Nov 172017
 
 November 17, 2017  Posted by at 9:50 am Finance Tagged with: , , , , , , , , , ,  


Arthur Rothstein Night view, downtown section. Dallas, Texas 1942

 

America’s Racial Wealth Gap Is Staggering – And Government-Created (BI)
Australia’s Private Debt Juggernaut Rolls On (LFE)
John Malone says Amazon is a ‘Death Star’ (CNBC)
Einhorn Says Issues That Caused the Crisis Are Not Solved (BBG)
Corporate Zombies Are Threatening The Eurozone Economy (ZH)
Wall St. Bankers Secretly Used Chat Rooms To Rig Treasury Bond Trades (NYP)
Electricity Consumed To Mine Bitcoin Rose 43% Since October (BBG)
Saudi Arabia Offers Arrested Royals A Deal: Your Freedom For Lots Of Cash (ZH)
Fed Insiders Seek Radical Policy Review as Powell Era Dawns (BBG)
200,000 Gallons of Oil Spill From Keystone Pipeline (Atl.)
Greek Taxpayers Have Paid Dearly For €720 Million ‘Social Dividend’ (K.)
EU Handling Of Greek Bailouts “Generally Weak”, Say Its Own Auditors (R.)
James Hansen Calls For Wave Of Climate Lawsuits (G.)

 

 

Don’t think a lot of people were aware of this.

America’s Racial Wealth Gap Is Staggering – And Government-Created (BI)

The term “public housing” is generally associated with poor, disaffected US minorities — but it turns out its origins were very much white and middle-class. Explicitly racist housing policies at the federal, state and local levels, first during the Great Depression and then after World War II, helped deepen and exacerbate a wealth gap between the races that has accelerated over the decades. Those policies also led to a sharp rise in racial segregation across many US cities, according to Richard Rothstein, a research associate of the Economic Policy Institute and author of “The Color of Law: A Forgotten History of How our Government Segregated America.”

“There was a systematic pattern that we’ve forgotten by which every metropolitan area in this country has been segregated not by the accident of personal choices or economic differences but by very explicit federal, state and local policy designed to create a segregated landscape everywhere we look,” Rothstein said during his keynote speech at a recent conference sponsored by the Federal Reserve Bank of Minneapolis. The Fed is putting increasing efforts into community development as the unemployment rate falls to historically low levels, forcing policymakers to face more intractable social issues that are not always directly amenable to monetary or even fiscal policy. America’s racial wealth gap today is almost hard to fathom:

Black families on average hold a paltry 10% of the wealth owned by the average white family, a level of inequality that eclipses anything seen in other rich nations. Rothstein argues that a big part of that gap comes from discriminatory housing policies that allowed whites to build gains from homeownership while blacks were forced to rent. Here’s what the data look like, according to the Urban Institute:

Rothstein argued that the roots of inequality in housing wealth were very much racial and completely intentional, not the result of self-segregation by choice. “Housing was built on a segregated basis, very often creating segregation in communities that hadn’t known it before or at least where it wasn’t nearly as intense as it later became,” he said. President Harry Truman proposed a massive expansion of the public housing program in 1949 in order to house returning veterans, Rothstein said. The 1949 Housing Act was passed “as a segregated program, and the government used that act to continue to segregate all its housing programs for the next ten years.”

Read more …

This is about Australia, but take a look at debt service ratio’s in countries like Denmark and the Netherlands. And then just for fun compare them to the US, Italy.

Australia’s Private Debt Juggernaut Rolls On (LFE)

In the post-GFC era, more attention has been given to private credit (debt) whereas previously, almost all commentary focused upon public debt. The ruptures caused by the global financial crisis (GFC) is strongly responsible for this shift in perspective, including the research by heterodox economists. Fortunately, the mass media in Australia have done a fairly good job at bringing attention to private debt even though they are, ironically, staunch cheerleaders of inflated land prices. As is now commonly recognised, Australia’s household sector is heavily indebted. The household debt to GDP ratio is the second-highest globally at 122%, has the second-equal highest household sector debt service ratio (DSR), and the fifth-highest debt to income ratio. In absolute terms, household debt amounts to $2.1 trillion dollars; the vast majority consists of mortgage debt with a small remainder of personal debt.

The household debt to income ratio is 172%, which is below the commonly-cited RBA ratio which registers at 190%. This is due to the different measure of debt used (the numerator). The Bank of International Settlements (BIS) only considers debt instruments in line with the UN SNA (System of National Accounts), whereas the RBA uses all household liabilities from the ABS Financial National Accounts. This is neither correct nor incorrect, just different. In compiling its debt database, the BIS must adhere to international standards.

The debt service ratio is an estimate of both aggregate principal and interest payments, using household income, debt and the average interest rate (FISIM-adjusted) variables as inputs. The BIS notes the DSR demonstrates a strongly negative correlation between household consumption and debt, for obvious reasons.

Read more …

“Amazon is a ‘Death Star’ moving in ‘striking range of every industry on the planet'”.

John Malone says Amazon is a ‘Death Star’ (CNBC)

Liberty Media Chairman John Malone believes Amazon will dominate the future and is the only company that has a chance to beat Netflix. Netflix CEO Reed Hastings “has been successful in throwing hail Mary passes and then growing into them. And I think he is going to continue doing that. He’s got a great service. He’s disintermediating the studio industry by going directly to the talent,” Malone said in an exclusive interview with CNBC’s David Faber Thursday at the Liberty Media annual investor meeting. “The only outfit right now that has a chance of overtaking them would be Amazon.” The investor noted the cable industry missed its opportunity to compete with Netflix in the past and said “it’s way too late” now. He added that in today’s media world Netflix has the lead position due to its size and subscriber base.

The internet “makes scale even more important in the media business, where scale always was important. It’s all about scale,” he said. Netflix was “the first wave. And I think Jeff [Bezos] is gonna be the most disruptive. As [his] Death Star moves into striking range of every industry on the planet.” He explained that Amazon’s business dominance is growing stronger. Malone said any company that sells products to consumers is at risk of being crushed by the e-commerce giant. “If you’re in the B2C business, if you’re selling anything to any consumer anywhere on the planet, you gotta believe that Amazon is gonna have a look at that opportunity to commoditize you to use scale to serve the public,” he said. Bezos is “reducing cost to the consumer and providing great convenience … You just got to take your hat off and envy what he has built.”

Read more …

And that should raise a lot more fear than it does at present.

Einhorn Says Issues That Caused the Crisis Are Not Solved (BBG)

Hedge-fund manager David Einhorn said the problems that caused the global financial crisis a decade ago still haven’t been resolved. “Have we learned our lesson? It depends what the lesson was,” Einhorn, the co-founder of New York-based Greenlight Capital, said at the Oxford Union in England on Wednesday. Einhorn said he identified several issues at the time of the crisis, including the fact that institutions that could have gone under were deemed too big to fail. The scarcity of major credit-rating agencies was and remains a factor, Einhorn said, while problems in the derivatives market “could have been dealt with differently.” And in the “so-called structured-credit market, risk was transferred, but not really being transferred, and not properly valued.”

“If you took all of the obvious problems from the financial crisis, we kind of solved none of them,” Einhorn said to a packed room at Oxford University’s 194-year-old debating society. Instead, the world “went the bailout route.” “We sweep as much under the rug as we can and move on as quickly as we can,” he said. [..] Briefly touching the rise of computer-driven strategies in the financial industry, the billionaire said machines were usually good at spotting short-term trading patterns, something Greenlight isn’t focused on. “Our goal here is to find things that are widely misunderstood by a large margin. So we are not really competing with that kind of technology, because I don’t think we would beat them.”

Read more …

Central bankers who create zombies, and then warn about the danger of .. zombies. In other words, nothing out of the ordinary.

Corporate Zombies Are Threatening The Eurozone Economy (ZH)

The recovery in Eurozone growth has become part of the synchronised global growth narrative that most investors are relying on to deliver further gains in equities as we head into 2018. However, the “Zombification” of a chunk of the Eurozone’s corporate sector is not only a major unaddressed structural problem, but it’s getting worse, especially in…you guessed it…Italy and Spain. According to the WSJ.

