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Oil Production Vital Statistics January 2015

Jan 072015
 
 January 7, 2015  Posted by at 11:25 am Finance Tagged with: , , , , , , ,  6 Responses »


DPC Oyster luggers along Mississippi, New Orleans 1906

Another ‘guest post’ by Euan Mearns at Energy Matters. I thought that, given developments in oil prices, we can do with some good solid numbers on production.

Euan Mearns: This is the first in a monthly series of posts chronicling the action in the global oil market in 12 key charts.

  • The oil price crash of 2014 / 15 is following the same pace of the 2008 crash. The 2008 crash was demand driven and began 2 months ahead of the broader market crash.
  • The US oil rig count peaked in October 2014, is down 127 rigs from peak and is falling fast.
  • Production in OPEC, Russia and FSU, China and SE Asia and in the North Sea are all stable to falling slowly. The bogey in the pack is the USA where a production rise of 4 Mbpd in 4 years has upset the global supply dynamic.
  • It is unreasonable for the OECD IEA to expect Saudi Arabia to cut production of cheap oil in order to create market capacity for expensive US oil [1].
  • There are likely both over supply and weak demand factors at play, weighted towards the latter.

Figure 1 Daily Brent and WTI prices from the EIA, updated to 29 December 2014. The plunge continues at a similar speed to the 2008 crash. The 2008 oil price crash began in early July. It was not until 16th September, about 10 weeks later, that the markets crashed. The recent highs in the oil price were in mid July but it was not until WTI broke through $80 at the end of October that the industry became alert to the impending price crisis. As I write, WTI is trading at $48 and Brent on $51.

Figure 2 Oil and gas rig count for the USA, data from Baker Hughes up to 2 January 2015. The recent top in operating oil rigs was 1609 rigs on 10 October 2014. On January second the count was down 127 to 1482 units. US oil drilling is clearly heading down and a crash of similar magnitude, if not worse, to that seen in 2008 is to be expected. Gas drilling has not yet been affected with about 340 units operational.

Figure 3 US oil production stood as 12.35 Mbpd in November, up 140,000 bpd from October. In September 2008, US production crashed over 1 million bpd to 6.28 Mbpd. That production crash was short lived as shale oil drilling got underway. US oil production has doubled since the September 2008 low. C+C+NGL = crude oil + condensate + natural gas liquids.

Figure 4 Only Saudi Arabia has significant spare production capacity that stood at 2.79 Mbpd in November 2014 representing 22.5% of total capacity that stands at 12.4 Mbpd. Total OPEC spare capacity was 3.86 Mbd in November, up 250,000 bpd on October. While OPEC spare capacity may be showing signs of turning up, Saudi Arabia is adamant that production will not be cut.

Figure 5 OPEC production plus spare capacity (Figure 4) in grey. The chart conveys what OPEC could produce if all countries pumped flat out and there are signs that OPEC production capacity is descending slowly which casts a different light on the current glut. OPEC countries have skilfully raised and lowered production to compensate for Libya that has come and gone in recent years, and for fluctuations in global supply and demand. But with OPEC production broadly flat for the last three years, all production growth to meet increased demand has come from elsewhere, namely N America. Total OPEC production was 30.32 Mbpd in November down 320,000 bpd from October.

Figure 6 Relatively small adjustments to Saudi production has maintained order in the oil markets for many years. It is important to understand that the rapid price recovery in 2009 (Figure 1) came about because Saudi Arabia and other OPEC countries made deep production cuts. Saudi production stood at 9.61 Mbpd in November and total production capacity stood at 12.4 Mbpd. I believe it is significant that US production stood at 12.35 Mbpd. In an excellent post on Monday, Steve Kopits made the point that it was no longer viable for the OECD IEA to call on OPEC to cut production and these numbers illustrate this point [1]. Saudi Arabia already has 2.79 Mbpd withheld. It is clearly no longer acceptable for them to cut production further in order that the USA can produce more. NZ = neutral zone which is neutral territory that lies between Saudi Arabia and Kuwait and shared equally between them.

Figure 7 Russia remains one of the World’s largest producers with 10.95 Mbpd in November 2014, more than Saudi Arabia. Together with the FSU, production in this block reached a plateau in 2010 and has since been stable and has not contributed to the turmoil in the oil markets.

Figure 8 In 2002, European production touched 7 Mbpd but it has since halved and the region is no longer a significant player on the global production stage. The cycles are caused by annual offshore maintenance schedules where production dips every summer. The decline of the North Sea was probably a significant factor in the oil price run since 2002 as Europe had to dip deeper into global markets. It is also evident that the long term decline has now been arrested on the back of several years with record high oil prices and investment. With several new major projects in the pipeline North Sea production was expected to rise in the years ahead. The current price rout is bound to have an adverse impact.

  • Norway Nov 2013 = 1.90 Mbpd; Nov 2014 = 1.85 Mbpd
  • UK Nov 2013 = 0.87 Mbpd; Nov 2014 = 0.95 Mbpd
  • Other Nov 2103 = 0.60 Mbpd; Nov 2014 = 0.58 Mbpd

Figure 9 China is a significant though not huge oil producer and has been producing on a plateau since 2010. Production was 4.13 Mbpd in November up 50,000 bpd from October. This group of S and E Asian producers have been declining slowly since 2010. This, combined with rising demand from this region will eventually lead to renewed upwards pressure on the oil price.

Figure 10 N American production is dominated by the USA (Figure 3). Canadian production has been flat for a year and Mexican production is in slow decline.

Figure 11 Total liquids = crude oil + condensate + natural gas liquids + refinery gains + biofuel. The chart reveals surprisingly little about the current low price crisis with a barely perceptible blip above the trend line. Most areas of the world have either stable or slowly falling production. The bogey in the pack is the USA that has seen production sky rocket by 4 Mbpd in 4 years.

Figure 12 To understand this important chart you need to read my earlier posts [2, 3]. The data are a time series and the pattern describes production capacity, demand and price. There are undoubtedly both supply and demand factors driving the current price rout. The last time this happened, OPEC cut production thereby preserving global production capacity. This time the Saudi plan is to see global production capacity reduced by low oil prices.

Data

Getting up to date data on global oil production is frustratingly difficult. While this report is titled “January 2015″, only the rig count data are for this month, the production data is all from November 2014, the most recent available.

Owing to budget cuts, the EIA are months behind. Their most recent reports are for September 2014 when WTI was still over $90 / bbl. The EIA are however up to date with daily oil price information reported in Figure 1.

The JODI oil production data are more up to date but the global data set is still incomplete. Crude + condensate are reported separately to NGL and overall this source does not yet provide a coherent production time series.

The IEA OMR, used here, is I believe the best source. Published monthly, the mid-December report has data for November. However, the most recent months are always revised in subsequent reports. One snag, to get the full report mid-month you have to pay €2,200, and even then I doubt the IEA would be very pleased if I published their data before it became public domain. The data becomes available to all in two weeks, at the beginning of the following month. The other benefit from the IEA is they report OPEC spare capacity which I view as an important indicator (Figure 4).

The most up to date source of key data is the Baker Hughes rig count which is updated weekly providing a useful indicator for action in the US oil industry (Figure 2).

References

[1] Steve Kopits Scrap “The Call on OPEC”
[2] Energy Matters The 2014 Oil Price Crash Explained
[3] Energy Matters Oil Price Scenarios for 2015 and 2016

Broken Energy Markets and the Downside of Hubbert’s Peak

Dec 232014
 
 December 23, 2014  Posted by at 11:01 am Finance Tagged with: , , , , , ,  16 Responses »


John Vachon Hull-Rust-Mahoning pit, largest open pit iron mine in the world, Hibbing, Minnesota Aug 1941

This is another entry by our friend Euan Mearns, orginally posted at Energy Matters.

Euan: A few commenters have mentioned peak oil recently. I am cautious about making forecasts and predictions and prefer instead to observe and document the data as the peak oil story unfolds. I have in fact published a couple of charts recently illustrating aspects of peak oil, one showing a possible peak in the rest of the world that excludes N America and OPEC (Figure 1). The other showing the undulating plateau in conventional crude + condensate that has persisted since 2005 (Figure 2). In my last post on oil price scenarios two of those showed global oil production capacity 1 to 2 Mbpd lower in 2016 than 2014. If that comes to fruition, will we have passed peak oil but does it matter?

Figure 1 Global oil production has been split into three geo-political categories: 1) USA and Canada, 2) OPEC and 3) the Rest of the World (RoW). RoW production bears the hallmarks of having peaked in the period 2005 to 2010 and this has consequences for oil prices, demand and prosperity in parts of the world, especially the OECD. Most of the growth in oil supply has been in the USA and Canada where the market has been flooded with expensive oil. Data are crude oil + condensate + natural gas liquids (C+C+NGL) and exclude biofuels and refinery gains that are included by the IEA in their total liquids number.

The current “low oil price crisis” is providing a clear and new perspective on the nature of the peak oil problem. If low price does indeed destroy high cost production capacity then this will raise the question if the high cost sources can ever be brought back? IF low price kills the shale industry can it come back from the dead?

Figure 2 Conventional crude oil + condensate production has been on an undulating plateau just over 73 million barrels per day (Mbpd) since May 2005, that is for almost 10 years and despite record high oil prices! Note that chart is not zero scaled in order to amplify details. Click chart for large version.

The response of the oil price to scarcity in the period 2002 to 2008 was for it to shoot up. And the response of the energy industries to scarcity and high price was to develop high cost sources of energy – shale oil and gas and renewables. The longevity and permanence of these new initiatives has always been dependent upon our ability and willingness to pay. Of course, most of us who have cars continued to use them but have perhaps subliminally modified our behaviour through driving less or buying more fuel efficient vehicles. OECD oil consumption has at any rate been in decline and robust economic growth has been elusive. Is this due to the peak oil story unfolding?

The global finance and energy system is unfortunately rather more complex than that. The creation and expansion of debt is of course central to creating demand for oil and other energy sources. Without QE the global economy may have died in 2009 and demand for oil with it. Gail Tverberg produced an interesting chart that may illustrate this point (Figure 3). However, back in 2008 / 09 OPEC trimmed 4 Mbpd from their production and this equally explains why the price rebounded so strongly then. The end of QE3 may have contributed to the recent fall in demand, but the price has fallen so precipitously because OPEC has not compensated by reducing production.

Figure 3 QE appears to have impacted demand for oil and may have created the lines of credit enabling energy companies to produce high cost gas and oil at a loss. But the oil price has been equally controlled by OPEC controlling supply. Chart by Gail Tverberg.

The big picture is made even more complex by climate concern and a growing raft of energy policies in Europe and the USA designed to reduce CO2 emissions while singularly failing to do so meaningfully. And so at a time when clear engineering thinking was required on how to tackle the potential impacts on society of energy scarcity in the global economy we got instead ‘Green Thinking’. Future generations will look back on this era with bewilderment.

Against this backdrop, I will now move on to the main topic of this post which is the concept of broken markets and Hubbert’s peak. For those who do not know, Hubbert’s peak is peak oil by another name and while wise guys may want to invent a multitude of definitions I will stick to the simple definition of the month or year when global oil production reached a maximum volume or mass and thereafter went into inexorable decline. The impact of this on Mankind is normally expected to be negative since oil is the lifeblood of the global economy. The reason for this happening could be because we discovered something better than oil that substituted oil out of existence (that wouldn’t be bad) or because of scarcity oil became too expensive to produce (perhaps where we are now) or because Greens in government like Ed Davey and Barack Obama set out to undermine the fossil fuel industries which just a few years ago I would have found impossible to believe. We live in interesting times.

The world economy as we know it runs on fossil fuels and in particular a relatively small number of truly gigantic fossil fuel reserves such as the Ghawar oil field in Saudi Arabia, the Black Thunder coal field in Wyoming and the Groningen gas field in The Netherlands. Both Ghawar and Groningen are showing signs of age, along with the hundreds of other super giant fossil fuel deposits. The stored energy in these deposits flows out at enormous rate and at little financial or energy cost. It is these vast energy supplies and surpluses that provide the global economy with economic surplus. It is indeed the lifeblood. But the world has run out of these super giant deposits to exploit and we are finding it increasingly difficult to find large enough numbers of their smaller cousins to keep the wheels of the global economy well oiled ;-)

The focus has thus turned to low grade resource plays. The resource plays offer near infinite amounts of energy but require large amounts of effort to gather that energy. The ERoEI is lower than what went before, perhaps much lower, but for so long as the energy return is positive, we have indeed learned that Man’s inventiveness and commitment can exploit these resources. One of the main questions I want to pose here is, is it possible for these resource plays to participate in the global economic system as it has existed for many decades that has become known to us as capitalism?

The first example of broken energy markets I want to look at is wind power. Both onshore and in particular offshore wind are expensive forms of intermittent electricity. Wind advocates will argue that the intermittency does not matter and will point gleefully to the low electricity prices achieved when the wind blows strongly across Europe resulting in over-supply that dumps the price. Wait a minute though, high cost and low price is a toxic mix that does not jive with capitalism. The more wind resource installed on the system the greater the size the unusable surplus and economic penalty becomes.

Why have the wind producers not gone out of business? It’s because the markets are rigged such the wind producers are given priority to market and receive a guaranteed price. This is a monopoly! The consumers don’t benefit because they have to pay the guaranteed price to the wind monopoly. The losses end up in the hands of the traditional generators who see their prices dumped and need to chew on the losses whilst providing the invaluable balancing services for free.

Providing back up services for when the wind doesn’t blow is another problem newly addressed in the UK with the new “capacity market”. The government is calling this a ‘market’ while it is in fact a component part of the wind monopoly. Companies are being paid to maintain generating capacity on stand by to cover periods when the wind doesn’t blow. Again the consumer has to foot the bill. One day quite soon, UK and other European governments are going to have to explain to their electorates why they have distorted the electricity market so badly, delivering a monopoly to wind producers, destroying the traditional market participants with the bill being met by the consumer who receives zero benefits. This can only be explained if it is underlain by rampant corruption or sheer stupidity.

The second example of a broken energy market I want to explore is the US shale industry. This shares certain characteristics with the wind industry in that it is a high cost but potentially very large resource. But the mechanism for integration of this resource into the market is rather different. The problem with shale gas is that over-supply has resulted in the US gas price being dumped below the level where many shale operators can make a profit. Consumers in this case benefit through getting both secure and low priced gas. But the shale operators have reportedly racked up large losses that have been covered by expanding debt. These losses may yet come home to roost with the consumer if debt defaults result in a new credit crunch where the debts are socialised via government bailouts of the banking sector.

If it were possible to produce shale gas at $1 / million btus then everyone would be happy. Consumers would be getting secure and cheap energy and producers would be making handsome profits to distribute to shareholders. That is how capitalism is supposed to work. The system as it has operated seems broken.

US Light tight oil (LTO) production appears now to have created the same problem for the liquids plays where the entrance of expensive liquids in the market have contributed to the crash in the oil price. This has created risks for the LTO operators. It remains to be seen if the LTO sector sees mass insolvencies and default on loans that may socialise these losses. The introduction of high cost LTO has also undermined the whole of the higher cost component of the conventional oil sector. If LTO could be produced in large quantities for $20 / bbl then there would be no problem since this source would go on to substitute for the higher cost conventional sources of supply. But with costs closer to $60-$80 this is not going to happen. The conundrum for capitalism is the introduction of large quantities of higher cost energy to the system.

At this point I have to admit that nuclear power may be subject to similar limitations. It is difficult to view the Hinkley Point new nuclear build in the UK as a triumph for the consumer or the country. A better way to manage such enormous capital expenditure on vital infrastructure is via the state. The costs may eventually be socialised to the tax payer, but at least the energy is reliable and amongst the safest forms of power generation ever developed and the taxation system distributes costs in an equitable way.

A form of society could undoubtedly exist powered by nuclear, wind and shale gas. But it would be a society supported by the state with far larger numbers working in the energy industries than now, producing lower surpluses, the energy production part perhaps running at a perennial loss. Those losses have to be covered by either higher price or via the taxation system. Either way, the brave new world that awaits us will be characterised as the time of less that will be in stark contrast to the time of plenty many of us enjoyed during the 20th Century.

Debt Rattle November 26 2014

Nov 262014
 
 November 26, 2014  Posted by at 11:11 am Finance Tagged with: , , , , , , , , , , ,  8 Responses »


Arthur Rothstein Oregon or Bust, family fleeing South Dakota drought Jul 1936

• Banking’s Toxic Culture ‘Will Take A Generation To Clean Up’ (Guardian)
• Consumer Confidence in US Unexpectedly Dropped in November (Bloomberg)
• Case Shiller Reports “Broad-Based Slowdown For Home Prices” (Zero Hedge)
• BEA Revises 3rd Quarter 2014 US GDP Growth Upwards to 3.89% (CMI)
• Refinancing Boom Exposing Risks in US Property Bonds (Bloomberg)
• Abe Sales Tax Backfiring With More Debt Not Less (Bloomberg)
• Japan Is Running Out of Options (Bloomberg)
• Eurozone ‘Major Risk To World Growth’: OECD (CNBC)
• Do German Bonds Face Japanification? (CNBC)
• UK Housing Market Cools Rapidly (Guardian)
• Commodity Exporters Like Cheaper Currencies (A. Gary Shilling)
• On This Day, 138 Years Ago, The Idea Of QE Was Born (Art Cashin)
• A Bearish Hedge Fund Bets Against the Bulls and Still Profits (NY Times)
• Saudi Arabia Says No One Should Cut Output, Oil Will Stabilize
• Pre-OPEC Producer Meeting Fails to Deliver Oil Output Cut (Bloomberg)
• The Unbearable Over-Determination Of Oil (Ben Hunt)
• Who Will Wind Up Holding the Bag in the Shale Gas Bubble? (Naked Capitalism)
• US Oil Producers Can’t Kick Drilling Habit (FT)
• The Environmental Downside of the Shale Boom (NY Times)
• Obama Climate Envoy: Fossil Fuels Will Have To Stay In The Ground (Guardian)
• Cracks Form in Berlin Over Russia Stance (Spiegel)
• Europe Looks ‘Aged And Weary’: Pope Francis (CNBC)

Why should it? Just regulate the heebees out of them or close them down.

• Banking’s Toxic Culture ‘Will Take A Generation To Clean Up’ (Guardian)

Overhauling the broken culture of high street banking will take a generation to achieve, according to a report that found UK banks have received 20m customer complaints since the financial crisis. The report, by the thinktank New City Agenda, calculated that in the last 15 years the retail operations of banks had incurred £38.5m in fines and redress for mistreatment of customers. Andre Spicer, a professor at Cass Business School and the report’s lead author, said: “Most people we spoke to told us that real change will take at least five years. “There was some uncertainty as to how these changes were being translated into good practice at the customer coalface. Many culture change initiatives are fragile, and their success is not ensured. It’s clear to us that much work still needs to be done.”

The report concluded that it will take a generation to end a sales culture exposed by the 2008 crisis. It said UK banks did not address cultural change until the eruption of the Libor scandal in 2012, having failed to act after the emergence of mis-selling debacles such as the payment protection insurance scandal. “A toxic culture, decades in the making, will take a generation to clean up,” said the founders of New City Agenda, who are Labour peer Lord McFall, Conservative MP David Davis, and Liberal Democrat peer Lord Sharkey. They added: “Some frontline staff told us they still feel under significant pressure to sell. Complaints continue to rise and trust remains extremely low. Most of the people we talked to believed that real change, and as a consequence the better treatment of customers, will take some time to achieve.”

Read more …

Will they ever stop using the word ‘unexpectedly’? It’s certainly a favorite over at Bloomberg, and not just there.

• Consumer Confidence in US Unexpectedly Dropped in November (Bloomberg)

Consumer confidence unexpectedly declined in November to a five-month low as Americans became less upbeat about the economy and labor market. The Conference Board’s index fell to 88.7 this month from an October reading of 94.1 that was the strongest since October 2007, the New York-based private research group said today. The figure last month was weaker than the most pessimistic estimate in a Bloomberg survey of economists. The decline this month interrupts a steady pickup in sentiment since the middle of the year and shows attitudes about the economy would benefit from bigger wage gains. While confidence slipped, buying plans picked up, indicating spending will be sustained on the heels of stronger job growth and lower fuel costs.

The drop this month “doesn’t change our view that the trend in consumer confidence is moving upwards,” said David Kelly, chief global strategist at JPMorgan Funds in New York. “Gasoline prices are down, the unemployment rate is down, home prices are gradually rising, and stock prices are certainly rising.” The median forecast of 75 economists in the Bloomberg survey called for a reading of 96, with estimates ranging from 93.5 to 99 after a previously reported October index of 94.5. The Conference Board’s measure averaged 96.8 during the last expansion and 53.7 during the recession that ended in June 2009.

Read more …

I’m wondering how this squares with that GDP revision.

• Case Shiller Reports “Broad-Based Slowdown For Home Prices” (Zero Hedge)

While the just revised Q3 GDP surprised everyone to the upside, the Case Shiller index for September which was also reported moments ago, showed yet another month of what it called a “Broad-based Slowdown for Home Prices.” The bad news: the 20-City Composite gained 4.9% year-over-year, compared to 5.6% in August. However, this was modestly above the 4.6% expected. However, what was more troubling is that on a sequential basis, the Top 20 Composite MSA posted a modest -0.03% decline, the first sequential drop since February. And from the report itself: “The National Index reported a month-over-month decrease for the first time since November 2013. The Northeast region reported its first negative monthly returns since December 2013 and its worst annual returns since December 2012 due to weaknesses in Washington D.C. and Boston.”

Read more …

Some useful details.

• BEA Revises 3rd Quarter 2014 US GDP Growth Upwards to 3.89% (CMI)

In their second estimate of the US GDP for the third quarter of 2014, the Bureau of Economic Analysis (BEA) reported that the economy was growing at a +3.89% annualized rate, up +0.35% from their first estimate for the 3rd quarter but still down some -0.70% from the 4.59% annualized growth rate registered during the second quarter. The modest improvement in the headline number masks substantial changes in the reported sources of the annualized growth. The previously reported significant inventory draw-down almost vanished completely (dropping to a mere -0.12% impact on the headline number). Improving fixed investments added +0.23% to the headline, with nearly all of that improvement from spending for commercial equipment. Consumer spending for goods was also reported to be growing 0.27% in this report, while consumer spending for services was essentially unchanged (+0.02%).

Offsetting those upside revisions was a significant erosion in the previously reported export growth, which subtracted -0.38% from the headline. The contribution from imports in the headline number also weakened, taking the annualized growth down another -0.17%. Governmental spending was also revised down slightly, knocking another -0.07% from the headline. Nearly all of that downward revision to governmental spending was from reduced state and local investment in infrastructure. Despite the increased consumer spending, households actually took a disposable income hit in this revision – losing $146 in annualized per capita disposable income (now reported to be $37,525 per annum). This is down $344 per year from the 4th quarter of 2012. The spending growth reported above came exclusively from reduced household savings, which dropped a full 0.5% in this report.

As mentioned last month, softening energy prices play a major role in this report, since during the 3rd quarter dollar-based energy prices were plunging (and have continued their dive since). US “at the pump” gasoline prices fell from $3.68 per gallon to $3.32 during the quarter, a 9.8% quarter-to-quarter decline and a -33.8% annualized rate – pushing most consumer oriented inflation indexes into negative territory. During the third quarter (i.e., from July through September) the seasonally adjusted CPI-U index published by the Bureau of Labor Statistics (BLS) was actually mildly dis-inflationary at a -0.10% (annualized) rate, and the price index reported by the Billion Prices Project (BPP — which arguably reflected the real experiences of American households) was slightly more dis-inflationary at -0.18% (annualized).

Yet for this report the BEA effectively assumed a positive annualized quarterly inflation of 1.40%. Over reported inflation will result in a more pessimistic growth data, and if the BEA’s numbers were corrected for inflation using the appropriate BLS CPI-U and PPI indexes the economy would be reported to be growing at a spectacular 5.42% annualized rate. If we were to use just the BPP data to adjust for inflation, the quarter’s growth rate would have been an astounding 5.52% annualized rate.

Read more …

The smell of volatility on the morning.

• Refinancing Boom Exposing Risks in US Property Bonds (Bloomberg)

A $40 million penalty wasn’t enough to keep the owner of San Francisco’s Parkmerced apartment complex from the chance to lock in record-low interest rates and take advantage of the property’s $1.5 billion value. While a landlord willing to pay almost 63 times the average fee to refinance early is a bullish sign for commercial real estate, it’s less so for bond investors facing $295 billion of mortgages that come due during the next three years. That’s because the securities are increasingly tied to the market’s weakest properties, many of them financed during the peak of the real-estate boom in 2007, as the strongest are paid off. More property owners are jumping on a drop in financing costs and loosening terms to pay off their mortgages. That helped shrink the amount of debt maturing before the end of 2017 from $332 billion at the start of 2014, according to Bank of America data.

“If you’re a well-capitalized entity, you’re going to do it,” Richard Hill, a debt analyst at Morgan Stanley, said. That could leave commercial-mortgage bond investors “holding the bag on a bunch of lower-quality loans.” Properties such as skyscrapers, shopping malls, hotels and apartment complexes are attracting investors from sovereign wealth funds to insurance companies as they seek higher-yielding assets amid six years of Federal Reserve policies to hold short-term interest rates near zero. Wall Street banks are on pace to issue $100 billion of securities backed by commercial real estate this year after issuance doubled to $80 billion in 2013, according to data compiled by Bloomberg. Sales, which peaked at $232 billion in 2007, are poised to climb to $140 billion in 2015, Credit Suisse Group AG analysts led by Roger Lehman forecast in a Nov. 21 report.

