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Saturday, July 30, 2016

week ending Jul 30

 The Fed Has Some Explaining to Do - Narayana Kocherlakota - Markets no longer have a framework for understanding what the U.S. Federal Reserve plans to do with interest rates -- and a policy-making meeting this week isn't likely to shed much light. That's a gap that Fed Chair Janet Yellen, when she next speaks to the public in late August, will have to fill. It's pretty much a given that when the policy-making Federal Open Market Committee meets on Tuesday and Wednesday, it will decide to leave its short-term interest-rate target unchanged -- and the accompanying formulaic statement won’t do much to dispel growing uncertainty about how the central bank’s next steps. So the next opportunity to provide clarity will come on August 26, when Yellen is scheduled to speak at the Kansas City Fed's economic conference in Jackson Hole, Wyoming -- a venue that her predecessor used to set out the central bank's plans for the ensuing three to six months. Back in December 2015, it clearly indicated that it intended to raise rates by a quarter percentage point about every three months for the next three years. Now, that guidance seems obsolete: As of Wednesday, the Fed will have raised rates exactly zero times since December. So what's the framework now? My reading is that Fed officials are concerned about a number of downside risks to the economy, especially from overseas -- not least of which are the weakness of Europe's banking system and the possible repercussions of Britain's vote to leave the European Union. They also recognize that the central bank has limited firepower to offset any shocks that arise. So they're keeping rates low now to ensure that the economy will be as healthy as possible if the risks materialize.

FOMC Statement: No Change to Policy, Upgrade Economy, Risk "diminished" -- FOMC Statement: Information received since the Federal Open Market Committee met in June indicates that the labor market strengthened and that economic activity has been expanding at a moderate rate. Job gains were strong in June following weak growth in May. On balance, payrolls and other labor market indicators point to some increase in labor utilization in recent months. Household spending has been growing strongly but business fixed investment has been soft. Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation remain low; most 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 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 past declines in energy and import prices dissipate and the labor market strengthens further. Near-term risks to the economic outlook have diminished. The Committee continues to closely monitor inflation indicators and global economic and financial developments. 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.

Fed Begins Crawl Toward Rate Hike as Near-Term Risks Diminish - Bloomberg: Federal Reserve policy makers took a step toward raising interest rates later this year but stopped short of signaling that the move could come as soon as September. Federal Open Market Committee members upgraded their assessment of the economy in their monetary policy statement, released on Wednesday after their two-day meeting. They declared that near-term risks to the outlook have diminished and said labor utilization has shown “some increase,” though inflation remains too low. Acknowledging recent domestic economic strength alerts market participants to increasing policy maker optimism, yet it also leaves the Fed room to defer a hike should inflation fail to materialize, global risks intensify or U.S. indicators slump. "It’s kind of an upbeat statement, although guarded," said Roberto Perli, partner at Cornerstone Macro LLC in Washington and former associate director for monetary affairs at the Fed Board. "This means, ‘We’re keeping an open mind about moving in September. We’re definitely not committed.’" The U.S. economy handed Fed officials good news ahead of their July meeting: Payrolls picked up in June after collapsing in May, fewer workers were part time for economic reasons, and although Britain voted to exit the European Union, the subsequent market fallout was orderly. In light of those developments, some of the Fed’s wording changes stated facts. But some of their characterizations -- like the view that “near-term risks to the economic outlook have diminished” and that job gains were “strong” -- gave economists the sense that September is a live meeting for a move. The committee meets next in Sept. 20-21, then again the week before the Nov. 8 presidential election and finally in December.

 Lael Brainard, Donning a Global Lens, Champions Low Rates at Fed - Lael Brainard is poised to win another round this week in her fight for the Federal Reserve to keep interest rates low.Ms. Brainard, a Fed governor in Washington since 2014, has emerged over the last year as a leading advocate for patience, pressing the case that low rates are important for domestic economic growth and for global stability.The Fed is expected to announce on Wednesday, after a two-day meeting of its policy-making committee, that it again will pass on an opportunity to increase its benchmark interest rate, although officials have said they are still considering rate increases later in the year.Ms. Brainard has become the leading voice among Fed officials for a concern widely shared among left-leaning economists: that the central bank will raise rates too quickly, potentially stifling economic growth. It is a role that has raised her profile in Democratic circles, and driven speculation that she is in line for a top job if Hillary Clinton wins the White House.Gene Sperling, a longtime Democratic policy maker who is now advising Mrs. Clinton’s presidential campaign, hired Ms. Brainard as his deputy at the Bill Clinton White House in the mid-1990s. He said he was tickled that lately, when he gives public speeches, he is often asked about her views. “My outside impression is that she has been as much a champion as anyone on the inside for the go-slow, full-employment perspective that many of us on the outside are advocating for,” Mr. Sperling said.

Why the Federal Reserve is rethinking everything -- The Federal Reserve is being forced to reevaluate its most basic assumptions about the economy after trillions of dollars of stimulus and years of ultralow interest rates have failed to generate a more robust recovery. For years, the central bank’s top officials pointed to “persistent headwinds” emanating from the Great Recession as the culprit for the tepid pace of the economy’s expansion: Government spending cuts were depressing growth. Households were paying off debt, spending less and saving more. Borrowing money got harder. Once those trends turned around, they argued, the economy would get back to normal. Seven years after the recession officially ended, many of the headwinds have indeed dissipated — yet normal remains elusive. In its place is a gnawing fear that the economy has permanently downshifted into an era of weak growth that policymakers have little power to reverse. Fed officials have all but given up hope of the 3 percent rate of expansion once considered the baseline for a healthy economy. Instead, they are coming to grips with the possibility that lackluster growth is the best this recovery can offer. The Fed’s most recent economic projections show growth leveling off this year at 2 percent and remaining there for the foreseeable future. That, in turn, has pushed down the central bank’s estimates of how high it will raise interest rates and how quickly it will do so. Speaking to reporters last month, Fed Chair Janet L. Yellen acknowledged that slow growth and low interest rates might be the United States' “new normal.” “The Fed is coming to realize that the U.S. economy is a plane that is flying more slowly and closer to the ground, and it has to reset its expectations for what it can deliver,” said Vincent Reinhart, chief economist for Standish Mellon Asset Management and formerly a senior official at the central bank.

The Fed Is Preparing For Negative Rates - Here's The Sign Everyone Missed -- John Mauldin -- I think it’s possible that the Fed will push rates below zero when the next recession arrives. I explained why a few months ago in my free weekly column, Thoughts from the Frontline, at Mauldin Economics. In that regard, something important happened recently. And not many people noticed. I’ll do a quick review to explain. In Congressional testimony last February, a member of Congress asked Janet Yellen if the Fed had legal authority to use negative interest rates. Her answer was this: In the spirit of prudent planning we always try to look at what options we would have available to us, either if we needed to tighten policy more rapidly than we expect or the opposite. So we would take a look at [negative rates]. The legal issues I'm not prepared to tell you have been thoroughly examined at this point. I am not aware of anything that would prevent [the Fed from taking interest rates into negative territory]. But I am saying we have not fully investigated the legal issues. So as of then, Yellen had no firm answer either way. A few weeks later, she sent a letter to Rep. Brad Sherman (D-CA). He had asked what the Fed intended to do in the next recession and whether it had authority to implement negative rates. She did not directly answer the legality question, but Sherman took the response to mean that the Fed thought it had the authority. Yellen noted in the letter that negative rates elsewhere seemed to be having an effect. (I agree that they are having an effect; it’s just that I don’t think it’s a good one.) Yellen’s claims are a clear sign the Fed is prepared to dive

Do “Unconventional” Monetary Policies Work? -- The “unorthodox” Quantitative Easing (QE) monetary measures, along with another “unorthodox” monetary policy, namely negative interest rates, have been implemented by a number of countries in the years following the global financial crisis. This is as a result of the normal policy monetary instrument, the rate of interest, being reduced to nearly zero by a number of central banks. We discuss these measures but most importantly we discuss the extent to which they have been successful in terms of their targets. QE includes two types of measures: (i) one is “conventional unconventional” measures, whereby central banks purchase financial assets, such as government securities or gilts, which boost the money supply; (ii) another is “unconventional unconventional” measures; in this way central banks buy high-quality, but illiquid corporate bonds and commercial paper. The purpose under both measures is not merely to increase the money supply but also, and more importantly, to increase liquidity and enhance trading activity in these markets. A number of QE possible channels can be identified. There is the liquidity channel, whereby the extra cash can be used to fund new issues of equity and credit; thereby bank lending is influenced positively, which potentially can affect spending. The purchase of high-quality private sector assets, which aims at improving the liquidity in, and increase the flow of, corporate credit. There is also the portfolio channel, which changes the composition of portfolios, thereby affecting the prices and yields of assets (and thus asset holders’ wealth); the cost of borrowing for households and firms is also affected, which influences consumption (also affected by the change in wealth) and investment. Additionally, there is the expectations-management channel: asset purchases imply that, although the Bank Rate is near zero, the central bank is prepared to do whatever is needed to keep inflation at the set target; in doing so the central bank keeps expectations of future inflation anchored to the target.The success of QE depends on four aspects: (i) what the sellers of the assets do with the money they receive in exchange from the central banks; (ii) the response of banks to the additional liquidity they receive when selling assets to the central banks; (iii) the response of capital markets to purchases of corporate debt; and (iv) the wider response of households and companies, especially so in terms of influencing inflation expectations.

The Lowdown on U.S. Core Inflation - IMFdirect -- There was a time when U.S. central bankers worried that inflation was too high, and they tried to bring it down. Now the opposite is true: the Federal Reserve is concerned that inflation has remained stubbornly low, and it’s trying to boost prices. The reason: persistently low inflation raises the risk that prices will actually start to decline, a dangerous condition known as deflation. That’s bad news because it makes people less willing to borrow and spend—anticipating lower prices, consumers will put off spending—and could also lead to a fall in wages.To avoid such a damaging spiral of falling prices and wages, the Fed targets a 2 percent inflation rate. That’s one half of its so-called dual mandate of price stability and full employment. And while the Fed has managed to bring the unemployment rate down to 4.9 percent, inflation has remained below its goal. Low unemployment without an acceleration in inflation has also raised the question of whether the tradeoff between inflation and unemployment (known as the Phillips curve) has weakened or even disappeared post-Great Recession. In econspeak, has the Phillips curve become flatter? Our new study looks at the individual components of inflation to better understand its relationship to unemployment. We find that a fairly flat Phillips curve plus global forces have conspired to keep core inflation down. These findings have implications for the future path of interest rates.

GDPNow Forecast Sinks to 1.8% Following Advance Economic Indicators Reports -  Today the Census Department released its first “Advance Economic Indicators Report”. The new report adds wholesale and retail inventories to its existing International Trade in Goods report. For details see Trade Deficit Widens as Imports Rise More Than Exports; Advance Economic Indicators Initial Release. Following the report, the GDPNow Forecast dropped 0.5 percentage points to 1.8%.  Latest forecast: 1.8 percent — July 28, 2016 The final GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2016 is 1.8 percent on July 28, down from 2.3 percent on July 27. After the U.S. Census Bureau’s inaugural release of its advance economic indicators report, which covers retail and wholesale inventories and foreign trade in goods, the nowcast of the contribution of net exports to second-quarter real GDP growth declined from 0.17 percentage points to –0.10 percentage points and the nowcast of the contribution of inventory investment to growth declined from –0.63 percentage points to –0.79 percentage points. That is the final DGPNow forecast for the second quarter. The “Advance” BEA Gross Domestic Product, for 2nd quarter 2016 comes out tomorrow. The next GDPNow forecast will be for third quarter.

US preliminary Q2 gross domestic product at 1.2% vs 2.6% expected - The U.S. economy grew far less than expected in the second quarter as inventories fell for the first time since 2011, but a surge in consumer spending pointed to underlying strength. Gross domestic product increased at a 1.2 percent annual rate after rising by a downwardly revised 0.8 percent pace in the first quarter, the Commerce Department said on Friday. The economy was previously reported to have grown at a 1.1 percent pace in the first quarter. Economists polled by Reuters had forecast GDP growth rising at a 2.6 percent rate in the last quarter. While the drop in inventories weighed on GDP growth last quarter, that is likely to provide a boost to output for the rest of the year. The Federal Reserve said on Wednesday that near-term risks to the economic outlook had "diminished." The government also published revisions to data going back to 2013 through the first quarter of 2016. The revisions partially addressed measurement issues, which have tended to lower first-quarter GDP estimates. GDP growth in the first quarter of 2015 was revised sharply higher to a 2.0 percent rate from the previously reported 0.6 percent pace.Consumer spending was responsible for almost all of the rebound in GDP growth in the second quarter. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 4.2 percent rate. That was the fastest pace since the fourth quarter of 2014.

BEA: Real GDP increased at 1.2% Annualized Rate in Q2 --From the BEA: Gross Domestic Product: Second Quarter 2016 (Advance Estimate) Real gross domestic product increased at an annual rate of 1.2 percent in the second quarter of 2016, according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.8 percent (revised)....The increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures (PCE) and exports that were partly offset by negative contributions from private inventory investment, nonresidential fixed investment, residential fixed investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased. The acceleration in real GDP growth in the second quarter reflected an acceleration in PCE, an upturn in exports, and smaller decreases in nonresidential fixed investment and in federal government spending. These were partly offset by a larger decrease in private inventory investment, and downturns in residential fixed investment and in state and local government spending.  The advance Q1 GDP report, with 1.2% annualized growth, was below expectations of a 2.6% increase. Personal consumption expenditures (PCE) increased at a 4.2% annualized rate in Q2, up from 1.6% in Q1.   Residential investment (RI) decreased at a 6.1% pace. Equipment investment decreased at a 3.5% annualized rate, and investment in non-residential structures decreased at a 7.9% pace (due to the recent decline in oil prices). The key negatives were investment in inventories (subtracted 1.16 percentage points), fixed investment (subtracted 0.52 percentage point), and government spending (subtracted 0.16 percentage points).

U.S. GDP Grew a Disappointing 1.2% in Second Quarter - WSJ—Declining business investment is hobbling an already sluggish U.S. expansion, raising concerns about the economy’s durability as the presidential campaign heads into its final stretch. Gross domestic product, the broadest measure of goods and services produced across the U.S., grew at a seasonally and inflation adjusted annual rate of just 1.2% in the second quarter, the Commerce Department said Friday, well below the pace economists expected. Economic growth is now tracking at a 1% rate in 2016—the weakest start to a year since 2011—when combined with a downwardly revised reading for the first quarter. That makes for an annual average rate of 2.1% growth since the end of the recession, the weakest pace of any expansion since at least 1949.The output figures are in some ways discordant with other gauges of the economy. The unemployment rate stands at 4.9% after a streak of strong job gains, wages have begun to pick up, and home sales hit a post-recession high last month. Consumer spending also remains strong. Personal consumption, which accounts for more than two-thirds of economic output, expanded at a 4.2% rate in the second quarter, the best gain since late 2014. On the downside, the third straight quarter of reduced business investment, a large paring back of inventories and declining government spending cut into those gains.  “Weakness in business investment is an important and lingering growth constraint.” Mr. Daco and other economists expect growth to accelerate in the third quarter, but the weak first half means 2016 is likely to come in below an already disappointing trend. In another worrisome sign, S&P 500 companies are expected to report what is likely to be the fourth straight quarter of declining profits, down 3.7% from second-quarter 2015, according to a Thomson Reuters survey of analysts’ forecasts.

Second-Quarter U.S. GDP – At A Glance - WSJ:  The U.S. economy expanded 1.2% at a seasonally adjusted annual rate in the second quarter of the year, the Commerce Department said Friday, well short of expectations. What’s worse, the first quarter was revised down to 0.8%, making the first half of the year—in fact, the last three quarters—look anemic. GDP advanced only 0.9% in the fourth quarter of 2015. Economists had expected a 2.6% gain for the most recent period. Here are some of the underlying numbers from the latest gross domestic product report.  U.S. consumer spending rose 4.2% at a seasonally adjusted annual rate in the second quarter of the year, the strongest such performance since the end of 2014. Outlays were strong across most categories of goods and services, suggesting that households remain fairly upbeat despite overseas turmoil and question marks elsewhere in the economy. Personal-consumption expenditures contributed 2.83 percentage points to a second-quarter GDP that advanced only 1.2% as other sectors dragged down the headline number.  U.S. business spending fell for the third consecutive quarter this spring, a worrisome sign for an economy stuck in slow-growth mode. Nonresidential fixed investment dropped 2.2% in the second quarter of the year after falling 3.4% in the first quarter and 3.3% in the fourth quarter of 2015. Spending on structures—a category clobbered by falling investment in oil wells and other energy-related facilities—and equipment fell in the most recent period. Businesses may be hesitant to invest as the global economic outlook and the domestic political outlook remain uncertain.  By some measures, the housing market is the healthiest since before the industry went bust. That didn’t show up in Friday’s GDP report, though, with residential fixed investment sliding 6.1%. Residential spending—on things such as new home construction and remodeling—had risen the previous eight quarters and the industry appears to be advancing steadily, so the latest reading may be more of a blip than the start of anything like a downturn.  GDP advanced a paltry 1.2% in the second quarter. But a measure favored by some economists shows somewhat better domestic growth. Final sales to private domestic purchasers, which essentially gets rid of volatile components like inventories and government spending, expanded at a 2.7% pace in the second quarter of 2016. That suggests some underlying strength for the economy but doesn’t cancel out warning signals coming from business and other sectors.  U.S. companies ran down their stockpiles for the fifth consecutive quarter, creating a big drag on headline GDP in the second quarter. The change in private inventories subtracted 1.16 percentage points from GDP. Government spending also lopped 0.16 percentage point off of GDP as federal, state and local governments trimmed their outlays in the second quarter.

Advance Estimate 2Q2016 GDP Quarter-over-Quarter Growth at 1.2 Percent. Disappointing To Most Forecasts.: The advance estimate of second quarter 2016 Real Gross Domestic Product (GDP) is a positive 1.2 %. This is a moderate improvement from the previous quarter's 0.8% (revised down from 1.1 %) if one looks at quarter-over-quarter headline growth.Year-over-year growth slowed so one could say economic growth was mixed. There was significant backward revision starting in 2013.  The annual revision of the national income and product accounts, covering the first quarter of 2013 through the first quarter of 2016, was released along with the "advance" estimate of GDP for the second quarter of 2016. Part of the affects of the revision was due to a construction spending data error.

  • 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 2Q2016, the year-over-year growth is 1.2 % - moderately down from the revised 1Q2016's 1.6 % year-over-year growth. So one might say that the rate of GDP growth decelerated 0.4% from the previous quarter.
  • The table below compares the previous quarter estimate of GDP (Table 1.1.2) with the advance estimate this quarter which shows:
    • consumption for goods and services improved.
    • trade balance improved
    • there was significant inventory change removing 1.16% from GDP
    • there was slower fixed investment growth
    • there was less government spending
    The table below highlights the significant differences the previous quarter and current quarter's estimate (green = improvement, red = decline).

GDP Shocker: US Economy Grew Only 1.2% In Second Quarter; Q1 Revised To 0.8% -- With Wall Street expecting the US economy to grow 2.6% in the second quarter, there were mnay shocked faces moments ago when the Census Bureau reported that not only did the US economy grow a paltry 1.2% in the quarter, but Q1 GDP was slased from an already poor 1.1% to just 0.8%.  Worse, strong historical GDP reports such as the 3.9% alleged growth in Q2 2015 was slashed to a far lower 2.6%. The reason for the dramatic cuts: historical revisions going back to Q1 2013. From the BEA:  Updated estimates of the national income and product accounts (NIPAs), which are usually made each July, incorporate newly available and more comprehensive source data, as well as improved estimation methodologies. This year, the notable revisions primarily reflect the incorporation of newly available and revised source data. The timespan of the revisions is the first quarter of 2013 through the first  quarter of 2016. The reference year remains 2009. It now appears that at a time when the US economy was said to be approaching escape velocity for a rate hike, it was in fact contracting. According to the latest data, in Q4 when Yellen announced the Fed's first rate hike, the growth trend economy was in fact decelerating, growing by only 0.9%, the lowest since Q1 2014. Some more details:

  • Core PCE 1.7%, far below Q1's downward revised 2.1%
  • GDP deflator: 2.2%, Exp. 1.8%, and up from 0.5%

From the BEA: Real gross domestic product increased at an annual rate of 1.2 percent in the second quarter of 2016 (table 1), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.8 percent (revised). The increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures (PCE) and exports that were partly offset by negative contributions from private inventory investment, nonresidential fixed investment, residential fixed investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased.The acceleration in real GDP growth in the second quar ter reflected an acceleration in PCE, an upturn in exports, and smaller decreases in nonresidential fixed investment and in federal government spending. These were partly offset by a larger decrease in private inventory investment, and downturns in residential fixed investment and in state and local government spending.

Anemic economic growth -- The Bureau of Economic Analysis announced today that U.S. real GDP grew at a 1.2% annual rate in the second quarter. Not good news.  The U.S. growth rate has historically averaged over 3%. Many of us have concluded that a long-term growth rate around 2% may be more realistic to expect at this point. But the last three quarters have fallen significantly below even that new lower bar.  I had been among those who attributed the anemic first-quarter numbers in part to seasonal adjustment problems. This argued for some spring-back effect expected for the second quarter, to which reality has now answered with a cold shower. The Federal Reserve Bank of New York nowcast had been anticipating 2.2% growth for Q2. The Atlanta Fed nowcast was 1.8%, and the Wall Street Journal economists’ survey called for 2.6%. Our Econbrowser Recession Indicator Index is starting to register more concern, with today’s data bringing it up to 22.5%. The index uses today’s release to form a picture of where the economy stood as of the end of 2016:Q1. However, that’s still significantly below the 67% threshold at which our algorithm would declare that the U.S. had entered a new recession. They key factor in today’s weak numbers was a drawdown of inventories. Real final sales grew at a 2.4% annual rate with half that growth being met by selling out of inventory rather than new production. Jason Furman, Chair of the White House Council of Economic Advisers, emphasizes that inventory changes are the most volatile and least persistent component of GDP growth, and sees a steadier and more reassuring picture if you focus just on real final domestic purchases. Still, nonresidential and residential fixed investment also were both lower than they had been in the first quarter. The latter is where I still think the prospects for a better second half may be found.

Q2 GDP: Investment Slump -- 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. There was an investment slump in Q2, even though consumer spending was strong (PCE increased at 4.2% annual rate in Q2). Residential investment (RI) decreased at a 6.1% annual rate in Q2. Equipment investment decreased at a 3.5% annual rate, and investment in non-residential structures decreased at a 7.9% annual rate. On a 3 quarter trailing average basis, RI (red) is positive, equipment (green) and nonresidential structures (blue) are 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. . I expect investment to pick up going forward (except for maybe energy and power), and for the economy 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 generally 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. The third graph shows non-residential investment in structures, equipment and "intellectual property products".  Investment in equipment - as a percent of GDP - has been mostly moving sideways.  Investment in nonresidential structures - as a percent of GDP - has been moving down recently due to less investment in energy and power.  Although there was an investment slump in Q2 - no worries - residential investment will pickup (still very low), and non-residential (except energy) will also pickup.  Investment in inventory has been negative for five consecutive quarters, and that should make a positive contribution soon.

Fed's Williams downplays GDP weakness, sees rate hikes - (Reuters) - The Federal Reserve could raise interest rates up to two times before year end, a top Fed official said on Friday as he downplayed data that showed the U.S. economy grew far less than expected in the last quarter. San Francisco Fed President John Williams said the second-quarter gross domestic product reading was weak because of swings in inventories and government spending, noting that some underlying data in the report "look good." Williams, an influential centrist at the U.S. central bank, spoke just hours after the Commerce Department said GDP growth was 1.2 percent last quarter and only 0.8 percent in the previous quarter. That compares to the Fed's expectation of about 2 percent growth for 2016, and may entrench the view among some investors that the central bank will not raise rates any time soon, despite a relatively upbeat statement from Fed policymakers earlier this week.  But Williams noted there are two key employment and inflation reports before the next meeting in mid-September. "It makes sense, assuming the data continue to support that, to raise rates again this year," he said. "There is definitely a data stream that could come through in the next couple of months that I would think would be supportive of two rate increases," Williams told reporters after addressing a group of pension investors. "There's data we could get that wouldn't be supportive of that and it could be supportive of one maybe, or of none." The strong June employment report combined with the weak economic growth suggests U.S. productivity, which is key to boosting GDP from years of malaise, is even weaker than already assumed, he said. But, he said of the GDP report, "when I look at the underlying data like final sales... they look good.

Here’s What’s Going Right, and Wrong, in the U.S. Economy - Seven years into the economic recovery and three months before a presidential election, how is the United States economy doing? Two reports released Friday reveal the ways in which the economy is humming along brilliantly — and the things that are very worrying.We’re optimists here, so we’ll start with the good news. Overall G.D.P. was better than it looks. The big headline about second-quarter G.D.P. was that the economy grew at only 1.2 percent, far below the 2.5 percent that analysts had forecast. But the shortfall was almost entirely because of a contraction in business inventories, which generally doesn’t say a lot about the future.If we look at “final sales,” G.D.P. excluding inventories, the economy grew at 2.4 percent, a nice rebound from the winter months and in line with forecasts. Final sales tends to be a better measure of the underlying rate of growth, while inventories swing around without reflecting any long-term trend.Consumers are spending moneyThe largest component of the economy, personal consumption expenditures, grew at a whopping 4.2 percent rate in the second quarter. That’s evidence that a long-awaited boost in consumer spending from an improving job market and cheaper fuel prices is finally materializing. Things aren’t looking so great in the business sector. Investment in business structures, equipment and intellectual property fell for the third consecutive quarter.A decline in investment in energy exploration, because of a drop in the price of oil and natural gas, appears to be a major part of that decline. A strong dollar is hammering American exporters, another squeeze to profits that businesses are facing as they pay higher wages. The simple fact is that consumers are driving the economic train right now, and businesses are pulling back. Eventually something will have to give — either businesses will have to ramp up investment to fulfill all that consumer demand, or weak business investment will translate into fewer jobs and weaker consumer spending.

2015 Economic Growth Was Slightly Better Than We Thought - The U.S. economy in 2015 turned in its best performance since before the recession, according to newly revised data, though the overarching trajectory of growth remains muted. Gross domestic product, a broad measure of economic output, expanded at a 2.6% pace last year, the Bureau of Economic Analysis said Friday. That’s a small bump up from the most recently reported 2.4% rate and the best since 2006, when the economy advanced at a 2.7% pace. The agency fine-tunes its GDP estimates multiple times, including the latest annual update covering 2013 through 2015, as newly available and revised source data become available. The latest accounting includes, for example, tabulations from corporate tax returns, the latest federal budget figures and new information on housing. Even with the small bump to last year’s number, economic growth averages out to only 2.2% from 2010 to 2015, barely moved from the previous 2.1% estimate and a disappointing pace following a particularly severe recession. From 1946 to 2000, GDP growth averaged 3.3%. Perhaps more interesting than the annual revisions—at least to economy nerds—are changes government economists made to the seasonal adjustment process. BEA adjusts for predictable seasonal variations—construction slows in the winter, retail sales climb before December holidays, school starts around the same time every fall and ends about the same time every spring—to give a better sense of underlying economic activity. But for years, first-quarter GDP has consistently been weak, a phenomenon that initially raised alarms about the economy and then questions about the data.Agency officials, aware of the shortcomings, made some adjustments last year and reviewed the components that make up GDP to figure out where numbers might be skewing. The latest series of tweaks suggest a smoother pattern of growth from quarter to quarter, though a slowdown in early 2014, perhaps a result of a brutal cold snap, doesn’t allow for a broad conclusion.

Winter took smaller bite from 2015 economy than it appeared (AP) — It turns out the U.S. economy can withstand a cold snap after all. In early 2015, near-record-low temperatures and howling snowstorms in the Northeast appeared to keep shoppers indoors and to slow the U.S. economy to a near-stall. But newly released revised government data now suggests that the economy was much more resilient. The updated estimates by the Commerce Department conclude that the economy expanded at a 2 percent annual rate in the January-March quarter of 2015, far more than the previous estimate of 0.6 percent. That sharp increase was nearly offset by another revision: The economy expanded at a modest 2.6 percent annual rate in last year's April-June quarter, the department now says, down from a previous robust estimate of 3.9 percent. In short, rather than a slow-motion expansion in the first quarter of 2015, followed by a robust bounce-back, economic growth occurred more evenly across both quarters. The new figures, which update the government's growth estimates for 2013 through 2015, address one quirk evident in the data for several years: Growth has generally been much slower in the first quarter than the remaining three. That pattern now appears less pronounced. Otherwise, the Commerce Department's revisions don't significantly change the U.S. economy's modest growth trajectory over those three years: The economy grew at an annual average pace of 2.2 percent, up just one-tenth of 1 percentage point from the government's previous estimate. Still, the current recovery from the 2008-2009 Great Recession remains the slowest rebound since World War II

Charting The Difference Between The Original And Revised GDP --While the 1.2% Q2 GDP print was so bad that it sent both oil and stocks higher, now that bad news is again good news as it means no Fed rate hikes for the foreseeable future, a key reason for the weakness was the adjustment of historical data as part of the BEA's annual data revision.As the BEA announced, "the estimates released today reflect the results of the annual update of the national income and product accounts (NIPAs) in conjunction with the "advance" estimate of GDP for the second quarter of 2016. The update covers the first quarter of 2013 through the first quarter of 2016. For more information, see "Information on the 2016 Annual Update" on BEA’s Web site." The revision dragged down all recent GDP prints, going back all the way to Q3 2015, and as a result, over the last 4 quarters real GDP has now increased a paltry 1.2%, confirming that low oil prices were far worse for the economy than economists predicted, driven by the collapse in CapEx spending. The full summary is shown below.

US Admits It "Found A Problem" In Calculation Of GDP --For years we have complained against both the BLS' and the BEA's comical seasonal adjustments, which "serve" just one purpose: to goalseek the data to a desired, politically-mandated outcome, and which culminated last May when the Department of Commerce announced it would seasonally adjust last year's woeful Q1 GDP data not once but twice in order to get a better result.  Now, it appears that there indeed was a problem: government statisticians announced that they have found "evidence that efforts to adjust the country's measure of economic growth for seasonal fluctuations have not been fully successful." The Bureau of Economic Analysis said this week that a component-by-component investigation found evidence in quarterly GDP data over different time spans, Reuters reports. "We did find some evidence of residual seasonality both over the most recent 10-year period and over a 30-year period," Brent Moulton, associate director for National Economic Accounts at the BEA, told reporters. What Moulton meant is that in the new normal, where the business cycle itself no longer makes any sense due to central bank intervention, seasonal adjustments are worthless. Confirming this, the BEA said that seasonal effects have lingered in some cases even after the data was seasonally adjusted. Economists believe residual seasonality has been most prevalent in first-quarter GDP data, with growth underperforming in five of the last six years since the recovery started in mid-2009.Lending credence to that theory, the government sharply revised up the 2015 first-quarter GDP growth estimate to a 2.0 percent annual rate from the previously reported 0.6 percent pace. But it also revised down the second-quarter GDP estimate for the same year to a 2.6 percent rate from 3.9 percent. Ironically, in revising the data by shifting contributions from one quarter to another, the government economists merely perpetuated the error by using judgment to attribute "growth" to times during the year when they saw these as appropriate, a subjective assessment. Certainly, it does not explain why the Fed proceeded to launch a rate hike in a quarter, Q4 of 2015, that grew at the slowest pace in nearly two years.

 Seven Years Later, Recovery Remains the Weakest of the Post-World War II Era - Even seven years after the recession ended, the current stretch of economic gains has yielded less growth than much shorter business cycles. In terms of average annual growth, the pace of this expansion has been by far the weakest of any since 1949. (And for which we have quarterly data.) The economy has grown at a 2.1% annual rate since the U.S. recovery began in mid-2009, according to gross-domestic-product data the Commerce Department released Friday. The prior expansion, from 2001 through 2007, was the only other business cycle of the past 11 when the economy didn’t grow at least 3% a year, on average. Total growth this expansion ranks just 8th of the past 11 cycles. The U.S. economy, at the end of June, was 15.5% larger than it was when the recession ended in 2009. The current expansion remains smaller than the one during Richard Nixon‘s administration. And that 16% expansion lasted just three years. The economy grew 18% from 2001 through 2007. It grew 52% from 1961 through 1969. Despite the current expansion’s lack of intensity—or perhaps because of it—it is now one of the longest. There have only been three longer expansions in the past seven decades. So far, it has occurred entirely during Barack Obama‘s time in the Oval Office, making it the longest expansion under a single president. The growth streak would need to extend just a little more than halfway through the next president’s term to achieve a modern record. The average economic expansion since 1949 has lasted just more than five years. Only the expansion during the 1990s made it 10 years.

 Why the Bond-Yield Curve Isn’t Likely Signaling Recession Ahead - Record-low yields on U.S. Treasurys have for decades signaled weakness in the U.S. economy and foreshadowed recession. Not this time. Some economists are pointing to the so-called yield curve—the difference between long-term and short-term rates—as a harbinger of a new slowdown. Yields on 30-year and 10-year Treasurys plumbed record depths earlier this month, setting fresh milestones in three-decade downward trends. Yields have since retreated a bit from their lows. But combined with weak business investment, falling corporate profits and slipping auto sales, the slump in bond yields has led some investment banks to put the risk of recession as high as 60%, accounting for past yield-curve compressions that were followed by recessions. But unlike in the past, the pressures likeliest to trigger an economic contraction this time lie outside the U.S. Turmoil and weakness overseas have drawn investors to the security of U.S. government bonds, driving their prices up and their yields down. “The low level of U.S. rates is not a reflection of the health of the U.S. economy,” said Torsten Sløk, chief international economist for Deutsche Bank Securities. “It is much more a reflection of how the rest of the world is chasing yields and the result of the Brexit vote.”

Maybe negative yields are a sign of prosperity - Tyler Cowen -- That is the counterintuitive take from my latest Bloomberg column.  Here is one part of the argument: Perhaps the most overlooked point is that the supply of negative-yielding securities is not so large relative to total global wealth. A recent Credit Suisse estimate suggested that global wealth could reach $369 trillion by 2019, reflecting growth rates of perhaps 7 percent a year. Such numbers are typically inexact, because who can measure the value of all the land in China and the buildings in Uzbekistan? Nonetheless, this number is truly large and it has been growing rapidly. By comparison, the negative-yield securities seem like not such a big deal. Maybe it’s time we started thinking of negative securities as the equivalent of fire or earthquake insurance for that wealth. If there is truly $300 trillion in global wealth, is it so crazy to think that investors would pay a premium to buy $10 trillion dollars’ worth of insurance? Keep in mind that if you buy securities at a yield of negative 1 percent a year, and equities are yielding 4 percent on average, your insurance cost on the safer securities is roughly 5 percent of the upfront investment.  So on $10 trillion of safe securities, that is an insurance premium of roughly $500 billion — a relatively small chunk of the $300 or $400 trillion of total global wealth.  In percentage terms it is cheaper than the homeowner’s insurance many of us pay for every day. Observers sometimes wonder why there are so many negative yields at a time when volatility indices are not always so high. But the key to the risk-protection insight is not that the world is more volatile, which may or may not be the case at a given point in time, but rather that the quantity of otherwise hard-to-insure global wealth is significantly higher than in times past. It is worth noting that in both China and India, standard insurance remains an underdeveloped sector.

Is there a safe asset shortage? -- Tyler Cowen - Consider my previous hypothesis that so many yields have gone negative because of the insurance value of those relatively safe assets.  If that were true (true to some extent, I am not claiming that is the only factor behind the supply and demand curves), could a problem be solved by issuing more safe assets?  That could be done through more government spending or big tax cuts, either creating more government borrowing and thus more safe assets. I often see it taken for granted that “selling more insurance” into the face of market demand would be a good thing.  And maybe so.  But it doesn’t follow in any simple way from theory, as is sometimes implied.  For one thing, this isn’t a straightforward market setting but rather there is a monopoly supplier that is not selling market outputs, and furthermore the private and social returns to either insurance or risk-taking are not in general equal. So ask yourself which has a higher social rate of return?

  • 1. How the government would spend marginal funds, plus relatively wealthy people buying more insurance
  • 2. How private consumers would spend a tax cut, plus relatively wealthy people buying more insurance
  • 3. Relatively wealthy people allocating more funds to riskier investments, and not getting that additional insurance
  • 4. Because private investors enjoy more safe assets, they end up taking greater risks and the whole PPF shifts out.  Again maybe, maybe not.  If it is true, a variety of subsidies to insurance markets, implicit or explicit, could improve welfare.  Another argument might be:
  • 5. Selling more safe assets would raise nominal yields and make monetary policy potent again

I don’t want to go through all of that again, but suffice to say it had a better chance of being true in 2010 than today.  Here is John Cochrane on related issues.

 Beware the $10 Trillion Glut of Treasuries as Big Deficits Loom - Since peaking at $1.4 trillion in 2009, the budget deficit has plunged amid government spending cuts and a rebound in tax receipts. But now, America’s borrowing needs are rising once again as a lackluster economy slows revenue growth to a six-year low, data compiled by FTN Financial show. That in turn will pressure the U.S. to sell more Treasuries to bridge the funding gap. No one predicts an immediate jump in issuance, or a surge in bond yields. But just about everyone agrees that without drastic changes to America’s finances, the government will have to ramp up its borrowing in a big way in the years to come. After a $96 billion increase in the deficit this fiscal year, the U.S. will go deeper and deeper into the red to pay for Social Security and Medicare, projections from the Congressional Budget Office show. The public debt burden could swell by almost $10 trillion in the coming decade as a result.  All the extra supply may ultimately push up Treasury yields and expose holders to losses. And it may come when the Federal Reserve starts to unwind its own holdings -- the biggest source of demand since the financial crisis. “It’s looking like we are at the end of the line,” when it comes to declining issuance of debt that matures in more than a year, said Michael Cloherty, head of U.S. interest-rate strategy at RBC Capital Markets, one of 23 dealers that bid at Treasury debt auctions. “We have deficits that are going to run higher, and at some point, a Fed that will start allowing its Treasury securities to mature.”

Why Ultralow Rates Won’t Be a Government-Debt Cure-All - It’s the economy, stupid, and perhaps even more than you thought. Economists have understated growth’s importance in eroding public debt burdens over time, a new analysis from the Peterson Institute for International Economics suggests. Interest payments on outstanding government debt and budget deficits push governments’ debt-to-GDP ratios up, while economic growth drags them down. “But budget surpluses are also larger when economic growth is high, because of the simple reason they get more tax revenue,” said Paolo Mauro, a Peterson Institute senior fellow. Across nine large developed countries, including the U.S., Japan and Germany, the average debt-to-GDP ratio rose 5.6 percentage points over the eight years to the end of 2007, and surged 31.6 percentage points in the eight since. Examining the changes, and factoring in the impact of growth on the budget, the authors argue economic growth kept a lid on these increases by 25 and 11 percentage points, respectively—more than double the impact traditional growth accounting would suggest. G20 finance ministers spelled out their determination to use fiscal policy to boost their lackluster economies in China over the weekend. Mr. Mauro said they are “living dangerously” already. The prospect of weak economic growth means advanced G20 governments—whose average gross debt-to-GDP ratio is 115% this year, according to IMF data—risk —risk slipping into crushing interest rate-debt spirals if rates rose suddenly or deficit-financed stimulus failed. “Today is very different from 2008 and 2009. We’re almost at full employment, so the bang for our buck from fiscal stimulus is lower,” he said in an interview. “Rates are low right now, but they can spike for reasons we don’t fully understand.”

Hillary Clinton’s Policies Would Boost Growth and Budget Deficits, New Analysis Says - A new analysis finds Hillary Clinton’s economic proposals, taken together, would give the economy a modest lift while leading to slightly higher near-term budget deficits. The Moody’s Analytics report attempts to quantify the cumulative economic benefits and costs of Mrs. Clinton’s proposals on taxes, immigration, spending and regulation. It concludes that full adoption of those policies would boost employment by around 3.2 million jobs compared with expectations under current policy. The biggest beneficiaries of her policies “would be low- and middle-income households,” whose taxes would not go up while they would reap the benefits of increased federal spending and economic growth, the report says. “High-income households pay much more in taxes under Secretary Clinton’s policies,” it says. The report’s lead author, economist Mark Zandi, served as an occasional adviser to the 2008 presidential campaign of Sen. John McCain and later provided analysis to support the Obama administration’s stimulus and mortgage-restructuring proposals. Mr. Zandi, a Democrat, has donated to the Clinton campaign.  Mrs. Clinton has proposed a major infrastructure-spending package to boost growth and a plan to offer free college tuition to millions of families. She has backed a comprehensive overhaul of the nation’s immigration laws, including legislation that would provide people in the U.S. illegally with a path to citizenship. She supports raising the federal minimum wage to at least $12 an hour and has opposed approval of a sweeping Pacific trade pact with 11 other nations. Mrs. Clinton would pay for the new spending by increasing taxes on high-income and wealthy taxpayers. She has also proposed tax policies on businesses and financial institutions to raise revenue and influence corporate behavior. outlines three scenarios. In one, Mrs. Clinton’s policies all become law. In two others, their ambitions are slimmed down to varying degrees. Under the first, the economy would be around 1.7% larger after a four-year term, and average after-tax household incomes would rise $2,000, or around $300 more than under current law.

Exposing Hillbama's Big Lie: The Central Issue In The U.S. Presidential Campaign -- The central issue in the U.S. Presidential campaign can’t even be discussed in U.S. newsmedia, because America’s media have been almost uniformly complicit all along in hiding from the American public the crucial factual information that’s necessary in order for the public to vote in an intelligent and truthfully informed way about it. No news medium wants to report its own having been complicit in anything; so, the cover-up here just continues; it has a life of its own, even though it’s a life that brings the world closer and closer to a situation which would kill billions of people, as things get increasingly out-of-control the longer this coverup continues. The cycle of virtually uniform lying thus persists, despite the growing danger it produces. This article will need to be lengthy, because the American public have been almost consistently lied-to about so many very important things — things associated with the nation’s central issue — an issue even bigger than terrorism, and than global warming, and than rising economic inequality and corruption, but which is still virtually ignored. This article is thus intended to be ‘Drano’ for a political system that has become clogged by lies just jammed down into it, now backing up and pouring out onto America’s political floor. The overflowing sludge has got to be cleaned up, and discarded. Or else — and very suddenly — it will kill us all. This central issue is whether or not to continue to move forward with the American government’s plan, ever since the Soviet Union and its military alliance the Warsaw Pact ended in 1991, to extend NATO — the anti-Russia military club — right up to Russia’s borders, surround Russia with NATO nuclear missiles a mere five minutes flight-time to Moscow, and simultaneously build a “Ballistic Missile Defense” or “Anti Ballistic Missile” (BMD or ABM) system to nullify Russia’s retaliatory missiles against an unannounced blitz U.S.-NATO invasion to take over, if not totally eliminate, Russia and its resistance to U.S. power. This operation is an ugly reality, but it is an American-led reality, and the outcome of the 2016 U.S. Presidential election will bring it into its final stage, either by ending it, or by culminating it — two drastically different outcomes, but one side or the other will prevail in this political contest, and the present article links to the documentation that America’s voters will need to be aware of that shows not only that they’ve been lied-to, but how and why they’ve been lied-to. The documentation is all-important, especially because the facts that are being documented have been hidden so successfully for so long. This is not a world that Americans want to know, but it is a world that especially the few Americans who are in control, don’t want the American public to know. That’s a toxic combination (public ignorance, which the people in control want to continue), but it is tragically real (as the documentation here will make clear).

 Despite Objections, Pentagon Takes Step Toward Buying New Nuclear Weapons - Defense One: The U.S. Air Force took a first step toward buying controversial new nuclear weapons Friday, asking defense companies to submit bids to design and build cruise missiles and ICBMs. The move comes amid the highest tension with Russia since the end of the Cold War and flies in the face of senators who have called on the Obama administration to cancel plans to build the new cruise missile, called the Long-Range Standoff Weapon, or LRSO. “The LRSO weapon system will be a cost-effective force multiplier for B-52, B-2, and B-21 aircraft to credibly deter adversaries and assure U.S. allies of our deterrent capabilities,” the Air Force officials said in a statement, referring to the two existing and one planned nuclear-capable bombers. In the statement, they said they would choose up to two contractors by the fourth quarter of 2017 to build the new cruise missiles. Those two contractors will then compete for 54 months “to complete a preliminary design with demonstrated reliability and manufacturability, which will be followed by a competitive down-select to a single contractor,” the statement said. A group of 10 senators, all Democrats, have called on the Obama administration to scale back its plans for new nuclear weapons and the bombers and submarines that will carry them. The senators specifically called for canceling LRSO, saying it could save taxpayers $20 billion.

Navy’s $12.9 Billion Carrier Isn’t Ready for Warfare, Memo Says - Bloomberg: The $12.9 billion USS Gerald R. Ford -- the most expensive warship ever built -- may struggle to launch and recover aircraft, mount a defense and move munitions, according to the Pentagon’s top weapons tester. On-board systems for those tasks have poor or unknown reliability issues, according to a June 28 memo obtained by Bloomberg News. “These four systems affect major areas of flight operations,” Michael Gilmore, the Defense Department’s director of operational test and evaluation, wrote Pentagon and Navy weapons buyers Frank Kendall and Sean Stackley. “Unless these issues are resolved, which would likely require redesigning” of the aircraft launch and recovery systems “they will significantly limit the CVN-78’s ability to conduct combat operations,” Gilmore wrote, using a technical name for the carrier. The reliability woes mean that delivery of the Ford -- the first of three carriers ordered up in a $42 billion program -- will probably slip further behind schedule. The Navy announced last week that the ship, originally due by September 2014, wouldn’t be delivered before November this year because of continuing unspecified testing issues. The service has operated 10 carriers since the retirement of the USS Enterprise in 2012. Extended deployments of the remaining ships have placed stress on crews and meant added strain meeting global commitments from the battle against Islamic State to ensuring freedom of navigation in the South China Sea, home to $5 trillion in annual trade. A prolonged delay could also hamper the military if a new conflict arises. “Based on current reliability estimates, the CVN-78 is unlikely to conduct high-intensity flight operations” such as a requirement for four days of 24-hour surge operations “at the outset of a war,” Gilmore wrote.

 Facebook Fails to Show Up for Seventh Tax Summons From IRS - Bloomberg: Facebook Inc. officials failed to show up after getting seven summonses from the Internal Revenue Service demanding internal corporate records on one of its offshore tax strategies, according to an IRS court filing. U.S. authorities are examining Facebook’s federal income tax liability for the period ending Dec. 31, 2010 and are looking at whether the company understated the value of global rights for many of its intangible assets outside the U.S. and Canada that it transferred to a subsidiary in low-tax Ireland. While Facebook has supplied some documents to the tax authority, it hasn’t provided books, records, papers and other data demanded in seven summonses, the IRS said in an amended petition filed Monday at the U.S. District Court for the Northern District of California. These include a request to show up at an IRS office in San Jose on June 29. The documents sought "may be relevant to understanding Facebook executives’ internal views regarding the transferred intangibles, Facebook’s valuation with respect to third-party investors, Facebook’s valuation with respect to the sale of stock by Facebook employees, and valuation modeling with respect to acquired companies and, and thus may be relevant to determining the value of the transferred intangibles," the IRS said in an amended declaration filed with the updated petition. Summonses were served by personal delivery to David Wehner, Facebook’s chief financial officer, according to the filing.

Video: Guide to Legal Tax Evasion (With #iPhone7Boycott)  Yves Smith - Thanks to Tax Justice Network for putting us onto this great find: an accessible and humorous (believe it or not) overview of legal tax evasion strategies, presented by the subversive Australian show, The Undercurrent.  From Tax Justice Network:  We’re happy to share a rather brilliant explanation of corporate tax reduction erm, elimination shennanigans from the news and political satire show in Australia, The Undercurrent. In their words:“Thousands of global companies avoid paying tax.  That leaves us, taxpaying citizens, to pick up the tab. So we humbly present to you The Undercurrent Guide to Legal Tax Evasion.  If you’re as pissed off as we are, you can do something about it here.” (More on their #iPhone7Boycott petition below.) As they say in the video, you don’t really need Apple’s next iPhone, do you? Their Boycott Apple petition will be delivered to the CEO of Apple Inc. Tim Cook…

IRS Launches Investigation Of Clinton Foundation -- Commissioner John Koskinen referred congressional charges of corrupt Clinton Foundation “pay-to-play” activities to his tax agency’s exempt operations office for investigation, The Daily Caller News Foundation has learned. The request to investigate the Bill, Hillary and Chelsea Clinton Foundation on charges of “public corruption” was made in a July 15 letter by 64 House Republicans to the IRS, FBI and Federal Trade Commission (FTC). They charged the foundation is “lawless.” The initiative is being led by Rep. Marsha Blackburn, a Tennessee Republican who serves as the vice chairwoman of the House Committee on Energy and Commerce, which oversees FTC. The FTC regulates public charities alongside the IRS. The lawmakers charged the Clinton Foundation is a “lawless ‘pay-to-play’ enterprise that has been operating under a cloak of philanthropy for years and should be investigated.” Koskinen’s July 22 reply came only a week after the House Republicans contacted the tax agency. It arrived to their offices Monday, the first opening day of the Democratic National Convention in Philadelphia.

A financial transaction tax would help ensure Wall Street works for Main Street Summary:

  • What this report finds: A well-designed financial transaction tax (FTT)—a small levy placed on the sale of stocks, bonds, derivatives, and other investments—would be an efficient and progressive way to generate tax revenues. Gross revenues from a well-designed FTT would likely range from $110 billion to $403 billion. And net revenues (including offsets from reduced income, payroll and capital gains taxes, and increased borrowing costs) would likely be substantially higher than some other recent estimates indicate. This is mainly because other estimates’ assumptions about the volume of financial transactions an FTT would crowd out are too high, and because an FTT is likely to redistribute rather than reduce overall incomes. Regardless of the level of revenues raised, an FTT would be a win-win for the U.S. economy. Higher revenues would result in more funds for social insurance programs and much-needed public investments. Lower revenues would be the result of the FTT crowding out financial transactions of little value to the U.S. economy. This would boost Americans’ incomes through lowering fees on financial services, such as the management of 401(k)s and other accounts.
  • Why this matters: As the U.S. economy continues to recover from the 2008 financial crisis and the ensuing Great Recession, an FTT would help ensure the financial sector compensates other sectors of the economy (particularly U.S. households) for the damage the sector inflicted. Through generating tax revenues, decreasing the fees Americans pay on their investments, and shrinking unproductive parts of the financial sector, an FTT would help Wall Street work for Main Street.

In break from Trump, Paul Ryan defends NATO, trade deals (AP) — House Speaker Paul Ryan vigorously defended the role of NATO and the importance of the United States leading the creation of free-trade agreements on Tuesday, breaking from positions taken by Republican presidential nominee Donald Trump. Ryan, speaking at a luncheon in Wisconsin, called NATO an "indispensable ally" that he wanted to bolster to help fight terrorism. Trump caused alarm in the White House, overseas and among fellow Republicans last week when he suggested the United States might abandon its NATO military commitments if he were elected president. Ryan doesn't see it that way, saying there's no question "in my mind" that NATO has a role to play in fighting terrorism. "NATO is as important now as I would say it's been in my lifetime," he said at the event organized by the political website Wispolitics.com. Ryan said he wanted not to weaken NATO, but instead bolster its eastern front as a way to fight terrorism and defend American allies. Ryan has been tepid in his support of Trump, not publicly endorsing him until June after disagreeing with him on comments he made questioning a judge's ability to be fair because of his Mexican heritage and opposing his plan to ban Muslims from entering the country. But Ryan has also argued that Trump is a better choice than Democrat Hillary Clinton because the House Republican agenda has a better chance of passing with him as president. "It's much, much easier and better for us to work with a Trump-Pence administration than a Clinton administration," Ryan said Tuesday. In another break from Trump, Ryan spoke of the need for the U.S. to be a leader in crafting free trade agreements. Trump has made his opposition to trade agreements the centerpiece of his economic argument. Trump wants to revoke the North American Free Trade Agreement and do away with the Obama administration-negotiated Trans Pacific Partnership.

  Kaine gives timely disavowal of TPP - Just in time for the convention, presumptive vice presidential nominee Tim Kaine has gone on record opposing the TPP. Kaine spokeswoman Amy Dudley confirmed Saturday to POLITICO that the Virginia Democrat shared his negative views on the trade deal with Hillary Clinton late last week, even though he spoke favorably of the trade deal as recently as last Thursday.His decision to oppose the agreement deals another blow to President Barack Obama's hopes of winning TPP approval in Congress this year. It adds to the White House's challenge of selling TPP to Democrats in the Senate, where support for the pact — which Donald Trump has called a job-killer — has already weakened. However, only 50 votes are needed for TPP approval, in contrast to the 60 votes that were needed to give Obama “fast track” trade promotion authority to finish the TPP. Kaine was just one of 13 Senate Democrats who voted last year for fast-track authority, which allows the White House to submit trade deals to Congress for a straight up-or-down vote, without amendments. Clinton’s selection of Kaine as a running mate initially rattled Sanders supporters, who saw the move as an opening for Clinton to eventually approve the deal if she’s elected and Congress fails to take it up this year. But labor officials said it was always up in the air whether he would ultimately support the deal; he assured them his vote for fast track did not amount to an automatic vote for the agreement.

Virginia Governor Says He Trusts Hillary Clinton to Betray Voters, Sign the TPP -- This cycle has produced plenty of instances of campaign surrogates not helping. Like when Ben Carson said, in defense of Donald Trump, "Are there better people? Probably." Or when Rick Santorum touted Marco Rubio's achievements in the Senate by telling MSNBC, "I guess it’s hard to say they’re accomplishments." Or when Dr. Paul Song decided to help Bernie Sanders boost his campaign's feminist credentials by calling his opponents "corporate Democratic whores." But last night, Virginia governor Terry McAuliffe set a new standard for terrible spokespersonship. At a convention where a rogue faction of Bernie Sanders delegates refuses to believe in the authenticity of Hillary Clinton's concessions to the left, where delegates for both candidates tend to oppose the Trans-Pacific Partnership and the chant "No TPP" is peppered through all proceedings, McAuliffe decided to reassure voters Tuesday night that Clinton secretly supports the trade agreement and will sign it with minor tweaks as soon as she gets this election thing over with. Per Politico: “I worry that if we don’t do TPP, at some point China’s going to break the rules -- but Hillary understands this,”  “Once the election’s over, and we sit down on trade, people understand a couple things we want to fix on it but going forward we got to build a global economy.” Pressed on whether Clinton would turn around and support the trade deal she opposed during the heat of the primary fight against Bernie Sanders, McAuliffe said: “Yes. Listen, she was in support of it. There were specific things in it she wants fixed.”

True Colors Shining Through -- Elizabeth Warren campaigned to be Hillary's VEEP pick in the last few months, which I thought was sad and pathetic. And had she been plucked from the Senate, where she's actually done some good, that would have been sadder still. But there was no need to worry about the defanging of Warren. Hillary picked Virginia senator Tim Kaine, who was waging his own more effective campaign for the office. Tim certainly knows how to get on Hillary's good sideOn Monday, Kaine signed onto two letters, one to federal banking regulators and the other to the Consumer Financial Protection Bureau, urging them to loosen regulations on certain financial players. The timing of the letters, sent while Kaine is being vetted for the top of the ticket, could show potential financial industry donors that he is willing to serve as an ally on their regulatory issues. In the letters, Kaine is offering to support community banks, credit unions, and even large regional banks. While separate from the Wall Street mega-banks like JPMorgan Chase and Bank of America, these financial institutions often partner with the larger industry to fight regulations and can be hostile to government efforts to safeguard the public, especially if it crimps their profits. They also represent a key source of donor funds, one that has trended away from Democrats. The Independent Community Bankers of America have given 74 percent of their $873,949 in donations this cycle to Republicans, according to the Center for Responsive Politics. Regional banks like PNC Financial Services, SunTrust Bank, and First Republic Bank, have given even higher percentages to the Republicans.