The Bank for International Settlements, the Basel-based central bank for central banks, defines a zombie as any firm which is at least 10 years old, publicly traded and has interest expenses that exceed the company’s earnings before interest and taxes. Other organizations use different criteria. About 10% of the companies in six eurozone countries, including France, Germany, Italy and Spain are zombies, according to the central bank’s latest data. The percentage is up sharply from 5.5% in 2007. In Italy and Spain, the percentage of zombie companies has tripled since 2007, the OECD estimated in January. Italy’s zombies employed about 10% of all workers and gobbled up nearly 20% of all the capital invested in 2013, the latest year for which figures are available.

The WSJ explains how the ECB’s negative interest rate policy and corporate bond buying are keeping a chunk of the corporate sector, especially in southern Europe on life support. In some cases, even the life support of low rates and debt restructuring is not preventing further deterioration in their metrics. These are the true “Zombie” companies who will probably never come back from being “undead”, i.e. technically dead but still animate. Belatedly, there is some realisation of the risks.

Economists and central bankers say zombies undercut prices charged by healthier competitors, create artificial barriers to entry and prevent the flushing out of weak companies and bad loans that typically happens after downturns. Now that the European economy is in growth mode, those zombies and their related debt problems could become a drag on the entire continent. “The zombification of the corporate sector and banks (is) a risk for future living standards,” Klaas Knot, a European Central Bank governor and the head of the Dutch central bank, said in an interview. In some ways, zombie firms are an unintended side effect of years of easy money from the ECB, which rolled out aggressive stimulus policies, including negative interest rates, to support lending and growth. Those policies have been sharply criticized in some richer eurozone countries for making it easier for banks to keep struggling corporate borrowers alive.

Read more …

Jail time.

Wall St. Bankers Secretly Used Chat Rooms To Rig Treasury Bond Trades (NYP)

Wall Street banks secretly shared client information in online chat rooms in order to rig auctions for the $14 trillion US Treasurys market, according to an explosive lawsuit filed in Manhattan federal court on Wednesday. The move wrongly fattened the banks’ profits and picked profits from clients, the suit claims. The new accusations, leveled by several pension funds and wealthy individual investors, are contained in an expanded class-action suit originally filed in July 2015 — and include an unusual twist: Some of the evidence came from confidential informants and one of the banks sued in the earlier action. That bank is now cooperating with the plaintiffs in the massive civil action, and is providing an in-depth look into how Wall Street allegedly conspired to rig Treasury bond trades.

The revised lawsuit expands on details on how the banks conspired to set Treasury bond prices — like moves to manipulate the price of the bonds higher on days when there was a lot of demand, and vice versa, court papers claim. The banks worked their scam for years until The Post first reported in June 2015 of the existence of a government investigation into the alleged actions, the updated lawsuit claims. The funds, representing retirees and public workers, also claim the banks conspired to rig the secondary Treasury markets beginning in the 1990s through tightly controlled electronic platforms that inhibited more competitive trading — a new allegation that wasn’t in the original suit but mirrors similar complaints filed against banks in other markets, like stock loans.

The amended suit tightens its focus on a select number of banks, naming Goldman Sachs, Morgan Stanley, the Royal Bank of Scotland, BNP Paribas, and UBS, among others, as the firms behind the rigging, which they allege occurred from Jan. 1, 2007 to mid-2015. Last year, the judge presiding over the class-action suit had questioned whether the claims were strong enough to proceed. The funds continue to allege the banks mined their own customers’ bids for Treasury bonds to get a bigger share of the auction, and sell the bonds for more profit. Probes on the auction practices are being conducted by the Justice Department, the Securities and Exchange Commission and other federal, state and overseas regulators, sources said. No regulator has accused any bank of wrongdoing.

Read more …

It will keep rising. No hydro project will stop that.

Electricity Consumed To Mine Bitcoin Rose 43% Since October (BBG)

A green-energy startup says it can solve bitcoin’s surging electricity consumption without boosting pollution, an issue threatening to halt the meteoric rise of the virtual currency. Austria’s HydroMiner GmbH raised $2.8 million after closing its first initial coin offering on Wednesday, according to its website. The cash will be used to install high-powered computers at hydropower plants, where the company says it can mine new digital currencies at a cheaper cost and with lower environmental impacts. “A lot of people are worried about the high energy consumption of cryptocurrencies,” said Nadine Damblon, the co-founder and chief executive officer of HydroMiner in Vienna. “It’s a huge factor.”

The electricity needed by the global network of computers running the blockchain technology behind bitcoin has risen more than two-fifths since the beginning of October, to about 28 terawatt-hours a year, according to the Digiconomist website. That’s more power than all of Nigeria’s 186 million people consume each year. Much of the electricity feeding bitcoin projects is coming from generators fed by fossil fuels. Even as bitcoin approaches $8,000, the price required for mining to be marginally profitable may reach a jaw-dropping $300,000 to $1.5 million by 2022, according to Christopher Chapman at Citigroup. He based his estimate on current growth rates for mining and the electricity consumed by computers doing the work. At that pace, the power consumption implied by bitcoin’s growth may eventually match what Japan uses.

Read more …

My piece from November 8: How Broke is the House of Saud? Sounds like an extremely volatile situation. Taking all those billions away from the rich will not be appreciated. MBS is playing with fire.

Saudi Arabia Offers Arrested Royals A Deal: Your Freedom For Lots Of Cash (ZH)

Saudi Arabia just introduced a 70% wealth tax. It did so in a most original way… As we noted shortly after the Crown Prince’s purge of potential rivals within Saudi Arabia’s sprawling ruling family, while the dozens of arrests were made under the pretext of an “anti-corruption crackdown”, Mohammed bin Salman’s ulterior motive was something else entirely: Replenishing the Kingdom’s depleted foreign reserves, which have been hammered for the past three years by low oil prices, with some estimating that the current purge could potentially bring in up to $800 billion in proceeds. Furthermore, the geopolitical turmoil unleashed by the unprecedented crackdown helped push oil prices higher, creating an ancillary benefit for both the kingdom’s rulers and the upcoming IPO of Aramco.

And, in the latest confirmation that the crackdown was all about cash, the Financial Times reports today that the Saudi government has offered the new occupants of the Riyadh Ritz-Carlton a way out…. and it’s going to cost them: In some cases, as much as 70% of their net worth. “Saudi authorities are negotiating settlements with princes and businessmen held over allegations of corruption, offering deals for the detainees to pay for their freedom, people briefed on the discussions say. In some cases the government is seeking to appropriate as much as 70% of suspects’ wealth, two of the people said, in a bid to channel hundreds of billions of dollars into depleted state coffers. The arrangements, which have already seen some assets and funds handed over to the state, provide an insight into the strategy behind Crown Prince Mohammed bin Salman’s dramatic corruption purge.”

[..] Some of the suspects, most of whom have been rounded up at the Ritz-Carlton hotel in Riyadh since last week, are keen to secure their release by signing over cash and corporate assets, the FT’s sources say. “They are making settlements with most of those in the Ritz,” said one adviser. “Cough up the cash and you will go home.” One multi-billionaire businessman held at the Ritz-Carlton has been told to hand over 70% of his wealth to the state as a punishment for decades of involvement in allegedly corrupt business transactions. He wants to pay, but has yet to work out the details of transferring those assets to the Saudi state.”

Read more …

Just look at the nonsense spouted: “The move formalized a policy they’d been following in practice for several years, and it was backed by careful logic: 2% is high enough to ensure that workers continue to get raises and to give the Fed some cushion against deflation.” It did none of that.

Fed Insiders Seek Radical Policy Review as Powell Era Dawns (BBG)

Federal Reserve officials are pushing for a potentially radical revamp of the playbook for guiding U.S. monetary policy, hoping to seize a moment of economic calm and leadership change to prepare for the next storm. While the country is enjoying its third-longest expansion on record, inflation and interest rates are still low, meaning the central bank has little room to ease policy in a downturn before hitting zero again. With Jerome Powell nominated to take over as Fed chairman in February, influential officials including San Francisco Fed chief John Williams and the Chicago Fed’s Charles Evans have taken the lead in calling for reconsidering policy maker’s 2% inflation target. “It’s a good time given the shift in leadership,” Atlanta Fed President Raphael Bostic told reporters on Tuesday in Montgomery, Alabama.

