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Saturday, April 30, 2016

week ending Apr 30

The Fed's Dilemma: The US Federal Reserve faces an uneasy choice. Despite solid rates of growth in the United States and China, the two engines of the world economy, the global economic environment has been characterized by sudden swings of mood and economic performance in the first months of this year, as evidenced by large movements in some major stock markets and commodities prices. Policymakers are debating appropriate responses to restore confidence and sustainable growth, but there is no consensus about suitable policy action during this period of steady but fragile recovery. For several years now, economists have debated whether the financial crisis—the Great Recession of 2008 that originated in Western economies—would leave a "permanent scar." Is the global economy healing gradually, or should we accept that we now live in a "fundamentally changed world" where living standards will be growing more slowly than they did between 2000 and 2007? Just as managers are cautious about making new investments (building new factories, bringing new products to market, or carrying out research), central banks also understand they need to move cautiously when the health of the economy is uncertain. Recent developments have led the Fed to maintain its rates unchanged during its last meeting . The transcript of the discussion which took place during this meeting reveals the decision makers did not reach a consensus. The Fed is facing a dilemma. Should it gradually raise the interest rates as announced during its last December meeting—when it raised its rates from zero for the first time in 8 years—or wait longer?

Soft growth and inflation weigh on Fed - A subdued start to 2016 for the US economy coupled with depressed inflation expectations will probably prompt the Federal Reserve to keep interest rates unchanged this week, as chair Janet Yellen insists on an ultra-cautious approach to normalising monetary policy. While financial market optimism has recovered sharply since policymakers last convened in March and corporate hiring has been robust, US growth and inflation have softened and a number of policymakers remain anxious about risks overseas. Among the hazards ahead is Britain’s referendum on its EU membership, which will happen only days after the Fed’s June meeting. If markets are shaky in the lead-up to that event, it will strengthen voices calling for a further delay as the US central bank inches its way towards tighter monetary policy. Having pushed through the first rate increase in nearly a decade in December, Ms Yellen has suggested that she wants to tread carefully as she ponders when to act again. Diane Swonk of DS Economics said she expected Wednesday’s statement to leave the door open for a rate move this June, but offer no guarantees. “Any sense of optimism should be tempered by the description of the economic activity data received since the last meeting, which have been disappointing,” said Michael Feroli, US economist at JPMorgan Chase. “The inter-meeting developments relating to inflation and inflation expectations generally moved in the wrong direction.” The Fed is divided between officials who think it is risky to wait any longer given the potential for a pickup in inflation, and more cautious policymakers, among them Ms Yellen, who fret about the dangers of lifting rates precipitously and being forced into a U-turn. “You don’t get the sense going into this [meeting] that there is a solid consensus,” Ms Swonk said. “It is more dissonance than a symphony.”

Fed signals no rush to hike rates as economy hits soft patch | Reuters: The Federal Reserve left interest rates unchanged on Wednesday, but kept the door open to a hike in June while showing little sign it was in a hurry to tighten monetary policy amid an apparent slowdown in the U.S. economy. In a statement that largely mirrored the one issued after its last policy meeting in March, the U.S. central bank's rate-setting committee described an improving labour market but acknowledged that economic growth seemed to have slowed. It also said it was closely watching inflation and noted that global economic headwinds remained on its radar, though it made no mention of the risks they posed, as it had last month. "The committee continues to closely monitor inflation indicators and global economic and financial developments," the Fed said following a two-day meeting. Prices for U.S. equities edged up after the announcement, while the dollar .DXY was little changed against a basket of currencies. Prices for longer-dated U.S. Treasuries rallied. Traders kept their bets that the first rate hike of 2016 would come in September and gave less-than-even odds of a follow-up hike by December. Fed policymakers in March forecast two hikes this year.

FOMC Statement: No Change to Policy, Less Global Concern  -0 Not much change. Less mention of "global" risks. FOMC Statement: Information received since the Federal Open Market Committee met in March indicates that labor market conditions have improved further even as growth in economic activity appears to have slowed. Growth in household spending has moderated, although households' real income has risen at a solid rate and consumer sentiment remains high. Since the beginning of the year, the housing sector has improved further but business fixed investment and net exports have been soft. A range of recent indicators, including strong job gains, points to additional strengthening of the labor market. Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting earlier declines in energy prices and falling prices of non-energy imports. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.   Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen. Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.

Parsing the Fed: How the April Statement Changed from March -- The Federal Reserve releases a statement at the conclusion of each of its policy-setting meetings, outlining the central bank’s economic outlook and the actions it plans to take. Much of the statement remains the same from meeting to meeting. Fed watchers closely parse changes between statements to see how the Fed’s views are evolving. The following tool compares the latest statement with its immediate predecessor and highlights where policy makers have updated their language. This is the April statement compared with March.

What the Fed Statement Signals and Why - Mohamed El-Erian - The Federal Reserve acted as expected Wednesday: It left interest rates unchanged and used language that was somewhat more hawkish, increasing the probability of a rate increase in June. Specifically: Fed officials highlighted that labor market conditions have improved further, even though “growth in economic activity appears to have slowed.” This is an important distinction -- not only because employment is explicitly part of the Fed's official dual mandate, but also because it bodes well for wage increases and inflation, the central bank's second objective.The Fed downplayed the risks posed by “global economic and financial developments” to the U.S. economy, though it said it would “closely monitor” these. For the third time in a row, Fed officials refrained from providing guidance on the balance of risks. This will fuel speculation that the omission doesn't simply reflect a short-term decision but may indicate a desire to forgo an additional communication instrument which could risk confusing market participants, rather than inform them. Fed officials will no doubt be encouraged by the favorable market reactions to this slightly more hawkish statement. This is especially important for a central bank that, absent crisis conditions, does not wish to be in the business of surprising markets. Instead it is happy to validate market expectations that it has helped manage in what has become a strangely intimate codependent relationship. Seen as a whole, the Fed's message suggests that the data-dependent central bank is amplifying its signal that the June meeting is “live.” I suspect that the second rate hike in 10 years will depend on a combination of continued gradual improvements in the labor market and wage expectations, along with continued relative economic and financial calm internationally. And I suspect that a significant part of the assessment will be influenced by the behavior of the financial markets themselves.

Forget June. The Fed isn't likely to hike interest rates until December—commentary: The Federal Reserve left interest rates unchanged — no surprise there — moving the focus to the next Federal Open Market Committee meeting on June 14-15. The latest FOMC statement is little changed from the last one and provides no strong clue about the likely decision at the June meeting. The next indication of Fed intentions will come with the release in three weeks of the minutes for this meeting.mAt this point, commentary by Fed officials is still suggesting two rate increases this year. That is down from a suggestion of four hikes not so long ago. For the remainder of the year, will there be two, one or zero increases in the short-term interest rates by the Fed? As always, Fed officials will be following releases of economic data with special attention to labor-market numbers. These include numbers on jobs created, new unemployment claims, the unemployment rate and wages. At this moment, labor numbers are looking good overall and support an increase in June.  Manufacturing numbers are mixed. The ISM Purchasers Managers Index is above 50 but well below its peak in 2015. Industrial production declined in March for the second month in a row. These numbers likely reflect a weak global economy and the lingering effects of a strong dollar. They signal caution and a reason to hold off on a rate hike. The strongest hawkish argument for returning to "normal" interest rates remains the cumulative effects of prolonged, near-zero interest rates. Rates this low divert investment from producing real output to financial engineering: carry trades, stock buybacks, M&A activity, etc. That distorts the allocation of capital and the composition of output. Very low interest rates also create financial bubbles that will burst when rates finally do move back up.

Analysis: Rate Hike in June depends mostly on Inflation  - The April FOMC statement was very similar to the March statement. There was less emphasis on "global" risks in the April statement, and there was more emphasis on low inflation. Here are excepts from the April and March statements on inflation: From the April FOMC statementInflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting earlier declines in energy prices and falling prices of non-energy imports.  This was changed from the March FOMC statement:  Inflation picked up in recent months; however, it continued to run below the Committee's 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Note: I was expecting a change in the statement characterizing risks as "nearly balanced", but that wasn't included (I think that would have suggested a rate hike in June was more likely).

The Fed's Inflation Fail - Narayana Kocherlakota -- Most central bankers would agree that their primary goal is to give people and companies confidence that inflation will remain stable over the long term. Unfortunately, the U.S. Federal Reserve may be failing at that task. The Fed began pulling back on its efforts to stimulate growth back in May 2013, when then-Chairman Ben Bernanke said that the central bank would likely begin to reduce the bond-buying known as quantitative easing. The move indicated that Fed officials thought the inflation rate would gradually return to 2 percent over the next several years, a development that should maintain people's inflation expectations at a similar level. So what has actually happened to inflation expectations over that period? To get a sense, we can examine a few clues: how employers set wages, what people say in surveys, and what investors will pay for protection from inflation. Let's start with wages. Many economists have expressed surprise that very low unemployment hasn't translated into greater wage growth. One good explanation is that the unemployment rate isn’t capturing all the available labor supply, such as people who want jobs but aren't actively looking for work (and hence aren’t counted as unemployed). But I doubt that’s the full story. Expectations matter, too. When, for example, inflation accelerated in the 1970s despite high unemployment, part of the problem was that people and companies had come to expect wages and prices to rise, and thus set their own wage demands and pricing policies accordingly. Now that inflation remains low despite low unemployment, this should be seen as a sign of the opposite problem: Expectations have declined. The explanation makes even more sense if you believe, as many do, that demand for labor is already bumping up against the limits of supply. Household surveys support the idea that inflation expectations have declined.

Trump Starts Making Economic Sense -- Narayana Kocherlakota - Donald Trump has offered up a number of questionable ideas on how to manage the U.S. economy. Some of his latest proposals, though, might make a lot of sense.  About a month ago, I urged the presidential candidates to explain what policies and leadership they would like to see at the Federal Reserve. So I was glad to see Trump address Fed-related issues in an interview with Fortune magazine last week. His key comments: “We have to rebuild the infrastructure of our country. We have to rebuild our military, which is being decimated by bad decisions. We have to do a lot of things. We have to reduce our debt, and the best thing we have going now is that interest rates are so low that lots of good things can be done that aren’t being done, amazingly.” I read this as calling for two forms of fiscal stimulus. One is more spending, especially on the military and on infrastructure such as roads and bridges. The second is maintaining low taxes despite high levels of government debt (in other remarks, Trump has favored tax reduction). Both could have a beneficial effect on the U.S. and global economy, creating the demand for goods and services needed to get inflation and employment back up to healthier levels. Much, however, would depend on the Federal Reserve’s response. If the Fed raised interest rates aggressively to keep inflation unchanged, then the removal of monetary stimulus could cancel out the effect of the added fiscal stimulus. If, by contrast, the Fed refrained from raising rates, the effect could be magnified: If households and businesses expected more inflation in the future, they would be more likely to spend on goods and services immediately. Trump appears to support the second Fed response. This is essentially a coordinated action by the government and central bank to rescue what, in the Fortune interview, he called an “already reasonably crippled economy.” It’s a policy similar to what Prime Minister Shinzo Abe has attempted in Japan.

Atlanta Fed Boosts GDP Forecast Following Today's Durable Goods Miss And Downward Revision  --If there was some confusion why the Atlanta Fed recently revised its GDP Nowcast higher following the recent retail sales miss, that confusion will be even more acute today when moments ago the Atlanta Fed plugged today's weaker than expected durable goods print (and downward revision to past month's data), and ended up with... a GDP forecast that was higher than previously, or an increase from 0.3% to 0.4%. From the Atlanta Fed's Nowcast: The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2016 is 0.4 percent on April 26, up from 0.3 percent on April 19. After last Wednesday's existing-home sales release from the National Association of Realtors, the forecast for first-quarter real residential investment growth increased from 8.5 percent to 10.8 percent. After this morning's advance report on durable manufacturing from the U.S. Census Bureau, the forecast for real equipment investment growth declined slightly while the forecast for real inventory investment increased slightly.

BEA: Real GDP increased at 0.5% Annualized Rate in Q1 -- From the BEA: Gross Domestic Product: First Quarter 2016 (Advance Estimate) Real gross domestic product -- the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production, adjusted for price changes -- increased at an annual rate of 0.5 percent in the first quarter of 2016, according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 1.4 percent...The increase in real GDP in the first quarter reflected positive contributions from personal consumption expenditures (PCE), residential fixed investment, and state and local government spending that were partly offset by negative contributions from nonresidential fixed investment, private inventory investment, exports, and federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.The deceleration in real GDP in the first quarter reflected a larger decrease in nonresidential fixed investment, a deceleration in PCE, a downturn in federal government spending, an upturn in imports, and larger decreases in private inventory investment and in exports that were partly offset by an upturn in state and local government spending and an acceleration in residential fixed investment.  The advance Q1 GDP report, with 0.5% annualized growth, was below expectations of a 0.7% increase. Personal consumption expenditures (PCE) increased at a 1.9% annualized rate in Q1, down from 2.4% in Q4.   Residential investment (RI) increased at a 14.8% pace. However equipment investment decreased at a 8.6% annualized rate, and investment in non-residential structures decreased at a 10.7% pace (due to the decline in oil prices).  The key negatives were investment in inventories (subtracted 0.33 percentage point), trade (subtracted 0.34 percentage point), nonresidential investment (subtracted 0.76 percentage points) and Federal government spending (subtracted 0.11 percentage points).

Another weak quarter for U.S. GDP: The Bureau of Economic Analysis announced today that U.S. real GDP grew at a 0.5% annual rate in the first quarter. That’s disappointing, even by standards of the weak growth that has become the norm since getting out of the Great Recession. ... Housing investment was one bright point. Another was growth in government spending at the state and local level which more than made up for a drop at the federal level. An important drag came from the decline in exports, reflecting economic weakness outside the United States. The biggest negative was a drop in nonresidential fixed investment, which by itself subtracted 3/4 of a percent from the Q1 annual growth rate. ... Further declines in investment spending in the oil-producing sector contributed to that. ...The disappointing Q1 GDP numbers brought our Econbrowser Recession Indicator Index up to 15.7%. ... That’s still significantly below the 67% threshold at which our algorithm would declare that the U.S. had entered a new recession. ... U.S. growth is certainly facing some significant headwinds, and lower oil prices do not appear to have helped. Nevertheless, the employment numbers have been showing strong momentum, and housing can make further positive contributions in the coming two years. Maybe not enough to get us back to 3%. But we can still hope to get back to 2%.

First-Quarter U.S. GDP – At A Glance - The U.S. economy expanded in the first quarter at a seasonally adjusted annual rate of 0.5%, the Commerce Department said Thursday, the weakest performance in two years and undershooting the 0.7% growth rate that had been expected by economists. It was a slowdown from the fourth quarter’s 1.4% growth pace for gross domestic product, the broadest measure of goods and services produced across the economy. The first quarter’s 0.5% growth rate was the weakest quarter for GDP since the first quarter of 2014, when the economy contracted at a 0.9% pace. The slowdown could send up a warning flare about the U.S. economy, which has struggled to gain sustained momentum since the 2007-09 recession. On the other hand, a weak first-quarter GDP report has become routine in recent years. In 2010 through 2015, first-quarter GDP growth averaged just 0.8% compared with 3.1% for the second quarter, 2.2% in the third quarter and 2.4% for the fourth quarter. The Commerce Department took steps last year to try to address the issue known as residual seasonality, which may still be distorting the quarterly statistics. Business investment posted its worst performance since the tail end of the last recession, weighing on broader economic growth. Fixed nonresidential investment declined at a 5.9% pace in the first quarter, the sharpest drop since the second quarter of 2009, and subtracted 0.76 percentage point from the overall GDP growth rate. Spending on equipment dropped at an 8.6% pace and spending on structures fell at a 10.7% rate. But spending on intellectual-property products, such as software, picked up at a 1.7% pace. Consumer spending generates more than two-thirds of U.S. economic activity. Household outlays continued to decelerate in the first three months of 2016, rising at a 1.9% pace compared with 2.4% in the fourth quarter. Spending on goods stalled, rising at a mere 0.1% pace. Service-spending growth was fairly steady from the fourth quarter and rose at a 2.7% rate. Foreign trade has been a headwind for economic growth as overseas weakness and a strong dollar have depressed demand for U.S. exports. Net exports subtracted 0.34 percentage point from the first quarter’s growth rate, the seventh time in the past nine quarters that trade was a drag on overall GDP growth. The trade gap widened as exports dropped at a 2.6% annual rate from the fourth quarter while imports climbed at a 0.2% pace.

Advance Estimate 1Q2016 GDP Quarter-over-Quarter Growth at 0.5 Percent. Year-over-Year Growth Unchanged At 2.0 Percent.: The advance estimate of first quarter 2015 Real Gross Domestic Product (GDP) is a positive 0.5 %. This is a significant decline from the previous quarter's 1.4 % (0.7 % in the advance estimate last quarter) if one looks at quarter-over-quarter headline growth. However, year-over-year growth unchanged so one could say economic growth was mixed. There are significant "buts" relative to this advance GDP estimate (see below). The major reasons for the decline in GDP growth were personal consumption for goods, fixed investment, and inventories. One must consider:

  • This advance estimate released today is based on source data that are incomplete or subject to further revision. (See caveats below.) Please note that historically advance estimates have turned out to be little more than wild guesses.
  • Headline GDP is calculated by annualizing one quarter's data against the previous quarters data (and the previous quarter was relatively strong in this instance). A better method would be to look at growth compared to the same quarter one year ago. For 1Q2016, the year-over-year growth is 2.0 % - unchanged from 4Q2015's 2.0 % year-over-year growth. So one might say that the rate of GDP growth was unchanged from the previous quarter.

Real GDP is inflation adjusted and annualized - and Real GDP per capita remains on a general upward trend. The table below compares the 3Q2015 third estimate of GDP (Table 1.1.2) with the advance estimate of 4Q2015 GDP which shows:

  • consumption for goods and services declined.
  • trade balance degraded
  • there was significant inventory change removing 0.33% from GDP
  • there was slower fixed investment growth
  • there was slightly more government spending

The arrows in the table below highlight significant differences between 3Q2015 and 4Q2015 (green is good influence, and red is a negative influence).

Falling Investment and Rising Trade Deficit Lead to Weak First Quarter - Dean Baker - GDP grew at just a 0.5 percent annual rate in the first quarter. This weak quarter, combined with the 1.4 percent growth rate in the 4th quarter, gave the weakest two quarter performance since the 3rd and 4th quarters of 2012 when the economy grew at just a 0.3 percent annual rate. Growth was held down by both a sharp drop in non-residential investment and a further rise in the trade deficit. Equipment investment fell at an 8.6 percent annual rate, while construction investment dropped at a 10.7 percent annual rate. The latter is not a surprise, given the overbuilding in many areas of the country. The drop in equipment investment was undoubtedly in part driven by the worsening trade situation, as many factories curtailed investment plans as U.S.-made products lost out to foreign competition, weakening demand growth. There was also a drop in information processing equipment, indicating that those who are expecting that robots will replace us all will have to wait a bit longer. The rise in the trade deficit was due to a 2.6 percent drop in exports, as imports were nearly flat for the quarter. Trade subtracted 0.34 percentage points from growth for the quarter. Consumption continued to grow at a modest 1.9 percent annual rate, adding 1.27 percentage points to growth. Consumption growth was held down in part by weaker demand for new cars, which subtracted 0.33 percentage points from growth for the quarter. This was the second consecutive decline in the sector. It is likely that car purchases will be up somewhat in future quarters. The savings rate for the quarter was 5.2 percent, which is up slightly from the 5.0 percent from the prior three quarters and the 4.8 percent rates from 2013 and 2014, before people started saving their oil dividends. But seriously, there may be some modest room for this rate to decline, but for the most part consumption growth will depend on income growth going forward. Health care services added 0.26 percentage points to growth, its smallest contribution since a reported decline in the first quarter of 2014. Spending in the sector remains well contained, growing at just a 3.8 percent annual rate over the last quarter and by 4.4 percent over the last year in nominal spending. Housing grew at a 14.8 percent annual rate, adding 0.49 percentage points to growth. Housing has being growing at a double digit rate since the fourth quarter of 2014. While the sector is likely to continue to grow in subsequent quarters, the pace is almost certain to slow. The government sector was a modest positive in the quarter, growing at a 1.2 percent rate. State and local spending increased at a 2.9 percent annual rate, more than offsetting a 1.6 percent drop in federal spending, all of it on the military side.

US Economy Grew At Just 0.5% In Q1, Missing Expectations, Lowest Growth Rate In Two Years -- "Did the Fed have an advance glimpse at Q1 GDP?" That was a question everyone was asking yesterday when the Fed came out with another not too hawkish statement. The answer may have been yes because moments ago the BEA reported that the US economy grew at just a 0.5% annualized rate in the first quarter, missing expectations of a 0.7% growth rate, growing at half the rate recorded in the 4th quarter, and the lowest quarterly growth rate since Q1 2014 (when the winter was blamed for a negative print). It was also the third consecutive quarter of GDP declines.  The breakdown of components was mixed: while personal consumption rose 1.9% q/q, it contributed only 1.27% to the bottom GDP line, the weakest spending contribution since Q1 of 2015. What was more troubling was the impact from all the other components:

  • Fixed Investment subtracted 0.27% from the annualized GDP print, the first negative CapEx print since Q1 2011
  • Inventories, as expected, subtracted another 0.33% from the annualized number, following last quarter's -0.22% decline
  • Trade (net exports and imports) was another negative contribution, cutting the final number by another 0.33%
  • Government was perhaps the only bright side, adding 0.2% to the GDP print up from 0.2% in the prior quarter.

US Q1 GDP Growth Rate Weakened To 2-Year Low - US economic growth stumbled in this year’s first quarter, according to this morning’s estimate from the Bureau of Economic Analysis (BEA). The government’s first release of the Q1 GDP report revealed a weak gain of 0.5% (seasonally adjusted annual rate)–less than half the pace of the already sluggish 1.4% rise in last year’s Q4. A key factor behind the economy’s slowest quarterly advance in two years: softer consumer spending. Note, however, that the downshift in consumption on Main Street doesn’t appear to be a byproduct of deteriorating household balance sheets–a point that may plant the seeds for stronger growth down the road. In contrast with the ongoing retreat in spending growth in Q1, disposable personal income (DPI) ticked up in the first three months of 2016 to a 2.9% quarterly gain–modestly above the 2.3% increase in 2015’s Q4. That’s still near the low end relative to the last two years, but the fact that DPI’s pace improved suggests that the consumer wasn’t feeling financially pinched in Q1 relative to Q4. Pinched or not, the urge to spend continues to show signs of waning, which for the moment is the bigger headwind for the economy. Spending’s retreat is far more acute in the business sector. Red ink again weighed on business spending and investment in new equipment in Q1. Residential fixed investment, on the other hand, continued to rise at a healthy rate. In fact, consumer spending on housing and related spending jumped up to 14.8% in Q1—the highest rate in more than three years. The main takeaways in today’s preliminary GDP estimate: consumers are inclined to pare spending on personal items but are ramping up expenditures in the residential sphere. Businesses, meanwhile, are increasingly cautious on capital investment these days. The question is whether there’s a Q2 rebound brewing? It’s too early to tell. The main source of optimism is the labor market, which continues to post encouraging numbers.

The Q1 Disappointments Continue (graphs) The BEA reported today that real GDP for the first quarter (advance estimate) grew at an annual rate of only 0.5%. This continues the pattern of deeply disappointing first quarter results.  This, however, is not just a seasonal anomaly. GDP growth has been slowing steadily since the strong second quarter of last year. These results were expected but they are worrisome in several respects. While personal consumption expenditures were fairly strong, growing at 1.9%, the previous three quarters grew at a more robust 3.0%. Non-residential fixed investment fell 5.9% from the previous quarter and equipment investment fell by a whopping 8.6% – these do not bode well for future growth. Residential fixed investment increased by 14.8%, a strong performance compared to previous quarters.  The core PCE index increased at a 2.1% annual rate suggesting that inflation may be getting near its target level. Exports fell by 2.6% holding back growth.  The steady downward march these last three quarters is cause for concern. But for the past several years dismal first quarters have been followed by rebounds. Will that pattern continue?  The most recent statement from the FOMC delivered a weaker outlook than their previous statement. In addition, they removed the “headwinds” from global and financial concerns. Still, much of Europe and Japan remain weak. When the Fed decided to hold off on rate increases they were clearly concerned about weak domestic fundamentals and waiting to see if the economy is going to continue to stagnate.  For the time being we must all play the waiting game and look for signs of renewed vigor in the monthly numbers. But what if the subsequent numbers show continued slow growth?  It isn’t clear that the Fed has much more that they can do. They are likely not ready to go to negative interest rates as other central banks have done. That leaves fiscal policy.

Q1 2016 GDP Blows a Raspberry with a 0.5% Increase -- The initial Q1 GDP estimate shows economic growth as a stagnant 0.5%.  Consumer spending was all services consumption.  Private investment just walloped the economy as both nonresidential fixed investment and the changes in private inventories contracted.  Exports also receded.  An ominous bright spot is residential investment grew by almost half a percentage point.  Government spending added to GDP. The below table shows the GDP component comparison in percentage point spread from Q4 to 2016 Q1.  If one recalled Q4 initially came in at 0.7%, yet don't expect a repeat revision performance.  There are always two revisions after the initial quarterly GDP report release.  There will also be annual revisions in July going back three years. Consumer spending, C was the bright spot, yet that's not saying much. With a 1.27 percentage point increase, that is the third quarter in a row where there is less growth in personal consumption then the previous quarter. Below is a percentage change graph in real consumer spending going back to 2000.Goods spending didn't contribute much to GDP, 0.03 percentage points. Durables was -0.12 percentage points. Services was a 1.24 percentage point contribution. Within services, health care was a 0.26 percentage point contribution to Q1 GDP, housing and utilities was 0.26 percentage points and our favorite, gross output of nonprofit institutions contributed 0.25 percentage points to GDP growth. Graphed below is PCE with the quarterly annualized percentage change breakdown of durable goods (red or bright red), nondurable goods (blue) versus services (maroon). Imports and Exports, M & X show the continuing slowdown with a –0.34 percent point contribution. This is the advance GDP estimate, hence actual trade data hasn't come in yet and imports are almost always revised upward, even with petroleum imports declining as a trend. That said, seeing a -0.31 percentage points in U.S. exports does not bode well and implies weak demand for U.S. goods and services.Government spending, G contributed 0.20 percentage points to Q1 GDP with the defense spending subtracting -0.15 percentage points from GDP while state and local governments added 0.31 percentage points. Investment, I is made up of fixed investment and changes to private inventories. The change in private inventories alone was a -0.33 percentage point contribution. Now changes in private inventories have subtracted from economic growth for three quarters in a row. It would be four quarters except Q2 showed no change instead of deceleration. This is a very bad sign for the economy as businesses reduce their stockpiles in response to slowing demand. Below are the change in real private inventories and the next graph is the change in that value from the previous quarter.

Quick GDP point re 2016q1 - Jared Bernstein --  As expected, real GDP for Q1 came in at a suckingly low 0.5%, SAAR. In this case, “SAAR”– seasonally adjusted at an annualized rate”– is important. That’s because there’s some concern with the seasonal adjusters, which some argue are biasing Q1 down and Q2 up. Also, annualized quarterly changes tend to jump around. So a good way to squeeze out some of the noise is to measure year-over-year changes, which (partially) wash out the seasonal factor (“partial” because BEA allows seasonal factors to change over time, so the SA factor for Q1 this year could be slightly different from Q1 last year). So, as you see, real GDP is growing around 2% when you smooth out the bumps. That’s not to say there aren’t some worrisome signs of deceleration, but I tend to think of those around longer term trends, like productivity and labor force participation. Certainly based on the job market, the economy looks better than 0.5%, but that said, the smart move would be to plan for the next downturn, as per Bernstein/Spielberg.

 Q1 GDP: Investment -- The graph below shows the contribution to GDP from residential investment, equipment and software, and nonresidential structures (3 quarter trailing average). This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.   In the graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. So the usual pattern - both into and out of recessions is - red, green, blue. The dashed gray line is the contribution from the change in private inventories. Residential investment (RI) increased at a 14.8% annual rate in Q1. Equipment investment decreased at a 8.6% annual rate, and investment in non-residential structures decreased at a 10.7% annual rate. On a 3 quarter trailing average basis, RI (red) is positive, equipment (green) is close to zero, and nonresidential structures (blue) is negative. Nonresidential investment in structures typically lags the recovery, however investment in energy and power provided a boost early in this recovery - and is now causing a decline. Other areas of nonresidential are now increasing significantly. I'll post more on the components of non-residential investment once the supplemental data is released. I expect investment to be solid going forward (except for energy and power), and for the economy to continue to grow at a steady pace. The second graph shows residential investment as a percent of GDP. Residential Investment as a percent of GDP has been increasing, but is only just above the bottom of the previous recessions - and I expect RI to continue to increase for the next few years.

Why The US Output Gap Means The 10 Year Is Going Below -- Among our favorite indicators to write about is the GDP output gap. Today we update it with the latest Q1 2016 GDP data. We've written about it many times in the past (some recent examples: 09/30/2015, 12/27/2014, and 06/06/2014). It is the standard for representing economic slack in most other developed countries but is usually overlooked in the United States in favor of the gap between the unemployment rate and full employment (also called NAIRU (link is external)). This is partially because the US Federal Reserve's FOMC has one half of its main goal to promote 'full employment' (along with price stability) but it is also partially because the unemployment rate makes the economy look better, which is always popular to promote. In past US business cycles, these two gaps had a close linear relationship (Okun's law (link is external)) and so normally they were interchangeable, yet, in this recovery, the unemployment rate suggests much more progression than the GDP output gap. The unemployment gap now, looked at on its face, would imply that the US is at full employment; i.e., the unemployment rate is 5% and full employment is considered to be 5%. Thus, this implies that the US economy is right on the verge of generating inflation pressure. Yet, the unemployment rate almost certainly overstates the health of the economy because of a sharp increase over the last many years of unemployed surveyees claiming they are not involved in the workforce (i.e. not looking for a job). From the beginning of the last recession, November 2007, the share of adults claiming to be in the workforce has fallen by 3.0% of the adult population, or 7.6 million people of today's population! Those 7.6 million simply claiming to be looking for a job would send the unemployment rate up to 9.4%!. In other words, this metric's strength is heavily reliant on whether people say they are looking for a job or not, and many could switch if the economy was better. Thinking about this in a very simplistic way; a diminishing share of the population working still has to support the entire population and without offsetting higher real wages, this pattern is regressive to the economy. The unemployment rate's strength misses this.

Bill Gross: "The World's Central Banker" Has Flatlined U.S. Economic Growth -- In a recent interview, Bill Gross provided some further truthiness regarding the state of the U.S. economy and the unveiling of the Federal Reserve as the world's banker. As we've said countless times, Gross reiterates in the interview that the Fed's only contribution to the real economy has been to help create more jobs that aren't adding up to any real economic growth (i.e. waiter and bartender jobs at minimum wage). He points out that U.S. economic growth has in fact flat lined. "I think what they have on their radar basically are the employment numbers as opposed to real economic growth. I mean goodness, this quarter for almost the second quarter in a row we're close to the flatline in terms of economic growth." Indeed it has flat-lined, as evidenced by yesterday's dismal .5% GDP growth in Q1. He also goes on to point out that the Fed is acknowledging that they are the world's central banker, and although Yellen has continued the 'Bernanke-Put', financial assets aren't yielding anything. As far as rate hikes are concerned, the focus on the global economy will lead to maybe one more hike in June but that'll be it. Which, of course, makes sense, as the Fed needs some room to cut rates as the economy stalls out completely."Basically, financial assets are yielding nothing. We know that in the bond market, and the fact that as we're seeing today in the stock market there clearly is a Yellen put, but over the last two meetings it's been extended to include global risk markets. They've focused on a desired weakening of the dollar versus emerging market currencies, and we've seen emerging market currencies rally for sure. I think they're acknowledging that the Fed is the world's global central banker.

Atlanta Fed Unveils First Q2 GDP Forecast, Sees 1.8% Growth, 0.5% Below Wall Street Consensus -- After being just fractionally above the official Q1 GDP print which yesterday came in at 0.5%, moments ago the Atlanta Fed unveiled its first Q2 GDP estimate which it sees at 1.8%, roughly 0.5% below the sellside average estimate of 2.3%, and just in line with the lowest forecast. From the Fed: Latest forecast: 1.8 percent — April 29, 2016 The first GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2016 is 1.8 percent on April 29. The final model nowcast for first-quarter real GDP growth was 0.6 percent, 0.1 percentage points above the advance estimate of 0.5 percent released on Thursday by the U.S. Bureau of Economic Analysis. Considering the ongoing retrenchment among US consumer spending, which once again missed expectations and pushed the savings rate to match 3 year highs, we expect this number to be once again revised lower in the coming weeks.

The World Needs More U.S. Government Debt:  By Narayana Kocherlakota -  Are government-imposed restrictions holding back the U.S. economy? In a way, yes: The federal government is causing great harm by failing to issue enough debt. The U.S. generates more income than any other country, and will keep doing so for many years to come. The federal government can generate a lot of revenue by taxing this income -- a power that puts it in a unique position to issue the kind of extremely safe bonds that are in great demand among the world's investors.   In the wake of the financial crisis, households and businesses are demanding more safe assets to protect themselves against sudden downturns. Similarly, regulators are requiring banks to hold more safe assets. Market prices tell us that the government needs to produce more safety in order to meet this increased demand. The scarcity of safety creates hardships... Retirees can’t get adequate returns on their nest eggs. Banks can't earn enough on safe, long-term investments to cover the costs of attracting deposits (interest rates on which can’t fall much below zero). ... The inadequate provision of safe assets also has profound implications for financial stability. Without enough Treasury bonds to go around, investors “reach for yield” by buying apparently safe securities from the private sector (remember all those triple-A-rated subprime-mortgage investments of the 2000s?). If such behavior becomes widespread, it can create systemic risks that tip the financial system into crisis. ... No private entity would behave like this. Imagine a corporation with such a safe cash flow and such low borrowing costs. It would issue debt to fund expansions or payouts to its shareholders. Analogously, the U.S. government should issue more debt, using the proceeds to invest in infrastructure, cut taxes or both. Instead, political forces have imposed artificial constraints on debt -- constraints that punish savers, choke off economic growth and could sow the seeds of the next financial crisis.

On the want of U.S. government debt - In a recent article, Narayana Kocherlakota lays out the case for why, under present conditions, the U.S. government should be issuing more debt, using the proceeds to cut taxes, finance infrastructure spending, or both. It's a policy that many economists, including yours truly, have been advocating for some time. And while I generally support the policy, I thought it would be useful, nevertheless, to reflect on some possible counterarguments. It's not a slam dunk case, one way or the other, I think.  Kocherlakota does a good job explaining why a deficit-financed tax cut, or deficit-finance infrastructure spending is a good idea. I want to make it clear that the argument in favor of the policy hinges critically on the presumption that we can rely on Congress to manage the public debt over time in a responsible manner. Let's accept this assumption, provisionally at least, in order to understand the economic argument. I will come back to the political argument later. While the debt-to-GDP ratio (D/Y) is presently high by historical standards, it's not unmanageable. The key is not the D/Y itself, but its trajectory over time. Clearly, D/Y cannot grow forever. And fortunately, market signals are available to monitor how the public perceives the likely path for D/Y over time. These market signals are: (1) the yields on U.S. treasury debt (at various maturities), and (2) inflation and inflation expectations. So what are these market signals telling us? The yield on U.S. treasuries is presently very low. Both inflation and inflation expectations are presently running below the Fed's 2% target and have done so for years now. So far, so good. Rightly or wrongly, the U.S. treasury security is viewed by investors around the world as a safe haven asset. So when the financial crises hit in the U.S. and Europe 2008-10, investors moved en masse into U.S. treasuries (and other sovereign debt instruments viewed to be relatively safe). In short, while the supply of U.S. debt spiked up, the demand for U.S. debt increased by even more. We can infer this from the behavior of bond yields, which went down (the price of debt went up) at the time.

Dear Time Magazine Readers, the United States Is Not Insolvent -The idea that the US government or the nation as a whole is “insolvent” has an undying appeal. The fear of (or yearning for) some manner of budget crisis has waned somewhat over the last couple of years (one hopes this is due to the fact that most people alive today have never lived through a period in which the deficit has shrunk so rapidly), but stories like this will never go away.  The 25th Minsky conference wrapped up recently (video of all the speakers is posted here), and in one of the sessions Stephanie Kelton delivered a presentation in which she argued that, in contrast to almost any other area of policy, there is one issue on which Democrats and Republicans agree: a public debt crisis is looming. In addition to some disagreement over when the crisis will strike (hawks: yesterday; doves: in a decade or so), they differ merely on the question of how to solve this perceived problem: by cutting spending or raising revenue. This broader moment of bipartisan consensus, Kelton argued, is tarnished only by being wrong.  Among her efforts to dispel the appeal of the debt crisis narrative, Kelton pointed out that US government deficits are the mirror image of non-government surpluses (domestic private sector surpluses plus current account deficits), with a nod to what Goldman Sachs’ Jan Hatzius once described as “the world’s most important chart.” The upshot, she argued, is that calling for a reduction of public sector deficits in the presence of persistent current account deficits should be understood as calling for a reduction of the private sector’s surpluses. Kelton put together the following chart, which flips the script on the Simpson-Bowles-era discussions of how rapidly we should bring down the budget deficit: Watch her presentation (slides here):

Structural Reforms Are Not the Answer – Expansionary Fiscal Policy Is -- The recovery from the global financial crisis has been a slow and protracted one, with output levels in many industrialised countries having only recently regained the pre-global financial crisis levels of 2007. Unemployment, and particularly youth unemployment, remains high in many countries and the prospects for growth remain sluggish. The prospects for growth, particularly among the BRICS countries (Brazil, Russia, India, China, and South Africa), are not looking rosy, with a slowdown in growth in China and Brazil into decline. The central banks’ responses to the global financial crisis and the great recession were to sharply reduce interest rates, and maintain them at very low levels by historic standards, and have tended to move lower and in some cases into negative territory in the past years (the Fed rate rise in December 2015 being an exception). “Unconventional monetary policy” and quantitative easing became widely used, and its intensification in the past few years has pushed actual interest rates even lower. It is now clear that quantitative easing has been ineffectual and has now largely run its course.  A time when interest rates are close to zero and when there is preciously little sign of revival of bank lending and of investment is surely precisely the time for fiscal expansion. Fiscal consolidation and quantitative easing have been tried and have not worked. Public investment has a central role to play here reversing the tendencies to cut back on investment in infrastructure which is showing up now in the poor state of infrastructure in many industrialised countries. Public investment also serves to provide a stimulus for private investment – and to bring a revival of “animal spirits” (and perhaps the “confidence fairy”!). A case of a win-win situation where public investment can be used to address environmental and climate change concerns, and provide employment.

U.S. Trade Bank Faces New Hurdle in Congress - A new congressional standoff is preventing the U.S. Export-Import Bank, which survived a five-month shutdown last year, from arranging financing for deals of more than $10 million. Customers of large manufacturers, particularly Boeing Co., would be unable to tap the bank to finance major deals any time soon. Such companies accounted for the bulk of the agency’s transactions by dollar volume last year. The spat illustrates the headaches that big businesses are facing in Washington with a Republican Party that has grown more populist. It also underscores how Senate Republicans are using the nominations process to shape policy. Congress ended a monthslong impasse last December when large majorities in both chambers voted to renew the lapsed charter of the Ex-Im Bank, which finances U.S. exports. House Republicans had prevented Congress from voting on a reauthorization measure before the charter expired last July. Now, the bank faces a new challenge in the Senate, which must approve nominees for the bank’s board. With three of its five board seats unfilled, Ex-Im Bank lacks the quorum required to approve deals of more than $10 million. In recent weeks, Sen. Richard Shelby (R., Ala.), chairman of the Senate Banking Committee, has said he won’t advance any Ex-Im Bank board nominations because he is ideologically opposed to the bank. Critics say the 82-year-old agency puts taxpayers at risk of losing money to finance sales of planes, satellites and industrial equipment that should be left to the private sector. Supporters of the agency say it keeps U.S. firms on a level playing field against foreign competitions that enjoy similar support from their governments.

Learning to Love (Tolerate?) Big Government - In December, Gallup asked 824 U.S. adults this question: "In your opinion, which of the following will be the biggest threat to the country in the future -- big business, big labor or big government?"  Sixty-nine percent responded “big government.” That was down from 72 percent in 2013, but otherwise higher than at any other time Gallup has asked.  What exactly has big government done to these people? Well, according to political scientists Jacob S. Hacker and Paul Pierson, it has improved their lives dramatically. Over the course of the 20th century, Hacker and Pierson write in their new book “American Amnesia: How the War on Government Led Us to Forget What Made America Prosper,” government investment, regulation and other interventions made Americans vastly better-educated, longer-lived and richer. Government action played a similar -- and sometimes even bigger -- role in virtually every other advanced nation. Write Hacker and Pierson:There are no rich countries with small governments -- governments that spend and regulate little, governments that eschew public investment and keep the public sector’s reach to a minimum. (Okay, there are a few that are sitting on huge pools of oil.) A big government isn’t a guarantee of prosperity, but where we find prosperity, we find big government, too. If that’s true -- and I’m pretty sure it is -- then why are people in the U.S. so sour on big government? In Hacker and Pierson’s telling, it’s mainly because of a decades-long propaganda campaign waged by anti-government activists on the right. One key technique, they write, is to: "Say the government isn’t doing its job, make it harder for the government to do its job, repeat."

Congress Fixes "Sexist" Draft - Votes To Require Women To Register For Selection --With all the problems facing America - both at home and abroad - The House Armed Services Committee decided on Wednesday to solve one of the nation's crucial "problems" - a "sexist draft." As Military.com reports on Wednesday the committee approved (by a narrow margin) an amendment to a defense bill to require women to register for the draft. Rep. Duncan Hunter, a Republican from California, proposed the amendment to lift the restriction on women registering for the selective service at a committee-wide mark-up session of the proposed fiscal 2017 National Defense Authorization Act."Here is why I think this is important; it doesn't matter in this debate whether you think women should be in the infantry or be in special operations," Hunter said during the session on Wednesday night. "I personally don't. If we had that vote in committee today I would vote against women being in infantry and special operations."But this is not about women serving in the infantry. [...]. Right now the draft is sexist. Right now the draft only drafts young men. Women are excluded."   Ironically, Hunter then went on to explain that his generation has not seen the kind of warfare that requires a draft... and so why waste time on this? Unless they think something is coming?   "That is what a draft is for," he added. "A draft is because people started dying in the infantry and you need more bodies in infantry, that is what a draft if for. The administration would like to make this decision on its own. I think we should make this decision."

US War on Terror Leaves 1.3 Million Dead in 3 Countries -- A report by Nobel Peace Prize recipients and other organizations criticized mainstream media for grossly under-reporting the death tolls in Iraq, Afghanistan and Pakistan.The U.S.-led war on terror which began Sep. 11, 2001, has left at least 1.3 million people dead—mostly civilians—in 12 years in Iraq, Afghanistan and Pakistan, a 101-page report revealed.The report, called “Body Count,” written by 1985 Nobel Peace Prize winners Physicians for Social Responsibility and Physicians for Global Survival and International Physicians for the Prevention of Nuclear War, criticizes the mainstream media and the United States and its allies for grossly and intentionally underestimating death tolls in the three countries. “​There is probably no other war that has seen such a fierce and drawn-out controversy surrounding the number of its victims. One main reason for this is the lack of legitimacy for the U.S.-led attack on Iraq – even in the U.S. itself,” the report states. “The original pretexts for going to war quickly turned out to be spurious, and from then on only the ‘liberation of the country from a violent dictatorship’ and the ‘democratization’ and ‘stabilization’ of Iraq remained as justification for the war and occupation.”

70 Percent of the U.S. Marines' F/A-18 Fighter Jets Can't Fly -- The United States Marine Corps boasts 276 F/A-18 fighter jets in its inventory, but fewer than 100 of them are flight-worthy, according to the Marines. The reason? Blame an unfortunate serendipity of budget cuts, personnel losses, and 15 years of steady combat operations. Marine Corps statistics report that only around 30 percent of the Corps' F/A-18s are flight-worthy, according to a recent report from Fox News. Likewise, a similar percentage of the Marines' 147 CH-53E Super Stallion helicopters are relegated to terra firma. That's far worse than the levels considered unacceptable even a year ago, when Lt. General Jon Davis, commander of Marine aviation, declared that having 19 percent of his air fleet stuck on the ground was "way too high."“Our aviation readiness is really my number one concern,” . “We don’t have enough airplanes that we would call ‘ready basic aircraft.'" Many of the planes that have been grounded have since been torn apart in order to fix other operating aircraft. The military budget cuts caused by sequestration have resulted in less money available for new parts, forcing maintenance crews to seek out unorthodox, even cannibalistic methods of finding replacement pieces when things break. In one case, Marines pulled a landing gear bay door off of a retired plane parked on the USS Yorktown, an aircraft carrier converted to a museum ship in 1975.

Defense Chiefs Urge Congress to Overcome Anti-Trade Rhetoric, Pass Pacific Trade Pact - Defenders of President Barack Obama’s Pacific trade agreement are taking out the big guns. Eight former secretaries of defense signed a letter asking congressional leaders to pass the Trans-Pacific Partnership, or TPP, as a way to renew American leadership in the Pacific as China flexes its economic and military muscle. Presidential candidates from Donald Trump to Bernie Sanders and Hillary Clinton have criticized the deal as potentially harmful for American manufacturing and more geared toward multinational companies than workers. The candidates have unleashed a groundswell of protectionist rhetoric on the right and left sides of the political spectrum, isolating pro-trade views in the Obama administration in Congress. Signed in February, the agreement faces an uphill battle in Congress, even though lawmakers voted less than a year ago to give Mr. Obama special trade authority to finish the deal. Mr. Obama’s economic team says the deal would perceptibly boost U.S. gross domestic product, but military leaders are backing it as a way to keep the peace in the Pacific by encouraging countries to exchange goods and services freely and resolve disputes through a rules-based trading system. If ratified by the U.S., Japan and other countries in the 12-nation bloc, the agreement would eliminate most tariffs and set commercial rules of the road on everything from drug makers’ intellectual property to labor laws in Vietnam.

Obama: U.S.-EU trade pact possible in 2016, but not congressional approval - POLITICO: President Obama said in Germany that he thinks the U.S. and the EU can strike a deal on the Transatlantic Trade and Investment Partnership (TTIP) by the end of 2016, but that action by Congress and European governments on a final agreement would wait until after his administration has ended. Speaking alongside German Chancellor Angela Merkel at the launch of the Hannover Messe, a huge industrial show two hours west of Berlin, Obama said he is “confident” the two sides can reach an agreement on the U.S.-EU trade pact this year despite widespread concerns in the United States and Germany about trade deals. Story Continued Below But “I don’t anticipate that we will be able to have completed ratification of a deal by the end of the year,” he noted. Meanwhile, he added that he expects Congress to be able to “start moving forward” on the Trans-Pacific Partnership (TPP) deal after the end of the presidential primary season. The administration concluded the TPP deal last year, but the Republican-controlled Congress hasn’t acted on it. Many observers think TPP won’t move before a post-election lame duck session of Congress.

Washington Post Opens the Door for Name-Calling to Push the TPP -- Yep, all is fair in love and war and pushing trade agreements, and the Washington Post really really wants the Trans-Pacific Partnership (TPP). So, when they asked Ivo Daalder and Richard Kagan to make the case for the TPP as part of a story about preserving American leadership in the world, the Post apparently gave the greenlight to name-calling. This meant that the opponents of the TPP appear in the piece as "demagogues." Sounds good, now we don't have to deal with arguments from people like Nobel prize winning economist Joe Stiglitz or Jeffrey Sachs. Hey, if you oppose the TPP you're just a demagogue, not someone who might have a serious argument. This is not the only cheap trick in the Daalder and Kagan's deck. They also tell us that: "According to the Peterson Institute for International Economics, the agreement will increase annual real incomes in the United States by $131 billion.".  Wow, $131 billion, that sounds like really big money. Of course if Daalder and Kagan were actually interested in conveying information rather than pushing their agenda, they might have told us that this projection is equal to 0.5 percent of projected GDP for 2030, when the full benefits are realized. In other words, the Peterson Institute is projecting that with the TPP the United States will be as rich on January 1, 2030 as it would otherwise be on April 1, 2030. Sound like a must-pass deal? It's also worth noting that computable general equilibrium models of the sort used by the Peterson Institute to make this projection have a really bad track record in projecting the outcomes of trade deals. Therefore, we may not want to rely on this projection too much in making policy.

On Those Clueless Establishment Economists and Free Trade -I was curious what Bernie Sanders meant on Meet the Press yesterday with his line about how it was too late for “establishment economists”. I have never heard of Michael Stumo and I bet neither has Team Bernie. But this claim struck me as silly:  Establishment economists will defend to the death the idea that trade does not destroy jobs. Yes, I’m serious. They believe that. Really. Instead, they say, job losers move into other jobs so there is no net job loss.  He goes onto to bash TPP which is not more about protecting patents and less about free trade. But his new research is a great paper by David Autor, David Dorn, and Gordon Hanson:   Adjustment in local labor markets [after trade liberalization] is remarkably slow, with wages and labor-force participation rates remaining depressed and unemployment rates remaining elevated for at least a full decade after the China trade shock commences. Exposed worker experience greater job churning and reduced lifetime income. At the national level, employment has fallen in U.S. industries more exposed to import competition, as expected, but offsetting employment gains in other industries have yet to materialize.  Autor, Dorn, and Hanson are confirming what anyone familiar with the Stopler-Samuelson theorem would have predicted. Even if these workers found another job – their real wages would fall by more than the price of goods at Wal-Mart. I have no clue who establishment economics may be but those of us who studied international economics were not surprised by these research results. Incidentally this version has a picture that includes Paul Krugman as if he does not understand the Stopler-Samuelson proposition. C’mon man!

Tired of economists’ misdirection on globalization -- An interesting story in the New York Times this morning looks at the effect that job losses from trade have had on people’s political views. It’s no surprise that voters on the losing end of globalization are disenchanted with the political mainstream, as the Times puts it. They have every right to be.  But I’m tired of hearing from economists about the failure to support workers dislocated by globalization as a cause of anger and the policy action the elite somehow mistakenly forgot. Ignoring the losers was deliberate. In 1981, our vigorous trade adjustment assistance (TAA) program was one of the first things Reagan attacked, cutting its weekly compensation payments from a 70 percent replacement rate down to 50 percent. Currently, in a dozen states, unemployment insurance—the most basic safety net for workers—is being unraveled by the elites. Only about one unemployed person in four receives unemployment compensation today. I’m also getting tired of hearing that job losses from trade are the result of the U.S. economy “not adjusting to a shock.” Trade theory tells us that globalization’s impact is much greater on the wages of all non-college grads (who are between two-thirds and three-quarters of the workforce, depending on the year), not just a few dislocated manufacturing workers. The damage is widespread, not concentrated among a few. Trade theory says the result is a permanent, not temporary, lowering of wages of all “unskilled” workers. You can’t adjust a dislocated worker to an equivalent job if good jobs are not being created and wages for the majority are being suppressed. Let’s not pretend.

Obama Joins Angela Merkel in Pushing Trade Deal to a Wary Germany - — President Obama said on Sunday that he was confident the United States and the European Union would succeed in negotiating a new trans-Atlantic trade deal by the end of the year, saying the benefits of such an agreement were “indisputable.”Mr. Obama said images of factories moving overseas and lost jobs created a narrative about trade agreements that “drives, understandably, a lot of suspicion” in places like the United States and Germany. But, he added, well-designed trade deals can have greater benefits.“It is indisputable that it has made our economy stronger,” he said. “It has made sure that our businesses are the most competitive in the world.”Mr. Obama spoke while standing next to Chancellor Angela Merkel of Germany at a news conference in Hanover as they prepared to preside over the opening here of the world’s largest industrial trade fair.In the evening, Mr. Obama and Ms. Merkel hosted a dinner for 29 chief executives of major American and German companies.

TTIP: averting a train wreck - The real goal of US and EU leaders this week should be to start averting a train wreck. The top guys – President Obama, USTR Froman, five EU member state heads of state, EU trade Commissioner Malmström – are meeting in Hannover, among others to try to break the current deadlock in TTIP. Meanwhile in New York, the grey-suited bureaucrat-negotiators of USTR and the EU Commission will work their way forward on the huge paperwork during a thirteenth round of talks that starts today (Monday 25 April). Their ambition is no less to double the number of ‘joint texts’ in TTIP in the coming days.  TTIP’s chances of success were low to begin with. Previous attempts to advance transatlantic trade and investment talks never got off the ground: be it the Multilateral Investment Agreement in the OECD in the late 1990s, the frequently unsuccessful attempts to foster regulatory cooperation in the industrial sector to reduce barriers to trade started in the 1990s, or the ill-fated TEC of 2007. Anti-Americanism has been deeply ingrained in centre-left circles across the EU. In Germany anti-US sentiment has been rising (though fading in France). Right-wing populism is gradually replacing centre-left ideology in rejecting an economic alliance with the US. Austria, the country that most rejects TTIP – more than Germany – in the EU has just seen a right-wing populist politician lead in its presidential polls, followed by an ex Green Party leader and TTIP-critic as second contender. It took the 2008 economic and financial crisis, the EU’s geopolitical crisis with Russia, and the conclusion of the TPP by the US to change the calculus for a transatlantic deal in the EU and in the US. But the crisis in the political and traditional party systems pervasive across the West is proving a destructive force. The occasional effort of a largely discredited political establishment across the Atlantic to do policies that are rational and forward-looking – to which I personally include TTIP – just can’t withstand the force of popular anger.

Don Quijones: A Blow to Transatlantic Corpocracy – Support for TTIP Begins to Unravel - A new survey conducted by YouGov for the Bertelsmann Foundation showed that only 17% of Germans believe the Transatlantic Trade and Investment Partnership (TTIP) is a good thing, down from 55% two years ago. In the United States, only 18% support the deal compared to 53% in 2014. Such low popularity ratings are an incredible feat for a trade agreement that until last year the public had barely even heard of, purposefully, even as it had been on the negotiation table for years, while the governments associated with it had expected to pass it with flying colors. During his visit to Germany at the weekend, President Barack Obama tried to breathe life back into the deal, insisting that “the majority of people still favor trade” and “still recognize, on balance, that it’s a good idea.” While that may be so, TTIP, like the other alphabet-soup trade agreements, is not really about promoting trade; it’s about reconfiguring the legal apparatus and superstructures that govern national, regional, and global commerce, business and society, for the benefit of the world’s largest multinational corporations. Obama could not have chosen a worse possible location to plug his sacred trade deal. Offering a quite visible contradiction to his rose-tinted interpretation of corporate-sponsored trade deals, tens of thousands marched against TTIP in the streets of Hanover on Saturday. Opposition to the trade agreement is also fierce among Germany’s Mittelstand (small and medium-size companies), which represent over 90% of firms in the country. A 2014 Commerzbank study found that only 15% of Mittlestand companies believe TTIP would be a good thing for their business. Germany’s not alone. Across the old continent, public opposition to TTIP is swelling. Just in the past week three vital developments took place that spell even more trouble for the transatlantic corporatocracy.

Barack Obama Readies For Final TPP Push, Which Could Benefit Presidential Library Donors: President Barack Obama last week renewed his push for the Trans-Pacific Partnership, suggesting that it will be easier to pass the deal after the elections are over. The idea is that lawmakers will then be more insulated from political influence. Yet Obama has his own potential incentives to push for the TPP: His presidential foundation has been relying on support from industries that could profit from the agreement. For instance, the TPP offers potential benefits to the finance sector, including expanded access to capital and investment opportunities in emerging markets, as well as what critics say are provisions that could dilute financial regulation in the United States. The progressive advocacy group Public Citizen says the deal "would undermine bans on particularly risky financial products" and "restrict capital controls, an essential policy tool to counter destabilizing flows of speculative money." The same financial industry that could benefit from the TPP has forged deep ties to Obama’s foundation. The organization’s current president is J. Kevin Poorman, the CEO of investment firm PSP Capital Partners. PSP was founded by billionaire Penny Pritzker, daughter to a co-founder of Hyatt hotels, a longtime Obama ally and the current head of the U.S. Commerce Department. Other members of the foundation's leadership team include John Doerr of the venture capital firm Kleiner Perkins Caufield and Byers; Martin Nesbitt, co-founder of the private equity firm Vistria Group; John Rogers of the financial firm Ariel Investments; and Michael Sacks, chairman and CEO of the investment management firm GCM Grosvener. Doerr also serves on the board of directors for Google. In addition to helping steer the Obama Foundation, Sacks has given it somewhere between $500,000 and $1 million.

Millennials are increasingly rejecting voodoo economics - As my colleague Max Ehrenfreund noted, the latest youth poll from Harvard’s Institute of Politics suggests that young people are becoming more liberal. Compared with responses from the past few years, today’s 18-to-29-year-olds are more likely to believe “basic health insurance is a right for all people,” “basic necessities, such as food and shelter, are a right that government should provide to those unable to afford them,” and “the government should spend more to reduce poverty.” Here’s another interesting data point that I haven’t seen others mention: Young people have also become less likely to believe the central tenet of supply-side (a.k.a. “voodoo”) economics.  Just 35 percent of respondents said they agreed with the statement that tax cuts are an effective way to increase growth, which is 5 percentage points lower than last year and the lowest share since the poll first asked a question with this phrasing. This is bad news for Republican candidates...

What All the Candidates’ Tax Plans Are Missing  - David Cay Johnson -- The tax reform plans of the five remaining presidential candidates tell us a lot about our outdated federal tax system, which was designed for the industrial economy of the last century. All five candidates promise reform, but their plans just tinker around the edges. None of the five addresses the major reasons the federal tax system imposes far more economic pain than necessary on most Americans. Despite enormous differences in their proposals, the final five all cling to the existing system, which was adopted in four major pieces between 1909 and 1924 – an era of big American factories churning out manufactured goods, not the global services economy of today. Each candidate’s plans would throw more sand into the well-worn gears of our industrial-era tax system, rather than adapt to the economics of the digital age and knowledge economy. None of them addresses the biggest single problem of the current system. What none of these plans would do is address the major devices by which the wealthiest Americans reduce their tax bills. At the heart of this is deferral of income, which turns the immediate burden of the income tax into a zero interest loan of the money you'd owe. The way Congress measures income allows many wealthy Americans to delay paying their income taxes for years or even decades. Well-paid athletes, executives, movie stars, hedge fund managers, private equity managers, real estate investors and others all benefit from special rules that let them earn now and pay their taxes by-and-by. Myriad other devices to delay or eliminate paying taxes keep thousands of highly paid tax lawyers and accountants employed gaming the system for rich clients.

New OECD tax agreement improves transparency — but the US doesn’t sign and the US press won’t tell you -- Last week 31 countries signed a new Organization for Economic Cooperation and Development (OECD) agreement providing for country-by-country corporate information reporting and the automatic exchange of tax info between countries under the Multilateral Competent Authority Agreement (MCAA). Country-by-country reporting, the brainchild of noted tax reformer Richard Murphy,* is a principle that makes it possible to detect tax avoidance by requiring companies to list their activities in each country (nature of business, number of employees, assets, sales, profit, etc.) and how much tax they pay in each country. A company with few employees yet large profits is probably using abusive transfer pricing to make the profits show up in that country rather than another one, to give one obvious example of how the idea works. In the OECD agreement, the procedure is that beginning in 2016 each company will file a report to every country where it does business, then all the countries receiving such reports will automatically exchange them with each other, meaning each of these countries will then have a full view of how much business Google, for example, does in every jurisdiction. The shortcoming to this is that while governments will have this data,the public will not have it (a fact criticized by the Tax Justice Network) due to alleged concerns about confidentiality. However, the European Commission, including its Luxembourgian president Jean-Claude Juncker, is now talking about requiring publication of the country-by-country data for each EU Member State.

172 rightwingers on the Republican Study Committee want to "terminate" the tax code -- Linda Beale - Somehow it seems that the more absurd the congressional Republicans get, the greater their hubris and gall in proposing ideas that would hit government programs hard and create havoc for critically important government activities. The latest is the right-wing "Republican Study Committee", a caucus of 172 of the far-right members of the GOP, and their "Fixing the Tax Code" release.  They argue, for example, for Goodlatte's bill to "terminate the tax code" in 2019 in order to "force" Congress to implement a new tax system by a firm deadline.  Their recommendations--more redistribution to the wealthy by lowering rates overall to 25% and cutting the tax on the types of income that the wealthiest Americans receive most of (capital gains and dividends) to a flat 15% rate. This is, to put it bluntly, insane.

  • You don't set the way the tax code works by some a priori decision to lower rates so the wealthy pay less tax. 
  • You determine how the tax code works, and how much revenue it should raise, by what kinds of obligations already exist that have to be paid and by considering carefully government programs and appropriate and fair ways to raise tax revenues to fund them.
  • You can't "terminate the tax code" on a fixed date and expect anything other than anarchic chaos to result.  It is enormously hard to write a full tax code that adequately addresses all of the human activities (and entity transactions) that have to be taken into consideration.  To come up with the 1986 recodification of the tax code took a year and a half of concentrated work by a team of congressional taxwriters trying to reach a bipartisan result--something that hasn't existed for at least the eight years of the Obama administration.  And that group wasn't trying to completely redo the entire code.  It didn't "terminate" the existing code, but rather worked within that system to make determinations about provisions that were unworkable, outdated, or just plain bad.

This is further evidence that the Republican majority in Congress is incapable of dealing with actual facts about how tax systems work, what revenues are needed, and what the needs in the U.S. are for revenues.

Defending the IRS Against Right-Wing Attacks --  Linda Beale - The IRS is a government agency that endures all kinds of hostile attacks.  Most people don't really like to pay taxes.  Even I don't really "like" paying taxes, though I do recognize the importance of paying taxes and supporting the societal infrastructure that pays for the Centers for Disease Control, basic research, the space telescope, programs for those in or near poverty, Pell Grants for students to attend college and many other important and necessary federal programs (not to mention the tax-guzzling military budget that probably could be cut in half, if only we had the gumption to do it).  So the right-wing effort to "drown the government in a bathtub" and make the world safer for the corporatist elites to sock away their wealth without paying a dime to support the society that made that wealth possible tends to demonize the IRS at every possible opportunity under a Democratic president.   So the New York Times on Friday reported on the havoc that the right's attacks on the IRS's budget and its employees' morale has wrought.  Congress writes the tax laws, but the right tends to talk about the executive agency as though it 'owns' the tax laws instead.   I.R.S. Fights Back Against House Republicans' Attacks, Apr. 22, 2016.   As the article notes, "the agency even got the blame for the hated tax code, which Congress writes and Republicans have promised for five years to rewrite and simplify."  (And remember, simplification is the wrong aim--it is part of the propaganda that wants ordinary Americans to support a tax code rewrite that tilts the code even further towards the wealthy.  See the last two posts on A Taxing Matter.)

IRS Scrutiny of 501(c)(3)s -  Linda Beale - As most everybody is aware by now, the IRS has been under considerable strain for a number of years from budget and staff reductions that have left it underfunded, understaffed, and under pressure.  This is part of the right's effort to "shrink the government to a bathtub and drown it."  If the main organization for helping Americans understand their tax obligations is understaffed, it is likely that many people will become irritated with the agency and blame it (and taxes) for all their problems.  If the main organization for enforcing the U.S. tax laws fairly has too few people to audit the most likely scoflaws and too little money to prepare guidance and rulings to make it harder for scofflaws to scoff at the law, then many people will become irritated with the agency and blame it (and taxes) for their problems while many other people (especially the privileged rich) will continue to scoff at the law by overstating their basis when they sell capital assets, hiding assets in tax havens, and just hiring lots of expensive tax attorneys and accountants to come up with schemes for wiggling through the loopholes in the Code to avoid more taxes. And of course, if the main organization for ensuring that tax-exempt organizations are not abusing their tax exempt status by using "dark money" to allow the domestic elite and foreign powers to influence and control federal elections and legislation, then odds are the rich and elite and foreign powers will wield more and more influence and control over who gets elected and what kind of legislation they pass.  Odds are we will see even more of the kinds of absurd legislation disenfranchising the poor and minorities by making it harder to vote, harder to get a State-issued I.D. card, harder to wait in line for hours at the polls (if you will be fired for not reporting to work), etc. None of this is any surprise. None of it is good government. All of it is supported by the current radicalized uber-right-wing Republican Party hacks that are running many state governments and hold the majority right now in the U.S. Senate and House of Representatives.

Former Tax Lobbyists Are Writing the Rules on Tax Dodging - The secret tax-dodging strategies of the global elite in China, Russia, Brazil, the U.K., and beyond were exposed in speculator fashion by the recent Panama Papers investigation, fueling a worldwide demand for a crackdown on tax avoidance. But there is little appetite in Congress for taking on powerful tax dodgers in the U.S., where the practice has become commonplace. A request for comment about the Panama Papers to the two congressional committees charged with tax policy — House Ways and Means and the Senate Finance Committee — was ignored. The reluctance by congressional leaders to tackle tax dodging is nothing new, especially given that some of the largest companies paying little to no federal taxes are among the biggest campaign contributors in the country. But there’s another reason to remain skeptical that Congress will move aggressively on tax avoidance: Former tax lobbyists now run the tax-writing committees. We researched the backgrounds of the people who manage the day-to-day operations of both committees and found that a number of lobbyists who represented world-class tax avoiders now occupy top positions as committee staff. Many have stints in and out of government and the lobbying profession, a phenomenon known as the “reverse revolving door.” In other words, the lobbyists that help special interest groups and wealthy individuals minimize their tax bills are not only everywhere on K Street, they’re literally managing the bodies that create tax law:

  • Barbara Angus, the chief tax counsel of the House Ways and Means Committee, previously helped lobby lawmakers on tax policy on behalf of clients such as General Electric, HSBC, and Microsoft, among other clients.
  • Mark Warren, a tax counsel for the tax policy subcommittee of Ways and Means, is a former lobbyist for the Retail Industry Leaders Association, a trade group that includes Coca-Cola, Home Depot, Walgreens, and Unilever.
  • Mike Evans became chief counsel for the Senate Finance Committee in 2014 after leaving his job as a lobbyist for K&L Gates, where he lobbied on tax policy for JP Morgan, Peabody Energy, Brown-Forman, BNSF Railway, and other corporate clients.
  • Eric Oman, the senior policy adviser for tax and accounting at the Senate Finance Committee, previously worked for Ernst & Young’s lobbying office, representing clients on tax policy.

A request for comment about the role of former lobbyists now working as staffers was also ignored by the committees.