Sales of the securities also are being fueled by rules that will require banks to retain some portion of loans that are sold to investors as securities, according to Morgan Stanley’s Hill. That may increase financing costs when they take effect in 2016. Ray Potter, founder of R3 Funding, a New York-based firm that arranges financing for landlords and investors, said he’s advising clients not to wait to refinance as economists forecast the Fed will raise rates next year for the first time since 2006. There has been a surge in borrowers looking to refinance in the past couple of months, Potter said. “If you like that coupon, lock it in for 10 years,” he said. While the interest rate could dip even lower, it’s not worth the risk because “when it moves higher it moves fast,” he said.

Read more …

“Japan remains doomed by its demographics and, of course, by its horrible debt.”

• Abe Sales Tax Backfiring With More Debt Not Less (Bloomberg)

What started as a plan to reduce Japan’s debt is turning into a reason to issue more bonds. Prime Minister Shinzo Abe’s administration implemented a higher sales tax in April to boost revenue as government liabilities ballooned to 1 quadrillion yen ($8.5 trillion), more than double the nation’s yearly economic output. Consumption plunged and the economy fell into a recession, prompting companies including Mirae Asset Global Investments Co. and High Frequency Economics to predict even more sovereign debt sales to revive growth. “The government’s policies have failed,” Will Tseng, a money manager in Taipei at Mirae Asset, which manages about $62 billion, said in an e-mail Nov. 20. “They’re still issuing more debt and printing more money to try to help the economy. They’re in a really bad cycle.” He said he’s staying away from Japanese bonds.

The cost of protecting Japan’s debt from default surged for eight straight days and the yen tumbled to a seven-year low as Abe called a snap election and delayed plans to further increase the sales tax by 18 months. Bank of Japan Governor Haruhiko Kuroda on Oct. 31 boosted the amount of government bonds he plans to buy to as much as 12 trillion yen a month, a record. Japan will go back to its routine of borrowing more to fund plans to spur growth, said Carl Weinberg, the chief economist at High Frequency Economics in Valhalla, New York. What it needs to do is allow immigration to keep the population from shrinking, he said Nov. 18 on the “Bloomberg Surveillance” radio program. “The population and the economy are contracting, and the debt is growing, and that’s an unsustainable trend,” Weinberg said. “Japan remains doomed by its demographics and, of course, by its horrible debt.”

Read more …

” .. Kuroda now has a budding mutiny on his hands. Many of his staffers think the central bank has already gone too far to weaken the yen and buy virtually every bond in sight.”

• Japan Is Running Out of Options (Bloomberg)

The New York Times recently lit up the Japanese Twittersphere with a cartoon that was a little too accurate for comfort. In it, a stretcher marked “economy” is loaded into an ambulance with “Abenomics” painted on the side; the vehicle lacks tires and sits atop cinder blocks. Prime Minister Shinzo Abe looks on nervously, holding an IV bag. The image aptly sums up Japan’s failure to gain traction in its push to end deflation. The Bank of Japan’s unprecedented stimulus and Abe’s pro-growth reforms have yet to spur a recovery in inflation and gross domestic product growth, and the country is yet again in recession. Worse, BOJ Governor Haruhiko Kuroda is rapidly running out of weapons in his battle to eradicate Japan’s “deflationary mindset.”

Minutes from the central bank’s Oct. 31 board meeting, at which officials surprised the world by expanding an already massive quantitative-easing program, show that Kuroda now has a budding mutiny on his hands. Many of his staffers think the central bank has already gone too far to weaken the yen and buy virtually every bond in sight. That’s a problem for Kuroda and Abe in two ways.

First, board members warned that the costs of further monetary stimulus outweigh the benefits. We already knew that Kuroda had only won approval for his shock-and-awe announcement by a paper-thin 5-4 margin, and that Takahide Kiuchi dissented when the BOJ boosted bond sales to about $700 billion annually. But the minutes suggest Kuroda came as close to any modern BOJ leader ever has to defeat on a policy move. Cautionary voices like Kiuchi’s worry that the BOJ could be “perceived as effectively financing fiscal deficits.” I’d say it’s too late for that. Of course the BOJ is acting as the Ministry of Finance’s ATM, just as Abe intended when he hired Kuroda. Still, the fact is that Kuroda’s odds of getting away with yet another Friday surprise are nil at best.

Second, maintaining stability in the bond market just got harder. The only way Kuroda can stop 10-year yields – currently 0.44% – from spiking as he tries to generate 2% inflation is by making ever bigger bond purchases. But fellow BOJ board members will be giving Kuroda less latitude to cap market rates. Japan is lucky in one way: Given that more than 90% of public debt is held domestically, Tokyo can the avoid wrath of the “bond vigilantes.” Kuroda further neutralized these activist traders by saying there’s “no limit” to what he can do to make Abenomics work. The fact that so many of his colleagues are skeptical of the policy, however, undermines Kuroda’s credibility. If markets begin to doubt his staying power, yields are sure to rise.

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The entire world is a risk to world growth.

• Eurozone ‘Major Risk To World Growth’: OECD (CNBC)

The eurozone poses a serious danger for global growth, with the world’s economy already “in low gear”, the Organisation for Economic Co-operation and Development (OECD) said on Tuesday. “The euro area is grinding to a standstill and poses a major risk to world growth, as unemployment remains high and inflation persistently far from target,” the OECD said in the 96th edition of its Economic Outlook. The euro zone’s fledgling recovery—which started at the end of 2013—has been a cause for concern over recent months, with gross domestic product (GDP) rising only 0.2% quarter-on-quarter between July and September. Policymakers are also battling with very low inflation and high unemployment—around one-quarter of Spaniards and Greek remain without jobs.

The OECD sees euro zone economic growth at 0.8% this year. This is better than the economic contraction the currency union suffered in 2012 and 2013, but below average growth of 1.1% between 2002 and 2011. By comparison, the OECD expects the world’s economy to expand by 3.3% this year. As with the euro zone, this is an improvement on 2012 and 2013, but below the 2002-2011 average of 3.8%.”A moderate improvement in global growth is expected over the next two years, but with marked divergence across the major economies and large risks and vulnerabilities,” the OECD said.

A euro zone analyst at the Economist Intelligence Unit said the risks to the world economy posed by the euro zone were even larger than the OECD forecast.”The euro zone’s fundamental institutional deficiencies are now exacting a damaging price, by hampering the formulation and implementation of policy responses to the ongoing slump,” said Aengus Collins in a research note emailed after the OECD report.”In addition, the OECD overlooks political risk, which is rising sharply in line with voter disaffection.” Major countries expected to post solid growth include the U.S., which the OECD predicts will expand by 2.2% this year and 3.1% next. China, meanwhile, is seen growing by an impressive 7.3% in 2014, before slowing to 7.1% in 2015.

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More interestingly, where will that leave Spanish and Italian bonds?

• Do German Bonds Face Japanification? (CNBC)

The euro zone’s long disinflation has spurred fears it will tumble all the way to Japan-style deflation, with some concerned yields on the continent’s safe-haven bond, the German bund, could remain depressed for the long haul. “While we are still not convinced that the euro zone is the new Japan, despite the many similarities in their economic predicaments, we are increasingly of the view that the 10-year Bund yield will remain exceptionally low for at least the next couple of years,” John Higgins, chief markets economist at Capital Economics, said in a note Wednesday. The 10-year bund is yielding around 0.75%, around all-time lows, compared with the 10-year Japanese government bond (JGB) at around 0.45% after a decades-long downtrend.

Japan’s central bank cut its benchmark interest rate to 0.5% in 1995, a move that pushed the 10-year JGB yield below 1% after three years, Higgins noted. “Investors did not know in 1998 that Japan’s key policy rate would remain near zero for the next 16 years (and counting). But the prospect of it remaining there for the foreseeable future was enough to keep the 10-year yield quite firmly anchored,” he said. “We see no reason why a similar outcome couldn’t happen in Germany,” as the bund yield fell below 1% after the ECB cut its main rate to 0.5% in mid-2013.

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” .. new mortgage approvals hit a 17-month low of 37,076 in October. That total was down nearly a quarter from January’s 76-month high of 48,649. It was also down 16% year on year ..”

• UK Housing Market Cools Rapidly (Guardian)

Britain’s housing market is cooling rapidly as a result of tougher Bank of England mortgage market requirements, high prices and the uncertainty caused by the coming general election. The prospect of higher interest rates at some point in 2015 is also dampening demand. Figures from the British Bankers’ Association showed a sharp slowdown in mortgage approvals, while Nationwide building society has reported a drop in lending volumes. The BBA said that new mortgage approvals hit a 17-month low of 37,076 in October. That total was down nearly a quarter from January’s 76-month high of 48,649. It was also down 16% year on year. However, a house price crash is unlikely, according to new forecasts. Halifax’s forecasts for 2015 point to a further rise in values of 3% to 5% next year, despite uncertainty about the general election. Earlier this month Halifax reported that house prices fell during October and recorded their smallest quarterly increase in nearly two years.

The October survey by the Royal Institution of Chartered Surveyors found that buyer inquires shrank for the fourth month running. Half-year results from Nationwide building society added to the gathering evidence of a weakening market, with net lending down by £2bn to £3.6bn in the six months to 30 September – although lending to landlords rose slightly. The society, which reported a doubling in pre-tax profits and higher savings inflows, said part of the reason net lending was down was tougher competition from other major mortgage providers, such as Halifax and Santander. “The BBA data add to now pretty widespread and compelling evidence that the housing market has come well off the boil,” said Howard Archer, an economist at IHS Insight. “The fact that mortgage approvals are substantially below their January peak levels – and falling – after lenders have got to grips with the new mortgage regulations points to an underlying moderation in housing market activity.”

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“The Canadian, Australian and New Zealand dollars as well as the Brazilian real, Russian ruble and other emerging economies are all playing this game. Those countries want weaker currencies to offset declining commodity exports ..”

• Commodity Exporters Like Cheaper Currencies (A. Gary Shilling)

The U.S. dollar is strengthening for reasons that go beyond deliberate devaluations of the euro and yen. Major commodity exporters are also purposely pushing down their currencies as commodity prices drop. The Canadian, Australian and New Zealand dollars as well as the Brazilian real, Russian ruble and other emerging economies are all playing this game. Those countries want weaker currencies to offset declining commodity exports. In the past year, the head of the Reserve Bank of Australia has expressed sympathy for a weaker Aussie in view of soft mineral exports and a moderately growing economy.

Recently, the head of the Reserve Bank of New Zealand said that, even with the drop in the New Zealand dollar, the kiwi is at “unjustifiable” levels and isn’t reflecting the weakness in the global commodity market. Earlier, the kiwi was propelled by strong meat and dairy exports to China and robust prices for milk, which have plunged. New Zealand’s economic growth is in jeopardy. The Bank of Canada recently left its benchmark interest rate unchanged at 1% and expects inflation to be near its 2% target. But a decline in energy and other commodity prices has hurt the Canadian economy, which is growing at the same slow 2% rate as the U.S. The commodity bubble in the early 2000s prompted producers of industrial commodities, such as copper, zinc, iron ore and coal, to increase production. New output resulted just in time for the price collapse in the 2007 to 2009 recession.

The subsequent rebound didn’t hold and commodity prices have been falling since early 2011, no doubt due to excess supply of industrial commodities and slower growth in China, the world’s biggest commodity user. The price decreases are also due to sluggish expansions in developed countries and, in the case of agricultural products, good weather and more acreage being planted. So far this year, grain prices are falling, as are industrial commodity prices. Crude oil prices rose until mid-June, but have since dropped 25% and now are the lowest in six years. Spurred by fracking, U.S. oil output is exploding as economic softness in Europe and China and increased conservation have curtailed consumption. Copper, which is used in everything from plumbing fixtures to computers, is dropping in price as supply leaps and demand lags.

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“Several months earlier, the stock market had begun to plunge violently. Soon there were layoffs and business closings and the economy was having a tough time getting back in gear.”

• On This Day, 138 Years Ago, The Idea Of QE Was Born (Art Cashin)

On this day in 1876, a group of influential, yet irate, Americans met in Indianapolis. Their primary purpose was to send a message to Washington on how to get the economy moving again. America at the time was going through a difficult and unusual period. Several months earlier, the stock market had begun to plunge violently. Soon there were layoffs and business closings and the economy was having a tough time getting back in gear. And for months now, strange things were happening, the money supply seemed not to be growing, real estate values were stagnant to slipping, and commodity prices were heading lower. (How unusual.)

So this group decided that what was needed was re-inflation (put more money in everyone’s hands, you see). The method they proposed was to issue more and more money. Cynics called them “The Greenback Party”. And on this day, the Greenbacks challenged Washington by running an independent for President of the United States. His name was Peter Cooper. He lost but several associate whackos were elected to Congress. To celebrate stop by the “Printing Press Lounge”. (It’s down the block from the Fed.) Tell the bartender to open the tap and just keep pouring it out till you say stop. Reassure the guy next to you (while you can still talk) that now we have more enlightened people in Washington. Try not to spill your drink if he falls off the stool laughing. There wasn’t much raucous laughter on Wall Street Monday, but the bulls were beaming with smiles as they managed to continue their string of bull runs.

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” .. the stimulus policies of the Federal Reserve and other central banks have the power to drive stocks higher. But they will ultimately be self-defeating ..”

• A Bearish Hedge Fund Bets Against the Bulls and Still Profits (NY Times)

The stock market has been rising for years, hitting new highs almost every week. So how is it that one of Wall Street’s most bearish investors can claim to have profited strongly over this period? Universa Investments, a hedge fund founded by Mark Spitznagel, is one of the few firms that is set up with the aim of making money in an economic and financial collapse. In the market turmoil of 2008, Mr. Spitznagel earned large returns. Large pessimistic bets usually lose a lot of money when stocks are rising, as they have ever since 2009. But Universa is saying that its investment strategy has been able to produce consistent gains since then, including a 30% return last year, according to firm materials that were reviewed by The New York Times.

In comparison, the benchmark Standard & Poor’s 500-stock index in 2013 had a return of 32% with dividends reinvested. Insurance policies that pay out after disasters do not produce big returns when the catastrophe fails to occur. But since 2008, some investors have been looking for ways to ride the market higher while having bets in place that will notch up huge gains if the system teeters on the brink once again. At Universa, Mr. Spitznagel’s strategy stems from his skepticism toward government efforts to revive the economy. He acknowledges that the stimulus policies of the Federal Reserve and other central banks have the power to drive stocks higher. But they will ultimately be self-defeating, he contends.

This theory holds that another crash will occur when the Fed stops being able to stoke the economy. Universa’s strategy seeks to profit when confidence in the central banks is strong — and when it evaporates. “The Fed has created a trap in this yield-chasing environment,” Mr. Spitznagel said in an interview, during which he gave an overview of Universa’s approach. “It allows you to be long, but it gets you in position to be short when it’s all over,” he said.

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Beggar thy neighbor, oil edition.

• Saudi Arabia Says No One Should Cut Output, Oil Will Stabilize

Saudi Arabia’s oil minister said tumbling crude prices will stabilize and there’s no need for producing nations to cut output. “No one should cut and market will stabilize itself,” Ali Al-Naimi told reporters a day before OPEC meets in Vienna. “Why Saudi Arabia should cut?The U.S. is a big producer too now. Should they cut?” Oil ministers from the 12 nations in the Organization of Petroleum Exporting Countries meet tomorrow in Vienna to discuss their combined production at a time when prices have fallen 30 percent since June. Crude fell in part on speculation that Saudi Arabia and other OPEC states wouldn’t take the necessary measures to curb a surplus. Venezuela’s Foreign Minister Rafael Ramirez met with officials from Saudi Arabia, Mexico and Russia yesterday. While they agreed to monitor prices, they made no joint commitment to lower their supplies.

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It’s not going to happen. They are in too much distress.

• Pre-OPEC Producer Meeting Fails to Deliver Oil Output Cut (Bloomberg)

Nations supplying a third of the world’s oil failed to pledge output cuts after meeting in Vienna today. Russia can withstand prices even lower than they are now, the country’s biggest producer said. Officials from Venezuela, Saudi Arabia, Mexico and Russia said only that they would monitor prices. Crude futures sank to a four-year low in New York. OPEC meets in two days, with analysts split evenly over whether the group will lower output in response to the crash in prices. Crude fell into a bear market this year amid the highest U.S. production in 31 years and speculation that Saudi Arabia and other members of OPEC won’t do enough to curb a surplus. Prices are below what nine of group’s 12 members need to balance their national budgets, data compiled by Bloomberg show.

“All these countries are significantly affected by lower prices and want to see cuts, but it is a big step between having these talks and taking actual coordinated action to achieve this,” Richard Mallinson, geopolitical analyst at Energy Aspects, said by phone today. “The key is going to be what happens amongst OPEC members.” Brent, the global benchmark, fell as much as 2.1% in London, having gained 1% before the four-way meeting concluded. It settled at $78.33 a barrel. West Texas Intermediate sank 2.2% to $74.09, the lowest since Sept. 21, 2010. The discussions didn’t result in any joint commitment to reduce supplies, Rafael Ramirez, Venezuela’s Foreign Minister and representative to OPEC, told reporters after the meeting. All parties said they were worried about the oil price, he said.

“There is an overproduction of oil,” Igor Sechin, Chief Executive of OAO Rosneft, Russia’s largest oil company, said after the meeting. “Supply is exceeding demand, but not critically” and Russia wouldn’t need to cut production immediately even if oil fell below $60 a barrel, he said. Russia, Saudi Arabia, Mexico and Venezuela between them produced 27.8 million barrels a day of oil last year, according to data from BP Plc. Total global output was 86.8 million barrels daily, the oil company’s figures show. OPEC, which meets to discuss output in Vienna on Nov. 27, pumped 30.97 million barrels a day last month, according to data compiled by Bloomberg.

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Too many opinions, too many variables.

• The Unbearable Over-Determination Of Oil (Ben Hunt)

You know you’re in trouble when the Fed’s Narrative dominance of all things market-related shows up in the New York Times crossword puzzle, the Saturday uber-hard edition no less. It’s kinda funny, but then again it’s more sad than funny. Not a sign of a market top necessarily, but definitely a sign of a top in the overwhelming belief that central banks and their monetary policies determine market outcomes, what I call the Narrative of Central Bank Omnipotence. There is a real world connected to markets, of course, a world of actual companies selling actual goods and services to actual people. And these real world attributes of good old fashioned economic supply and demand – the fundamentals, let’s call them – matter a great deal. Always have, always will. I don’t think they matter nearly as much during periods of global deleveraging and profound political fragmentation – an observation that holds true whether you’re talking about the 2010’s, the 1930’s, the 1870’s, or the 1470’s – but they do matter.

Unfortunately it’s not as simple as looking at some market outcome – the price of oil declining from $100/bbl to $70/bbl, say – and dividing up the outcome into some percentage of monetary policy-driven causes and some percentage of fundamental-driven causes. These market outcomes are always over-determined, which is a $10 word that means if you added up all of the likely causes and their likely percentage contribution to the outcome you would get a number way above 100%. Are recent oil price declines driven by the rising dollar (a monetary policy-driven cause) or by over-supply and global growth concerns (two fundamental-driven causes)? Answer: yes. I can make a case that either one of these “explanations” on its own can account for the entire $30 move. Put them together and I’ve “explained” the $30 move twice over. That’s not very satisfying or useful, of course, because it doesn’t help me anticipate what’s next.

Should I be basing my risk assessment of global oil prices on an evaluation of monetary policy divergence and what this means for the US dollar? Or should I be basing my assessment on an evaluation of global supply and demand fundamentals? If both, how do I weight these competing explanations so that I don’t end up overweighting both, which (not to get too technical with this stuff) will have the effect of sharply increasing the volatility of my forward projections, even if I’m exactly right in the ratio of the relative contribution of the potential explanatory factors. Here’s the short answer. I can’t.

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Note: this is shale gas, not oil. That’s another bubble, and just as big.

• Who Will Wind Up Holding the Bag in the Shale Gas Bubble? (Naked Capitalism)

We’ve been writing off and on about how the sudden fall in gas prices has been expected to put a lot of shale gas development on hold. In fact, quite a few analysts believe that one of the big Saudi aims in refusing to support oil prices was to dent the prospects for competitive energy sources, not just renewables like wind and hydro power, but shale gas. Even though OilPrice reported that US rig count had indeed fallen as oil prices plunged, John Dizard at the Financial Times (hat tip Scott) gives a more intriguing piece of the puzzle: the degree to which production is still chugging along despite it being uneconomical. The oil majors have been criticized for levering up to continue developing when it is cash-flow negative; they are presumably betting that prices will be much higher in short order. But the same thing is happening further down the food chain, among players that don’t begin to have the deep pockets of the industry behemoths: many of them are still in “drill baby, drill” mode. Per Dizard:

Even long-time energy industry people cannot remember an overinvestment cycle lasting as long as the one in unconventional US resources. It is not just the hydrocarbon engineers who have created this bubble; there are the financial engineers who came up with new ways to pay for it.

And while the financial engineers will as always do just fine, lenders are another matter:

By now, though, there is an astonishing amount of debt that continues to build up on the smaller E&P companies’ balance sheets. According to Gavekal, the research group, even before the oil price plunge, aggregate debt-to-equity ratios in the smaller publicly traded energy companies are now at 93%, up from around 70% in 2012 and 2013, and around 50% between 2005 and 2011. This in a highly cyclical industry that used to go through periodic banker-driven shakeouts and even bankruptcies.

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John Dizard from last Friday: the debt boom can’t stop without wreaking havoc across the industry.

• US Oil Producers Can’t Kick Drilling Habit (FT)

You would think, what with the recent oil price crash, the people who finance US oil and gas producers would have learnt their lesson. But not yet. For the past several years, and despite the once again widening gap between capital spending and cash flow, Wall Streeters have stepped in like an overindulgent parent to pay for the producers’ drilling habit. “Isn’t he cute!” they exclaim, as an exploration and production boy crashes another budget. “So talented! Did you see how many frac stages he can do now, and how tight his well spacing is?” Of course the exploration and production companies and their lenders have been to expensive accounting therapy sessions, where the concerned Wall Street family, accompanied by the sullen E&P operators, are told that they have to make a really sincere effort to match finding, drilling and completion expenditures to internally generated cash flow.

Everyone promises the accountant that that irresponsible land purchase or midstream commitment was the last mistake. From now on, cash flow break-even. Right. By now, though, there is an astonishing amount of debt that continues to build up on the smaller E&P companies’ balance sheets. According to Gavekal, the research group, even before the oil price plunge, aggregate debt-to-equity ratios in the smaller publicly traded energy companies are now at 93%, up from around 70% in 2012 and 2013, and around 50% between 2005 and 2011. This in a highly cyclical industry that used to go through periodic banker-driven shakeouts and even bankruptcies.

Particularly in the gas and natural gas liquids drilling directed sector, every operator (and their financier) is waiting for every other operator to stop or slow their drilling programmes, so there can be some recovery in the supply-demand balance. I have been hearing a lot of buzz about cutbacks in drilling budgets for 2015, but we will not really know until the companies begin to report in January and February. Then we will find out if they really are cutting back, using their profits on in-the-money hedge programmes to keep their debt under control, and taking impairment charges on properties that did not really pay off.

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Nasty report.

• The Environmental Downside of the Shale Boom (NY Times)

Since 2006, when advances in hydraulic fracturing — fracking — and horizontal drilling began unlocking a trove of sweet crude oil in the Bakken shale formation, North Dakota has shed its identity as an agricultural state in decline to become an oil powerhouse second only to Texas. A small state that believes in small government, it took on the oversight of a multibillion-dollar industry with a slender regulatory system built on neighborly trust, verbal warnings and second chances. In recent years, as the boom really exploded, the number of reported spills, leaks, fires and blowouts has soared, with an increase in spillage that outpaces the increase in oil production, an investigation by The New York Times found. Yet, even as the state has hired more oil field inspectors and imposed new regulations, forgiveness remains embedded in the Industrial Commission’s approach to an industry that has given North Dakota the fastest-growing economy and lowest jobless rate in the country. [..]

Continental Resources hardly seems likely to walk away from its 1.2 million leased acres in the Bakken. It has reaped substantial profit from the boom, with $2.8 billion in net income from 2006 through 2013. But the company, which has a former North Dakota governor on its board, has been treated with leniency by the Industrial Commission. From 2006 through August, it reported more spills and environmental incidents (937) and a greater volume of spillage (1.6 million gallons) than any other operator. It spilled more per barrel of oil produced than any of the state’s other major producers. Since 2006, however, the company has paid the Industrial Commission $20,000 out of $222,000 in assessed fines.

Continental said in a written response to questions that it was misleading to compare its spill record with that of other operators because “we are not aware other operators report spills as transparently and proactively as we do.” It said that it had recovered the majority of what it spilled, and that penalty reductions came from providing the Industrial Commission “with precisely the information it needs to enforce its regulations fairly.” What Continental paid Mr. Rohr, the injured driller, is guarded by a confidentiality agreement negotiated after a jury was impaneled for a trial this September. His wife, Winnie, said she wished the trial had gone forward “so the truth could come out, but we just didn’t have enough power to fight them.”

