Recession as Production Drops (Bloomberg)
Greece to the Eurozone’s Rescue (Bruegel)
Is George Osborne A Closet Keynesian? (Project Syndicate)
Ukraine Peace Talks Focus on Prisoner Swap Before New Year Break (Bloomberg)
Ukraine’s Anti-Corruption Agency Could Be Led By US Citizen (TASS)
Correcting Scrooge’s Economics (Mises Inst.)
Waiting for the Sunrise (John Michael Greer)
World War I’s Christmas Truce, 100 Years Ago (Klein)
CDC Reports Potential Ebola Exposure In Atlanta Lab (WaPo)
Sierra Leone Declares Three-Day Lockdown In North To Contain Ebola (BBC)

More virtual wealth destruction.

SF Fed Warns US Stock Values Will Be Cut In Half In Next Decade (Zero Hedge)

When “the retirement of the baby boomers is expected to severely cut U.S. stock values in the near future,” is the ominous initial sentence from no lesser maintainer-of-the-status-quo than the San Francisco Fed’s research department, one begins to recognize the Federal Reserve’s overall need to hyper-inflate asset prices at whatever cost for fear of the ‘wealth’ destruction looming. As the following study reports, projected declines in stock values – based on the latest demographic and valuation data – have become even more severe. Our current estimate suggests that the P/E ratio of the U.S. equity market could be halved by 2025 relative to its 2013 level. Excerpted from FRBSF’s Global Aging: More Headwinds for U.S. Stocks? (Liu, Spiegel, & Wang)…

Demographic patterns have a strong historical relationship with equity values in the United States (Liu and Spiegel 2011). In particular, the ratio of those people who are the prime age to invest in stocks to those who are the prime age to sell has historically served as a strong predictor of U.S. equity values as measured by price/earnings (P/E) ratios.

Research suggests one reason for this close relationship is a person’s life-cycle pattern of investing. An individual’s financial needs and attitudes toward risk change over the years. As retirement approaches, individuals become less willing to tolerate investment risks, so they begin to sell off stocks. Thus, the aging of the baby boomers and the broader shift of age distribution in the population should have a negative effect on capital markets (Abel 2001). In theory, global demographic changes may further impact U.S. equity values. For example, Krueger and Ludwig (2007) demonstrate that U.S. returns can import the adverse impact of population aging in other countries.

Since the study by Liu and Spiegel (2011), U.S. stock values have increased markedly. Between 2010, which is the end of their sample, and 2013, the S&P 500 Index has increased by 47% and the P/E ratio has increased from around 15 to nearly 17. However, the bearish predictions in Liu and Spiegel (2011), which were based solely on projected aging of the U.S. population, have worsened. Indeed, extending the Liu-Spiegel model’s sample through 2013 suggests that the P/E ratio will decline even more, from about 17 in 2013 to 8.23 in 2025, before recovering to 9.14 in 2030.

Following Liu and Spiegel (2011), we use Bloomberg’s P/E ratio for the United States, which is the ratio of the end-of-year S&P 500 Index levels and the average earnings per share over the previous 12 months. We measure the age distribution using the ratio of “middle-age” people between 40 and 49 years—the group most likely to buy stocks—to those in the “old-age” group from 60 to 69 years—the prime age to sell. We call this measure the M/O ratio.

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Incredible that such things are allowed to exist in a supposedly civilized nation.

Dipping Into Auto Equity Devastates Many US Borrowers (NY Times)

The rusting 1994 Oldsmobile sitting in a driveway just outside St. Louis was an unlikely cash machine. That was until the car’s owner, a 30-year-old hospital lab technician, saw a television commercial describing how to get cash from just such a car, in the form of a short-term loan. The lab technician, Caroline O’Connor, who needed about $1,000 to cover her rent and electricity bills, believed she had found a financial lifeline. “It was a relief,” she said. “I did not have to beg everyone for the money.” Her loan carried an annual interest rate of 171%. More than two years and $992.78 in debt later, her car was repossessed. “These companies put people in a hole that they can’t get out of,” Ms. O’Connor said. The automobile is at the center of the biggest boom in subprime lending since the mortgage crisis. The market for loans to buy used cars is growing rapidly.

And similar to how a red-hot mortgage market once coaxed millions of borrowers into recklessly tapping the equity in their homes, the new boom is also leading people to take out risky lines of credit known as title loans. They are, roughly speaking, the home equity loans of subprime auto. In these loans, which can last as long as two years or as little as a month, borrowers turn over the title of their cars in exchange for cash — typically a%age of the cars’ estimated resale values. “Turn your car title into holiday cash,” TitleMax, a large title lender, declares in a recent television commercial, showing a Christmas stocking overflowing with money. More than 1.1 million households in the United States used auto title loans in 2013, according to a survey by the Federal Deposit Insurance Corporation — the first time the agency has included the loans in its annual survey.

Title loans are becoming an increasingly prevalent form of high-cost, short-term credit in subprime finance, as regulators in a number of states crack down on payday loans. For many borrowers, title loans, also sometimes known as motor-vehicle equity lines of credit or title pawns, are having ruinous financial consequences, causing owners to lose their vehicles and plunging them further into debt. A review by The New York Times of more than three dozen loan agreements found that after factoring in various fees, the effective interest rates ranged from nearly 80% to more than 500%. While some loans come with terms of 30 days, many borrowers, unable to pay the full loan and interest payments, say that they are forced to renew the loans at the end of each month, incurring a new round of fees.

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“None of the fancy charts natural gas drillers have shown to investors work at these prices.”

First Oil, Now US Natural Gas Plunges Off The Chart (WolfStreet)

Friday, natural gas futures plunged 6%. Monday morning, when folks were thinking about the beautiful Santa Rally, NG futures plunged nearly 10% to $3.12 per million Btu, the lowest since January 10, 2013. But the crazy day had just begun. NG bounced off and jumped nearly 4%, only to give up much of it later. Tuesday morning, as I’m finishing this up, NG continues to decline, now at $3.11/mmBtu. Down 30% from a month ago. NG demand peaks when the heating season starts. It’s a bet on the weather. Our gurus forecast warmer than normal temperatures across the country, so prices plunged. Or shorts piled into the pre-holiday session with exaggerated effect to make a quick buck. Here is what this 30-day, 30% plunge looks like (each bar = 5 hours):

Whatever the cause, NG has traded below the cost of production of many wells for years. That lofty $4.40/mmBtu on the left side in the chart above is still below the cost of production for many wells. The price simply fell from bad to terrible. To make the equation work, drillers have shifted from shale formations that produce mostly “dry” natural gas to formations that also produce a lot of liquids, such as oil, natural gasoline, propane, butane, or ethane that were fetching a much higher price. Thus, they’d be immune to the low price of NG. They pitched this strategy to investors to attract ever more money and keep the fracking treadmill going.

Much of this new money was in form of junk debt. Now energy companies account for over 15% of the Barclays U.S. Corporate High-Yield Bond Index – up from less than 5% in 2005. But there is no respite for the American oil patch. The price of oil has plunged 50% since June, the price of propane is down 50% since its recent high in mid-September, and natural gasoline is down 32% since recent high in mid-November. None of the fancy charts natural gas drillers have shown to investors work at these prices.

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“.. shadow banking is being tamed ..”

China Eases Again, Sets Non-Bank Deposit Reserve To Zero (Zero Hedge)

Four years ago, on Christmas Day in 2010, China shocked the world when, unexpectedly, hiked its lending and deposits rates by 0.25% in order to battle inflation – only its second such hike in the prior 3 years. Since then things for the global economy haven’t done exactly as expected, and certainly not for China, which as the following chart of constantly downward-revised IMF growth forecasts, has seen its growth rate tumble from double digits to just hanging on to 7%, and dropping fast.

Fast forward to last night, when in another Christmas surprise, China once again decided to adjust the cost of money, only this time instead of hiking it eased, and in an effort to shore up the world’s second-largest economy, China Business News reported that: PBOC WAIVES RESERVE REQUIREMENT FOR NON-BANK DEPOSIT. As WSJ adds, at a meeting with big financial institutions on Wednesday, the People’s Bank of China told participants that they will soon be able to add deposits from nonbank financial institutions to their calculations of their loan-to-deposit ratios, according to the executives. The move would add considerably to the banks’ deposits and allow them to lend more. Why is this a major development? Because as we reported over a month ago, “China’s Shadow Banking Grinds To A Halt As Bad Debt Surges Most In A Decade” in which we explained:

As the following chart shows the main reason for China’s relentless slowdown in its growth pace, which only two years ago was expected to rebound back into the double digits soon (at least according to the IMF), is the ongoing contraction in credit formation, which rising at 13.2% for new loans and 15.4% for TSF outstanding, was the lowest credit expansion recorded in China also since 2005.

So what is the main culprit for the contraction in China’s all important credit formation? In two words: shadow banking. As Bank of America summarizes “shadow banking is being tamed” because “the changing structure of TSF suggests that Beijing’s efforts in controlling some types of shadow banking have made some achievements. Two major drivers for the steep decline of TSF from Sept to Oct were the falling of non-discounted bills (down RMB241bn) and falling trust loans (down RMB22bn). By contrast, new corporate bonds were at RMB242bn, a sharp rise from RMB151bn in Sept.”

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Tad optimistic?!

Russia Says Ruble Crisis Over As Reserves Dive, Inflation Climbs (Reuters)

Russia said on Thursday its currency crisis was over even though its forex reserves have plunged and annual inflation has climbed above 10%, adding to the problems facing the government as it fights its worst economic crisis since 1998. The ruble plunged to all-time lows last week on heavy falls in the price of oil, the backbone of the Russian economy, and Western sanctions over the Ukraine crisis that made it near impossible for Russian firms to borrow on Western markets. But it has since rebounded sharply after authorities took steps to halt its slide and bring down inflation, which after years of stability threatens President Vladimir Putin’s reputation for ensuring the country’s prosperity. Those measures included a hike in interest rates to 17% from 10.5%, curbs on grain exports and informal capital controls.

“The key rate was raised in order to stabilise the situation on the currency market. … That period has already, in our opinion, passed. The ruble is now strengthening,” Finance Minister Anton Siluanov told the upper house of parliament on Thursday. He added that interest rates would be lowered if the situation remained stable. Standard & Poor’s said this week it could downgrade Russia to junk as soon as January due to a rapid deterioration in “monetary flexibility”. Keen to avert a downgrade, Russia said it had started talks with ratings agencies to explain the government’s actions. Siluanov said the budget deficit next year would be “significantly more” than the 0.6% of gross domestic product originally planned. The ruble slumped to 80 per dollar in mid-December from an average of 30-35 in the first half of 2014. It has strengthened in the last few days to trade as strong as 52 per dollar on Thursday, in part thanks to government pressure on exporters to sell hard currency.

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“Sometimes this is done without violence when the Alpha simply knows he is no longer top dog and he moves on. Often times it ends is horrible violence.”

Reuters Objectively Sees Russia’s Options as Losing or Losing Badly (Beversdorf)

Clearly Russia’s future has very little to do with the Western world and so they have no motive to start wars with the West. There is nothing to gain by doing so. However, they have every motive to defend themselves against Western aggression. And so if you see Russian aggression with the West it can only be defensive in nature. Nations (other than North Korea) do not act in a way that is to the detriment of its political class. Because warring with the West presents no possible upside but significant downside for Russia and her leaders, they will actually be willing to do everything in their power to prevent such a scenario. However, as we discussed above, the Western Alliance has only one option to secure its global control and that is to contain China and the only way to contain China is via Russian energy.

Thus, the Western Alliance has every reason to war with Russia. Behaviour (for rational minds) is always logical and so we can use logic to come to the truth about behaviour by looking at the logical results of actions. If an action seems to be detrimental to a particular subject nation’s political class, then the action would be illogical and thus will not be taken. If an action is the only course of survival for a nation, or more pertinently its political class, then you can be damn certain that action will be taken. Looking at the Russian conflict then from a logical context, it really becomes not up for debate that the Western Alliance must be the aggressor.

But so ok, we are doing what we need to in order to secure our dominance and perhaps there are working class folks that may agree with such a policy. Sounds simple enough according to John Lloyd. As he lays out, the two options for Putin and Russia are to either lose or lose badly. But when John pulls his head out his ass or decides to speak with some integrity rather than selling himself out as a politician’s town crier he will admit that things won’t be so simple. China’s future growth is dependent on Russian energy, and so on Russia itself. As such, China will never allow the Western Alliance to crush Russia as China understands the end objective is not a containment of Russia but China itself.

I made the point in the previous article that China will not only step in economically, which we’ve already seen by example with the signed energy deals and now explicitly stating they will back the Russian economy but, if comes to it, China will be prepared to step in militarily, they have no choice. That is a very scary WWIII proposition and one might wonder why in the hell are we headed in that direction? It is obviously not something citizens of any involved countries would want. Again the reason goes back to that very natural process of Alpha selection. It requires a final fight of the Alpha dog, the one in which he loses his reign of power to a new more impressive Alpha dog. Sometimes this is done without violence when the Alpha simply knows he is no longer top dog and he moves on. Often times it ends is horrible violence.

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A major shift. Japan’s model has been held up by savers investing in sovereign bonds.