Millionaires Would Gain Trillions Under Trump and Cruz Tax Plans - CBPP - At a time of exceptionally wide levels of income inequality, the tax-cut proposals from Republican presidential candidates Donald Trump and Ted Cruz would produce extremely large and unprecedented tax-cut windfalls for people with incomes exceeding $1 million a year, almost certainly at the expense of low- and middle-income households once budget cuts to pay for the tax cuts are taken into account.  Both tax plans would ultimately increase the already substantial incomes of people who make over $1 million a year by about 20 percent, with the revenues lost due to the tax cuts for millionaires exceeding $3 trillion over the coming decade. These findings are based on an examination of the estimates that the respected Urban-Brookings Tax Policy Center (TPC) has produced of both the cost of the Trump and Cruz tax plans and how those plans would affect households at different income levels.  (“Millionaires,” as used here, refers to households with annual incomes over $1 million, rather than to the amount of assets that households may hold.)  This analysis is a companion piece to an earlier CBPP analysis on the effects these tax-cut plans would have on the nation’s revenue base; the earlier analysis found that both the Trump and Cruz plans would effectively shrink government revenues (as a share of GDP) to their levels back in the Truman era.[1]  Like that analysis, this one does not examine John Kasich’s tax proposal because TPC has not assessed it, and doesn’t assess the proposals of Democratic candidates Hillary Clinton and Bernie Sanders, as their proposals would increase taxes on millionaires, not reduce them.

Trump And Hillary Refuse To Explain Why They Both Share The Same Address In Delaware - As it turns out, Hillary Clinton and Donald Trump share something pertinent in common, after all — a tax haven cozily nested inside the United States. This brick-and-mortar, nondescript two-story building in Wilmington, Delaware would be awfully crowded if its registered occupants — 285,000 companies — actually resided there. What’s come to be known as the “Delaware loophole” — the unassuming building at 1209 North Orange Street — has become, as the Guardian described, “famous for helping tens of thousands of companies avoid hundreds of millions of dollars in tax.”  Reportedly dozens of Fortune 500 companies — Coca-Cola, Walmart, American Airlines, and Apple, to name a few — use Delaware’s strict corporate secrecy laws and legal tax loopholes by registering the North Orange Street address for official business.“Big corporations, small-time businesses, rogues, scoundrels, and worse — all have turned up at the Delaware address in hopes of minimizing taxes, skirting regulations, plying friendly courts or, when needed, covering their tracks,” the New York Times’ Leslie Wayne described in 2012. “It’s easy to set up shell companies here, no questions asked.” While the legitimacy of taxes as a concept may be up to personal interpretation, what matters in Clinton’s use of the so-called Delaware loophole, in particular, is her constant harping on the need for corporations and elite individuals to pay their fair share. In other words, Clinton’s employment of North Orange Street amounts to a telling, Do As I Say, Not As I Do. And, as the Guardian notes, both of “the leading candidates for president – Hillary Clinton and Donald Trump – have companies registered at 1209 North Orange, and have refused to explain why.”

Why you can’t trust people to pay their taxes - In 1995, the Minnesota state government did an experiment on its citizens. As the deadline for filing the previous year’s taxes approached, almost 50,000 people received a letter from the state. Some of those messages talked about the ethical duty of paying tax, other people were offered help with their tax return. But a small subset of the letters carried an ominous warning: “we will examine your 1994 tax return very closely”. When that subset, 1,724 people, filed their tax return, there was a marked rise in reported taxes than in the previous year. Most people, when told the government would be checking their finances closely, decided to pay more tax. But one group reported less tax: rich people. There are a number of different theories that might explain this seemingly odd behaviour. For one, rich people have more flexibility to defer income than those on lower pay. If you know the government is going to be counting every dollar on your tax return, maybe it’s easier to just defer those dollars into the future, when the audit threat has receded. What’s more, the threat of increased scrutiny probably encourages people to phone up their tax lawyer and ask them to take another, more careful look at their finances, which might uncover new ways to legally reduce their taxable income. Another suggestion is that the wealthy — long accustomed to the idea that taxes are negotiable — might view their tax report as an opening gambit: if you think the taxman is going to ask you cough up the dough, why not low-ball?

The new fiduciary rule: strengths, limits, and politics | Jared Bernstein - OTEers know I’ve long been concerned about economic security in retirement among aging Americans whose limited earnings and savings threaten to generate inadequate income replacement rates once they’ve aged out of the workforce. That’s one reason for my frequent scribblings on behalf of the new “fiduciary rule,” limiting conflicts of interest among financial advisors providing investment advice for retirement savers. Jeff Sommer has a useful piece in the NYTon this and other matters, making many good points but glossing over one very important one. First, the gloss. Thanks to some seriously stiff spines by Democrats in the White House and Congress, conservatives’ efforts to block the rule have thus far been thwarted. The rule—which basically requires retirement savings advisors to put their clients’ interests first—starts phasing in about a year from now, i.e., early in the next president’s first term. But you notice how I keep calling this a “rule,” not legislation? Congress didn’t pass this into law, of course (that would be way too functional), so the next president can change the rule on day one. It would actually take some time to unwind it—there’s a process that would take months—but it could be stopped before it started. The fact that this and the many other rule changes and executive actions (the overtime rule, higher minimum wage for workers on federal contracts, and much more) enacted by this White House could be wiped out by the next administration is, IMHO, underappreciated.

Why I (Belatedly) Blew the Whistle on the SEC’s Failure to Properly Investigate Goldman Sachs By James A. Kidney, former SEC attorney.  naked capitalism Yves here. Two things struck me about Jim Kidney’s article below. One is that he still wants to think well of his former SEC colleagues. I know other whistleblowers and internal dissenters who wound up losing their jobs who initially blame themselves, than come to accept that the system in which they operated was fundamentally corrupt, that even if some people locally really were trying to do the right thing, it was bound to either 1. go nowhere, 2. be allowed to proceed to a more meaningful level if it was cosmetic or served some larger political purpose or 3. got elevated because the organization was suddenly in trouble and they needed to burnish their cred in a big way (a variant of 2, except with 3, you might have a something serious take place by happenstance of timing). Kidney does criticize corrosive practices, particularly the SEC stopping developing its own lawyers and becoming dependent on the revolving door, but his criticisms seem muted relative to the severity of the problems.  Number two, and related, are the class assumptions at work. The SEC does not want to see securities professionals at anything other than bucket shops as bad people. At SEC conferences, agency officials are virtually apologetic and regularly say, “We know you are honest people who want to do the right thing.” Please tell me where else in law enforcement is that the underlying belief.

Worst Example Yet: Unconscionable Apollo Clause Illustrates Depth of Capture of Private Equity Investors -- Yves Smith -There’s so much sharp practice in private equity contracts that it’s hard to know where to being describing their tricks and traps. But the train wreck of the Caesars bankruptcy, which was brought to investors by private equity kingpins Apollo and TPG, puts the spotlight on one of the most rancid “heads we win, tails you lose” features of these agreements: sweeping indemnification provisions which no fiduciary should accept.   We’ve attached the indemnification section from Apollo’s most recent “flagship” fund, Apollo VIII, at the end of this post, and have just added the full limited partnership agreement for Apollo VIII to our Document Trove. And to give you a quick preview: it provides for investors to reimburse Apollo for “all losses,” with very narrow carveouts, even if they engage in criminal conduct…if they can dream up a way to claim that they they didn’t know it was criminal.  The sweeping indemnification language in private equity agreements evolved, or rather devolved, from mergers and acquisitions advisory agreements. But the circumstances are utterly different. In M&A, you have an active principal, either a CEO or a business owner, and in most cases a board of directors will also have to approve a deal. By contrast, in private equity, the general partner is completely in charge. Why should passive investors give such broad protection against his bad actions when they have no ability to oversee, much the less constrain his behavior? And that’s before you get to the fact that other sections of limited partnership agreements waive the general partner’s fiduciary duty.* One common means of doing that is to provide that the general partner may consider interests other than that of the investors in his fund, including his own interest.

With Stocks Near All-Time Highs, Financial Stress Turns Negative | Seeking Alpha: The financial markets are stressed out, though you wouldn't know it with stocks reaching near record all-time highs. Our chart of the day, shown above, is the S&P 500 next to a composite of widely-followed financial stress indicators available in Bloomberg. The composite is directionally shaded to illustrate when financial conditions have gone from positive to negative and vice-versa. As you can see, financial conditions were favorable for the stock market, confirming their upward trend, until around 2014. Since then, financial conditions have become increasingly less favorable, diverging from the stock market's higher highs, and finally went negative in 2016. If this divergence continues and financial conditions deteriorate further, this will certainly raise a red flag that we are at or near a major market peak. As seen below, we saw a similar divergence in 2007 as financial conditions weakened and eventually went negative, just as unsuspecting investors were celebrating new record highs in the S&P 500. To construct the Financial Stress Composite, we aggregated five major financial stress indices, four of which are created by various Federal Reserve regional banks. Here is a chart of the five components (2008-2009 recession denoted by vertical red bar), with a description provided by the Cleveland Fed on their own particular index:

It's Dangerous Out There in the Bond Market -  Bond investors are taking bigger risks than ever before. Yields on $7.8 trillion of government bonds have been driven below zero by worries over global growth, meaning money managers looking for income are pouring into debt with maturities of as long as 100 years. Central banks’ policy is exacerbating matters, as the unprecedented debt purchases to spur their economies have soaked up supply and left would-be buyers with few options. While demand has shown few signs of abating, investors are setting themselves up for damaging losses if average yields rise even a little from their rock-bottom levels. Based on a metric called duration, a half-percentage point increase would result in a loss of about $1.6 trillion in the global bond market, according to calculations based on data compiled by Bank of America Corp. This year alone, the danger of owning debt has surged by the most since 2010, raising concerns from heavyweights such as Bill Gross. It’s also left some of the world’s biggest bond funds, including BlackRock Inc. and Allianz Global Investors, at odds over the benefits of buying longer-dated bonds.

Fitch: Institutional Loan Market Defaults Surpass $1 Billion for Sixth Straight Month --Three loan defaults pushed the trailing 12-month (TTM) institutional leveraged loan default rate to 1.8% in April, up from 1.6% at end-March, according to Fitch Ratings. Peabody Energy's bankruptcy filing along with Vertellus Specialty's missed payment and Stallion Oilfield's small distressed debt exchange added $1.7 billion to the default tally so far in April.The metals/mining sector rate rose to 29%, up from 25% at end-March, while the coal subsector rate rose to 57% with the addition of Peabody's $1.2 billion term loan. The loan default rates for energy and the E&P subsector will likely close April at 11% and 20%, respectively. Together, energy and metals/mining account for 65% of TTM volumes. "With six consecutive months of defaults totaling $1 billion or more now under its belt, the institutional leveraged loan universe is experiencing the highest consecutive monthly default volumes since 2009-2010," said Eric Rosenthal, Senior Director of Leveraged Finance. April is also the 12th consecutive month the institutional leveraged loan universe recorded a default from the energy or metals/mining sectors -- a trend that should continue as Seventy Seven Energy's restructuring support agreement, finalized on April 19th, paves the way for a bankruptcy filing before May 26. Fitch expects the institutional leveraged loan default rate will end 2016 at 2.5%, with energy and metals/mining contributing the most, in terms of both defaulted issuers and volume. Despite the heightened defaults, CLO portfolio exposure to defaulted obligors remains largely manageable. Peabody Energy, April's largest default, was held by 29 of the 233 Fitch-rated CLOs, averaging 0.6% exposure.

Dan Loeb of Third Point Foresees a Hedge Fund “Killing Field” --  Yves Smith - A reader thought we had overstated how bad things were in Hedgistan our post earlier this month, Public Pension Funds Starting to Abandon Hedge Funds….More Than a Decade Late, when we described a sea change underway. Readers may recall that CalPERS, often a trend-setter among public pension funds, had decided to end its hedge fund investment program in late 2014. Hedge funds had experienced a net withdrawal of funds in the fourth quarter of 2015, the first in four years. That was followed by an exodus of $15 billion the next quarter. Mind you, this took place against a background of pension funds, endowments, and other long-term investors committing even more funds to alternative investment as a result of inadequate returns in safer options, including making record investments in private equity.Our reading was confirmed ten days later when the New York City pension system followed CalPERS in terminating its investments in hedge funds, citing “exorbitant fees” and underwhelming results. From Reuters: “Hedges have underperformed, costing us millions,” New York City’s Public Advocate Letitia James told board members in prepared remarks. “Let them sell their summer homes and jets, and return those fees to their investors.” Today, as recounted by the Financial Times, hedge fund kingpin David Loeb described in his first-quarter letter to investors how the hedge fund downdraft had only just started:  The first quarter was “one of the most catastrophic periods of hedge fund performance that we can remember since the inception of this fund,” in December 1996, Mr Loeb said. “There is no doubt that we are in the first innings of a washout in hedge funds and certain strategies.” Mr Loeb recounted a litany of recent woes for hedge funds. Many have been caught on the wrong side of market swings, such as those related to the Chinese economy and its currency, he pointed out. Funds that had moved into market-neutral strategies at the end of last year were still running high-risk portfolios, Mr Loeb wrote, and when risk assets sold off this year, “market neutral became a hedge fund killing field.”

Fantasy Math Is Helping Companies Spin Losses Into Profits - Gretchen Morgenson -- Companies, if granted the leeway, will surely present their financial results in the best possible light. And of course they will try to persuade investors that the calculations they prefer, in which certain costs are excluded, best represent the reality in their operations.Call it accentuating the positive, accounting-style.What’s surprising, though, is how willing regulators have been to allow the proliferation of phony-baloney financial reports and how keenly investors have embraced them. As a result, major public companies reporting results that are not based on generally accepted accounting principles, or GAAP, has grown from a modest problem into a mammoth one. According to a recent study in The Analyst’s Accounting Observer, 90 percent of companies in the Standard & Poor’s 500-stock index reported non-GAAP results last year, up from 72 percent in 2009.  Regulations still require corporations to report their financial results under accounting rules. But companies often steer investors instead to massaged calculations that produce a better outcome.  . But the gulf between reality and make-believe in these companies’ operations is so wide that it raises critical questions about whether investors truly understand the businesses they own. Among 380 companies that were in existence both last year and in 2009, the study showed, non-GAAP net income was up 6.6 percent in 2015 compared with the previous year.Under generally accepted accounting principles, net income at the same 380 companies in 2015 actually declined almost 11 percent from 2014. Thirty companies in the study generated losses under accounting rules in 2015 but magically produced profits when they did the math their own way.

SEC Begins Crack Down On Non-GAAP Accounting Gimmicks - Having railed for years against the accounting gimmickry known as non-GAAP, with both the WSJ, AP and even Warren Buffett joining the vocal outcry in recent years, things may finally be changing. According to Dow Jones, the SEC is finally stepping up its scrutiny of companies' "homegrown earnings measures, signaling it plans to target firms that inflate their sales results and employ customized metrics that stray too far from accounting rules." According go DJ, the move to intensify oversight "signals that regulators have grown weary of the widespread use of some adjusted measures, which often result in a rosier view of profits than what is reported under generally accepted accounting principles, or GAAP.And in the most actionably news yet, we read that the SEC is launching a campaign to crack down on made-to-order metrics that regulators think are particularly confusing or opportunistic."  This is long overdue because as we showed in February, the spread between GAAP and non-GAAP earnings has grown to gargantuan levels in recent years and the current reporting season may in fact conclude with the widest nominal gap between GAAP and non-GAAP in history.

Weak Wall Street Pay Reform Proposals May Have Some Unintended Positive Effects -  Yves Smith - Financial regulators advanced some long-outstanding Dodd-Frank business last week, issuing proposed rules for curbs on executive pay. While they are more stringent than an earlier version put forward in 2011, they still have serious failings. Nevertheless, they may wind up being salutary, if nothing else, by making the speculative parts of the finance business less attractive.  The problem is that regulations are a blunt instrument and there are places where blunt approaches would have been more effective. As we reminded readers in our recent Politico article, Andrew Haldane of the Bank of England in 2010 had ascertained that systemically important financial firms inflicted such high costs on the community at large via periodic busts that they couldn’t begin to pay for the damage they do. They are purely extractive. Thus prohibiting risky products and practices is a much better approach than tinkering with executive pay. The intent was to make the pay create better “alignment of interests.” It’s alarming to read the paper that sets forth the proposed rules fail to say that “the inmates are running the asylum,” and provides bromides like this instead: Particularly at larger institutions, shareholders and other stakeholders may have difficulty effectively monitoring and controlling the impact of incentive-based compensation arrangements throughout the institution that may affect the institution’s risk profile, the full range of stakeholders, and the larger economy.  “May have difficulty”? Since when have shareholders ever had any understanding of, much the less influence over, internal pay structures?  Keep in mind these rules aren’t final. The comment period is open till July 22. And you dear readers, can participate, and we have a suggested fix. Plus there was a much better model that regulators ignored.

Why Banks Don’t Play It Safe, Even When It Costs Them -  Better late than never.   The rules will require top earners at big financial institutions to wait four years to receive a substantial portion of their incentive-based pay, and will force companies to claw back bonuses from employees whose decisions turn out to be responsible for big losses. The new regulations, which were mandated by the 2010 Dodd-Frank financial-reform bill, were supposed to have been put in place soon after that legislation was passed, but it took five years for the six responsible agencies to put together a reasonable proposal. . To understand both why the banks didn’t go further on their own and why the threat of regulation helped things along, even before the rules were agreed upon, it’s worth consulting a famous essay from 1973 by the social scientist Thomas Schelling, written on the subject of hockey helmets. At the time Schelling was writing, the N.H.L. had yet to require players to wear helmets, which had been around for decades. Players were allowed to wear them, but the vast majority did not, even though this increased their chances of serious injury, and despite the fact that informal polls suggested that many players would have preferred to use them. The problem was that, while not doing so had obvious costs, it also had perceived benefits: a player’s peripheral vision was slightly better, for one, and it conveyed a sense of toughness. As a result, players tended to believe that anyone who wore a helmet was, in effect, hurting his performance relative to everyone else on the ice.

A Conversation With Joseph Stiglitz -- Stiglitz: The prevalent ideology—when I say prevalent  it’s not all economists— held that markets were basically efficient, that they were stable. You had people like Greenspan and Bernanke saying things like “markets don't generate bubbles.” They had precise models that were precisely wrong and gave them confidence in theories that led to the policies that were responsible for the crisis, and responsible for the growth in inequality. Alternative theories would have led to very different policies. For instance, the tax cut in 2001 and 2003 under President Bush. Economists that are very widely respected were cutting taxes at the top, increasing inequality in our society when what we needed was just the opposite. Most of the models used by economists ignored inequality. They pretended that macroeconomy was unaffected by inequality. I think that was totally wrong. The strange thing about the economics profession over the last 35 year is that there has been two strands: One very strongly focusing on the limitations of the market, and then another saying how wonderful markets were. Unfortunately too much attention was being paid to that second strand. What can we do about it? We've had this very strong strand that is focused on the limitations and market imperfections. A very large fraction of the younger people, this is what they want to work on. It's very hard to persuade a young person who has seen the Great Recession, who has seen all the problems with inequality, to tell them inequality is not important and that markets are always efficient. They'd think you're crazy. ...

Goldman Sachs opens to the masses -- For almost 150 years Goldman Sachs has been the go-to bank of the rich and powerful. But now the Wall Street titan is opening up to the masses on Main Street by offering online savings accounts for as little as $1 on deposit. Goldman’s shift down market comes as the bank is under pressure to develop new streams of funding. Weak first-quarter results from the big US banks have highlighted the challenges faced by their investment banking units, under pressure from volatile markets and tight regulations. Analysts last week fired a barrage of questions at the US banks, and at Goldman in particular, wondering why they were not doing more to reboot their businesses. Goldman posted the lowest quarterly return on equity — just 6.4 per cent, on an annualised basis — of the past four years. The bank last week launched GSBank.com, a platform it inherited via the acquisition of a $16bn book of deposits from GE Capital. Through that deal it gained about 145,000 retail depositors and is now seeking more, offering annual interest rates of 1.05 per cent on a savings account — many times better than the rates of the biggest US brick-and-mortar lenders such as Citibank, JPMorgan Chase or Bank of America.

Why the Vampire Squid Wants Small Depositors’ Money in 1 Frightening Chart -  Pam Martens - As recently as 2013, the New York Times reported that Goldman had a $10 million minimum to manage private wealth and was kicking out its own employees’ brokerage accounts if they were less than $1 million. Now, all of a sudden, Goldman Sachs Bank USA is offering FDIC insured savings accounts with no minimums and certificates of deposits for as little as $500 with above-average yields, meaning it’s going after this money aggressively from the little guy. What could possibly go wrong?  The last utterances we ever hoped to see bundled into a bank promotion were the words “Goldman Sachs” and “FDIC insurance” and “peace-of-mind savings.” But that’s what now greets one at the new online presence of Goldman Sachs Bank USA, thanks to the repeal of the Glass-Steagall Act in 1999, which allowed high-risk investment banks like Goldman Sachs to also own FDIC-insured, deposit-taking banks. So why this generous move now by Goldman Sachs Bank USA to offer above average returns to the little guy? It likely has a lot to do with the chart below from the Office of the Comptroller of the Currency’s (OCC) December 31, 2015 report on the four largest banks based on derivatives exposure. According to the report, the credit exposure from derivatives versus the bank’s risk-based capital is as follows: JPMorgan Chase 209 percent; Bank of America 85 percent; Citibank 166 percent and Goldman Sachs (wait for it) – a whopping 516 percent.Not to put too fine a point on it, but you might recall that one of the key promises of the Dodd-Frank financial reform legislation was that after the largest bank bailout in financial history in 2008, these derivatives were going to be pushed out of the insured bank into bank affiliates that would not endanger the taxpayer-backstopped deposits and force another monster taxpayer bailout in the next crisis. This became known as the “push-out rule” which could never seem to materialize into a hard and fast law. Then, in December 2014, Citigroup simply used its muscle to legislate the rule out of existence.

Michael Hudson: The Wall Street Economy is Draining the Real Economy - naked capitalism - An interview by Gordon T. Long of the Financial Repression Authority.

Is the Wall Street Cartel Regrouping? Regulator Fires Warning Shot -  Pam Martens - Remember the chat rooms dubbed “The Cartel” and “The Bandits Club” that contributed to felony counts against the mega Wall Street banks last May for rigging the foreign currency markets? How about that classic from the Barclays chat room trader: “if you aint cheating, you aint trying.” Well, apparently, one or more banks are causing concerns in this area again. Yesterday, the regulator of national banks, the Office of the Comptroller of the Currency, sent out a severe warning to its flock that there could be a five year jail sentence waiting in the wings for anyone attempting to use technology to block its mandated access to bank records. The letter was authored by Bethany Dugan, Deputy Comptroller for Operational Risk. The statement read in part: “The OCC has become aware of communications technology recently made available to banks that could prevent or impede OCC access to bank records through certain data deletion or encryption features.” Another part of the memo honed in on the chat room issue, noting that “…OCC is aware that some chat and messaging platforms have touted an ability to ‘guarantee’ the deletion of transmitted messages. The permanent deletion of internal communications, especially if occurring within a relatively short time frame, conflicts with OCC expectations of sound governance, compliance, and risk management practices as well as safety and soundness principles.” Curiously, a footnote called out the Board and bank management of unnamed banks, suggesting that there has been a concerted effort to block the OCC examiners from access to chat rooms and/or to speak directly to bank staff: The statute referenced by the OCC, 18 USC 1517, is succinct and harsh: “Whoever corruptly obstructs or attempts to obstruct any examination of a financial institution by an agency of the United States with jurisdiction to conduct an examination of such financial institution shall be fined under this title, imprisoned not more than 5 years, or both.

Regulators Set to Release Long-Term Liquidity Plan | American Banker: Federal regulators are set to release Tuesday a long-awaited proposal to require the biggest banks to retain more liquidity to withstand a prolonged crisis. The Federal Deposit Insurance Corp. added the proposal to its April 26 meeting, during which the agency was set to approve a separate plan to target executive compensation at the largest institutions. The liquidity proposal is federal regulators' second one designed to ensure large banks retain liquidity during a downturn. The first rule, which was finalized in 2014, requires the biggest banks to maintain a liquidity coverage ratio to ensure they have enough high-quality liquid assets to continue operations for at least 30 days during a financial crisis. The second liquidity plan to be released on Tuesday is more long-term. Dubbed the "net stable funding ratio," it is meant to guarantee liquidity over a one-year period and discourage over-reliance on short-term funding strategies that regulators have criticized. Both liquidity rules are required under the international Basel III accords — and both are new, relatively untested tools. Bankers have already raised concerns that the liquidity coverage ratio is causing liquidity problems in the market because it forces all banks to gravitate toward the same assets, but regulators have insisted there is no proof of such an issue. The net stable funding ratio proposal is likely to add more fuel to the fire of that debate.

U.S. Stays Close to Basel in Long-Term Liquidity Rule | American Banker: – In the post-financial-crisis regulatory environment, the U.S. has become known for taking a harder line when it comes to domestic implementation of international agreements with the Basel Committee, including with capital and liquidity requirements. But the U.S. agencies hewed surprisingly close to the international agreement in their proposal released Tuesday which would require the largest banks to maintain stable sources of funding over a yearlong period. “In a sense, it is an effort to comply with Basel and keep the framework alive, but not, as in other areas, ‘gold-plate’ it because of the concern here about cumulative impact,” said Karen Shaw Petrou, managing partner of Federal Financial Analytics. “The proposal continues the belt, suspenders and safety net approach to U.S. regulation.” The proposal, known as the net stable funding ratio, was released Tuesday by the Federal Deposit Insurance Corp. and will be discussed by the Federal Reserve Board on May 3. The Office of the Comptroller of the Currency is expected to release the plan soon. The proposal is substantially similar to the October 2014 final rule put forth by the Basel Committee, which required covered bank holding companies to retain stable funding for 100% of its obligations for a full year. The plan is intended to complement the short-term liquidity coverage ratio, which requires banks to hold enough high-quality liquid assets to cover obligations for 30 days. The U.S. proposal differs from the Basel proposal in a handful of areas. For one, as with the LCR, the net stable funding ratio differentiates between the largest and most complex banks and smaller institutions. Banks subject to the “advanced approaches” framework with more than $250 billion in assets and $10 billion in foreign exposure must cover 100% of their obligations, whereas banks with between $50 billion and $250 billion must only cover 70% of obligations.

Cheat Sheet: What's in Regulators' Long-Term Liquidity Proposal | American Banker — Federal regulators released a liquidity proposal Tuesday that would require the largest and most systemically risky U.S. banks to ensure they have access to stable funding for at least a year. The latest proposal, known as the net stable funding ratio, details what regulators consider appropriate sources of stable funding, including long-term debt, Tier 1 capital and core deposits. "The proposed [NSFR] would ensure that lending and investing activities of large banking organizations are sufficiently supported by sources of stable funding over a one-year horizon," said Federal Deposit Insurance Corp. Chairman Martin Gruenberg in prepared remarks for a meeting Tuesday to discuss the plan. "Maintaining sufficient amounts of stable funding strengthens a banks liquidity profile by reducing the risk of funding disruptions." The plan would apply to banks with more than $250 billion in assets and more than $10 billion in foreign exposure — U.S. regulators' definition of "advanced approaches" bank holding companies. The rule separately lays out a "less stringent" standard for banks with between $50 billion and $250 billion in assets.  Like the Basel Committee's proposed net stable funding ratio framework, the U.S. version weights funding sources in order to account for the potential for rapid withdrawal. Certain assets, including a bank's own Tier 1 regulatory capital and Tier 2 capital with maturity of more than a year, would be considered 100% "available stable funding." Stable retail deposits, meanwhile, would be assigned a 95% ASF factor, in part because deposit insurance makes the potential for a run unlikely over the proposed one-year time horizon. Deposits that are neither stable retail deposits nor retail brokered deposits would be assigned a lesserASF, 90%. At the lower end of the scale, unsecured wholesale funding and certain secured funding transactions with at least six months but less than one year maturity — including funding from central banks — would be assigned a 50% ASF. This is to "discourage potential overreliance on funding from central banks, consistent with the proposed rule's focus on stable funding raised from market sources," according to the proposal. Securities with a maturity of between six months and one year would also be assigned a 50% ASF, as are operational deposits and retail brokered deposits lacking certain stabilizing factors (including total deposit insurance coverage).Trade-date payables, certain short-term brokered deposits, nondeposit retail funding, short-term funding from financial sector entities or central banks with less than six months maturity are all assigned a 0% ASF under the proposal.

Banks raise prospect of court action over Fed dividend cuts - One of America’s top banking lobby groups has raised the prospect of suing Congress over its decision last year to slash dividend payments made each year by the Federal Reserve to its member banks. The challenge comes four months after President Barack Obama signed into law a road-repair act that included a cut to the dividends paid on the stock in the Fed that member banks are required to hold. Under the law, effective January 1, the annual dividend paid to the bigger banks would drop from a fixed rate of 6 per cent to the lesser of 6 per cent or the most recent auction rate on the 10-year government bond. In a commentletter to the Fed published on Thursday, the American Bankers Association complained that a subsequent change to the Fed’s own bylaws would be “unfair and contrary to law”. “Member banks … will be materially damaged by the resulting dilemma: either accept a severely reduced return … or leave the Federal Reserve system altogether, together with the dislocations and consequences that would entail,” wrote Rob Nichols, the ABA’s chief executive. Mr Nichols argued that the new law was unconstitutional, as it amounted to the taking of member banks’ property without compensation. In his letter, he wrote that the ABA “stands ready” to help the Fed’s board of governors “with any appropriate measures that mitigate these concerns”. Separately, he told the Financial Times that the ABA had “not ruled out any options at our disposal”. .

An Unfixable Problem with Big Banks' Living Wills? | American Banker: — Regulators had a litany of complaints about big banks' living wills in the assessments released last week, covering everything from cash flow to operational decision-making, but one that is flummoxing bankers is an item they say is out of their control: ring-fencing. Several large banks were cited over concerns that they relied on liquidity from their subsidiaries in foreign countries in the event of a bankruptcy — funds that could be seized by overseas regulators in a crisis. "No home or host regulator wants to be dependent on the good graces of their foreign counterparts," said John Simonson, a principal at PwC. The Federal Reserve Board and the Federal Deposit Insurance Corp. "want to make sure that the big eight U.S. firms are resolvable even if the host authorities chose to ring-fence." But that isn't a problem that banks can fix, industry representatives claim — it's an issue that must be addressed by regulators. Some said it also contradicts regulatory statements about progress made in overseas cooperation on the resolution of megabanks, specifically with the United Kingdom. Regulators' concerns over the possibility of ring-fencing "can only be seen as a vote of no confidence in the Bank of England," said one industry source, who spoke on condition of anonymity. "It is very difficult to reconcile the liquidity ring fencing required in some of the determinations with earlier claims by the regulators … that there was a good relationship with U.K. authorities."   FDIC Chairman Martin Gruenberg said last year that the two countries had made great strides in advancing international coordination.

Living Wills Only Work If Regulators Are Psychic | Bank Think -  The yearslong fight over “ending too big to fail” has spilled out of the bar and into the parking lot of the contest for the presidential nomination of the Democratic Party. Sen. Bernie Sanders urges immediate and forceful action. Hillary Clinton, by contrast, puts the issue in the hands of the banks’ regulators charged under the Dodd-Frank Act with implementing a solution to this nettlesome problem. Now come those regulators with their near-unanimous thumbs down on the living wills of the U.S. institutions deemed the biggest risk to the financial system. Only Citigroup received a passing grade from both the Federal Reserve Board and the Federal Deposit Insurance Corp. The regulators’ findings drive home the point that, eight years after the financial crisis and almost six years after the enactment of Dodd-Frank, the financial system is still vulnerable. The Fed and the FDIC’s findings also shine a harsh light on the core defect in the law. Dodd-Frank tries to address the systemic risk of the largest firms and its sister issue – TBTF – with four different tools; I call them the Big Four. They are: capital rules, liquidity rules, living wills and new FDIC authority to manage resolutions of failing firms. Each of these tools has some merit. But none of them either alone or in concert are sufficient to address the too-big-to-fail problem. The tools aim at an uncertain future, not at current conditions. Implicit in each tool is a question. How much capital is enough to protect the financial system in the future? How many assets need to be liquid to protect the system in the future? How can an institution be resolved by global regulators in the future? How can a firm go through bankruptcy in the future without taking down the financial system?

Too Big to Fail? So What, Say Bank Depositors - WSJ -- Plenty of people say they don’t like too-big-to-fail banks. Yet plenty of people are still happy to give those same banks their money—even when it earns them next to nothing. While big banks suffered during the tumultuous first quarter, deposits continued to roll in the door. That was one of several silver linings in what was an otherwise dispiriting first quarter. Combined, the big four commercial banks— J.P. Morgan Chase, Bank of America, Wells Fargo and Citigroup —held $4.2 trillion in deposits at the end of the first quarter. That was up 2.1% from the previous quarter, outpacing the overall growth of deposits at U.S. banks, according to Federal Reserve data. Granted, big banks’ deposits were down slightly versus the first quarter of 2015. But this likely reflects efforts by J.P. Morgan last year to shed so-called nonoperating deposits, or idle corporate deposits not linked to daily cash management, to shrink its balance sheet and cut excess capital it must hold. For banks, this counts as good news. In recent years, the flood of deposits into big banks was a burden; they couldn’t use all of it due to weak loan demand. That led to a buildup of securities portfolios. But in the first quarter, total loans at BofA, Citi and Well Fargo were up 5.8%. So the banks are able to put more of the deposit money to work. Indeed, at J.P. Morgan, where total loans rose 11% from a year earlier, the bank’s loan-to-deposit ratio of 64% in the first quarter was up sharply from 56% a year earlier.

The Strange Bedfellows of #EndingTBTF | American Banker: Politicians and pundits representing the left and the right largely agree that despite various reforms put in place during the past decade, the biggest U.S. banks are still "too big to fail." In many ways, that view echoes the anti-establishment sentiment seen in the surprisingly successful insurgent presidential candidacies of Donald Trump and Bernie Sanders. Those who have faith that the system works see the Dodd-Frank Act as a success while those who are alienated from politics-as-usual feel differently.   "That kind of distrust of the status quo, that kind of distrust of the policymakers that are there is certainly common and is almost a defining characteristic of both progressives and libertarians." That critical view of "too big to fail" is hardly relegated to the fringes of either party. Exit polling after New York's primary election April 19 found that 63% of Democrats and 49% of Republican voters thought that Wall Street hurts the economy more than it helps, according to The Wall Street Journal. And that sentiment is not new or held by New Yorkers alone — a poll from January 2015 by a group called the Progressive Change Institute found that 55% of respondents favored breaking up "financial institutions that are deemed 'too big to fail.' " It is also shared by top leaders from both political parties. Progressive heroes like Sen. Elizabeth Warren, D-Mass., owe much of their political clout to the issue, while Sanders has made it a critical part of his campaign against the establishment candidate and presumptive nominee Hillary Clinton. On the other end of the spectrum are conservative stalwarts, including Senate Banking Committee Chairman Richard Shelby and House Financial Services Committee Chairman Jeb Hensarling, both of whom have argued that institutions remain "too big to fail." Hensarling has vowed to introduce an alternative to Dodd-Frank this session.

FASB Delays Implementation of Contentious Loan-Loss Scheme | American Banker: The Financial Accounting Standards Board gave final approval Wednesday to its controversial Current Expected Credit Loss standard, but agreed to delay its implementation deadlines by a year in response to protests from banks and credit unions. As a result of Wednesday's action, companies that file with the Securities and Exchange Commission won't be required to implement CECL until 2020. Implementation for public companies that are not SEC filers begins a year later, in 2021. Private and nonprofit companies will be required to apply CECL to their annual reports in 2021 and to quarterly filings beginning in 2022. The accounting standards board says it has received more than 3,300 CECL-related comment letters and held nearly 120 meetings on the standard. Even so, it plans to continue to engage in what the organization terms extensive post-issuance activity over the next three and a half years, its chairman, Russell Golden, said in a statement Wednesday. The Transition Resource Group FASB created earlier this year to smooth implementation of the new standard will continue to meet, Golden added. Board members are also reviewing a "ballot draft" to ensure the text of the standard reflects the numerous amendments made since it was first introduced in 2010. The final, official version is expected to be released sometime in June, FASB spokesman John Pappas said Wednesday.

Socialize the Banks: Breaking up the banks won’t do. They should be publicly owned and democratically controlled. ine years after the onset of the international financial crisis, its effects are still with us. These days observers worry about banks — European institutions like Germany’s Deutsche Bank, France’s Societé Generale, and Italy’s Monte di Pascoale, not to mention the zombie banks that populate the austerity-ridden eurozone periphery in Greece, Portugal, and Spain. These big banks are widely seen as global capitalism’s next weak link, capable of causing massive financial instability if they go bust. Such concern isn’t particularly surprising — banks were at the center of the latest crisis from the beginning. Indeed, it wasn’t subprime market defaults that unleashed the destructive financial turmoil of 2007–8, but their ruinous impact on a major investment bank, Lehman Brothers. Lehman’s failure — and the state’s subsequent refusal to bail out the bank — created a credit crunch that sent the entire financial sector, as well as the world economy, into a tailspin. As the US crisis morphed into the eurozone crisis, banks were again at the epicenter. The debt burden of peripheral states and the prospect of their default threatened the solvency of the entire European banking sector, which had lent to agents public and private. . Only the quick substitution of bank-held debt for official debt — taken on from the troika of European lenders and the IMF in return for punitive fiscal austerity — saved them. Yet here we are today, facing another potential wave of failing banks. The lingering instability highlights the hollowness of the G-20 countries’ pledges to reform the financial sector in 2008-09. Promises to “extend regulatory oversight and registration to Credit Rating Agencies,” “take action against non-cooperative jurisdictions, including tax havens,” and “prevent excessive leverage and require buffers of resources to be built up in good times” have yielded little substantive change.

April 2016: Unofficial Problem Bank list declines to 214 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for April 2016.  During the month, the list fell from 222 institutions to 214 after nine removals and one addition. Assets dropped by $2.2 billion to an aggregate $62.4 billion. A year ago, the list held 342 institutions with assets of $105.1 billion. Actions have been terminated against U.S. Century Bank, Doral, FL ($910 million); Community Bank of Florida, Inc., Homestead, FL ($485 million); Florida Capital Bank, National Association, Jacksonville, FL ($341 million); Advantage Bank, Loveland, CO ($265 million); Transcapital Bank, Sunrise, FL ($169 million); Mountain Valley Bank, Dunlap, TN ($96 million); Bank of Newington, Newington, GA ($87 million); and Rocky Mountain Bank & Trust, Florence, CO ($65 million). Trust Company Bank, Memphis, TN ($21 million) exited the list via failure becoming the second bank to fail in 2016. Added this month was First Community National Bank, Cuba, MO ($207 million). Also, the FDIC issued a Prompt Corrective Action order against Proficio Bank, Cottonwood Heights, UT ($110 million), which has been on the list since March 2014.

Wells Fargo to Verify Customers through Eye Prints - The CIO Report - WSJ: Wells Fargo & Co., predicting that the traditional password will be gone in five years, plans to roll out biometric security technology for its corporate customers by July. The system authenticates mobile users through their eye prints with software from EyeVerify Inc., a startup that the bank has been mentoring in an accelerator program since 2014. Treasurers, CFOs and other executives authorized to access commercial bank accounts at Wells Fargo will be able to use their iPhone cameras to take a picture of their eyes. The Eyeprint ID software built into bank’s mobile app then translates the image of veins and other physical markers into digital code, to match with a stored template, said Secil Watson, executive vice president and head of Wells Fargo’s wholesale Internet services. The value of biometrics in the financial services industry is expected to surge from about $126 million in software and hardware in 2015 to an estimated $2.2 billion by 2024, according to Tractica LLC. Mobile banking will remain the leading usage, the research firm said in a recent report. The human body is expected to be the next security frontier, where physical traits from walking gait to personal heart rhythms can be used to identify individuals. American Express and J.P. Morgan Chase & Co., among others, have been experimenting with facial and fingerprint recognition. Traditional typed passwords will linger until biometrics can be used easily not only on mobile devices but desktop and laptop computers still prevalent in corporate offices, Ms. Watson predicted. Until then, Wells Fargo will continue to offer a password option for consumers and corporate customers, she said. The bank has tested voice and facial recognition technologies but found that each was subject to vagaries in the environment, she said. Background noise at a train station or low lighting and glare could prevent the software from making correct identifications

Should Banks Be Worried About Apple Pay? -- - A colleague attended a conference and reported that Chase is freaked out about Apple Pay, or at least seems to be. The Chase representative sees Apple Pay as a big threat to bank payment system products and was also worried about Apple Pay making it hard for banks to develop “relationships” with millennials, Chase is working on its own product called Chase Pay. As a brand-building exercise, Apple Pay is quite effective. All those small visual cues at EPoS machines and on store doorways are good advertising and quite inexpensive considering the reach. Apple is also now reporting declining revenues from its existing product set, so it is an idea straight out of any airport departure lounge management strategy book to look for new revenue streams.  But as a disruptive payment method or as some kind of magic entry mechanism to retail banking? No way. You might even, if you were not feeling especially charitable, describe as a bit desperate, and it certainly fits into a narrative that Apple is potentially now just another ex-growth tech company with a nose-bleed inducing valuation which will look at any vaguely synergistic place to splurge some of its cash pile in the hope of producing some much-needed top line number improvement. Whatever, Apple Pay faces numerous obstacles. For a start, card tokenisation systems such as Apply Pay hide customer information from the merchant (this is an issue with all forms of tokenised card payments such as “contactless” NFC enabled cards so this is wider than just Apple Pay). This is probably the main reason for slow merchant adoption of Apple Pay – as at June 2015 “less than one-fourth of the top retailers currently accept it, and almost two-thirds said they would not be accepting the payment method [in 2015]. Only four retailers said they plan to accept Apple Pay in [2016]”.

1,000% loans? Millions of borrowers face crushing costs - CBS News: Marvin Ginn, executive director of Native Community Finance, a small lender in Laguna, New Mexico, reports that some customers come to him seeking help refinancing loans from nearby payday lenders that carry annual percentage rates of more than 1,000 percent. "You get a person with low income into a loan with that kind of interest and it's like, 'Holy mackerel!' How do they ever get out of it?" he said. Welcome to the world of payday loans. If the 2008 financial crisis that upended the U.S. banking system led to some reforms for consumers, this remote corner of the financial industry remains rife with problems. Regulation in many states is loose and enforcement weak. That environment has left millions of Americans trapped in a financially crippling cycle of debt that many struggle to escape. Change may be on the way. The federal Consumer Financial Protection Bureau (CFPB) is expected in May to propose national standards for payday loans, which for now are regulated only at the state level. Striking the right balance will be critical, threading the needle so borrowers are protected from predatory lenders without wiping out the only source of capital available to many low-income Americans. Payday lending is big business. Every year, roughly 12 million people in the U.S. borrow a total of $50 billion, spending some $7 billion on just interest and fees, according to The Pew Charitable Trusts. An estimated 16,000 payday loan stores are spread across the U.S., with hundreds more such lenders operating online.Payday loans and so-called auto title loans, which are secured by a borrower's vehicle, are marketed as being helpful for financial emergencies. Allied Cash Advance, for example, touts its payday loans as a way to "bridge the gap" after a car accident, illness or other unexpected expense leaves people temporarily low on funds.

CFPB Sets Date for Revised Plan to Rein In Arbitration Agreements | American Banker: The Consumer Financial Protection Bureau is expected on May 5 to release a proposal that would allow consumers to band together in class action lawsuits even if there is an arbitration agreement. The use of arbitration clauses is widespread in contracts on credit cards, deposit accounts, payday loans and a host of products. Companies have imposed mandatory arbitration agreements largely to shield themselves from class action lawsuits, consumer groups claim. The banking industry fiercely opposes restrictions on arbitration agreements claiming efforts to limit their use will aid the plaintiff's bar. On Thursday, the CFPB said it plans to hold a public hearing on May 5 in Albuquerque, N.M., where the bureau's director, Richard Cordray will discuss arbitration agreements. In October, the bureau issued a draft proposal that would prevent the use of such agreements and require companies to submit details about arbitration agreement filings and rewards to the bureau. Some industry lawyers have said the draft proposal amounted to a de facto ban on arbitration agreements

CFPB Charges Debt Collection Firm Over Robo-Lawsuits | American Banker: The Consumer Financial Protection Bureau ordered the New Jersey law firm Pressler and Pressler and a debt buyer to pay $2.5 million for allegedly filing "mass-produced" lawsuits against consumers based on nonexistent debts. The CFPB's proposed orders, filed Monday in federal court, accuse the Parsippany law firm, its two principal partners and New Century Financial Services of unfair litigation activities. The two companies and the law firm's two principal partners, Sheldon Pressler and Gerard Felt, also were accused of making false or unsubstantiated representations about owing a debt. Both companies and lawyers are barred from filing lawsuits without determining if the debts are valid, the bureau said. "For years, Pressler & Pressler churned out one lawsuit after another to collect debts for New Century that were not verified and might not exist," CFPB Director Richard Cordray said in a press release. "Debt collectors that file lawsuits with no regard for their validity break the law and violate the public trust. We will continue to take action to protect borrowers from abuse." Sheldon Pressler, the law firm's managing partner, took issue with two broad CFPB claims: that the law firm needed physical documentation rather than electronic data to file claims, and that it did not have a thorough validation process.

Consumer Finance Watchdog Plans to Supervise Marketplace Lenders - WSJ: The Consumer Financial Protection Bureau plans to bring the largest online lenders under its supervision as soon as late 2017, the first time the lenders would face federal scrutiny similar to that of banks, according to people familiar with the matter. The agency aims to unveil a proposal this fall to supervise the largest so-called installment lenders that essentially offer small-dollar loans with set payment periods as well as lenders who tie such loans to car titles. The CFPB is now considering broadening its definition of “installment” lending to wrap in marketplace lenders, which operate online and offer similar types of small-dollar loans with set payments, these people said. “Marketplace lending has grown in popularity and so has the CFPB’s own knowledge of a variety of lenders in the market,” said Lucy Morris, a partner at Hudson Cook and the CFPB’s former deputy enforcement director. The agency, she said, is using the rules on the biggest market participants “to really expand its supervisory authority, including over emerging lenders, and the statute allows for that.” Traditional installment lending and vehicle-title loans have been around for years, but the emergence of new variations and technologies that allow companies to offer loans more widely has spurred the CFPB to consider expanding its oversight to marketplace lenders, said sources familiar with the matter.

How Far Will RICO Probes of Online Lenders Go? | Bank Think: The government's recent efforts to rein in consumer fraud are well-known. In a significant development, however, the U.S. Department of Justice is now applying a statute more commonly known in organized crime cases - the Racketeer Influenced Corrupt Organization Act - to the conduct of online payday lenders. RICO prohibits the "collection of unlawful debt," but its use in dealing with the online lending industry charts new ground. Prosecutors have cited the statute in three recent criminal cases, against Adrian Rubin, Scott Tucker and Charles Hallinan.  They must prove the defendants were in the business of lending money "at a [usurious] rate" that was at least twice the enforceable rate. The indictments allege the defendants' business models fit this description perfectly, and that they were able to operate mainly through "sham" arrangements with Indian tribes to claim sovereign immunity from state usury laws. Whereas Rubin pleaded guilty to the charges against him and is awaiting sentencing, Tucker and Hallinan so far are contesting the allegations made in their indictments, which will present an early opportunity for observers to see the government's newest theory tested in the courts. The government's extension of criminal RICO into online payday lending naturally leads to several related questions: First, it is logical to wonder if the government might seek to extend the criminal statute into other online lending models. For example, could nonbank purchasers or assignees of consumer loans made over the Internet and funded by banks find themselves the subjects of a criminal RICO investigation if the loans exceeded the limits in state usury laws? Second, the same questions apply equally to debt buyers who purchase delinquent loans originated by banks. Might they also be subject to a RICO investigation? Third, the acquiring banks that have online payday and other lenders as customers, and others involved in the onboarding and monitoring of these merchants, should reconsider the adequacy of their BSA/AML controls and other methods to mitigate fraud and consumer protection risks.

CFPB's Court Challenges Could Have Been Avoided | Bank Think: The limits of the Consumer Financial Protection Bureau's power is now a question for the courts in at least two widely-reported cases.  In one, PHH Mortgage has called into question the agency's structure and authority while appealing a CFPB fine over alleged kickbacks. And just last week, a District Court judge dismissed a CFPB suit against a for-profit college accreditor, ruling that the bureau lacked the authority to investigate the firm. The new judicial scrutiny should not come as a surprise considering the aggressive steps the CFPB, and its sole director, Richard Cordray, have taken after the Dodd-Frank created the bureau. It is also the result of lawmakers, in drafting the 2010 law, failing to place necessary checks on the agency head by subjecting CFPB decisions to a five-member commission, rather than in one director.  A commission could have provided for a more measured approach and balance of power in the execution of the agency's mandate. As these cases bring new attention to the CFPB's reach, they will likely also fuel the push for legislative reform to install a commission — doing what Congress failed to do almost six years ago. The PHH appeal, in particular, which was heard earlier this month by the U.S. Court of Appeals for the D.C. Circuit, shines the spotlight on the CFPB's authority and structure. That focus was clear even before the hearing, when the court took the rare step of issuing an order asking parties to prepare to address certain questions on the historical precedence for independent agencies to be led by single directors and proposed remedies for single-director structures that do not meet a legal test. Dodd-Frank states that the CFPB is to be led by a director appointed by the president and confirmed by the Senate. The director has a five-year term, and prior to expiration of that term, the president may only remove the director for inefficiency, neglect of duty, or malfeasance in office. Dodd-Frank also places the power of investigation, enforcement, rule promulgation, and staffing with the director with no oversight or accountability. PHH attorney Ted Olson, the former solicitor general, told the court that concerns about checks and balances in the CFPB's current structure include that the president lacks the power to remove the director without cause. Asked by the panel what remedy PHH sought, Olson said, "The only remedy is that this agency is unconstitutional and the decisions of this director in this case have to be overturned and the decision has to be vacated."

CFPB s Cordray Fires Back Over Ongoing Mortgage Disclosure Concerns - Consumer Financial Protection Bureau Director Richard Cordray reiterated in a recent letter to Sen. Bob Corker, R-Tenn., that lenders are allowed to fix non-numerical clerical errors for up to 60 days after the issuance of a corrected mortgage disclosure form. The letter was a four-page response to Corker's request for clarity on the "Know Before You Owe" mortgage disclosure rule, known in the industry as TRID, which went into effect on Oct. 3. Corker had written in March, citing fears about "the lack of clarity around what constitutes a technical error and the curability of those errors by the CFPB has led to confusion throughout the market." But in his April 7 response, which was posted on the CFPB Monitor blog by the law firm Ballard Spahr, Cordray reiterated that the rule and the Truth-in-Lending Act have cure provisions. "TILA has long permitted creditors to cure violations, provided that, within 60 days of discovering an error, the creditor notifies the borrower of the error and makes appropriate adjustments to the account before the creditor receives notice of the violation from the borrower," Cordray wrote. "Similarly, TILA provides an exception from civil liability for unintentional errors subject to certain conditions." Early this year, some investors were refusing to purchase loans without further guidance from the CFPB about curing technical errors. Because there are hundreds of variables to account for on the disclosure forms, the mortgage industry has claimed that compliance has become a near-impossible task. The rule places responsibility for the accuracy and delivery of the disclosures squarely on creditors, Cordray wrote, though creditors and settlement agents can divvy up the responsibilities. However, "creditors cannot unilaterally shift their liability to third parties…and alone remain liable for errors," he wrote.

CFPB Plots Clarifying Changes to TRID in July: The Consumer Financial Protection Bureau will propose changes in late July to its mortgage disclosure rule to provide "greater certainty and clarity" to the mortgage industry. In a letter Thursday to industry trade groups, CFPB Director Richard Cordray said the bureau is drafting a proposal on the "Know Before You Owe" rule that went into effect on Oct. 3. Though Cordray did not provide details of the changes, industry groups have asked for further guidance on a dozen significant issues, including how to cure errors, account for lender credits, and calculate cash-to-close transactions. Cordray wrote in the two-page letter that regulators "will continue to be sensitive to the progress made by those entities that have squarely focused on making good-faith efforts to come into compliance with the rule." "We do recognize that incorporating some of the bureau's existing informal guidance…into the regulation text and commentary would be helpful," he wrote "We also believe that there are places in the regulation text and commentary where adjustments would be useful for greater certainty and clarity." While the rule was designed to help consumers better understand the total costs of a home loan, the new disclosure forms to borrowers include hundreds of variables making compliance more difficult and costly. The rule, commonly known as TRID, combined mortgage disclosures required by the Truth-in-Lending and the Real Estate Settlement Procedures acts. Cordray's letter Thursday was a response to a request by eight industry trade groups in late January urging the bureau to publish unofficial guidance on TRID in the Federal Register.

Robert J. Shiller on Competition, Deception and Rent-Seeking - ProMarket Interview: “Our free-market system tends to spawn manipulation and deception,” proclaim George Akerlof and Robert Shiller in the beginning of their 2015 book, Phishing for Phools: The Economics of Manipulation and Deception (Princeton University Press). It’s not the kind of pronouncement one expects from two Nobel Laureates and staunch free-market advocates like Shiller and Akerlof, but Phishing for Phools is rife with anecdotes that show how firms—from credit card companies to food companies and pharmaceuticals—manipulate customers by taking advantage of their “psychological or informational weaknesses.” In Internet parlance, “phishing” means an attempt to extract sensitive personal information by masquerading as a reputable or otherwise trustworthy person, company, or website. But Shiller and Akerlof create a broader definition of phishing, using it as a synonym for the mechanisms of manipulation and trickery that, according to them, are inherent to the free-market system. A “phool,” they explain, is anyone who falls for such tricks—that is, everyone, including themselves.  Akerlof and Shiller define themselves as “admirers of the free-market system.” However, they claim that competitive markets are not only the best conduit of providing consumers with the things they want. “They also create an economic equilibrium that is highly suitable for economic enterprises that manipulate or distort our judgment, using business practices that are analogous to biological cancers that make their home in the normal equilibrium of the human body.”

Talking Appraisal Fraud with Bill Black -- BWU/NEP’s Bill Black appears on Phil Crawford’s Voice of Appraisal. Bill discusses past problems with appraisal fraud and the AMC model. He also explains how he would like to work with appraisers in the future!! The introduction starts at about the 11 minute mark with interview starting around the 15 minute mark.

Freddie Mac Lowers 2016 Economic Forecast, Remains Positive on Housing: Freddie Mac has revised downward its economic forecast for the remainder of 2016 following a tepid first quarter, but still remains upbeat about the housing market. Lower-than-expected figures for consumer spending, manufacturing, trade, and auto and retail sales led the government-sponsored enterprise to lower its forecast for real GDP growth to 1.1% for the first quarter, from the previously estimated 1.8%. For the full year, Freddie Mac expects 2% growth in GDP. Similarly, Freddie Mac expects that the job market's remaining slack, fueled in part by increases to the labor force participation rate caused by long-unemployed individuals' return to the workforce, will continue to depress wage growth. The labor market, meanwhile, is still adding jobs at a steady clip, with net nonfarm payroll growth of 215,000 in March. Despite these relatively bleak projections, Freddie Mac showed no signs that it will let go of its positive outlook on housing anytime soon. Declining Treasury yields have led to similar drops in the national average for a 30-year fixed-rate mortgage. As of April 14, the average rate was 3.58%, the lowest it has been since May 2013. Since the beginning of the year, the 10-year Treasury and 30-year fixed-rate mortgage have fallen 44 and 40 basis points, respectively.

Fannie Mae: Mortgage Serious Delinquency rate declined in March, Lowest since June 2008 - Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in March to 1.44%, down from 1.52% in February. The serious delinquency rate is down from 1.78% in March 2015. This is the lowest rate since June 2008. The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%. Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure". The Fannie Mae serious delinquency rate has only fallen 0.34 percentage points over the last year - the pace of improvement has slowed - and at that pace the serious delinquency rate will not be below 1% until 2017. The "normal" serious delinquency rate is under 1%, so maybe Fannie Mae serious delinquencies will be close to normal some time in late 2017.  This elevated delinquency rate is mostly related to older loans - the lenders are still working through the backlog.

Lawler:Updated Table of Distressed Sales and All Cash Sales for Selected Cities in March -- Economist Tom Lawler sent me an updated table below of short sales, foreclosures and all cash sales for selected cities in March. On distressed: Total "distressed" share is down in all of these markets.  Short sales and foreclosures are down in all of these areas. The All Cash Share (last two columns) is mostly declining year-over-year. As investors continue to pull back, the share of all cash buyers continues to decline.

Banks Are Falling Back in Love With Mortgages - WSJ: America’s housing market is in good shape and the country’s biggest banks are taking advantage. The latest sign of strength came Tuesday from the S&P/Case-Shiller Home Price Index showing that prices across the country rose 5.3% in the year to February. Earlier, data from the National Association of Realtors showed existing home sales rising 5.1% in March after a decline in February that had some observers worried. In response, banks not only are making more mortgage loans but are also choosing to keep more of them on their books rather than selling them off to government-backed guarantors Fannie Mae and Freddie Mac. Very often these are so-called jumbo mortgages that exceed Fannie’s and Freddie’s size limits. The share of outstanding mortgage debt held by U.S. banks rose to 31.7% in October of 2015, the most recent figure available, according to Federal Reserve data. That is up from 30.9% a year earlier and the highest proportion since the depths of the financial crisis in April of 2009. Data from the biggest banks suggest this trend continued in 2016. In the first quarter, mortgage loans held by the top four lenders— J.P. Morgan Chase,  Bank of America, Citigroup and Wells Fargo —were up 28% from a year earlier. That excludes mortgages being run off at Citi Holdings, Citigroup’s special pool of bad assets left over from the crisis.

The 30-Year fixed mortgage should disappear - Pinto, AEI - The 30-year fixed rate mortgage should be retired — for good. Despite continued proof that it fails to build up wealth for the most disadvantaged Americans, and that mortgage debt should not be a burden as homeowners approach their 50s and 60s, misguided advocates maintain that the 30-year fixed rate mortgage should be at the core of the U.S. housing finance system. The latest proposal by five respected economists including Gene Sperling and Mark Zandi aims to reformulate taxpayer backing of Fannie Mae and Freddie Mac in an effort to keep the 30-year fixed mortgage alive.  Under the proposed plan, Fannie and Freddie (Government Sponsored Enterprises or GSEs), along with the Federal Housing Administration (FHA), would continue policies that support housing finance regardless of market conditions. The two GSEs would add leverage to the housing market at all times, even if doing so when housing supply is tight has the potential to augment risk — and increase the chances of another taxpayer bailout. The authors’ reform plan, like virtually all the others before it, fails to acknowledge the government’s role in past housing finance failures. Failures include the savings and loan (S&L) debacle of the 1980s, Fannie and Freddie’s collapse into conservatorship, and the Federal Housing Administration’s (FHA’s) 3.4 million foreclosures (almost all with 30-year fixed rate loan terms). These crashes did not come about in spite of government support for housing finance, but because of government backing.

MBA: "Mortgage Applications Decrease in Latest MBA Weekly Survey"  -- From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey Mortgage applications decreased 4.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 22, 2016.  ...The Refinance Index decreased 5 percent from the previous week. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 14 percent higher than the same week one year ago. ...The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 3.85 percent from 3.83 percent, with points increasing to 0.35 from 0.32 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.  The first graph shows the refinance index since 1990. Refinance activity was higher in 2015 than in 2014, but it was still the third lowest year since 2000. Refinance activity has increased a little with lower rates. The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is 14% higher than a year ago.

MBA: Mortgage applications reverse course - It was a tough week for mortgage applications, as the latest report from the Mortgage Bankers Associations reveals that the usual highs of the spring home-buying season are not there. Mortgage applications decreased 4.1% from one week earlier for the week ending April 22. While the last mortgage rate report showed a humdrum week for mortgage applications, it was coming off of the previous week’s high.The Refinance Index fell 5% from the previous week, as the seasonally adjusted Purchase Index decreased 2% from one week earlier. The refinance share of mortgage activity is also backing away from its once increasing trend and instead decreased to 54.4% the previous week. In addition, the adjustable-rate mortgage share of activity increased to 5.2% of total applications. The Federal Housing Administration’s share of total applications grew to 12.3% from 10.6% the week prior. The Veteran Affairs’ share of total applications dropped to 12.2% from 12.6% the week prior, while the United States Department of Agriculture’s share of total applications remained unchanged from 0.8% the week prior. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000) grew to 3.78% from 3.77%. Similarly, the average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.66% from 3.64%.

Black Knight: House Price Index up 0.7% in February, Up 5.3% year-over-year Note: Black Knight uses the current month closings only (not a three month average like Case-Shiller or a weighted average like CoreLogic), excludes short sales and REOs, and is not seasonally adjusted. From Black Knight: Black Knight Home Price Index Report: February 2016 Transactions -- U.S. Home Prices Up 0.7 Percent for the Month; Up 5.3 Percent Year-Over-Year

  • U.S. home prices showed stronger monthly gains than they have since last April, rising 0.7% from January, and were up 5.3% from last year
    National home prices are now 27.5% above where they were at the bottom of the market at the start of 2012
    At $254K, the national level HPI is now just 5% off its June 2006 peak of $267K
    Strong upward monthly price movement was observed in many states and metro areas in February
    Of the nation’s 40 largest metros, 10 hit new peaks:
    The year-over-year increase in the index has been about the same for the last year.

Case-Shiller Shows Still Strong Annual Housing Price Gains -- The February 2016 S&P Case Shiller home price index shows a seasonally adjusted 5.4% price increase from a year ago for the 20 metropolitan housing markets and a 4.6% yearly price increase in the top 10 housing markets.  Home prices are still climbing over double the rate of inflation, although this is a slower pace than last month.  The U.S. National Home Price Index increased 0.4% from January to February, seasonally adjusted.  For the year, the national index has increased 5.3%.  Since the price low of March 2012, the 10-City composite index has increased 34.95and the 20-City composite index has increased 36.3%.  Average home prices are also back to their Winter 2007 levels.  Below are all of the composite-20 index cities yearly price percentage change, using the seasonally adjusted data.  The Northwest is on fire with Portland Oregon home prices increasing 11.9% and Seattle, Washington prices also above 10% in annual increase.   San Francisco California and Denver Colorado prices increased over 9% from a year ago.  Dallas Texas homes have also increased 9% in a year..  No composite-10 or composite-20 annual price gains are negative using the seasonally adjusted data and only two housing markets in the composite 20 were below 2% annual gains, Washington DC and Chicago Illinois.  This is so unattainable for most people.  S&P reports the not seasonally adjusted data for their headlines, while this overview uses their seasonally adjusted metrics.   For the month, the not seasonally adjusted composite-20 percentage change was 0.2% whereas the seasonally adjusted change for the composite-20 was 0.7%.   The not seasonally adjusted composite-10 increased 0.1% from the previous month, whereas the seasonally adjusted composite-10 showed a 0.6% increase.  The below graph shows the seasonally adjusted monthly percentage change.   Housing is highly cyclical.  Spring and early Summer are when most sales occur.

Case-Shiller: National House Price Index increased 5.3% year-over-year in February - S&P/Case-Shiller released the monthly Home Price Indices for February ("February" is a 3 month average of December, January and February prices). This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities) and the monthly National index. From S&P: Home Price Increases Slow Down in February According to the S&P/Case-Shiller Home Price Indices  The S&P/Case-Shiller U.S. National Home Price Index, covering all nine U.S. census divisions, recorded a 5.3% annual gain in February, unchanged from the previous month. The 10-City Composite increased 4.6% in the year to February, compared to 5.0% previously. The 20-City Composite’s year-over-year gain was 5.4%, down from 5.7% the prior month.  ...Before seasonal adjustment, the National Index posted a gain of 0.2% month-over-month in February. The 10-City Composite recorded a 0.1% month-over-month increase while the 20-City Composite posted a 0.2% increase in February. After seasonal adjustment, the National Index recorded a 0.4% month-over-month increase. The 10-City Composite posted a 0.6% increase and the 20-City Composite reported a 0.7% month-over-month increase after seasonal adjustment. Fourteen of 20 cities reported increases in February before seasonal adjustment; after seasonal adjustment, only 10 cities increased for the month. The first graph shows the nominal seasonally adjusted Composite 10, Composite 20 and National indices (the Composite 20 was started in January 2000). The Composite 10 index is off 11.4% from the peak, and up 0.6% in February (SA). The Composite 20 index is off 9.7% from the peak, and up 0.7% (SA) in February. The National index is off 3.0% from the peak, and up 0.4% (SA) in February. The National index is up 31.0% from the post-bubble low set in December 2011 (SA).The second graph shows the Year over year change in all three indices.

Zillow Forecast: Expect Slower Growth in March for the Case-Shiller Indexes -- The Case-Shiller house price indexes for February were released yesterday. Zillow forecasts Case-Shiller a month early, and I like to check the Zillow forecasts since they have been pretty close.From Zillow: March Case-Shiller Forecast: Expect the Slowdown to Continue All three headline S&P/Case-Shiller Home Price Indices grew at a slightly slower pace in February compared to January, and the slowdown should extend into March, according to Zillow’s March Case-Shiller forecast.  The March Case-Shiller National Index is expected to gain another 0.3 percent in March from February, down from 0.4 percent growth in February from January. We expect the 10-City Index to grow 4.3 percent year-over-year in March, and the 20-City Index to grow 5 percent over the same period, down from annual growth of 4.6 percent and 5.4 percent in February, respectively. The National Index looks set to rise 5.3 percent year-over-year in March, equal to February’s annual growth.  Zillow’s March Case-Shiller forecast is shown in the table below. These forecasts are based on today’s February Case-Shiller data release and the March 2016 Zillow Home Value Index (ZHVI). The March Case-Shiller Composite Home Price Indices will not be officially released until Tuesday, May 31.The year-over-year change for the 10-city and 20-city indexes will probably be lower in the March report than in the February report.  The change for the National Index will probably be about the same.

The Unfairness of Housing Purchases Through Time -naked capitalism Yves here. While the analysis in this post shows clearly how much and when home purchase costs have increased, in terms of the relationship to average wages, I strongly differ with the proposed solution of addressing the problem via mortgage finance. Subsidies to housing via the inefficient channel of subsidizing mortgages (the interest deduction, for starters) is what helped propel prices into being out of whack with worker wages in the first place. Moreover, given that the average job tenure is a mere four years and a few months, it seems insanely risky for people to buy a house, in that the time between jobs will deplete savings, and housing transaction costs are so so high that if one needs to lower one’s housing costs, or move to get a new job, the cost of selling a home will chew into equity unless the buyer was lucky in terms of how the local housing market performed relative to when they bought and sold. The best remedy to high purchase prices is more good rentals. Heretofore, rentals have been generally enough “worse” than owning so as to lead people to want to buy a house, aside from the concern that one is paying money to a landlord when you could instead be accumulating home equity. But as Josh Rosner said, “A house with no equity is a rental with debt.” If you aren’t sure you can stay in a home long enough to accumulate real equity (enough to recoup transaction costs and have a gain), it’s not sound to buy a house. And if more people rented, the quality of tenants would be better than they are now, leading to an improvement in the quality of rental properties generally. The offset is that historically, housing was how people accumulated wealth. A home was a forced savings mechanism. When you retired, you would live mortgage-free, at lower cost than during your income-earning years, and you could tap into the equity by selling the house and either renting or buying a more modest home. But that model, as indicated above, has been undermined by job instability and the high cost of buying a home in the first place.