Leaked DNC Emails Confirm Democrats Rigged Primary, Reveal Extensive Media Collusion -- There are three key findings to emerge from yesterday's dump of leaked DNC emails released by Wikileaks:

  • There had been a plot designed to smear Bernie Sanders and to hand the Democratic nomination to Hillary on a silver platter
  • There has been repeated collusion between the DNC and the media
  • There has been questionable fundraising for both Hillary Clinton and the DNC

First, a quick recap for those who missed the original report, yesterday Wikileaks released over 19,000 emails and more than 8,000 attachments from the Democratic National Committee. This is what the whistleblower organization reported: WikiLeaks releases 19,252 emails and 8,034 attachments from the top of the US Democratic National Committee -- part one of our new Hillary Leaks series. The leaks come from the accounts of seven key figures in the DNC: Communications Director Luis Miranda (10770 emails), National Finance Director Jordon Kaplan (3797 emails), Finance Chief of Staff Scott Comer (3095 emails), Finanace Director of Data & Strategic Initiatives Daniel Parrish (1472 emails), Finance Director Allen Zachary (1611 emails), Senior Advisor Andrew Wright (938 emails) and Northern California Finance Director Robert (Erik) Stowe (751 emails). The emails cover the period from January last year until 25 May this year.

DNC Leak Reveals Party Insiders Promised Access to Obama in Exchange for Cash -- Wealthy potential donors to the Democratic National Committee (DNC) were courted with promises of access to the president, a Washington Post analysis of internal DNC emails released by WikiLeaks has found. The party insiders' pitches appear to be in violation of White House policy, the newspaper notes. On Monday, the Post reported: The DNC emails show how the party has tried to leverage its greatest weapon—the president—as it entices wealthy backers to bankroll the convention and other needs. At times, DNC staffers used language in their pitches to donors that went beyond what lawyers said was permissible under a White House policy designed to prevent any perception that special interests have access to the president. Top aides also get involved in wooing contributors, according to the emails. White House political director David Simas, for instance, met in May with a half-dozen top party financiers in Chicago, including Fred Eychaner, one of the top Democratic donors in the country, the documents show. On at least one occasion, a White House lawyer asked DNC employees to alter the language of an invitation to a high-dollar event so it would not appear to be soliciting donations in exchange for access to President Barack Obama—demonstrating that employees were made aware of the policy.  The Post noted, however, that "the emails show several instances in which DNC fundraisers pitched donors with promises of a 'roundtable' chat with Obama. On May 6, the southern finance director emailed ­Cockrum, [a] Tennessee donor, about packages available for the Philadelphia convention."

Democrats Accuse Russia Of Hacking DNC Server To Help Donald Trump --In the aftermath of the fallout from the DNC server hack, the Democrats have been scrambling how to redirect public anger (especially among Bernie Sanders supporters) from the revelations that not only did the Democratic party try everything in its power to sabotage Bernie Sanders presidential bid, but also colluded with various "impartial" media outlets as well as breach fundraising rules in the process. And, as of this morning, it appears that the solution they have decided upon is not to explain or even justify the scandalous actions but to blame Russia for the hack. Moments ago Hillary's campaign manager, Robby Mook, appeared on CNN and as David Axelrod pointed out, suggested that Russians are behind the DNC hacking. Wow, @HillaryClinton manager Mook goes full bore on @realDonaldTrump-Russia tie on @CNNSotu. Suggests Russians behind DNC hacking. — David Axelrod (@davidaxelrod) July 24, 2016

DNC Chairwoman "Quarantined" From Convention After Sanders Demands "Someone Be Held Accountable" For Emails --In a shocking turn of events for the new normal, it appears that Bernie Sanders' campaign demands that "someone in the DNC be held accountable" over the leaked emails showing collusion to undermine any Clinton opposition, have been heard. As CNN reports, Debbie Wasserrman Schultz - the Democratic National Committee Chairwoman - will not speak at or preside over the party's convention this week, a decision reached by party officials Saturday after emails surfaced that raised questions about the committee's impartiality during the Democratic primary. As one top Democrat said "she's been quarantined." As more and more revelations are exposed - and blamed  on Russia - regarding the disgusting behond the scenes smears, collusion, and lies of the DNC, The Hill reports that Bernie Sanders campaign manager Jeff Weaver said “someone needs to be held accountable” for what was revealed in the leak of internal Democratic National Committee emails this week“We spent 48 hours of public attention worrying about who in the Trump campaign was going to be held responsible for the fact that some lines of Mrs. Obama’s speech were taken by Mrs. Trump,” Weaver said in an interview with ABC News. "Someone in the DNC needs to be held at least as a ccountable as the Trump campaign.”Some emails posted on WikiLeaks show an effort to undermine the Sanders campaign.

Leaked Emails Confirm DNC Officials Planned Anti-Trump Protests -- Once more conspiracy their becomes conspiracy fact as suggestions of 'very professionally organized group of thugs' causing trouble at Trump rallies is confirmed with the WikiLeaks released of DNC emails revealing that DNC officials planned anti-Donald Trump protests.  As we detailed at the time, Donald Trump had no doubts about who was to blame for the shocking violence: organized “thugs.” Trump tweeted on Saturday: "The organized group of people, many of them thugs, who shut down our First Amendment rights in Chicago, have totally energized America!"  Protesters at planned Chicago rally yesterday were “very professionally done,” Donald Trump says in Dayton, Ohio.

Here's Why The New DNC Chair Is About To Make Bernie Supporters Just As Angry -- Meet Donna Brazil - interim party chair after Debbie Wasserman Schultz (DWS) resignation over Wikileaks-email-leaked proof confirming months of accusations that she had put her thumb on the scales in favor of presumptive nominee Hillary Clinton... The only problem is... a quick search of Wikileaks leaked DNC email database shows... Brazil is exactly the same as DWS - clearly demonstrating bias against the Sanders' camp...

After Chaotic Weekend for Democrats and Wasserman Schultz, A Class Action Lawsuit Lies Ahead - Pam Martens - First it was Hillary Clinton handling Top Secret national security matters in emails with the caution of a drunken sailor. Now it’s emails leaked by Wikileaks showing that key officials at the Democratic National Committee (DNC) attempted to derail the Democratic campaign of Bernie Sanders in direct violation of the DNC’s own Charter.  Loose email lips are sinking a lot of ships in the Democratic corridors of power. And a lot more emails and depositions may be coming as a class action lawsuit filed in Federal Court gets underway.  20,000 DNC emails exposed by Wikileaks on Friday, top DNC staffers were plotting to use Senator Bernie Sanders’ religious beliefs against him and to characterize his campaign as a mess. As a result of the leaked emails, DNC Chair Debbie Wasserman Schultz has announced she will step down from that position at the end of the Democratic National Convention which starts today in Philadelphia. Wasserman Schultz got a taste of what lies ahead for her at the convention as she was loudly booed at a convention breakfast this morning, according to an ABC News report. The Wikileaks dump of the 20,000 emails will not be the end of disclosures about how the DNC under the tutelage of Wasserman Schultz orchestrated a campaign to coronate Hillary Clinton and undermine Sanders. A Federal class action lawsuit has been filed against the DNC and Wasserman Schultz alleging fraud, negligent misrepresentation, deceptive conduct, unjust enrichment, breach of fiduciary duty, and negligence. The suit, Wilding et al v DNC Services Corporation and Deborah ‘Debbie’ Wasserman Schultz (Case Number 16-cv-61511-WJZ) was originally filed by the law firm Beck & Lee on June 28, 2016. An amended complaint has subsequently been filed. Jared H. Beck of the law firm has indicated that over 1,000 plaintiffs have thus far signed retainer agreements with his firm in relation to the class action lawsuit.

Wikileaks Emails Bring New Attention to Hillary Victory Fund “Money Laundering” Charges -- The problem with conspiracy theorists is that, quite frequently, the theorists lack adequate imagination. That seems to be the case when it comes to the Democratic National Committee’s behind-the-scenes machinations to muscle Hillary Clinton into the White House while plotting against her main challenger, Bernie Sanders. That conclusion stems from the trove of 20,000 DNC emails dumped into the public sphere by Wikileaks last Friday.  The leaked emails have cost Debbie Wasserman Schultz her job as Chair of the DNC but other top DNC officials captured in devious plots against Sanders in the email exchanges still have their jobs – or at least no official firings have been announced. This makes the conspiracies seem more like a DNC business model.  The DNC’s own charter demands that it treat all Democratic primary candidates fairly and impartially, but top DNC officials made a mockery of that mandate. In addition to conjuring up ways to smear Clinton challenger Bernie Sanders during the primary battles, the leaked emails show a coordinated effort to cover up what the Sanders camp called “money laundering” between the Hillary Victory Fund and the DNC.  Despite the fact that the Sanders campaign had no such active arrangement with the DNC, the DNC agreed to participate in the Hillary Victory Fund, a joint fundraising committee that sluiced money to both Hillary’s main candidate committee, Hillary for America, as well as into the DNC. On May 2 of this year, the Sanders campaign released a statement charging Clinton with “looting funds meant for the state parties to skirt fundraising limits on her presidential campaign,” and exploiting “the rules in ways that let her high-dollar donors like Alice Walton of Wal-Mart fame and the actor George Clooney and his super-rich Hollywood friends skirt legal limits on campaign contributions.” Despite Clinton’s promise to rein in tax dodges by hedge funds, Wall Street On Parade reported in April that major hedge fund titans were also big donors to the Hillary Victory Fund.

NSA Whistleblower: Not So Fast On Claims Russia Behind DNC Email Hack -- The mainstream media alleges that Russia was behind the hack of the DNC’s emails.  The media is parading out the usual suspects alleged experts to back up this claim. Washington’s Blog asked the highest-level NSA whistleblower in history, William Binney – the NSA executive who created the agency’s mass surveillance program for digital information, who served as the senior technical director within the agency, who managed six thousand NSA employees, the 36-year NSA veteran widely regarded as a “legend” within the agency and the NSA’s best-ever analyst and code-breaker, who mapped out the Soviet command-and-control structure before anyone else knew how, what he thinks of such claims: Edward Snowden says the NSA could easily determine who hacked Hillary Clinton’s emails: Evidence that could publicly attribute responsibility for the DNC hack certainly exists at #NSA, but DNI traditionally objects to sharing.  Even if the attackers try to obfuscate origin, #XKEYSCORE makes following exfiltrated data easy. I did this personally against Chinese ops. The mainstream media is also trumpeting the meme that Russia was behind the hack, because it wants to help Trump get elected. In other words, the media is trying to deflect how damaging the email leaks are to Clinton’s character by trying to somehow associate Trump with Putin.  Who’s right? Binney responded: Snowden is right and the MSM is clueless. I am suspicious that they may have looked for known hacking code (used by Russians). And, I’m sure they were one probably of many to hack her stuff. But, does that mean that they checked to see if others also hacked in?  Further, do they have evidence that the Russians downloaded and later forwarded those emails to wikileaks? Seems to me that they need to answer those questions to be sure that their assertion is correct. Otherwise, HRC and her political activities are and I am sure have been prime targets for the Russians (as well as many others) but without intent of course. The newest allegation tying the Clinton email hack to Russia seems to be all innuendo.

Hoisted from Comments: Can We Even Know Who Hacked the DNC Emails?  - It is with relief that we turn from last week’s Democrat narrative — that Trump is a fascist — to this week’s narrative[1]: That the DNC email hack is proof that Trump is a Russian agent of influence.[2] Here’s Clinton’s campaign manager, Robby Mook, making the accusation:Hillary Clinton’s campaign manager is alleging that Russian hackers are leaking Democratic National Committee emails critical of Bernie Sanders in an effort to help Donald Trump win the election in November. It comes on the heels of “changes to the Republican platform to make it more pro-Russian,” Robby Mook told CNN’s Jake Tapper on “State of the Union” Sunday.“I don’t think it’s coincidental that these emails were released on the eve of our convention here, and I think that’s disturbing,” he said.  Mook’s “Russians under the bed” gaslighting is useful on a number of fronts: Ginning up war fever for an October surprise; setting up a later McCarthy-ite purge of Trump supporters, Clinton skeptics, or even those prematurely anti-Trump; and if we’re truly blessed, a real shooting war; some damned thing in the Baltic or the Black Sea, or wherever the Kagan clan points to on the map in the war room. However, in this short post I want to focus on a much narrower question: Can we ever know who hacked the DNC email? Because if we can’t, then clearly we can’t know the Russians did. And so I want to hoist this by alert reader JacobiteInTraining from comments: Yup, as a former server admin it is patently absurd to attribute a hack to anyone in particular until a substantial amount of forensic work has been done. (read, poring over multiple internal log files…gathering yet more log files of yet more internal devices, poring over them, then – once the request hops out of your org – requesting logfiles from remote entities, poring over *those* log files, requesting further log files from yet more upstream entities, wash rinse repeat ad infinitum)>

Snowden Explains How To Get To The Bottom Of "Who Hacked The Democrats" - With the scandals plaguing the Democratic National Convention - set to start in just over an hour - get stronger, so does the narrative that it was all Russia's fault the Democratic party was hacked. As a result, as reported earlier today, the objective FBI said it is now investigating how thousands of DNC emails were hacked, a breach that Hillary Clinton's campaign maintains was committed by Russia to benefit Donald Trump. Indeed, as noted yesterday, Clinton's campaign, citing "experts", pointed to a massive hacking of DNC computers in June that cybersecurity firms linked to the Russian government. In any case, the fallout from the email leak has been escalating all day, with Sanders supporters booing the former DNC Chairman offstage, forcing her to skip the convention entirely. And so has the fingerpointing at the Kremlin as the culprit behind a scandal that threatens to overshadow even last week's scandal-ridden Republican convention.But how to get to the bottom of who did what? One way would be to listen to the person who should know all about this stuff: Edward Snowden. This is what he said earlier today on Twitter:

  • If Russia hacked the #DNC, they should be condemned for it. But during the #Sony hack, the FBI presented evidence. https://t.co/SG7er8VDRD
  • Even if the attackers try to obfuscate origin, #XKEYSCORE makes following exfiltrated data easy. I did this personally against Chinese ops.
  • Evidence that could publicly attribute responsibility for the DNC hack certainly exists at #NSA, but DNI traditionally objects to sharing.
  • The aversion to sharing #NSA evidence is fear of revealing "sources and methods" of intel collection, but #XKEYSCORE is now publicly known.
  • Without a credible threat that USG can and will use #NSA capabilities to publicly attribute responsibility, such hacks will become common.
  • This is the only case in which mass surveillance has actually proven effective. Though I oppose in principle, it is a mistake to ignore.

After Lying Low, Deep-Pocketed Clinton Donors Return to the Fore - NYTimes.com: — In a luxury suite high above the convention floor, some of the Democratic Party’s most generous patrons sipped cocktails and caught up with old friends, tuning out Senator Bernie Sanders of Vermont on Monday as he bashed Wall Street in an arena named after one of the country’s largest banks.On Tuesday, when Hillary Clinton became the first female nominee of a major party, a handful of drug companies and health insurers made sure to echo the theme, paying to sponsor an “Inspiring Women” panel featuring Democratic congresswomen. And in the vaulted marble bar of the Ritz-Carlton downtown, wealthy givers congregated in force for cocktails and glad-handing as protesters thronged just outside to voice their unhappiness with Wall Street, big money in politics and Mrs. Clinton herself. “This is a good place to be — for a lot of reasons,” said former Gov. Charlie Crist of Florida, a Democrat now running for Congress, as he glided through the room on Tuesday. “We must have set up five fund-raisers today. This is the bank.” The biggest players gathered at the Ritz-Carlton, where a line of sport utility vehicles and limousines deposited waves of men in suits but no ties and elegantly dressed women bearing expensive handbags. At first-come-first-served seats near the bar, assistants huddled around lengthy spreadsheets, figuring out which donors were entitled to which passes to which events. Outside, a protester walked with a sign denouncing big money. Inside, two stocky men could be heard debating the merits of the different ambassadorships they hoped to earn under Mrs. Clinton. Even a low-ranking posting meant having “ambassador” on a child’s wedding invitation, the two agreed, and would be helpful in wrangling invitations to sit on corporate boards.

Why Argue With the Government When You Can Buy It? - In the 1990s, antitrust lawyer Gary Reback convinced the Department of Justice to bring a case against Microsoft by using relatively new economic literature on increasing returns and network effects. Now, nearly 20 years after being described as “Bill Gates’ worst nightmare” on the cover of Wired, Reback—a lawyer at the Silicon Valley firm Carr & Ferrell—is again pursuing an antitrust case against a powerful tech giant: Google. This time, however, instead of flying to Washington to persuade the Department of Justice, he flies to Brussels, where he thinks he can find more receptive ears. Reback is currently involved in the European antitrust effort against Google, representing a number of Google’s business rivals. “The Citizens United case and the two or three cases that followed it have really changed a lot,” Reback said in an interview with ProMarket last month. “These political contributions are affecting our government’s efficacy across the board. Antitrust is not only no exception; it may be the paramount example.” In the interview with ProMarket1)  The following interview has been edited and condensed for clarity. , Reback elaborated on the difference between antitrust enforcement in the U.S. and Europe, the influence the U.S. Supreme Court’s Citizens United decision has had on antitrust enforcement, and the relationship between antitrust and innovation.

Delayed, Denied, Dismissed: Failures on the FOIA Front -- This month marks the 50th anniversary of the Freedom of Information Act, which was designed to give the public the right to scrutinize the records of government agencies. Almost no one needs public records more than an organization like ProPublica, whose mission is producing work that “shines a light on exploitation of the weak by the strong and on the failures of those with power to vindicate the trust placed in them.” Yet almost every reporter on our staff can recite aneurysm-inducing tales of protracted jousting with the public records offices of government agencies. Local, state and federal agencies alike routinely blow through deadlines laid out in law or bend them to ludicrous degrees, stretching out even the simplest requests for years. And they bank on the media’s depleted resources and ability to legally challenge most denials. Many government agencies have gutted or understaffed the offices that respond to public records requests. Even when agencies aren’t trying to stymie requests, waits for records now routinely last longer than most journalists can wait — or so long that the information requested is no longer useful. This, in turn, allows public agencies to control scrutiny of their operations. There’s little reason to hope things will improve. Last week, President Obama, who has repeatedly broken promises to deliver new levels of transparency, signed the FOIA Improvement Act of 2016. The act writes the presumption of disclosure clearly into law, pledges to strengthen the FOIA Ombudsman and creates a single FOIA portal for agencies to receive requests, among other user-friendly provisions. But the act explicitly provides no new resources for implementing these provisions.

 Fed Prepares Action Against Goldman Sachs in Leak Case -- Two years ago, the Federal Reserve faced a predicament: One of its New York employees had leaked confidential government information to a banker at Goldman Sachs. Both men ultimately pleaded guilty to stealing government property. Goldman, for its part, paid a $50 million penalty to New York State regulators because its “management failed to effectively supervise” the banker. At that point, the case seemed to be closed, which was just as well for Goldman and the Fed — institutions dogged by the public perception that they are a little too cozy. But the Fed is now preparing an enforcement action of its own against Goldman, according to people briefed on the matter, and the bank is expected to pay a financial penalty in that case as well. The Fed is also considering an action against a third man, a former Goldman executive who worked alongside the more junior banker who received the leaked material. Unlike Goldman, the former executive plans to fight the Fed if it files a case against him, the people briefed on the matter said. The cases would reflect a broader effort at the Fed to address Wall Street misdeeds and ramp up its enforcement efforts against individual bankers. In 2015, the Fed chose to bar six bankers from the industry, twice the number in 2014. The year before that, the Fed did not take any such actions. But for the Fed, the circumstances of the looming Goldman actions are both unlikely and awkward.The leak, after all, originated at the Federal Reserve Bank of New York with one of its own employees. And the junior Goldman banker who received the confidential information was a former New York Fed employee himself, illustrating the perils of the proverbial revolving door between government and Wall Street. The banker came to Goldman with a job reference from a New York Fed official.

 Bitcoin Is Not Money, Charges Dropped Against Man Accused Of Using Virtual Currency In Money Laundering Scheme: Bitcoin is not money, according to a judge in Florida. On Monday, Miami-Dade Circuit Judge Teresa Mary Pooler decided the virtual currency was not “tangible wealth” since it is not backed by any government or bank.In 2014, Michell Espinoza was on trial for selling $1,500 worth of Bitcoin for cash. After exchanging the virtual currency with undercover police officers for money they claimed was obtained illegally, Espinoza was arrested. He was charged with two counts of money laundering and one count of acting as an unlawful money transmitter/payment seller. After reviewing the case, Judge Pooler dropped the charges against the defendant. Since Bitcoin is not considered real currency, Espinoza cannot be charged with illegally transmitting or laundering money. “The court is not an expert in economics; however, it is very clear, even to someone with limited knowledge in the area, the Bitcoin has a long way to go before it the equivalent of money.” For money laundering charges to stick, someone must be conducting a “financial transaction” with money that comes from illegal activity. Agreeing with the Espinoza’s defense, the judge ruled Bitcoin does not fall under the definition of a “payment” instrument.

Harry Markopolos Scores Again: State Street Settles for $382 Million on Foreign Exchange Fraud  -- Yves Smith - Harry Markopolos, famed for having warned the SEC of signs of fraud by Ponzi schemer Bernie Madoff, has now become a serial crimebuster. Markopolos, as part of a “whistleblower legal group,” presented evidence of foreign exchange trading abuses of mutual and pension funds by the custodians Bank of New York Mellon and State Street. The chicanery was that the foreign exchange trading was a secondary, or “indirect” service. The funds would buy or sell foreign stock and the two banks, would have to execute foreign exchange transactions as part of the service. As the Wall Street Journal wrote in 2011, both the SEC and some state prosecutors took up the Markopolos group’s findings: The Securities and Exchange Commission is investigating State Street Corp.’s foreign-exchange trading on behalf of pension funds in a sign that law-enforcement probes into how custody banks process tens of thousands of foreign-exchange trades are widening… The SEC joins a growing list of law-enforcement agencies now investigating how State Street and New York rival Bank of New York Mellon Corp. process currency transactions for state and local pension funds. The inquiries are examining whether the two banks properly charged state and local pension funds to exchange currency to complete global securities transactions. The inquiries were sparked by a whistleblower legal group that has sued the banks in California, Virginia and Florida. The legal group sued State Street in California and BNY Mellon in Virginia and Florida. The Bloomberg reported on the SEC investigation of State Street pointed out that the State of California, on behalf of CalPERS and CalSTRS, and the Arkansas state pension fund were suing State Street..

How Much Do Shady Financial Practices Cost You, Exactly? - Lynn Parramore --America’s financial system is broken for all but a few at the top — that much is plain. The rest sense that we are stuck on the minus end of some great financial formula, but given the complexity and size of Big Finance, it’s hard to pin down exactly why it happens and how it all adds up. Enter economist Gerald Epstein of the University of Massachusetts, Amherst. He has dived in and crunched the numbers, and the results are eye-popping. Epstein and his colleague Juan Antonio Montecino look at exactly how families, taxpayers and businesses get ripped off by dubious financial activities and tally up the costs in a new paper for the Roosevelt Institute, “Overcharged: The High Cost of Finance.” (The Institute for New Economic Thinking has also supported several papers by Epstein). Epstein and Montecino report the grand total of the loss to Americans: We estimate that the financial system will impose an excess cost of as much as $22.7 trillion between 1990 and 2023, making finance in its current form a net drag on the American economy. That is indeed a drag.The researchers look at three key areas, including the excessive profits nabbed by financiers; the price of diverting resources away from non-financial activities; and how much you lose from blow-ups like the 2008 financial crisis.  I asked Epstein how all this breaks down for an ordinary American employee, say, the manager at a retail store — let’s call her Jane. Epstein explained to me how bankers and financiers shrink her wallet as she goes about her normal activities.

US groups hoard cash as uncertainty grows FT -- American companies are increasing their holdings of cash in response to a rise in economic and geopolitical uncertainty, according to a survey of corporate treasurers. The data, which could be a harbinger of a pullback in business investment, come alongside cautious comments from US companies on the outlook for the third quarter. With the reporting season in full swing, Wall Street analysts no longer expect a rise in earnings. The latest survey by the Association for Financial Professionals shows companies are taking their most cautious approach to cash management since mid-2011, when markets were roiled by the eurozone debt crisis and a showdown over the US debt ceiling. “Any likelihood of organisations deploying their cash has been curtailed by the outcome of the Brexit referendum, a tepid domestic economy and continued sluggishness in the global economy,” said Craig Martin, Corporate Treasurers Council executive director. The survey, to be published on Monday, shows companies accumulated cash balances at a far quicker pace in the second quarter than in the first, and expect to do so at a still faster pace in the current quarter. An index of expectations for the current quarter jumped to plus-16 from plus-7 three months ago. The number represents the difference between the percentage of treasurers expecting to increase cash holdings and those who are expecting to decrease them.

Highest-paid CEOs run worst-performing companies, research finds - The highest-paid CEOs tend to run some of the worst-performing companies, according to new research. The study, carried out by corporate research firm MSCI, found that for every $100 (£76) invested in companies with the highest-paid CEOs would have grown to $265 (£202) over 10 years. But the same amount invested in the companies with the lowest-paid CEOs would have grown to $367 (£279) over a decade. Titled 'Are CEOs paid for performance? Evaluating the Effectiveness of Equity Incentives', the report looked at the salaries of 800 CEOs at 429 large and medium-sized US companies between 2005 and 2014 and compared it with the total shareholder return of the companies. The report notes: “Equity incentive awards now comprise 70 per cent or more of total summary CEO pay in the United States, based on our calculations. Yet we found little evidence to show a link between the large proportion of pay that such awards represent and long-term company stock performance. “In fact, even after adjusting for company size and sector, companies with lower total summary CEO pay levels more consistently displayed higher long-term investment returns. Recommending the focus shift away from annual reports to longer-term performance, it adds: “Closer scrutiny of the relationship between CEO pay and performance over longer time periods could lead to different conclusions.”

Sanders, Warren Target Big Banks in DNC Keynote Addresses | American Banker: – Sens. Bernie Sanders, D-Vt., and Elizabeth Warren, D-Mass., said presumptive Democratic presidential nominee Hillary Clinton would ensure big banks do not again threaten the financial system. Speaking during prime-time spots at the Wells Fargo Center, Sanders cited the Democratic platform's call for a restoration of the Glass-Steagall Act as a top reason to vote for Clinton in November. "It is no secret that Hillary Clinton and I disagree on a number of issues," Sanders said. "I am happy to tell you that at the Democratic Platform Committee, there was a significant coming together … the Democratic Party now calls for breaking up the major financial institutions on Wall Street and the passage of a 21st-century Glass-Steagall Act." Clinton herself has stopped short of calling for a return to Glass-Steagall, a 1930s-era law that separated commercial and investment banking and was repealed by her husband, former President Bill Clinton. She has suggested instead that policymakers should target large nonbanks. But her campaign agreed to make changes to the Democratic platform as a way to make peace with Sanders, her only significant rival during the primaries. That peace was clearly still fragile. Earlier in the day, Democratic National Committee Chair Debbie Wasserman Shultz resigned after hacked emails revealed efforts within the party to undermine Sanders and ensure Clinton's nomination. Sanders' supporters quickly took to the streets in oppressive, 90-degree heat while the DNC and Clinton campaign worked to defuse the turmoil and eventually issued an official apology.

The DNC was one big corporate bribe - Dave Dayen - To get to the Democratic National Convention, you take the subway to the AT&T Station and walk to the Wells Fargo Center. Along the way, you’ll stroll by the Comcast Xfinity Live complex, where delegates and honored guests can booze it up. You’ll also see the “Cars Move America” exhibit, an actual showroom sponsored by Ford, GM, Toyota, and others. Finally, you’ll reach your seat and watch Democrats explain why we have to reduce the power of big corporations in America. Party conventions have always been collection points for big money. But many major corporations sat out last week’s Republican gathering for fear of Trump contamination. There’s no such reticence here in Philadelphia; in fact, it feels like they’re making up for that lack of investment. It’s hard to ferret out all the special interests at the DNC, because there’s no full public schedule. Invitations are doled out individually, and people whisper about this or that event. But enter any official hotel where a delegation is staying, or any Philadelphia landmark, and you’re likely to have a complimentary drink thrust into your hand. White reported on Monday, private equity firm Blackstone has a meet-and-greet on Thursday. Independence Blue Cross, the southeastern Pennsylvania arm of the large insurer, held a host-committee reception Tuesday; their chief executive is the finance chair of that host committee. The same day, Le Meridien hotel had a private event for Bloomberg LP, and the Logan Hotel hosted “Inspiring Women, a Luncheon Discussion.” The sponsors included Johnson & Johnson, Walgreens, AFLAC, the Financial Services Roundtable (the industry trade lobby), and New York Life. Facebook commandeered a bar inside the Wells Fargo Center for delegates and guests. Twitter rented out an entire restaurant, bestowing attendees with free breakfast, lunch and an open bar.  And when the speeches end, convention-goers fan out to a sea of mostly industry-sponsored parties.

DNC: Hillary. Because balloons. - Jodi Dean - If I were Buzzfeed, I would write a list of the 27 things that most depress me about the HRC nomination. But I'm not Buzzfeed and I prefer anger to depression. I'm disgusted by the manipulation of feminist goals to generate support for imperialism. This isn't new. The critique of liberal feminism has been well-known for decades. And yet its explicit suspension is disavowed by those who want us to all share in the excitement of breaking the glass ceiling. I don't share it. I feel nothing but rage. Thatcher was not a victory for women. Neither is Clinton.  I'm appalled by the falling into line of ostensibly progressive intellectuals who not only seem to have suspended all their critical capacities as they repeat the elements of the very politics they ostensibly reject -- unity, nationalism, demonization of dissent, paranoia -- but who ignore HRC's actual record as if the wars and coups she has furthered, the deaths for which she is responsible, do not matter. I'm shocked that critical intellectuals parrot the worst elements of mainstream media and Clinton talking-points, failing to analyze the convention, its pageantry, and its speeches as an ideological production designed to create an appearance and a feeling. Somehow ideas of the partition of the perceptible have fallen away before fawning over attractive people, rhetorically well-constructed speeches, and balloon drops. Well, actually, the balloon drop was really great. Endless. Abundant. Different sizes. And some had stars. I loved the balloon drop. I wish I was in there, too, surrounded by thousands and thousands of balloons. Maybe, like Bill, I could grab a big blue with stars and take it home. Or bounce the big red and white ones back into the crowds. And then confetti. Balloons and confetti. So magic.

Black Americans in the C-Suite: A Look at the Obama-Era Declines - Pamela Carlton, a former executive at JPMorgan Chase & Co. and Morgan Stanley, was as hopeful as any black American when Barack Obama was elected. She believed in the post-racial society and could imagine the next generation not facing the obstacles and isolation she did. “There was an expectation things would get better,” Instead, in many ways, they got worse. Just five companies in the S&P 500 -- American Express Co., Merck & Co., Carnival Corp., Eaton Corp. and Xerox Corp. -- are headed by African Americans, and that will drop to four when Ursula Burns steps down as chief of Xerox in the next few months. In 2007, the year before Obama first won the White House, there were seven. That was the peak. The pipeline into the biggest corner office is also thin. Most executives in posts within striking distance of CEO last year were white, 7.8 percent were Asian American and 4.2 percent were Latino. Blacks made up 2.6 percent. Boards, which would seem to be relatively easier to diversify, are less black, too. The proportion of African Americans directors was 8.6 percent last year, down from 9.6 percent in 2010, data from recruiter Spencer Stuart show. “Blacks are still mostly being channeled into staff jobs rather than line jobs running business divisions that lead to the CEO office,” says Ronald Parker, chief executive officer of the Executive Leadership Council, an advocacy group for African Americans. “There’s still this guarded behavior around who gets to sit in that seat.” Parker calls it “unconscious bias,” judging people based on how they look, a “common denominator” with what’s behind much of the racial strife in the country. The ugly point the U.S. has reached in race relations -- fueled by a spate of deaths of black men at the hands of police officers and the recent killings by black snipers of cops in Dallas and Baton Rouge, Louisiana -- is spurring some corporate reassessments

One Thing Both Parties Want: Break Up the Banks Again -- Could the Glass-Steagall Act — the Depression-era legislation that forced the separation of investment banking from commercial banking, among other things — be coming back?  In an extremely odd political dovetail, both the Democratic and the Republican platforms include planks that call for the restoration of the landmark 1933 law. Glass-Steagall aimed to protect the common folk who deposited money in their banks for safekeeping, and ordered that those banks decouple themselves from the business of placing the type of speculative stock market bets that caused the great crash of 1929. For decades, that law was a bedrock principle on Wall Street, where the peanut butter of lending and deposit-taking never mixed (legally) with the chocolate of playing the market. That bedrock was smashed in 1999, however, when the Gramm-Leach-Bliley Act undid much of Glass-Steagall, liberating banks like Citigroup and others to form what they called “financial supermarkets,” all-in-one financial services shops. Fast-forward to 2016: Somehow, it appears that Bernie Sanders, who is said to have pressed for the inclusion of the Glass-Steagall plank in the Democratic Party platform, and Donald J. Trump, who also pushed for the agenda item on the Republican side, do agree on something. The potential change hasn’t yet become a major talking point for Hillary Clinton or Mr. Trump — and there is a chance it will never be one. But if the establishment heard one thing loud and clear in the 2016 primaries, it was that millions of Americans think that they were the victims of Wall Street and that the next president had better pay attention.”

More Banking Mystifications -- James Kwak -- Apparently, both parties have platform planks calling for the reinstatement of the Glass-Steagall Act of 1933, the law that separated investment banking from commercial banking until it was finally repealed in 1999 (after being watered down by the Federal Reserve beginning in the late 1980s). Bringing back Glass-Steagall in some form would force megabanks like JPMorgan Chase, Citigroup, and Bank of America to split up; it would also force Goldman Sachs to get rid of the retail banking operations it started in a bid to get access to cheap deposits. In his article discussing this possibility, Andrew Ross Sorkin of the Times slips in this: “Whether reinstating the law is good idea or not, the short-term implications are decidedly negative: It would most likely mean a loss of jobs as part of a slowdown in lending from the biggest banks.” I looked down to the next paragraph for the explanation, but he had already moved on to another unsubstantiated claim (that the U.S. banking industry would be at a competitive disadvantage). So, I thought, maybe it’s so obvious that Glass-Steagall would reduce lending that Sorkin didn’t think it was worth explaining. I thought about that for a while. I couldn’t see it. In fact, basic intuitions about finance indicate that Glass-Steagall should have no effect on lending whatsoever. Banks should loan money to borrowers who are good risks: that is, those who pay an interest rate that more than compensates for the risk of default. (I’m simplifying a bit, but the details aren’t relevant.) Common sense tells you that whether the bank doing the lending is affiliated with an investment bank shouldn’t make a difference. To dig a little deeper, banks should be making loans whose expected returns exceed the appropriate cost of capital. So, maybe Sorkin thinks that grafting an investment bank onto a commercial bank will lower its cost of capital. I can’t think of any obvious reason why this should be the case. Even if it does, however, we do NOT want the commercial bank to now start making more loans than it did before it was affiliated with the investment bank. Capital markets are supposed to direct funds to households and companies that can put them to their best use.

AP EXPLAINS: GOP, Dems. Look to Revive Depression Bank Law - ABC News - Well at least the Democrats and the Republicans agree on something at their conventions: They both want to revive a Depression-era bank law that was abolished more than 15 years ago. The platforms of both parties call for the reinstatement of the Glass-Steagall Act, a law that would lead to the breakup of major U.S. banks like JPMorgan Chase in order to separate investment banking from commercial banking. The Glass-Steagall Act of 1933 was passed in the wake of the stock market crash and the thousands of banks failures that led to the Great Depression. Among its many provisions, the law segregated the banking industry into commercial banks, or banks that take deposits and operate branches, and investment banks, or those that trade and underwrite stocks and bonds and advise companies. It also separated out insurance. As banks became larger and more complicated over decades, regulators eased bank requirements under the law. A GOP-led Congress passed the Gramm-Leach-Bliley Act in 1999 repealing the separation provision. President Bill Clinton signed it into law. After the 2008 financial crisis, anger at Wall Street jelled into an argument that Glass-Steagall could have mitigated or prevented the crisis by keeping financial powerhouses from growing too large. Elizabeth Warren, a Massachusetts Democrat well-loved by the anti-Wall Street crowd, advocated for the return of Glass-Steagall. That position was also adopted in Bernie Sanders' presidential campaign, where he forcefully argued for the breakup of big banks. In his speech Monday to the Democratic National Convention, Sanders called for the passage of a "21st Century Glass-Steagall Act."

Citigroup, HSBC Jettison Customers as Era of Global Empires Ends: How does a company lose 69 million customers? Just ask Citigroup Inc. Once upon a time, about a decade ago, the New York-based bank had a global retail empire stretching from Tokyo to Tegucigalpa. It offered consumer banking in 50 countries, covering half the planet’s land mass, and served 268 million people. Then a financial crisis, billions of dollars of losses from complicated securities linked to subprime mortgages and a government bailout upended its plans. The bank has since sold or shut retail operations in more than half the countries in which it had a presence, including Guatemala, Egypt and Japan. It reduced the number of branches in the U.S. by more than two-thirds and has gotten out of subprime lending, student loans and life insurance. In the process, it let go about 25 percent of its customers along with more than 40 percent of its workforce. “Banks are figuring out that providing every product and every service to every client in every country was just wrong,” . “So they are unwinding and shedding assets. We’re not close to being done.”   The transformation of Citigroup, and similar changes at HSBC Holdings Plc and other global banks, isn’t just about cutting expenses. It’s also about looking for greater returns by focusing on the richest customers -- high-net-worth individuals, large corporations and institutional investors. Citigroup says it’s leaner and safer today. But in serving those clients, the bank has bulked up on trading, a business that helped get it into trouble before. It doubled the amount of derivatives contracts it has underwritten since the crisis to $56 trillion. The company, which used to make most of its profit from consumer banking, now gets the majority from corporate and investment banking. HSBC, which had an even bigger global retail footprint than Citigroup’s and advertised itself as “the world’s local bank,” also has retreated, quitting or planning to get out of consumer banking in more than half the countries it was in and jettisoning 80 million customers. Retail banking’s share of profit has dropped by half as commercial lending and investment banking filled the gap.

The problems at Deutsche Bank | John Kay: In the years before the global financial crisis, bank CEOs competed like schoolboys to demonstrate that ‘my return on equity is larger than yours’. The display was led by Josef Ackermann, chief executive of Deutsche Bank from 2002 and chairman from 2006 to 2012, who announced a target of 25 per cent return on equity. In 2008, as the global financial crisis broke around him, he proudly announced that this target had been achieved. Return on equity (RoE) is a ratio of profit to shareholders’ funds, and there are two ways to increase a ratio. You can raise the numerator – the profit – or you can reduce the denominator – the equity capital. Reducing equity is easier. RoE is a seriously misleading measure of profitability. For businesses that are not very capital-intensive – such as asset management, or other professional service firms such as accountants – high returns on equity are achievable because the capital requirement is so small. Capital-intensive businesses – in the modern economy they are principally banks, utilities and resource companies – can achieve high returns on equity only through extreme leverage, as Deutsche Bank did. Even as the thinly capitalised Deutsche Bank was benefiting from state guarantees of its liabilities, it was buying back its own shares to reduce its capital base. And whatever return on equity was claimed by the financial officers of Deutsche Bank, the shareholder returns told a different, and more enlightening, story: the average annual total return on its shares (in US dollars with dividends re-invested) over the period May 2002 to May 2012 (Ackermann’s tenure as chief executive of the bank) was around minus 2 per cent.

How Regulators Missed the Mark on Interest Rate Risk | Bank Think - The weakening net interest margins reported this month at many banks should remind the market that bank portfolios in the years ahead will continue to walk up to and over an investment cliff. The bonds and loans in these portfolios will mature, and the banks will likely need to reinvest at much lower interest rates. The cumulative difference in interest income and earnings could be breathtaking. The investment cliff could eventually cut nearly $20 billion of income annually from U.S. bank securities portfolios alone, according to our estimates. And those portfolios only account for a fifth of bank assets. If U.S. banks had to reinvest their $3.4 trillion in securities in similar instruments at today's low rates, their portfolio yield would drop from 2.06% to 1.46%. Although estimates of the investment cliff are imprecise, the prospect is sobering. Every day that a dollar in a bond or loan matures, it rolls off the edge. And this has been happening for years. The shocking thing is that many banks have done little to prepare. Since early 2011, according to research from Barclays Capital, more than 90% of U.S. banks have set up their balance sheets in anticipation of rising interest rates. To their credit, many bank managers have simply been responding to warnings from regulators that interest rates will rise. The problem has turned out to be just the opposite. Rates have stayed persistently low. Persistently low inflation is partly to blame. But more worrisome is persistently low real economic growth, where slow productivity growth has taken a toll. U.S. workers from 1995 to 2004 on average raised output by an extraordinary 3.25% a year, a trend that would double standards of living every 22 years. But average annual productivity growth from 2004 to 2014 slipped to 1.5% and, in the last five years, to 0.5%, a pace that would double living standards every 139 years. Other factors such as excess savings and the falling price of capital good contribute to what Larry Summers has called "secular stagnation." Slow growth should continue to keep rates low.

July 2016: Unofficial Problem Bank list declines to 196 Institutions --This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for July 2016.  During the month, the list fell from 203 institutions to 196 after seven removals. Assets dropped by $1.7 billion to an aggregate $58.9 billion. A year ago, the list held 290 institutions with assets of $83.9 billion.Actions have been terminated against Ponce de Leon Federal Bank, Bronx, NY ($721 million); Pilot Bank, Tampa, FL ($230 million); Native American Bank, National Association, Denver, CO ($83 million); Georgia Heritage Bank, Dallas, GA ($74 million); and Century Bank of Florida, Tampa, FL ($74 million). Finding merger partners were Tidelands Bank, Mount Pleasant, SC ($464 million Ticker: TDBK) and Calumet County Bank, Brillion, WI ($89 million).

How Banks Are Co-Opting the Robo-Advisory Revolution | American Banker: Setting up an advisory shop has long been a way for retail banks to boost fees, and Cambridge Savings also wanted to attract the growing number of young, well-heeled professionals in its suburban Boston market. That kind of business has typically relied on tailored advice delivered in person, but prospective customers were sending a different message in surveys: Make it digital, and let us do it ourselves. "Initially, we anticipated supporting the branch network with a team of traditional financial advisers," Patenaude said. What the $3.2 billion-asset bank did next is a bellwether for the rest of the industry. Rather than hiring advisers, the bank announced a partnership with SigFig, a robo-advisory startup in San Francisco. Though once skeptical of robo-advisers, more bankers are starting to embrace them. This change in attitude is helping contribute to rapid growth in what is still a small segment of the market. Though robos — which provide algorithm-driven investment advice — make up a small portion of the market, they are projected to grow into a $7 trillion industry in the next decade, according to research from Deloitte. That would equate to 15% of all U.S. retail assets under management. Most of the big names in U.S. retail banking — Bank of America and Wells Fargo among them — are expected to introduce robo products in the coming year, marking what many experts describe as a seismic shift in the wealth management business. "We do not expect to see any major player that does not have some sort of robo by the end of the fiscal year,"

Banks' Privacy Concerns Shaping Blockchain Vendors' Strategies | American Banker: One of the ostensible selling points of blockchain technology is its potential to bring greater transparency to financial markets. But this feature has turned out to be a bug for the institutions that would use the technology. In the original bitcoin blockchain, transactions are recorded on a public ledger for the whole world to see but users are pseudonymous, identified only by alphanumeric addresses that look like a cat walked on the keyboard. In the private, or "permissioned," blockchains being developed for the industry, only known, trusted entities can participate. This may alleviate concerns about bad actors using the system, but it doesn't address worries about tipping one's hand to the competition if everyone involved can see who did what. "Confidentiality is the key issue holding things back — that's part of the sticking point for the banks," said Keith Horowitz, an analyst at Citigroup. So the major startups in this budding field are trying to restore privacy in distributed ledgers, by allowing users to encrypt sensitive data stored on them or to leave such information off the chains, or some combination. The leave-it-out strategy addresses another issue with the blockchain model: storing large volumes of transaction data can be costly for institutions executing hundreds of thousands of trades each day.A potential drawback of both approaches is they could undermine one benefit of blockchains, even if they preserve other advantages (such as eliminating redundant data entry and removing single points of failure)."If regulated financial institutions implement the technology in a compartmentalized way that shields regulators' mission-critical information, then regulators will have missed the once-in-a-lifetime opportunity to gain necessary tools for keeping the system safe and sound," wrote Caitlin Long, a former Morgan Stanley executive and self-described blockchain evangelist, in a recent blog post.How blockchain vendors address the interrelated questions of privacy and storage has become a point of differentiation in this young market. Some say sensitive information should never be published; some say all data should be published, even if some of it must be concealed.

You Don't Really Own Your Securities; Can Blockchains Fix That? | American Banker -- If blockchain technology accomplishes nothing else in the capital markets, it is at least drawing attention to an unsettling fact: In the United States, publicly traded stock does not exist in private hands. It is not owned by the ostensible owners, who, by virtue of having purchased shares in this or that company, are led to believe they actually own the shares. Technically, all they own are IOUs. The true ownership lies elsewhere. While private-company stock is still directly owned by shareholders, nearly all publicly traded equities and a majority of bonds are owned by a little-known partnership, Cede & Co., which is the nominee of the Depository Trust Co., a depository that holds securities for some 600 broker-dealers and banks. For each security, Cede & Co. owns a master certificate known as the "global security," which never leaves its vault. Transactions are recorded as debits and credits to DTC members' securities accounts, but the registered owner of the securities — Cede & Co. — remains the same. What shareholders have rather than direct ownership, then, "is a [contractual] right against their broker," said Marco Santori, a partner at Pillsbury Winthrop Shaw Pittman who leads the firm's blockchain technology team. "The broker then has a right against the depository institution where they have membership. Then the depository institution is beholden to the issuer. It's [at least] a three-step process before you get any rights to your stock." This attenuation of property rights has made it impossibleto keep perfect track of who owns what. In fact, discrepancies between the records of various counterparties occur every day, though they are usually resolved without incident. But in a crisis, when liquidity dries up and the system seizes, these discrepancies could mean that more securities are outstanding than were actually issued — leaving some investors out of pocket and with nothing to show for it.

Blockchain Can Bring the Unbanked into the Global Economy | Bank Think: Many banks and financial entities envision the blockchain as delivering value to their customers in the form of reduced fees, faster funds transfers and simplified processes. Much less heralded, but potentially far more dramatic, is the transformational impact the blockchain could have on the world’s massive unbanked population. The blockchain first achieved notoriety as the backbone of bitcoin, the web-based cryptocurrency. By using distributed networks of computer users to record and secure transaction records almost instantaneously, the blockchain has the potential to bypass the need for correspondent banking and other intermediaries for, say, international money transfers. But for those who lack an entrée into basic financial services, blockchain’s accessibility and scalability could make it a practical gateway to the global economy. The convergence of mobile money and digital finance has already given rise to innovations like M-Pesa and many other services to help more than 400 million people living in cash-based eco-systems have formal financial service, according to GSMA. Despite the significant headway in recent years made by providers in reaching areas previously untouched by banking services, more than two billion potential financial services customers remain stranded. In an industry characterized by geographic fragmentation, mobile money providers have yet to find a clear path to achieving significant scale required to realize network effect for long-term viability. Among many other uses, the blockchain could bolster these efforts by becoming the backbone to open the closed-loop mobile money services. Right now, certain payments services only work between two parties if they both have accounts. Similarly, mobile money services, often developed by the mobile operators themselves, often didn't allow for consumers to easily pay each other on separate mobile networks. But the blockchain could expand interoperability to link these fragmented, closed loop services both domestically and internationally.

 Judge Rules Bitcoin Isn't Money Because It "Can't be Hidden Under A Mattress" -- In a landmark decision, a Florida judge dismissed charges of money laundering against a Bitcoin seller on Monday following expert testimony showing state law did not apply to the cryptocurrency. Michell Espinoza was charged with three felony charges related to money laundering in 2014, but what appears to have helped to clear him of any and all wrongdoing was testimony given just a few weeks ago by an economics professor. “This is the most fascinating thing I’ve heard in this courtroom in a long time,”Miami-Dade Circuit Judge Teresa Mary Pooler said after hearing Barry University professor Charles Evans present evidence during a May hearing that Bitcoin was more akin to“poker chips that people are willing to buy from you,”according to theMiami Herald. Evans was given $3,000 in Bitcoin by defense attorneys for sharing his expertise, the newspaper reported. Judge Pooler found the cryptocurrency, which is based on verified encrypted transactions that are recorded on a public ledger, did not constitute “tangible wealth” and“cannot be hidden under a mattress like cash and gold bars,” reported the Herald. Pooler added that Bitcoin was not codified by government, nor backed by any bank. “The court is not an expert in economics, however, it is very clear, even to someone with limited knowledge in the area, the Bitcoin has a long way to go before it the equivalent of money,” Pooler wrote in her decision. “This court is unwilling to punish a man for selling his property to another,when his actions fall under a statute that is so vaguely written that even legal professionals have difficulty finding a singular meaning,” she added.

How the Durbin Amendment Has Failed Banks, Consumers | Bank Think: While retailers are lobbying Congress to extend government price controls to credit card interchange rates, separate bills would repeal Durbin Amendment ceilings on debit card interchange and strengthen merchant security standards.. Congressional offices would generally prefer to avoid this politically fraught debate between two ubiquitous constituencies, and they wonder why the interchange issue is returning to the fore now. Here's why: interchange price controls harm consumers and community financial institutions to the benefit of unsatisfied merchants pushing for more. Government price controls on debit card interchange fees were supposed to lower prices for customers. But the evidence increasingly shows that retail customers are seeing no monetary benefit of price controls while losing payment options at the point of sale. A Federal Reserve Bank of Richmond survey of merchants found that 98% said they have either maintained or raised prices since debit interchange controls took effect — hardly a boon for retail consumers. The Electronic Payments Coalition estimates the funding transfer to retailers at $8 billion per year, now totaling some $36 billion since the rules were adopted in October 2011.. Not satisfied with this massive wealth transfer, large retailers are also limiting consumer choice at the point of sale to get an even greater slice of interchange revenues. By requiring their customers to use a PIN at their payment terminals, these large chains are attempting to bypass the network agreements that allow them to use electronic payment technology.  As community bankers have long noted, the Durbin Amendment offers no exemption from network routing and exclusivity provisions that require issuers to add an "unaffiliated" payment network to their debit cards, which involves substantial and recurring administrative costs. Meanwhile, as interchange revenues at the largest financial institutions have shrunk due to government intervention, more of the burden for funding the payments system has to be shouldered by the community banks that were supposedly exempted from the law.

Regulators Propose Changes to Consumer Protection Exemptions — Federal regulators Friday issued proposals outlining methodologies for establishing how thresholds for certain exemptions to Truth in Lending Requirements would be set. The plans, filed jointly by the Consumer Financial Protection Bureau, Federal Reserve and Office of the Comptroller of the Currency, pertain to sections of the Truth in Lending Act and Consumer Leasing Act as amended by Dodd-Frank. Both laws establish important protections for borrowers, including requirements that lenders fully disclose the terms of a loan or lease. Dodd-Frank included exemptions to some of those terms, however, for loans or leases below a certain value, and that value is tied to the rate of inflation as calculated by the Bureau of Labor Statistics. The first proposal concerns new appraisal requirements added to the Truth in Lending Act by Dodd-Frank that require that creditors acquire a written appraisal "based on a physical visit to the home's interior" for certain higher-priced mortgage loans. The law exempted loans of less than $25,000 from that requirement, however. The second proposal concerns other consumer credit and leasing agreements, including auto loans and real property. Those laws include exemptions for leases concerning property valued at more than $50,000 — a figure that was adjusted from $25,000 with the Dodd-Frank amendments. Under both proposals, the CFPB or Fed will annually adjust the exemption level based on any changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers, known as the CPI-W. If there is no change from year to year in the CPI-W, the agencies will leave the threshold unchanged.

Don't Take Tech Giants' Payments Ambitions Lightly | Bank Think: While tech titans have long had ambitions in payments, it's been a tough slog. But they're still coming and the payments industry should be on alert. When Microsoft co-founder Bill Gates in 1994 declared banks "dinosaurs," a ripple of fear went through the industry. However, the storied software giant's unsuccessful efforts in financial services underscore that notwithstanding enormous resources, reach and technology prowess, displacing banks and traditional payment systems isn't so easy. It threw in the towel on Microsoft Money in 1999 and on TransPoint, its joint electronic bill-payment venture with Citigroup and First Data, in 2000. But despite such failures, the payments industry shouldn't get complacent. Tech colossi remain keenly interested in payments. It was with a mix of fear, envy and resentment that the French dubbed Google, Apple, Facebook and Amazon as the "GAFAs." These American technology titans are formidable networks. While they aren't payments businesses, they use and have further ambitions in payments to enhance their core franchises. European regulators worry about their cultural influence and platform dominance. It is similar to how they also are troubled by the reach of the world-reigning retail payment networks headquartered in the U.S.: Mastercard and Visa. When Google Checkout was launched in 2005, some worried the search giant would displace existing payment systems. While that was unlikely Google's ambition, traditional networks remain entrenched and Google is still trying to make waves in the payments world.

Phantom Debts Plague Collections System | Bank Think --Approximately one-third of Americans have debts in collection. But too many of those are calls for debts that are not in fact owed.Though the exact number of such attempts is unclear, one Federal Trade Commission study's rough estimate was that debt buyers try to collect a million debts annually that consumers claim not to owe or owe in different amounts. A study of complaints to the Consumer Financial Protection Bureau reported that 42% of the consumer collection complainants charged that they were repeatedly dunned for debts they didn't owe.This may happen for a variety of reasons. Because debt buyers don't make the loans in the first place — they buy the debts from the original lenders or other debt buyers — they rely on others for information about the debt. Unfortunately, just as in the game of telephone, sometimes something gets lost in translation. The debt sellers may also be at fault. Robo-signing also contributes. One check on this problem is the federal Fair Debt Collection Practices Act: It obliges debt buyers to give consumers a validation notice which tells them of their right to dispute the debt and request that it be verified. But the validation notice helps only if consumers understand it, and considerable research in other contexts suggests that consumers often misunderstand or ignore disclosures. To make matters worse, because debt collectors are trying to get paid, they have an incentive to highlight their payment demands and downplay the validation notice. To combat this problem, the law states that collection activities can't overshadow the validation notice — but that may not always work.To determine how effective the act's notice was, we conducted a survey of consumers.  We showed one group a collection letter that had been found sufficient by a federal court of appeals. We showed another set of consumers the same letter, but without the validation notice. Then we compared respondents' answers to questions about the validation notice. The results were disappointing, unless you're a debt buyer. On most of our inquiries, respondents shown the letter with the validation notice did not perform significantly better than respondents who didn't see the notice. Roughly a quarter did not grasp that they could request verification of the debt, and nearly all who did mistakenly thought that an oral request would protect their rights: both the law and notice say a written request is required.

Payday Lending Regulation: The Substitution Effect? -- A common argument made against regulating small dollar credit products like payday loans is that regulation does nothing to address demand for credit, so consumers will simply substitute their consumption from payday loans to other products:  overdraft, title loans, refund anticipation loans, pawn shops, etc. The substitution hypothesis is taken as a matter of faith, but there's surprisingly little evidence one way or the other about it (the Slips' own Angie Littwin has an nice contribution to the literature).   The substitution hypothesis is prominently featured in a New York Times piece that is rather dour about the CFPB"s proposed payday rulemaking. Curiously, the article omits any mention of the evidence that the CFPB itself has adduced about the substitution hypothesis. The CFPB examined consumer behavior after banks ceased their "deposit advance programs" (basically bank payday lending) in response to regulatory guidance. There's a lot of data in the report, but the bottom line is that it finds little evidence of substitution from DAPs to overdraft, to payday, or even to bouncing checks. The one thing the CFPB data examine is substitution to pawn shop lending.  A recent paper by Neil Bhutta et al. finds evidence of substitution to pawn lending, but not to other types of lending, when payday loans are banned. I'd suggest that we're more likely to see a different substitution:  from short-term payday loans (45 days or less) to longer-term installment loans. That's not necessarily a bad thing...if the regulations are well-crafted to ensure that lenders aren't able to effectively recreate short-term payday loans through clever structuring of installment loans. The bigger point here is this:  even if we think that there will be substitution, not all substitution is the same, and to the extent that the substitution is to more consumer-friendly forms of credit, that's good.