Japan No A Longer Nation Of Savers, For First Time Ever (MarketWatch)

Japan, long held up as a model of thrift and a “nation of savers,” is no longer saving, according to data cited Friday in the Nikkei Asian Review. For the fiscal year that ended in March, Japan’s household savings rate dropped to negative 1.3%, according to Cabinet Office statistics released Thursday. The result represented “the first time the ratio entered negative territory since the government started compiling comparable data in fiscal 1955,” the Nikkei reported. Part of the drop was likely due to a spending binge ahead of the nationwide consumption-tax hike on April 1, but the report also cited a broad drawdown of savings by Japan’s elderly.

The figure has special significance for Japan, as much of the government’s huge debt is funded by the nation’s own savers. “If fewer people buy government bonds, it would feed latent upward pressures for long-term interest rates,” the report quoted Goldman Sachs Japan’s Masahiro Nishikawa as saying. On the other hand, any threat to low interest rates seemed distant Friday, with several reports noting that the yield on the benchmark 10-year Japanese government bond TMBMKJP-10Y, -3.96% had hit its lowest level in history the previous day, amid extended ultra-easy policy from the central bank.

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“The savings rate in the year through March was minus 1.3%, the first negative reading in data back to 1955 ..”

Japan’s Savings Rate Turns Negative, Wages Fall in Abe Challenge (Bloomberg)

Japanese drew down savings for the first time on record while wages adjusted for inflation dropped the most in almost five years, highlighting challenges for Prime Minister Shinzo Abe as he tries to revive the world’s third-largest economy. The savings rate in the year through March was minus 1.3%, the first negative reading in data back to 1955, the Cabinet Office said. Real earnings fell 4.3% in November from a year earlier, a 17th straight decline and the steepest tumble since December 2009, the labor ministry said today. A higher sales tax combined with the central bank’s record easing are driving up living costs, squeezing household budgets and damping consumption. Abe’s task is to convince companies to agree to higher wages in next spring’s labor talks to sustain a recovery.

“Households are suffering from a decline in real income,” said Hiromichi Shirakawa, an economist at Credit Suisse. Abe is trying to generate a virtuous cycle in the economy, where higher incomes fuel consumer spending, which in turn prompts companies to boost investment and wages. Last week he secured a pledge from business leaders to do their best to boost pay next year. The government will aim for wages to increase faster than inflation next year, Economy Minister Akira Amari said last week. BOJ Governor Haruhiko Kuroda said yesterday he’d watch the spring wage talks “with strong interest.” The savings rate, which the Cabinet Office calculates by dividing savings by the sum of disposable income and pension payments, peaked at 23.1% in fiscal 1975.

As Japan’s population ages, its growing ranks of elderly are tapping their savings, according to the Cabinet Office. Consumers also ran down savings to make purchases ahead of a sales tax-increase in April, the first since 1997. The shrinking workforce is intensifying a labor shortage that Kuroda has said will prompt an increasing number of companies to boost pay to secure workers. Today’s data showed there were 1.12 jobs available for every person seeking a position, the most since 1992. The jobless rate, at 3.5%, remained at lows unseen since 1997.

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Kuroda makes things worse, fast.

Japan Struggles to Escape Recession as Production Drops (Bloomberg)

Japan’s inflation slowed for a fourth month in November, and industrial production and retail sales unexpectedly dropped, pointing to further weakness in an economy Prime Minister Shinzo Abe is trying to revive from recession. Output fell 0.6% in November from a month earlier, the trade ministry said today, against a median estimate of a 0.8% increase in a Bloomberg News survey of economists. Retail sales slid 0.3%, while consumer prices excluding fresh food rose 2.7% from a year earlier. Real wages fell the most since 2009. With little sign of a rebound in domestic demand, the world’s third-largest economy may rely on exports to avert a third straight quarterly contraction in the final three months of the year.

Today’s reports add pressure on Abe, whose government tomorrow will unveil a stimulus package, and who pledged growth-inducing structural changes after winning re-election this month. “Companies have to see a recovery in domestic consumption before boosting production,” said Minoru Nogimori, an economist at Nomura Holdings Inc., noting any rebound in the economy in the fourth quarter “will be far from strong.” With oil prices weighing on inflation, the BOJ is likely to boost stimulus again, probably around October, he said. [..] Stripped of the effect of April’s sales-tax increase, core consumer prices – the Bank of Japan’s key measure – rose 0.7%, moving further away from the BOJ’s 2% goal. Tumbling oil prices could push Japan’s inflation as low as 0.5% by the middle of next year, according to economists.

BOJ Governor Haruhiko Kuroda said yesterday that over the longer term, cheaper oil will support the economy and spur consumer prices. Energy prices dropped 1.2% from a month earlier, according to today’s data. The price of Dubai crude oil – a benchmark for Middle East supply to Asia – has lost about a half of its value in the past year. Japan’s gasoline prices declined the most in almost six years last week. “Japan, a commodity-importing country, gains a large advantage from the decline in crude oil prices,” Kuroda said in a speech to business leaders yesterday in Tokyo. The decline “will lead to an increase in underlying prices from a somewhat longer-term perspective,” he said.

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“Today, the only right way forward is for the troika to allow Greece to repay its official creditors in, say, 100 years.”

Greece to the Eurozone’s Rescue (Bruegel)

The European Commissioner for Economic and Financial Affairs, Pierre Moscovici’s unnecessary—and unseemly—visit to Athens served to spotlight Europe’s corrosive politics. Mr. Moscovici chose to all but endorse Antonio Samaras, the beleaguered Greek Prime Minister, who promises to play by the European Union’s dysfunctional rules. And the Commissioner described as “suicidal” the positions held by the opposition party Syrzia, which may well lead the next government and correctly deems the EU’s rules to be intolerant. His boss, European Commission President Jean-Claude Juncker, weighed in by expressing his preference for Greece to be led by “known” faces. Greece should not have been a member of the eurozone. But after the German Chancellor Helmut Kohl ensured Italy’s inclusion in May 1998, Spain and Portugal were waived in. So, the inevitable Greek entry came in 2002.

By then, any vestige of economic good sense in the euro’s construction had been abandoned in the name of peace and friendship, a cause that Moscovici and Juncker presumably seek to promote. From October 2009, when Greek authorities acknowledged that they had lied about their fiscal accounts, to May 2010, the claim was that the problem would go away without external help. When eventually the troika—the European Commission, the European Central Bank, and the International Monetary Fund—put together a large bailout fund, the manifestly untenable claim was that Greece would repay its private creditors in full. In July 2011, the repayment terms on the troika’s debt were eased, but it was too little too late. Large losses were eventually imposed on private Greek creditors but not before harsh austerity caused an extraordinary slump in growth and lasting misery.

Pretty much every time there was a choice between the right and wrong decision, the wrong one was taken. Today, the only right way forward is for the troika to allow Greece to repay its official creditors in, say, 100 years. This will effectively mean debt forgiveness but the cosmetics may help German leaders tell their citizens that they will be repaid. But, of course, the system fights back all rational thinking. Ireland and Portugal will yelp that they also deserve more relief on their troika borrowings. More fundamentally, the forgiveness will directly contravene the Lisbon Treaty’s no-bailout provision, which prevents one member state from paying another’s debts. That would call into question the constitutionality of the European Stability Mechanism, which was approved by the European Court of Justice on the basis that the loans from the facility would be repaid with an “appropriate margin.”

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“There is a school of thought that holds that commitment, not achievement, gives a policy credibility.”

Is George Osborne A Closet Keynesian? (Project Syndicate)

There is a growing apprehension among Britain’s financial pundits that chancellor George Osborne is not nearly as determined to cut public spending as he pretends to be. He sets himself deadlines to balance the books, but when the date arrives, with the books still unbalanced, he simply sets another. Consider some fiscal arithmetic. When Osborne became chancellor in 2010, the budget deficit – spending minus revenue – was £153bn, or 10.2% of GDP. He promised that by 2015 the deficit would stand at only £37bn, or 2.1% of GDP – equivalent to balancing current spending and revenue. Instead, the deficit for 2014-2015 is expected to be £97bn. The conclusion of Osborne’s balancing act has been postponed until the 2019-2020 budget. Osborne talks about the need to cut spending, but his actions say otherwise.

Though he vowed to reduce spending by more than £100bn by now, he has cut less than half of that, simply extending his five-year rolling programme of cuts for another few years. As a result, Osborne, the poster child for British austerity, is starting to look like a closet Keynesian. There is a school of thought that holds that commitment, not achievement, gives a policy credibility. For example, the Bank of England is committed to achieve 2% inflation “in the medium term”. Annual inflation has not been 2% at any time in the last six years, but it is possible that the BoE’s commitment has had some effect in lowering interest rates. Osborne’s defenders might make the same argument for his fiscal policy. A credible policy of fiscal consolidation, they might say, will have the same exhilarating effect on confidence as fiscal consolidation itself.

Economists call this the “signalling effect”. If you announce that you intend to balance the books over five years and pencil in a lot of spending cuts, consumers, relieved of their fears of future tax increases, will start spending more freely. This will cause national income to rise, and, with luck, the budget deficit will start shrinking, more or less according to plan, without requiring any, or much, retrenchment. In its emphasis on the importance of the signal, economics enters postmodernist territory. The signal – in this case the promise to balance the books – creates the reality. People start behaving as though the books were balanced, ignoring the fact that they are not. When one believes the narrative, one acts in ways that make it come true.

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Can the west screw this up too?

Ukraine Peace Talks Focus on Prisoner Swap Before New Year Break (Bloomberg)

Envoys to Ukraine peace talks are discussing an exchange of prisoners before the New Year, according to a separatist leader, as Russia criticized the country for having “NATO ambitions.” The talks may continue for about two days and no agreements have been reached yet, Alexander Zakharchenko, leader of the self-proclaimed Donetsk People’s Republic, told the pro-Russian rebels’ news website. Ukraine, Russia and the Organization for Security and Cooperation in Europe sent representatives to Minsk, Belarus, yesterday to hold the first of two planned rounds of talks. The participants, including separatist negotiators, left the venue without commenting to reporters.

“The main task at the moment is to stop the violence,” Alexei Panin, deputy director of the Center for Political Information, a Moscow-based research group, said by phone. A two-week truce has tempered the bloodshed in a conflict that has killed more than 4,700 people since April in fighting between government forces and separatists in Ukraine’s eastern Donetsk and Luhansk regions. The talks cleared the last objections to a swap of 150 prisoners for 225, Zakharchenko said. Ukraine’s Security Service reiterated commitment to an “all-for-all” exchange, RIA Novosti reported.

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The insanity continues.

Ukraine’s Anti-Corruption Agency Could Be Led By US Citizen (TASS)

A former US federal prosecutor Bohdan Vitvitsky, who has Ukrainian roots, could be appointed as the director of Ukraine’s newly-created Anti-Corruption Bureau, local media reported on Friday. Officials from the Ukrainian presidential administration are currently in talks with Vitvitsky, who has not yet made a final decision saying that he “still has no guarantees that the position is independent.” Another candidate for the top post is former Georgian President Mikheil Saakashvili, the reports say. The candidacy has been proposed by a member of a tender commission, Yury Butusov. The ex-Georgian leader, who is now on the run and has recently failed to receive a US working visa, has not yet taken a decision, saying that he is waiting for “a more specific proposal.” Saakashvili will have to take Ukraine’s citizenship and in line with an anti-corruption law to settle the issues over closing criminal cases against him in his home country, including on abuse of power.

In October, Ukrainian President Petro Poroshenko signed a package of anti-corruption laws, including on creating the National Anti-Corruption Bureau in Ukraine. The agency will be charged with exposing, preventing and investigating corruption cases in the country. Poroshenko also suggested that a foreigner could lead the newly-created agency. Foreigners have been already appointed as ministers in the Ukrainian government. President Poroshenko earlier signed a law on granting Ukrainian citizenship to US national Natalya Yaresko, Lithuanian Aivaras Abromavichus and Georgian Alexander Kvitashvili, who head the country’s finance, health and economic development ministries, respectively. Ukraine’s Opposition Bloc and Yulia Tymoshenko’s Batkivshchyna party are against the work of foreigners in the Ukrainian government, saying that Kiev wants to absolve itself of the responsibility for what is happening in the country.

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“What right have you to be merry? What reason have you to be merry? You’re poor enough.” To this Fred replies, “What right have you to be dismal? What reason have you to be morose? You’re rich enough.”

Correcting Scrooge’s Economics (Mises Inst.)

As Charles Dickens himself admits, Ebenezer Scrooge is a thoroughly peaceful man, guilty of no true crime, who has robbed no one. Therefore, we must conclude that his wealth is a sign of his ability to please at least some people, and as Michael Levin notes: “Dickens doesn’t mention Scrooge’s satisfied customers, but there must have been plenty of them for Scrooge to have gotten so rich.” But as he is a person with bad manners and a disagreeable personality, many have conflated Scrooge’s personality traits with his business practices, although the two are unrelated phenomena. As a miser and businessman, Scrooge provides numerous valuable services to the community including, as Walter Block has shown, driving down prices and making liquidity available to those who, unlike the wrongly maligned misers, have been either unwilling or unable to save in comparable amounts.