“The new guy comes in and they are able to really think about, how should this work, how do I think this should work, and is it compatible with where we’ve been and where we are trying to get to?” The Fed in 2012 officially settled on 2% inflation as an explicit target for the price stability half of its dual mandate from Congress. The other goal is maximum sustainable employment. The move formalized a policy they’d been following in practice for several years, and it was backed by careful logic: 2% is high enough to ensure that workers continue to get raises and to give the Fed some cushion against deflation. Other advanced economies aim for a similar level. Yet Fed officials have been urging the policy-setting Federal Open Market Committee to revisit that approach.

“I do think that’s a very important thing that we should all be starting to think about, to prepare ourselves and evaluating,” Cleveland Fed President Loretta Mester told a monetary policy conference at the Cato Institute Thursday in Washington. “The Bank of Canada rethinks its framework every five years. It seems to me that’s not a bad thing.”

Read more …

This is not Keystone XL, but it’s terribly scary.

200,000 Gallons of Oil Spill From Keystone Pipeline (Atl.)

The Keystone pipeline was temporarily shut down on Thursday, after leaking about 210,000 gallons of oil into Marshall County, South Dakota*, during an early-morning spill. TransCanada, the company which operates the pipeline, said it noticed a loss of pressure in Keystone at about 5:45 a.m. According to a company statement, workers had “completely isolated” the section and “activated emergency procedures” within 15 minutes. Brian Walsh, a state environmental scientist, told the local station KSFY that TransCanada informed the South Dakota Department of Environment and Natural Resources about the spill by 10:30 a.m. TransCanada estimates that the pipeline leaked about 5,000 barrels of oil at the site, Walsh said. A barrel holds 42 U.S. gallons of crude oil.

The Keystone pipeline is nearly 3,000 miles long and links oil fields in Alberta, Canada, to the large crude-trading hubs in Patoka, Illinois, and Cushing, Oklahoma. It was completed in 2010. The entirety of its northern span—which travels through North Dakota, South Dakota, Nebraska, Kansas, Oklahoma, Missouri, and Illinois—would stay closed until the leak was fixed, the company said. TransCanada said it was still operating the pipeline’s southern span, which connects Oklahoma to export terminals along the Gulf Coast. The pipeline’s better-known sister project—the Keystone XL pipeline—was proposed in 2008 as a shortcut and enlargement of the Keystone pipeline.

Read more …

A country being crushed by creative accounting.

Greek Taxpayers Have Paid Dearly For €720 Million ‘Social Dividend’ (K.)

It took 2.7 billion euros in new taxes and pension cuts for the government to beat the primary surplus target by 1.9 billion euros this year. In total, 6.2 million taxpayers were forced to pay an average of 410 euros each for the government to distribute an average handout of 180 euros branded the “social dividend” to fewer taxpayers (almost 4 million). The relevant bill that was tabled in Parliament on Tuesday does not specify how the handout will be distributed. Cripplingly high taxes and social security contributions, combined with a freeze on investments, gave the prime minister the chance to issue a nominal social dividend of 1.4 billion euros, which actually amounts to 720 million for low-income people – as the rest goes toward covering government obligations.

For this surplus primary surplus to be attained, the government did the following:
– Hiked solidarity levy rates, mainly for annual incomes in excess of 30,000 euros.
– Lowered the tax-free limit for pensioners and salary workers.
– Raised taxation on oil, gasoline, coffee and tobacco. The latest data show that increasing the special consumption taxes on beer and on coffee has fetched 140 million and 40 million euros respectively.
– Hiked value-added tax rates to the effect that 62.4% of goods and services are now in the top VAT bracket (24%), compared to 33.6% up until last year.
– Slashed the heating oil allowance by about 50%.
– Cut pensions and almost abolished the allowance for low-pension retirees (EKAS).
– Raised the retirement age and social security contributions.

Also the erroneous estimate of Single Social Security Entity (EFKA) revenues turned its deficit of 1 billion euros into a 200-million-euro surplus.

Read more …

“Creditors initially estimated that Greece would return to growth in 2012”

But so what? They just raise the burden on Greeks a bit more each time they screw up.

EU Handling Of Greek Bailouts “Generally Weak”, Say Its Own Auditors (R.)

The European Union’s handling of three bailout programs for Greece during the eurozone’s financial crisis had several weaknesses and was only partly successful, European auditors said on Thursday. EU and international creditors have channeled over €350 billion ($412.1 billion) of financial aid to Greece since 2010 to prevent the country’s default and reduce contagion to the rest of the eurozone. To get the funds, Athens had to embark on sweeping structural reforms and unpopular belt-tightening measures. The programs “promoted reform and avoided default by Greece, but the country’s ability to finance itself fully on the financial markets remains a challenge,” the European Court of Auditors (ECA) said in a report on the Greek bailouts. The ECA is responsible for assessing EU finances.

Last year, it said the Commission’s management of the bailouts for Ireland, Portugal, Hungary, Latvia and Romania was “generally weak.” The third Greek program is still ongoing as Athens completes agreed reforms. The €86 billion bailout ends in August, and Greece is by then expected to have fully regained access to market funding. The ECA report, which focused on the work of the European Commission, said the programs “only helped Greece to recover to a limited extent.” The ECB, which together with eurozone states and the IMF contributed to the programs, was not assessed because it declined to provide data, questioning the auditors’ mandate to ask for it, ECA said. The auditors found “weaknesses” in the design of the Greek programs. “Some key measures were not sufficiently justified,” the report said. The ECA stressed that a large chunk of the €45 billion pumped into the banking system may never be recovered.

“For other (measures), the Commission did not comprehensively consider Greece’s implementation capacity in the design process and thus did not adapt the scope and timing accordingly,” it said. In a written reply included in the ECA report, the Commission said that “the design and implementation of crucial reforms took place in the wider context of the prevailing difficult economic situation as well as severe instability in the financial markets.” The Greek bailouts were carried out during the worst financial and economic crisis since the World War II. The Commission also stressed that the application of the programs was complicated by the political crisis that struck Greece during the bailouts, causing the collapse of governments. The Commission concluded that, despite the complex circumstances, the key objectives of the programs were achieved by averting Greece’s default and ensuring financial stability in the eurozone.

Read more …

“The judiciary is the branch of government in the US and other countries that is relatively free of bribery. And bribery is exactly what is going on..”

James Hansen Calls For Wave Of Climate Lawsuits (G.)

One of the fathers of climate science is calling for a wave of lawsuits against governments and fossil fuel companies that are delaying action on what he describes as the growing, mortal threat of global warming. Former Nasa scientist James Hansen says the litigate-to-mitigate campaign is needed alongside political mobilisation because judges are less likely than politicians to be in the pocket of oil, coal and gas companies. “The judiciary is the branch of government in the US and other countries that is relatively free of bribery. And bribery is exactly what is going on,” he told the Guardian on the sidelines of the UN climate talks in Bonn. Without Hansen and his fellow Nasa researchers who raised the alarm about the effect of carbon emissions on global temperatures in the 1980s, it is possible that none of the thousands of delegates from almost 200 countries would be here.

But after three decades, he has been largely pushed to the fringes. Organisers have declined his request to speak directly to the delegates about what he sees as a threat that is still massively underestimated. Instead he spreads his message through press conferences and interviews, where he cuts a distinctive figure as an old testament-style prophet in an Indiana Jones hat. He does not mince his words. The international process of the Paris accord, he says, is “eyewash” because it fails to put a higher price on carbon. National legislation, he feels, is almost certainly doomed to fail because governments are too beholden to powerful lobbyists. Even supposedly pioneering states like California, which have a carbon cap-and-trade system, are making things worse, he said, because “half-arsed, half-baked plans only delay a solution.”