U.S. Regulators Propose Huge Overhaul of Debt Collection Industry — The Consumer Financial Protection Bureau proposed a massive overhaul of the multibillion dollar debt collection industry on Thursday, which would restrict collectors from calling numerous times a day, require them to have more documentation on what’s owed, and give people more ability to dispute their bills. It would be the biggest overhaul of the debt collection industry since Congress passed the Fair Debt Collections Practices Act nearly 40 years ago. Regulators estimate roughly 70 million Americans are contacted by debt collectors each year, and more Americans submit complaints to state and federal agencies about unfair or deceptive practices than any other part of the consumer financial system. Like payday loans and so-called binding arbitration agreements, the new proposals from are likely to be resisted strongly by the industry and its allies in Washington. Under the proposed rules, debt collectors would first have to more substantially prove a debt is valid before starting collection. Collectors typically find business by buying large databases of past-due loans and credit cards for pennies on the dollar, but those databases can include loans discharged in bankruptcy or some too old to legally collect.  Once a debt is considered valid, the new rules would limit a collector to no more than six communication attempts per week. If someone wants a collector to stop calling a certain number, such as a workplace, the new rules would make it easier to request that. If a consumer disputes the debt’s validity, the proposals would require collectors provide clearer and easier ways for that person to challenge it. That would include a proposed “tear off” portion of a collection notice where someone can specify why the amount is wrong or why the debt is invalid, or allowing consumers to start disputing the debt over the phone. Right now, most disputes must be handled in writing. Collectors would be required to pause if a consumer disputes a debt, until they collect enough evidence to substantiate it. If the debt is sold, the new collector would inherit the dispute and would still have to provide validation, the CFPB says.

 CFPB Breaks Up Debt Collection Plan, Spares Banks for Now - The Consumer Financial Protection Bureau released a plan Thursday to overhaul the debt collection industry that would limit collection attempts to six per week and require confirmation of a debt before contacting consumers. But the 117-page proposal, released to the media a day early, would apply only to collection agencies, debt buyers, collection law firms and loan servicers covered by the Fair Debt Collection Practices Act. The agency said it expects to convene a separate small-business review panel in the next few months for banks, credit card companies and other first-party creditors not subject to that law. The move was unprecedented, essentially splitting the proposal into two. Banks and other financial firms are currently exempt from the debt collection law, but the CFPB still has authority to target them as part of its Dodd-Frank Act authority to take action against unfair, deceptive and abusive acts and practices. Holding separate processes for two types of creditors "is the most efficient way to proceed, particularly because it will enable participants to provide more focused and specific insights," the CFPB said. "The CFPB plans to address consumer protection issues involving first-party debt collectors and creditors on a separate track." By law, the CFPB must first preview its intended actions to a small-business review panel. After it receives feedback — a process that can take months — it can then formally issue a proposal. Under the plan, debt collection firms would be prohibited from collecting on debts without proper documentation and would be required to have more and better information about a debt before attempting to collect.

CFPB Debt Collection Plan Will Raise Compliance Costs, Banks Fear | American Banker: The Consumer Financial Protection Bureau's debt collection plan is likely to put pressure on banks and first-party creditors to provide better documentation on consumer debts that get transferred to debt buyers and collectors. While the proposal does not cover banks and first-party creditors, some experts said banks will be on the hook for providing better information.

Deutsche begins DoJ talks over mortgage probe -- Deutsche Bank said it had begun settlement talks with the US Department of Justice over its probe into the German lender’s origination and securitisation of mortgage-backed securities, as it reported a slump in second-quarter profits. Along with a joint US-UK probe into alleged mirror trades involving Deutsche’s Russian business, the DoJ’s investigation into alleged mis-selling of residential mortgage-backed securities (RMBS) is one of the biggest legal uncertainties hanging over the bank. Several other big banks — including JPMorgan, Bank of America and Citigroup — have already reached settlements with US authorities over miss-sold mortgage-backed securities. The most recent was in April, when Goldman Sachs reached a $5.1bn settlement. John Cryan, chief executive, has made clear that he wants to resolve Deutsche’s big outstanding legal cases as soon as possible, and said earlier this year that he would get personally involved in the efforts to do so. Deutsche had already built up a reserve of €5.4bn to deal with its legal woes, although it said on Wednesday morning that it had not taken provisions for all parts of the RMBS probes. It added a further €120m in litigation provisions in the second quarter. That provision contributed to €612m of charges that — along with weak markets — all but wiped out Deutsche’s net profit in the second quarter.

Wells Fargo Said to Face U.S. Probe Over Soldiers’ Car Seizures - Bloomberg: Wells Fargo & Co. is facing a U.S. investigation into whether it improperly repossessed cars owned by members of the military, according to two people with knowledge of the probe. In their review, the Justice Department and bank regulators are examining Wells Fargo’s compliance with the Servicemembers Civil Relief Act, which in most cases requires that firms obtain a court order before seizing vehicles from soldiers, sailors, airmen and Marines. The government and Wells Fargo have begun discussing how to compensate borrowers who might have been affected, said one of the people, who asked not to be named because the investigation isn’t public. Shielding soldiers from financial stress has been a priority for lawmakers, and the Justice Department has recently stepped up enforcement actions against banks for taking assets illegally. Banco Santander SA’s U.S. unit agreed to pay $9 million last year over allegations that it improperly confiscated 1,112 vehicles from military members, the largest settlement ever obtained in a case involving repossessions of automobiles with delinquent loans. Catherine Pulley, a spokeswoman for Wells Fargo, declined to comment. Lenders often hire contractors to resolve issues with unpaid loans, including taking back property from those who fail to meet their obligations. It couldn’t be determined whether Wells Fargo used a third-party in the cases the government is reviewing, how the bank’s actions might have violated the law or how many vehicles could be involved. In a May regulatory filing, San Francisco-based Wells Fargo said it had $61 billion in outstanding auto loans, with $55 million of those at least 90 days past due.

FDIC Warns Bankers About High Concentrations of CRE Loans: Federal regulators are becoming alarmed at the rapid expansion of multifamily construction that is being fueled by bank lending. "Multifamily might be approaching the supply/demand equilibrium point in some areas — suggesting that prices may weaken and vacancy rates might rise," the Federal Deposit Insurance Corp. warned in a presentation to bankers on Thursday. The presentation, which was authored by the agency's New York regional office, highlights concerns about emerging risks. "CRE lending has increased, but concentrations are below those of bubble years," the presentation said. The FDIC appears to be concerned about high concentration levels of CRE loans on the books of mid-size banks, according to John Kanas, chairman and chief executive of BankUnited, which is based in Miami Lakes, Fla. The bank also has branch offices in New York. "We are not seeing any evidence of deterioration," Kanas said Friday morning in an interview with Bloomberg-TV. FDIC officials declined to comment for this story.In December, federal regulators warned about credit and interest rate risk on multifamily loans. They also warned that high concentrations of commercial real estate loans on bank balance sheets, including multifamily loans, could lead to a greater risk of loss and failure. But the warning did not have much of an impact. "The multifamily market has seen a lot of construction and some areas may be approaching oversupply" and the ability to absorb new units, according to the FDIC presentation.

Did Banks Learn Nothing from '06 CRE Boom? | Bank Think: As reported in the American Banker on July 22, regulators are again warning community bankers about commercial real estate lending and reminding them of the need to manage the impending risks. A slide presentation by the Federal Deposit Insurance Corp.'s New York regional office made the following assertions: While CRE trends are "positive," there are "some signs of emerging risk"; new multifamily units under construction "exceed absorption"; and "underwriting standards may continue to relax with increased competition." Such findings are eerily familiar to those of us in the banking industry who first read the interagency guidance on CRE risk back in 2006, which warned of an impending CRE downturn. The guidance called on institutions to adopt prudent CRE risk management practices, such as improved management of the portfolio and information systems, as well as "portfolio stress testing and sensitivity analysis." But the industry was slow to comply with the guidance. And, with the economy having improved since the crisis, banks appear to be taking those guidelines less seriously as the regulators have eased monitoring. None of this is surprising. When the 2006 guidance was in the proposal phase, the industry's reaction was tepid if not outright hostile.  We all know what happened after 2006. Initially, implementation of risk management practices supporting that guidance was slow going. But eventually, with the fallout from the crisis making examiners more aggressive, sensible risk management practices like CRE concentration management and stress testing became an expectation of all banks by 2009.

CRE Exposure Looms Large Over Bank M&A - Concerns over commercial real estate exposure factored heavily in efforts by Suffolk Bancorp in Melville, N.Y., to sell itself. Suffolk, which feared that heightened regulatory oversight of commercial real estate would significantly stymie growth, sought out a buyer that did not have a heavy concentration in CRE loans. In fact, Suffolk ruled out three potential suitors because each had high levels of CRE on their books, according to a recent regulatory filing tied to the $2.3 billion-asset company's pending sale to People's United Financial in Bridgeport, Conn. People's United agreed in June to buy Suffolk for $402 million, or $33.55 a share. The $39 billion-asset People's United had the size and loan diversity to do the deal; the company said when it announced the acquisition that its CRE levels will only increase from 276% of capital to 283% when the deal closes. The disclosures highlight the challenges that banks with heavy CRE exposure face — as buyers or sellers — should they show an interest in mergers. While such deals are possible, Suffolk clearly had doubts as to whether regulators would sign off on such combinations.

Democratic Platform Shifts from Post-Crisis Recovery to Housing Access: Democrats will adopt a party platform this week that omits most references to a need for continued post-housing crisis reforms, and instead focuses on expanding access to mortgage credit and support for industry regulation. "We must make sure that everyone has a fair shot at homeownership," a final draft of the platform published July 21 reads. "We will keep the housing market robust and inclusive by supporting more first-time homeowners, preserving the 30-year fixed rate mortgage, modernizing credit scoring, clarifying lender rules; expanding access to housing counseling, defending the Fair Housing Act; and ensuring that regulators have the clear direction, resources and authority to enforce those rules effectively. We will prevent predatory lending by defending the Consumer Financial Protection Bureau (CFPB)." This suggests a change from the 2012 version of the Democrats' platform, which focused on "expanding access to refinancing for families who have stayed current on their mortgages" and "stabilizing the housing market" in response to its "dramatic collapse." While Democratic presidential nominee Hillary Clinton and her recently-named running mate, Virginia Sen. Tim Kaine, have not directly commented on the shift in the platform's wording, the language may reflect the extent to which housing has recovered since 2012, when foreclosures peaked. "We got through the foreclosure crisis without further pushdown of values," said Jeff Bode, president and owner of Mid America Mortgage in Addison, Texas.

How Democrats and Republicans Differ on Next Steps for Housing -- The Democratic and Republican platforms adopted at this year's party conventions take a more forward-looking approach to housing issues than they did four years ago. But they have distinctly different views on the government's role in maintaining a robust mortgage industry. A key difference between the two platforms lies in the question of whether the government should strengthen its support and enforcement of diverse and evenly-distributed lending. Democrats seek to rely on fair lending regulation or enforcement to promote government programs that will make it easier to lend to diverse groups of borrowers. "Over the next decade most new households will be formed by families in communities of color, which typically have less generational wealth and fewer resources to put towards a down payment," the platform says, noting that this is why steps to close "racial and wealth gaps" are important. Meanwhile, Republicans pledge to lighten the industry's heavy regulatory burden by scaling back or removing requirements that benefit borrower groups and cutting back programs that help support broader lending. "We will end the government mandates that required Fannie Mae, Freddie Mac, and federally-insured banks to satisfy lending quotas to specific groups," the Republican platform states. Specific housing finance-related government entities and programs that could head in different directions depending on the party that prevails in the election include the Consumer Financial Protection Bureau, Fannie Mae and Freddie Mac, the National Housing Trust Fund, the Department of Housing and Urban Development and its insurance arm, the Federal Housing Administration.

Dems See Little Hope for Housing Finance Reform: Despite efforts by President Obama to wind down Fannie Mae and Freddie Mac since their government seizure nearly eight years ago, policymakers attending the Democratic National Convention here believe their current arrangement as wards of the state is tenable for now. "Fannie and Freddie will remain government agencies," said Rep. Brad Sherman, D-Calif. "They will continue to have underwriting standards that assure that they are actuarially sound and actuarially providing a profit to federal government." Fannie and Freddie were seized in 2008 during the housing crisis and put into conservatorship. Since then, they have been fully supported by the government, and given a line of credit from the U.S. Treasury. But an arrangement started a few years after that means the government-sponsored enterprises cannot build capital and must pass on all profits to Treasury. That move was designed to force Congress to act as the GSEs' capital buffers dried up. "Fannie and Freddie are actually on a timeline to going nowhere to actually closing down by 2018. Congress must step up and the president must step up," said Susan Wachter, a professor of real estate and finance at the University of Pennsylvania Wharton School while speaking at an event here sponsored by Politico. But the strategy of forcing Congress' hand doesn't appear to be working, in part because Fannie and Freddie are making the government a sizable profit. The two firms are returning more than $10 billion annually to the federal government.

Servicing Bad Loans Gets Trickier as FHA’s Share of Them Grows: As if high default costs haven't been challenging enough for mortgage servicers, a growing number of seriously delinquent loans are Federal Housing Administration products, which require significant upfront investment to resolve. An estimated 25% of all outstanding mortgages that were seriously delinquent at the end of the first quarter of this year were insured by the FHA, up from less than 20% in the first quarter of 2012, according to the Mortgage Bankers Association. FHA loans typically tend to default more than government-sponsored enterprise loans because they are designed to be more affordable to borrowers by offering lower down payment and credit score requirements. But market conditions that changed during the most recent housing boom-and-bust cycle have made the trend more pronounced. At one point during this cycle, FHA's share of defaults dropped below an estimated 10%. So the increase in FHA default share to nearly a quarter of the market has been a shock to the servicing industry, particularly those servicers that entered the market when FHA defaults were low. The root of the problem is twofold. FHA's share of origination soared as subprime and other mortgage products that competed with FHA disappeared after the housing crisis; the rise in default share is a natural reaction to that. Second, the combination of longer foreclosure timelines and loss mitigation options that didn't exist before the crisis have extended historical timelines for defaults to peak in a given vintage of loans. Distressed servicing in general has become so much of a challenge that even experienced banking giant JPMorgan Chase & Co. is feeling the pain. "If we had our druthers, we would never service a defaulted mortgage again," CEO Jamie Dimon said in an April letter to shareholders.

Payment Reductions Should Continue After HAMP Expires: Regulators: Federal regulators warned mortgage servicers Monday that they will still expect them to offer loan modifications to distressed homeowners even after the Home Affordable Modification Program expires at yearend. In a joint white paper from the Treasury Department, Department of Housing and Urban Development and Federal Housing Finance Agency, the agencies said they will keep an eye on mortgage servicers. "Going forward, Treasury, HUD and FHFA will continue engaging with a variety of stakeholders — particularly mortgage servicers — to assess how foreclosure alternative options will incorporate and further develop the core principles presented in the white paper," the paper said. Prior to the foreclosure crisis, servicers usually added unpaid interest and fees to the mortgage balance, which created additional burdens on struggling homeowners. The HAMP program proved that a 10% reduction in mortgage payments consistently reduced redefaults. And "deeper payment reduction consistently outperformed modifications with smaller payment reduction," the white paper says. The white paper outlines five principles that the agencies believe were essential to the success of the government’s programs and should provide a foundation for any future loss mitigation programs. The principles are:

  • Accessibility: Ensuring that there is a simple process in place for homeowners to seek mortgage assistance and that as many homeowners as possible are able to easily obtain the needed and appropriate level of assistance.
  • Affordability: Providing homeowners with meaningful payment relief that addresses the needs of the homeowner, the servicer and the investor to support long-term performance.
  • Sustainability: Offering solutions designed to resolve the delinquency and be effective long-term for the homeowner, the servicer and the investor.
  • Transparency: Ensuring that the process to obtain assistance, and the terms of that assistance, are as clear and understandable as possible to homeowners, and that information about options and their utilization is available to the appropriate parties.
  • Accountability: Ensuring that there is an appropriate level of oversight of the process to obtain mortgage assistance.

Fannie and Freddie Still Encourage Biased Appraisals -- In the wake of the housing crisis, bank regulators published rules designed to place a wall between lenders and appraisers. But the spirit of these necessary regulations continues to be violated thanks to policies of Fannie Mae and Freddie Mac, prompting concerns that there could be another mortgage meltdown. One of the contributing factors of the housing crisis of 2007 was the overvaluing of residential real estate by appraisers. Some appraisers would effectively adjust appraisals to meet the value needed by lenders so the loan could be approved. This would then encourage the lender to send more business to the appraiser whose income is directly related to the number of appraisal orders received. The new regulations are intended to keep the appraisers honest. One objective was to ensure appraisers were not aware of the proposed loan amount or the sales prices that could influence their appraisal. To comply with the new rules, some lenders are using a third-party vendor to randomly select the appraiser to avoid any question of an affiliation between the lender and the appraiser. Some of those third-party appraisal ordering firms also monitor and provide feedback to the lender concerning the quality and turnaround of each appraisers' work. Other financial institutions and mortgage companies have attempted to follow the regulatory mandate by having an employee that is not involved with residential real estate lending or the loan documentation process order the appraisal from local appraisers. That employee can use a rotating list of appraisers. To be sure, running orders through a non-mortgage employee, and the reality that lenders and appraisers still likely associate with each other in their local communities, makes conflicts of interest still possible. But this is still an improvement from how lenders and appraisers operated leading up to the crisis. All of these new regulations were designed to create an environment where the value placed on each property is fair and balanced. However, even though the regulators did their best to promote a more level playing field, Fannie Mae and Freddie Mac did not change their regulations.

Fannie Eases Requirements for HomeReady Program: Fannie Mae is making its housing counseling requirements more flexible so additional borrowers can qualify for its low down payment, affordable loan program called HomeReady. Borrowers who receive one-on-one counseling from Department of Housing and Urban Development-approved counselors will be exempt from taking the HomeReady online course, according to a Fannie Selling Guide Announcement issued Tuesday. One-on-one counseling will "assess the borrower's current financial situation, address credit challenges, develop a workable budget, help determine whether it is the appropriate time to become a homeowner and educate the borrower on the home buying process and responsibilities of homeownership," according to the selling guide. In addition, Fannie will no longer require homeownership education for limited cash-out refinancings and will allow an owner-occupant borrower on a HomeReady loan to own other residential properties. The government-sponsored enterprise also dropped it requirement that buyers of two- to four-unit properties must take an additional landlord education course. Homeownership education will still be required, however. Fannie will allow down payment assistance and second mortgages from providers that work through HUD-approved nonprofit counseling agencies. The GSE does not purchase the second mortgages, which the agency calls Community Seconds, but the second mortgages can be provided by employers or nonprofits to finance down payments or closing costs on HomeReady mortgages. All the changes mentioned are effective immediately, the enterprise said, but Desktop Underwriter will be updated later. "Until that time, lenders may disregard any messages that conflict with changes."

Fannie Mae Releases Performance Data on Modified Loans: The data applies to 700,000 loans that were modified due to delinquency, Fannie Mae said in a news release. The release was made ahead of the reperforming loan securitization program that the government-sponsored enterprise previewed in April. "We are pleased to share this data, which will enable investors to better understand the expected performance of agency MBS backed by our reperforming loans," said Bob Ives, Fannie Mae's head of retained portfolio asset management, in the release. Back in April, Fannie Mae announced plans to begin securitizing reperforming loans held on its balance sheet in the second half of 2016. Fannie Mae could later sell those securities to investors to reduce the size of its retained mortgage portfolio if there is enough market interest. Ginnie Mae began drawing up plans to securitize modified and reperforming loans earlier this year. Freddie Mac has been securitizing reperforming loans since 2011.

Small Banks and CUs Adjusted Well to CFPB Mortgage Rules: GAO: Compliance & Regulation Small Banks and CUs Adjusted Well to CFPB Mortgage Rules: GAO By Brian Collins July 25, 2016 Twitter LinkedIn Facebook Google + Email Comments Print ReprintsDespite fears that increased compliance costs from new Consumer Financial Protection Bureau rules could drive community lenders out of the mortgage business, a watchdog report found that smaller companies remain active. "Although new regulations related to mortgage lending and servicing may increase compliance costs for community banks, our analysis suggests that these lenders generally appear to be participating in residential mortgage lending much as they have in the past," said a Government Accountability Office report released Monday. In interviews with community banks and credit union executives, the GAO auditors found these institutions increased staff, updated their data systems or hired vendors to assist with implementing the CFPB servicing and lending rules. But there have been tough choices. Many increased fees and some stopped originating home equity lines of credit or offering bridge loans due to the compliance costs. One credit union that outsourced to a third-party servicer told GAO they were relieved because they can "still speak directly with their borrowers." But banks are not leaving the mortgage business, according to GAO because it remains "important to them for the revenue it can generate and their customer-focused business model."

CFPB Proposes Long-Awaited Updates to TRID - The Consumer Financial Protection Bureau on Friday updated its "Know Before You Owe" mortgage disclosure rule to provide more clarity to lenders. The proposed amendments include clarifications on various issues that the bureau said it has provided in informal guidance. The agency has proposed additional tolerance provisions, clarified a partial exemption for housing finance agencies, extended the rule's coverage to all cooperative units, and provided more clarity about privacy and the sharing of information. But one area the plan did not provide more guidance was regarding how to cure "technical" errors in mortgage disclosures. Lenders had been seeking more details on that issue, but the CFPB said it cannot address every concern raised. The CFPB stated that it "would not be practicable without substantially undermining incentives for compliance with the rule" and that it "would be extraordinarily complex," said Richard Horn, a former CFPB attorney who helped write the initial disclosure rule, which merged the requirements of the Truth-in-Lending and Real Estate Settlement Procedures acts. The proposal does not address disclosure of simultaneous issuance of title insurance premiums and cure provisions, said Horn. Early this year, some investors had refused to purchase loans without further guidance from the CFPB about how to cure technical errors. Because there are hundreds of variables to account for on the disclosure forms, the mortgage industry has claimed that compliance is nearly impossible. The CFPB's rule, which went into effect on Oct. 3, created new mortgage disclosure forms that are given to consumers when applying for and closing on a mortgage. The new disclosure rule places the responsibility for accuracy and the delivery of disclosures on creditors. The rule was a requirement of the Dodd-Frank Act. The rule was meant to help consumers understand the total costs of a home loan, but lenders have sought for more guidance on certain issues.

Freddie Mac: Mortgage Serious Delinquency rates declined in June, Lowest since July 2008 -- Freddie Mac reported that the Single-Family serious delinquency rate decreased in June to 1.08% from 1.11% in May.  Freddie's rate is down from 1.53% in June 2015. This is the lowest rate since July 2008.  Freddie's serious delinquency rate peaked in February 2010 at 4.20%.  These are mortgage loans that are "three monthly payments or more past due or in foreclosure". 

Fannie Mae: Mortgage Serious Delinquency rate declined in June, Lowest since May 2008 -- Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in June to 1.32%, down from 1.38% in May. The serious delinquency rate is down from 1.66% in June 2015. These are mortgage loans that are "three monthly payments or more past due or in foreclosure".  This is the lowest rate since May 2008. The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.  Although the rate is generally declining, the "normal" serious delinquency rate is under 1%.   The Fannie Mae serious delinquency rate has fallen 0.34 percentage points over the last year, and at that rate of improvement, the serious delinquency rate will not be below 1% until the second half of 2017.

 Black Knight's First Look at June Mortgage Data -- From Black Knight: Black Knight Financial Services’ First Look at June Mortgage Data: Foreclosure Starts Up for Second Consecutive Month; Prepays Rise on Historically Low Rates

    • • Despite June’s increase, first-time foreclosure starts in Q2 2016 were at their lowest level in over 16 years
    • • Prepayment speeds (historically a good indicator of refinance activity) jumped to a 12-month high, mirroring an overall rise in refinance activity driven by historically low interest rates
    • • Early-stage delinquencies saw a seasonal increase in June, while 90-day delinquencies and foreclosure inventories continued to decline

According to Black Knight's First Look report for June, the percent of loans delinquent increased 1.3% in June compared to May, and declined 10.0% year-over-year. The percent of loans in the foreclosure process declined 2.6% in June and were down 29.4% over the last year. Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 4.31% in June, up from 4.25% in May. The percent of loans in the foreclosure process declined in June to 1.10%. The number of delinquent properties, but not in foreclosure, is down 237,000 properties year-over-year, and the number of properties in the foreclosure process is down 231,000 properties year-over-year. 

Lawler: Table of Distressed Sales and All Cash Sales for Selected Cities in June --Economist Tom Lawler sent me the table below of short sales, foreclosures and all cash sales for selected cities in June. On distressed: Total "distressed" share is down year-over-year 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.

Low Rates Drive Prepayment Speeds to 12-Month High in June: Prepayment speeds were lifted to a 12-month high in June thanks to historically low interest rates, according to data from Black Knight Financial Services. The monthly prepayment rate in June was 1.44%, which is 10.3% higher than in May and 3.24% higher than a year ago, Black Knight said in its "First Look" data released Tuesday. Foreclosure starts also rose month-over-month in June for the second month in a row. Total foreclosure starts were 69,300, which is an 11.6% increase from May but an 11.3% decrease from last year. Black Knight added that despite the increase, the second quarter of 2016 had the lowest number of starts in more than 16 years. The number of properties that are 30 or more days past due on their mortgage payment but not in foreclosure totaled about 2.2 million in June. Meanwhile, the number of properties in foreclosure presale inventory fell by 16,000 from a month ago and by 231,000 from June 2015 to 558,000 properties.

Guaranteed Rate Rolls Out Retail 1% Down Payment Program: Guaranteed Rate has begun offering 1% down payment mortgages through a new nationwide program. Through the new program, called Double Match, qualified borrowers only have to put 1% down to buy a home. The additional 2% is granted through a down payment assistance program, the Chicago-based retail originator said in a news release Thursday. Unlike some 1% down programs that have been rolled out either directly to consumers or through wholesale channels in recent months, the 2% granted through down payment assistance is completely forgivable. The Double Match program can be applied to purchases of condos and town homes in addition to single-family homes. Guaranteed Rate will also allow the borrowers to couple it with a mortgage credit certificate for tax purposes. The program can be applied to loans of $417,000 or less, and borrowers must have a FICO score of at least 680 to qualify. Income requirements will vary based on location, Guaranteed Rate said.

MBA: "Mortgage Applications Decrease in Latest Weekly Survey" -- From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey Mortgage applications decreased 11.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 22, 2016.... The Refinance Index decreased 15 percent from the previous week. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier to the lowest level since February 2016. The unadjusted Purchase Index decreased 3 percent compared with the previous week and was 12 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 3.69 percent from 3.65 percent, with points unchanged at 0.36 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.  The first graph shows the refinance index since 1990. Refinance activity has increased this year since rates have declined. However it would take another significant move down in mortgage rates to see a large increase in refinance activity. The second graph shows the MBA mortgage purchase index. The purchase index is "12 percent higher than the same week one year ago".

Black Knight: House Price Index up 1.1% in May, Up 5.4% 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: May 2016 Transactions, U.S. Home Prices Up 1.1 Percent for the Month; Up 5.4 Percent Year-Over-Year

  • • U.S. home prices were up 1.1% for the month, and 5.4% from a year ago
  • • At $263K, the U.S. HPI is up nearly 32% from the bottom of the market at the start of 2012 and is now just 1.8% off its June 2006 peak
  • • 15 of the 40 largest metros hit new peaks:
  • ◦Austin, TX ($303K)
  • ◦Boston, MA ($424K)
  • ◦Charlotte, NC ($209K)
  • ◦Columbus, OH ($183K)
  • ◦Dallas, TX ($234K)
  • ◦Denver, CO ($357K)
  • ◦Houston, TX ($227K)
  • ◦Kansas City, MO ($182K)
  • ◦Nashville, TN ($235K)
  • ◦Pittsburgh, PA ($194K)
  • ◦Portland, OR ($352K)
  • ◦San Antonio, TX ($202K)
  • ◦San Francisco, CA ($771K)
  • ◦San Jose, CA ($920K)
  • ◦Seattle, WA ($405K)

Mountain States Lead National Home Price Increases: Black Knight: Mountain states are leading the way as home prices edge closer to their 2006 peak, according to data from Black Knight Financial Services. Black Knight reported Monday that the U.S. Home Price Index reached $263,000 in May, which is an increase of 1.1% from April and of 5.4% from May 2015. Currently, the index is only 1.8% off its peak set in June 2006. Broken down by state and metropolitan area, it's clear that May's increase came largely due to home price expansion in the mountain states. Idaho had the highest price gain of any state at 1.9%, followed by North Dakota at 1.8%. Other mountain states in the top 10 include Utah, New Mexico and Colorado. At the metropolitan level, this mountain state influence became even clearer. Cheyenne, Wyo., and Fort Collins, Colo., ranked first on the list of top movers at the metro level, with a 2.1% increase each. Six other metropolitan areas in mountain states ranked on this list, including four cities in Idaho, one in New Mexico and one in Utah.

 Case-Shiller: National House Price Index increased 5.0% year-over-year in May -- S&P/Case-Shiller released the monthly Home Price Indices for May ("May" is a 3 month average of March, April and May 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 Ease in May According to the S&P Corelogic Case-Shiller Indices The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.0% annual gain in May, the same as the prior month. The 10-City Composite posted a 4.4% annual increase, down from 4.7% the previous month. The 20-City Composite reported a year-over-year gain of 5.2%, down from 5.4% in April.  ...Before seasonal adjustment, the National Index posted a month-over-month gain of 1.2% in May. The 10-City Composite recorded a 0.8% month-over-month increase, while the 20-City Composite posted a 0.9% increase in May. After seasonal adjustment, the National Index recorded a 0.2% month-over month increase, the 10-City Composite posted a 0.2% decrease, and the 20-City Composite reported a 0.1% month-over-month decrease. After seasonal adjustment, 12 cities saw prices rise, two cities were unchanged, and six cities experienced negative monthly prices changes. 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 10.9% from the peak, and down 0.2% in May (SA). The Composite 20 index is off 9.0% from the peak, and down 0.1% (SA) in May. The National index is off 2.8% from the peak, and up 0.2% (SA) in May. The National index is up 31.3% from the post-bubble low set in December 2011 (SA). The second graph shows the Year over year change in all three indices.

Case-Shiller Home Price Index May 2016 Rate of Growth Decelerates: The non-seasonally adjusted Case-Shiller home price index (20 cities) year-over-year rate of home price growth slowed from 5.4 % to 5.2 %. However, the index authors stated "overall, housing is doing quite well".  20 city unadjusted home price rate of growth decelerated 0.2 % month-over-month. [Econintersect uses the change in year-over-year growth from month-to-month to calculate the change in rate of growth]  Note that Case-Shiller index is an average of the last three months of data..Case Shiller's David M. Blitzer, Chairman of the Index Committee at S&P Indices: Home prices continue to appreciate across the country. Overall, housing is doing quite well. In addition to strong prices, sales of existing homes reached the highest monthly level since 2007 as construction of new homes showed continuing gains. The SCE Housing Expectations Survey published by the New York Federal Reserve Bank shows that consumers expect home prices to continue rising, though at a somewhat slower pace. Regional patterns seen in home prices are shifting. Over the last year, the Pacific Northwest has been quite strong while prices in the previously strong spots of San Diego, San Francisco and Los Angeles saw more modest increases. The two hottest areas during the housing boom were Florida and the Southwest. Miami and Tampa have recovered in the last few months while Las Vegas and Phoenix remain weak. When home prices began to recover, New York and Washington saw steady price growth; now both are among the weakest areas in the country.

Case-Shiller Home Prices Drop Most In 2 Years -- Despite its supposed seasonal adjustment, Case-Shiller home price growth in May tumbled for the 3rd year in a row (in fact, with revisions, the 0.23% drop since March is the biggest drop since June 2014). This is the first consecutive home price drop since 2012. The almost unbelievable 'stability' of the 5-ish percent growth in Case-Shiller home prices for the last 2 years is impressive if only for its historical lack of precedence but May's 5.24% YoY rise in the slowest since Sept 2015. May we suggest the PhDs ghet back to work on their seasonal adjustments... Portland, Seattle, and Denver reported the highest year-over-year gains among the 20 cities over each of the last four months. In May, Portland led the way with a 12.5% year-over-year price increase, followed by Seattle at 10.7%, and Denver with a 9.5% increase. Eight cities reported greater price increases in the year ending May 2016 versus the year ending April 2016. “Home prices continue to appreciate across the country,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Overall, housing is doing quite well. In addition to strong prices, sales of existing homes reached the highest monthly level since 2007 as construction of new homes showed continuing gains. The SCE Housing Expectations Survey published by the New York Federal Reserve Bank shows that consumers expect home prices to continue rising, though at a somewhat slower pace." “Regional patterns seen in home prices are shifting. Over the last year, the Pacific Northwest has been quite strong while prices in the previously strong spots of San Diego, San Francisco and Los Angeles saw more modest increases. The two hottest areas during the housing boom were Florida and the Southwest. Miami and Tampa have recovered in the last few months while Las Vegas and Phoenix remain weak. When home prices began to recover, New York and Washington saw steady price growth; now both are among the weakest areas in the country.”  Charts: Bloomberg

Real Prices and Price-to-Rent Ratio in May -- Here is the earlier post on Case-Shiller: Case-Shiller: National House Price Index increased 5.0% year-over-year in May The year-over-year increase in prices is mostly moving sideways now around 5%. In May, the index was up 5.0% YoY.  In the earlier post, I graphed nominal house prices, but it is also important to look at prices in real terms (inflation adjusted).  Case-Shiller, CoreLogic and others report nominal house prices.  As an example, if a house price was $200,000 in January 2000, the price would be close to $275,000 today adjusted for inflation (37%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation). It has been almost ten years since the bubble peak.  In the Case-Shiller release this morning, the National Index was reported as being 2.8% below the bubble peak.   However, in real terms, the National index is still about 17.1% below the bubble peak.The first graph shows the monthly Case-Shiller National Index SA, the monthly Case-Shiller Composite 20 SA, and the CoreLogic House Price Indexes (through May) in nominal terms as reported. In nominal terms, the Case-Shiller National index (SA) is back to November 2005 levels, and the Case-Shiller Composite 20 Index (SA) is back to June 2005 levels, and the CoreLogic index (NSA) is back to June 2005. The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter).   CPI less Shelter has declined over the last two years pushing up real house prices. In real terms, the National index is back to January 2004 levels, the Composite 20 index is back to October 2003, and the CoreLogic index back to November 2003. In real terms, house prices are back to late 2003 levels.

Zillow Forecast: Expect slightly slower YoY Growth in June for the Case-Shiller Indexes --The Case-Shiller house price indexes for May were released Tuesday. Zillow forecasts Case-Shiller a month early, and I like to check the Zillow forecasts since they have been pretty close.From Zillow: June Case-Shiller Forecast: Expect a Third Straight Monthly Decline in 10- and 20-City IndicesMay Case-Shiller data showed modestly slower growth largely in line with expectations, with seasonally adjusted home prices falling for two months in a row on the 10- and 20-city indices – a rare occurrence since the recovery began in earnest. Looking ahead, Zillow’s June Case-Shiller forecast calls for more of the same, with seasonally adjusted prices in the 10- and 20-city indices set to fall for a third straight month, while annual growth stays largely flat. The June Case-Shiller National Index is expected to grow 5.1 percent year-over-year and 0.2 percent month-to-month (seasonally adjusted). We expect the 10-City Index to grow 4.1 percent year-over-year and to fall 0.2 percent (SA) from May. The 20-City Index is expected to grow 5 percent between June 2015 and June 2016, and fall 0.1 percent (SA) from May. Zillow’s June Case-Shiller forecast is shown in the table below. These forecasts are based on today’s May Case-Shiller data release and the June 2016 Zillow Home Value Index (ZHVI). The June Case-Shiller Composite Home Price Indices will not be officially released until Tuesday, August 30. The year-over-year change for the 20-city index will probably be slightly lower in the June report than in the May report.  The change for the National index will probably be about the same.

New Home Sales July 26, 2016: Housing is emerging as a positive surprise for the 2016 economy. New home sales burst to their best strength of the cycle during the Spring, coming in at a much higher-than-expected 592,000 annualized rate in June following a 572,000 rate in both May and April (both revised). To see the strength by comparison, the rate in June last year was 25 percent lower at 472,000. Trend strength appears across regions led by the Midwest, up 44 percent year-on-year, with the South at the rear but still up 21 percent. Monthly data show slowing in the Northeast, where however sales totals are very small, and solid strength in the West which is a key region for home builders. The gain in sales did not come at the expense of prices, at least in June. The median jumped 6.2 percent to $306,700 which, however, is only up 6.1 percent from a year ago. The mismatch between prices and greater strength in sales perhaps hints at price traction to come, in contrast to existing homes where prices are showing less strength. One negative is supply in the new home market which looks to become an increasing problem. New homes for sale inched only 3,000 higher in the month to 244,000 with the supply at the current sales rate falling to 4.9 months from 5.1 months and compared against 5.5 months a year ago. Housing had a very good Spring and looks to contribute solidly to overall economic growth. Existing home sales, released last week, are also at their hottest rate of the cycle.

New Home Sales increased to 592,000 Annual Rate in June, Highest since 2008 -- The Census Bureau reports New Home Sales in June were at a seasonally adjusted annual rate (SAAR) of 592 thousand.  The previous three months were revised up by a total of 22 thousand (SAAR). "Sales of new single-family houses in June 2016 were at a seasonally adjusted annual rate of 592,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 3.5 percent above the revised May rate of 572,000 and is 25.4 percent above the June 2015 estimate of 472,000."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 decreased in June to 4.9 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 June was 244,000. This represents a supply of 4.9 months at the current sales rate."   Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.  The third graph shows the three categories of inventory starting in 1973.

New-home sales climbed in June to more than 8-year high -- Americans bought new homes in June at the fastest pace in more than eight years, a sign that a solid job market and low mortgage rates are bolstering the broader U.S. economy. The Commerce Department said Tuesday that new-home sales rose 3.5 percent last month to a seasonally adjusted rate of 592,000, the best level since February 2008. Purchases of new homes have climbed 10.1 percent year-to-date, despite volatile sales on a monthly basis.  Low mortgage rates and a healthy job market have lifted the real estate market, which continues to recover from the depths of the housing bust that began nearly a decade ago. Greater demand and tight inventories have led to rising prices, such that the potential to return to the historic sales rate of 650,000 new homes could be limited. Builders say they’re struggling to find both workers and land for additional construction. June’s median sales price rose 6.1 percent from a year ago to $306,700. Just 4.9 months’ supply of new homes is listed for sale, well below this historic average of six months. Sales surged in the West and Midwest by more than 10 percent in June, but declined in the Northeast and South. The market for new houses is roughly just a tenth of the size of the existing-home market, where sales are also rising even as the number of listings are shrinking on a yearly basis. The National Association of Realtors said last week that sales of existing homes rose 1.1 percent in June to a seasonally adjusted annual rate of 5.57 million, the best performance since February 2007. But the number of listings has fallen 5.8 percent from a year ago to 2.12 million.

A few Comments on June New Home Sales -- The new home sales report for June was strong at 592,000 on a seasonally adjusted annual rate basis (SAAR) - the highest since early 2008 - and combined sales for March, April and May were revised up by 22 thousand SAAR.  Sales were up 25.4% year-over-year (YoY) compared to June 2015. And sales are up 10.1% 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).  Sales to date are up 10.1% year-over-year, mostly because of the solid growth in Q2.  There will probably be solid year-over-year growth in Q3 this year too.  Overall  I expected lower growth this year, in the 4% to 8% range.  Slower growth seemed likely this year because Houston (and other oil producing areas) will have a problem this year.  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.

Good news for both single family and apartment housing - Housing is the most positive aspect of the US economy right now, but prices and rents are a real concern. Housing permits and new home sales are two of the best long leading indicators there are. Here's the long term view: Single family permits have continued to climb slowly (blue in the graph below), and new single family home sales (red) just set another post-recession record: This is confirmed by the continuing rise in purchase mortgage applications: The only fly in the ointment - and it is a significant one longer term - is that the failure of mortgage rates to set new lows means that refinancing remains somnolent: (h/t Mortgage News Daily) Refinancing has been a tool of middle class coping for 35 years, and this source of additional income is about tapped out. Meanwhile, as I have often pointed out, sales (new home sales, blue) lead prices (Case Shiller Index, red): I expect house prices to continue to rise over the next year. Condos and apartments are something of a substitute good, as well as a place for young adults to start. Median apartment rents, released this morning, finally showed a respite, as they declined to $748, which is actually $8 less than one year ago: Vacancy rates remain near 30 year lows: It continues to be the case that rents, in the form of owner's equivalent rent, is the sole reason that consumer prices are rising at all. Ex-shelter, consumer prices show no inflation whatsoever:

NAR: Pending Home Sales Index increased Slightly in June, up 1.0% year-over-year -- From the NAR: Pending Home Sales Marginally Rise in June Pending home sales were mostly unmoved in June, but did creep slightly higher as supply and affordability constraints prevented a bigger boost in activity from mortgage rates that lingered near all-time lows through most of the month, according to the National Association of Realtors®. Increases in the Northeast and Midwest were offset by declines in the South and West. The Pending Home Sales Index, a forward-looking indicator based on contract signings, inched 0.2 percent to 111.0 in June from 110.8 in May and is now 1.0 percent higher than June 2015 (109.9). With last month's minor improvement, the index is now at its second highest reading over the past 12 months, but is noticeably down from this year's peak level in April (115.0)....The PHSI in the Northeast advanced 3.2 percent to 96.0 in June, and is now 1.7 percent above a year ago. In the Midwest the index increased 0.8 percent to 108.9 in June, and is now 1.6 percent higher than June 2015. Pending home sales in the South decreased modestly (0.6 percent) to an index of 125.9 in June but are still 1.8 percent higher than last June. The index in the West declined 1.3 percent in June to 101.3, and is now 1.8 percent below a year ago. This was below expectations of a 1.3% 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 July and August.

Pending Sales of U.S. Existing Homes Rise Less Than Forecast -   A Pending home sales gauge rose 0.2 percent after falling 3.7 percent the prior period (median forecast in a Bloomberg survey of economists was 1.2 percent gain) Index saw a 0.3 percent rise compared to June 2015 on an unadjusted basis (forecast was 3 percent increase) Pending sales climbed 3.2 percent in the Northeast and 0.8 percent in the Midwest Big Picture The leveling off in pending home sales comes on the heels of reports showing existing-home sales jumped in June to its highest level since 2007 and the strongest new-home demand in eight years. The Realtor’s group said last week that sales have probably peaked for the year as prospective buyers don’t have enough homes from which to choose, forcing up property values. That’s mitigated the positive influence of mortgage rates that are close to record lows. Keep an eye on the pending home sales figure, since buyer traffic has slowed in recent weeks, the real-estate agents’ group said last week.  "Until inventory conditions markedly improve, far too many prospective buyers are likely to run into situations of either being priced out of the market or outbid on the very few properties available for sale,” NAR chief economist Lawrence Yun said in a statement. "With only the Northeast region having an adequate supply of homes for sale, the reoccurring dilemma of strained supply causing a run-up in home prices continues to play out in several markets."

U.S. Homeownership Rate Falls to Five-Decade Low -  The U.S. homeownership rate fell to the lowest level in more than 50 years in the second quarter of 2016, a reflection of the lingering effects of the housing bust, financial hurdles to buying and shifting demographics across the country. But the bigger picture also suggests more Americans are gaining the confidence to strike out on their own, albeit as renters rather than buyers. The homeownership rate, the proportion of households that are owner-occupied, fell to 62.9%, half a percentage point lower than the second quarter of 2015 and 0.6 percentage point lower than the first quarter 2016, the Census Bureau said on Thursday. That was the lowest figure since 1965. There are many ways to interpret the numbers. Part of the story is the catastrophic housing market collapse, which was especially severe for Generation X—those born from 1965 to 1984. Younger households may struggle to save amid student debt, growing rents, rising home prices and limited inventories of starter homes. Indeed, the homeownership rate for 18- to 35-year-olds slipped to 34.1%, the lowest level in records dating to 1994. At 77.9%, the homeownership rate was highest for those 65 years and over. But the broader picture suggests a degree of economic strength: Renters are spurring a steady increase in overall household formation. Renter-occupied housing units jumped by 967,000 from the same period a year earlier. Overall, household formation has been fairly steady since the early days of the expansion. A rising number of households suggests more people are optimistic enough to strike out on their own and helps further spur growth as they buy furniture, start families and move up the economic ladder. Indeed, moving into a rental unit has been entirely responsible for rising household formation since the recession began.

Wolf Richter: US Homeownership at Lowest Level in Over 50 Years -- Something happened on the way when the concept of “home” transmogrified to a financialized “asset class” whose price the government, the Fed, and the industry conspire to inflate into the blue sky, no matter what the consequences. And here are the consequences. The Census Bureau, which has been tracking homeownership rates in its data series going back to 1965 on a non-seasonally adjusted basis, just reported that in the second quarter 2016, the homeownership rate dropped to 62.9%, the lowest point on record.It matches the low point in Q1 and Q2 of 1965 when the data series began. At no time in between did it ever fall this low. And it was down half a percentage point from 63.4% a year ago.The relentless slide has lasted for 12 years, from its peak of 69.2% in Q4 2004, which was when the Greenspan Fed’s low interest rates were boosting speculation in the housing sector, and prices were going haywire. At the time, the concept of “home” had already become an asset class that can never lose money, financialized and later shorted by Wall Street, subsidized by government agencies, and backstopped by the Fed. And this is what happened to homeownership rates afterwards: The 1.9 percentage point drop from Q3 2014 (65.3%) to Q2 2015 (63.4%) was the largest two-year drop in the history of the data series. It also coincided with steep increase in home prices. On a seasonally adjusted basis, the homeownership rate dropped to 63.1% in Q2, the lowest in the non-seasonally-adjusted data series going back to 1985.

HVS: Q2 2016 Homeownership and Vacancy Rates - The Census Bureau released the Residential Vacancies and Homeownership report for Q2 2016.  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 63.1% in Q2, from 63.5% in Q1. 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 was unchanged at 1.7% in Q2.   Once again - this probably shows the general trend, but I wouldn't rely on the absolute numbers.The rental vacancy rate declined to 6.7% in Q2.I think the Reis quarterly survey (large apartment owners only in selected cities) is a much better measure of the rental vacancy rate - and the Reis survey is showing rental vacancy rates have started to increase. The quarterly HVS is the most timely survey on households, but there are many questions about the accuracy of this survey.

 Why It’s So Hard to Build Affordable Housing: It’s Not Affordable -- Almost one in four U.S. renters spends more on housing than they can afford, according to a report in June from Harvard University‘s Joint Center for Housing Studies—and the problem gets worse at the lower end of the income spectrum. About 10 million renter households earn 30 percent or less of the area median income, accounting for a quarter of the renter population. The U.S. would need to add more than 7 million cheap apartments to meet demand from such extremely low-income renters, according to a recent report from the National Low Income Housing Coalition.  “If we want to prioritize closing the gap for low-income households, we’re going to need more funding from public subsidy,” said Erika Poethig, director of urban policy initiatives at the Urban Institute, which published an online simulator Tuesday for the purpose of illustrating the challenges to building new affordable housing.   No matter how you slice it, creating the affordable housing needed today probably requires government help.  With the interactive tool, users can play developer, toggling their costs and expected revenues in an attempt to make a project "pencil out," a real estate euphemism for profitable, adjusting everything from rent levels and vacancy rates to debt service coverage, administrative expenses, and construction costs. The data underlying the project comes from a handful of recent affordable housing developments in Denver, a fast-growing city in the middle of an apartment-building boom that has increased costs for developers of market-rate and rent-regulated buildings alike.

Share of income spent on rent is at generational highs: In Los Angeles the amount spent on rent remains near 50 percent of income -- The amount of money being spent on rent is at generational highs.  High rents make it tougher for potential home buyers to save up for a down payment and this trend has impacted Millennials greatly.  What is interesting looking at nationwide data is that while rents are consuming a larger share of income, those with mortgages are spending less.  This is interesting because it doesn’t coincide with the big drop in the homeownership rate.  But it makes sense.  After all, investors are spending a smaller portion of their income covering the mortgage and those that did own, likely refinanced into record low rates.  The trend is clear on a nationwide basis but not so much for markets like those in Los Angeles.  Let us look at the latest figures. The math seems somewhat contradictory here: over the last decade we have gained 10 million renter households while netting out at close to zero for actual homeowners.  There is massive machinery trying to push people to buy but many simply cannot especially with more than 7 million completed foreclosures over the last decade:This is an interesting chart going back to 1985. You will notice that Americans that own a home with a mortgage are spending a smaller share of their income on the mortgage payment. But what you will also notice is that renters are spending a lot more of their income on rents. Price-to-income ratios seem a bit high on a historical basis nationwide: Overall these figures look relatively good on the home buying front given the typical U.S. home costs around $200,000 in most parts. But take a look at the most expensive rental market relative to incomes, Los Angeles: While nationwide people that have a mortgage are spending less, in Los Angeles people are now spending more (nearly 40 percent of income on mortgage payments). And it is worse for renters: between 1985 and 2000 the average amount of income spent on rent was 36 percent for the L.A. metro area. Today it is at 48 percent (nearly half of income is spent on rent). And these are the people that are supposedly saving large amounts for crap shacks across the market? While the price-to-income ratio seems a bit high nationwide, take a look at this chart for the L.A. area.

 Household Median Income Growth Stalling Out, Real Incomes Falling -- Each month, Gordon Green and John Coder of the private sector income and demographics analysis firm Sentier Research report on the level of median household income that they estimate from monthly Current Population Survey data published by the U.S. Census Bureau. We've found their estimates to be an invaluable aid for assessing various aspects of the relative real-time health of the U.S. economy.   We use their reports (the latest is for June 2016) to record a nominal estimate for median household income each month, which as future reports are released, we adjust for inflation as measured by the Consumer Price Index for All Urban Consumers in All U.S. Cities for All Items (CPI-U). Since the beginning of 2016, we've been observing a developing trend for which we now have just barely enough data points to begin making relevant and useful observations, where we find that there are two developing stories. So you can see what we are seeing, here is a chart showing the evolution of median household income in both nominal and real terms from January 2000 through June 2016.  The first and more important story is that nominal median household incomes would appear to have stalled out since December 2015, which is significant because it indicates that the U.S. economy has not been successful in generating higher paying jobs during the last several months.  The second story has to do with the changes in oil and fuel prices, which is greatly affecting the real median household income. In 2015, with those prices falling through much of the year, and particularly in its second half, the effect was to help boost the real incomes of Americans, where those incomes were also growing in nominal terms.  But in 2016, with oil and fuel prices having bottomed and rebounded since the beginning of the year, the effect has been to shrink the real incomes of American households.

July 2016 Conference Board Consumer Confidence Relatively Unchanged: The Conference Board Consumer Confidence Index insignificantly declined to 97.3 in July from the June final reading of 97.4. The market expected (from Bloomberg) this index to come in between 94.0 to 99.0 (consensus 96.0). Note that this data is considered preliminary, and the cutoff for these results was 14 July 2016. Here is an excerpt from The Conference Board: The Conference Board Consumer Confidence Index®, which had increased in June, was relatively unchanged in July. The Index now stands at 97.3 (1985=100), compared to 97.4 in June. The Present Situation Index increased from 116.6 to 118.3, while the Expectations Index edged down to 83.3 from 84.6 in June. "Consumer confidence held steady in July, after improving in June," said Lynn Franco, Director of Economic Indicators at The Conference Board. "Consumers were slightly more positive about current business and labor market conditions, suggesting the economy will continue to expand at a moderate pace. Expectations regarding business and labor market conditions, as well as personal income prospects, declined slightly as consumers remain cautiously optimistic about growth in the near-term." Consumers' assessment of present-day conditions improved slightly in July. Those stating business conditions are "good" increased from 26.8 percent to 28.1 percent, however those saying business conditions are "bad" also rose, from 18.3 percent to 19.0 percent. Consumers' appraisal of the labor market was little changed from last month. Those claiming jobs are "plentiful" declined marginally from 23.2 percent to 23.0 percent, however those claiming jobs are "hard to get" also decreased, from 23.7 percent to 22.3 percent.

Final July 2016 Michigan Consumer Sentiment Worse Than Expected - The University of Michigan Final Consumer Sentiment for July came in at 90.0, a 3.5 point decrease from the 93.5 June Final reading. Investing.com had forecast 90.5. Surveys of Consumers chief economist, Richard Curtin makes the following comments: Although confidence strengthened in late July, for the month as a whole the Sentiment Index was still below last month's level mainly due to increased concerns about economic prospects among upper income households. The Brexit vote was spontaneously mentioned by record numbers of households with incomes in the top third (23%), more than twice as frequently as among households with incomes in the bottom two-thirds (11%). Given the prompt rebound in stock prices as well as the tiny direct impact on U.S. trade, it is surprising that concerns about Brexit remained nearly as high in late July as immediately following the Brexit vote. While concerns about Brexit are likely to quickly recede, weaker prospects for the economy are likely to remain. Uncertainties surrounding global economic prospects and the presidential election will keep consumers more cautious in their expectations for future economic growth. Based on the strength in personal finances and low interest rates, real consumer spending is now expected to rise by 2.6% through mid 2017 See the chart below for a long-term perspective on this widely watched indicator. Recessions and real GDP are included to help us evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.

Kmart workers believe all the stores are going to be imminently shut down - Yahoo Finance: Kmart employees believe the company is nearing bankruptcy and is in the process of shutting down all its stores. The chain has closed one-third of its stores in the last decade, and sales have been cut in half in the same time period. Store-level employees who spoke to Business Insider said many of the remaining 941 Kmart stores now appear to be in the midst of liquidation. Stores are being entered into numbered phases — such as Phase 1 and Phase 2 — employees said. The company has told employees that the phases are part of a "P2P" or "path to profitability" strategy to make stores more profitable. But employees say it's a liquidation plan, with each phase triggering different cost-cutting measures such as layoffs and labor-hour reductions. The phases have also triggered stock-room purges, meaning all merchandise in the stock rooms must be moved to the sales floor. If there's not enough room on the sales floor for the items, stores will add new overhead shelving. Once the stock rooms are purged, stores typically have no more than nine months before they shut down, according to chatter on employee message boards. Kmart parent company Sears Holdings denies claims that it's liquidating all its stores.

International Trade in Goods July 28, 2016: Exports of goods improved in June though imports rose even more, making for a $63.3 billion goods deficit in the month. The mix will pull down tomorrow's second-quarter GDP report, where exports are a subtraction, but nevertheless is a welcome sign of strength in cross-border demand. Exports rose 0.9 percent led by gains for foods and for consumer goods. Exports of capital goods, which have been weak, posted a solid monthly gain, also at 0.9 percent. The import side shows a big gain for industrial supplies where price inflation for oil is at play but also a 1.2 percent gain for capital goods imports and a second very strong gain for the leading component, consumer goods which rose 3.3 percent following May's 2.7 percent. Gains in imports of consumer goods point to business confidence in consumer demand. Watch for the complete international trade report next Friday, a report that will include services where U.S. exports are very strong.

Trade Deficit Widens as Imports Rise More Than Exports; Advance Economic Indicators Initial Release  The International Trade in Goods report shows a widening trade gap. Both exports and imports rose for the month but the gap widened more than any Bloomberg Econoday economist’s estimate. Highlights: Exports of goods improved in June though imports rose even more, making for a $63.3 billion goods deficit in the month. The mix will pull down tomorrow’s second-quarter GDP report, where exports are a subtraction, but nevertheless is a welcome sign of strength in cross-border demand. Exports rose 0.9 percent led by gains for foods and for consumer goods. Exports of capital goods, which have been weak, posted a solid monthly gain, also at 0.9 percent. The import side shows a big gain for industrial supplies where price inflation for oil is at play but also a 1.2 percent gain for capital goods imports and a second very strong gain for the leading component, consumer goods which rose 3.3 percent following May’s 2.7 percent. Gains in imports of consumer goods point to business confidence in consumer demand.