NAR: Pending Home Sales Index increased 1.4% in March, up 1.4% year-over-year  -- From the NAR: Pending Home Sales Maintain Momentum in March The Pending Home Sales Index, a forward-looking indicator based on contract signings, climbed 1.4 percent to 110.5 in March from an downwardly revised 109.0 in February and is now 1.4 percent above March 2015 (109.0). After last month’s slight gain, the index has increased year-over-year for 19 consecutive months and is at its highest reading since May 2015 (111.0)...The PHSI in the Northeast increased 3.2 percent to 97.0 in March, and is now 18.4 percent above a year ago. In the Midwest the index inched up 0.2 percent to 112.8 in March, and is now 4.0 percent above March 2015. Pending home sales in the South rose 3.0 percent to an index of 125.4 in March but are still 0.6 percent lower than last March. The index in the West declined 1.8 percent in March to 95.3, and is now 7.9 percent below a year ago. This was above expectations of a 0.5% increase for this index.  Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in April and May.

New Home Sales decreased to 511,000 Annual Rate in March - The Census Bureau reports New Home Sales in March were at a seasonally adjusted annual rate (SAAR) of 511 thousand.   The previous three months were revised up by a total of 23 thousand (SAAR).  "Sales of new single-family houses in March 2016 were at a seasonally adjusted annual rate of 511,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 1.5 percent below the revised February rate of 519,000, but is 5.4 percent above the March 2015 estimate of 485,000."The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate. Even with the increase in sales since the bottom, new home sales are still fairly low historically. The second graph shows New Home Months of Supply. The months of supply was increased in March to 5.8 months. The all time record was 12.1 months of supply in January 2009. This is now in the normal range (less than 6 months supply is normal). "The seasonally adjusted estimate of new houses for sale at the end of March was 246,000. This represents a supply of 5.8 months at the current sales rate." Starting in 1973 the Census Bureau broke inventory down into three categories: Not Started, Under Construction, and Completed. The third graph shows the three categories of inventory starting in 1973. The inventory of completed homes for sale is still low, and the combined total of completed and under construction is also low.

March 2016 New Home Sales Decline: The headlines say new home sales declined from last month. The rolling averages smooth out much of the uneven data produced in this series - and this month there was a decline in the rolling averages. This data series is suffering from methodology issues. Econintersect analysis:

  • unadjusted sales growth accelerated 4.4 % month-over-month (after last month's deceleration of 0.3 %).
  • unadjusted year-over-year sales up 4.4 % (Last month was 0.0 %). Growth this month was well below average for the range of growth seen last 12 months.
  • three month unadjusted trend rate of growth decelerated 1.0 % month-over-month - is up 7.6 % year-over-year.

US Census Headlines:

  • seasonally adjusted sales down 1.5 % month-over-month
  • seasonally adjusted year-over-year sales up 5.4 %
  • market expected (from Bloomberg) seasonally adjusted annualized sales of 500 K to 532 K (consensus 522 K) versus the actual at 511 K.

March New Home Sales Fell 1.5% Month-over-Month - dshort -  This morning's release of the March New Home Sales from the Census Bureau came in at 511K, down 1.5% month-over-month. Revisions were made to the previous three months reflecting a net gain of 23K. The Investing.com forecast was for 520K. Here is the opening from the report: Sales of new single-family houses in March 2016 were at a seasonally adjusted annual rate of 511,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 1.5 percent (±15.0%)* below the revised February rate of 519,000, but is 5.4 percent (±16.0%)* above the March 2015 estimate of 485,000. 485,000. [Full Report] For a longer-term perspective, here is a snapshot of the data series, which is produced in conjunction with the Department of Housing and Urban Development. The data since January 1963 is available in the St. Louis Fed's FRED repository here We've included a six-month moving average to highlight the trend in this highly volatile series. Over this time frame we see the steady rise in new home sales following the 1990 recession and the acceleration in sales during the real estate bubble that peaked in 2005.   Now let's examine the data with a simple population adjustment. The Census Bureau's mid-month population estimates show a 71.8% increase in the US population since 1963. Here is a chart of new home sales as a percent of the population.

New-home sales plunge in the West  --Americans stepped back from buying new homes in March — the third straight monthly decline — led by a sharp plunge in Western states. New-home sales slipped 1.5% last month to a seasonally adjusted annual rate of 511,000, the Commerce Department said Monday. That rate has steadily dropped from 519,000 in February and 521,000 in January. Sales plummeted 23.6% in the West, which has been prone to volatile swings as one of the nation's priciest housing markets. The market for new housing developments has gotten off to a rocky start. Sales are still running slightly ahead of the year-to-date pace in 2015, yet supplies of new construction are mounting in a possible sign that demand is lower than many builders had hoped. See more of our top stories on Facebook >> Still, some economists see low mortgage rates and an improving job market as strong enough to boost sales in the coming months.Sales were flat in the Northeast and rose in the Midwest and South. Prices dipped, with sales declining in Western states where land often commands a higher premium. The median new-home sales price fell 1.8% from a year ago, to $288,000. The market's stalling momentum comes amid an incomplete recovery from the housing crash of almost a decade ago. New-home sales are significantly below the half-century average of more than 650,000. Subprime mortgages helped propel sales as high as 1.28 million in 2005, but the debt resulting from that peak led to series of foreclosures that triggered the Great Recession at the end of 2007.

New Homes Sales Suffer 3rd Monthly Drop - Worst Streak Since July 2011 -- The cracks are starting to show in the housing 'recovery'. With Starts and Permits already rolling over, New Home Sales printed a disappointing 511k (vs 520k expectations), dropping 1.5% MoM. This is the 3rd monthly decline in a row - the longest such streak since July 2011. While positive for affordability, the decline MoM and YoY in median home prices (-$9,400 and -$5,400 respectively) will do nothing for The Fed's wealth-creation mandate. The West saw New Home Sales plunge 23.6% MoM while The Midwest surged 18.5%.Worst streak of MoM home sales weakness since July 2011... As YoY remains flat... Is price starting to catch down to sales? “Housing is certainly not booming,” Jim O’Sullivan, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, New York, said before the report. “Some people may be shut out of the market because lending standards are still tight. There may still be some reluctance to buy versus rent.”

Comments on March New Home Sales --The new home sales report for March was eleven thousand below expectations at 511,000 on a seasonally adjusted annual rate basis (SAAR), however combined sales for December, January and February were revised up by 23 thousand SAAR - so overall this was a decent report.  Sales were up 5.4% year-over-year (YoY) compared to March 2015. And sales are up 1.3% year-to-date compared to the same period in 2015. This graph shows new home sales for 2015 and 2016 by month (Seasonally Adjusted Annual Rate).  So far 2016 is barely ahead of 2015, although the comparisons for the first two months were difficult.   The comparisons through the summer will be easier.  Overall  I expect lower growth this year, probably in the 4% to 8% range. Slower growth is likely this year because Houston (and other oil producing areas) will have a problem this year. Inventory of existing homes is increasing quickly and prices will probably decline in those areas. And that means new home construction will slow in those areas too. And here is another update to the "distressing gap" graph that I first started posting a number of years ago to show the emerging gap caused by distressed sales.  Now I'm looking for the gap to close over the next several years.

HVS: Q1 2016 Homeownership and Vacancy Rates -- Earlier today, the Census Bureau released the Residential Vacancies and Homeownership report for Q1 2016.  This report is frequently mentioned by analysts and the media to track household formation, the homeownership rate, and the homeowner and rental vacancy rates.  However, there are serious questions about the accuracy of this survey. This survey might show the trend, but I wouldn't rely on the absolute numbers.  The Census Bureau is investigating the differences between the HVS, ACS and decennial Census, and analysts probably shouldn't use the HVS to estimate the excess vacant supply or household formation, or rely on the homeownership rate, except as a guide to the trend. The Red dots are the decennial Census homeownership rates for April 1st 1990, 2000 and 2010. The HVS homeownership rate decreased to 63.5% in Q1, from 63.8% in Q4. I'd put more weight on the decennial Census numbers - and given changing demographics, the homeownership rate is probably close to a bottom. The HVS homeowner vacancy declined to 1.7% in Q1. Once again - this probably shows the general trend, but I wouldn't rely on the absolute numbers. The rental vacancy rate was unchanged at 7.0% in Q1. I think the Reis quarterly survey (large apartment owners only in selected cities) is a much better measure of the rental vacancy rate, but this does suggest the rental vacancy rate might have bottomed. The quarterly HVS is the most timely survey on households, but there are many questions about the accuracy of this survey. Overall this suggests that vacancies and the homeownership rate are probably close to the bottom.

Rents are going through the roof! --Rent increases appear to be out of control.  Median asking rent rose from $850 to $870 in the first quarter of 2016, and is up $71 from $799 YoY, an increase of 9%!  This sets yet another record for rents.   Here is the graph of nominal median asking rents by the Census Bureau: Here is an updated look at real. inflation adjusted median asking rents, which also set a new record: Vacancies remain extremely tight: Despite the ongoing stratospheric increase in rents, not enough multi-unit housing is being built. When the large Boomer generation hit adulthood 50 years ago, note how multi-unit construction quickly shot up to 1,000,000 a year, and remained above 400,000 almost continuously for 20 years thereafter, until the last Boomer hit adulthood: Now here is the comparable look for the similarly large Millennial generation: The increase has only been to the 400,000 level, and has been stuck in that neighborhood for 2years. Renters are typically from the lowest 2 quintiles of the income distribution. The second lowest quintile has had the poorest record of income changes since the recession{ and that hasn't changed as of the latest update from the Consumer Expenditure Survey released two weeks ago:   It has increasingly occurred to me that one reason we haven't had a bigger kick of consumer spending from lower gas prices, is that it is all getting sucked up by rent increases.   That rents have been going through the roof is one of the most underreported important stories in the economy.

March 2016 Median Household Income Not Significantly Changed - According to new data derived from the monthly Current Population Survey (CPS), median annual household income in March 2016 was $57,263, not significantly different from the February 2016 median of $57,180. As previously noted median household income now exceeds the pre-recession median of December 2007 ($56,669). The Sentier Household Income Index for March 2016 was 99.9 (January 2000 = 100). Thus, we are getting very close to the real level of median annual household income that existed in January 2000 ($57,342), the beginning of this statistical series. There has been a general upward trend in median household income since the post-recession low point reached in August 2011. This upward trend was initially marked by monthly movements, both up and down. Many monthly changes were not statistically significant. By the summer of 2014 however, that uneven trend became dominated by a series of significant monthly increases. Median income in March 2016 ($57,263) was 4.5 percent higher than in March 2015 ($54,788), and 10.3 percent higher than in August 2011 ($51,904). This general upward trend reflects, in part, the low level of inflation as measured by the CPI for all items (used in this series). For example, the 4.5 percent increase in median household income between March 2015 and March 2016 derived using the CPI for all items becomes 3.2 percent when the CPI less food and energy is employed to adjust for the change in purchasing power. (See Figure 1 - full report here)

Would the real “real median household income” please stand up - Real median household income is among the most important measures of economic well-being.  So why do three surveys compiled from 3 different sources give 3 very different results?  Let me point out initially what real median household income is NOT.  It is NOT real wages.  Real median household income is compiled by the Census Bureau for all households headed by a person age 16 or older. NOT just wage/salary earners. Households consisting of two retirees are included.  Households headed by somebody in college are included. Households headed by one or two unemployed person are included.  So, real median household income does not tell you what is happening with salaries and wages. It is in no way “proof” that real wages and salaries have been declining. In fact, real wages and salaries have been essentially stagnant since the turn of the Millennium.  Rather, calulated from the monthly housheold jobs survey (more on that below) it tracks pretty closely with real median weekly wages adjusted for the employment to population ratio, as shown in the graph below that was created for me by Doug Short (I am using several more of his graphs later on in this post as well): First off, here ere is median annual real household income as calculated by the Census Bureau, based on the data series Income and Poverty in the United States. It was last updated in August 2015 for 2014:

Personal Income increased 0.4% in March, Spending increased 0.1% - The BEA released the Personal Income and Outlays report for March: Personal income increased $57.4 billion, or 0.4 percent, ... according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $12.8 billion, or 0.1 percent....Real PCE -- PCE adjusted to remove price changes -- increased less than 0.1 percent in March, compared with an increase of 0.3 percent in February. ... The price index for PCE increased 0.1 percent in March, in contrast to a decrease of 0.1 percent in February. The PCE price index, excluding food and energy, increased 0.1 percent, compared with an increase of 0.2 percent. The March PCE price index increased 0.8 percent from March a year ago. The March PCE price index, excluding food and energy, increased 1.6 percent from March a year ago.On inflation: The PCE price index increased 0.8 percent year-over-year due to the sharp decline in oil prices. The core PCE price index (excluding food and energy) increased 1.6 percent year-over-year in March (slightly lower than in February).

Nearly Two-Thirds of Americans Prefer Saving to Spending: ​ -- Nearly two in three Americans now say they enjoy saving money more than spending it, further establishing the pro-savings trend that developed in the wake of the 2008 financial crisis. With 33% now saying they prefer spending, the gap between those who prefer saving and those who prefer spending is at its widest since Gallup first asked the question in 2001. In three Gallup polls before the 2008 crisis, an average of 49% of U.S. adults said they preferred saving. The average has jumped to 60% in nine polls since then. The highest percentage yet measured (65%) is the most recent -- from the April 6-10 Gallup Economy and Personal Finance poll. The question does not measure actual spending and saving. Instead, it gives insight into what Americans would prefer to do -- save or spend. In fact, those with the lowest incomes are generally more likely than those with the highest incomes to say they get greater enjoyment from saving. A look at combined results for the three pre-crisis polls and the three most recent polls reveals the extent to which people in different age groups have changed their attitudes about saving and spending. Before the crisis, a slight majority of those younger than 30 favored spending; those aged 30 to 49 were split; those aged 50 to 64 slightly favored saving; and those aged 65 and older were clearly the most likely to prefer saving. As the percentage preferring saving increased significantly in recent years, most of the movement in this direction occurred among the three younger age groups. The net result is that once-obvious differences among age groups before the crisis have now almost disappeared.

Savings Rate Highest Since December 2012 After Personal Spending Disappoints Again -- Following the drastically revised-away surge in spending in January, and the savings rate surge to 2012 highs in Feb, March's income and spending data released today showed more problems for The Fed. While income grew 0.4% MoM (more than the 0.3% expectations), spending disappointed with a mere 0.1% rise (against +0.2% MoM expectations). Year-over-year spending growth slowed to 3.5% - the weakest since December and income growth slowed to 4.0% YoY leaving the savings rate at its highest since January 2013. Income up, Spending down: As all that hope-strewn spending has been revised away, and as a result following several revisions, the biggest concern to the Fed, the savings rate, has just hit its highest since December 2012, which means one thing: instead of spending money US consumer are quietly packing it away under the mattress despite ZIRP. Charts: Bloomberg

March 2016 Inflation Adjusted Personal Consumption Growth Disappoints.: The data this month showed good income growth. The big disappointment this month is that consumers are spending less.

  • The monthly fluctuations are confusing. Looking at the inflation adjusted 3 month trend rate of growth, disposable income growth trend is unchanged and consumption is down.
  • Real Disposable Personal Income is up 3.1 % year-over-year (2.6 % last month), and real consumption expenditures is up 2.6 % year-over-year (2.9 % last month)
  • this data is very noisy and as usual includes moderate backward revision (detailed below) - this month the changes changed the year-over-year trends.
  • The advance estimate of 1Q2016 GDP indicated the economy was expanding at 0.5 % (quarter-over-quarter compounded). Expenditures are counted in GDP, and income is ignored as GDP measures the spending side of the economy. However, over periods of time - income and expenditure must grow at the same rate.
  • The savings rate continues to be low historically, improved this month.

The inflation adjusted income and consumption are "chained", and headline GDP is inflation adjusted. This means the impact to GDP is best understood by looking at the chained numbers. Econintersect believes year-over-year trends are very revealing in understanding economic dynamics. Per capita inflation adjusted expenditure has exceeded the pre-recession peak.

What Americans Spent The Most Money On In Q1 -- As reported moments ago, Q1 GDP which came at just 0.5% growth, was a lousy number in which virtually every component besides personal spending (and government) subtracted from growth. In fact, in nominal terms, Q1 GDP grew only $22.2 billion annualized, of which personal consumption was more than double, or $52.5 billion. But what did Americans spend money on in Q1? To our surprise, Healthcare, Obamacare was no longer what soaked up most Americans' cash in the first quarter (nonetheless, it was a runner up with $10.8 billion in spending). So what did Americans spend the most amount of money on? The answer, drumroll.... Recreational goods and vehicles! Yes, not cars, which actually were a huge negative to Q1 GDP growth, reducing the headline consumption number by $13.4 billion, but recreational vehicles, and other sundry related goods, which amounted to to $11.3 billion in Q1 spending. It appears that after spending record amounts of money on their health insurance premiums, US consumers just can't get enough of various "recreational" distractions such as RVs, ATVs and jet skis, and have made "recreation" the biggest source of growth in the US economy. Incidentally, net of other items, the entire Q1 GDP growth was covered by spending on Healthcare and Recreational goods and vehicles. Here is the full breakdown.

Department Stores Need to Close Hundred of Sites, Research Firm Says - Department stores need to close hundreds of locations if they want to regain the productivity they had a decade ago, according to new research from Green Street Advisors. The real-estate research firm estimates that the closures could include roughly 800 department stores, or about a fifth of all anchor space in U.S. malls. Sears Holdings alone would need to close 300, or 43%, of its Sears stores to regain the sales per square foot it had in 2006, adjusted for inflation, according to Green Street. “Department stores used to be a great catchall for different brands, but today many of the brands have stores of their own, and shoppers can also find them online,”  . Sears and other retailers including Macy’s and J.C. Penney have closed hundreds of stores in recent years as business has shifted to discounters or online merchants like Amazon.com Inc. But the closures haven’t been enough to offset a drop in sales, Green Street said. Sales at the nation’s department stores averaged $165 a square foot last year, a 24% drop since 2006, according to company disclosures and Green Street estimates. Over the same period, the stores reduced their physical footprint by 7% in aggregate. Some chains have moved faster to cull their fleets than others. On Thursday, Sears said it would close 78 stores, including 68 Kmarts, this summer, part of a plan announced in February to “accelerate the closing of unprofitable stores.” But Penney has only closed seven stores this year out of a base of more than 1,000.

Consumer Confidence Stagnant Since The End Of QE3 As Wage Growth Hopes Fade -- We're gonna need more money-printing. Consumer Confidence dropped in April to 94.2, missing expectations of 95.8 and hovering at its lowest in 2 years. In fact, the current level is relatively unchanged since the end of QE3, despite all the recent surges in stocks as the post-2009 94% correlation between the S&P 500 and confidence is breaking down rapidly and ruining The Fed's animal spirits' party. Most crucially, income growth expectations are tumbling as The Conference Board suggests American consumers "do not foresee any pickup in momentum." “Consumer confidence continued on its sideways path, posting a slight decline in April, following a modest gain in March,” said Lynn Franco, Director of Economic Indicators at The Conference Board. “Consumers’ assessment of current conditions improved, suggesting no slowing in economic growth. However, their expectations regarding the short-term have moderated, suggesting they do not foresee any pickup in momentum.” Consumers’ appraisal of current conditions improved somewhat in April. Those saying business conditions are “good” decreased from 24.9 percent to 23.2 percent. However, those saying business conditions are “bad” also declined, from 19.2 percent to 18.1 percent. Consumers’ appraisal of the labor market was also mixed. Those claiming jobs are “plentiful” decreased from 25.4 percent to 24.1 percent, however those claiming jobs are “hard to get” also declined from 25.2 percent to 22.7 percent. Consumers were less optimistic about the short-term outlook in April than last month. The percentage of consumers expecting business conditions to improve over the next six months decreased from 14.7 percent to 13.4 percent, while those expecting business conditions to worsen rose to 11.0 percent from 9.5 percent.

Consumer "Hope" Slumps As Inflation Expectations Hit Record Lows - Despite surging stock prices in April, UMich's final Consumer Sentiment print slipped to 89.0 (from 89.7 prelim and 91.0 previous) notably below expectations and the lowest since September 2015. Under the covers though, it was "hope" that really plunged, as Consumer expectations dropped to 77.0 - the lowest since September 2014. However, worst of all for The Fed is that medium-term inflation expectations tumbled back to 2.5% record lows. Hope is plunging...to 18 month lows

Vehicle Sales Forecast: "April Sales to Return to 17 Million SAAR Trend"  -- The automakers will report April vehicle sales on Tuesday, May 3rd.  There were 27 selling days in April, up from 26 in April 2015. From WardsAuto: Forecast: April Sales to Return to 17 Million SAAR Trend  WardsAuto forecast calls for U.S. automakers to deliver 1.52 million light vehicles in April, a record-high volume for the month. The report puts the seasonally adjusted annual rate of sales for the month at 17.6 million units, well above last month’s 16.5 million and year-ago’s 16.7 million....The monthly volume will be 5.0% above last year. Beyond an extra selling day, this April lacks the Easter holiday, allowing full sales over five weekends. From J.D. Power: New-Vehicle Retail Sales Won’t Grow in April; Revised Full-Year Forecast Calls For Modest Increase Over 2015 Total light-vehicle sales in April are expected to reach 1,523,000, up 1% on a selling-day adjusted basis from 1,452,241 from a year ago and the strongest total sales in April on record. The SAAR for total sales is projected at 17.6 million units in April 2016, up 0.8 million units from 16.7 million a year ago. Looks like a strong month for vehicle sales.

Durable Goods Orders April 26, 2016: The factory sector posted a respectable March with orders for durable goods up 0.8 percent which follows a revised downswing of 3.1 percent in February and a very solid 4.3 percent gain in January. March reflects a big gain for defense goods which helped offset a downward swing for commercial aircraft. A negative in the report is a 3.0 percent decline for motor vehicle orders reflecting weakness at the retail level. Data on core capital goods orders are uninspiring, unchanged for new orders in March to extend a soft trend. Shipments for this series, which are inputs into GDP, inched 0.3 percent higher but follow outright declines in the first two months of the quarter. Shipments in March fell 0.5 percent and unfilled orders fell 0.1 percent. Manufacturers are carefully watching inventories for unwanted builds keeping inventories flat in the month and the inventory-to-shipments ratio unchanged at 1.66. The benefits of the lower dollar and higher energy prices have yet to give the factory sector much lift, at least they didn't in March though there are hints in anecdotal reports of emerging strength in April.

Durable Goods New Orders Improved in March 2016: The headlines say the durable goods new orders improved. The unadjusted three month rolling average improved this month and remains in expansion. Our view of this data is mixed. . Econintersect Analysis:

  • unadjusted new orders growth decelerated 5.9 % (after accelerating an upwardly revised +4.6 % the previous month) month-over-month , and is down 0.9 % year-over-year.
  • the three month rolling average for unadjusted new orders accelerated 0.1 % month-over-month, and up 1.5 % year-over-year.
  • Inflation adjusted but otherwise unadjusted new orders are down 3.1 % year-over-year.
  • The Federal Reserve's Durable Goods Industrial Production Index (seasonally adjusted) growth decelerating 0.4 % month-over-month, up 0.4 % year-over-year [note that this is a series with moderate backward revision - and it uses production as a pulse point (not new orders or shipments)] - three month trend is accelerating, but the trend over the last year is relatively flat.
  • unadjusted backlog (unfilled orders) growth decelerated 0.1 % month-over-month, down 1.7 % year-over-year.
  • according to the seasonally adjusted data, most of the data was soft - but the main reason for any improvement was defense aircraft.
  • note this is labelled as an advance report - however, backward revisions historically are relatively slight.

Core Durable Goods Tumble For 14th Month, Longest Non-Recessionary Stretch In 60 Years -- Following February's dismal drops across the board in Durable Goods, expectations were high for a March rebound. However, the mean-reverters were greatly disappointed as Orders rose just 0.8% MoM (missing expectations of a 1.9% surge) off a revised lower print, pushing the YoY change back into the red. Core Durables Goods Orders fell YoY for the 14th consecutive month - a streak never seen in 60 years outside of a broad US recession. Capital Goods Orders (0.0% vs +0.6% exp) and Shipments (+0.3% vs +0.9% exp) both missed and were both revised lower. Not a pretty picture... The headline Durable Goods Orders printed back in the red YoY...

America’s Industrial Downturn Won’t Throw the U.S. Into Recession, Probably - A deep decline in America’s industrial output may not signal a recession is coming, for once. U.S. industrial production, the Federal Reserve’s gauge of manufacturing, mining and utility output fell 1.8% in the first quarter, from a year earlier. That’s an ominous sign. Industrial production has never plunged so deeply in a year that didn’t include a recession, according to records dating back to 1919. But this time should be different. While the industrial retrenching over the past year has been a drag on economic growth, it’s yet to derail the expansion. Economists surveyed by The Wall Street Journal project the economy expanded at a 0.7% pace in the first quarter. That’s subpar growth, but not recession territory.  The next reading on gross domestic product is due out Thursday. What appears to be happening is the industrial sector is contracting, while the broader economy is inching forward. That could be for several reasons. First, the U.S. economy is now driven by consumer spending mostly on services, including housing, health care and transportation. Second, manufacturing is not the employment engine it was once. Less than 10% of U.S. workers are employed by factories, down from a third just after World War II. Third, the industrial production decline is largely driven by an unprecedented drop in mining, a category that includes oil and gas extraction and coal production. Mining output fell 12.9% in the first quarter from a year earlier, the largest annual drop on records back to the 1970s.

Chemical Activity Barometer "Accelerated" in April -- Here is an indicator that I'm following that appears to be a leading indicator for industrial production. From the American Chemistry Council: Chemical Activity Barometer Accelerated in April; Signaling Increased U.S. Business Activity Into Fourth Quarter The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), expanded 0.6 percent in April following a revised 0.1 percent increase in March and 0.2 percent decline in February. All data is measured on a three-month moving average (3MMA). Accounting for adjustments, the CAB remains up 1.8 percent over this time last year, a marked deceleration of activity from one year ago when the barometer logged a 2.7 percent year-over-year gain from 2014. On an unadjusted basis the CAB jumped 1.4 percent, following a solid 0.8 percent gain in March...Applying the CAB back to 1919, it has been shown to provide a lead of two to 14 months, with an average lead of eight months at cycle peaks as determined by the National Bureau of Economic Research. The median lead was also eight months. At business cycle troughs, the CAB leads by one to seven months, with an average lead of four months. The median lead was three months. The CAB is rebased to the average lead (in months) of an average 100 in the base year (the year 2012 was used) of a reference time series. The latter is the Federal Reserve’s Industrial Production Index.

Rail Week Ending 23 April 2016: Year-over-Year Contraction Growing: Week 16 of 2016 shows same week total rail traffic (from same week one year ago) declined according to the Association of American Railroads (AAR) traffic data. All rolling averages are in contraction. The deceleration in the rail rolling averages began one year ago, and now rail movements are being compared against weaker 2015 data - and it continues to decline. There were port labor issues one year ago which affected intermodal movements - which skew the results both positively and negatively (this week again negatively as it is being compared to the shipping surge at the end of the strike). HOWEVER, one can ignore the strike which only affects intermodal - and concentrate on carloads - the data is very soft. For this week, total U.S. weekly rail traffic was 491,946 carloads and intermodal units, down 11.7 percent compared with the same week last year. Total carloads for the week ending Apr. 23 were 230,599 carloads, down 17.1 percent compared with the same week in 2015, while U.S. weekly intermodal volume was 261,347 containers and trailers, down 6.3 percent compared to 2015. Three of the 10 carload commodity groups posted an increase compared with the same week in 2015. They were miscellaneous carloads, up 23.3 percent to 9,515 carloads; chemicals, up 1.6 percent to 30,858 carloads; and motor vehicles and parts, up 1.3 percent to 19,138 carloads. Commodity groups that posted decreases compared with the same week in 2015 included coal, down 40.1 percent to 58,837 carloads; petroleum and petroleum products, down 24.9 percent to 11,348 carloads; and grain, down 7.9 percent to 18,340 carloads. For the first 16 weeks of 2016, U.S. railroads reported cumulative volume of 3,844,016 carloads, down 14.3 percent from the same point last year; and 4,109,691 intermodal units, down 0.2 percent from last year. Total combined U.S. traffic for the first 16 weeks of 2016 was 7,953,707 carloads and intermodal units, a decrease of 7.6 percent compared to last year.

Dallas Fed Disappoints, Contracts For 16th Straight Month As "This Is Not A Good Time To Be In Business" -- Following the death of Philly Fed's dead-cat-bounce, Dallas Fed did the same with a disappointing thud back to -13.9 (missing expectations of a rise to -10.0). This is the 16th consecutive month in contraction (below 0) and respondents are increasingly depressed, "it is a bad time for manufacturing, agriculture and mining - the only sectors that actually create wealth." What kind of fiction are these real average joes peddling? Have they not seen the jobs data? A recession by any other name should smell so bad...

Richmond Fed Manufacturing Index April 26, 2016: Highlights Advance indications are mixed for the April manufacturing sector but the Richmond Fed is pointing to strength. Richmond's index did slow to 14 in April but follows an outsized 22 in March when the index posted its biggest one-month jump ever in the 23-year history of the report. New orders are very strong, at 18 but again down from 24 in March. And backlog orders are exceptionally strong, at 11 for a 10 point gain from March. Employment is solid and price data are showing some life, at least for inputs. The factory sector in March was mixed, evidenced by today's durable goods report. But the outlook for April is still open with this report and Empire State showing strength but not the Dallas Fed nor the national PMI flash. Still, strength tied to the lower dollar and to higher energy prices are very likely to give an increasing boost to the sector.

Richmond Fed Manufacturing Survey Remains in Expansion in April 2016.: Market expectations from Bloomberg were between 10 to 14 (consensus 12). The actual survey value was 14 [note that values above zero represent expansion]. Fifth District manufacturing activity continued to expand in April, according to the most recent survey by the Federal Reserve Bank of Richmond. Shipments and the volume of new orders remained solid. New hiring increased modestly, while the average workweek lengthened and average wage increases moderated. Prices of raw materials and finished goods rose at a faster pace compared to last month. Manufacturers remained optimistic about future business conditions, although expectations were less buoyant compared to the past two months. Producers continued to look for solid growth in shipments and in new orders. Backlogs of new orders were expected to build more gradually in the next six months and capacity utilization was expected to increase at a slower rate. Survey participants expected unchanged vendor lead times. Firms expected modest growth in hiring during the next six months, while wage increases are anticipated to be more widespread. Survey participants looked for little change in the average workweek. For the next six months, producers expected faster growth in prices paid and received. Overall, manufacturing conditions remained firm in April, with some components softening from last month's robust readings. The composite index for manufacturing moved to a reading of 14, following last month's reading of 22. The index for shipments lost 13 points, while the new orders index shed six points, finishing at readings of 14 and 18, respectively. Manufacturing employment softened this month; the index settled at a modest reading of 8.

Richmond Fed Plunges By Most Since August After March's WTF Spike - Following the weakness in Philly and Dallas Fed regional - fading off Feb/Mar dead cat bounces - Richmond Fed's epic 9-standard-deviation biggest spike ever to 7 year highs in March appears to have been a one of as it fell back from 22 (3rd highest ever) to 14 (still above expectations) - the biggest drop since August. Of course how one can take this seriously is anyone's guess asshipments , new orders, wages, and workweek all crashed from March's embarrassing spike as did inventory levels for finished and raw materials (not good for Q2 GDP). Worse still outlook for six months ahead saw wages, workweek and new orders collapse further.

Kansas City Fed Manufacturing Index April 28, 2016: Highlights Oil prices may be higher but steady contraction is the long uninterrupted theme of the Kansas City Fed manufacturing sector where the composite index came in at minus 4 for April. Contraction in new orders is only marginal, at minus 2 for a second straight month, but contraction for backlog orders, at minus 18, remains severe. Employment is also in deep contraction, at minus 12. Output indicators are also weak, at minus 8 for production and minus 9 for the workweek. Selling prices remain in contraction, at minus 6, but raw material prices, at 4, are back in the plus column and reflect the turn around for oil prices. But higher oil prices have yet to give this report much boost where weakness in energy equipment has been a long fixture. Weakness in export orders, at minus 4, has been another fixture.

Kansas City Fed: Regional Manufacturing Activity "declined modestly" in April  - From the Kansas City Fed: Tenth District Manufacturing Activity Declined Modestly The Federal Reserve Bank of Kansas City released the April Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity declined modestly. “Factories reported a modest decline in activity in April, but expectations for future activity increased to their highest reading of the year”, said Wilkerson. ...Tenth District manufacturing activity continued to decline modestly, while producers’ expectations for future activity improved considerably. Most price indexes moved slightly higher in April, but remained at low levels. The month-over-month composite index was -4 in April, up from -6 in March and -12 in February ...  The Kansas City region was hit hard by lower oil prices and the stronger dollar, but the impact is fading. This was the last of the regional Fed surveys for April. Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Chicago PMI declines in April, Final April Consumer Sentiment at 89.0  --Chicago PMI: April Chicago Business Barometer Down 3.2 Points to 50.4  The Chicago Business Barometer decreased 3.2 points to 50.4 in April from 53.6 in March led by a fall in New Orders and a sharp drop in Order Backlogs. It marks a slow start to the second quarter, with most measures down from levels seen a year earlier....The decline in the Barometer was led by a fall in New Orders, leaving it at the lowest level since December 2015. .. Chief Economist of MNI Indicators Philip Uglow said, “This was a disappointing start to the second quarter, with the Barometer barely above the neutral 50 mark in April. Against a backdrop of softer domestic demand and the slowdown abroad, panellists are now more worried about the impact a rate hike might have on business than they were at the same time last year.”

Chicago PMI Tumbles From March Dead-Cat-Bounce "Plagued By A Lack Of Orders" -- March's dead-cat-bounce in Chicago PMI (like January's) has died again as the business barometer drops to just 50.4 (from 53.6) missing expectations of 52.6. This barely-above-contractionary level was driven by an 11-point collapse in Order backlogs to the lowest since Dec 2015, and as MNI reports, "order patterns continued to be plagued by a lack of large orders and absence of international demand, purchasers said." Barely above contraction, Chicago PMI's bounce is over... Breakdown:

  • Prices Paid rose compared to last month
  • New Orders fell compared to last month
  • Employment fell compared to last month
  • Inventory rose compared to last month
  • Supplier Deliveries rose compared to last month
  • Production rose compared to last month
  • Order Backlogs fell compared to last month
  • Number of Components Rising: 4

As MNI reports, Order patterns continued to be plagued by a lack of large orders and absence of international demand, purchasers said. Softer ordering led to a decrease in the Employment component, which fell back into contraction, where it has been in 10 of the last 12 months. Despite lower ordering and employment levels, Production posted a small increase as special projects, and a plethora of low volume high margin orders kept companies busy. The most surprising element of the report was an unusually large 20.2% surge in Supplier Deliveries to the longest since October 2014. Purchasers feared extensions in lead times could be telegraphing the beginning signs of major supply chain disruptions on the horizon.

The Mirage of a Return to Manufacturing Greatness - Half a century ago, harvesting California’s 2.2 million tons of tomatoes for ketchup required as many as 45,000 workers. In the 1960s, though, scientists and engineers at the University of California, Davis, developed an oblong tomato that lent itself to being machine-picked and an efficient mechanical harvester to do the job in one pass through a field. The battle to save jobs was on. These days, the battle to save American jobs has a different flavor. It echoes in Hillary Clinton’s promise “to win the global competition for manufacturing jobs and production.” It lives in Donald Trump’s call to break Nafta and impose a 45 percent tariff against Chinese imports, and in Bernie Sanders’s rallying cry against trade agreements. Its outcome, however, will probably be similar. The freeze on research may have slowed the mechanization of California’s harvests, but by the year 2000, only 5,000 harvest workers were employed in California to pick and sort what was by then a 12-million-ton crop of tomatoes. In America’s factories, jobs are inevitably disappearing, too. But despite the political rhetoric, the problem is not mainly globalization. Manufacturing jobs are on the decline in factories around the world. “The observation is uncontroversial,” said Joseph Stiglitz, the Nobel-winning economist at Columbia University. “Global employment in manufacturing is going down because productivity increases are exceeding increases in demand for manufactured products by a significant amount.”The consequences of this dynamic are often misunderstood, not least by politicians offering slogans to fix them.

US Steel files trade complaint against big Chinese producers - (AP) — United States Steel Corp. has filed a complaint with U.S. regulators against the biggest Chinese steel producers, accusing them of conspiring to fix prices, stealing trade secrets and skirting duties on imports in the U.S. with false labeling. The big steelmaker is alleging illegal unfair competition by the Chinese producers and their distributors, and is seeking "the exclusion of all unfairly traded Chinese steel products from the U.S. market." U.S. Steel announced Tuesday that it lodged the complaint with the U.S. International Trade Commission. Normally the independent federal agency decides within 30 days whether or not to act. The case would go before an administrative law judge at the agency if it decides to proceed. Pittsburgh-based U.S. Steel brought the complaint under a section of the Depression-era Tariff Act, which empowers the U.S. government to bar imports deemed to be anti-competitive. The provision has mostly been used against perceived violations of intellectual property rights. "We have said that we will use every tool available to fight for fair trade," U.S. Steel President and CEO Mario Longhi said in a statement. The United Steelworkers union voiced support for the company's action.

As U.S. Oil Rigs Shut Down, Job Pain Spreads Across Cities - In more than a quarter of the nation’s metropolitan areas, the jobless rate is higher than it was a year ago as the fallout from the fracking downturn drifts outward. In March, 98 out of 387 metro areas had unemployment rates higher than in March 2015, the Labor Department said Wednesday. In recent months, many of the metro areas with the largest increases in unemployment have consistently been in energy states such as Louisiana, Texas and Wyoming. “The crackup of the fracking economy is leading to significant employment losses in places across Louisiana, Texas, Wyoming, and North Dakota, and it’s a pretty large number of metro areas,” said Mark Muro, senior fellow and policy director at the Metropolitan Policy Program at the Brookings Institution, noting that many smaller metro areas are highly linked to the fracking economy. As the national unemployment rate dropped from 10% at the height of the recession to a seasonally adjusted 5.1% in March, most metro areas saw their unemployment rates fall alongside it. But in March, the number of areas posting year-over-year declines in unemployment fell to 270, the lowest number showing improvement since January 2013. Some of that is a natural deceleration in improvement as the labor market tightens. But combined with the sharp rise in areas with rising unemployment, it suggests more oil-patch pain to come.  In March, Lafayette, La., Houma-Thibodaux, La., and Odessa, Texas, had the largest year-over-year decreases in payroll jobs, losing nearly 20,000 jobs between them. The areas with the largest percentage decreases in employment were Casper, Wyo., Houma-Thibodaux, and Odessa, which each saw employment fall by 5.3% or more.

The Lesson of Carrier: America Needs a Real Socialist Agenda -- I just finished listening to the video clip that has been making the rounds, in which a spokesman announces to the assembled workers at the Carrier plant in Indianapolis that their jobs will be moved to Mexico.  So here’s the problem: Carrier is profitable and there are no apparent threats to its continued profitability.  But it could be more profitable if it replaced workers in Indiana with workers in Mexico who can be paid about a tenth as much.  Investors, of course, demand these higher profits.  If the purpose of the company is to satisfy its investors, that’s what it needs to do.  But what should be the purpose of a company?  Businesses have many beneficial purposes: they can produce things people want and are willing to pay for, they can provide employment for workers and an economic base for their communities, they can promote education through training programs and linkages with schools and universities, and they can pitch in to promote social objectives like sustainability and racial and gender equality.  Through their R&D they can contribute to society’s fund of useful knowledge, and through their management and governance they can help cultivate democratic values of participation, cooperation and respect.  Of course, to do all these good things they need to be profitable, not just now and then, but on an ongoing basis, anticipating future threats to profitability and responding with innovation and toughness when necessary.

Services PMI Suggests "0.8% GDP At Start Of Q2" As "Job Creation Slows" -- With Manufacturing PMI at multi-year lows and trending lower, why would anyone be surprised that, amid plunging profits in retailers and weakness in restaurant performance indices,Markit's preliminary Services PMI for April would bounce for the 2nd month in a row to  52.1. However, as Markit notes, despite th emodest pickup, "growth is clearly far more fragile than this time last year." Dead cat bounce? As Markit details, “The upturn in the rate of growth of business activity and increased inflows of new orders suggest the economy should see GDP rise at an increased rate in the second quarter, but growth is clearly far more fragile than this time last year. “Viewed alongside the recent poor performance of the manufacturing sector, which reported its worst month since October 2009, the survey suggests the economy grew at an annualized rate of just 0.8% at the start of the second quarter, only marginally above the pace signalled for the first quarter. Survey responses indicate that persistent weak demand from domestic and overseas customers, the struggling energy sector, the strong dollar and election worries are all eating into business optimism. "The current pace of growth is also only being supported by price reductions, as an increasing number of firms offer discounts to win sales. “Job creation has also slowed as a result of costcutting pressures and uncertainty over the outlook, but remains solid. The surveys point to another 150,000 non-farm payroll increase in April, as robust service sector hiring continues to offset factory job losses.”  Additionally, growth momentum remained much weaker than that seen on average since the survey began in late-2009.

The Gimmick Economy: how central banks pretend software isn't eating the world -- Mathematician/economist Eric R Weinstein is managing director of Thiel Capital, but that doesn't mean that he thinks capitalism has a future. In a short, but wide-ranging essay in Edge's Annual Question series (this year's question is "What do you consider the most interesting recent [scientific] news? What makes it important?"), Weinstein talks about the fundamentally transformative nature of software-based societies and the challenges they put to the nature of work and economics. First, Weinstein looks at the impact of software-driven automation on labor and education. Previous cycles of automation have displaced some repetitive work while creating new and better forms of labor in the long run (weavers put out of work by looms, new textile industries created by cheap fabric). But software consists of two kinds of automation: doing repetitive work; and doing "rube goldberg-like processes that happen once," and mostly, they do the former. Since that's also what teachers, lawyers, doctors, and software engineers do, meaning that the new software economy displaces far more people -- and leaves behind a very small number of opportunities for people who are good at thinking up and executing "rube goldberg-like processes that happen once" (like writing novels or founding Facebook). He says this leads to ever-more-lavish rewards for successful rube-goldbergers, but disaster for people who use "stable and cyclical work to feed families."

Uber Spends $100 Million to Save its Business Model, But It May Have Just Doomed It- David Dayen - I’ve written before at this august site about how Uber’s business model is to arbitrage state and federal law and replace a monopoly with a different monopoly. They obviously placed a high value on the arbitrage. How high? About $100 million: Uber has survived a major threat to its business model, settling two legal suits brought by drivers who sought to be classified as employees instead of independent contractors. The ride-hailing firm will pay up to $100 million to the 385,000 drivers, but their employment status will not change.The class actions were brought in California and Massachusetts. Uber, which is valued at up to $70 billion, is on the hook for a $84 million initial payment, and another $16 million if it goes public.I’m not seeing much of a reason for Uber to ever go public, so I should amend to say the arbitrage was worth $84 million. And while a judge has to sign off on the settlement, with both sides in agreement on the resolution I can’t see that being a big hurdle. This concerned two big employee misclassification lawsuits, which if successful would have turned Uber into just another car service. Now that Uber settled, they don’t have to worry about providing worker’s comp or expenses or overtime or the employer half of Social Security taxes or any other benefit given to a worker on staff. In other words, they got off cheap.As Michael Hiltzik points out, this highlights a big problem with class action lawsuits, namely that they’re nearly impossible to get through the courts in this day and age, and even if they do, once the legal team gets their cut they provide nothing of value to the actual litigants:

Weekly Initial Unemployment Claims increase to 257,000, Lowest 4-Week Average since 1973 - The DOL reported: In the week ending April 23, the advance figure for seasonally adjusted initial claims was 257,000, an increase of 9,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 247,000 to 248,000. The 4-week moving average was 256,000, a decrease of 4,750 from the previous week's revised average. This is the lowest level for this average since December 8, 1973 when it was 252,250. The previous week's average was revised up by 250 from 260,500 to 260,750. There were no special factors impacting this week's initial claims. This marks 60 consecutive weeks of initial claims below 300,000, the longest streak since 1973.  The previous week was revised up by 1,000. Note: The following graph shows the 4-week moving average of weekly claims since 1971.

Why not full employment? - This is also the question asked in a recent paper by Jon Wisman and Michael Cauvel: why do workers not demand guaranteed employment? Three facts give the question force. One is that technocrats now know, more than they did in the 70s and 80s, that unemployment not only has an economic cost in terms of lost output, but a massive psychological cost because the unemployed are significantly unhappier than those in work. For example, the ONS estimate that whereas only 2.9 per cent of those in work have low life-satisfaction (0-4 on a 0-10 scale) 12.9 per cent of the unemployed do. Secondly, there is a huge amount of unemployment and under-employment now even though the proportion of working age people in work is at a post-1971 high. On top of the 1.7m officially unemployed there are 2.2m people out of the labour force who’d like a job and 3.5m people in work who’d like more hours. This adds up to 7.4 million people, or 18.1% of the working age population. Thirdly, we can’t blame the optimism bias. There’s massive support for a well-funded NHS, which poses the paradox that everybody seems to want insurance against physical ill-health, but not against economic ill-health. So, why is there so little demand for full employment?

Where Just a Misdemeanor Could Keep You Out of a Job - Just a misdemeanor can shut workers out of fast-growing jobs with higher-than-average wages—if the job happens to be among those that require a license. Occupational licensing boards in the majority of states use a worker’s criminal record to deny certifications required to work in fields as health care and education, according to a new report by the National Employment Law Project, a nonprofit research and advocacy group. Although 40 states have general laws intended to restrict consideration of criminal records, the group deemed the vast majority of them minimally effective. The report analyzed both the states’ general laws and a database from the American Bar Association cataloging over 27,000 state occupational licensing restrictions. They are called “collateral consequences,” or penalties that go beyond the punishment directly issued by the criminal justice system. Report authors Michelle Rodriguez and Beth Avery detail how even misdemeanors can dash work prospects decades on. While the report notes there’s no nationally collected data on people denied occupational licenses based on criminal records, roughly one in four U.S. workers is in a profession requiring a state license. And given that nearly one in three Americans has a criminal record, these restrictions could have a significant impact on labor supply—especially among people of color, who are more likely to interact with the criminal justice system. The impact varies by state, according to the report.

Your Pay Is About To Go Up - If you make less than $50,000 per year, you will soon be entitled to overtime pay. We are referring here to the Department of Labor’s overtime rule, which is widely expected to be updated some time later this summer. Though we won’t have an official number until the rule is final, it now appears that even if you are a salaried employee or some sort of “manager,” you will still be entitled to time-and-a-half pay for working more than 40 hours per week, as long as your total salary falls under the threshold. The DOL itself promotes this Wall Street Journal story which says that “ The threshold would be increased to $970, or $50,440 annually. That level is about the 40th percentile of weekly earnings for salaried workers.” This rule has been a matter of political contention for years. But now that it is actually approaching, its import is becoming clear: overtime pay, which has long been isolated to a minority of workers, is about to be extended to almost the entire middle class. This is a very big fucking deal. Nick Hanauer, a billionaire activist who pushed for the rule change, told us last year that “The overtime threshold is to the middle class as the minimum wage is to low-wage workers.” The battle to raise the minimum wage has gotten more attention, but the battle to raise the overtime threshold could have a similar impact. One report estimates that nearly half of black or Hispanic workers or single mothers could see their pay newly increase thanks to the rule change. If your employer doesn’t like it, they can either raise your pay over $50K, or stop asking you to work extremely long hours without overtime pay.

Could A Higher Minimum Wage Increase Employment? --One of the debates among the Democrats is how much to raise the minimum wage. The President wants it near $10 an hour, Mrs. Clinton is talking about $12, while Bernie Sanders and others are saying $15. Of course Team Republican freaks out as to how any increase in this wage floor will cause job losses. As David Henderson noted:  As is well known in economics, a skillfully set minimum wage, in the presence of monopsony in the labor market, can actually increase employment…To say that a firm has monopsony power is to say that the supply curve of labor to the firm is upward-sloping. That is, the firm is not a price-taker in the labor market. So when the firm that employs n workers and pays Wn per worker wants to hire one additional worker, it needs to pay more to each worker than it paid when it hired n workers. Call this new wage Wn + x. But that means that the cost of hiring that n + 1st worker is not the wage, Wn + x, that the firm pays the worker: it's that wage, Wn + x, plus x times n. The reason: it pays all the other n workers that increment, x, also. Because the firm recognizes this, it hires up to the point where the value of marginal product = Wn + x + x*n. Now, if the government skillfully sets a minimum wage a little above Wn + x, the firm knows that it can't reduce the wage by hiring fewer people and also knows that it won't raise the wage by hiring a few more people and so it hires more people. The main reason people started talking about monopsony in the context of the minimum wage in the 1990s was the study, and later the book, by David Card and Alan Krueger.

Early analysis of Seattle’s $15 wage law: Effect on prices minimal one year after implementation: Most Seattle employers surveyed in a University of Washington-led study said in 2015 that they expected to raise prices on goods and services to compensate for the city’s move to a $15 per hour minimum wage. But a year after the law’s April 2015 implementation, the study indicates such increases don’t seem to be happening. The interdisciplinary Seattle Minimum Wage Study team, centered in the Evans School for Public Policy & Governance surveyed employers and workers and scanned area commodity and service prices. The team’s report found “little or no evidence” of price increases in Seattle relative to other areas, its report states. The researchers released the first in an anticipated series of reports April 18 in a presentation to the Seattle City Council. Responses indicate that nearly all employers knew about the new law, though many were uncertain about its implementation. Many employers expressed hope the higher wages will improve both worker morale and boost job applications, though they also doubt it will improve individual employee productivity among minimum wage workers. Sixty-two percent of employers said they expected to raise prices of goods and services to accommodate the higher wages brought by the law. Ten percent of the employers believed incorrectly that the ordinance would force their business to move to a $15 wage immediately upon implementation. But in an analysis of area prices over time, done through a combination of “web scraping” and in-person visits to grocery stores, restaurants and other retail locations, such price increases were not in evidence. “Our preliminary analysis of grocery, retail and rent prices has found little or no evidence of price increases in Seattle relative to the surrounding area,” the team concluded.

Minimum wage in Puerto Rico will be lowered to $4.25 per hour --A new congressional bill, HR 4900, calls for the reduction of the minimum wage in Puerto Rico from $7.25 an hour, to $4.25 an hour. The bill is also creates a Financial Control Board to make sure that this new minimum wage law is enforced. With a perverse sense of humor, the US congress titled this bill as “PROMESA for Puerto Rico.” Here is the complete text of HR 4900… http://naturalresources.house.gov/uploadedfiles/hr_4900_promesa.pdf Section 403 (pages 75-76) of the bill contains this extreme wage cut. It will apply to everyone aged 20-24 in Puerto Rico, whenever they start a new job. There is something slick and cowardly, about the way Section 403 is phrased. It mandates a change in Section (6)(g)(4) of the Fair Labor Standards Act of 1938, but the effect of this change is unclear. In order to understand this change, you have to read Section (6)(g)(4) itself. Only then do we fully realize, that PROMESA will cut the minimum wage of newly hired young workers from $7.25 to $4.25 an hour throughout the island. In a 122-page bill that so carefully enunciates and protects the rights of billionaire hedge-fund owners, Congress could easily have added one line saying “if you are aged 20-24, your minimum wage is reduced to $4.25 an hour during the first three months of your job.” Instead, they took the cowardly approach. If this bill is passed then over 200,000 young people, many of them paying student loans, will soon be working for $4.25 an hour in Puerto Rico. This is what the US Congress calls “PROMESA for Puerto Rico.”

All of the problems Universal Basic Income can solve that have nothing to do with unemployment --Universal Basic Income isn’t just mankind’s answer to the threat of robots in the workplace. Those who support the transformative economic policy offer widely varying versions of exactly how it would operate, but all involve distributing a standard sum of money to citizens regardless of need. Many argue that this set-up could save the millions who are on track to lose their jobs to machines. But that’s not all.  The idealistic-sounding scheme would also solve many other 21st century problems, according to its supporters, largely because those with basic income would be less dependent on paid work. This, in turn, would give employees higher negotiating power to change the structure of employment. Dutch reporter Rutger Bregman, whose Netherlands bestseller “Utopia for Realists,” was published in English earlier this week, argues for a form of UBI high enough to eradicate poverty. He believes this would remove our existing need to toil away for the vast majority of our waking hours, hoping to earn enough bonuses or promotions to enjoy a decent standard of living. Instead, we could fulfill the economist John Maynard Keynes’ prediction of a 15-hour working week by the year 2030.  Others are less convinced that there would be such a sharp drop in working hours, but nevertheless believe that UBI would reduce the working week. Currently, most people can’t afford to leave a job without worrying about being destitute. “Having UBI means more negotiating power all around,” he says in an interview. As well as increasing leisure time, working less could be a massive step towards reducing the pace of climate change. Bregman points to studies suggesting that working less would half the amount of CO2 (pdf) emitted this century. After all, countries with shorter working weeks have smaller environmental footprints (pdf).

Straight out of college, women make $4 less per hour than men—and the gap is getting wider - Right out of college, young male college graduates are paid more than their women peers—astonishing, given that these young people by definition have the same experience. While young men with a college degree earn an average hourly wage of $20.94 early in their careers, their female counterparts earn an average hourly wage of just $16.58, or $4.36 less than men. This difference would translate to a $9,000 annual wage gap for full-time workers.  Furthermore, this gap has widened not only over the past several decades, but even over the past few years. In 1990 and 2000, young female college graduates earned 92 cents for every dollar their male counterparts made. In 2016, they earned just 79 cents on the dollar, down from 84 cents per dollar in 2015.  The best way to close the gender wage gap for people of all educational backgrounds, regardless of gender, is for all working people to see real wage increases, with women’s wages increasing at a faster rate than men’s. The good news is that many of the policies that will raise wages for most working people will disproportionately benefit women, including raising the minimum wage, eliminating the tipped minimum wage, and strengthening workers’ collective bargaining rights. At the end of the day, all workers are sorely in need of a raise.

In an Age of Privilege, Not Everyone Is in the Same Boat - — Behind a locked door aboard Norwegian Cruise Line’s newest ship, about 275 elite guests enjoy not only a concierge and 24-hour butler service, but also a private pool, sun deck and restaurant, creating an oasis free from the crowds elsewhere on the Norwegian Escape. If Haven passengers venture out of their aerie to see a show, a flash of their gold key card gets them the best seats in the house. When the ship returns to port, they disembark before everyone else. . “That segment of the population wants to be surrounded by people with similar characteristics.” With disparities in wealth greater than at any time since the Gilded Age, the gap is widening between the highly affluent — who find themselves behind the velvet ropes of today’s economy — and everyone else.It represents a degree of economic and social stratification unseen in America since the days of Teddy Roosevelt, J. P. Morgan and the rigidly separated classes on the Titanic a century ago.What is different today, though, is that companies have become much more adept at identifying their top customers and knowing which psychological buttons to push. The goal is to create extravagance and exclusivity for the select few, even if it stirs up resentment elsewhere. In fact, research has shown, a little envy can be good for the bottom line. When top-dollar travelers switch planes in Atlanta, New York and other cities, Delta ferries them between terminals in a Porsche, what the airline calls a “surprise-and-delight service.” Last month, Walt Disney World began offering after-hours access to visitors who want to avoid the crowds. In other words, you basically get the Magic Kingdom to yourself.

How the Other Fifth Lives - - For years now, people have been talking about the insulated world of the top 1 percent of Americans, but the top 20 percent of the income distribution is also steadily separating itself — by geography and by education as well as by income. This self-segregation of a privileged fifth of the population is changing the American social order and the American political system, creating a self-perpetuating class at the top, which is ever more difficult to break into. The accompanying chart, taken from “The Continuing Increase in Income Segregation,” a March 2016 paper by Sean F. Reardon, a professor of education at Stanford, and Kendra Bischoff, a professor of sociology at Cornell, demonstrates the accelerating geographic isolation of the well-to-do — the upper middle and upper classes (a pattern of isolation that also applies to the poor, with devastating effect).  In hard numbers, the percentage of families with children living in very affluent neighborhoods more than doubled between 1970 and 2012, from 6.6 percent to 15.7 percent. At the same time, the percentage of families with children living in traditional middle class neighborhoods with median incomes between 80 and 125 percent of the surrounding metropolitan area fell from 64.7 percent in 1970 to 40.5 percent.

How License-Plate Readers Have Helped Police and Lenders Target the Poor - Maybe you’ve seen them attached to the trunks of police cruisers: cameras, mounted in twos or threes, pointed down at an odd angle as if at the feet of passersby. But they’re not checking out your shoes—when switched on, they’re reading the license plates of every vehicle, parked or moving, that the cruiser passes. License-plate readers are an increasingly popular way for the police to find stolen cars and catch up with people with expired licenses or active warrants. And when they’re not piggybacking on police cruisers, plate readers are often affixed to utility poles or freeway overpasses, scanning the passing traffic below. Police say the readers allow them to automate the important but cumbersome process of taking down license plates and checking them against law-enforcement databases.  The website of a leading license-plate reader system claims its cameras can capture up to 1,800 license plates a minute during day or night, across four lanes of traffic and at speeds up to 150 miles per hour, alerting officers “within milliseconds” if a plate is suspect. Those scans are stored in databases and can be searched by license plate number, turning up photos every sighting of a particular vehicle—including the time and location of each sighting.   But it’s not just police who use automatic license-plate reading technology. Cameras like these, which usually cost between 20 and 30 thousand dollars, are used to process fees on toll roads across the country, keep track of customers in parking lots and garages, and trawl city streets for cars whose owners are behind on payments and flag the vehicles for repossession.

Police versus Prisons -- Here’s a remarkable graph from the Council of Economic Advisers report on incarceration and the criminal justice system. The graph shows that the United States employs many more prison guards per-capita than does the rest of the world. Given our prison population that isn’t surprising. What is surprising is that on a per-capita basis we employ 35% fewer police than the world average.* That’s crazy.  Our focus on prisons over police may be crazy but it is consistent with what I called Gary Becker’s Greatest Mistake, the idea that an optimal punishment system combines a low probability of being punished with a harsh punishment if caught. That theory runs counter to what I have called the good parenting theory of punishment in which optimal punishments are quick, clear, and consistent and because of that, need not be harsh. Increasing the number of police on the street, for example, would increase capture rates and deter crime and by doing so it would also reduce the prison population. Indeed, in a survey of crime and policing that Jon Klick and I wrote in 2010 we found that a cost-benefit analysis would justify doubling the number of police on the street. We based our calculation not only on our own research from Washington DC but also on the research of many other economists which together provide a remarkably consistent estimate that a 10% increase in policing would reduce crime by 3 to 5%.

Judge Grants Torture Victims Their First Chance to Pursue Justice -  A CIVIL SUIT against the architects of the CIA’s torture program, psychologists James Mitchell and Bruce Jessen, will be allowed to proceed, a federal judge in Spokane, Washington, decided on Friday. District Judge Justin Quackenbush denied the pair’s motion to dismiss a lawsuit launched against them on behalf of three victims, one dead, of the brutal tactics they designed. “This is amazing, this is unprecedented,” Steven Watt, a senior staff attorney for the American Civil Liberties Union representing the plaintiffs, told The Intercept after the hearing. “This is the first step towards accountability.” What’s so unprecedented is that this is the first time opponents of the program will have the chance to seek discovery evidence in the case unimpeded by the government. In every other past torture accountability lawsuit, the government has invoked its special state-secrets privileges to purportedly protect national security.

State tax cuts and growth: nothing to see, please move along…  Jared Bernstein - My WaPo piece out this AM debunks an oft-repeated Art Laffer claim about low-tax states outperforming higher tax ones. The piece emphasizes changes in the most recent year showing no patterns at all between state taxes and growth. But, as I note, other analysts have examined these claims over longer time periods and found them equally unsupported by evidence.  The figures below, from the Institute on Taxation and Economic Policy and economist Peter Fisher, show the same story as the one-year figures in my piece. No-income-tax states do not outperform high-income-tax states, and the ALEC-Laffer rankings do not predict state economic performance.

Puerto Rico Debt Crisis: Default On Looming $422M Payment Could Worsen Financial Chaos On The Island -- Puerto Rico’s long-simmering debt crisis could roar to a boil next week if the U.S. territory misses a critical bond payment. The island will likely default on the $422 million it owes bondholders by a May 2 deadline, observers say. If it does, Puerto Rico will face an accelerated timeline for paying the full balance on those bonds. Yet the government says it can’t make those payments without cutting essential services, like electricity and healthcare, for the island’s 3.5 million residents. For investors in Puerto Rico’s $72 billion of debt — including U.S. retirement funds, mutual funds, hedge funds and individual Americans — the looming debt default raises the risk that investors won’t see the full return on their investments, if they see any money at all. It also guarantees a long slog of legal battles in San Juan and Washington as bondholders seek to reclaim what’s owed. Puerto Rico’s decadelong recession will deepen, while residents — nearly half of whom live in poverty — could see public services decline further as the government scrambles to fulfill its debt obligations. Business owners on the island will likely struggle to raise capital and grow their companies as the unfolding crisis darkens the financial market’s view of the island. “It’s chaos. It’s just chaos,”   This scenario already started to unfold to a lesser extent after Puerto Rico defaulted on $174 million in January. After the potential May 2 default, the commonwealth next faces a July 1 deadline for $2 billion in principle and interest payments. But the chances Puerto Rico can scrape together funds to meet those obligations are slim to none, “If this continues in a downward spiral, the lights will eventually go off in the commonwealth. That’s the doomsday scenario,” he said.

Puerto Rico Debt Deadline Looms With Washington Still Haggling - In December, House Speaker Paul D. Ryan instructed lawmakers to find a “responsible solution” to Puerto Rico’s debt crisis in the first three months of this year, giving the island plenty of time to prepare for a May 1 deadline on a $422 million debt payment.So much for that.That deadline is imminent, but Republicans in the House and Democrats in the administration are still haggling over the terms of a bill to rescue Puerto Rico. Missing the payment risks further destabilizing its shrunken economy. And there are concerns that the passage of any legislation could be delayed until the island nears the tipping point of its debt woes: a $2 billion debt payment due on July 1.The May 1 payment consists mainly of principal and interest due from Puerto Rico’s Government Development Bank, a uniquely powerful institution that has played a leading role in the island’s borrowing and financial affairs for decades. Its activities are so numerous and critical that analysts have worried for months that the bank’s failure would have untold ripple effects across the island. Puerto Rico’s governor, Alejandro García Padilla, who has warned about defaults for months, has expressed frustration with Washington’s inability to act quickly.“On Monday there will be a default,” he said on Wednesday. The bank has until the close of business on Monday, since the May 1 due date falls on a Sunday.

Atlantic City, America’s Worst-Rated Town, Stares at Default - WSJ: Atlantic City has so little money left that it could miss a $1.8 million bond payment due Sunday, a step that would make it the first New Jersey municipality to default on debt since the Great Depression. The Jersey Shore gambling destination has endured years of strain as a third of its casinos shut down. But now its cash levels are low enough that bankruptcy is a possibility for the 39,000-population city, according to Mayor Don Guardian. “We’re down to a couple million dollars on any given day,” the mayor said in an interview. Once prized as a vacation destination because of its giant casinos and boardwalk, Atlantic City is in this position because of a declining economy and mounting debt. Its predicament is more severe than most distressed U.S. municipalities because it has the worst credit rating of any American city. The appetite for higher yields in the staid municipal-bond market has allowed some troubled cities to issue new debt or renegotiate existing terms. The Chicago Public Schools issued $725 million worth of bonds in early February despite a junk rating and a push by Illinois’s governor to give the school district the authority to declare bankruptcy. As recently as a year ago, bondholders purchased about $50 million in Atlantic City bonds backed by state aid payments. Since then, however, New Jersey Gov. Chris Christie blocked the delivery of a more than $30 million rescue package, a judge ruled Borgata Hotel Casino & Spa could stop paying about $30 million in annual city taxes and the city lost a $160 million property-tax dispute with the Borgata that the city can’t afford to pay.

Could Illinois budget impasse lead to no school this fall?: -- School officials in Illinois are worried that lawmakers' nearly yearlong fight over a state budget could spill into summer and force some districts to close their doors in the fall. If it happens, it would be the most traumatic consequence of the impasse between Republican Gov. Bruce Rauner and majority Democrats, and mark a new low for political dysfunction in the nation's fifth-largest state. Mike Gauch, the superintendent in Harrisburg, says without state money his district could remain open until November or December at best. Other superintendents say their schools won't make it that long. Illinois is the only state without a budget for the fiscal year that started July 1. School funding is at the center of the fight as November statehouse elections loom.

Illinois impasse sparks fears of the unthinkable: No school | McClatchy DC: The economic hard times that have hit this Illinois coal town are particularly visible inside its 113-year-old high school, where cracks in the walls and holes in the ceiling go unfixed and paint is peeling off the purple lockers lining the hallways. But lately a greater worry is weighing on Superintendent Mike Gauch: that he'll have to close the doors. He's among scores of school officials who face this prospect as Illinois lawmakers' epic fight over a state budget threatens to spill into summer and jeopardize the education of several hundred thousand students. Unthinkable even a few months ago, the possibility of the impasse extending to a second year and shutting down school systems has grown stronger in recent weeks. If it happens, it would be the most traumatic consequence of a fight between the state's Republican governor, Bruce Rauner, and Democrats who run the Legislature, and mark a new low for political dysfunction in the nation's fifth-largest state. "It scares me to death," says Gauch, who estimates that without state funds his district of about 2,100 students could remain open until November or December, at best. Other superintendents say their schools won't make it that long. Rauner is in his second year in office after campaigning on a pledge to fix Illinois' budget problems. As both sides have held firm over how to do that, Illinois has become the only state without a spending blueprint for the fiscal year that started July 1.

Bureaucratic Insanity is Yours to Enjoy - In contemporary United States a child can be charged with battery for throwing a piece of candy at a schoolfriend. Students can be placed in solitary confinement for cutting class. Adults aren’t much better off: in 2011 the Supreme Court decided in 2011 that anyone the police arrest, even for an offense as minor as an unpaid traffic ticket, can be strip-searched. These acts of official violence are just the tip of the iceberg in our society. The number of rules and laws to which Americans, mostly unbeknownst to them, are subject, is hilariously excessive. But what makes this comedy unbearable is that these rules and laws are often enforced with an overabundance of self-righteous venom. Increasingly, contemporary American bureaucrats—be they police, teachers or government officials—are obsessed with following strict rules and mercilessly punishing all those who fail to comply (unless they are very rich or politically connected). In so doing, these bureaucrats have become so liberated from the constraints of common sense that the situation has gone far beyond parody and is now a full-blown farce. Consider this recent news story involving a Virginia sixth-grader, the son of two schoolteachers and a member of the school’s program for gifted students. The boy was targeted by school officials after they found a leaf, probably a maple leaf, in his backpack. Someone suspected it to be marijuana. The leaf in question was not marijuana (as confirmed by repeated lab tests). End of story, wouldn't you think? Not at all! The 11-year-old was expelled and charged with marijuana possession in juvenile court. These charges were eventually dropped. He was then forced to enroll in an alternative school away from his friends, where he is subjected to twice-daily searches for drugs and periodic evaluation for substance abuse problems—all of this for possession of a maple leaf.