For Hansen, the key is to make the 100 big “carbon majors” – corporations like ExxonMobil, BP and Shell that are, by one account, responsible for more than 70% of emissions – pay for the transition to cleaner energy and greater forests. Until governments make them do so by introducing carbon fees or taxes, he says, the best way to hold them to account and generate funds is to sue them for the damage they are doing to the climate, those affected and future generations. Hansen is putting his words into action. He is involved in a 2015 lawsuit against the US federal government, brought by his granddaughter and 20 others under the age of 21. They argue the government’s failure to curb CO2 emissions has violated the youngest generation’s constitutional rights to life, liberty, and property.

[..] Hansen believes Donald Trump’s actions to reverse environmental protections and withdraw from the Paris accord may be a blessing in disguise because the government will now find it harder to persuade judges that it is acting in the public interest. “Trump’s policy may backfire on him,” he said. “In the greater scheme of things, it might just make it easier to win our lawsuit.”

Read more …

Jan 072015
 
 January 7, 2015  Posted by at 1:10 pm Finance Tagged with: , , , , , , ,  


DPC Foundry, Detroit Shipbuilding Co., Wyandotte, Michigan 1915

Attack at Paris Satirical Magazine Office Kills 12 People (WSJ)
Is Attack Linked to Novel Depicting France Under Islamist President? (Bloomberg)
Bill Gross Calls It: 2015 Is Going to Be Terrible (Bloomberg)
Bill Gross Says the Good Times Are Over (Bloomberg)
Not Just Oil: Are Lower Commodity Prices Here To Stay? (CNBC)
Oil Price Slump Deepens As Drillers Seen Slashing Spending (Telegraph)
How the Bear Market in Crude Oil Has Polluted Non-Energy Stocks (Bloomberg)
As Oil Drops Below $50, Can There Be Too Much of a Good Thing? (BW)
ECB Considering Three Approaches To QE (Reuters)
Germany Prepares For Possible Greek Exit From Eurozone (Reuters)
Germany, France Take Calculated Risk With ‘Grexit’ Talk (Reuters)
Greece On the Cusp of a Historic Change (Alexis Tsipras, SYRIZA)
Eurozone Inflation Turns Negative For First Time Since October 2009 (Reuters)
Greek 10-Year Bond Yields Exceed 10% for First Time Since 2013 (Bloomberg)
Euro’s Drop is a Turning Point for Central Banks Reserves (Bloomberg)
Eurozone Prices Seen Falling as Risk of Deflation Spiral Mounts (Bloomberg)
Operation Helicopter: Could Free Money Help the Euro Zone? (Spiegel)
Russia’s ‘Perfect Storm’: Reserves Vanish, Derivatives’ Default Warnings (AEP)
Obama Threatens Keystone XL Veto (BBC)
Bank Of England Was Unaware Of Impending Financial Crisis (BBC)

Insanity. Marine Le Pen will become a lot more popular now in France.

Attack at Paris Satirical Magazine Office Kills 12 People (WSJ)

Armed men stormed the Paris offices of French satirical magazine Charlie Hebdo on Wednesday morning, killing 12 people and injuring more, French President François Hollande said. The men opened fire inside the magazine’s offices using automatic AK-47 rifles before fleeing, a police officer said. In November 2011, Charlie Hebdo’s headquarters were gutted by fire, hours before a special issue of the weekly featuring the Prophet Muhammad appeared on newsstands. The weekly has often tested France’s secular dogma, printing caricatures of the prophet on several occasions. Since the arson attack, the weekly has moved to a new location, which was guarded by police. Two of the victims in Wednesday’s shooting were police, an officer on the scene said.

The 2011 fire caused no injuries but spurred debate over press freedom and religious tolerance in France, which is home to Europe’s largest Muslim population. The special issue put a caricature of the prophet on its front page, quoting him as promising “100 lashes if you don’t die from laughter.” Several journalists received anonymous threats and its website was hacked, according to French officials. In 2012, France closed embassies and French schools in 20 countries after the weekly published a series of cartoons. In 2006, the paper reprinted images of Muhammad that had appeared in a Danish magazine a year before. The next year, it published a picture of Muhammad crying, with the tagline “It’s hard to be loved by idiots.” The Grand Mosque of Paris and the Union of Islamic Organizations of France filed slander charges, but a French court cleared the paper.

Read more …

Suggestive title. Answer: no. What happened is an editorial meeting was going on to prepare a special issue, named Sharia Hebdo, with the prophet Mohamed as guest editor.

Is Attack Linked to Novel Depicting France Under Islamist President? (Bloomberg)

“Submission,” a book by Michel Houellebecq released today, is sparking controversy with a fictional France of the future led by an Islamic party and a Muslim president who bans women from the workplace. In his sixth novel, the award-winning French author plays on fears that western societies are being inundated by the influence of Islam, a worry that this month drew thousands in anti-Islamist protests in Germany. In the novel, Houellebecq has the imaginary “Muslim Fraternity” party winning a presidential election in France against the nationalist, anti-immigration National Front. “A pathetic and provocative farce,” is how Liberation characterized the book in a Jan. 4 review that scathingly said the novelist is “showing signs of waning writing skills.”

Political analyst Franz-Olivier Giesbert in newspaper Le Parisien yesterday was kinder, calling it a “smart satire,” adding that “it’s a writers’ book, not a political one.” National Front’s leader Marine Le Pen, who appears in the 320-page novel, said on France Info radio on Jan. 5 that “it’s fiction that could become reality one day.” On the same day, President Francois Hollande said on France Inter radio he would read the book “because it’s sparking a debate,” while warning that France has always had “century after century, this inclination toward decay, decline and compulsive pessimism.” In an interview on France 2 TV last night, Houellebecq denied that he was being a scaremonger.

“I don’t think the Islam in my book is the kind people are afraid of,” he said. “I’m not going to avoid a subject because it’s controversial.” Hollande and German Chancellor Angela Merkel plan to discuss their respective countries’ struggle with Islamophobia, anti-immigration protests and the rise of Europe’s nationalist parties at an informal dinner in Strasbourg on January 11 organized by the European Parliament President Martin Schulz. Houellebecq’s book is set in France in 2022. It has the fictional Muslim Fraternity’s chief, Mohammed Ben Abbes, beating Le Pen, with Socialists, centrists, and Nicolas Sarkozy’s UMP party rallying behind him to block the National Front.

Read more …

Wow: “Gross is putting himself way out on a limb: Not one of Wall Street s professional forecasters predict the S&P 500 will drop in 2015.” Wow.

Bill Gross Calls It: 2015 Is Going to Be Terrible (Bloomberg)

Bill Gross, bond king, ousted executive, self-styled poet of the markets, has a bold, depressing prediction for 2015, and he’s not couching it in any of his usual metaphor: The good times are over, he wrote in his January investment outlook note. By the end of 2015, he goes on, there will be minus signs in front of returns for many asset classes. Gross is putting himself way out on a limb: Not one of Wall Street s professional forecasters predict the S&P 500 will drop in 2015. Their average estimate calls for an 8.1% rise. And while the global economy looks weak, the U.S. has been heating up, with GDP up 5% in the third quarter. These gloomy predictions come without Gross s usual colorful commentary. At Pimco, his monthly notes made reference to Flavor Flav and Paris Hilton. Since leaving for Janus Capital Group in September, he’s riffed on domestic violence in the NFL, the porosity of sand and the joys of dancing with his wife.

This month, Gross is almost all business. The trouble for the world s economy is that ultra low interest rates are holding back growth rather than stimulating it, he warns. After years of rising markets, investors are facing too much risk for the prospect of low returns. The time for risk taking has passed, he writes. Gross admits he’s taking his own risk with this call. Even if he’s completely right that the bear market is over, he could very well be a year or two early. And even if he’s right about economic growth, he could be wrong about how the market reacts to it. Gross advises buying Treasury and high-quality corporate bonds, but they could be hurt if U.S. interest rates rise this year.

He also puts a word in for stocks of companies with low debt, attractive dividends and diversified revenues both operationally and geographically. But as Causeway Capital Management s Sarah Ketterer warned, those high-quality dividend payers have already soared and could have trouble meeting expectations in the next few years. Gross has been wrong before, most famously in his predictions that bond yields would rise when the Federal Reserve ended quantitative easing. But maybe this time he sees something other market observers don’t. As Gross writes, deploying the commentary’s only off-color metaphor: There comes a time when common sense must recognize that the king has no clothes, or at least that he is down to his Fruit of the Loom briefs.