Caterpillar Retail Sales Decline For 43 Consecutive Months --There was a time when Caterpillar was considered a key bellwether for trends in global heavy industries, and thus a proxy for the manufacturing sector. However, over the past 3 years that has not been the case for one simple reason: if one looks only at trends revealed by CAT's retail sales the global economy has been mired not in a recession but an unprecedented depression,one which has now lasted some 43 months. That's how long CAT has gone without a single positive month in global retail sales, well over double the duration of the acute collapse in demand following the financial crisis. Since there is little we can add to this story that we haven't sasid for the past 42 months in our monthly monitoring of demand for CAT products, we will just lay out the breakdown:

  • Asia Pacific: down 7%,
  • Europe, Africa, and Middle East: down 4%
  • Latin America: down 38%
  • North America: down 12%
  • Total: down 12%

There’s No Business Like the Arms Business -- When American firms dominate a global market worth more than $70 billion a year, you’d expect to hear about it.  Not so with the global arms trade.  It’s good for one or two stories a year in the mainstream media, usually when the annual statistics on the state of the business come out. It’s not that no one writes about aspects of the arms trade. There are occasional pieces that, for example, take note of the impact of U.S. weapons transfers, including cluster bombs, to Saudi Arabia, or of the disastrous dispensation of weaponry to U.S. allies in Syria, or of foreign sales of the costly, controversial F-35 combat aircraft.   But the sheer size of the American arms trade, the politics that drive it, the companies that profit from it, and its devastating global impacts are rarely discussed, much less analyzed in any depth.  So here’s a question that’s puzzled me for years (and I’m something of an arms wonk): Why do other major U.S. exports garner regular coverage while trends in weapons exports remain in relative obscurity?  The numbers should stagger anyone.  According to the latest figures available from the Congressional Research Service, the United States was credited with more than half the value of all global arms transfer agreements in 2014, the most recent year for which full statistics are available. At 14%, the world’s second largest supplier, Russia, lagged far behind.  Washington’s “leadership” in this field has never truly been challenged.  The U.S. share has fluctuated between one-third and one-half of the global market for the past two decades, peaking at an almost monopolistic 70% of all weapons sold in 2011.  And the gold rush continues. Vice Admiral Joe Rixey, who heads the Pentagon’s arms sales agency, euphemistically known as the Defense Security Cooperation Agency, estimates that arms deals facilitated by the Pentagon topped $46 billion in 2015, and are on track to hit $40 billion in 2016.

Rail Week Ending 23 July 2016: Short Terms Trends Mixed But Remain In Contraction.: Week 29 of 2016 shows same week total rail traffic (from same week one year ago) contracted according to the Association of American Railroads (AAR) traffic data. The 13 week rolling averages' contraction continues to moderate - the the four and 52 week rolling averages degraded. The contraction began over one year ago, and now rail movements are being compared against weaker 2015 data - and this is the cause some acceleration in the short term rolling averages. Still, rail is weak to very week compared to previous years. A summary of the data from the AAR: For this week, total U.S. weekly rail traffic was 528,070 carloads and intermodal units, down 5.3 percent compared with the same week last year. Total carloads for the week ending July 23 were 261,748 carloads, down 8.7 percent compared with the same week in 2015, while U.S. weekly intermodal volume was 266,322 containers and trailers, down 1.7 percent compared to 2015. Four of the 10 carload commodity groups posted an increase compared with the same week in 2015. They included miscellaneous carloads, up 28.3 percent to 10,916 carloads; grain, up 9.2 percent to 24,038 carloads; and chemicals, up 2.5 percent to 30,432 carloads. Commodity groups that posted decreases compared with the same week in 2015 included petroleum and petroleum products, down 27.5 percent to 10,260 carloads; coal, down 19.4 percent to 83,677 carloads; and motor vehicles and parts, down 13.8 percent to 14,615 carloads. For the first 29 weeks of 2016, U.S. railroads reported cumulative volume of 7,046,228 carloads, down 12.1 percent from the same point last year; and 7,452,843 intermodal units, down 2.8 percent from last year. Total combined U.S. traffic for the first 29 weeks of 2016 was 14,499,071 carloads and intermodal units, a decrease of 7.6 percent compared to last year.

Civil unrest joining weather as common, if ambiguous, explanation for financial results - Starbucks Corp. Chief Executive Howard Schultz highlighted global civil unrest during his earnings-call remarks Thursday, adding the coffee giant to a list of companies tying news headlines to their business results. “I can’t recall a quarter quite like Q3 of 2016, when a confluence of social and political turmoil at home, a weakening consumer confidence, increasing global uncertainty, and the launch of one of our most significant long-term initiatives of all-time all occurred within a single earnings period,” he said, A search of the word “unrest” in FactSet generates 24 results in the past year. At the Sanford C. Bernstein & Co. Strategic Decisions Conference on June 2, Motorola Chief Executive Greg Brown cited unrest, terrorism and natural disasters among the “external factors” that make public safety and communications a priority. “And our incumbent position and best technology and product portfolio [allows] us to take advantage of those situations,” he said. Marriott International, on the other hand, said during a second-quarter 2015 earnings call that civil unrest was a negative for its business. “Early in the quarter, our results were constrained by civil unrest in Baltimore and flooding in Texas,” Chief Executive Arne Sorenson said, according to FactSet.

 Durable Goods Orders Crash Most In 2 Years - Longest Non-Recessionary Streak Of Declines In US History -- Despite the longest winning streak for US macro data in US history, Durable Goods Orders collapsed in June. The 4% MoM plunge (vs -1.4% exp) is the biggest drop since Aug 2014. This represents a 6.6% YoY crash - the biggest drop since July 2015. The drop appears driven by  plunge in airplane orders (non-defense aircraft and parts). Which should not be surprise: Airbus Group SE and Boeing Co. racked up their lowest tally of aircraft orders in six years at the aviation industry’s annual showcase, as a slowing global economy and concern about the impact of Britain’s decision to quit the European Union curbed demand. Core Capex continues to slide... Worse still, core durable goods orders extended their annual declines to 18 months straight - the longest non-recessionary streak of declines in US history.

Dallas Fed Mfg Survey July 25, 2016: Headline troubles eased in the Dallas Fed manufacturing sector where both the general activity index, at minus 1.3 in July vs minus 18.3 in June, and the production index, at plus 0.4 vs minus 7.0, show improvement. Details also show improvement but less so, with new orders still deeply in negative ground, at minus 8.0 vs June's minus 14.2, and unfilled orders at minus 4.6 vs minus 13.6. Shipments are in fractionally positive ground with employment still negative, at minus 2.6. Inventories are in contraction and delivery times are shortening, both indications of weakness. Price data do show some pressure, with input costs and wages & benefits both up but selling prices still down. Simply enough, low energy prices continue to hurt the oil patch.

Dallas Fed: Regional Manufacturing Activity "Stabilizes" in July --From the Dallas Fed: Texas Manufacturing Activity Stabilizes Texas factory activity held steady in July, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, came in near zero after two months of negative readings, suggesting output stopped falling this month. Some other measures of current manufacturing activity also reflected stabilization, and demand declines abated somewhat. The capacity utilization and shipments indexes posted near-zero readings, up from negative territory in May and June. The new orders index rose six points to –8.0, while the growth rate of orders index rose nine points to –9.7.Perceptions of broader business conditions were notably less pessimistic. While the general business activity index remained negative for a nineteenth month in a row, it jumped 17 points to –1.3 in July. The company outlook index also remained negative but rose, climbing from –11 to –2.3. Labor market measures indicated slight employment declines and stable workweek length. The employment index came in at –2.6, up from a post-recession low of –11.5 last month. ... Still difficult conditions in the Dallas region, but a little better than previous months.  The impact of lower oil prices is still impacting manufacturing.

July 2016 Texas Manufacturing Survey Improves And Now Barely In Expansion.: Of the three Federal Reserve districts which have released their July manufacturing surveys - two are in expansion and one is in contraction. A complete summary follows. There expectations from Bloomberg were -16.0 to -2.0 (consensus -12.0), and the reported value was 0.4. From the Dallas Fed: Texas factory activity held steady in July, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, came in near zero after two months of negative readings, suggesting output stopped falling this month. Some other measures of current manufacturing activity also reflected stabilization, and demand declines abated somewhat. The capacity utilization and shipments indexes posted near-zero readings, up from negative territory in May and June. The new orders index rose six points to -8.0, while the growth rate of orders index rose nine points to -9.7. Perceptions of broader business conditions were notably less pessimistic. While the general business activity index remained negative for a nineteenth month in a row, it jumped 17 points to -1.3 in July. The company outlook index also remained negative but rose, climbing from -11 to -2.3. Labor market measures indicated slight employment declines and stable workweek length. The employment index came in at -2.6, up from a post-recession low of -11.5 last month. Fourteen percent of firms noted net hiring, while 17 percent noted net layoffs. The hours worked index pushed up to near zero in July—which suggests no change in workweek length—after a reading of -12.8 in June

Richmond Fed Manufacturing Index July 26, 2016: Manufacturing activity in the Fifth District picked up strongly in July, with the composite index for manufacturing climbing 20 points to 10 to partially recover from declines in June and May. New orders rose 32 points from deep contraction to plus 15, while shipments rose from minus 8 to plus 7. In employment, the number of employees rose modestly from 1 to 6, but the average workweek rose from minus 7 to 1, while the wages index fell back 1 point to 14. Prices of raw materials and finished good rose at a slower pace than in June. Looking ahead, manufacturers anticipated even more positive conditions, with shipments up 8 to 19 and new orders up 10 to 23, and backlog of orders up 5 to 10. On the employment front, the number of employees index was up 5 to 8, the average workweek moved up 9 to 2, and future wage increases were prominent, up 15 to 40. Firms expected faster growth in prices paid but slower growth in prices received. The Richmond survey confirms the signs of life in the manufacturing sector that were seen in Monday's Dallas Fed survey and last week's Philly Fed survey.

Richmond Fed Manufacturing Survey Leaps Into Expansion In July 2016.: Of the four regional Federal Reserve surveys released to date, three are in expansion and one is in contraction. There were no market expectations from Bloomberg. The actual survey value was 10 [note that values above zero represent expansion]. New orders and shipments increased this month, while backlogs flattened. Employment rose modestly, while firms continue to report wage increases. Prices of raw materials and finished goods rose at a slower pace in July, compared to last month. Manufacturers looked for better business conditions during the next six months. Firms expected moderate growth in shipments and in the volume of new orders in the six months ahead. In addition, survey participants anticipated increased capacity utilization and expected backlogs to rise. Expectations were for little change in vendor lead times during the six months ahead. Survey participants' outlook for the months ahead included mild growth in the number of employees. Future wage increases were more prominent in the July expectations index. Firms expected faster growth in prices paid, however, anticipating somewhat slower growth in prices received. Overall, manufacturing activity increased in July. The composite index for manufacturing climbed 20 points to a reading of 10. Additionally, the indicators for shipments and new orders increased this month. Those indexes ended at readings of 7 and 15, respectively. The orders backlog index flattened in July, the index moved up 13 points to end at 1. The manufacturing employment index rose modestly this month. That indicator gained five points to end at 6.

Tuesday Humor: Richmond Fed Survey Beats Expectations By 7 Standard Deviations --Against expectations of a -5 print, July;'s Richmond Fed printed +10 (up from a revised lower -10 in June). This is the 2nd biggest MoM spike since 1998 (the biggest being March's insane spike). This beat is a 7 standard deviation beat over expectations among the 9 economists tracking it with none of them forecasting a gain at all. Across the board components improved with a surge in employees, workweek and the biggest jump in new orders since 1998!The Survey has become dramatically more volatile in 2016... With somehow the biggest surge in new orders in 18 years...

Kansas City Fed: Regional Manufacturing Activity "Declined Modestly" in July -- From the Kansas City Fed: Tenth District Manufacturing Activity Declined Modestly The Federal Reserve Bank of Kansas City released the July 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 in our region reported a slight pullback in July following modest expansion in June,” said Wilkerson. “However, their expectations for future activity continued to increase.” ..The month-over-month composite index was -6 in July, down from 2 in June and -5 in May ... The employment index inched down to -5 ... This was the last of the regional Fed surveys for July. Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

July 2016 Kansas City Fed Manufacturing Back In Contraction: Of the five regional manufacturing surveys released for July, three are in expansion with two in contraction. There were no market expectations reported from Bloomberg - and the reported value was -6. Any value below zero is contraction.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 in our region reported a slight pullback in July following modest expansion in June," said Wilkerson. "However, their expectations for future activity continued to increase."  Tenth District manufacturing activity declined modestly after last month's rebound. Expectations for future activity continued to increase, and the price indexes were mixed. The month-over-month composite index was -6 in July, down from 2 in June and -5 in May (Tables 1 & 2, Chart). The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Non-durable goods producing plants reported a smaller decline in activity, but durable goods production dropped sharply, particularly for metals and electronic equipment. Most month-over-month indexes were lower than in June. The production index dropped from 12 to -15, and the shipments and news orders indexes also fell. The employment index inched down to -5, while the order backlog index remained unchanged. The raw materials inventory index eased further, while the finished goods inventory index increased from -5 to 5.

Chicago PMI July 29, 2016: Highlights Business activity in the Chicago economy remains very solid, at a composite score of 55.8 and showing only little change from 56.8 in June. Growth in new orders, however, is down this month as is growth in backlog orders, which are two negatives for future activity. A positive for July is a rise in employment and also a solid build in inventories, both hinting at business confidence in the outlook. Price pressures remain soft with input costs down for a third straight month. Though orders are soft, this report points to respectable strength for Chicago and, by extension, for the economy as a whole.

Chicago PMI declines in July, Final July Consumer Sentiment at 90.0  - Chicago PMI: July Chicago Business Barometer Down 1 Point to 55.8 The MNI Chicago Business Barometer fell 1 point to 55.8 in July from the 1½-year high of 56.8 in June, led by a fall in New Orders. Smaller declines were seen in Production and Order Backlogs, which offset a strong increase in the Employment component. The Barometer’s three-month average, though, which provides a better picture of the underlying trend in economic activity, rose to 54.0 from 52.2 in Q2, the highest since February 2015...“Demand and output softened somewhat in July following a solid showing in June but still outperformed the very weak results seen earlier in the year. On the upside, it was the first time since January 2015 that all five Barometer components were above 50. Looking at the three-month average, the Chicago Business Barometer so far suggests economic activity running at a healthier pace in Q3,” said Lorena Castellanos, senior economist at MNI Indicators.The final University of Michigan consumer sentiment index for July was at 90.0, up from the preliminary reading 89.5, and down from 93.5 in June. "Although confidence strengthened in late July, for the month as a whole the Sentiment Index was still below last month's level mainly due to increased concerns about economic prospects among upper income households. The Brexit vote was spontaneously mentioned by record numbers of households with incomes in the top third (23%), more than twice as frequently as among households with incomes in the bottom two-thirds (11%). Given the prompt rebound in stock prices as well as the tiny direct impact on U.S. trade, it is surprising that concerns about Brexit remained nearly as high in late July as immediately following the Brexit vote. While concerns about Brexit are likely to quickly recede, weaker prospects for the economy are likely to remain. Uncertainties surrounding global economic prospects and the presidential election will keep consumers more cautious in their expectations for future economic growth. "

Chicago PMI 'Steady' At 18-Month Highs Despite Drop In Production, New Orders -- After its heroic "7 standard deviation beat" bounce in June, Chicago PMI dropped modestly in July from 56.8 to 55.8 (better than the expected 54.0). The stability in the headline print (at 18-month highs) amid tumbling GDP is odd given that production, new orders, and order backlogs all declined in July. Peculiarly, in the face of these declines, the employment subindex saw a strong gain!  Remember June... "Demand and output softened somewhat in July after a solid showing in June but still outperformed the very weak results seen earlier in the year. On the upside, it was the first time since January 2015 that all five Barometer components were above 50. Looking at the three-month average, the Chicago Business Barometer so far suggests economic activity running at a healthier pace in Q3," said Lorena Castellanos, senior economist at MNI Indicators. As MNI details, The MNI Chicago Business Barometer fell 1 point to 55.8 in July, slipping from the 1-1/2-year high of 56.8 in June, led by a fall in New Orders. Smaller declines were seen in Production and Order Backlogs, which offset a strong increase in the Employment component. The Barometer's three-month average, though, which provides a better picture of the underlying trend in economic activity, rose to 54.0 from 52.2 in Q2, the highest since February 2015. Following strong gains in the previous month, Production, New Orders and Order Backlogs declined somewhat in July, but remained above May's levels, when they all fell into contraction territory. New Orders fell 3.9 points to 59.3, but held most of June's gain that had left the indicator at the highest level since October 2014. Order Backlogs, which last month rose to the highest since March 2011, managed to remain above 50 following a 16-month run of sub-50 readings.Demand for labour picked up noticeably in July, probably boosted by the increased level of orders and output at the end of Q2. Employment jumped solidly back above 50 to the highest level since March 2016, a healthy recovery after s pending three months in contraction that had left the indicator at the lowest since November 2009. From November 2015 through to May 2016, firms ran down inventory levels. In July, though, companies increased their inventories at the fastest pace since October 2015, building on June's double digit gain. Inflationary pressures were little changed on the month, with Prices Paid falling slightly for the third consecutive month. Many manufacturers reported suppliers are trying to pass along price increases, however, businesses are pushing back.

When Will Startups Take Off Again? - The American economy isn’t what it used to be. Since the recession ended, new establishments have accounted for a little more than 11% of all new private-sector jobs created. During the 1990s, the figure was 15%, according to Labor Department data released Wednesday. That might not seem like a massive shift, but it suggests a loss of business dynamism, making the economy less nimble, limiting opportunities for workers, and holding back productivity and wages. The latest Labor Department figures show that establishment “births” accounted for about 889,000 new jobs in the last quarter of 2015. That works out to about 11.4% of all jobs created during the period. (Establishments include private-sector shops, factories, mines, offices or other places of business and can be part of a larger firm. Establishment births is a category of the business dynamics data that weeds out businesses that close and then reopen in a short period of time.) While the latest job-creation figures are a slight pickup from earlier in the recovery—gross job-creation figures were the best since 2008—they remain below the levels seen before the recession and well below figures from before 2000. With success stories like Facebook Inc., Uber Inc. and Airbnb Inc., the falloff in startup activity might not be readily apparent. It’s even less clear why business formation is lagging. But the trend is long-running—separate Census Department data shows the startup slowdown reaching back decades—and troubling.

 US Services Economy 'Bounce' Dies - PMI Tumbles To 5-Month Lows -- Despite an excited bounce in US Manufacturing PMI's preliminary print (and ISM Services last month), Markit reports a disappointing drop in US Services to a 5-month low. New business slowed but that did not deter hope as business confidence rebounded (albeit from record lows). However, as Markit notes, "The U.S. service sector remained stuck in a low gear at the start of the third quarter of 2016..."

  Markit Services PMI Remained Muted in July  -- The July preliminary US Services Purchasing Managers' Index conducted by Markit came in at 50.9, down from 51.3 in June and below the Investing.com consensus of 52.0. Markit's Services PMI is a diffusion index: A reading above 50 indicates expansion in the sector; below 50 indicates contraction. Here is the opening from the latest press release: July data suggested that growth in the U.S. service sector remained muted, with activity rising at the weakest pace in the current five-month sequence of expansion. A slower increase in new business was also recorded. On a more positive note, the rate of job creation picked up slightly and business sentiment improved markedly from June’s record low. On the price front, slower increases were registered for both input costs and output prices during the month. [Press Release] Here is a snapshot of the series since mid-2012.

Weekly Initial Unemployment Claims increased to 264,000 -- The DOL reported:  In the week ending July 23, the advance figure for seasonally adjusted initial claims was 266,000, an increase of 14,000 from the previous week's revised level. The previous week's level was revised down by 1,000 from 253,000 to 252,000. The 4-week moving average was 256,500, a decrease of 1,000 from the previous week's revised average. The previous week's average was revised down by 250 from 257,750 to 257,500.  There were no special factors impacting this week's initial claims. This marks 73 consecutive weeks of initial claims below 300,000, the longest streak since 1973.  The previous week was revised down. The following graph shows the 4-week moving average of weekly claims since 1971.

Trump Campaign Revives Debate: Is the Unemployment Rate ‘Artificial’? - How the U.S. measures the unemployment rate has often been a political hot button, especially during presidential election years. That debate was revived this weekend by Donald Trump Jr., the son of the Republican presidential candidate, who said in an interview on CNN that the jobs numbers “are artificial numbers. These are numbers that are massaged to make the existing economy look good and make the administration look good when in fact it’s a total disaster.” This is not the first time someone has cast aspersions on the jobs numbers. Criticisms have taken two forms in recent years. Some have hinted the numbers are fabricated for political purposes, though no evidence has suggested this. Donald Trump, the GOP nominee, has mostly stuck to a second line of argument—that the measure of unemployment that we focus on uses a flawed definition of unemployment. The Labor Department’s monthly statistics, which date back to 1948, have always defined unemployment as without a job and actively looking for work. (In 1948, 70% of women didn’t work and it would have been silly to count them all as “unemployed,” not to mention counting all school children and all pensioners.) But trying to figure out who you should be counting is tricky, and Mr. Trump Jr. suggested the current method is flawed. The candidate himself has made a similar case.

Men at Work: Are We Seeing a Turnaround in Male Labor Force Participation? -  Atlanta Fed's macroblog  - A lot has been written about the long-run decline in the labor force participation (LFP) rate among prime-age men (usually defined as men between 25 and 54 years of age). For example, see here, here, here, and here for some perspectives.  On a not seasonally adjusted basis, the Bureau of Labor Statistics estimates that the LFP rate among prime-age males is down from 90.9 percent in the second quarter of 2007 to 88.6 percent in the second quarter of 2016—a decline of 2.3 percentage points, or around 1.4 million potential workers.  Many explanations reflecting preexisting structural trends have been posited for this decline. But how much of the decline also reflects cyclical effects and, in particular, cyclical effects that take a while to play out? We don't really know for sure. But one potentially useful approach is to look at the Census Bureau's Current Population Survey and the reasons people give for not wanting a job. These reasons include enrollment in an educational program (especially prevalent among young individuals), family or household responsibilities (especially among prime-age women), retirement (especially among older individuals), and poor health or disability (widespread). In addition, there are people of all ages who say they want a job but are not counted as unemployed. For example, they aren't currently available to work or haven't looked for work recently because they are discouraged about their job prospects.  To get some idea of the relative importance of these factors, the following chart shows how much each nonparticipation reason accounted for the total change in the LFP rate among prime-age males between 2012 and 2014 and between 2014 and 2016. The black bars show each period's total change in the LFP rate. The green bars are changes that helped push participation higher than it otherwise would have been, and the orange bars are changes that helped hold participation lower than it otherwise would have been.

U.S. Regional Job Growth Update, July 2016 --- Summary of Key Findings:

  • The Oil Patch slowdown is very real.
    • Job growth has slowed considerably in both the West North Central and West South Central regions.
    • Big oil metros are slowing too. Houston has decelerated from about 4% y/y to less than 1%. Oklahoma City has gone from 2% to 1%. Yet the impact is not everywhere. Dallas and Denver continue to see strong gains.
    • Rural counties in the Oil Patch are contracting. Job losses of 2% y/y to end 2015.
  • All other regions are seeing steady job gains, which are typically as strong as those seen during the housing boom, if not stronger
    • Exception is the Mountain division which is both outperforming the nation today and still below its mid-2000s pace.
    • South Atlantic and Pacific divisions are accelerating. Population growth has returned. Housing has turned from drag to driver. This acceleration is offsetting other weaknesses.
  • Nation’s biggest metropolitan areas still driving growth and outperforming rural areas in addition to small and medium sized cities.
    • The typical large metro is growing faster today than during the housing boom.
    • Large metros overall adding jobs nearly on par with the late 1990s growth.
    • Most big cities seeing steady gains in recent years. Some acceleration in places like St. Louis and Philadelphia are offsetting the slowdown in Houston and Oklahoma City overall.
    • Rural America outside of the oil patch counties continues to add jobs, albeit around 0.5% annually so far in recovery.
    • The growth rate differential today between the biggest metros and rural areas is the largest seen since the 1990 recession or the mid-1980s commodity bust.
  • Average wage growth is picking up.
    • However, only East North Central and Pacific wages are growing today about as quickly as during the mid-2000s, in nominal terms.
    • All other regions’ average wages, while improving, are increasing at a slower pace than last expansion, in nominal terms.
    • In real terms, New England, East North Central, West North Central and Pacific divisions seeing stronger average wage gains today

The Lopsided Political Dialogue With the Working Class - BillMoyers.com: Thursday night, Trump spent considerable air time speaking (more like yelling) about how America’s steel and coal workers have been ignored and sold-out for decades by both political parties. He promised to bring back those long-disappearing jobs and to put their needs front and center in his administration. As the daughter of a steel worker, I admit it was nice to finally hear someone talk about how the old industrial working class was robbed of their dignity and livelihood, with little regard for the devastation left behind..But that working class — the blue-collar, hard-hat, mostly male archetype of the great post-war prosperity — is long gone. In its place is a new working class whose jobs are in the now massive sectors of our serving and caring economy. And so far, neither Trump nor Clinton have talked about this new working class, which is much more female and racially diverse than the one of my dad’s generation. With Trump’s racially charged and nativistic rhetoric, he’s offering red meat to a group of Americans who have every right to be angry — but not at the villains Trump has served up.The decades-long destruction of American manufacturing profoundly changed the working class — neighborhoods, jobs and families. What had once been nearly universal, guaranteed well-paying jobs for young men fresh from high school graduation were yanked overseas with little regard for the devastation left behind.

Employment Cost Index July 29, 2016: Highlights Labor costs are accelerating, which hints at pass-through to workers and welcome upward pressure for overall inflation. The employment cost index rose a quarter-to-quarter 0.6 percent in the second quarter, in line with trend and lifting the year-on-year rate by 4 tenths to plus 2.3 percent for the highest rate since the first quarter last year. Of the two components, wages & salaries are showing slightly more pressure, up 0.6 percent in the quarter vs 0.5 percent for benefits. Year-on-year, wages are up 2.5 percent with benefits up 2.0 percent. Higher labor costs may not be a plus for corporate profits but will be seen as a plus by policy makers who are hoping for a little wage inflation to help the economy.

The Short List of Jobs With High and Rising Pay - Over the past decade, only a small slice of working-age Americans have landed in jobs offering a mix of good pay and healthy wage gains. That’s the conclusion of a new study by job-search site Indeed, one that underscores a broad sense of economic discontent among many Americans. Indeed’s researchers found that only about 15% of the working-age population held a job with salary growth that at least matched the high-water mark for household income and had held up to inflation over the past decade. “There is this small group of people…seeing strong wages as well as wage gains while the vast majority of our labor market is struggling on at least one of those two fronts,” said Tara Sinclair, the company’s chief economist. (Indeed used data from the Labor Department’s Bureau of Labor Statistics as well as job listings on its site. The study focused on occupations with an annual average wage of at least $57,700, the inflation-adjusted median household income in 2000, very near the 1999 peak. While the report formally ends with 2014 data, Indeed said the trends continued through 2015.) Of course, the labor market has been steadily adding jobs for years and wages are starting to show signs of accelerating. Some economists expect wage growth to pick up in the months ahead. But across the labor market there is also evidence of a widening gap between workers with at least a four-year college degree and those with less. The disappearance of many low-skilled but good-paying jobs appears to be exacerbating the situation and pushing many Americans, especially prime-age men, to simply drop out of the labor force.

Want Sick Leave? You Probably Need to Be Paid More - Whether a worker has access to paid sick leave varies widely by income, a new Labor Department report found. Among the top 25% of income earners in the private sector—those earning $28.60 an hour or more—84% had access to paid sick leave, the Labor Department said. Among the bottom quarter of workers—those earning $12 an hour or less—39% had the benefit as of March. Whether workers have access to sick leave is gaining attention is recent years, alongside efforts to lift the minimum wage and provide extended family leave for new parents and others.  Last year, President Barack Obama signed an executive order requiring federal contractors to offer paid sick days to their employees.  This year, cities ranging from Spokane, Wash., to Minneapolis have passed laws requiring most employers to offer paid sick leave to workers. Proponents of paid sick leave argue the policy promotes better health by discouraging ill workers from reporting for duty and provides workers flexibility to take of themselves or family members. Opponents say the policy can be too costly, especially for smaller businesses, and its social benefits are unfounded. The Labor Department report showed the sick-leave benefit is common among white-collar professions, but rarer in typically lower paying fields. In March, 89% of business and financial managers received paid sick leave, as did 75% of office and administrative employees. In contrast, 42% of non-professional services workers received paid sick time. Less than half of those in construction and agriculture-related fields received paid sick days. Among all full-time workers in the private sector, 75% were eligible for sick leave, versus 30% for part-time workers.

The federal minimum wage has been eroded by decades of inaction -- This week marks the seven-year anniversary of the last time the federal minimum wage was raised, from $6.55 to $7.25 on July 24, 2009. Since then, the purchasing power of the federal minimum wage has fallen by 10 percent as inflation has slowly eroded its value. However, this decline in the buying power of the minimum wage over the past seven years is not even half the overall decline in the minimum wage’s value since the late 1960s. As the figure below shows, at its high point in 1968, the federal minimum wage was equal to $9.63 in today’s dollars1. That means that workers at the minimum wage today are paid roughly 25 percent less than their counterparts 48 years ago.Measuring the minimum wage against changes in prices is only one way to think of where the wage floor could be today. Given growth in the economy and improvements in labor productivity over the past half century, the minimum wage could have been raised to a point considerably higher than its 1968 inflation-adjusted value. As the middle line in the figure shows, if the minimum wage had been raised since 1968 at the same growth rate as average wages of typical U.S. workers—measured here by changes in average hourly earnings of nonsupervisory production workers, a group that comprises roughly 80 percent of all U.S. workers and excludes highly-paid supervisors and executives—the minimum wage would be $11.35 today. Prior to 1968, the federal minimum wage was raised at roughly the same pace as growth in labor productivity—i.e., the rate at which the average worker can produce income from each hour of work. This makes sense – if the economy as a whole can produce more income per hour of work, it means there’s capacity for wages across the distribution to grow at a similar rate. Had the minimum wage risen at the same pace as productivity after 1968, it would be nearly $19 per hour today.

Hillary’s Speech and an Outsourcing Ad Against Her - Traditionally presidential election campaigns are said to begin in earnest after Labor Day, but with the mutual rancor between the two parties and their candidates, things should heat up right away now that both conventions are over. This became concrete today, when a reader brought to my attention an anti-Clinton TV ad, consisting of excerpts from a speech Clinton gave in India. There Clinton says trying to stop offshore outsourcing is a “dead end,” something we should not bother with. Pretty powerful stuff, quite an effective counter to the brief mentions Hillary made against offshoring in her speech tonight. So powerful, in fact, that the DNC is trying to get TV stations to pull the ad from the air. Of course, the more DNC pushes, the more attention will be called to the ad. This is a rare stumble for the well-oiled DNC machine/Clinton campaign, but the implications of the ad are of great significance, in my view. Here’s why: In my post last night, I referred again to a Computerworld article in which an IT worker took  Clinton’s recent comments on the H-1B work visa as showing that, while she sympathizes with American workers harmed by the program, she considers them “collateral damage,” to be sacrificed by what she considers the greater good. After hearing her speech tonight, and the slick bio preceding it, to me the pieces of the puzzle are finally coming together.   Clinton wants to do good things for children, underclass families, and so on, and she sees that in order to be in a position to do so, she needs to make common cause with the tech industry, the Wall Street banks, and so on. The TV ad begins by saying that after she made that speech in India, she received a hefty donation from an Indian politician for the Clinton Foundation, whose major focus is on the very issues Hillary cares about, i.e. children and so on. Given that, it would be easy for Hillary to rationalize the inherent contradictions. She railed this evening against the misery caused by the banks in the 2008 crash, but fails to mention that some of the major factors underlying that catastrophe were policies that her husband Bill put into place while president, under pressure by those same Wall Street banks.

 If politicians care about a rigged system, it’s time to address wage theft - If these shenanigans can happen right under the noses of U.S. senators, where else are they happening?  We’ll never know until we get more cops on the beat.  I’m talking about wage theft. That’s the catch-all term for when employers pay their workers less than they legally owe them — by, for example, forcing them to work off the clock, paying below minimum wage or misclassifying them as independent contractors. Wage theft is not a sexy crime. It rarely makes front-page news, even as it harms so many Americans living paycheck to paycheck. We don’t know how prevalent it is, only how often it is discovered — which is highly dependent on how much the government invests in enforcement.  Last year, Labor Department investigators found $247 million in back wages owed to more than 240,000 workers. That’s more than $1,000 stolen from each worker, on average, or the equivalent of about three weeks’ pay for a typical maid, janitor or cashier.  Every once in a while, there’s a chance to capture the public’s imagination on this issue — such as this week, when it turned out that even in the hallowed halls of the Senate, hundreds of low-wage workers had been shortchanged. For six years.  This case involves Senate cafeteria workers, some of whom were so poorly paid that they were homeless, on public assistance or, in one case, moonlighting as a stripper to make ends meet. For about a year, they staged a series of demonstrations to demand a living wage. .

Feds will pay $475,000 to settle “illegal body cavity search” case - Customs and Border Protection (CBP) will now have to pay “Jane Doe,” a New Mexico woman, $475,000 to settle a lawsuit filed in December 2013. In the suit, Jane Doe alleged that she was detained at the US-Mexico border and subjected to an illegal cavity search by nearby hospital personnel. Authorities believed she had drugs on her person, but they found nothing after six hours of intimate searches. This case is separate from, but has remarkable similarities to, a pending case that was filed last month in Arizona by another woman, Ashley Cervantes.  Doe’s attorneys are spread across two activist organizations, the American Civil Liberties Union of Texas and the ACLU of New Mexico. The team previously won a $1.1M settlement on her behalf to settle related claims filed against the University Medical Center of El Paso. Under the terms of the new settlement with the feds, the two ACLU organizations will send advisory letters to hospitals from San Diego to Houston, notifying them of their rights and responsibilities. In addition, hundreds of CBP agents will have to undergo retraining.“Doctors and law enforcement officers are entrusted with the sacred responsibility of looking after our health and safety, and Ms. Doe’s unspeakable ordeal represents an unforgivable violation of that trust,” Terri Burke, executive director of the ACLU of Texas, said in a Thursday statement. “These atrocities were committed with our money and in our name, and it’s not enough to hold those who committed them to account. We must also ensure that every law enforcement officer and every hospital staff member understands the consequences of so intimately and egregiously violating someone’s rights.” CBP spokesman Roger Maier confirmed the settlement, but he noted it should “not be taken as an admission of liability or fault."

 US Government Pays $475,000 For Illegally Searching Woman's Vagina -- It happened to a Jane Doe (the name has been withheld to protect what little remains of her dignity), a 54-year old US citizen who had recently been on a trip to Mexico. As she was returning home via the Cordova Bridge border crossing in El Paso, she was randomly selected for extra special screening and escorted to a private area. I’ve been there. It’s not fun. They don’t tell you anything, and they don’t say why. They act very aggressively and start barking orders at you as if you’re already a prison inmate. Quite frequently you can sit there wasting away for hours. Fortunately for me, nothing particularly sinister ever happened. For Ms. Doe, it was quite the opposite. According to the published case files, she was frisked, and then ordered to squat so that a drug-sniffing dog could check out her nether regions. Apparently the dog liked what he smelled, because Ms. Doe was then taken to yet another room, ordered to pull down her pants, and crouch. At that point an agent from Customs and Border Protection “inspected her anus with a flashlight.” She was then ordered to lean backwards in a crouched position, after which another agent inserted a speculum into her vagina to search for drugs. Another agent then “parted Ms. Doe’s vulva with her hand, pressed her fingers into Ms. Doe’s vagina, and visually examined her genitalia with a flashlight.” They then took her to a hospital for a further 6 hours of involuntary testing, which included forcing her to have a bowel movement as they all watched, plus X-rays, CT scans, and more. I know what you’re thinking– they probably found a treasure trove of cocaine and methamphetamine shoved deep inside Ms. Doe’s womanhood. Except they didn’t. Ms. Doe was “brutally probed against her will” for hours and hours without judicial oversight, due process, or even reasonable suspicion. And they found nothing. Here’s the really disgusting part: at the end of this ordeal, they released her without charge… with one catch. They told her that if she signed a consent form, retroactively giving her permission to be abused and violated, that the government would pay for all the tests and various medical expenses. But if she didn’t sign the consent form, she’d have to pay for them all herself. Ms. Doe refused to sign, and the United States government sent her a bill for more than $5,000, essentially demanding that she pay for her own sexual assault. Emotionally shattered she went home feeling like a rape victim. She sued..

 Police Killings, Gender and Race - Police killings of unarmed Black men have garnered a lot of attention lately. Black men are killed by police in numbers disproportionate to their share of the population. I want to put some numbers on that issue later in the post, and those numbers run counter to conventional wisdom. But first I want to warm up on something less controversial, though it is even more disproportionate, namely killings of police by gender. Still, context is in order. So here’s a little table I assembled with data from a number of sources (citations at the bottom of this post): Figure 1 – What we see here is that women are disproportionately less likely to be killed by police relative to their share of the population. Women also make a disproportionately small share of police personnel, and female police officers are far less likely to be killed in the line of duty than a male police officer. (I.e., women are 12.2% of the total force, but 4.2% of total police officers killed.) Women are an even lower share of cop killers; only 3.2% of people who kill police officers are women. To put these deaths in perspective vis a vis the wider population, under 10% of all murders were committed by women, but women make up over 29% of murder victims. So… women are far less likely to be killers than men are, and even less likely to be cop killers. On the other hand, they are less likely to be police personnel, and among police personnel, they are far less likely to be killed than their male counterparts. Or, to put it a different way, men are are disproportionately likely to be killed by police and to be police. Among police, men are disproportionately likely to be killed. Men are also far more likely to be murderers, murder victims, and cop killers than women are. One piece of interesting information that isn’t in this table because I haven’t found it: what percentage of killings by police are committed by male v. female personnel.  One can, of course, hazard a guess. One last point before we move to the real meat and potatoes of this post:  the fact that 96% of the people killed by police are men is not evidence of discrimination against men.  After all, about the same percentage of cop killers are men.  If 96% of cop killers were men, but men were 50% of those killed by cops, we wouldn’t be praising cops for their even handedness in dealing with men.  Why?  Well, when dealing with a potentially dangerous civilian, police face a trade-off between risk to themselves and risk to the civilian.

Three Blood Libels About Whites, the Police, and Black Lives Matter -- William K. Black --The best way to lose friends and be vilified in America is to talk frankly about race, racism, violent crime, politics, gender, Black Lives Matter (BLM) and prosecuting police officers.  I am writing a series of articles on these subjects.  In the course of this series I employ my “hats” as criminologist and a professor who teaches economics, law, and regulation plus my spousal hat where I draw on my wife and her co-author’s work on employment and marriage.  As criminologists, we are used to upsetting people from all parts of the political spectrum.  The one-sided stories that dominate the discussion of these difficult issues virtually always deliberately exclude unpleasant and analytically critical truths long documented by criminologists.  I hope to show you how my field has found the answers to the challenges of policing in the United States to be complex and often paradoxical. If you are able to read my entire series of columns on this topic you will find that there is a great deal of good news that criminologists, community leaders, and the police have worked together to produce.  We know how to reduce crime and reduce the unjust and discriminatory use of police actions.  We have proven that ability in many communities that work cooperatively with police leaders committed to achieving both goals.  Better yet, these successes generally make policing less expensive and they produce collateral benefits that go beyond policing.  Many communities are achieving a win-win-win-win.  In later columns I’ll use my other hats to show how non-policing policies such as a federal jobs guarantee program could be added to these policing reforms to produce even bigger wins.

Atlantic City May Default Without State Aid, Moody’s Says - Atlantic City is likely to default on $3.4 million of debt payments on Aug. 1 without an agreement with New Jersey on a $74 million bridge loan or other state action, according to Moody’s Investors Service.  Although state lawmakers had approved a loan as part of a rescue package in May for the distressed gaming hub, the terms are still being worked out between the state and city. Mayor Don Guardian told residents in a meeting Tuesday evening that city council would approve the agreement when it’s reached, according to a presentation on the city’s website. "Absent receipt of state support, we believe a default would likely set off a series of missed debt payments and revive the prospect of the city filing for bankruptcy" or a restructuring, Moody’s said in a statement Wednesday. Michael Stinson, the city’s revenue and finance director, didn’t return an e-mail requesting comment Wednesday. The city had previously said it would make financial obligations this week.

 Researchers are arguing that rust belt cities should embrace 'smart decline' -  Many leaders of Rust Belt cities like Detroit and Dayton, Ohio, know they’re losing residents, and are looking at ways to repopulate neighborhoods and bring jobs back. They’re deploying strategies such as constructing urban gardens and luring businesses with tax breaks, which have produced moderate successes, at least in slowing the population decline. But for most mid-sized post-industrial cities in the Midwest, the chance of growing within the next 20 years is slim, says Galen Newman, an assistant professor of landscape architecture and urban planning at Texas A&M. He and a colleague, Justin Hollander of Tufts University, are doing some of the only research on “smart decline”—a term that refers to the ways in which cities can plan around population loss and find ways to manage it (and maybe grow again one day).  I recently wrote about attempts in Youngstown, Ohio, to implement a “smart shrinkage” plan, and Newman and Hollander are developing a tool that will help cities like Youngstown predict which city blocks and neighborhoods will lose the most people in coming years, based on variables such as land value, proximity to railroads, and demographics. Galen recently talked to me about how cities can manage decreasing population numbers and why parts of the Midwest need to embrace their decline. This interview has been lightly edited for length and clarity.

One of New York City's busiest subway lines to shut for 18 months | Reuters: One of New York City's busiest subway lines will cease running between Manhattan and Brooklyn for 18 months starting in 2019, transit officials said on Monday, creating a massive service disruption in an already overtaxed system. The Metropolitan Transportation Authority said it will close a tunnel underneath the East River that carries the L train to fix extensive damage caused by flooding during Hurricane Sandy in 2012. The move will disrupt the commute for some 225,000 weekday riders who travel between downtown Manhattan and Williamsburg, a popular neighborhood that has seen enormous growth in recent years. Kevin Cummings, 59, a musician who lives in the neighborhood of Canarsie east of Williamsburg, said the shutdown would make his trip into Manhattan much more difficult. "For me personally, it hurts me," said Cummings, as he rode the L on Monday. "I just have problems with the MTA altogether." Williamsburg, once a downtrodden neighborhood dominated by factories and warehouses, emerged as a hipster enclave in part because of its proximity to lower Manhattan and improved service on the L train.

Why this is the perfect time to invest in infrastructure, and why it probably won’t happen - Broken water mains, creaking subway systems, tens of thousands of rickety bridges and countless miles of shoddy, traffic-clogged roads. America’s infrastructure is crumbling. Never has there been a better time to bolster public investments and shore up one of the nation’s biggest competitive weaknesses, say many advocates for stepped-up spending. Yet the golden opportunity may soon pass. Here’s why: What’s so great about the timing right now? You can’t borrow money for much cheaper. Long-term interest rates remain near record lows; yields on 10-year Treasury bonds, which dipped further after Britain’s vote to leave the European Union, hover around 1.5%. With inflation running just a tad below, that means it’s almost like free money for Uncle Sam. Construction materials also are near cyclical lows, thanks to the bottom falling out of the commodities market. But such favorable conditions for ramping up projects won’t last forever. Construction labor is already getting harder to find. Industry unemployment is down to 4.6%, from nearly 10% just three years ago.  Globally, America ranked 11th this year in infrastructure quality, below most of its peer group of major developed nations, according to the World Economic Forum. But here’s a more sobering statistic: Across the nation, a whopping 142,915 bridges — or about one in every four — were classified “deficient” in 2015 by the Department of Transportation. One of them was the half-century-old Tex Wash Bridge on I-10 in Southern California’s desert. It crumpled last summer after heavy rains, costing millions in repairs and closing a main artery from California to Arizona for five days.The main problem is that federal funding for transportation has come from a fuel tax of 18.4 cents per gallon. That hasn’t changed since 1993, meaning it hasn’t kept up with inflation, the increasing population and amount of infrastructure, or the rising costs to maintain the roads, airports, rail, airports and the like.

One Mother's Story: How Overemphasis on Standardized Tests Caused Her 9-Year-Old to Try to Hang Himself - “…I received a note from my son's teacher telling me he’d failed the FCAT [Florida Comprehensive Assessment Test] by one point. The note said he’d have to take a reading class over the summer and retest…We weren’t alarmed as he only had to score one more point to be promoted… “…a few weeks later his teacher called. [My son] had failed the test, again by ONE point! “…I didn’t tell him, but the next day [he] told me he knew he’d failed because if he had passed we’d have been told by the school and be celebrating. I lied—told him it takes several days and we’d know soon, but he insisted he’d failed. “It was dinner time. I called down the hall and asked what he wanted to drink with dinner. No response. I figured he was watching television in his room and hadn’t heard. A few moments later I called again. Again, no response. I can't tell you what it was that came over me, just that it was a sick feeling. I threw the hot pads I had in my hands on the counter and ran down the hall to [his] room, banged on the door and called his name. No response. I threw the door open. There was my perfect, nine-year-old freckled son with a belt around his neck hanging from a post on his bunk bed. His eyes were blank, his lips blue, his face emotionless. I dont know how I had the strength to hoist him up and get the belt off but I did, then collapsed on the floor and held [him] as close to my heart as possible. There were no words. He didnt speak and for the life of me I couldnt either. I was physically unable to form words. I shook as I held him and felt his heart racing. I saved him physically, but mentally he was goneThe next 18 months were terrible. It took him six months to make eye contact with me. He secluded himself from friends and family. He didnt laugh for almost a year…”

AT&T violated rule requiring low prices for schools, FCC says -- AT&T overcharged two Florida school districts for phone service and should have to pay about $170,000 to the US government to settle the allegations, the Federal Communications Commission said yesterday. AT&T disputes the charges and will contest the decision. The FCC issued a Notice of Apparent Liability (NAL) to AT&T, an initial step toward enforcing the proposed punishment. The alleged overcharges relate to the FCC's E-Rate program, which funds telecommunications for schools and libraries and is paid for by Americans through surcharges on phone bills. The FCC said AT&T should have to repay $63,760 it improperly received from the FCC in subsidies for phone service provided to Orange and Dixie Counties and pay an additional fine of $106,425. AT&T prices charged to the districts were almost 400 percent higher than they should have been, according to the FCC. AT&T violated the FCC's "lowest corresponding price rule" designed to ensure that schools and libraries "get the best rates available by prohibiting E-Rate service providers from charging them more than the lowest price paid by other similarly situated customers for similar telecommunications services," the FCC said. Instead of charging the lowest available price, "AT&T charged the school districts prices for telephone service that were magnitudes higher than many other customers in Florida," the FCC said. Between 2012 and 2015, the school districts paid "some of the highest prices in the state... for basic telephone services." Each year, AT&T submitted forms to the E-rate program "inaccurately claiming that it complied with the Commission’s rules," while "depleting limited public funds that could have supplied other schools and libraries with access to crucial learning technologies and services," the FCC said. The FCC document also noted that AT&T "dramatically increase[d] its pricing" after Florida deregulated phone service prices in 2011, leading to the school districts paying much higher rates.

Can Genes Really Predict How Well You'll Do Academically?: Researchers at King's College London say they are able to predict educational achievement from DNA alone. Using a new type of analysis called a "genome-wide polygenic score", or GPS, they analysed DNA samples from 3,497 people in the ongoing Twins Early Development Study. They found that people whose DNA had the highest GPS score performed substantially better at school. In fact, by age 16, there was a whole school-grade difference between those with the highest GPS scores and the lowest. The researchers herald their findings as a "tipping point" in the ability to use DNA - and DNA alone - in predicting educational achievement. These findings will certainly generate debate, particularly about nature versus nurture. It's a debate that forces us - often uncomfortably - to think about what makes us who we are. Are our careers, hobbies, food preferences, income levels, emotional dispositions, or even general success in life rooted in our genes (nature)? Or are we shaped more by our environment (nurture)? If it's all down to our genes, what happens to the idea of determining our own destiny? When it comes to the subject of intelligence, which today includes behavioural genetics research into "g" (a measure of intelligence commonly used as a variable in research in this area) and cognitive ability, the nature-nurture debate becomes that much more heated.

Scottish firm behind global 'essay mills' offering to write students' work for cash - A Scottish firm is behind a string of websites offering to write anything from school essays to PhDs for students for cash. Clever Networks runs three so-called "essay mills" - a service condemned by Scottish universities as "acting immorally on all levels" - using an address in Lanarkshire and a Glasgow telephone number. Despite offering to provide academic work to students in the UK the firm has no physical presence in Scotland and has never filed any accounts. It has, however, recently been advertising for employees in the Ukrainian capital of Kiev.   Clever Networks is one of more than 2500 Scottish Limited Partnerships (SLPs) formally registered at a former draper's shop on the Main Street of the mining village of Douglas, South Lanarkshire. The Herald this week revealed that the same address was being used by another SLP named by Ukraine's elite anti-corruption police in a prosecution of officials accused of skimming nearly $2m from the export of arms to the Middle East.  This - and a series of other revelations that SLPs were being advertised in Ukraine and elsewhere in the former Soviet Union as "offshore companies" which pay no taxes has already prompted Oxfam to call for their reform.  Clever Networks, and its address at 44 Main Street, Douglas, is used as the contact details of the websites www.handmadewritings.com; www.writingsguru.com, both of which used a Scottish telephone contact number, and www.essaysusa.com, which gives a US number.

  Student Debt: Lives on Hold - Consumer Reports: Millions of Americans who went to college seeking a better future now face crushing debt from student loans—while the industry makes a handsome profit. How a broken system landed so many in this mess.Almost every American knows an adult burdened by a student loan. Fewer know that growing alongside 42 million indebted students is a formidable private industry that has been enriched by those very loans. A generation ago, the federal government opened its student loan bank to profit-making corporations. Private-equity companies and Wall Street banks seized on the flow of federal loan dollars, peddling loans students sometimes could not afford and then collecting fees from the government to hound students when they defaulted. Step by step, one law after another has been enacted by Congress to make student debt the worst kind of debt for Americans—and the best kind for banks and debt collectors. Today, just about everyone involved in the student loan industry makes money off of the students—the banks, private investors, even the federal government. Once in place, the privatized student loan industry has largely succeeded in preserving its status in Washington. And in one of the industry’s greatest lobbying triumphs, student loans can no longer be discharged in bankruptcy, except in rare cases. At the same time, societal changes conspired to drive up the basic need for these loans: Middle-class incomes stagnated, college costs soared, and states retreated from their historical investment in public universities. If states had continued to support public higher education at the rate they had in 1980, they would have invested at least an additional $500 billion in their university systems, The calculus for students and their families had changed drastically, with little notice. Today, there is a student debt class like no other: about 42 million Americans bearing $1.3 trillion in student debt that’s altering lives, relationships, and even retirement.

Pensions Are a Big Old Slow-Moving Disaster : Are you planning to retire with a pension? I’m sorry to hear that. It is no big secret that states and municipalities across America are facing pension crises of varying degrees of severity. The fundamental cause of these crises: pensions assume that they will make far more money on their investments than they actually do. When they do not have an enormous rate of return on their investments, they end up short of money. They do not have all the money they promised to pay people when they retire. Hence, a crisis. Of course, it is possible for reasonable people to argue endlessly over why pensions pretend that they will make more on their investments than they actually will. Sometimes it is sheer incompetence, or corruption, or mismanagement rooted in the self-serving nature of greedy politicians.. Other times it can be an honest mistake, driven by credulousness or by alluring and highly-paid consultants and money managers who promise the secret to high returns in exchange for hefty fees. Whatever the reasons, though, the situation becomes: pensions end up without enough money socked away to meet their obligations. This tends to cause them to reach for ever-more-exotic investments—hedge fund, private equity, etc.—in an effort to goose their returns. When this fails, they retreat back to earth.  Here is this week’s news from major pensions:

Ohio taking a reckless gamble with pension funds: Gov. John Kasich claims Ohio public pensions are “rock solid,” but the math revealed in the Comprehensive Annual Financial Reports (CAFR) and the annual U.S. Census survey of all public pensions shows a system sinking in the quicksand of terrible investment returns and ultra high expenses. In 2015 Ohio’s five public pensions paid outside fund managers a staggering $734.8 million. These management fees are extraordinarily high because Ohio relies on secretive alternative investments more than any state in America. Census data shows Ohio reduced holdings in hedge funds and private equity funds by more than $10 billion dollars last year but still own more of these high-cost investments than any other state. The results are embarrassing. In 2015 the Ohio Public Employees Retirement System, the state’s largest pension fund, spent $428.2 million in external management fees for investment results that fell 99.8 percent from 2014, a year when PERS also failed to match what a low-cost index fund would have returned. The Ohio Retirement Study Council, a state government agency created to advise the state legislature, confirms that no Ohio public pension fund has earned the investment returns assumed by their contribution rates over the last 10 years. This is why three of the five funds have increased employee contribution rates from 25 percent to 40 percent and all of the funds have changed the benefit calculations to cut retirement payments. Recently released census data shows Ohio’s unfunded pension obligation grew from $35 billion in 2014 to $134.5 billion in 2015.

The Big Disconnect in the Pension Industry -- When two of the biggest  US pension funds  reported  very disappointing financial results this month,  it became apparent that the pension industry needs a reality check.   . For the past  fiscal  year the California Public Employees’ Retirement System  earned a merger return of 0.6 percent on its investments; the California State Teachers' Retirement System did only marginal better,  clocking  an investment return of 1.4 percent . Both funds had a target rate of return 7.5 percent . To be fair, one year`s result does not make a trend, but the results were so far below target as to warrant an examination of the new world confronting pension funds .   We begin by taking the measure of how much  public pension funds ( Chart 1) and corporate pension  funds ( Chart 2) are underfunded. Underfunding is a moving target over time and is reflective of  several moving parts, such as :  shifts in demographics ( an aging population); estimates of longevity of retirees;  economic performance  ( slow growth means lower contributions);  and rates of return on various asset classes. In the US, both public and private pensions have experienced a steady erosion in funding status over the decade and a half. The large public pension plans and large corporations  only support 70-75  percent of liabilities today.  The underfunding exist despite a very good rate of growth in assets; however, liabilities have increased faster and one reason for this can be traced to the dramatic fall in long term interest , especially, post 2008.   The decline in interest rates affects both sides of the ledger . On the asset side, lower interest rates imply lower overall returns; on the liability side, the book value of  pension obligations move up due to the lower discount rate used to calculation the liabilities. In fact, these two changes in value --- assets and liabilities-- do not offset one another, rather they move in the same direction. The net affect is that the underfunding situation is exacerbated, increasing the gap between assets and liabilities

Why public-sector pension plans take more risk | The Economist: IMAGINE two kinds of investment funds, both of which have the same aim: to provide pensions for their employees. You might think that they would invest in a similar way. But when it comes to American pension funds, you would be wrong. It turns out that public funds have a rather different, and more aggressive, approach to risk than private pension funds (and indeed than their counterparts in other countries). As a recent paper* by Aleksandar Andonov, Rob Bauer and Martijn Cremers shows, that different approach is driven by a regulatory incentive—the rules that determine how pension funds calculate how much they need to put aside to meet the cost of paying retirement benefits. Usually, the bulk of a pension fund’s liabilities occur well into the future, as workers retire. So that future cost has to be discounted at some rate to work out how much needs to be put aside today.Private-sector pension funds in America and elsewhere (and Canadian public funds) regard a pension promise as a kind of debt. So they use corporate-bond yields to discount future liabilities. As bond yields have fallen, so the cost of paying pensions has risen sharply. At the end of 2007, American corporate pension funds had a small surplus; by the end of last year, they had a $404 billion deficit. American public pension funds are allowed (under rules from the Government Accounting Standards Board) to discount their liabilities by the expected return on their assets. The higher the expected return, the higher the discount rate. That means, in turn, that liabilities are lower and the amount of money which the employer has to put aside today is smaller.

An uncomfortable conversation we need to have: Is the U.S. spending too much money on the elderly? -  Medicare and Social Security are the bedrock programs of American liberalism, so why do so many liberals consider it taboo to even suggest adjusting these systems to ensure their sustainability for future generations? We The People Live host Josh Zepps tackles this question of progressive orthodoxy in this original Salon video filmed at the Democratic National Convention in Philadelphia. Zepps says America’s resource allocation is in need of a serious reexamination: “Medicare costs more than $500 billion per annum, 30 percent of which is spent on the five percent of beneficiaries who die each year. One third of that is spent on the final month of life. The final month. I mean, you want to talk about priorities, let’s just take that one datum. More than $50 million each year spent on the final month of life.”“The left needs to reckon with the uncomfortable truth that what this country is doing is sapping the vitality of the young and pumping it into the elderly,” he says. “It is a gigantic resources Hoover from young professionals into old retirees.” Zepps also has a message for those who would change the topic by pointing to other items in the federal budget that could use cutting: “This isn’t a conversation about why other people are wrong. We do enough of that. This is a conversation about how we can improve ourselves, by admitting things we tend to refuse to admit.” Watch the full clip above.