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You wish.

• Obama Climate Envoy: Fossil Fuels Will Have To Stay In The Ground (Guardian)

The world’s fossil fuels will “obviously” have to stay in the ground in order to solve global warming, Barack Obama’s climate change envoy said on Monday. In the clearest sign to date the administration sees no long-range future for fossil fuel, the state department climate change envoy, Todd Stern, said the world would have no choice but to forgo developing reserves of oil, coal and gas. The assertion, a week ahead of United Nations climate negotiations in Lima, will be seen as a further indication of Obama’s commitment to climate action, following an historic US-Chinese deal to curb emissions earlier this month. A global deal to fight climate change would necessarily require countries to abandon known reserves of oil, coal and gas, Stern told a forum at the Center for American Progress in Washington.

“It is going to have to be a solution that leaves a lot of fossil fuel assets in the ground,” he said. “We are not going to get rid of fossil fuel overnight but we are not going to solve climate change on the basis of all the fossil fuels that are in the ground are going to have to come out. That’s pretty obvious.” Last week’s historic climate deal between the US and China, and a successful outcome to climate negotiations in Paris next year, would make it increasingly clear to world and business leaders that there would eventually be an expiry date on oil and coal. “Companies and investors all over are going to be starting at some point to be factoring in what the future is longer range for fossil fuel,” Stern said.

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Merkel has problems keeping her stance.

• Cracks Form in Berlin Over Russia Stance (Spiegel)

Within the European Union, the interests of the 28 member states are diverging in what are becoming increasingly clear ways. Taking a tough stance against Russia is generally less important to southern Europeans than it is to eastern Europeans. In the past, the German government had sought to serve as a bridge between the two camps. But in Berlin itself these days, significant differences in the assessment of the situation are starting to emerge within the coalition government pairing Merkel’s conservative Christian Democrats and the center-left Social Democrats (SPD). It’s one that pits Christian Democrat leaders like Merkel and Horst Seehofer, who heads the CDU’s Bavarian sister party, the Christian Social Union (CSU), against Foreign Minister Frank-Walter Steinmeier of the SPD and Social Democratic Party boss Sigmar Gabriel, who is the economics minister.

“The greatest danger is that we allow division to be sown between us,” the chancellor said last Monday in Sydney. And it’s certainly true to say that this threat is greater at present than at any other time since the crisis began. Is that what the Russian president has been waiting for? Last week, German Foreign Minister Steinmeier traveled to Moscow to visit with his Russian counterpart Sergey Lavrov. With Steinmeier standing at his side, the Russian foreign minister praised close relations between Germany and Russia. “It’s good my dear Frank-Walter that, despite the numerous rumors of recent days, you hold on to our personal contact.” Steinmeier reciprocated by not publically criticizing contentious issues like Russian weapons deliveries to Ukrainian separatists. Afterwards, Vladimir Putin received him, a rare honor. It was a prime example of just how the Russian strategy works.

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Don’t want to be a prick, and I like the man, but so does he a bit.

• Europe Looks ‘Aged And Weary’: Pope Francis (CNBC)

Pope Francis has warned European politicians and policymakers that Europe is becoming less of a protagonist in the world as it looks “aged and weary.” Addressing the European Parliament in Strasbourg on Tuesday, Pope Francis, the spiritual leader of one billion Catholics worldwide, suggested that Europe risks becoming irrelevant. “Europe gives the impression of being aged and weary,feeling less and less a protagonist in a world which frequently looks on itwith aloofness, distrust and even, at times, suspicion…As a grandmother, no longer fertile and lively,” he said. “The great ideas that once inspired Europe…seem to have been replaced by the bureaucratic technicalities of Europe’s institutions.” Speaking at the plenary session of the parliament, he told lawmakers that they had the task of protecting and nurturing Europe’s identity “so that its citizens can experience renewed confidence in the institutions of the (European) Union and its project of peace and friendship that underlies it.”

Pope Francis’ visit to the European Parliament is the first by a pontiff since Pope John Paul II’s visit in 1988. He is also visiting the Council of Europe – the region’s human rights body – later on Tuesday. “I encourage you to work so that Europe rediscovers the best of its health,” he added. The pope also spoke about the importance of education and work. On the question of migration, a hot topic in Europe, Pope Francis said there needed to be a “united response.” “We cannot allow the Mediterranean to become a large graveyard,” he said, referring to the number of migrants who die during their attempts to cross the sea and reach Europe. “Rather than adopting policies that focus on self-interest which increase and feed conflicts, we need to act on the causes (for migration) and not only on the effects,” he added.

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Debt Rattle November 14 2014

Nov 142014
 
 November 14, 2014  Posted by at 12:13 pm Finance Tagged with: , , , , , , , , , ,  1 Response »


DPC St. Catherine Street, Montréal, Québec 1916

• Most US Cities Unaffordable For Average Americans To Live In (MarketWatch)
• US Wealth Inequality: Top 0.1% Worth As Much As The Bottom 90% (Guardian)
• US Foreclosure Filings Climb 15% In October (MarketWatch)
• Sub-$2-a-Gallon Gasoline Futures Hand US Motorists Gift (Bloomberg)
• Albert Edwards: USDJPY 145, “Tidal Wave Of Deflation Westward” (Zero Hedge)
• Oil, Other Commodities Will Be In The Dumps For Another Decade (MarketWatch)
• Oil Price Rout To Deepen Amid Supply Glut, Warns IEA (Telegraph)
• Keystone Left Behind as Canadian Oil Pours Into US (Bloomberg)
• Putin Stockpiles Gold As Russia Prepares For Economic War (Telegraph)
• It May Be Too Late for Japan PM to Fix World’s Third Largest Economy (TIME)
• Europe’s Debt Fight May Undermine Push for Growth Deal (Bloomberg)
• Cold Comfort As France, Germany Eke Out Tiny Q3 Growth (Reuters)
• Italy’s Slump Enters Fourth Year, Complicating Renzi’s Plans (Bloomberg)
• World Outlook Darkening as 89% in Poll See Europe Deflation Risk (Bloomberg)
• China Busts Underground Banks Linked to $23 Billion Transactions (Bloomberg)
• Stock Market Fear, Stress And Tensions Climbing (MarketWatch)
• Apple Could Swallow Whole Russian Stock Market (Bloomberg)
• Fracking Boom Spurs Demand for Sand and Clouds of Dust (Bloomberg)
• Massive OW Bunker Bankruptcy: Questions Of Governance And Oversight (SeaTrade)
• Aboriginals Decry G-20 Host Australia as Leaders Gather (Bloomberg)

This is what we’ve come to, and it’s hardly surprising. Where are the raised voices, though?

• Most US Cities Unaffordable For Average Americans To Live In (MarketWatch)

Most big American cities are no longer affordable for the average worker. Home buyers earning a median income can only afford a median-priced home in 10 of the 25 largest metropolitan areas in the U.S., according to a survey by personal finance site Interest.com. That’s still a slight improvement on last year when only 8 of those metropolitan areas were affordable, but still lower than 2012 when 14 of those 25 areas were affordable for people on a median income in those regions. Being priced out of buying a home in the country’s major cities means more multi-family buildings in big cities and more people moving into second-tier cities and rural areas, says Stuart Gabriel, director of UCLA’s Richard S. Ziman Center for Real Estate.

“The consequences are large,” he says, “and they’re not just about affordability. It affects economic growth and economic viability of our major metropolitan areas.” While some people will find ways to work from home, for instance, spiraling housing costs also hurt people who need to work in cities. “Teachers, firefighters and police, these are people who are absolutely essential to the functioning of our urban areas, are priced out of those areas and have to commute long distances to get to work,” Gabriel says. “It’s certainly true here in L.A.” Sacramento had the biggest drop in home affordability over the past 12 months, falling to No. 18 this year from No. 12 in 2013. But it’s still more affordable than the other three California metro areas on the list: Los Angeles (No. 22), San Diego (No. 24) and San Francisco (No. 25) where the median income is 46% less than what is required to buy a median-priced home here. New York is No. 23 on the list.

The cheapest areas are Minneapolis, Atlanta, St. Louis and Detroit. “Low mortgage rates are helping home affordability to some extent, but the key ingredient — which has been missing to this point — is substantial income growth,” says Mike Sante, managing editor of Interest.com. “Millennials, in particular, are struggling to overcome their student loans and save enough money for a down payment.” The Interest.com survey reflects a broader trend: 52% of Americans have made at least one major sacrifice to cover their rent or mortgage over the last three years, according to research commissioned by the nonprofit John D. and Catherine T. MacArthur Foundation released earlier this year. These sacrifices include getting a second job, deferring saving for retirement and cutting back on health care.

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Here’s why Americans can’t afford their own cities anymore.

• US Wealth Inequality: Top 0.1% Worth As Much As The Bottom 90% (Guardian)

Wealth inequality in the US is at near record levels according to a new study by academics. Over the past three decades, the share of household wealth owned by the top 0.1% has increased from 7% to 22%. For the bottom 90% of families, a combination of rising debt, the collapse of the value of their assets during the financial crisis, and stagnant real wages have led to the erosion of wealth. The research by Emmanuel Saez and Gabriel Zucman [pdf] illustrates the evolution of wealth inequality over the last century. The chart shows how the top 0.1% of families now own roughly the same share of wealth as the bottom 90%. The picture actually improved in the aftermath of the 1930s Great Depression, with wealth inequality falling through to the late 1970s. It then started to rise again, with the share of total household wealth owned by the top 0.1% rising to 22% in 2012 from 7% in the late 1970s. The top 0.1% includes 160,000 families with total net assets of more than $20m (£13m) in 2012.

In contrast, the share of total US wealth owned by the bottom 90% of families fell from a peak of 36% in the mid-1980s, to 23% in 2012 – just one percentage point above the top 0.1%. The growing indebtedness of most Americans is the main reason behind the erosion of the wealth share of the bottom 90%, according to the report’s authors. Many middle-class families own their homes and have pensions, but too many have higher mortgage repayments, higher credit card bills, and higher student loans to service. The average wealth of bottom 90% jumped during the stock market boom of the late 1990s and the housing bubble of the early 2000s. But it then collapsed during and after the most recent financial crisis. Since then, there has been no recovery in the wealth of the middle class and the poor, the authors say. The average wealth of the bottom 90% of families is equal to $80,000 in 2012— the same level as in 1986. In contrast, the average wealth for the top 1% more than tripled between 1980 and 2012.

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No surprise here either.

• US Foreclosure Filings Climb 15% In October (MarketWatch)

The pace of new foreclosures picked up last month as more troubled properties were pushed through the system, according to data released Thursday. In October, there were default notices and other foreclosure filings reported on more than 123,000 U.S. homes, up 15% from September — the largest monthly growth since foreclosure activity peaked in early 2010, online foreclosure marketplace RealtyTrac reported. Last month’s pop was driven by seasonal factors — banks were trying to “get ahead of the usual holiday foreclosure moratoriums,” said Daren Blomquist, vice president at RealtyTrac.

October’s spike narrowed the year-over-year contraction in foreclosure filings to 8%, the slowest annual drop since May 2012. “Distressed properties that have been in a holding pattern for years are finally being cleared for landing at the foreclosure auction,” Blomquist said. Despite October’s increase in filings, the pace of the foreclosure-related notices is trending closer to levels seen before the U.S. housing bubble burst. In 2006, as home prices were near their peak, there were average monthly foreclosure filings on 105,000 properties. October’s 123,000 foreclosure filings were down about 66% from a peak of 367,000 hit in 2010.

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Not going to boost holiday sales.

• Sub-$2-a-Gallon Gasoline Futures Hand US Motorists Gift (Bloomberg)

U.S. drivers will have some extra money in their pockets this holiday season as gasoline futures tumbling below $2 a gallon mean lower prices at the pump. “The drop in futures is eventually going to translate into further declines at the pump,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone yesterday. “There will be a little extra discretionary spending that consumers can use somewhere else this holiday season.” The nation’s largest motoring club says retail prices “have a very good chance” of being the lowest for the Nov. 28 Thanksgiving holiday in five years. Motorists are already paying the least since 2010 after crude oil tumbled more than 20% in the past four months. Gasoline futures added 0.7 cent, or 0.3%, to $2.0085 a gallon in electronic trading at 12:12 p.m. Singapore time.

Yesterday the contract closed at the lowest since September 2010. The average retail price for regular gasoline fell 0.6 cent to $2.917 a gallon on Nov. 12, the least since December 2010, according to Heathrow, Florida-based AAA. Based on the drop in the futures market, pump prices could fall to $2.70 or thereabouts, Michael Green, a Washington-based spokesman for AAA, said by telephone yesterday. “At this point, the market refuses to stabilize, the price of crude oil continues to fall and refiners are making more gasoline. There’s no end in sight.” Almost one-fourth of filling stations in the U.S. are selling gasoline for less than $2.75 a gallon, Green said. Less than 1% are under $2.50, he said. “We’re still a long way from getting down to $2,” Green said. “But I didn’t think it was going below $3, and here we are.”

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Edwards is one scary guy. Because he’s mostly right.

• Albert Edwards: USDJPY 145, “Tidal Wave Of Deflation Westward” (Zero Hedge)

Less than two months ago, Albert Edwards presented “The Most Important Chart For Investors” in which he predicted, correctly, that the real action will come not in the Euro but the Japanese Yen, and at a time when the USDJPY was trading around 108, Edwards forecast a sharp move to 120. A month later, Abe’s just as shocking “all in” bet on boosting QE to a level where it matches the Fed’s peak monthly POMO despite an economy that is a third the size of the US, proved Edwards correct and has since sent the USDJPY some 800 pips higher and just 400 pips shy of Edwards’ 120 forecast. At this rate, the 120 target may be taken out within weeks not months. So what happens next? Here, straight from the horse’s mouth that got the first part of the rapid Yen devaluation so right, is the answer.

As Edwards updates with a note from this morning, “the yen is set to follow the US dollar DXY trade-weighted index by crashing through multi-decade resistance – around ¥120. It seems entirely plausible to me that once we break ¥120, we could see a very quick ¥25 move to ¥145, forcing commensurate devaluations across the whole Asian region and sending a tidal wave of deflation westwards.” Edwards, never one to beat around the bush, slams strategists who are at best willing to get the direction of a given move, if not the magnitude. So he will be the outlier:

… in the foreign exchange (FX) world, extreme volatility is often readily apparent but seldom ever predicted. We explained recently that investors were overly focusing on the euro/US$ when a further round of Japanese QE would make the yen the dominant currency story. I expect the key ¥120/$ support level to be broken soon and the lows of June 2007 (¥124) and Feb 2002 (¥135) to be rapidly taken out. If you want a target to reflect historic volatility, think about the Y145 low of August 1998 (see chart). That is my Q1 forecast.

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I see little value in predicting anything 10 years out today. The US dollar looks strongest, stocks definitely do not, they’re way too overvalued. in 2024, who says there’ll be much of any financial markets remaining? But hey, someone has to lose all that money going forward. Might as well this guy.

• Oil, Other Commodities Will Be In The Dumps For Another Decade (MarketWatch)

Remember the commodities supercycle, that seemingly endless 2000s commodities boom? It drove oil, gold, copper and other commodities to record levels. The supercycle was driven by exploding demand from China and other emerging countries, supply bottlenecks caused by years of not developing wells and mines, and rock-bottom interest rates that inflated demand for hard assets all around the world. But now gold, oil and other commodities are well off their peaks, so far off, in fact, and for so long that they can only be described as in a supercycle in reverse, or a secular bear market. If that’s true – and I’m pretty sure it is – investors who piled in to commodities are in for a bruising decade ahead unless they take profits or cut their losses.

Meanwhile, stocks, which run counter to commodities, may well go much higher, along with the U.S. dollar. “We believe that we are in the initial years of a secular down cycle in commodities,” wrote Shawn Driscoll, manager of the natural resource-focused T. Rowe Price New Era Fund in the fund’s most recent semiannual report. “Commodity cycles are very long on the way up and the way down,” he told me in a phone interview. They last around 13 to 15 years, because it takes that long for fundamentals of supply and demand to go to extremes. When the most recent supercycle began in 1998, Driscoll said, commodities prices had plummeted, so producers shuttered old mines and wells and hadn’t opened new ones in a while. But when demand revived, it took years for producers to catch up. Ultimately, companies built too much capacity just in time for the next peak.

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“With this key level out of the way a move towards $75 now looks likely as the hunt for a real floor in oil prices goes on.” WTI at $74 this morning, Brent at $78.

• Oil Price Rout To Deepen Amid Supply Glut, Warns IEA (Telegraph)

The rout which has sent oil prices to a four-year low is expected to deepen, the International Energy Agency warned in its latest monthly market report. The Paris-based watchdog said Friday: “While there has been some speculation that the high cost of unconventional oil production might set a new equilibrium for Brent prices in the $80 to $90 range, supply/demand balances suggest that the price rout has yet to run its course.” Against a backdrop of weakening demand, oil supply in October increased adding further downward pressure on prices, the IEA said in its monthly market report. According to the watchdog, global oil supply inched up by 350,000 barrels per day (bpd) in October to 94.2m bpd.

However, in London Brent crude bounced at the open up almost 1pc at around $78 per barrel after heavy losses overnight in the US saw West Texas Intermediate blend crude fall to $74 per barrel. “Crude prices are enduring another hefty move lower, with Brent shifting below $80 for the first time since late 2010,” said Chris Beauchamp, Market Analyst, IG. “With this key level out of the way a move towards $75 now looks likely as the hunt for a real floor in oil prices goes on.” The supply glut will add to pressure on the Organisation of Petroleum Exporting Countries to sharply cut back on production at their meeting on November 27. However, the group’s major producers may be reluctant to do so due to the risk of losing more market share to shale oil drillers in the US.

The IEA’s warning on prices follows the US Energy Department, which this week pared back its forecasts for prices in 2015. The US Energy Information Administration (EIA) – part of the Department of Energy – has slashed its price forecasts for 2015. The EIA now expects US crude blends to average $77.75 per barrel next year, down from a previous forecast of $97.72, and Brent to average $83.42 in 2015, down from its old estimate of $101.67. The EIA has also revised down its global demand forecast by 200,000 barrels per day (bpd) to average 92.5m bpd in 2015, based on weaker global economic growth prospects for next year.

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The US doesn’t produce enough domestically yet, or so I guess.

• Keystone Left Behind as Canadian Oil Pours Into US (Bloomberg)

Delays of the Keystone XL pipeline are providing little obstacle to Western Canadian oil producers getting their crude to the U.S. Gulf Coast, with shipments set to more than double next year. The volume of Canadian crude processed at Gulf Coast refineries could climb to more than 400,000 barrels a day in 2015 from 208,000 in August, according to Jackie Forrest, vice president of Calgary-based ARC Financial. The increase comes as Enbridge’s Flanagan South and an expanded Seaway pipeline raise their capacity to ship oil by as much as 450,000 barrels a day. Canadian exports to the Gulf rose 83% in the past four years.

The expansion shows Canadians are finding alternative entry points into the U.S. while the Keystone saga drags on. In the latest chapter, a Democratic senator and a Republican representative are seeking votes in their chambers to set the project in motion. The two are squaring off in a runoff election for a Senate seat from Louisiana, a state where support for the project is strong. “Keystone is kind of old news,” Sandy Fielden, director of energy analytics at Austin, Texas-based consulting company RBN Energy, said Nov. 12 in an e-mail. “Producers have moved on and are looking for new capacity from other pipelines.” TransCanada’s Keystone XL, which would transport Alberta’s heavy oil sands crude to refineries on the Gulf, has been held up for six years, awaiting Obama administration approval.

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Over the top headline and commentary. Russia buys gold because sanctions make access to dollar markets harder.

• Putin Stockpiles Gold As Russia Prepares For Economic War (Telegraph)

Russia has taken advantage of lower gold prices to pack the vaults of its central bank with bullion as it prepares for the possibility of a long, drawn-out economic war with the West. The latest research from the World Gold Council reveals that the Kremlin snapped up 55 tonnes of the precious metal – far more than any other nation – in the three months to the end of September as prices began to weaken. Vladimir Putin’s government is understood to be hoarding vast quantities of gold, having tripled stocks to around 1,150 tonnes in the last decade. These reserves could provide the Kremlin with vital firepower to try and offset the sharp declines in the rouble. Russia’s currency has come under intense pressure since US and European sanctions and falling oil prices started to hurt the economy.

Revenues from the sale of oil and gas account for about 45pc of the Russian government’s budget receipts. The biggest buyers of gold after Russia are other countries from the Commonwealth of Independent States, led by Kazakhstan and Azerbaijan. In total, central banks around the world bought 93 tonnes of the precious metal in the third quarter, marking it the 15th consecutive quarter of net purchases. In its report, the World Gold Council said this was down to a combination of geopolitical tensions and attempts by countries to diversify their reserves away from the US dollar. By the end of the year, central banks will have acquired up to 500 tonnes of gold during the latest buying spell, according to Alistair Hewitt, head of market intelligence at the World Gold Council.

“Central banks have been consistently adding to their gold holdings since 2009,” Mr Hewitt told the Telegraph. In the case of Russia, Mr Hewitt said that the recent increases in its gold holdings could be a sign of greater geopolitical risk that has arisen since it seized Crimea sparking a dispute with Ukraine and the West. Overall, the World Gold Council said that global demand for gold was down 2pc year-on-year to 929 tonnes in the third quarter amid signs that buying in China, one of the main markets, had tailed off. Jewellery demand in the quarter ending in September was down 39pc to 147 tonnes, signalling weaker consumer sentiment in the world’s second-largest economy.

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After 2.5 years, and countless comments at TAE about Abe’s inevitable failure, mainstream America is catching on. Even a jibe at Krugman here.

• It May Be Too Late for Japan PM to Fix World’s Third Largest Economy (TIME)

Tokyo is abuzz with speculation that Prime Minister Shinzo Abe is about to dissolve the Diet, as the country’s legislature is known, and call a snap election. He by no means has to take such action. It has only been two years since his Liberal Democratic Party, or LDP, swept to power in a massive landslide, and the opposition is in such disarray that there is little doubt Abe would be returned to office in a new election. Nevertheless, Abe apparently feels the need for another vote of confidence from the public, likely in part to bolster support for his radical program to revive Japan’s economy, nicknamed Abenomics. The problem is that it could already be too late. Abenomics is a failure, and Abe isn’t likely to fix it, no matter how many seats his party holds in parliament.

When Abe first introduced Abenomics, many economists – most notably, Nobel laureate Paul Krugman – believed the unconventional program would finally end the economy’s two-decade slump. The plan: the Bank of Japan (BOJ), the country’s central bank, would churn out yen on a biblical scale to smash through the economy’s endemic and destructive cycle of deflation, while Abe’s government would pump up fiscal spending and implement long-overdue reforms to the structure of the economy. Advocates argued that Abenomics was just the sort of bold action to jump-start growth and fix a broken Japan, and we all had reason to hope that it would work. Japan is still the world’s third largest economy, and a revival there would add another much-needed pillar to hold up sagging global economic growth.

However, I had my concerns from the very beginning. In my view, Japan’s economy doesn’t grow because there is a lack of demand. Pumping more cash into the economy, therefore, will not restart growth. Only deep reform to raise the potential of the economy can do that — by improving productivity and unleashing new economic energies. Unless Abe changed the way Japan’s economy works — and I doubted he would — all of the largesse from the BOJ would at best come to nothing. In a worst-case scenario, Abe’s program could turn Japan into an even bigger economic mess than it already is.

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The G20 is the most useless gathering on the planet. They see one thing only, growth, whether it’s there or not.

• Europe’s Debt Fight May Undermine Push for Growth Deal (Bloomberg)

Europe’s infighting over debt rules may be the biggest challenge to its ambitions for a new commitment to growth at the Group of 20 summit in Australia. World leaders have already expressed their frustration with the European Union’s German-mandated obsession with budget deficits. When they sit down in Brisbane this weekend to consider the 28-nation bloc’s call for a “comprehensive” growth strategy that seeks to boost private investment and rein in fiscal excess, the G-20 group will include France and Italy, the euro nations that have most publicly fought the EU view. Germany and its allies say the debt rules are essential for the EU’s credibility yet the euro area’s six-year slump has already weakened the bloc’s reputation for economic management, regardless of whether the 18 euro members can eventually wrestle their budget deficits under control.

As global growth wanes, the rest of the world’s capacity to keep indulging Europe’s budget focus is narrowing too. “Europe has, from a global perspective, been too tight for years,” said Jacob Funk Kirkegaard, senior fellow at the Peterson Institute for International Economics in Washington. Even if the euro area relaxes its stance somewhat, “the global economy is growing slower now, so any undershoot matters more.” Behind the united facade European leaders will present in Brisbane, France and Italy are straining at the budget limits they’ve been set, spurred on by calls from European Central Bank President Mario Draghi for nations to supplement his “whatever it takes” monetary policy stance.

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A big relief, was the announcement. So why are EU stocks falling?