His business prowess notwithstanding, however, a closer look at Scrooge’s economics suggests some significant blind spots in several areas. Scrooge, as displayed in many of his comments and observations, misunderstands some key economics concepts. Indeed, Scrooge’s ignorance in these areas may contribute to his bad habit of assuming that others are taking advantage of him, or are too foolish or lazy to attain what Scrooge has. As Carl Menger demonstrated long ago, value is subjective and different persons value goods differently depending on the person’s goals in life. Does the person want to raise a family? Perhaps he wishes to be an independent scholar who devotes all his time to reading and research. Perhaps he wishes to be a hermit who prays most of the day. Money prices reflect these goals, and a hermit will value a video game console differently from a gamer. But of course not everything can be calculated in terms of money prices. A like or dislike of Christmas, for example, cannot be calculated this way.

Scrooge, who is apparently not a Christmas enthusiast, greatly values money, and likes to have plenty of it handy. But why? If we accept the analysis of Scrooge’s former fiancée, (a fairly reliable source on that period in his life) she suggests that Scrooge “fear[s] the world too much” and that all his other hopes “have merged into the hope of being beyond the chance of its sordid reproach.” So here we see the real root of Scrooge’s fondness of money. In Human Action, Ludwig von Mises explained that human action stems from a desire to “remove unease” about one’s present situation. With Scrooge we see (if his fiancée is to be believed) that the thought of being destitute is a source of constant unease for him. Thus, he desires to build as much wealth as possible in the hope of being beyond the possibility of poverty.

As Scrooge’s primary goals is poverty avoidance, this colors how he views all economic action. His peers tend to not recognize this in him, either dismissing his as simply “odious,” as Mrs. Cratchit does, or as unhappy. In fact, as Levin demonstrates, Scrooge appears rather content with his situation at this point, although, unfortunately — just as Scrooge’s colleagues and family members do not appreciate his ranking of values — Scrooge does not seem to appreciate that others might value money for different reasons. This is demonstrated in an early exchange with Scrooge’s nephew. When wished a merry Christmas by his nephew Fred, Scrooge retorts “What right have you to be merry? What reason have you to be merry? You’re poor enough.” To this Fred replies, “What right have you to be dismal? What reason have you to be morose? You’re rich enough.”

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“.. political and business interests responded to the peak by redefining what counts as crude oil, pouring just about any flammable liquid they could find into the world’s fuel tank ..”

Waiting for the Sunrise (John Michael Greer)

… the coming of 2015 marks a full decade since production of conventional petroleum worldwide hit its all-time peak and began to decline. Those who were around in the early days of the peak oil scene, as I was, will doubtless recall how often and eagerly the more optimistic members of that scene insisted that once the peak arrived, political and business interests everywhere would be forced to come to terms with the end of the age of cheap abundant energy. Once that harsh but necessary awakening took place, they argued, the transition to sustainable societies capable of living within the Earth’s annual budget of sunlight would finally get under way.

Of course that’s not what happened. Instead, political and business interests responded to the peak by redefining what counts as crude oil, pouring just about any flammable liquid they could find into the world’s fuel tank—ethanol, vegetable oil, natural gas liquids, “dilbit” (diluted bitumen) from tar sands, you name it—while scraping the bottom of the barrel for petroleum via hydrofracturing, ultradeep offshore wells, and other extreme extraction methods. All of those require much higher inputs of fossil fuel energy per barrel produced than conventional crude does, so that a growing fraction of the world’s fossil fuel supply has had to be burned just to produce more fossil fuel. Did any whisper of this far from minor difficulty find its way into the cheery charts of “all liquids” and the extravagantly rose-colored projections of future production?

Did, for example, any of the official agencies tasked with tracking fossil fuel production consider subtracting an estimate for barrels of oil equivalent used in extraction from the production figures, so that we would have at least a rough idea of the world’s net petroleum production? Surely you jest. The need to redirect an appreciable fraction of the world’s fossil fuel supply into fossil fuel production, in turn, had significant economic costs. Those were shown by the simultaneous presence of prolonged economic dysfunction and sky-high oil prices: a combination, please note, that last appeared during the energy crises of the 1970s, and should have served as a warning sign that something similar was afoot. Instead of paying attention, political and business interests around the world treated the abrupt fraying of the economy as a puzzling anomaly to be drowned in a vat of cheap credit—when, that is, they didn’t treat it as a public relations problem that could be solved by proclaiming a recovery that didn’t happen to exist.

Economic imbalances accordingly spun out of control; paper wealth flowed away from those who actually produce goods and service into the hands of those who manipulate fiscal abstractions; the global economy was whipsawed by convulsive fiscal crisis in 2009 and 2009, and shows every sign of plunging into a comparable round of turmoil right now.

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Another story on the theme, after yesterday’s long one.

World War I’s Christmas Truce, 100 Years Ago (Klein)

Five months into World War I, the Christmas spirit took hold in the most unlikely of places—the bloody Western Front. In a series of spontaneous ceasefires, soldiers laid down their arms to sing carols, exchange gifts and even play soccer with the enemy. On the centennial of the Christmas Truce of 1914, look back at the sudden outbreak of peace that brought a brief moment of cheer to a grim war. Charles Brewer never expected to be spending Christmas Eve nearly knee-deep in the mud of northern France. Stationed on the front lines, the 19-year-old British lieutenant with the Bedfordshire Regiment of the 2nd Battalion shivered in a trench with his fellow soldiers. After Great Britain entered World War I in August 1914, many of them had expected that they would make quick work of the enemy and be home in time for Christmas.

Nearly five months and 1 million lives later, however, the Great War had bogged down in intractable trench warfare with no end in sight. Although disappointed to be far from home on Christmas Eve, Brewer at least took solace in the fact that the perpetual rain, which made moving through the trenches as much of a slog as the war itself, had finally abated on the moonlit night. All was jarringly quiet on the Western Front when a British sentry suddenly spied a glistening light on the German parapet, less than 100 yards away. Warned that it might be a trap, Brewer slowly raised his head over the soaked sandbags protecting his position and through the maze of barbed wire saw a sparkling Christmas tree.

As the lieutenant gazed down the line of the German trenches, a whole string of small conifers glimmered like beads on a necklace. Brewer then noticed the rising of a faint sound that he had never before heard on the battlefield – a Christmas carol. The German words to “Stille Nacht” were not familiar, but the tune—“Silent Night”—certainly was. When the German soldiers finished singing, their foes broke out in cheers. Used to returning fire, the British now replied in song with the English version of the carol.

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Better be careful.

CDC Reports Potential Ebola Exposure In Atlanta Lab (WaPo)

Researchers studying Ebola in a highly secure laboratory mistakenly allowed potentially lethal samples of the virus to be handled in a much less secure laboratory at the Centers for Disease Control and Prevention in Atlanta, agency officials said Wednesday. One technician in the second laboratory may have been exposed to the virus and about a dozen other people have been assessed after entering the facility unaware that potentially hazardous samples of Ebola had been handled there. The technician has no symptoms of illness and is being monitored for 21 days. Agency officials said it is unlikely that any of the others who entered the lab face potential exposure. Some entered the lab after it had been decontaminated.

Officials said there is no possible exposure outside the secure laboratory at CDC and no exposure or risk to the public. “At this time, we know of only the one potential exposure,” CDC Director Tom Frieden said in a telephone interview. The mistake took place Monday afternoon. It was discovered by laboratory scientists Tuesday and within an hour reported to agency leaders. The error, which is under internal investigation, was reported to Secretary of Health and Human Services Sylvia Mathews Burwell and to a program that has oversight over pathogens such as Ebola and anthrax.

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Nothing has been solved.

Sierra Leone Declares Three-Day Lockdown In North To Contain Ebola (BBC)

Sierra Leone has declared lockdown of at least three days in the north of the country to try to contain the Ebola epidemic. Shops, markets and non-Ebola related travel services will be shut down, officials said. Sierra Leone has already banned many public Christmas celebrations. More than 7,500 people have died from the outbreak in West Africa so far, the Word Health Organization (WHO) says, with Sierra Leone the worst hit. Sierra Leone has the highest number of Ebola cases in West Africa, with more than 9,000 cases and more than 2,400 deaths since the start of the outbreak. The other countries at the centre of the outbreak are Liberia and Guinea.

Alie Kamara, resident minister for the Northern Region, told AFP news agency that most public gatherings would be cancelled. “Muslims and Christians are not allowed to hold services in mosques and churches throughout the lockdown except for Christians on Christmas Day”, he said. No unauthorised vehicles would be allowed to operate “except those officially assigned to Ebola-related assignments” he added. The lockdown would operate for at least three days but this could be extended if deemed necessary, officials said. Sierra Leone has been in a state of emergency since July. The outbreak began a year ago in the West African country of Guinea, but only gained international attention in early 2014.

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Dec 102014
 
 December 10, 2014  Posted by at 12:36 pm Finance Tagged with: , , , , , , , , , , ,  4 Responses »


Marjory Collins “Crowds at Pennsylvania Station, New York” Aug 1942

China Inflation Eases To Five-Year Low (BBC)
Popping The Chinese Stock Market Mania (Zero Hedge)
Easy Credit Feeds Risky Margin Trades In Chinese Stocks (Reuters)
Why Beijing’s Troubles Could Get a Lot Worse (Barron’s)
OPEC Says 2015 Demand for Its Crude Will Be Weakest in 12 Years (Bloomberg)
Don’t Look For Oil Glut To End Any Time Soon (CNBC)
Oil Resumes Drop as Iran Sees $40 If There’s OPEC Discord (Bloomberg)
“Yes, it Was a Brutal Week for the Oil & Gas Loan Sector” (WolfStreet)
US Shale Contractors To See Net Income Cut By 25% In 2015 (Bloomberg)
This Time Is The Same: The Fed Ignores The Shale Bubble (David Stockman)
Thanksgiving Weekend Box Office Plunges 20% vs 2013 To 16-Year Low (Alhambra)
Greece Lurches Back Into Crisis Mode (Bloomberg)
Japan Threatened With Credit Rating Downgrade (CNBC)
Citigroup Sets Aside $2.7 Billion For Legal Costs (BBC)
This Is What 6 Years Of Central Bank Liquidity Injections Look Like (Zero Hedge)
Big US Banks Face Capital Requirement of 4.5% on Top of Global Minimum (BBG)
Stop Believing The Lies: America Tortured More Than ‘Some Folks’ (Guardian)
Defeat is Victory (Dmitry Orlov)
Rising Inequality ‘Significantly’ Curbs Growth (CNBC)
TTIP Divides A Continent As EU Negotiators Cross The Atlantic (Guardian)
Ebola Virus Still ‘Running Ahead Of Us’, Says WHO (BBC)

The economy allgedly grows at 7%, and official inflation is 1.4%?

China Inflation Eases To Five-Year Low (BBC)

Inflation in China eased to a five-year low in November, suggesting continued weakness in the Asian economic giant. The inflation rate fell to 1.4% in November from 1.6% in October, which is the lowest since November 2009. The reading was also below market expectations of a 1.6% rise. Producer prices, which have been entrenched in deflation, also fell more than forecast, down 2.7% from a year ago – marking a 33rd consecutive monthly decline. Economists had predicted a fall of 2.4% after drop of 2.2% in the previous month as a cooling property market led to slowing demand for industrial goods. The figures are the latest in a string of government data that showed a deeper-than-expected slowdown in the Chinese economy.

Dariusz Kowalczyk, an economist at Credit Agricole, said the data partly reflected low commodity and food prices but also confirmed softness in domestic demand. “It will likely convince policymakers to ease their policy stance further and we continue to expect a RRR (bank reserve requirement ratio) cut in the near term, most likely this month,” he told Reuters. Last month, the country’s central bank unexpectedly cut interest rates for the first time in more than two years to spur activity. In reaction to the data, Chinese shares continued their downward trend after the Shanghai Composite fell more than 5% on Tuesday.

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“On both prior occasions of such a maniacal surge in speculative accounts, the Shanghai Composite made a significant top and fell dramatically in the ensuing months.”

Popping The Chinese Stock Market Mania (Zero Hedge)

If you are wondering what triggered the PBOC to pull the punchbowl of leveraged collateral away from the ‘wealth-creating’ stock market exuberance in China… wonder no more. The last 2 weeks saw the biggest surge in new Chinese brokerage accounts ever, with this week alone the highest since October 2010 and January 2008 with a stunning 228,000 new accounts opened. On both prior occasions of such a maniacal surge in speculative accounts, the Shanghai Composite made a significant top and fell dramatically in the ensuing months.

How oddly dis-similar the PBOC is to the Fed!! Instead of encouraging open leveraged speculation, the central bank of China appears more risk averse, recognizing the potential medium-term disastrous consequences from such boom-bust moves (and likely has no cheer-leading CNBC channel to take care of).

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Oh boy: “Some might already be regretting taking those risks [..] Especially those who might have pledged their property to get in on the rally and offset the slide in house prices.”

Easy Credit Feeds Risky Margin Trades In Chinese Stocks (Reuters)

“High leverage, low thresholds!” the website says. “(China’s) A shares are heating up; if you don’t allocate capital now, then when?” Many, it appears, are choosing now, gorging on cheap credit to ride a wild stock market rally. The website, Jinfuzi.com, will let investors borrow up to 10 times their principal with only 2,000 yuan ($323) down in order to buy stocks and futures. The peer-to-peer lender has an easy sell; Chinese benchmark indexes have posted record-smashing trading volumes in recent weeks, with average share values up over 30% in just 12 trading days. Ordinary investors, who conduct 60-80% of China’s stock trades, charged into the market after a surprise interest rate cut by Beijing on Nov. 21, and brokerages and shadow bankers have rushed in to help them trade on margin – essentially borrowed money.