Read more …

Perhaps when he says it people actually will wake up.

Bill Gross Says the Good Times Are Over (Bloomberg)

Bill Gross, the former manager of the world’s largest bond fund, said prices for many assets will fall this year as record-low interest rates fail to restore sufficient economic growth. With global expansion still sputtering after years of interest rates near zero, investors will gradually seek alternatives to risky assets, Gross wrote today in an investment outlook for Janus Capital, where he runs the $1.2 billion Janus Global Unconstrained Bond Fund. “When the year is done, there will be minus signs in front of returns for many asset classes,” Gross, 70, wrote in the outlook. “The good times are over.” Six years after the end of the financial crisis, borrowing costs in the world’s richest nations are stuck near zero, a sign investors have little confidence that their economies will strengthen.

Gross, the former chief investment officer of Pacific Investment Management Co. who left that firm in September to join Janus, has argued the Federal Reserve won’t raise interest rates until late this year if at all as falling oil prices and a stronger U.S. dollar limit the central bank’s room to increase borrowing costs. The benchmark U.S. 10-year yield fell to 1.99% today, and bonds in the Bank of America Merrill Lynch Global Broad Market Sovereign Plus Index had an effective yield of 1.28% as of yesterday, the lowest based on data starting in 1996. The all-time 10-year Treasury low is 1.379% on July 25, 2012. Economists predict the yield will rise to 3.06% by end of 2015, according to a Bloomberg News survey with the most recent forecasts given the heaviest weightings.

Stocks plunged yesterday, with the Standard & Poor’s 500 Index dropping 1.8% to 2,020.58 and the Chicago Board Options Exchange Volatility Index increasing for the fifth time in six days. Declines spurred by tumbling oil and concerns Greece will exit the euro have sent American equities to the biggest decline to start a year since 2005, data compiled by Bloomberg show. While timing the end of a bull market is difficult, the next 12 months will probably see a turning point, Gross wrote. “Knowing when the ‘crowd’ has had enough is an often frustrating task, and it behooves an individual with a reputation at stake to stand clear,” he wrote. “As you know, however, moving out of the way has never been my style.”

Read more …

Yes.

Not Just Oil: Are Lower Commodity Prices Here To Stay? (CNBC)

Oil isn’t the only commodity that’s gotten cheaper. From nickel to soybean oil, plywood to sugar, global commodity prices have been on a steady decline as the world’s economy has lost momentum. That lower demand helps explain, in part, why nearly everything from crude oil to cotton has been getting cheaper. Sure, some commodity prices are rising. Local supply constraints have pushed prices higher in some parts of the world; transportation costs can also have a big impact on local prices. In the U.S., for example, a drought in California caused the price of vegetables and other food products to spike last year. Prices are also rising for some commodities, especially meats such as beef and chicken, thanks to growing demand from an expanding middle class in the developing world. But the global cost of most commodities has been on a long-term, downward trend since the Great Recession. The chart below is based on global prices, in dollars, assembled by the World Bank.

Now, as much of the world slogs through a faltering recovery, there are fears that falling prices in slow-moving economies such as Europe and Japan could spark and extended period of deflation, when the consumer prices of finished goods fall over an extended period. Deflation can be difficult to reverse if businesses and consumers start to cut back on spending and investment, waiting for prices to fall further, setting off an economic contraction that can deepen. European central bankers are scrambling to avoid that amid signs that prices in the euro zone have all but flattened. On Monday, the latest data showed that German inflation slowed to its lowest level in over five years in December; prices inched up at an annual rate of 0.1%, down from 0.5% in November. A widely watched inflation index of the entire euro zone is due out Wednesday. Some analysts think it could show a negative reading for the first time since October 2009.

Read more …

We’ve seen nothing yet.

Oil Price Slump Deepens As Drillers Seen Slashing Spending (Telegraph)

Brent crude has slumped to a new five-and-a-half-year low as leading ratings agency Moody’s warns that oil companies could be forced to slash spending by up to 40% this year. The benchmark crude contract fell to as low as $51.64 per barrel in early trading, while West Texas Intermediate oil traded in the US fell 2.2% to $48 per barrel. Earlier, Moody’s Investors Service issued a report warning of broad cuts in spending that could soon hit the entire oil and gas industry as companies move to protect their dwindling profit margins. The agency fears that, should prices remain below $60 per barrel for a significant period, companies in North America will slash capital spending by up to 40%.

“If oil prices remain at around $55 a barrel through 2015, most of the lost revenue will hit the E&P [exploration and production] companies’ bottom line, which will reduce cash flow available for re-investment,” said Steven Wood, managing director for corporate finance at Moody’s. “As spending in the E&P sector diminishes, oilfield services companies and midstream operators will begin to feel the stress.” However, Moody’s believes that oil majors such as ExxonMobil, Royal Dutch Shell, BP, Chevron and Total are in a stronger position to weather the financial storm caused by lower prices because they have already trimmed their capital expenditure for 2015.

Moody’s is the latest ratings agency to issue a major warning about the impact that falling oil prices will have on exploration and production companies. Standard & Poor’s said last month that the dramatic deterioration in the oil price outlook had prompted it to take a number of “rating actions” on European oil and gas majors including Shell, BP, and BG Group. Meanwhile, Saudi Arabia’s King Abdullah bin Abdul-Aziz al-Saud has said that a weak global economy was to blame for the current slide in prices, which will place his kingdom under severe economic stress. In a speech read out on state television by Crown Prince Salman, the king said that Saudi will deal with the current fall in oil prices “with a firm will”. The 91-year-old monarch of the world’s largest oil exporter was recently admitted into hospital, raising concerns over succession in the kingdom.

Saudi Arabia was instrumental in convincing the other members of OPEC not to cut output in November, a decision which triggered the current sharp falls in prices. The kingdom, which has the capacity to pump up to 12.5m barrels per day (bpd) of crude), this week discounted its oil heavily to European and US customers as it seeks to protect its market share. European buyers can now pay $4.65 per barrel less than for the Brent reference price for Saudi crude. “There is little reason at present to expect any end to the nose-diving oil prices,” said analysts at Commerzbank.

Read more …

Fifth Third Bancorp 2 years ago: “The oil and natural gas sector represents a tremendous growth opportunity.”

How the Bear Market in Crude Oil Has Polluted Non-Energy Stocks (Bloomberg)

Perusing the list of the biggest stock-market losers since the price of oil peaked in June yields some predictable results. You have your large-cap energy companies like Transocean, Denbury, Naborsm Noble and Halliburton, all down at least 45%. Yet mixed in with all the obvious ugliness are some names that bring to mind the question asked of Billy Joel by those drinkers at the piano bar, or perhaps even some of the wedding guests who watched him walk down the aisle with Christie Brinkley: Man, what are you doing here? The answer illustrates how much of an impact the energy industry has had on the bottom line of corporate America, whether it’s companies profiting from the boom in domestic production or those that made big investments based on the premise that fuel will always be expensive. As such it helps explain why the entire stock market, not just the energy companies, tends to freak out when oil heads lower rapidly.

The big bets on high energy prices made by companies like Ford (down 13% since oil peaked on June 20) or Tesla Motors (down 10%) or Boeing (down 3.9%) jump immediately to mind. Not so obvious, unless you follow the stock closely, is the investment made by Fifth Third Bancorp, one of the regional lenders that tried to chase the fracking boom. (It’s down 12% since June 20.) Here’s how the company’s management described the rationale for the launch of a new national energy banking team two years ago: “The energy sector is a rapidly growing industry,” said the announcement. The new team “demonstrates our commitment to providing dedicated banking services to this evolving sector. The oil and natural gas sector represents a tremendous growth opportunity.” The sector certainly is “evolving.” Fitch Ratings last month identified regional banks lifted by the shale boom that now face potential credit pressures in loans related to the industry. Oil prices below $50 a barrel, like now, would likely trigger a jump in credit losses, Fitch said.