  Justice Department Charges Three in $1 Billion Medicare Fraud Scheme in Florida - WSJ: The Justice Department on Friday unsealed charges in its largest-ever criminal health-care-fraud case, charging three individuals with using a network of doctors, hospitals and health-care providers across South Florida to improperly bill more than $1 billion to Medicare and Medicaid. Philip Esformes, the owner of more than 30 Miami-area skilled-nursing and assisted-living facilities, was the project’s mastermind, the indictment alleged. He and two co-defendants, along with other co-conspirators, allegedly paid and received bribes and kickbacks to get thousands of patients admitted to facilities Mr. Esformes controlled. In those facilities, they were often given medically unnecessary and sometimes harmful treatments, which were then billed to Medicare and Medicaid, according to court papers. The case was brought as part of an interagency Medicare Fraud Strike Force, which operates in nine locations across the country, officials said. Fraud continues to plague the roughly $600 billion Medicare program, though new criminal cases have slowed in recent years. Fraud enforcers have brought fewer cases since 2013, but convictions and settlements since the start of the decade have netted Medicare between $1 billion and $2.5 billion annually, according to a report from the Department of Health and Human Services’ Office of the Inspector General. Last year, Medicare took in $1.6 billion from fraud-enforcement efforts and Medicaid scored another $135.9 million, according to the report. The figures don’t include what states won in Medicaid-fraud cases. Medicaid, which helps pay for health care for the needy, aged, blind and disabled, and for low-income families with children, is partially financed by states.

A new threat in fight against overdoses: Elephant sedative - (AP) — A drug used to sedate elephants and other large animals, 100 times as potent as the fentanyl already escalating the country's heroin troubles, is suspected in spates of overdoses in several states, where authorities say they've found it mixed with or passed off as heroin. The appearance of carfentanil, one of the most potent opioids known to investigators, adds another twist to the fight against opioid painkillers in a country already awash in heroin and fentanyl cases."It certainly is a very disturbing trend," Ohio Attorney General Mike DeWine said. A man suspected of selling carfentanil as heroin was indicted this week in central Ohio on 20 counts, including murder, in connection with a July 10 death and nine other overdoses that happened within hours of one another. Some of the surviving users told investigators they thought they were buying heroin, but testing found none, Franklin County Prosecutor Ron O'Brien said. The suspect, 36-year-old Rayshon Alexander, pleaded not guilty. Investigators are still trying to track down the source of the carfentanil. DeWine said he wasn't aware of any thefts of the drug, which, he noted, could be shipped from abroad or produced here. Chinese companies sell carfentanil online, but it hasn't shown up much in the U.S. drug supply, according to the U.S. Drug Enforcement Administration. There hasn't been much evidence of carfentanil on the streets or in testing related to criminal cases, said agent Rich Isaacson, a spokesman for the DEA's Detroit Division, which covers Ohio

 Antibiotic resistance: 'Snot wars' study yields new class of drugs - BBC News: A new class of antibiotics has been discovered by analysing the bacterial warfare taking place up people's noses, scientists report. Tests reported in the journal Nature found the resulting drug, lugdunin, could treat superbug infections. The researchers, at the University of Tubingen in Germany, say the human body is an untapped source of new drugs. The last new class of the drugs to reach patients was discovered in the 1980s. Nearly all antibiotics were discovered in soil bacteria, but the University of Tubingen research team turned to the human body. Dreaded superbug Our bodies might not look like a battlefield, but on a microscopic level a struggle for space and food is taking place between rival species of bacteria. One of the weapons they have long been suspected of using is antibiotics. Among the bugs that like to invade the nose is Staphylococcus aureus, including the dreaded superbug strain MRSA. It is found in the noses of 30% of people. But why not everyone?The scientists discovered that people with the rival bug Staphylococcus lugdunensis in their nostrils were less likely to have S. aureus. The German team used various strains of genetically-modified S. lugdunensis to work out the crucial piece of genetic code that allowed it to win the fight to live among your nose hairs. They eventually pinpointed a single crucial gene that contained the instructions for building a new antibiotic, which they named lugdunin. Tests on mice showed lugdunin could treat superbug infections on the skin including MRSA, as well as Enterococcus infections.

CRISPR has off-target effects that researchers have been ignoring - While the 150 experts from industry, academia, the National Institutes of Health, and the Food and Drug Administration were upbeat about the possibility of using genome-editing to treat and even cure sickle cell disease, leukemia, HIV/AIDS, and other blood disorders, there was a skunk at the picnic: an emerging concern that some enthusiastic CRISPR-ers are ignoring growing evidence that CRISPR might inadvertently alter regions of the genome other than the intended ones. “In the early days of this field, algorithms were generated to predict off-target effects and [made] available on the web,” Joung said. Further research has shown, however, that such algorithms, including one from MIT and one called E-CRISP, “miss a fair number” of off-target effects. “These tools are used in a lot of papers, but they really aren’t very good at predicting where there will be off-target effects,” he said. “We think we can get off-target effects to less than 1 percent, but we need to do better,” especially if genome-editing is to be safely used to treat patients. Off-target effects occur because of how CRISPR works. It has two parts. RNA makes a beeline for the site in a genome specified by the RNA’s string of nucleotides, and an enzyme cuts the genome there. Trouble is, more than one site in a genome can have the same string of nucleotides. Scientists might address CRISPR to the genome version of 123 Main Street, aiming for 123 Main on chromosome 9, only to find CRISPR has instead gone to 123 Main on chromosome 14.

Dolly's 'Sisters' Show Cloned Animals Don't Grow Old Before Their Time -- It's now 20 years since the birth of Dolly the sheep, the first mammal to be cloned. This groundbreaking scientific achievement was accompanied by warnings that Dolly might age prematurely because she had been cloned from adult sheep cells, whose "biological clock" had not been reset. Fears were heightened in 2001 when Dolly was diagnosed with osteoarthritis at five years of age (she died two years later). produced and so we've been studying a group of cloned sheep, including four of Dolly's "identical sisters". We found that most of the animals are actually in good health for their age. There was little sign of blood glucose problems, high blood pressure or osteoarthritis, all of which were highlighted as potential problems. This suggests that the cloning technique can, after all, produce perfectly normal and viable offspring that don't grow old before their time.  The technique used to produce Dolly is called somatic-cell nuclear transfer (SCNT) and involves reprogramming normal sheep cells into embryonic cells that can turn into any other specific type of cell in the body. This is done by effectively inserting the nucleus of an ordinary cell into an empty egg. But the Nature paper of 1997 announcing the creation of Dolly also highlighted inefficiencies with SCNT. It took 277 reconstructed embryos to produce one sheep. Analysing Dolly's DNA also suggested that her cells were biologically older than her chronological age. It's as if the cells still thought they were part of the original, older sheep from which she was cloned.

Everyday chemicals may be messing up our microbiomes—but we don’t know -- Everyday chemicals may be messing up our microbiomes—but we do: Poke around any bathroom or cleaning cabinet in the US and you’re likely to find a product spiked with an antimicrobial chemical. One of the most common of these, triclosan, has shown up in about 75 percent of antibacterial hand soaps and is easily spotted in a range of other goods, from toys to toothpaste. It has also been found in about 75 percent of Americans’ urine. Yet, despite their omnipresence, these antimicrobials go largely unregulated and scientists don’t know their health effects. In an opinion piece published Thursday in Science, Alyson Yee and Jack Gilbert, microbiologists from the University of Chicago, call for that to change. They lay out just how little data we have on the chemicals—and some of it even conflicts. Yet, it’s clear that our exposure may begin in the womb and that the chemicals do have the potential to mess up our microbiomes—the communities of microbes in and on us that strongly influence our health. Such microbial disturbances have been linked to wide ranging conditions, from neurological disorders to arthritis, allergies, obesity, and irritable bowel disorder. As such, scientists should prioritize figuring out if the chemicals that are already all around us, are causing harm, Yee and Gilbert argue. To make their case, the pair first lay out how easy it is to come into contact with antimicrobials: they’re in wipes, toothpaste, cosmetics, cutting boards, detergents, toys, plastics, as well as hand soaps. And they readily sink into skin if they don’t make their way into a mouth via a toothbrush or a contaminated hand. Studies have found evidence of exposure in utero and around birth, particularly in hospitals, which heavily rely on antimicrobials to curb the spread of germs to vulnerable patients. Exposure so early, while the microbiome is still getting established, may have lasting but subtle impacts on health, the authors note.

Are You a Toxic Waste Disposal Site? - EVEN if you’re not in Flint, Mich., there are toxic chemicals in your home. For that matter, in you.Scientists have identified more than 200 industrial chemicals — from pesticides, flame retardants, jet fuel — as well as neurotoxins like lead in the blood or breast milk of Americans, indeed, in people all over our planet. These have been linked to cancer, genital deformities, lower sperm count, obesity and diminished I.Q. Medical organizations from the President’s Cancer Panel to the International Federation of Gynecology and Obstetrics have demanded tougher regulations or warned people to avoid them, and the cancer panel has warned that “to a disturbing extent, babies are born ‘pre-polluted.’” They have all been drowned out by chemical industry lobbyists. So we have a remarkable state of affairs:

  • ■ Politicians are (belatedly!) condemning the catastrophe of lead poisoning in Flint. But few acknowledge that lead poisoning in many places in America is even worse than in Flint. Kids are more likely to suffer lead poisoning in Pennsylvania or Illinois or even most of New York State than in Flint. More on that later.
  • ■ Americans are panicking about the mosquito-borne Zika virus and the prospect that widespread infection may reach the United States. That’s a legitimate concern, but public health experts say that toxic substances around us seem to pose an even greater threat.

“I cannot imagine that Zika virus will damage any more than a small fraction of the total number of children who are damaged by lead in deteriorated, poor housing in the United States,” says Dr. Philip Landrigan, athe dean for global health at the Icahn School of Medicine at Mount Sinai.“Lead, mercury, PCBs, flame retardants and pesticides cause prenatal brain damage to tens of thousands of children in  Yet one measure of our broken political system is that chemical companies, by spending vast sums on lobbying — $100,000 per member of Congress last year — block serious oversight. Almost none of the chemicals in products we use daily have been tested for safety.

Gas Leaks, Mold, and Rats: Millions of Americans Live in Hazardous Homes -- There are about 135 million homes in America, and a surprisingly large portion of them pose threats to their residents: 30 million homes in the U.S. have serious health and safety hazards, such as gas leaks, damaged plumbing, and poor heating. About 6 million of those have structural problems. Another 6 million have lead paint. These statistics, released last week in a report by the Center for American Progress (CAP), a liberal think-tank, reveal the distressing state of American housing. Most of these homes are located in areas of “concentrated disadvantage,” which the report describes as neighborhoods with high rates of violence, unemployment, racial segregation, and single-parent homes. These housing conditions shape the lives of the families who inhabit them. The report highlights research showing how people living in areas of concentrated disadvantage are more likely to suffer health problems, such as depression, asthma, heart disease, and diabetes. Take asthma, for example: About 40 percent of asthma episodes are triggered by the household presences of mold, dust mites, or rats. Black children, who are more likely to live in disadvantaged neighborhoods, are also more likely than white children to suffer from asthma than white children. “One’s health and life expectancy is determined more by ZIP code than genetic code,” the report concludes. The physical condition of a home and neighborhood affect far more than a person’s health. A growing body of research shows that they may hurt a child’s academic performance and even a parent’s chance of finishing school. The CAP report cites the work of researchers at Harvard University, New York University, and the University of Chicago who tracked about 2,000 black children between the ages of 6 and 12 living in Chicago, monitoring their academic performance as they moved in and out of the city’s poor neighborhoods. After controlling for parents’ welfare status, income, occupation, and marital status, researchers found that children living in neighborhoods of concentrated disadvantage scored lower in measures of verbal ability, and were behind by the equivalent of one to two years of schooling. A child’s verbal ability is linked to educational achievement, employment rates, and other life outcomes, and the longer the children were exposed to these environments, the stronger the negative effect.

Toxic algae bloom closes Utah lake, sickens more than 100 people | Fox News: – A huge toxic algae bloom in Utah has closed one of the largest freshwater lakes west of the Mississippi River, sickening more than 100 people and leaving farmers scrambling for clean water for days during the hottest part of the year. The bacteria commonly known as blue-green algae has spread rapidly to cover almost all of 150-square-mile Utah Lake, turning the water bright, anti-freeze green with a pea soup texture and leaving scummy foam along the shore. "It smells like something is rotting," said Jason Garrett, water quality director for the Utah County Health Department. "We don't have an idea of how long this event will last." Toxic algae is a problem around the country. An enormous outbreak in Florida is now fouling beaches on the Atlantic coast, and a 2014 outbreak at Lake Erie left more than 400,000 people in the Toledo area without tap water for two days. Utah Lake doesn't provide drinking water, but its closure has caused big problems for people who use the lake for swimming, fishing and other activities and for farmers with thirsty crops. Utah Poison Control says it has fielded hundreds of calls related to the bloom, including some 130 involving people who have reported vomiting, diarrhea, headache and rashes. The contamination spread to the Jordan River, which supplies irrigation water to dozens of farmers around Salt Lake City, about 45 miles north of the lake. The problem occurred amid days of triple-digit temperatures as growers prepare for farmers markets and try to nurture crops such as corn and fruit trees at key points in their development.

‘We’ve primed the system': Why disgusting toxic blue-green algae blooms seem increasingly common--  It is the summer of algae.  Across the United States, bodies of water teem with microscopic organisms, warmed by the sun and growing fat on stirred-up nutrients. Such microscopic explosions, called blooms, come at the expense of nearly everything else in the contaminated rivers and lakes. Their shores sport colors better suited to Gatorade factory rejects. What was once crystal or blue becomes scummy browns or dull reds — and, perhaps most significantly, a noxious snotty green. In places, the microbes are so numerous the water thickens to a soup.  Nor is it a problem unique to the United States. An expanse of Australia’s longest river in the Murray-Darling Basin has gone green with increasing frequency. The most recent bloom covered more than a 600-mile stretch.  “It’s been 40 years between blooms and then all of a sudden we’ve had five in 13 years,” Utah Lake, a freshwater lake that covers some 150 square miles — one of the largest lakes in the Western states — has been drenched in cyanobacteria, also known as blue-green algae. The bacterial cell counts reached the tens of millions per milliliter, according to the Salt Lake Tribune. Two years prior, a cyanobacteria bloom that was toxic enough to kill two dogs was far less concentrated, numbering in the hundreds of thousands of cells per milliliter.  Utah Lake is not a reservoir for drinking water. The scum nevertheless sickened swimmers, fishermen and others who came in contact with the bacteria. In Idaho, the state’s environmental quality department warned of blue-green algae spikes in Hells Canyon Dam. Exactly why blue-green algae produce toxins is a bit of a mystery. Better understood is that the chemicals can cause liver and skin damage in mammals. Human deaths from cyanobacteria are rare, though evidence of neurological effects is mounting. Dogs that slurp up water more frequently die from cyanobacteria. But the majority of deaths likely go unmourned, of fish and other organisms that suffocate as the bacteria suck the oxygen out of the water.

Slimy Green Beaches May Be Florida's New Normal: The green slime that washed onto Florida beaches earlier this month marks the eighth time since 2004 that toxic algae have fouled the Sunshine State’s storied coastline. The algae blooms of 2013 were so severe the event became known as Toxic Summer. And this year’s outbreak has so thoroughly spread through delicate estuaries on both coasts that Florida officials declared a state of emergency in four counties. Toxic sludge has killed fish, shellfish, and at least one manatee and has sickened people who have touched it.“This is absolutely the worst,” says Evan Miller, an environmental activist and founder of Citizens for Clean Water.   “We’ve never seen algae so thick. You can see it from space. There are places that are on their third and fourth cycle of blooms now.” As the latest outbreak continues to play out with sporadic bursts of new algae blooms, dismayed Floridians are wondering if the recurring appearance of this tourist-repelling, fish-killing scum is their new normal. It may be. Blue-green algae, also known as cyanobacteria, occur naturally and thrive in warm, calm water. Two conditions work against eradicating it: climate change and political inertia. As the climate warms, toxic algae blooms are proliferating worldwide—from eastern China, which has seen some of the largest algae blooms on Earth, to the American West, where sludge covering almost the entire surface of Lake Utah is raising questions about the safety of fruits and vegetables irrigated with algae-infested water. Florida, already confronting warmer and wetter days, will surely find itself battling more algae as the climate continues to heat up in the decades to come. But the guacamole-thick sludge that keeps appearing can be blamed more on political inaction.

USF study: Sewage spills breed 'superbugs' that could undermine last-resort antibiotic: Continual sewage spills could contribute to a powerful, last-resort antibiotic becoming powerless against some staph and other potentially fatal infections, a new study suggests. The study by researchers from the University of South Florida found a strain of bacteria, called Enterococcus faecium, in water and soil near a 2014 sewage spill in St. Petersburg that tested resistant to vancomycin, a last-resort antibiotic against severe and multidrug-resistant infections. The drug is typically used to treat post-surgery infections. Bacteria resistant to the drug have been found in raw sewage tested from hospitals but is rarely found in the wild. So USF's findings portend another ecological threat to waters periodically doused with sewage, such as the Indian River Lagoon, where some dolphins and other wildlife already harbor antibiotic resistant bacteria. "I think we are worried that we're seeing evidence of this spread outside of hospitals," said Suzanne Young, a PhD student at USF who worked on the study. "I think if we're seeing it in Tampa, we're going to see it everywhere else.". Even more concerning to the researchers: the vancomycin-resistant enterococcus (VRE) was found to harbor what are called vanA genes, which can spread vancomycin resistance to other kinds of bacteria. The Centers for Disease Control and Prevention (CDC) estimates that roughly 20,000 VRE infections occur in hospitalized patients annually, 1,300 which are fatal. USF's study, recently published in Applied and Environmental Microbiology, examined a 2014 sewage spill in St. Petersburg ditch that flows to Boca Ciega Bay, northwest of and linked to Tampa Bay. The researchers sampled water and soil for seven weeks following a broken sewer pipe that spilled 500,000 gallons of raw sewage.

More Mosquito Days Increasing Zika Risk in U.S.  Hot and humid summer weather across the U.S. brings with it the rise of the mosquito season, and this year the threat of the Zika virus makes that more than a minor nuisance. Mosquito species found in the Lower 48 states are known to transmit this disease, thriving in tropical and subtropical climates. As the climate warms and humidity increases across the nation, the risk of mosquito-borne diseases, like Zika, is becoming more prevalent for Americans. Climate Central’s States at Risk project has analyzed how the length of the mosquito season has been changing across hundreds of metropolitan areas across the Lower 48 states. We found that in most of the country, rising temperatures and humidity since the 1980s have driven an increase in the number of days each year with ideal conditions for mosquitoes. Warming temperatures lead to more evaporation, which puts more water vapor in the atmosphere and increases humidity. The overall increase in mosquito days in the U.S. is likely increasing the risk of several mosquito-borne diseases, including the Zika virus.

  • Cities like Baltimore and Durham, N.C., have seen their annual average mosquito season grow by nearly 40 days since the 1980s. 
  • Dozens of cities across the Midwest, Northeast, and along the Atlantic Coast have all seen their mosquito seasons grow by at least 20 days over the past 35 years. 
  • More than 20 major U.S. cities have ideal climate conditions for mosquitoes at least 200 days each year. 
  • In a few hot Southern cities, rising extreme heat since the 1980s has actually caused the mosquito season to begin to decrease (though there are still hundreds of days each year with ideal conditions for mosquitoes in these locations).

Climate change is extending mosquito season in the D.C. region — bad news for Zika -- As if climate change wasn’t already bad enough, we now have one more reason to change course. Summer heat is hanging around longer, the days are becoming more humid, and mosquito season is lengthening, which means an increased risk of vector-borne diseases like Zika.  Baltimore tops the list of growing mosquito seasons, according to an analysis by Climate Central. Since 1980, the metro area has seen a 37-day increase in the season of bug bites, which now lasts 152 days on average. In Washington, the season has lengthened by 29 days to 143.  Why is this happening? As temperatures slowly increase across the United States, the number of days above 50 degrees grows. And as things get warmer, more moisture is evaporated into the air which increases the humidity. Mosquitoes love hot and humid days.  Climate Central analyzed temperature and humidity trends for the largest cities in the United States, specifically within the preferred range of the Asian tiger mosquito — 50 to 95 degrees, with a relative humidity of at least 42 percent. The Southeast tends to be the most habitable for the bloodsuckers, and more than 20 U.S. cities have ideal conditions for at least 200 days of the year.  But 10 cities have seen these conditions extend by more than a month, as far north as Minneapolis and Portland, Maine. On Wednesday, Morning Mix reported, the Florida Department of Health added two more patients to their list of possibly non-travel-related Zika cases, bringing the total number of cases to four. This means mosquitoes in the United States are likely infected with the disease and have the ability to spread it.  

Climate change could curb malaria risk in West Africa by end of century  -- A new study suggests that climate change could make West Africa less hospitable for mosquitoes by the end of the century, reducing the risk of malaria outbreaks.  West Africa has the highest rates of malaria infection and deaths in the world. Approximately 340m people are at risk from being infected (pdf), and the disease causes hundreds of thousands of deaths each year. While a fall in risk would be positive news, the findings don’t mean that rising temperatures and changing rainfall patterns will be beneficial for Africa overall, say the authors. Of the approximately 3,500 different species of mosquito, around 40 spread malaria. These all belong to the Anopheles family. In West Africa, the most common carrier of malaria is a group of eight species known collectively as Anopheles gambiae sensu lato. Mosquitoes thrive in the wet and sultry climate of West Africa. They breed in shallow pools of water, laying their eggs in drainage channels, marshes, swamps or even in muddy puddles.  Mosquitoes have a relatively narrow range of conditions in which they can live and breed. This means their survival – and capacity to spread disease – is closely linked to the weather. For example, warmer conditions speed up how quickly new mosquitoes grow and hatch, but temperatures above 35C kill them off. Rain provides water for mosquitoes to lay eggs, but hot weather can mean the water evaporates before their young have hatched. The new study, published in Nature Climate Change, attempts to take all these variables into account in a model to project the impact of a warming climate on malaria in West Africa. The model also takes into account human factors such as how quickly people build up immunity to the disease.

Hydropower dams worldwide cause continued species extinction: New research led by the University of Stirling has found a global pattern of sustained species extinctions on islands within hydroelectric reservoirs. Scientists have discovered that reservoir islands created by large dams across the world do not maintain the same levels of animal and plant life found prior to flooding. Despite being hailed as conservation sanctuaries that protect species from hunting and deforestation, islands undergo sustained loss of species year on year after dam construction, a pattern otherwise known as 'extinction debt'. These findings represent a significant environmental impact that is currently missing from assessment procedures for proposed new dams. Isabel Jones, PhD researcher at the University and Lead Author, said: "We found a devastating reduction in species over time in the majority of reservoir islands we studied. On average, islands have 35 per cent fewer species than nearby mainland sites, however one South American bird community suffered as much as 87 per cent loss of species on reservoir islands.

TED Talk About the Interconnectedness and Intelligence of Trees in Forests -- Big Picture Agriculture - This British Columbia native, Suzanne Simard, has spent her life studying and observing forests and she is impressed with tree intelligence and communication skills, as well as their ability to share nutrients and work together symbiotically. She is concerned about Canada's rate of cutting forests - 3.6 percent per year - which is unsustainable. She wants locals, not outsiders to be the ones to connect with forests and make decisions about sustaining them.

 What we’re doing to the environment may be costing us our drinking water - The human footprint on the environment may have affected one of the Earth’s most precious resources — our drinking water — in a major way throughout the last century, according to new research. A study published Monday in the journal Proceedings of the National Academy of Sciences suggests that population growth and land use changes since the year 1900 have increased pollution in urban watersheds around the world and driven up the cost of water treatment in the process. In the past, case studies have suggested that certain cities around the world have seen an increase in pollution and degradation of the watersheds they rely on for tap water, thanks to an increase in human populations and activities nearby, said Robert McDonald, a lead scientist with the Nature Conservancy and the lead author of the new paper. When this happens, cities must sometimes build more complex — and more expensive — water treatment plants to make sure their water supplies stay safe for human use. Researchers combined data on where cities around the world get their drinking water with data on human population growth and land use changes in those regions. They focused on watersheds for more than 300 cities worldwide, all with populations exceeding 750,000 people. The researchers used these data sets to reconstruct the degradation of watersheds between the years 1900 and 2005 using a model that builds on previous research examining the way human activities affect water quality. Specifically, they focused on changes in nitrogen, phosphorus and sediment levels in the water. As these types of water pollution increase, they can require more complex forms of water treatment to make the water safe.

Humans Are Seriously Messing Up The World’s Drinking Water -- Clean, drinkable water is more than a precious resource — its crucial to human life. Unfortunately, population growth and pollution are threatening to seriously undermine the availability of clean drinking water in many of the world’s major cities. According to a study published Monday in the Proceedings of the National Academy of Sciences, water treatment costs have risen by 50 percent in a third of large cities around the world.  That means that getting clean, pure drinking water to people has become an increasingly difficult task, requiring cities not only to pay for expensive treatments, but pay for the construction of treatment plants to dole out said expensive treatments. All told, the study estimated that the total cost of degradation to our drinking water — in terms of treatment costs — is around $5.4 billion annually. The study, which was a joint effort from researchers at the Nature Conservancy, Yale University, and Washington State University, looked specifically at how three kinds of water pollution — sediment, nitrogen, and phosphorus — have degraded the watersheds from which we obtain our drinking water. These kinds of pollution can enter into watersheds for a variety of reasons, but they all come back to one thing — human activity, which can have seriously detrimental impacts on drinking water. Here are some of the ways that human activity is seriously messing with clean water, both in the United States and around the world.

Florida regulators vote to allow more chemicals in drinking water | Miami Herald: Florida regulators voted to approve new water quality standards Tuesday that will increase the amount of cancer-causing toxins allowed in Florida’s rivers and streams under a plan that the state says will protect more Floridians than the current standards do. The Environmental Regulation Commission voted 3-2 to approve a proposal drafted by state regulators that would impose new standards on 39 chemicals not currently regulated by the state, and revise the regulations on 43 other toxins, most of which are carcinogens. “We have not updated these parameters since 1992. It is more good than harm,” said Cari Roth, a Tallahassee lawyer who represents developers on the governor-appointed commission and serves as its chair. “The practical effect is, it is not going to increase the amount of toxins going into our waters.” But the proposal, based on a one-of-a-kind scientific method developed by the Florida Department of Environmental Protection and nicknamed “Monte Carlo,” is being vigorously criticized by environmental groups. They warn that the new standard would allow polluters to dump dangerous amounts of chemicals in high concentrations into Florida waters before they trigger the limits of the new rule, and let Florida adhere to standards that are weaker than federal guidelines. “Monte Carlo gambling with our children’s safety is unacceptable,” said Marty Baum of Indian Riverkeeper, an environmental group based in Indian River County.  Under the proposal, the acceptable levels of toxins will be increased for more than two dozen known carcinogens and decreased for 13 currently regulated chemicals. DEP, however, touted the part of the plan that will impose new rules on 39 other chemicals that are not currently regulated, including two carcinogens.  The dozens of chemicals are among those released by oil and gas drilling companies (including fracking operations), dry cleaning companies, pulp and paper producers, nuclear plants, wastewater treatment plants and agriculture. Many of these industries support the new rule but the pulp and paper producers said told the commission the measure was too restrictive.

Expanding farms harm nature on 58 pct of world's land - (Reuters) - An expansion of farmland has damaged nature beyond a "safe" limit on 58 percent of the world's land surface, threatening natural services such as crop pollination by insects, scientists said on Thursday. Grasslands, such as in United States, Argentina, South Africa or Central Asia, are among natural systems most affected by declines in animals and plants caused by human activities, they wrote in the journal Science. Northern pine forests and tundra are least affected, they said. Overall, the study said the diversity of animals and plants on 58 percent of the world's land area, home to 71 percent of all people, had fallen below a safe threshold, driven mainly by an expansion of farmland as well as by roads and bigger cities. They defined "safe" as places where the local abundance of species was at least 90 percent of levels in comparable regions untouched by human activity. They based the conclusions on 2.38 million records for 39,123 species at 18,659 sites. The declines raise risks for natural services such as pollination of food crops by insects, production of nutrients by soils, or the ability of forests to absorb carbon dioxide as a natural brake on climate change. "If we keep degrading biodiversity there will be a point where it's very difficult to support agriculture," lead author Tim Newbold of University College London told Reuters. Still, the study said there was uncertainty about the 90 percent threshold for damage - some other scientists believe nature can withstand bigger declines."Given the stakes it's best to be precautionary," said Newbold, who previously worked at the U.N. Environment Programme. Intact natural systems are most resilient to shocks such as droughts, floods, disease or global warming. "Decision-makers worry a lot about economic recessions, but an ecological recession could have even worse consequences,"

As Corn Devours U.S. Prairies, Greens Reconsider Biofuel Mandate - More than a decade after conservationists helped persuade Congress to require adding corn-based ethanol and other biofuels to gasoline, some groups regret the resulting agricultural runoff in waterways and conversion of prairies to cropland -- improving the odds that lawmakers might seek changes to the program next year. "The big green groups that got invested in biofuels are tacitly realizing the blunder," . "It’s really hard for the people who really -- shall we say -- hate oil viscerally, to think that this alternative that we’ve been promoting is today worse than oil." The green backlash could give a boost to long-stalled congressional efforts to overhaul the Renewable Fuel Standard, including proposals to limit the amount of traditional, corn-based ethanol that counts toward the mandate, as environmentalists side with anti-hunger groups and even the oil industry in calling for change. The RFS forces refiners to blend steadily escalating amounts of biofuel into the gas supply. Most of the mandate is currently fulfilled by corn-based ethanol, which makes up nearly 10 percent of U.S. gasoline and provides oxygen that helps the fuel burn cleaner. The Natural Resources Defense Council used a 96-page report in 2004 to proclaim boundless biofuel benefits: slashed global warming emissions, improved air quality and more wildlife habitat. Instead, farmers plowed millions of acres of prairie grasses to grow corn for making ethanol, with fertilizer runoff contributing to a dead zone in the Gulf of Mexico. Scientists warned that carbon dioxide emissions associated with corn-based ethanol were higher than expected. And alternatives using switchgrass, algae and other non-edible plant materials have been slow to penetrate the market.

Corn exports by the gallon - "It seems the export of ethanol has been a strength," said Bart Schott, former president of the National Corn Growers Association and a Kulm area farmer. "We have the structures to produce ethanol that the farmers built ... It is taking off as an export." Bob Dinneen, president of the Renewable Fuels Association, said the industry exported about 836 million gallons of ethanol in 2015 which matched the 2014 exports. The industry produced about 14 billion gallons nationally in 2015. That amounts to about 6 percent of ethanol production with the export market expected to increase to 8 percent this year. "Our largest markets are Canada, Brazil, United Arab Emirates and some to China," Dinneen said. "Our fastest-growing export market is China, but we're looking at others as well." Jeff Zueger, chairman of the North Dakota Ethanol Council and manager of Blue Flint Ethanol at Underwood, N.D., and Dakota Spirit AgEnergy at Spiritwood, said this year the U.S. ethanol industry hopes to export about 1 billion gallons. Zueger said about 90 percent of the ethanol produced in North Dakota leaves the state, but where it heads varies widely. "Wherever it makes the most sense, that's where it goes," he said. "The decisions are based on freight rates, prices and other considerations."

Common pesticide kills up to 40% of sperm in bees, possibly leading to shrinking population – study -- One of the most widely used insecticides has the side effect of killing a significant percentage of bee sperm, a new study suggests, potentially offering an explanation for a dramatic decline in the bee population. Swiss scientists looked into how a class of neuro-active insecticides, known as neonicotinoids, may be affecting bees. Their findings were published on Wednesday in the Royal Society B’s journal Proceedings.In their study, researchers divided bees into two groups, with the first being fed pollen treated with substances used in fields called thiamethoxam and clothianidin, and the second eating “clean” food. As 38 days passed, the test objects and their semen were examined. Male bees, products of unfertilized eggs known as drones, turned out to be of particular interest to the scientists, as their primary role is to mate with a fertile queen. The controlled experiment showed that drones that consumed pollen treated with neonicotinoids produced 39 percent less sperm than those that were not exposed to the substances. “The widespread prophylactic use of neonicotinoids may have previously overlooked inadvertent contraceptive effects on non-target insects, thereby limiting conservation efforts” the study claims. The reproductive function, however, wasn’t entirely broken off, but it clearly became tougher for the queen to conceive from the drones that had lost some of their virile strength, the researchers from the University of Bern noted.

Scientists think cockroach milk could be the superfood of the future - ScienceAlert: An international team of scientists has just sequenced a protein crystal located in the midgut of cockroaches. The reason? It’s more than four times as nutritious as cow’s milk and, the researchers think it could be the key to feeding our growing population in the future. Although most cockroaches don’t actually produce milk, Diploptera punctate, which is the only known cockroach to give birth to live young, has been shown to pump out a type of ‘milk’ containing protein crystals to feed its babies. The fact that an insect produces milk is pretty fascinating – but what fascinated researchers is the fact that a single one of these protein crystals contains more than three times the amount of energy found in an equivalent amount of buffalo milk (which is also higher in calories then dairy milk). Clearly milking a cockroach isn’t the most feasible option, so an international team of scientists headed by researchers from the Institute of Stem Cell Biology and Regenerative Medicine in India decided to sequence the genes responsible for producing the milk protein crystals to see if they could somehow replicate them in the lab. "The crystals are like a complete food - they have proteins, fats and sugars. If you look into the protein sequences, they have all the essential amino acids," said Sanchari Banerjee, one of the team, in an interview with the Times of India.

Summer-on-Steroids Kicks Off With Record Global Temperatures -  Last month wasn’t just the hottest June on record—it continued the longest-ever streak of record-breaking months: 14. The start of summer in the Northern Hemisphere gave us the hottest June since 1880, according to data released Tuesday by the National Oceanic and Atmospheric Administration (NOAA). That follows the hottest May, April, March, February, January, December, November, October, September, August, and July. Before June 2016, June 2015 held the monthly record, as did May 2015. Last year’s massive El Niño warming pattern in the Pacific Ocean is over, but unprecedented heat remains across the planet. The extremes of recent months are such that we’re only halfway into 2016 and there’s already a greater than 99 percent likelihood that this year will be the hottest on record, according to Gavin Schmidt, who directs NASA’s Goddard Institute for Space Studies. NASA and NOAA maintain independent records of the Earth’s temperatures, but they both agree that last month was a scorcher. The interactive chart below shows Earth’s warming climate, measured by land and sea, dating back to 1880. This year is on track to be the third consecutive year to set a new global heat record—the first time that’s ever happened. So far, 15 of the hottest 16 years ever measured have come in the 21st century. Results from the world’s chief monitoring agencies vary slightly. The Japan Meteorological Agency said last month was tied with June 2015 for that month’s record. Nevertheless, all agree that the extremes of 2016 are unrivaled in the modern climate record. The heat was experienced differently across the world, but felt to some degree almost everywhere. The dark red swaths in the map below show areas that set new records.

For the first time, forecast predicts hotter-than-normal in every square inch of the USA: For the first time on record, every square inch of all 50 states is forecast to see above-average temperatures for the next three months, according to a forecast map from the federal government's Climate Prediction Center. An entire forecast map awash in the red and orange colors of unusually warm temperatures for a 3-month period is unprecedented, according to Dan Collins, a meteorologist with the prediction center. Typically parts of the map register blue, depicting the likelihood of cooler-than-normal air, or white for equal chances of cool and warm. The archives for the center's climate predictions go back to 1995, Collins said. A separate climate prediction from the Weather Company for August to September shows a very similar warmer-than-normal forecast for practically the entire nation, with summer-like temperatures expected to continue into the early fall for many U.S. locations. The Weather Company, the parent company of the Weather Channel, predicts heat relief for just one part of one state: northern Montana.

Scientists caught off-guard by record temperatures linked to climate change | Reuters: - Record temperatures in the first half of 2016 have taken scientists by surprise despite widespread recognition that extreme weather events are becoming more frequent and intense, the director of the World Climate Research Program said. The earth is on track for its hottest year on record with June marking the 14th straight month of record heat, the World Meteorological Organization (WMO) said last week. Temperatures recorded mainly in the northern hemisphere in the first six months of the year, coupled with an early and fast Arctic sea ice melt and "new highs" in heat-trapping carbon dioxide levels, point to quickening climate change, it said.In a further announcement on Tuesday, the U.N. agency said it would examine whether a temperature of 54 degrees Celsius (129 degrees Fahrenheit) reported in Kuwait last Thursday was a new high for the eastern hemisphere and Asia. "What concerns me most is that we didn't anticipate these temperature jumps," said David Carlson, director of the WMO's climate research program, late on Monday. "We predicted moderate warmth for 2016, but nothing like the temperature rises we've seen," he told the Thomson Reuters Foundation by telephone from Geneva. "Massive temperature hikes, but also extreme events like floodings, have become the new normal," Carlson said. "The ice melt rates recorded in the first half of 2016, for example – we don't usually see those until later in the year." He said sudden temperature rises could endanger people, animals and water systems. "Also critical is the fact that people survive the heat by using more energy for cooling, thus further depleting the world's resources," Carlson said.

Forget Tornadoes. Rain Bombs Are Coming for Your Town - Evidence shows that the sky is coming down on our heads—the watery part of it, anyway, in larger and larger cascades. It’s largely our own fault. The past two months have seen some doozies just in the U.S. The Empire State Building was struck by lightning twice on Monday during a storm that brought an inch of rain down in what felt like a single sheet. Last month, at least 23 people died in West Virginia flooding. At its peak on June 23, more than 8 inches to 10 inches fell within half a day—a once-every-1,000 years rain storm. Maelstroms in May and early June dropped five times as much rain as normal near Houston, seriously challenging the definition of normal. More than a dozen people died. It was the city's fifth major flood in just over a year. (Rainfall is trending higher nationally, though paving over much of Texas probably doesn't help.) The most dramatic recent image came from Bruce Haffner, a Phoenix TV helicopter pilot, who snapped what looks very much like a 20-megaton warhead going off. This is informally known as a “rain bomb":  The phenomenon is known in meteorology circles as the more sober “wet microburst.” They are supposed to happen rarely; conditions must be just right. A thunderstorm runs into a dry patch of air that sucks some moisture away. The air underneath the storm cloud cools, making it more dense than the air around it. The cooler air begins to drop into even warmer air and then accelerates. When the faucet really flips on, air can blast out of the sky at more than 115 miles per hour. It deflects off the ground and pushes winds outward, at or near tornado strength. The Phoenix event above was actually a “macroburst,” with a radar footprint wider than about 2.5 miles, said Amber Sullins, chief meteorologist at ABC-15 News.

Scientists: Climate change tightening ‘alarming’ grip on Lake Tahoe — Scientists on Thursday reported that Lake Tahoe experienced a year like no other in 2015, according to the UC Davis Tahoe Environmental Research Center’s annual “Tahoe: State of the Lake Report.” The report summarizes how natural forces, long-term change and human actions have affected Lake Tahoe’s clarity, physics, chemistry and biology over time. It presents data collected in 2015 and puts it in the context of the long-term record. Record-breaking measurements Continued warm and dry conditions contributed to several record-breaking measurements. Among them: Climate change: While precipitation was near average, only 6.5 percent of it fell as snow in 2015, the lowest amount ever recorded. Only 24 days had below-freezing average air temperatures, the lowest on record. Lake temperature: The lake’s average temperature is rising at its fastest rate yet. In 2015, the volume-average temperature increased 0.48 degrees Fahrenheit over 2014. The authors write that in the past four years, “the lake has warmed at an alarming rate of over 0.3 F per year.” That’s 15 times faster than the long-term warming rate. Also, the average surface temperature was the warmest on record, 53.3 degrees Fahrenheit.

Drought hits Northeastern US, could last months  (AP) — At Lavoie's Farm in New Hampshire, beans and corn haven't broken through the ground yet and fields of strawberries are stunted. The drought that has taken hold in the Northeast is especially felt at John Lavoie's farm in Hollis, presenting him with some tough choices. Irrigation ponds are drying up, forcing him to choose between tomatoes and berries or apple and peach trees. Lavoie decided to hold off watering the fruit trees so he could quench the tomato and berry plants before they succumb to the heat. "We need some rain pretty quick," Lavoie said. "There is just some corn that won't make it. A lot of things we would like to give water to, we can't." The dry blast in New Hampshire is being felt throughout the Northeast, from Maine to Pennsylvania, driven by a second year of below-average rainfall. Though not as dire as the West Coast drought of five-years running, the dry, hot weather has stressed farms and gardens, prompted water restrictions and bans in many towns and threatened to bring more wildfires than usual. In the hardest hit areas of western New York, Massachusetts and southern parts of New Hampshire and Maine, it's been dryer than in a decade or more. And national weather experts predict the drought will persist at least through the end of October. "The Northeast is a little bit of a mixed bag, but the bottom line is that the conditions have deteriorated over the past several weeks to a couple of months,"

The latest regional drought isn't where you would expect to find it - On July 15, for the first time in 14 years, New York state officials issued a drought watch. "While most public water supplies are still generally normal throughout the state, below normal precipitation over the last 9 months, low stream flows, and reduced groundwater levels have prompted the need for this action," the New York State Department of Environmental Conservation (DEC) wrote in a statement. This second year of below-average rainfall in the Northeastern United States is hitting farmers, prompting municipality-level water restrictions and bans, and threatening to prompt wildfires, according to the Associated Press. “The Northeast is a little bit of a mixed bag, but the bottom line is that the conditions have deteriorated over the past several weeks to a couple of months,” Rich Tinker, a drought specialist at the National Oceanic and Atmospheric Administration, told the AP. New York has the largest area of severe drought in the Northeast at this time. Eleven percent of New York state is in severe drought, and 89 percent of the state is either abnormally dry or in a drought that will last weeks or months, meteorologists told Syracuse.com. Precipitation in New York has been four to eight inches lower than normal over the past 90 days, according to the DEC, and this year’s dry weather dates to the beginning of the “water year,” Oct. 1, “and is beginning to significantly affect other water metrics."

California Drought Worsens – El Nino 'Gains' Flushed Into The Pacific As Water Storage Runs Dry -- Californians were recently warned that water levels in the San Luis Reservoir were dangerously low and that water deliveries from the project would likely be shut down as early as this weekend.  The San Luis Reservoir supplies water to the Santa Clara Valley, San Benito County as well as farmers in the Central Valley.  As of July 22nd, the reservoir stood at 11% of total capacity (226k AF) which puts storage well below the levels recorded during the driest season recorded in 1976-1977.  This news comes in spite of a robust rainy season in California with YTD precipitation roughly 16% higher than the long-term average and over 200% higher than the driest 1976-1977 season. So, why are California’s reservoirs drying up in spite of a solid rainy season?  The answer lies in the environmental regulations implemented to protect the Delta Smelt, a 5-7cm fish and endangered resident of the California Delta.  Regulations designed to protect the non-native species have prevented pumping of water from the California Delta in Northern California leaving many reservoirs in Southern California empty.  So rather than take advantage of a solid rainy season the State of California has opted to squander the opportunity to refill its water infrastructure and pump the water through the San Francisco bay and into the Pacific Ocean instead.

FishLivesMatter: California To Decide If Saving 'Delta Smelt' Is Worth $65 Billion Of Taxpayer Money -- Starting tomorrow, California's State Water Resources Control Board will begin hosting months of public hearings on whether or not to proceed with Jerry Brown's controversial "California WaterFix" project, or the "Delta Tunnels" as it is more commonly known.  The project has been heavily criticized as yet another Brown-sponsored public works boondoggle with total price tag estimates ranging to over $65BN.  We have to admit that we're a little perplexed by this project as it seems to address only one of the symptoms of California's water crisis while completely ignoring the overall illness which is the complete inflexibility of the Endangered Species Act.  While the twin tunnels may limit the number of smelt getting ensnared in the Delta pumping stations it does nothing to address the salinity issues raised by environmentalists when too much fresh water is removed from the system.  Maybe we're a little dense, but it's unclear to us how moving upstream to divert fresh water flows from the Sacramento River, a river which otherwise empties into the Delta and accounts for roughly 85% of the total fresh water flows into the system, rather than pulling it directly from the existing pumping stations would have any impact on overall salinity levels in the Delta.  As we discussed here just a few days ago, without addressing the inflexibility of the Endangered Species Act this is simply another opportunity to squander taxpayer money on more water infrastructure that will never actually be used because of leadership's inability and/or lack of desire to stand up to California's environmentalists in favor of practical solutions. While there are multiple viewpoints on the pros/cons of the Delta Tunnels (often based on where a person lives, farms, etc.), in general, proponents argue that the tunnel plan is better for the Delta Smelt population as it reduces reliance on large pumping stations at the south end of the Delta that often entrap the small fish.  Opponents, on the other hand, view the tunnels simply as a form of corporate welfare for large corporate ag interests and/or are concerned that the tunnels will do nothing to actually increase water flows to the southern part California without relaxing rules under the Endangered Species Act.

California Wildfire Spreads Across 20,000 Acres, Prompting Evacuations - More than 900 firefighters were combating a wildfire across 20,000 acres in the mountains north of Los Angeles on Saturday night, prompting the authorities to order evacuations and close roads, the United States Forest Service said on Twitter. The evacuations encompassed about 1,500 homes, the Los Angeles County Sheriff’s Department said. One structure was reported destroyed and 100 commercial buildings were threatened. Ten percent of the fire had been contained, the Forest Service said Saturday night. No information on injuries was immediately available.Firefighters contended with triple-digit temperatures and winds of up to 26 miles per hour on Saturday. The weather was not expected to improve on Sunday, with hot, dry conditions and wind gusts forecast.Images posted on Twitter showed the sky tinted orange and pink, as flames and smoke dominated the landscape.

The Sand Fire in Santa Clarita Offers Omens of a Fiery Future -- Wildfires are a normal part of life in Southern California. But what’s burning right now is not a normal fire. As of midday Sunday, the Sand Fire had grown to 22,000 acres (34 square miles) — roughly the same size as the island of Manhattan — and was just 10 percent contained. In nearby Los Angeles, the fire prompted frequent references to the Apocalypse this weekend, as the large smoke plume dropped ash and blotted out the sun. The fire, which started as a small brush fire along the side of Highway 14 near Santa Clarita, California, on Friday, quickly spread out of control under weather conditions that were nearly ideal for explosive growth. The fire doubled in size overnight on Friday, and then doubled again during the day on Saturday. “The fire behavior was some of the most extreme I’ve seen in the Los Angeles area in my career,” says Stuart Palley, a wildfire photographer based in Southern California. “The fire was running all over the place. … It was incredible to see.” There were multiple reports of flames 50 to 100 feet high on Saturday, which is unusual for fires in the region. Smoke from the fire, burning through parts of the Angeles National Forest just north of Los Angeles, is visible from the city and cast a pall over the entire region this weekend, prompting sinister scenes. Ash rained down on cars and beaches. The sun appeared as a smoky red ball in the sky in downtown Los Angeles on Saturday, and the fire was a trending topic on Twitter. Smoke from the fire has reached as far as Las Vegas.

 Sand fire burns more than 37000 acres in Santa Clarita Valley, prompting state of emergency - A state of emergency was declared Tuesday for Los Angeles County, where the Sand fire has scorched 37,701 acres, destroyed homes and led to at least one fatality in Santa Clarita Valley. Acting Gov. Tom Torlakson, the state’s top education official who is filling in this week while Gov. Jerry Brown attends the Democratic National Convention in Philadelphia, issued the emergency order, a move that helps quickly get aid to affected communities. An emergency order was also issued for Monterey County, where firefighters are battling the Soberanes fire. Nearly 3,000 firefighters continued Tuesday evening to battle the Sand fire, which was 25% contained, according to fire officials.  Although the Los Angeles County Sheriff’s Department allowed most residents to return home Monday evening, hundreds of residents in three areas were still under evacuation orders. L.A. County declared a local emergency Monday as the wildfire continued to grow. The massive blaze erupted Friday along the northbound 14 Freeway at Sand Canyon Road. At least 18 structures have been destroyed and one damaged in the Angeles National Forest near Bear Divide and Sand Canyon areas, according to the Los Angeles County Fire Department. The fire has been blamed for one fatality.

Photos of California wildfires show raging flames and devastating aftermath --Firefighters continue to battle the flames as two deadly wildfires in Southern California rage on.  Major parks and highways continue to be closed as fire crews work on containing the Soberanes and Sand fires. Thousands of homes have been evacuated. The fires began on Friday due to scorching temperatures, high winds and the on-going drought in part fueled by global climate change.  Check out the vivid photos of the wildfires below:

Wildlife Dying En Masse as South American River Runs Dry: Vultures rest in the tree’s upper branches, their black bodies in stark contrast to the blanched wood beneath their feet. Below them, caimans and capybaras crawl in sucking mud through the Agropil lagoon, seeking water that is unlikely to arrive for many months. The river has dried up, and there is nowhere for them to go. The lagoon, located in the western Paraguayan province of Boquerón, is just one of many stretches of the Pilcomayo River suffering an extensive die-off of caiman, fish, and other river creatures. There have not been any official estimates from the Ministry of the Environment, but Roque González Vera, a journalist for ABC Color in Paraguay, reports utter devastation in some places: Up to 98 percent of caimans (Caiman yacare) are suspected dead, and 80 percent of the capybara (Hydrochoerus hydrochaeris) population has died. Paraguay is in the midst of an ecological crisis.The crisis stems from a combination of drought and mismanagement that has left the Pilcomayo River dry for nearly 435 miles (700 kilometers), according to Vera. On June 24, Paraguay declared an environmental emergency, but little has been done, or can be done, to provide relief for the imperiled animals until the wet season returns. The dry season typically lasts through October, and the annual recharge does not generally occur until January. Alone, the drought posed a threat to wildlife and agriculture, but the crisis has been exacerbated by the mismanagement of water resources and infrastructure by the Paraguayan government, according to Vera. In a recent article, the reporter argues that the government is complicit in the wildlife die-off, alleging laziness, inefficiency, and irresponsibility in the rehabilitation of the Paraguayan channel.

What You Need to Know About the World's Water Wars: Beijing is sinking. In some neighborhoods, the ground is giving way at a rate of four inches a year as water in the giant aquifer below it is pumped. The groundwater has been so depleted that China’s capital city, home to more than 20 million people, could face serious disruptions in its rail system, roadways, and building foundations, an international team of scientists concluded earlier this year. Beijing, despite tapping into the gigantic North China Plain aquifer, is the world’s fifth most water-stressed city and its water problems are likely to get even worse. Beijing isn’t the only place experiencing subsidence, or sinking, as soil collapses into space created as groundwater is depleted. Parts of Shanghai, Mexico City, and other cities are sinking, too. Sections of California’s Central Valley have dropped by a foot, and in some localized areas, by as much as 28 feet.Around the world, alarms are being sounded about the depletion of underground water supplies. The United Nations predicts a global shortfall in water by 2030. About 30 percent of the planet’s available freshwater is in the aquifers that underlie every continent. More than two-thirds of the groundwater consumed around the world irrigates agriculture, while the rest supplies drinking water to cities. These aquifers long have served as a backup to carry regions and countries through droughts and warm winters lacking enough snowmelt to replenish rivers and streams. Now, the world’s largest underground water reserves in Africa, Eurasia, and the Americas are under stress. Many of them are being drawn down at unsustainable rates. In the United States, farmers are withdrawing water at unsustainable rates from the High Plains, or Ogallala Aquifer, even though they have been aware of the threat for six decades. “What you have in developing countries is a large number of small farmers pumping. Given that these guys are earning so little, there is very little you can do to control it,” Damania says. “And you are, literally, in a race to the bottom.”

 Increasing ocean acidity could impact fish spawning - BBC News: A new study suggests that the increasing acidification of the oceans is likely to interfere with the ability of fish to reproduce. Researchers found that elevated levels of CO2, which make the waters more acidic, saw significantly lower levels of spawning. However, other mating behaviours of the same species were unaffected by the souring of the oceans. The scientists say the changes are "subtle but ecologically important". The study examined the complicated mating behaviours of ocellated wrasse, a common Mediterranean fish. There are three different types of male who compete to father the offspring of this species.Dominant males build nests and provide defence, while satellite males aid the dominants in return for a share of the eggs. "Sneaker" males hover around the nests and try and take advantage when the dominants are distracted. The researchers filmed and studied the complex interactions of these creatures in areas near underwater volcanic vents which seep CO2 into the water. The higher levels of CO2 make the sea much more acidic in this area off the coast of southern Italy, equivalent to what is expected more widely around the world by the end of this century. The scientists found that many mating behaviours were unaffected but that dominant male spawning with females was reduced by almost two thirds in areas of high CO2. The researchers argue that the increased CO2 may be impacting the abilities of the dominant males to make rapid decisions.

Climate Pollution Can Complicate Fishes’ Sex Lives - The mating rituals of male ocellated wrasses are as intricate as their shimmering scales, and new research showing that carbon dioxide pollution can affect those rituals has some scientists fretting for the future of fish. Elevated levels of carbon dioxide — which dissolves from the atmosphere into oceans, where it changes acidity levels — can affect fishes’ brains and how they behave. Sometimes they swim toward predators instead of fleeing, for example.  Proceedings of the Royal Society B, a journal focusing on biological discoveries, on Tuesday published findings from the floor of Mediterranean Sea near Sicily that revealed these behavioral changes can include the reshaping of the colorful sex lives of one kind of fish. Changes to fish mating behaviors could exacerbate stresses on entire ocean ecosystems, which are already being pummeled by overfishing, warming waters and plastic and oil pollution. About a quarter of industrial carbon dioxide pollution is entering the seas, and scientists have warned that could cause pH levels to decline by 2100 to levels not experienced for more than 50 millions years.

Climate models are accurately predicting ocean and global warming: For those of us who are concerned about global warming, two of the most critical questions we ask are, “how fast is the Earth warming?” and “how much will it warm in the future?”. The first question can be answered in a number of ways. For instance, we can actually measure the rate of energy increase in the Earth’s system (primarily through measuring changing ocean temperatures). Alternatively, we can measure changes in the net inflow of heat at the top of the atmosphere using satellites. We can also measure the rate of sea-level rise to get an estimate of the warming rate. Since much of sea-level rise is caused by thermal expansion of water, knowledge of the water-level rise allows us to deduce the warming rate. We can also use climate models (which are sophisticated computer calculations of the Earth’s climate) or our knowledge from Earth’s past (paleoclimatology). Many studies use combinations of these study methods to attain estimates and typically the estimates are that the planet is warming at a rate of perhaps 0.5 to 1 Watt per square meter of Earth’s surface area. However, there is some discrepancy among the actual numbers. So assuming we know how much heat is being accumulated by the Earth, how can we predict what the future climate will be? The main tool for this is climate models (although there are other independent ways we can study the future). With climate models, we can play “what-if scenarios” and input either current conditions or hypothetical conditions and watch the Earth’s climate evolve within the simulation.

Sea Level Rise Puts 18 Military Installations At Risk, According To New Study  U.S. military installations along the East and Gulf Coasts are at risk of flooding and losing land due to storm surges and higher tidal flows caused by climate change, according to a Union of Concerned Scientists (UCS) analysis released Wednesday.  The UCS study of 18 military installations found that with a moderate rate of sea level most would flood hundreds of times every year by 2050. In addition, half of the installations could lose a quarter or more of their land under the highest sea level rise projections, according to the report, as the lowest-lying areas may see permanent inundation.  Florida’s Naval Air Station (NAS) Key West, Joint Base Langley-Eustis and NAS Oceana Dam Neck Annex in Virginia, as well as the Marine Corps Recruit Depot in South Carolina are considered the most at risk. “Depending on how fast sea level rises in the second half of this century, tidal flooding will become a daily occurrence in some areas; that is, those places become part of the tidal zone as opposed to useable land,” Erika Spanger-Siegfried, lead author and senior analyst at UCS, said in a statement. “This also depends on how installations respond and whether they have the resources to adapt.” The UCS said these 18 sites are representative of coastal installations nationwide in size, geographic distribution, and military branch. The study is based in part on two scenarios of sea level rise that come from the National Climate Assessment, a government interagency effort that looked into climate change impacts in the United States. What the UCS report called the intermediate scenario assumes a moderate loss of ice sheets and a 3.7 feet sea level rise above 2012 levels globally by the year 2100. The highest scenario assumes a faster ice loss and projects a 6.3 feet of sea level rise.