• Cold Comfort As France, Germany Eke Out Tiny Q3 Growth (Reuters)

European stocks were flat on Friday after gross domestic product numbers showed both France and Germany grew marginally in the third quarter, while the dollar rose further against the yen on expectations of a snap election in Japan. The European data confirmed that the outlook for much of the world economy still looks much shakier than for the United States, although France beat expectations. Asian stocks fell following the latest signs that growth in China is slowing. Energy stocks were depressed as crude oil hovered near a four-year low in an oversupplied market and the Russian ruble, hammered in recent weeks as world oil prices fell, was again testing record lows around 48 rubles per dollar. Germany’s economy eked out growth of 0.1% on the quarter, while France – generally seen as in deeper trouble than its neighbor – grew by 0.3%. Overall euro zone data was due later. “The German number is slightly positive in line with expectations but it’s still soft,” said Patrick Jacq, a rate strategist at BNP Paribas in Paris.

“The (French) growth in Q3 is only driven by inventories. It’s just a one-off positive figure in a very weak environment and therefore this is not something which could lead the market to think that the economic situation is improving in France.” A Reuters poll showed Japanese companies overwhelmingly want Prime Minister Shinzo Abe to delay or scrap a planned tax increase, a move expected to come along with a decision, expected by many, to call a new election. The yen, down more than 3% against a stronger dollar this month, fell another half% to a seven-year low of 116.385 yen per dollar. “The argument is that delaying the sales tax hike means the impulse to CPI inflation will start to drop,” said Alvin Tan, a currency strategist at French bank Societe Generale in London. “If there’s no additional sales tax hike, the impulse to higher inflation starts to fade away quite rapidly. So in order to push inflation higher, which is what everybody wants, you need the currency to weaken a lot more.”

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All those years lost for growth that will never come. Renzi is not a smart guy.

• Italy’s Slump Enters Fourth Year, Complicating Renzi’s Plans (Bloomberg)

Italy’s economy shrank in the third quarter pushing the nation into a fourth year of a slump that has complicated Prime Minister Matteo Renzi’s efforts to revive growth and keep public finances in check. Gross domestic product fell 0.1% from the previous three months, when it declined 0.2%, the national statistics institute Istat said in a preliminary report in Rome today. That matched the median forecast in a Bloomberg survey of 22 economists. Output was down by 0.4% from a year earlier. GDP in the euro region’s third-biggest economy has fallen in all but two of the last 13 quarters as the jobless rate rose to the highest on record.

Renzi is relying on estimated 0.6-percent growth next year to rein in a public debt of more than €2 trillion ($2.50 trillion) and preserve a tax rebate to low-paid employees aimed at reviving consumer demand. The Bank of Italy said yesterday in a report that the country needs to avoid a “recessionary demand spiral” due to the “persistence of economic difficulties, which have been exceptional in terms of duration and depth.” Italians rallied in Rome last month to protest an overhaul of labor market rules tha Renzi proposed to make it easier for businesses to hire and fire workers. The premier has repeatedly said the plan is a way to attract investments and that its framework will get parliamentary approval by year’s end before being fully implemented in 2015.

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Finally a Bloomberg poll that gets something right?

• World Outlook Darkening as 89% in Poll See Europe Deflation Risk (Bloomberg)

The world economy is in its worst shape in two years, with the euro area and emerging markets deteriorating and the danger of deflation rising, according to a Bloomberg Global Poll of international investors. A plurality of 38% of those surveyed this week described the global economy as worsening, more than double the number who said that in the last poll in July and the most since September 2012, when Europe was mired in a recession. Much of the concern is again focused on the euro area: Almost two-thirds of those polled said its economy was weakening while 89% saw disinflation or deflation as a greater threat there than inflation over the next year. Respondents said the European Central Bank and the region’s governments are making the situation worse by pursuing too-tight policies, and fewer expressed confidence in ECB President Mario Draghi and German Chancellor Angela Merkel.

“The euro-zone economy has deteriorated and will get worse if there are no fiscal policy actions from core European countries, mainly Germany,” poll participant Sanwook Lee, a senior portfolio manager at Shinhan Bank in Seoul, said in an e-mail. Europe isn’t the only source of concern in the global economy, according to the quarterly poll of 510 investors, traders and analysts who are Bloomberg subscribers. More than half of those contacted said conditions in the BRIC economies – Brazil, Russia, India and China – are getting worse, compared with 36% who said so in July.

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China is filled to its credit boom with this kind of shady deals.

• China Busts Underground Banks Linked to $23 Billion Transactions (Bloomberg)

Beijing police raided and shut down more than 10 underground banks that were involved in 140 billion yuan ($23 billion) of transactions over the past few years. The banks were raided on Sept. 18, with 59 people arrested and 264 bank accounts frozen, Beijing Municipal Public Security Bureau said in a statement today. The investigation started in February when Beijing police found that a man with surname Yao had transferred more than $5 million abroad in a year, according to the statement. Yao, who had a number of bank accounts, frequently bought $50,000 of foreign exchange, the police said. That’s the most overseas currency that a Chinese citizen can buy annually. The underground banks, most of which are family-run and operating out of homes, use online and mobile payment devices to buy or sell foreign exchange and illegally transfer funds abroad, according to the statement. Beijing police said they would continue to crackdown on crimes that threaten China’s economic and financial security.

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Investors are clueless and befuddled. Ideal patsies.

• Stock Market Fear, Stress And Tensions Climbing (MarketWatch)

What happens if we get another melt-up, maybe to 18,000 on the Dow Jones Industrial Average before we see 17,000 again? I’m in a less aggressive mode for now, but feet to fire, if this bubble-blowing bull market is to keep on blowing, why not a total melt-up into and above 18,000 before year-end? Stranger things have happened. I often ask, who’s more scared right now, the bulls or the bears because when there’s an overwhelming consensus in the answer to that question, it’s often time for the markets to put on a big contrarian move opposite that sentiment. Are you a bull or one of the few bears remaining? Are you scared right now? Do you think most bulls are scared right now?

Fear, stress and tensions have been climbing along with the markets, which isn’t what you’d expect, is it? I’ve noticed throughout this week that tensions have been very high on Latest Scuttles and that’s a reflection of the stress felt by most traders and investors right now. There’s likely a lot of money managers who missed this last leg higher from the Ebola lows and now find themselves drastically behind their market benchmarks with just 45 days to go into year-end. That kind of technical setup into year-end could be a catalyst for the winners to keep their momentum heading higher. I personally am not trying and wouldn’t suggest trying to game the next market move, but it’s something to think about.

And what if you’ve missed this bull run over the last five years and still aren’t in the markets or even if you just find yourself like the aforementioned money managers and feel underinvested here? Like I said, I don’t think the continuing bubble-blowing bull market that I’ve predicted would play out like this is over yet. I wouldn’t be aggressive, but if you don’t think you own enough stocks (or any for that matter) then I do suggest scaling into some of the best stocks you can find, including some of the very best, most revolutionary growth stocks you can find.

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The take-away: Apple is an 800-pound bubble.

• Apple Could Swallow Whole Russian Stock Market (Bloomberg)

If you owned Apple Inc., and sold it, you could purchase the entire stock market of Russia, and still have enough change to buy every Russian an iPhone 6 Plus. The CHART OF THE DAY shows the total market capitalization of all public companies in the world’s largest country slipped below that of the world’s most-valued company for the first time on record. The gap, at $121 billion on Nov. 12, is about the price of 143 million contract-free 64-gigabyte iPhones, based on Apple Store prices. The value of Russian equities has slumped $234 billion to $531 billion this year, while Apple gained $147 billion to $652 billion, according to data compiled by Bloomberg.

The technology company’s innovation and brand value attract investors, while Russia’s political conflicts, sanctions and the threat of economic stagnation next year make them nervous, according to Vadim Bit-Avragim, a portfolio manager who helps oversee about $4 billion at Kapital Asset Management LLC in Moscow. “Apple works with shareholders to maximize returns and is based where property is protected by law,” Bit-Avragim said. “In Russia, the legislative protection for property is not as good, most state-run companies have poor corporate governance, resources are concentrated in state hands and borrowing costs are shooting up. After all this, when you get involved in conflicts with your neighbors, it becomes very hard to persuade investors from all over the world to invest here.”

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Destruction is our middle name.

• Fracking Boom Spurs Demand for Sand and Clouds of Dust (Bloomberg)

A little sand mine down the road didn’t seem like a big deal 17 years ago, when Alphonse Dotson picked the site for a vineyard in the Texas Hill Country. Today he’s surrounded by four mines blasting sand from the earth, filling the air with a fine dust that drifts across acres of sensitive grape vines. A fifth will open soon, and he says he’s worried. “I don’t want us to be smothered to death,” he said. Add sand mining to the list of industries transformed by the U.S. oil boom. The tiny grains of silica are what keep frackers fracking, propping open cracks punched into rock so oil and natural gas can flow. As drilling surged, so has demand for sand. Sand production has more than doubled in the U.S. over the past seven years. By the end of 2016, oil companies in North America will be pumping 145 billion pounds (66 billion kilograms) of it down wells annually. That’s enough to fill railcars stretching from San Francisco to New York – and back.

That’s triggering complaints from local communities, according to a Grant Smith, senior energy policy adviser at the Civil Society Institute. Dust from sand can penetrate deep into lungs and the bloodstream; mines consume massive amounts of water; sand-laden trucks are damaging roads; and property values can be affected. The surge in mining is a “little-understood danger of the fracking boom,” Smith said in a September call with reporters. Energy companies are paying 6% more for sand this year at a time when oil prices are plunging. While low prices may slow down drilling, that won’t make up for a supply bottleneck, said Samir Nangia, a principal at the Houston-based research company PacWest Consulting Partners. Fracking companies are struggling to get enough sand because there aren’t enough trucks and railcars to deliver it. Higher transportation costs are eating into profits at oil-services companies like Schlumberger, Halliburton and Baker Hughes.

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A company that had revenues of $17 billion in 2013 just topples over, and no-one pays attention, because it happened to be in Denmark and SIngapore.

• Massive OW Bunker Bankruptcy: Questions Of Governance And Oversight (SeaTrade)

The rapid collapse into bankruptcy of OW Bunker just 48 hours after it revealed a $125m fraud at Singapore subsidiary Dynamic Oil Trading, as well as $150m in risk management losses announced at the same time, leaves an awful lot of unanswered questions. OW Bunker was not a two-bit marine fuel supplier, it had revenues of $17bn in 2013 and claimed a 7% share of the global marine fuel supply market. In March this year its IPO on Copenhagen’s NASDAQ exchange valued the company at DKK5.33bn ($900m), making it one of Denmark’s largest IPOs in recent years. In May this year OW Bunker made Forbes list of top 2,000 list of the world’s biggest public companies. As it stands just seven months on the from the IPO some 20,000 investors will have lost everything they put into the company, based on the statement when it filed for in-court restructuring of its main operating subsidiaries that it “must be assumed that the group’s equity is lost”.

Suppliers and sub-contractors will find themselves with large unpaid bills, something which P&I insurers Skuld have warned shipowners about. And more than 600 employees of the group worldwide face a very uncertain future. Trading is a risky business, and anyone investing in it needs to understand this, but this is also why corporate governance and oversight are so important. It is worth noting that according to reports in the Danish media the company did not actually uncover the fraud at Dynamic itself; one of its senior executives flew to Denmark and tearfully confessed to it. How long it would have gone on if this had not happened we can only speculate. Two employees have since been reported to the Danish police as OW Bunker filed for bankruptcy. What fraud was actually committed we do not know, although we do know it was over a six month period, so its open to question whether it was actual embezzlement or the hiding of losses as the market turned against the executives involved.

Certainly the recent sharp falls in the oil and bunker price point to the latter as a possibility. The case bears certain parallels to then Singapore-based, British national, rogue trader Nick Leeson who caused the collapse of Barings Bank in 1995 having run up losses on speculative trades that eventually totaled in the region of $1.4bn. Indeed the BBC is reporting the fraud at Dynamic could be one of Singapore’s largest financial scandals in the last 10 years, joining what is already a huge scandal in Denmark. The fraud revelations came on top of the $150m in risk management losses that resulted in the firing of OW Bunker head of risk management and evp Jane Dahl Christensen. The full extent of the fallout of OW Bunker’s sudden bankruptcy will most likely take years to unravel. However, lessons do need to be learned on corporate governance and oversight for the benefit of all going forward.

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That Tony Abbott is one dumb f*ck: “Sydney before British settlement was “nothing but bush.”

• Aboriginals Decry G-20 Host Australia as Leaders Gather (Bloomberg)

Across the Brisbane River from where some of the world’s biggest leaders will soon gather, a group of 200 indigenous Australians is seeking to present another side to the country’s image as host and regional power. “We want to talk to the people of the world,” said twenty-seven-year-old Meriki Onus, who joined the Aboriginal people protesting in a city park after a two-day, 1,100-mile bus ride to the Queensland state capital. “The police system here is racist, the government systems here are racist and we’ve used the G-20 as an opportunity to tell the world that it’s not OK.” Australia’s first inhabitants – who lived on the continent at least 40,000 years prior to British settlement in 1788 and now make up about 3% of the population – are among groups using the draw of leaders like U.S. President Barack Obama at the Group of 20 meetings to highlight their causes.

The indigenous people gathered in the subtropical city, where police outnumber the 7,000 delegates and media, say the system of government has entrenched poverty. “This country is occupied by force, like what happened in Poland and France during War War II, but for us this has been going on for more than two centuries,” Wayne Wharton, spokesman for the Brisbane Aboriginal Sovereign Embassy, said today at the park protest. “Our people want our rightful place in the world, and that means economic benefits, social benefits, responsibility and services.” Speaking at a business breakfast today in Sydney with U.K. Prime Minister David Cameron, Australia’s leader Tony Abbott, a self-declared prime minister for Aborigines and host of this weekend’s G-20 summit, said Sydney before British settlement was “nothing but bush.”

“As we look around this glorious city, as we see the extraordinary development, it’s hard to think that back in 1788 it was nothing but bush and that the marines and the convicts and the sailors that straggled off those 12 ships just a few hundred yards from where we are now must have thought they’d come almost to the moon,” Abbott said. Daubed with “mourning paint” across his face and torso to highlight indigenous deaths in police custody, Wharton said the G-20 won’t help his people or other Aboriginal races throughout the world because it’s designed to make rich nations wealthier at the expense of the poor. “It all comes back to having the ability to accumulate and then distribute wealth – my people have never had that,” he said.

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And Then There’s The Things You Couldn’t Even Make Up

Nov 112014
 
 November 11, 2014  Posted by at 7:24 pm Finance Tagged with: , , , , ,  12 Responses »


Marjory Collins Window of Jewish religious shop on Broome Street, New York Aug 1942

There are things in this world which simply look plain stupid, and then there are those that at closer examination prove to be way beyond stupid. How about this one:

1) G20 taxpayers (you, me) subsidize the fossil fuel industry. That in itself is crazy enough, and it should stop as per last week; industry participants must be able to fend for themselves, or fold. That they don’t, speaks to a very unhealthy level of power in and over our political systems. Subsidizing coal and oil is as insane as bailing out Wall Street banks. It’s money that defies gravity, by flowing from the bottom to the top, from the poor to the rich.

2) Then there’s the huge amount of the subsidies: $88 billion a year. That could solve a lot of misery for a lot of people. It adds up to well over $1 trillion in this century alone. Next time you feel good about prices at the pump, please add that number, it should set you straight.

3) But that’s just the start. Those $88 billion go towards exploration for new oil, gas and coal resources which, according to the UN’s IPCC climate panel, can never even be ‘consumed’ lest we go way beyond our – minimum – goals for CO2 concentrations and a global 2ºC warming limit.

4) And it keeps getting better. For who do you think pays for the research conducted for the IPCC reports? That’s right, the same G20 taxpayer. As in: you and me. We pay for both ends of the divine tragedy. We got it al covered. We pay for exploratory drilling in the Arctic, the Gulf of Mexico and all other ever harder to find, riskier and more polluting resources.

If this were not about us, we’d undoubtedly declare ourselves stark raving mad. Since it does directly involve us, though, we of course favor a more nuanced approach. Like sticking our heads in the sand.

I got that $88 billion a year number from a new report by British thinktank the Overseas Development Institute (ODI) and Washington-based analysts Oil Change International, The Fossil Fuel Bailout: G20 Subsidies For Oil, Gas And Coal Exploration. The Guardian has a few more juicy tidbits:

Rich Countries Subsidising Oil, Gas And Coal Companies By $88 Billion A Year

Rich countries are subsidising oil, gas and coal companies by about $88bn (£55.4bn) a year to explore for new reserves, despite evidence that most fossil fuels must be left in the ground if the world is to avoid dangerous climate change.

The most detailed breakdown yet of global fossil fuel subsidies has found that the US government provided companies with $5.2bn for fossil fuel exploration in 2013, Australia spent $3.5bn, Russia $2.4bn and the UK $1.2bn. Most of the support was in the form of tax breaks for exploration in deep offshore fields.

The public money went to major multinationals as well as smaller ones who specialise in exploratory work, according to British thinktank the Overseas Development Institute (ODI) and Washington-based analysts Oil Change International.

Britain, says their report, proved to be one of the most generous countries. In the five year period to 2014 it gave tax breaks totalling over $4.5bn to French, US, Middle Eastern and north American companies to explore the North Sea for fast-declining oil and gas reserves. A breakdown of that figure showed over $1.2bn of British money went to two French companies, GDF-Suez and Total, $450m went to five US companies including Chevron, and $992m to five British companies.

Britain also spent public funds for foreign companies to explore in Azerbaijan, Brazil, Ghana, Guinea, India and Indonesia, as well as Russia, Uganda and Qatar, according to the report’s data, which is drawn from the OECD, government documents, company reports and institutions.

The figures, published ahead of this week’s G20 summit in Brisbane, Australia, contains the first detailed breakdown of global fossil fuel exploration subsidies. It shows an extraordinary “merry-go-round” of countries supporting each others’ companies. The US spends $1.4bn a year for exploration in Columbia, Nigeria and Russia, while Russia is subsidising exploration in Venezuela and China, which in turn supports companies exploring Canada, Brazil and Mexico.

“The evidence points to a publicly financed bail-out for carbon-intensive companies, and support for uneconomic investments that could drive the planet far beyond the internationally agreed target of limiting global temperature increases to no more than 2C,” say the report’s authors.

“This is real money which could be put into schools or hospitals. It is simply not economic to invest like this. This is the insanity of the situation. They are diverting investment from economic low-carbon alternatives such as solar, wind and hydro-power and they are undermining the prospects for an ambitious UN climate deal in 2015,” said Kevin Watkins, director of the ODI.

“The IPCC [UN climate science panel] is quite clear about the need to leave the vast majority of already proven reserves in the ground, if we are to meet the 2C goal. The fact that despite this science, governments are spending billions of tax dollars each year to find more fossil fuels that we cannot ever afford to burn, reveals the extent of climate denial still ongoing within the G20,” said Oil Change International director Steve Kretzman.

The report further criticises the G20 countries for providing over $520m a year of indirect exploration subsidies via the World Bank group and other multilateral development banks (MDBs) to which they contribute funds.

That’s right, as you see in the graph we pay more towards Big Oil’s future profits then the companies do themselves. Without getting shares in those companies, mind you. We pay Big Oil and coal to produce more fossil fuels, and at the same time we pay the UN to publish reports demanding they produce less of them. Feel crazy yet?

Did you have any idea that your government sponsors oil companies with your money, which they don’t need, and certainly shouldn’t? Aren’t we supposed to at least take a serious look at alternative energy sources, and more importantly, use less energy, whether it’s coal or solar? If only to show we do indeed understand the 2nd law of thermodynamics?!

Big Oil, like Wall Street banks, should be, and can, take care of themselves, and very well. May I suggest you try and find out who in your respective government has given the thumbs up to these crazy handouts, and when you do, make sure they’re fired.

Debt Rattle November 11 2014

Nov 112014
 
 November 11, 2014  Posted by at 11:07 am Finance Tagged with: , , , , , , , , , ,  1 Response »


Dorothea Lange Country filling station, Granville County, NC July 1939

• Is ‘Too Big To Fail’ For Banks Really Coming To An End? (BBC)
• Banks Poised to Settle With Derivatives Regulator in FX-Rigging Cases (BW)
• Bond Swings Draw Scrutiny (WSJ)
• China, Japan And An Ugly Currency War (Steen Jakobsen)
• Subprime Credit Card Lending Swells (CNBC)
• Why Iron Ore’s Meltdown Is Far From Over (CNBC)
• It’s Time to Put Juncker on the Hot Seat (Spiegel Ed.)
• The Ghosts of Juncker’s Past Come Back to Haunt Him (Spiegel)
• The Return Of The US Dollar (El-Erian)
• Fears Of German Recession As Moment Of Truth Looms (CNBC)
• Russia Ends Dollar/Euro Currency Peg, Moves To Free Float (RT)
• Police Use Department Wish List When Deciding Which Assets to Seize (NY Times)
• Alleged Sarkozy Plot Rocks French Political Establishment (FT)
• Nearly A Third Of Indian Cabinet Charged With Crimes (Reuters)
• Energy Is Europe’s ‘Big Disadvantage’: Deutsche Bank Co-Ceo (CNBC)
• Rich Nations Subsidize Fossil Fuel Industry By $88 Billion A Year (Guardian)
• The Real Story Of US Coal: Inside The World’s Biggest Coalmine (Guardian)
• Angry Canary Islanders Brace For An Unwanted Guest: The Oil Industry (Guardian)
• Fukushima Radiation Found in Pacific Off California Coast (Bloomberg)
• The Fate of the Turtle (James Howard Kunstler)

Make that a no.

• Is ‘Too Big To Fail’ For Banks Really Coming To An End? (BBC)

Interviewing Alistair Darling in 2011, three years after the financial crisis during which he was chancellor, his most striking answer to me was not about the fear that Britain’s economic system was on the point of collapse. It wasn’t even his worry that ATMs up and down the country might simply stop functioning. Those answers were of course chilling. But they were symptoms of a wider disease. Mr Darling’s most striking answer was the “absolute astonishment” he felt when he asked Britain’s largest banks to account for the risks contained in their businesses – and they were unable to come up with a coherent answer. This total lack of knowledge – coupled with the hubris of profit-taking built on lax credit – went to the heart of the financial crisis. Regulators appeared similarly non-plussed.

Such was the global complexity and lack of governance in the international financial system, when it came to rescuing the banks from having to eat their own sick, the UK government – and many other governments around the world – initially had no idea how large the bill would be. And neither did the banks. The only funding avenues large enough to contain such unquantifiable risks were those provided by central banks and the taxpayer. The alternative was financial meltdown. The numbers turned out to be astronomical. A National Audit Office report in August this year suggested the value of the UK government’s total support for the financial system alone exceeded £1.1tn at its height. Many tens of billions of pounds worth of capital was directly injected into failing banks and building societies.

The rest of that dizzying £1.1tn was the total value of liability insurance – the government guaranteeing banks’ security as lender of last resort. Put simply, the taxpayer had become the guarantor of the global financial system and the banks that are the essential plumbing of that system. In direct capital the UK government (the taxpayer) ultimately had to find over £100bn. More than £66bn was used to rescue the Royal Bank of Scotland (still 80% owned by the government) and Lloyds Bank (still 25% owned by the government). Of that, the sale of two chunks of Lloyds since the last election in 2010 has raised the princely sum of £7.4bn.

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For rigging a $5.300.000.000.000 a day market, banks are fined $300.000.000. Remove a few zeroes and it’s like being fined $300 for rigging a $5.300.000 million market. Sounds profitable.

• Banks Poised to Settle With Derivatives Regulator in FX-Rigging Cases (BW)

Banks suspected of rigging the $5.3 trillion-a-day currency market are preparing to reach settlements as early as this week with the main U.S. derivatives regulator, according to a person with knowledge of the cases. The Commodity Futures Trading Commission may levy fines of about $300 million against each firm, depending on the level of their involvement, said the person, who spoke on condition of anonymity because deals haven’t been announced. It’s unclear how many firms may settle with the CFTC as U.K. and U.S. bank regulators prepare to levy related penalties this week, the person said. There was no immediate response to an e-mailed request for comment from the CFTC after normal business hours. The New York Times reported late yesterday on the talks with the agency.

Investigations are under way on three continents as authorities probe allegations that dealers at the world’s biggest banks traded ahead of clients and colluded to rig benchmarks used by pension funds and money managers to determine what they pay for foreign currencies. The U.K. Financial Conduct Authority is poised to reach settlements as soon as this week with six banks, which together have set aside about $5.3 billion in recent weeks for legal matters including the currency investigations, people with knowledge of those talks have said. Barclays, Citigroup, HSBC, JPMorgan, Royal Bank of Scotland and UBSare in settlement talks with the FCA, people with knowledge of the situation have said.

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How many years is the investigation going to take?

• Bond Swings Draw Scrutiny (WSJ)

The day’s trading was just hitting its stride in New York on the morning of Oct. 15 when bond investors, traders and strategists were stunned by an unusual move in the $12 trillion U.S. Treasury market playing out on their computer screens. The yield on the 10-year Treasury note took a sharp dive below 2% within minutes, and few could understand exactly why. Some dealers immediately pulled the plug on automated trading systems that provided price quotes to customers. Fund managers rushed to convene meetings. Many investors scrambled to pinpoint the reason behind the accelerating decline. “It starts moving faster and faster, and you can’t point to anything,” recalled Mark Cernicky, managing director at Principal Global Investors , which oversees $78 billion. Now, investors and regulators are burrowing into the causes of the plunge in yields to try to understand whether electronic trading and new regulations are fueling sudden price swings in a market that acts as a key benchmark for interest rates, investments and U.S. home loans.