Fitch’s list of banks with high concentrations of loans to the industry is topped by BOK Financial, which is down 13% since June 20.; Cullen/Frost, down 16%; Hancock, down 19%; Comerica, down 14%; and Amergy Bank of Texas, which is down 13%. Losses are even worse among the industrial companies that provide the services and sell the pipes, valves and assorted doodads used to pump oil and gas. Fluor Corp. an engineering, maintenance and project management firm that counted on the oil and gas industry for 42% of its revenue in 2013, is down 27% since June 20. Flowserve Corp., whose pumps and valves are used in refineries and pipelines, is off about the same amount. Caterpillar, Joy Global, Allegheny, Dover, Jacobs Engineering and Quanta Services are all down more than 20% since oil peaked at almost $108.

Read more …

Oh come on, let’s get real.

As Oil Drops Below $50, Can There Be Too Much of a Good Thing? (BW)

Oil falls below $50 a barrel on Jan. 5, and the Dow Jones Industrial Average plunges nearly 330 points. Seems like an open-and-shut case that the price plunge is getting to be a problem. People remember that in 1998, a sharp decline in the price of oil contributed to a Russian default that rocked the global financial system. Not quite. Cheaper oil is still creating more winners than losers. Far more people live in oil-importing countries than live in oil-exporting countries. The U.S., for one, remains a net importer. The well-publicized travails of U.S. shale oil producers are small compared with the gains by American consumers and businesses that are paying less for gasoline, diesel, jet fuel, petrochemicals, and the like. With fuel prices down, people are driving more miles and buying more cars and trucks.

Do the math: Close to 70% of the U.S. economy is consumer spending, which will gain from cheaper crude. Only about 10% is capital spending, of which 10% to 15% is the energy sector. That comes to roughly 1% of U.S. output, which might decline 20% this year, making it a relative drop in the bucket of U.S. gross domestic product, says Nariman Behravesh, chief economist for IHS Global Insight. Why, then, did stock prices fall when West Texas Intermediate for February delivery dropped nearly $3 a barrel on Jan. 5, to $49.89? Mostly because of market fears about global growth, which weighed down both stocks and oil prices, says Gus Faucher, a senior economist at PNC Financial Services. In other words, the latest drop in oil is a symptom, not a cause, of economic weakness, Faucher says. “Anyone who thinks that lower oil/gasoline prices is a net negative for the U.S. (and the global economy) is brain dead, economically speaking!” argues a Dec. 23 report by Faucher’s boss, PNC Chief Economist Stuart Hoffman.

Read more …

Try and trick the Germans?!

ECB Considering Three Approaches To QE (Reuters)

The European Central Bank is considering three possible options for buying government bonds ahead of its Jan. 22 policy meeting, Dutch newspaper Het Financieele Dagblad reported on Tuesday, citing unnamed sources. As fears grow that cheaper oil will tip the euro zone into deflation, speculation is rife that the ECB will unveil plans for mass purchases of euro zone government bonds with new money, a policy known as quantitative easing, as soon as this month. According to the paper, one option officials are considering is to pump liquidity into the financial system by having the ECB itself buy government bonds in a quantity proportionate to the given member state’s shareholding in the central bank.

A second option is for the ECB to buy only triple-A rated government bonds, driving their yields down to zero or into negative territory. The hope is that this would push investors into buying riskier sovereign and corporate debt. The third option is similar to the first, but national central banks would do the buying, meaning that the risk would “in principle” remain with the country in question, the paper said.

Read more …

Hot air.

Germany Prepares For Possible Greek Exit From Eurozone (Reuters)

Germany is making contingency plans for the possible departure of Greece from the euro zone, including the impact of any run on a bank, tabloid newspaper Bild reported, citing unnamed government sources. The newspaper said the government was running scenarios for the Jan. 25 Greek election in case of a victory by the leftwing Syriza party, which wants to cancel austerity measures and a part of the Greek debt. In a report in the Wednesday issue of the paper, Bild said government experts were concerned about a possible bank collapse if customers storm Greek institutions to secure euro deposits in the event that Greece leaves the zone.

The European Union banking union would then have to intervene with a bailout worth billions, the paper said. Der Spiegel magazine reported on Saturday that Berlin considers a Greek exit almost unavoidable if Syriza wins, but believes the euro zone would be able to cope. Vice Chancellor Sigmar Gabriel said on Sunday that Germany wants Greece to stay and there are no contingency plans to the contrary, while noting the euro zone has become far more stable in recent years. As the euro zone’s paymaster, Germany is insisting that Greece stick to austerity and not backtrack on its bailout commitments, especially as it does not want to open the door for other struggling members to relax reform efforts.

Read more …

Right. And they have their pet hamsters doing the calculating.

Germany, France Take Calculated Risk With ‘Grexit’ Talk (Reuters)

Evoking a possible Greek exit from the euro zone, Germany and France are taking a coordinated and calculated risk in the hope of averting a leftist victory in Greece’s general election on Jan. 25. The intention, according to Michael Huether, head of Germany’s IW economic institute, is to make clear that other euro area countries “can get on well without Greece, but Greece cannot get on without Europe”, and to warn that the left-wing Syriza party would bring disaster on the country. Syriza leader Alexis Tsipras, whose party leads in opinion polls, insists he wants to keep Greece in the euro. However, he has promised to end austerity imposed by foreign creditors under the country’s bailout deal if he wins power, and wants part of the €240 billion lent by the EU and IMF written off.

The risk is that the European Union’s two main powers are seen by Greeks as interfering and threatening them, provoking a backlash after a six-year recession that shrunk their economy by 20% and put one in four workers out of a job. French President Francois Hollande said on Monday it was up to the Greek people to decide whether they wanted to stay in the single currency, while a German magazine reported that Berlin no longer feared a “Grexit” would endanger the entire euro area. Chancellor Angela Merkel’s spokesman did not explicitly deny the weekend “Der Spiegel” report but said: “The aim has been to stabilize the euro zone with all its members, including Greece. There has been no change in our stance.”

Merkel and Hollande conferred by telephone during the winter holidays and will meet in Strasbourg on Sunday with European Parliament President Martin Schulz for what a French diplomatic source insisted were not crisis talks on Greece. Should center-right Prime Minister Antonis Samaras lose power in the election, the real issue was how a Syriza-led government might seek to reschedule Greece’s debt, not its place in the euro, the French source said. Paris and Berlin have underlined that any new government in Athens would have to honor the country’s obligation to repay the bailout loans received since 2010. In an article in the Huffington Post, Tsipras accused German conservatives of spreading “old wives’ tales”, singling out Finance Minister Wolfgang Schaeuble. Syriza, a coalition of former communist and independent leftist groups, “is not an ogre, or a big threat to Europe, but the voice of reason,” he wrote.

Read more …

Tsipras himself sees it this way:

Greece On the Cusp of a Historic Change (Alexis Tsipras, SYRIZA)

Greece is on the cusp of a historic change. SYRIZA is no longer just a hope for Greece and the Greek people. It is also an expectation of a change of course for the whole of Europe. Because Europe will not come out of the crisis without a policy change, and the victory of SYRIZA in the 25th of January elections will strengthen the forces of change. Because the dead end in Greece is the dead end of today’s Europe. On January 25th, the Greek people are called to make history with their vote, to trail a space of change and hope of all people across Europe by condemning the failed memoranda of austerity, proving that when people want to, when they dare, and when they overcome fear, then things can change. The expectations alone of political change in Greece, has already begun to change things in Europe. 2015 is not 2012

SYRIZA is not an ogre, or a big threat to Europe, but the voice of reason. It’s the alarm clock which will lift Europe from its lethargy and sleepwalking. This is why SYRIZA is no longer treated as a major threat like it was in 2012, but as a challenge to change. By all? Not by all. A small minority, centered on the conservative leadership of the German government and a part of the populist press, insists on rehashing old wives’ tales and Grexit stories. Just like Mr. Samaras in Greece, they can no longer convince anyone. Now that the Greek people have experienced his government, they know how to tell the lies from the truth. Mr. Samaras offers no other program except continuing with the failed MOU of austerity.