“Margin trading has clearly played a big role in the recent rally, and government is worried,” wrote Oliver Barron of NSBO in a research note on Tuesday, estimating that gross margin trading purchases accounted for 164 billion yuan ($26.5 billion) on Monday, the equivalent of 17% of total turnover on Chinese bourses. There has been a steady relaxation of restrictions on margin trading in the last two years, and while in good times it allows investors to make a lot of money with only a small amount of their own cash, it also carries big risks when the market falls.

Some might already be regretting taking those risks after the Shanghai Composite Index lost over 5% on Tuesday, its largest single-day drop in five years. Especially those who might have pledged their property to get in on the rally and offset the slide in house prices. “We provide our customers with service to borrow money with their property as collateral,” said Mr. Yu, president of Qianteng Asset Management Company in Hangzhou. “We have plenty of funds on hand, which makes it easy for our customers to get money ASAP once they sign the contract.”

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“In China, the Heisenberg uncertainty principle of physics holds sway, whereby the mere observation of economic numbers changes their behavior.”

Why Beijing’s Troubles Could Get a Lot Worse (Barron’s)

Few foreigners know China as intimately as Anne Stevenson-Yang does. She has spent the bulk of her professional life there since first arriving in 1985, working as a journalist, magazine publisher, and software executive, with stints in between heading up the U.S. Information Technology office and the China operations of the U.S.-China Business Council. She’s now research director of J Capital, an outfit that works for foreign investors in China doing fundamental research on local companies and tracking macroeconomic developments.

Barron’s: Investors seem far more concerned about Europe’s sinking into economic despond than slowing growth in China. Are they whistling past the graveyard?

Stevenson-Yang: I think so. China, for all its talk about economic reform, is in big trouble. The old model of relying on export growth and heavy investment to power the economy isn’t working anymore. Sure, the nation has been hugely successful over recent decades in providing its people with literacy, a decent life, basic health care, shelter, and safe cities. But starting in 2008, China sought to counter global recession with huge amounts of ill-advised investment in redundant industrial capacity and vanity infrastructure projects—you know, airports with no commercial flights, highways to nowhere, and stadiums with no teams. The country is now submerged by the tsunami of bad debt that begets further unhealthy credit growth to service this debt. The recent lowering of benchmark deposit rates by the People’s Bank of China won’t accomplish much because it won’t offer more income to households. It also gave China’s biggest banks the discretion to raise their deposit rates back up to old levels, which would give them a competitive advantage

Barron’s: How bad can the situation be when the Chinese economy grew by 7.3% in the latest quarter?

Stevenson-Yang: People are crazy if they believe any government statistics, which, of course, are largely fabricated. In China, the Heisenberg uncertainty principle of physics holds sway, whereby the mere observation of economic numbers changes their behavior. For a time we started to look at numbers like electric-power production and freight traffic to get a line on actual economic growth because no one believed the gross- domestic-product figures. It didn’t take long for Beijing to figure this out and start doctoring those numbers, too. I put much stock in estimates by various economists, including some at the Conference Board, that actual Chinese GDP is probably a third lower than is officially reported. And as for the recent International Monetary Fund report calling China the world’s biggest economy on a purchasing-power-parity basis, how silly was that? China is a cheap place to live if one is willing to eat rice, cabbage, and pork, but it’s expensive as all get out once you factor in the cost of decent housing, a car, and health care.

I’d be shocked if China is currently growing at a rate above, say, 4%, and any growth at all is coming from financial services, which ultimately depend on sustained growth in the rest of the economy. Think about it: Property sales are in decline, steel production is falling, commercial long-and short-haul vehicle sales are continuing to implode, and much of the growth in GDP is coming from huge rises in inventories across the economy. We track the 400 Chinese consumer companies listed on the Shanghai and Shenzhen stock markets, and in the third quarter, their gross revenues fell 4% from a year ago. This is hardly a vibrant economy.

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Demand is way down.

OPEC Says 2015 Demand for Its Crude Will Be Weakest in 12 Years (Bloomberg)

OPEC cut the forecast for how much crude oil it will need to provide in 2015 to the lowest in 12 years amid surging U.S. shale supplies and reduced estimates for global consumption. The Organization of Petroleum Exporting Countries lowered its projection for 2015 by about 300,000 barrels a day, to 28.9 million a day. That’s about 1.15 million a day less than the group’s 12 members pumped last month, and the 30-million barrel target they reaffirmed at a meeting in Vienna on Nov. 27. The impact of this year’s 40% price collapse on supply and demand remains unclear, OPEC said. “The downward revision reflects the upward adjustment of non-OPEC supply as well as the downward revision in global demand,” the group’s Vienna-based research department said in its monthly oil market report.

Brent crude futures collapsed to a five-year low of $65.29 a barrel in London yesterday amid speculation that OPEC’s decision to maintain output levels despite swelling North American supplies will intensify the glut in global oil markets. Demand for OPEC’s crude will slump to 28.92 million barrels a day next year, according to the report. That’s below the 28.93 million required in 2009, and the lowest since the 27.05 million a day level needed in 2003, the group’s data show. Output from the 12 members declined by 390,000 barrels a day in November to 30.05 million a day amid lower production in Libya, according to data from analysts and media organizations referred to in the report as ‘‘secondary sources.” Libyan output dropped last month by 248,300 barrels a day to 638,000 a day. Pumping at the Sharara oil field, the country’s biggest-producing asset, and the neighboring El Feel site, was halted after Sharara was seized by gunmen, according to the International Energy Agency.

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But OPEC will fight for market share, or rather its separate mebers will.

Don’t Look For Oil Glut To End Any Time Soon (CNBC)

The global oil glut is expected to get much bigger before it’s over, keeping pressure on oil prices well into next year. Companies like ConocoPhillips and Chevron are reducing spending on new projects, but the impact of already planned increases in U.S. production into the first half of the year is likely to keep the world well supplied before the flow of new supply starts to slow in the second half of the year. Besides shale production, U.S. Gulf of Mexico production is also expected to increase with new projects coming on line. Within a year, the projects will take U.S. Gulf production from 1.3 million barrels to roughly 1.6 million barrels a day. “It’s not like the supply reaction is instantaneous. It takes time to wind these things down,” said John Kilduff of Again Capital. “I wouldn’t expect a decrease in the rate of (production) growth until next year at the earliest.”

The U.S. Energy Information Administration on Tuesday cut its forecast for daily U.S. production by another 100,000 barrels, to 9.3 million. That follows a reduction in its forecast of 100,000 barrels per day last month. The U.S. produced 9.08 million barrels a day in the week of Nov. 28 and has been producing over 9 million barrels a day for the past month. The government’s forecast for 2015 is now below some private analysts’ assumptions that oil production can continue to grow at a higher rate of anywhere from 500,000 to more than 1 million barrels per day next year, depending on oil prices. The EIA on Monday issued a new report on U.S. oil production showing the increase in production in the three main shale plays—Bakken, Permian and Eagle Ford—is growing by more than 100,000 barrels a day in December over November, and is expected to increase at about the same rate in January.

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Discord is all that’s left at OPEC. Nobody can risk the initial losses of an output cut. And nobody trusts the others.

Oil Resumes Drop as Iran Sees $40 If There’s OPEC Discord (Bloomberg)

Brent resumed its decline as an Iranian official predicted a further slump in prices if solidarity among OPEC members falters. West Texas Intermediate in New York also erased yesterday’s gains. Futures slid as much as 1.6% in London after snapping a five-day losing streak. Crude could fall to as low as $40 a barrel amid a price war or if divisions emerge in OPEC, said an official at Iran’s oil ministry. The 12-member group, which supplies 40% of the world’s oil, may need to call an extraordinary meeting in the first quarter if the drop continues, according to Energy Aspects Ltd. Brent has collapsed 40% this year as OPEC agreed at a Nov. 27 gathering not to cut output to force a slowdown in U.S. production, which has risen to the highest level in three decades. Saudi Arabia and Iraq this month widened discounts on crude exports to their customers in Asia, bolstering speculation that group members are fighting for market share.

“With OPEC looking like a dysfunctional family, no pullback in U.S. production and a lack of geopolitical concerns, it’s all adding up to lower prices,” Michael McCarthy, a chief strategist at CMC Markets in Sydney, said by phone today. Brent for January settlement decreased as much as $1.06 to $65.78 a barrel on the London-based ICE Futures Europe exchange and was at $66.25 at 3:12 p.m. Singapore time. The contract climbed 65 cents to $66.84 yesterday. The European benchmark crude traded at a premium of $3.12 to WTI. WTI for January delivery fell as much as $1, or 1.6%, to $62.82 a barrel in electronic trading on the New York Mercantile Exchange. It increased 77 cents to $63.82 yesterday. The volume of all futures traded was about 2% below the 100-day average.

Oil’s collapse has left the market below equilibrium, according to Mohammad Sadegh Memarian, the head of petroleum market analysis at the oil ministry in Tehran. Iran, hobbled by economic sanctions over its nuclear program, wants to raise production to 4.8 million barrels a day once the curbs are removed, he said at a conference in Dubai yesterday. OPEC pumped 30.56 million barrels a day in November, exceeding its collective target of 30 million for a sixth straight month, a Bloomberg survey of companies, producers and analysts showed. Financially strapped members such as Iran, Iraq and Venezuela may press for discussions before the group’s next scheduled meeting on June 5, predicted Amrita Sen, the chief oil market analyst at Energy Aspects.

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And more’s to come.

“Yes, it Was a Brutal Week for the Oil & Gas Loan Sector” (WolfStreet)

Yesterday, I discussed how the plunging price of oil is wreaking havoc on leveraged loans in the energy sector. These loans are issued by junk-rated corporations already burdened by a large amount of debt. Banks that originate these loans can retain them on their balance sheets or sell them in various creative ways, including by repackaging them into synthetic structured securities, called Collateralized Loan Obligations. Earlier today, I discussed how the current generation of leveraged loans in general compares to the leveraged loans issued at the cusp of the Financial Crisis. Spoiler alert: by almost every metric, they’re bigger and crappier now than they were in 2007.

So here’s a chart of S&P Capital IQ’s energy-sector leveraged-loan index for the latest week, and it was such a doozie that it caused leveraged-loan focused LCD News, a unit of S&P Capital IQ, to tweet: “Yes, it Was a Brutal Week for the Oil & Gas Loan Sector.” The average bid price of first-lien oil & gas Index loans fell to 90.35 cents on the dollar for the week, from 94.90 at the November 28 close and down from 96.77 at the end of October, S&P Capital IQ’s LeveragedLoan.com reported. And yields soared: the spread to maturity implied by the average bid jumped from Libor plus 500 basis points in August to Libor plus 600 basis points at the end of November, to Libor plus 731 basis points at the end of the latest week. The US dollar Libor rate is about 0.1%, so yields jumped from 5.1% in August to 7.4% in the latest week. An exponential increase:

Note how offshore drillers (blue line) got hammered the most, though they had the lowest yields of the bunch for most of the year. Their spreads nearly doubled from 400 basis points over Libor in March to nearly 800 basis points over Libor last week. That’s a move from about 4% in March to nearly 8% now, and a big part of it within a single month. It’s really brutal out there. In the oil and gas sector, revenues are already plunging. Earnings will get hit. Earnings estimates are crashing at a rate not seen since crisis year 2009. Liquidity is drying up. And stocks got eviscerated. It’s tough out there.

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And that’s just for the four biggest ones.

US Shale Contractors To See Net Income Cut By 25% In 2015 (Bloomberg)

Oilfield contractors hired to drill wells and fracture rock to raise crude and natural gas to the surface will have to lower prices by as much as 20% to help keep their cash-strapped customers working. Ultimately, that could carve out more than $3 billion from the 2015 earnings outlined by analysts for the world’s four biggest oil-service companies – Schlumberger, Halliburton, Baker Hughes and Weatherford International. The potential losses loom just as the service providers were looking ahead to higher rates after a glut in pressure-pumping gear dragged prices down in past years. Now, crude oil prices that have fallen more than 40% since June are squeezing them once again. As they look for ways to cut costs, oil producers will be pushing for discounts wherever they can find them.

“They’re already going to confront significant cash-flow pressures with the decline in oil prices,” Bill Herbert, an analyst at Simmons in Houston, said in a phone interview. “They’re going to need all the help they can get.” The price cuts may begin to take shape as early as this month, Herbert said. Hydraulic fracturing, in which high-pressure streams of water, sand and chemicals are used to crack rock underground to allow oil and gas to flow, may see the biggest chunk of pricing discounts because it’s the largest part of the cost of drilling a new well. Earnings estimates for service companies that have been cut since last week will continue to be revised lower as analysts don’t usually reduce their forecasts in one go when the outlook for an industry worsens, James Wicklund, an analyst at Credit Suisse in Dallas, said by phone. “We’ve just gotten started.”