Greenland Is Still Melting Away -- A new paper just published by scientists in Geophysical Research Letters presents results of their investigation into the ice sheet covering Greenland. They found that over the four-year period from Jan. 1, 2011 to Dec. 31, 2014 Greenland lost over a trillion tons of ice. Let me repeat that: More than a trillion tons of ice melted away from Greenland. These results, using the Cryosat-2 satellite, actually matches pretty well with other measurements made using different methods; for example, using data from the GRACE satellites scientists found Greenland loses ice at a rate of about 287 billion tons per year.  These numbers are staggering. To give you a sense of scale: A trillion tons of ice would make a cube over 10 kilometers (six miles) on a side. That’s taller than Mt. Everest, and would have about three times that mountain’s volume. And that much ice disappeared from Greenland in just four years. But no, really, it didn’t disappear. It had to go somewhere. And where it went was into the ocean, adding water to it. Distributed over the Earth, that means sea level rose about 2.5 mm over those four years.  Mind you, that’s just from Greenland, and doesn’t include melting from Antarctica, which is occurring at about half the rate of Greenland (the Arctic is more prone to warming and melting that the Antarctic). Every year, these two land masses lose about 400 billion tons of ice combined, draining it into the ocean, causing sea level rise.This fresh, cold water also disrupts critical current flow that transports heat from the Equator to the poles, and cold water back again. This may also affect the jet stream, which in turn gets weaker, allowing frigid Arctic air down to lower latitudes in the winter. Common in this situation is the formation of stalled “blocking patterns” in summer that prevent storm systems from moving easily, bringing droughts in some areas and floods in others.

The Arctic is leaking methane 200 times faster than usual - Strange bubbles have been discovered in the Arctic permafrost - adding to mysterious behaviour seen in the region, including the sudden appearance of giant holes in northern Siberia. Now Russian scientists have revealed the bubbles in the wobbly Earth are are leaking methane gas some 200 times above the norm in the atmosphere. The 'trembling tundra' also contains concentrations of carbon dioxide 20 times higher than usual levels. The extent of the harmful greenhouse gases buried in this new phenomenon of jelly-like bubbles poses 'very serious alarm' concerning the impact of global warming, expert Alexander Sokolov warned. Some 15 examples of this swaying Siberian ground were revealed this week on Belyy Island, a polar bear outpost 475 miles (764km) north of the Arctic Circle in the Kara Sea. One account from a Russian research team at the scene said: 'As we took off a layer of grass and soil, a fountain of gas erupted.' 'An early theory is that warm summer heat has melted the permafrost causing the release of long-frozen gases,'The Siberian Times reported. The newspaper was the first to report the weird sight and has now shared the gas readings. Startling video footage shows the ground wobbling under the feet of scientists. 'It was like a jelly,' said one researcher, who continued: 'We have not come across anything like this before.'   The MailOnline has published a gallery of images illustrating how a "massive release of gas is creating giant holes and 'trembling tundras'" in Siberia.

How climate change is rapidly taking the planet apart --Writing up articles on climate change is difficult these days. Last week alone, 46 new papers and reports were published. I am certain that there are many more. The figure only refers to the sources I usually consult. I try to read all abstracts and all articles I find interesting, but sometimes I shy away from it: it is just too depressing. According to Naomi Oreskes, a great number of climate change scientists (she interviewed most of the top 200 climate change scientists in the US) suffer from some sort of mood imbalance or mild or serious depression. It is easy to understand why: we see the climate change taking the planet apart right in front of our eyes. We also clearly see, right in front of us, what urgently needs to done to stave off global disaster on an unprecedented scale. We need carbon taxes and the reconversion of industry and energy towards zero CO2 emissions systems. This route is without any doubt technically and economically feasible, but politically it seems to be permanently locked. If we do not unlock it, the future looks bleak, not to say hopeless, for humankind. NASA recently released data showing that the planet has just seen seven straight months of not just record-breaking, but record-shattering heat (see here). We are well on track to see what will likely be the largest increase in global temperature a single year has ever seen (see here and here). The NASA data show that May was the hottest May ever recorded, as well as the fact that it crushed the previous May record by the largest margin of increase ever recorded. The same is now true for June (see here). That makes it five months in a row that the monthly record has been broken and by the largest margin ever. When record-smashing months started in February, scientists began talking about a “climate emergency.” Since then the situation has only escalated. The answer to the oft-asked question of whether an event is caused by climate change is that this is the wrong question. All weather events are affected by climate change because the environment in which they occur is warmer and moister than it used to be. Changes in extremes, such as higher temperatures and increases in heavy rains and droughts are not related to climate change, they are climate change (see here).

‘World can’t afford to silence us’: black church leaders address climate change -- African American religious leaders have added their weight to calls for action on climate change, with one of the largest and oldest black churches in the US warning that black people are disproportionally harmed by global warming and fossil fuel pollution. The African Methodist Episcopal church has passed its first resolution in its 200-year history devoted to climate change, calling for a swift transition to renewable energy. “We can move away from the dirty fuels that make us sick and shift toward safe, clean energy like wind and solar that help make every breath our neighbors and families take a healthy one,” states the resolution, which also points to research showing that black children are four times as likely as white children to die from asthma. The resolution was passed at the church’s general conference in Philadelphia, where more than 30,000 members gathered. The AME church, the oldest independent Protestant denomination founded by black people in the world, has about 7,000 congregations and 2.5m members. “Damage to our climate puts the health of children, elderly, and those with chronic illnesses at greater risk and disproportionately impacts African Americans. We believe it is our duty to commit to taking action and promoting solutions that will help make our families and communities healthier and stronger,” stated Bishop John White, president of the council of bishops of the AME church.

Clinton Avoids Energy Regions - - Hillary Clinton and her running mate, Tim Kaine, plan to take their show on the road immediately after the Democratic National Convention ends. Their first stops will be in Ohio and Pennsylvania, it was reported Tuesday.Do not look for them in this region, however. The nearest Clinton and Kaine plan to come to East Ohio is Youngstown.Their itinerary makes it clear the two are pursuing the traditional Democrat strategy of appealing to voters in large cities. Stops on their swing through Ohio and Pennsylvania are to include Harrisburg, Youngstown and Cleveland.They may have trouble explaining Clinton’s stance on trade to voters in Youngstown, which is squarely in the Rust Belt in part because of unfair trade practices by other countries that have devastated U.S. manufacturing, including the steel industry. Schemes such as dumping and currency manipulation have been permitted by the federal government for too long.No doubt Clinton will assure listeners in Youngstown that she opposes one objectionable trade proposal, the Trans-Pacific Partnership. But the TPP proposal would not have advanced as far as it has without Clinton’s staunch support while she was secretary of state.She and Kaine have good reasons to avoid East Ohio. Here, many voters have personal experience with the anti-coal, anti-natural gas policies President Barack Obama has pursued — and which Clinton thinks did not go far enough.

Oil lobby paid Washington Post and Atlantic to host climate-change deniers at RNC -- At the award-winning seafood restaurant in downtown Cleveland that The Atlantic rented out for the entire four-day Republican National Convention, GOP Rep. Bill Johnson turned to me and explained that solar panels are not a viable energy source because “the sun goes down.” Johnson had just stepped off the stage where he was one of the two featured guests speaking at The Atlantic’s “cocktail caucus,” where restaurant staff served complimentary wine, cocktails, and “seafood towers” of shrimp, crab cakes, oysters, and mussels to delegates, guests, reporters and, of course, the people paying the bills. The event was sponsored by the American Petroleum Institute, the lobbying arm of fossil fuel giants like ExxonMobil, Chevron, and ConocoPhillips. Johnson, a climate denier and influential member of the House Committee on Energy and Commerce, spoke of a future when American scientists “solve these big problems” and “figure out how to harness the sun’s energy, and store it up, so that we can put it out over time.” His hypothetical invention, of course, is called a battery, and was invented over 200 years ago. Instead of balancing Johnson with an environmentalist or a climate scientist, The Atlantic paired Johnson with another notorious climate denier: Rep. Kevin Cramer, R-N.D., who is an energy adviser to Donald Trump. Cramer has called global warming “fraudulent science by the EPA,” and once told a radio audience in 2012 that “we know the globe is cooling.” Both congressmen went nearly unchallenged by the moderator, The Atlantic’s Washington Editor Steve Clemons, who said he wasn’t able to find an opposing speaker, but went ahead with the event anyway.

Deal on cutting greenhouse gases in sight for this year: Vienna delegates | Reuters: A global agreement on cutting the use of hydrofluorocarbons (HFCs) - potent greenhouse gases used in aerosols, refrigerants and air conditioning - seems within grasp, delegates said on Sunday after ten days of talks on climate change in Vienna. A final deal is expected to be reached at a meeting in October in Kigali, Rwanda. If successful, it would be the biggest single measure to limit global warming since governments adopted the Paris Agreement last December, seeking to limit heat waves, floods, droughts and rising seas. At the Vienna talks, the last before the Kigali meeting, almost 200 countries convened to lay the groundwork for such a deal, hammering out details and timetables for almost eliminating the use of HFCs. "At the (conference) in Vienna the basis was reached today, in the early hours of Sunday, for a political agreement on the sustainable reduction of climate-damaging gases," Austria's Environment Minister Andrae Rupprechter said in a statement. "The text that has been worked out ... should be conclusively decided on ... in October in Kigali. This decision is a milestone for the reduction of climate-damaging gases," he added, echoing the U.S. Environmental Protection Agency (EPA). U.S. Secretary of State John Kerry was among those who took part in high-level talks on Friday. Under the current draft of the agreement, rich nations would get a target of almost eliminating HFCs by the 2030s, while poorer nations - which may struggle with the high costs of shifting to new technologies - would get a decade or so longer.

FAO - Recruiting lumberjacks, architects and carpenters to combat climate change: When protecting forests, don't forget the trees. Forests have an acclaimed role as a carbon sink needed to tackle climate change. Less known is how their contribution can be scaled up even after a tree has been logged. A new FAO publication, Forestry for a low-carbon future: Integrating forests and wood products in climate change strategies, offers insights in how to catalyse a "virtuous cycle" that exploits the life cycle of wood products - ranging from home furniture to wood pellets burned for fuel - to enhance and even multiply the well-known ability of forests to remove and store carbon from the atmosphere. "Forests are at the heart of the transition to low-carbon economies," says René Castro-Salazar, FAO's Assistant Director-General for Forestry, "not only because of their double role as sink and source of emissions, but also through the wider use of wood products to displace more fossil fuel intense products." Forests do herculean work in locking carbon dioxide into leaves, branches and soils, while deforestation and forest degradation account for up to 12 percent of worldwide greenhouse gas emissions. The relative speed and cost-effectiveness with which forests make their presence - or absence - felt is one key reason they figure prominently in the plans countries are crafting to meet commitments made in the Paris Agreement on climate change. Designed primarily for policy makers and experts but of interest to architects and the energy industry, the report - the fruit of innovative collaboration involving more than 100 experts - looks at how forests can be harnessed to the global climate change challenge.

Brexit lights slow fuse under EU energy goals - There’s a video doing the rounds on social media that explains how the UK’s foreign policy toward Europe hasn’t changed in 500 years. It’s from a political sitcom written more than 30 years ago but still sounds plausible. Sadly the writers didn’t imagine how the UK leaving the EU would go, so the current UK government will have to figure that out for itself. At the moment it looks like it will take at least a couple of years to get any real certainty on what the UK’s future relationship with the EU will be.  Meanwhile, it’s business as usual from the EU side on energy issues. Fears that the UK might miss out on EU funding for energy projects are so far unfounded. The UK benefited from two EU grants for electricity infrastructure post-Brexit vote in July – Eur14.82 million for the Viking Link between Denmark and the UK, and Eur8.28 million for the UK’s compressed air energy storage project at Larne in Northern Ireland. Both of these projects are part of the EU’s Northern Seas offshore wind grid priority corridor, intended to link all the countries in the region to smooth out demand and supply variations.  As a net importer of gas and also increasingly of electricity, the UK needs these links to other countries, as we show in this video. UK power prices are likely to stay at a premium to the rest of Europe, so the business case for more links remains, as long as the UK’s policies on carbon do not change, as we explain in this pre-Brexit vote podcast. The UK will also be included in a whole raft of EU energy proposals expected from the European Commission this year, as it is still a fully paid up EU member with all the rights and obligations that involves. The timing is awkward, as the EU is in the middle of a widespread update to much of its energy legislation, mainly to meet 2030 targets on greenhouse gas emissions, renewable energies and energy efficiency, but also to improve gas and electricity supply security.

A Hard Truth Revealed From Fuel Efficiency Upset: Government Can't Predict Consumer Preferences -  The biggest news in energy policy circles this week was the release by federal regulators of a mid-term report on U.S. fuel-economy standards. As has been covered well here and here, the report delivered a bit of bad news: Instead of achieving the original, headline-grabbing efficiency target of 54.5 miles per gallon (mpg), the fleet of new vehicles sold in 2025 is likely to clock-in at more like 50 mpg. And even that target depends on fuel prices over the next decade—with oil prices needing to approach $100 per barrel by 2025 to keep efficiency above 50 mpg.  The shortfall came as a shock to many analysts and observers who had long operated under the assumption that U.S. vehicle efficiency targets were effectively written in stone. But those watching recent trends closely were not surprised. In fact, I explained why vehicles might not meet their targets in an earlier post, citing a nearly 30% gap between the levels of efficiency achieved and the target in 2016.  Rightly so, administration officials underscored this week that the projected 54.5 mpg was just that, a projection. As one official said, “54.5 isn’t a standard, never was a standard, and isn’t a standard now. 54.5 is what we predicted, in 2012, the fleet-wide average could get to, based on assumptions that were live back then about the mix of the fleet.”  This underscores an important reason why the target won’t be met, and why achieving future emissions reductions in transportation could be exceedingly difficult: The standards are tied to consumer preferences. As preferences deviate from the forecasts, the target falls short. That’s what has happened over the last few years as consumers went out and bought more pick-ups and SUVs than predicted.

Australia Has Moved 1.5 Metres, So It’s Updating Its Location For Self-Driving Cars - An anonymous reader shares a CNET report: Australia is changing from "down under" to "down under and across a bit". The country is shifting its longitude and latitude to fix a discrepancy with global satellite navigation systems. Government body Geoscience Australia is updating the Geocentric Datum of Australia, the country's national coordinate system, to bring it in line with international data. The reason Australia is slightly out of whack with global systems is that the country moves about 7 centimetres (2.75 inches) per year due to the shifting of tectonic plates. Since 1994, when the data was last recorded, that's added up to a misalignment of about a metre and a half. While that might not seem like much, various new technology requires location data to be pinpoint accurate. Self-driving cars, for example, must have infinitesimally precise location data to avoid accidents. Drones used for package delivery and driverless farming vehicles also require spot-on information.ABC has more details.

EPA clears path to regulate carbon emissions from U.S. aircraft | Reuters: The U.S. Environmental Protection Agency on Monday paved the way for new curbs on emissions from passenger jets by ruling that greenhouse gases from airplanes endanger public health. The finding, which requires the EPA to regulate greenhouse gas emissions from aircraft under the federal Clean Air Act, removes a hurdle to implementing internationally agreed rules on airliner pollution in the United States, the world’s biggest domestic travel market. “Addressing pollution from aircraft is an important element of U.S. efforts to address climate change,” EPA Acting Assistant Administrator for Air and Radiation Janet McCabe said in a statement. U.S. aircraft are the third-biggest source of greenhouse gas emissions from the domestic transportation sector and are projected to rise without future curbs, McCabe said. The endangerment finding triggers the start of an EPA rule- making process either to adopt the emission standard developed by the U.N. International Civil Aviation Organization or develop one that is “at least as stringent.”

 EPA To Polluting Airlines: We’re Coming For You  -- The EPA just took the a major step towards curbing airline emissions. After years of deliberations and lawsuits, the EPA on Monday issued its final endangerment finding for airline emissions, legally requiring the agency to move forward with regulation.  “Addressing pollution from aircraft is an important element of U.S. efforts to address climate change,” said Janet McCabe, EPA’s Acting Assistant Administrator for Air and Radiation. “Aircraft are the third-largest contributor to [greenhouse gas] emissions in the U.S. transportation sector, and these emissions are expected to increase in the future.”  Environmentalists have been pushing for the EPA to regulate the airline industry for years, but the EPA had been waiting for a decision from the International Civil Aviation Organization (ICAO). In February, ICAO released a new set of guidelines for airplanes, but they will take decades to implement and fall far short of what environmentalists were hoping for. “The endangerment finding is key because it obligates the EPA to take regulatory action to cut CO2 emissions from aircraft — it triggers a legal mandate,” said Drew Kodjak, executive director of the ICCT. “Our analysis clearly shows that the aircraft CO2 standard proposed by the International Civil Aviation Organization won’t offer meaningful reductions. This opens a real possibility to get a better standard.”

We're going to need to build a wall on our northern border --Because all of Canada is going to implement a national carbon price: Canada will implement a national policy to charge polluters for emitting carbon dioxide by the end of the year, a top government official said. Catherine McKenna, Canada’s environment minister, told Bloomberg TV Canada that the goal of the policy is a uniform national carbon price, along with new requirements for companies to disclose emissions. ... Four provinces representing about 80 percent of Canada’s population currently have some kind of carbon pricing policies, which usually consist of either a carbon tax or cap-and-trade system. Asked whether her pledge means that provinces and territories without a tax currently would be forced to implement one, McKenna told Bloomberg, “I don’t like the word forced. I think this is really an opportunity.” via thehill.com Causing billions in job losses and a massive southerly migration of workers.   Er, maybe not. Brian Murray and Nicholas Rivers [PDF]:  Empirical and simulation models suggest that the [British Columbia carbon] tax has reduced emissions in the province by 5–15%. At the same time, models show that the tax has had negligible effects on aggregate economic performance, though certain emissions-intensive sectors have faced challenges. Studies differ on the effects of the policy on income distribution but agree that they are relatively small. Finally, polling data show that the public initially opposed the tax but now generally supports it.

More CO2 won’t help northern forests or stave off climate change: We’ve heard the predictions of how greenhouse gas emissions will drive changes in the temperatures and precipitation people experience. But how these changes affect the world’s forests has broad implications for the future as well. Could warmer winters, and thus longer growing seasons, cause trees to grow faster? If so, perhaps faster tree growth could slow the pace of climate change, since trees suck carbon out of the air as they grow. Or perhaps hotter summers will mean more drought-like conditions, thereby hampering trees' ability to grow and thus cause deterioration of our woodlands. In a recent paper, my colleagues and I set out to make a map of how climate change might influence tree growth across the entire continent of North America. To do this, we dug into historical records of tree growth over the period 1900-1950 collected by many dedicated field ecologists over the decades and  deposited in the International Tree Ring Data Bank. What we found was that the daily life of trees across much of North America will become more challenging, despite the potential benefit that rising carbon dioxide concentrations may have for trees. This is contrary to some scientists' hopes that climate change will strongly benefit northern latitude forests.

CO2 can be stored underground for 10 times the length needed to avoid climatic impact: study: Study of natural-occurring 100,000 year-old CO2 reservoirs shows no significant corroding of 'cap rock', suggesting the greenhouse gas hasn't leaked back out - one of the main concerns with greenhouse gas reduction proposal of carbon capture and storage.New research shows that natural accumulations of carbon dioxide (CO2) that have been trapped underground for around 100,000 years have not significantly corroded the rocks above, suggesting that storing CO2 in reservoirs deep underground is much safer and more predictable over long periods of time than previously thought. These findings, published today in the journal Nature Communications, demonstrate the viability of a process called carbon capture and storage (CCS) as a solution to reducing carbon emissions from coal and gas-fired power stations, say researchers. CCS involves capturing the carbon dioxide produced at power stations, compressing it, and pumping it into reservoirs in the rock more than a kilometre underground. The CO2 must remain buried for at least 10,000 years to avoid the impacts on climate. One concern is that the dilute acid, formed when the stored CO2 dissolves in water present in the reservoir rocks, might corrode the rocks above and let the CO2 escape upwards. By studying a natural reservoir in Utah, USA, where CO2 released from deeper formations has been trapped for around 100,000 years, a Cambridge-led research team has now shown that CO2 can be securely stored underground for far longer than the 10,000 years needed to avoid climatic impacts.

Hooked! The Unyielding Grip of Fossil Fuels on Global Life - Here’s the good news: wind power, solar power, and other renewable forms of energy are expanding far more quickly than anyone expected, ensuring that these systems will provide an ever-increasing share of our future energy supply. According to the most recent projections from the Energy Information Administration (EIA) of the U.S. Department of Energy, global consumption of wind, solar, hydropower, and other renewables will double between now and 2040, jumping from 64 to 131 quadrillion British thermal units (BTUs). And here’s the bad news: the consumption of oil, coal, and natural gas is also growing, making it likely that, whatever the advances of renewable energy, fossil fuels will continue to dominate the global landscape for decades to come, accelerating the pace of global warming and ensuring the intensification of climate-change catastrophes.The contradictory and troubling nature of the energy landscape is on clear display in the 2016 edition of the International Energy Outlook, the annual assessment of global trends released by the EIA this May. The good news about renewables gets prominent attention in the report, which includes projections of global energy use through 2040. “Renewables are the world's fastest-growing energy source over the projection period,” it concludes. Wind and solar are expected to demonstrate particular vigor in the years to come, their growth outpacing every other form of energy. But because renewables start from such a small base—representing just 12 percent of all energy used in 2012—they will continue to be overshadowed in the decades ahead, explosive growth or not. In 2040, according to the report’s projections, fossil fuels will still have a grip on a staggering 78 percent of the world energy market, and—if you don’t mind getting thoroughly depressed—oil, coal, and natural gas will each still command larger shares of the market than all renewables combined.

Why Home Solar Panels No Longer Pay in Some States - — It was only two years ago that Elroy Holtmann spent about $20,000 on a home solar array to help cover the costs of charging his new electric car. With the savings on his monthly electric bills, he figured the investment would pay for itself in about a dozen years.But then the utilities regulators changed the equation.As a result, Pacific Gas & Electric recently did away with the rate schedule chosen by Mr. Holtmann, a retired electrical engineer, and many other solar customers in this part of California. The new schedule will make them pay much more for the electricity they draw from the grid in the evening, while paying those customers less for the excess power their solar panels send back to the grid on sunny summer days.As a result, Mr. Holtmann’s solar setup may never pay for itself.“They’ve taken any possibility for payback away,” he said with resignation, looking up at the roof of his 1970s ranch-style house in this suburb a short drive east of Berkeley.The paradox is playing out around the country. Even as policy makers at the federal and state levels promote clean energy to fight global warming, the economics of electricity can often be at odds with those goals.Thrust in the middle are utility regulators. Even if they support greening the grid through technology adopters like Mr. Holtmann, the regulators are also responsible for ensuring that the utilities can afford to supply power to the largest number of customers at the most equitable rates. That includes people without the money or inclination to install solar collectors.

Wyoming partners with Japanese companies seeking coal (AP) — Gov. Matt Mead has signed an agreement calling for cooperation between a consortium of Japanese companies and Wyoming experts in researching clean-coal technology. Mead signed a memorandum of understanding Monday in Cheyenne with the president of the Japan Coal Energy Center. The center represents about 120 manufacturing and energy companies, including Mitsubishi Heavy Industries and Kawasaki Heavy Industries. Mead says he expects to see a conference in Wyoming within a year that would allow Japanese researchers to work with researchers from the University of Wyoming School of Energy Resources on coal issues. Wyoming has been pushing to try to gain access to ports in the Pacific Northwest to export coal to Asia. Mead says progress addressing emissions from coal plants could help Wyoming export coal to meet Japanese demand.

Burning coal for gas in UK seabeds would flame pollution, says report  - Plans to set fire to coal under the seabed at up to 19 sites around the UK would cause significant climate pollution, groundwater contamination and toxic waste, according to a report by environmentalists. The UK government's Coal Authority has granted licences for underground coal gasification (UCG) covering more than 1,500 sq km of seabed off north-east and north-west England, Wales and east central Scotland. The Scottish and Welsh governments have put temporary moratoriums on the technology because of concerns about the dangers. Scottish ministers are awaiting an independent review in September, which is likely to be critical of UCG. But a company led by the veteran oil entrepreneur and former owner of the Spectator, Algy Cluff, is pursuing major developments near the shores of northern England. Cluff Natural Resources has licences for nine potential undersea coalfields amounting to 640 sq km, valid until 2018-2020. Two are off the coast near Durham, two off Cumbria, two off Wales and three in the Firth of Forth in Scotland. The company said that progress in Scotland "has been delayed due to local politics". But it is continuing "to evaluate the development options for its acreage in England, particularly the north-east of England, which shares many of the commercial advantages of the Firth of Forth projects". Another 10 licences for UCG around the coast, valid until December this year or January 2018, are held by Five Quarter in Newcastle. UCG involves drilling boreholes up to 1km deep, setting fire to underground coal seams, and extracting the resulting gas to heat homes. But according to the new report by Friends of the Earth International, it has "left a trail of destruction in its wake across the world".

Fueling the Fire: New Report Shows Underground Coal Gasification a Reckless Experiment  -- Friends of the Earth Scotland have today (25 July) published a report setting out the serious dangers that Underground Coal Gasification poses in terms of climate change, local environmental impacts, and public health. [1] The report comes in the weeks before Professor Campbell Gemmell is due to submit his review of UCG to Scottish Ministers, under the current moratorium. [2] FoES are urging the Scottish Government to act swiftly to ban UCG, and end uncertainty for threatened communities around the Forth and Solway Firths. The report includes case studies from Australia, China, South Africa, the UK and the US and finds that:
•       If Cluff Natural Resources’ Kincardine UCG project went ahead, around 120 million tonnes of CO2 could be released into the atmosphere, more than twice Scotland’s annual carbon emissions. There are a total of 6 licenses in the Forth and Solway Firths. [3]
•       Globally, Underground Coal Gasification would fuel climate change by potentially creating an extra 1650 billion tonnes of CO2 which alone is four times the amount that can be emitted if the world is to avoid catastrophic climate change.
•       Irreversible environmental damage has been done by Linc Energy’s recent Underground Coal Gasification experiment in Queensland, Australia, prompting the Queensland government to ban the technology.
•       The US has historically been the testing ground for several UCG experiments that have resulted in long-lasting contamination of groundwater.
•       In South Africa, Eskom’s recent UCG trial ended with a US$70 million financial impairment of the site, reflecting its complete lack of commercial viability. Currently there are no commercial UCG projects operating in the US and Australia despite decades of research and development.

Friends of the Earth UCG report dismissed by Cluff as "scaremongering"  - A Friends of the Earth Scotland (FoES) report alleging Underground Coal Gasification (UCG) is seriously dangerous has been dismissed as “scaremongering” by the firm behind a project in the Firth of Forth. The report said UCG poses climate change, local environmental and public health dangers. It comes before Professor Campbell Gemmell is due to submit his review of UCG to Scottish ministers. The Scottish Government has imposed a moratorium on the controversial process of producing electricity from burning coal seams pending further research. Cluff Natural Resources wants to invest £250 million in the Forth project which it says will create 1000 jobs, generate £603 million for the local economy reeling from the closure of the Longannet power station and help meet Scotland’s energy needs. FoES wants the Scottish Government to ban the process and end uncertainty for threatened communities around the Forth. The report includes case studies from Australia, China, South Africa, the UK and the US, and concludes that if the Cluff project goes ahead, around 120m tonnes of CO2 could be released into the atmosphere, more than twice Scotland’s annual carbon emissions.

Scientists Call On Dept. Of Interior To Stop Federal Coal Program -- Enough, already. That’s what 67 prominent scientists are telling Secretary of the Interior Sally Jewell, whose department is conducting a review of the U.S. program to lease federal lands for coal mining. “The science is clear: to satisfy our commitment under the Paris Agreement to hold global temperature increase well below 2°C, the United States must keep the vast majority of its coal in the ground,” the scientists, including Ken Caldeira, a climate scientist at the Carnegie Institution for Science, and James Hansen from Columbia University’s The Earth Institute, wrote in a letter delivered to Jewell on Tuesday. “We urge you to end federal coal leasing, extraction and burning in order to advance U.S. climate objectives and protect public health, welfare and biodiversity.” More than 40 percent of coal produced in the United States comes from federal lands, under a leasing program that has not been reviewed in more than 30 years. President Obama announced the review during his State of the Union address in January, and the White House issued a report last month detailing how the American taxpayer is being short-changed by the leasing program. While coal mined on federal lands brings in millions of dollars in revenue, it is far cheaper than coal mined on private land. But even if the government increased the terms of the leasing program — at present, taxpayers are supposed to get 12.5 percent royalty on federal coal, but audits have shown the real rate is much lower — the price would likely still not account for the environmental and climate impacts of coal mining.

Science says China has already hit peak coal use | Business Insider: China has likely already hit peak coal, the point at which consumption starts to decline, as the world’s economic powerhouse switches to renewable energy. The timing of China’s peak coal consumption has been disputed with a majority of projections placing it between 2020 and 2040. However, the latest research in the journal Nature Geoscience argues that either 2014 or 2015 are likely to be the point of peak coal consumption. Peak coal has implications for Australian producers. China is the world’s largest producer and user of coal and Australia is its largest external source. The researchers, including Tong Wu Tempe of Tsinghua University, Beijing, say China’s coal use dropped to 4.12 billion tons in 2014, a decrease of 2.9%. It dropped again in 2015 by another 3.6%. In 2015, the share of coal in the energy mix in China fell to 64.4% from 70%. “This has been part of a fundamental shift in the Chinese economy’s relationship with coal, one that has been largely unnoticed until the recent peak in consumption,” the researchers write. Analysts argue over peak coal in China because there are ambiguities in the official data.

Philippine panel asks 'carbon majors' to respond to claim of rights violations | Reuters: A Philippine rights body has set a deadline of 45 days for 47 global oil, mining and cement firms to answer a complaint that their carbon emissions caused human rights violations, in what rights advocates and green groups have called a landmark case. The action followed a petition by human rights and environmental groups led by Greenpeace seeking to hold the companies accountable for infringement of Filipinos' rights to life, food, water, sanitation and adequate housing, through the adverse impact of climate change. "Respondents are hereby enjoined to submit their comment or answer, within 45 days," the government's Commission on Human Rights said in an order on Wednesday. Oil giant Chevron and top miner BHP Billiton, are among the big companies, or so-called 'carbon majors', cited in the petition. Officials at both companies offered no immediate comment to Reuters. "This is a landmark case and we also believe the commission's actions are unprecedented," said Greenpeace country director Amalie Obusan. It is the first time anywhere in the world that a government agency has accepted, and acted on, a request for investigation of the environmental responsibility of fossil fuel companies, she told Reuters. "Businesses have the moral responsibility to ensure their business practices are not impinging on human rights where their operations take place," she added.

New York Times Shills For Moribund Nuclear Power, Disses Renewables Revolution -- Joe Romm - Why does The New York Times keep pushing nuclear power, whose prices keep rising even as demand has collapsed in every market economy? And why do they keep dissing renewables, whose prices have dropped precipitously while demand has grown beyond expectation here and around the world? This month alone, the Times managed to publish two pieces whining that the poor, neglected nuclear power industry is having trouble competing with renewables because solar and wind have become … so darn cheap. Utterly lost on the Times is the irony that nuclear power was originally touted as a key part of a future where electricity was “too cheap to meter.” Now it’s just another inflexible but powerful dinosaur industry being crushed in the marketplace by a superior product — kind of like mainframe computers or the horse and buggy or … print newspapers.But rather than report accurately on the renewable energy miracle, as, say, the International Energy Agency (IEA) and Bloomberg New Energy Finance (BNEF) have, the Times manages to publish articles in its business section headlined, “How Renewable Energy Is Blowing Climate Change Efforts Off Course.” Seriously. I will be debunking this wildly misleading piece — which is by Eduardo Porter, an economics correspondent (!) — point by point in my next post, but for now, let me just post some actual numbers (and quantified projections). 

Russia, China and South Korea 'should be invited to build UK nuclear plants' -- Russian, Chinese and South Korean nuclear companies should be offered subsidy contracts to build reactors in the UK if they are cheaper than other projects already under development, a prominent nuclear lobbyist has said. Tim Yeo, the former chairman of the House of Commons energy select committee, said EDF’s proposed £18bn plant at Hinkley Point, which is expected to get the go-ahead this week, should be allowed to proceed, but he urged the Government to rethink its approach to future projects. The Sunday Telegraph adds: "Mr Yeo suggested UK investors could be brought on board to operate any such plants to help counter political concerns about the technologies. He also advocated a new funding approach under which “most of the construction costs are funded by government borrowing throughout the construction period” to help cut financing costs." Meanwhile, the Times looks at the "daunting challenge that lies ahead" for the new business and energy secretary Greg Clark: "Mr Clark says that he supports the scheme, but other senior figures within Mrs May’s administration are less convinced...Steering Hinkley Point on to the UK grid is likely to take up a lot of Mr Clark’s time." Separately, the Telegraph reports that the EDF office in Paris was raided by French authorities last week ahead of Hinkley greenlight.

America Keeps Lethal Nukes All Over Europe for No Good Reason - That the United States briefly lost access to the Incirlik Air Base was almost a footnote in the glut of news about the recent military coup attempt in Turkey. As Eric Schlosser details in a must-read report in the New Yorker, it wasn’t only anti-ISIS efforts that were imperiled by that loss of access. Incirlik is also home to around fifty American-made B-61 hydrogen bombs—roughly a quarter of the nukes of NATO—each one capable of producing a boom up to eleven times more powerful than the bomb dropped on Hiroshima. Sure, they’re stored in a secure underground vault. Sure, they’re equipped with switches known as Permissive Action Links (PALs), designed to prevent a bomb from detonating if the user doesn’t enter the correct code. Sure, there are significantly fewer American-supplied nukes distributed among NATO members than there used to be, thanks to stockpile cuts made by both Presidents Bush. But it doesn’t take a lot of H-bombs to wreak a lot of havoc. As Schlosser notes, PALs can be bypassed with the right skills. And though there are obviously generators galore at Incirlik, loss of base power plus a significantly below-average U.S. troop presence don’t exactly make those vaults more secure. Incirlik is hardly the only foreign base at which American nuclear weapons are stored. On top of the fifty or so there, about 130 additional B-61s are placed with Belgium, Germany, Italy and the Netherlands. At some of those locations, security is hardly tight. At the Kleine Brogel Air Base in Belgium, for instance, you can watch video on YouTube of antinuke activists climbing onto the property with nothing more high-tech than a rug to cover some fence spikes. They get to the building where twenty nuclear weapons are located, put stickers everywhere and are eventually confronted by a single soldier with an unloaded gun.

All Cards on the Table: First-Use of Nuclear Weapons - Recent news that President Obama may be considering changes in nuclear deterrence policy has caused a storm of speculation as to whether the time is right for the U.S. government to declare a no first-use policy. In short, this refers to a policy by a state that possesses nuclear weapons not to use them as a means of warfare unless first attacked by an adversary with nuclear weapons. The United States has never had a no first-use policy, preferring the concept of strategic or calculated ambiguity to suggest that it could respond to a crisis with nuclear weapons, if appropriate, or with the massive use of conventional weapons. Thomas Schelling, who called deterrence “the diplomacy of violence,” reminds us that latent violence may influence a state’s choice and that the threat of more damage to come can make a state yield or comply. One of the rationales for retaining nuclear weapons is to deter an adversarial nation from initiating a conventional war and using its nuclear weapons as a latent threat against U.S. military actions. As a matter of extended deterrence, allies such as Japan and South Korea would like to be assured that the United States will not hesitate to use all means to protect them, given that they have committed to not developing nuclear weapons (per the Nuclear Nonproliferation Treaty). Writing at War on the Rocks, Daryl Kimball of the Arms Control Association believes it is time for the United States to take the pledge of no first-use of nuclear weapons, calling a first-use policy part of “dangerous, Cold War-era nuclear thinking” that could lead to early use of nuclear weapons by adversaries such as Russia or China. He decries the possible scenario of “launch under attack” – e.g., a massive U.S. nuclear weapons launch in response to early satellite warnings of an adversarial missile launch – as something that increases the risk of catastrophic accidents or miscalculation between states.

Risk of Nuclear War - In my recent post "Incentives Matter for Politicians Too," I wrote: One of my biggest concerns is that Hillary Clinton as President would purposely or accidentally get the United States into a war with Putin. The New York Times editors, in their Sunday editorial "Trumpworld vs. Clintonworld," pointed out just how interventionist Clinton is. (They liked it; I don't.) When both countries have thousands of nuclear weapons, that is scary. One commenter responded: I'm skeptical that Hillary or Trump or Putin wants a war between the US and Russia given the potential for MAD. I don't consider war with Russia a meaningful factor in this election decision. He/she misunderstood my point.  I'm sure that neither Hillary nor Donald nor Putin wants war between the U.S. and Russia, and for the reason he said: the potential for Mutually Assured Destruction. But I don't think the reason the war would happen is that anyone would start out wanting it; if nuclear war between the United States and Russia happened, it would happen because of blunders made by the U.S. President or Putin or both. My Hoover colleague and former U.S. Defense Secretary William J. Perry recently wrote a piece in the Hoover Digest titled "Still a Dangerous Neighborhood." (For some reason, the link doesn't work. The closest I can find is this piece that quotes him.) In it, he writes: I believe the likelihood of a nuclear catastrophe today is greater than it was during the Cold War.

"Real, Imminent Threat" That Next World War Will Be Initiated By First Strike EMP Weapon -- There has been a tremendous amount of technological interchange between North Korea, the Russians, and the Chinese.  North Korea has also been working for years in the refinement (development) of its nuclear arsenal, especially in partnership with Pakistan and Iran.  In a press conference at the Pentagon on October 24, 2014 reporters were briefed by General Curtis Scaparrotti, the U.S. Military Commander in Korea.  This is what the general had to say: “I believe they [the North Koreans] have the capability to have miniaturized the [nuclear] device at this point, and they have the technology to potentially, actually deliver what they say they have.” On March 9, 2016, Kim Jong-Un for the first time stated that North Korea had accomplished the miniaturization of nuclear warheads that are compatible with ICBM’s.  Admiral William Gortney, Commander of US NORTHCOM was in front of a Senate Committee on March 10, 2016 briefing them on the potential North Korean nuclear threat.  The Admiral stated it was “prudent to assume Pyongyang had the ability to miniaturize a nuclear warhead” and deliver it via ICBM that could actually strike the continental U.S. This year the North Koreans have ramped up their missile tests exponentially, building off of their R&D for the past five years.  Kwangmyongsong-3, Unit 2 satellite was placed into orbit December 12, 2012.  Kwangmyongsong-4 satellite was successfully launched February 7, 2016.  In April 2016 they tested an ICBM engine.  May 2015 saw their claim of a successful SLBM (Submarine Launched Ballistic Missile) test, their first. Then this year, March 23, 2016, (as reported by CNN’s Don Melvin, Jim Sciutto, and Wil Ripley on April 24), their success became a reality.  Here is an excerpt from that report by CNN: “After previous launch attempts by Pyongyang failed, this one seems to have gone much better, one U.S. official noted. “North Korea’s sub launch capability has gone from a joke to something very serious,” this official said. “The U.S. is watching this very closely.” Asked whether the test was successful, another U.S. official told CNN, “essentially yes.”

Could Giant Suction Cups Turn Lake Erie Into a Regional Energy Hub? --  How does one stick a 500-foot-tall turbine to the bottom of Lake Erie? Suction cups, of course. Expense has long been a problem for offshore wind farms, specifically the cost to attach the turbine’s foundation to the ocean floor or lakebed. The traditional method has always been to drill the foundation to the bedrock under the sea bottom — which can be up to several hundred meters down from the surface. That can mean using very expensive equipment, a long time frame to do the work, and environmental disruption undersea from drilling into silt and sediment and rock formations in an already sensitive ecological environment. The suction cup technology innovation (dubbed the “mono bucket”) was developed by Danish engineers in 2002 and acquired by Olsen’s company five years ago. The design and engineering is based on similar foundation attachments in offshore oil drilling. This fairly new technology so impressed the Department of Energy (DOE) that, in May, the agency awarded $40 million to Icebreaker. “The innovative Mono Bucket foundation will reduce installation time, costs, and environmental impacts compared to traditional foundations that require pile driving,” the DOE said in announcing the grant. “The Mono Bucket not only is a solution for the Great Lakes, but also has broader national applicability for offshore wind installations off the Atlantic and Gulf Coasts.” The DOE’s backing of the Icebreaker project is indicative of a shift in the country’s offshore wind energy development. For one thing, the offshore wind projects favored in the past by the federal government had always been on the coasts, but cost issues and opposition by groups who live in communities close to either — especially in Northeast states — have made offshore wind projects difficult to move forward.

Summit County court rules against small city using zoning regulations to regulate oil and gas activities - Athens NEWS - The idea that “reasonable zoning regulations” might offer a way for Ohio municipalities to restrict oil and gas development within their limits took a hit earlier this month when a Summit County court upheld the state’s sole authority to enforce regulations over fracking and related activities such as waste injection wells. While recent battles against deep-shale oil and gas drilling in Ohio mostly have involved proposed “bill of rights” anti-fracking ordinances, such as one passed in the city of Athens in 2014, Ohio courts repeatedly have ruled against them. (Proponents are struggling to place a similar anti-fracking bill-of-rights charter on the ballot for Athens County this November.) The lack of success in the courts has led some advocates of community control over drilling activities to harbor hopes that traditional zoning might be a more effective and legal alternative than the legally suspect bill of rights strategy to dictate where oil and gas activities can occur in a city or village. Whatever the route, the intent is to protect local water, quality of life and other values from oil and gas activities within communities. The Akron suburb of Munroe falls chose to test the traditional zoning route when it filed suit in Summit County Common Pleas Court on May 27 against Beck Energy (of Ravenna, Ohio). The city’s complaint was an attempt to keep the company from drilling an oil or gas well in the center of town, not far from a well-field that supplies water to Munroe Falls, Cuyahoga Falls and Silver Lake, all suburbs on the northeast edge of Akron. The lawsuit sought a declaratory judgment on “whether Munroe Falls has the right to enforce its zoning ordinances relative to oil and gas wells within its municipal jurisdiction; to declare whether Beck Energy is required to obtain a zoning certificate and/or zoning variance from Munroe Falls prior to drilling (its sought-after well); and further requests a stay (suspension) of all drilling activities by Beck until such a time as this court determines all matters in controversy…”

Charter petition protest skips local court, will go to Ohio Sec. of State - athensnews.com: A local group looking to turn Athens County into a charter government has appealed a decision by the local elections board to reject the proposal for the ballot. The appeal will go to the Ohio Secretary of State instead of going through the local court as the group did last year. When the Athens County Board of Elections voted unanimously earlier this month to reject the anti-oil and gas fracking charter proposal from the Athens County Bill of Rights Committee (ACBORC), it was the second time in two years. Last year, the ACBORC appealed that decision to the Athens County Common Pleas Court, and a local judge OKed the proposal for the November ballot.But then a private citizen appealed that decision to the Ohio Secretary of State, who knocked the proposal off the ballot. Finally, the matter ended up in the hands of the Ohio Supreme Court, which ruled that the Athens County proposal couldn’t go on the ballot, not because of home-rule provisions conflicting with the state law giving oil-and-gas regulatory supremacy to the ODNR, but because the proposal for the “charter” itself was not sufficiently complete or explained. This year, the ACBORC has protested the elections board decision to Ohio Secretary of State Jon Husted. The protest was filed with the Athens County Board of Election Monday morning, which was expected to forward it to Husted’s office. A press release from the ACBORC Monday claimed that members of the elections board made three errors in denying the validity of the charter proposal. “They exceeded their legal authority when they passed judgment on constitutional validity of the proposed charter. They misread both the Ohio Constitution and the proposed Charter petition. They failed to scrutinize the contradictory advice of the county prosecutor, Keller Blackburn,” the release said.

Ohio Producing 1000% More Natural Gas Than 10 Years Ago --Ohio is producing 1,000 percent more oil and natural gas than it was in 2006, according to a report published Thursday. The state’s energy production is still surging, as its natural gas production grew 41 percent faster last year than it did in 2014, according to the Energy Information Administration  “The energy renaissance that’s transforming our nation is bringing great benefits to Ohio including jobs in the state. In fact over 255,000 jobs are supported by the oil and natural gas industry in Ohio,” Jack Gerard, the president of the American Petroleum Institute, wrote in Your Oil And Gas News. “Over the last decade, natural gas production has increased by more than 1000 percent in the state due in part to the technological advancements in hydraulic fracturing that has contributed to Ohio’s energy revolution.”  America produced 79 billion cubic feet per day of natural gas in 2015, breaking the previous record by 5 percent, according to the EIA. Most of that natural gas boom in 2015 was concentrated in Pennsylvania, Ohio, West Virginia, Oklahoma, and North Dakota. Together, these states accounted for 35 percent of total American natural gas production while the rest of the country saw a modest decline.  America surpassed Russia’s energy production early last year as as the world’s largest and fastest-growing producer of oil and natural gas. Today, America’s proven recoverable natural gas reserves are seven times larger than they were in 2014.

Stored working gas continues climbing: EIA - Kallanish Energy News: Working gas in storage edged during the week of July 15 from the previous week, the Energy Information Administration reported. For the week of July 15, 3.28 trillion cubic feet of working gas was stored, up 34 billion cubic feet (Bcf) from 3.24 Tcf one week earlier. The latest EIA total was up 471 Bcf, or 16.8%, from the year-ago total of 2.81 Tcf, and was up 559 Bcf, or 20.6%, from the five-year average of 2.71 Tcf, Kallanish Energy calculates. Three of the five regions of the Lower 48 States EIA divides the U.S. into reported a week-to-week increase in stored gas. The largest jump was in the East Region, up 19 Bcf, or 2.8%, to 697 Bcf, from 678 Bcf one week earlier. The latest total was up 75 Bcf, or 12.1%, from the year-ago total of 622 Bcf, and was up 64 Bcf, or 10.1%, from the five-year average of 633 Bcf. The Midwest Region reported a 16 Bcf week-to-week increase, to 801 Bcf, from 785 Bcf. The total was up 172 Bcf, or 27.3%, from the year-ago total of 629 Bcf, and was up 146 Bcf, or 22.3%, from the five-year average of 655 Bcf, EIA reported.

API: America leading in natural gas production, carbon emission reductions: The United States is leading the world in natural gas production that has increased 46 percent over the past decade. The leadership of the United States in natural gas production has also led to our nation being a global leader in the reduction of carbon emissions which are near 20-year lows.  . Natural gas production has increased nearly 50 percent over the last decade thanks to technological advances in hydraulic fracturing. With the increase in natural gas production, America continues to lead the world in the reduction of carbon emissions due in part to clean-burning natural gas,” said API President and CEO Jack Gerard. “American consumers want an energy policy that embraces our abundant natural gas resources and it’s up to leaders at all levels of government to follow the will of the consumer.” API is the only national trade association representing all facets of the oil and natural gas industry, which supports 9.8 million U.S. jobs and 8 percent of the U.S. economy. API’s more than 650 members include large integrated companies, as well as exploration and production, refining, marketing, pipeline, and marine businesses, and service and supply firms. They provide most of the nation’s energy and are backed by a growing grassroots movement of more than 30 million Americans.

US shale gas shaking up global market as LNG trading surges --Shale drillers from Pennsylvania to Texas flooded the U.S. with so much natural gas over the past decade that prices slid to a 17-year low. Now they’re going global, with the potential to upset markets from London to Tokyo. The U.S. began shale gas exports by sea this year and is projected by the International Energy Agency to become the world’s third-largest liquefied natural gas supplier in five years.  Gas will challenge coal at European power plants and become affordable in emerging markets. LNG became the world’s second most traded commodity after oil last year and demand will keep growing. U.S. gas is adding to the global glut triggered by new Australian supply and weakening Asian consumption. Shale is having an outsized impact on how LNG is sold, prompting spot trading in lieu of long-term contracts. "The U.S. clearly changed the picture," Costanza Jacazio, a senior gas analyst with the Paris-based IEA, said in a phone interview. "The US is going basically from zero to the third-largest LNG capacity holder in the space of five years and it brings a new flexible dimension to the LNG market." With supplies growing, some Asian nations like Japan are contracted to buy more than they can consume, leaving surpluses to be sold. That’s lured major traders into the LNG market in recent years, including Vitol Group, Trafigura Group, Koch Industries Inc., Gunvor Group Ltd. and Noble Group. The annual capacity of liquefaction plants, where gas is chilled and compressed for shipping, grew to 415 billion cubic meters in 2015 and will expand to 595 billion by 2021.  Cheniere Energy Inc. has sent 19 tankers of the liquefied gas abroad from its Sabine Pass terminal in Louisiana. By 2020, five terminals will be operating on the U.S. Gulf Coast and in Maryland. Global export capacity will surge 45 percent and the U.S.’s share will jump to 14 percent from nothing, according to Energy Aspects Ltd. While U.S. supply is still relatively small, it’s having an impact because the American contracts are flexible. Australian and other foreign processors conclude long-term agreements to send gas to specific countries such as Japan and China. Asian buyers have contracted for more than half of the U.S. supply, but they have the freedom to ship the fuel to anywhere in the world, encouraging spot trading.

 A New Study Adds Fuel to Calls for a Fracking Ban - About 386 million years ago, Pennsylvania received a great gift—or, depending on your point of view, a curse: the Marcellus Shale, a formation of black rock and limestone containing vast reserves of natural gas.  Pennsylvania will receive another dubious benefaction next week, when Philadelphia hosts the Democratic National Convention. Considering the party’s division over fracking and the shale gas revolution it enabled, it’s a provocative setting. The Obama administration, along with Hillary Clinton as secretary of state and other prominent Democrats, have promoted natural gas as beneficial for both the climate and the economy. But communities situated near heavy fracking activity have long reported adverse environmental and health impacts. And new research on the scale of leaks of methane—a greenhouse gas even more potent than carbon dioxide, in terms of its ability to trap heat in the atmosphere—from natural gas wells and pipelines has intensified calls from climate activists to end the practice. The Democratic platform draft walks a strained line between these two camps, offering support for local moratoriums and more federal oversight, while stopping short of calling for a broader ban. Now there’s new evidence suggesting the drilling technique may harm human health. On Monday, researchers at the Johns Hopkins Bloomberg School of Public Health released a study of the medical records of more than 35,000 people with asthma who lived above the Marcellus Formation between 2005 and 2012. Residents of areas with intense shale-gas activity faced “significantly higher odds” of having asthma attacks, the researchers found, even when taking into account factors like whether they smoked or lived near major roads. Though the study doesn’t trace an exact line of causality, the authors note that fracking has been linked to increases in air pollution, and stress and sleep deprivation from noisy equipment and bright lights, all of which can worsen asthma.

Before DNC: Thousands defy heat to demonstrate for Bernie, against fracking: An environmental advocate dressed in a furry, head-to-clawed-paw polar bear suit defied Philadelphia's staggering heat wave on Sunday and prepared to join thousands of more comfortably dressed protesters at the March for a Clean Energy Revolution. The march, aimed at banning the natural gas drilling practice known as fracking, promised thousands of participants from all 50 states on the eve of the Democratic National Convention. At least 1,000 people gathered at Broad and Market as the march began and police estimates at 2 p.m. ranged between 5,000 and 10,000 as the march proceeded.  At the same time, another 3,000 supporters of Sen. Bernie Sanders planned to assemble in a rally and march, energized by the announcement that DNC Chairman Debbie Wasserman Schultz would resign as party head and not preside over the convention. Hours earlier, Sanders called outright for her resignation on ABC's "This Week," telling host George Stephanopoulos the DNC "was not running a fair operation, that they were supporting Secretary Clinton." Sanders said he was "not shocked" but was "disappointed" by the DNC emails leaked by the WikiLeaks last week. The Washington Post reported that WikiLeaks had revealed about 20,000 emails apparently favoring Hillary Clinton's candidacy over Sanders.

The Fight Over Fracking Heats Up - “Frack no!” That provocative refrain ricocheted through the streets of Philadelphia on Sunday on the eve of the Democratic National Convention, as thousands of clean-energy activists vented their fury at the party’s refusal to include a hydraulic fracturing ban in its platform. The fight over fracking is, well, fractious, pitting environmentalists against fossil fuel interests, cities against states, Republicans against Democrats, and now Democrats against one another. Despite all the high-profile battles over fracking at the national level, enacting a nationwide ban would be difficult, if not impossible, legal experts say. That has brought the fight to the cities and counties, where local voters and lawmakers have passed measures to regulate or ban fracking. Those efforts have not gone unnoticed by the well-funded oil and gas industry, which has set its sights on state capitals, where lobbyists aggressively push for statewide prohibitions on local bans.Proponents say the technique is environmentally sound, creates jobs, increases energy independence, and produces enough natural gas to build a clean-energy “bridge” to more sustainable resources such as wind and solar. Critics contend that any benefits from fracking are overwhelmed by public health and environment impacts. Fracking has been proved to contaminate groundwater, emit methane and other poisons into the air, and trigger earthquakes that now put 7 million Americans at risk of “induced seismic activity.” On the campaign trail, Republican presidential nominee Donald Trump has supported the practice, while the highest-profile fracking opponent, Sen. Bernie Sanders, called for a national ban.

A Former Governor Admitted He Put Economics Ahead Of Safety By Approving Fracking Projects - Former Pennsylvania Governor Ed Rendell, who presided over the state’s fracking boom of the mid-2000s, admitted the state’s fracking regulations favored economics over environmental safety during much of his tenure.  “I made a mistake in the rush to get the economic part of fracking delivered to Pennsylvania,” said Rendell, State Impact reported. “We didn’t regulate well construction and….frack water as well as we should. We cured that in 2010 and we haven’t had any significant incidents since.” Rendell, a former chairman of the Democratic National Committee, governed Pennsylvania from 2003 to 2011. That was right when improvements in fracking technology made Pennsylvania’s vast Marcellus Shale gas resources economically viable. During his tenure, companies rushed to exploit what is now one of the largest natural gas reservoirs in the United States and the source of more than 35 percent of the country’s shale gas as of 2015. The boom brought millions of dollars and new jobs to Pennsylvania, but also countless allegations of environmental violations and lawsuits.  Hydraulic fracturing has been controversial in Pennsylvania — and elsewhere — over concerns of how the wastewater is disposed, and because wells have been known to leak, polluting nearby aquifers with gas and turning the water toxic and at times even flammable. Just in March, a federal court found Cabot Oil & Gas Corp. — one of Pennsylvania’s largest oil and gas companies — guilty of polluting the well water of two Pennsylvania families.  Rendell's comments come at a time when the anti-fracking movement has been growing across the nation. Thousands marched in Philadelphia Sunday, a day before the Democratic National Convention began, and called for a nationwide fracking ban and major investments in renewable energy. Rendell's comments also explicitly acknowledged that environmental laws were overlooked as the state tried to profit from fracking, an issue that environmentalists long said was taking place as companies moved into the state. Moreover, he inadvertently raised questions as to whether the issues were adequately addressed, and whether real solutions were actually put in place during his time in office.

  Too Much Pipe on Our Hands? - Northeast Natural Gas Production vs. Takeaway Capacity -  Over the past five years, essentially all of the growth in U.S. natural gas production has come from the Marcellus/Utica shale regions in the Northeast, constrained only by takeaway capacity, and as of 2015 the region began producing more gas than it can consume almost all year round. There are about two dozen pipeline projects planned to come online totaling nearly 17.5 Bcf/d over the next few years to help Northeast producers target demand in other regions, namely growing power generation demand, LNG export markets along the U.S. Gulf Coast, (see Back Down South), and Mexico via Texas. But since mid-2014, drilling activity has slowed dramatically across the U.S., including the Northeast, and output in Marcellus/Utica has flattened out. Is it possible that the market is headed toward an overbuild situation in which Northeast takeaway capacity will end up far exceeding regional production? That has certainly happened in just about every other segment of the U.S. energy market — from pipes moving gas east out of the Rockies and Texas, to crude by rail, to crude oil pipelines to the Gulf –– with important implications for the market. Could it happen in the Northeast? Today, we begin a series on the prospect of an overbuilt Northeast gas market. ... For years now, the drumbeat about the Northeast natural gas market has been about the meteoric rise of native supply in the region and the perpetually constrained capacity to get this gas to market, whether within the Northeast to New England or the Mid-Atlantic states or to growing demand markets south and west of the region. Each year, some takeaway capacity is added, but is quickly followed by a surge in Marcellus/Utica production that fills up the new capacity, leading back to a capacity-constrained market and depressed supply prices. The constraints have also gotten increasingly dire because most of the supply that used to flow into the old, supply-starved Northeast region has been pushed out and there are few more inbound flows to push out (see End of the Displacement). What’s more, starting in 2015 the region became an overall net producer (see One Step Closer), which means that in order for the region to balance (as the gas market must) any incremental molecule of Northeast production from here on out will need to serve demand outside the region. That has only increased the Northeast’s dependence on the timing of incremental takeaway capacity.