At the time, bond-market analysts attributed the fall in yields to weak U.S. economic data, shaky European markets and hedge funds scrambling to cover wrong-way bets. But many investors felt that didn’t fully explain why the yield on the 10-year Treasury note tumbled to its biggest one-day decline since 2009. When yields fall, prices rise. Regulators and other experts are examining deep-seated shifts in trading since the financial crisis, which could help explain the unusual size of the move in a market many investors rely on for its relative stability. “What happened on Oct. 15 is the result of things that had been building for a while,” said Alex Roever, a strategist at J.P. Morgan Chase & Co. who follows the government-bond market. The Federal Reserve, Treasury and Commodity Futures Trading Commission are looking at that day’s trading activity, according to people familiar with the situation. One focus is the role of high-speed electronic trading in the bond market, although regulators haven’t yet drawn any conclusions, these people said.

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More trouble for Tokyo.

• China, Japan And An Ugly Currency War (Steen Jakobsen)

There’s increasing risk we’ll soon see a “significant paradigm shift” from China in its attitude to the strength of its currency. So says Saxo Bank’s Chief Economist, Steen Jakobsen. He says we’re about to see a full-scale currency war, notably between China and Japan, two of the world’s greatest exporting countries. There are a number of important world meetings over the coming few weeks and the Chinese will be “very vocal”, says Steen, as it’s getting increasingly worried about its loss of growth momentum. The yuan has strengthened significantly in recent weeks while the yen has declined substantially. The country’s determined, he says, to refocus and maintain its export share of total growth.

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And Washington just sits by and lets it happen all over again.

• Subprime Credit Card Lending Swells (CNBC)

Consumers with dinged credit are back in a borrowing mood, and lenders are more than happy to give them new credit cards, according to new data. Since the Great Recession ended five years ago, consumers have been gradually taking on more debt and lenders have been accommodating them, easing up on tighter standards. Much of the growth has been in so-called non-revolving credit, especially car loans, thanks to record low interest rates. But revolving credit—mainly in the form of credit cards—is picking up. And the biggest growth in new credit cards is coming from so-called subprime borrowers whose credit scores are less than 660, according to the latest Equifax data.

Through July of this year, banks handed out cards to 9.8 million subprime consumers, a six-year high and an increase of 43% from the same period last year. Another 7.8 million cards have been issued to subprime borrowers by retailers this year, up 13% from 2013 to an eight-year high. Lenders are also giving subprime borrowers higher credit limits. Bank-issued card limits jumped to $12.7 billion for the first seven months of the year—up 4% from the same period a year ago to a six-year high. Retailers lifted their card limits by 16% to $6.8 billion, an eight-year high. Part of the growth is the result of an easing of the tighter standards that followed the 2008 credit bust after the boom of the early-2000s. Now that banks have repaired the damage from billions of dollars in bad debts, they’re better able to take on more risk. A stronger job market is also putting more consumers in a borrowing mood, according to economists at Wells Fargo.

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Chinese fake numbers have distorted the market for years.

• Why Iron Ore’s Meltdown Is Far From Over (CNBC)

Iron ore prices have dived an eye-watering 44% this year and there’s no respite ahead for the metal, according to Citi, which forecasts double-digit declines in 2015. The bank on Tuesday slashed its price forecasts for the metal to average $74 dollars per ton in the first quarter of next year, before moving down to $60 in the third quarter. It previously forecast $82 and $78, respectively. “We expect renewed supply growth to once again drive the market lower in 2015, combined with further demand weakness,” Ivan Szpakowski, analyst at Citi wrote in a report, noting that prices could briefly dip into the $50 range in the third quarter. The price of spot iron ore fell $75.50 this week, its lowest level since 2009, according to Reuters.

Price declines in the first half of this year were driven by rapid growth in export supply, which has slowed in the second half of the year. In recent months, deteriorating Chinese steel demand and deleveraging by traders and Chinese steel mills has dragged the metal. Iron ore is an important raw material for steel production. However, iron ore supply growth will return in the first half of next year, Citi said, as industry heavyweights Rio Tinto, BHP Billiton and Vale rev up expansions and Anglo American’s Minas-Rio iron ore project in Brazil ramps up. Meanwhile, demand out of China – the world’s biggest buyer of iron ore – will remain under pressure due subdued steel demand. Demand for steel is being compressed due to tighter credit conditions and an uncertain export outlook.

“Chinese manufacturing exports have improved in recent months, helping to boost steel demand for machinery, metal products, etc. However, with European growth having slowed such positive momentum is unlikely to continue,” Szpakowski said. ANZ also substantially downgraded its 2015 price forecast for iron ore this week. However, it was not quite as bearish as Citi. The bank, in a report published on Monday, said the metal will not breach $100 a ton again, forecasting prices to average $78 next year, 22% lower than its previous estimate. “Recent trip to China highlights that demand conditions are more challenging than we thought,” ANZ said.

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I bet he thinks he’s awfully smart.

• The Ghosts of Juncker’s Past Come Back to Haunt Him (Spiegel)

Jean-Claude Juncker’s first public appearance as the new European Commission president was a symbolic one. Early this month, he traveled to Frankfurt to present former German Chancellor Helmut Kohl’s new book in the luxury hotel Villa Kennedy. Called “Aus Sorge um Europa” – “Out of Concern for Europe” – the book warns that the pursuit of national interests represents a danger to the European ideal. And Juncker is quick to endorse Kohl, a man he calls “a friend and role model.” “Kohl is right in deploring the fact that we are increasingly sliding down the slope toward reflexive regionalism and nationalism,” Juncker said. It is certainly not the first time Juncker has uttered such a sentence. Indeed, his delivery of the message has often been even more direct. “I’ve had it,” he erupted during an EU summit in December of 2012, for example. “80% of the time, only national interests are being presented. We can’t go on like this!”

Such sentiments have served Juncker well throughout his career and have helped transform the politician from tiny Luxembourg into a well-known defender of Europe. Now, though, at the apex of his European career, Juncker and his beloved European Union are facing a significant problem. And it is one that has led even advisors close to Juncker to wonder whether he may soon have to step down from his new position, despite having taken office only recently. Last week, several media outlets, including the Munich-based Süddeutsche Zeitung, published the most detailed accounts yet of the tricks used – and the eagerness brought to bear – by Luxembourg officials to help companies avoid paying taxes. The strategies were often developed together with company leaders and served to entice multinationals to set up shop in Luxembourg. The tiny country on Germany’s western border, for its part, benefited from tax revenues it wouldn’t otherwise have seen. It was, in short, a reciprocal relationship.

But it was also a relationship that was disadvantageous for Luxembourg’s EU partners – and for European cooperation itself. Many of the companies that set up shop in Luxembourg, after all, no longer paid taxes in their home countries where they produced or sold the lion’s share of their products.

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But with the Spiegel editorial board turning against him, how long can Jean-Claude last?

• It’s Time to Put Juncker on the Hot Seat (Spiegel Ed.)

Can the European Commission be led by a man who transformed his own country into a tax oasis? [..] The European Union has a problem – and a serious one at that. On the surface, the issue is about the tax avoidance schemes in Luxembourg that were engineered during former Prime Minister Jean-Claude Juncker’s tenure. And about the billions of euros in revenues lost by other EU countries as a result. But the true problem in this affair actually runs a lot deeper. At issue is just how seriously we take the new European democracy that Juncker himself often touts. The criticism of Juncker came less than a week after he took office. Leaked tax documents released last Wednesday by the International Consortium of Investigative Journalists showed how large corporations have taken advantage of loose policies in Luxembourg to evade paying taxes. At a time of slow economic growth and tight national budgets, sensitivity has grown in large parts of the EU over countries that facilitate legal tax evasion.

Juncker is fond of pointing out proudly that he was Europe’s first “leading candidate,” and the first to be more-or-less directly elected as president of the European Commission. Across Europe, many celebrated it as the moment when more democracy came to the EU. Unfortunately, optimism blinded people to one salient fact: European politicians themselves never took this newfound democracy particularly seriously. In contrast to the United States, where getting to know the candidates is a matter of course, the EU never had any intent of truly introducing its leading politicians to the people. This has created a situation in which a person like Juncker can effectively lead two lives. One as an (honest) proponent of the EU and the other as a cunning former leader of an EU member state who promoted Luxembourg’s self-interest by blocking treaties that would have forced the country to adopt stricter tax policies.

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Mo talks his book.

• The Return Of The US Dollar (El-Erian)

The US dollar is on the move. In the last four months alone, it has soared by more than 7% compared with a basket of more than a dozen global currencies, and by even more against the euro and the Japanese yen. This dollar rally, the result of genuine economic progress and divergent policy developments, could contribute to the “rebalancing” that has long eluded the world economy. But that outcome is far from guaranteed, especially given the related risks of financial instability. Two major factors are currently working in the dollar’s favour, particularly compared to the euro and the yen. First, the United States is consistently outperforming Europe and Japan in terms of economic growth and dynamism – and will likely continue to do so – owing not only to its economic flexibility and entrepreneurial energy, but also to its more decisive policy action since the start of the global financial crisis.

Second, after a period of alignment, the monetary policies of these three large and systemically important economies are diverging, taking the world economy from a multi-speed trajectory to a multi-track one. Indeed, whereas the US Federal Reserve terminated its large-scale securities purchases, known as “quantitative easing” (QE), last month, the Bank of Japan and the European Central Bank recently announced the expansion of their monetary-stimulus programs. In fact, ECB President Mario Draghi signalled a willingness to expand his institution’s balance sheet by a massive €1 trillion ($1.25 trillion). With higher US market interest rates attracting additional capital inflows and pushing the dollar even higher, the currency’s revaluation would appear to be just what the doctor ordered when it comes to catalysing a long-awaited global rebalancing – one that promotes stronger growth and mitigates deflation risk in Europe and Japan.

Specifically, an appreciating dollar improves the price competitiveness of European and Japanese companies in the US and other markets, while moderating some of the structural deflationary pressure in the lagging economies by causing import prices to rise. Yet the benefits of the dollar’s rally are far from guaranteed, for both economic and financial reasons. While the US economy is more resilient and agile than its developed counterparts, it is not yet robust enough to be able to adjust smoothly to a significant shift in external demand to other countries. There is also the risk that, given the role of the ECB and the Bank of Japan in shaping their currencies’ performance, such a shift could be characterized as a “currency war” in the US Congress, prompting a retaliatory policy response. Furthermore, sudden large currency moves tend to translate into financial-market instability.

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Not looking good.

• Fears Of German Recession As Moment Of Truth Looms (CNBC)

Just days before Germany’s much anticipated third quarter gross domestic product (GDP) data is released, business leaders and policy makers warn that the euro zone’s largest economy has lost its competitiveness and is on the brink of a recession. The chair of the German Banking Association, Juergen Fitschen, told CNBC on Monday that it was “undeniable that we have slowed down recently.” “We cannot insulate ourselves against the factors that have contributed to the current state of affairs…But, also, [thereis a] slow recovery in some of our neighboring countries and also a lack o fdemand to finance infrastructure projects in Germany itself,” he said. Speaking to CNBC on the sidelines of a press conference held by the association, he said: “We have to remind ourselves that we have not spared continuing efforts to renew our competitiveness and that is something that applies obviously to our neighboring countries as well,” he continued.

Fitschen’s comments came amid other severe critiques of the German economy and outlook, just days before the release of the GDP data on Friday. Second quarter data in August showed data showed Germany’s economy had lost momentum, contracting for the first time in over a year. Quarter-on-quarter, GDP contracted 0.2%. If the economy contracts again in the third quarter, Germany will technically be in recession. The head of Germany’s influential Ifo economic research institute said that was a distinct possibility on Monday.Speaking to Reuters, Hans-Werner Sinn said that Germany was teetering on the brink of a recession due to weakness in major emerging trading partners. “It is going to be really close,” Sinn warned, saying that surveys by the Ifo institute pointed more towards a recession.

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Flipping the west the bird.

• Russia Ends Dollar/Euro Currency Peg, Moves To Free Float (RT)

The Bank of Russia took another step towards a free float ruble by abolishing the dual currency soft peg, as well as automatic interventions. Before, the bank propped up the ruble when the exchange rate against the euro and dollar exceeded its boundaries. “Instead, we will intervene in the currency market at whichever moment and amount needed to decrease the speculative demand,” the bank’s chairwoman, Elvira Nabiullina, said in an interview with Rossiya 24 Monday. The move is edging towards a floating exchange rate, which the bank hopes to attain by 2015. “Effective starting November 10, 2014, the Bank of Russia abolished the acting exchange rate policy mechanism by cancelling the allowed range of the dual-currency basket ruble values (operational band) and regular interventions within and outside the borders of this band,” the bank said in a statement Monday.

“As a result of the decision the ruble exchange rate will be determined by market factors, which should promote efficiency of the monetary policy of the Bank of Russia and ensure price stability,” the central bank said. Foreign exchange intervention is still at the bank’s disposal, and is ready to use in the case of “threats to financial stability,” according to the statement. Propping up the ruble can cost the Central Bank of Russia billions of dollars per day, coming out of the country’s reserve fund. In October alone, the bank was forced to spend $30 billion to defend the weakening ruble. On November 5, the bank announced it had limited the reserves it is willing to spend to inflate the ruble to $350 million per day in order to slash speculation and volatility. The decision triggered a 3-day plunge for the Russian currency. On Monday, the ruble recovered slightly after Russian President Vladimir Putin assured speculative drops would cease in the near future.

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Welcome to the third world.

• Police Use Department Wish List When Deciding Which Assets to Seize (NY Times)

The seminars offered police officers some useful tips on seizing property from suspected criminals. Don’t bother with jewelry (too hard to dispose of) and computers (“everybody’s got one already”), the experts counseled. Do go after flat screen TVs, cash and cars. Especially nice cars. In one seminar, captured on video in September, Harry S. Connelly Jr., the city attorney of Las Cruces, N.M., called them “little goodies.” And then Mr. Connelly described how officers in his jurisdiction could not wait to seize one man’s “exotic vehicle” outside a local bar. “A guy drives up in a 2008 Mercedes, brand new,” he explained. “Just so beautiful, I mean, the cops were undercover and they were just like ‘Ahhhh.’ And he gets out and he’s just reeking of alcohol. And it’s like, ‘Oh, my goodness, we can hardly wait.’ ”Mr. Connelly was talking about a practice known as civil asset forfeiture, which allows the government, without ever securing a conviction or even filing a criminal charge, to seize property suspected of having ties to crime.

The practice, expanded during the war on drugs in the 1980s, has become a staple of law enforcement agencies because it helps finance their work. It is difficult to tell how much has been seized by state and local law enforcement, but under a Justice Department program, the value of assets seized has ballooned to $4.3 billion in the 2012 fiscal year from $407 million in 2001. Much of that money is shared with local police forces. The practice of civil forfeiture has come under fire in recent months, amid a spate of negative press reports and growing outrage among civil rights advocates, libertarians and members of Congress who have raised serious questions about the fairness of the practice, which critics say runs roughshod over due process rights. In one oft-cited case, a Philadelphia couple’s home was seized after their son made $40 worth of drug sales on the porch.

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Politicians caught up in their own lies and denials. It shows you what France is made of. Marine Le Pen’s popularity doesn’t come out of nowhere.

• Alleged Sarkozy Plot Rocks French Political Establishment (FT)

Leading figures from France’s two traditional parties have been enmeshed in a fresh political scandal involving former president Nicolas Sarkozy, complicating their attempts to halt voter defection to the far-right National Front. The latest “affair” to rock France’s political establishment involves the chief of staff of President François Hollande, who is already struggling with the lowest popularity ratings of any French leader since the second world war. It also touches François Fillon, a leading figure in the country’s centre-right UMP party and a former prime minister who has stated his determination to run for the presidency in 2017.

The scandal centres on a lunch in June during which Mr Fillon reportedly asked Jean-Pierre Jouyet, Mr Hollande’s chief of staff, to speed up judicial investigations into an alleged UMP cover-up of illegal overspending during the 2012 presidential re-election campaign of Mr Sarkozy, the UMP’s then candidate. “Hit him quickly,” Mr Fillon is alleged to have said to Mr Jouyet, referring to Mr Sarkozy. “If you don’t hit him quickly, you will see him come back.” Mr Sarkozy recently announced his return to French politics, and is campaigning to become head of his party in elections at the end of the month. The move is seen widely as the first step in a longer-term goal of competing for the presidency in 2017. Mr Fillon has vehemently denied the conversation about campaign financing with Mr Jouyet, which was first reported by two journalists at Le Monde, the French daily newspaper.

“I can only see in these incredible attacks an attempt at destabilisation and a plot,” Mr Fillon said on Sunday. He threatened the two Le Monde journalists with legal action and then turned his wrath on Mr Jouyet, accusing him of lying and threatening to take him to court. Mr Jouyet, a close personal friend of Mr Hollande but who also served in the previous centre-right government of Mr Sarkozy, on Sunday admitted he had discussed the alleged illegal overspending issue during the lunch with Mr Fillon – though stopped short of confirming Mr Fillon’s alleged request to speed up the judicial investigations against Mr Sarkozy. Mr Jouyet’s admission, reported by France’s AFP, came just a few days after he had told the news agency that the subject of the UMP campaign financing had not come up during the June lunch with Mr Fillon.

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Almost funny: “At least five people in the cabinet have been charged with serious offences such as rape and rioting. Finance Minister Arun Jaitley said any suggestions there were criminals in the cabinet were “completely baseless. “These are cases arising out of criminal accusations, not cases out of a crime .. ”

• Nearly A Third Of Indian Cabinet Charged With Crimes (Reuters)

Attempted murder, waging war on the state, criminal intimidation and fraud are some of the charges on the rap sheets of ministers Indian Prime Minister Narendra Modi appointed to the cabinet on Sunday, jarring with his pledge to clean up politics. Seven of 21 new ministers face prosecution, taking the total in the 66-member cabinet to almost one third, a higher proportion than before the weekend expansion. At least five people in the cabinet have been charged with serious offences such as rape and rioting. Finance Minister Arun Jaitley said any suggestions there were criminals in the cabinet were “completely baseless. “These are cases arising out of criminal accusations, not cases out of a crime,” he told reporters on Monday, adding that Modi had personally vetted the new ministers. Ram Shankar Katheria, a lawmaker from Agra, was appointed junior education minister yet has been accused of more than 20 criminal offences including attempted murder and promoting religious or racial hostility.

The inclusion of such politicians does not sit easily with Modi’s election promise to root out corruption, and has led to criticism that he is failing to change the political culture in India where wealthy, tainted politicians sometimes find it easier to win votes. “It shows scant respect for the rule of law or public sentiment,” said Jagdeep Chhokar, co-founder of the Association for Democratic Reforms (ADR) which campaigns for better governance. “Including these people in the cabinet is a bad omen for our democracy.”Modi won the biggest parliamentary majority in three decades in May with a promise of graft-free governance after the previous government led by Congress party was mired in a series of damaging corruption scandals.

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” ..High energy prices and resistance to fracking are two key reasons why Europe’s economic recovery has lagged the U.S.”

• Energy Is Europe’s ‘Big Disadvantage’: Deutsche Bank Co-Ceo (CNBC)

High energy prices and resistance to fracking are two key reasons why Europe’s economic recovery has lagged the U.S., the joint head of Germany’s largest bank by assets told CNBC. Jürgen Fitschen, co-chief executive of Deutsche Bank, said bureaucracy, education and productivity partially explained Europe’s difficulties, but laid much of the blame on the cost of energy in the region. “It is undeniable that Europe overall faces one very big disadvantage: that is cost of energy,” Fitschen, who is also head of the German Bankers Association, told CNBC in Frankfurt on Monday. “That (low energy prices) has been one of the factors that have stimulated the euphoria and the growth momentum in the States. That is something that cannot be replicated easily in Europe.”

Including taxes, domestic U.S. gas prices fell by 2.2% in 2013 on the previous year to 2.18 U.K. pence (3 U.S. cents) per kilowatt hour (kWh), according to the International Energy Agency. By comparison, Spanish domestic prices rose by 7.8% to 6.93 pence and British prices rose by 7.7% to 4.90 pence respectively. Fitschen said that the shale gas revolution helped explain why U.S. energy prices had fallen. The U.S. has embraced fracking—or hydraulic fracturing—for shale, which has helped lead a revival in some manufacturing industries and helped the country become less reliant on oil and gas imports. However, the process has met with far more opposition in Europe, due to environmental concerns relating to possible seismic tremors and a risk to water supplies.

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” .. an extraordinary “merry-go-round” of countries supporting each others’ companies. The US spends $1.4bn a year for exploration in Columbia, Nigeria and Russia, while Russia is subsidising exploration in Venezuela and China, which in turn supports companies exploring Canada, Brazil and Mexico. ”

• Rich Nations Subsidize Fossil Fuel Industry By $88 Billion A Year (Guardian)

Rich countries are subsidising oil, gas and coal companies by about $88bn (£55.4bn) a year to explore for new reserves, despite evidence that most fossil fuels must be left in the ground if the world is to avoid dangerous climate change. The most detailed breakdown yet of global fossil fuel subsidies has found that the US government provided companies with $5.2bn for fossil fuel exploration in 2013, Australia spent $3.5bn, Russia $2.4bn and the UK $1.2bn. Most of the support was in the form of tax breaks for exploration in deep offshore fields. The public money went to major multinationals as well as smaller ones who specialise in exploratory work, according to British thinktank the Overseas Development Institute (ODI) and Washington-based analysts Oil Change International. Britain, says their report, proved to be one of the most generous countries. In the five year period to 2014 it gave tax breaks totalling over $4.5bn to French, US, Middle Eastern and north American companies to explore the North Sea for fast-declining oil and gas reserves.

A breakdown of that figure showed over $1.2bn of British money went to two French companies, GDF-Suez and Total, $450m went to five US companies including Chevron, and $992m to five British companies. Britain also spent public funds for foreign companies to explore in Azerbaijan, Brazil, Ghana, Guinea, India and Indonesia, as well as Russia, Uganda and Qatar, according to the report’s data, which is drawn from the OECD, government documents, company reports and institutions. The figures, published ahead of this week’s G20 summit in Brisbane, Australia, contains the first detailed breakdown of global fossil fuel exploration subsidies. It shows an extraordinary “merry-go-round” of countries supporting each others’ companies. The US spends $1.4bn a year for exploration in Columbia, Nigeria and Russia, while Russia is subsidising exploration in Venezuela and China, which in turn supports companies exploring Canada, Brazil and Mexico.

“The evidence points to a publicly financed bail-out for carbon-intensive companies, and support for uneconomic investments that could drive the planet far beyond the internationally agreed target of limiting global temperature increases to no more than 2C,” say the report’s authors. “This is real money which could be put into schools or hospitals. It is simply not economic to invest like this. This is the insanity of the situation. They are diverting investment from economic low-carbon alternatives such as solar, wind and hydro-power and they are undermining the prospects for an ambitious UN climate deal in 2015,” said Kevin Watkins, director of the ODI. [..] “The IPCC is quite clear about the need to leave the vast majority of already proven reserves in the ground, if we are to meet the 2C goal. The fact that despite this science, governments are spending billions of tax dollars each year to find more fossil fuels that we cannot ever afford to burn, reveals the extent of climate denial still ongoing within the G20,” said Oil Change International director Steve Kretzman.

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” .. It’s not for the United States. They want to sell it overseas, and I want to see that stopped.”

• The Real Story Of US Coal: Inside The World’s Biggest Coalmine (Guardian)

In the world’s biggest coalmine, even a 400 tonne truck looks like a toy. Everything about the scale of Peabody Energy’s operations in the Powder River Basin of Wyoming is big and the mines are only going to get bigger – despite new warnings from the United Nations on the dangerous burning of fossil fuels, despite Barack Obama’s promises to fight climate change, and despite reports that coal is in its death throes. At the east pit of Peabody’s North Antelope Rochelle mine, the layer of coal takes up 60ft of a 250ft trough in the earth, and runs in an interrupted black stripe for 50 miles. With those vast, easy-to-reach deposits, Powder River has overtaken West Virginia and Kentucky as the big coalmining territory. The pro-coal Republicans’ takeover of Congress in the mid-term elections also favours Powder River.

“You’re looking at the world’s largest mine,” said Scott Durgin, senior vice-president for Peabody’s operations in the Powder River Basin, watching the giant machinery at work. “This is one of the biggest seams you will ever see. This particular shovel is one of the largest shovels you can buy, and that is the largest truck you can buy.” By Durgin’s rough estimate, the mine occupies 100 square miles of high treeless prairie, about the same size as Washington DC. It contains an estimated three billion tonnes of coal reserves. It would take Peabody 25 or 30 years to mine it all. But it’s still not big enough. On the conference room wall, a map of North Antelope Rochelle shows two big shaded areas containing an estimated one billion tonnes of coal. Peabody is preparing to acquire leasing rights when they come up in about 2022 or 2024. “You’ve got to think way ahead,” said Durgin.