Lower prices and lost business will probably reduce about $14.5 billion of net income estimated for the big four service companies in 2015 by as much as 25%, or about $3.6 billion, Wicklund said. Jeff Tillery, an analyst at Tudor Pickering Holt & Co. predicts roughly the same. After two years of declining service prices, providers were finally able to stop the slide this year and start pushing rates back up to help compensate for their own rising costs for fracking materials such as sand. Dave Lesar, chief executive officer of Halliburton, the top provider of fracking work, declared less than two months ago that better days were ahead. “This quarter things are clearly accelerating out of that turn and we do not see momentum slowing any time soon,” Lesar told analysts and investors Oct. 20 on a conference call.

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The Fed has helped blow the bubble.

This Time Is The Same: The Fed Ignores The Shale Bubble (David Stockman)

We are now far advanced into the third central bank generated bubble of the last two decades, but our monetary politburo has taken no notice whatsoever of its self-evident leading wave. Namely, the massive malinvestments and debt mania in the shale patch. Call them monetary bourbons. It is no exaggeration to say that inhabitants of the Eccles Building deserve every single word of Talleyrand’s famous epithet: “They learned nothing and forgot nothing.” To wit, during the last cycle they claimed to be fostering the Great Moderation and permanent full employment prosperity. It didn’t work. When the housing and credit bubble blew-up, it washed out all the phony gains from the Greenspan/Bernanke printing spree. By the time the liquidation was finished in early 2010, there were 2 million fewer payroll jobs than there had been at the turn of the century.

Never mind. The Fed simply doubled-down. Instead of expanding its balance sheet by 50%, as happened during the eight years between 2000 and 2008, it went into monetary warp drive, ballooning its made-from-thin-air liabilities by 5X in only six years. Yet even after Friday’s ballyhooed jobs report there were three million fewer full-time breadwinner jobs in November 2014 than there were in the early 2000s. That’s right. Two cycles of lunatic monetary expansion and what they have to show for it is two short-lived bursts of part-time job creation that vanish when the underlying financial bubble bursts. So, yes, our monetary central planners forget nothing. It doesn’t matter what the actual results have been.

Like the original Bourbons, the small posse of unelected academics and policy apparatchiks which control the nation’s all-powerful central bank most surely believe they have a divine right to run the printing presses as they see fit—even if it accomplishes nothing for the 99% of Americans who don’t have family offices or tickets to the hedge fund casino. Still, you would think that the purported “labor economist” who is now chair person of the joint would be at least troubled by the chart below. Even liberals like Yellen usually do acknowledge that that the chief virtue of the state is that it purportedly generates “public goods” that contribute to societal welfare—-not that it is a fount of productivity and new wealth generation. For that you need private enterprise and business driven efficiency.

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20% is a big number.

Thanksgiving Weekend Box Office Plunges 20% vs 2013 To 16-Year Low (Alhambra)

The recession-like “stimulus” of recent vintage doesn’t seem to have affected the movie business. The Thanksgiving weekend is typically devoid of tremendous or blockbuster new titles for obvious reasons. However, just like people failed to show up at the mall they also skipped the theater. As I have noted before, this is not because movies are mostly narrowly-tailored junk, as they are, but that 2014 has seen a conspicuous drop in theater revenue despite offering largely the same junk as last year. The weekend following Thanksgiving 2014 was 20% below 2013. But we also have an almost direct comparison of “blockbuster” activity as the second installment of the Hunger Games is nearly 25% behind the first in the same number of days. Having taken in about $257 million (which is still quite good) in 17 days, the first version grabbed $335 million in the same timeframe.

Revenue over the summer was already 15% below 2013 despite having about the same number of “can’t miss” titles. Every single one underperformed every expectation. The “mystery” persists as the only plausible explanation offered is that people are staying home and watching Netflix or Amazon Prime. I think that is a big part of it, but, just as online shopping takes the bite out of holiday spending in-store, that isn’t enough for me to explain the size of these declines. Both movie revenue and bricks and mortar shopping are so far far below all expectations, as especially online spending has failed tremendously to fill the gap this year.

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Where else could it have gone?

Greece Lurches Back Into Crisis Mode (Bloomberg)

Greek stocks fell more than at any point during Europe’s debt crisis today after Prime Minister Antonis Samaras gambled his political future on bringing forward a parliamentary vote on a new head of state. Greek stocks tumbled the most since 1987 and three-year yields surged in response to the prime minister’s move. Unless he can persuade 25 opposition lawmakers to support his choice, Samaras will be forced to call a parliamentary election that anti-austerity party Syriza would be favorite to win. “Investors have taken a second look at Syriza and understood that at this point in time it’s more radical than the traditional left in Greece,” said Nicholas Veron, a fellow at the Bruegel research institute in Brussels. “If Syriza takes over it won’t be a smooth ride.”

Less than a month before Samaras had hoped to lead Greece out of the bailout program that has ravaged the country for the past four years, the resistance to his policies is fueling doubts about whether he can stay the course. While Syriza has pledged to stick with the euro, its plans to roll-back Samaras’s budget cuts evoke memories of the financial chaos that threatened to bust apart the currency union in 2012. Greece’s benchmark stock index dropped 13% and the bond market signaled investors are concerned about short-term disruptions, as the yield on 3-year debt jumped 176 basis points to 8.23%, surpassing 10-year rates. “It’s possibly a good decision, but in the end it’s in the hands of the decision makers in parliament and the population,” German Finance Minister Wolfgang Schaeuble told reporters in Brussels.

Greece’s reform program is “not yet over the hill,” he added. Samaras nominated Stavros Dimas, a 73-year-old former European Union commissioner, for the largely ceremonial post of president. Voting will begin next week, on Dec. 17, with two further rounds possible. Under Greece’s constitution, a supermajority of at least 180 lawmakers in the 300-seat chamber is needed to elect a successor to the incumbent, President Karolos Papoulias. The government has the support of just 155 lawmakers. Failure to install a candidate after three attempts would force Samaras to dissolve parliament.

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Tha Japan elections are a big story this week.

Japan Threatened With Credit Rating Downgrade (CNBC)

Japan’s “A-plus” credit rating is under threat, after Fitch Ratings placed the country’s debt on negative watch on Tuesday. The ratings agency said it could cut Japan’s rating in the first half of next year, following the government’s decision to delay a consumption tax hike to April 2017 from October 2015. “The delay implies it will be almost impossible to achieve the government’s previously-stated objective of reducing the primary budget deficit to 3.3% of GDP by the fiscal year April 2015-March 2016,” said Fitch in a report on Tuesday. Fitch estimates the proportion of Japan’s debt to the size of its gross domestic product would reach 241% by the end of this year, up from 184% at end-2008. The 57 percentage point rise in the ratio would be the second-highest over the period in the A or double-A category after Ireland, the agency noted.

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If you can say a bank belongs to its shareholders, it’s teh latter who pay for the criminal activities of the traders and managers. And nowhere in there does the Justice department see a taks?

Citigroup Sets Aside $2.7 Billion For Legal Costs (BBC)

Michael Corbat, the chief executive of US bank Citigroup, has said the firm is setting aside $2.7bn (£1.7bn) for legal costs in the fourth-quarter. Costs have risen due to US investigations into Citigroup’s behaviour in currency markets, setting the Libor rate, as well as an anti-money-laundering probe. In October, the bank was forced to restate its third-quarter results. It wrote off $600m due to the “rapidly evolving regulatory inquiries”. Mr Corbat made the remarks during a presentation at an investor conference, in which he also said that bank would write down $800m in expenses related to real estate and employee headcount. He said he expects the bank to remain “marginally profitable” during the period. Shares in Citigroup fell 2.5% after his remarks.

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Lovely. And that’s without counting China.

This Is What 6 Years Of Central Bank Liquidity Injections Look Like (Zero Hedge)

Curious how over the past 6 years we got to a point where the market is now so irreparably broken, even the BIS couldn’t take it anymore and threw up all over the the world’s central bankers? Then look no further than the following chart summarizing 6 years of global central bank liquidity injections that have made it imperative to use quotation marks every time one writes the word “market”

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They’re still TBTF, so what does it matter?

Big US Banks Face Capital Requirement of 4.5% on Top of Global Minimum (BBG)

Big U.S. banks face capital surcharges of as much as 4.5% as the Federal Reserve readies new capital rules that single out firms reliant on short-term market funding as posing the greatest systemic risk. The Fed today proposed two methods to calculate what capital surcharges eight big U.S. firms will face on top of those already levied on the world’s largest banks by international regulators. While the central bank stopped short of listing the surcharges for each firm, it said they probably will range from 1% to 4.5% based on 2013 data – exceeding the maximum of 2.5% set under global rules. The aggregate amount the eight banks need to meet the surcharges from current levels is $21 billion, Federal Reserve officials said.

While stiffer rules can lower returns for shareholders of companies that hold onto profits to build capital, the Fed said “almost all” of the firms already meet the new requirements, and all are on their way to meeting them by the end of a phase-in period that runs from 2016 to 2019. The new U.S. regulations will focus in part on how much the banks borrow from institutional investors in short-term contracts, a form of funding deemed as riskier during a crisis. “Reliance on short-term wholesale funding is among the more important determinants of the potential impact of the distress or failure of a systemically important financial firm on the broader financial system,” Fed Governor Daniel Tarullo said. “Unfortunately, the surcharge formula developed by the Basel Committee does not directly take into account reliance on short-term wholesale funding.”

In the wave of rules meant to prevent a repeat of the 2008 financial crisis, the Fed has made global agreements tougher when applying them to U.S. lenders. The eight U.S. firms covered by today’s proposal are JPMorgan, Citigroup, Bank of America, Goldman Sachs, Morgan Stanley, Wells Fargo, Bank of New York Mellon and State Street. “The U.S. once again chooses to go its own way and exceed international minimums,” Karen Shaw Petrou, managing partner of Washington-based research firm Federal Financial Analytics Inc., said before today’s announcement. “If they squeeze the big banks too much, they’ll force some out of some businesses.”

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America will pay a dear price for these crimes.

Stop Believing The Lies: America Tortured More Than ‘Some Folks’ (Guardian)

The torture defenders from the CIA and the Bush administration probably won’t even make a serious attempt to say they didn’t torture anyone – just that it was effective, that there were “serious mistakes”, but that “countless lives have been saved and our Homeland is more secure” – with a capital H. This highlights the mistake of the Senate committee, in a way. Instead of focusing on the illegal nature of the torture, Senator Dianne Feinstein’s investigators worked to document torture’s ineffectiveness. The debate, now, is whether torture worked. It clearly didn’t. But the debate should be: Why the hell aren’t these torturous liars in jail?

Worse still, the CIA has still largely succeeded in stripping the landmark report of anything that could lead to accountability. The agents who were not only protected from discipline for their actions but were promoted now have their names completely redacted. So, too, are the names of the dozens of countries that helped the CIA carry out its torture regime. That includes many of the world’s worst dictators – the very men America now claims to hate, including Egypt’s Hosni Mubarak, Syria’s Bashar al-Assad, and Libya’s Muammar Gaddafi.

But make no mistake: there’s still an extraordinary amount to take away from this report. If there is one tragic story, out of the many, that is emblematic of the CIA program, as its supporters defend it in the days, it’s that of Gul Ruhman. It may be two stories – it’s hard to know, so much has been redacted and the atrocities are so countless – but at least one Gul Ruhman we know was tortured at the notorious CIA black site known as the Salt Pit, chained to the floor and frozen to death. The CIA’s inspector general referred this person’s case to CIA leadership for discipline, but was overruled. Four months after the incident, the officer who gave the order that led to Rahman’s death was recommended for a $2,500 “cash reward” for his “consistently superior work”.

Footnote 32 explains why a dead prisoner ended up in CIA custody in the first place: “Gul Ruhman, another case of mistaken identity.”

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“Ignorance is not just strength – it is the most awesome force in the universe. Consider this: knowledge is always limited and specific, but ignorance is infinite and completely general ..”

Defeat is Victory (Dmitry Orlov)

America is the world’s indispensable nation, world’s (second) greatest economic power (but rising fast), and American leadership is respected throughout the world. When President Obama said so in a recent speech he gave in China, the audience did not at all laugh out loud right in his face, roll their eyes, make faces or move their heads side to side slowly while frowning.

How can you avoid recognizing the importance of such things, and the fact that they spell DEFEAT? Easy! Ignorance to the rescue! Ignorance is not just strength – it is the most awesome force in the universe. Consider this: knowledge is always limited and specific, but ignorance is infinite and completely general; knowledge is hard to convey, and travels no faster than the speed of light, but ignorance is instantaneous at all points in the known and unknown universe, including alternate universes and dimensions of whose existence we are entirely ignorant. In short, there is a limit to how much you can know, but there is no limit at all to how much you don’t know but think you do!

Here is something that you probably think you know. The American empire is an “empire of chaos.” Yes, it sort of fails somehow to achieve peace, prosperity, democracy, stability, avert humanitarian crises, or stop lots of horrible crimes. But it does achieve chaos. What’s more, it achieves a wunnerful new type of chaos just invented, called “controlled chaos.” It’s much better than the old kind; sort of like “clean coal” – which you can rub all over yourself, go ahead, try it! Yes, there are naysayers out there that say things like “You reap what you sow, and if you sow chaos, you shall reap chaos.” I guess they just don’t like chaos. To each his own. Whatever.