 Southwestern Energy Company Loses $1.8B - Wheeling Intelligencer — Southwestern Energy Co., which now controls virtually all Marcellus and Utica shale drilling lease agreements in Ohio and Brooke counties, lost $1.8 billion during the first six months of 2016.Company leaders, however, believe the firm remains destined for a bright future.A global price slowdown during the last two years affected Southwestern and virtually every oil and natural gas production firm in the world, resulting in fewer active drilling rigs. Oilfield services giant Baker Hughes shows Ohio and West Virginia now feature only 23 active rigs, which compares to the 70 that worked in the two states in July 2014. However, natural gas prices have increased to about $2.80 per 1,000 cubic-foot unit from about $1.70 per unit in March. As prices continue to recover, officials with drillers such as Southwestern and Antero Resources believe their companies are well-positioned to take advantage. Last summer, Southwestern President and CEO Bill Way said the company planned to invest $24 billion to produce oil and natural gas in West Virginia over the next two decades. Company officials continue to renew the five-year leases they acquired from Chesapeake for an additional five-year period.Speaking about the company’s activity for the April-June period, Way acknowledged his company lost $620 million during this time frame. However, the losses were less than the $1.2 billion from the first three months of the year. “As promised, we took significant and deliberate steps this quarter to strengthen our balance sheet that, when combined with the continued outperformance by our assets, positions us to reinitiate drilling and completion activities and accelerate our path to value-adding growth,” Way said.

Developers seek more time to build Constitution Pipeline (AP) — Constitution Pipeline Company is asking federal regulators for more time to build a 124-mile natural gas pipeline from Pennsylvania’s shale fields to eastern New York. The Federal Energy Regulatory Commission approved a permit for the pipeline in December 2014 on condition of getting a state water quality permit and completing work by December 2016. But New York’s Department of Environmental Conservation denied the state permit in April, saying it failed to meet standards to protect streams and other water resources. The company has appealed the permit denial to the U.S. Circuit Court of Appeals, arguing that the state’s refusal is arbitrary and capricious. In a letter to FERC on Friday, the developers asked to have the completion time extended to December 2018 while it pursues legal action.

Tim Kaine is a Democrat who backed Atlantic drilling, LNG exports, coal - While Hillary Clinton’s running mate supports policies to address climate change, he’s also been supportive of his home state’s coal industry, offshore drilling in the Atlantic and of LNG exports. He teamed up with Wyoming Republican John Barrasso to sponsor a bill that would require the Department of Energy to decide on an LNG export application within 45 days.On offshore drilling, Kaine campaigned for the Senate criticizing Interior’s earlier decision to leave Virginia out of its five-year drilling plan and promising to pursue legislation to allow that production. In March, after Interior dropped offshore Atlantic drilling from its next five-year plan, Kaine offered this response: I have long believed that the moratorium on offshore drilling, based on a cost-benefit calculation performed decades ago, should be re-examined. Today’s announcement by theBureau of Ocean Energy Management suggests that they have grappled with this question and concluded that the risks of such production outweigh potential gains. I am particularly struck by the material objections of the Department of Defense to the incompatibility of drilling with naval operations off Virginia’s coast…The DOD has been relatively quiet during this public debate and has never shared their objections with me before. I look forward to additional discussions with DOD to understand its position.  If Clinton wins this fall, her administration won’t reverse course and allow drilling in the Atlantic, Rob Barnett of Bloomberg Intelligence writes today. Still, Kaine may push for legislation to provide financial incentives to help coal-heavy states transition from coal, Barnett says.

A Fracking Pipeline Puts Tim Kaine's Fossil Fuel Industry Ties to the Test - The Intercept - Democratic vice presidential candidate Sen. Tim Kaine is facing pressure from landowners in his home state of Virginia to stand against the planned Atlantic Coast Pipeline, which would carry fracked gas from Pennsylvania, Ohio, and West Virginia to mid-Atlantic markets.  He’s made some moves in that direction: he’s held private meetings with landowners in the pipeline’s pathway; he’s asked the Federal Energy Regulatory Commission to strengthen the consultation process for residents; and he introduced an amendment to a federal energy bill that would encourage regulators to carry out a review of the cumulative impact of the region’s four planned pipelines. But he hasn’t ruled the pipeline out, making environmentalists worry that he ultimately shares the quietly fossil-fuel friendly politics of the Democratic Party.  Kaine’s record on energy is mixed. He’s been supportive of offshore drilling in the Atlantic and introduced legislation to speed up liquid natural gas exports. In 2012 he pushed for the construction of one of the nation’s last new coal plants. And he helped pressure the federal government to lower Virginia’s greenhouse gas emissions goals under the Clean Power Plan.In Virginia, the Atlantic Coast Pipeline’s biggest investor, Dominion, was the largest single corporate contributor to local politicians between 1997 and 2016, and Kaine has accepted his share of the company’s cash and gifts: more than $300,000 in total since 2001. When asked what he thought of Kaine, senior American Petroleum Institute lobbyist Louis Finkel told Intercept reporter Zaid Jilani, “He’s the best we could have hoped for.” Virginia’s governor and longtime friend of the Clintons Terry McAuliffe supports the pipeline.

Obama administration closes offshore drilling sale to public | TheHill: The Obama administration is banning environmental activist protesters from an offshore drilling lease sale next month. The auction, scheduled for Aug. 24 in New Orleans, will be webcast, and the public will not be allowed in the venue, a change from the tradition of the Bureau of Ocean Energy Management (BOEM) and its predecessors.The decision came after a boisterous lease sale in March, in which hundreds of protesters at the Mercedes-Benz Superdome yelled over announcements, stormed the stage and tried unsuccessfully to shut down the event, according to the New Orleans Times-Picayune.  The activists were part of the “keep it in the ground” movement, a campaign that’s taken off in the last year and seeks to stop the federal government from allowing additional fossil fuel development on public lands and offshore.The protests have taken the federal government by surprise; the sale events have previously been low-key with few public observers or protesters.It spurred efforts both in the Obama administration and Congress to move sales online in some way. The House Natural Resources Committee approved a bill this month to require BOEM to move to a completely internet-based lease system within a year, inspired largely by the disruptive protests. Environmentalists have pushed back against the efforts and accused the administration and oil and gas industry of trying to hide the sales from public scrutiny. “New fossil fuel leasing is wrong for people and the planet. Moving lease sales online will only make it easier for fossil fuel companies to get away with turning our public lands and waters into energy sacrifice zones,” Marissa Knodel, the climate change campaigner with Friends of the Earth, said last week of the House bill.

Northeast Natural Gas vs Gulf Coast production -- Until a few years ago, a good bit of the natural gas produced along the Gulf Coast was piped long-distance to warm homes and businesses in the Northeast and the Midwest. Now, though, cheap-to-produce Marcellus and Utica shale gas has come to dominate gas heating and power markets from Boston to Cleveland, and Northeast-sourced gas is starting to move into Louisiana and Texas, competing head-to-head with Gulf Coast production. With Marcellus/Utica gas production in ascendance, what will be the fate of all the gas still being produced along the U.S. Gulf Coast? That’s the subject of RBN’s latest Drill Down Report, highlighted in today’s blog, which describes the battle lines being drawn and the important roles LNG exports and Mexican demand will play in keeping U.S. gas markets in balance. A quarter-century back, if you’d told a Louisiana or East Texas utility executive in 1991 that in the not-to-distant future he might be burning Pennsylvania-sourced natural gas to run his power plants he might have suggested bed rest and counseling. But here we are. As we say in RBN’s new Drill Down Report (which is available to Backstage Pass subscribers, or for individual purchase), the Shale Revolution continues to have a transformational effect on the U.S. energy sector –– and on our neighbors and the world, for that matter. Texas still produces more natural gas than any other state (20.4 Bcf/d of “marketed production” in April 2016, according to the Energy Information Administration, or EIA), and Louisiana produced an average of 5.2 Bcf/d the same month (25.6 Bcf/d combined). But the core Marcellus/Utica region produces almost as much: 22.0 Bcf/d in April, including 14.3 Bcf/d in Pennsylvania, 4.0 Bcf/d in Ohio, and 3.7 Bcf/d in West Virginia, and it seems likely that, given the Marcellus/Utica’s favorable production economics (which are detailed in the report), these three Northeast states will soon produce more gas than their Gulf Coast rivals.

US Gulf Coast distillate exports to Europe 370,000 mt to date in August - Some 370,000 mt of distillates, most of it diesel, have loaded from the US Gulf Coast for discharge in Europe in August, so far, according to CFlow, Platts trade flow software. In comparison, a total of 1.42 million mt crossed the Atlantic on that route in July, down from previous months. The 370,000 mt of products should reach European coasts in the first week of August or so, cFlow showed, and come in nine parcels, four of which are currently headed towards Mediterranean ports. Of the remaining five cargoes, four are en route to the Amsterdam-Rotterdam-Antwerp hub while the other one was expected in Rouen, France."Not much is being fixed from the US. There is room for more product to come," a European diesel trader said. European diesel cash prices rose last week, as market participants anticipated a decline in refining margins to trigger run cuts, hence resulting in a tighter supply pool. "The entire [diesel] market was in upswing mode and I think it is because of fears that refining margins won't be able to hold and that there will be run cuts," a European diesel trader said. "It is part of it for sure, also the structure got to levels close to floating storage economics and, in terms of cash prices, they came to levels where it was possible to export out of ARA in cargoes," another diesel trader said, adding: "There are high [diesel] stocks and the structure is incenvitizing people to keep oil in tanks".

SABIC, ExxonMobil explore development of US Gulf Coast petchem complex -  Saudi Arabian Basic Industries Corp. (SABIC) and ExxonMobil Corp. affiliate ExxonMobil Chemical Co. are exploring potential development of a jointly owned grassroots petrochemical complex to be built at the US Gulf Coast. If developed, the project—which would include a steam cracker and derivative units—would be built in Texas or Louisiana near natural gas feedstock, ExxonMobil said. Before making final investment decisions for the project, the companies said they first plan to conduct necessary studies as well as work with state and local officials to help identify a potential site with adequate infrastructure access. Further details regarding the proposed development, including an estimated cost and timeline for construction, were not disclosed. This latest possible joint venture involving SABIC follows an announcement by the company last month that it has partnered with Saudi Aramco to conduct a joint feasibility study for development of a fully integrated crude oil-to-chemicals complex in Saudi Arabia

Analysis: Pipelines see no impact from US Tier 3 gasoline sulfur cuts -   Refiners already are taking out more of it. Gas stations will be pumping less of it. Tailpipes will be spitting out less of it -- or so the federal government hopes. As 2017 nears it is bringing broad changes to how producers such as refineries and market players manage sulfur at most parts of the US gasoline stream -- except for the nation's pipelines. Meanwhile, talk is starting to circulate among traders how the sulfur restrictions will affect cash markets. And the swaps trade in July for US Gulf Coast gasoline is pointing to stronger values for January product after the switch compared with December contracts, according to S&P Global Platts data.Officials at most major US pipelines said this month that the Tier 3 standards that appear poised to reduce sulfur in gasoline by more than half do not apply to them.The federal government is requiring that finished gasoline average 10 ppm sulfur by January 1. This happens while regulators are finalizing standards for the refinery gate at a maximum of 80 ppm sulfur and a downstream cap of 95 ppm. According to an energy glossary published by the Cornell University law school, the refinery gate is defined as the point at which refined products leave the plant. The largest impact will be seen at the refinery, where the law means a reduction of sulfur in gasoline during production. The US Environmental Protection Agency expects that the majority of the gasoline refineries impacted by the Tier 3 standards either already meet the 10 ppm sulfur requirement or will be able to come into compliance within two to three years.

First LNG vessel through Panama Canal headed to Far East - The first LNG vessel to transit the Panama Canal is headed to the Far East, two market sources said Wednesday. The Shell-controlled vessel, the 161,870 cubic meter Maran Gas Apollonia, was previously expected to deliver into Latin America. However, after entering the North Pacific Tuesday, the vessel is holding a bearing of 287 degrees, headed toward East Asia, according to cFlow, Platts' trade-flow software. According to one trading source and another market source, the US-sourced cargo will be delivered to a terminal in the Far East.The vessel loaded at the Cheniere-operated Sabine Pass liquefaction facility in the US Gulf Coast on July 19 and entered the Panama Canal at the Port of Colon on Monday. This would be the first cargo from the US Gulf Coast to land in East Asia. Previous cargoes from Sabine Pass have been delivered to Europe, the Middle East, South America and South Asia, with the majority of cargoes going to South America. Shell has annual offtake of 3.5 million mt from Sabine Pass Train 1.

Updated Panama Canal opens premium Asian markets to US LNG - The Barrel Blog: It has been quite a year for the US LNG industry. In February, Cheniere’s Sabine Pass LNG terminal exported the continental US’ first commercial cargo of LNG. Since February, Cheniere’s Train 1 at Sabine Pass, the only fully commissioned operating US LNG export terminal, has exported 19 cargoes to eight different nations on three continents. While South America has so far received more US LNG cargoes than any other region, the re-opening of the newly expanded Panama Canal could drive new competition from North Asian markets. While many expected the majority of Cheniere’s cargoes to end up on Europe, ten of the first 16 cargoes (three are out at sea) have delivered into South America, specifically Brazil, Chile and Argentina. Only two cargoes have delivered into Europe.  Cheniere’s first cargo was delivered to Rio de Janeiro, Brazil’s furthest regasification terminal from Sabine Pass. Depending on what terminal you deliver into Brazil, shipping a cargo of LNG from the US Gulf Coast can take between 11 and 16 days. Delivery into either of Argentina’s two terminals takes roughly 21 days.The expanded Panama Canal will allow US LNG producers to deliver their cargoes to select destinations in South America and Asia faster and cheaper. Chile is a good example: when travelling around the southern tip of South America, an LNG vessel departing from Sabine Pass must travel 9,507 nautical miles over 30 days to deliver into Chile’s Mejillones terminal. Through the Panama Canal, the trip is cut down to just 3,607 nautical miles, lasting about 11 days.A shorter trip to North Asia through the Panama Canal means South American LNG importers will now face new competition for US LNG supply. Before the opening of the Panama Canal, the idea of sending a cargo of US LNG to North Asia seemed like a pretty far off idea. Via the Suez Canal, a US Gulf Coast laden LNG vessel must travel around 47 days and 14,500 miles to reach Tokyo Bay. Around the Cape of Good Hope, the trip is 15,689 nautical miles, lasting 50 days. Through the Panama Canal, the trip is cut down to 29 days and a distance of 9,214 nautical miles. From a distance and time perspective, this is significant.

 Vermilion sues oil and gas companies over coastal damage (AP) — Vermilion Parish is suing dozens of oil and natural gas companies over damage the parish’s district attorney says drilling caused to the coast. District Attorney Keith Stutes filed the lawsuit Thursday in state court. Vermilion is the fourth parish to file suit against oil and gas companies over such damage claims. The suits accuse oil and gas companies of violating coastal permits or not obtaining permits when they dug oil access canals and dumped toxic waste into pits. The oil industry dismisses the suits as being without merit and says companies have followed the rules. Earlier this year, Gov. John Bel Edwards and Louisiana Attorney General Jeff Landry intervened in the suits. Edwards has urged the industry to reach a global settlement over the claims.

Coast Guard: 4,200 gallon oil spill in south Louisiana (AP) — The Coast Guard says about 4,200 gallons of crude oil has leaked from an abandoned oil pipeline near marshland in southeast Louisiana. A Tuesday news release from the Coast Guard says the leak was reported and stopped Monday. The line belongs to Hilcorp Energy of Houston. A company spokesman said he would have more information on the leak later Tuesday. The Coast Guard says Hilcorp has contracted with an organization to clean up the spill. Coast Guard Petty Officer Lora Ratliff says the leak happened at the edge of marshland along Lake Grand Ecaille (eh-KY’-uh), in an area of open water and coastal marshes roughly 60 miles southeast of New Orleans.

Pioneer Says Some US Fracking Costs Competitive with Saudis  (Reuters) - Improved fracking techniques have helped cut Pioneer Natural Resources Co's production costs in the Permian Basin to about $2 a barrel, low enough to compete with oil rival Saudi Arabia, CEO Scott Sheffield said on Thursday. The comments from Sheffield, who is retiring soon, were perhaps the most concrete sign yet that the fittest U.S. shale oil producers will survive the price crash that started in mid-2014 when Saudi Arabia and OPEC moved to pump heavily to win back market share from higher-cost producers. Dozens of shale companies, many with marginal assets, have filed for credit protection in the biggest wave of corporate bankruptcies since the telecoms crash of the early 2000s. Sheffield said high costs would continue to make U.S. shale plays outside the Permian basin relatively less competitive. On Pioneer's second-quarter results call, Sheffield said that, excluding taxes, production costs have fallen to $2.25 a barrel on horizontal wells in the Permian Basin of West Texas, so it is nearly on even footing with low-cost producers of conventional oil. "Definitely we can compete with anything that Saudi Arabia has," he said. "My firm belief is the Permian is going to be the only driver of long-term oil growth in this country. And it's going to grow on up to about 5 million barrels a day from 2 million barrels," even in a $55 per barrel price environment, he added. Oil traded near $50 a barrel for much of the second quarter but is currently around $42. Pioneer's shares were up more than 3 percent on Thursday at $155.91 each. Sheffield said other U.S. shale plays, notably the Bakken in North Dakota and the Eagle Ford in South Texas, may not be able to weather the downturn as well given their higher costs.

Did CLR Just Report A Long Lateral In Oklahoma Producing In Excess Of 70,000 Bbls Of Oil In First Month Of Production? -- July 25, 2016 - The STACK story in Oklahoma is getting fairly interesting. Harold Hamm was the first to really talk about it, along with SCOOP. Then Mike Filloon picked up on it. Right now, the onshore tight oil plays in order of excitement: the STACK, the Permian, maybe the Niobrara is in the mix, the Bakken, and finally, the Eagle Ford. On July 19, 2016, Devon reported its record Meramec well in STACK: In the overpressured oil window in southwest Kingfisher County, the Pony Express 27-1H well, drilled with a 5,000-ft lateral, recorded a 30-day average rate of 2,100 boe/d, 70% oil.  I suppose, 0.7 x 2,100 = 44,000 bbls of oil / over the first month (30 days). EOG, others have reported similar wells in the Bakken but generally it seems the better Bakken wells are running 12,000 to 20,000 bbls oil / month in the first two or three months of production. Now CLR is reporting its record Meramec well in STACK.  On May 17, 2016, CLR announced .... the completion of an industry record well in the over-pressured oil window of Oklahoma's STACK play. The Verona 1-23-14XH flowed at an initial 24-hour test rate of 3,339 barrels of oil equivalent per day, comprised of 2,345 barrels of oil, or 70% of production, and 6.0 million cubic feet of 1,370-Btu natural gas (British thermal units). The Verona is producing from the Meramec reservoir through a 9,700-foot lateral at a flowing casing pressure of approximately 2,400 psi, on a 34/64-inch choke. Note:

  • the Devon well was a short lateral, a 5,000-ft lateral: 2,100 boepd over 30 days, first month
  • the CLR well was a long lateral, a 9,700-ft lateral: 3,339 boepd over 30 days, first month

Again, I suppose, 0.7 x 3,339 = 70,000 bbls of oil / over the first month (30 days).

 An Oil Pipeline Nearly As Long As Keystone XL Has Been Fully Approved  -- Despite several months of heavy opposition, an oil pipeline slated to cut through four Midwestern states has all the regulatory permits it needs for full build-out.  The U.S. Army Corps of Engineers gave the final blessing to the Dakota Access pipeline on Tuesday. Developers now have the last set of permits they need to build through the small portion of federal land the line crosses, which includes major waterways like the Mississippi and the Missouri rivers. The so-called Bakken pipeline goes through mostly state and private land in North Dakota, South Dakota, Illinois, and Iowa. It received the last state permit in March. Construction has been ongoing in some areas, although some landowners have pending court cases as they object to the eminent domain powers the company got.  Tribes too opposed the project, claiming the pipeline would harm wildlife and Sioux sacred land in northwest Iowa. The Army Corps of Engineers delayed their permits in part to review how sacred land could be avoided, and concluded the line would run underneath. The final set of permits approved relate to crossing waterways. The pipeline will transport up to 570,000 barrels of sweet crude oil per day from North Dakota’s oil-rich Bakken Formation, to a market hub near Patoka, Illinois. Critics have long said the pipeline could severely harm thousands of miles of fertile farmland, forests, and rivers if a spill were to occur. Federal agencies have said the Bakken Pipeline avoids “critical habitat.” But Dakota Access, a subsidiary of Dallas-based Energy Transfer Partners, says it will use state-of-the-art monitoring equipment and shut-off valves. Personnel will be stationed along the more than 1,150-mile pipeline for further support. Yet U.S. pipelines spilled three times as much crude oil as trains over the period of 2004 to 2012, according to a recent study by the International Energy Agency.

Standing Rock Sioux sues Corps over oil pipeline permits (AP) — The Standing Rock Sioux Tribe is suing federal regulators for approving permits for a $3.8 billion pipeline that will move oil from North Dakota to Illinois. Tribal officials filed the lawsuit Wednesday against the U.S. Army Corps of Engineers. The Corps issued permits for the project on Tuesday. The Standing Rock tribe opposes the Dakota Access Pipeline, which is planned by Dallas-based Energy Transfer Partners. The tribe says it fears a spill could contaminate drinking water on its reservation, which straddles the North Dakota-South Dakota border. The tribe also says in court documents that the project threatens sacred sites and violates federal laws, including the National Historic Preservation Act. Corps spokeswoman Eileen Williamson says the agency’s review of the pipeline found “no significant impacts to the environment or historic properties.”

Crude Slump, Pipeline Expansion Mark End of U.S. Oil-Train Boom - WSJ: The oil-train boom is waning almost as quickly as it began. Rail became a major way to move crude after companies began unlocking new bounties of oil from shale formations, with volumes rising from almost nothing in 2009 to more than one million barrels a day by 2014, according to the U.S. Energy Information Administration. But those numbers began falling after oil prices started tumbling two years ago, and aren’t projected to recover anytime soon. In April, just 430,000 barrels of oil rode the rails each day, according to the latest federal figures.Some of the decline came from a drop in U.S. oil production, but oil and rail executives say the drop-off may be permanent. “At least some portion, and it could be a pretty large portion,” of the rail business won’t return, said Union Pacific Chief Executive Lance Fritz. More pipelines have begun reaching North Dakota and other shale regions, giving producers a cheaper way to move their oil to market. Also, a string of fiery crude-freight-train derailments—including one in Lac Mégantic, Quebec, that killed 47 people in 2013—have prompted a host of new and expensive regulations, and fueled opposition that has helped delay major rail projects on the West Coast, where a dearth of pipelines makes rail useful. Regulators have mandated new safer tank cars, and older tank cars are being phased out—adding to future costs for transporting oil. The changes are evident in North Dakota, once the epicenter of the crude-by-rail trend. Oil output from the state’s Bakken Shale formation has fallen by 180,000 barrels a day from its 2014 peak. Meanwhile, pipeline takeaway capacity has more than doubled since 2010.  Enough pipeline capacity is coming online to replace all of the current volume BNSF Railway Co. is shipping out of North Dakota, said David Garin, the railroad’s group vice president of industrial products. BNSF used to transport as many as 12 trains daily filled with crude primarily from North Dakota’s Bakken Shale, carrying about 70% of all rail traffic out of the area. Now it is down to about five a day.

At Oil Industry Funded DNC Event, Surprising Turn: Protests, Ex-Governor Admits "Mistake" Over Fracking - At an oil-industry sponsored event during this week's Democratic National Convention, all did not go as planners may have hoped.  The event was sponsored by Vote4Energy.org, an initiative by the American Petroleum Institute, the oil and gas industry's trade association, and featured some of the Democratic party's most ardent supporters of fracking, including Colorado Governor John Hickenlooper. But protesters with an anti-fracking message repeatedly disrupted the panel and one of the gas industry's best-known cheerleaders, former Pennsylvania governor Ed Rendell, admitted he “made a mistake” in failing to adequately regulate shale gas extraction. The first politician to speak was Colorado's Gov. Hickenlooper — a man who once staged an event where he drank “fracking fluid” (actually CleanStim, a Halliburton fluid made using food-grade additives — the recipe for most frac fluid is proprietary with its secrecy fiercely guarded by industry advocates). Mr. Hickenlooper, long-rumored to be on the Clinton administration's list of potential cabinet members — including a potential position as the Secretary of the Interior where he would hold sway over drilling on federal and American Indian lands — told the crowd at the Politico event that he had little interest in a national-level position. “[I]t’s pretty unlikely I would take a cabinet position to be very blunt,” he told the crowd.

US oil, gas applications could drop 40 percent -- U.S. officials say applications to drill for oil and gas on federal and Indian lands are expected to decrease 40 percent in coming years versus their historical average. The projection comes as cheap prices have curtailed domestic energy exploration, driving down state and federal revenue. The U.S. Bureau of Land Management on Thursday will announce a proposal for all drilling applications to be filed online, in an effort to streamline the approval process. The move follows years of criticism from the energy sector over the Obama administration’s handling of drilling applications. Industry groups say lengthy delays drive up costs. Bureau spokeswoman Bev Winston says the move to online permitting will allow 90 percent of applications to be completed within 115 days. The average time in 2015 was 220 days.

Advocates seek more disclosure on fracking chemicals - (AP) — Landowners, environmentalists and health advocates petitioned Montana regulators on Tuesday to require companies to more fully divulge which fracking chemicals they use to produce oil and gas. Dozens of chemicals, some of them hazardous to human health and the environment, are used as part of the process technically known as hydraulic fracturing, in which millions of gallons of fluid are pumped deep underground to release oil and gas trapped in shale or other rock formations.  A 2011 state rule allows companies to conceal from public scrutiny any chemicals they consider to be trade secrets. Officials can request the full ingredients list in the event of a spill or release of the fluids. The rule also allows medical professionals to request the information for diagnosis or emergency treatment because of chemical exposure. But critics say the trade-secrets exception represents an unlawful loophole, violating the public's right to know about chemicals that can contaminate groundwater and pollute the air. The oil and gas industry is set to oppose any rule change.

California Sunset - Radical Shifts in the Golden State's Power and Gas Markets - Part 2 -- After averaging more than a nickel below Henry Hub all this year, the California Border natural gas price spiked to 66 cents/MMbtu above Henry on Friday. This kind of price volatility is no surprise to anyone following the radical shifts in California energy markets, starting five years ago when the state legislature enacted its 33%-by-2020 renewable portfolio standard (RPS) law. By mid-2015, more than 14,000 MW of new solar and wind power had pulled down gas demand in California to the point that natural gas prices at the SoCal Border were averaging a negative basis to Henry Hub. Still not satisfied, last year California legislators voted to establish a 50% renewables target for 2030. On top of it all, the West Coast was coming up on a La Niña year that would bring more rain –– and hydroelectric generation –– to the Pacific Northwest and eventually into California. With all that renewable power (solar, wind and hydro), California seemed headed for an unprecedented period of low gas prices, but it did not turn out to be so simple. In today’s blog, we continue our look at California’s power and gas markets with the events and drivers that shaped late 2015 and the first six-plus months of 2016, and consider what’s to come.

NYMEX September gas settles at $2.873/MMBtu, up 21.3 cents - Natural Gas | Platts News Article & Story: On its first day as the front-month contract, the NYMEX September natural gas futures contract jumped 21.3 cents to $2.873/MMBtu after bullish gas storage data from the US Energy Information Administration. According to the EIA, working gas in storage for the week that ended Friday was 3.294 Tcf, a net build of 17 Bcf from the previous week. Stocks were 436 Bcf above last year at this time and 524 Bcf above the five-year average of 2.770 Tcf. EIA historical data showed that last year at this time, the injection was 49 Bcf. This week's reported injection was below analyst expectations estimating a build of 27 Bcf. In fact, the South-Central region this week showed a net pull of 18 Bcf as every other region except the Pacific showed net week-on-week injections. The Pacific region was flat with the prior week.Weather continues to be a driving factor in the prompt-month's direction. Pira Energy's Teri Viswanath in an interview mentioned that weather fundamentals surrounding storage activity are conducive to possibly a net withdrawal to be reported next week before a turnaround to net builds. In its latest six- to 10-day forecast, National Weather Service models remain relatively unchanged, showing the eastern two-thirds of the US holding at above-normal weather patterns. Areas of the Pacific Northwest and deep Southwest can still expect below-normal temperatures. Eight to 14 days out, NWS models turn slightly warmer as the area of above-normal temperatures begins to extend its reach into larger parts of the Southwest than previously expected. The September contract traded in a range of $2.651-$2.893/MMBtu Thursday.

Cities turn to local action to block oil trains (AP) — As crude oil trains began rolling through its downtown a few years ago, Spokane was among the first cities to pass a resolution calling for stronger federal safety regulations. But when a mile-long train derailed in the scenic Columbia River Gorge along the Oregon-Washington border last month — after earlier passing through this major railroad hub in eastern Washington — some city leaders said they couldn’t wait for tougher federal protections. This week the Spokane City Council decided 6-0 to ask voters in November whether the city should prohibit the shipment of crude oil or coal by rail. The ballot measure, if approved, would make rail shipments of crude oil or coal a civil infraction, punishable by a fine of up to $261 per tank car. Spokane is certain to face a steep uphill legal fight, since the federal government regulates railroad operations and safety. Even councilmembers expect the matter to end up in court, though some say it’s worth putting to voters. Main rail lines converge in Spokane and there’s no realistic alternative route, BNSF Railway spokesman Gus Melonas said. “There have been a distressing number of incidents in the U.S. and Canada with oil trains derailing or exploding, sometimes with catastrophic consequences, so cities certainly have a strong reason to regulate this kind of traffic,” said Michael Gerrard, a professor and director of the Sabin Center for Climate Change Law at Columbia University. “Unfortunately, the jurisdiction over it is firmly centered on the federal government.”

The Donald Trump Coal Plan Vs. The Donald Trump Fracking Plan: The ambitious pro-coal plan of US presidential candidate Donald Trump has been on full display during this week’s Republican National Convention, but leave it to that pesky meddling EPA to put a damper on the party. On Tuesday, the same day that US Senator Shelley Moore Capito (R-WV) spoke to the convention in support of the coal industry, a federal court issued a ruling that upheld the EPA’s veto of the notorious Spruce No. 1 mine in her home state. However, all is not lost. The Spruce decision may rile up Capito and other pro-coal Trump supporters, but it will help provide a competitive boost for Trump’s other favorite fossil sector, the natural gas fracking industry.  Industry analysts widely agree that coal consumption in the US has been declining in recent years, primarily because of competition from low cost natural gas for electricity generation. Renewable sources have been a far less significant factor, and they are only just beginning to weigh in more.  Low cost gas is a side effect of the domestic shale fracking boom, which was touched off by a loophole in environmental regulations created under the Bush Administration. So, blame President Bush for the decline in domestic coal consumption. The loophole has crippled the Obama Administration’s efforts to bring the fracking industry under the regulatory umbrella of the EPA, and this lack of oversight has helped to keep gas costs down.  Coal supporters like Capito have been especially fond of nailing President Obama’s energy policies for the decline of coal in West Virginia and other states in the Appalachia region, but the fact is that Appalachian coal faces a triple whammy. In addition to new competition from natural gas for the domestic market, it also has to compete with coal from Wyoming’s Powder River basin, and compete globally with Australia and other coal-exporting countries.

High pressure water drilling touted as an environmentally friendly replacement for fracking - Research undertaken at the Australian industry research outfit, CRCMining, into more environmentally friendly oil and gas drilling is ready to be commercialised. The new water-jet technology can replace traditional fracking in which water, sand and chemicals are pumped into geological structures, under high pressure, to fracture the rock and release recoverable oil and gas. The patented technology is owned by V2H International and its Australian arm is already rolling out the technology. CEO Darren Rice said the technology could be used to access all forms of unconventional oil and gas, but he saw it as a direct competitor to hydraulic fracturing in the coal seam gas sector. "It is much more environmentally friendly, it uses about 5 per cent of the amount of water CSG wells need and it is also much cheaper to drill wells this way," he said. "Instead of cracking (fracturing) the host rock, as in fracking, we drill directly into the rock using high pressure water."Unlike fracking, where you don't actually have control of where the fracked area extends to, with this system we can go down to within 3 inches of where we want to be in a well. "We can ensure that drilling with this system we never go near a water table or an aquifer." Mr Rice said the method would prevent the possibility of gas migrating into water bodies, a concern often voiced by those against fracking.

Oil Bust Endures For Big Oil As Refining Margins Deteriorate -- Second quarter earnings season is underway and BP was the first oil major to kick off the fun.The British oil giant reported its third consecutive quarterly loss, although much of that was due to big charge related to its disastrous 2010 Deepwater Horizon spill. BP said it lost $2.25 billion in the second quarter, which is an improvement over the $6.27 billion loss it reported a year earlier. The loss was made worse by the $5.2 billion pretax charge from the 2010 disaster, which brought the oil major’s total bill for Deepwater Horizon up to a ghastly $61.6 billion. When the one-time charges are excluded, BP reported a $720 million replacement cost profit (similar to net profit), which is down 45 percent from its $1.31 billion earnings from the second quarter in 2015. But one interesting takeaway from BP’s earnings is how poor the second quarter was for the downstream sector. The refining units at the oil majors have been a rare silver lining during most of the two-year downturn in oil prices, offsetting the upstream losses from low oil prices. But this year refining margins have collapsed amid oversupply while inventories of gasoline and other refined products have surged. Refining margins have declined to their lowest level since 2010 as a result.The problem for the oil majors will be compounded if WTI and Brent fall back again. Oil prices are down below $45 per barrel this week, down from over $50 per barrel in June. Only ExxonMobil reported profitable earnings from its upstream unit in recent quarters – all of the other oil majors saw their upstream units in the red, with their downstream assets offsetting some of the losses.

Energy company BP says 2Q earnings fell 45 percent (AP) — BP’s second-quarter earnings fell 45 percent as lower oil prices hit the British energy company. Underlying replacement cost profit, which excludes one-time items and fluctuations in the value of inventories, fell to $720 million from $1.3 billion in the same quarter a year earlier, the company said in a statement released Tuesday. BP’s net loss narrowed to $1.4 billion from $5.8 billion. BP took a pre-tax charge of $5.2 billion in the quarter for costs related to the Deepwater Horizon disaster in 2010. The company sought to draw a line under the incident earlier this month, saying it estimated the final pre-tax cost of the spill — including fines, litigation and environmental costs — at $61.6 billion. The statement marked an important milestone for BP as it tries to persuade investors that the years of retrenchment have ended and it is ready to grow — despite oil prices hovering below $50 a barrel. “The sigh of relief emanating from BP HQ is almost palpable as the Gulf of Mexico spill is finally consigned to the history books,” said Richard Hunter, head of research at Wilson King Investment Management. “This is not to say that the challenges are over, not least of which is an underlying oil price still markedly short of the level which would provide comfort for the company.” Oil companies have rushed to cut costs and curtail investment after oil prices fell to a 12-year low in January. Brent crude, the benchmark for international oil, averaged $46 a barrel in the second quarter, down from $62 a barrel a year earlier, according to BP. The price rebounded from the first quarter when Brent crude averaged $34 a barrel.

BP’s Profit Plummets To $720M On Weak Refining Margins, Oil Prices  - BP Plc reported on Tuesday a profit of US$720 million for the second quarter, down from US$1.3 billion for the second quarter of 2015, citing lower oil and gas prices, and significantly lower refining margins. The US$720-million underlying replacement cost profit, BP’s definition of net profit, is US$120 million below an analyst consensus provided by the company and lower than the US$819-million estimate of 13 analysts polled by Bloomberg. The Brent price was US$46 on average in the second quarter this year, up from US$34 in the first quarter, but still well below the US$62 average in the second quarter of 2015. Despite the fact that refining margins improved from the first quarter, they were at their weakest for a second quarter since 2010, BP noted. The downstream business booked an underlying pre-tax replacement cost profit of US$1.5 billion, down from US$1.9 billion in the second quarter last year, as significantly weaker refining margins more than offset the benefits of lower costs and stronger fuels marketing performance, BP said. For the first half of 2016, the group’s underlying replacement cost profit fell to US$1.252 billion from US$3.89 billion, chiefly due to lower oil and gas realizations on the upstream result. Organic capital expenditure came in at US$7.9 billion, BP said, expecting full-year 2016 capex to be below US$17 billion. Upon announcing the first-quarter results in April, BP said it expected this year’s capex at around US$17 billion.

 BP sees 2016 capital spending below target; Q2 oil, gas production slips - Oil | Platts News Article & Story: BP said Tuesday that its oil and gas production fell year on year during the second quarter of 2016 but that it was on track with further spending cuts and expected capital spending to come in below budget this year. Excluding BP's 20% share of Russia's Rosneft, its upstream production was 2.09 million b/d of oil equivalent in Q2, 1% lower than a year earlier, mainly due to higher maintenance. Looking ahead, BP said it expects Q3 production to be lower than in Q2 due to seasonal maintenance and an outage at the Pascagoula gas processing plant in the Gulf of Mexico. BP has said that it sees full-year 2016 underlying production to be broadly flat from 2015's 2.26 million boe/d, excluding Russia.The oil major said it was making progress with efforts to slash costs to ride out lower oil prices. BP said its organic capital expenditure for the first half of 2016 was $7.9 billion and that it now expects full year 2016 capital expenditure to be below $17 billion. Previous guidance was for 2016 capex of around $17 billion. "We are delivering significant improvements to the business that will stick at any oil price. We are now well down the path of transforming our business to compete, whatever the future holds," CEO Bob Dudley said in a statement. BP reported an underlying replacement cost profit for the quarter of $720 million, down from $1.3 billion for Q2 2015. BP reported a $1.4 billion loss for the quarter, however, after taking a $2.8 billion one-off charge including a further charge for Gulf of Mexico oil spill liabilities.

ConocoPhillips reports larger-than-expected EPS loss, reduces spending plans: ConocoPhillips on Thursday reported a wider-than-expected quarterly loss as the company lowered its planned capital expenditures for the year but increased its production forecast for 2016. Share prices were up 1.6 percent. They had initially declined following the report. For the second quarter, ConocoPhillips reported a loss of 86 cents per share, or $1.1 billion, Analysts expected a loss of 61 cents a share, according to Thomson Reuters. The report marks the fifth-straight quarterly profit loss for the Houston-based company amid a protracted price rout. ConocoPhillips reported a loss of 15 cents per share, or $179 million, in the year ago period.The world's largest independent exploration and production company further lowered its capital expenditure plan for 2016 to $5.5 billion from a previously stated $5.7 million. It had lowered its guidance in each of the last two quarters. Still, the company increased its full-year production guidance from 1.540 million barrels of oil equivalent per day to 1.570 million. In a note, Wells Fargo said the reduced capital and operating expenses and higher-than-expected operating cash flow — $1.23 billion versus Wells' projection for $1.14 billion — compensated for the earnings miss.

Exxon reports smallest profit since 1999 (AP) — Lower oil prices continue to punish Exxon Mobil Corp., which reported its weakest quarterly profit in nearly 17 years. Exxon still earned $1.7 billion in the second quarter. It was, however, down 59 percent from a year ago, and per share income missed Wall Street expectations. The energy giant cited lower prices for oil and gas and weaker margins from its refining operations. Chairman and CEO Rex Tillerson said Friday that the results “reflect a volatile industry environment.” The company is cutting exploration spending to manage through the lower prices. Exxon shares had climbed nearly 30 percent since late January as crude prices rallied from a deep slump. But more recently oil prices have fallen back due to high inventories and the continued sluggish global economy — this week, U.S. oil hit a three-month low, and Exxon shares lost 4 percent through Thursday’s close. Exxon’s report followed weak second-quarter results from BP and Shell. While oil companies are seeing profits shrink, consumers are enjoying the benefit of cheaper energy. The average U.S. price for a gallon of regular gasoline stood at $2.14 on Friday, the lowest price since April, according to auto club AAA. Gasoline prices are skidding because of high inventories. The decline in pump prices defies the usual pattern of higher prices during summer, when people drive more. Motorists are filling up on the cheapest July gasoline in 12 years, the auto club says. Exxon’s net income was lower than the $1.8 billion it earned in the first quarter and the Texas-based company’s smallest profit since the third quarter of 1999, when it earned $1.5 billion. The profit equaled 41 cents per share, well below the 64 cents per share forecast from 21 analysts surveyed by FactSet. Exxon did not exclude any one-time costs from the per share calculation.

ExxonMobil earnings badly miss expectations as profits sink 59% -- ExxonMobil reported reported its quarterly profit fell nearly 60 percent from a year ago as commodity prices remained low and its refining margins were weak. The world's largest publicly traded integrated oil company earned $1.7 billion, or an adjusted 41 cents per share in the second quarter, compared with $4.2 billion, or $1 per share, in the year ago period. Analysts polled by Thomson Reuters had expected earnings per share of 64 cents. The stock was 2.6 percent lower in premarket trading (See what shares are doing now.) "While our financial results reflect a volatile industry environment, ExxonMobil remains focused on business fundamentals, cost discipline and advancing selective new investments across the value chain to extend our competitive advantage," CEO Rex Tillerson said in a statement. Revenues were $57.694 billion, versus $74.11 billion in the second quarter of 2015. Earnings in ExxonMobil's upstream exploration and production business fell by $1.7 billion as the company's liquids and natural gas products fetched a lower price. The Irving, Texas-based company produced 4 million barrels of oil equivalent per day, with liquids output up 1.7 percent and natural gas production down 3.6 percent. Downstream earnings were down $681 million, due to weaker refining margins. Refiners have seen their profit margins squeezed this year as prices rise for crude oil, the feedstock for gasoline. U.S. crude prices rebounded about 85 percent from the lows of January through the end of the second quarter.

OilPrice Intelligence Report: Big Oil Struggles To Churn Out A Profit -- Rough second quarter earnings. The oil industry made headlines this week with their second quarter earnings, revealing painful numbers from the three-month period that saw shrinking refining margins even while oil prices rose. The 80 percent rally in oil prices helped to bring some revenues back during the quarter, but oil prices are still very low compared to previous years. The majors all held onto their dividends, but that comes at the cost of rising debt. They are biding their time for now, cutting spending, selling assets, and taking on more leverage, hoping to ride out the storm. By and large, most companies disappointed, and saw their share prices tumble after reporting. Here is a quick rundown of second quarter earnings from some of the top oil companies. 
•    Eni (NYSE: E): Q2 EPS of -€0.27
•    ExxonMobil (NYSE: XOM): Q2 EPS of $0.41 (misses by $0.23)
•    Chevron (NYSE: CVX): Q2 EPS of -$0.78 (misses by $1.10)
•    ConocoPhillips (NYSE: COP) Q2 EPS of -$0.79 (misses by $0.18)
•    Total (NYSE: TOT) Q2 EPS of $0.90 (beats by $0.16)
•    Royal Dutch Shell (NYSE: RDS.A) Q2 EPS of $0.13
•    BP (NYSE: BP): Q2 EPS of $0.23 (misses by $0.05)
•    Pioneer Natural Resources (NYSE: PXD): Q2 EPS of -$0.22 (beats by $0.12)
•    Suncor Energy (NYSE: SU) Q2 EPS of -$0.36 (misses by $0.15)
•    Anadarko Petroleum (NYSE: APC) Q2 EPS -$0.60 (beats by $0.20)

Oil-Price Rout Casts Shadow Over Earnings in Energy Sector - WSJ: —After two years of spending cuts, canceled projects and tens of thousands of layoffs, Europe’s biggest energy companies are still struggling to cope with a prolonged oil-price rout. Royal Dutch Shell Thursday reported a 93% drop in profit and rocketing debt for its most recent quarter, sending shares down sharply. Smaller peers such as France’s Total and Spain’s Repsol also booked lower profits Thursday, while rivals BP and Statoil announced similarly grim results earlier in the week. The sector’s second quarter results show how difficult it is for companies built to spend billions of dollars pumping $100-a-barrel oil to adapt to a world where oil now sells for less than half that. Since mid-2014, the oil price has dropped by some 60%. “Lower oil prices do continue to be a significant challenge across the business,” Shell Chief Executive Ben Van Beurden said Thursday on a conference call. Shell’s shares fell more than 4% after the Anglo-Dutch oil giant reported declines across its business. Weaker oil prices, poor refinery profits and high charges stemming from Shell’s $54 billion acquisition of BG Group PLC, which completed in February, all dragged down results. While the BG deal helped boost Shell’s oil and natural-gas production by nearly a third in the second quarter from a year earlier, the prices it received for its products were a third lower. Shell’s profit on a current-cost-of supplies basis—a measure similar to the net income that U.S. oil companies report—was $239 million, down from $3.36 billion a year earlier.

KKR looks to unload fracking firm at a steep discount - One of Henry Kravis’ big, bad energy bets is looking even worse. Suitors for bankrupt Samson Resources are seeking to pick up pieces at a steep discount to the $7.2 billion the fracking giant fetched in a buyout led by Kravis’ KKR in 2011, The Post has learned. Preliminary bids for all the pieces of the shale oil firm total roughly $1.2 billion, or less than a quarter of its previous valuation, according to two sources. The $1.2 billion figure doesn’t include the $300 million in cash Samson has on its books. Investors aiming to scoop up Samson and other energy assets at discounted prices expect natural gas prices to stay relatively low despite signs the prolonged glut is easing. “It’s not a crazy valuation,” said one buyer of distressed energy assets. “I think there is not a high ceiling on gas.” Natural gas prices shouldn’t go much above $3.50/MMBtu because of the huge reserves in the Marcellus shale region that includes Ohio, Pennsylvania and West Virginia, one source said. Samson declined to comment. The Tulsa, Okla.-based company’s senior lenders, including JPMorgan and Bank of America, took possession of Samson after it filed for bankruptcy last year. The bankruptcy wiped out the $4.1 billion in cash KKR and its partners invested in the company, which drills mostly in Texas, Oklahoma and North Dakota. The $1.5 billion recovery, including Samson’s cash, would be more than its senior debt of $950 million, making those creditors whole. But it is far short of Samson’s $4.9 billion in total liabilities — leaving more junior creditors in the cold.

 Anadarko, Hess CEOs say $60/b crude oil price enough to kick-start activity - Anadarko Petroleum and Hess Corporation see a $60/b crude oil price as sufficient to begin accelerating activity, the pair said in separate conference calls on Wednesday. And the companies' top executives said they are looking ahead to an eventual industry recovery, although they continue to lower costs and look for ways to economize in a still-low price climate. For Anadarko, global demand drivers appear strong enough to foresee $60/b going into next year, with US production likely bottoming at 8 million b/d of crude, company CEO Al Walker said. "A sustained $60/b oil price is likely to emerge as we move into 2017 [which] will provide the necessary cash margins and cash ... improvements to encourage us to accelerate activity," Walker said."We think the fundamentals are there to sustain" that price level next year, he added. At the same time, Walker foresees global demand growth at 1.2 million-1.4 million b/d per year through the rest of the decade, which will help boost crude prices. As for Hess, it has been driving down operational costs this year which has resulted in a lower-than-projected 2016 capital budget by $300 million, to $2.1 billion, Hess COO Greg Hill said. The company is focused on "maximizing value, not volume," and has reduced its drilling program to levels that cover cash flow and other obligations at current low crude prices, which have dropped to the low $40s/b, Hill said. "When oil prices approach $60/b, we'll begin to ramp up activity, starting with the Bakken Shale," he said.

 Keystone’s Death Means Record Oil Revival for Canadian Railways - Keystone was the great hope for opening U.S. markets further to Canadian crude. Now that it’s dead, the railways are going to make not just a comeback, but transport more oil than ever before. The Keystone XL pipeline was set to carry heavy Canadian crude south from Hardisty, Alberta’s oil hub, before being blocked by President Barack Obama last November, largely on environmental grounds. In a sign of what’s coming, exports by train rose 23 percent in April, the biggest year-on-year jump since September 2014, according to Canada’s National Energy Board. That’s just the beginning. Next year, with about a half dozen new projects and expansions in the oil sands, rail exports could double by the third quarter to a record, said Eric Peterson, research chief at Denver-based ARB Midstream LLC, an oil transport investor. That’s good news for USD Group LLC, Imperial Oil Ltd. and Cenovus Energy Inc., all of which invested in new rail terminals or plan on expanding older ones this year. “That production has to find an alternative source of take-away and that’s where rail comes in,” said Brad Sanders, chief commercial officer of USD Group, which plans to double capacity at its Hardisty terminal within 12 months to four trains a day, each of which could carry 65,000 barrels. “We expect from this point on that activity to grow.”

Canada to ban rail cars involved in fiery crash (AP) — Canada’s transport minister says the rail car model involved in a fiery crash that killed 47 people in Quebec three years ago will no longer be allowed to transport oil in Canada as of Nov. 1. Marc Garneau said Monday that older tankers, called DOT-111 cars, and a version jacketed with an extra layer of metal to make it stronger will be taken out of service by Nov. 1, 2016. Garneau says the new directives are for crude oil only. A runaway freight train pulling 72 crude-oil laden DOT-111s derailed and exploded on July 6, 2013, killing 47 people and flattening downtown Lac-Megantic, Quebec. Garneau said tankers carrying crude originating from the U.S. that are not up to code will be prohibited from crossing the border.

Environmentalists take aim at TransCanada pipeline project (AP) -- Environmentalists are again taking aim at the company that proposed the Keystone XL pipeline - this time for another of its projects they fear would send hundreds of supertankers laden with crude oil down the Atlantic coast to refineries in Texas and Louisiana. TransCanada is behind the Energy East Pipeline project, a 4,600-kilometer pipeline, or nearly 3,000 miles, that would carry crude oil from tar sands in Western Canada to the East Coast, where it would then be shipped to refineries along the Texas Gulf Coast. When completed, the project would carry 1.1-million barrels of crude oil every day from Alberta and Saskatchewan to refineries in Eastern Canada. . The Natural Resources Defense Council, Sierra Club and other environmental groups are concerned about potential spills of tar sands diluted bitumen along the route in Canada that goes over thousands of rivers, streams and lakes. They also warned a spill along the East Coast could prove devastating to communities that depend on tourism and fisheries and are not prepared to handle an event of this kind.The groups held a conference call Tuesday with the media, in releasing a report , "Tar Sands in the Atlantic Ocean: Transcanada's Proposed Energy East Pipeline," that lays out their case against the project. "What we have is a proposal to move nearly 300 super tankers down the eastern seaboard, and we don't have the techniques and technology to contain and clean a spill of tar sands diluted bitumen should one happen," said Anthony Swift, the Canada project director for the Natural Resources Defense Council.

Tar Sands in the Atlantic Ocean: TransCanada’s Proposed Energy East Pipeline  - TransCanada—which was thwarted in its effort to drive Keystone XL through America’s heartland—is now pursuing a project that would effectively create a waterborne tar sands pipeline that would threaten the U.S. Atlantic and Gulf coasts. This proposed Canadian pipeline, Energy East, would bring as much as 1.1 million barrels per day of mostly tar sands oil from Alberta to Canada’s eastern seaport of Saint John, New Brunswick. From there, nearly 300 supertankers per year would form a high-risk “pipeline” down the entire U.S. Eastern Seaboard, from the tip of Maine to the Florida Panhandle, around Florida’s peninsula, and on to refineries along the Gulf Coast. The tankers—representing a 300 percent increase in crude oil traffic in Nova Scotia’s ecologically critical Bay of Fundy—would pose a significant threat to endangered marine mammals and regionally critical fisheries in the form of deafening ocean noise and an increased risk of oil spills and ship strikes. Given that the National Academy of Sciences has concluded that emergency responders lack the tools to effectively contain and clean up diluted bitumen (the most common form of tar sands crude), the risk of a tar sands spill threatens vibrant and irreplaceable marine habitats all along the East Coast—along with economies that depend on them. The pipeline would also bring a significant increase in carbon pollution, equivalent to the annual emissions of as many as 54 million passenger vehicles, and lock in high-carbon infrastructure expected to operate for at least 50 years. Despite the significant risks posed by Energy East, our analysis reveals that the scope of the forthcoming environmental review by Canadian authorities is sorely lacking. In this report, we offer a series of recommendations for reforming the current regulatory review process and propose several critical safety regulations for the United States and Canada, including:

They Killed Keystone. Now What? - Opposition to TransCanada’s Keystone XL pipeline galvanized the environmental community and brought global attention to Canada’s tar sands oil industry. President Obama’s rejection of the permit was seen as a major coup for environmental activism.  But, like a high-stakes game of whack-a-mole, projects to bring tar sands oil out of Alberta keep popping up — and activists in both Canada and the United States are rallying to keep the infrastructure at bay.  There are three main projects under consideration right now that would bring millions of gallons of tar sands oil out of Canada every day. Kinder Morgan wants to expand its Northern Gateway pipeline to the west, where oil could be shipped south to California’s refineries. Enbridge is trying to increase capacity in two pipelines in Minnesota which would feed into a system carrying oil down to the Gulf Coast. And TransCanada is proposing a major pipeline to the maritime provinces in order to ship tar sands oil down the Eastern Seaboard.  There is no existing spill response plan or technology or technique that would deal with a spill of bitumen.  Oil from tar sands is incredibly heavy oil — it is very thick, tar-like. Technically known as bitumen, the petroleum product has to be diluted in order to flow through pipelines. Alberta has one of the largest bitumen deposits in the world. In fact, the Alberta tar sands produce more oil each year than the entire country uses. For this reason, and because some 90 percent of the facilities for refining the heavy oil are located in the Gulf Coast, the United States is the biggest buyer of tar sands oil.  And tar sands oil, from a climate and environmental safety perspective, is really bad.  According to the Union of Concerned Scientists, a gallon of gasoline from bitumen is responsible for 15 percent more carbon dioxide emissions than a gallon of gas from conventional oil. In addition, the energy-intensive tar sands oil extraction process uses a lot of water, which ends up in toxic man-made pools.

Next hot spot for shale drilling? Argentina - The economy in Argentina is best described as a "pendulum", going from loose economic policies in the '80s to Washington-consensus liberalisation in the '90s and back again under the Kirchner regime. Since the current president Macri took office in December 2015, he has been reversing the policies of his predecessor and has focused on boosting the economy with free-market measures through eliminating currency controls and lowering utility subsidies. In March, the government also announced a $7.50 per barrel subsidy on exported oil while Brent remained below $47.50 per barrel to attract foreign investment. Argentina's recoverable shale oil reserves are estimated at 27 billion barrels and hold the third largest shale gas and fourth-largest shale oil reserves in the world. Appearing in the spotlight is the Vaca Muerta formation with technically recoverable shale gas of 308 trillion cubic feet and 16 billion barrels of oil. The Vaca Muerta Shale spans across four provinces - Neuquén, La Pampa, Mendoza and Rio Negro and is almost double the size of the Eagle Ford shale.  Current production from the Vaca Muerta formation is about 50,000 bbl/day, an amount that is expected to double by 2018. IHS Energy research indicates that the Vaca Muerta is characterized by favourable traits such as thick, high-quality, organic-rich shale, similar to the Permian Basin. While the American consumer basks in low oil prices, the Argentinean consumer is helping to fund the oil industry. Government regulated oil prices were imposed to protect citizens from market fluctuations, although consumers currently face the reverse effect by paying a premium on Brent and WTI.