In the fossil fuel jackpot that is Wyoming, it can be hard to see a future beyond coal. One of the few who can is LJ Turner, whose grandfather and father homesteaded on the high treeless plains nearly a century ago. Turner, who raises sheep and cattle, said his business had suffered in the 30 years of the mines’ explosive growth. Dust from the mines was aggravating pneumonia among his Red Angus calves. One year, he lost 25 calves, he said. “We are making a national sacrifice out of this region,” he said. “Peabody coal and other coal companies want to keep on mining, and mine this country out and leave it as a sacrifice and they want to do it for their bottom line. It’s not for the United States. They want to sell it overseas, and I want to see that stopped.”

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There’s a pattern here: ” .. the Madrid government contrived to have the plebiscite banned as unconstitutional”.

• Angry Canary Islanders Brace For An Unwanted Guest: The Oil Industry (Guardian)

In most places the news that you’ve struck oil would be cause to crack open the champagne. But not in the Canary Islands where Spain’s biggest oil company Repsol is due to begin drilling off Lanzarote and Fuerteventura. “Our wealth is in our climate, our sky, our sea and the archipelago’s extraordinary biodiversity and landscape,” the Canary Islands president, Paulino Rivero, said. “Its value is that it’s natural and this is what attracts tourism. Oil is incompatible with tourism and a sustainable economy.” Rivero, a former primary school teacher, is on a crusade against oil and he is not alone. Protest marches have drawn as many as 200,000 of the islands’ 2 million inhabitants on to the streets. The regional government planned to consolidate public opinion with a referendum on 23 November. Voters were to be asked: “Do you believe the Canaries should exchange its environmental and tourism model for oil and gas exploration?”

As with the weekend’s scheduled referendum on Catalan independence, the Madrid government contrived to have the plebiscite banned as unconstitutional and Rivero has now commissioned a private poll he hopes will demonstrate the strength of public opinion. “The banning of the referendum reveals a huge weakness in the system,” said Rivero. “You have to listen to the people. There’s a serious discrepancy between what people here want and what the Spanish government wants. You are allowed to hold consultations under the Spanish constitution and what we wanted to do was completely legal. The problem we have is that some government departments have too close a relationship with Repsol.” Repsol is flush with cash after settling a long dispute with Argentina and is keen to develop what may be the country’s biggest oilfield after winning permission to drill in August. The company believes the fields may contain as much as 2.2bn barrels of oil and is investing €7.5bn to explore two sites about 40 miles (60km) east of Fuerteventura.

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Don’t worry be happy, nuke style.

• Fukushima Radiation Found in Pacific Off California Coast (Bloomberg)

Oceanographers have detected isotopes linked to Japan’s wrecked Fukushima nuclear plant off California’s coast, though at levels far below those that could pose a measurable health risk. Volunteer ocean monitors collected the samples that tested positive for trace amounts of the isotope cesium-134 about 100 miles (160 kilometers) west of Eureka, California, the Massachusetts-based Woods Hole Oceanographic Institution said yesterday on its website. Tepco’s Fukushima Dai-Ichi plant, which released “unprecedented levels” of radioactivity during the March 2011 accident, was the only conceivable source of the detected isotopes, Woods Hole oceanographer Ken Buesseler said in the release.

Explosions during the accident, during which three reactors suffered meltdowns, sent a burst of radioactivity into the atmosphere, while water used to cool overheating fuel rods flowed into the ocean in the weeks after the disaster. Lower levels of radiation have continued to trickle into the ocean via contaminated groundwater. The radioactivity detected off the California coast was at levels deemed by international health agencies to be “far below where one might expect any measurable risk to human health or marine life,” according to Woods Hole. It’s also more than 1,000 times lower than acceptable limits in drinking water set by the U.S. Environmental Protection Agency, the organization said.

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” .. the background reality is too difficult to contemplate: an American living arrangement with no future.”

• The Fate of the Turtle (James Howard Kunstler)

Anybody truly interested in government, and therefore politics, should be cognizant above all that ours have already entered systemic failure. The management of societal affairs is on an arc to become more inept and ineffectual, no matter how either of the current major parties pretends to control things. Instead of Big Brother, government in our time turns out to be Autistic Brother. It makes weird noises and flaps its appendages, but can barely tie its own shoelaces. The one thing it does exceedingly well is drain the remaining capital from endeavors that might contribute to the greater good. This includes intellectual capital, by the way, which, under better circumstances, might gird the political will to reform the sub-systems that civilized life depends on. These include: food production (industrial agri-business), commerce (the WalMart model), transportation (Happy Motoring), school (a matrix of rackets), medicine (ditto with the patient as hostage), and banking (a matrix of fraud and swindling).

All of these systems have something in common: they’ve exceeded their fragility threshold and crossed into the frontier of criticality. They have nowhere to go except failure. It would be nice if we could construct leaner and more local systems to replace these monsters, but there is too much vested interest in them. For instance, the voters slapped down virtually every major ballot proposition to invest in light rail and public transit around the country. The likely explanation is that they’ve bought the story that shale oil will allow them to drive to WalMart forever. That story is false, by the way. The politicos put it over because they believe the Wall Street fraudsters who are pimping a junk finance racket in shale oil for short-term, high-yield returns. The politicos want desperately to believe the story because the background reality is too difficult to contemplate: an American living arrangement with no future. The public, of course, is eager to believe the same story for the same reasons, but at some point they’ll flip and blame the story-tellers, and their wrath could truly wreck what remains of this polity. When it is really too late to fix any of these things, they’ll beg someone to tell them what to do, and the job-description for that position is ‘dictator’.

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Debt Rattle October 30 2014

Oct 302014
 
 October 30, 2014  Posted by at 12:14 pm Finance Tagged with: , , , , , , ,  Comments Off on Debt Rattle October 30 2014


John Collier Japanese restaurant, Monday after Pearl Harbor, San Francisco Dec 8 1941

• Fed Unshaken by Global Market Turmoil Bets on Job Gains (Bloomberg)
• QE: Giving Cash To The Public Would Have Been More Effective (Guardian)
• Fed’s Lonesome Dove Dissents as Brighter Outlook Appeases Hawks (Bloomberg)
• Number Of Billionaires More Than Doubles In 5 Years Since Financial Crisis (CNBC)
• Global Financial System ‘Incendiary’ Risk To Stability: BoE (Guardian)
• Zombie Foreclosures Rise In 16 States And 60 Metro Areas (MarketWatch)
• Greek Bond Investors Face Rollercoaster Ride On Euro Dilemma (Bloomberg)
• ‘China’s Property Prices May Decline Up to 10% This Year’ (Bloomberg)
• China Backs Growth in Housing Again as Slowdown Prompts U-Turn (Bloomberg)
• As Inflation Deadline Looms, Bank Of Japan Runs Out Of Options (Reuters)
• Japan Pension Fund To Double Domestic Stocks Holdings to 24% (Bloomberg)
• A New Twist in the Argentine Debt Saga (BW)
• Why Oil Prices Went Down So Far So Fast (Bloomberg)
• Ukraine Gas Supplies In Doubt As Russia Seeks EU Payment Deal (Reuters)
• Can Europe Keep the Lights On This Winter? (Bloomberg)
• The Benefits Of Living In A Teeny House (Next Avenue)
• In US Ebola Fight, No Two Quarantines Are Quite The Same (Reuters)
• Ebola: Danger In Sierra Leone, Progress In Liberia (AP)

And so we boldly go.. To infinity and beyond.

• Fed Unshaken by Global Market Turmoil Bets on Job Gains (Bloomberg)

Federal Reserve officials dismissed recent turmoil in global financial markets, and focused instead on “solid” employment gains that will keep them on a path toward an interest-rate increase next year. A majority of U.S. policy makers at their meeting yesterday also set aside concerns, both among their own members and in financial markets, about too-low inflation, voting to proceed with plans to end their third round of asset purchases. “The FOMC is making a pretty bold call here,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “The economy’s momentum is strong enough to push through the headwinds of slower world growth.”

While bond and commodities markets have signaled concern about a global slowdown since Fed officials last met Sept. 16-17, U.S. central bankers decided to go with the facts in hand, said Paul Mortimer-Lee, chief economist for North America at BNP Paribas in New York. “They have concentrated on what they are sure of: the labor side of the economy is improving,” Mortimer-Lee said. On inflation, the message was, “We are going to take our time and look.” The Federal Open Market Committee maintained its commitment to keep interest rates low for a “considerable time.” The committee cited “solid job gains and a lower unemployment rate” since its last gathering in September. It said “underutilization of labor resources is gradually diminishing,” modifying earlier language that referred to “significant underutilization.”

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But ….

• QE: Giving Cash To The Public Would Have Been More Effective (Guardian)

It’s 2008. Your name is Ben Bernanke, the world’s most powerful central banker. The world’s financial system is going through its own version of the China Syndrome. Do you: a) do nothing and trust the self-correcting properties of capitalism; b) cut interest rates as far and as fast as you can in the hope that cheap money will avert catastrophe; or c) go for broke by trying something different? Bernanke, an expert on the 1930s, chose c). He embraced the idea of quantitative easing, which involves increasing the money supply in order to stimulate economic activity. The Bank of England quickly followed suit. Neither Bernanke nor Mervyn King wanted to be known as the central banker who failed to prevent a deep recession becoming a second Great Depression. The decision by Bernanke’s successor, Janet Yellen, to call time on QE is an appropriate juncture to ask some fundamental questions.

Has QE worked? Does it mean the end of economic stimulus? Who really gained from the policy? Were there any better alternatives? The answer to the first question is that QE has worked, up to a point. Sure, this has been a tepid recovery in the US and a non-existent recovery in Europe, but the outcome would almost certainly have been a lot worse had central banks not augmented ultra-low interest rates with their money creation programmes. The comparison between the US and Europe is telling: monetary policy has been far more proactive and expansionary in the US than it has been in the eurozone, which helps to explain the disparity in growth and unemployment rates. It is also the case, though, that the impact of QE has been blunted in the US and the UK by the combination of unconventional monetary policies with conservative fiscal policies. There has been a tug of war between stimulus and budgetary austerity.

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Don’t be fooled by the theater.

• Fed’s Lonesome Dove Dissents as Brighter Outlook Appeases Hawks (Bloomberg)

To understand the direction that the Federal Reserve is taking in its new policy statement released today, look at who dissented – and who didn’t. Minneapolis Fed President Narayana Kocherlakota cast a dovish dissent, saying policy makers should have continued their asset purchases and done more to ensure inflation gets up to their 2% target. Last time it was hawkish Presidents Richard Fisher of Dallas and Philadelphia’s Charles Plosser, who voted against the September Federal Open Market Committee statement as being too downbeat about strength in the economy. “If you go by the dissents, we’re now leaning more to one side of the bird cage than the other,” said Beth Ann Bovino, chief U.S. economist at Standard & Poor’s. “We’re now seeing dissent from someone considered dovish.”

Today’s statement emphasized “solid job gains” as the FOMC ended its third round of asset purchases and kept mute about slowdowns in China and Europe. It maintained a commitment to keep interest rates low for a “considerable time.” Kocherlakota’s dissent, which echoed comments he’s made in recent speeches, cited falling inflation expectations. “The Committee should commit to keeping the current target range for the federal funds rate at least until the one-to-two-year ahead inflation outlook has returned to 2% and should continue the asset purchase program at its current level,” he said, according to today’s FOMC statement.

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” … a levy of 1.5% on billionaire’s wealth over $1 billion would raise $74 billion, which would generate enough each year to get every child into school and deliver health care in the poorest countries.”

• Number Of Billionaires More Than Doubles Since Financial Crisis (CNBC)

The super-rich club has become less exclusive, with the amount of billionaires doubling since the financial crisis, according to a report from global charity Oxfam. There were 1,645 billionaires globally as of March 2014, according to Forbes data cited in the Oxfam report, up from 793 in March 2009. Oxfam honed in on this figure to highlight the growing gap between the world’s rich and poor. Hundreds of millions of people live in abject poverty without healthcare or education, while the super-rich continue to amass levels of wealth they may never be able to spend. The report ‘Even it Up: Time to End Extreme Inequality’ noted that the world’s richest 85 people saw their wealth jump by a further $668 million per day collectively between 2013 and 2014, which equates to half a million dollars a minute. In January Oxfam issued a report highlighting that the world’s 85 richest people’s collective wealth is equal to that the poorest half of the world’s population.

“Far from being a driver of economic growth, extreme inequality is a barrier to prosperity for most people on the planet,” said Winnie Byanyima, international executive director of Oxfam. “Inequality hinders growth, corrupts politics, stifles opportunity and fuels instability while deepening discrimination, especially against women,” she added. The Oxfam report is the opening salvo of a fresh Oxfam campaign – Even it Up – which aims to push world leaders into helping ensure the poorest people get a fairer deal. “Action is needed to clamp down on tax dodging carried out by multinational corporations and the world’s richest individuals,” the authors of the report added. Oxfam suggests a levy of 1.5% on billionaire’s wealth over $1 billion would raise $74 billion, which would generate enough each year to get every child into school and deliver health care in the poorest countries.

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This from the Bank of England’s chief economist. Who is very much a part of the global financial system.

• Global Financial System ‘Incendiary’ Risk To Stability: BoE (Guardian)

The global monetary system has become so deeply interconnected that it poses an “incendiary” threat to stability unless a radical new international approach is taken, the Bank of England’s chief economist has warned. Andy Haldane said the world is not currently equipped to deal with the “darkest consequences” of an international monetary system and said a new set of rules and tools at a multilateral level would be needed to lessen the risks it posed. “The international monetary and financial system has undergone a mini-revolution in the space of a generation as a result of financial globalisation. It has become a genuine system.

This has altered fundamentally the risk-return opportunity set facing international policymakers: larger-than-ever opportunities, but also greater-than-ever threats,” he said in a speech at Birmingham University. “Today, cross-border stocks of capital are almost certainly larger than at any time in human history. We have hit a new high-water mark. The same is probably true of cross-border flows of goods and services and is most certainly true of cross-border flows of information.” He suggested measures to improve resilience might include an enhanced role and increased resources for the International Monetary Fund, with responsibility for tracking the global flow of funds and as a quasi-international lender of last resort.

Haldane said that part of the problem was that global investors tended to behave in the same way. “There is greater co-movement among similar asset types across countries than among different asset types within countries.” He said new macro-prudential tools at an international rather than national level would also potentially help. “If credit cycles are global in nature, there may in future be a case for national macro-prudential policies leaning explicitly against these global factors. This would help curb the global credit cycle at source. It would take international macro-prudential policy co-ordination to the next level.”

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There were still some 600,000 homes in foreclosure in Q3 2014.

• Zombie Foreclosures Rise In 16 States And 60 Metro Areas (MarketWatch)

Zombie foreclosures are on the decline, but they’re still scaring people in 60 metro areas and 16 states. There were 117,298 owner-vacated foreclosures nationwide in the third quarter of 2014, representing 18% of total properties in foreclosure, down from 141,406 in the second quarter of 2014 (17% of all foreclosures) and down 152,033 (23% of foreclosures) in the same period last year, according to data released Thursday by the real estate website RealtyTrac. “Zombie” foreclosures occur when the owner leaves the property, but the bank has yet to take possession of it. Contrary to this national trend, there were increases in owner-vacated foreclosure in the third quarter in 16 states, including New Jersey, where zombie foreclosures surged 75% year-over-year, North Carolina (up 65%), Oklahoma (up 37%), and New York (up 30%) and Alabama (up 29%).

The New York metro area had the most zombie foreclosures (13,366) in the third quarter, followed by Miami (9,869), Tampa (7,509), Chicago (7,326), Philadelphia (5,405) and Orlando (3,732). A short and efficient foreclosure prevents zombies, says Daren Blomquist, vice president at RealtyTrac. Some states passed laws to give homeowners more time to avoid foreclosure through face-to-face mediation and other means, which sometimes just delays the inevitable, he says. “The best antidote for a zombie foreclosure infestation is a pro-active land bank program like that in Cleveland and, more recently, Chicago designed to aggressively take possession of vacant foreclosures or demolish them.”

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That’s quite the quote: “Volatility is caused by the fear of snap elections and the possibility that these will be won by a party which is not normal.“ here’s rooting for Syriza.

• Greek Bond Investors Face Rollercoaster Ride On Euro Dilemma (Bloomberg)

Greek bond investors face a rollercoaster ride for the next four months as the government tries to contain the risk of snap elections, Minister of Administrative Reform Kyriakos Mitsotakis said. Prime Minister Antonis Samaras has until February to pull together a supermajority in the national parliament to elect a new president or the anti-bailout opposition party Syriza will force a snap election. That would return Greek voters to their 2012 dilemma when the country’s membership of the single currency hung by a thread, Mitsotakis said in an interview. “The reality is that there will be a climate of uncertainty until February,” Mitsotakis, 46, said in his Athens office overlooking the Acropolis. “Volatility is caused by the fear of snap elections and the possibility that these will be won by a party which is not normal.”

A two-year rally in Greek government bonds has fizzled out over the past month, as investors wake up to the political risks still at large in Greece as Samaras struggles to hold onto office. The prime minister is trying to shake off the euro area and International Monetary Fund officials who have policed the budget cuts that have angered voters while retaining enough financial backup to keep investors onside. Asked whether investors should just dump their Greek bond holdings until the next president has been installed, Mitsotakis said: “Don’t ask me, I’m just doing my job. Ask Syriza.”

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This means millions of people will lose 10% on the bulk of their savings. Better place the army on alert right now.

• ‘China’s Property Prices May Decline Up to 10% This Year’ (Bloomberg)

China property prices may decline as much as 10% this year and the slump may extend into 2015, according to SouFun Holdings Ltd. “Chinese property prices are seeing an adjustment after the rapid increase in the past two years,” Vincent Mo, founder of China’s biggest real estate information website, said in a Bloomberg Television interview with Haslinda Amin in Singapore yesterday. “Prices should stabilize by the middle of next year.” China’s new-home prices fell in all but one city monitored by the government last month from August, the most since January 2011 when the way the date is compiled changed, as the easing of property curbs failed to stem a market downturn amid tight credit.

Home sales slumped 11% in the first nine months, prompting the central bank to ease mortgage restrictions on Sept. 30. All but five of the 46 cities that imposed limits on home ownership since 2010 have removed or relaxed such restrictions amid the property downturn that has dented local revenues from land sales. The People’s Bank of China’s new rules give homeowners who have paid off their mortgages and want a second property the same advantages as first-time buyers, including a 30% minimum down payment, compared with at least 60% previously.

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They can’t manipulate property prices the way they do growth numbers. Property is what people feel directly in their pockets.

• China Backs Growth in Housing Again as Slowdown Prompts U-Turn (Bloomberg)

With China headed for its slowest full-year expansion in a generation, the government has listed housing as one of the six consumption areas to be encouraged after years of trying to cool the property industry. China will “stabilize” property-related consumption and make it easier for people to access mandatory housing savings, the State Council said in a statement late yesterday after Premier Li Keqiang presided at a regular meeting. The last time China’s State Council documents mentioned “stabilizing” housing consumption was in April 2009, when the government was rolling out a massive stimulus plan to shield the economy from a global slowdown. Gross domestic product expanded 7.3% in the third quarter from a year earlier, the weakest pace in more than five years.

“The announcement marks a U-turn in stance towards the property sector after years of attempts to cool it down,” Dariusz Kowalczyk, a Credit Agricole strategist in Hong Kong, wrote in a note today. It’s the first time in recent years that the central government officially declared direct support for the housing market, according to Credit Suisse Group. New-home prices fell in 69 out of 70 cities monitored by the government last month from August. Property prices may decline as much as 10% this year and the slump may extend into 2015, according to SouFun Holdings Ltd.

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Desperate illusions. Won’t be long now.

• As Inflation Deadline Looms, Bank Of Japan Runs Out Of Options (Reuters)

There is almost no way the central bank can hit the two-year, 2% inflation target Kuroda set when he unleashed unprecedented monetary stimulus in April 2013. Economists think it is unlikely to even get close in the foreseeable future. That could undermine Kuroda’s so far unchallenged authority to implement radical policies and cast doubt on his money-printing drive to revive Japan’s economy, interviews with more than a dozen current and former BOJ officials and insiders show. “The board members gave Kuroda’s experiment a one-year moratorium,” said a former central bank board member who still has close contacts with incumbent policymakers. “They decided to wait-and-see for a year. But now it’s time of reckoning.”

A divided board could undermine the public confidence essential to Kuroda’s success in embedding expectations of inflation, and leave markets fretting about how authorities will deal with the central bank’s massively expanded balance sheet. Kuroda has been relentlessly optimistic even as the economy, hit by a sales tax hike in April, flirts with recession and falling oil prices threaten to pull inflation below 1%. But most of his policymaking board has always been quietly skeptical of his signature “quantitative and qualitative easing” (QQE), a policy that floods liquidity into the banking system to end 15 years of falling prices, and now the fissures are widening.

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Bitter tears and violent protests. The only possible outcome of this.

• Japan Pension Fund To Double Domestic Stocks Holdings to 24% (Bloomberg)

Japan’s $1.2 trillion pension fund will double its allocation target for local stocks, according to analysts, who’ve ratcheted up expectations for equity buying while sticking with projections for a reduction in bonds. The Government Pension Investment Fund will increase its domestic equity allocation to 24% of assets from 12%, according to the median estimate of 12 fund managers, strategists and economists polled by Bloomberg over the past two weeks. That’s up from 20% in a similar survey in May. The Topix index soared 4% on Oct. 20 on a Nikkei newspaper report that the fund would set a 25% local-share target.

Speculation about the behemoth’s new strategy has held Japan’s markets in sway since a government-picked panel said almost a year ago that GPIF was too reliant on domestic bonds. The fund will slash its local debt allocation to 40% from 60%, unchanged from May, the median survey prediction shows. Credit Agricole and Barclays say anticipation for the shift is so high that equities are vulnerable to a sell-off on the announcement. “I think investors will sell Japanese stocks on the fact after buying on the rumor,” said Kazuhiko Ogata, chief Japan economist at Credit Agricole. “Over the medium and longer term, the changes will buoy demand for shares and gradually support the market.”

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More vultures.

• A New Twist in the Argentine Debt Saga (BW)

A new player has emerged in the Argentine debt drama. The question is why, and what does it mean? Last week, Kenneth Dart, the billionaire heir to a Styrofoam cup fortune, jolted the Argentine debt negotiations by asking a New York judge to force Argentina to pay his bonds in full, too. Like Elliott Management’s Paul Singer, who has led a group of holdout bond investors trying to compel the Argentine government to reach a settlement with them, Dart is known as a “vulture investor” who has made a career of buying defaulted debt and then suing to be repaid at full value. Dart, it turns out, owns more defaulted Argentine bonds through his fund EM Ltd. than Singer’s fund NML Capital does, with $595 million worth to NML’s $503 million. Until now, though, he has remained quietly behind the scenes, as Singer and four other investors publicly battled the Argentine government through the U.S. court system.

His sudden appearance shows that settling with Singer’s group of holdouts may not actually solve Argentina’s problems. Argentina went into default on July 30 after a $539 million bond payment was blocked by a federal judge who said that the country can’t pay any of its exchange bondholders, who participated in the country’s two debt restructurings, until a group of holdout hedge funds are paid on their bonds. In addition to exacerbating what is already a difficult economic climate in Argentina, it has put the country’s leaders in something of a pickle. Argentine President Cristina Fernandez de Kirchner has made her battle against the American “vulture” hedge funds a central theme of her politics. To reverse course now, and pay Singer and the others what they want, would likely come at a high political cost. The goal then, from Argentina’s perspective, is to reach a resolution with the holdouts at the lowest price possible, and that can only be accomplished by diluting their leverage.

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Anything but squeezing Russia. Not a terribly clever approach.

• Why Oil Prices Went Down So Far So Fast (Bloomberg)

The reasons oil prices started sliding in June were hiding in plain sight: growth in U.S. production, sputtering demand from Europe and China, Mideast violence that threatened to disrupt supplies and never did. After three-and-a-half months of slow decline, the tipping point for a steeper drop came on Oct. 1, said Ray Carbone, president of broker Paramount Options Inc. That’s when Saudi Arabia cut prices for its biggest customers. The move signaled that the world’s largest exporter would rather defend its market share than prop up prices. “That, for me, was the giveaway,” Carbone said in an Oct. 28 phone interview. “Once it started going, it was relentless.” The 29% drop since June of the international price caught traders and forecasters by surprise.

After a steady buildup of supply and weakening demand, the outbreak of an OPEC price war is casting doubt on investments in new oil resources while helping the global economy, keeping inflation in check and giving motorists a break at the pump. Brent crude, the global benchmark, declined to $82.60 a barrel on Oct. 16, the lowest in almost four years, from $115.71 on June 19. In the U.S., West Texas Intermediate touched $79.44 on Oct. 27, the lowest since June 2012. U.S. regular unleaded gasoline is averaging close to a four-year low of $3.023 a gallon nationwide, according to AAA. The bear market exceeded the decline anticipated in exchange-traded futures, used by producers to hedge price swings. As recently as a month ago, Brent for delivery in November traded at $97.20 a barrel, 12% above the current price.