How Bill Gates and His Billionaire Allies Used Their Wealth to Launch Charter Schools in Washington State --Once upon a time, the super-wealthy endowed their tax-exempt charitable foundations and then turned them over to boards of trustees to run. The trustees would spend the earnings of the endowment to pursue a typically grand but wide-open mission written into the foundation’s charter—like the Rockefeller Foundation’s 1913 mission “to promote the well-being of mankind throughout the world.” Today’s multibillionaires are a different species of philanthropist; they keep tight control over their foundations while also operating as major political funders—think Michael Bloomberg, Bill Gates, or Walmart heiress Alice Walton. They aim to do good in the world, but each defines “good” idiosyncratically in terms of specific public policies and political goals. They translate their wealth, the work of their foundations, and their celebrity as doers-of-good into influence in the public sphere—much more influence than most citizens have. This story begins in 1995, when the Washington State House of Representatives first considered legislation that would enable private individuals and organizations to obtain charters to create their own K–12 schools. The bill died in the state senate, so supporters went directly to voters with a ballot initiative to enable charter schools.  Washingtonians rejected charter schools decisively: 64.4 percent against, 35.6 percent in favor.1 State representatives kept trying. They proposed new bills in 1997, 1998, and 1999, but got the same results: success in the lower chamber, failure in the senate.2   The Washington legislature finally passed a charter school law in 2004. Opponents responded by petitioning for a ballot measure to repeal the law. Charter school supporters raised three times as much—$3.9 million. Most of it came from three education-reform political funder-philanthropists, who donated about $1 million each: Bill Gates, who had recently made education reform the main focus of his domestic philanthropy; Walmart heir John T. Walton (from Wyoming), who advocated charters and tax-funded vouchers for parents to use for private-school tuition; and Donald Fisher (from California), founder of Gap and a major donor to the KIPP chain of charter schools.6

Children of Sydney’s Business and Political Elite Attend School That Bans Screens in Classrooms: Via: The Australian: A top Australian school has banned laptops in class, warning that technology “distracts’’ from old-school quality teaching. The headmaster of Sydney Grammar School, John Vallance, yesterday described the billions of dollars spent on computers in Australian schools over the past seven years as a “scandalous waste of money’’. “I’ve seen so many schools with limited budgets spending a disproportionate amount of their money on technology that doesn’t really bring any measurable, or non-measurable, benefits,’’ he said. “Schools have spent hundreds and hundreds of millions of dollars­ on interactive whiteboards, digital projectors, and now they’re all being jettisoned.’’ Sydney Grammar has banned students from bringing laptops to school, even in the senior years, and requires them to handwrite assignments and essays until Year 10. Its old-school policy bucks the prevailing trend in most Aus­tralian high schools, and many primary schools, to require parents­ to purchase laptops for use in the classroom. Dr Vallance said the Rudd-­Gillard government’s $2.4 billion Digital Education Revolution, which used taxpayer funds to buy laptops for high school students, was money wasted. “It didn’t really do anything except enrich Microsoft and Hewlett-Packard and Apple,’’ he said. “They’ve got very powerful lobby influence in the educational community.’’

Just 37% of U.S. High School Seniors Prepared for College Math and Reading, Test Shows - WSJ: Only 37% of American 12th-graders were academically prepared for college math and reading in 2015, a slight dip from two years earlier, according to test scores released Wednesday. The National Assessment of Educational Progress, also known as the “Nation’s Report Card,” said that share was down from an estimated 39% in math and 38% in reading in 2013. Educators and policy makers have long lamented that many seniors get diplomas even though they aren’t ready for college, careers or the military. Those who go to college often burn through financial aid or build debt while taking remedial classes that don’t earn credits toward a degree. Bill Bushaw, executive director of the National Assessment Governing Board, which oversees the test, said the board was pleased that high school graduation rates were rising, but disappointed in the lack of progress in boosting students’ skills and knowledge. “These numbers aren’t going the way we want,” he said. “We just have to redouble our efforts to prepare our students to close opportunity gaps.” At the time of the assessment, 42% of the test-takers said they had been accepted into a four-year college. The test is taken by a representative sample of seniors nationwide. The biggest problems came at the bottom, with growth in the share of students deemed “below basic” in their abilities. In math, 38% of students were in that group in 2015, compared with 35% two years earlier. In reading, 28% of students were “below basic,” compared with 25%.

College Life Before Facebook - American Conservative: Imagine a time when young people formed their relationships through lazy hours of aimless talk, not with any help from the omnipresence of smartphone screens but actually face to face with one another. It may be unfathomable for a child of the 1990s or later, but such a time existed as recently as the ‘80s. Thanks to Boyhood writer/director Richard Linklater’s newest film, Everybody Wants Some!!, even millennials can get a taste of what life, and human conversation, entailed before technology took over. Much has already been made about the occasionally questionable politics of Linklater’s movie. Centered on the story of a Texas college baseball team and their sports-bro shenanigans in the weekend leading up to the start of classes, Everybody Wants Some!! isn’t lacking for moments to make the political correctness police raise a red flag.

The end of introspection (and why it matters) -- A friend of mine who teaches undergraduates provided insight into something I see regularly but don't experience in the thoroughgoing way he does, namely, young people (and some not so young) who appear to be entirely an appendage of their cellphones. One study concluded that "the average college student uses a smartphone for about nine hours each day." The take on cellphones is that you can customize them to give you exactly what you want. You are in charge. The trouble with this reasoning is that someone else is programming the apps you use; and those apps are programmed to get you to do certain things in certain ways that are generally to the advantage of the companies providing the apps and to advertisers (sometimes one in the same). Moreover, there is no app I know of designed to get you to stop looking at your cellphone and focus on the world around you or on your inner life.  My professor friend tells me that many of his students say they prefer texting to face-to-face encounters. One student went so far as to characterize face-to-face conversation as a form of "aggression." When my friend first told me this, I had the horrifying realization that it's possible that many groups of young people I see texting while standing in a group may actually be texting each other! Now, this started me thinking that we are creating a whole generation of people who are ill-adapted to the giant demands of our emerging predicaments related to climate change; energy, soil, fisheries, forestry and water depletion; species extinction; public health threats; and threats from rapidly evolving technologies such as genetic engineering and nanotechnology--just to name a few. If most people are going to shrink from having a spirited in-person conversation with somebody else about a critical issue, how exactly are we going to move forward on the major challenges of our age? In order to address critical issues, one must do critical thinking. Where is the time for that when all one does is move from music selection, to podcast, to texting, to posting photos, to computer games, to email, back to music selection and so on? There's never a dull moment with your cellphone. But are they really your moments?  It may be hard to imagine that the little cellphone could really be the main reason for our inability to think our own thoughts.

At Small Colleges, Harsh Lessons About Cash Flow — Amber Jackson remembers the moment she learned that both her majors — dance and math — had been cut from the program at Franklin Pierce University. She immediately called her mother, whose reaction was: “They can do that?” They could.  After years of financial crisis, Franklin Pierce, like dozens of other small colleges nationwide, is struggling to survive. It faces huge debt, a junk bond credit rating and an uncertain future. It has even resorted to creative image-buffing, like hanging a banner on a derelict building here saying, “Future Home of the Franklin Pierce Science Center,” though there is no money for a science center yet.This year, there is a glimmer of hope. Applications were up 79 percent, an unlikely side effect of the university’s decision to revive a political polling operation in a hot election year. But as Andrew H. Card Jr., who took over as university president about 15 months ago, said, “One year does not a trend make.”  In the last few years, small liberal arts colleges have been under financial siege, forced to re-examine their missions and justify their existence. Even several established and respected ones — Bard College, Yeshiva University, Mills College and Morehouse College, among others — have received negative financial ratings.Not that long ago, colleges across the country enjoyed a seemingly endless supply of candidates and were pouring money into expansion plans. Some added costly luxury amenities like rock-climbing walls to seem more attractive. Some increased tuition on the theory that high tuition connotes prestige, but then cut their cash flow by giving out generous scholarships and grants to lure students despite their price. (At Franklin Pierce not a single student pays the sticker price.) Now, as times change, the colleges are fighting over a dwindling pool of applicants.

Students Rally To Save Program That Produces Primary Care Doctors - Budget woes at the University of California, Berkeley could force the shutdown of a program many people are unaware of — its medical program. The Joint Medical Program, part of Berkeley's School of Public Health, is small. Just 16 students a year are admitted. Under a university budget restructuring process initiated in February by Berkeley's Chancellor Nicholas Dirks, the School of Public Health must cut expenses by roughly 3 percent — or about $900,000. One of the items on the list to meet that target is closure of the Joint Medical Program. Losing 16 new doctors a year may not sound dramatic, but this particular population is unusual in medicine. While most medical students head into lucrative specialties, the majority of this program's graduates go into primary care. John Balmes, acting director of the program, says California needs these doctors. The state, he says, "is 43rd in the nation in terms of primary care physicians." And with the Affordable Care Act increasing the number of insured Californians, "We need more primary care physicians, not less." In 2014, just 12 percent of medical students nationally went into primary care residencies. By contrast, more than half of the graduates of the Berkeley program have gone into primary care. It's unclear exactly why so many students go into primary care. One clue lies in the program's unusual approach to curriculum. The program, established in 1971, prides itself on avoiding lecture halls and instead focusing on what it calls "problem-based learning," where students review cases as a group. In addition, the medical program is one of few nationally, says second-year student Josh Pepper, that is housed within a school of public health, and that gives a broader focus to patients' lives

How the Banks Stole Higher Education - Most progressive-minded people share an inherent belief that education should be free, a universal human right rather than the privilege of a wealthy few. For the left, it's an article of faith.  The right wing have seldom held education in such high regard.  Their preference was, and remains, a dumb, compliant population easily brought to rage or fear by some menace flagged up through their mainstream media, which supposedly "threatens our way of life."  Yet elites in western society could tolerate, even support the growth of universal education, as long as capitalism was buoyant, producing high rates of economic growth. Now we're in decline from that high watermark of industrial capitalism. The former juggernaut is a decrepit and wheezy old banger, not quite on its last legs, but certainly no longer possessing the dynamism needed for sustained high levels of economic growth. When the attack on the post-war settlement came, the bad guys, those supporting wealth and privilege, won the class war and the battle of ideas. But the rhetoric of a property-owning democracy didn't last long, as the free market capitalism that was supposed to accompany it was supplanted by a more corporate, risk-aversive mutation. So student loans and debts are not an incidental strategy. They represent the starting point of inducting people into a life package of debt-servitude, which includes mortgage and car loans. In more innocent and economically buoyant times, we used to call this credit. In the words of leading American-Canadian critic and social theorist, Henry Giroux: "Higher education is viewed by the apostles of market fundamentalism as a space for producing profits, educating a docile labor force, and a powerful institution for indoctrinating students into accepting the obedience demanded by the corporate order." When the US media, such as the New York Times or the Wall Street Journal, discuss student debt, it's from a neoliberal perspective, with the question being: how can politicians prevent the banks from losing money on these debts? The invariable answer: by tightening the screws on the debtors. The banks got the government to guarantee such loans, which gives politicians the leverage to contend that they must protect the taxpayer and make these shiftless students pay. Even if the taxpayers in question are often the parents of the indebted students.

College Students Are Low on Credit; Tech Startups Want to Change That | American Banker: Students used to leave college with two artifacts of their first experiments with credit — free T-shirts and, for better or worse, a credit file. Today they are leaving without either. The Credit Card Accountability Responsibility and Disclosure Act of 2009 severely narrowed the industry's ability to market or issue cards to anyone under the age of 21. Banks and credit card companies, rather than tailor their approaches, drastically reduced their peddling of credit products to college students. While the legislation was intended to curb what was perceived as predatory practices, it has had one unintended consequence — a group of young adults who have very little credit history. "Since students were no longer exposed to credit cards, a large swath of them could no longer start building their credit history at an early age, which is an important component of the FICO score," said Joe Bayen, chief executive and founder of Lenny, a startup that is looking to extend credit to young people. "Though banks used to offer excessive interest rates, it still gave an opportunity for students to build a credit history." Like so many other lines of business that banks exited or cut back following the financial crisis, credit to younger people is now being eyed by tech startups. Lenny, in Santa Monica, Calif., is a peer-to-peer payment and lending platform that launched a mobile app in March. That same month, SelfScore, in Palo Alto, Calif., launched an unsecured credit card for international students. Both are hoping to help students build up their credit profiles. As well, both are hoping to develop relationships with the students that last long past graduation.

The Growing College Degree Wealth Gap -- The nation’s colleges continue to graduate far fewer students who grew up in poor households. With the country’s economic potential possibly hanging in the balance, a new report urges the United States to dedicate more resources and know-how to closing the college-completion gap between wealthier students and those from low-income backgrounds. The issue boils down to the number of college-educated workers that will be needed to fill the bulk of the country’s new jobs—two-thirds of which will require some college background by 2020—and the dearth of college degrees held by lower-income workers. With well-paying jobs in manufacturing and the trades largely a relic of the nation’s industrial past, the middle-class pathways for workers with just a high-school education are few and far between. The basic arithmetic underscoring America’s labor needs points to a possible future in which the poor are unable to take full part in the nation’s economy, creating great social and economic strain.  Among the report’s findings: When American households are organized into four income groups, 24-year-olds from the top two groups accounted for 77 percent of the bachelor’s degrees awarded in 2014. In 1970, that figure was 72 percent, suggesting that growing up in a wealthier household matters even more now in completing a degree than it did four decades ago. Graduates who hailed from households with incomes of at least $116,000—the top quarter—represented more than half of all the degrees awarded in 2014 among 24-year-olds. Students from households that earned less than $35,000—the lowest quarter—represented just 10 percent of all the degrees awarded.

Millennials Earn Less Than Previous Generation, Have More Debt: Report « CBS New York: — Millennials in New York City earn about 20 percent less than the previous generation of young workers and are likely to continue struggling from the effects of the recession, according to a new report. The recession saddled people born between 1985 and 1996 with more debt than their parents and fewer high-paying jobs as housing costs have grown in the city, the report from City Comptroller Scott Stringer found. Stringer said too many millennials aren’t getting a fair chance to make it in the city. “Millennials were applying for jobs in the most difficult economic climate since the Great Depression and as a result, a growing number are now working in low-wage industries and earning less than their predecessors,” Stringer said. “This group of young people is confronting unique economic challenges that their parents did not have to face.” According to the report, 72 percent of people between the ages of 23 and 29 have earned some college credit, and many end up taking on massive student debt.The percentage of millennials with a bachelor’s degree working in low-wage jobs went up 10 percent — from 23 to 33 — between 2000 and 2014, the report found. Overall, the percentage of millennials working in retail, food service and hospitality went up 4 points in the same time period. Read The Full Report.

The Chicago Pension Scandal: $100,000+ Teacher Pensions Costing Taxpayers $1 Billion -- As we've known for quite some time now, Illinois is completely insolvent, and in large part due to enormous pension liabilities which as of December were underfunded to the tune of $111 billion.  At this point, it's clear that without the ability to cut pension benefits, most plans will end up insolvent, at which point nobody will be receiving benefits. Until that point comes, however, there are a few who are living quite well off of the system. As Forbes' Adam Andrzejewski reports, there are currently 7,499 teacher retirees that earn at least six figure pensions, and he estimates that in just six years, the number will be three times what it is today because, as we noted previously, the Illinois Supreme Court recently confirmed that pension benefits are constitutionally guaranteed and "the public employee gravy train is running faster than ever."  Now, there would be nothing wrong with these retirees collecting the "annuity" benefits after paying to the retirement plan for years as most other honest, hard-working employee do. There is just one problem: this was a human system, and like every human system (especially in Illinois) it was impeccably gamed from the beginning. Especially when Chicago is involved as it is here.  Take the example of two union lobbyists who substitute taught for one-day in the public schools and then started collecting over $1 million of lifetime public ‘teacher’ pension payout – despite a state law expressly designed to stop them. Adam also draws attention to another critical issue further burying taxpayers, which is double-dipping.  [M]any administrators taking six-figure pensions really aren’t even ‘retired.’ Twenty-one highly compensated school administrators are now members of the municipal system, not the teacher’s system. It’s double-dipping: receiving a ‘teacher’ retirement pension, while also rehired by a school under the ‘municipal’ plan.

Our Bloomberg Story: Don’t Let Private Equity Dupe California - Yves Smith -  Our latest update on not-promising state of private equity reform in California ran at Bloomberg yesterday. The editor provided the title “Don’t Let Private Equity Dupe California” but that became Don’t Let Private Equity Keep California in the Dark. Regular readers may recall that in the wake of SEC and media disclosures of widespread abuses in private equity, such as charging authorized fees, which in most walks of life would be called embezzlement, California Treasurer John Chiang, who also sits on the boards of mega public pension funds CalPERS and CalSTRS, proposed path-breaking private equity legislation to combat this misconduct.  Getting a full accounting of fees and costs that the private equity portfolio companies pay is critical, since major media stories and SEC settlements have demonstrated that that is where most of the chicanery takes place. The private equity firms, which have managerial control over the portfolio companies, can load all sorts of charges onto them that are paid directly from the portfolio companies directly to entities controlled by the general partners or to individuals that are close to them. That means they bypass the private equity fund entirely, thwarting disclosure and oversight.  The first version of the bill, AB 2833, introduced by Assemblyman Ken Cooley in February, seemed to fulfill Chiang’s promise. It called for the full disclosure of all private equity fees and costs, including carried interest and fees paid by portfolio companies by all California public pension funds investing in private equity.  Unfortunately, Chiang, who is the bill’s sponsor, left a big escape hatch for private equity firms, and worse, this looks to be by design.

Disappearing pensions hurt U.S. economy as well as workers: Retirement has taken a back seat to corporate profitability for more than 40 years as the United States has embraced the reduction of pensions, and now the U.S. economy is paying the price with lowered productivity. Without pensions, older workers are being forced to work longer hours and stay in the workforce longer, and that means they're squeezing out some of the most productive workers of all, known as core workers, according to a study by the University of Paris-Sorbonne. The study compared workers in three different age groups: younger workers (ages 15-24), core workers (ages 25-54) and older workers (ages 55-64). The percentage of those in the older group who are currently working widened to 61% in 2014, up from 60% in 2004, while the percentage of those in the core group currently working has shrunk to 77% in 2014 from 79% in 2004, according to the Organization for Economic Cooperation and Development (OECD). On one hand, the U.S. economy has become more productive by pushing older workers into the labor force, along with women and migrants who have also increased their participation in the labor force. However, by doing so the U.S. has also decreased its productivity per worker, the Sorbonne study showed.

Simultaneous Elderly Overpopulation, Youth Depopulation & The Impact on Economic Growth - Strangely, the world is suffering from two seemingly opposite trends...overpopulation and depopulation in concert. The overpopulation is due to the increased longevity of elderly lifespans vs. depopulation of young populations due to collapsing birthrates. The depopulation is among most under 25yr old populations (except Africa) and among many under 45yr old populations. So, the old are living decades longer than a generation ago but their adult children are having far fewer children. The economics of this is a complete game changer and is unlike any time previously in the history of mankind. None of the models ever accounted for a shrinking young population absent income, savings, or job opportunity vs. massive growth in the old with a vast majority reliant on government programs in their generally underfunded retirements (apart from a minority of retirees who are wildly "overfunded"). There are literally hundreds of reasons for the longer lifespans and lower birthrates...but that's for another day. This is simply a look at what is and what is likely to be absent a goal-seeked happy ending. In a short yet economically valid manner, every person is a unit of consumption. The greater the number of people and the greater the purchasing power, the greater the growth in consumption. So, if one wanted to gauge economic growth, (growth in consumption driving economic growth), multiply the annual change in population by purchasing power (wages, savings) per capita. Regarding wage growth, I hold wages flat as from a consumption standpoint, wage growth is basically offset by inflation. Of course, there is another lever beyond this which central banks are feverishly torqueing; substituting the lower interest rates of ZIRP and NIRP to boost consumption from a flagging base of population growth. (There is one more boost to consumption, huge increases in social transfer payments primarily among the advanced economies...but while noted, these are a story for another day.)

Colorado weighs replacing Obama’s health policy with universal coverage - For years, voters in this swing state have rejected tax increases and efforts to expand government. But now they are flirting with a radical transformation: whether to abandon President Obama’s health care policy and instead create a new, taxpayer-financed public health system that guarantees coverage for everyone. The estimated $38 billion-a-year proposal, which will go before Colorado voters in November, will test whether people have an appetite for a new system that goes further than the Affordable Care Act. That question is also in play in the Democratic presidential primaries. Advertisement The state-level effort, which supporters here call the ColoradoCare plan, would do away with deductibles. It would allow patients to choose doctors and specialists without distinguishing between those “in network” and those “out of network.” It would largely be paid for with a tax increase on workers and businesses, and cover everyone in the state. Supporters say most people would end up saving money. Insurance groups, chambers of commerce, and conservatives have already lined up in opposition. They say the plan’s details are vague, its size and cost galling. The proposed health system would have a budget bigger than that of Colorado’s entire state government. A new 10 percent tax on payroll and incomes to pay for the system would push Colorado’s tax rates to some of the highest in the nation.

Health Care Industry Moves Swiftly to Stop Colorado’s “Single Payer” Ballot Measure - The campaign in Colorado to create the nation’s first state-based “single payer” health insurance system, providing universal coverage and replacing insurance premiums with higher taxes, has barely begun.  But business interests in Colorado are not taking anything for granted, and many of the largest lobbying groups around the country and in the state are raising funds to defeat Amendment 69, the single-payer ballot question going before voters this November. The Council of Insurance Agents & Brokers, a national trade group, is mobilizing its member companies to defeat single payer in Colorado. “The council urges Coloradans to protect employer-provided insurance and oppose Proposition 69,” the CIAB warns. The group dispatched Steptoe & Johnson, a lobbying firm it retains, to analyze the bill.Lobby groups that represent major for-profit health care interests in Colorado, including hospitals and insurance brokers, are similarly mobilizing against Amendment 69. The Colorado Association of Commerce & Industry — a trade group led in part by HCA HealthOne, a subsidiary of HCA, one of the largest private hospital chains in the country — is soliciting funds to defeat single payer. The business coalition to defeat the measure also includes the state’s largest association of health insurance brokers. The proposal calls for the Colorado legislature to pass new laws raising $25 billion a year from a mix of employer payroll taxes, a 3 percent tax on employee gross pay, and a new tax on self-employed net income. The money would be used for a new health care system that would cover all premiums and out-of-pocket costs for health and dental care. The state would also be charged with negotiating with providers and for better drug prices. Supporters of the plan say the system would save $4.5 billion a year.

Detroit Satanists mock anti-abortion protesters’ ‘fetal idolatry’ by dressing as leather-clad babies - Anti-abortion activists were met head-on in Detroit by the city’s chapter of the Satanic Temple, who trolled them by dressing up in baby gear and decrying “fetal idolatry.” According to the Temple’s Detroit chapter leader, Jex Blackmore, “the anti-choice movement’s obsession with, and mischaracterization of the fetus obscures medical reality and a woman’s constitutional right to choice.” The group dressed in baby masks and diapers, replete with BDSM gear, bottles and baby powder. Blackmore wrote, “The highly politicized anti-choice movement advocates for the abolition of Planned Parenthood, an organization that provides critical preventive and primary reproductive health care services to low-income women. The current cornerstone of their argument stems from a fabricated, fictional story that clinics ‘sell baby parts for profit.'”Video shows the Satanic Temple activists writhing and gyrating in front of shocked-looking anti-abortion protesters, who seemed frozen in place as they stared at the performance.Blackmore pointed out that a Texas grand jury had cleared Planned Parenthood of any wrongdoing, and instead indicted the producers of heavily-edited and discredited videos that intended to implicate the health care provider in a cooked-up scheme to illegally sell fetal body parts.

Woman who ran Obamacare warns of big insurance prices hikes - Marilyn Tavenner's crystal ball didn't foresee the initial epic flop of HealthCare.gov when she actually ran the agency in charge of the website. Now, as an insurance lobbyist, she sees big jumps in Obamacare insurance premiums next year. "I've been asked, what are the premiums going to look like? I don't know, because it also varies by state, market, or even within markets," Tavenner told the MorningConsult.com in an interview.  "But I think the overall trend is going to be higher than we saw in previous years. That's my big prediction," said Tavenner, who is now president and CEO of America's Health Insurance Plans, the industry's lobbying group. Tavenner's warning of sharp hikes in insurance prices comes as insurers prepare to propose their 2017 Obamacare plan rates, and as the major insurer UnitedHealth has revealed it is exiting most Obamacare marketplaces where it has sold plans.Tavenner's previous job was heading the federal Centers for Medicare and Medicaid Services, the massive agency that oversees those two government-run health coverage programs.  HealthCare.gov was a disaster when it launched in the fall of 2013, and was essentially unable to sign up meaningful numbers of customers in the initial month or so of open enrollment due to widespread technological problems.

ObamaCare premiums expected to rise sharply amid insurer losses -  Health insurance companies are laying the groundwork for substantial increases in ObamaCare premiums, opening up a line of attack for Republicans in a presidential election year. Many insurers have been losing money on the ObamaCare marketplaces, in part because they set their premiums too low when the plans started in 2014. The companies are now expected to seek substantial price increases. "There are absolutely some carriers that are going to have to come in with some pretty significant price hikes to make up for the underpricing that they did before,” said Sabrina Corlette, a professor at Georgetown University’s Center on Health Insurance Reforms, while noting that the final picture remains unclear. Insurers are already making the case for premium increases, pointing to a pool of enrollees that is smaller, sicker and costlier than they expected. The Blue Cross Blue Shield Association released a widely publicized report last month that said new enrollees under ObamaCare had 22 percent higher medical costs than people who received coverage through their employers. “The industry is clearly setting the stage for bigger premium increases in 2017,” said Larry Levitt, an expert on the health law at the Kaiser Family Foundation.

Drug Prices Keep Rising Despite Intense Criticism -- From the campaign trail to the halls of Congress, drug makers have spent much of the last year enduring withering criticism over the rising cost of drugs.  It doesn’t seem to be working.  In April alone, Johnson & Johnson raised its prices on several top-selling products, including the leukemia drug Imbruvica, the diabetes treatment Invokana, and Xarelto, an anti-clotting drug, according to a research note published last week by an analyst for Leerink, an investment bank. Other major companies that have raised prices this year include Amgen, Gilead and Celgene, the analyst reported. Makers have raised prices on brand-name drugs by double-digit percentages since the start of the year, according to interviews with executives at Express Scripts and CVS Caremark, two major drug-benefit managers. And a report last week by the research firm IMS Health found that in 2015, list prices for drugs increased more than 12 percent, in line with the trend over the five previous years.  “It used to be the drug companies only took one price increase a year,” said Dr. Steve Miller, chief medical officer at Express Scripts. “Now what they’re doing is taking multiple price increases multiple times a year.” That scrutiny on pricing is likely to continue on Wednesday with the Senate testimony of J. Michael Pearson, the chief of Valeant Pharmaceuticals International, which has come to be viewed as an industry pariah after profiting for years on drastic price increases on old drugs. Mr. Pearson, who is stepping down as chief next month, has been subpoenaed to testify before the Senate Special Committee on Aging, which is investigating the drug-pricing issue.

The Washington Post Says Doctors Without Borders Is Silly to Worry About the Impact of the TPP on Drug Prices - The humanitarian group, Doctors Without Borders, along with many other NGOs involved in providing health care to people in the developing world, have come out in opposition to the Trans-Pacific Partnership (TPP) over concerns that the deal will make it more difficult to provide drugs to people in the developing world. Their argument is that it will raise drug prices by making patent protection stronger and longer and by making it more difficult for countries to scale back protections that they may come to view as excessive and wasteful. But the Washington Post editorial board tells us not to fear, that the TPP is actually "a healthy agreement." The gist of its argument is an analysis by Council on Foreign Relations Fellow Thomas Bollyky, which finds that there were few incidents of large increases in drug prices for countries following the signing of previous trade deals.  As I noted in a previous post, this analysis almost seemed designed not to find substantial rises in prices. Bollyky looked at changes in drugs prices immediately after a trade deal took effect. The problem with this approach is: "In most cases, the rules in these agreements will only apply to new drugs, and even then to a subset of new drugs, for example patent protection for a drug that is a combination of already approved drugs. They may also allow for the extension of patent terms beyond the date where they would have expired under pre-trade deal rules, but here again the impact will only be felt gradually over time. In other words, this before and after approach is a bit like weighing people the day after they gave up drinking sugary soda to determine whether this decision will affect obesity. It's not serious stuff. There is evidence that prior trade agreements have affected drug prices. As I noted in that earlier post: "An analysis of the impact of the rules in the 2001 trade agreement between the United States and Jordan found that it had increased annual spending on drugs by $18 million by 2004. This is slightly less than 0.16 percent of Jordan’s GDP in that year, the equivalent of $28 billion annually in the U.S. economy today.

Studies Show Austerity Policies Exacerbate US Suicide Epidemic: According to a new study from the National Center for Health Statistics, the suicide rate in the United States has risen dramatically over the past decade-and-a-half. Adjusting for age, it jumped 24 percent between 1999 and 2014, with the biggest increases coming after 2006. Thirteen out of every 100,000 people now kill themselves, making suicide one of the top 10 leading causes of death in the entire country. This is a serious public health crisis that needs to be fixed, and while we can't bring back the people we've already lost, there is something we can do as a country to make sure even more people don't take their own lives. . And that something is to stop supporting right-wing austerity policies because economic deprivation is one of the contributing factors that drive people to take their own life. Numerous studies have found a strong connection between right-wing economic policies and suicide.  Recent research from sociologists David Stuckler and Sanjay Basu, for example, found that suicide rates in both the US and UK increase when working class wages and wealth decline. Things were particularly bad during the recession period here in the US when, according to the study's authors, there were 4,750 "excess" suicides. Another study, this time out of Australia, discovered a similar pattern in that country. It found that almost 35,000 extra suicides occurred when the "Tories" (Australian slang for right-wingers) controlled the government.

"Why Our Children Should Hate Us" - Read The Lance Simmens Article Banned By The Huffington Post - Although Lance Simmens has been intimately involved in public life for several decades, you’ve probably never heard of him. As such, a little introduction is needed. As mentioned, Lance Simmens’ career was spent in public policy. Specifically, he worked for two U.S. Presidents as well as a couple of senators and governors. Since retirement, he’s been a prolific writer, publishing 180 articles at the Huffington Post over the past 8 years. As such, it came as a great shock to him to discover that one of his recent articles was removed by the Huffington Post shortly after publication. It was the first article ever rejected by the online publication, and the unacceptable subject matter was nothing more than a positive review of the banned everywhere documentary VAXXED. Here’s Lance Simmens describing the ordeal in a recent interview:

Brain Damage in Zika Babies Is Far Worse Than Doctors Expected - WSJ: Ana Gabriela do Prado Paschoal sat at a desk in a small medical exam room and began a familiar, heartbreaking ritual. Your baby’s head is smaller than normal, Dr. Paschoal told the anxious mother, who had contracted the Zika virus while pregnant. The 3-month-old girl, Maria Luiza, also had lesions on her brain. Her muscles were stiffer than normal, a sign of brain damage. Maria Luiza would take longer to walk and talk, Dr. Paschoal told the mother, a 24-year-old farmworker. More serious complications were likely, but the doctor decided that was enough news for one day. The scale and severity of prenatal damage by the Zika virus are far worse than past birth defects associated with microcephaly, a condition characterized by a small head and brain abnormalities. Scans, imaging and autopsies show that Zika eats away at the fetal brain. It shrinks or destroys lobes that control thought, vision and other basic functions. It prevents parts of the brain not yet formed from developing. “These aren’t just microcephaly, like a slightly small head. The brain structure is very abnormal,” said Jeanne Sheffield, director of maternal-fetal medicine at the Johns Hopkins School of Medicine, who has been counseling pregnant women about microcephaly for two decades. Microcephaly, a rare birth defect that affects about 6 out of 10,000 babies in the U.S., is often associated with developmental delays and intellectual disabilities. But some children are only mildly affected. The Zika-related cases in Brazil nearly all involve significant brain damage. The sickest Zika babies in Brazil have died before delivery or within hours of birth. No one knows yet how long the survivors will live or how much they can be helped in the years ahead.

The Zika Virus: Big Moneymaker for Big Pharma? Gary Olson, Ph.D., Moravian College- [Note: The World Health Organization has declared the Zika virus an international public health emergency and some four million people may be infected this year. Zika may cause brain damage and unusually small heads in newborns—called microcephaly. Women who become infected while pregnant are at especially high risk.] Uppyurs Pharmaceuticals, the drug manufacturing behemoth, is frantically attempting to vanquish rivals Novartis, Pfizer, GlaxoSmithKline and others by producing a Zika vaccine. A copy of the minutes from a recent Uppyurs Executive Board meeting was surreptitiously obtained by the author. According to the minutes, “If everything breaks right we will have a Zika vaccine on the market by mid-2018 and we anticipate revenues in the range of $7.5 billion dollars. Proceeding with this is a no-brainer.” The report also reveals that $78.00 for a single Zika inoculation will price the vaccine out of reach for all but the wealthy in the world’s 35 poorest countries. One of our serious challenges is to neutralize a guilt-ridden American public’s demand to make the vaccine more accessible or even—God help us—free to poor people. Our strategy includes:

  • Because Americans are almost pathologically compassionate, we’ve been working on an empathy-inhibitor medication under the brand name ClearSoul. We can report that ClearSoul has been clinically tested on Uppyurs’s upper level management and has proven 100% effective. ClearSoul promises to be the most lucrative product in Uppyurs’s history, if not the history of the world. We saw a need and filled it. ClearSoul will be timed for market release just as Zika is declared a pandemic.
  • Massive lobbying of Senate Foreign Relations Committee members so any government attempting to develop an inexpensive, generic version of the vaccine will be immediately accused of aiding and abetting global terrorism and be targeted by the U.S. drone attacks. We anticipate this will be an easy sell to the media and the public.

NASA maps Zika’s potential spread in the U.S. -- NASA scientists have created a map to better target future search-and-destroy missions for the deadliest animal on the planet, the female Aedes aegypti mosquito. The blood-sucking females are responsible for the spread of dangerous diseases such as yellow and dengue fevers, chikungunya and now Zika.  The researchers focused their analysis on 50 cities within or near to the currently known range of the Aedes aegypti in the United States. The resulting map, newly released in the journal PLOS Currents, applies factors such as temperature, amount of rainfall, poverty levels and travel to the United States from Zika-affected areas of the world. Even more, the researchers analyzed the risk for each month in the year.  A glance quickly shows that except for the tip of Texas and a bit of Florida, including the Keys, most areas of the United States have little to no risk during the winter months. That's the time when colder temperatures and/or a lack of moisture keep mosquito eggs from hatching. Then, as rains and high temperatures begin to gather strength in the Southeast, the risk begins to rise, spreading across the South to California and up into the middle of the country. By June, nearly all of those 50 cities "exhibit the potential for at least low-to-moderate abundance," according to the study, "and most eastern cities are suitable for moderate-to-high abundance."

Climate Change to Widen Range of Disease-Carrying Mosquitoes -- Infectious diseases, such as dengue and the Zika virus, could spread to new parts of the world as mosquitoes expand their habitats in a warmer, wetter world, a new study suggests. By 2061-80, an additional half a billion people could be at risk from diseases carried by the Aedes aegypti mosquito, the study says—and could even rise to more than 5 billion under a scenario of high population growth. There are roughly 3,500 species of mosquito buzzing about on the Earth. One of the most common is the Aedes aegypti.  They are well adapted to urban areas, often lying low under beds and in wardrobes before venturing out in the daytime to seek their prey.  The female, which needs the protein in blood to develop its eggs, has acquired something of a taste for humans. They are adept at the “sneak attack”—approaching victims from behind and biting ankles and elbows to avoid being noticed. Aedes aegypti are “sip feeders,” preferring to take small blood meals from lots of people. This makes them prolific at spreading disease; they are the main carrier of viruses that cause dengue, Zika, yellow fever and chikungunya. Estimates suggest 390 million people a year are infected with dengue and the recent outbreak of the Zika virus in South America has largely been driven by Aedes aegypti. Currently, approximately 63 percent of the world’s population live in areas where Aedes aegypti are found. The range of these mosquitoes is largely limited by climate—they like the hot, wet conditions of the tropics and subtropics. However, a new study, published this week in the journal Climatic Change, suggests their habitat could expand as the climate warms—putting millions more people at risk from the viruses they carry.

Clean water crisis threatens US - The United States is on the verge of a national crisis that could mean the end of clean, cheap water. Hundreds of cities and towns are at risk of sudden and severe shortages, either because available water is not safe to drink or because there simply isn’t enough of it.  The situation has grown so dire the U.S. Office of the Director of National Intelligence now ranks water scarcity as a major threat to national security alongside terrorism. The problem is being felt most acutely in the West, where drought conditions and increased water use have helped turn lush agricultural areas to dust. But dangers also lurk underground, in antiquated water systems that are increasingly likely to break down or spread contaminants like lead. The crisis gripping Flint, Mich., where the water supply has been rendered undrinkable, is just a preview of what’s to come in towns and cities nationwide, some warn. “We are billions of dollars behind where we could and should be,” said Rep. Jared Huffman (D-Calif.), who spent 12 years on a municipal water board before running for state office. “People in the clean-water world would tell you they’ve been shouting about this for a long time.” “For much of the U.S., most people don’t perceive any shortage,” he added. “But we’re going to talk a lot about shortages now.”

The Fight Over Who Gets Clean Drinking Water From the Great Lakes - The Great Lakes contain one-fifth of the world’s fresh surface water. They provide drinking water to some 40 million people—not to mention the support they give to local economies, through fishing, tourism, and transport. With the combined threats of climate change and pollution, water is becoming an increasingly valuable, and scarce, commodity. Now, a Wisconsin city that’s strapped for drinking water is requesting the right to divert it from Lake Michigan. It says its own supply (which is drawn from local aquifers) is tainted with cancer-causing radium—three times the limit set by the Environmental Protection Agency, or the EPA—and it’s been getting worse year after year. Representatives from Ontario, Quebec, and eight US states are in Chicago today, discussing their application. Critics say that a decision in favour of pulling drinking water from Lake Michigan will set a dangerous precedent. In the near future, as freshwater becomes scarcer, fights like this could become even more common. As early as 2003, it was becoming clear to officials in Waukesha, a suburb of Milwaukee, that changes were needed to secure a viable water supply. But their wish to divert it from the Great Lakes faces a major hurdle: an agreement signed in 2008, by eight states, that aims to protect the lakes and ban diversion under most circumstances.

US House Advances Hundreds of Millions More to Fix the Great Lakes - WKSU News --  The U.S. House has passed the Great Lakes Restoration Initiative Act, authorizing $300 million a year over the next five years to try to improve the lakes. It focuses on wildlife habitat, toxic cleanup, farm and city runoff and invasive species. The bill also requires the EPA to appoint a coordinator to address harmful algae blooms in the lakes. The bill was sponsored by Ohio Republican David Joyce and had the support of most of Ohio’s congressional delegation, including Reps. Marcy Kaptur, Marcia Fudge, Jim Renacci and Tim Ryan. Over the last seven years, the U.S. Congress has OK’d more than $2.2 billion through the Great Lakes Restoration Initiative. [...] The director of Ohio’s Department of Natural Resources expects oil and gas production in Ohio to continue to increase this year. According to the Youngstown Vindicator, James Zehringer told a Chamber of Commerce luncheon that Ohio is now nearly energy self-sufficient. Ohio’s oil production doubled to nearly 22 million barrels last year over 2014 and natural-gas production quadrupled. Zehringer says Ohio produced 95 percent of the gas and oil it used last year. ...

Dominion to start releasing coal ash wastewater  - Dominion Virginia Power plans to begin releasing treated coal ash wastewater into the James River at the Bremo Power Station. The state’s largest electric utility is planning to begin discharging the water Wednesday as it moves to close coal ash impoundments at power plants. Dominion says it will treat 240 Olympic-sized swimming pools’ worth of water through May 2017. The company says the release water will be safe for the environment.  Before coal ash impoundments can be sealed, a process called dewatering must be conducted to treat and discharge water that has pooled atop coal ash to depths approaching 10 feet, as well as water saturating the ash.  Water pumped from the ponds is drained at a slow pace to remove sediment and ash. With the water stored in holding tanks, oxygen is pumped in. That has the effect of settling solids such as metals. A second step increases the pH, or acidity, level of the water, which essentially has the same result. Then more metals are removed when the water goes into a series of tanks with what is called a flocculent. That makes the metal and sediment all stick together. Once they’re stuck together, a sludge is created that can be collected. The next steps put the water through a series of filters with finer and finer membrane, and from there the water goes into tanks before adjusting downward the pH level. A high pH level could harm wildlife in the river. The final step returns the water to a series of tanks where the water is sampled to ensure metal concentrations are within state-permitted limits before release into the river.

Michigan Official Tried to Manipulate Lead Tests Nearly Eight Years Ago -- A newly resurfaced email shows that in 2008 an official from the Michigan Department of Environmental Quality (MDEQ) tried to game lead tests by suggesting that technicians collect extra water samples to make the average lead count for a community appear artificially low.orgThe email was sent in response to a test result that showed one home’s lead levels were ten times the federal action level of 15 parts per billion and urged the lead test technician to take an additional set of water samples to “bump out” the high result so that the MDEQ wouldn’t be required to notify the community of the high levels of lead in its water.  “Otherwise we’re back to water quality parameters and lead public notice,” complained Adam Rosenthal of the MDEQ’s Drinking Water office in the email. “Oh my gosh, I’ve never heard [it] more black and white,” said Marc Edwards, a Virginia Tech professor and lead expert who helped uncover the crisis, to the Guardian. “In the Flint emails, if you recall, it was a little bit implied … this is like telling the strategy, which is: ‘you failed, but if you go out and get a whole bunch more samples that are low, then you can game it lower.'” "[This email] just shows that this culture of corruption and unethical, uncaring behavior predated Flint by at least [eight] years,” as Edwards told the Guardian. The revelation comes less than a week after criminal charges were filed against three MDEQ employees for their role in Flint’s water crisis. Rosenthal was not one of those officials charged. Two MDEQ officials, Mike Prysby and Stephen Busch, were copied on Rosenthal’s 2008 email and last week both were charged with “misconduct in office, conspiracy to tamper with evidence, tampering with evidence, a treatment violation of the Michigan Safe Drinking Water Act and a monitoring violation of the Safe Drinking Water Act” in relation to the Flint water crisis, as MLive reported.

Flint woman suing over poisoned water crisis found shot to death in home -  A woman involved in a lawsuit over the lead-contaminated water crisis in Flint, Michigan was reportedly found shot to death in her home along with another individual. On Tuesday, police found the bodies of two women inside of a townhouse, where they also found a one-year-old who was unharmed. Both women were shot, and have been identified as Sasha Bell and Sacorya Reed. Police are treating the deaths as homicides and have a suspect in custody, but no charges have been filed. Notably, the Flint Journal reports that Sasha Bell was one of the first individuals to file a lawsuit over the water crisis in Flint, which saw city water become contaminated with lead after officials chose to switch to the Flint River as its main drinking source.

Flint water treatment plant foreman was found dead days before three of his colleagues were charged over the city's contaminated water crisis -- Autopsy was conducted but did not determine immediate cause of death -  The death of a Water Treatment Plant foreman, who was found dead at his home on April 16 by a friend who went to visit him, comes amid charges against three men involved in the city's water crisis. Flint Mayor Karen Weaver announced the sudden death of foreman, Matthew McFarland on Thursday. A friend discovered the 43-year-old's body when he went to visit him at his Otter Lake home last Saturday, according to MLive. His death comes as Flint's water plant deals with the attorney general's announcement of three men facing criminal charges in connection with the city's water crisis.

Michael Moore on President Obama's Flint Visit: 'Unless You're Bringing the U.S. Army...Stay Home' -  On May 4, President Obama is making a trip to Flint, Michigan, the city that has commanded public attention for the epic poisoning of its water and the permanent damage to the health of its children. It has emerged as a most prominent case of official criminality, of callous disregard for the poor and for Black people, and the priority placed on cost savings and austerity over the lives of human beings. And filmmaker Michael Moore had some choice words about the president’s visit. In his open letter posted on Facebook, Moore — a Flint native who has spoken out on what has been done to his hometown — told the president what he really thinks. “Dear President Obama — Finally, after months of us begging you to come to Flint, you’ve decided to visit next Wednesday. I know this will make many people happy and grateful. But, as one who voted for you twice and was thrilled beyond belief over your election, I’m sorry to tell you your visit is too little too late,” Moore said. “You say you’re coming to ‘listen to the people of Flint.’ Sir, they’ve been poisoned for two damn years. You’ve known about it since October. There’s nothing to listen to. Unless you’re bringing the entire U.S. Army Corps of Engineers to dig up and replace the 75,000 lead pipes, plus the Attorney General to arrest Governor Rick Snyder, then this is just another photo-op and half-baked list of new promises we don’t need,” he added.

Valley Residents Have Been Eating Toxic Fish for Decades - For 23 years, federal environmental regulators and state health officials have known the fish in the Donna Reservoir and Canal System pose major health risks to those who consume them. The lakes have been granted Superfund status — a designation given to the country’s most hazardous sites — as officials try to figure out how to clean them up. Though the Donna system supplies drinking water for two nearby small cities, environmental researchers have found the water itself to be safe. The problem is the fish, which are somehow ingesting cancer-causing chemicals and retaining them in their fat tissue.   It's been illegal to fish in the lake since before the Superfund designation, and officials have launched an extensive educational campaign to make sure people know of the danger. But the lake remains a popular fishing spot, both for recreational fishers and those looking to provide for their families. Its miles of shoreline are an open invitation for poor families and ambitious entrepreneurs who see the fish as cheap food or a way to make a quick buck. Testing  showed the fish had high levels of polychlorinated biphenyls, or PCBs — a group of chemical compounds once used in electrical and industrial equipment that have since been banned due to health concerns. In fact, the concentration of PCBs discovered in the Donna fish were the highest ever recorded in fish, according to health officials. PCBs, which are stored in the fat of the fish, are known to cause liver and immune system problems. Exposure to PCBs by eating contaminated fish also increases the risk of cancer.Many are still unaware of the risks. And a permanent fix is likely years away. For all that’s been done in this small, mostly Hispanic community, the narrative surrounding Donna lake tells a familiar story in Texas. It's one of poor people of color exposed for decades to dangerous environmental contaminants with solutions largely out of grasp.

Republican Senate effort again fails to block water rule (AP) — Democrats have again blocked a Republican proposal that would have forced the Obama administration to withdraw a federal rule to protect small streams and wetlands from development and pollution. An amendment sponsored by North Dakota Sen. John Hoeven did not get the 60 votes needed to stop the provocative rule. Thursday’s vote was the latest effort by Republicans to check the water rule, which they call an example of President Barack Obama’s overreach. Most Democrats support the Environmental Protection Agency rule, saying it will safeguard drinking water for 117 million Americans. The Senate has voted multiple times in the last year on GOP measures to thwart the rule, which has been put on hold as federal judges review a series of lawsuits by states and groups representing farmers and other businesses. Republicans and some Democrats representing rural areas say the water regulation is costly, confusing and amounts to a government power grab, giving federal regulators unprecedented control of small bodies of water on private land. The clean water rule, sometimes called the Waters of the U.S. rule, clarifies which smaller waterways fall under federal protection after two Supreme Court rulings left the reach of the Clean Water Act uncertain. The government should be doing everything it can to help farmers and ranchers, but instead is “stifling growth with burdensome regulations that generate cost and uncertainty,” Hoeven said.

Ammon Bundy's lawyers take his anti-government land use claim to court  -- Lawyers for Oregon standoff leader Ammon Bundy have argued that federal officials lack authority to prosecute the anti-government protesters in a new court motion that offers a glimpse of the constitutional debate activists hope to bring to a high-profile trial. Bundy, who led an armed occupation of the Malheur national wildlife refuge, has long claimed that the federal government has no right regulating public lands in the west, and now his legal team is bringing that argument directly to US prosecutors, who have filed a slew of serious felony charges against the activist. The new motion, which lays the groundwork for a request to dismiss the criminal case against Bundy, presents an argument that legal experts have rejected as an inaccurate interpretation of the US constitution – that the federal government has unlawfully claimed ownership over the wildlife refuge and other public lands. “The purposes intended for the federal government, were, among other things, defense, trade, and to settle disputes between States,” wrote Lissa Casey, one of Bundy’s lawyers. “Defendant will argue that the Constitution only intended to give broad federal power of property in Territories, as the Founders contemplated the expansion westward.” The “land that is now the Malheur National Wildlife Refuge was not always ‘federal land’. The federal government relinquished that land when it was previously deeded and homesteaded”, Casey’s filing continued.

March for Water: Thousands Protest Corporate Greed in Guatemala - Some 15,000 Indigenous people from across the country gathered in Guatemala City to demand protection of water resources from corporate exploitation.Thousands of Indigenous and campesino protesters have flooded Guatemala City, bringing the demands of their 11-day march for water to the country’s highest decision makers and breaking up months of calm in the streets and squares of the capital after the winding down of last year’s mass mobilizations, which pressured former President Otto Perez Molina to resign. The March for Water, Mother Earth, Territory, and Life brought together Indigenous groups from across Guatemala, unified around demands for a guarantee to the right to water and dignified livelihoods in the face industrial agriculture and exploitive mining projects that threaten to contaminate and siphon off water resources from remote and vulnerable communities.  Gathering in Guatemala City’s central square on Friday, thousands protested the displacement of their communities by unwanted hydroelectric dams and called for justice for pollution caused by corporate farming and extractive projects in their territories. They also demanded an end to the criminalization suffered by their community leaders as a result of fighting to defend land, water and local resources, calling for the immediate release of jailed leaders.

Here Come the Unregulated GMOs: Via: MIT Technology Review: People are arguing about whether genetically modified foods should carry labels. But the next generation of GMOs might not only be unlabeled—they might be unregulated. Over at Scientific American you can read a 6,000-word story about how one such plant, a GM mushroom, was created. The short version is that a plant scientist named Yinong Yang used the gene-editing technique called CRISPR to snip out a few DNA letters in the genome of “Agaricus bisporus, the most popular dinner-table mushroom in the Western world.” The result: he turned off an enzyme that turns mushrooms brown. But Yang’s mushroom doesn’t have any bacterial DNA in its genome. He didn’t add any DNA at all, he told the U.S. Department of Agriculture. Instead, he just used gene-editing to blow a few teeny little holes in one gene and shut it off. As a result, the USDA’s APHIS division told Yang his GMO plant isn’t going to be regulated because it sidesteps the regulation: APHIS has concluded that your CRISPR/Cas9-edited white button mushrooms as described in your letter do not contain any introduced genetic material. APHIS has no reason to believe that CRISPR/Cas9-edited white button mushrooms are plant pests. It’s not the first product to get cleared in this way. Last summer we wrote about a potato with a similar modification, also to stop browning, and there have been a handful of others.

The USDA Abdicates Even Sham Regulation: Problem and Opportunity - The USDA gambit of refusing to regulate so-called “second generation” GMOs has several purposes and goals. Most directly, it’s meant to obliterate regulation of GMOs as such, as an increasing proportion of future product launches are of these newer types.  It’s also supposed to reinforce the Big Lie generally propagated in the corporate media including the so-called “science” media that GMOs were ever meaningfully regulated in the first place. The lie that the FDA ever regulated GMO safety is a mainstay among every outlet from the New York Times to Scientific American. There’s also an implication that USDA regulation ever had anything to do with safety, but the USDA’s procedure intentionally avoided all meaningful assessment by fixating on the bizarre criterion of whether any element of the transgenic insertion came from a potential “plant pest”. Whether or not the finished GMO product itself could become any such pest, for example through transgenic contamination, was a matter the USDA stubbornly refused to consider. Note that this is a direct contradiction of the usual propaganda theme of pro-GMO activists, that regulation if it’s to exist at all should focus only on the product and not the “process”. This lie parallels the companion lie that GMOs have somehow been established to be safe by their widespread presence in the diet for many years without large numbers of people immediately dropping dead from them. The “Trillion Meal” lie essentially concedes that this has been a vast, uncontrolled feeding experiment on unconsenting human beings, but claims that the result has been to find GMOs safe. This could be argued only from the anti-intellectual, anti-scientific, anti-medical point of view that that the one and only measure of safety is whether or not something causes acute toxicity. This is indeed regulatory dogma, while regulators studiously refuse to assess long-term effects of any level of exposure.

God’s Red Pencil? CRISPR and The Three Myths of Precise Genome Editing -- For the benefit of those parts of the world where public acceptance of biotechnology is incomplete, a public relations blitz is at full tilt. It concerns an emerging set of methods for altering the DNA of living organisms. “Easy DNA Editing Will Remake the World. Buckle Up; “We Have the Technology to Destroy All Zika Mosquitoes“; and “CRISPR: gene editing is just the beginning”. (CRISPR is short for CRISPR/cas9, which is short for Clustered Regularly-Interspaced Short Palindromic Repeats/CRISPR associated protein 9. It is a combination of a guide RNA and a protein that can cut DNA.) The hubris is alarming; but the more subtle element of the propaganda campaign is the biggest and most dangerous improbability of them all: that CRISPR and related technologies are “genome editing” (Fichtner et al., 2014). That is, they are capable of creating precise, accurate and specific alterations to DNA.  How do I know this is a propaganda war? I heard it from the horse itself. In February I was at a UN meeting on biotechnology in Rome, Italy, where a senior representative of the Biotechnology Industry Organisation (BIO) explained to the assembled delegates the “exquisite specificity” and “precision” of genome editing. BIO’s exposition is belied by the evidence. If CRISPR were already precise, accurate and specific there would, for example, be no publications in prominent scientific journals titled “Improving CRISPR-Cas nuclease specificity using truncated guide RNAs“. And these would not begin by describing how ordinary CRISPR “can induce mutations at sites that differ by as many as five nucleotides from the intended target”, i.e. CRISPR may act at unknown sites in the genome where it is not wanted (Fu et al., 2014).

Interactive Maps Show Where Monsanto’s Roundup Is Sprayed in San Francisco and Portland -- Reverend Billy and The Stop Shopping Choir have published two new interactive maps showing where glyphosate is being sprayed in California’s Bay Area and Portland. Based on the maps, glyphosate—the cancer-linked main ingredient in Monsanto’s weedkiller Roundup—is being used in a number of public spaces including parks and playgrounds in both cities. According to a press release sent to EcoWatch, the Portland map displays 1,592 locations in the city where herbicides containing glyphosate are being sprayed. “Monsanto’s Roundup and its key ingredient glyphosate are major weapons in the Portland Parks Department’s arsenal of herbicides,” the release states. A Care2 petition has been posted to stop the use of glyphosate in Portland’s public green spaces. The campaign, which has gathered more than 17,600 signatures, seems to be picking up momentum. In recent months, Portland lawmakers have mulled over new restrictions on the use of synthetic pesticides in the city. Meanwhile, in the city of San Francisco alone, more than 200 locations such as ball fields, libraries, playgrounds and parks are being doused with the herbicide, Inhabitat reported. Rev. Billy’s San Francisco map was published in collaboration with the San Francisco Forest Alliance. The alliance has requested that the San Francisco Department of Environment remove Tier I and Tier II herbicides (especially Roundup/ Aquamaster and Garlon 4 Ultra) from the 2016 Reduced Risk Pesticide List, “without exceptions.”

Commission fails to regulate new GMOs after intense US lobbying: The European Commission has shelved a legal opinion confirming that genetically modified organisms (GMOs) produced through gene-editing and other new techniques fall under EU GMO law, following pressure from the US government. A series of internal Commission documents obtained under freedom of information rules reveal intense lobbying by US representatives for the EU to disregard its GMO rules, which require safety testing and labelling. The documents show that US pressure is focussed on potential barriers to trade from the application of EU GMO law. They suggest that the EU should ignore health and environmental safeguards on GMOs to pave the way for a transatlantic trade agreement. This briefing exposes lobbying by the US government during a crucial period, at the end of 2015, as revealed in pre-meeting briefings and correspondence released by the Commission: No wonder why Obama took a clear position in favor of TTIP prior to the beginning of the next round of TTIP negotiations on 25 April 2016 in New York. From PressTV : President Barack Obama says the United States and the European Union (EU) need to press ahead with the Transatlantic Trade and Investment Partnership (TTIP) despite widespread opposition.“Angela and I agree that the United States and the European Union need to keep moving forward with the Transatlantic Trade and Investment Partnership negotiations,”

2 Widely-Used Pesticides Are Putting 97 Percent Of America’s Endangered Species At Risk  --A few widely-used pesticides have the ability to harm nearly all the endangered species in America, a new report from the Environmental Protection Agency has found. The EPA’s draft report, which was released earlier this month, looked at three widely-used pesticides: chlorpyrifos, diazinon, and malathion. It found that both malathion, which is used in agriculture, for lawn care, and for mosquito control, and chlorpyrifos, which is used on a range of crops including cotton, almonds, and fruit trees, was “likely to adversely affect” 97 percent of the 1,782 species listed under the Endangered Species Act. The other pesticide, diazinon, which is used in orchards and vegetable crops, was found to likely adversely affect 79 percent of these species.  Federal agencies like the EPA are supposed to do consultations like these whenever any action they’re planning on taking — like, in the EPA’s case, approving a pesticide for use — could affect an endangered species. But the EPA has been ignoring that mandate under the Endangered Species Act, said Lori Ann Burd, environmental health director at the Center for Biological Diversity, which began suing the EPA starting in 2004 over its failure to take pesticides’ impact on endangered species into account.  “This is the first time they’ve ever done this,” Burd said. “We’re using a billion tons of pesticides each year in this country without really figuring out how they’re affecting us or endangered species.” . They’re all organophosphates, the most widely-used class of pesticide in the world that’s also one of the most toxic. Organophosphates kill their intended insect targets by inactivating an enzyme that’s crucial to nerve function in insects and other living things. In high enough quantities, it can be deadly to humans: In 2013, at least 25 children in India died after eating food that contained unsafe levels of organophosphates.

A Mine vs. a Million Monarchs - In recent years, Angangueo’s 5,000 inhabitants have been cursed by calamities natural and manufactured. Snowstorms, mudslides and flash floods have terrorized the town. Hulking piles of mine tailings line the main road, barren reminders of the silver, gold and copper mining that petered out a quarter-century ago after defining the community for 200 years.Even the monarch butterflies that are the focus of the “magic town” tourism campaign are suffering. Millions still roost on nearby mountains, a wintertime spectacle that attracts the visitors from “El Norte” who are the town’s economic lifeline. But the overwintering population of monarchs has fallen by almost two-thirds over the past dozen years, and this year’s better-than-usual aggregation was abruptly devastated in March by another freak snowstorm, the worst in years. Now those monarchs are facing another potential calamity. One of Mexico’s largest corporations is close to winning government approval to reopen a sprawling mine in Angangueo, right next to the most important winter habitat of North America’s most iconic insect. In a region where butterfly tourism isn’t doing much to ease pervasive poverty, the mining proposal has plenty of local support, even as it alarms biologists.

Another Farm Under Siege: Animal Rights and The War Against the Farmers - Another sad and unnecessary controversy is unfolding in the deepening animal rights movement's war against the farmers, this one in Long Island, New York. Bob Benner, a long-time farmer from East Setauket, New York, has joined this sad list of victims. Benner and his family have learned how to do something that is increasingly difficult in modern times – live off of their 15-acre farm in affluent, crowded Long Island since 1977. "We learned, made, and had our own heat. We made our own food. We made our own clothing. We raised a garden," said Benner, who is 75. In a rational world, this would be considered heroic, especially in our time, where such independence and self-sufficiency and respect for the environment is almost unheard of. We talk about sustainability all the time, the Benners are living it. We talk about keeping animals among us, and finding value in them. He is doing that. He ought to get a medal, not death threats online and on the phone. With a family of six to feed, Benner kept refining his budget and began raising some of his farm animals as a source of food. His farm offers strawberry picking, birthday parties and class trips for schoolchildren. Opening his farm up  has threatened it in an ugly way.  They met Minnie the cow. A housewife and mother named Kimberly Sherriton asked about the fate of Minnie  and was told she would be used to feed the Benner family. When she learned that the two-year-old cow will be going to slaughter to help feed the Benner family, Sherriton organized a series of protests outside of the Benner farm to demand that the cow be spared.   Benner said he is nearly overwhelmed with angry, sometimes obscene,  phone calls, Facebook posts, bad reviews on his web page and threats on his family.

Robots, lasers, poison: the high-tech bid to cull wild cats in the outback - Robotic killers that detect feral cats, spray their fur with poison and rely on them to essentially lick themselves to death have been deployed in the Australian desert for the first time. Feral cats are one of the biggest threats to many of Australia’s endangered species, killing millions of animals every day throughout the country – and controlling them has proved difficult.  “Cats are hard-wired to hunt,” Read said. That means they can kill dozens of animals a night but it also means they are often reluctant to eat baits since they prefer to kill an animal themselves. “This trap targets the cats’ achilles heel,” Read said. Being fastidious groomers, cats will lick off almost anything that gets on their fur. So Read has developed a trap that exploits their tendency to try to get their numbers under control. With four laser rangefinders, the trap detects when something moves in front of it. If it’s taller than a cat – perhaps a dingo or a koala – the top rangefinder will be triggered and it shuts down. Similarly, a rangefinder at the bottom needs to be able to see between the cat’s legs, meaning a low-slung animal like a wombat or a quoll won’t trigger it. Finally, two rangefinders at the front and back of the trap need to be triggered simultaneously, indicating something the length of a cat has moved in front of it. The trap also relied on the animal licking the poison off its fur, which cats would reliably do, but most other animals were less likely to.

So you’ve ruined a town and poisoned its children—what next? Bill them for your legal costs - Darnell Earley was appointed as emergency manager of Flint, Michigan, by Gov. Rick Snyder. As emergency manager he had expansive powers including control over the city’s public works, and while it was yet another Synder-appointed emergency manager who signed the contract to start pumping water out of the Flint River, Earley was the man in charge when the switch over actually happened and lead started leaching into the water delivered to homes. Earley is, with some justification, under criminal investigation as part of the ongoing Flint crisis. So it’s not surprising that he’s hired a lawyer. What is surprising is what he did with his legal bills. Former Flint emergency manager Darnell Earley tried to bill the cash-strapped city $750 an hour for an attorney to sit with him while he was questioned last month in Washington by a congressional committee and to represent him in ongoing criminal investigations related to the Flint drinking water crisis, records obtained by the Free Press show. Earley, whose office was searched by state investigators on Feb. 29, and who told the City of Flint on March 11 that he is under criminal investigation in connection with the lead contamination of Flint's drinking water, wants the city to pay legal fees that already have topped $75,000 and continue to grow, records obtained under Michigan's Freedom of Information Act show.  Nothing shows that you have nothing but the best interests of a city caught in a budget crunch firmly in mind like billing them $75,000 because you—whoops!—slipped a lead mickey to its kids.

Test finds Chernobyl residue in Belarus milk 10 times higher than food safety limits – ‘There is no protection of the population from radiation exposure’ - (AP) – On the edge of Belarus' Chernobyl exclusion zone, down the road from the signs warning "Stop! Radiation," a dairy farmer offers his visitors a glass of freshly drawn milk. Associated Press reporters politely decline the drink but pass on a bottled sample to a laboratory, which confirms it contains levels of a radioactive isotope at levels 10 times higher than the nation's food safety limits. That finding on the eve of the 30th anniversary of the world's worst nuclear accident indicates how fallout from the April 26, 1986, explosion at the plant in neighboring Ukraine continues to taint life in Belarus. The authoritarian government of this agriculture-dependent nation appears determined to restore long-idle land to farm use -- and in a country where dissent is quashed, any objection to the policy is thin. The farmer proudly says his herd of 50 dairy cows produces up to two tons of milk a day for the local factory of Milkavita, whose brand of Parmesan cheese is sold chiefly in Russia. Milkavita officials called the AP-commissioned lab finding "impossible," insisting their own tests show their milk supply contains traces of radioactive isotopes well below safety limits. Yet a tour along the edge of the Polesie Radioecological Reserve, a 2,200-square-kilometer (850-square-mile) ghost landscape of 470 evacuated villages and towns, reveals a nation showing little regard for the potentially cancer-causing isotopes still to be found in the soil. One of the most prominent medical critics of the government's approach to safeguarding the public from Chernobyl fallout, Dr. Yuri Bandazhevsky, says he has no doubt that Belarus is failing to protect citizens from carcinogens in the food supply.  "We have a disaster," he told the AP in the Ukraine capital, Kiev. "In Belarus, there is no protection of the population from radiation exposure. On the contrary, the government is trying to persuade people not to pay attention to radiation, and food is grown in contaminated areas and sent to all points in the country."  The milk sample subjected to an AP-commissioned analysis backs this picture.

Studies Show Link Between Red Meat and Climate Change - Shifting diets away from meat could slash in half per capita greenhouse gas emissions related to eating habits worldwide and ward off additional deforestation — a major contributor to climate change, according to scientific findings published this week. The consequences of land use change stemming from expanding agricultural production were the focus of a paper published Wednesday by the World Resources Institute. It showed that reducing heavy red meat consumption — primarily beef and lamb — would lead to a per capita food and land use-related greenhouse gas emissions reduction of between 15 and 35 percent by 2050. Going vegetarian could reduce those per capita emissions by half.  Asecond paper, published Tuesday in Nature Communications, analyzed about 500 different food consumption and production scenarios worldwide and found that nearly 300 of them could feed the global population without cutting down more forests. The biggest contributing factor to food-related deforestation is eating meat, the study says.

Denmark planning to tax red meat to fight climate change -  Denmark is considering proposals to introduce a tax on red meat, after a government think tank came to the conclusion that “climate change is an ethical problem”. The Danish Council of Ethics recommended an initial tax on beef, with a view to extending the regulation to all red meats in future. It said that in the long term, the tax should apply to all foods at varying levels depending on climate impact. The council voted in favour of the measures by an overwhelming majority, and the proposal will now be put forward for consideration by the government. In a press release, the ethics council said Denmark was under direct threat from climate change, and it was not enough to rely on the “ethical consumer” to ensure the country meets its UN commitments. “The Danish way of life is far from climate-sustainable, and if we are to live up to the Paris Agreement target of keeping the global temperature rise 'well' below 2°C, it is necessary both to act quickly and involve food,” the council said. Cattle alone account for some 10 per cent of global greenhouse gas emissions, while the production of food as a whole makes up between 19 and 29 per cent, the council said. Danes were “ethically obliged” to change their eating habits, it said, adding that it is “unproblematic” to cut out beef and still enjoy a healthy and nutritious diet.