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They have to do research to figure that out?!

Rising Inequality ‘Significantly’ Curbs Growth (CNBC)

The chasm between the richest and poorest is at a 30-year high in developed countries, dragging down world economic growth, according to a new international report. Worsening income inequality is estimated by the Organisation for Economic Co-operation and Development (OECD) to have knocked nearly 9 percentage points off growth in the U.K. between 1990 and 2010, and between 6 and 7 percentage points off growth in the U.S. “This long-term trend increase in income inequality has curbed economic growth significantly,” said the OECD, which is made up of 34 major economies, in a report out Tuesday.

Looking ahead, the organization forecast that over a 25 year period, inequality would reduce growth by an average of 0.35% points per year in OECD countries. “The biggest factor for the impact of inequality on growth is the gap between lower income households and the rest of the population,” said the OECD. “These findings imply that policy must not (just) be about tackling poverty, it also needs to be about addressing lower incomes more generally.” Worst hit between 1990 and 2010 were Mexico and New Zealand, where the OECD estimated that rising inequality had knocked more than 10 percentage points off growth. “On the other hand, greater equality prior to the crisis helped increase GDP per capita in Spain, France and Ireland,” said the OECD.

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We should never let this through. Once signed, it’ll be very hard to get rid off, and it benefits the wrong people.

TTIP Divides A Continent As EU Negotiators Cross The Atlantic (Guardian)

Rarely has a trade agreement invited such hyperbole and paranoia. The Transatlantic Trade and Investment Partnership (TTIP) – or proposed free trade pact between the US and the European Union – has triggered apocalyptic prophecies: the death of French culture; an invasion of transatlantic toxic chickens into Germany; and Britain’s cherished NHS will become a stripped-down Medicare clone. From the point of view of free-trade cheerleaders, EU carmakers will more than double their sales, Europe will be seized by a jobs and growth bonanza and city halls from Chicago to Seattle will beg European firms to build their roads and schools. The world’s biggest trading nations will have no choice but to play by the west’s rules in the new world created by TTIP. Such are some of the claims made for TTIP which is now stoking a propaganda war on a scale never seen before in the arcane world of tariffs and non-tariff trade negotiations.

“It’s the most contested acronym in Europe,” said Cecilia Malmström of Sweden, the EU trade commissioner about to take charge of the European side of the negotiations. She stepped into the fray on Sunday, her first trip to Washington since taking up her post in November. TTIP dominates her intray. Eighteen months after the launch and seven rounds of talks, everything remains up in the air. The Americans are worried. Those in Brussels running the negotiations sound crestfallen. The opposition in Europe to a transatlantic free trade area believes it has the momentum, buoyed by scare stories regularly amplified by the European media. A petition against the trade pact surpassed the 1m mark this week. It will be handed to Jean-Claude Juncker, the European commission chief, in Brussels on Tuesday, as a present on his 60th birthday. “There is mistrust,” Matthew Barzun, the US ambassador in London, told the Guardian. A key EU official put it another way: “[TTIP is] more sensitive politically in Europe than in the US.”

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“The risk to the world “is always there” while the outbreak continues ..”

Ebola Virus Still ‘Running Ahead Of Us’, Says WHO (BBC)

The Ebola virus that has killed thousands in West Africa is still “running ahead” of efforts to contain it, the head of the World Health Organization has said. Director general Margaret Chan said the situation had improved in some parts of the worst-affected countries, but she warned against complacency. The risk to the world “is always there” while the outbreak continues, she said. She said the WHO and the international community failed to act quickly enough. The death toll in Guinea, Liberia and Sierra Leone stands at 6,331. More than 17,800 people have been infected, according to the WHO. “In Liberia we are beginning to see some good progress, especially in Lofa county [close to where the outbreak first started] and the capital,” said Dr Chan.

Cases in Guinea and Sierra Leone were “less severe” than a couple of months ago, but she said “we are still seeing large numbers of cases”. Dr Chan said: “It’s not as bad as it was in September. But going forward we are now hunting the virus, chasing after the virus. Hopefully we can bring [the number of cases] down to zero.” The official figures do not show the entire picture of the outbreak. In August, the WHO said the numbers were “vastly under-estimated”, due to people not reporting illnesses and deaths from Ebola. Dr Chan said the quality of data had improved since then, but there was still further work to be done.

She said a key part of bringing the outbreak under control was ensuring communities understood Ebola. She said teams going into some areas were still being attacked by frightened communities. “When they see people in space suits coming into their village to take away their loved ones, they were very fearful. They hide their sick relatives at home, they hide dead bodies. “[This is] extremely dangerous in terms of spreading disease. So we must bring the community on our side to fight the Ebola outbreak. Community participation is a critical success factor for Ebola control. “In all the outbreaks that WHO were able to manage successfully – that was a success element and this [is] not happening in this current situation.”

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Dec 092014
 
 December 9, 2014  Posted by at 12:22 pm Finance Tagged with: , , , , , , , ,  2 Responses »


Martha McMillan Roberts Three sisters at Cherry Blossom Festival, Washington, DC” May 1941

Global Stocks Decline; Shanghai Slides 5% (CNBC)
China’s Stock Mania Decouples From Economic Reality (AEP)
Yuan Headed For Biggest Single-Day Loss Since 2008 (CNBC)
China Likely To Lower Growth Target To 7% For 2015 (MarketWatch)
A Universe Beneath Our Feet: 1 Million People Live Underground In Beijing (NPR)
Oil Drops as Deeper OPEC Discounts Signal Fight for Market Share (Bloomberg)
Oil To Stay At About $65 For Six Months, Kuwait Petroleum Says (Bloomberg)
Cheap Oil Also Means Cheap Copper, Corn And Sugar (Bloomberg)
Here Are 5 Global Problems Cheaper Oil May Fuel (MarketWatch)
A Global Map Of Oil Production Says A Lot About Oil’s Plunge (MarketWatch)
Will This Country Be The Next Oil Domino? (CNBC)
Someday, Draghi Will Thank Weidmann For Blocking QE (MarketWatch)
EU Draws Up $1.6 Trillion Wish List To Revive Economy (Reuters)
Strong Dollar May Have ‘Profound Impact’ On World Economy (MarketWatch)
World in a Box (John Rubino)
The Incredible Shrinking Incomes of Young Americans (Atlantic)
Q3 Buybacks Surge: See The Top 20 Repurchasers Of Their Own Stock (Zero Hedge)
Iceland Tests Hedge Funds as Showdown With Creditors Arrives (Bloomberg)
‘Madness Gene’ In All Of Us Wrecks The Economy, Destroys The Earth (Farrell)
Slain MassMutual Executive Held Wall Street “Trade Secrets” (Martens)
Sierra Leone Baffled As 3 Ebola Doctors Die In 3 Days (VoA)

“It’s not a stock market, it’s a casino.” But that’s not just true for China.

Global Stocks Decline; Shanghai Slides 5% (CNBC)

A continued fall in the price of oil and a rout in Chinese stocks weighed on investor sentiment on Tuesday, with global equities seeing heavy losses during the session. The German DAX, French CAC 40 and U.K.’s FTSE 100 all slipped over 1% at the open, with the pan-European Euro Stoxx 600 index down 1.24% in early trading. Meanwhile, Greek stocks slid 6%, with continued political jitters in the country adding to the declines. U.S. stock futures were also pointing lower, indicating triple-digit losses for the Dow Jones at around 8:00 a.m. GMT, before trimming losses as the European session gathered pace.

China was the main focus for investors as the country’s Shanghai Composite benchmark tumbled in the final hour of trade. It finished the session down 5.3% after rallying to a three-and-half-year high of 3,091 points earlier in the day. It marked its biggest one-day fall inpercentage terms since August 2009 “It’s not a stock market, it’s a casino,” Peter Elston, a global investment strategist at Seneca Investment Managers, told CNBC about the Chinese benchmark. “It’s always been the case – it’s an incredibly volatile market… it is all going to end in tears and it looks like that is starting to happen now.”

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Did Ambrose cause that Shanghai crash with this article last night?

China’s Stock Mania Decouples From Economic Reality (AEP)

China’s stock market boom has reached outright mania, with equities galloping higher at a parabolic rate, despite threats of a crackdown by regulators and the continued slowdown of the national economy. The Shanghai Composite Index has risen 32pc in the past six weeks, blowing through 3,000 to a three-and-a-half-year high even though corporate earnings are declining steeply. The China Securities Regulatory Commission said late last week that it would “increase market supervision, resolutely crack down and earnestly safeguard normal market order”. It warned that stock manipulators had been “raising their head” and would be dealt with. The cautionary words have been ignored by retail investors as they throng brokerage offices, lured by momentum trades. The government itself is partly responsible for letting the genie out by talking up “cheap stocks” in the official media two months ago, but now appears alarmed by what it has done.

Many families are taking out brokerage loans to buy stocks, increasing leverage and risk. Margin debt has risen to more than $130bn from nothing three years ago. This is now 1.2pc of GDP. “Turnover, leverage and account openings have all soared and there is a sense of mania taking hold,” said Mark Williams, from Capital Economics. The latest surge follows a shift by the Chinese authorities towards “targeted easing” in October, intended to stop the housing market crumbling after five months of falling prices. This was followed by a surprise cut in interest rates last month. But aspects of the equity surge are bizarre. Financial stocks have jumped most, yet the rate cut was negative for banks since it reduced their margins. Deflationary pressures are eroding wafer-thin profit margins. Chen Long, from Gavekal in Hong Kong, said the momentum on the Shanghai bourse has become unstoppable but is losing touch with economic fundamentals. “When the tide recedes, the backwash is likely to be vicious,” he said.

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China is as stimulus crazy and dependent as the rest.

Yuan Headed For Biggest Single-Day Loss Since 2008 (CNBC)

The Chinese yuan fell sharply against the U.S. dollar on Tuesday as tight onshore liquidity conditions fueled rising expectations of further monetary easing, according to analysts. The currency, which is still tightly controlled by the Chinese central bank, declined 0.5% to 6.203, putting it on track for its biggest single-day decline since 2008. “Despite the recent interest rate cut, domestic liquidity has tightened,” Nizam Idris, head of strategy, fixed income and currencies at Macquarie told CNBC, noting that short-term interest rates in China have risen sharply in recent days. The People’s Bank of China rate cut the 12-month benchmark lending rate by 0.40 percentage points to 5.6% on November 21.

This effectively reduced the cost of funds without increasing quantity of funds available, he said. As a result, the market is pricing in further monetary easing in the form of a reserve requirement ratio (RRR) cut, which could happen sometime this week, Idris said. The catalyst for the RRR reduction could be the consumer price inflation (CPI) data due out Wednesday. “If CPI again shows there are disinflationary pressures in the economy, this could strengthen the argument for easing,” Idris said. The consumer price index (CPI) rose 1.6% in October from the year-ago period, remaining at its slowest rate in five years. Idris says the yuan has declined at a much quicker pace than he initially anticipated. He expects the downtrend to continue, noting dollar-yuan could reach 6.25 over the next three months.

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Make that 4%. But that of course cannot be said out loud.

China Likely To Lower Growth Target To 7% For 2015 (MarketWatch)

As China’s top leadership convened Tuesday for the annual Central Economic Work Conference in Beijing, state media reported the government might cut 2015’s economic growth target to as low as 7%, down from the 2014 goal of “about 7.5%.” Lowering next year’s target is a “a high probability event,” and the most likely case is “to set a 7% target and realize a growth slightly higher than the target,” the state-run China News Service quoted Guan Qingyou, head of research at Minsheng Securities, as saying Tuesday. China’s economy is at a “gear-down” stage, and 7% growth is enough to create 10,000 new jobs, ensuring sufficient employment for the economy, the report quoted Niu Li, head of macroeconomic research at the government’s State Information Center policy think tank, as saying. Niu added that cutting the growth target can reduce the stress on local governments, allowing them to push ahead with reforms. China’s official growth target numbers usually aren’t publically announced until the national legislature convenes in the spring.

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What a world to live in.

A Universe Beneath Our Feet: 1 Million People Live Underground In Beijing (NPR)

In Beijing, even the tiniest apartment can cost a fortune — after all, with more than 21 million residents, space is limited and demand is high. But it is possible to find more affordable housing. You’ll just have to join an estimated 1 million of the city’s residents and look underground. Below the city’s bustling streets, bomb shelters and storage basements are turned into illegal — but affordable — apartments. Annette Kim, a professor at the University of Southern California who researches urbanization, spent last year in China’s capital city studying the underground housing market. “Part of why there’s so much underground space is because it’s the official building code to continue to build bomb shelters and basements,” Kim says. “That’s a lot of new, underground space that’s increasing in supply all the time. They’re everywhere.” She says apartments go one to three stories below ground. Residents have communal bathrooms and shared kitchens. The tiny, windowless rooms have just enough space to fit a bed.

“It’s tight,” Kim says. “But I also lived in Beijing for a year, and the city, in general, is tight.” With an average rent of $70 per month, she says, this is an affordable option for city-dwellers. But living underground is illegal, Kim says, since housing laws changed in 2010. And, in addition, there’s a stigma to living in basements and bomb shelters, as Kim found when she interviewed residents above ground about their neighbors directly below. “They weren’t sure who was down there,” Kim says. “There is actually very little contact between above ground and below ground, and so there’s this fear of security.” In reality, she says, the underground residents are mostly young migrants who moved from the countryside looking for work in Beijing. “They’re all the service people in the city,” she says. “They’re your waitresses, store clerks, interior designers, tech workers, who just can’t afford a place in the city.”