It has committed itself and others to new wage and pension cuts, new tax increases, in the framework of accumulated income cuts and over- taxation of six whole years. He asks Greek citizens to vote for him so that he can implement the new memorandum. It is precisely because he has committed to austerity, that he interprets the rejection of this failed and destructive policy as a supposedly unilateral action. He is essentially hiding that Greece as a Eurozone member is committed to targets and not to the political means by which those targets are achieved. For this reason, and unlike the ruling party of Nea Dimokratia, SYRIZA has committed to the Greek people to apply from the first days of its’ administration a specific, cost-efficient and fiscally balanced program, “The Thessaloniki Program” regardless of our negotiation with our lenders.

Read more …

The editor told them not to call it deflation.

Eurozone Inflation Turns Negative For First Time Since October 2009 (Reuters)

Euro zone consumer prices fell by more than expected in December because of much cheaper energy, a first estimate by the European statistic office showed in data that is likely to trigger the European Central Bank’s government bond buying program. Eurostat said inflation in the 18 countries using the euro in December was -0.2% year-on-year, down from 0.3% year-on-year in November. The last time euro zone inflation was negative was in October 2009, when it was -0.1%. Economists polled by Reuters had expected a -0.1% year-on-year fall in prices. The ECB wants to keep inflation below but close to 2% over the medium term. Eurostat said that core inflation, which excludes the volatile energy and unprocessed food prices, was stable at 0.7% year-on-year in December – the same level as in November and October. But energy prices plunged 6.3% year-on-year last month and unprocessed food was 1.0% cheaper, pulling down the overall index despite a 1.2% rise in the cost of services.

The ECB is concerned that a prolonged period of very low inflation could change inflation expectations of consumers and make them hold back their purchases in the hope of even lower prices, triggering deflation. Because the ECB’s interest rates are already at rock bottom, the bank is preparing a program of printing money to buy government bonds on the secondary market to inject even more cash into the economy, boost demand and make prices rise faster. Economists expect the decision to launch such a bond buying program could be made as soon as the ECB’s next meeting on January 22. “We are in technical preparations to adjust the size, speed and compositions of our measures early 2015, should it become necessary to react to a too long period of low inflation. There is unanimity within the Governing Council on this,” ECB President Mario Draghi said on January 1. Inflation in the euro zone has below 1% – or what the ECB calls the danger zone – since October 2013.

Read more …

There we go again. Maybe the ECB is behind this.

Greek 10-Year Bond Yields Exceed 10% for First Time Since 2013 (Bloomberg)

For the first time in 15 months, Greek 10-year government bond yields are back above 10%. The rate on the securities climbed to 10.18% today as investors abandoned the bonds in the run-up to a Jan. 25 election that Prime Minister Antonis Samaras said will determine Greece’s euro membership. Greek stocks also fell, posting the biggest decline among 18 western-European markets. The double-digit yield is reminiscent of the euro region’s debt crisis. In 2012, Greece’s 10-year rates climbed as high as 44.21% before the nation held the biggest reorganization of sovereign debt in history.

Greek 10-year yields increased 44 basis points, or 0.44 %age point, to 10.18% at 11:02 a.m. London time. The 2% bond due in February 2024 fell 1.885, or 18.85 euros per 1,000-euro ($1,185) face amount, to 60.585. The nation’s three-year rate jumped 60 basis points to 14.65%. The ASE Index of stocks fell 2.7%, set for the lowest close since November 2012. With a 29% slump, the ASE posted the world’s worst performance among equity indexes after Russia last year.

Read more …

We said long ago that the dollar would rise.

Euro’s Drop is a Turning Point for Central Banks Reserves (Bloomberg)

Central banks and reserve managers are breaking from past practice by showing little appetite to add euros as the currency tumbles. The total amount of reserves held in euros fell 8.1% in the third quarter, more than the currency’s 7.8% decline in the period against the dollar, according to the most recent figures from the International Monetary Fund. The last two times the euro depreciated 7% or more in a quarter, 2011 and 2010, holdings declined much less. The data suggest reserve managers are passing up the chance to buy euros while they’re cheap, removing a key pillar of support. In August, European Central Bank President Mario Draghi cited the drop in central banks’ euro holdings as a factor that would help weaken the exchange rate and ultimately boost the region’s faltering economy.

“Central banks have found new reasons not to feel comfortable with the euro,” Stephen Jen, managing partner and co-founder of SLJ Macro, said. “Nobody wants to have a negative yield. You’re not keeping a currency to lose money.” The ECB has experimented with negative interest rates on deposits in an attempt to draw money out of safe government debt and into the broader economy. Yields on two-year notes in Germany, the Netherlands and France are all below zero on speculation the ECB is losing the battle against deflation. Policy makers are signaling they are ready to step up the fight by expanding the money supply through further stimulus, such as purchasing government debt, that typically weigh on a currency’s value.

Adding to the pressure is concern that Draghi won’t be able to hold the currency bloc together amid signs Greece may quit the euro area after its Jan. 25 election. The 19-nation euro fell in each of the past six months, dropping to $1.1843 today, its lowest level since February 2006. A spokesman for the Frankfurt-based ECB, who asked not to be identified, said yesterday by e-mail that the international role of the euro is primarily determined by market forces and the central bank neither hinders nor promotes it. The amount of euros held in allocated reserves – or those where the currency is specified – fell to $1.4 trillion in the third quarter, or 22.6% of the total, from $1.5 trillion, or 24.1%, at the end of June, according to figures published by the IMF on Dec. 31. The proportion is the lowest since 2002 and down from as much as 28% in 2009.

Read more …

“We expect the ECB to announce a broad-based asset-purchase program including government bonds.”

Eurozone Prices Seen Falling as Risk of Deflation Spiral Mounts (Bloomberg)

Consumer prices in the euro area probably fell for the first time in more than five years last month, pushing the European Central Bank closer to adding stimulus as it battles to revive inflation. Prices dropped an annual 0.1% in December, according to the median forecast of economists in a Bloomberg survey. That would be the first decline since October 2009. ECB officials are working on a plan to buy government bonds as they strive to prevent a deflationary spiral of falling prices and households postponing spending, a risk President Mario Draghi has said can’t be “entirely excluded.” They may use a gathering tomorrow to weigh options for a quantitative-easing program that may be announced at their Jan. 22 policy meeting.

“Inflation will most likely fall even further in January and remain extremely low all year long,” said Evelyn Herrmann, European economist at BNP Paribas SA in London. “We expect the ECB to announce a broad-based asset-purchase program including government bonds.” A sluggish economy and plunging oil prices are damping inflation across the euro region. Consumer prices are falling on an annual basis in Spain and Greece, while data yesterday showed inflation in Germany at 0.1%, its weakest since 2009. Crude oil prices have fallen about 50% in the past year amid a supply glut. Core euro-zone inflation, which strips out volatile items such as energy, food, tobacco and alcohol, is forecast to have increased 0.7% year-on-year in December.

Eurostat, the EU’s statistics office, will publish the data at 11 a.m. in Luxembourg, along with its unemployment report for November. ECB officials have taken different approaches in analyzing the impact of plunging oil prices on the economy. While Draghi has warned of a dis-anchoring of inflation expectations and signaled support for QE, Bundesbank President Jens Weidmann favors not acting at this time, arguing that the drop could prove to be a “mini-stimulus package.”

Read more …

“Daniel Stelter at think tank Beyond the Obvious has even called for giving €5,000 to €10,000 to each citizen. “It has to be massive if it is going to have any effect,” he says.”

Operation Helicopter: Could Free Money Help the Euro Zone? (Spiegel)

It sounds at first like a crazy thought experiment: One morning, every resident of the euro zone comes home to find a check in their mailbox worth over €500 euros ($597) and possibly as much as €3,000. A gift, just like that, sent by the ECB in Frankfurt. The scenario is less absurd than it may sound. Indeed, many serious academics and financial experts are demanding exactly that. They want ECB chief Mario Draghi to fire up the printing presses and hand out money directly to the people. The logic behind the idea is that recipients of the money will head to the shops, helping to turn around a paralyzed economy in the common currency area. In response, companies would have to increase production and hire more workers, leading to both economic growth and a needed increase in prices because of the surge in demand.