Climate Change May Turn Crops Into Junk Food -- Plants love carbon dioxide. Higher levels of CO2 in the air increase the rate of photosynthesis—it’s why planting more trees helps to clean the air, after all. For a time, that love had some scientists convinced that the world’s greenery could keep CO2 levels in the atmosphere in check—but research has now shown not only that plants alone can’t halt the rise of CO2 but that the increase will make food crops less healthy for human consumption. According to one new study, higher carbon dioxide levels could turn healthy fruits and veggies into junk food. According to a report released in early April by the U.S. Global Change Research Program, the level of CO2 we’re predicted to reach by 2100 could result in plants that are high in carbohydrates but low in proteins and important micronutrients. In areas with high levels of food insecurity, this could result in even higher levels of malnutrition and micronutrient deficiencies. In parts of the world that retain a more consistent food supply, people would have to eat considerably more just to get the same levels of nutrition—increasing the prevalence of obesity in the process. Overall, the report states, “This direct effect of rising CO2 on the nutritional value of crops represents a potential threat to human health.” The report notes that even today, between 38 and 45 percent of citizens in the prosperous United States “fall below the estimated average requirements for calcium and magnesium, respectively.” Zinc deficiencies may only affect 12 percent of the population at large, but up to 40 percent of elderly Americans have low levels of the nutrient. In addition to lowering overall immunity, diets low in zinc can cause skin sores, slowed growth, and trouble seeing in the dark. Pregnant women, children, and the elderly will continue to be most at risk from the effects of malnutrition and other dietary deficiencies.

Brazil’s thriving soy industry threatens its forests and global climate targets - At the beginning of the last decade, Brazil emerged as a major soybean exporter. Today, Brazil produces about one-third of the global supply and earns more from soybean exports than from any other commodity. Although soybean production is generating revenues for Brazil, it could spell trouble for the nation’s widely lauded environmental commitments. Brazil is the first emerging economy that has pledged to make absolute reductions in its greenhouse gas emissions – that is, reductions from the level that it emitted at a specific point in time (2005), not from an estimate of what it will emit at some future time. Its climate plan calls for cutting emissions by more than 40 percent by 2030, with most of its emission reductions to come through avoiding deforestation. By 2030, Brazil has pledged to restore 12 million hectares of carbon-absorbing forest and eliminate illegal deforestation. As social science researchers who study environmental change in the Amazon and the Brazilian savanna known as the Cerrado, we have seen the country’s agricultural sector grow rapidly in once-marginal regions. We believe that over the next several years, with Brazil’s soybean sector thriving and its political establishment in crisis, the nation’s commitment to slowing climate change will be severely tested.

Indian drought 'affecting 330 million people' after two weak monsoons | World news | The Guardian: About 330 million people are affected by drought in India, the government has said, as the country reels from severe water shortages and desperately poor farmers suffer crop losses. A senior government lawyer, PS Narasimha, told the supreme court that a quarter of the country’s population, spread across 10 states, had been hit by drought after two consecutive years of weak monsoons. Narasimha said the government had released funds to affected regions where a crippling shortage of rainfall had forced the rationing of drinking water to some communities. As summer hits India, reports of families and farmers in remote villages walking long distances to find water after their wells dried up have dominated local media. Narasimha gave the figures on Tuesday after an NGO filed a petition asking the top court to order Prime Minister Narendra Modi’s government to step up relief to the hardest-hit areas. High temperatures have hit parts of eastern, central and southern India in recent weeks, with scores of deaths reported from heatstroke. Every year hundreds of people, mainly the poor, die at the height of summer in India, but temperatures have risen earlier than normal, increasing concerns about this year’s toll. “We had never recorded such high temperatures in these months in more than 100 years,”

Nine Meals from Anarchy - In 1906, Alfred Henry Lewis stated, “There are only nine meals between mankind and anarchy.” Since then, his observation has been echoed by people as disparate as Robert Heinlein and Leon Trotsky. The key here is that, unlike all other commodities, food is the one essential that cannot be postponed. If there were a shortage of, say, shoes, we could make do for months or even years. A shortage of gasoline would be worse, but we could survive it, through mass transport, or even walking, if necessary. But food is different. If there were an interruption in the supply of food, fear would set in immediately. And, if the resumption of the food supply were uncertain, the fear would become pronounced. After only nine missed meals, it’s not unlikely that we’d panic and be prepared to commit a crime to acquire food. If we were to see our neighbour with a loaf of bread, and we owned a gun, we might well say, “I’m sorry, you’re a good neighbour and we’ve been friends for years, but my children haven’t eaten today – I have to have that bread – even if I have to shoot you.” But surely, there’s no need to speculate on this concern. There’s nothing on the evening news to suggest that such a problem even might be on the horizon. So, let’s have a closer look at the actual food distribution industry, compare it to the present direction of the economy and see whether there might be reason for concern.

Record-Breaking Hot Ocean Temperatures Are Frying The Great Barrier Reef - The Great Barrier Reef’s coral is dying, and it may never be the same again. Last month, as historically high ocean temperatures bathed the waters around the Great Barrier Reef, the Australian government raised the coral bleaching threat to the highest level possible.  On an aerial reconnaissance trip from Cairns to Papua New Guinea, researchers observed the parts of the reef that are supposed to be the most pristine and vibrant. What they saw was chilling.  “This has been the saddest research trip of my life,” said Prof. Terry Hughes, convener of the National Coral Bleaching Taskforce. “Almost without exception, every reef we flew across showed consistently high levels of bleaching, from the reef slope right up onto the top of the reef. We flew for 4000km in the most pristine parts of the Great Barrier Reef and saw only four reefs that had no bleaching. The severity is much greater than in earlier bleaching events in 2002 or 1998.”  The northern sections of the reef had, during previous bleaching events, survived relatively unscathed compared to the rest of the reef. In fact, scientists saw the north as a sort of genetic seed bank that could help re-seed the decimated reefs that bleached elsewhere. With this widespread warming, that hope is somewhat dashed, and experts say the Great Barrier Reef will not recover for decades or more, assuming waters don’t get too much warmer.

News - If strong La Niña forms, here's how it will impact the U.S. - The Weather Network: Ever since El Niño 2015 reached its peak in November, forecasters have been anticipating its eventual dissipation, and there has been keen interest in exactly how that will proceed, as a strong El Niño frequently leads directly into a La Niña. This El Niño hasn't been making things easy, however. As of the mid-March analysis by forecasters at Columbia University's Earth Institute, the odds of seeing a La Nina or having some mix of El Niño and neutral conditions developing by the end of the year were still fairly even. It has only been at the latest forecast update that the chances of a La Niña developing jumped to over 70 per cent. As a result of that significant jump in probability, while the El Niño Advisory continues due to current conditions, NOAA forecasters have issued a La Niña Watch, based on what they're seeing in computer model runs. As it stands now, it's too early to tell exactly how strong of a La Niña we could see by fall, or how long it could last, but based on the past, the pattern could develop along a few different paths. It could swing sharply into a record-breaking La Niña. This is what happened in 1988-1989, after the strong, double-peaked El Niño in 1986-1987. It may produce another multi-year La Niña, like there was following the sharp, very strong El Niños in 1982 and 1997. It could also result in a combination of the two - a record or near-record event in both strength and duration. With La Niña installed in the tropical Pacific, we should expect a more active storm track, above normal precipitation and cooler weather over a wide sector of Pacific Northwest. Positive precipitation anomalies would also extend through the Intermountain West, and across sections of the north plains into the Great Lakes region. The south would experience a very different story than what they have been through these past 6 months with El Niño. Drier and milder weather conditions would extend from the Four Corner states across the South and Central Pains all the way to Florida.

Has climate change really improved U.S. weather? by Kevin Trenberth - According to a new report published in “Nature” on April 20, 2016 by Patrick Egan and Megan Mullin, weather conditions have “improved” for the vast majority of Americans over the past 40 years. This, they argue, explains why there has been little public demand so far for a policy response to climate change. However, when we consider what Americans “prefer” with respect to weather, it is important to consider all variations in the weather – across hours, days and especially the extremes – rather than simply looking at annual averages. After all, no one experiences long-term average weather, but we do increasingly experience weather extremes and their impacts on our health, safety and well-being. At the National Center for Atmospheric Research, my colleagues and I have conducted numerous studies analyzing how climate change is altering regional, national and global weather patterns. Many of those studies focus on extreme events such as floods, hurricanes, heat waves and droughts because these are the weather phenomena that have major impacts and costs: they destroy crops, wreck infrastructure and threaten lives and property. Analyzing the impact of climate change by focusing on average weather patterns greatly underplays climate change impacts and may make Americans dangerously complacent about how climate change is already affecting our lives. Egan and Mullin claim that “80 percent of Americans live in counties that are experiencing more pleasant weather than they did four decades ago.” They attribute this change to rising winter temperatures paired with summers that have not become “markedly more uncomfortable.” The result, they conclude, is that weather has shifted toward a temperate year-round climate that Americans have been demonstrated to prefer. For their investigation of temperature trends, the authors looked only at the average of temperatures reported in the months of January and July. For precipitation trends, the authors looked only at annual precipitation totals and the number of days on which precipitation occurs annually. But people don’t live in annual or monthly averages!

The IPCC's priorities for the next six years: 1.5C, oceans, cities and food security - Carbon Brief: The United Nations body tasked with assessing the state of the climate has been giving some serious thought to where most of its efforts should be focused in the next few years. At a three-day meeting in Nairobi this week, the Intergovernmental Panel on Climate Change (IPCC) made a few important decisions, including what the topics for its next “special reports” should be. Climate impacts at 1.5C, the oceans and cryosphere, and food security will all be getting special treatment in the next few years. The IPCC also confirmed today that it will be “updating” its strategy for talking to policymakers, public and the media, a recognition that it needs to be better at communicating its findings to the outside world. As in previous years, the next big IPCC report – the sixth assessment report (AR6) –  will be released in three stages, the IPCC chair, Dr Hoesung Lee, confirmed today. The three working groups – broadly covering the physical science, adaptation, and mitigation – will be published between 2020 and 2021. The synthesis report, which is meant to link all three working groups into one concise storyline, will be published in 2022.  Lee told a press conference in Nairobi this morning (see video below) the timing of the synthesis report is deliberate, so that it would be “in good time” for the global stocktake that nations will be undertaking in 2023, as agreed at COP21 in December.

Senate Republicans Want To Cut Funding For UN Climate Change Agency, Because Palestine: -- More than two dozen Republican senators this week asked Secretary of State John Kerry not to provide any funding for the United States' involvement in the United Nations effort to address climate change, saying they object to the U.N. treating Palestine as a state. The Palestinians joined the United Nations Framework Convention on Climate Change, the international treaty that governs action on climate change, in March. On Monday, the group of 28 senators, led by Wyoming Republican John Barrasso, argued in a letter to Kerry that -- because of a 1994 law barring federal funds from being distributed to any U.N. program that grants membership to a state or organization that lacks "internationally recognized attributes of statehood" -- the UNFCCC should not receive U.S. funding. It may not be entirely a coincidence that this letter comes from a group of senators who, by and large, don't really believe climate change is an issue the U.S. should be addressing at all. Among the letter's signatories: Sens. Roy Blunt (R-Mo.), John Boozman (R-Ark.), Shelley Moore Capito (R-W.Va.), Bill Cassidy (R-La.), Dan Coats (R-Ind.), John Cornyn (R-Texas), Tom Cotton (R-Ark.), Ted Cruz (R-Texas), Steve Daines (R-Mont.), Mike Enzi (R-Wyo.), Deb Fischer (R-Neb.), Orrin Hatch (R-Utah), Jim Inhofe (R-Okla.), Johnny Isakson (R-Ga.), James Lankford (R-Okla.), Mike Lee (R-Utah), Jerry Moran (R-Kan.), Pat Roberts (R-Kan.), Mike Rounds (R-S.D.), Marco Rubio (R-Fla.), Jeff Sessions (R-Ala.), Dan Sullivan (R-Alaska), John Thune (R-S.D.), Thom Tillis (R-N.C.), Pat Toomey (R-Pa.), David Vitter (R-La.) and Roger Wicker (R-Miss.).

Palestine is latest GOP offensive in climate change wars -  Senate Republicans think they’ve found a powerful way to hobble President Obama's participation in international climate diplomacy through the decades old Israel-Palestine conflict. More than two dozen GOP senators told the Obama administration this week it has to cut off the hundreds of millions in contributions to the United Nations’ Green Climate Fund. They are also demanding that the administration cut off its $10 million annual contribution to the UN’s Framework Convention on Climate Change (UNFCCC). Their argument is that 1994 law prohibits any United States money from going to a UN agency that recognizes as a member a country that isn’t recognized as a sovereign state. The law targeted the West Bank and Gaza Strip, Palestinian territories that are not recognized as a country by the United States. Palestine is now a member of the UNFCCC, which Republicans argue should result it an end to U.S. funding to the group. “The administration needs to obey the law, and we’re going to do everything we can to enforce it,” said Sen. John BarrassoJohn BarrassoPalestine is latest GOP offensive in climate change wars Senate GOP sticks with leadership team 5 takeaways from Mike Lee’s leadership bid MORE (R-Wyo.), who led 27 lawmakers in the letter to Secretary of State John KerryJohn KerryPalestine is latest GOP offensive in climate change wars Obama to visit Hiroshima: report Kerry celebrates signing of Paris climate deal MORE. “If the administration wants to continue to act in a lawless way, we’ll do everything we can to make sure they actually follow the law.”

Miami-Dade flooding expected to double as army engineers start identifying miles of risky coast | Miami Herald: With sea rise projections growing ever grimmer— the latest predicts up to eight times as much flooding around Miami-Dade County by 2045 — the U.S. Army Corps of Engineers has launched an ambitious plan to come up with a comprehensive assessment of risks that could easily run into the billions of dollars. Covering 10,000 miles of vulnerable shoreline from North Carolina to Mississippi, the study for the first time tries to unify what has so far been a patchwork of sea rise assessments.In the most recent study of South Florida sea rise, researchers with the Union of Concerned Scientists used the Corps’ revised 2015 calculations for sea rise and found that far more swaths of Miami-Dade County will flood than under a projection they developed only a year earlier with more conservative estimates. The group focused on five cities — Miami, Miami Beach, Key Biscayne, Hialeah and Coral Gables — and found the number of projected floods rose from 45 a year to 80 with a 10-inch rise in sea levels by 2030.“We wanted to use projections that we felt better reflected what the county is using and the work coming out,”  “The reality is we’re already starting to feel the impacts of sea level rise.” Figuring out how to prepare South Florida has so far been left mostly to local agencies, the study found. Miami-Dade County formed its first sea rise task force in 2006, followed by a regional compact between Miami-Dade and three neighboring counties including Monroe, Broward and Palm Beach. Miami Beach — which drew global attention with ongoing reconstruction and plans to install a series of massive pumps — and Miami are also working on plans.  But so far, the state has no comprehensive plan. And that has led to uneven preparation.

Scientists compare climate change impacts at 1.5C and 2C - Carbon Brief: Half a degree makes a very big difference when judging how different parts of the world will feel the effects of climate change. This is the conclusion from the first study to compare and contrast the consequences of 1.5C world compared to a 2C world, published today in Earth System Dynamics. Both 2C and 1.5C are explicitly mentioned in the Paris agreement as potential upper limits for global warming since the preindustrial era, but details from scientists on how the temperature thresholds compare have been sparse. For example, an extra 0.5C could see global sea levels rise 10cm more by 2100, water shortages in the Mediterranean double and tropical heatwaves last up to a month longer. The difference between 2C and 1.5C is also “likely to be decisive for the future of coral reefs”, with virtually all coral reefs at high risk of bleaching with 2C warming. The authors presented their research today at the European Geosciences Union, an annual major gathering of geoscientists taking place this week in Vienna.

Will the Middle East Become ‘Uninhabitable’? - This is not about any alarming header—it is the dramatic conclusion of several scientific studies about the on-going climate change impact on the Middle East region, particularly in the Gulf area. The examples are stark. “Within this century, parts of the Persian Gulf region could be hit with unprecedented events of deadly heat as a result of climate change, according to a study of high-resolution climate models,” aa recent Massachusetts Institute of Technology (MIT) research warned.   The research–titled “Persian Gulf could experience deadly heat”, reveals details of a business-as-usual scenario for greenhouse gas emissions, but also shows that curbing emissions could forestall these “deadly temperature extremes.” The study, which was published in detail ahead of the Paris climate summit in the journal Nature Climate Change, was conducted by Elfatih Eltahir, a professor of civil and environmental engineering at MIT, and Jeremy Pal PhD ’01 at Loyola Marymount University. The authors conclude that conditions in the Persian Gulf region, including its shallow water and intense sun, make it “a specific regional hotspot where climate change, in absence of significant mitigation, is likely to severely impact human habitability in the future.”

Poor countries must find $4tn by 2030 to avert catastrophe, says climate study - Developing countries must raise more than $4tn (£2,456bn), or roughly the entire annual budget of the US, to implement their climate change pledges by 2030, according to new research. But much more money will have to be be found by the world’s poorest countries to hold global temperatures enough to avoid catastrophic climate change, say British and Australian researchers who have analysed the financial implications of the pledges made to the UN last December and the money so far offered by rich countries.  As 170 countries meet last Friday in New York to sign the Paris agreement to sign the Paris agreement and potentially set the world on a low-carbon development path from 2020, developing country negotiators called for a reality check, saying there was a vast financial gap between the world’s climate change ambition and the reality of funding the emissions reductions needed to avoid catastrophic warming. To date, rich countries have only agreed to mobilise $100bn a year for developing countries to act on climate after 2020. They have also pledged $10.3bn to the Green Climate Fund, the UN-backed mechanism that will disburse money for climate change adaptation and mitigation. The new analysis, based on earlier work by Carbon Brief, shows that about $4.1tn will be needed to fund the emission cuts of the 70-odd countries that have so far identified how much it will cost them. These countries together emit only about 25% of total developing country emissions.

Emerging threat from climate change: ocean oxygen levels are starting to drop: We also know that our oceans have become about 30 per cent more acidic since pre-industrial times as they absorb the billions of tonnes a year of carbon dioxide released from our burning of fossil fuels and forests, making it harder for shellfish and crabs to form shells.  But now, some of the first evidence is emerging of what scientists have been expecting for decades: oxygen levels in some oceans are beginning to fall and widespread evidence of the trend should be evident from 2030 onwards. Warming seas absorb less oxygen at the surface. Another effect of a changing climate is that oceans turn over less, so that oxygen at the surface has less chance of moving deeper.Matthew Long, lead author of a study published in the American Geophysical Union's journal, Global Biogeochemical Cycles, said deoxygenation poses a major threat to marine life and is one of the most serious side-effects from a warming atmosphere. "Oxygen is a necessary ingredient for marine life, for all sorts of marine organisms," Dr Long, a scientist with the US's University Corporation for Atmospheric Research and based in Colorado."The extent we care about marine ecosystems for their intrinsic value, we should care," Dr Long told Fairfax Media. "We're also reliant on these systems for food - fisheries will be vulnerable." According to the models, the process is likely to be underway in the southern Indian Ocean and parts of the eastern tropical Pacific and Atlantic. The study found that eastern Australia, eastern Africa and south-east Asia may be relatively spared, with impacts likely to be delayed until the next century. The effects of lower oxygen levels will compound other harmful trends for wildlife such as oceans becoming more acidic. "We're driving pretty massive changes in the environment - and we're not just changing one variable," Dr Long said. "We're changing a suite of variables to which marine organisms are sensitive, and basically putting significant demands on their adaptive capacities."

Our Beleaguered Planet: Nearly everyone now acknowledges that global warming is real and caused by human activity. But the cause of global warming is not just our “carbon footprint”—that is, the amount of greenhouse gases emitted per capita—but the number of humans contributing to it. The world population is now more than 7.3 billion, compared with 2.5 billion in 1950, when I was growing up, and 1.3 billion in 1850 during the Industrial Revolution. It will reach about 9.5 billion in 2050. Yet, while there is much discussion of climate change, very little is said these days about population growth. It seems almost to have been ruled off the table as a legitimate topic, even though it is an essential part of the equation. How many people can the planet support? The carrying capacity for any species is defined as the maximum number that can be sustained indefinitely, and in the case of humans is usually said to be about ten billion, albeit with a wide range of estimates. But humans are not just any species; we are increasingly divided into rich and poor, both within and across countries, and the effects of overpopulation are seen unevenly, and well before any theoretical carrying capacity is reached. For nearly all of human history, the risk has instead been under-population—the lack of communities large enough to foster human progress, and even at times, the threat of extinction. We didn’t reach the first billion until about 1800. But with better sanitation and living standards, especially since the Industrial Revolution, global population grew rapidly, with shorter and shorter doubling times. In addition to fossil fuels, we are now exhausting other natural resources, as well as despoiling the environment in trying to extract them. And we have created what is known, somewhat misleadingly, as the “great Pacific garbage patch” by dumping into the oceans vast amounts of discarded plastic containers, which tend to break into small particles that remain suspended in certain regions just beneath the water’s surface.

Democrats — And Republicans — Are Growing More Worried Over Climate Change - Last year was the hottest on record, and NASA has declared this past February the most unusually warm month since it began keeping records. People appear to be noticing. Two polls conducted in March suggest that Americans are more concerned about climate change than they have been in nearly a decade, and one of them shows that concern is increasing among Democrats, Republicans and independents. But that doesn’t mean global warming has suddenly become a bipartisan issue — the politics of it are still very different for each side. More Science & Health. A Gallup poll of 1,019 adults across 50 states and the District of Columbia found that concern about global warming has increased over the past few years. When asked how concerned they were about a list of environmental problems, 64 percent of respondents reported feeling a “great deal” or “fair amount” of worry about global warming, up 9 percentage points from last year. Gallup also found that concern for global warming rose across the political spectrum. As you might expect, Democrats continue to worry — 84 percent reported concern, up from 78 percent a year ago. But Republicans and independents are getting anxious too. Both groups posted 9 percentage point increases in the number of people expressing a “great deal” or “fair amount” of worry about global warming.

EPA Annual Report: Oil And Gas Industry Biggest Methane Emitters This month the U.S. Environmental Protection Agency (EPA) released its annual report, Inventory of U.S. Greenhouse Gas Emissions and Sinks. The report is an emissions inventory that looks at U.S. anthropogenic sources of greenhouse gas (GHG) emissions as well as its carbon (CO2) sinks since 1990.  A 9 percent drop in GHG emissions since 2005 was reported, but there was an increase of 1 percent in 2014 from 2013 levels due to additional fuel use during the winter. Power plants were found to be the biggest emitters of CO2 emissions and are responsible for 30 percent of total U.S. GHG emissions. The transportation sector came in a close second at 26 percent. The most significant was the discovery that methane emissions from the oil and gas sector were underestimated in previous EPA reports.  Methane is one of the seven key GHGs that the EPA includes in the inventory. Although it has a shorter half-life in the atmosphere than CO2, methane is 25 times better at trapping heat and significantly impacts climate change. Human sources of methane include natural gas production, animal agriculture, coal mining, wastewater treatment and other activities. The previous 2015 GHG emissions inventory reported that the oil and gas sectors were the second largest anthropogenic source of methane, with animal agriculture as the largest source at 25.9 percent of total methane emissions. The new GHG emissions inventory now places that percentage at 22.5 percent.  According to The Washington Post the EPA is updating previous estimates based on better information and the new numbers show that methane emissions from the oil and gas sector are up – even though the industry claims that their emission numbers are declining. The Washington Post reported a 4 percent increase. the new data show that methane emissions are substantially higher than we previously understood.

Methane Emissions Definitely Either Going Up or Down --As the Obama administration aims to cut methane emissions, environmentalists and natural gas industry leaders are at odds over who’s to blame for the emissions, how much can be cut, and which agencies should regulate them. But a focal point of the debate is still unclear: How much methane is being emitted from natural gas systems, and is it more or less than in previous years?  The Environmental Protection Agency’s 2016 greenhouse gas inventory report, released earlier this month, indicated that methane emissions from natural gas systems were significantly higher than in previous reports, even when measuring emissions for the same year. Emissions estimates for 2013 were reported at 6,295 kilotons in the 2015 report and then at 7,023 kilotons in the 2016 report, an 11.6 percent increase for the same year. Industry and environmental advocates were even more perplexed to find that within the two reports, the trajectory of methane emissions had changed, and was now increasing rather than decreasing. The EPA’s 2015 estimate showed that methane emissions had dropped from 6,722 kilotons in 2009 to 6,295 in 2013, a 6.4 percent decrease. In the 2016 report, it estimated that there was 6,647 kilotons in 2010 and 7,045 in 2014, a 6 percent increase. “Even if you accept EPA’s assumptions, we’re still not seeing the kind of increase that they are saying is going to happen without regulations,” said Katie Brown, who writes for the petroleum industry-backed website EnergyInDepth.org.  Natural gas production still has outpaced the increase in methane emissions, but the difference is less dramatic. U.S. natural gas production increased 16.9 percent from 2010 to 2014, according to the U.S. Energy Information Administration.

Methane moment near, EPA's McCabe to face pushback - The Obama administration is close to its self-imposed deadline  to issue curbs on the methane leaked from oil and gas production and processing, a plan that’s gotten ferocious criticism from drillers and oil-state officials who warn that falling prices mean the economic rationale for the rule is faltering. When the EPA announced in early 2015 that it would issue rules targeting new oil and gas equipment in a bid to curb leaks of the potent greenhouse gas, natural gas — which is basically methane — was more than $3/mmbtu. It’s now hovering at just over $2, after dipping below that earlier this year. That change in price affects the impact of the rule, and undercuts EPA’s analysis that the costs for producers will be largely offset by boosted sales, industry groups argue. At a lower price it makes less economic sense to capture and sell the natural gas, and lower prices mean the dramatic escalation in drilling and fracking that began in 2008 won’t return anytime soon, the groups have told the EPA. They want EPA to withdraw its proposed rules. “As much as the oil and natural gas sector would like to see that growth rate continue to 2025, it simply will not happen, and the past few years illustrate the cyclical nature of the industry,” Lee Fuller, vice president of the Independent Petroleum Association of America, wrote in comments to the EPA. “The price of oil and natural gas has plummeted unlike EPA’s hypothetical projections…and in many shale plays very few wells are being drilled.” EPA Assistant Administrator Janet McCabe will have a chance to address these criticisms at an event at Bloomberg Government on Wednesday. Also discussing the methane rules at the event are Mark Brownstein of the Environmental Defense Fund and Mark Boling of Southwestern Energy. The event, called The Methane Moment, is sponsored by the Sierra Club.

A global coalition mapping and motivating decarbonization -- The Carbon Pricing Leadership Coalition (CPLC) is a policy-focused alliance of national and subnational governments, intergovernmental agencies, businesses and institutional investors, nonprofits and stakeholder networks. It was launched on the first day of the Paris climate negotiations, and its mission is simple: to collaborate across borders, across sectors, sharing information, know-how and capacity, to build the most economically efficient tools for decarbonization into every nation’s climate plan as soon as possible. The Paris Agreement calls for non-state support for national climate action. The 17th Sustainable Development Goal is devoted to partnerships that build capacity and speed implementation. At the CPLC table, all of the partners are peers, and this takes the project well beyond the the conventions of global governance: honest and capable support for success is the shared focus, so governments and leading businesses work with intellectuals and policy advocates, to ensure no good thinking is left off the menu. Asked why he sees this multi-sectoral collaboration as so crucial to success in combating climate change, World Bank President Jim Yong Kim said “Putting a price on carbon pollution will cut emissions, improve people’s health, and spur new investments in clean technology,” adding that success “will have a clear impact on our efforts to end extreme poverty in the world in 15 years.” When Ethiopia’s Prime Minister Hailemariam Dessalegn joined the Carbon Pricing Panel last fall, he said his nation wanted to ensure it followed the most cost-effective route to leadership in the 21st century clean economy.  Ethiopia will also produce “recommendations on the role and possible forms of carbon pricing policies in Ethiopia, which might also be applicable to similar low-income developing countries.”

Mitsubishi Admits to Manipulating Fuel Testing for Decades -- Japanese carmaker Mitsubishi Motors said on Tuesday that it did not comply with the country’s standards for fuel-economy testing on cars sold in Japan for 25 years.  The company said an external committee has been tasked with investigating what led employees to use improper testing methods and to overstate the fuel economy of Mitsubishi vehicles in data dating back to 1991, the Guardian reported. The carmaker admitted last week that it had manipulated test results for four mini-vehicle models sold in Japan and said the cheating might also have extended to other models.  The company said there is no evidence of it has cheated fuel standards for vehicles sold overseas, including in the United States, the Guardian reported.  At a news conference on Tuesday, Mitsubishi President and COO Tetsuro Aikawa apologized to customers and said he had been “totally unaware” of the problem. “I’m truly sorry that customers were led to buy vehicles based on incorrect fuel-efficiency ratings,” he said, according to the New York Times. “All I can do is apologize.”

Trending in Biofuels: Brazil to Increase Production, Expanding Foreign Ethanol Markets, Rail Risks, Aviation and Marine Biofuels, Enogen Corn--Kay McDonald -  Readers who have been with me for a number of years know that I used to rant about corn ethanol policies in defense of unfarmed acres which preserve not only soil and groundwater, but also biodiverse habitats. (I helped break the story about our huge loss of CRP land and the plowing of the Dakotas as a result of ethanol policy back in March of 2013 long before the major news outlets covered it.) My article began like this... "The amount of land enrolled in the Conservation Reserve Program (CRP), at 27.1 million acres, is down by 26 percent, or 9.7 million acres in the past five years, to a 25 year low." ... Some of the subjects below were sadly satirical. On the one hand, the largest city in Iowa (Des Moines) cannot get decent drinking water for its population because it is contaminated with nitrates, but industrial corn and soybean producing groups are providing money to defend areas contributing to DesMoines nitrate pollution. While this story was in the news, our USDA, under the direction of our Iowa Secretary of Agriculture, sent a team of biofuels representatives and industry leaders to Asia and India where they touted how many greenhouse emissions can be saved, and how much the air quality can be improved if only their populous developing nations would import our corn ethanol and burn it there. And when large banks are interested in the potential for corn production to be expanded in Brazil, isn't that telling? Much of the ethanol industry and exporting of ethanol involves infrastructure, maintenance, and transportation with resulting immense costs to the land related to soil, water, loss of biodiversity, habitat, wildlife, birds, bees and other pollinators, wetlands, monarchs and other butterflies that comes with all out production. Less of the ethanol story translates to good Midwestern job opportunities or an improved quality of life. We are currently experiencing another era like the 90's where industrial farmers may not earn enough by selling corn and soybeans to cover their expensive industrial inputs for chemicals, fertilizers, machinery, seeds, and land costs. Have we reached a new norm, where every Ag-commodity down cycle will result in increased lobbying to increase the percent of ethanol or biodiesel blended into liquid fuels across the globe?

VW to spend up to $8.8 billion on diesel buybacks, fixes: (AP) — Volkswagen said Thursday it had set aside 7.8 billion euros ($8.8 billion) to buy back or fix diesel-powered cars that had been rigged to cheat in emissions tests. The sum is part of 16.2 billion euros the company deducted from last year’s earnings to cover the costs of the emissions scandal, in which its cars were fitted with software that enabled them to pass tests but then turned emissions controls off during everyday driving. The German automaker further broke down the set-aside for 2015 by saying it included 7.0 billion euros for fines and legal costs worldwide. Analysts say the final bill will likely be much higher, when including the impact of lower sales. Volkswagen says it is reporting costs that it knows about at the present time. A Golf Volkswagen car is presented to media inside a delivery tower prior to the company’s annual press conference in Wolfsburg, Germany, Thursday, April 28, 2016. (AP Photo/Markus Schreiber)The company said last week that it lost 1.5 billion euros on an after-tax basis after a profit of 11.1 billion euros in 2014. Volkswagen is currently working out a settlement with U.S. authorities in federal court in San Francisco, and has said that would include an offer to buy back as many as 500,000 of the just under 600,000 defective vehicles.

The 5 Dumbest Things in the U.S. Energy Bill -- MIT Technology Review - The Energy Policy Modernization Act of 2015, which was approved this week by the U.S. Senate and is now headed for reconciliation with the House version, contains a number of landmark provisions. But like any big bill that’s the result of bipartisan compromise, it also includes some pork. These five items, which range from the wrongheaded to the purely wasteful, aren't likely to help the country move forward on energy anytime soon.

  • Clean coal: Driven by West Virginia senator Joe Manchin, the Act and its amendments include several measures to promote more research on carbon capture and storage and to “establish a comprehensive program dedicated to clean coal technological innovation through research, development, and implementation.” The government has already poured billions of dollars into so-called clean coal projects, including the ill-fated FutureGen plant, with basically nothing to show for it. Prolonging
  • Grid modernization: The Senate bill authorizes an “Interagency Rapid Response Team on Transmission” that would “expedite and improve the permitting process for electric transmission infrastructure.” . But that’s a trillion-dollar project, on the scale of the building of the interstate highway system.
  • Burning biomass: The most controversial amendment to the bill designates the burning of trees for power generation as “carbon neutral,” on the theory that growing new trees offsets the CO2 released by burning old ones. That claim has been refuted by many scientists (growing new trees takes decades; burning wood in a power plant releases greenhouse gases immediately).
  • Net metering: Net metering—compensating owners of solar arrays for excess power they return to the grid—has become a controversial issue as states have started cutting back on the practice. The bill acknowledges this, but rather than actually crafting a national policy on net metering, it calls for a federal report on the issue. There are many, many state reports on the issues surrounding net metering, most of which conclude that it benefits not only solar owners, but also non-solar households and the utilities. The last thing we need is a yet another new report.
  • Natural gas exports: In a major victory for fossil-fuel companies, the bill would expedite the permitting of large coastal terminals for the export of liquefied natural gas to Europe and Asia. Environmentalists loathe the push to export gas because it will promote more production using fracking, and because many believe that it could raise energy prices in the U.S. Leaving those considerations aside, there is evidence that the scramble to ship LNG overseas is based on inflated estimates of demand. The current policy around approving natural gas exports is slow and methodical, and that’s best left in place.

New Assessment Finds Emissions From Proposed Coal Terminal Would be ‘Significant And Unavoidable’ -- Cowlitz County and the Washington State Department of Ecology have finally released the draft of their long-awaited Environmental Impact Statement regarding a proposed coal export terminal in Longview, Washington. Located just two hours north of Portland, Oregon, along the Columbia River, the proposed terminal would ship a maximum of 44 million metric tons of coal from the Western United States each year to markets overseas, making it, if built, the largest coal export terminal in the country.Proponents have championed the potential economic benefits of the $680 million project, arguing that it would bring long-term jobs to an area of the state historically plagued by above-average unemployment rates. Additionally, they argue that the terminal would help make United States coal more competitive by opening up Asian markets.  Opponents of the project, however, argue that it would be extremely detrimental to both the local environment and the global climate. They cite issues such as increased train traffic, coal dust, and the eventual burning of the coal — which would result in an increase in greenhouse gas emissions — as reasons why the state should reject the project. That increase in greenhouse gas emissions will be substantial, the draft EIS found. The report estimates that, between 2018 and 2038, the total additional greenhouse gas emissions created by the project would be 37.6 million metric tons of carbon dioxide equivalent — roughly the same as adding 80 million passenger vehicles to the road.

Report: U.S. Coal Use Dropped Nearly A Third Since Its Peak In 2007 -  According to a report from the Energy Information Agency, American coal use for electricity dropped 29 percent in 2015, compared to its peak usage in 2007. That means consumption hit 1,045 million short tons in 2007, and dropped fairly steadily to 739 million short tons last year. The report said that electricity sales either stayed flat or saw slow growth in most states, so there was little opportunity for coal to grow its share of powering the grid. Meanwhile other fuels, particularly natural gas as well as solar and wind, saw strong growth as their prices dropped precipitously.   This reflects the broader international decline in coal consumption, with even electricity-hungry China banning new coal mines and curbing new coal plants. Scotland shut down its last coal-fired power plant this year.   U.S. coal giants can’t keep up, with Alpha Natural Resources, Arch Coal, and Peabody Energy filing for bankruptcy within the last nine months.  This chart shows exactly how much steam coal each state consumed in 2007, and within each bar there is a smaller blue bar which shows its current usage. The only outliers are Nebraska and Alaska, which saw 18 percent and 134 percent increases in coal use compared to 2007. Alaska in particular uses so little coal compared to other states that any swing would make an impact in a comparison like this. California and many New England states have nearly zeroed out their coal use, and Vermont and Rhode Island aren’t even on the chart because they had no coal plants in 2007 and added none since then.

U.S. Coal Use Falls 29 Percent -- Power plants in America used 739 million short tons of coal last year, down from a peak of 1.045 billion short tons in 2007, informed a report from the U.S. Energy Information Administration.  Demand tanked in nearly every state; Pennsylvania’s coal consumption fell by as much as 44 percent. A drop in natural gas prices as well as significant uptake in renewable energy contributed to this decline, said the report.  Note: Values reflect coal receipts by electric power plants rather than coal consumption. Differences in receipts and consumption are relatively small and attributable to changes in stockpile levels. Note: Idaho, Vermont, Rhode Island, and District of Columbia have no coal consumption in the power sector.  For a deeper dive: E&E News, Beckley Register-Herald, Platts

Core issues: NY considers aid for struggling nuclear plants — New York’s four nuclear plants, which generate more than a quarter of the state’s electricity, are going through turbulent times amid slumping power prices. And depending on how things play out, one or more could shut down entirely, affecting jobs, power reliability, electricity bills and carbon emissions. Though opposed by many environmentalists, New York’s nuclear plants are seen by state regulators as a steady source of electricity that doesn’t contribute to greenhouse gas emissions. Democratic Gov. Andrew Cuomo’s administration is crafting a plan that would direct millions of dollars a year extra to keep ailing upstate nuclear plants operating. Officials say the cost to individual customers would be small and would be outweighed by environmental and economic benefits. As regulators work on a broad plan to help the nuclear industry, individual plants are being buffeted by financial and, in one case, political pressures. Here’s a look at the issues at the plants and possible consequences:

German Nuclear Power Plant Confirms It Was Infected With Computer Viruses - Two days ago we reported an initial, unconfirmed report that in a deja vu occurrence of what happened in Iran several years ago when its nuclear enrichment plant was found infected with the infamous Stuxnet virus, a computer malware virus was discovered at the Gundremmingen nuclear power plant in Bavaria.Today we finally have confirmation after Reuters reports that the nuclear power plant was indeed infected with not one but several computer viruses. But don't worry, Reuters is quick to calm a concerned public, "they appear not to have posed a threat to the facility's operations because it is isolated from the Internet, the station's operator said on Tuesday." The Gundremmingen plant in question is located about 120 km (75 miles) northwest of Munich, is run by the German utility RWE. Ironically, this takes place just a week after the German government made an unprecedented request of Belgium to temporarily shut two nuclear reactors, citing technical issues involving possible safety defects. Last week Germany asked Belgium to take Engie SA’s Tihange-2 and Doel-3 atomic plants offline until the safety concerns can be addressed, Environment Minister Barbara Hendricks said last Wednesday.It appears that the safety concern may have been Germany's after all. The viruses, which include "W32.Ramnit" and "Conficker", were discovered at Gundremmingen's B unit in a computer system retrofitted in 2008 with data visualization software associated with equipment for moving nuclear fuel rods, RWE said.

'All Belgians to get iodine pills' in case of nuclear accident: Belgium is to provide iodine pills to its entire population of around 11 million people to protect against radioactivity in case of a nuclear accident, the health minister was quoted as saying Thursday. The move comes as Belgium faces growing pressure from neighbouring Germany to shutter two ageing nuclear power plants near their border due to concerns over their safety. Iodine pills, which help reduce radiation build-up in the thyroid gland, had previously only been given to people living within 20 kilometres (14 miles) of the Tihange and Doel nuclear plants. Health Minister Maggie De Block was quoted by La Libre Belgique newspaper as telling parliament that the range had now been expanded to 100 kilometres (60 miles), effectively covering the whole country. The health ministry did not immediately respond to AFP when asked to comment. The head of Belgium's French-speaking Green party, Jean-Marc Nollet, backed the measures but added that "just because everyone will get these pills doesn't mean there is no longer any nuclear risk," La Libre reported. Belgium's creaking nuclear plants have been causing safety concerns for some time after a series of problems ranging from leaks to cracks and an unsolved sabotage incident. Last week Germany asked that the 40-year-old Tihange 2 and Doel 3 reactors be turned off "until the resolution of outstanding security issues". The reactor pressure vessels at both sites have shown signs of metal degradation, raising fears about their safety. They were temporarily closed but resumed service last December.

Large Hadron Collider on paws after creature chews through wiring -- The world’s largest and most powerful particle accelerator has been brought to its knees by a beech marten, a member of the weasel family, that chewed through wiring connected to a 66,000-volt transformer. The Large Hadron Collider on the outskirts of Geneva was designed to recreate in miniature fireballs similar to the conditions that prevailed at the birth of the universe, but operations of the machine, which occupies a 17-mile tunnel beneath Switzerland, have been placed on hold pending repairs to the unit. The collider, which discovered the Higgs boson in July 2012, is expected to be out of action for a week while the connections to the transformer are replaced. Any remains of the intruder are likely to be removed at the same time. In an in-house report on the incident, managers at Cern, the European nuclear physics laboratory that runs the LHC, described the incident at the transformer unit as being caused by a “fouine” – a beech marten native to the region. The report concluded it was “not the best week for the LHC”. The glitch echoes a similar event in 2009 when the power was cut to one of the LHC’s cooling plants leading to unwelcome temperature rises in the collider’s apparatus. That incident was blamed, at least tentatively, on a bird dropping part of a baguette on a compensating capacitor where the mains supply entered the LHC from the ground.

Russia’s nuclear nightmare flows down radioactive river -At first glance, Gilani Dambaev looks like a healthy 60-year-old man and the river flowing past his rural family home appears pristine. But Dambaev is riddled with diseases that his doctors link to a lifetime’s exposure to excessive radiation, and the Geiger counter beeps loudly as a reporter strolls down to the muddy riverbank. Some 50 kilometers (30 miles) upstream from Dambaev’s crumbling village lies Mayak, a nuclear complex that has been responsible for at least two of the country’s biggest radioactive accidents. Worse, environmentalists say, is the facility’s decades-old record of using the Arctic-bound waters of the Techa River to dump waste from reprocessing spent nuclear fuel, hundreds of tons of which is imported annually from neighboring nations. The results can be felt in every aching household along the Techa, where doctors record rates of chromosomal abnormalities, birth defects and cancers vastly higher than the Russian average — and citizens such as Dambaev are left to rue the government’s failure over four decades to admit the danger. “Sometimes they would put up signs warning us not to swim in the river, but they never said why,” said Dambaev, a retired construction worker who like his wife, brother, children and grandchildren have government-issued cards identifying them as residents of radiation-tainted territory. “After work, we would go swimming in the river. The kids would too.”

Ruined Chernobyl nuclear plant to remain a threat for 3,000 years - It will be 30 years ago Tuesday that Pripyat and the nearby Chernobyl power plant became synonymous with nuclear disaster, that the word Chernobyl came to mean more than just a little village in rural Ukraine and that this place became more than just another spot in the shadowy Soviet Union. Even 30 years later—25 years after the country that built it ceased to exist—the full damage of that day is still argued. Death toll estimates run from hundreds to millions. The area near the reactor is both a teeming wildlife refuge, and an irradiated ghost-scape. Much of eastern and central Europe continues to deal with fallout aftermath. The infamous Reactor Number 4 remains a problem that is neither solved nor solvable. Even 30 years later, nuclear physicists familiar with the disaster disagree on what went wrong. The only area of agreement appears to be that somehow when the engineers attempted to slow the nuclear reaction by inserting control rods into the reactor core, the process actually sped up. In a matter of seconds, the temperature inside the reactor increased by 3,000 degrees. The water used to cool the uranium suddenly evaporated, and in the sealed environment of the reactor the steam had no place to expand. That's when the roof blew, and an estimated 10 tons of the reactor's 200 tons of enriched uranium blasted into the sky. Soviet authorities had warned that a similar problem had been detected at other plants with the same kind of controlling devices. But no modifications were made.  "This was our arrogance at the time," Kopchinsky says. "We believed we were the masters of the atomic reactions. It was a horrible mistake."   "We don't have the technology to fix the problem,". "We don't have the process to develop the technology to fix the problem, and we don't have the money to support the process to develop the technology to fix the problem. The solutions for our Chernobyl problems are very much 'seal it for now.' We will have smart children and smart grandchildren who in 100 years or so will figure out what to do."

AEP, FirstEnergy Face FERC Review of Ohio Power Plant Contracts  - American Electric Power Co. and FirstEnergy Corp. face a federal review of controversial contracts they secured from state regulators for power from money-losing plants they run in Ohio. AEP and FirstEnergy won guaranteed rates for uneconomic coal-fired and nuclear plants last month, over the objections of competing generators who argued they amounted to a consumer-funded bailout. The contracts warrant a U.S. review as the utilities’ customers will be “captive in that they have no choice as to payment” of the charges, the Federal Energy Regulatory Commission said Wednesday, ordering the companies to submit their so-called power purchase agreements for approval. The federal review throws into question yet again the fate of the companies’ Ohio power plants, totaling about six gigawatts of capacity, Jonathan Crawford reports. The generators, like other U.S. power suppliers, are seeking other sources of revenue as they face low power prices in wholesale markets and weakening demand growth that’s threatening to force plants into early retirement. FERC said it “has an independent role to ensure that wholesale sales of electric energy and capacity are just and reasonable and to protect against affiliate abuse.”

Federal regulators put brakes on Ohio energy deals (AP) — Two closely watched energy deals in Ohio allowing two utility companies to impose short-term rate increases on electricity customers cannot take effect until federal regulators approve them. The Federal Energy Regulatory Commission said Wednesday that the power purchase agreements filed separately by Akron-based FirstEnergy and Columbus-based American Electric Power are not valid unless the two companies apply for, and receive federal approval. The Columbus Dispatch reports the decision comes in response to complaints filed by competing electricity companies that say the plans are illegal subsidies. The Public Utilities Commission of Ohio last month approved the deals that would allow FirstEnergy and AEP to raise rates to subsidize some older coal-fired and nuclear power plants. The deals have drawn national attention from business, consumer, environmental and energy groups.

Ohio's top utility regulator to leave job for private sector: (AP) — Ohio’s top utility regulator is stepping down from his post about a year after being appointed. Andre Porter, chairman of the Public Utilities Commission of Ohio, resigned Friday for a job in the private sector. He leaves May 20. Republican Gov. John Kasich (KAY’-sik) appointed Porter to a five-year term in April 2015. A nominating commission will be appointed to recommend a replacement. Porter’s decision comes the same week federal regulators dealt a blow to the Ohio commission over a pair of energy deals it approved last month. The Federal Energy Regulatory Commission says the power purchase agreements, filed separately by Columbus-based AEP and Akron-based FirstEnergy, cannot take effect until they are approved at the federal level. A PUCO spokeswoman says Porter’s decision is unrelated. Porter’s letter calls the decision “very difficult.”

Activists Using Misinformation to Kill Fracking in Wayne National Forest - A large billboard has been placed by anti-fracking extremists across from the Wayne National Forest (“the Wayne”) headquarters on U.S. Rt. 33 near Nelsonville, Ohio. The billboard declares, “Frack our national forest? No WAY(ne)!” in stark text next to a picture of an owl and a link to known misinformation site frackingexposed.com. Fracking Exposed, a group connected to the Athens County Fracking Action Network (ACFAN), is renting the billboard. It seeks to discourage federal officials from opening parts of the Wayne to fracking and other deep-shale oil and gas activities. AFCAN members have been active in opposing fracking and related oil-and-gas activities in Wayne County and elsewhere. They have filed appeals on permit approvals of wastewater injection wells and have strongly opposed Forest Service and BLM consideration of opening the Wayne to horizontal drilling. At least one ACFAN member cited the commitments the U.S. made at the climate summit in Paris late last year as a reason to oppose fracking in the Wayne, ignoring the significantly smaller GHG emissions profile of natural gas compared to coal.The group is promoting the complete cessation of oil and gas leasing on public lands, which would have devastating effects on local and state economies in fossil fuel-producing regions, destroy tens of thousands of energy production and associated jobs, and increase the cost of energy. Landowners have expressed concern about their property rights, noting that they are unable to lease their mineral rights without nearby national forest land also being available for leasing.

Consider proposal - Martins Ferry Times Leader --Despite low prices and a general downturn in the industry nationwide, the oil and gas industry remains very active in Eastern Ohio. Not only are new wells being drilled and fracked while existing operations produce record-setting amounts of the precious hydrocarbons, but waste from such operations is being disposed of every day.  This is a cause of concern for Ohio Rep. Debbie Phillips, D-Albany in Athens County, who wants to strengthen oversight of injection wells where waste products are dumped. She is especially concerned that waste generated in other states and brought to Ohio for injection may contain toxins and carcinogens that could contaminate our water supply or otherwise harm Buckeye State residents. The Ohio Department of Natural Resources lists 233 injection wells that are either active or being drilled, mostly in the eastern half of the state. Locally, there are three - one near Barnesville, one in the area of Piedmont Lake and one in Monroe County.  Phillips is proposing legislation that would designate injection wells that accept waste as Class I operations. Now listed as Class II wells, they are regulated by the Ohio Department of Natural Resources. Class I wells receive significantly more oversight from the Ohio Environmental Protection Agency because they accept hazardous and non-hazardous waste. The products are injected into deep, isolated rock formations that are thousands of feet below the lowermost underground source of drinking water. There are now only 10 of these in Ohio, as opposed to the 233 brine injection wells. Phillips' bill also would require companies to provide information about the chemical makeup of waste to first responders; prohibit open pits of waste; and levy a 1-cent per barrel tax on injected waste to cover costs of implementation.

Energy company shuts down fracking operation in Lawrence County: A company told by the Ohio Department of Natural Resources to stop fracking at a Poland Township site has now voluntarily stopped a fracking operation in Lawrence County, Pa. Earthquakes are the reason for both. Houston-based Hilcorp Energy Co. stopped its fracking operation at about noon Monday after a small earthquake occurred in Mahoning Township in Lawrence County, near its North Beaver NC Development well pad, the Pennsylvania Department of Environmental Protection confirmed Wednesday. Hilcorp, doing business as North Beaver NC Development, has four wells on that particular well pad. The first two wells were fracked starting March 30 going in the southeast direction and were completed, said department spokeswoman Melanie Williams in an emailed statement. The second two wells were going in a northwest direction and fracking was ongoing, but near completion. The department and the Pennsylvania Department of Conservation and Natural Resources are investigating the earthquake. On the United States Geological Survey website, there was a 1.9-magnitude earthquake reported just after midnight April 25 about two miles from Bessemer, Pa., 5.6 miles from New Castle and about eight miles from Struthers. In April 2014, the Ohio Department of Natural Resources ordered Hilcorp to halt all operations in Poland Township after multiple earthquakes shook the area in March. ODNR placed a moratorium on drilling at that site.

Proliferation of earthquakes may be price of fracking - Zanesville Times Recorder --According to the Ohio Department of Natural Resources, there are 214 active injection wells in Ohio that dispose of waste water from fracking operations. According to a January article in the Times Recorder, there are seven injection wells in Muskingum County. An application has been filed for an eighth well in Jackson Township. One waste water injection well is in Zanesville. To prevent earthquakes, an attempt is made by the state to locate disposal wells in areas that are seismologicaly stable, but some faults are unknown. In any event, locating a disposal well in a municipal area is questionable.  The millions of gallons of waste water injected into the disposal wells lubricate the layers of rock in an existing fault. This may reduce the friction, allowing the rock layers to slide past each other and cause an earthquake. There have been several hundred small earthquakes in the Canton, Ohio area,which were generally attributed to fracking or waste water disposal well activity. According to NPR, Oklahoma is a state with 3200 active fracking disposal wells, compared to Ohio's 214. According to a January article in USA Today, Oklahoma had 70 small quakes in one week in January. The article stated, “Oklahoma in 2014 had at least 5,415 earthquakes; 585 of them were magnitude-3 or greater. In comparison, the state had just 109 magnitude-3 quakes in 2013, according to the Oklahoma Geologic Survey.”  Although Ohio has not had the proliferation of earthquakes like Oklahoma, the situation needs to be closely monitored. According to ODNR, Ohio has 214 active disposal wells. The Oklahoma experience may be a preview of future Ohio earthquakes, unless the use of injection wells is curbed.

Court: Cities can lease drilling rights under parks without citizens' vote - — Citizens have no legal right to vote on whether to approve leases for drilling for oil and gas under city-owned parks and cemeteries, the Court of Appeals has ruled. A three-judge panel unanimously rejected a challenge by the nonprofit Don’t Drill the Hills Inc. to a decision by Rochester Hills to lease underground oil and gas rights to one company and to allow another company to relocate an oil pipeline. City attorney John Staran said the decision is significant to local governments across Michigan because the court found a lease is not a “sale” of parkland that would trigger a public vote. “The court applied common sense and the plain and ordinary meaning to ‘park’ and ‘open space,’” Staran said. “Park means park. Not the sky above and the subterranean minerals that are not part of the park.” But Don’t Drill the Hills argued that the proper legal interpretation of “park” shouldn’t be limited to the surface. “The park is the whole real estate parcel, and they’re saying a park is just the surface. If you extract this natural resource, which is then sold for a profit, then a portion of the property is gone because mineral rights are property,” said Megan Barnes, a cofounder of the group. Barnes also said the lawsuit was misinterpreted as a referendum on drilling in residential and school areas, but the legal battle was actually about citizens’ right to vote.

Company drops permit request for old pipeline (AP) — Members of Congress say a Houston company has dropped plans to seek a permit to move heavy crude oil through a 98-year-old pipeline under the St. Clair River in southeastern Michigan. U.S. Reps. Debbie Dingell and Candice Miller say too little is known about the condition of the pipes. In a statement Wednesday, they say any oil spill would have a devastating impact. The Detroit Free Press has said two pipes were built in 1918. Five-inch liners were added at an unknown date. The U.S. State Department in March extended a public comment period about the little-known permit sought by Plains LPG. The State Department has jurisdiction because the pipeline goes between Marysville, Michigan, and Canada.

Fracking a Possible Cause of Disturbing Birth Defects and Deaths Found in Horses - In New York’s Southern Tier, local newspapers are investigating the connection between a local racetrack owner’s sick foals and the fracking fluids present on his farmland. The Ithaca Journal featured a report by Tom Wilber in which he investigated the ongoing issue with foals being born without the ability to swallow — seventeen of them so far — on the breeding farm of Jeff Gural, owner of the Tioga Downs, Meadowlands Racetrack, and Vernon Downs. The foals have survived, although all of them have had to be transported to Cornell’s School of Veterinary Medicine, located fifty miles north in Ithaca, New York. An earlier study by Cornell professor Robert Oswald and Cornell veterinarian Michelle Bamberge linked the presence of the byproducts of hydraulic fracturing to numerous animal deaths and stillbirths. Their research included twenty-four case studies of multiple farm animals who had either been killed outright by the cocktail of chemicals or later proved unable to successfully reproduce after exposure.  The vets are conducting their own study of what may be causing the epidemic of horse birth defects. The veterinary team cite the presence of a gas well adjacent to Gural’s land that was drilled by Chesapeake Appalachia LLC as the “prime suspect” in the Gural farm problems. The Pennsylvania Department of Environmental Protection confirmed that the farm’s water is contaminated, although they failed to cite Chesapeake as the cause.

Pennsylvania voters torn over calls for a fracking ban - Reuters - For some Democratic voters in Pennsylvania, Tuesday's primary election will be more than just a chance to pick preferred candidates for public office - it will be a mini-referendum on the future of the state's downtrodden fracking industry. Three candidates on the ballot, including Democratic presidential hopeful Bernie Sanders and two Democratic U.S. Senate hopefuls, want to ban or pause the controversial oil and gas drilling technique, splitting an electorate in parts of the state concerned about both jobs and the environment.  The outcome of the presidential and senate primaries in a state that now the second biggest natural gas producer in America after Texas may reveal how residents of heavily drilled areas feel about an industry suffering from a decline in oil and gas prices. "Everyone is anxious," said Lois Martin, a sales manager at a store in Washington that sells gear, like steel-toe boots and drill-site clothes, to workers in the fracking industry. "Everybody is waiting for the elections to be over," she said. The question of a ban on fracking has also emerged as a key issue in the hotly contested race to select a Democrat to run for a U.S. Senate seat in Pennsylvania against the incumbent Republican Pat Toomey.Two candidates, former U.S. Congressman Joe Sestak and John Fetterman, a small town mayor, have called for a moratorium on fracking. The third candidate, Katie McGinty, the former head of the state’s environmental regulator, has been endorsed by President Barack Obama and Governor Tom Wolf, and is looking for stricter standards on the industry.

A new drill for Pa: Fewer gas rigs operate, and local economies suffer: - Gus Trejo supervised three drill rigs in this remote corner of Elk County for Seneca Resources Corp. until the industry crashed last year. He now manages one site, Seneca's sole remaining rig in the entire state. He's glad just to still be employed. "I'm sitting on the edge of my seat," Five years ago, the Marcellus Shale bonanza attracted 115 drilling rigs to the state, each requiring a battalion of suppliers, trucks, earthmovers, equipment manufacturers, and support services. This month, the rig count fell to 16, a number not experienced since 2007, before hydraulic fracturing entered the public debate and when Marcellus was just a gangster in Pulp Fiction. Last year's energy-price plunge undercut the business across the nation. Gas producers that borrowed heavily to acquire acreage and to drill struggled to cover their debt. They cut operations and sold assets to stay solvent. Some went bankrupt. Those financially strong enough to survive are hunkered down.  "We lost maybe $10 billion in capital spending in 2015, and are heading the same way in 2016 with the rig count."  Despite the slowdown in drilling, Pennsylvania is not likely to relinquish its new status as a natural gas giant. In 2008, it produced 198 million cubic feet of gas, about a quarter of the state's needs. Last year, Pennsylvania produced 4.6 trillion cubic feet, a fifth of the nation's gas demand. The volume of gas production remains stable because of the large inventory of wells awaiting pipeline connections. As soon as the price rises, a producer brings a waiting gas well online. Producers expect the drilling slowdown to last at least 18 months.

Pennsylvania oil, gas rules win key approval, but fight continues - Natural Gas | Platts - Despite winning the approval of a key state agency, a major revision to Pennsylvania's oil and natural gas regulations appeared on Friday to be heading for a showdown in the state legislature. The state's five-member Independent Regulatory Review Council, after a seven-hour meeting on Thursday, voted 3-2 to approve the regulations, which strengthen environmental protection rules for oil and gas well sites. In the case of most rulemakings, the IRRC approval would be just a stepping stone on the way toward eventual implementation of the regulations, but in the case of the controversial proposed oil and gas rules, the standing energy committees of both houses of the state legislature have expressed their disapproval of the rulemaking process, which could result in a legislative fight. "The legislature has an opportunity to put forward a concurrent resolution; if they would like to, they can stop the regulation," IRRC Executive Director David Sumner said in an interview Friday.Prior to the IRRC approval, both the Senate and House of Representatives Environmental Resources and Energy committees had passed resolutions disapproving the rulemaking. This unusual action by the lawmakers has set up a potential confrontation between the Republican-controlled legislature and Governor Tom Wolf, a Democrat who has called for the tighter regulation on the oil and gas industry.

Hilcorp halts fracking at Pa. shale site near earthquake - A natural gas company voluntarily halted fracking activity on a Marcellus shale well in Lawrence County this week while state officials investigate a minor, nearby earthquake.  Houston-based Hilcorp Energy stopped fracking one of the four wells it drilled on its North Beaver NC Development pad west of New Castle about noon Monday, hours after a 1.9 magnitude earthquake was detected nearby in Mahoning. The Department of Environmental Protection is investigating the tremor with the Department of Conservation and Natural Resources, said DEP spokeswoman Melanie Williams.  Researchers and industry officials have for several years debated a potential connection between fracking and earthquakes. Studies have connected swarms of earthquakes to underground injection wells into which companies deposit wastewater from fracking,  DEP and DCNR said last year they would increase monitoring for earthquakes in areas of oil and gas development. In 2014, authorities in Ohio stopped operations at a Hilcorp site in Poland Township — less than 10 miles from Mahoning — because five earthquakes ranging from 2.1 to 3.0 magnitude happened close to that pad.  Hilcorp had finished fracking two of the wells on the Mahoning pad, Williams said. Crews stopped work on the remaining wells and were removing all equipment from the site, she said.

Pa. officials investigating quakes near fracking operations - Pennsylvania officials are investigating the cause of a small earthquake in Lawrence County on Monday not far from the site of a natural gas well where fracking operations were ongoing. Department of Environmental Protection spokeswoman Melanie Williams said Hilcorp Energy Co., doing business as North Beaver NC Development, was hydraulically fracturing two wells on a four-well pad in Mahoning Township when seismic monitors detected a magnitude 1.9 earthquake, at 12:05 a.m. on Monday, according to U.S. Geological Survey records. That tremor was followed by another magnitude 1.9 earthquake at 10 p.m. Monday in the same township about a mile away, according to the USGS.  At about noon on Monday, “Hilcorp stopped fracking operations and demobilized the same day from that location,” Ms. Williams said.  Fracking has infrequently been suspected of directly triggering earthquakes, in cases in England, British Columbia, Oklahoma and Ohio, but researchers have never tied the gas extraction process to quakes in Pennsylvania. Pennsylvania is currently expanding its seismic network to include 42 monitoring stations so that seismic events anywhere in the state should be detectable as small as magnitude 2.0, which is generally below what humans can feel. The expansion was inspired, in part, by state officials’ desire to better understand seismic risks potentially associated with oil and gas activity. Ohio regulators determined that a series of small earthquakes in Mahoning County in 2014 showed “a probable connection” to fracking at a Utica Shale well operated by Hilcorp. Five quakes ranged in magnitude from 2.1 to 3.0, according to USGS records, and the closest was about a mile west of the Pennsylvania border.

Experts count 5 quakes in western Lawrence County  - sharonherald.com: – Experts now say that five low-magnitude earthquakes occurred Monday near a North Beaver Township fracking site. Only one was reported initially, about a mile from the Hilcorp Energy Co. of Texas’s well pad on Route 551 near McClelland Road. The site is known as the North Beaver NC Development. Won-Young Kim, a research professor at the Lamont-Doherty Earthquake Observatory in New York, told the New Castle News Thursday that the additional earthquakes were initially reported as having occurred in Youngstown. He said that after further analysis it was determined they were actually in Lawrence County. All five were 1.9 magnitude or less and are considered minor earthquakes. Kim said it was unlikely that residents would notice the tremblors. The quakes started at 12:05 a.m. Monday and continued, at intervals, until 10 p.m. the same day, according to the U.S. Geological Survey website. The Pennsylvania Department of Environmental Protection and the state Department of Conservation and Natural Resources are investigating, and an inspector was supposed to have visited the site Monday. The state has not determined whether fracking caused the earthquakes and has not ordered the drilling stopped. However, Hilcorp voluntarily suspended its operations at the well pad Monday. Kim, who was called in to advise on earthquakes caused by wastewater injection wells in Youngstown in 2011, said Thursday that earthquakes caused by fracking tend to be shallower than those caused by underwater injection of fracking fluid. However, he said that once drilling triggers an earthquake, there is no technology to prevent more earthquakes if the same well keeps operating.

Huge fireball in gas explosion burns homes, fleeing man: . (AP) — A natural gas pipeline exploded in a towering, roaring fireball Friday, destroying a home several hundred yards away, damaging at least three others and creating waves of intense heat that burned a fleeing homeowner as he ran down a road, authorities said. “It looked like you were looking down into hell,” said Forbes Road Volunteer Fire Chief Bob Rosatti. The fire and heat seared scores of acres of woodlands around the pipeline in Salem Township, about 30 miles east of Pittsburgh, turning tall trees into blackened poles, melting the siding off one property, and causing wet pavement to steam. People miles away reported hearing a huge whooshing sound and feeling the ground rumble. A quarter-mile evacuation zone was established, affecting about a dozen homes, said state Department of Environmental Protection spokesman John Poister. The pipeline was shut off and the fire brought under control within an hour, but residual gas burned for several hours before the fire was completely out by early afternoon, officials said. The man who was burned lived in the house closest to the fire. It was destroyed. “He told us that he heard a loud noise and compared it to a tornado. All he saw was fire and started running up the roadway and a passerby picked him up,” Rosatti said. “The heat was so intense that it was burning him as he was running,” he said.

40 MILE LONG GAS CLOUD AS PIPELINE EXPLODES! --  Massive explosion of 36″ gas transmission line was picked up by weather radar; the gas plume was 40 miles long and 4,000 feet high.   Local weather reporters thought it was a rain storm . Of flammable, planet-cooking methane gas. Pipeline company invokes force majeure, claiming:  “God did it! We had nothing to do with it. Honest.” Aerial pictures of monumental damage. Massive damage in Pennsylvania - An explosion and fire on a major Spectra Energy Corp. pipeline that crosses half the U.S. is disrupting natural gas shipments from western Pennsylvania to the Northeast.Crews shut off the gas feeding the flames, which burst out of Spectra’s 36-inch Texas Eastern pipeline in Salem Township at about 8:30 a.m., John Poister, a spokesman for the Pennsylvania Department of Environmental Protection, said in an e-mail.While repairs will start as soon as possible, it’s unclear when service will be restored, Spectra said in a notice. The company declared force majeure at midday, sending natural gas futures surging as much as 5.6 percent on the New York Mercantile Exchange on speculation that the outage will limit supplies to the Northeast.One of the country’s largest pipelines, Texas Eastern runs from the Gulf Coast up through the booming Marcellus and Utica shale regions all the way to New Jersey, where it hooks up with other lines into New York and New England. The Penn-Jersey section had been transporting 1.3 billion cubic feet of gas a day through the Delmont compressor in Westmoreland County, according to Het Shah, an analyst at Bloomberg New Energy Finance.Gas may still be able to move out of the region through an underutilized system known as the Capacity Restoration Project, which runs parallel to the Penn-Jersey system, according to BNEF analyst Joanna Wu. “That whole area is a big web of pipelines, so it will find its way to market, but in the short-term, it’s going to cut some flows,” Shah said. The explosion created a conflagration that damaged “several” homes near the pipeline, engulfing one of them and injuring a man inside who was transported to a Pittsburgh hospital, Poister said. Residents of the area told media outlets they could feel rumbling as far as 6 miles away. Passing motorists captured images of the fiery scene and emergency crews set up a quarter-mile evacuation zone.

Most states do bare minimum on fire-foam contamination - The military is checking U.S. bases for potential groundwater contamination from a toxic firefighting foam, but most states so far show little inclination to examine civilian sites for the same threat. The foam was likely used around the country at certain airports, refineries and other sites where catastrophic petroleum fires were a risk, but an Associated Press survey of emergency management, environmental and health agencies in all 50 states showed most haven’t tracked its use and don’t even know whether it was used, where or when. Only five states — Alaska, Minnesota, New Jersey, Vermont and Wisconsin — are tracking the chemicals used in the foam and spilled from other sources through ongoing water monitoring or by looking for potentially contaminated sites. A dozen states are beginning or planning to investigate the chemicals — known as perfluorinated compounds, or PFCs — which have been linked to prostate, kidney and testicular cancer, along with other illnesses. The rest of the states, about two thirds, are waiting for the U.S. Environmental Protection Agency to make a move. In addition to the Aqueous Film Forming Foam used in disaster preparedness training and in actual fires, PFCs are in many household products and are used to manufacture Teflon. Knowledge about the chemicals’ effects has been evolving, and the EPA does not regulate them. The agency in 2009 issued guidance on the level at which they are considered harmful to health, but it was only an advisory — not a legally enforceable limit.