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“If you want to move product, you discount it ..”

Oil Drops as Deeper OPEC Discounts Signal Fight for Market Share (Bloomberg)

Brent and West Texas Intermediate fell to a five-year low as Iraq followed Saudi Arabia in cutting prices for crude sales to Asia, adding to signs that OPEC’s biggest members are defending market share. Futures dropped as much as 1.4% in London to the weakest intraday price since September 2009. Iraq, the second-largest producer in the Organization of Petroleum Exporting Countries, reduced its Basrah Light crude to the lowest in at least 11 years, a price list for January showed. Oil will remain at about $65 a barrel for half a year until OPEC’s output changes or demand expands, according to Kuwait Petroleum Corp. Crude is trading in a bear market as the highest U.S. production in three decades exacerbates a global glut. Saudi Arabia, which led OPEC’s decision to maintain rather than cut output at a Nov. 27 meeting, last week offered supplies to its Asian customers at the deepest discount in at least 14 years.

“If you want to move product, you discount it,” David Lennox, a resource analyst at Fat Prophets in Sydney, said by phone today. “That is going to continue. Until there are cuts to production, there could be more pain to come.” Brent for January settlement declined as much as 90 cents to $65.29 a barrel on the London-based ICE Futures Europe exchange and was at $65.74 at 4:12 p.m. Singapore time. It slid $2.88 to $66.19 yesterday, the lowest close since September 2009. The European benchmark crude traded at a premium of $2.89 to WTI. Prices are down 41% this year. WTI for January delivery decreased as much as 80 cents, or 1.3%, to $62.25 a barrel in electronic trading on the New York Mercantile Exchange. The contract lost $2.79 to $63.05 yesterday, the lowest since July 2009. Total volume was about 29% above the 100-day average.

Iraq’s Oil Marketing will sell Basrah Light to Asia at $4 a barrel below the average of Middle East benchmark Oman and Dubai grades, the steepest discount since August 2003 when Bloomberg started compiling the data. The company reduced prices to U.S. buyers by 30 cents and marked up shipments to Europe by 10 cents, the list obtained by Bloomberg News showed. Middle East producers including Iraq, Iran and Kuwait typically follow Saudi Arabia’s lead when setting crude export prices. The kingdom is the biggest member of OPEC, which supplies about 40% of the world’s crude.

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Gotta doubt that. Wishful thinking.

Oil To Stay At About $65 For Six Months, Kuwait Petroleum Says (Bloomberg)

Oil prices will stay at about $65 a barrel for at least half a year until OPEC changes its collective production or world economic growth revives, said the head of state-run Kuwait Petroleum Corp. Oil is trading in a bear market as the U.S. pumps at the fastest rate in more than three decades and demand expands more slowly. OPEC decided on Nov. 27 to maintain its output target, prompting a drop in European benchmark Brent crude to less than $70 a barrel for the first time since May 2010. “I think oil prices will stay around the current level of $65 for six or seven months until OPEC changes its production policy, or recovery in world economic growth become more clear, or a geopolitical tension arises,” Nizar Al-Adsani, KPC’s chief executive officer, said yesterday in Kuwait City.

Crude prices have declined about 40% from a June peak amid overproduction and sluggish growth in consumption. Saudi Arabia led OPEC’s decision to maintain rather than cut output last month in Vienna, citing the threat U.S. shale presents to the group’s market share, Iranian Oil Minister Bijan Namdar Zanganeh said on Nov. 28. Brent was 4 cents higher at $66.23 a barrel at 9:25 a.m. in London. Fellow OPEC member Iraq deepened the discount for its Basrah Light crude next month to customers in Asia to the greatest in at least 11 years, following Saudi Arabia’s lead as Middle Eastern producers seek to defend market share. Iraq set the discount at $4 a barrel below the average of Middle East benchmark Oman and Dubai grades, according to a statement yesterday from the country’s Oil Marketing Co.

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Everything in the world is grossly overvalued due to QE.

Cheap Oil Also Means Cheap Copper, Corn And Sugar (Bloomberg)

Lower fuel prices are compounding the longest commodity slump in a generation. Because energy accounts for as much as half the cost to produce food and metals, all sorts of commodities will keep dropping, according to SocGen and Citigroup. With inventories ample and slowing economies eroding demand, cheaper oil lowers the price floor for mining companies and farmers to remain profitable. Corn may drop another 3%, cotton 6.5% and gold as much as 5%, SocGen estimates. Costs are falling as surpluses emerge in copper and sugar and as the economy slows in China, the top consumer of energy, metals, pork and soybeans. The Bloomberg Commodity Index of 22 items is heading for a fourth straight annual drop, the longest slump since its inception in 1991. Brent crude, gasoline and heating oil are the biggest losers as an increase in U.S. drilling led to a price war with producers in OPEC.

“There’s been a structural change in oil, and there’s more to come,” said Michael Haigh, the head of commodities research at SocGen. “This will also ripple through other commodity markets, in some cases directly, and others indirectly.” Brent crude, the international benchmark, has tumbled 42% since the end of June to $65.51 a barrel as U.S. output jumped to a three-decade high. The price today touched $65.33, the lowest since September 2009. The Bloomberg Commodity Index fell 12% this year. The MSCI All-Country World Index of equities gained 3.1%, while the Bloomberg Dollar Spot Index climbed 9.8%. Falling oil prices will be a boon to consumers who can expect to pay less for food, Citigroup’s Aakash Doshi said in Dec. 3 report. About 45% of the operating expenses of growing and harvesting rice comes from inputs such as fuels, lubricants, electricity and fertilizer, according to a U.S. Energy Information Administration analysis of U.S. Department of Agriculture data. Energy accounts for about 54% of costs of corn and wheat.

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“Fragile governments will face a lot more stress.”

Here Are 5 Global Problems Cheaper Oil May Fuel (MarketWatch)

The abrupt slide in oil prices being celebrated by American consumers is a two-edged sword that could complicate U.S. geopolitical relations everywhere from Baghdad to Caracas, industry analysts say. The price slide gained speed last month as OPEC, led by Saudi Arabia, decided not to cut production. Check out our global map of oil production. MarketWatch spoke with researchers and experts across the country to get a sense of how cheaper oil will play out in a variety of locations. Here are five themes that emerged:

1. Fragile governments will face a lot more stress: Large portions of Iraq and Syria are now under the control of the militant Islamic group alternately known as the Islamic State, or the Islamic State of Iraq and Syria (ISIS). Before the U.S. bombing campaign began, the group was making as much as $1 million a day smuggling oil to users in Syria and Turkey, according to Treasury Department estimates in late October. However the ability of the U.S. to cut off all the oil is limited because it won’t bomb the actual oil wells, and the refining of the oil is done in simple backyard facilities, according to Joshua Landis, Director of the Center for Middle East studies at the University of Oklahoma. [..]

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Nice map.

A Global Map Of Oil Production Says A Lot About Oil’s Plunge (MarketWatch)

Global oil production is concentrated among a handful of giant producer countries and about a dozen more which produce more than 1 million barrels a day, according to the U.S. Energy Information Administration. For 2013, the U.S. averaged 7.45 million barrels per day of crude oil production, third behind Russia and Saudi Arabia. However, U.S. production has been surging thanks to fracking technologies that free up oil trapped in shale formations. Total U.S. crude oil production averaged 8.9 million barrels per day in October, according to the EIA and is expected to top 9 million barrels a day in December. For 2015, the EIA expects U.S. crude oil production to average 9.4 million barrels a day. That would be the highest annual average crude oil production since before the first OPEC oil embargo in 1973.

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Strange question. Who was first?

Will This Country Be The Next Oil Domino? (CNBC)

Nigeria started 2014 as a darling of investors seeking opportunities in ever more far-flung frontiers, but now the African economy could take a body blow from the oil price decline. “In a country plagued by deep regional and religious divisions, oil revenue is literally the glue that binds the fractious elites together,” RBC Capital said in a note last week, adding that Nigeria is likely the OPEC country with the most immediate risk for civil unrest amid oil price declines. “Nigeria has experienced coups in previous low price environments due in part to drying up patronage funds.” It’s a major shift from earlier this year when many major European and U.S. multinational companies said they were putting the country at the top of their list of frontier markets where they were considering investments.

Nigeria overtook South Africa as Africa’s largest economy this year, and investors were eyeing its robust long-term growth prospects, underpinned by the combination of natural resources, an impending demographic dividend and an underpenetrated consumer market. The country’s stock market surged more than 55% from the beginning of 2013 through its July peak, but shares have fallen around 23% since then as oil prices began a precipitous multi-month slide. Since this summer, Brent has fallen from above $115 per barrel to around $66.05 in Asian trade Tuesday, with many oil analysts predicting prices will continue to slide. “Nigeria’s overreliance on oil for fiscal and foreign-exchange earnings has left the economy very vulnerable following the sharp decline in oil prices,” Barclays said in a note last week. Despite Nigeria’s economy being considered one of sub-Saharan Africa’s most diversified, oil and gas contributed around 95% of export revenue and around 70% of fiscal revenue, Barclays noted.

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That’s what I think.

Someday, Draghi Will Thank Weidmann For Blocking QE (MarketWatch)

As Oscar Wilde might have written had he been a follower of the European Central Bank, for Mario Draghi, the ECB president, to lose one board member’s support over quantitative easing may be regarded as a misfortune; to lose two looks like carelessness; to lose three might be downright embarrassing. On the key question of whether the ECB will embark on hefty government-bond purchases, Draghi and the financial markets have been blowing smoke signals at each other for several months, playing with words, intentions, expectations, and political and economic sensitivities. If Weidmann and his allies, through a mixture of threats, blandishments, subterfuge and propaganda, can hold off the proponents of full-scale QE until next spring, the game may be over.

Without taking any decisions, Draghi has deftly achieved quite a number of his tactical objectives. He has brought down the value of the euro , lowered further the spreads between German and peripheral government bonds, and prevented a massive downturn on equity markets. The phrase ‘”thought leadership” is overused, but Draghi has given it a new meaning: achieving results just by thinking about them. Jens Weidmann, the Bundesbank president, is much denigrated, both in the conservative professorial hinterland of Germany where he is widely mocked for being too soft, and in other parts of Europe for being an obdurately retrograde hawk determined to drive Europe into the deflationary dust.

In fact he seems to be doing a good job of blocking (alongside others, including members of the ECB’s six-strong executive board) a further string of unconventional measures that would probably do little good and might well reverberate badly on the ECB and its reputation. In coming years, Draghi might have cause to thank Weidmann for protecting him from embarking on a path that would have badly dented his image as a policy maker who gets his way with cleverly spun words rather than risky actions that might backfire. Of course, Draghi has failed so far in his goal of restoring inflation to the ECB’s medium-term target of close-to-though-below 2%. And the euro area, as has long been evident, is mired in stagnation. But arguably both of these shortcomings have little to do with the direction and conduct of monetary policy.

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Absolutely. Europe needs more debt, channelled through Brussels. Great idea!

EU Draws Up $1.6 Trillion Wish List To Revive Economy (Reuters)

The European Union has drawn up a wish list of almost 2,000 projects worth €1.3 trillion ($1.59 trillion) for possible inclusion in an investment plan to revive growth and jobs without adding to countries’ debts. Investment has been a casualty of the financial crisis in Europe, tumbling around 20% in the euro zone since 2008, according to the European Central Bank. Following a call by European Commission President Jean-Claude Juncker, EU governments have submitted projects ranging from a new airport terminal in Helsinki to flood defenses in Britain, according to a document seen by Reuters. “Almost 2,000 projects were identified with a total investment cost of 1,300 billion euros of which 500 billion are to be realized within the next three years,” said the document, to be discussed by EU finance ministers on Tuesday.

Projects on the list, which officials stress is not definitive, also include housing regeneration in the Netherlands, a new port in Ireland and a €4.5 billion fast rail connection between Estonia, Latvia, Lithuania and Poland. Other job-creating schemes involve refueling stations for hydrogen fuel cell vehicles in Germany, expanding high-speed broadband networks in Spain and making France public buildings use less energy. Almost a third of the projects are energy related, another third are focused on transport and the remainder on innovation, the environment and housing. The EU’s executive Commission aims to have the first projects chosen and ready to attract private money in June. Many on the list have been frustrated by lack of financing or political problems affecting cross-broader projects.

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Yup. It’s going to kill emerging markets, for one thing.

Strong Dollar May Have ‘Profound Impact’ On World Economy (MarketWatch)

With the dollar marching closer to an eight-year high, the impact of a solid greenback has started to worry traders and economists. The Bank for International Settlements, referred to as the central bankers’ bank, warned in its quarterly review that the strengthening dollar could “have a profound impact on the global economy,” and particularly on emerging markets. “Should the U.S. dollar — the dominant international currency — continue its ascent, this could expose currency and funding mismatches, by raising debt burdens. The corresponding tightening of financial conditions could only worsen once interest rates in the United States normalize,” Claudio Borio, head of the monetary and economic department at BIS, said in a briefing about the quarterly review, which was published on Sunday.