Currently, the inflation rate is barely above zero and fears of a horror deflation scenario of the kind seen during the Great Depression in the United States are haunting the euro zone. The ECB, whose main task is euro stability, has lost control. In this desperate situation, an increasing number of economists and finance professionals are promoting the concept of “helicopter money,” tantamount to dispersing cash across the country by way of helicopter. The idea, which even Nobel Prize-winning economist Milton Friedman once found attractive, has triggered ferocious debates between central bank officials in Europe and academics. For backers, there’s more to this than just a new instrument. They are questioning cast-iron doctrines of monetary policy. One thing, after all, is becoming increasingly clear: Draghi and his fellow central bank leaders have exhausted all traditional means for combatting deflation.

The failure of these efforts can be easily explained. Thus far, central banks have primarily provided funding to financial institutions. The ECB provided banks with loans at low interest rates or purchased risky securities from them in the hope that they would in turn issue more loans to companies and consumers. The problem is that many households and firms are so far in debt already that they are eschewing any new credit, meaning the money isn’t ultimately making its way to the real economy as hoped. Sylvain Broyer at French investment bank Natixis, says, “It would make much more sense to take the money the ECB wants to deploy in the fight against deflation and distribute it directly to the people.” Draghi has calculated expenditures of a trillion euros for his emergency program, funds that would be sufficient to provide each euro zone citizen with a gift of around €3,000.

Daniel Stelter at think tank Beyond the Obvious, has even called for giving €5,000 to €10,000 to each citizen. “It has to be massive if it is going to have any effect,” he says. Stelter freely admits that such figures are estimates. After all, not a single central bank has ever tried such a daring experiment. Many academics have based their calculations on experiences in the United States, where the government has in the past provided cash gifts to taxpayers in the form of rebates in order to shore up the economy. Oxford economist John Muellbauer, for one, looks back to 2001. After the Dot.com crash, the US gave all taxpayers a $300 rebate. On the basis of the experience at the time, Muellbauer calculates that €500 per capita would be sufficient to spur the euro zone. “It (the helicopter money) would even be much cheaper for the ECB than the current programs>],” the academic says.

Read more …

Ambrose doesn’t like Putin.

Russia’s ‘Perfect Storm’: Reserves Vanish, Derivatives’ Default Warnings (AEP)

Russia’s foreign reserves have dropped to the lowest level since the Lehman crisis and are vanishing at an unsustainable rate as the country struggles to defends the rouble against capital flight. Central bank data show that a blitz of currency intervention depleted reserves by $26bn in the two weeks to December 26, the fastest pace of erosion since the crisis in Ukraine erupted early last year. Credit defaults swaps (CDS) measuring bankruptcy risk for Russia spiked violently on Tuesday, surging by 100 basis points to 630, before falling back slightly. Markit says this implies a 32% expectation of a sovereign default over the next five years, the highest since Western sanctions and crumbling oil prices combined to cripple the Russian economy. Total reserves have fallen from $511bn to $388bn in a year. The Kremlin has already committed a third of what remains to bolster the domestic economy in 2015, greatly reducing the amount that can be used to defend the rouble.

The Institute for International Finance (IIF) says the danger line is $330bn, given the dollar liabilities of Russian companies and chronic capital flight. Currency intervention did stabilise the exchange rate in late December after a spectacular crash threatened to spin out of control, but relief is proving short-lived. The rouble weakened sharply to 64 against the dollar on Tuesday. It has slumped moe than 20% since Christmas, with increasing contagion to Belarus, Georgia and other closely-linked economies. There are signs that Russia’s crisis may undermine President Vladimir’s Putin’s Eurasian Economic Union before it has got off the ground. Belarus’s Alexander Lukashenko is already insisting that trade be carried out in US dollars, while Kazakhstan’s Nursultan Nazarbayev warned that the Russian crash poses a “major risk” to the new venture.

The rouble is trading in lockstep with Brent crude, which has continued its relentless slide this week, falling to a five-year low of $51.50 a barrel. “If oil drops to $45 or lower and stays there, Russia is going to face a big problem,” said Mikhail Liluashvili, from Oxford Economics. “The central bank will try to smooth volatility but they will have to let the rouble fall and this could push inflation to 20%.” Under the Russian central bank’s “emergency scenario”, GDP may contract by as much as 4.7% this year if oil settles at $60. The damage could be worse following the bank’s contentious decision to raise rates from 9.5% to 17% in December. BNP Paribas says that each 1% rise in rates cuts 0.8% off GDP a year later. BNP’s Tatiana Tchembarova said the situation is more serious than in 2008, when Russia had to spend $170bn to rescue its banks. This time it no longer has enough reserves to cover external debt, and it enters the crisis “twice as levered”.

Read more …

Why bother?

Obama Threatens Keystone XL Veto (BBC)

President Barack Obama will veto a bill approving the controversial Keystone XL pipeline if it passes Congress, the White House has said. It is the first major legislation to be introduced in the Republican-controlled Congress and a vote is expected in the House later this week. Spokesman Josh Earnest said the legislation would undermine a “well-established” review process. The $5.4bn (£3.6bn) project was first introduced in 2008. Mr Obama has been critical of the pipeline, saying at the end of last year it would primarily benefit Canadian oil firms and not contribute much to already dropping petrol prices. Environmentalists are also critical of the project, a proposed 1,179-mile (1,897km) pipe that would run from the oil sands in Alberta, Canada, to Steele City, Nebraska, where it could join an existing pipe.

And the project is the subject of a unresolved lawsuit in Nebraska over the route of the pipeline. “There is already a well-established process in place to consider whether or not infrastructure projects like this are in the best interest of the country,” Mr Earnest said on Tuesday. He added that the question of the Nebraska route was “impeding a final conclusion” from the US on the project. Despite the veto threat from the White House, the bill sponsors say they have enough Democratic votes to overcome a procedural hurdle to pass in the Senate.

“The Congress on a bipartisan basis is saying we are approving this project,” said Republican John Hoeven, one of the bill’s sponsors. But Mr Hoeven and Democratic Senator Joe Manchin said they would be open to additional amendments to the bill, a test of the changing political realities of the Senate. Democratic critics of the bill are said to be planning to add measures to prohibit exporting the oil abroad, use American materials in the pipeline construction and increased investment in clean energy. It is unclear if those amendments would gather the two-thirds of votes needed in both chambers to override Mr Obama’s veto.

Read more …

But took decisions costing trillions of pounds anyway.

Bank Of England Was Unaware Of Impending Financial Crisis (BBC)

A month before the start of the financial crisis, the Bank of England was apparently unaware of the impending danger, new documents reveal. In a unique insight of its workings, the Bank has published minutes of top-secret meetings of the so-called Court that took place between 2007 and 2009. The minutes show that the Bank did identify liquidity as a “central concern” in July 2007. However no action was taken as a result. The documents show that the Bank also used a series of code names for banks that were in trouble. Royal Bank of Scotland was known as “Phoenix”, and Lloyds as “Lark”. Following publication, Andrew Tyrie MP, the chairman of the Treasury Select Committee, was highly critical of some of the Court’s non-executive directors. He said they had failed to challenge senior executive members, like the then governor, Mervyn King, whom some accuse of failing to prioritise financial stability.

The minutes show that in July 2007, the Court – akin to a company board – spent time discussing staff pensions, open days and new members of the Monetary Policy Committee. Members heard that the Bank was working on a new model to detect risks to the financial system, but there was little suggestion of any impending trouble. Less than a month later, on 9 August, the French bank BNP Paribas came clean about its exposure to sub-prime mortgages, in what some believe was the start of the financial crisis. Six weeks later, despite some turmoil in financial markets, Court members were told to have confidence in the triple oversight of the Bank of England, the Treasury and the then Financial Services Authority (FSA). “The Executive believed that the events of the last month had proven the sense and strength of the tripartite framework,” the minutes asserted for the 12th September, 2007. The next day the banking crisis began in earnest.

Read more …

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


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.

Read more …

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.

Read more …

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.

Read more …

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.”

Read more …

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.

Read more …

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.

Read more …

“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.

Read more …

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.

Read more …

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.

Read more …

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.

Read more …

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.

Read more …

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.”

Read more …

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.

Read more …

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.

Read more …

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.

Read more …

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.

Read more …

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.”

Read more …

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.

Read more …

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.

Read more …

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.

Read more …