Pipeline developers vow to fight New York permit rejection  (AP) — Developers of a 124-mile pipeline designed to transport natural gas from Pennsylvania’s shale fields say they’ll challenge New York’s rejection of a critical permit. The Constitution Pipeline Company said Monday that the Department of Environmental Conservation’s denial letter includes “flagrant misstatements and inaccurate allegations” and is driven by politics. The DEC on Friday denied a water quality permit, saying the project fails to meet standards that protect hundreds of streams, wetlands and other water resources in its path. The company, a partnership formed by Cabot Oil & Gas, Williams Partners and Piedmont Natural Gas Company, can appeal the state decision to the U.S. Circuit Court of Appeals. The company had planned to start construction at the end of summer.

NY comptroller urges more insurance for rail oil spills  (AP) — New York state’s comptroller is urging federal authorities to strengthen safety measures against oil spills and require trains to carry sufficient insurance to cover cleanup costs from major accidents. Comptroller Thomas DiNapoli is administrator of New York’s Oil Spill Fund. He cites a U.S. Transportation Department finding that oil shippers and rail companies carry insurance that may be insufficient to cover a serious accident involving tankers carrying crude oil or other hazardous materials. In a letter to the department and the Federal Railroad Administration, DiNapoli says a review of Securities and Exchange Commission filings shows CSX Corp. is self-insured for $25 million for “non-catastrophic” property damage and $50 million for natural catastrophes. He says Canadian Pacific Railway filings lack information. They are the two major carriers of crude oil in New York.

Firm suspends plans to build $3.3B natural gas pipeline (AP) — Plans to build a $3.3 billion natural gas pipeline from New York into New England through western Massachusetts and southern New Hampshire have been suspended. Houston-based Kinder Morgan Inc. announced Wednesday it has decided to stop work on the project. It cited a lack of contracts with gas distribution companies. The company also said New England states haven’t established needed regulatory procedures to allow it to move forward and the process in each state for creating those procedures remains open-ended. “There are currently neither sufficient volumes, nor a reasonable expectation of securing them, to proceed with the project as it is currently configured,” the company said in a press release. The company said, given the market conditions, continuing to develop the pipeline is an unacceptable use of its shareholder funds. “Innovations in production have resulted in a low-price environment that, while good for consumers, has made it difficult for producers to make new long term commitments,” the company added. U.S. Sen. Kelly Ayotte said she was pleased by the announcement, pointing to what the New Hampshire Republican called “the many unanswered questions and concerns raised by New Hampshire residents who would have been affected by this project.” Those sentiments were shared by fellow U.S. Sen. Edward Markey.

10 Fracking Infrastructure Projects Canceled or Delayed in the Last 24 Months - Here’s the list:

  • April 2014: The Bluegrass Pipeline in Kentucky was stopped by a court decision upholding landowners’ rights against the use of eminent domain to take their land for private profit.
  • November 2015: The Port Ambrose liquified natural gas (LNG) project was vetoed by New York Governor Andrew Cuomo. The project was proposed by Liberty Natural Gas off the shores of New York and New Jersey.
  • March 2016: The Jordan Cove LNG export terminal and 223-mile Pacific Connector pipeline in Oregon were rejected by the Federal Energy Regulatory Commission (FERC), signifying FERC’s first gas infrastructure rejection in 30 years.
  • March 2016: The Republican-dominated Georgia legislature voted overwhelming for a one-year moratorium on any new gas pipelines, setting back efforts to build the Palmetto Pipeline.
  • March 2016: FERC announced a seven month delay on making a decision about the Penn East pipeline in Pennsylvania and New Jersey and a 10 month delay for the Atlantic Sunrise pipeline in Pennsylvania and Maryland.
  • April 2016: The Oregon LNG company announced that it’s ending its years-long effort to build an export terminal and pipeline.
  • April 2016:  Kinder Morgan announced it is suspending its efforts to build the Northeast Energy Direct pipeline, which would have run from Pennsylvania through New York into Massachusetts and New Hampshire.
  • April 2016: Dominion Resources announces that the start time for beginning construction on the Atlantic Coast pipeline, going from West Virginia through Virginia into North Carolina, is being moved back from this fall to summer 2017.
  • April 2016: New York Governor Andrew Cuomo announced that the New York Department of Environmental Conservation rejected the application of the Constitution Pipeline company for a water quality permit, a permit it must have in order to begin construction.

West Virginia, Japanese leaders talk natural gas partnership  (AP) — West Virginia Gov. Earl Ray Tomblin, U.S. Sen. Joe Manchin and natural gas industry executives have met with Japanese business leaders to discuss investment opportunities. A Tomblin news release says executives from Energy Corporation of America and MarkWest Energy Partners joined for the meeting Friday in New York City. The release says almost 100 people attended, including representatives of dozens of Japanese companies; the Japanese Chamber of Commerce; the Ambassador of the Consulate General of Japan in New York; representatives from Japanese companies with West Virginia operations; and prospective investors. The event was hosted by the West Virginia Department of Commerce and the Discover the Real West Virginia Foundation.

US LPG export terminals poised to serve the Pacific Basin - Fueled by soaring domestic production of natural gas liquids (NGLs) like propane and butane, U.S. liquefied petroleum gas (LPG) export volumes the past three years have rocketed to the top, surpassing exports by the old Big Three of LPG: United Arab Emirates, Qatar and Algeria. But that rise in LPG exports may be ending, and the share of exports made from Gulf Coast docks may be in for a decline. More propane and butane will be pulled from the Marcellus and Utica to the docks at Marcus Hook, PA, and demand for propane on the Gulf Coast—from new propane dehydrogenation plants and flexible steam crackers—will be climbing. That suggests that less LPG may need to be exported from the Gulf Coast to keep the market in balance. In today’s blog we continue our look at the soon-to-open Panama Canal expansion with an updated examination of U.S. LPG export terminals along the Gulf Coast.  As we said in Episode 1, the wider, deeper locks being built along the Panama Canal will (finally) be in business within a few weeks, enabling the world’s growing fleet of Very Large Gas Carriers (VLGCs) that move most U.S. LPG exports to take that important short-cut between the Caribbean and the Pacific. (All but the world’s very biggest liquefied natural gas (LNG) vessels will be able to float through the expanded canal as well.) The time saved will be huge; a trip from the Gulf Coast to Asia around the Cape of Good Hope takes more than six weeks, compared with only three weeks-plus via the Panama Canal. And time, of course, is money. Cut the time it takes for a Houston-to-Tokyo round trip in half and (aside from the canal tolls) you’ve halved the LPG freight rates.  And that’s not the only way LPG shipping costs are coming down. According to a recent analysis by Fearnley Securities, average daily VLGC rates are now below $40,000 (in part because of all the new carriers being built—one a week in recent months) and daily rates may fall to $25,500 (at or below the representative break-even price) in 2017. That would of course be good news for those hoping to sell increasing volumes of U.S.-sourced LPG to Asian markets (including the India subcontinent), which use the propane/butane mix primarily for cooking and heating but also as a petrochemical feedstock.

Data Points From RBN Energy's Update On US LPG Exports -- April 29, 2016  --This is taken from "episode 2" of RBN Energy's update of US LPG exports from the Gulf coast. It really is quite an amazing story and suggests that one of the big stories of the 21st century will be the emergence of US as the global energy powerhouse.Some of the data points follow. First, the data points from "episode 1":

  • US domestic production of NGLs (like propane and butane is soaring
  • US liquified propane gas (LPG) exports in the past three years have rocketed to the top
  • US exports of LPG now surpasses exports by the old Big Three: UAE, Qatar ("cutter"), and Algeria
  • the rise in LPG exports may be ending
  • exports from the Gulf coast may be in for a decline
  • more propane and butane from the Marcellus and Utica will be re-routed to Marcus Hook, PA
  • demand for new propane dehydrogenation plans and flexible steam crackers will be climingg
This episode, episode 2, will focus on how the Panama expansion will affect LPG exports. The data points follow.
  • the Panama expansion will be operations within a few weeks
  • all but the world's very biggest LNG vessels will be able to transit the canal
  • huge times savings from the Gulf coast to Asia: from more than six weeks (around Cape of Good Hope) to three weeks (Panama Canal)
  • daily rates for these sea-going tankers have tanked
  • two "events" have changed LPG export dynamics: Marcus Hook and PDH
    • Mariner East 2 pipeline across Pennsylvania will re-route 275,000 bopd by 2017; to Marcus Hook, PA
    • once at Marcus Hook, LPG-BR (rail) across the US; propane at those terminals is at the expense of propane at Gulf coast terminals
    • more domestic processing through increased number of PDH plants
  • US LPG exports have been on a tear
    • January, 2013: 184,000 bopd LPG exports from Gulf coast
    • January, 2016: 1,047,000 bopd LPG exports from Gulf coast (nearly six-fold increase in three years)

Coalitions representing anti-pipeline groups holding summit (AP) — Dozens of organizations opposed to two multibillion dollar natural pipelines proposed in Virginia and West Virginia are coming together for a summit. The gathering Saturday in Weyers Cave brings together the Allegheny-Blue Ridge Alliance and Protect our Water Heritage Rights, or POWHR. The alliance represents nearly 50 members opposed to the Atlantic Coast Pipeline, while the POWHR represents organizations in 11 Virginia and West Virginia counties. The group is united against the Mountain Valley Pipeline. The proposed pipelines would snake through hundreds of rural locations to deliver fracked natural gas to the Southeast. One of the speakers Saturday will be the founder of a group that led the fight against the Keystone XL Pipeline. The pipelines have strong bipartisan support in both states.

US gulf coast propane exports headed back down - The prospects for an ever-expanding boom in propane exports from the U.S. Gulf Coast are dimming, even as export volumes stand at near-record levels and as new export capacity continues to come online. Why? It comes down to supply and demand.  With oil and NGL prices at today’s levels, propane production is leveling off, not rising, and U.S. Gulf Coast domestic demand for propane will be increasing—from new propane dehydrogenation (PDH) plants and propane’s use in ethylene steam crackers—at the same time that export volumes out of the East Coast are quadrupling.  In today’s blog we consider the possibility that what goes up must come down.  There’s a Woody Allen quote that’s relevant here: “If you want to make God laugh, tell him about your plans.”  Not so long ago, the general expectation was that through the latter half of the 2010s, the U.S. would be awash in ethane, propane and other natural gas liquids (NGLs). To take advantage of these plentiful (and presumably inexpensive) supplies, petrochemical companies planned ethane-only ethylene steam crackers and PDH units, and midstream companies planned NGL pipelines and export terminals to expedite the delivery of NGLs to international markets, including increasing amounts of liquefied petroleum gas (LPG, mostly propane with some butane) and previously unheard of waterborne ethane exports. 

PDH Plants Sited to Use Stranded Propane --  Several new propane dehydrogenation (PDH) plants are coming online along the U.S. Gulf Coast. Now developers in Alberta are making plans for the province to become the next hot spot for PDH plant development. Final Investment Decisions (FIDs) are due over the next year or so on two projects aimed at taking advantage of the increasing volumes of propane being produced in western Canada—propane so plentiful, in fact, that they are paying to have it hauled off. But what if propane prices rise due to increasing U.S. demand, more exports and lower U.S. production? What might such developments do to PDH economics? What could make Alberta different? Today, we consider the drivers behind two (maybe three) prospective PDH projects in Alberta, and look at how they may affect the propane market on both sides of the 49th parallel. We try not to play favorites among the hydrocarbon markets we blog about, but it’s hard not to like the propane sector, with its dynamic pricing, its variety of uses (heating, BBQ grilling, petrochemical feedstocks), its huge export potential, and the sometime remarkable differences between how much it costs at Point A versus Point B. As we have explained, propane is a “purity” product extracted from natural gas along with the other NGLs or (in smaller volumes) produced at refineries. Propane has three carbon atoms and eight hydrogen atoms (C3H8). We’ve written about propane frequently, and about propylene, a very in-demand petchem intermediary feedstock that for a long time was produced primarily by refineries or as a byproduct from ethylene steam crackers but more recently is increasingly being made “on purpose” at propane dehydrogenization (PDH) plants. As their name suggests, PDH plants remove some hydrogen (specifically, two hydrogen atoms) from propane (again, C3H8) to make propylene (C3H6).

Regulators relax monitoring of decade-old Gulf oil leak (AP) — Federal regulators have relaxed a pollution monitoring requirement for a company responsible for a decade-old oil leak in the Gulf of Mexico, a slow-motion spill that could last another century. In 2008, the Coast Guard ordered Taylor Energy Company to conduct daily flights over the site of its leak to visually monitor chronic oil sheens that often stretch for miles off Louisiana’s coast. That requirement remained in effect until December, when the Coast Guard amended the order to reduce the minimum number of required overflights to twice a week. Regulators didn’t announce the change at the time. The Coast Guard confirmed details of its new order on Tuesday in response to an Associated Press inquiry. Coast Guard Chief Petty Officer Bobby Nash said flights are often cancelled due to weather and “other safety issues,” and they rarely detect the presence of oil that could be recovered from the water’s surface. “Based on this historical knowledge and consistent patterns of sheening near the site, the new overflight frequency will target calm days when there is greater likelihood to observe dark, recoverable product on the water’s surface,” Nash said in a statement he attributed to “Unified Command,” which includes federal regulators and Taylor Energy itself. Government experts believe oil is still leaking at the site where waves whipped up by Hurricane Ivan in 2004 triggered an underwater mudslide, which toppled a Taylor Energy-owned platform and buried a cluster of its oil wells under mounds of sediment. Last year, regulators estimated the leak could last a century or more if left unchecked.

Groundwater quality changes alongside expansion of hydraulic fracturing: New research from The University of Texas at Arlington demonstrates that groundwater quality changes alongside the expansion of horizontal drilling and hydraulic fracturing but also suggests that some potentially hazardous effects may dissipate over time.The new research, published today in the journal Science of the Total Environment in the article "Temporal Variation in Groundwater Quality in the Permian Basin of Texas, a Region of Increasing Unconventional Oil and Gas Development," is the first to analyze groundwater quality in the Cline Shale region of West Texas before, during and after the expansion of hydraulic fracturing and horizontal drilling. The research team collected and analyzed private water well samples on the eastern shelf of the Permian Basin four times over 13 months to monitor basic water quality, metal ions, organic ions and other chemicals. They discovered the presence of chlorinated solvents, alcohols and aromatic compounds exclusively after multiple unconventional oil wells had been activated within five kilometers of the sampling sites. Large fluctuations in pH and total organic carbon levels also were detected in addition to a gradual accumulation of bromide. "These changes and levels are abnormal for typical groundwater quality," . "The results also suggest that contamination from unconventional drilling may be variable and sporadic, not systematic, and that some of the toxic compounds associated with areas of high unconventional drilling may degrade or become diluted within the aquifer over time," Schug said. "The next step is more research to precisely quantify and understand contamination cycles as well as to understand aquifer resilience to pollutants." The results also indicated that contamination pathways are complex. Various toxic compounds were detected in groundwater seemingly at random times in areas of high drilling activity.

New Mexico sues Texas oil company for lease payments (AP) — The New Mexico State Land Office is suing a Texas oil company for years of overdue fees and recent environmental cleanup costs at a wastewater injection well used by various oil producers. Siana Operating of Midland, Texas, was notified Thursday of the lawsuit in Santa Fe District Court seeking compensation, punitive damages and access to the company’s accounting records. State Land Commissioner Aubrey Dunn says Siana continued to operate a salt-water injection well on state trust lands in southeastern New Mexico after its lease expired in 2011 while avoiding $114,000 in disposal fees. In all, the agency says it is owed $284,000 in fees, cleanup costs and penalties. A Santa Fe-based attorney for Siana, Robert Stranahan, said his client was reviewing the lawsuit and had no immediate comment. The lawsuit comes as New Mexico well regulators at the Oil Conservation Division struggle to hold the financially distressed company accountable for a string of spills of oil, salt water and other oil-field waste at a collection of wells outside the town of Eunice. Siana is a major provider of well-water disposal services in New Mexico, operating two disposal wells that injected over 13 million gallons underground in 2014, with relatively small-scale oil and natural gas extraction operations at nine wells.  Oil wells in southern New Mexico draw up large quantities of salt water from ancient aquifers as they extract oil and natural gas. Beyond New Mexico, a Texas-based bank has filed a lawsuit in against Siana Operating, affiliate Siana Oil & Gas and corporate owner Tom Ragsdale seeking to ensure recovery of nearly $13 million in debts after the companies defaulted on loan payments.

ND official: Natural gas liquids spill at gathering pipeline (AP) — The North Dakota Health Department says about 42 gallons of natural gas liquids spilled at a gathering pipeline and entered a tributary to the Green River in Billings County. North Dakota Water Quality Director Karl Rockeman says Monday’s spill of about one barrel of condensate into Spring Creek was reported by pipeline operator Oneok Rockies Midstream. Rockeman says staff members from the North Dakota Industrial Commission Oil and Gas Division and the Department of Health are at the site and will continue to monitor the cleanup. The site is about 13 miles north and four miles east of Belfield. Condensate is a byproduct of natural gas production.

Contamination in North Dakota linked to fracking spills: Accidental wastewater spills from unconventional oil production in North Dakota have caused widespread water and soil contamination, a new Duke University study finds. Researchers found high levels of ammonium, selenium, lead and other toxic contaminants as well as high salts in the brine-laden wastewater, which primarily comes from hydraulically fractured oil wells in the Bakken region of western North Dakota. Streams polluted by the wastewater contained levels of contaminants that often exceeded federal guidelines for safe drinking water or aquatic health. Soil at the spill sites was contaminated with radium, a naturally occurring radioactive element found in brines, which chemically attached to the soil after the spill water was released. At one site, the researchers were still able to detect high levels of contaminants in spill water four years after the spill occurred. "Until now, research in many regions of the nation has shown that contamination from fracking has been fairly sporadic and inconsistent,"  "In North Dakota, however, we find it is widespread and persistent, with clear evidence of direct water contamination from fracking." "The magnitude of oil drilling in North Dakota is overwhelming," . "More than 9,700 wells have been drilled there in the past decade. This massive development has led to more than 3,900 brine spills, mostly coming from faulty pipes built to transport fracked wells' flowback water from on-site holding containers to nearby injection wells where it will be disposed underground."  As part of the study, the team mapped the distribution of the 3,900 spill sites to show how they were associated with the intensity of the oil drilling.

Sioux tribe to meet with fed official over pipeline concerns (AP) — Members of the Standing Rock Sioux plan to meet with a federal official later this week to express their concerns over a planned oil pipeline. The $3.8 billion Dakota Access pipeline planned by Dallas-based Energy Transfer Partners would carry crude from North Dakota’s Bakken oil fields to Illinois. Tribal officials oppose it because they fear an oil spill could contaminate drinking water on the reservation that straddles the North Dakota-South Dakota border. The proposed 1,130-mile pipeline would pass through the Dakotas and Iowa on its way to Illinois. Regulators in all states have approved the project, though it still needs approval from the U.S. Army Corps of Engineers. Tribal officials have scheduled a meeting with a corps official on Friday in Mobridge, South Dakota.

Victory of American ingenuity over crude pipeline delays and congestion -- The story of crude-by-rail (CBR) in North America is that of a victory of good old U.S. ingenuity over the lack of pipeline capacity that stranded booming shale oil production in 2012. The lower cost to market of “on-ramp” rail terminals allowed surging crude production a route to (mainly) coastal refineries - igniting a building boom over 4 short years that has left 82 load terminals and 44 destination terminals operating today  - many of them now underutilized.  Along the way monthly lease rates for rail tank cars that reached $2,750/month at the height of the boom are down to $325/month after the bust – with many lease holders paying daily rent to park their empty cars. Today we conclude our series reviewing the state of CBR today. Recap: This is Part 10 – the grand finale in our series updating the sorry state of the CBR business in North America in 2016 compared to its heyday a few years back. In Part 1 of the series we noted CBR declines in response to narrower spreads between U.S. domestic crude benchmark WTI and international equivalent Brent. The lower spreads reduce the incentive to move crude from inland basins to coastal refineries by rail because the latter is a more expensive transport option compared to pipelines. CBR became a big deal when WTI was discounted to Brent by upwards of $25/Bbl in 2011 and 2012 because of congestion caused by a lack of pipeline capacity.

North Dakota natural gas output hits milestone : (Argus) — Natural gas production from North Dakota reached an all-time high in February as flaring declined and gas output from oil wells in of the Bakken and Three Forks formations increased. Gas production in February rose to 1.69 Bcf/d (48mn m³/d), up by 3pc from January and about 1pc higher than the previous record set in November 2015, according to the North Dakota Department of Mineral Resources. The amount of flared gas in February dropped to 11pc, down from 13pc a month earlier as processing capacity rose. The Tioga gas plant increased its operational capacity to 84pc, up by 5 percentage point from January. Nearly all of the gas produced in North Dakota comes from the state's oil wells. But gas production grew despite a decline in producing wells. The well count dropped at the end of February to 13,012, down by 129 from a month earlier. Producers have been focusing on the most prolific areas of the Bakken and simultaneously shutting smaller, less profitable wells amid a prolonged downturn in energy prices.Spot gas prices on Northern Border pipeline at Ventura, Iowa, averaged $1.95/mmBtu in February, down by more than half from a year earlier and was down by 16pc from January. Northern border can receive gas from North Dakota and delivers into major markets in the midcontinent, including Chicago. Oil production in North Dakota has declined since December and in February averaged at 1.12mn b/d, down by 4,129 b/d from January, according to the agency data.

Bakken Update: U.S. Small-Cap Oil Producers May Be Responsible For Balancing World Supply And Demand - Summary:

  • US oil production continues to decrease approximately 20K bbl/d each week although Gulf production continues to increase.
  • Producers had planned to increase production significantly from 2014 to 2015 but low oil prices pulled barrels from the market.
  • 2016 oil production from shale could see a much larger decrease year over year as increases may be seen from Iran, Saudi Arabia, Iraq, Russia, Kuwait, etc.
  • U.S. small cap unconventional oil producers could shoulder the majority of the 2016 production cut if 2015 numbers were a preview.

Toxic ND: Fracking related spills cause pervasive soil & water contamination - Brine spills from oil development in western North Dakota are releasing toxins into soils and waterways, sometimes at levels exceeding federal water quality standards, scientists reported Wednesday. Samples taken from surface waters affected by waste spills in recent years in the state’s Bakken oilfield region turned up high levels of lead, ammonium, selenium and other contaminants, Duke University researchers said. Additionally, they found that some spills had tainted land with radium, a radioactive element. Long-term monitoring of waters downstream from spill sites is needed to determine what risks the pollution might pose for human health and the environment, geochemistry professor Avner Vengosh said. But the study revealed “clear evidence of direct water contamination” from oil development using the method known as hydraulic fracturing, or fracking, he said, describing the problem as “widespread and persistent.” Wastewater spills are a longstanding yet largely overlooked side effect of oil and gas production that worsened during the nation’s recent drilling boom, when advances in fracking technology enabled North Dakota’s daily output to soar from 4.2 million gallons in 2007 to 42 million gallons in 2014. The Associated Press reported last year that data from leading oil- and gas-producing states showed more than 175 million gallons of wastewater spilled from 2009 to 2014 in incidents involving ruptured pipes, overflowing storage tanks and other mishaps or even deliberate dumping. There were some 21,651 individual spills. The numbers were incomplete because many releases go unreported.

One oil field a key culprit in global ethane gas increase - A single U.S. shale oil field is responsible for much of the past decade's increase in global atmospheric levels of ethane, a gas that can damage air quality and impact climate, according to new study led by the University of Michigan. The researchers found that the Bakken Formation, an oil and gas field in North Dakota and Montana, is emitting roughly 2 percent of the globe's ethane. That's about 250,000 tons per year. "Two percent might not sound like a lot, but the emissions we observed in this single region are 10 to 100 times larger than reported in inventories. They directly impact air quality across North America. And they're sufficient to explain much of the global shift in ethane concentrations,"  The Bakken is part of a 200,000-square-mile basin that underlies parts of Saskatchewan and Manitoba in addition to the two U.S. states. It saw a steep increase in oil and gas activity over the past decade, powered by advances in hydraulic fracturing, or fracking, and horizontal drilling. Between 2005 and 2014, the Bakken's oil production jumped by a factor of 3,500, and its gas production by 180. In the past two years, however, production has plateaued. Ethane is the second most abundant atmospheric hydrocarbon, a family of compounds made of hydrogen and carbon. Ethane reacts with sunlight and other molecules in the atmosphere to form ozone, which at the surface can cause respiratory problems, eye irritation and other ailments and damage crops. Surface-level ozone is one of the main pollutants that the national Air Quality Index measures in its effort to let the public know when breathing outside for long periods of time could be harmful. Low-altitude ozone also plays a role in climate change, as it is a greenhouse gas and the third-largest contributor to human-caused global warming after carbon dioxide and methane.

Study: US oil field source of global uptick in air pollution: — An oil and natural gas field in the western United States is largely responsible for a global uptick of the air pollutant ethane, according to a new study. The team led by researchers at the University of Michigan found that fossil fuel production at the Bakken Formation in North Dakota and Montana is emitting roughly 2 percent of the ethane detected in the Earth’s atmosphere. Along with its chemical cousin methane, ethane is a hydrocarbon that is a significant component of natural gas. Once in the atmosphere, ethane reacts with sunlight to form ozone, which can trigger asthma attacks and other respiratory problems, especially in children and the elderly. Ethane pollution can also harm agricultural crops. Ozone also ranks as the third-largest contributor to human-caused global warming after carbon dioxide and methane. The study was launched after a mountaintop sensor in the European Alps began registering surprising spikes in ethane concentrations in the atmosphere starting in 2010, following decades of declines. The increase, which has continued over the last five years, was noted at the same time new horizontal drilling and hydraulic fracturing techniques were fueling a boom of oil and gas production from previously inaccessible shale rock formations in the United States. Searching for the source of the ethane, an aircraft from the National Oceanic and Atmospheric Administration in 2014 sampled air from directly overhead and downwind of drilling rigs in the Bakken region. Those measurements showed ethane emissions far higher than what was being reported to the government by oil and gas companies. “These findings not only solve an atmospheric mystery — where that extra ethane was coming from — they also help us understand how regional activities sometimes have global impacts,”

How 10 Years of Fracking Has Been a Disaster for Our Water, Land and Climate -  In the last decade, the combination of horizontal drilling and hydraulic fracturing--the process known as 'fracking'--has unlocked vast reserves of shale gas across the country, and unleashed a torrent of chemical pollution and environmental harm in its wake. Plenty of unknowns remain about the environmental impacts of fracking, due in large part to a lack of baseline testing before drilling began, and industry secrecy abetted by lack of sufficient government regulations. But what we do know, compiled in a new report by Environment America Research & Policy Center and Frontier Group, is cause for alarm.  The study, Fracking By the Numbers, quantifies the environmental harm caused by more than 137,000 fracking wells permitted since 2005. Because it relies largely on industry-reported data, modest estimates of the average toll each well takes on the environment, and a patchwork of information from state and federal regulators, the report paints a conservative -- but still frightening -- picture of fracking's devastation. Once lauded as "bridge" to a clean energy future, fracking is now clearly adding to the problem of global warming. First, burning shale gas extracted during fracking creates carbon pollution. Even more damning, methane, a greenhouse gas exponentially more potent than carbon, is released at multiple steps during the fracking process. Fracking released 5.3 billion pounds of methane into the atmosphere in 2014 during just one of these stages -- well completion -- as much global warming pollution as 22 coal-fired power plants produce in a year.Perhaps most notorious for causing tap water to light on fire, fracking also poses critical risks to our water supplies. Fracking requires huge volumes of water for each well - water that is often needed for other uses or to maintain healthy aquatic ecosystems. At least 239 billion gallons of water have been used in fracking since 2005, an average of 3 million gallons per well.

Highly Explosive Bakken Crude Makes It To The Netherlands (Europe) Safely -- April 25, 2016 -- MRT is reporting: A petroleum tanker laden with 175,000 barrels of North Dakota crude was being offloaded in Europe on Wednesday, the first such overseas shipment of the state’s oil since Congress lifted a 40-year ban on crude exports in December. North Dakota’s congressional delegation and industry officials hailed Hess Corp.’s shipment as a milestone that could open more markets in faraway refineries where premium prices are typically fetched based on foreign prices. “It’s a big deal,” said Ron Ness, president of the North Dakota Petroleum Council, a trade group that represents about 500 companies working in the oil patch in the western part of the state. “Once you get a barrel to sea, it will fetch a better price.” The ban on crude exports was put in place in response to the energy crisis of the 1970s. It’s not immediately clear what impact exporting North Dakota oil will have on prices or production, which is currently pegged at about 1.1 million barrels daily. And environmental groups have said they worry that increased supply by U.S. energy companies will lead to more pollution and higher global emissions. Hess spokesman John Roper said the crude originated from Tioga, North Dakota in early April. It was shipped by rail to St. James, Louisiana. There, it was loaded on a tanker with ExxonMobile Corp.’s offshore oil from the Gulf of Mexico. The tanker arrived early this week in Rotterdam, Netherlands, where ExxonMobile (sic) has a refinery, Roper said. Workers were unloading the shipment Wednesday.

Oil Crash Creates Glut Of Petroleum Engineers - More Layoffs Coming -- Back in 2013, Oilprice.com published an article about a cook on an Australian offshore platform earning this kind of salary during the heydays in the oil sector. But things have changed in the oil patch. For many years one of the most lucrative jobs in the already lucrative field of engineering was as a petroleum engineer. While industrial, mechanical, and chemical engineering grads all commanded respectable salaries, usually ranging from $55,000 to $75,000, in recent years petroleum engineering salaries often top $100,000 or more. The days of that prosperity are ending or at least on hold for now though. Jobs for petroleum engineers are becoming increasingly scarce even for grads from traditionally good universities. Part of the problem is that as U.S. shale oil boomed, so did the number of petroleum engineering grads. There are more than three times as many students graduating today with petroleum engineering degrees as there were in 2008. In that sense, the petroleum engineering glut is even worse than the oil glut. While the oil markets will rebalance over a period of a couple of years, many petroleum engineers will likely leave or never enter the industry in the first place. Now to be fair, engineering is an extremely useful field and there is considerable overlap between many of the engineering disciplines. My undergrad training and initial work experience is in industrial engineering, which has significant commonalities with mechanical engineering. In the same way, petroleum engineers will be able to get jobs in other technical fields – mathematical and scientific skills are always in demand. Still, for many students who went to school and took on student loans under the expectation of getting a six figure petroleum engineering job, a rude awakening is likely ahead. Petroleum engineering became a much more attractive field thanks to the shale boom, which meant that these engineers were no longer likely to have to take a job abroad or on an offshore platform. If shale is dead or partially dead, that changes the calculus for many petroleum engineers. To employ a meaningful number of the current stock of engineers, oil prices would likely have to get back to around $70 a barrel which would make shale at least reasonably profitable in many geographies.

Hess 1st-quarter loss widens, but tops Wall Street’s view — Hess Corp.’s first-quarter loss widened, as the oil and gas producer dealt with lower realized selling prices and a decline in production. Still, its performance beat analysts’ estimates. For the three months ended March 31, Hess lost $509 million, or $1.72 per share. A year earlier the New York-based company lost $389 million, or $1.37 per share. The results surpassed Wall Street expectations. The average estimate of six analysts surveyed by Zacks Investment Research was for a loss of $1.81 per share. Revenue declined to $993 million from $1.55 billion. Hess said Wednesday that oil and gas production totaled 350,000 barrels of oil equivalent per day, compared with pro forma production, which excludes assets sold, of 355,000 barrels of oil equivalent per day in the prior-year period.

Hess Production YoY Flat; Reported Loss Less Than Forecast; Unnecessary Talk About Rig Counts -- April 27, 2016 -- Hess reports; link here. Quarterly revenue dropped 36% year over year to $993 million, falling short of estimates of $1.02 billion for the first three months of the year.  Before today's market open, New York City-based Hess posted a loss of $1.72 per share for the quarter, beating estimates of a loss of $1.83 per share for the quarter. Last year, Hess reported a loss of 98 cents per share for the 2015 first quarter. Oil and gas production fell to 350,000 barrels of oil equivalent per day for the latest quarter, compared with 355,000 barrels of oil equivalent per day in the same period last year. Exploration and production capital and exploratory expenditures declined 56% to $544 million. If this was in response to an analyst's question, it speaks volumes about the analyst -- I'll explain why after the link. The Dickinson Press is reporting: Hess Corp. said on Wednesday it would add drilling rigs in North Dakota's Bakken shale basin, its largest area of operations, if oil prices approach $60 per barrel, a level executives believe offers the best chance to return to profitability. The update came after the U.S. oil producer reported a smaller-than-expected quarterly loss, with cost cuts helping offset more than 60 percent drop in crude prices in the past 18 months. It seems to me I recall another company saying the same thing some time ago, maybe EOG, although maybe it was Hess.  I think this (the number of rigs) will be interesting to watch. As I've always said, rig count provides a measure of activity, but seems to be fairly irrelevant in the Bakken where 29 active rigs now are producing what 200 rigs did two years ago, and on top of that: 1,000 DUCs; 1,500 inactive wells; and, countless wells taken off-line every day.

Pioneer Announces It Will Add More Rigs As Soon As Oil Hits $50 -- One month ago we presented the simple reason why numerous oil producers did not believe the oil rally: they were aggressively hedging future production at prices - some as low as the mid-$30's - which were considered uneconomical as recently as 6 months ago, and while they were eliminating future downside risk should oil resume its plunge, they would also cap their were oil to soar much higher.  As a traders quoted by Reuters said then, "Brent's flattening contango since January comes as many producers want to cash in immediately on recent price rises. They've been heavily selling 2017/2018 and beyond, and it shows that they don't quite trust the higher spot prices yet. This means that even the producers don't really expect a strong price rally until well into 2017 or later." Then last night, the WSJ also picked up on this and wrote that "in an about-face, companies are using hedges to lock in prices that they turned their noses up at a few months ago. Last September, Energen Corp. officials told investors they would hold out for roughly $60 a barrel before using the futures market to hedge their production. But the company recently said it had locked in about half of its expected 2016 production—or more than 6 million barrels—at around $45." Many others have followed suit: EV Energy Partners LP hedged in recent weeks at prices slightly above $40, even though last spring it opted not to hedge when prices were between $50 and $60, finance chief Nicholas Bobrowski said. “We thought we were smarter than everyone,” Mr. Bobrowski said of the missed opportunity. “Lessons learned.” Others have learned from his lesson too and have rushed to hedge. Here the WSJ repeats the simple logic of hedging, namely that doing so now "means giving up possible higher prices if oil continues to improve. Producers have pounced anyway—due to pressure from their investors and fear that the rally could be temporary." They are far more worried not about lost gains as much as another round of major losses should oil tumble back to the mid-$20s.

BP sees Q1 earnings slide as low oil prices take their toll  (AP) — Cost-cutting and a solid performance from the refining and marketing arm helped British energy producer BP cushion the hit from low oil prices in the first quarter. Though the company reported a 79 percent slide in earnings, its share price spiked 4.5 percent higher Tuesday to 377 pence as the result was better than anticipated in markets. BP reported that its underlying replacement cost profit — the oil industry standard, which excludes non-operational items and the value of oil inventories — dropped to $532 million from $2.58 billion in the first quarter of 2015. Though that’s quite a precipitous decline, the result was about $100 million better than analysts had forecast. BP also said it would maintain its dividend at 10 cents a share — a key factor as the stock is held by many pension funds. “We think the key takeaway is the strong message on dividend sustainability today,” brokerage firm Bernstein said in a statement. “BP is clearly delivering on its cost reduction plans which are offsetting commodity price weakness and delivering earnings and cash flow ahead of expectations.”

Statoil swings to Q1 profit partly offset by cost cuts (AP) — Norwegian oil and gas company Statoil ASA has swung to a profit of $611 million in the first quarter as reduced costs helped offset low crude prices. The figure reported Wednesday compares with a loss of $4.57 billion in the same period last year, when Norway’s biggest oil producer had large write-downs. Revenue at the partly government-owned company dropped 34 percent to $10.1 billion. CEO Eldar Saetre said the industry “is facing challenges,” adding Statoil was “radically improving our project break-evens and we are on track to reset costs.” The company has been stepping up its cost-cutting program and reining in spending in recent months. Statoil’s average production in the quarter was 2.05 million barrels of oil equivalent per day, virtually similar to 2.06 million barrels daily a year ago.

ExxonMobil loses AAA credit rating as debt increases: Standard & Poor stripped ExxonMobil of its AAA credit rating due to a plunge in oil prices and weak forecast. The Texas-based company was downgraded to an AA+ credit rating. The ratings agency cited “low commodity prices, high reinvestment requirements, and large dividend payments.” The decision comes as Exxon’s debt has increased substantially. “The company’s debt level has more than doubled in recent years, reflecting high capital spending on major projects in a high commodity price environment and dividends and share repurchases that substantially exceeded internally generated cash flow,” Standard & Poor said. Shares of Exxon remained steady after the announcement. Exxon’s decision to spend $54 billion on stock buybacks in the past four years, even with mounting debt, was questioned by S&P. Exxon prefers to return cash to shareholders, but that may hurt its ability to stockpile cash and pay down debt, according to the credit rating company. The company may have to spend more to maintain production, replacing oil reserves over the next couple of years. S&P also said that Exxon’s credit measures will remain below its expectations for the AAA rating through 2018. Production challenges also contributed to the reduced rating. The energy producer only found enough new oil to replace 67 percent of its production last year. “In our view, the company’s greatest business challenge is replacing its ongoing production,” S&P said.

For The First Time Since The Great Depression, Exxon Mobil Loses 'AAA' Rating - Exxon Mobil has been rate AAA by S&P since 1930 according to Bloomberg. Today that ended as the global crude explorer with sales that dwarf the economies of most nations wascut to AA+ (Outlook stable). Having been put on notice in February (negative watch),citing concern that credit measures would remain weak through 2018. Credit measures will be weak for a AAA rating due, in part, to low commodity prices, high reinvestment requirements and large dividend payments, S&P says. Maintaining production and replacing reserves will eventually require higher spending, S&P says. Greatest business challenge is replacing co.’s ongoing production, S&P says.

Exxon's 1Q profit plunges 63 percent on lower oil prices: (AP) — Exxon Mobil produced its weakest quarter in more than 16 years as lower oil prices pushed its profit down by 63 percent. Revenue tumbled 28 percent, and the oil giant lost money in its vaunted exploration and production business despite a 2 percent increase in production. It made more money, however, in chemicals. Exxon continued to slash capital spending to cope with lower prices, which this week cost the company the perfect AAA credit rating that it had held for more than six decades. Exxon said Friday that it earned $1.81 billion in the first quarter, down from $4.94 billion a year ago. It was Exxon’s smallest quarterly profit since it earned $1.5 billion in the third quarter of 1999, according to FactSet figures. On a per-share basis, the Irving, Texas-based company said it earned 43 cents per share, which beat Wall Street expectations. Nine analysts surveyed by Zacks Investment Research and 20 analysts surveyed by FactSet had forecast an average of 31 cents per share. Revenue fell to $48.71 billion but topped forecasts. The FactSet analysts expected $44.75 billion. The company lost $76 million in its exploration and production business because of an $832 million loss in the U.S. A year ago, the so-called upstream business earned about $2.9 billion on a much smaller U.S. loss of $52 million. Exxon’s refining and fuels-marketing business was profitable, but not as much as a year ago partially due to weaker margins on refining. The chemical business, however, earned $1.4 billion, an improvement of $373 million over the same period last year.

Exxon sees smallest profit in 16 years, Chevron posts loss: Exxon Mobil posted its smallest quarterly profit in more than 16 years Friday, while Chevron lost $725 million, its worst showing since 2002, and raised the number of jobs it expects to cut this year from 7,000 to 8,000. Other oil companies are expected to report weak earnings in the next few days. Oil prices have tumbled from their 2014 highs of over $100 a barrel, bottoming out at under $30 in mid-February, because of a worldwide glut. Giant companies like Exxon and major petroleum-producing countries such as Saudi Arabia have continued to pump more from the ground despite the slide in prices. Forecasters expect U.S. shale producers to cut production, however, which could ease the glut, and prices have been recovering over the past three months. Exxon Mobil Corp., the world’s biggest publicly traded oil company, made a profit of $1.81 billion in the first quarter, down 63 percent from $4.94 billion a year ago. It was Exxon’s smallest quarterly profit since a $1.5 billion gain in the third quarter of 1999, according to FactSet figures. The company lost money in its vaunted exploration and production business despite pumping slightly more oil and gas than a year ago. Profit fell by nearly half in its refining and marketing division. Only the smaller chemicals division made more money than last year. Revenue at Irving, Texas-based Exxon tumbled 28 percent to $48.71 billion. Chevron Corp. recorded its second straight losing quarter. Its $725 million loss was a sharp contrast from the first quarter of last year, when it made $2.57 billion. Revenue plunged 32 percent to $23.55 billion. Chevron CEO John Watson said the company is controlling spending, focusing more on shorter-term projects, and completing key projects under construction to boost revenue. Exxon, too, is cutting capital spending — by 33 percent in the first quarter, compared with a year ago.

ConocoPhillips Reports First-Quarter 2016 Results; Announces Revised 2016 Capital Expenditures Guidance - ConocoPhillips today reported a first-quarter 2016 net loss of $1.5 billion, or ($1.18) per share, compared with first-quarter 2015 earnings of $272 million, or $0.22 per share. Excluding special items, first-quarter 2016 adjusted earnings were a net loss of $1.2 billion, or ($0.95) per share, compared with a first-quarter 2015 adjusted net loss of $222 million, or ($0.18) per share. Special items for the current quarter were related to non-cash impairments in the Gulf of Mexico and United Kingdom and pension settlement expense.  Summary:

  • Achieved first-quarter production of 1,578 MBOED.
  • Lowered operating costs by more than 20 percent year over year.
  • Reduced 2016 capital expenditures guidance from $6.4 billion to $5.7 billion.
  • Raised $4.6 billion of low-cost debt and ended the quarter with $5.2 billion of cash and short-term investments.

Halliburton Says It Cut 6,000 Jobs In 1Q, Delays Earnings Call  |(Reuters) - Halliburton Co said on Friday that it cut more than 6,000 jobs in the first quarter, during which revenue slumped 40.4 percent and it took a $2.1 billion restructuring charge mainly for asset write-offs and severance costs. The No.2 oilfield services provider also said it would now hold its earnings conference call on May 3, instead of April 25, to accommodate the April 30 deadline for its acquisition of Baker Hughes Inc. Halliburton's "operational update" was issued in a statement after the market closed on Friday. The company is scheduled to report first-quarter results on Monday, April 25. Halliburton and Baker Hughes have set a deadline of April 30 to close the deal, which will help close the gap on market leader Schlumberger Ltd. But, the merger, which was announced in 2014, faces stiff regulatory hurdles. The U.S. Justice Department filed a lawsuit this month to block the deal, citing competition worries. European Union antitrust regulators could make its objections to the deal known to Halliburton next week, Reuters reported on Wednesday, citing sources. The deal between the two companies was in part to help them weather the current oil price downturn, which started in 2014, and its aftermath. Since 2014, Halliburton has reduced its headcount by about a third and reduced costs drastically.

Top Oil Service Firms Mull North America Retreat As Losses Mount  - Two of the three largest oil rig operators and frackers are considering pulling back from the North American market as losses mount. Schlumberger Ltd. -- after posting its first North American operating loss since at least the turn of the century, according to Barclays Plc -- is evaluating whether it’s worth temporarily shuttering its business in the region. Baker Hughes Inc. said Wednesday it has decided to limit its exposure to unprofitable onshore fracking work in North America because of the "unsustainable pricing." It’s the first time in at least a decade that those companies and Halliburton Co., the big 3 in oil services, all lost money in the region during the first three months of the year. "Activity is coming down to basically critical-mass type of levels," Schlumberger Chairman and Chief Executive Officer Paal Kibsgaard told analysts and investors Friday on a conference call. "What’s the benefit of taking the losses versus shutting down and then making the investments later on to start back up again?" Even FMC Technologies Inc., the largest provider of subsea equipment to the industry, said Wednesday the amount of lost work in the region was surprising. As companies report first-quarter results, laments about the "unsustainable" business in North America is a common refrain among service providers. Jeff Miller, president of Halliburton, was one executive using the word this past week to describe operations. "My definition of an unsustainable market is one where all service companies are losing money in North America, which is where we are now,” he said Friday in a statement in which the Houston-based company reported an operating loss margin of 2.2 percent. More than half of U.S. fracking equipment, measured at a total of 17.5 million horsepower, is unused. Prices charged for fracking are estimated to have fallen as much as 40 percent since the downturn began in the third quarter 2014.

We Could Be Witnessing the Death of the Fossil Fuel Industry—Will It Take the Rest of the Economy Down With It?  - In just two decades, the total value of the energy being produced via fossil fuel extraction has plummeted by more than half. Now $3 trillion of debt is at risk. It’s not looking good for the global fossil fuel industry. Although the world remains heavily dependent on oil, coal and natural gas—which today supply around 80 percent of our primary energy needs—the industry is rapidly crumbling. This is not merely a temporary blip, but a symptom of a deeper, long-term process related to global capitalism’s escalating overconsumption of planetary resources and raw materials. New scientific research shows that the growing crisis of profitability facing fossil fuel industries is part of an inevitable period of transition to a post-carbon era. But ongoing denialism has led powerful vested interests to continue clinging blindly to their faith in fossil fuels, with increasingly devastating and unpredictable consequences for the environment.In February, the financial services firm Deloitte predicted that over 35 percent of independent oil companies worldwide are likely to declare bankruptcy, potentially followed by a further 30 percent next year—a total of 65 percent of oil firms around the world. Since early last year, already 50 North American oil and gas producers have filed bankruptcy. The cause of the crisis is the dramatic drop in oil prices—down by two-thirds since 2014—which are so low that oil companies are finding it difficult to generate enough revenue to cover the high costs of production, while also repaying their loans. Oil and gas companies most at risk are those with the largest debt burden. And that burden is huge—as much as $2.5 trillion, according to The Economist. The real figure is probably higher.

Oil Producers Lock In Once-Snubbed Prices - WSJ: U.S. oil producers aren’t letting the rally go to waste. In an about-face, companies are using hedges to lock in prices that they turned their noses up at a few months ago. Last September, Energen Corp. officials told investors they would hold out for roughly $60 a barrel before using the futures market to hedge their production. But the company recently said it had locked in about half of its expected 2016 production—or more than 6 million barrels—at around $45. EV Energy Partners hedged in recent weeks at prices slightly above $40, even though last spring it opted not to hedge when prices were between $50 and $60, finance chief Nicholas Bobrowski said. Companies that produce oil or gas typically hedge by trading options or futures to guarantee a price for their output. Previously established hedges helped them through much of 2015, but their withdrawal from the market as prices fell to new lows is expected to show up as damage to their earnings when they start reporting first-quarter results this week. Now they are getting a break. Benchmark U.S. oil prices have shot up by more than 65% since hitting a 13-year low in February, giving producers a chance to lock in better prices just as many banks are re-evaluating how much credit to extend to the sector. Oil futures rose 1.3% to $43.73 a barrel Friday in New York, wrapping up the eighth week of gains out of the past 10. While the rally has been sharp, prices are still well below the $60-plus level they occupied a year ago. Hedging now means giving up possible higher prices if oil continues to improve. Producers have pounced anyway—due to pressure from their investors and fear that the rally could be temporary.

Rising Oil Prices Throw Lifeline to Shale Producers (Reuters) - Brent prices for 2017 ended trading above $50 per barrel on Wednesday for the first time since mid-December following the largest and most sustained rally in prices since the oil slump started. The average for the 12 futures contracts expiring in 2017, called the calendar strip, has risen by 34 percent from its recent low of $37.45 on Jan. 20 to $50.26 on April 27 (). Spot prices, represented by the nearest futures contract, dominate the headlines and are of most interest to analysts and financial investors. Most hedge funds and other money managers concentrate on nearby futures contracts because they are the most liquid. Calendar strips for future quarters and years are far less prominently reported in the media and analyst commentaries. But the majority of crude producers and consumers such as airlines rely on calendar strips to hedge future sales and purchases. For producers struggling to meet debt payments and avoid breaching the terms of loan covenants, rising prices are a chance to lock in future revenue and reduce downside risks. Many producers, especially in the U.S. shale industry, must be hoping prices continue to rise in the second half of 2016 and through 2017 as the oil market rebalances. But the calendar strip has already risen to the point where it is line with the average price forecasts for 2017 made back at the start of March. At that point, half the respondents to a broad price survey expected prices to average between $45 and $55 per barrel in 2017. By remaining unhedged, producers have the chance to benefit from further price increases. But any pull back could put their very survival at risk. For many shale producers, the difference between an average price of $35 and $50 per barrel is the difference between insolvency and survival. Prudence counsels most shale producers should protect part, if not all, of their production for 2017 at current price levels against any reversal.

As Oil Rises, US Shale Companies Have Begun Increasing Oil Production -- Three days ago, Pioneer surprised oil market watchers when it not only said that it has already produced more oil than it had initially forecast, but that once crude returns to $50, all systems are go. This is what it said in its Q1 press release:

  • producing 222 thousand barrels oil equivalent per day (MBOEPD), of which 55% was oil; production grew by 7 MBOEPD, or 3%, compared to the fourth quarter of 2015, and was significantly above Pioneer’s first quarter production guidance range of 211 MBOEPD to 216 MBOEPD; oil production grew 10 thousand barrels oil per day during the quarter, or 9%, compared to the fourth quarter;
  • expecting to deliver production growth of 12%+ in 2016 compared to the Company’s previous production growth target of 10%; the higher forecasted growth rate reflects improving Spraberry/Wolfcamp well productivity;
  • expecting to add five to ten horizontal drilling rigs when the price of oil recovers to approximately $50 per barrel and the outlook for oil supply/demand fundamentals is positive

Then yesterday it was another US shale giant to admit that $45 oil is good enough, and that it is "increasing its production forecast to a range of 131,400 BOE/d to 136,900 BOE/d"adding that "with the majority of completions scheduled for the second half of the year, the Company expects to realize the full production benefit in late 2016 and 2017." It was not immediately clear if Pioneer and Whiting were restoring production due to recently implemented hedges. What is clear is that as the EIA reports, drilling costs have tumbled in recent years, which suggests that breakeven drilling prices have followed suit.

The "Fracklog Trigger": Why 500,000 Barrels Of Shale Crude Could Hit The Market At Any Moment -- Yesterday, when reading through Pioneer's results we stumbled on something unexpected: not only was the company pumping more than its had previously guided, but announced it was waiting for $50/barrel to reactivate five to ten horizontal drilling rigs. To wit:

  • producing 222 thousand barrels oil equivalent per day (MBOEPD), of which 55% was oil; production grew by 7 MBOEPD, or 3%, compared to the fourth quarter of 2015, and was significantly above Pioneer’s first quarter production guidance range of 211 MBOEPD to 216 MBOEPD; oil production grew 10 thousand barrels oil per day during the quarter, or 9%, compared to the fourth quarter;
  • expecting to add five to ten horizontal drilling rigs when the price of oil recovers to approximately $50 per barrel and the outlook for oil supply/demand fundamentals is positive

Whether this is due to aggressive hedging (as also explained previously) or simply because Pioneer and its peer companies have dramatically reduced their all-in costs of production is unclear, but what is clear is that with every dollar that the price of oil rises, the risk of US shale coming back to market in an aggressive fashion become ever greater. Today, we turn our attention to another potentially disruptive source of oil supply, one also covered previously, namely Drilled, Uncompleted Wells, or DUCs. As Bloomberg writes, drilled, uncompleted wells could return 500,000 barrels a day back to the market, according to Richard Westerdale, a director at the U.S. State Department’s Bureau of Energy Resources. The inventory of wells is known as the fracklog. “Once we start approaching $45 and above, the risk of a much sharper pullback starts to increase as a lot of shale becomes profitable again,” Angus Nicholson, an analyst at IG in Melbourne, said by phone. “It’ll bring more supply back into the market. This happened last year when a swathe of output hit the market after a price gain and subsequently led to oil dropping to record lows.”

Plan To Ship Fracked Gas To China is DOA! -- America’s gas reserves won’t be going to China via Oregon.  Or from New York – which just denied a scheme to export fracked gas.  After a decade of fighting Oregon LNG’s push to build a $6 billion terminal and pipeline project on the Skipanon Peninsula, Cheryl Johnson had no idea if an end was in sight.“I hoped that I would see it in my lifetime, but I didn’t know,” said Johnson, the 65-year-old co-chairwoman of Columbia Pacific Common Sense.“We really wanted to export America’s gas reserves to the Chinese.”The fight came to an abrupt end Friday, when Oregon LNG informed city and state officials that the company will withdraw the proposed liquefied natural gas development. The move ended a long period of acrimony over a controversial project that galvanized residents to protect the Columbia River and caused political upheaval in Clatsop County. Warrenton Mayor Mark Kujala said he was told by a company representative that Leucadia National Corp., the New York-based holding company behind the project, was no longer willing to bankroll the effort. Skip Urling, the city’s community development director, said he was told Oregon LNG would not proceed with an appeal of a city hearings officer’s decision to deny the terminal. The hearings officer had approved the pipeline portion of the project. A hearing on Oregon LNG’s appeal was scheduled before the City Commission for early May. But Urling said he was informed that “they’re done. They’re not going to fight the hearings officer’s position.”“The Chinese will have to get their fracked gas somewhere else.” Richard Glick, a Portland attorney representing the company, advised the state Department of Environmental Quality in an email Friday afternoon that the company is “ceasing development of its terminal and pipeline projects.” Oregon LNG could not be reached for comment. Their phone line was dead.

This Six-Year Running Oil And Gas Trend Just Reversed Itself -- The U.S. Senate this week approved a bill to speed permitting of new liquefied natural gas (LNG) export facilities. Just as news from one of the world’s most important LNG consumers shows the market isn’t what it used to be.  The place is Japan. Where statistics released Wednesday showed that annual Japanese LNG demand fell for one of the first times in recent memory. Trade data showed that Japan’s total LNG imports for the fiscal year ended March 31 were down 6.2 percent as compared to the previous fiscal. With the country bringing in a total of 83.571 million tonnes of LNG for the 12-month period. Here’s the most critical point. This was the first time in six years that Japanese LNG demand has fallen year-on-year. That’s a crucial data point for the global LNG market. With rampant Japanese demand having been one of the major drivers of positive sentiment — and resulting business expansions — in the industry during recent years. As the chart below shows, much of that ramp up in LNG demand came following the Fukushima incident in 2011. We can see how nuclear power generation (yellow bars) went to zero after 2011 — and natural gas use (red bars) jumped, along with coal (black). But with Japanese nuclear plants now coming back online, it appears that Japan’s rush for natural gas is over. A fact that had been strongly suggested by LNG prices such as the Platts Japan-Korea Marker — which has fallen to as low as $4.25/MMBtu recently, from as high as $20 back in 2012/13 when Japanese imports were surging.

Do fracking activities cause earthquakes? Seismologists and the state of Oklahoma say yes - Edmonton - CBC News: In the heartland of Oklahoma sits a pretty town dotted with American flags and a quaint main street of century-old brick buildings. But in Guthrie, the devastating impact of oil-industry-induced earthquakes is being felt hard. Look closely and you see cracks in the historic buildings, where the old masonry is giving way to a shifting ground. Guthrie has seen a wave of earthquakes since hydraulic fracturing — or fracking — picked up in the area. Cracked walls, crumbling brickwork: the legacy of fracking in Oklahoma PHOTOS | Oklahoma earthquake damage There's no denial from the Oklahoma government or seismologists from 20 countries who met in Reno, Nev., last week that practices related to fracking are behind the swarms of earthquakes that have increased in volume and intensity since 2011. "There's definitely a relationship between deep well disposal and the earthquake activity," the state's oil and gas regulator, Tim Baker, said in an interview with CBC News, referring to the practice of injecting fracking waste water deep into the ground.At the Reno meeting, seismologists from Canada also warned that fracking in Alberta and British Columbia could bring similar consequences. "In Western Canada, most of the seismicity we're experiencing is being actually directly related to hydraulic fracturing," says Gail Atkinson, a specialist in induced seismicity from Western University in London, Ont. While there's been little noticeable damage in Canada so far, she warns it could happen. "I think damage is a function of getting the wrong ground motions in the wrong place at the wrong time." Atkinson helped chair a day-long session on the impacts of fracking and earthquakes at the annual meeting of the Seismological Society of America. She also presented her own Canadian research. She says smaller earthquakes shouldn't be ignored because they can lead to larger, more destructive ones. "For every 100 magnitude three earthquakes, you'll get 10 of magnitude four and one magnitude five," she says. "The higher the rate of seismicity, the greater likelihood you'll trigger at least one large event."

Enbridge pipeline replacement gets conditional approval — Canada’s National Energy Board has granted conditional approval to a massive Enbridge Inc., project to replace a pipeline that would enable more Canadian crude to flow into the U.S. The $7.5-billion Line 3 Replacement project involves rebuilding a 1031-mile (1,660-kilometer) pipeline that’s nearly a half-century old and has had several ruptures over the years. The pipeline would enable 760,000 barrels a day to be shipped from Hardisty, Alberta, to Superior, Wisconsin. The aging line is currently shipping about half of that. The board’s decision Monday comes with 89 project-specific conditions to enhance public safety and environmental protection. There are separate U.S. permitting processes the project must undergo before construction can begin. The project would be the largest undertaking in Enbridge’s history but has drawn less attention than other pipeline proposals.

NEB approves Enbridge Line 3 pipeline replacement -  The National Energy Board will allow Enbridge to replace an aging pipeline across the Prairie provinces as long as the company meets 89 conditions. The federal government must now make a decision on the project. Enbridge wants to spend $7.5 billion to replace its Line 3 pipeline, which stretches 1,660 kilometres from Hardisty, Alta., to Superior, Wis.  The pipeline is currently operating at about half capacity after the company voluntarily reduced pressure because of reliability concerns. "The Enbridge Line 3 project is in the Canadian public interest and is not likely to cause significant adverse environmental effects," said Robert Steedman, the NEB's chief environmental officer. As part of the NEB's decision, Enbridge must develop a plan for Aboriginal groups to participate in monitoring construction. Several groups oppose the pipeline project, including First Nations and environmental groups in Manitoba and Minnesota. The company has already delayed its expected completion date from 2017 to 2019 because of the regulatory process in Minnesota. "The hearing panel believes there is an important opportunity at this juncture for Enbridge to renew, and in some cases, improve its relationship with Aboriginal groups," said Steedman.

Q1 Canadian oil, gas drilling falls 40%: Precision Drilling - The number of oil and natural gas wells drilled in the first quarter of 2016 in Canada fell nearly 40% to 1,062, with there still being no signs of a bottoming out of oil prices, a leading drilling contractor said Monday. In the same quarter of 2015 the total number of wells drilled in Canada was 1,783, Kevin Neveu, CEO of Precision Drilling, said on an earnings webcast. Q1 "has been a very, very tough quarter and with WTI prices falling ... customers have responded by trimming drilling plans," he said. "We started the year with 61 rigs and 42 rigs in Canada and the US [respectively] and at the end of the first quarter we were down to 13 rigs and 24 rigs." The company also saw five rig contracts canceled in Q1, of which three were in the US and two in Canada, Neveu said.The cancellations in Canada were in the Cardium play in the Western Canadian Sedimentary Basin, where oil drilling activity slowed significantly due to low commodity prices and unfavorable differentials faced by the Western Canadian Select blend, he added. The cancellations in the US were in Texas and Colorado, Neveu said. He did not give any reasons, but said more cancellations were expected. "It is a still a structured market and not all oil companies will survive with there being a consolidation of [exploration and production] players. Winter signifies the onset of peak drilling activity in Western Canada. But this has been one of weakest in decades. We have little visibility for Q2 and Q3," Neveu said. However, reduced rig counts and drilling activities have not resulted in decreased revenues from rig deployment.

Venezuela Starts Power Rationing, Oil Production Likely To Fall -- Venezuela - home to the largest oil reserves in the world - will for the next 40 days experience a four-hour blackout every single day, and there are fears that the rationing could lead to unrest and trigger a decline in oil output at a time when the country is barely hanging on. The decision to ration electricity was brought about by a severe drought that has rendered the level of the Guri dam – the country’s major source of power generation – so low that if the weather doesn’t change, the authorities will have to shut it down. The blackouts will affect households and industrial users alike--and it’s very likely that oil production will drop. This drop, however, will not be too significant, especially in the current state of oversupply. The Financial Times last week quoted analysts as estimating that irregular power outages couldlead to a daily decline in oil output of between 100,000 and 200,000 barrels. That’s a little less than 10 percent of the average daily output in the country for last year, according to OPEC data. Besides the power outages and the 40-day power rationing, the Venezuelan oil industry has been hit extremely hard by the recession that Venezuela has plunged into because of the oil prices crash. No cash for investments and infrastructure deterioration are the main problems of the industry and they are unlikely to get a solution anytime soon. Venezuela’s economy is entirely dependent on oil revenues, which is why the country was so insistent on agreeing to a production freeze with other OPEC members. Unfortunately for the South American nation, no freeze was agreed upon, so it has been left to take care of its problems on its own. The International Monetary Fund (IMF) has warned that this year, inflation could jump to a staggering 481 percent, up from 122 percent last year. The economy is expected to contract by 8 percent. Whatever action the government takes, it seems ineffective. Limiting access to foreign currency, food and essential item shortages, as well as price controls have been all deemed as failures by observers.

Video appears to show river erupting into flames near fracking site in Australia: A video posted by New South Wales Greens party MP Jeremy Buckingham appears to show the Condamine River erupting in flames as a result of methane gas buildup, believed to be caused by nearby fracking. Several gas fracking mines are located in the vicinity of the southern Queensland river, and gas was reported to be leaking into the water as early as 2012. Flames burst out from the river Credit: Facebook Bucking tweeted he was “shocked by force of the explosion”. He told ABC News the river held the flame for more than an hour. A RIVER ON FIRE! Gas explodes from Australian river near fracking site. I was shocked by force of the explosion... https://t.co/uRxFKOsk57  He later posted on Facebook “Fracking must be banned. Everywhere. No ifs, no buts, no exceptions. Ban it.”

Condamine River set on fire after Greens MP lights bubbling methane gas, blames fracking - ABC News --  Part of a Queensland river bubbling with methane gas has burst into flames after being ignited by a Greens MP, who blames nearby coal seam gas (CSG) operations for the "tragedy in the Murray-Darling Basin".  MP Jeremy Buckingham has released vision of himself on a boat sparking a kitchen lighter above the Condamine River. "Holy f***. Unbelievable. A river on fire," he exclaims in the video. "The most incredible thing I've seen. A tragedy in the Murray-Darling Basin." Mr Buckingham said the river held the flame for more than an hour.  The methane seeps in the river, near Chinchilla in south-west Queensland, were first reported in 2012, triggering a series of investigations. Professor Damian Barrett, the CSIRO's lead researcher into unconventional gas, has been monitoring the Condamine gas seeps. "The isotopic signature is telling us it's coming from coal at that point in the landscape but coal is quite close to the surface and there's a naturally existing small fault line, which cuts the river at that point," he said. He said research over the past 12 months showed the rate of the flow was increasing. Origin Energy, which operates CSG wells in the district, has also been monitoring the bubbling. "We're aware of concerns regarding bubbling of the Condamine River, in particular, recent videos demonstrating that this naturally occurring gas is flammable when ignited," a statement from the company said.

‘We did not expect it to explode’: Australian politician blames fracking after setting river ablaze with a lighter - Some people want to watch the world burn. Others — like Jeremy Buckingham, a member of the Australian Parliament — will settle for rivers. In an act of protest against coal seam fracking, the Greens Party member recently took an aluminum boat down the Condamine River in Queensland, Australia. This was no lazy afternoon cruise. The surface of the river fizzed with bubbles of methane gas. Methane is colourless and odourless — but it’s also quite flammable. Buckingham leaned over the side of the boat, and, as though lighting a barbecue, set the methane ablaze. Presto: Instant river flambé. “We did not expect it to explode like it it did,” Buckingham told The Washington Post early Monday in a phone interview. He’s calling for the gas industry to halt fracking in Australia until the source of the methane can be determined. “This is the future of Australia if we do not stop the frackers, who want to spread across all states and territories,” Buckingham said in a video of the river fire, which he posted to Facebook. The flames lasted for an hour as the methane continued to churn out of the river bed and feed the fire, he said. As of early Monday morning, more than 3.3 million people had viewed the video.

Oil Companies’ Bet on Kurdistan Turns Sour - WSJ: Oil companies that piled into Iraqi Kurdistan after Saddam Hussein’s ouster are running into trouble, unraveling the region’s promise as source of easy-to-drill oil and threatening Iraq’s production surge. Chevron Corp. and Exxon Mobil Corp. have been exploring for oil in Kurdistan since 2012, but have yet to develop anything. Two of the region’s leading producers are stumbling: Genel Energy in February said its largest oil field had only half the oil it thought, while Gulf Keystone Petroleum Ltd. said it is running out of money to pay its debts because of low oil prices and the lack of regular payments from the Kurdistan Regional Government for the oil it has pumped. The regional government’s Ministry of Natural Resources declined to comment. Any slowdown in Kurdistan’s oil production could affect energy markets because previous drilling success there helped Iraqi output climb by almost 20% in 2015 to 3.99 million barrels a day—about 4% of global output. This mounting production contributed to a global glut and helped sink prices to $27 a barrel in January, the lowest level in 12 years. Kurdistan, a region about the size of Switzerland, was once believed to hold as much petroleum as the North Sea. It has been a magnet for Western investment in the past decade—a rarity in the Middle East, where most international oil companies are either banned from exploring for and pumping oil or are forced to work under stingy contracts.

Massive Oil Theft By Pirates Costs Nigeria $1.5 Billion Every Month -- Depressed oil prices, rampant corruption, and pipeline vandalism are only parts of Nigeria’s oil problem. It’s now losing a massive 400,000 barrels of crude daily to pirates in the Gulf of Guinea, an amount equal to the entire daily export capacity of its Forcados terminal. Overall damage from piracy, theft and fraud for Africa’s largest oil exporter is estimated at some $1.5 billion a month, according to U.S. deputy ambassador to the UN, Michele Sison, citing a Chatham House report. Attempts by local governments and the UN to put a stop to piracy have met with some success, but the practice continues—shifting location and adapting to new security measures, so now the UN Security Council is calling for a comprehensive framework of measures aimed at eradicating it. Since 2014, says the UN, Gulf of Guinea piracy has increased at an alarming rate. Two pirate attacks on 11 April affected seven countries. The cargoes came from Nigeria, Turkey and Greece; the ships were flying Maltese and Liberian flags; and the 8 missing crewmen were from the Egypt, the Philippines and Turkey. In the first quarter of this year alone, there were six recorded pirate attacks in the Gulf of Guinea, and six attempted attacks. Nine of those were off the coast of Nigeria, while one was off the coast of Côte d’Ivoire, and two were within the territorial waters of the Democratic Republic of the Congo. Last year, there were 100 similar incidents in the Gulf of Guinea, according to the UK’s ambassador to the UN, Peter Wilson. Dealing with the pirates requires an international effort, and particularly a coordinated effort by those countries near the Gulf of Guinea. There isn’t much Nigeria can do on its own. Without a major overhaul of intelligence sharing and local law enforcement collaboration and training, the piracy scourge will continue to worsen.