OPEC Secretary-General Abdalla el-Badri denied the existence of a price war. “Our countries are following the market,” he said yesterday at the Oil & Money conference in London. “People are selling according to the market price.” Prices stayed higher earlier this year as traders focused on the risk that armed conflicts in Libya, Iraq and Ukraine could interfere with oil production, according to Jeff Grossman, president of New York-based BRG Brokerage. The disruptions never materialized. “This one caught a few people off guard because they were still worried about some of these geopolitical things that were happening all over the world that never came to fruition,” said Grossman, a New York Mercantile Exchange floor trader. “We probably never should have been over $100.”

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Why does it take so long to get a bill paid?

• Ukraine Gas Supplies In Doubt As Russia Seeks EU Payment Deal (Reuters)

Ukraine’s efforts to unblock deliveries of Russian gas as winter sets in were deadlocked on Thursday as Moscow’s negotiators were quoted demanding firmer commitments from the European Union to cover Kiev’s pre-payments for energy. EU-hosted talks were adjourned after running late into the night, Energy Minister Alexander Novak and the head of Russian gas firm Gazprom told Russian news agencies. They would resume later in the day if Ukraine and the EU had a firm financing deal in place, Gazprom head Alexei Miller said.

There has already been agreement on the price Kiev will pay for gas over the winter, the amount to be supplied and the repayment of some $3.1 billion in unpaid Ukrainian bills but Moscow, which cut off vital pipelines in June as the conflict with Ukraine and the West deepened, wants more legal assurances that Kiev can pay some $1.6 billion for new gas up front. Some critics of Russia question whether its motivation is financial or whether prolonging the wrangling with ex-Soviet Ukraine and its Western allies suits Moscow’s diplomatic agenda. Ukraine is in discussions with existing creditors the EU and the IMF and German Chancellor Angela Merkel, concerned about vital Russian gas supplies to the rest of Europe has spoken of bridging finance for Kiev. But the Russian negotiators said they wanted to see a signed agreement on EU financing for Ukraine.

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Europe is on the verge of an energy squeeze. Time for smart people to stand up. I haven’t seen them yet.

• Can Europe Keep the Lights On This Winter? (Bloomberg)

Europe may struggle to keep the lights on as temperatures drop as the switch to greener sources of energy complicates the balance between supply and demand in the region. The inconvenience of brownouts, though, should have the welcome effect of forcing governments to address their attitudes toward both nuclear power and fracking for shale gas. About 7% of the world’s population lives in Europe, yet regional spending of 500 billion euros ($625 billion) on renewable energy investment between 2004 and 2013 accounts for half of total global spending on wind farms, solar installations and the like. Renewable sources now provide more than 14% of the Europe’s energy, up from 8.3% in 2004, according to a report published this week by consulting firm Cap Gemini. The bigger the contribution from renewables, though, the more difficult it is to manage power-transmission grids. And that shift to greener energy coincides with disruptions in a host of Europe’s more traditional power-generation methods.

Governments are committed to curbing carbon emissions from coal-burning plants, and there’s a post-Fukushima aversion to nuclear power. Utilities have reduced output from natural-gas fired plants in response to Europe’s economic slowdown, and the region’s aging thermal generators are being retired from service. Global politics is also a threat; 30% of Europe’s gas comes from Russia, and about half of that travels through Ukraine. The result, according to Cap Gemini, is a market in need of massive investment: This winter, security of supply is already threatened in certain European countries. The present situation of chaotic wholesale markets, with negative wholesale prices and increasing prices for retail customers, is likely to prevail in coming years.

By 2035, Europe will need to invest $2.2 trillion in electricity infrastructure alone. With the present uncertain situation and the difficult financial environment for utilities, these investments could be delayed and security of the electricity supply could be at risk in the long term also. Fracking remains almost taboo in Europe. France has banned it, with Environment Minister Segolene Royal calling it a “very dangerous technique” and the benefits of shale gas a “mirage.” Germany said in July it would ban fracking at depths of less than 3 kilometers (1.9 miles), which effectively outlaws the practice for most companies. A July joint report by Scientists for Global Responsibility and the Chartered Institute of Environmental Health said U.K. rules governing shale-gas exploration don’t do enough to safeguard public health.

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Always a sunny topic.

• The Benefits Of Living In A Teeny House (Next Avenue)

What if you could live in a house that was mortgage-free and takes about 10 minutes to clean – a house that leaves you unburdened by possessions and the full-time job required to pay for them? The trade-off: Your new house is about the size of a biggish, albeit charming, storage shed. That’s the journey Dee Williams recounts in her new book, “The Big Tiny: A Built-It-Myself Memoir.” Williams got rid of her normal-size house, most of her possessions and her job as a hazardous waste inspector after suffering a heart attack 10 years ago. She built, and now lives with her dog in, an 84-square-foot house on a trailer parked in a friend’s backyard in Olympia, Wash.

Next Avenue spoke with Williams, 51, about discovering a larger life in a smaller house: Next Avenue: Your heart problems (heart attack and a congestive heart failure diagnosis) sent you into a sort of existential crisis. Williams: It wasn’t that I was unhappy in my life before my heart attack. I was clipping along building my career, hoping to meet Mr. Right and fall in love and do all of that stuff. I loved my house. I wasn’t struggling to make the mortgage. It was just that I didn’t have any freedom to be able to quit my job if I wanted to. After my heart attack, what became clear was that I wanted my time.

I wanted every minute of my day for whatever I wanted to do. And I wasn’t going to be able to get that with a $250,000 mortgage. Your solution was to build an 84-square-foot house on a trailer. This idea floated in front of me in the doctor’s office when I read an article about (tiny house builder and advocate) Jay Shafer. It seemed like a logical solution for housing for me. I wasn’t sure how long my health would last. I wasn’t sure what that would mean for me as a single person. Would I move in with my friends? Would my brother come back from Iowa and take care of me? Where would I would be most comfortable if I got sick? The other part was when I saw a little pointy-roofed house — it was so cute. I was enamored.

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If you didn’t know any better, you’d presume ebola was an American issue.

• In US Ebola Fight, No Two Quarantines Are Quite The Same (Reuters)

In the U.S. battle against Ebola, quarantine rules depend on your zip zode. For some it may feel like imprisonment or house arrest. For others it may be more like a staycation, albeit one with a scary and stressful edge. If they are lucky, the quarantined may get assigned a case worker who can play the role of a personal concierge by buying groceries and running errands. Some authorities are allowing visitors, or even giving those in quarantine permission to take trips outside to walk the dog or take a jog. A month after the first confirmed case of Ebola in the United States, state and local health authorities across the country have imposed a hodgepodge of often conflicting rules.

Fears about a possible U.S. outbreak were reignited after American doctor Craig Spencer was hospitalized with Ebola in New York last Thursday after helping treat patients in West Africa, the epicenter of the worst outbreak on record. Some states, such as New York and New Jersey, have gone as far as quarantining all healthy people returning from working with Ebola patients in West Africa. Others, such as Virginia and Maryland, said they will monitor returning healthcare workers and only quarantine those who had unprotected contact with patients. In Minnesota, people being monitored by the state’s health department are banned from going on trips on public transit that last longer than three hours – the aim being to reduce exposure to others if someone does start to develop symptoms during a journey. But people with known exposure to Ebola patients will be restricted to their homes without any physical contact allowed.

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But in reality, it’s a real problem only in West Africa.

• Ebola: Danger In Sierra Leone, Progress In Liberia (AP)

Liberia is making some progress in containing the Ebola outbreak while Sierra Leone is “in a crisis situation which is going to get worse,” the top anti-Ebola officials in the two countries said. The people of both countries must redouble efforts to stop the disease, which has infected more than 13,000 people and killed nearly 5,000, the officials said. Their assessments underscore that Ebola remains a constant threat until the outbreak is wiped out. It can appear to be on the wane, only to re-emerge in the same place or balloon elsewhere if people don’t avoid touching Ebola patients or the bodies of those who succumb to the disease. “We need to go ahead to stop the transmission in order to arrest the situation,” Palo Conteh said late Wednesday in the Sierra Leone capital, in his first press conference since the president this month appointed him CEO of the National Ebola Response Center. Conteh was previously the defense minister.

“Our proud country has faced so many challenges, but none more serious than today,” he said. “Today we have a new and vicious enemy, an enemy that does not wear uniform, that … attacks anyone that comes into contact with (it) and if unchecked will ravage our beautiful land and its fine people.” Although the outbreak is now hitting areas in and around Sierra Leone’s capital, posing a huge threat, Conteh noted that it is on the wane in the former Ebola hotpots of Kenema and Kailahun, across the nation in the east. “If people in other areas of the country copy the example of eastern Kailahun and Kenema Districts, then the spread of the disease will subside like in Kailahun and Kenema. As I speak, people (near the capital) are still touching people suspected with the Ebola disease, people are still burying corpses at night of those who have died of the disease,” he said.

With international assistance growing, Conteh said up to 700 beds would be set up in treatment centers and that the United Nations has four helicopters in the country. A British hospital ship is expected to dock in Freetown on Thursday. In neighboring Liberia, the rate of Ebola infections appears to be declining, perhaps by as much by 25% week over week, the World Health Organization said Wednesday.

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Debt Rattle Aug 28 2014: EU Gas Supply Is In Real And Imminent Danger

Aug 282014
 
 August 28, 2014  Posted by at 4:41 pm Finance Tagged with: , , , , ,  9 Responses »


NPC Robey Motor Co., 1429 L Street, Washington, DC 1926

More accusations fly across the media, like so many flocks of Canada geese, of direct Russian involvement in Ukraine. Much is made of an interview with Donetsk National Republic leader Alexander Zakharchenko, in which he “admits” there are Russian volunteers fighting on his side.

To the west, that’s all the proof they need. There are 1000 Russians in Ukraine, cries NATO. That doesn’t make them the Russian army though. If there are only 1000, that would be disappointing. These are people who are seeing their family just across the border shot to bits.

That Zakharchenko also said there were French and other nationals fighting on the same side is not deemed worth reporting. Just like not much has been made of the many thousands of German, British, French, Belgian, Dutch, Canadian and American nationals fighting in Syria and Iraq, mostly on the side of the IS. Other than the British guy in the beheading video, and the US citizen who got killed.

So the Commerce Department really just raised its Q2 US GDP estimate to 4.2%, one day after the CBO lowered its 2014 estimate to 1.5%? Oh my. What’s next?

I’m still thinking that even if Russia were involved in Ukraine, why would that make Putin a devil? After all, we know where the Ukraine army gets its financing from, and it too has many – foreign – mercenaries on its payroll.

Does anyone still think Putin is going to call uncle on this one? You should have been reading the Automatic Earth over the past year. He won’t, and he can’t.

Can we truly deny Russia, and Russian family members of east Ukrainian Russian-speaking people, the right to help out their people when they’re attacked by bombers and swastikas, while they have exactly zero planes themselevs? On what basis exactly? And what gives Kiev the right to bomb its own citizens?

But let’s not get into that again today. In the slipstream of the talks this weekend in Minsk between Putin and Poroshenko, a precious little detail seems to have escaped the western press entirely. But I think all our fine journalists will soon have to address it.

You may remember that in an earlier phase of the dispute between Ukraine and Russia (not to be confused with the Kiev vs rebels fight), no agreement was reached on the payment of a $4.5 billion gas bill that Russian Gazprom said was overdue from Ukraine’s Naftogaz. And Gazprom demanded pre-payment for any future gas deliveries to Ukraine.

Kiev, instead of paying the bill, claimed Russia had overcharged it for the already delivered gas, by $6 billion, going back to 2010. And brought its argument before the Arbitration Institute of the Stockholm Chamber of Commerce.

Now maybe, just maybe, someone in the Kiev camp should have paused right before that moment, and consulted with their western backers in Brussels and Washington. Perhaps not so much Washington, but Brussels for sure, and Berlin. And Athens. Rome. Prague. Warsaw.

You see, a pending case before the Arbitration Institute of the Stockholm Chamber of Commerce can apparently take 12-15 months to resolve. And perhaps Europe doesn’t have that much time. Which is what Putin hinted at at a press-op he did after the weekend Minsk talks. What it comes down is that even if Russia wanted to accommodate Ukraine, it can’t. On strictly legal terms, nothing political.

What’s more, Gazprom had already paid Naftogaz in advance for the use of Ukraine pipelines, but the payment was returned. And that can have grave consequences not just for Kiev, but for almost all of Europe. Lots of countries get their gas through these pipelines.

It looks like the EU, and especially Germany, has started to smell – potential – trouble:

EU Suggests Russia, Ukraine Sign Interim Gas Agreement

The E.U. has suggested an interim agreement on the gas supplies between Russia and Ukraine without waiting for a Stockholm arbitrary court decision, E.U. Energy Commissioner Gunther Oettinger said in a news conference following his meeting with Ukrainian President Petro Poroshenko late Tuesday Two cases are before the Stockholm court, but the hearings will take 12-15 months, which is too long, while Europe needs an interim solution for this winter, Oettinger said In June, Russian gas giant Gazprom switched Ukraine off gas over the unpaid debt and filed a $4.5 billion suit to the Stockholm arbitration court. Later, Kiev reciprocated by sending a suit to the court against Gazprom for making Ukraine overpay $6 billion for gas since 2010, setting too high prices in its contract.

The Russian Legal Information Agency has this:

Putin: Naftogaz Suit Against Gazprom Axes Discount For Ukraine

The fact that Ukraine’s Naftogaz has invoked arbitration proceedings against Gazprom prevents Russia from giving Ukraine a gas price discount, President Vladimir Putin said in Minsk where he met with Ukrainian President Petro Poroshenko. “We cannot even consider any preference solutions for Ukraine since it pursues arbitration,” Putin said. “Russia’s possible actions in this sphere could be used against it in the court. We couldn’t do it even if we wanted to.” After Gazprom switched to a prepayment system for gas deliveries to Ukraine on June 16, Naftogaz turned to the Arbitration Institute of the Stockholm Chamber of Commerce. Naftogaz wants Gazprom to cut the price for gas and to get back $6 billion that Ukraine has allegedly overpaid since 2010.

Gazprom in turn is seeking to recover Ukraine’s $4.5 billion debt for gas deliveries. Putin said Russia offered a compromise solution during the talks held before Gazprom switched to the prepayment scheme. “We reduced the price by $100,” Russian President said. Gas talks between Russia, Ukraine and the European Union went on from April to mid-June. Kiev said it would not repay its $4.5 billion debt unless Russia agreed to supply gas at a lower price. Russia offered a discount, but Ukraine turned down the offer. Russia then said it would only resume gas supply talks after Ukraine paid off its debt.

More signs of German nerves are here in a piece from the European Council on Foreign Relations – I kid you not, they exist -, along with a nice but curious admission:

Has Germany Sidelined Poland In Ukraine Crisis Negotiations?

As Germany takes over leadership of the European Union’s efforts to solve the Ukrainian crisis, Poland is questioning the motivations and strategies behind Berlin’s new diplomatic activism. The initiatives of German Foreign Minister Frank-Walter Steinmeier and Chancellor Angela Merkel are being followed closely in Warsaw – and often with mixed feelings. Is Berlin trying to mastermind a compromise with Russia on Moscow’s terms, ignoring Kyiv’s vital interests? And as Poland is increasingly edged out of the conflict resolution process, has Berlin-Warsaw co-operation on EU Ostpolitik broken down?

Poland was, along with France and Germany, one of the countries that orchestrated the political shift in Ukraine in February. Since then, Warsaw has played a central role in forging a bolder EU response to Russia’s aggression and in providing meaningful assistance to the Ukrainian government. However, as the conflict has worsened, Warsaw has become less visible as an actor in crisis diplomacy. Polish Foreign Minister Radek Sikorski was not invited to join his German, French, Russian, and Ukrainian counterparts in the negotiations on conflict resolution held in Berlin in early July and early August. Before Ukrainian President Petro Poroshenko and Russian President Vladimir Putin agreed to meet at the Customs Union summit in Minsk on 26 August, the idea had been floated of holding another high-level meeting in the “Normandy format” of France, Germany, Russia, and Ukraine.

Kiev is either so high on the EU, US and NATO support it was promised, or so desperate over its latest battlefield losses, that it goes for all on red, probably thinking, and probably rightly so, that the western press will swallow anything whole. Tyler Durden:

Ukraine Accuses Russia Of Imminent Gas Cut-Off, Russia Denies, Germans Anxious

So much for the Russia-Ukraine talks bringing the two sides together as even Germany’s Steinmeier could only say it’s “hard to say if breakthrough made.” Shortly after talks ended, Ukrainian Premier Yatsenyuk stated unequivocally that “we know about the plans of Russia to cut off transit even in European Union member countries,” followed by some notably heavy-on-the-war-rhetoric comments. The Russians were quick to respond, as the energy ministry was “surprised” by his statements on Ukraine gas transits and blasted that comments were an “attempt at EU disinformation.”

Here’s what Putin said at the press op after the talks:

Answers To Journalists’ Questions Following Working Visit To Belarus

Currently, we are in a deadlock on the gas issue. You see, this is very serious matter for us, for Ukraine and for our European partners. It is no big secret that Gazprom has advanced payment for the transit of our gas to Europe. Ukraine’s Naftogaz has returned that advance payment. The transit of our gas to European consumers was just about suspended. What will happen next? This is a question that awaits a painstaking investigation by our European and Ukrainian partners.

We are fulfilling all the terms of the contract in full. Right now, we cannot even accept any suggestions regarding preferential terms, given that Ukraine has appealed to the Arbitration Court. Any of our actions to provide preferential terms can be used in the court. We were deprived of this opportunity, even if we had wanted it, although we already tried to meet them halfway and reduced the price by $100.

The ball is squarely in the western court. Of course many will think and hope that Russia will give in because it needs the revenue, but the problem with that is it could cost the country too much (admittedly, that’s not the only problem). $6 billion to Ukraine for starters, then potentially many more billions on future deliveries to Kiev, and then there’s the rest of its contracts with two dozen or so European nations.

From a legal point of view, this may not be about what Moscow wants to do anymore, but about what it can. The Arbitration Court case may have tied its hands. And unless Europe wants a cold winter, it must seek a solution. Putin, who holds degrees in both judo AND law, understands this. But he didn’t set this up. Western and Kiev hubris did. Certain people got first too pleased with, and then ahead of, themselves.

So what now? There are several options. Ukraine can withdraw the case it has pending in Stockholm. A huge loss of face when you’re waging a war, even if it’s just against your own people. And it would still have to find money it doesn’t have, to pay its past and future gas bills. The fact that Naftogaz returned the Gazprom advance payment doesn’t bode well for that.

The west could end up – having to – withdraw its support for Kiev. But a lot of money has been poured into that support, NATO is erecting new bases on Russia’s borders, there is a war party sentiment, if not exuberance, building up.

There’s a lot of talk of Putin trying to save face, but I’m not so sure that comes from, let’s say, an ‘adequate’ understanding of what’s on the table. A more appropriate question might be: how does the Brussels bureaucracy save face? Angela Merkel may end up having to force them into humility, just so her people don’t freeze.

Or, of course, we could all go to war. Only, we wouldn’t even be able to figure out who’d be fighting whom, or for what reason. It would seriously risk repeating the very past the EU was designed to prevent.

Putin pointed to another rather difficult but highly interesting legal ‘technicality’ as well, which involves Ukraine moving closer to the EU economically:

We once again pointed out to our partners – both European and Ukrainian partners – that implementation of the association agreement between Ukraine and the EU carries significant risks for the Russian economy. We have shown this in the text of the agreement, directly pointing to specific articles in that agreement. Let me remind you that this concerns nullifying Ukraine’s customs tariffs, technical regulations, and phytosanitary standards.

The standards in Russia and Europe currently do not correspond. But, as you recall, the most classic example is the introduction of EU technical regulations in Ukraine. In that case, we would not be able to supply our goods to Ukraine at all. We have different technical standards. And according to the European Union’s standards, we will not be able to supply our machine-building products there, or any industrial goods. If that happens, we cannot accept Ukrainian agricultural production goods in our territory, because we have different approaches to phytosanitary standards. We feel that many problems would occur.

If we do not achieve any agreements and our concerns are not taken into account, then we will be forced to take measures to protect our economy. And we explained what those measures would be. So our partners must weigh everything and make corresponding decisions.

I think Ukraine, through Yatsenyuk and now Poroshenko, has grossly overplayed its hand. Encouraged by Brussels, which is also not nearly big enough for the chair it resides in, and Washington, which is partly simply clueless about the region and partly all too eager to engage in yet another campaign of “smart” bombing and regime change. And which, besides, stuck its neck so deep into the Middle East cesspool once again it has no chance of maintaining focus on an issue that mainly concerns Europe.

It is time for some cool heads to come to the fore, and for accusations and allegations and innuendo and spin to fade into the background, or this can get way out of hand.

European economies are easily doing bad enough for all efforts to be directed there, not to use this as an added motivation to incite trouble outside of EU borders.

If Kiev announces it’ll stop bombing its own citizens, and follows up on that, there’s no doubt the other side will calm down as well.

Ukraine and the west invited the lawyers in through the case they brought before the Stockholm court. Let’s leave it to the lawyers, and stop killing civilians while we do. Word.

Word.

• US Housing Market Is Falling Apart, Recovery Is An Illusion (MarketWatch)

Most real estate experts believe the U.S. housing market is roaring back. Few have anything to negative to say about real estate. But what if they’re wrong? Real estate analyst Keith Jurow, author of the Capital Preservation Real Estate Report, is warning that the real estate market is not as strong as it seems. Says Jurow: “I never bought into the idea that we had a recovery at all.” His research leads him to conclude that home prices will be heading lower. Why? Largely because home listings are going up but sale prices are not. Jurow discovered that as of June 2014, listings in Ft. Lauderdale increased by 89.3% year-over-year. In Miami, listings are up by 65.7% In Charlotte, N.C. they are up 51%, and in Riverside, Calif. they’re up 28.1%. In 10 major metro areas around the country, listings have increased. Jurow gets his data from Redfin.com and Raveis.com.

“Many people waited for prices to rise before putting their house on the market, and they have,” Jurow says. “But now listings are increasing because everyone has the same idea. Unfortunately, May and June are traditionally the strongest months for sales, and these home sellers have missed the peak season.” Jurow points out that Redfin.com’s latest figures show that in 21 out of 29 major metro areas, sales volume is down year-over-year. “If sales are weakening and listings are going up substantially, prices will fall,” he says. The problems in housing are much deeper than many people realize, Jurow contends. Another nagging concern is the large number of homeowners who are delinquent. “Delinquent means you haven’t paid the mortgage,” Jurow says. “The lender or servicer can file an official notice of default, which begins the foreclosure proceeding.” However, to keep prices from falling further, mortgage servicers have sharply reduced the number of homes placed into default.

Millions of homeowners are already seriously delinquent. “The average length of time that houses remain delinquent nationwide is 995 days,” Jurow says. “The worst culprit is New York State. The average delinquency period there is four years.” Many homeowners are aware that banks are not in a rush to file foreclosures, so they stay in their houses mortgage-free. “The banks are not initiating foreclosure proceedings because once the servicer forecloses, the lender takes a hit on earnings,” Jurow says. “They also have to manage the property, and most banks don’t want to do that.”

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Let’s make sure we all stay stupid.

• CBO Revises Its 2014 GDP Forecast, Hilarity Ensues – As Always (Zero Hedge)

The gross, in fact epic, incompetence of the Congressional Budget Office when it comes to doing its only job, forecasting the future state of the US economy, has previously been extensively documented here. This incompetence is in the spotlight once again this morning with the CBO’s release of its latest forecast revision of its original February 2014 projection. And while every aspect of the revised projection has changed, in an adverse direction of course, the punchline is the chart below: the CBO’s revised projection for 2014 GDP. It’s one of those “no comment necessary” visuals.

Surprising? Hardly. After all the CBO is swarming with indoctrinated Keynesian cultists whose only achievement in life is to be wrong about everything (and then to blame the Fed for not “easing enough”). Here is how the CBO “explains” this 50%+ cut in its forecast in just 6 months:

CBO has lowered its projection of real growth of GDP in 2014 from 3.1% to 1.5%, reflecting the surprising economic weakness in the first half of the year.

Which as other Keynesian talking heads have already made quite clear was due to snow. That’s right: over $100 billion in forecast economic growth “evaporated” from the US economy because it… snowed. The good news? The CBO refuses to forecast the “harsh weather” for the foreseeable future, and has kept all of its 2015 and onward GDP estimates as is. So when things go horribly wrong to the CBO’s forecast, which is 100% guaranteed to happen, the CBO can again blame “surprising economic weakness” because, well, everyone else is doing it.

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I could have written about this today, a crucial line: banks realized the bulk of the benefit of very low interest rates years ago. That’s why rates will rise. So banks can get back to stellar profits. As simple as that.

• Big US Banks Set For Huge Profits When Interest Rates Rise (MarketWatch)

An expected rise in interest rates over the next year will help the largest U.S. banks earn billions of dollars in additional net interest income, setting up their cheap stocks for what could be a stellar run. You might be surprised to be reading anything positive about big banks, in light of Bank of America’s $16.65 billion mortgage settlement with the Department of Justice and several states last week. The epic settlement followed a similar $7 billion settlement by Citigroup in July and a then-record $13 billion settlement by J.P. Morgan last November. While these companies still face continued investigations and litigation over their mortgage lending and securitization activities heading into the housing blowup of 2008, as well as several regulatory investigations of Libor reporting and foreign-exchange trading, it appears that the period of huge settlements is over. Looking ahead, 2015 promises to be a fresh start for the industry, as the interest rate environment improves and the banks move past the settlements.