The comments come at a time when investors are speculating when the Federal Reserve will introduce its first rate hike and lift the benchmark interest rates from its record low of close to 0%. A stellar U.S. jobs report on Friday furthered the expectation that the first tightening will come earlier than the mid-2015, helping the ICE Dollar Index log its largest weekly gain in five weeks. On Monday, the index continued to climb and was flirting with levels not seen since 2006. While the appreciating dollar might be attractive for Americans traveling overseas, it seriously affects other parts of the world economy, and in particular countries and companies that have taken out loans in dollars. In this regard, emerging markets could be facing a major setback, as they pay back and service the debt they’ve taken out in the U.S. currency.

BIS estimated that since the financial crisis, international banks have continued to increase their cross-border loans to emerging-market countries, amounting to $3.1 trillion. Most of this debt is in U.S. dollars. That means if the local currency continues to weaken against the dollar it “could reduce the creditworthiness of many firms, potentially inducing a tightening of financial conditions,” BIS said in the quarterly report. Outstanding loans to China alone have more than doubled to $1.1 trillion since 2012, making the country the seventh largest borrower world-wide and sensitive to large swings in foreign currencies. Additionally, Chinese individuals have borrowed more than $360 billion through international debt securities, according to BIS. “Any vulnerabilities in China could have significant effects abroad, also through purely financial channels,” Borio said in his remarks.

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“Market pricing and bullish perceptions have diverged profoundly both from underlying risk (i.e. Credit, liquidity, market pricing, policymaking, etc.) and diminishing Real Economy prospects.”

World in a Box (John Rubino)

Of all the problems with fiat currency, the most basic is that it empowers the dark side of human nature. We’re potentially good but infinitely corruptible, and giving an unlimited monetary printing press to a government or group of banks is guaranteed to produce a dystopia of ever-greater debt and more centralized control, until the only remaining choice is between deflationary collapse or runaway inflation. The people in charge at that point are in a box with no painless exit. Prudent Bear’s Doug Noland describes the shape of today’s box in his latest Credit Bubble Bulletin:

Right here we can identify a key systemic weak link: Market pricing and bullish perceptions have diverged profoundly both from underlying risk (i.e. Credit, liquidity, market pricing, policymaking, etc.) and diminishing Real Economy prospects. And now, with a full-fledged securities market mania inflating the Financial Sphere, it has become impossible for central banks to narrow the gap between the financial Bubbles and (disinflationary) real economies. More stimulus measures only feed the Bubble and prolong parabolic (“Terminal Phase”) increases in systemic risk. In short, central bankers these days are trapped in policies that primarily inflate risk. The old reflation game no longer works.

In other words, most real economies (jobs, production of physical goods, government budgets) around the world are back in (or have never left) recession, for which the traditional response is monetary and fiscal stimulus — that is, lower interest rates and bigger government deficits. Meanwhile, the financial markets are roaring, which normally calls for tighter money and reduced deficits to keep the bubbles from becoming destabilizing. Both problems are emerging simultaneously and the traditional response to one will make the other much, much worse.

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Painful. Think about this when you hear the word ‘recovery’.

The Incredible Shrinking Incomes of Young Americans (Atlantic)

American families are grappling with stagnant wage growth, as the costs of health care, education, and housing continue to climb. But for many of America’s younger workers, “stagnant” wages shouldn’t sound so bad. In fact, they might sound like a massive raise. Since the Great Recession struck in 2007, the median wage for people between the ages of 25 and 34, adjusted for inflation, has fallen in every major industry except for health care.

Young People’s Wages Have Fallen Across Industries Between 2007 and 2013

These numbers come from an analysis of the Census Current Population Survey by Konrad Mugglestone, an economist with Young Invincibles. In retail, wholesale, leisure, and hospitality—which together employ more than one quarter of this age group—real wages have fallen more than 10% since 2007. To be clear, this doesn’t mean that most of this cohort are seeing their pay slashed, year after year. Instead it suggests that wage growth is failing to keep up with inflation, and that, as twentysomethings pass into their thirties, they are earning less than their older peers did before the recession. The picture isn’t much better for the youngest group of workers between 18 and 24. Besides health care, the industries employing the vast majority of part-time students and recent graduates are also watching wages fall behind inflation. (40% of this group is enrolled in college.)

Why are real wages falling across so many fields for young workers? The Great Recession devastated demand for hotels, amusement parks, and many restaurants, which explains the collapse in pay across those industries. As the ranks of young unemployed and underemployed Millennials pile up, companies around the country know they can attract applicants without raising starter wages. But there’s something deeper, too. The familiar bash brothers of globalization and technology (particularly information technology) have conspired to gut middle-class jobs by sending work abroad or replacing it with automation and software. A 2013 study by David Autor, David Dorn, and Gordon Hanson found that although the computerization of certain tasks hasn’t reduced employment, it has reduced the number of decent-paying, routine-heavy jobs. Cheaper jobs have replaced them, and overall pay has declined.)

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“When the wind turns and the selling begins, we urge everyone to short these names first.”

Q3 Buybacks Surge: See The Top 20 Repurchasers Of Their Own Stock (Zero Hedge)

Back in September, when we looked at the total amount of stock buybacks by S&P 500 companies, we observed that the “Buyback Party Is Over: Stock Repurchases Tumble In The Second Quarter” – according to CapIQ data, after soaring to a record $160 billion in Q1, the amount of repurchased stock dropped 20% to “only” $110 billion, which perhaps also explains why the market went absolutely nowhere in the spring and early summer. Our conclusion was that, if indeed this was the end of the buyback party, then “the Fed will have no choice but to step in again, and the central-planning game can restart again from square 1, until finally the Fed’s already tenuous credibility is lost, the abuse of the USD’s reserve status will no longer be a possibility, and the final repricing of assets to their true levels can begin.”

As it turns out our conclusion that it’s all over was premature (with the Fed getting some breathing room thanks to desperate corner offices eager to pump up their CEO’s equity-linked compensation), and as the just concluded Q3 earnings seasons confirms, what went down, promptly soared right back up, with stock repurchases in Q3 surging by 30% following the 30% drop in Q2, and nearly offsetting all the lost “corporate wealth creation” in the second quarter, with the total amount of stock repurchases by S&P 500 companies jumping from $112 billion to $145 billion, just shy of the Q1 record, and the second highest single quarter repurhcase tally going back to 2007, and before.

So who are the most glaring offenders of engaging in what James Montier calls the “World’s Dumbest Idea”, i.e., maximizing shareholder value almost entirely through buybacks? Here are the 20 S&P corporations who repurchased the most stock in 2014 through the end of Q3. (Incidentally these are also some of the best big name “performers” this year. When the wind turns and the selling begins, we urge everyone to short these names first.)

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And you thought Iceland’s troubles were over ..

Iceland Tests Hedge Funds as Showdown With Creditors Arrives (Bloomberg)

Iceland will this week tell hedge funds and other creditors in its failed banks how their claims can be settled. The government has designed a model to protect the krona from any jolts that might result from a capital outflow as currency controls are relaxed to enable repayment. The next step is to find out whether the creditors will accept the deal. “Creditors that are unfairly treated internationally do not just walk away,” Timothy Coleman, senior managing director of Blackstone Group, which is advising bondholders in Kaupthing Bank hf, said in an interview. “They will use every part of every legal system available to them to ensure that they are treated appropriately and fairly.” As Iceland starts to scale back currency restrictions in place since 2008, the central bank has suggested the process may involve an exit tax.

While Coleman emphasized that creditors have no interest in a deal that undermines Iceland’s financial stability, he made clear there are some pills bondholders won’t swallow. “I don’t think they are assuming an exit tax,” he said. Creditors in Kaupthing, once Iceland’s biggest bank, say they are owed $23 billion, according to the bank’s first-half report. That’s more than three times as much as the bank has in reported assets. “The debt against Kaupthing is trading below 30 cents on the dollar, so” creditors “understand there will be some negotiated cost,” Coleman said. Bondholders have three demands, he said: “The creditors want to secure a solution that respects the people of Iceland and their capital controls. That would be number one,” he said. “Number two would be to be paid back the money that they lent to the Icelandic banks. And, number three, the creditors have an expectation that they will be treated in accordance with international banking standards.”

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How can you not love Farrell?

‘Madness Gene’ In All Of Us Wrecks The Economy, Destroys The Earth (Farrell)

Oklahoma GOP Sen. James Inhofe’s book, “The Greatest Hoax: How the Global Warming Conspiracy Threatens Your Future,” reveals everything you need to know about the Republican Party’s position on climate change. Bad news. Climate science is hogwash. Inhofe trusts divine guidance: “God’s still up there. The arrogance of people to think that we, human beings, would be able to change what He is doing in the climate is to me outrageous.” Inhofe’s scheduled to regain his old position as Chairman of the Senate Environment and Public Works Committee in January, So start praying to God folks. Because once ol’ Jim’s back in power, America will burn in climate hell. He’s vowed to block all regulations aimed at cutting carbon emissions. Game-on. Forget lame duck. The Wall Street Journal sure got it right, “Obama Puts Climate on the 2016 Ballot” … and it’s Obama vs. Inhofe rumbling till the presidential elections … this means war … the Democrats verus every GOP science denier kowtowing to Big Oil’s cash.

So for the next two years Inhofe’s “hoax” rhetoric is going to look a lot like a rerun of the original “Godzilla” movie. And the GOP will be looking down the barrel of Obama’s mega USA-China Climate Accord … while Inhofe makes Americans look like scientific and technological Luddites at the UN Climate Conferences in Peru. America still has a great opportunity to take the lead next year at the big one, the UN Climate Conference in Paris. But if Inhofe, the GOP, their Big Oil backers and army of science-denial Luddites keep playing their “global warming is a hoax” card … well then, the whole world will see proof why the IMF just announced that with it’s $17.6 trillion GDP, China is now the world’s new No. 1 economy, replacing the U.S. for the first time in 142 years. Yes, the GOP’s “global warming is a hoax” gambit has actually helped China overtake America. We’re our own worst enemy. Unfortunately the takeover started when we started the unnecessary Iraq War, unwittingly surrendering our credit to China.

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Weird story from Pam Martens.

Slain MassMutual Executive Held Wall Street “Trade Secrets” (Martens)

On Thursday, November 20, 2014, the body of 54-year old Melissa Millan, a divorced mother of two school-age children, was found at approximately 8 p.m. along a jogging path running parallel to Iron Horse Boulevard in Simsbury, Connecticut. A motorist had spotted the body and called the police. According to the coroner’s report, it was determined that Millan’s death was attributable to a stab wound to the chest with an “edged weapon.” Police ruled the death a homicide, a rarity for this town where residents feel safe enough to routinely jog by themselves on the same path used by Millan. Information has now emerged that Millan had access to highly sensitive data on bank profits resulting from the collection of life insurance proceeds from her insurance company employer on the death of bank workers – data that a Federal regulator of banks has characterized as “trade secrets.”

Millan was a Senior Vice President with Massachusetts Mutual Life Insurance Company (MassMutual) headquartered in Springfield, Massachusetts and a member of its 39-member Senior Management team according to the company’s 2013 annual report. Millan had been with the company since 2001. According to Millan’s LinkedIn profile, her work involved the “General management of BOLI” and Executive Group Life, as well as disability insurance businesses and “expansion into worksite and voluntary benefits market.” BOLI is shorthand for Bank-Owned Life Insurance, a controversial practice where banks purchase bulk life insurance on the lives of their workers. The death benefit pays to the bank instead of to the family of the deceased. According to industry publications, MassMutual is considered one of the top ten sellers of BOLI in the United States. Its annual reports in recent years have indicated that growth in this area was a significant contributor to its revenue growth.

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Ebols hasn’t gone, even if the western press largely neglect it.

Sierra Leone Baffled As 3 Ebola Doctors Die In 3 Days (VoA)

Sierra Leone’s chief medical officer has said he is baffled by the deaths of three doctors from Ebola over a three-day period. Dr. Brima Kargbo said a survey conducted jointly with the U.S. Centers for Disease Control (CDC) found that 70 percent of infections did not come from either the country’s Ebola holding centers or treatment facilities. Kargbo said Dr. Aiah Solomon Konoyeima died Saturday, becoming the 10th Sierra Leonean physician to die of the virus. He said Konoyeima was the third doctor to die from Ebola since Friday. “We have Dr. Tom Rogers and Dr. [Dauda] Koroma, who were buried yesterday, and also Dr. Konoyeima,” Dr. Kargbo said. Rogers was a surgeon at the Connaught Hospital, the main referral unit in the capital, Freetown. He was reportedly being treated at the British-run Kerry Town Ebola treatment center. He was said to be responding well to treatment when his condition deteriorated dramatically on Friday.

Koroma died at the Hastings Treatment Center, which is run entirely by local Sierra Leone medics. Kargbo said it’s difficult for him to understand where the doctors got the disease. “It interesting to note that a survey was conducted together with the CDC and it came up very clear that more 70 percent of our infections did not come from either our holding or treatment facilities,” he said. He said it is possible doctors became infected from patients they had been treating. “Most definitely because, at the end of the day, if you follow the trend of the disease, the most affected persons are the health care workers and the caregivers or those who are taking care of persons with the virus,” Kargbo said.

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