50% Of Proved Oil Reserves May Have Just Vanished -- An extensive new scientific analysis published in Wiley Interdisciplinary Reviews: Energy & Environment says that proved conventional oil reserves as detailed in industry sources are likely “overstated” by half. According to standard sources like the Oil & Gas Journal, BP’s Annual Statistical Review of World Energy, and the US Energy Information Administration, the world contains 1.7 trillion barrels of proved conventional reserves. However, according to the new study by Professor Michael Jefferson, this official figure which has helped justify massive investments in new exploration and development, is almost double the real size of world reserves. Wiley Interdisciplinary Reviews (WIRES) is a series of high-quality peer-reviewed publications which runs authoritative reviews of the literature across relevant academic disciplines. According to Professor Michael Jefferson, who spent nearly 20 years at Shell in various senior roles from head of planning in Europe to director of oil supply and trading, “the five major Middle East oil exporters altered the basis of their definition of ‘proved’ conventional oil reserves from a 90 percent probability down to a 50 percent probability from 1984. The result has been an apparent (but not real) increase in their ‘proved’ conventional oil reserves of some 435 billion barrels.” Global reserves have been further inflated, he wrote in his study, by adding reserve figures from Venezuelan heavy oil and Canadian tar sands – despite the fact that they are “more difficult and costly to extract” and generally of “poorer quality” than conventional oil. This has brought up global reserve estimates by a further 440 billion barrels. Jefferson’s conclusion is stark: “Put bluntly, the standard claim that the world has proved conventional oil reserves of nearly 1.7 trillion barrels is overstated by about 875 billion barrels. Thus, despite the fall in crude oil prices from a new peak in June, 2014, after that of July, 2008, the ‘peak oil’ issue remains with us.”

Where did all the oil go? The peak is back - An extensive new scientific analysis published in Wiley Interdisciplinary Reviews: Energy & Environment says that proved conventional oil reserves as detailed in industry sources are likely “overstated” by half. According to standard sources like the Oil & Gas Journal, BP’s Annual Statistical Review of World Energy, and the US Energy Information Administration, the world contains 1.7 trillion barrels of proved conventional reserves. However, according to the new study by Professor Michael Jefferson of the ESCP Europe Business School, a former chief economist at oil major Royal Dutch/Shell Group, this official figure which has helped justify massive investments in new exploration and development, is almost double the real size of world reserves. Wiley Interdisciplinary Reviews (WIRES) is a series of high-quality peer-reviewed publications which runs authoritative reviews of the literature across relevant academic disciplines. According to Professor Michael Jefferson, who spent nearly 20 years at Shell in various senior roles from head of planning in Europe to director of oil supply and trading, “the five major Middle East oil exporters altered the basis of their definition of ‘proved’ conventional oil reserves from a 90 percent probability down to a 50 percent probability from 1984. The result has been an apparent (but not real) increase in their ‘proved’ conventional oil reserves of some 435 billion barrels.” Global reserves have been further inflated, he wrote in his study, by adding reserve figures from Venezuelan heavy oil and Canadian tar sands - despite the fact that they are “more difficult and costly to extract” and generally of “poorer quality” than conventional oil. This has brought up global reserve estimates by a further 440 billion barrels. Jefferson’s conclusion is stark: "Put bluntly, the standard claim that the world has proved conventional oil reserves of nearly 1.7 trillion barrels is overstated by about 875 billion barrels. Thus, despite the fall in crude oil prices from a new peak in June, 2014, after that of July, 2008, the ‘peak oil’ issue remains with us.”

The end of oil as we know it -- Oil has crashed. But a short-term drop in the price of oil is nothing compared with the end of demand for oil as we know it. The more extreme scenario is what Bernstein Research is now talking about. Energy analyst Neil Beveridge is out with a new note that explores the question of demand — with a prediction that the end of oil as we know it is coming in 2030. It won't be a linear, slow burn, the note says; it suggests that demand will actually come back a little bit over the next decade. "A key conclusion from our analysis is that demand growth through to 2020 will be stronger than the previous decade," the note says. "For investors who equate the slowdown in China with the end of the commodity super-cycle, the resilience in demand could be a surprise. The cure for low prices is low prices." Prices will recover, the note says, but not to the triple-digit levels we saw before last year's crash. Instead prices will level off at $60 to $70 until the end of the decade. We'll then see a final push of demand beyond 2020, until it peaks after 2030. And then that's all folks.

The Beginning of the End of the Old Oil Order  - Sunday, April 17 was the designated moment. The world’s leading oil producers were expected to bring fresh discipline to the chaotic petroleum market and spark a return to high prices. Meeting in Doha, the glittering capital of petroleum-rich Qatar, the oil ministers of the Organization of the Petroleum Exporting Countries (OPEC), along with such key non-OPEC producers as Russia and Mexico, were scheduled to ratify a draft agreement obliging them to freeze their oil output at current levels. In anticipation of such a deal, oil prices had begun to creep inexorably upward, from $30 per barrel in mid-January to $43 on the eve of the gathering. But far from restoring the old oil order, the meeting ended in discord, driving prices down again and revealing deep cracks in the ranks of global energy producers. It is hard to overstate the significance of the Doha debacle. At the very least, it will perpetuate the low oil prices that have plagued the industry for the past two years, forcing smaller firms into bankruptcy and erasing hundreds of billions of dollars of investments in new production capacity. It may also have obliterated any future prospects for cooperation between OPEC and non-OPEC producers in regulating the market. Most of all, however, it demonstrated that the petroleum-fueled world we’ve known these last decades—with oil demand always thrusting ahead of supply, ensuring steady profits for all major producers—is no more. Replacing it is an anemic, possibly even declining, demand for oil that is likely to force suppliers to fight one another for ever-diminishing market shares

Causes and consequences of the oil price decline of 2014-2015 (Video) - Dr. James Hamilton

From One Extreme To Another: Record Oil Shorts Are Now Record Oil Longs -- At the end of January, when looking at the positioning in the oil futures market, we warned that there is a a "Constant Short Squeeze Threat" because "Oil Shorts Are At All-Time Highs."  Everyone knows what happened next; for those who missed it we explained precisely two months later, following an epic surge in the price of oil, in: "It's Official: The Oil Surge Was Driven By The Biggest Short-Squeeze Ever." In other words, just as we had warned, the oil trade so far in 2016 has been all about positioning, and the sparking of a historic short squeeze in oil.We bring this up because less than three months following our  warning about a "constant oil short squeeze", it is time to unveil the next warning: one of a potentially big drop in the oil price as now record speculative oil longs proceed to cover on the other side, unleashing a selling scramble lower. Is that possible? Well, according to Deutsche Bank's latest investor positioning and flow report last night, "oil speculative net longs are at record highs as gross longs rose and shorts fell last week."

Global crude oil deficit seen in H2 2016 as markets re-balance: FGE chairman - A global crude oil deficit will develop before the end of this year, the chairman of Facts Global Energy consultancy Fereidun Fesharaki said Monday. In his opening keynote speech at the Middle East Petroleum and Gas Conference in Abu Dhabi, Fesharaki also said medium-term crude price recovery was a given as the market moved towards balance, although there could still be another short-term price dip. "The oil markets will self-correct. Within two to three years, prices will rise to $60-$80/b range. this is inevitable," he told delegates. Fesharaki predicted that global oil supply would fall worldwide by at least 500,000 b/d in 2016, while demand would rise by around 1.4 million b/d, noting that he was "optimistic" on global oil compared to some other organizations, such as International Energy Agency, on the strength of strong upturns in demand for gasoline in China, India and the US. By 2020, global demand for crude would increase by over 5 million b/d, Fesharaki predicted. "Supply will have problems catching up without a price increase," he added.

We Have Raised Our Oil Target to $55 by July 4th (Video) -- Declining U.S. Production, the Massive drop in RIG Counts, and robust Demand Growth for 2016 are all bullish fundamentals for the Oil Market heading into the Seasonally Strong part of the Demand Curve from a consumption standpoint.

The Reason Why Oil Dropped: Saudis Set To Boost Production In Scramble For Chinese Demand  -- After meandering steadily higher for the past week, and completely ignoring the negative newsflow out of the Doha meeting, today oil took an unexpected leg lower to 4-day lows, leaving many stumped: what caused this drop? The answer, according to Citi, is the realization Saudi Arabia is actually making good on its threat to boost production (recall that just days ahead of Doha the deputy crown prince said he could add a million barrels immediately) something we noted a month ago in "Why Saudi Arabia Has No Intention To End The Oil Glut." As Citi's Ed Morse notes, the biggest bear risk to the oil market right now is that Iran’s ramp-up accelerates (which might in fact be happening with recent data indicating that April crude exports are running at ~1.9-m b/d) and then that Saudi Arabia does the same. This would come as a surprise to many because one argument against the notion that the Saudis would turn on the taps is that "this would require ripping up their marketing playbook which relies on long term contracts with select buyers." Today’s news that Saudi Arabia is selling a cargo on the spot market to Asia may mark the turning of a dramatic new chapter in the Saudi playbook.

Crude Extends Gains After Surprise Inventory Draw -- With expectations for a 1.75m barrel build, API shocked by reporting a 1.1m inventory draw sending WTI crude above $44.50 - running stops from last week's highs. Gasoline (-400k) and Distillates (-1.02m) also saw draws. Cushing, however, after recent declines from pipeline closures, saw a 1.9m barrel build.

Oil prices surge towards $47 a barrel: Oil prices have powered towards their highest level for the year so far after weeks of bullish trade. The global benchmark price broke above $46 a barrel and by late morning was seen skirting the $47 mark, in what could be the market’s strongest monthly gain for a year. US oil data indicating a fall in supply sparked a bullish run in overnight trade, with Brent crude closing at $45.74 on Tuesday. “A weaker US dollar together with bullish US inventory data released overnight continues to support prices,” said Shakil Begg, head of oil research at Thomson Reuters. The US dollar has traded lower ahead of today’s Fed meeting – which is not expected to show any change in monetary policy – while data from the American Petroleum Institute suggested US crude inventories may have fallen last week, he said. “Official inventory data from the EIA [Energy Information Administration] is expected this afternoon, and could add to growing expectations of tighter market balances for this year,” Mr Begg added.

Has the Oil Price Rally Gone Too Far? | OilPrice.com: Oil speculators are growing more confident that prices are gaining ground on the back of rising demand and shrinking supply. U.S. gasoline demand is at a record high for this time of year, with the four-week consumption rate for gasoline above 9.3 million barrels per day (mb/d). That is important because the summer months typically see higher consumption than in the spring, so demand could continue to rise. At the same time, production is falling. Weekly EIA data shows that output has declined to 8.95 mb/d, sharply down from a peak of nearly 9.7 mb/d in April 2015. The converging of supply and demand has speculators increasing their bullish bets on crude oil. Net-long positions for the week ending on April 19 rose to their highest level since May 2015. Short positions fell for the week and long positions jumped. “Investors are looking for larger exposure to crude oil and showing a continuing willingness to buy on the dips,” Tim Evans, an energy analyst at Citi Futures Perspective, told Bloomberg. Not everyone is convinced. A group of investment banks cautioned not to get too excited about the rally. Barclays said in a report on Monday that it is “not yet convinced that prices will remain here or go even higher.” Morgan Stanley said the rally had more to do with macro factors as well as speculators trying to profit. There are some temporary production outages in several OPEC countries that could be resolved in the coming months, bringing some supply back to the market. The outage in Kuwait from a workers strike was short-lived, and the Kuwait state-owned oil company hopes to boost production to above 3 mb/d by June. Iran has also added around 1 mb/d to production since January when western sanctions were removed. Speculators could be overextending themselves. Any time there is a run up in bullish bets, the chances that long positions could start to be trimmed rises. Speculators could realize that the rally has run out of steam and then decide to pocket their profits. The liquidation could then spark a correction, forcing prices back down. As Morgan Stanley put it, “a macro unwind could cause severe selling given positioning and the nature of the players in this rally.”

Oil Sets Another 2016 High - WSJ: U.S. oil prices set another 2016 high Wednesday, even after U.S. data revealed a jump in stored domestic crude stockpiles. Weekly data from the U.S. Energy Department showed an increase in stored supplies of nearly 2 million barrels. The U.S. contract dropped more than 2%, falling into negative territory before bouncing back to settle up 2.9% to $45.33 a barrel. The Brent benchmark gained 3% to $47.09 a barrel. The increase in U.S. inventories was even more than the 1.7-million-barrel gain projected in a survey of analysts by The Wall Street Journal. Market bulls have been optimistic that the two-year glut of overproduction in the crude market is beginning to abate, and supply-and-demand conditions are starting to come back into balance. That has fueled a 70% rally in U.S. crude prices since touching a 13-year low in February. “We’re still working off one of the biggest gluts in history, no doubt about that,”  U.S. oil production has fallen below 9 million barrels a day in recent weeks, down from a peak of 9.7 million barrels a day last April, according to the Energy Department, but the rate of decline remains slow, dropping 15,000 barrels last week to 8.938 million barrels a day.  Meanwhile, the report also said motor gasoline inventories rose, refinery processing rates fell and inventories at the key U.S. hub in Cushing, Okla., rose 1.75 million barrels, more than expected. One bright spot in the report was a decline in distillate stocks such as diesel fuel, which are falling as demand picks up with the start of the farming season.

OilPrice Intelligence Report: Can Oil Continue To Rally Like This?: Oil prices have bounced around a bit after last week but have held more or less in the range of $43 per barrel for WTI and $45 for Brent. The price gains over the past few weeks come as the fundamentals have improved. At the same time, if the rally runs out of steam, speculators could cash out, taking their profits by liquidating their long bets. That could spark a price correction, pushing oil prices back down a bit. Keep an eye on the upcoming data releases in our Friday newsletter for more direction.  BP posted a profit of $532 million for the quarter, which beat analysts’ estimates of a $140 million loss. That result excludes charges related to the Deepwater Horizon disaster – $917 million in pre-tax charges, which when included, flips the quarterly number to a $485 million loss. BP posted its second consecutive loss, and even when excluding the Deepwater Horizon charge, its profit was down about $2 billion from a year ago. Net debt increased to $30 billion. Still, investors are heartened by the better-than-expected result, and BP’s share price surged 4 percent on the news. Crucially, the company said that it has lowered its breakeven oil price to about $50-$55 per barrel, down from a previous target of $60. The first quarter results are being closely watched as they reflect the worst of the oil price downturn. 

Sit back, relax, and enjoy the oil thriller - Pepe Escobar -- The famous Hollywood adage – 'nobody knows anything' – seems to perfectly apply to the current turbulence in the oil market. So in an effort to clarify where the global oil economy is heading to, let’s engage in a Battle of the Oil Analysts. Relying on these Oil Analysts (OA) does not necessarily mean you will be handed straightforward answers, but perhaps with some luck you will see a ray of light. Saudi Arabia is saying that they are raising oil production to 12 million barrels a day. That’s highly debatable. Russia is saying that they can raise oil production to 13 million barrels a day. OA1 cuts to the chase: “Both are bluffing. Prices are still rising. That means no one believes them.” OA2 kicks in, reminding that, “oil price is holding because of the 1.5 million barrels a day pulled off the market by a strike in Kuwait of about 10,000 workers. That cut their 3 million barrels a day production in half. Now they are going back to work. Yet the price of oil is still rising.” I had explained before how the oil price was holding over $40.00 a barrel even with concerted Washington pressure over Saudi Arabia to keep it down. Then, OA3 had told me: “that’s because oil demand and supply is tightening.”But then OA4 came up with a totally different outlook; the whole thing was about 'The Big Long', upon which I based my prediction of $45/$50 per barrel when I was in Tehran in November 2011 and the price was approaching $100 a barrel. The Saudis have been supporting the price and while they have plenty of capital to do so at high prices, storage is finite.  OA5, predictably, could not agree that the Saudis are supporting the market and about to let it collapse. He elaborated on how “hard it is to predict day-to-day prices. The only way you can know what is happening is to watch by satellite or surface observation the tankers coming out of each exporter, assume they are full, check their names to look up their capacity, and then add up what is leaving each exporter. What they say otherwise means nothing. There are services that do this that cost about $300,000 a year.”

Crude Plunges After DOE Reports Big Build -- Following last night's surprise inventory draw (1.1m via API), WTI soared above the week's high holding $45 into this morning's DOE data which was dramatically different. Instead of a draw, DOE reported a bigger-than-expected 2.00m build along with a major build at Cushing and Gasoline stocks also rose. Despite a small drop in production, WTI prices are plunging, erasing the hope-driven API ramp.  API:

  • Crude -1.1m (+1.75m exp)
  • Cushing +1.9m
  • Gasoline -400k
  • Distillates -1.02m

DOE:

  • Crude  +2.00m (+1.75m exp)
  • Cushing +1.746m
  • Gasoline +1.61m
  • Distillates -1.70m

The biggest build at Cushing since Dec (after the pipeline delay ends) and surprisingly large build overall... And here is the situation for the all important gasoline market which has served as the biggest bullish catalyst in recent weeks, as supposedly the US has had a massive surge in gasoline demand. Gasoline consumption:

Oil price hits highest level since November - Oil prices hit their highest in almost six months as traders bet the worst of the rout is over, with the global surplus expected to shrink in the second half of 2016. International benchmark Brent crude rose above $47 a barrel, while US marker West Texas Intermediate topped $45 a barrel — the highest since November. Price gains were trimmed in afternoon trading following the release of data showing US crude stockpiles continued to rise last week, scaling a fresh record as supply still outstrips demand. Commercial crude oil inventories rose for a third consecutive week, up 2m barrels to 540.6m barrels, US energy department data to April 22 showed. Crude stocks at the Cushing, Oklahoma, delivery hub rose by 1.75m.Oil prices have rebounded since sliding to a 13-year low in January, boosted by signs global supply and demand are coming into balance. This has prompted a rush of new investment into crude futures, with speculators raising their holdings to a record high.

Focused On The Wrong End Of Oil -- The front end of the oil price complex continues to get all the attention because it seems to further the more optimistic narrative. It is the back end, however, that is most significant. The nearer maturities of the futures curve reflect more the funding environment than the fundamental view of oil and the economy. The lack of continued liquidation has “allowed” investors (and speculators who are no longer, apparently, deserving of mainstream scorn) to bid up the front, but the outer years remain flat and unimpressed. The entire curve has moved higher, to be sure, but the $6 or so in 2018 maturities and out isn’t nearly as impressive as the $18 at the front. Viewing the curve as it is now compared to what it was entering the last liquidation wave, however, reveals the changed disposition especially upon more macroeconomic considerations.  The steepness is almost gone with the flattening centered around $50. At one time not all that long ago, such a low level was unthinkable. A year ago, the curve was settling more toward $65 to $70. The difference is reality, where the gravity of desperate funding “pulled” on the front end leading in anticipation of what we see now, where the back end followed to confirm the depressing “dollar” instincts. The crude or energy imbalance is widespread now, historic in its level, and, more importantly, continuing to get worse. Thus, the flatter curve at $50 is, in view of the past few months, maybe as optimistic as it can be. Production levels in the US have started to decline and steadily at that.

WTI Crude Soars To $46 - Highest In 5 Months -- The panic-buying continues in the crude complex. Oil prices are up for the 3rd day in a row, trading up to $46 for the first time since December 4th 2015. Despite continued growth in inventories and worse than expected economic growth, it appears speculative traders in black gold just can't get enough... Of course, as we just detailed, this merely accelerates the self-defeating re-birth of shale production as cash-flow desperation trumps rationality. June crude is back at its highest sicne Dec 4th 2015... and above its 200dma... The last time June crude was here, the rest of the curve was over $4 higher... think about what that says about the real confidence in this bounce...

US Gulf Coast gasoline prices reach eight-month high on refinery issues - Oil | Platts -  Another unexpected refinery outage Thursday on the US Gulf Coast helped push gasoline prices to their highest levels in nearly eight months. Conventional 9 RVP gasoline was assessed Thursday at NYMEX June RBOB minus 12.40 cents/gal, up 5.10 cents/gal from its monthly low on April 18. The benchmark's outright price was assessed at $1.487/gal, a 22.23 cents/gal climb from April 18 and its highest level since August 31. Gulf Coast gasoline prices have climbed steadily since mid-April, supported by refinery outage and a contango in the NYMEX RBOB futures contract.Motiva on Thursday started unplanned maintenance on a fluid catalytic cracker at its 603,500 b/d refinery in Port Arthur, Texas. The 88,000 b/d unit is expected to be down seven to 10 days, traders said. The shutdown marked the third unexpected Gulf Coast refinery outage in as many weeks. Shell shuttered a FCC at its 340,000 refinery in Deer Park, Texas, last week and Houston Refining's 263,776 b/d plant is expected to operate at just 75% of capacity through the second quarter after a fire broke out early this month.

OilPrice Intelligence Report: Oil Rallies On As Traders Ignore Red Flags: Oil prices continued their gains this week, breaking out of a trading band that could mark a new period for the market. As of early trading on Friday, WTI was above $46 per barrel and Brent traded above $48 per barrel. There are some warning signs that the oil rally may not last – the EIA reported another uptick in storage levels – but for now, traders are feeling optimistic.On Friday, Exxon reported its first quarter earnings, revealing a profit $1.8 billion, down from $4.9 billion a year ago and its lowest result in more than a decade. But the news was not all bad. The company saw production rise on by 1.8 percent year-on-year on an oil equivalent basis. Its downstream unit performed well, and the oil supermajor reduced spending by 33 percent compared to the first quarter of 2015. Chevron reported a first quarter loss of $725 million, compared with a $2.6 billion profit a year earlier. But the company feels more optimistic because it recently completed several large projects – including the massive $54 billion Gorgon LNG export facility in Australia – which should improve cash flow moving forward.   Italian oil giant Eni (NYSE: E) reported a 792 euro loss ($897 billion) in the first quarter, down from a profit of 832 euros in the first quarter of 2015. Although it sounds bad, the result was largely in line with expectations and the company’s share price barely budged.  ConocoPhillips reported a quarterly loss of $1.5 billion, down from a profit of $272 million in 2015. It also cut 2016 spending from $6.4 billion to $5.7 billion the company said that bringing its debt below $25 billion would be a top priority. The company’s CEO Ryan Lance also said that Conoco would not “grow for growth’s sake.”  China’s state-owned oil company, PetroChina, reported a quarterly loss of 13.8 billion yuan ($2.13 billion), which was its first quarterly loss on record. The company has many aging and expensive wells, with production starting to decline. In order to meet a spike in summer demand, Saudi Arabia is expected to increase its oil production in the coming weeks, with some analysts expecting output to rise to 10.5 million barrels per day (mb/d), up from 10.15 mb/d in April.

US rig count drops 11 this week to 420, another all-time low: (AP) — The number of rigs exploring for oil and natural gas in the U.S. dropped by 11 this week to 420, again reaching an-time low amid depressed energy industry prices. A year ago, 905 rigs were active. Houston oilfield services company Baker Hughes Inc. said Friday 332 rigs sought oil and 87 explored for natural gas. One was listed as miscellaneous. Among major oil- and gas-producing states, New Mexico and Oklahoma each lost three rigs. Kansas, Louisiana, Texas and West Virginia were down two apiece. Colorado declined by one. Alaska, Arkansas, California, North Dakota, Ohio, Pennsylvania, Utah and Wyoming were all unchanged. The U.S. rig count peaked at 4,530 in 1981. The previous low of 488 set in 1999 was eclipsed March 11, and has continued to plunge.

US oil drillers cut rigs for 6th week to Nov 2009 lows - U.S. energy firms cut oil rigs for a sixth week in a row to the lowest level since November 2009, oil services company Baker Hughes Inc said Friday, as drillers remained cautious in returning to the well pad despite crude futures climbing to their highest levels this year. Drillers cut 11 oil rigs in the week to April 29, bringing the total rig count down to 332, Baker Hughes said in its closely followed report.  The number of U.S. oil rigs currently operating compares with the 679 rigs operating in the same week a year ago. Energy firms have slashed spending by sharply reducing oil and gas drilling since the collapse in crude markets began in mid-2014. U.S. crude futures fell from over $107 a barrel in June 2014 to a near 13-year low around $26 in February. U.S. crude futures, however, have spiked nearly 80 percent in the past two months and hit 2016 highs of just under $46 on Friday as market sentiment turned more upbeat despite the persistent oversupply. U.S. crude futures were above $47 a barrel for the balance of 2016 and about $49 for calendar 2017. Baker Hughes said at its quarterly earnings release on Wednesday that it expected the U.S. rig count to start stabilizing in the second half of the year, although it did not expect any meaningful hike in oil drilling activity. Whiting Petroleum Corp's Chief Executive Jim Volkers said the firm would like oil prices to stay at or above $50 for at least 90 days before deciding to reduce drilled-but-uncompleted well count in Colorado. The world's No. 1 oilfield services provider Schlumberger NV also said it will remain cautious in adding capacity even after energy firms show signs of recovery since it believes the industry will continue cutting costs through the coming quarter.

U.S. oil rig count falls by more than 3 percent in a week | Fuel Fix: The number of rigs actively drilling for oil dropped by 11 this week as the industry continues to scale back its exploration and production efforts during a time of ongoing layoffs and spending cuts. The oil rig count dipped down to 332 rigs nationwide on Friday, while the overall rig count, including natural gas-seeking rigs, stands at just 420, according to weekly data collected by Baker Hughes. That represents the lowest total count since the oil field services company first began compiling the data in 1944. Texas lost a cumulative total of just two rigs on the week, including small losses in both the Permian Basin and Eagle Ford shale plays, while Oklahoma and New Mexico lost three rigs each. Texas is still home to 44 percent of the nation’s operating rigs. The oil rig count alone is now down nearly 79 percent from its peak of 1,609 in October 2014 before oil prices began plummeting. Analysts have projected the rig count would dip through most of the first half of 2016. The benchmark price for U.S. oil was down slightly on Friday, but still trading at about than $45.70 per barrel. That’s almost a 75 percent gain from a low of $26.21 a barrel on Feb. 11. While many companies have stopped actively drilling new wells, it hasn’t stopped them from producing oil from existing wells. So oil production is taking much longer to fall than the rig count.

Crude Unable To Bounce Despite Biggest Rig Count Decline In 6 Weeks -- After its earlier pump and rapid dump, WTI crude is unable to bounce for now despite thebiggest rig count decline in 6 weeks. The oil rig count declined by 11 to 332 - the lowest since October 2009 - tracking lagged crude prices. If the co-dependence continues we would expect to see rig counts begin to rise (or stop declining) very soon. Total US rig count dropped to 420 - a new all-time record low.

  • *U.S. TOTAL RIG COUNT DOWN 11 TO 420 , BAKER HUGHES SAYS

US oil ends April with nearly 20 pct monthly gain: U.S. oil prices dipped on Friday after an early rise to 2016 peaks, but posted a gain of about 20 percent for April, the largest monthly gain in a year. Futures held losses after oilfield services firm Baker Hughes reported its weekly U.S. oil rig count fell by 11 to 332. At this time last year, drillers were operating 679 oil rigs. A weaker dollar and optimism that a global oil glut will ease have boosted crude futures about $20 a barrel or more since they plumbed 12-year lows below $30 in the first quarter. With prices less than $5 away from $50 a barrel, investment bank Jefferies said the market "is coming into better balance" and would flip into undersupply in the second half of the year. But others warned that the rally was driven by investors holding large speculative positions, while oil stockpiles were still high, with a Reuters survey showing OPEC output in April rising to its most in recent history.

Dallas Fed cautions on fresh oil bubble as glut keeps building -- The US Federal Reserve has warned that the world is awash with excess oil and starting to run out of places to store the glut, with no sustained recovery in sight for the oil industry until 2017 at the earliest. obert Kaplan, head of the Dallas Fed, poured cold water over talk of a fresh oil boom this year and said the US shale industry has taken far longer to cut output than many expected. “As we sit here today, Dallas Fed economists estimate that global daily oil production exceeds daily consumption by more than 1m barrels per day,” he told the Official Monetary and Financial Institutions Forum in London. “Excess inventories in the OECD member countries now stand at approximately 440m barrels. This is a record level and has raised concerns about whether there is sufficient storage capacity in certain geographic areas,” he said. Oil prices have surged by 80pc since touching bottom at $26 in mid-February. West Texas crude reached a five-month high of $46.70 this week. Speculative long positions on crude oil have risen to all-time highs on the futures markets, a sign that the rebound may have lost touch with fundamentals. There is an armada of tankers building up in the North Sea, while the latest loading data from China show that May deliveries are falling. 

Venezuela Needs Oil's Rally More Than Anyone as Economy Teeters -  Few countries need oil’s rally to last more than Venezuela, where the economy’s expected to shrink 8 percent this year and a lack of petrodollars has seen shops run short of consumer goods. The Latin American nation with the world’s largest oil reserves relies on crude shipments for 95 percent of export revenue. It will default this year barring a large jump in the oil price or a financial bailout, said Thomas Olney, a London-based analyst at consultants FGE. Credit-default swap traders have put the chances of non-payment through June next year at 67 percent, according to data compiled by Bloomberg. Following the collapse of oil-freeze talks in Qatar this month, Venezuelan Energy Minister Eulogio del Pino warned crude may revisit the 12-year lows of earlier this year as supply continues to swamp demand. Even with a rebound since February, prices remain 60 percent below their 2014 high. That’s crippling for a country facing spiraling debts, triple-digit inflation and rolling shortages of basic goods. Venezuela requires a higher price than almost every other OPEC member to balance its budget. RBC Capital Markets estimates it stands at $121.06 a barrel for this year. Only Libya, which didn’t attend the latest talks, needed more, according to the International Monetary Fund. International benchmark Brent crude traded at $47.12 a barrel at 12:55 p.m. on the London-based ICE Futures Europe exchange Thursday.

OPEC Set To Pump Even More Oil In April As Saudi Arabia Boosts Exports To Near-Record High Levels -- In one of the least surprising highlights from the ongoing earnings season, yesterday we reported that as oil continues to rise, US shale companies are starting to resume mothballed production. First, it was Pioneer who said it was "expecting to deliver production growth of 12%+ in 2016 compared to the Company’s previous production growth target of 10%" adding that it also expected to "add five to ten horizontal drilling rigs when the price of oil recovers to approximately $50 per barrel and the outlook for oil supply/demand fundamentals is positive." Then yesterday it was another US shale giant, Whiting Petroleum, who admitted that $45 oil is good enough, and that it is "increasing its production forecast to a range of 131,400 BOE/d to 136,900 BOE/d" adding that "with the majority of completions scheduled for the second half of the year, the Company expects to realize the full production benefit in late 2016 and 2017." And now, according to the latest Reuters production survey, in the aftermath of the failed Doha oil freeze agreement, OPEC will be the next to boost production in the coming month, expanding supplies from an already oversupplied 32.46MMb/d to 32.64MMb/d.As Reuters notes, its survey indicates output from the Organization of the Petroleum Exporting Countries rose by 170,000 bpd in April. OPEC has no supply target. At a Dec. 4 meeting the producer group scrapped its output ceiling of 30 million bpd, which it had been exceeding for months.The Reuters survey aims to assess crude supply to market, defined to exclude movements to, but not sales from, storage. Saudi and Kuwaiti data includes the Neutral Zone.Venezuelan data includes upgraded synthetic oil. Nigerian output includes the Agbami stream and excludes Oso and Akpo condensates. Totals are rounded. There are no individual quotas for the OPEC member countries.        The full Reuters table:

Putin's Decade-Old Dream Realized as Russia to Price Its Own Oil - Russian President Vladimir Putin is on the verge of realizing a decade-old dream: Russian oil priced in Russia. The nation’s largest commodity exchange, whose chairman is Putin ally Igor Sechin, is courting international oil traders to join its emerging futures market. The goal is to increase revenue from Urals crude by disconnecting the price-setting mechanism from the world’s most-used Brent oil benchmark. Another aim is to move away from quoting petroleum in U.S. dollars. If Russia is going to attract international participation in Russian-based pricing, the Kremlin will need to persuade traders it’s not simply trying to push prices up, some energy analysts said. The government is dependent on oil revenue to fund its budgets. “The goal is to create a system where Russian oil is priced and traded in a fair and straightforward way,” said Alexei Rybnikov, president of the St. Petersburg International Mercantile Exchange, or Spimex, in a phone interview. Russia, which exports about half its crude, has long complained about the size of the discounts for lower quality Urals oil compared to North Sea Brent prices, which are assessed by the Platts agency. With world oil prices down by half in the past two years and Russia facing the prospect of its worst budget deficit as a percentage of its economic output since 2010, it needs every dollar of petroleum revenue it can get. Having its own futures market would improve Russian oil price discovery as well as help domestic companies generate extra revenue from trading, said Rybnikov.

Cheap Oil Shaved $390 Billion From Mideast Economies in '15 - The International Monetary Fund estimates the Middle East's oil-dependent economies have missed out on $ 390 billion in oil revenues last year alone and face up to $150 billion in income losses this year as a result of cheap oil prices. The drop in revenues stemming from the export of oil is the direct result of the plunge in crude prices from around $ 115 a barrel in the middle of 2014 to below $30 at the start of the year and now above $40, the IMF said. The loss in potential revenues has put an enormous strain on the economies of major oil exporters such as Saudi Arabia and Kuwait who have posted massive budget deficits in the past year. The IMF had previously calculated that the declining energy prices would erase around $360 billion in oil receipts. "2016 is year number two in a multi-year adjustment process to reach balanced budgets," said Masood Ahmed, director of the IMF'sMiddle East and Central Asia Department. "Probably another four to five years of action will be needed both on spending and on revenues before reaching a comfortable fiscal situation for many countries," he said. Economic growth for the region's oil exporters is set to rise to 3% in 2016 from 2% last year but that is mainly due to the improved prospects of Iraq, which increased oil production, and Iran, which is looking to benefit from the gradual lifting of sanctions, the IMF said. For the oil-rich Persian Gulf countries, economic activity is expected to further slow as governments are cutting spending to rein in widening budget deficits.

IMF expects $500 billion revenue loss for Mideast oil exporters (AP) — Oil-exporting countries in the Middle East lost a staggering $390 billion in revenue due to lower oil prices last year, and should brace for even deeper losses of more than $500 billion this year, the International Monetary Fund said Monday. The fund had projected in October that oil exporting countries in the region would see revenue losses of $360 billion in 2015, but oil prices took a tumble by year's end and the drop in revenue amounted to $30 billion more. In a revised economic outlook report released Monday, the IMF said these countries will see revenues from oil exports drop even more in 2016, to between $490 billion to $540 billion compared to 2014, when oil prices were higher. Oil prices plunged to around $30 a barrel in January compared to $115 in mid-2014. IMF Director for Middle East and Central Asia Masood Ahmed said these losses translate into budget deficits and slower economic growth, particularly for countries like Saudi Arabia that are still heavily dependent on oil to finance their spending. Though the kingdom has been working on plans to overhaul its economy, oil still accounted for 72 percent of total revenue last year and Saudi Arabia projects a budget deficit of nearly $90 billion this year. The report said that economic growth in the six Gulf Cooperation Council countries of Saudi Arabia, Kuwait, Qatar, Bahrain, Oman and the United Arab Emirates will slow from 3.3 percent in 2015 to 1.8 percent this year. Saudi Arabia, the region's biggest economy, will see growth at just above 2 percent. The IMF has encouraged reforms that would limit public spending on welfare programs and handouts that citizens in the Gulf have become accustomed to, such as lifting subsidies and tightening public sector wage bills to offset the impact of declining revenues. Already, most GCC countries have raised fuel, water, and electricity prices.

What Oil Recovery? Saudi Borrowing Costs Spike To 7 Year Highs -- Despite oil's rebound off cyclical lows and the world's exuberance that the energy space may be saved (on the basis of headline-reading algos pumping momentum into commodity futures products that only leveraged Chinese speculators could find value in), something ugly is occurring in Saudi Arabian money-markets.There appears to be a growing funding squeeze in The Kingdom as 3-month interbank rates spike above 2% for the first time since Jan 2009 prompting King Salman to approve a 'post-oil economic plan'.  Whether this spike is responsible or not, The Kingdom is clearly seeking ways to reduce its reliance on crude. As Bloomberg reports, King Salman approved a blueprint for diversifying the country’s economy away from oil on Monday, a package of developmental, economic, social and other programs. Saudi Arabia’s plan for the post-hydrocarbon era will have to overcome habits developed over decades of relying on crude sales to fuel economic growth, create jobs and build infrastructure. Almost eight decades after oil was first found in the country, officials on Monday are to unveil Deputy Crown Prince Mohammed bin Salman’s “Saudi Vision 2030,” a blueprint seeking to reduce the reliance on revenue from crude exports. King Salman approved the package of developmental, economic, social and other programs. Prince Mohammed, known as MbS among diplomats and Saudi watchers, disclosed details of the plan in interviews with Bloomberg in Riyadh. “Shifting from an oil-based economy to something different is very difficult,” . “The Saudis have been talking about it for decades, but have made little progress. So MbS has his work cut out for him.”

Key Saudi rate hits 2009 high amid funding squeeze -- A key interest rate in Saudi Arabia climbed to the highest level in seven years as oil’s slump and increased government borrowing put further strain on bank funding in the biggest Arab economy. The three-month Saudi Interbank Offered Rate, a benchmark used to price loans, advanced 1.5 basis points to 2.004 per cent on Sunday, surpassing 2 per cent for the first time since January 2009, according to data compiled by Bloomberg. The rate has risen 46 basis points this year, the biggest increase for the period since 2005, the data show. Banks are feeling the squeeze as oil’s more than 60 per cent decline since the middle of 2014 curbs deposits, while the government boosts borrowings to plug an $87 billion (Dh319.5 billion) budget deficit this year. The quest for funding may get some relief this month after three people with knowledge of the deal said in March Saudi Arabia is poised to seal a $10 billion syndicated loan from international banks. “We have seen government deposits falling in the banking system, at the same time its borrowing requirements have increased,” . “This is reflected in the rise in interbank rates as well as Saudi Arabia turning to the international market to raise a syndicated loan to limit further domestic liquidity tightening.” Oil’s decline pushed Saudi Arabia to post a budget deficit of about 16 per cent of economic output in 2015, its biggest since 1991, according to data compiled by Bloomberg. The government raised 98 billion riyals ($26 billion; Dh95.94 billion) from selling bonds to local institutions last year, and will probably sell about 120 billion riyals of debt in 2016, Saudi Fransi Capital said in October. Saudi Arabian banks’ loan-to-deposit ratio worsened to 88.1 per cent in February from 86.1 per cent in January, according to the monthly report of the Saudi Arabian Monetary Agency.

Saudi prince unveils sweeping plans to end 'addiction' to oil | Reuters: The powerful young prince overseeing Saudi Arabia's economy unveiled ambitious plans on Monday aimed at ending the kingdom's "addiction" to oil and transforming it into a global investment power. Deputy Crown Prince Mohammed bin Salman said the world's top oil exporter expects state oil company Saudi Aramco to be valued at more than $2 trillion ahead of the sale of less than 5 percent of it through an initial public offering (IPO). He added that the kingdom would raise the capital of its public investment fund to 7 trillion riyals ($2 trillion) from 600 billion riyals ($160 billion). The plans also included changes that would alter the social structure of the ultra-conservative Muslim kingdom by pushing for women to have a bigger economic role and by offering improved status to resident expatriates. "We will not allow our country ever to be at the mercy of commodity price volatility or external markets," Prince Mohammed said at his first news conference with international journalists, who were invited to a Riyadh palace for the event. "We have developed a case of oil addiction in Saudi Arabia," he had earlier told al-Arabiya television news channel. His "Vision 2030" envisaged raising non-oil revenue to 600 billion riyals ($160 billion) by 2020 and 1 trillion riyals ($267 billion) by 2030 from 163.5 billion riyals ($43.6 billion) last year. But the plan gave few details on how this would be implemented, something that has bedevilled previous reforms.

Saudi Prince Shares Plan to Cut Oil Dependency and Energize the Economy— The ambitious young prince who oversees the economy of Saudi Arabia rolled out a grand vision for the future of the kingdom on Monday that aspires to reduce its dependence on oil, stimulate the private sector and reduce government subsidies — all while ensuring rising living standards for Saudi citizens. The plan seeks to steer the Arab world’s largest economy through the double onslaught of low oil prices, which have undermined government revenues, and youthful demographics, which will add millions of job-seekers in the coming years. The plan’s introduction, which was exhaustively covered by the Saudi-owned news media, also signaled a milestone in the meteoric rise of the prince, Mohammed bin Salman, who has gone from being a little-known member of a sprawling royal family to the kingdom’s most prominent official in just over a year. Prince Mohammed, who is about 30, has been given a broad array of positions since his father, King Salman, ascended to the Saudi throne last year and has not hesitated to wield his influence. As defense minister, the prince has overseen a costly war in Yemen and Saudi efforts to push back Iranian influence in Syria and elsewhere. He is also second in line to the throne, and leads a powerful council that oversees the economy. Saudi officialdom has been abuzz for months about a comprehensive National Transformation Plan, though its release has been repeatedly delayed. Monday’s announcement of the “Saudi Vision 2030” was billed as an aspirational guide, with details to be filled in later.  In an extensive prerecorded interview with Saudi-owned Al Arabiya television broadcast in conjunction with the plan’s release, Prince Mohammed painted an optimistic picture of the kingdom’s future, one in which declining oil revenues would be replaced by the returns from enormous government investments and a robust private sector.

Saudi investment fund will turn kingdom into a global player: top prince | Reuters: Saudi Arabia's new investment fund will turn the world's top oil exporter into a global investment power, Deputy Crown Prince Mohammed bin Salman said in a television interview on Monday. He said in an interview on al-Arabiya television to announce sweeping reforms known as Vision 2030 that the kingdom's existing Public Investment Fund had made returns of 30 billion ($8 billion) riyals in 2015. Asked by Arabiya whether he thought the management of PIF would be too autocratic, he said there would be an elected board that would make investment decisions for PIF.

Saudi prince vows Thatcherite revolution and escape from oil: Saudi Arabia has launched a radical ‘Thatcherite’ shake-up to an avert economic crisis and prepare the kingdom for the post-carbon world, stunning analysts with claims that it could break reliance on oil within just four years. Prince Mohammad bin Salman, the country’s de facto ruler, vowed to build a $3 trillion wealth fund and break onto the world stage as an investment superpower, the spearhead of an historic package of measures intended to bring the deformed economy kicking and screaming into the 21st Century. “We have an addiction to oil. This is dangerous. I think that by 2020 we can live without it,” he told Al Arabiya television. It is an extraordinary claim for a government that has historically relied on oil exports for 90pc of its income and has yet to achieve much success in building alternative industries. Gulf veterans say his words should be understood as poetic licence.Prince Mohammad, a 31 year-old tornado determined to smash the status quo, has amassed immense power over the economy and defence that belies his title as deputy crown prince, filling the cabinet with modern technocrats and startling his sinecure cousins from the Al Saud family with the unfamiliar prospect of hard work. The plan known as “Vision2030” aims to slash $80bn of wasteful spending each year and impose some degree of order on the kingdom’s chaotic finances with a consumption tax and fresh levies. Water prices have already risen tenfold as subsidies are paired back, though this prompted a protest storm on Twitter and is a warning of how hard it will be to dismantle the cradle-to-grave welfare system that keeps a lid on dissent.

Weakened Saudi Arabia Could See Social Unrest After Economic Shakeup | OilPrice.com: Despite oil's rebound from cyclical lows and the world's exuberance that the energy space may be saved (on the basis of headline-reading algo pumping momentum into commodity futures products that only leveraged Chinese speculators could find value in), something ugly is occurring in Saudi Arabian money-markets. There appears to be a growing funding squeeze in The Kingdom as 3-month interbank rates spike above 2 percent for the first time since January 2009, prompting King Salman to approve a 'post-oil economic plan'. (Click to enlarge) Whether this spike is responsible or not, The Kingdom is clearly seeking ways to reduce its reliance on crude. As Bloomberg reports, King Salman approved a blueprint for diversifying the country’s economy away from oil on Monday, a package of developmental, economic, social and other programs. Saudi Arabia’s plan for the post-hydrocarbon era will have to overcome habits developed over decades of relying on crude sales to fuel economic growth, create jobs and build infrastructure. Prince Mohammed is leading the biggest economic shakeup since the founding of Saudi Arabia in 1932, with measures that represent a radical shift for a country built on petrodollars. His drive may face resentment from a population accustomed to government largess and power circles that have been stunned by the rapid rise of the 30 year-old prince, political analysts say.

Less Than 5% Of Saudi Aramco To Be Sold (Reuters) - Saudi Arabia plans to sell less than 5 percent of its state oil company Saudi Aramco through an initial public offering (IPO), Deputy Crown Prince Mohammed bin Salman said on Monday. He said in a television interview he expected Aramco, the world's biggest energy company, to be valued at more than $2 trillion and that he wanted it to be transformed into a holding company with an elected board. Subsidiaries of the company would also be sold by IPO, as part of a privatisation drive and to bring more transparency to the oil giant, Prince Mohammed said. "If one percent of Aramco is offered to the market just one percent it will be the biggest IPO on earth," he said. Aramco was once run by Americans but has long been a Saudi state corporation. It dwarfs all in the industry, with crude reserves of 265 billion barrels, more than 15 percent of global oil deposits. It produces more than 10 million barrels per day, three times as much as the world's largest listed oil company, ExxonMobil, while its reserves are more than 10 times bigger. If Aramco were ever to go public, it would probably become the first company to be valued at more than $1 trillion.

Why The Saudi Aramco IPO Will Not Be Enough | OilPrice.com: The Saudi Arabian sale of Saudi Aramco is already starting to attract widespread attention after Mohammad bin Salman, deputy crown prince of the Kingdom, indicated that an IPO for the state owned giant will proceed next year. That IPO, likely to be for less than 5 percent of the company, is being talked about as a way for Saudi Arabia to raise funds in a time of continued low oil prices. While the additional funding would be a welcome boon – Saudi Aramco would likely be valued at over $2 trillion dollars – the reality is that the IPO only distracts from the Kingdom’s deep well of future challenges. Saudi Arabia has run its own state-owned oil company for decades now, which should lead prudent investors to question why the country would be interested in giving up even a piece of the firm now. There are only two possible answers. Either Saudi Arabia needs the funding and sees profits from Saudi Aramco being depressed for years to come, or the Kingdom is looking to diversify its holdings. The timing of the IPO certainly suggests that the Kingdom expects persistent low oil prices for years to come, which should make buyers of the IPO wary. In addition, while the company is highly profitable and controls vast swaths of lucrative resources, only a portion of those assets will be up for sale. Specifically, its oil reserves are unlikely to be included in the IPO. Instead the IPO will probably be for a subsidiary, which includes downstream assets of Saudi Aramco.  Given that Saudi Arabia is not looking to sell its unproven reserves and the fact that it is selling less than 5 percent of the biggest national assets, the view that the Kingdom is trying to exit oil before a long period of depressed profits doesn’t seem to hold much water.

Saudi Arabia to overhaul military in plan for life after oil | GulfNews.com: Saudi Arabia’s plans to overhaul every corner of its economy won’t spare the military. The kingdom will put its armaments industry under a holding company as it prepares for a post-oil era. Part of that reboot will seek to meet more of its military needs domestically and diversify its economy, Deputy Crown Prince Mohammad Bin Salman said. Prince Mohammad, second in line to be king and the power behind the throne, is leading the biggest economic shake-up since the founding of Saudi Arabia in 1932, with steps that include selling less than 5 per cent of Saudi Arabian Oil Co., cutting subsidies and bringing more Saudis into the labour market. His goal: end eight decades of the dependency on oil. “When I enter a Saudi military base, the floor is tiled with marble, the walls are decorated and the finishing is five stars. I enter a base in the US, you can see the pipes in the ceiling, the floor is bare, no marble and no carpets. It’s made of cement. Practical,” Prince Mohammad said in an interview with Saudi-owned Arabiya television before details of the “Vision 2030” plan were announced. “We have a problem with military spending.” Saudi Arabia has one of the biggest military budgets in the world, and was the leading Middle East spender on arms in 2015 at $46 billion (Dh169 billion), according to IHS Jane’s. It allocated 213 billion riyals (Dh208 billion or $57 billion) in its 2016 budget for defence spending. “We are the third- or fourth-largest in terms of military spending in the world, yet our army is ranked in the twenties. There is a problem,” the prince said.

Saudi builder Binladin terminates 50,000 jobs: newspaper | Reuters: Construction company Saudi Binladin Group has laid off 50,000 staff, a newspaper reported on Friday, as pressure on the industry rises amid government spending cuts to survive an era of cheap oil. The total workforce at Binladin, one of Saudi Arabia's biggest firms and among the Middle East's largest builders, is around 200,000, according to its LinkedIn page. Saudi newspaper al-Watan, citing unnamed sources, reported that the group has terminated the contracts of 50,000 workers - apparently all foreigners - and given them permanent exit visa to leave the kingdom. The paper said the workers refused to leave the country without getting paid and some had not received wages for more than four months. They were protesting in front of the Binladin's offices in the country almost daily, the paper added. Binladin did not immediately reply to an email seeking comment on Friday, a day off in the Gulf region.

The Real Reason Saudi Arabia Killed Doha - Saudi Arabia single-handedly scuttled the Doha meeting, knowing all along that Iran would not participate, with a valid reason. The Russians and others agreed to proceed without Iran, planning to include them at a later date. So if everything was known beforehand, why did the Saudi’s pour cold water on the aspirations of the remaining members, risking its alienation from Russia and the OPEC community? Was it simply Saudi enmity toward Iran? Not exactly. Upon closer scrutiny, we can find the Saudi masterstroke behind Doha. It is well known that Saudi Arabia is heavily dependent on oil revenues, and that those revenues are on the brink of collapse. But the trick here is to determine exactly how desperate the Saudis are. Certainly not as desperate as other countries.  Angola has recently sought support from the International Monetary Fund (IMF). Venezuela’s struggles started well before crude prices dropped to 12-year lows and is fighting to avoid a disaster. Azerbaijan has also approached the IMF and the World Bank for help. Nigeria is also seeking the World Bank’s support. Without external support, Iraq will find it difficult to continue its war against the Islamic State (ISIS). Lower oil prices continue to make matters worse, and Iraqi Kurdistan has taken advantage of the situation and works towards independence and beefing up its unilateral export plans. Ecuador is the worst hit, and now the devastating earthquake has crippled the nation. It will need help from the IMF, the World Bank and a few other lenders to reconstruct. After a 3.5 percent contraction in 2015, Russia’s gross domestic product will take a further 1.5 percent hit in 2016, as projected by the Central Bank. Kazakhstan is faring no better. Its growth shrunk to 1.2 percent in 2015 from an impressive 6 percent in 2013 and is expected to slow down further to 0.1 percent in 2016. Most of the participating nations are financially ruined.  But if crude prices rise above $50 per barrel, the shale producers have made their intentions clear, that they will be back in business. If Saudi Arabia had accepted the deal, oil prices would have jumped to $50/b, giving the shale oil industry a new lease on life. Shale producers would have started pumping at a frantic pace, increasing the glut and pushing oil prices back down.

Obama may be preaching 'tough love' to Saudi – but arms sales tell another story -- When President Barack Obama arrived in Saudi Arabia on Wednesday for a meeting of Gulf leaders, he was greeted at the airport by the governor of Riyadh, instead of the Saudi king. Unlike his previous visits, Obama’s arrival was not broadcast on Saudi state television with its usual pomp and circumstance. It was one sign of how livid Saudi leaders are at Obama and his administration – the decades-long Saudi-US alliance has rarely been more tense. Saudi rulers believe that Obama has shifted US foreign policy to be more friendly toward Iran, especially after his administration expended considerable political capital to reach a nuclear deal with Tehran last summer. Obama also reduced direct US involvement in the Middle East, resisting calls to intervene military in Syria and to send more US troops to Iraq. And Saudi leaders were particularly upset after Obama suggested in an interview with The Atlantic magazine that they should figure out ways to “share the neighborhood” with Iran. Despite Saudi anger and US public perception, Obama has not fundamentally altered the “special relationship” between the kingdom and the United States. As Obama has preached a kind of tough love – telling the Saudis that he won’t commit US military resources to reflexively support them against Iran – his administration has dramatically ramped up arms sales to the kingdom and other Gulf allies. Since 2010, the Obama administration authorized a record $60bn in US military sales to Saudi Arabia. Since then, the administration concluded deals for nearly $48bn in weapons sales – triple the $16bn in sales under the George W Bush administration.

Post-sanctions Iran's impact on OPEC and the global oil market: Iran's planned post-sanctions oil production path is colliding with crude market realities, keeping the country's production and exports from ramping up to meet initial expectations. Platts senior oil editors Herman Wang and Brian Scheid discuss the obstacles Iran is encountering,including factors from other countries like Russia, Saudi Arabia and the US. Vandana Hari, editorial director with Platts in Asia, and Sara Vakhshouri, president of SVB Energy International and a senior fellow at the Atlantic Council, talk about the state of Iranian oil and Iran-s new roles in both OPEC and the global market.

Iran Might Still Outwit the Saudis on Oil -- Iran's oil exports are growing much more quickly than analysts predicted back in January when sanctions were eased. If the recovery continues at its recent pace, it could raise an interesting dilemma at OPEC's next meeting in June.  As Bloomberg reported earlier this month, Iran exported more than 2 million barrels per day of crude during the first half of April -- a figure calculated from tracking ships loading at Iranian export terminals. This compares with 1.45 million barrels a day in March. Neither figure includes the country's exports of condensate (a type of light oil recovered from gas fields). If we add the volume of oil refined in Iran -- estimated at about 1.6 million barrels per day -- to the exports, we get a total daily crude supply of about 3.6 million barrels. Keep that number in mind.  When oil producers, led by Venezuela and Russia, began to talk about an output freeze back in February, Iran made it very clear that it wouldn't participate until it restored production to pre-sanctions levels. It put that figure between 4 million and 4.2 million barrels per day, although a look back at its official OPEC-supplied production numbers shows it reported daily output at between 3.7 million and 3.8 million barrels before fresh sanctions were imposed in 2012.  Bloomberg, and the six organizations OPEC used for its "secondary sources" estimate of its members' production, saw Iran's output falling during the first half of 2012 as buyers went elsewhere before sanctions came into force. The official figures given to OPEC by Iran show production continuing at about 3.7 million barrels per day throughout 2012 and most of the following year. The difference probably reflects Iran's unwillingness to admit sanctions were having any impact. It's possible, though, that production didn't fall as steeply as outside observers thought, with the additional oil going into onshore storage tanks (much harder to track than oil stored on tankers).  Iran claims it's now producing 3.5 million barrels per day, pretty close to the 3.6 million indicated by my calculation above. This suggests that the restoration of Iran's pre-sanctions production, which analysts said would take a year -- if it could be achieved at all -- has just about been managed within three months.

Iran's Supreme Leader Accuses Obama Of Lifting Sanctions Only "On Paper" -- Relations between Iran and Saudi Arabia, which supposed had thawed as part of Obama's landmark 2015 nuclear deal which also allowed Iran to resume exporting its oil, are once again on the fence following a statement by Iran's Supreme Leader, Ayatollah Ali Khamenei, which accused the United States of scaring businesses away from Tehran and undermining a deal to lift international sanctions.  According to Reuters, Khamenei told hundreds of workers that a global deal, signed between Iran and world powers, had lifted financial sanctions, but U.S. obstruction was stopping Iran getting the full economic fruits of the agreement. "On paper the United States allows foreign banks to deal with Iran, but in practice they create Iranophobia so no one does business with Iran," he said in quotes from the speech posted on his website.  Iran has repeatedly urged Washington to do more to remove obstacles to the banking sector, in the spirit of the July deal with the United States, the European Union, Russia and China to lift most sanctions on Iran in return for curbs on its nuclear programme.

Iran Daily: “We Will Force US to Implement Nuclear Deal” - Iran’s Speaker of Parliament Ali Larijani has declared that Tehran will force the US to meet its commitments under the July 2015 nuclear deal. “The Westerners are not trustworthy, but if they don’t fulfill their commitments, we will force them into implementation with our own means,”  Larijani told a forum in Tehran on Thursday. Implementation of the agreement between Iran and the 5+1 Powers was announced in January, but Iranian officials — led by the Supreme Leader — have criticized the US for maintaining and adding sanctions and for failing to return Iranian assets. The tension has risen this month with claims that the US Government is preventing American and European companies from doing business with Iran, and by a Supreme Court decision allowing families of the victims of terrorism to sue for up to $2 billion in frozen Iranian assets. Under pressure from MPs to act, President Rouhani assured on Thursday that the Government would spare no effort to retrieve the money from the “definitely illegal” Court ruling. Larijani denounced the “unfair behavior” of the Americans, saying Iran has its “own means to make them regret” their actions. The Speaker did not elaborate about the Iranian responses.

With Iraq Mired in Turmoil, Some Call for Partitioning the Country --With tens of thousands of protesters marching in the streets of Baghdad to demand changes in government, Iraq’s Shiite prime minister, Haider al-Abadi, appeared before Parliament this week hoping to speed the process by introducing a slate of new ministers. He was greeted by lawmakers who tossed water bottles at him, banged on tables and chanted for his ouster.“This session is illegal!” one of them shouted. Leaving his squabbling opponents behind, Mr. Abadi moved to another meeting room, where supportive lawmakers declared a quorum and approved several new ministers — technocrats, not party apparatchiks — as a step to end sectarian politics and the corruption and patronage that support it. But, like so much else in the Iraqi government, the effort fell short, with only a handful of new ministers installed and several major ministries, including oil, foreign and finance, remaining in limbo. A new session of Parliament on Thursday was canceled. With the surprise visit to Baghdad on Thursday of Vice President Joseph R. Biden Jr. — who, as a senator, called in a 2006 essay for the partition of Iraq into Sunni, Shiite and Kurdish zones — it seems fair to ask a question that has bedeviled foreign powers for almost a century: Is Iraq ever going to have a functioning state at peace with itself? “I generally believe it is ungovernable under the current construct,” said Ali Khedery, an American former official in Iraq who served as an aide to several ambassadors and generals. Mr. Khedery said that a confederacy or a partition of Iraq might be the only remedy for the country’s troubles. He called it “an imperfect solution for an imperfect world.”

Iraq is second-leading contributor to global liquids supply growth in 2015 -- EIA - Iraq was the second-leading contributor to the growth in global oil supply in 2015, behind only the United States. Crude oil production in Iraq, including fields in the Kurdistan Region of northern Iraq, averaged 4.0 million barrels per day (b/d) in 2015, almost 700,000 b/d above the 2014 level. Iraq is the second-largest oil producer in the Organization of the Petroleum Exporting Countries (OPEC) and accounted for about 75% of total OPEC production growth in 2015. Iraq's oil consumption decreased slightly in 2015, and as a result, all of the crude oil production increase was exported to international markets.  In southern Iraq, where almost 90% of the country's oil was produced in 2015, the upgrade of midstream infrastructure (pipeline pumping stations and storage facilities) and improvements to crude oil quality contributed to increased production. In June 2015, Iraq started marketing Basra Heavy grade crude oil, distinguishing it from the Basra crude it had traditionally marketed as a light crude oil. Before this distinction, Iraq limited its production at oil fields producing heavy oils to maintain the minimum standard for the light grade Basra crude oil. Once Iraq began marketing Basra heavy separately from Basra light, it was able to increase production at fields producing the heavier oil and improve the quality of Basra light. In northern Iraq, where the remaining 10% of Iraq's oil was produced in 2015, the Kurdistan Regional Government (KRG) increased the capacity of its independent pipeline, allowing output increases. Despite the record level of production and exports, the Iraqi government has asked international oil companies (IOCs) to reduce spending plans at southern oil fields in 2016 because Iraq has been struggling to keep up its share of payments to IOCs. In 2015, Iraq (excluding KRG) earned slightly more than $49 billion dollars in crude oil export revenue, $35 billion dollars less than the previous year, despite a substantial increase in export volumes.

Saudi Arabia cuts May Arab Heavy crude oil exports to Asia due to field maintenance - Saudi Arabia has temporarily cut May term volumes of its major export grade, Arab Heavy, to Asia due to field maintenance, several market sources said this week. Total May-loading Saudi term volumes appear to have been cut for a few Asia-Pacific refiners, said an Asian refining source whose total volumes were, however, not trimmed. For other refiners, the drop in Arab Heavy crude volumes has been replaced by higher volumes of Arab Light or Arab Medium, both medium sour grades, other market sources said. The cuts in Arab Heavy are said to be down to field maintenance from May to June, which appears to affect fields feeding the Arab Heavy blend, three market sources said. The maintenance does not appear to be major, however, said another market source. Asian refining sources affected by the cuts said the changes were minimal and would have little impact on their operations. "The total [overall] volume remains more or less the same. We can easily switch [our requirement for heavy sour crude] with Latin American crude. It is not a big issue," said a trader with a Northeast Asian refiner.

One Chart Shows Where The World's Record Surplus Oil Has Gone -- In the aftermath of China's gargantuan, record new loan injection in Q1, which saw a whopping $1 trillion in new bank and shadow loans created in the first three months of the year, many were wondering where much of this newly created cash was ending up. We now know where most of it went: soaring imports of crude oil. We know this because as the chart below shows, Chinese crude imports via Qingdao port in Shandong province surged to record 9.86 million metric tons last month based on data from General Administration of Customs. As Energy Aspects pointed out in a report last week, "Imports through Qingdao surged to another record as teapot utilization picked up, leading to rising congestion at the Shandong ports." And sure enough, this kind of record surge in imports should promptly lead to another tanker "parking lot" by China's most important port. This is precisely what happened when according to reports, some 21 crude oil tankers with ~33.6 million bbls of capacity signaled from around Qingdao last Monday, according to data compiled by Bloomberg. 12 of those vessels, with about 18 million bbls, were also there 10 days earlier, data show. As Bloomberg adds, port management had met to discuss measures to ease congestion, citing an official at Qingdao port’s general office, however for now it appears to not be doing a great job. Incidentally, putting Qingdao oil traffic in context, last year the port handled 69.9 million metric tons overseas oil shipments, or ~21% of nation’s total crude imports, more than any other Chinese port.

Russia And Saudi Arabia Locked In Relentless Fight Over China's Oil Market -- Russia and Saudi Arabia have been (relatively) quietly fighting for market share in China ever since oil prices started their downward spiral in mid-2014 - now the battle is heating up, and teapot refineries are what could tip the balance. Though the Saudis had historically been China’s biggest oil supplier, Russia managed to take the top spot several times during that period, thanks to the so-called teapot refineries. This has now forced the Saudis to do something they’ve never done before—target teapots on the spot market in order to regain lost market share. Teapot refineries rose to fame due to their greater processing flexibility as compared with state-owned Chinese oil giants. Last year, they finally won import quotas for crude, most of which they then export in the form of oil products.Russia was quick on the uptake and until recently was the leading supplier to these teapots.Now, however, the Saudis have stepped up their game and have offered teapots spot oil contracts. That’s very unusual for Saudi Arabia, which  prefers to trade its oil on the futures markets and at a fixed price--but the stakes seem to be high enough to justify this move. owever, life is not all easy for the teapots, either. Last year, they faced tightened credit requirements from local banks, who got worried about falling returns. The independent refiners found a solution to this problem this year, when 16 of them agreed to ally in order to improve their purchasing power.The China Petroleum Purchase Federation of Independent Refineries was formed in early March with the ambition of covering the whole chain of imports, processing and exports.According to shipbroker Gibson, teapots could come to account for 20 percent of all Chinese crude oil imports this year.

Analysis: China tackles problem of plenty with record high gasoil exports - Oil | Platts News Article & Story: China shipped record high volumes of gasoil in March as refiners, holding plentiful export quotas, scouted around for overseas buyers in an effort to cut burgeoning stocks at home because of sluggish domestic demand, a trend market participants expect to continue in April. Gasoil exports hit a record 1.25 million mt in March, surpassing the previous all-time high of 1.11 million mt in September 2015. It was also over four times the 300,230 mt exported a year earlier, General Administration of Customs data showed Friday. "The severe inventory pressure pushed out gasoil cargoes in March, and the trend will continue in April," a Beijing-based trader said.With exports rocketing, gasoil stocks fell 6.25% month on month at the end of March, in contrast to a surge of 38.26% at the end of February, China petroleum stockpile statistics compiled by official news agency Xinhua showed Tuesday. The stock build in February was the highest since January 2010. "The pressure on domestic stocks is still there due to sluggish demand from end-users," a Guangzhou-based trader from PetroChina said. "A few vessels carrying gasoil from Northern China to Guangdong have been queuing up at ports and are waiting for tank space to discharge, as storage at ports are full," he added. Traders said on Monday domestic gasoil buyers were not keen to buy cargoes to stock up, despite expectations prices would go up because there was no available storage space.

It's Now Cheaper To 'Buy' A Dry Bulk Freight Tanker Than A Starbucks Coffee -- Just 3 short months ago, we detailed how - thanks to the collapse in China's growth and massive commodity inventory gluts, the cost of renting a Dry Bulk Tanker was less than the cost of renting a ferrari for a day... As Bloomberg reported at the time, Rates for Capesize-class ships plummeted 92 percent since August to $1,563 a day amid slowing growth in China. That’s less than a third of the daily rate of 3,950 pounds ($5,597) to rent a Ferrari F40, the price of which has also fallen slightly in the past few years, One would think, considering how much the Baltic Dry Index has 'surged' off its all-time record lows - and the noise being spewed by Cramer et al. that this is somehow indicative of the "big comeback" in the Chinese (and world) economies - that the situation would have improved... But it has not! For the cost of $1 - less than the price of a Grande Black Coffee at Starbucks - you too can be the owner of a 58,429 deadweight tonne bulk carrier...As The Guardian reports, Goldenport, one of the last shipping companies left on the London Stock Exchange, has delisted from the market and sold off six of its remaining eight vessels for $1... The giveaway reflects the most dismal shipping conditions in decades, caused by economic slowdown in China combined with an oversupply of vessels due to a building spree during a previous boom and the fact that "average daily hire rates have fallen below even a vessel’s daily operating expenses."

Goldman Says China's Iron Speculation ‘Concerns Us the Most’ -  Goldman Sachs Group Inc. has expressed its concern about the surge in speculative trading in iron ore futures in China, saying that daily volumes are now so large that they sometimes exceed annual imports. The increase in futures trading in the world’s largest importer was among factors that have lifted prices, according to a report from analysts Matthew Ross and Jie Ma received on Tuesday. Iron ore volumes traded on the Dalian Commodity Exchange are up more than 400 percent from a year ago, they said. “While increased fixed-asset investment in China, a bring-forward of steel production (ahead of a government curtailment) and mining disruptions help to explain the strong rally in the iron ore price, the one driver that concerns us the most is the increased speculation in the Chinese iron ore futures market,” they wrote. Iron ore has rallied in 2016, buttressed by the explosion in speculative trading in China’s commodity futures markets as mills boosted monthly output to a record. The spike in raw materials trading in China has stunned global markets, according to Morgan Stanley, which cited the jump in local activity in iron ore as well as steel. The increase has prompted exchange authorities in Asia’s top economy including Dalian to tighten rules on the trading of some contracts. “There have been two days in the past month where futures volumes have been greater than the total amount of iron ore that China actually imported for the whole of 2015 (950 million tons),” the Goldman analysts wrote. To slow trading activity, the Dalian exchange has announced it would be increasing margin requirements and transaction costs on iron ore futures, they said.