The Federal Reserve has kept the short-term federal funds rate locked in a range of zero to 0.25% since late 2008, in an effort to increase loan demand and jump-start the economy. This policy and the “QE3” bond purchases that will end this year seem to have worked, with the U.S. economy expanding at a 4% annual rate during the second quarter and continuing to add over 200,000 jobs a month. But the debate at the Federal Reserve has now shifted to the timing of interest rate increases. Most economists expect the federal funds rate to begin climbing in the second half of 2015, but it could well happen sooner than that. For most banks, the extended period of low interest rates has become quite a drag on earnings. Net interest margins — the spread between the average yield on loans and investments and the average cost for deposits and borrowings — are still being squeezed, since banks realized the bulk of the benefit of very low interest rates years ago, while their assets continue to reprice downward.

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Normal correction coming right up.

• Two Experts Warn Market Correction Could Total 60% (CNBC)

Markets could soon face a fall of up to 60%, two experts told CNBC on Wednesday. A jolt to international confidence in central banks will lead to a 30 to 60% market decline, David Tice, president of Tice Capital and founder of the Prudent Bear Fund, told CNBC’s “Power Lunch.” When this happens, he said, markets will face a “period of extreme turmoil.” This crash will be precipitated, he said, by a disillusionment with the Federal Reserve’s “confidence game,” which will then see inflation rise, and the Fed scramble to raise rates. At that point, Tice added, “the Fed starts to lose control.” Another market watcher also called for an impending fall. The Fed’s low interest rates could bring a “scary” 50-60% market correction, said technical analyst Abigail Doolittle. “Unfortunately, I think it could come on a crash similar to what happened in 2007,” Doolittle, the founder of Peak Theories Research, said on “Squawk Box” a day after the S&P 500 closed above the 2,000 level for the first time ever.

“It’s tough to know what the exact catalyst will be. But that’s the very nature of that kind of selloff. They start slowly and then happen very suddenly.” Doolittle pointed to a 20-year chart of the Dow Jones Industrial Average. “When we take the long-term chart of the Dow … we see that it’s trading in a multiyear trading range, hitting up on resistance. … What makes this so important [is] you can see that the entire bull market trend over the past five years has started to reverse.” “When you see that kind of gyration around the trend, typically it suggests you’re going to see some severe volatility,” she said. “As scary as it is, I think that we could see possibly a 50% or 60% correction—an equal and opposite reaction to all these unusual policy moves.” Doolittle called Tuesday’s S&P 2,000 close a psychological milestone that means very little technically. “As high as these stocks markets go, I’ve become bearish because the underlying technicals from the long-term really support this view.”

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They can go until they burst. Soon.

• How Low Can They Go? Traders Eyeing Global Bond Rates (CNBC)

Stock traders will be watching a brief flurry of economic reports Thursday, but the main attraction could be the bond market. Reputed to be dull, bonds have been anything but this week. Caught in a tug of war between the opposing policy modes of a tightening U.S. Fed and an easing European Central Bank, bond yields have taken dramatic turns as investors also adjust portfolios ahead of month’s end. While the S&P 500 broke through the 2,000 mark for the first time, bond traders this week have been watching yields creep ever lower in Europe, with yields on shorter duration sovereign debt from Germany and Belgium to the Netherlands and Finland turning negative. The benchmark German 10-year bund fell through 0.90% for the first time Wednesday, while Italian and Spanish 10-year yields traded beneath the U.S. 10-year yield. It was not that long ago that those peripheral euro zone securities were seen as risky high yielders.

Meanwhile, yields on shorter duration Treasurys, while slightly lower Wednesday, have been inching higher on expectations that the Fed will ultimately move to raise rates next year. Headlines from Europe Wednesday, including from German Finance Minister Wolfgang Schaeuble, attempted to squash speculation that the ECB would take some further easing action next week, but bond yields still moved lower. Traders said concerns about Ukraine, and reports that Russia was sending troops inside that country, also weighed slightly on the long end of the curve “It’s yield grab and geopolitics at the back end, and policy speculation at the front end,” said Adrian Miller, director of fixed-income strategy at GMP Securities. “Every time the yields tick lower is because someone thinks the ECB is going to drop another pile of cash on the market, and it’s going to spill over to the U.S.”

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How many ways are there to screw this up?

• What’s the Real US Unemployment Rate? Report Says Nobody Knows (BW)

No U.S. economic statistic is more important than the unemployment rate, which was officially reported as 6.2% in July. But a new academic paper finds that a long-known source of potential error in the unemployment rate “has worsened considerably over time.” The actual rate may be higher than the reported one, though it’s hard to know for sure, the paper says. The unemployment rate is calculated by averaging the results from eight separate samples of the population, known as rotation groups. In theory, the people in all eight rotation groups should have the same likelihood of being unemployed, but they don’t. In the first half of 2014, the newest rotation groups had an unemployment rate of 7.5%. The oldest rotation groups had an unemployment rate of just 6.1%. That disparity of 1.4 percentage points is huge, considering that economists pay close attention to changes in the jobless rate down to the tenth of a percentage point.

The Bureau of Labor Statistics puts a heavier weighting on the older rotation groups, so the official unemployment rate for the first half of 2014 was 6.5%. The new paper is important not just because of its finding but also because one of its authors is Alan Krueger, a Princeton University economist who was chairman of President Obama’s Council of Economic Advisers from 2011 to 2013. His co-authors are Alexandre Mas of Princeton and Xiaotong Niu of the Congressional Budget Office. Gary Steinberg, a spokesman for the Bureau of Labor Statistics, says the agency has done its own research on the topic of what’s known as “rotation group bias” but would have no immediate comment on the paper. The BLS creates a new rotation group each month by drawing a random sample of people from the U.S. population for the Current Population Survey (CPS).

A rotation group is included in the calculation of the unemployment rate for four months, then left out of it for eight months, and then brought back in for four months before being dropped for good. The first researcher to notice discrepancies in the unemployment rates of the various rotation groups, way back in 1975, was a statistician named Barbara Bailar, who later became executive director of the American Statistical Association. At the time, the discrepancy between rotation groups was on the order of half a percentage point. Krueger and his co-authors write that while other economists have delved into the topic, “the magnitude and evolution of rotation group bias in the CPS has not been documented since Bailar’s (1975) study.”

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A trend that has just started.

• Eurozone Business, Consumer Confidence Decline (WSJ)

Business and consumer confidence across the 18 nations that use the euro deteriorated in August, as managers and households took a gloomier view of their economic prospects. The weakening in confidence was one of several pieces of data Thursday that suggest the euro-zone economy remains fragile, adding further pressure on officials at the European Central Bank to pursue more aggressive policies to help lift the 18-nation economy out of its funk. The European Commission said its European Sentiment Indicator, a broad measure of business and consumer confidence in the euro zone, weakened to 100.6 in August from 102.1 a month earlier, when it posted a surprising increase. The fall was bigger than expected. Economists polled by The Wall Street Journal expected the commission’s gauge of confidence to dip, but only to 101.5. The European Commission said economic confidence weakened significantly in Italy and dipped in Germany, the bloc’s biggest economy. There were milder contractions in France and the Netherlands, while confidence remained flat in Spain.

Business confidence deteriorated because managers gave a more downbeat assessment of their expectations for future production, the commission said. Households, meanwhile, became gloomier about their job prospects and their financial security. The euro-zone economy stagnated in the second quarter, growing by a mere 0.2% in annualized terms. The economy’s prospects have been further undermined by tensions with Russia over unrest in Ukraine and conflict in the Middle East, both of which threaten energy supplies and could hurt trade. Data due Friday are expected to show inflation in the euro zone cooled further in August, heaping pressure on ECB officials to broaden their stimulus efforts. The central bank has already cut interest rates and in September plans to roll out a new program of long-term funding for banks to encourage greater lending. But officials led by ECB President Mario Draghi continue to face calls to embark on a large-scale program of asset purchases, or quantitative easing, to fuel growth and lift inflation back toward its target of just under 2%.

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France has many more jobless than its numbers indicate. They just call them something else.

• French Unemployment Hits New Record (MarketWatch)

The number of unemployed people in France rose 0.8% in July from June, setting yet another record high at a time when President Francois Hollande is struggling to convince the French, and even his political allies, that he has the right recipe to solve the country’s economic woes. The number of unemployed – defined as registered job seekers who are fully unemployed – reached 3,424,400 in July. “The rise stems from zero economic growth in the euro zone and in France,” labor minister Francois Rebsamen said in a statement. Mr. Rebsamen said state sponsored jobs, particularly for young people, will continue to boost employment. The president’s plan to cut taxes for employers to fuel job creation will also help, Mr. Rebsamen said. Mr. Hollande’s plans have come under fire from within his own camp in recent days. Dissidents criticized painful public spending cuts and said households, as well as employers, should face more tax cuts. The president reacted quickly by dissolving his government and expelling the dissidents.

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This is how deflation works. Discard all the talk of inflation. Fast growing number of people don’t habe any money. That’s what the pretend recovery is built on.

• Falling Italian Fruit Prices Signal Deflation Woe for Draghi (BW)

Matteo Tosato saw deflation coming months ago as he hauled his traveling fruit and vegetable stand to outdoor markets around the northern Italian city of Padua while his country slid back into recession. “Wherever a factory closed down and people got fired, demand collapsed and I had to lower prices to keep my business running,” said Tosato, 38, who sells peaches, apples, carrots and other farm-fresh goods in as many as four town squares a week. Tosato says his cuts have been as much as 30% to 40% compared with last year. Across Italy, prices are dropping for everything from food to hotels and clothing, leading economists in a Bloomberg survey to predict the country, already in its third economic slump since 2008, is about to join Greece, Spain and Portugal in recording annual consumer-price declines.

Weakening prices across the euro area are ratcheting up pressure on European Central Bank President Mario Draghi to do more to spur inflation and the euro region’s sputtering economy. Draghi said last week that policy makers will use “all the available instruments needed to ensure price stability.” Key inflation figures are due this week. Italian consumer prices probably fell 0.1% in August from a year earlier, according to a survey of 12 economists before a report in Rome tomorrow. That would be the first decline in five years. Euro-area data scheduled to be released at the same time may show inflation in the 18-nation bloc slowed to 0.3% this month from 0.4%, a separate poll showed. That compares with the ECB’s goal of close to 2%. Consumer prices in Spain fell 0.5% in August from a year ago, the sharpest decline since Oct. 2009, even as the economy expanded 0.6% in the second quarter.

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No QE. Says Germany.

• ECB’s Draghi Has Been “Overinterpreted”, Says Germany’s Schaeuble (Reuters)

Germany’s Finance Minister Wolfgang Schaeuble told a newspaper on Wednesday that European Central Bank chief Mario Draghi had been “overinterpreted” after suggesting that fiscal policy could play a greater role in promoting growth. The comments, made last Friday have been widely seen as a shift of emphasis towards support for greater fiscal stimulus over austerity. “I know Mario Draghi very well, I think he is being overinterpreted,” Schaeuble told the Passauer Neue Presse in an interview, adding he respected the independence of the central banker. Schaeuble also said he wasn’t pleased about comments made by France’s former economy minister Arnaud Montebourg on Germany’s “obsession” with austerity but that this was a domestic debate in France and consequences had been drawn. French President Francois Hollande ejected Montebourg from his cabinet earlier this week.

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China’s housing is way worse than we, let alone the Chinese, acknowledge. Huge numbers of homes were built as investments, not to live in. If you live in a home and the price goes down, you may still be able to pay the mortgage. If it’s just an investment, the rules change.

• China Property Launches To Add To Inventory, Lower Prices (Reuters)

Property launches in China are set to surge in the latter half of the year with developers sticking to their schedules despite mounting inventories, spelling double trouble for a market hammered by months of falling prices. Prices started to decline in March as the slowing economy hit demand, inventories ballooned and developers began offering discounts. The current slump was confirmed by official data only around the middle of the year, way after developers had already committed themselves to completing projects for 2014. Developers also have little choice but to heap even more supply in a bloated market due to regulations that stop them from sitting on undeveloped land. Those that fail to break ground on new projects a year after purchasing land will face fines, while those that wait more than two years could have their land confiscated. The rush to expedite projects will worsen chronic oversupply that analysts warn may take years to clear.

Unsold properties will also have broader implications – the sector accounts for over 15% of the economy and its fortunes are tied to other industries such as concrete and steel. Earlier this month, Kaisa Group and China Merchants Land confirmed that they planned to launch around 70% of their 2014 projects in the second half. Country Garden said it aimed to meet 60% of its sales target during the period. Price cuts and promotions are the most common methods that developers use to clear inventory. But tight mortgage credit lines from banks and discrepancies in price expectations between developers and home buyers are not helping, analysts say. “Buyers’ attitude has changed. They feel they can wait,” said CIFI Holdings Chief Financial Officer Albert Yau. China’s once white-hot housing market is slowing this year, weighed by the cooling economy and the government’s five-year-long campaign to curb price rises. New home prices fell in July for a third consecutive month, with declines spreading to a record number of big cities including Beijing.

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• Chinese Developers Offer Hefty Discounts In Strained Housing Market (FT)

In the latest sign of Chinese developers’ desperation to unload inventory into a weak property market, China Vanke Co is offering discounts of up to $325,000 to home buyers who shop on Alibaba’s Taobao, an e-commerce platform. The country’s biggest developer will give discounts that match shoppers’ spending of up to Rmb 2 million ($325,000) on the eBay-like service. Homes in real estate developments in Beijing, Shanghai, Guangzhou and Chongqing, among other cities, will qualify, according to an advertisement on Taobao’s website.

Developers began cutting prices this year but have so far failed to revive flagging volumes. More than 30 cities have also removed purchase restrictions introduced in 2010 to restrain price growth amid public anger over high prices. Residential property sales fell 9.4% in floor space terms in the first seven months of the year compared with the same period in 2013, according to government statistics. Developers are increasingly resorting to creative sales tactics to drum up interest. An office tower in Henan province offered carwashes by bikini-clad models to people who referred a friend to the building’s account on WeChat, the instant messaging service run by Tencent Holdings. A residential developer in Wuhuan offered new iPhone 6s to potential buyers who showed up at the sales office.

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• Did China Just Announce A New Mini-Stimulus Package? (CNBC)

The Chinese government launched a “fresh round of mini-stimulus” to counter growth headwinds, according to a Bank of America Merrill Lynch (BofA-ML) report published Thursday. The measures aim to support the agricultural sector, boost investment in public facilities and improve environmental protection. The People’s Bank of China (PBOC) has given banks a larger re-lending quota at lower rates to support the farm sector. It granted a 20 billion yuan ($3.26 billion) re-lending quota to its local branches to guide rural financial institutions to step up lending support to the sector, it said on its website late Wednesday. Re-lending is a monetary tool used by the central bank to increase financial institutions’ liquidity and guide credit flows.

Other measures include a “push for ramping up investment in clean energy and public facilities such as hospitals, nursing homes and fitness centers, and a promise for delivering the target on social housing and more spending on environmental protection,” Ting Lu and Sylvia Sheng, economists at BofA-ML wrote. These steps will help China deliver the “around 7.5%” growth target, BofA-ML said, noting that it’s comfortable maintaining its gross domestic product (GDP) growth forecast of 7.4% for the second half. A slew of disappointing economic data – from manufacturing to credit growth – over the past month raised concerns that the world’s second-largest economy may be headed into a renewed soft patch.

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Oh Jeez.

• Portugal’s Espirito Santo Clan In 11th-Hour Borrowing Spree In 2014 (Reuters)

The corporate empire of Portugal’s Espirito Santo family issued €5 billion ($6.6 billion) of new debt in the first six months of 2014, according to people familiar with the matter, just as the clan’s businesses were nearing bankruptcy. The bonds were sold via a complex transatlantic scheme involving companies in Panama and Europe, the people said. Much of the debt ended up with Banco Espirito Santo and its customers, they added, accelerating the financial woes that led to the lender’s state bailout earlier this month. The 11th-hour borrowing gambit uncovered by Reuters is being examined by Portuguese financial regulators who are trying to determine whether it was legally permissible, according to people close to the examination.

It shines new light on the lengths to which Portugal’s biggest corporate dynasty went to save their empire from collapse, mixing family affairs with those of the country’s then largest listed bank, in which until recently they were the single-largest shareholder. The collapse of the 145-year-old Espirito Santo group has caused turmoil in international markets and rocked Portugal’s political and business world. Regulators and prosecutors are examining possible fraudulent behaviour behind the fall. As part of their investigation, regulators are looking into how the bonds issued in the first six months of the year were packaged, marketed and sold to clients, according to the people familiar with the examination.

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Fun down under.

• Is Kim Dotcom A Threat To The Kiwi Dollar? (CNBC)

What on earth is the connection between Kim Dotcom – one of the world’s biggest internet pirates – and the New Zealand dollar, you ask? Dotcom, who is fighting extradition to the United States on piracy charges, launched a political party earlier this year to contest New Zealand’s general elections on September 30. In late-May, his Internet Party entered an alliance with the Mana Party, a small party that advocates for the nation’s indigenous Maori, to improve his chances of gaining political clout. Their joint party, Internet Mana, is gaining popularity among young voters and is in striking distance of the five% threshold needed to guarantee representation in parliament, according to the One News-Colmar Brunton poll published on August 17. “Fears that the infamous web entrepreneur Kim Dotcom may be starting to influence the New Zealand election is affecting the currency.

Mr. Dotcom’s party has aligned itself with the Maori party and is polling at 5% – a big enough swing in New Zealand politics that could possibly give the ruling majority to the opposition Labour party,” Boris Schlossberg, Managing Director of FX Strategy at BK Asset Management wrote in a note. “Such a move leftward would no doubt shake up the currency markets which have been caught by surprise expecting yet another win by the National party that would maintain the economic status quo,” he said. The National Party-led coalition – headed by Prime Minister John Key and Deputy and Finance Minister Bill English – is lauded for its success in steering the country through the global financial crisis and aftermath of the devastating Christchurch earthquake of 2011. A government led by the main opposition Labor party is viewed as unfavorable by investors.

“A Labor/Green-led government most likely with the support of the more radical small Internet/Mana left element and a populist centrist NZ First would be regarded as unstable and damaging for business confidence,” said Greg Gibbs, head of Asia Pacific markets strategy at RBS. The National Party is currently leading the Labor Party in the polls by a wide margin, at 50% and 26%, respectively. However, the National Party has been losing support. Earlier this month, Key predicted a close general election, saying, “If we could poll 50% on election night that would be great, but the truth is MMP [Multi-Party Proportional voting system] is an environment that’s tough, it’s hard fought and it’s always close.” The complex MMP voting system tends to emphasize the role of minor parties and force the major players into coalition governments. Schlossberg says any significant chance that the left-leaning Labor may wrest control of the government could push the New Zealand dollar-U.S. dollar pair towards $0.80 over the next few weeks.

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Excellent piece by Butler; good summary of all the things I’ve written about MH17 and the larger Ukraine situation.

• Death & Lies: The Only Truth Of Flight MH17 (Philip Butler)

The day Malaysian Airlines flight MH17 fell to Earth in pieces, everyone in our world was told Russia and Vladimir Putin murdered the 298 people aboard. It is over a month since the biggest ‘shoot-down’ incident in air passenger history, and this is what we know for sure. Whatever happened in the skies above eastern Ukraine on July 17, we’ve been set on a reactionary course charted by either fools or the adjunct henchmen of some unseen game. Was all this conjecture to risk the outbreak of World War III over hearsay and rumor? A mouthy leadership in the West has revealed the only real truth of this matter: credibility and trust was ‘blown out of the sky’ over Ukraine. At 1:15pm in the afternoon on July 17, 2014, the air traffic controllers at Kiev lost radar and voice contact with flight MH17. The Boeing 777-200ER, flying from Schiphol Airport in Amsterdam to Kuala Lumpur, fell in pieces on Ukraine’s eastern frontier. The earliest reports the public received on the catastrophe came from the various mainstream media.

Those outlets basically parroted what officials in Kiev and the US State Department released. From the outset, officials in the West started a blame game, and one of massive proportions. Within a few hours of the event, nearly all media reflected assurances that Russia, and the pro-Russian fighters in eastern Ukraine were guilty. We know now that almost all the initial information on the Malaysian Airlines downing was misleading at best. Allegations, ‘cooked up’ evidence from social media, and illogical theories took the place of news reporting for days on end. US intelligence sources said sophisticated BUK surface-to-air missile systems were used to down the plane. Supposedly, these launchers were expertly operated by guerrilla fighters who were surrounded by Ukrainian security forces in contested territory. Meanwhile, the same trillion-dollar security and defense industry that the NSA spies on the world for claimed MH17 was shot down by “Vladimir Putin’s Missile.”

We were expected to believe Russia’s president ordered his military to drive a BUK system across Russia’s border, to deliver it to separatist forces there in order to shoot down a friendly aircraft, and then to drive the launcher back into Mother Russia. Moreover, this was all to be accomplished secretly, and in broad daylight through the most hotly-contested real estate in Europe. Western leadership and once-trusted media asked the world to be complete idiots, hapless peons ready for a Ukrainian ‘shock and awe’ campaign. But today we have a dozen plausible theories of what happened. The most legitimate at the moment, an air-to-air engagement by Ukrainian SU 25 attack aircraft, has been largely ignored even though key experts abide by the theory. The Kiev/US/NATO/GCHQ/EU/White House narrative has quieted down somewhat now, since Russia’s Defense Ministry sent the message that it had all the evidence. But we’re left with crippling counter-sanctions here in Europe. Sanctions levied on Russia based on a heap of lies, for all we know.

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Sort of good piece, but misses the issues of depletion rates and and ballooning debts.

• US Shale: What Lies Beneath (FT)

In a clearing in a cornfield in the Eagle Ford region of south Texas, the rig drilling the Sisti A3 well for ConocoPhillips looks very similar to the ones that have been working in the state’s shale reserves for more than a decade. But a mile or two below the surface, the way the wells operate has changed radically. Since 2012, Conoco has doubled the volume of ceramic proppant – a sand-like material – it uses for hydraulic fracturing. Mixed with water and pumped into wells at high pressure, the proppant forces open the cracks in the rocks where oil and gas is trapped. Using more proppant has increased the output of each well by 30% – giving a healthy boost to Conoco’s bottom line. Now its engineers are examining ways to double the amount of proppant again. This kind of experimentation has made Eagle Ford and other shale formations, including Bakken in North Dakota and Permian Basin in west Texas, the oil industry’s equivalents of Silicon Valley.

The shale boom is not a one-off event but a permanent revolution, with companies constantly pushing back the frontiers of the technology to cut costs and improve well productivity. “We are a gigantic innovation machine,” says Greg Leveille, Conoco’s general manager for unconventional resources such as shale. “We put a lot of effort into trying to find the optimal combination of fracturing techniques.” Horizontal drilling, which opens up layers of resource-bearing shale, and hydraulic fracturing, or “fracking”, has raised US crude output by more than 65% in the past six years, helped by historically high oil prices that have made the techniques commercially viable. The big question now is how much longer the US shale industry’s growth spurt will last. Few issues are more significant for the future of the world economy. Threats to global crude supplies have risen this year, with turmoil in Iraq, mounting tensions between Russia and the west, and unrest in other oil-producing countries such as Libya.

Yet prices have fallen, with internationally traded Brent crude dropping from about $108 per barrel at the start of the year to about $102 today. In large part, that has been a result of booming US production. Between 2011 and 2013, the US raised its output by 2.2m b/d, more than the entire increase in global demand. While the immediate outlook for global oil supplies is benign, longer-term prospects are more troubling. If emerging economies – above all China – continue to grow, their demand for oil will rise as well. A few countries, including Canada, Brazil and Mexico, have realistic prospects of increasing their production to meet that demand. But there is still a great burden of expectation riding on the US.

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Lowballing.

• Ebola Cases Could Eventually Reach 20,000 (AP)

The Ebola outbreak in West Africa eventually could exceed 20,000 cases, more than six times as many as doctors know about now, the World Health Organization said Thursday. A new plan to stop Ebola by the U.N. health agency also assumes that in many hard-hit areas, the actual number of cases may be two to four times higher than is currently reported. The agency published new figures saying that 1,552 people have died from the killer virus from among the 3,069 cases reported so far in Liberia, Sierra Leone, Guinea and Nigeria. At least 40% of the cases have been in just the last three weeks, the U.N. health agency said, adding that “the outbreak continues to accelerate.” In Geneva, the agency also released a new plan for handling the Ebola crisis that aims to stop Ebola transmission in affected countries within six to nine months and prevent it from spreading internationally.

Dr. Bruce Aylward, WHO’s assistant director-general, told reporters the plan would cost $489 million over the next nine months and require the assistance of 750 international workers and 12,000 national workers. The 20,000 figure, he added, “is a scale that I think has not ever been anticipated in terms of an Ebola outbreak.” “That’s not saying we expect 20,000,” he added. “But we have got to have a system in place that we can deal with robust numbers.” Aylward said the far-higher caseload is believed to come from cities. “It’s really just some urban areas that have outstripped the reporting capacity,” he said.

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