China Industrial Profits Soar Most In 18 Months But Overcapacity Looms - Profit growth of Chinese industrial companies rebounded dramatically in March. Of course this should not be totally surprising given the trillion-dollar credit injection in Q1 and artificially-elevated commodity prices juicing the zombified industrial base but it does leave The Fed today with a problem - they're running out of excuses. So in being patriotic, we will help - first, as Goldman warns, this profit spike is unsustainabe given the surge in overcapacity; and second, nobody is paying - payment delays have surged to the highest in 17 years as the ponzi accelerates. So a trillion dollars goes in and profits spike 11.1% YoY.. But on Sunday we also learned that median days sales outstanding for mainland domiciled companies now sits at 83 days - the highest in nearly 17 years and double the average for EM as a whole. As you can see from the above, it now takes 50% longer for Chinese firms to get paid than it did just five years ago. As you might imagine, the problem is particularly acute for industrial firms who are waiting 131 days to convert sales into cash. "A reading of more than 100 days is typically a red flag," Amy Sunderland, a money manager at Grandeur Peak Global Advisors in Salt Lake City told Bloomberg.  Yes, Amy it certainly is. Especially considering the median for companies in the MSCI Emerging Markets Index is just 44 days.

Inside Apple’s top secret iPhone factory: Tech giant provides a glimpse of huge Chinese plant where 50,000 pink-jacketed staff are subjected to facial recognition, metal detectors and daily roll calls -- Lined up with military precision, hundreds of employees wait to make iPhones at one of the most secretive factories in the Apple production line.Dressed in pink jackets, blue hairnets and plastic slippers, the workers have their ID badges scanned on an iPad by a supervisor at morning roll call.From there, they make their way in single file to the assembly line but not before undergoing facial recognition checks at security turnstiles to clock in.Pegatron Corp employs up to 50,000 people to assemble iPhones at its plant in Shanghai which covers an area the size of 90 football fields. As they enter the compound, workers must pass through metal detectors designed to weed out any camera or video equipment that could be used to leak details of any unreleased technology. They then climb up a stairwell that has a safety net draped across the middle – to prevent accidents or suicide attempts – before getting changed into their uniforms and lining up for roll call. Until now, the factory's inner workings have been a closely guarded secret.  But the two firms have, for the first time, allowed a western journalist inside after facing years of accusations that their staff were having to work gruelling hours on low pay.

China Is Building a Robot Army of Model Workers - MIT Technology Review -- Inside a large, windowless room in an electronics factory in south Shanghai, about 15 workers are eyeing a small robot arm with frustration. Near the end of the production line where optical networking equipment is being packed into boxes for shipping, the robot sits motionless.“The system is down,”  The machine is meant to place stickers on the boxes containing new routers, and it seemed to have mastered the task quite nicely. But then it suddenly stopped working. “The hitch reflects a much bigger technological challenge facing China’s manufacturers today. Wages in Shanghai have more than doubled in the past seven years, and the company that owns the factory, Cambridge Industries Group, faces fierce competition from increasingly high-tech operations in Germany, Japan, and the United States. To address both of these problems, CIG wants to replace two-thirds of its 3,000 workers with machines this year. Within a few more years, it wants the operation to be almost entirely automated, creating a so-called “dark factory.” The idea is that with so few people around, you could switch the lights off and leave the place to the machines.But as the idle robot arm on CIG’s packaging line suggests, replacing humans with machines is not an easy task. Most industrial robots have to be extensively programmed, and they will perform a job properly only if everything is positioned just so. Much of the production work done in Chinese factories requires dexterity, flexibility, and common sense.

China Decreases Air Pollution In Large Cities, But Small Cities Are Left Behind: In 2013, China announced a plan to curb air pollution in the notoriously smoggy Beijing-Tianjin-Hebei region, home to many old factories. Last year it even closed factories near the new Disneyland in Shanghai, hoping for more cheerful skies around the park. Such measures have begun to work, but with one caveat: They have not been much applied to the central and western provinces, where pollution levels have actually increased. In the first quarter of this year, levels of PM2.5—the smallest, most dangerous air pollution particles—fell by an average of 8.8% from a year ago in 362 cities, according to a Greenpeace study released today. Beijing and Shanghai saw average PM2.5 levels fall 27% and 12%, respectively. Of the 91 cities with rising average PM2.5 levels, 69 were in central and western parts of the country. And those 69 witnessed an average jump of 20% in PM2.5 levels. The five cities with the highest levels of PM2.5 are all located in the autonomous region Xinjiang, a predominantly Muslim area in the nation’s far west. Xinjiang also recorded the worst air quality in the first quarter among all the 31 Chinese provinces, with a 46% rise of average PM2.5 concentration year-over-year. Expanded industrial activity, particularly around the capital Urumqi, is partly responsible for the surge, Greenpeace explains.Air quality in central and western China is likely to deteriorate further due to increased investment in coal-fired power plants in these regions. Last year 75% of China’s new permits for such plants, with a total capacity of 128 gigawatts, were for locations in central and western regions,

China's Brave New Math: 24 Of 28 Provinces Report Higher GDP Than National Average - There is a saying that the whole is greater than the sum of its part. This may be true everywhere, except in China, where the total is whatever some goalseek machine decides it is.  We first saw China's flagrant manipulation of data when the nation released its "better than expected" trade "data" two weeks ago. As shown in the chart below, when it comes to the biggest contributor, imports from Hong Kong, it was beyond simply grotesque and had entered the sublimely ridiculous.Then last weekend, following the release of China's official national GDP print of 6.7%, China also released its sequential GDP growth of 1.1% which, when annualized, one got a number of 4.5%.  Just as bad, based on the accumulated quarter-on-quarter data over the last year, annual growth in 1Q was just 6.3% - substantially below the NBS’s 6.7% reading for year-on-year growth.Then over the weekend, China's farcical "data" entered the twilight zone, when 24 of 28 Chinese province-level regions reported GDP that was higher than the national figure of 6.7%. As China Radio International reports, 28 of 32 Chinese provinces, municipalities and autonomous regions have released their first-quarter GDP growth figures, with Chongqing and the Tibet Autonomous Region taking the lead.  24 of the provincial-level regions reported rates above the national figure of 6.7%,while places like Jilin found themselves at the bottom of the list with a 6.2% growth. Two other provinces in the country's northeast, Liaoning and Heilongjiang, have not revealed their numbers yet as well as central Shanxi.  The immediate spin was even more hilarious: not even stepping for second to appreciate that 85% of provinces "reported" numbers that were greater than the average, a professor Liu Yuanchun at the Renmin University of China said "the figures show the government's stimulus policies are producing results, which signal stable growth."

How China’s Debt Fix Could Make Things Much Worse --Instead of China fixing a corporate zombie problem threatening to overwhelm the world’s second largest economy, Beijing may be about to create a bigger one.That is the implicit warning in a new paper published by the International Monetary Fund late Tuesday. Authorities in China are just starting to tackle the systemic buildup of two decades of credit-fueled and state-directed growth. The IMF estimates bad corporate debt in China—obligations owed by firms whose profits can’t cover interest payments—amounts to $1.3 trillion, a problem that could trigger bank losses equal to 7% of the country’s gross domestic product. Such bank losses could rip through the Chinese economy, maim a growth rate already falling faster than expected and send shockwaves through the global economy. That’s why the IMF wants to ensure the government gets its fix right the first time. Beijing has proposed allowing banks to swap debt for equity in failing firms or bundling up those debts to be sold as securities.The fund says such a plans could work, but only as part of a carefully calibrated and comprehensive program to deal with the mountain of bad debt weighing on the economy. “They are not a comprehensive solution by themselves,” say the three authors of the paper, James Daniel, José Garrido and Marina Moretti. “Indeed, they could worsen the problem, for example, by allowing zombie firms (nonviable firms that are still operating) to keep going.”

China could make its $1.3 trillion risky loan problem even worse - Apr. 27, 2016: China's efforts to try to tackle its $1.3 trillion risky loan problem could end up making the situation even worse, the International Monetary Fund has warned. Corporate debt in China is estimated to have risen to about 160% of GDP, a high level compared with other developing economies. And it's continuing to increase. That's not healthy at a time when China's annual economic growth is at its weakest in 25 years and when companies are finding it harder to service their debts. The IMF estimates that the amount of loans potentially at risk stands at $1.3 trillion, or 12% of the entire economy. And in a report published Tuesday, it warned that the two techniques that China has reportedly identified to deal with the huge debt load -- converting bad loans into equity or repackaging them into securities -- won't work if other issues aren't addressed at the same time.

China’s “Lehman Moment?” - Wolf Richter -- Last year, $674 billion fled China. This year through March, $175 billion did. The Institute of International Finance, in a report released today, estimated that $538 billion would flee China this year. Reserves have plunged from $4 trillion in June 2014 to $3.2 trillion as of February. Much of it is illiquid and cannot be used to stabilize the currency. So the IIF said that capital flight could accelerate if Chinese investors fret that the yuan could fall in a “disorderly” manner. This would have broader ramifications: A sharp drop in the renminbi would likely spark a renewed sell-off of global risk assets and trigger a flight of portfolio capital from emerging markets. Moreover, a sharp depreciation of the renminbi could lead to a round of competitive devaluation in other emerging markets, particularly in those with close trade linkages to China. The report warned that an “important unknown” is the level of currency reserves that the Chinese government considers critical. If reserves drop below that level, authorities might either let the yuan fall sharply or tighten currency controls further, both of which would rattle markets around the world. Add to this environment the growing fear of bond defaults by Chinese state-owned enterprises. Companies have extended large amounts of loans to each other, and defaults would ricochet through Corporate China.

China expected to see $538 billion capital exodus in 2016, IIF says | Reuters: Global investors are expected to pull $538 billion out of China's slowing economy in 2016, the Institute of International Finance (IIF) estimated on Monday, although the pace of outflows has dropped. That number would be down a fifth from the $674 billion pulled out last year, the industry association said, but could accelerate again if fears re-emerge of a "disorderly" drop in the yuan, or the renminbi, as the currency is also known. Capital exodus from China can influence emerging markets more generally, partly because of its sheer size and partly because sustained outflows can trigger more exchange rate volatility, which could then feed a fresh wave of outflows. "A sharp drop in the renminbi would likely spark a renewed sell-off of global risk assets and trigger a flight of portfolio capital from emerging markets," the IIF said in a new report. "Moreover, a sharp depreciation of the renminbi could lead to a round of competitive devaluation in other emerging markets, particularly in those with close trade linkages to China." For now, though, outflows are slowing. Roughly $35 billion was pulled out in March, bringing the total since the start of the year to around $175 billion, well below the pace seen in the second half of 2015.

IIF Ruins The Party, Predicts Another $420 Billion In Chinese Capital Outflows This Year -- In early 2016, the biggest global macroeconomic risk factor was the accelerating capital outflows out of China over fears of currency devaluation (or simply because the local population knows better than anyone just how dire to domestic situation is and is rushing to park its assets offshore) and with good reason: after the PBOC burned through $1 trillion in reserves to offset capital flight starting in the summer of 2014, even the IMF chimed in with a concerned report suggesting China may have at most another half a trillion "buffer" left before it runs into illiquid assets which would prove virtually impossible to liquidate easily in the open market. It got so bad that in January and early February, US equity futures would surge or slump based on a Yuan fixing that was a few basis point lower or higher than expected. According to the IIF's latest report released today, global investors are expected to pull $538 billion out of China's slowing economy in 2016, which means another $420 billion after the $118 billion that has already been withdrawn in Q1. That number would be down a fifth from the $674 billion pulled out last year, the industry association said, but could be a stark acceleration from $118 in reserves sold in the first three months of the year as fears re-emerge of a "disorderly" drop in the yuan, or the renminbi, as the currency is also known. "A sharp drop in the renminbi would likely spark a renewed sell-off of global risk assets and trigger a flight of portfolio capital from emerging markets," the IIF said in a new report.

Is there a new Plaza Accord? - Foreign exchange traders are buzzing with talk of a new “Plaza Accord”, following the marked change in the behaviour of the major currencies after the Shanghai G20 meetings in late February. Since then, the dollar has weakened, just as it did after the Plaza meetings on 22 September 1985. The Chinese renminbi has been falling against its basket, in direct contrast with the “stable basket” exchange rate policy that was publicly emphasisedby PBOC Governor Zhou just before Shanghai. The euro and, especially, the yen have strengthened, in defiance of monetary policy easing by the ECB and the Bank of Japan. Following Shanghai, the markets have become loathe to push the dollar higher, believing that the G20 may now have come to a co-ordinated agreement, as they did at the Plaza, to reverse the direction of the US currency. Does this comparison make any economic sense? The Shanghai communique did place increased emphasis on an agreement among the major economies to avoid “competitive devaluations”. The main suspects here were Japan, the Eurozone and (sometimes) China, all of whom have good reasons to push their currencies down. The fact that the communique eschewed this course of action is therefore a reason to believe that the dollar might be subjected to less upward pressure. But that does not make it a new Plaza.

Once Bustling Trade Ports in Asia and Europe Lose Steam - WSJ -- Pain is increasing among the world’s biggest ports—from Shanghai to Hamburg—amid weaker growth in global trade and a calamitous end to a global commodities boom. Overall trade rose just 2.8% in 2015, according to the World Trade Organization, the fourth consecutive year below 3% growth and historically weak compared with global economic expansion.  The ancient business of ship-borne trade has been whipsawed, first by a boom that demanded more and bigger vessels, and more recently by an abrupt slowing. That turnabout has roiled the container-shipping industry, which transports more than 95% of the world’s goods, from clothes and shoes to car parts, electronic and handbags. It has set off a frenzy of consolidation and costs cutting across the world’s fleets.  Ashore, it is also slamming ports and port operators, the linchpin to global commerce. Nowhere is the carnage more painful than along the Europe-Asia trade route, measuring roughly 28,000 miles round trip. A cooling Chinese economy and a high-profile crackdown by Beijing on corruption has damped demand for everything from commodities like iron ore to designer scarves and shoes. Meanwhile, Europe’s still sputtering recovery from the global economic crisis is hitting the flow of goods in the other direction.On Friday, the Hong Kong Marine Department reported throughput for its port in the first quarter was off 11% from the first three months of last year. Throughput for all of 2015 also dropped 11%. “It is the first time you see people in shipping being really scared,”

In Shocking Finding, The Bank Of Japan Is Now A Top 10 Holder In 90% Of Japanese Stocks -- The latest shocking example of just how intertwined central banks have become in not only Treasury and corporate bond markets and their respective "valuations", but also in stocks, comes courtesy of the Bank of Japan which days ahead of an announcement which may see it double its ETF purchases from the current JPY3.3 trillion to JPY7 trillion or more (if Goldman is correct) has just been revealed to be a top 10 holder in about 90% of all Japanese stocks!  As Bloomberg puts it, "they may not realize it yet, but Japan Inc.’s executives are increasingly working for a shareholder unlike any other: the nation’s money-printing central bank." While the Bank of Japan’s name is nowhere to be found in regulatory filings on major stock investors, the monetary authority’s exchange-traded fund purchases have made it a top 10 shareholder in about 90 percent of the Nikkei 225 Stock Average, according to estimates compiled by Bloomberg from public data. It’s now a major owner of more Japanese blue-chips than both BlackRock Inc., the world’s largest money manager, and Vanguard Group, which oversees more than $3 trillion. Under the BOJ’s current stimulus plan, the central bank buys about 3 trillion yen ($27.2 billion) of ETFs every year. While policy makers don’t disclose how those holdings translate into stakes of individual companies, estimates can be gleaned from publicly available central bank records, regulatory filings by companies and ETF managers, and statistics from the Investment Trusts Association of Japan. The BOJ declined to comment on Bloomberg’s findings. The stunning chart showing just how deeply involved in the "fair value" of the Nikkei is shown below: it needs no explanation.

Why Goldman Expects The Japanese Yen To Collapse Within 12 Months -- Which brings us to today, when in its latest attempt to throw everything at the wall and hope something sticks, Goldman Sachs' FX team - whose trading recommendations in the past 6 months have been an unmitigated disaster - is predicting that the $/JPY will "move higher again in the near term and continue to forecast $/JPY at 130 a year from now." Why does Goldman expect a collapse in the Yen by nearly 20 big figures?  Because as analysts Sylvia Ardagna and Robin Brooks note, "the BoJ faces an important challenge: it needs to reaffirm that the monetary easing arrow of Abenomics is still on course, or the market will price that the central bank is backtracking from the 2% inflation goal. This could be extremely disruptive for the Japanese economy. Using markets jargon, the BoJ is already so long into 'the reflationary trade' that it has to continue to deliver further accommodation for the time being." In other words, having committed to a terminal expansion of its balance sheet, it is far too late for Kuroda to backtrack, especially since the recent massive growth in its balance sheet has actually led to a just as massive capital outflow from Japan, as investors have been rapidly pulling out funds from Japan afraid that the BOJ will be the first central bank to lose all control. Goldman is basically saying that the Bank of Japan has no way out.

Bank of Japan shocks markets by voting against more stimulus -- The Bank of Japan has surprised investors by deciding against any fresh market stimulus despite shocking data that underlined the huge problems facing the country’s economy. Related: Abenomics is in poor health after Nikkei slide – and it may be terminal Although it kept its negative interest rate policy in place and voted to continue with its massive asset purchase scheme, the bank’s policymakers refrained from any extra measures to kickstart the stagnating economy. The dollar plunged 2.35% against the yen following the news as investors clawed back trades based on the expectation of more easing that would have weakened the Japanese currency. On the share market, the Nikkei fell sharply in reaction to the news and was down more than 3.5% at 7am GMT. Futures trading indicated that the major European bourses would open lower on Thursday morning. Stock markets cross Asia had risen earlier on Thursday in expectation of more stimulus from the central bank, especially after figures showed that Japan’s consumer prices dropped last month by the most in three years. In addition to the worse-than-expected fall – 0.3% in March – separate data showed household spending remains weak, although factory output rebounded.The central bank maintained its pledge to increase base money, or cash and deposits in circulation, at an annual pace of 80 trillion yen ($730bn). It also left unchanged a 0.1% negative interest rate it applies to some of the excess reserves financial institutions park at the BOJ.

Japan eyes more foreign workers in stealthy challenge to immigration taboo - The Japan Times: Desperately seeking an antidote to a rapidly aging population, Japanese policymakers are exploring ways to bring in more foreign workers without calling it an “immigration policy.” Immigration is a touchy subject in a land where conservatives prize cultural homogeneity and politicians fear losing votes from workers worried about losing jobs. But a tight labor market and ever-shrinking work force are making Prime Minister Shinzo Abe’s policy team and lawmakers consider the politically controversial option. Signaling the shift, leading members of a ruling Liberal Democratic Party (LDP) panel on Tuesday proposed expanding the types of jobs open to foreign workers, and doubling their numbers from current levels of close to 1 million. “Domestically, there is a big allergy. As a politician, one must be aware of that,” Takeshi Noda, an adviser to the LDP panel, said in an interview. Unlike the United States, where Donald Trump has made immigration an election issue, Japan has little history of immigration. But, that makes ethnic and cultural diversity seem more of a threat in Japan than it may seem elsewhere. And while Japan is not caught up in the mass migration crisis afflicting Europe, the controversies in other regions do color the way Japanese think about immigration.

US Treasury Gives Explicit Warning To China, Germany And Japan Not To Devalue Their Currencies - While the US Treasury's semi-annual report on the foreign-exchange policies of major U.S. trading partners has traditionally been, pardon the pun, a paper tiger, as the US has not named a single country as a currency manipulator since it did so to China in 1994, and it didn't go so far as to blame any country as an outright manipulator in the just released April edition, there was a new addition to the latest report. In an inaugural sublist, the US put five economies including China, Japan and Germany (as well as South Korea and Taiwan) on a new currency watch list, saying that their foreign-exchange practices bear close monitoring to gauge if they provide an unfair trade advantage over America. This is what it said: In determining the appropriate factors to assess these criteria, Treasury took a thorough approach, analyzing data spanning 15 years across dozens of economies, including all economies that have had a trade surplus with the United States during that period, and which in the aggregate represent about 80 percent of global GDP. The thresholds are relatively robust in that reasonable changes to the thresholds do not materially change the Report’s conclusions. Treasury will also continue to review the factors it uses to assess these criteria to ensure that the new reporting and monitoring tools provided under the Act meet the objective of indicating where unfair currency practices may be emerging.  Pursuant to the Act, Treasury finds that no economy currently satisfies all three criteria, however, five major trading partners of the United States met two of the three criteria for enhanced analysis. Treasury is creating a new “Monitoring List” that includes these economies: China, Japan, Korea, Taiwan, and Germany. China, Japan, Germany, and Korea are identified as a result of a material current account surplus combined with a significant bilateral trade surplus with the United States. Taiwan is identified as a result of its material current account surplus and its persistent, one-sided intervention in foreign exchange markets.

Panama Leaks: Did Musharraf Steal Pakistani People's Money?  - A story alleging corruption by former President Pervez Musharraf has appeared recently in Pakistan's Jang Media Group publications  in the aftermath of the Panama Leaks that revealed the names of 220 rich and powerful Pakistanis owning offshore accounts.  The Panama Papers show that Mir Shakeel ur Rehman, the owner of Jang Media Group, owns offshore accounts, as do the family of the current Prime Minister Mr. Nawaz Sharif and former Pakistani Prime Minister Benazir Bhutto who was assassinated in 2007. Other Pakistanis named in the Panama Papers include prominent businessmen, politicians, judges, bureaucrats, etc. allegedly involved in corruption. The names of former President Pervez Musharraf or his family members are not among the 220 names from Pakistan. The Jang Media Group story titled "How Mr clean Musharraf became a billionaire" lists accounts held by Mr. Musharraf in Dubai and London with balances adding up to millions of US dollars. Farrukh Durrani, the story writer, demands that the commission of inquiry looking into Panama Papers also investigate the sources of Mr. Musharraf's wealth. Here's an excerpt of the story:  "Despite having such huge chunk of amount in his offshore accounts, neither did any investigative agency nor did the accountability bureau question him how he got billions of rupees in his foreign accounts. However the commission of inquiry appointed by prime minister in the wake of Panama Leaks has a broader scope and powers which can question ex-dictator Pervez Musharraf from where he got billions of rupees which are kept in his offshore accounts."

Pakistan's Identity: Religion Trumps Nationality -- Only 27% of the people in Pakistan identify themselves as Pakistanis first while 51% of Indians see themselves as Indians first. On the other hand, 43% of Pakistanis (vs 17% of Indians) say their religious identity comes first, according to Globescan Survey 2016  conducted in 18 countries including India and Pakistan. The top choice of religion as the dominant identity by 43% of respondents in Pakistan is followed by 27% seeing themselves as Pakistani, 12% picking local community, 11% saying race or culture and 2% claiming global citizenship.Pakistan is among three countries that stand out in how their populations see their identity. Spaniards are by far the most likely to identify with world citizenship (54%). For 56 per cent of Indonesians, belonging to their local community is the strongest defining identity. And for Pakistanis, a strong plurality (43%) identify first as a member of their religion. Indonesia, where only 4% of the people identify themselves as Indonesian nationals, has over 18,000 islands spread over 8 million square kilometers, many with their own distinct languages and cultures. Former Indonesian President General Suhatro's mass literacy campaign to teach Bahasa Indonesia to promote nationhood has apparently not had a big impact.  The poll, conducted by GlobeScan among more than 20,000 people worldwide between December 2015 and April 2016, was released as part of the BBC World Service Identity Season—a Spring season of broadcasts on the World Service’s 27 language services exploring stories about how people identify themselves around the world, according to Globscan press release.

Brace for another $129b in budget deficits, says Deloitte Access - The resurgent iron ore price is a budgetary fool's gold that won't prevent another $129 billion in budget deficits over the next four years, says expert Chris Richardson. Sluggish wages growth, the strengthening Australian dollar and extra spending to the states mean the deficit will be $21 billion worse than forecast four months ago, with a meaningful fall in public debt now pushed well into the next decade, according to the Deloitte Access Economics partner. Mr Richardson has also challenged Treasury and the Department of Finance to use the pre-election fiscal outlook, due in the second week of the campaign, to level frankly with voters about the state of the budget rather than repeat the 2013 "pixies, elves and fairies outlook" that assured voters around $80 billion of unidentified savings would be found. "Treasury and Finance can stick their heads in the sand again, thereby ensuring the electorate does the same," Mr Richardson said. "Or ... they can tell it like it really is to all Australians ahead of the election, rather than solely to the new government after the election."

John Mauldin — These 4 Charts Show the Global Slowdown Is Already...: My good friend Jeffrey Snider recently cited a Wall Street Journal article highlighting a very serious slowdown in big-rig truck orders. Truck inventories are at their highest levels since before the financial crisis. Sales in March were also down 37% from a year ago as fleets remain very cautious about expanding in this environment. Some of this reduction in 2016, as the Journal reports, is due to companies over-ordering in 2014 and 2015 based on the narrative that the economy was actually healing, or at worse would stay in its “new normal.” It raises the issue as to whether these conditions and the manufacturing recession they reflect are cyclical or structural, or both. The contraction in goods may or may not be pushing the US economy toward recession. It is clear, however, that whatever the ultimate cycle reality, deeper imbalances run back several years. They are likely traced to decades of financialization that is now overturning. What we see in the US is a global phenomenon, which can only have one possible explanation. Jeffrey offers several charts that I think tell the story better than 1,000 words.

The millionaires leave cities, build fortresses: According to a recent report by New World Wealth, many millionaires have started to leave the cities. The biggest exodus of millionaires is observed in Paris (7,000), followed by Rome (5000), Chicago (3000) and Athens (2000). According to the report, 22,000 millionaires were living in Athens and 55,000 across Greece in 2015, of which 9% and 5%, respectively, left the country during the year. The New World Wealth believes that the exodus of millionaires will be accelerated over the next 10 years, mainly from France but also from Belgium, Germany, Sweden, the UK, Italy, Spain and Greece. The main reasons for the exodus of the wealthy from these cities are the rising religious tensions, acts of terrorism and the economic crisis in Europe, as well as the riots in many American cities after the killings of African Americans by the police. A former hedge fund manager, Robert Johnson, explained last year in Davos what worries the wealthy: many of them observe a growing social instability and they fear that there will be unrest and uprisings like those in the US. The UK and the US are the most popular destinations for millionaires who fled from Paris, Rome and Athens. Both countries offer tax and other benefits to the incoming plutocracy, but their cities remain vulnerable to social unrest (for example in London 2011, in Oakland 2010, Anaheim 2012, Ferguson 2014, and Baltimore, 2015). Thus, for several wealthy, the greater the distance from possible riot centers, the more the feeling of security is provided. For this reason, some have bought farms with runways in remote places like New Zealand.

Nigeria's Looming Financial Crisis? - With the sudden evaporation of Africa’s exuberance Nigeria and South Africa, which together make up more than half of sub-Saharan Africa’s gross domestic product, are in deep trouble. Nigeria’s petroleum-dependent economy will be lucky to notch up GDP growth of 3 per cent this year, barely enough to keep up with population expansion. The naira is under pressure, foreign exchange is rationed, the budget is strained and a balance of payments crisis is looming. South Africa is in even worse shape, convulsed politically, battered by deep job losses in its struggling mines and facing the real possibility of a downgrade of its sovereign debt to junk. Several other African states, especially commodity producers, are struggling. Angola, which had been pumping out oil and purring along at double-digit growth rates, has turned to the International Monetary Fund. Mozambique is in dire straits after squandering much of the proceeds of international borrowing. The grotesque use by politicians of windfall profits around the continent is a reminder that corruption is alive and well. The balance of payments, also known as balance of international payments and abbreviated BoP, of a country is the record of all economic transactions between the residents of the country and the rest of the world in a particular period (over a quarter of a year or more commonly over a year). These transactions are made by individuals, firms and government bodies. Thus the balance of payments includes all external visible and non-visible transactions of a country . It represents a summation of country’s current demand and supply of the claims on foreign currencies and of foreign claims on its currency.

Police sweep away Brazil’s ‘street children’ ahead of Olympics -With a faltering economy and an $11 billion investment at stake, Brazil wants nothing more than to stage a successful Olympic Games come August. The government is building new transportation and sports venues, hiring security guards and deploying soldiers, and sprucing up Rio de Janeiro’s most-visited areas. But “cleaning the streets,” as the project is euphemistically known, is not an effort to haul garbage but to sweep away homeless people and drug dealers—including the often drug-addicted children who live on the sidewalks of some of Rio’s wealthiest neighborhoods. In the Copacabana and Maracanã areas, two of the neighborhoods preparing to host the Olympics, teenagers and children as young as 7 sleep by the roadside or beg for change. Boys often join gangs and sell drugs to survive while girls frequently turn to prostitution. Many smoke crack or sniff glue. Some live on the streets full time; others spend nights in the favelas, or nearby shantytowns. It’s a side of Brazil that the government is hoping to hide from cameras this summer. As Rio prepares for the spotlight the Games will bring, advocates for homeless youth say children are being detained arbitrarily by police—or in some cases simply vanishing. They warn that the “cleanup” is likely to make life worse than ever for the thousands of children who have already been forced out of their homes by abuse or desperate poverty.

Venezuela Doesn't Have Enough Money to Pay for Its Money  -- Venezuela’s epic shortages are nothing new at this point. No diapers or car parts or aspirin -- it’s all been well documented. But now the country is at risk of running out of money itself.   In a tale that highlights the chaos of unbridled inflation, Venezuela is scrambling to print new bills fast enough to keep up with the torrid pace of price increases. Most of the cash, like nearly everything else in the oil-exporting country, is imported. And with hard currency reserves sinking to critically low levels, the central bank is doling out payments so slowly to foreign providers that they are foregoing further business.   Venezuela, in other words, is now so broke that it may not have enough money to pay for its money.

Venezuela orders 2-day work week to save electricity - Blackouts, Zika, recession and now this: a two-day work week. This is life in Venezuela, a crisis-stricken country. Venezuela's President Nicolas Maduro decided Tuesday night to shorten the work week to two days -- Monday and Tuesday -- in an effort to save energy and electricity. The country's most important source of electricity, El Guri dam, has record-low water levels. Maduro had previously announced earlier in April that all Fridays through May would be holidays for public sector employees. Now Wednesdays and Thursdays will also be holidays for public sector workers at least until the end of May. Maduro said the upcoming weeks will be "critical and extreme" for the country. It's the latest setback for a country riddled with an economic crisis, political infighting, food and medical supply shortages and the Zika virus. Expert say the power crisis could be the last straw for Maduro. "The power crisis is likely to hit Mr. Maduro's popularity and this could ultimately prove to be his undoing," says Edward Glossop, an emerging markets economist at Capital Economics, a research firm. According to Venezuela's statistics, there are roughly 2.6 million public sector employees, which represents about 20% of the country's workforce. It's still officially unclear if Venezuelans will be paid for all five days of work or just two days. CNN Español first reported the news Tuesday evening (link in Spanish).

Venezuela Economy Literally Grinds To A Halt As Maduro Orders "Five Day Weekend" For Public Workers -- Just three weeks ago, the Venezuela socialist paradise gifted local workers with one extra day of rest each week when, as a result of the crippling economic crisis and collapsing power grid, president Maduro designated every Friday in the months of April and May as a non-working holiday in his desperate bid to save electricity as a prolonged drought pushes water levels to a critical threshold at hydro-generation plants. Never without a scapegoat, Maduro immediately blamed El-Nino for implementing the three-day weekend."This plan for 60 days, for two months, will allow the country to get through the most difficult period with the most risk," Maduro said on state television in early April. "I call on families, on the youth, to join this plan with discipline, with conscience and extreme collaboration to confront this extreme situation” of the drought blamed on the El Nino weather system.As a reminder, the reason for the electrical rationing was the water content of Venezuela's Guri Dam, which supplies more than two-thirds of the country’s electricity. As The Latin American Herald Tribune wrote a month ago, the dam “is less than four meters from reaching the level where power generation will be impossible. Water levels at the hydroelectric dam are 3.56 meters from the start of a ‘collapse’ of the national electric system. Guri water levels are at their lowest levels since 2003, when the a nationwide strike against Hugo Chavez reduced the need for power, masking the problem." Yesterday the water levels at Guri dam reached a record low of 241.67 meters, according to state power utility Corpoelec. If levels drop below 240 meters, the dam’s operator may be forced to shut down units at the plant that produces about 75 percent of the electricity that Caracas, the country’s capital and largest city, consumes.

Alberta credit rating downgraded to double-A from triple-A due to rising debt -- Alberta's credit rating has taken another hit. Moody's Investor Service announced Monday it has downgraded Alberta's long-term debt rating to double-A1 from triple-A and has given it a negative outlook. It's the second downgrade from a rating service since the province released its budget on April 14 that included removal of its debt ceiling and a forecast of $58 billion in debt by 2019. Moody's says the downgrade "reflects the province's growing and unconstrained debt burden, extended timeframe back to balance, weakened liquidity, and risks surrounding the success of the province's medium-term fiscal plan given the outlook for subdued growth." It also says the province forecasts oil prices to be higher than what Moody's is predicting. Finance Minister Joe Ceci, who is on a trip to Toronto and New York to meet with business leaders, says the downgrade is "disappointing." "We have the strongest balance sheet in the country and net assets of nearly $50 billion," Ceci said in a news release. "The budget released last week clearly demonstrated our commitment to getting costs under control, especially in health care, by cutting spending growth to an average of two per cent over the next three years."

"We Haven't Seen This Is In Our Lifetimes" - CEO Says "Alberta Is In A Depression" -- Regular readers know that we've covered Alberta's decline at length (refresher here), so there is no need to give much of a backstory other than to say that the situation seems to get worse for the Canadian province as each day passes even as oil has rebounded in the past two months. Toronto's "Condo King" Brad Lamb tried to put things into context when he said the situation is "worse than 2008." However, on Friday we received an even more gloomy (albeit realistic) description of the economic situation in Canada's energy hub, Alberta. In a very blunt interview with BNN, Murray Mullen the CEO of trucking company Mullen Group, said that the situation has moved well past recession, and should be described as a depression. "Well, if you're involved in the oil patch directly, drilling activity or anything like that I think we've gone beyond recession and it's more a depression. The facts are that this latest round of commodity price collapse that happened the first part of this year I think really put the nail in the coffin for the industry." "The damage has already been done basically for this year. Even though it seems like the oil price and even natural gas is starting to recover, there was no room for error because commodity prices had fallen so low in 2015, and then when it happened in 2016, and it's not just crude oil, it's natural gas also. We're just kind of trapped in a difficult market dynamic that we haven't seen in probably most of our lifetimes."

Canada is subsidizing foreign millionaires: Anyone who has spent time in Vancouver recently knows there is one topic everyone talks about: real estate. The frenzied housing market, where tear-down homes sell for millions of dollars, is showing no sign of slowing down. In fact, 2016 is already breaking records for sales. According to the Economist, Vancouver is the most expensive city in North America and the second-least affordable housing market in the world, after Hong Kong. The average detached home now sells for over $2.2 million. While wealthy foreign investors swoop in to buy homes that often sit empty, the city has become unaffordable for everyday people. What’s going on in Vancouver, and will the phenomenon spread to other cities in Canada? The problem, in part, can be blamed on Canada’s immigration rules — particularly the Immigration Investor Program. Under the so-called investor program, wealthy immigrants could hand over $800,000 to the federal government in exchange for permanent residency. Five years later, the government would return the money with no strings attached. That’s it. If you had $800,000, or could access it through loans and mortgages, you could get a Canadian passport.  This program was a disaster. A 2014 government report showed that after 10 years in Canada, the average immigrant who came through this investor program had a taxable salary of only $15,800. One in three immigrant investors did not file a tax return — claiming zero income in Canada. After a decade, these millionaire investors paid on average only $1,400 in annual taxes. By contrast, the average immigrant who came through the skilled worker program earned $46,800 annually and paid $10,900 in income taxes. Far from being a boon to our economy and creating jobs, these so-called investors are actually a drain on our social system.

Monster Corporate Sovereignty Ruling Against Russia Overturned By Dutch Court, But It's Hard To Tell Whether It's Over Yet  -- By now, the theoretical risks of including corporate sovereignty chapters in TPP and TAFTA/TPP are becoming more widely known. But as Techdirt wrote back in 2014, there's already a good example of just how bad the reality can be, in the form of the monster-sized case involving Russia. An investor-state dispute settlement (ISDS) tribunal ruled that Vladimir Putin really ought to pay $50 billion to people who were majority shareholders in the Yukos Oil Company. The Russian government didn't agree, and so naturally took further legal action to get the ruling overturned. As The New York Times reports, it seems to have succeeded:  In a major victory for the Russian government, a Dutch court on Wednesday overturned an award of more than $50 billion to former shareholders of the defunct oil company Yukos that Moscow was ordered to pay in 2014.  The award was thrown out because of something mentioned in the earlier Techdirt article: the fact that the claim was brought under the Energy Charter Treaty, which Russia signed, but never ratified. Because the ISDS arbitration panel had met in The Hague, in the Netherlands, Russia took its case before Dutch judges, who agreed that Vlad need not pay in these circumstances.   But the ruling is unlikely to signal the end of this case -- after all, some pretty serious sums of money are involved. According to The New York Times, the international arbitration practice representing the Yukos shareholders intends to make an appeal to higher courts in the Netherlands against the decision. And even if it fails to get the latest court ruling overturned, it's still quite possible that GML, the company that controlled a majority of the Yukos shares, will be able to collect its $50 billion elsewhere. As the NYT says:  GML is pursuing legal efforts to collect the Russian money in a half-dozen other countries: Belgium, Britain, France, Germany, India and the United States. There have not yet been rulings in those cases, and it was not immediately clear on Wednesday how the decision in The Hague might affect them.

Norway Offers Refugees Cash To Leave The Country -- As European countries deal with the current refugee crisis, each is taking a slightly different approach in response to the escalating situation. In Norway, which has been shocked by the unfolding events in neighboring Sweden which has seen a mass revulsion at the ongoing refugee onslaught (and which recently announced it won't accept any more refugees from the EU) the answer appears to be the simplest possible one: offer asylum seekers money to leave. Currently, refugees who decide to return to their home country instead of seeking asylum in Norway are given 20,000 kroner (~$3,000) for travel expenses by the Norwegian government (up to 80,000 kroner for a family with two children). Now, as RT reports, Norway will sweeten the deal, and provide an additional 10,000 kroner to the first 500 asylum seekers who apply for voluntary return to their home countries. Integration Minister Sylvi Listhaug had the following to say about the bonus program: "We need to entice more [people] to voluntarily travel back by giving them a bit more money on their way out. This will save us a lot of money because it is expensive to have people in the asylum centers. There are also many who are not entitled to protection and, by all means, are going to be rejected. It's better for us to stimulate their travel back."

Migration crisis: Italy threatened by national crisis - BBC News: Whizzing mopeds, chiming church bells, vibrant piazzas and bustling cafes. Quintessential images of Italy as many of us believe it to be. But walk through Rome's Piazza Vittorio these days and you could be forgiven for believing you were in London. You hear Arabic here and Punjabi there. Romanian, Chinese and Afghan voices fill the air. Cheap Korean, Indian and Egyptian eateries try to entice you with flashing neon signs. Multicultural Italy is a relatively new phenomenon but it's a growing one.Syrian restaurant owner Mohidyn Oudstwani tells me that conquering Italian hearts and palates is easier than you might think. Syrians and Italians have much in common, he says. Both spend much of their time eating or talking about good food, and the lives of both peoples revolve around their "mamas". But co-existence - coesistenza as it is known here - is delicate and hard-won. When Imam Sami Salem, originally from Egypt and now a well-known figure across Italy - founded a mosque in a graffiti-covered, working-class district of Rome 20 years ago, Italian neighbours pelted the congregation with tomatoes, cigarette butts and dirty water. But Imam Salem decided to fight prejudice with openness. He threw open the doors to his mosque and became involved in local charities and community work. One of the reasons Italy has fewer Islamist radicals than many other European countries, he believes, is because it doesn't have ghettos or isolated Muslim neighbourhoods like France's banlieues.

Migrant crisis: EU-Turkey deal is 'working' - BBC News: Last month's EU-Turkey deal on tackling the migrant flow has begun to produce results, a top EU official has said. "We have seen a sharp reduction of the illegal migration flows," European Council President Donald Tusk said. In Turkey, he praised the government as "the best example in the world on how to treat refugees", despite criticism by rights groups of the agreement. Turkish PM Ahmed Davutoglu reiterated the EU should now implement visa-free travel for Turks as part of the deal. Mr Davutoglu said his country had fulfilled its part of the agreement and that the issue of the visa waiver for entering the EU's Schengen area was "vital" for Turkey. The deal says Turkey must meet 72 conditions by 4 May to earn access. Diplomats say only half of those points have been met so far.Earlier on Saturday, Mr Tusk and German Chancellor Angela Merkel visited a migrant camp on the Turkish-Syrian border. The goal of the deal was to deter migrants, mainly Syrians and Iraqis, from making illegal crossings - mainly by sea - between Turkey and Greece, an EU member. The UN refugee agency and other rights organisations have voiced concerns about the agreement.

Trade Costs of Border Controls in the Schengen Area --naked capitalism Yves here. This is more important than it might seem. One of the key benefits of the European Union has been the ease of movement of goods and people across borders. The refugee crisis has led to a resumption of border controls by quite a few states. This matters because, as this column confirms, the former friction-free borders produced economic gains for member states. Now that the EU is suffering stress on lots of fronts, not just refugee policy but also increasingly discordant economic relations, the border restrictions undo one of the key raisons d’etre for the entire exercise. And I suspect some of the glue is psychological, not just purely economic. For instance, if you are in the South of France, you can pop into Italy for a lunch or a day trip. With tougher border controls (mind you, this is a hypothetical at this point), the hassle and delay would probably cut into this practice severely. That doesn’t just reduce commerce. It also increases the sense of separateness of neighboring countries. This post does some useful, granular analysis, examining the costs of tightening borders along refugee routes versus that of the end of the Schengen system, as well as who has the most to lose.

The revenge of globalisation’s losers - FT.com -- Globalisation is failing in advanced western countries, where a process once hailed for delivering universal benefit now faces a political backlash. Why? The establishment view, in Europe at least, is that states have neglected to forge the economic reforms necessary to make us more competitive globally. I would like to offer an alternative view. The failure of globalisation in the west is in fact down to democracies failure to cope with the economic shocks that inevitably result from globalisation, such as the stagnation of real average incomes for two decades. Another shock has been the global financial crisis — a consequence of globalisation — and its permanent impact on long-term economic growth. In large parts of Europe, the combination of globalisation and technical advance destroyed the old working class and is now challenging the skilled jobs of the lower middle class. So voters’ insurrection is neither shocking nor irrational. Why should French voters cheer labour market reforms if it could result in the loss of their jobs, with no hope of a new one? Some reforms have worked, but ask yourself why. They reduced relative prices in Germany and pushed up net exports in turn generating massive savings outflows, the deep cause of the imbalances that led to the eurozone crisis. . Nor is their any factual evidence that countries that have reformed are performing better or are more able to cope with a populist insurrection. The US and the UK have more liberal market structures than most of continental Europe. Yet the UK may be about to exit the EU; in the US the Republicans may be about to nominate an extreme populist as their presidential candidate. Finland leads all the competitiveness rankings but the economy is a non-recovering basket case — and it has a strong populist party. The economic impact of reforms is usually subtler than its advocates admit. . My diagnosis is that globalisation has overwhelmed western societies politically and technically. There is no way we can, or should, hide from it.

Merkel’s Refugee Strategy – A Brown Nose Becomes the Chancellor - Mathew D. Rose - It is a visit most Germans would like to forget – quickly. Their Chancellor Angela Merkel travelled to Turkey last Saturday, dropped in at what is termed a “sanitised” refugee camp for a well-orchestrated public relations exercise, and then held a press conference, effusing over Turkey’s exemplary treatment of refugees. It was “Brown Nose Tour The Second” to Turkey for Ms Merkel (the last in October, just before Turkish elections, in a veiled endorsement of Turkey’s dictator Recip Erdogan in return for a deal to stop the flow of refugees from Turkey to Greece).  This spectacle was much more than a display of hypocrisy. Ms Merkel’s newest kowtow to Erdogan, following her recent decision to raise charges against the German satirist Jan Böhmermann for libelling Erdogan, demonstrated to the German people that they are not the generous, enlightened people they thought they were and the European Union has nothing to do with Beethoven’s ode of joy, its unofficial anthem. Still Ms Merkel hopes her brown nose may yet revive her failing political fortune. Ms Merkel has every reason to be thankful to Erdogan. Since the two completed their deal on 20 March the number of refugees crossing from Turkey has steadily declined. In the past five weeks a mere 113 refugees have purportedly been transferred from Turkey to the EU. That is not even 20 per week.  Ms Merkel’s visit is however just one element in a vastly larger development. It is just eight months ago that the Germans were celebrating their Willkommenskultur, solidarity with refugees fleeing wars in Syria, Iraq and Afghanistan. At the forefront was Ms Merkel, nicking Barack Obama’s 2008 election motto “Yes we can!” (Wir schaffen das). Currently Willkommenskultur is being redefined in Germany: Bringing Arab and African dictators and war criminals out of the cold to support the EU’s anti-refugee policy.

"It's A Trojan Horse" - Thousands Of Germans Protest TTIP Trade Deal One Day Before Obama Visit -- Whether it is due to Trump's increasingly vocal anti-free trade rhetoric or due to the ongoing deterioration in the global economy, there has been a big change in the public's perception toward the transatlatnic deal known as TTIP in the recent months, with support for the agreement which was drafted by big corporations behind closed doors tumbling. As Reuters reported last week, support for the transatlantic trade deal known as TTIP has fallen sharply in Germany and the United States, a survey showed on Thursday, days before Chancellor Angela Merkel and President Barack Obama meet to try to breathe new life into the pact. The survey, conducted by YouGov for the Bertelsmann Foundation, showed that only 17 percent of Germans believe the Transatlantic Trade and Investment Partnership is a good thing, down from 55 percent two years ago. In the United States, only 18 percent support the deal compared to 53 percent in 2014. Nearly half of U.S. respondents said they did not know enough about the agreement to voice an opinion. To be sure, as Michael Krieger wrote on Thursday, "the writing was already on the wall a year ago, which is why politicians were scrambling to pass TPP fast track as quickly as possible, which, of course, they did. So the good news is the public is clearly waking up. What’s a bit depressing is that it’s taken so many decades. Yes, decades." But while Americans seemingly have more important things to be concerned about, in Germany the activists are once again making themselves heard. Recall that it was just last October when a stunning quarter million Germans packed the street of Berlin to protest Obama's "Free Trade" deal.

Obama Joins Angela Merkel in Pushing Trade Deal to a Wary Germany - — President Obama said on Sunday that he was confident the United States and the European Union would succeed in negotiating a new trans-Atlantic trade deal by the end of the year, saying the benefits of such an agreement were “indisputable.”Mr. Obama said images of factories moving overseas and lost jobs created a narrative about trade agreements that “drives, understandably, a lot of suspicion” in places like the United States and Germany. But, he added, well-designed trade deals can have greater benefits.“It is indisputable that it has made our economy stronger,” he said. “It has made sure that our businesses are the most competitive in the world.”Mr. Obama spoke while standing next to Chancellor Angela Merkel of Germany at a news conference in Hanover as they prepared to preside over the opening here of the world’s largest industrial trade fair.In the evening, Mr. Obama and Ms. Merkel hosted a dinner for 29 chief executives of major American and German companies. The president’s visit to Germany was intended to bolster negotiators seeking to wrap up a trade agreement between the United States and the European Union, an accord that Ms. Merkel supports but that is highly unpopular in her country. Ms. Merkel is among Mr. Obama’s most trusted counterparts, and the president is eager to support her during difficult political times.

TTIP trade pact: Obama pushes deal on Germany visit - AJE News: US President Barack Obama and German Chancellor Angela Merkel have given a fresh push to a potentially huge US-European trade pact despite mounting opposition.Obama said after talks with Merkel in Hanover on Sunday that the deal could be reached by the end of the year."Angela and I agree that the United States and the European Union need to keep moving forward with the Transatlantic Trade and Investment Partnership (TTIP) negotiations," he said. TTIP: The mother of all trade deals? "I don't anticipate that we will be able to have completed ratification of a deal by the end of the year, but I do anticipate that we can have completed the agreement."If a deal is signed, it would form the world's biggest trading bloc.Those in favour of the pact say it could create millions of new jobs and increase trade by billions of dollars - a much-needed stimulus for the global economy. But opponents believe it is undemocratic and would give big companies too much power. Free-trade advocates say the TTIP will form a market of 800 million people, create millions of jobs and serve as a counterbalance to growing Asian economic clout. Anti-TTIP activists, campaigning under the banner "Stop TTIP", say an accord would undermine European food and environmental laws and give too much power to US corporations.

EU-US trade: Five reasons why a deal looks difficult - US President Barack Obama and German Chancellor Angela Merkel on Sunday called for negotiations for a controversial new transatlantic trade pact to be concluded by the end of the year. The two leaders will be making their case again on Monday when the UK’s David Cameron, France’s François Hollande and Italy’s Matteo Renzi join discussions on the sidelines of the Hanover Messe, Europe’s biggest trade fair. But officials on both sides agree that concluding a deal before the US president leaves office in January next year will be difficult. There are still vast gaps in the two sides’ positions on key issues. The politics surrounding the deal — particularly in Europe — have also become increasingly awkward. Here are five reasons among many why reaching a deal in the coming months is likely to be difficult:

Merkel, Obama and the death of Greece - Tomorrow, in the German city of Hannover, President Obama and Chancellor Merkel will again discuss about Greece. Greece and Syria are, for some years now, the two countries on which world interest is focused. If we judge by facts, all this “international interest” had, up to now, rather negative influence on the situation in both countries. Syria is destroyed by military means. Greece is literally destroyed as a nation, as a society and as a state, by its own “partners”, in alliance with international Finance and its representative par excellence, the IMF and with the consent of the USA administration (1) By the way, all the main international mass media are clearly hiding the reality of the Greek situation, we suppose in order to protect the engineers of this unprecedented economic and social catastrophe, orchestrated and imposed to this country under the title of “bail-out”, “help” packages, who are nobody else but the European political leaders, the ECB and the IMF, acting obviously, all of them and in spite of their differences, under the guidance of big international Finance. I was reading for example a recent article in the Washington Post. It included the horrible statistics about the fall of Greek GDP – after all, Washington Post and its authors have somehow to protect their credibility. But after paying lip service to the truth, they stopped short of explaining to their readers what means a drop of more than 25% of the GDP, that is what is happening in the country that suffers such a drop. Then the article contained a long description of differences between IMF, Europeans and Greeks. The reader was informed about various technical aspects of the ongoing negotiations. But there is not any explanation in the article what exactly are those “reforms” than Merkel, Hollande, Lew, Biden, Lagarde, Draghi etc. ask the Greeks some years now to implement. What is hidden exactly behind this nice code word “reforms”.

EU Rejects Greek Request for Emergency Summit - The head of the European Union has rejected Greece’s request for an emergency meeting aimed at ending an impasse over the country’s bailout. Greece agreed to a third rescue package worth €86bn (£60bn; $94bn) last year and faces a looming debt payment. However, it has been unable to unlock the next loan instalment after clashing with its creditors over more reforms. The International Monetary Fund and other European partners are demanding that Greece implement further austerity measures. They are looking to generate nearly €4bn in additional savings or contingency money in case Greece misses future budget targets. But the left-wing government led by Alexis Tsipras has said it will not agree to any “additional actions” to what it had already signed up to last summer. A special ministerial meeting was supposed to be held on Thursday, but Dutch Finance Minister Jeroen Dijsselbloem, who is in charge of the Greece negotiations, called it off.

Donald Tusk Rejects Alexis Tsipras Summit Request. Donald Tusk, the European Council president, has turned down a Greek request for an emergency summit on Athens’ bailout and told eurozone finance ministers to do more to narrow their differences. Without a deal on new austerity measures, Greece faces a default on €3.5bn in debt payments that come due in July. Greece is fast running out of cash to pay salaries and pensions in May because of lagging tax receipts. To cover the gap Mr Tsipras’s government has been strong-arming state entities, from the cash-strapped health service to the profitable water utility, to empty their bank accounts and place the funds with the central bank in a short-term loan arrangement.Bailout negotiations have stalled over a request by the EU and the International Monetary Fund, Greece’s main lenders, that Athens legislate €3bn in “contingency” budget cuts that could be triggered if the programme veers off-course and fails to produce projected surpluses.Euclid Tsakalotos, the Greek finance minister, has told negotiators getting additional cuts through the Greek parliament is politically impossible, and has asked instead for lenders to accept across-the-board budget cuts in case targets are missed. EU and IMF negotiators have rejected that proposal, however, insisting the additional reforms be targeted carefully to ensure they do not damage economic growth.

With Impeccable Timing, ‘Economic Miracle’ in Spain Unravels -- Since the granddaddy of all housing bubbles popped in Spain between 2008 and 2009, unleashing one of the deepest recessions in living memory, the nation’s public debt has more than doubled, from just over 40% of GDP to almost exactly 100% today. Last year, despite the fact that Spain grew faster than almost any other European economy, the government managed to rack up a deficit of 5.2%, one full percentage point above the target that it had set itself a year earlier and over three percentage points above the Eurozone average. It’s the third-highest deficit-to-GDP ratio in the Eurozone after Greece and Portugal. That’s some claim for Europe’s supposed economic success story. This is the eighth consecutive year that Spain has overshot its fiscal target. Originally, the Spanish government was supposed to get its deficit back below the EU’s sacred limit of 3% of GDP by 2013. When it became clear during the darkest days of the crisis that it would be impossible, the deadline was extended by a year. A year later, Madrid had made so little progress that it got a further two-year extension, to 2016. But still there’s no sign of progress. None of which should come as a surprise. As WOLF STREET warned in October, it was plain as day that the Spanish government would fail to rein in its spending during the run-up to a tightly fought general election. Brussels was completely aware of this fact and did nothing to address it, for obvious reasons: political expedience.

Discord Pushes Spain Into Fifth Month With No Government— Belgium famously sealed a dubious notoriety five years ago when it spent 589 days without an elected government. While Spain is not quite Belgium yet, it is getting there. Spain has started its fifth month without a government, but it is very likely to spend six months or more in political limbo, many analysts now predict, as the Spaniards give the Flemings and Walloons a run for their money in the political discord category. One word that seems to come up a lot these days when discussing politics is circo (or circus). After an election in December produced no clear winner, scattering votes among the four main parties, those parties have failed to negotiate a governing coalition. As the politicians squabble incessantly, about the only consensus is that the country has entered uncharted waters. Mariano Rajoy, the former prime minister, is clinging to his office as acting prime minister after turning down an offer from the king to form a government. His government ministers refuse to recognize the Parliament that resulted from the election or even deal with its lawmakers. The new Parliament has taken the government to court for not recognizing its legitimacy, while not recognizing the legitimacy of Mr. Rajoy, either. That is where things stand. It was not supposed to be this way. A new generation of party leaders had promised that the December vote would usher in a period of change and constitutional reform. Instead, Spain is verging on constitutional crisis. The order of the day is institutional sclerosis, a lot of posturing and “generally a moment of great confusion,” said Rubén Amón, a columnist for El País, a Spanish newspaper.

EU finmins to consider focusing on spending cap to cut morass of budget rules | Reuters: European Union finance ministers agreed on Saturday to discuss whether they can regain some control over a morass of EU budget rules by focusing mainly on an annual spending cap as the best measure of compliance. Years of changes and additions to EU rules, called the Stability and Growth Pact, have made meeting targets extremely complex, prompting an attempt to simplify them, European Commissioner Vice President Valdis Dombrovskis told a news conference after the meeting of EU finance ministers. "We did not discuss how to change the Pact, just how to choose the indicators to assess the compliance with the Pact," Dutch Finance Minister Jeroen Dijsselbloem said. The Dutch, who currently preside over the EU, proposed that the ministers consider using a single indicator with which to judge budgetary compliance, called the expenditure rule. The focus until now was on the development of the structural budget balance, a measure that strips off changes to budget revenue and expenditure stemming from the phase of the business cycle as well as all one-offs. Because the structural deficit is a complex and volatile indicator, the Dutch instead proposed putting more emphasis on the expenditure rule, which says a government cannot increase annual spending more than its medium-term potential growth rate.

Austria election: Far-right tops first round of presidential vote - BBC News: Austria's far-right Freedom Party candidate has come top in the first round of presidential elections, preliminary results show. Norbert Hofer has about 36% of the votes for the mostly ceremonial role - not enough to avoid a run-off in May. He is likely to face Alexander Van der Bellen, an independent contender backed by the Greens, who is polling 20%. For the first time since World War Two, the candidates from Austria's two main parties did not make it to the run-off. Rudolf Hundstorfer from the Social Democrats and the centre-right People's Party Andreas Khol are each thought to have taken about 11% of the vote. Both parties have governed Austria for decades - either alone or in coalition. This is a big shake-up in Austrian politics, the BBC's Bethany Bell in Vienna reports, as the country has had a president from the centre-left or centre-right since 1945. The clear victory of the far-right candidate reflects widespread discontent with the status quo, as well as concerns about immigration and the economy, our correspondent says.

A New Generation’s Anger Resounds From a Packed Plaza in Paris - There are denunciations of “speciesism,” of multinational corporations, capitalism, G.M.O.s, the police and nuclear power. There are pleas for Julian Assange and African workers. There are drumming, guitar playing, free soup and 20-somethings swigging beer.A jolly ragged man, unsteady on his feet, takes the microphone to denounce “words, words, words.” Another announces, mysteriously, “We’ve got to be on the side of the dominated!”This is France’s newest political movement, open every night to the public on a main square in Paris, the Place de la République, which has been transformed into a giant outdoor sit-in recalling the demonstrations of May 1968 in multicultural form.The plaza has been packed with young people every night for nearly a month, venting their anger — at just about everything. The news media here cannot seem to get enough of the movement, which calls itself Nuit Debout — or “Night, Standing Up” — a phrase some in the movement say is inspired by the 16th-century writer Étienne de La Boétie’s line, “They are only tall because we are on our knees.” Others say it comes from the “Internationale,” the hymn of the 19th-century revolutionary left.

Eurozone GDP Rose 0.6% in Q1 - The eurozone economy grew faster than expected in the first three months of 2016, but inflation in the single currency bloc has fallen back into negative territory, putting more pressure on the European Central Bank to keep deflation at bay. Official statistics showed GDP in the 19-nation eurozone rose 0.6% in the first quarter despite a backdrop of turmoil on global markets at the start of the year. It was the fastest growth for a year and twice the pace recorded in the closing quarter of 2015. GDP was up 1.6% on a year earlier. The quarterly performance beat growth in the UK, which reported a slowdown to 0.4% GDP expansion earlier this week and also outperformed the world’s biggest economy, the US.

Europe’s Economy, After 8-Year Detour, Is Fitfully Back on Track -- By one measure, the economic crisis that has long ravaged Europe is finally over. On Friday, the European Union released data showing that the overall economy of the 19 countries that use the euro advanced 0.6 percent over the first three months of the year, compared with the previous quarter. That gain, equivalent to an annual rate of 2.2 percent, brought the eurozone’s gross domestic product for the period — the total value of goods and services produced — to slightly above the previous peak reached in the early months of 2008, before the crisis emerged and Europe’s core economy descended into a pair of crippling recessions. “The long-awaited recovery may finally be consolidating,” said Iain Begg, a research fellow at the European Institute of the London School of Economics. Yet as milestones go, Europe’s return to precrisis levels of economic activity came with so many qualifiers that any celebration seemed premature, at best, and at worst like a mockery for the tens of millions of ordinary Europeans who have far from recovered. New unemployment data on Friday showed that the eurozone jobless rate, while edging down slightly, remained above 10 percent — more than twice the level in the United States. “It’s almost a lost decade,” said Joseph Stiglitz, the Nobel laureate economist and a professor at Columbia University. “It’s a remarkable testimony to the economic failure of the euro and the eurozone.” The strongest economies in the eurozone — major exporters like Germany and the Netherlands — have recovered more handily. But in the worst-hit countries — Cyprus, Greece, Ireland and Italy — ordinary people continue to grapple with the consequences of deep job losses and wage cuts, which have slashed incomes.

Losing the U.K. Wouldn't Be So Bad for Europe - Discussions of a possible U.K. exit from the European Union often center on how the move would affect the U.K. itself. It's only natural, since British voters are the ones who will make the decision, and they care mainly about their own country. There are two sides to any divorce, however, and the relatively passive partner -- in this case the EU -- must also consider the impact of losing the U.K. The most obvious and most talked-about consequence for the EU would be the bad precedent: Britain's departure would establish for the first time that the bloc can shrink, not just expand. But that may not be too important. Other EU countries wont necessarily want to leave just because the U.K. does. The London-based Center for European Reform, a think tank with powerful corporate donors, has just published a report identifying more specific effects that a British exit, or Brexit, might have on the EU. It didn't find too many of them. The U.K.s departure might actually be beneficial to the bloc's cohesion, though it'll lose an important voice on policy matters. That's been a dissenting voice, for the most part. Between 2009 and 2015, the U.K. was among the minority of states either voting against or abstaining from legislation in 13.3 percent of the cases -- more than any other EU member. Yet the U.K.'s input was influential: It's been the bloc's strongest force for economic liberalization. In a 2015 paper, the strategic advisory firm Global Counsel wrote that, without the U.K. present, "it would become harder to block illiberal measures. Moreover, there would likely be a new regulatory dynamic." The firm pointed out, however, that the EU would still be pressured to liberalize its policies because it would be competing with the U.K. for investment.

The European Union always was a CIA project, as Brexiteers discover: Brexiteers should have been prepared for the shattering intervention of the US. The European Union always was an American project. It was Washington that drove European integration in the late 1940s, and funded it covertly under the Truman, Eisenhower, Kennedy, Johnson, and Nixon administrations.While irritated at times, the US has relied on the EU ever since as the anchor to American regional interests alongside NATO. There has never been a divide-and-rule strategy. The eurosceptic camp has been strangely blind to this, somehow supposing that powerful forces across the Atlantic are egging on British secession, and will hail them as liberators. The anti-Brussels movement in France - and to a lesser extent in Italy and Germany, and among the Nordic Left - works from the opposite premise, that the EU is essentially an instrument of Anglo-Saxon power and 'capitalisme sauvage'. France's Marine Le Pen is trenchantly anti-American. She rails against dollar supremacy. Her Front National relies on funding from Russian banks linked to Vladimir Putin. Like it or not, this is at least is strategically coherent. The Schuman Declaration that set the tone of Franco-German reconciliation - and would lead by stages to the European Community - was cooked up by the US Secretary of State Dean Acheson at a meeting in Foggy Bottom. "It all began in Washington," said Robert Schuman's chief of staff. It was the Truman administration that browbeat the French to reach a modus vivendi with Germany in the early post-War years, even threatening to cut off US Marshall aid at a furious meeting with recalcitrant French leaders they resisted in September 1950.

Post-Brexit trade deal with US could take 10 years, Obama warns - BBC News: The UK could take up to 10 years to negotiate trade deals with the US if it leaves the EU, Barack Obama has said. In a BBC interview, the US president said: "It could be five years from now, 10 years from now before we were able to actually get something done." Britain would also have less influence globally if it left, he added. His warning over trade has angered UK campaigners for leaving the EU - with UKIP leader Nigel Farage dismissing Mr Obama's comments as "utter tosh". Mr Obama has previously said the UK would be at the "back of the queue" for trade deals with the US, if it left the EU. When asked about the comments, he told the BBC: "The UK would not be able to negotiate something with the United States faster than the EU. "We wouldn't abandon our efforts to negotiate a trade deal with our largest trading partner, the European market." He also warned the UK would have "less influence in Europe and as a consequence, less influence globally", if it left the EU.

Brexit would cost each Briton a month's pay by 2020, says OECD chief | Politics | The Guardian: British households will be saddled with a tax-like financial burden for years if they vote to leave the EU, one of the world’s leading forecasting groups has warned. The Organisation for Economic Co-operation and Development (OECD) said the average UK worker would lose out on a month’s pay by 2020, with further losses in subsequent years, if Brexit goes ahead. Ángel Gurría, the OECD’s general secretary, told BBC Radio 4’s Today programme: “Brexit is like a tax, equivalent to missing out on about one month’s income within four years, but then it carries on to 2023, 2030.  “There is a consistent loss … That tax is going to be continued to be paid by Britons over time. What they would have had in their pocket to spend, they would not have. Therefore it is as real as tax.” The OECD has calculated that lower economic growth will weigh on household finances. Details of its forecasts and how it made its calculations will be published at 10.30am GMT+1. Putting himself firmly in the remain camp, Gurría added: “Why are we spending so much time, so much effort, and so much talent, in trying to find ways to compensate for a bad decision when you don’t necessarily have to take the bad decision?”

UK factories brave Brexit fears - UK factory activity stabilised in April, though a gloomy economic backdrop continued to weigh on exporters, according to the Confederation of British Industry (CBI). Britain's biggest business group said manufacturers' order books improved in April compared with March. The CBI said 15pc of the 472 companies it surveyed said total order books were "above normal" in April, compared with 26pc that said they were below average. The resulting balance of -11pc was above March's reading of -14. It was also higher than economists' estimates and the long-run average of -15.Data for the three months to April also suggested the recent downturn in manufacturing was starting to moderate. Despite the looming EU referendum, manufacturers were more optimistic that orders would pick up over the next three months. However, the CBI said the sector, which drives around 10pc of UK output, faced "sizeable external headwinds" amid weaker global growth, as it noted optimism among exporters for the next 12 months had "flatlined". "Manufacturing has yet to pick-up after a flat start to the year, with falling orders providing little impetus for production," said Rain Newton-Smith, the CBI's director of economics. "While expectations for the upcoming quarter are encouraging, manufacturers are still facing sizeable external headwinds." While economists said the weaker pound had made UK exporters more competitive, the CBI pointed out that businesses were now dealing with the fastest rise in input costs for two years.

Britain's trade options after Brexit - no easy way out - Britain's status as a trade power has become a central issue in the build-up to its European Union membership referendum on June 23. U.S. President Barack Obama upset the "Out" campaign last week when he told British voters that Britain would go to the "back of the queue" in trade talks with the United States if it left the EU. Campaigners who want Britain out of the EU have suggested various options for its trade arrangements. Below is a summary of the various trade policy options for Britain in the event of a Brexit.  The EU is Britain's biggest trading partner and a priority for London after a Brexit vote would be to minimise the hit. That could be tough given that 44 percent of Britain's exports go to the EU compared with the 8 percent of the EU's exports that go to Britain. Many Brexit supporters, among them London Mayor Boris Johnson, point to a recently agreed deal between Canada and the EU as a possible model for a post-Brexit Britain. Under the Canada model, Britain could be free of the requirement to allow in workers from across the bloc and pay into its budget, two unpopular EU requirements. But the Canada deal, which took more than a decade to negotiate, involves only a partial opening up the market for services - which make up nearly 80 percent of Britain's economy