European development bank considers funding Trans Adriatic Pipeline (AP) — The European Bank for Reconstruction and Development is looking to support financially the development of the Trans Adriatic Pipeline, which plans to bring gas across the Balkans and on to Italy. President Suma Chakrabarti told Albanian Prime Minister Edi Rama during a visit Tuesday that the pipeline project was of great interest as it would help the region’s energy security and was deemed environmentally sustainable. “In the energy sector, the EBRD is well aware of the need to secure energy for Europe which is affordable and acceptable from the point of view of climate change. In this context we are positive about the Trans Adriatic Pipeline, a project that develops the three characteristics of energy security, energy access and environmental sustainability,” he told The Associated Press by email. The so-called TAP, which formally started construction in May, will run for 878 kilometers (550 miles) from Greece’s border with Turkey, through Albania and to southern Italy, including a 105-kilometer (65-mile) stretch under the Adriatic Sea. First deliveries to Europe are expected in 2020. The EBRD confirmed it has started negotiations for 500 million euros ($549 million) in direct financing and plans to attract up to 1 billion euros ($1.1 billion) from a syndicate of commercial banks. Riccardo Puliti, the bank’s energy and natural resources head, said negotiations started in April and may take 12 to 15 months.

Brazil eyes regulatory shift for natural gas industry: energy ministry -  Brazil is studying potential changes to the country's regulatory regime for natural gas that would increase competition and boost investment in the sector, a key official from the Mines and Energy Ministry said Tuesday. "We want gas to grow," Marcio Felix, the secretary for oil and natural gas at the Mines and Energy ministry, said during a natural gas seminar hosted by the Brazilian Petroleum Institute (IBP) in Rio de Janeiro. "A large country like Brazil, which is the size of a continent, also needs a large natural gas industry." The potential changes to natural gas regulations are part of a broader transformation of Brazil's oil and gas industry, driven in large part by the collapse in oil prices and a corruption scandal at state-led producer and refiner Petrobras. Low oil prices and fallout from the scandal have left Petrobras, the country's dominant player throughout the oil and natural gas supply chain, on the verge of financial ruin.The company's troubles, however, have also created opportunities for a sector that has long complained about Petrobras' dominance, according to Jorge Camargo, president of the IBP. "The crisis brings opportunities to overcome challenges and to ease a transition into a new model for the natural gas sector," Camargo said. Petrobras has embarked on a broad divestment program in response to the crises, including a dramatic reduction in the company's role in the natural gas sector, as it focuses primarily on exploration and production in the prolific subsalt region. The company is not only the country's largest producer of natural gas, but also owns a de facto monopoly on natural gas pipelines, LNG import terminals and imports of the fuel from neighboring Bolivia. But that has already started to change under the asset sales program, which is targeting divestitures of $15.1 billion in the 2015-2016 period.

Statoil to buy 66% operated interest in license off Brazil for $2.5 billion - Oil & Gas Journal: Statoil ASA has agreed to buy the 66% operated interest in the BM-S-8 offshore license in Brazil’s Santos basin held by Petroleo Brasileiro SA (Petrobras) for $2.5 billion. The license includes a substantial portion of the 2012 Carcara presalt oil discovery (OGJ Online, May 29, 2015). Statoil said it is on the geological trend of the nearby Lula field and Libra area. It has 30° API oil and associated gas “in a thick reservoir with excellent properties.” Carcara straddles BM-S-8 and open acreage to the north, which Statoil said is expected to be part of a license round in 2017. In addition to Carcara, the license “holds exploration upside.” The license is in its final exploration phase with one remaining exploration commitment well to be drilled by 2018. Statoil estimates the license has recoverable volumes up to 1.3 billion boe. Statoil said half of the purchase price will be paid after closing and the remainder paid when “certain milestones” have been met, including future unitization of Carcara. Closing is subject to partners’ and government approval. Statoil and Petrobras are also in discussions focusing on long-term cooperation in the Campos and Espirito Santo basins, and new cooperation within gas and technology projects in the Santos basin. Statoil said it has been in Brazil since 2001. The Statoil-operated Peregrino field marks 5 years of production this year (OGJ Online, June 28, 2016).

Schlumberger continues to halt work on Venezuela Lake Maracaibo rigs: source - Oil | Platts News Article & Story: Oil fields services company Schlumberger Tuesday continued to suspend work at four of six drilling platforms it operates in Lake Maracaibo, Venezuela, a union official said. Operations on platforms 102, 110, 111 and 112 in Lake Maracaibo were stopped because of the lack of payment by [Venezuelan state-owned] PDVSA, said the Lagunillas union official, who spoke on condition of anonymity. Only platforms 101 and 102 are operating. Schlumberger did not return a call for comment. On June 13, Schlumberger said it had reached an agreement with PDVSA to keep six drilling platforms operating.Schlumberger's operations vice president for Venezuela, Roy Ayllon, did not disclose details of the company's new agreement with PDVSA, but said in a PDVSA statement that payment in the national currency bolivar was allowed. Although PDVSA has announced payment agreements on some debts owed to drilling companies that control 52% of the 375 platforms in Venezuela, problems continue.

8 companies seek oil drilling rights for 3 areas off Cyprus (AP) — Cyprus’ energy minister says eight companies have formally applied to carry out exploratory oil and gas drilling in waters off the island’s southern coast. Yiorgos Lakkotrypis says six applications for a drilling license were submitted for all three blocks, or areas, that were available as part of the island nation’s third licensing round. He said the companies’ names will be announced next week. Lakkotrypis said after an application deadline expired Friday the government is “completely satisfied” with the outcome in light of the “difficult conditions” the oil and gas industry is going through. U.S. company Noble Energy, France’s Total and Italy’s Eni received drilling licenses in previous rounds. Noble discovered a gas field off Cyprus estimated to contain more than four trillion cubic feet of gas.

"Too Simple" Energy-Economy Models Give Misleading Answers -- Gail Tverberg - Does it make a difference if our models of energy and the economy are overly simple? I would argue that it depends on what we plan to use the models for. If all we want to do is determine approximately how many years in the future energy supplies will turn down, then a simple model is perfectly sufficient. But if we want to determine how we might change the current economy to make it hold up better against the forces it is facing, we need a more complex model that explains the economy’s real problems as we reach limits. We need a model that tells the correct shape of the curve, as well as the approximate timing. I suggest reading my recent post regarding complexity and its effects as background for this post. The common lay interpretation of simple models is that running out of energy supplies can be expected to be our overwhelming problem in the future. A more complete model suggests that our problems as we approach limits are likely to be quite different: growing wealth disparity, inability to maintain complex infrastructure, and growing debt problems. Energy supplies that look easy to extract will not, in fact, be available because prices will not rise high enough. These problems can be expected to change the shape of the curve of future energy consumption to one with a fairly fast decline, such as the Seneca Cliff. It is not intuitive, but complexity-related issues create a situation in which economies need to grow, or they will collapse. See my post, The Physics of Energy and the Economy. The popular idea that we extract 50% of a resource before peak, and 50% after peak will be found not to be true–much of the second 50% will stay in the ground. Some readers may be interested in a new article that I assisted in writing, relating to the role that price plays in the quantity of oil extracted. The article is called, “An oil production forecast for China considering economic limits.”  This article has been published by the academic journal Energy, and is available as a free download for 50 days.

Oil glut ‘to last for two more years’ -- The International Energy Agency estimated that there were 94 million barrels of crude in floating storage globally at the end of May.  The global oil market has a huge overhang of crude that could take up to two years to clear, according to one of the world’s top traders. Ian Taylor, chief executive of Vitol, warned that “it could take a year or two” to clear the build-up of surplus crude in onshore storage facilities or, increasingly, in floating storage aboard tankers around the world. He said: “There’s probably 500 million to 600 million barrels in the system. We are no longer sure that’s going to disappear this year.” Mr Taylor runs one of the world’s biggest physical traders of oil.

Turmoil in U.S. Gasoline Markets and the Arcane World of RINs --  The rising cost of Renewable Identification Numbers (RINs) –– ethanol credits used by refineries to prove compliance with the federal Renewable Fuel Standard –– is putting added financial pressure on the refining sector, which already is squeezed by too-high inventories and thin crack spreads. In fact, for some refiners RIN expenditures may soon be their biggest single operating cost category. (Yes, you read that right.) The cost of ethanol credits is being driven up to record levels by several factors, chief among them the concern there may not be enough to go around this year and next. And things may only get worse from there. In today’s blog, we begin a two-part examination of the 2016-17 market for RINs, a regulatory must-do that rankles and vexes most refiners and gasoline importers.

Oil Set For Bigger Drop As Historic Gasoline Glut Forces Early Switch To Winter Blends --With everyone now talking about the record gasoline glut, something which we first predicted in February is the "big threat" to oil prices, oil finally succumbed to the unprecedented imbalance in the market, not only on the crude side of the supply-chain, but more importantly in the past month, on the product side, led by both record gasoline stocks as well as soaring Chinese exports of gasoline, distillates and other refined products. To underscore this point, earlier today Morgan Stanley's Adam Longson - a prominent oil bear - released a note saying that "A refinery-driven correction is upon us." Some of his key points: Along with supply disruptions, healthy refinery margins and overly bullish sentiment towards global gasoline helped drive abnormally high crude oil demand in late 2015 and early 2016 - well beyond what product markets required.While such appetite for crude oil helped to improve crude oil statistics in some regions, it simply resulted in a market awash in product, namely gasoline. With inventories above 5Y highs in almost every region, product margins have been falling sharply. This product overhang will weigh on crude oil markets as well, just with a lag. As refinery margins continue to fall, refiners will look to cut back on utilization, leading to lower crude oil demand. Ultimately, this should lead to distressed cargoes, deeper contangos, inventory builds, and lower prices. Just as bad, the widely anticipated gasoline demand surge, which was supposed to open the gasoline inventories and provide the impetus for the next leg higher in crude oil prices, never happened. In fact, gasoline demand, according to Morgan Stanley is decelerating.

Crude Crumbles To Fresh 3-Month Lows As Hedgies Unwind Record Longs - WTI Crude (Sept) oil futures have continued their 6-day slide this morning, pressing back to a $43 handle at 3-month lows. While the seasonality, both price and oil demand, and gasoline glut remain significant overhangs, it appears a bigger driver for now is the rapid unwind of record long speculative positioning in crude markets.  As Bloomberg reports, Oil’s retreat to a three-month low this week demonstrates that surpluses in other parts of the market, most notably refined fuels like gasoline, are holding back any lasting recovery. Combined inventories held by industrialized nations of all forms of oil -- from crude to refined products to natural gas liquids -- reached a record of more than 3 billion barrels last month, data from the Paris-based International Energy Agency shows. In the U.S., gasoline stockpiles were at the highest for the time of year since 1984 as record consumption failed to drain the glut refiners created when crude was cheap, according to the Energy Information Administration. Sept 2016 has pushed back to fresh cycle lows... Tracking last year's pump-and-dump of hope perfectly. As demand is set to tumble... But, as Reuters reports, it appears the bigger driver for now is hedge funds have been liquidating their former record bullish position in crude futures and options putting downward pressure on oil prices in recent weeks. But now the liquidation of old long positions is being replaced by the establishment of new short positions as fund managers try to capitalise on the downward cycle in prices. Hedge funds and other money managers cut their net long position in Brent and WTI futures and options by 31 million barrels to 453 million in the week ending on July 19. The net bullish position has been reduced by 197 million barrels from a recent high of 650 million in the middle of May and 210 million barrels from an earlier record of 663 million at the end of April. The former emphasis on long liquidation is now being replaced by fresh short selling. In the week to July 19, long positions actually rose by 5 million barrels as some funds sought buying opportunities after prices had been battered down. But short positions increased by almost 36 million, as many more managers positioned themselves for a momentum-driven drop in prices coupled with mounting concerns about weakening demand fundamentals.

Oil Prices at Multi-month Lows on Growing Concerns About Oversupply – WSJ -  Oil prices sank to a fresh three-month low Tuesday as a glut of gasoline keeps weighing on the market. U.S. crude oil for September delivery recently fell 35 cents, or 0.8%, to $42.78 a barrel on the New York Mercantile Exchange. It traded as low as $42.36 a barrel, the lowest intraday price since April 20. Brent, the global benchmark, fell 12 cents, or 0.6%, to $44.60 a barrel on ICE Futures Europe. Oversupply concerns have sent oil into retreat throughout July, reversing a five-month rally that had sent oil above $50 a barrel. U.S. refiners have overwhelmed even record demand, and saturated international markets have supplies backing up in the U.S., too, analysts said. Despite those fears, U.S. drillers are also showing signs they’re ready to ramp up production again. They added 15 active rigs to oil fields last week, the fourth consecutive week of increases. That is a major turning point, said Bjarne Schieldrop, commodities analyst from Sweden’s SEB bank. “The revival in rig count mirrors what happened to the oil price rally in 2015,” which ended in late June and cut oil prices by half during the eight-month collapse that followed, Mr. Schieldrop said. “We had expected to see some delayed reaction in the return of shale oil due to elevated debt levels, but the data is telling a different story.” Government data last week indicated that shale-oil production was essentially flat, and many expect the growing rig count is a precursor to production growth. Germany’s Commerzbank shared those concerns and cited data from Genscape indicating the U.S. could see stocks rise by 1 million barrels this week.

 Oil prices down for fourth day as glut worries weigh - Brent crude hit its lowest since May on Tuesday, falling toward $44 a barrel on concerns a long-awaited rebalancing of the market would be delayed due to excess supply. Brent crude is still up more than 60 percent from a 12-year low near $27 in January, but the rally has petered out on signs the supply glut will persist and as economic jitters raised concern about the strength of oil demand. Global benchmark Brent was trading at $44.56 a barrel by 10:08 a.m. ET (1408 GMT), down 16 cents. It fell to $44.14 intraday, the lowest since May 10. U.S. crude was down 31 cents, or 0.7 percent, at $42.82, having fallen to $42.36, its lowest since April. Britain's BP, the first oil major to report second-quarter results, on Tuesday reported lower-than-expected profit and said its refining margins were the weakest for a second quarter in six years. Record crude output from the Organization of the Petroleum Exporting Countries, a glut of refined products, and signs of more drilling activity in the United States in the face of low oil prices have added to concern about excess supply.

Faulty Data? Why The Oil Glut Could Be Much Smaller Than Believed -- The oil price rally came to a quick end in June, topping $50 per barrel but quickly falling back again. The main reason for the renewed sense of pessimism comes down to the glut of oil sitting in storage. The U.S. has been dealing with oil stocks at 80-year highs since early 2015, a metric that has become closely watched in the market for signs on whether or not supply and demand are moving closer to balance. After hitting an all-time high earlier this year, crude oil stocks began to decline in May, and although they are still above 500 million barrels, the industry has steadily drawn inventories down from their peak. A more recent worry for the oil markets are the stubbornly high levels of gasoline sitting in storage. The problem of a glut of refined products has emerged as a top concern for oil traders since prices ran into a wall of resistance at $50 per barrel and the data on gasoline stocks became gloomy. Like crude oil, gasoline inventories also hit a peak earlier this year, but instead of consistent declines, the weekly drawdowns have been anything but. Gasoline stocks have even increased four out of the past five weeks. The refined product glut has killed off the price rally. The EIA data releases are a tradition for the oil markets – the weekly publications spark movements in oil prices, whether up or down. But the tricky thing about international prices trading on these metrics is that they only encapsulate what is going on in the United States. The markets know very little about what is going on in the rest of the world. As The Wall Street Journal notes in a July 24 article, countries such as China and Russia do not report data on their storage levels. In fact, there is very little transparency on market data in much of the world. “The data itself is so inconsistent,”  “In countries like Nigeria, Brazil, Angola, it’s not trustable.”

Oil Extends Losses After Surprisingly Large Cushing Build -- With all eyes now focused on Gasoline inventories, API's report surprised with a modest draw (-420k) but a considerablyless than expected draw in Crude (-827k vs -2mm exp) and major build at Cushing (+1.4mm vs 750k exp). Crude had faded into the close after testing stops at $43, and extended losses after the API data hit. API:

  • Crude -827k (-2mm exp)
  • Cushing +1.4mm (+750k exp)
  • Gasoline -420k
  • Distillates +292k

Overall crude extended its series of drawdowns to 10 weeks but Cushing's huge build is ringing alarm bells...

Crude Carnage Continues: WTI Hits $42 Handle On Inventories, Dollar -- With WTI now down over 17% from its mid-June highs, and energy stocks just beginning to wake up to the 2015-analog collapse, fears are rising that once again low oil prices are not 'unequivocally good' for stocks or the economy. Between record speculative long positioning in futures, the fundamental strength of the dollar and surge in gasoline inventories remain the big overhangs (along with rising storage levels at Cushing as demand begins to fade seasonally). Sept 16 WTI is now down 17% from its recent highs... Back to unchanged on the year at 3 month lows... “It’s the same things that have been driving it for the past few days now, gasoline inventories haven’t declined as much as people thought they were going to,” says Michael Hewson, analyst at CMC Markets. And Energy stocks are catching down fast... Tracking last year's pump-and-dump of hope perfectly.

US crude falls below $42 on surprise stock build of 1.7M barrels: EIA: Global benchmark Brent crude was on track for the first monthly loss since January and the largest of 2016. Futures traded down $1.17, or 2.6 percent, at $43.70 a barrel by 10:39 a.m. ET (1439 GMT). U.S. West Texas Intermediate (WTI) crude fell 97 cents, or 2.2 percent, at $41.95 a barrel, breaking through a three-month low of $42.36 reached on Tuesday. Bart Melek, head of commodities strategy at TD Securities, told CNBC oil could be heading to its 200-day moving average at $40.76 per barrel. "Technicals will seek a level around $40.38, then we'll see ... the fundamental outlook is much, much better than it was six months ago. We're still looking toward $60 for year end," he said. He added that if $40 is broken, the next level would be just above $36. "Today's weakness is just part of the general belief that the market is oversupplied,"  Other analysts said they expect prices to fall further in the short term as oversupply persists while demand growth stutters.  "Falling gasoline stocks and a renewed decline in U.S. oil production would contribute to stabilizing oil prices," said Carsten Fritsch, commodities analyst at Commerzbank.  A firmer dollar has also weighed on oil prices over recent weeks. A stronger U.S. currency makes dollar-denominated commodities such as oil less expensive to buy.

Here’s the key factor pushing oil prices to $35 a barrel - After enjoying a stellar run-up, crude futures are headed south again, hovering at three-months lows. However, the fundamentals of supply and demand may not be the key reason behind the recent bout of weakness in crude futures. U.S. benchmark oil, West Texas Intermediate trading on the New York Mercantile Exchange CLU6, -2.10% has lost more than 11% of its value so far in July, as of Tuesday. Back on June 8, WTI had nearly doubled its value closing at a 2016 high of $51.03 a barrel after reaching a low of $26.21 on Feb. 11. What a difference seven weeks can make. The change in direction has industry specialists like those at Morgan Stanley pointing to “worrisome trends” and forecasting crude prices to resume a fresh decline—possibly to as low as $35 a barrel for the second half of 2016.Morgan Stanley, in a Sunday research note, argues that positive tailwinds that have underpinned the recent rise in crude prices, namely a reduction in supply and output problems, are fading. Morgan Stanley describes the headwinds for crude this way: Supply continues to return from disruptions, refined products are severely oversupplied, crude demand is falling well short of product demand, and key product demand is decelerating. Our revised below-consensus GDP outlook, macro risks and longer positioning in oil markets only add to downside risks. Morgan Stanley points out that one of key issues for crude is a severe oversupply of refined products from crude, including distillates and gasoline, while demand is waning. “Refined product glut and market share battle will weigh on crude oil. An overcorrection in crude oil demand from refiners is needed to clear product market overhangs,” researchers at Morgan Stanley, led by economist Adam Longson, wrote.

 Oil Industry About To Be Burned Again By Fall In Oil Prices - Arthur Berman --U.S. rig counts have surged as oil prices sink. Capital is driving the oil markets and it enables bad behavior by producers. That is why oil prices will stay low. The oil-price rally that began in February is over. Prices rose from $26 per barrel to $51 by early June and are now below $42 (Figure 1). If they fall through $40, the next likely support level is at $36 per barrel. Most people think that fundamentals–supply and demand–drive the oil market but capital drives the market and oil prices. More than anything, rig count reflects capital flow. Many believe that oil prices drive the rig count but it is really capital flow that drives rig count and production and that affects oil prices. When oil prices fall and oil-price volatility increases, the floodgates of capital open. Every genius-investor wants to buy low and sell high. Rig count rises with fresh capital, production increases and oil prices fall (Figure 2). The weekly change in tight oil horizontal rig count is the leading indicator of capital expenditures. Price trends roughly follow the inverse path. When oil prices were around $100 per barrel in mid-2014, oil-price volatility was low. When prices fell below $90 per barrel in October 2014, oil-price volatility began to increase. When prices bottomed below $46 in January 2015, volatility peaked. Correctly believing that a price floor had been reached, investors poured capital into the markets and oil companies were flush with money to start drilling again. Prices rose to $60 per barrel by May 2015. As drilling proceeded, oil-prices began to fall as market confidence in a price recovery faded. In July 2015, prices began to fall. As they fell to near $40 per barrel by late August, price volatility increased again. Investors saw another price floor and opened their wallets.

Oil Crashes On Surprise Inventory Build, Production Rise -- Despite last night's API-reported surge in Cushing inventories, oil futures surged into this morning's DOE data on the heels of terrible durable goods data. However, a shocking build in overall crude levels (+1.67mm vs -2mm) breaking crude's record 9-week streak of draws, sent crude prices reeling. Cushing also saw a major build as did Gasoline and production rose for the 3rd week in a row. DOE:

  • Crude  +1.67mm (-2mm exp)
  • Cushing +1.11mm (+750k exp)
  • Gasoline +452k
  • Distillates -780k

This week's crude build ends the 9-week drop in overall crude inventories in a row... the longest streak of declines in US history (since 1982 Bloomberg EIA data - 8 week streaks in June 2015, Jan 2008, Sept 2004, Sept 1998)

Oil futures drop as U.S. crude supplies break 9-week streak of declines - Oil futures fell to their lowest levels in more than three months Wednesday after U.S. government data revealed the first weekly climb in domestic-crude inventories in 10 weeks, along with a surprise increase in gasoline stockpiles and a rise in total crude production. September West Texas Intermediate crude CLU6, +0.21% fell 91 cents, or 2.1%, to trade at $42.01 a barrel on the New York Mercantile Exchange. A settlement around this level would be the weakest since April 18 for a most-active contract, FactSet data show. Prices traded around $43.13 before the supply data. September Brent crude LCOU6, +0.12% London’s ICE Futures exchange dropped $1.10, or 2.5%, to $43.77 a barrel. “Look out below,” said John Macaluso, an analyst at Tyche Capital Advisors, referring to prices. The U.S. Energy Information Administration early Wednesday reported that domestic crude supplies rose by 1.7 million barrels for the week ended July 22. That was contrary to the 2.6 million-barrel decline expected by analysts polled by S&P Global Platts. The American Petroleum Institute late Tuesday reported a fall of 827,000 barrels. “With a surprising build in U.S. crude oil inventories today along with builds in Cushing, Okla., we expect prices to trade below some key technical numbers,” said Macaluso. The EIA showed a rise of 1.1 million barrels for stocks of crude oil at the storage hub. Meanwhile, “continued strength in the U.S dollar and an increase in U.S production could spell another leg lower for oil prices,” he said. Total domestic crude production rose by 21,000 barrels to 8.515 million barrels a day as output in Alaska grew, though it fell by 12,000 barrels to 8.033 million barrels a day in the lower 48 states.

US crude settles down 2.3% at at 3-month low of $41.92 per barrel: U.S crude futures settled down more than 2 percent at a three-month low on Wednesday after the U.S. government reported surprise builds in crude and gasoline inventories. Prices held their losses after the Federal Reserve announced it would leave interest rate policy unchanged, though the central bank signaled its view of the economy had improved. The oil and gas stockpile builds came despite the peak summer driving season as refiners cut production amid faltering demand and profits. U.S. commercial crude in storage rose by 1.7 million barrels to a total of 521.1 million barrels in the week through July 22, the Energy Information Administration said. Analysts had expected a draw of 2.3 million barrels. Gasoline stocks rose 452,000 barrels, compared with analysts' expectations for a 40,000-barrel increase.Global benchmark Brent crude was on track for the first monthly loss since January and the largest of 2016. Futures traded down $1.32, or 2.9 percent, at $43.55 a barrel by 2:38 p.m. ET (1838 GMT).  U.S. West Texas Intermediate (WTI) crude settled down $1, or 2.3 percent, at $41.92 a barrel, having fallen to a three-month intraday low of $41.68.

An oil price dilemma: The world may just need less fossil fuels to get by - This is not supposed to happen: a sharp rise in stocks of gasoline in the middle of the summer vacation period. The United States is the world’s biggest gas consumer and this is the time when the nation fills up, when every normal American has stuffed his kids and the dog in the back of the car for the long haul to the beach. Weak consumer demand for road fuel has broken the back of the oil-price recovery. Refineries went hell for leather in the spring, buying cheap shale oil and distilling it into gasoline in anticipation of the great summer sale bonanza. But, this year, strangely, it didn’t happen. According to the U.S. Energy Information Administration, gasoline stocks rose by almost half a million barrels last week when most analysts were predicting a sharp fall. Inventories are now 12 per cent higher than they were last year. The oil price is back on the skids; after peaking at $53 (U.S.) per barrel in June, West Texas Intermediate is below $42 and looking weak. Anyone planning a late trip to the summer cottage can count on a cheap journey as the oil companies are desperate to shift the product. It’s good consumer news to tide us over the geopolitical crises, but it may also be part of a much bigger picture; the world may just need less fossil-fuel energy to get by. It’s not just oil. China appears to have reached peak coal a decade ahead of schedule. For two consecutive years, Chinese coal consumption has shrunk, falling by 2.9 per cent in 2014 and 3.6 per cent in 2015. According to research published in Nature Geoscience, coal usage in China has already reached an inflection point, despite previous estimates that consumption would continue to rise well into the next decade. The interesting point is that coal usage is falling despite continuing strong growth in the Chinese economy; China’s gross domestic product expanded by about 7 per cent per annum in the past two years.

 US Rig Count Up 1 This Week to 463 - The number of rigs exploring for oil and natural gas in the U.S. increased by one this week to 463.A year ago, 874 rigs were active. Depressed energy prices have sharply curtailed oil and gas exploration.Houston oilfield services company Baker Hughes Inc. said Friday that 374 rigs sought oil and 86 explored for natural gas this week. Three were listed as miscellaneous.Among major oil- and gas-producing states, Louisiana and New Mexico each gained two, while Colorado, Ohio, Oklahoma and Pennsylvania were up one apiece.Texas declined by three, Alaska and West Virginia by two each and Utah by one.Arkansas, California, Kansas, North Dakota and Wyoming were unchanged.The U.S. rig count peaked at 4,530 in 1981. It bottomed out in May at 404.

U.S. drillers add 3 oil rigs back to the field | Fuel Fix: U.S. drillers put three oil rigs back in the field this week, Baker Hughes said Friday, still pushing the nation’s rig count higher even as crude prices fall back toward $40 a barrel. Companies have dispatched 58 oil rigs back into the field since Baker Hughes’ oil rig count hit bottom at 316 in late May. This past week’s rise in oil rigs, while smaller than recent weekly jumps (the oil rig count climbed by 14 two weeks ago), is a sign that the earlier surge in oil prices to around $50 a barrel from $26 a barrel in February, is setting the industry in motion. Crude prices have recently fallen below $42 a barrel, but analysts say it takes a few weeks or more for domestic drilling activity to respond to rising or falling crude prices. In Texas, Baker Hughes data shows, the onshore rig count declined by 4 to 213, the state’s first drop in 11 weeks. Three rigs were taken out of the Eagle Ford Shale in South Texas, but companies added four rigs in the Permian Basin in West Texas. The overall rig count, including gas rigs, increased by 1 to 463, Baker Hughes data shows.

U.S. oil drillers add the most rigs in a month in over 2 years -Baker Hughes | Reuters: U.S. drillers this week added oil rigs for a fifth consecutive week as part of the biggest monthly rig count increase in over two years, Baker Hughes Inc said on Friday. The oilfield services provider and some analysts, however, have cast doubts on a substantial recovery in drilling this year with U.S. crude prices heading for their biggest monthly loss in a year. Drillers added three oil rigs in the week to July 29, bringing the total rig count up to 374, compared with 664 a year ago, according to the closely followed Baker Hughes weekly report.  The rig count rose by 44 during July, the most in a month since April 2014, signaling a recovery in U.S. drilling after the biggest price rout in a generation prompted a slump in rigs from a peak of 1,609 in October 2014. Drillers have returned to the well pad since U.S. crude prices tipped above $50 in early June. That is the key level that analysts and producers said would prompt their return. U.S. crude futures, however, earlier Friday slipped below $41 a barrel for the first time since April and were on track for a monthly loss of about 15 percent, pressured by persistently high inventories. "I believe oil prices in the upper $50s at a minimum are required for a sustainable recovery in North America," Baker Hughes Chief Executive Martin Craighead said on Thursday. Bigger rivals Schlumberger Ltd and Halliburton Co last week both said they expected a modest recovery in North American activity.

Oil Ends July with Worst Monthly Loss for WTI in a Year (Reuters) - Oil prices steadied on Friday after touching three-month lows amid a week-long selloff but still finished the month nearly 15 percent lower, with U.S. crude declining the most in a year because of a persistent glut. Slower economic growth and high inventories of crude and refined oil products have driven Brent and U.S. West Texas Intermediate (WTI) crude futures 20 percent below from their 2016 highs, technically placing them in bear market territory. The two benchmarks matched April lows on Friday before their most actively traded contracts settled up on what traders said was short-covering by investors taking profit on bearish bets. Hedge funds, some of the biggest bulls in oil, slashed their positive bets on WTI to a five-month low in the week to July 26, U.S. Commodity Futures Trading Commission data showed, amid growing worry about oil's fundamentals. The dollar's drop to a three-week low also made greenback-denominated oil more affordable to holders of the euro and other currencies. The September Brent contract, which expired as the front-month, settled at $42.46 a barrel, down 0.6 percent on the day and 14.5 percent on the month. That was the biggest monthly drop for Brent since December. Brent's more actively traded October contract rose 30 cents to settle at $43.53, after hitting $42.52, its lowest since April 19. WTI's front-month contract, September, rose 46 cents, or 1 percent, to settle at $41.60 a barrel, after slipping earlier to below $41 for the first time since April 20. For the month, the contract finished down 14 percent, the biggest decline for a WTI front-month since July 2015. Crude prices are still up more than 55 percent from 12-year lows of $26 to $27 in the first quarter. The recovery faded after prices above $45 enticed U.S. oil drillers to return to the well pad. Drillers added 44 rigs in July, the most in a month since April 2014.

Oil Surges After OPEC Production Hits Record High: Here's Why --Now that the narrative of rising gasoline demand and a "strong summer driving season" is finally over, courtesy of gasoline stocks that just refuse to drop... ... defenders of the "bull" crude oil thesis are stumped. "Doubts are rife as to whether the oil supply imbalance is indeed slowly drawing to an end," Stephen Brennock of oil brokerage PVM, said. So with no fallback "story" both WTI and Brent are down 20% since their last peak in June, as another bear market for oil has arrived. Worse, earlier today we got confirmation that another parallel narrative, namely that OPEC is cutting its production, is also dead and buried.  According to a Reuters survey, OPEC's oil output is likely in July to reach its highest in recent history, as Iraq pumps more and Nigeria manages to export additional crude despite militant attacks on oil installations. Top OPEC exporter Saudi Arabia has kept output close to a record high, the survey found, as it meets seasonally higher domestic demand and focuses on maintaining market share rather than trimming supply to boost prices. Supply has been rising since OPEC abandoned in 2014 its role of cutting supply to prop up prices as major producers Saudi Arabia, Iraq and Iran pump more.According to the survey, OPEC supply rose to 33.41 million barrels per day in July from a revised 33.31   million bpd in June. There's more: OPEC's production could rise even further should talks to reopen some of Libya's oil facilities succeed. Conflict has been keeping Libyan output at a fraction of the pre-war rate. "This could shortly release more oil into an already abundantly supplied market," Carsten Fritsch of Commerzbank said, although earlier hopes of a restart have not been realized. "It therefore remains to be seen whether this time will be different."  It won't be different.  As Reuters notes, OPEC's output has climbed due to the return of former member Indonesia in 2015 and another, Gabon, this month, skewing historical comparisons. July's supply from the remaining members, at 32.46 million bpd, is the highest in Reuters survey records, starting in 1997.

 Libya army commander threatens to target oil tankers (AP) — Libya’s chief of staff on Tuesday threatened to target foreign oil tankers if they entered territorial waters, after a controversial deal was struck between the United Nations envoy and a militia commander in control of the oil terminals. The agreement between U.N. Envoy to Libya Martin Kobler and militia leader Ibrahim Jedran, has been widely criticized amid accusations that it empowers the warlord who is viewed by many as having held Libya’s oil hostage for the past three years. Brig. Gen. Abdel-Razek al-Nadhouri warned foreign companies against signing oil deals with any party except for the state-run National Oil Corporation (NOC) branch in Benghazi. “Any movement of any vessels or oil tankers toward the Libyan territorial waters without prior agreement with the NOC affiliated to the Libyan parliament, will be targeted,” the statement read. Libya’s oil corporation — like the rest of the oil-rich North African country’s state bodies— has been split between eastern and western branches. Benghazi’s branch falls under the authority of the internationally-recognized parliament seated in the eastern city of Tobruk. The western one falls under the Tripoli-based, UN-brokered government which together with a presidency council was formed after rival factions in Libya signed a peace deal last year aimed at ending the country’s rift. The eastern parliament has so far failed to give a crucial vote of confidence to the government, because of objections over a key article in the peace deal that determines who would wield authority over the armed forces. Al-Nadhouri — who answers to the eastern parliament— made his threat days after Kobler and Jedran struck their deal. Many from both sides believe that the deal — the terms of which haven’t been publicly laid out — empowers the militia commander and undermines the government.

Kerry hopes to work with Russia on Syria, U.N. aims to restart talks | Reuters: The United States said on Tuesday it hoped to announce in early August details of planned military cooperation and intelligence sharing with Russia on Syria, and a United Nations envoy said he would also aim to resume peace talks next month. U.S. Secretary of State John Kerry said Washington and Moscow, which support opposing sides in Syria's five-year-old conflict, had made progress in recent days towards working more closely together. The proposals would have the two powers share intelligence to coordinate air strikes against the al Qaeda-affiliated Nusra Front and prohibit the Syrian air force from attacking rebel groups labeled as moderate. Efforts to bridge the divide between the United States and Russia and bring Syrian government and opposition forces back to negotiations come after pro-government forces have effectively put rebel-held districts of Aleppo under siege. Concern is growing for at least 250,000 people who have been trapped in rebel-controlled eastern Aleppo since early July, and the U.N aid chief asked on Monday for weekly 48-hour pauses in fighting to allow food and aid to be delivered. Syrian state television said on Tuesday the army had sent text messages to residents and fighters in eastern Aleppo, saying it will grant safe passage to whoever wants to leave and asking militia to put down their weapons. The Syrian Observatory for Human Rights monitoring group said 25 people, including three women and eight children, were killed in the last 24 hours in the Mashhad quarter of rebel-held Aleppo, when it was hit by barrel bombs thrown from helicopters.

 U.S. Coalition Just Dropped Its 50,000th Bomb On ISIS - The United States-led bombing campaign against the Islamic State in Iraq and Syria surpassed a stunning milestone this month, underscoring the magnitude of the coalition’s quest to crush the militant group. Coalition drones and warplanes unleashed 49,917 bombs and missiles against ISIS targets through June 30, according to new official figures released this week by the U.S. Air Forces Central Command. Daily airstrikes by America and its allies throughout July has since pushed that number above 50,000, according to Airwars, a watchdog group that monitors the U.S.-led air campaign against ISIS. That figure does not include airstrike operations conducted by Russia, which began a bombing campaign of its own against in the Islamic State in Syria last year. The relentless airstrikes by the coalition, now in their 24th month, reflect the intensity of air campaign against ISIS, said Chris Woods, the director of Airwars, which is based in the United Kingdom. By comparison, U.S.-led forces in Afghanistan have dropped just over 16,000 bombs in the last six years, military data shows.

France Escalates - Sends Aircraft Carrier To Fight ISIS -- Seemingly not satisfied with the domestic blowback from their interventionist-driven Washingtonian foreign policy, Francois Hollande - lagging badly in the polls - has decided to double-down following the recent terror attack in Nice. As Sputnik News reports, France will send artillery to Iraq and its Charles de Gaulle aircraft carrier to assist the US-led coalition’s efforts in Syria and Iraq in the coming months. The French aircraft carrier Charles de Gaulle will be sent to the region in September, the President added.  "The Charles de Gaulle airacrft carrier will arrive in the region by the end of September. It and our Rafale aircraft will allow to intensify our strikes against Islamic State positions in Syria and Iraq," Hollande said in a televised statement. France will also send artillery to Iraq in August to help the Iraqi army fight Daesh terrorists, the President added.

Boy beheaded by Syrian rebels was ’19-year-old regime fighter’-- A Syrian who was beheaded by a rebel group in Aleppo this week was a 19-year-old pro-regime fighter suffering from a growth defect and not a child, activists have claimed. He was named as Abdullah al-Issa and that his family members said he was a 19-year-old who volunteered to fight with the regime’s National Defence Forces militias. Other social media users said he was from the Alawite village of Wadi al-Dahab in Homs, and photos emerged allegedly showing his funeral in the area. Issa was said to be suffering from thalassemia, which led to a growth defect that made him appear to be a child. Photos shared of Issa online show him in military fatigues and carrying a rifle. “This boy, whose [beheading] has caught the world’s attention is my cousin Abdullah Issa from Wadi al-Dahab district of Homs, and he suffers from thalassemia,” his alleged cousin – Loly Alamora [“Loly the cutie”] – wrote on her Facebook page. “That is why he appears younger than his age, but he is 19-years-old.”  The Syrian regime had earlier claimed that Issa was a 12-year-old Palestinian civilian who was on his way to hospital for treatment when he was picked up by militants from the Harakat Nour al-Din al-Zinki rebel group. His murder caused outrage, particularly as he appeared to be a child.

In First "Emergency" Decree, Erdogan Seizes Thousands Of Hospitals, Schools, Charities -- With the failed/staged Turkish coup quickly fading from memory and media attention, just as Erdogan likes it, and opposition from "western democracies" to a historic purge virtually non-existant aside from the occasional media soundbite, overnight Erdgoan implemented his first decree since imposing a state of emergency in the country last week, and tightened his grip on Turkey by ordering the closure of thousands of private schools, charities and other institutions in his first decree since imposing a state of emergency after the failed military coup.   In his first "emergency powers" decree, published by the Anadolu state news agency, Erdoganauthorised the closure of 1,043 private schools, 1,229 charities and foundations, 19 trade unions, 15 universities and 35 hospitals over suspected links to the Gulen movement. The government also announced it would seize the properties of all these schools, universities and private institutions.  As documented, Erdogan has accused U.S.-based Muslim preacher Fethullah Gulen, who has many followers in Turkey and abroad, of masterminding the failed coup, in which at least 246 people were killed. Gulen denies the charge and has condemned the coup.  In the decree Erdogan also extended to a maximum of 30 days from four days the period in which some suspects can be detained. It said this was "to facilitate a full investigation into the coup attempt."

Erdogan’s Power Game: Turkey On Collision Course With NATO | OilPrice.com: It is unsurprising that the world should be incredulous at the explanations given by the Turkish Government as to the origins, sponsors, and actions of the putsch which was attempted against it on the night of July 15-16, 2016. Indeed, the great difficulty is to avoid considering the “conspiracy theory” that the entire event had been orchestrated by Pres. Reçep Tayyip Erdogan himself. We have discussed the entire incident in separate analysis, taking on face value the events as reported, and the ramifications. The event was cut from whole cloth. It was too perfect, and the responses too com-plete. Its outcome could not have been more favorable to the President and his ambitions. And as with all conjuring, the audience was complicit, and the scale of the deception bold and outside the scale of comprehension of Turkey’s traditional allies and supporters. What Erdogan did and achieved — regardless of whether he had staged the patently-unworkable putsch himself — was breathtaking in its scope and objectives, and was initially successful in consolidating his power and removing Turkey from the secular, Western-oriented path of the President’s nemesis, Mustafa Kemal Atatürk. The fact that the leaders of the putsch have not been credibly identified (some officers have been blamed, true, and some military personnel went along with the affair, believing it to be a genuine attempt to over-throw the President), and the blame so laughably assigned to convenient “enemies”, makes it necessary to question the reality of events in Turkey before, during, and after the incident.Whatever actually happened, it is clear that Pres. Erdogan has — with the catalyst of the alleged putsch — completely transformed the strategic position of Turkey: its alliances and dependencies; its chances for survival, and the fate of the region which is vital not only to its inhabitants, but as a nexus of global trade. The Russian Government knows very well just how mercurial Pres. Erdogan has been, and how he has tried — and failed — to confront Russia strategically. It was Russia which essentially defeated Turkey in Syria and Iraq, and possibly in the Caucasus and Balkans.

Is Fethullah Gülen behind Turkey's coup? --  Dani Rodrik -- If what Erdogan said on TV today is correct, there is no longer much doubt about the answer to this question. According to Erdogan, the officers who detained the chief of general staff, Hulusi Akar, on July 15 offered to put Akar in contact with Gulen. As of this writing, Akar has not made any statements confirming this. But if he does, it will be manifest that responsibility for the coup attempt reaches all the way to Pennsylvania. It will be very difficult for the U.S not to extradite Gulen, subject, of course, to (some huge) fair trial concerns back in Turkey. What evidence, other than Erdogan’s word, is there that Gulen is behind the coup attempt?   My best guess is that the coup was planned and organized by Gulenists but that they were joined by quite a few others as well. The joiners may have had diverse motives: personal ambition, hatred of Erdogan, or simply the belief that they were obeying orders from the higher-ups. One of the curious aspects of the coup attempt is that it had no public face or apparent leader. I know of no coup attempt, in Turkey or elsewhere, successful or otherwise, where a clear leader was not obvious or did not emerge very quickly. In Turkey, the clearest instances of failed coup took place in the early 1960s, and these attempts were spearheaded by a well-known renegade, Colonel Talat Aydemir. This lack of a public face is a lot less anomalous from the standpoint of Gulenist modus operandi. Gulenists always prefer to operate in the shadows, behind the scenes, and never take direct ownership of operations they launch and control. They have never formed (or explicitly joined) political organizations or parties, even though they clearly have political aims, choosing to operate within existing political parties instead. In Ergenekon and Sledgehammer, the bogus documents that led to the trials were first leaked to a “liberal” newspaper (Taraf), which thereafter acted as a front. When public support for the trials waned, leading Gulenists kept arguing that it was Erdogan who pushed for the prosecutions.

"Credible Evidence" Shows Turkish Authorities Raped And Tortured Detainees Since 'Failed' Coup --Human rights group Amnesty International said on Sunday it had "credible evidence" of abuse and torture of people detained in sweeping arrests since Turkey's 15 July attempted military coup. The London-based group said some of those being held were being "subjected to beatings and torture, including rape, in official and unofficial detention centres in the country". Amnesty said more than 10,000 people have been detained since the attempted coup, and the group called for independent monitors to be granted access to detention sites across Turkey. Amnesty raised serious allegations of mistreatment against Turkish police, who they said haveheld detainees in “stress positions, denied them food, water and medical treatment, verbally abused and threatened them, and subjected them to beatings and torture, including rape and sexual assault”.

 Turkey Expands Purge, Shutting Down News Outlets — The Turkish government ordered the closing of more than 100 media outlets on Wednesday, including newspapers, publishing companies and television channels, as part of a sweeping crackdown following a failed military coup this month.The Turkish authorities ordered the shutdown of 45 newspapers, three news agencies, 16 television channels, 15 magazines and 29 publishers in a decree that was published in the government’s official gazette on Wednesday.Among those ordered to close are the newspaper Zaman and the Cihan News Agency, which had previously been seized by the government over suspicions that it has links to the network of Fethullah Gulen, a Muslim cleric who lives in self-imposed exile in the United States and has been accused of orchestrating the July 15 coup attempt.Mr. Gulen’s network has been designated a terrorist organization by Turkey, and President Recep Tayyip Erdogan has vowed to purge followers of the movement from state institutions, including the police and the judiciary.In response to the botched coup, the government has purged tens of thousands of soldiers, police officers, journalists, teachers and government employees accused of having ties to the Gulen organization. More than 9,000 people have been arrested in connection with the coup attempt, and thousands more have been detained, the semiofficial Anadolu News Agency reported. Since Monday, detention warrants have been issued for at least 80 journalists suspected of having ties to Mr. Gulen.

John Helmer: The New Byzantine Alliance – Will Russia and Turkey Revolutionize the Center of the Old World? --  Yves Smith - One has to infer that Erdogan is furious that the US has not turned over the exiled cleric Fethullah Gülen, who Erdogan has depicted as the mastermind of the failed coup, and is giving us the biggest poke in the eye he can come up with. This one is awfully big if Erdogan follows through with more cooperation with Russia. And this may tie into the increased demonization of Putin of late. I’ve only been following the various theorizing as to whether the US was behind the coup. I doubt it, and the Russians appear to doubt it. Per Helmer by an earlier e-mail: This is the best Russian account so far, and it shows evidence of Russian military monitoring of communications during the coup: http://vz.ru/world/2016/7/16/821900.html The gist is important – if the coup plotters and participants were confused about what they wanted to achieve, except for removing Erdogan, why wasn’t his aircraft shot down? Answer from the Russian side: there was no command and control of the various ground and air units engaged – they couldn’t talk to one another, and couldn’t coordinate. By failing to strike Erdogan first, they allowed him time to mobilize his party apparatus and the mosques. Once they moved people into the streets, the soldiers inside the tanks couldn’t act. You can see from SecState Kerry’s hesitant, non-committal statement from Moscow on Friday evening, Moscow time, in favour of “security and stability” that he and Washington weren’t sure how many of their “assets” were engaged, and on whose side. It took hours for Obama to come out in favour of “democracy” – that’s to say, the winning side. By then Erdogan had decided some of the plotters were on the US side. It is clear this is so from the attempt by General Van to seek asylum from the US at Incirlik; imagine how many hours it took for Washington to say no, and hand him over.

Russia's Gazprom continues efforts for gas demand creation in China - Russia's Gazprom is continuing its efforts to push for increased gas demand stimulation in China as part of its plans for supplying the country with gas via pipeline after 2018. The prospects for Chinese gas demand growth are not as strong as they were a few years ago, which has dampened Beijing's appetite for increasing its options for Russian gas imports. Now Gazprom is pushing to help create more demand, signing last month a new MoU agreement with China's state-owned CNPC on building gas-fired power stations in China.And at the end of last week at a meeting in St Petersburg, the two sides approved the steps needed to implement the deal, which also includes cooperation on gas storage inside China. "In the course of the meeting, the parties approved the road maps for implementing the MoU on underground gas storage and gas-fired power generation in China," Gazprom said. Gazprom also said it wants to help boost the use of gas as a fuel in vehicles in China. China is already a strong advocate of using gas in its public transportation fleet, and is hoping to boost domestic gas production through incentives for development of, for example, coalbed methane.

 Japan's LNG import price to average $6.60/MMBtu CIF for Jul-Dec, $7.40/MMBtu in 2017: IEEJ - Japan's LNG import price over July-December is expected to average $6.60/MMBtu CIF, compared with $6/MMBtu in January-May this year, and will likely rise to $7.40/MMBtu for calendar year 2017 on the back of higher crude oil prices, the Institute of Energy Economics, Japan said Monday. "There is a possibility that the gap between long-term LNG price and spot price will widen as we expect LNG spot price to remain depressed and to trade around $5/MMBtu with more supply to be added to the market," IEEJ said in a report. IEEJ projects Brent, WTI and Dubai crude oil prices to be at $50/b, $49/b and $47/b respectively in July-December this year. For 2017, Brent, WTI and Dubai crude oil prices are expected to rise to $55/b, $54/b and $52/b, respectively.Japan's LNG imports are expected to come in at 82.2 million mt for fiscal year 2016-17 (April-March), down 6.2% year on year, and fall further to 70.9 million mt in fiscal year 2017-18, according to IEEJ. The estimates are based on the assumption that seven nuclear reactors will restart by March 2017, and another 12 reactors to restart in the next fiscal year starting April 2017, bringing to total 19 nuclear reactors up and running by the end of March 2018. Japan's coal demand meanwhile, is projected to inch up just 0.1% from a year ago to 190.2 million mt in fiscal year 2016-17, and is expected to remain largely the same at 190.1 million mt in the following fiscal year, according to IEEJ. IEEJ said globally, a total 74 million mt/year of LNG liquefaction capacity -- mainly from the US and Australia -- will be added in calendar year 2016 and 2017. Some of the new projects may delay or may whittle down output as the market is likely to remain oversupplied.

Analysis: India's voracious appetite offers a bright spot for Malaysian crudes - Malaysian crude exports fell by close to a quarter in May following a shift in Asian importers' preference from light sweet crudes to relatively cheaper cargoes from West Africa and the Mediterranean amid reluctance by Malaysia to cut their offers. But with price differentials for light sweet Malaysian crudes showing a recovery from the lows seen in the late second quarter, traders said they expect a slowdown in arbitrage cargo flows from outside the region in the following months. In addition, buoyant Indian demand is seen as one of the brightest spots for Malaysian crude sales.Malaysia's crude exports fell by more than 23% year on year in May to 1.02 million mt, or 240,584 b/d, from 1.33 million mt in May 2015. It was also 11.5% lower from 1.15 million mt in April, data from the Department of Statistics showed earlier this month. Market participants said limited offers from state-owned Petronas in an environment of low prices contributed to the sharp fall in exports in May. "It was probably the company's strategy to protect values amid the current low crude price environment," said a Singapore-based sweet crude trader. "When crude prices were over $100/b, suppliers weren't really bothered by a $1-$2/b drop in crude premiums, but obviously it's different now where every cent matters."

Moody's: China's shadow banking system continues to grow; leverage increases further: In its latest report on the Chinese shadow banking system, the US rating agency, Moody's Investors Service noted that overall leverage in China's (Aa3 negative) economy continues to rise, as credit growth -- measured by total social financing (TSF) -- outpaces nominal GDP. Key Quotes: "The growth in overall leverage may be understated, because some of the fastest growing components of shadow banking are not included in TSF" "We estimate the potential understatement to be significant, amounting to at least RMB16 trillion or 23% of GDP at end-2015, equivalent to around one-third of shadow banking" "The rise in overall leverage and further expansion of shadow banking activity are pushing up financial risks" "Continued growth of banks' investment receivables is increasing the system's interconnectedness, as well as exposing mid-sized and smaller regional banks to liquidity and credit risks"

China's growth sucks in more debt bucks for less bang | Reuters: As China's economy notches up another quarter of steady growth, the pace of credit creation grows ever more frantic for every extra unit of production, as inefficient state firms swallow an increasing share of lending. The world's second-largest economy grew 6.7 percent in the first half of the year, unchanged from the first quarter, testament to policymakers' determination to regulate the pace of slowdown after 25 years of breakneck expansion. Analysts say that determination has come at the cost of a dangerous rise in debt, which is six times less effective at generating growth than a few years ago. "The amount of debt that China has taken in the last 5-7 years is unprecedented," said Morgan Stanley's head of emerging markets, Ruchir Sharma, at a book launch in Singapore. "No developing country in history has taken on as much debt as China has taken on on a marginal basis." While Beijing can take comfort that loose money and more deficit spending are averting a more painful slowdown, the rapidly diminishing returns from such stimulus policies, coupled with rising defaults and non-performing loans, are creating what Sharma calls "fertile (ground) for some accident to happen". From 2003 to 2008, when annual growth averaged more than 11 percent, it took just one yuan of extra credit to generate one yuan of GDP growth, according to Morgan Stanley calculations. It took two for one from 2009-2010, when Beijing embarked on a massive stimulus program to ward off the effects of the global financial crisis. The ratio had doubled again to four for one in 2015, and this year it has taken six yuan for every yuan of growth, Morgan Stanley said, twice even the level in the United States during the debt-fueled housing bubble that triggered the global crisis.

China Bank to Turn $1.6 Billion of Bad Debt Into Securities -  Agricultural Bank of China Ltd. is planning China’s largest sale so far under a trial program for lenders to offload bad loans by packaging them up as asset-backed securities. The lender plans to sell securities backed by 10.7 billion yuan ($1.6 billion) of nonperforming loans on the interbank bond market, it said July 22 on the Chinese bond clearing house website. The sale price will be the equivalent of 29 percent of the loans’ face value, with the recovery rate on the debt forecast at 41 percent, the lender’s statement showed. As corporate leverage soars and economic growth cools, China’s banks face a rising tide of bad loans. Dorris Chen, a credit analyst at Pacific Investment Management Co., said last week that the Ministry of Finance will eventually have to inject capital into the banking system, without saying when. “At the moment, banks are doing this to test the waters rather than making it a primary way of disposing of bad loans,” said Yuan Lin, a Beijing-based analyst at BOC International Holdings Ltd. The terms are favorable for investors, the analyst said.

Fitch: China Banks Face Multi-Year Resolution of Problem Credit | Reuters - The rapid pace of growth in Chinese leverage since 2008, which has contributed to economic imbalances and decreasing credit efficiency, poses significant asset-quality risks for Chinese banks, says Fitch Ratings in a Special Report published today. Credit to GDP, as measured by Fitch-adjusted total social financing, has roughly doubled over the past eight years, while credit/GDP productivity rates since 2008 indicate substantial mal-investment and further increases in problem credit. Fitch believes the Chinese authorities will continue to allow credit to drive growth and prefer to restructure debt rather than allow mass defaults, regardless of the size of problem credit in the economy. Bad debt may be socialised and other tools employed over time - including offsetting risks through capital market issuance - to help the resolution process. The migration of debt to the sovereign balance sheet is more probable than a wholesale upfront carve-out of assets. Chinese banks' viability ratings (VRs), which range from 'bb' to 'b', reflect substantial but varying risks to capital and asset quality. Fitch's base-case assessment of banks' intrinsic profiles considers relative loss-absorption capacity rather than subjectively adjusting reported NPL data. This is due to uncertainties relating to on-and-off balance sheet asset quality. That said, Fitch's report addresses questions about the potential size of asset quality problems facing the financial system and the process by which they will likely be addressed, with reference to implications for bank ratings

Even Record Bond Defaults Can’t Stop China Yield Hunters’ Buying - Seven-year corporate debt with AA- ratings, considered junk level in China, had a yield premium of 341 basis points over similar-maturity government notes, the lowest level since December 2013, according to Chinabond data. The 22 basis point decline this month was the biggest since May 2015. That’s even as 17 publicly issued notes have defaulted in the onshore market so far this year, compared with seven for the whole of 2015. The credit market rout in April is a distant memory for Chinese yield hunters, who are following global investors’ flood into corporate bonds after treasury yields from Japan to Germany dropped below zero. Ping An Securities Co. estimated that wealth management product funds that Chinese banks authorize securities houses to park in the debt market may double to 5 trillion yuan ($749 billion) at the end of this year from about 2 trillion yuan in 2015. “The inflows of a lot of funds from banks’ wealth management products into the bond market has increased demand for bonds with relatively high yields,” said Ye Sheng, an investment manager and head of fixed income research at Fullgoal Fund Management Co., which oversees 168 billion yuan of assets. “Some capital is chasing flawed assets under pressure to generate returns.”

Here's a controversial idea about China's economy that no one wants to hear : For years, economists have been saying that China needs to "rebalance" its economy, and the government is on board with this daunting project. That means the country is attempting to move from an economy based on investment in industrial manufacturing to one based on domestic consumption driven by regular Chinese people working in the services sector. That is, China has been moving toward fewer coal miners and construction workers in favor of more bankers and shopkeepers. But what if we've got this all wrong? What if China is transitioning too early? That's what HSBC economists Qu Hongbin and Jing Li have posited in a recent note, "China's new challenge: Faster services expansion, slower productivity growth." From the note: "Both economic theory and empirical evidence suggest that premature deindustrialisation in developing countries can be damaging. It blocks the main channel of productivity growth, and therefore reduces the economy's potential growth rate and its prospects of catching up with more advanced economies. "Based on the experience of some Latin American countries, a lack of adequate investment and a tendency of specialising according to short-term, rather than long-term, comparative advantage are common mistakes made by developing countries. "This kind of development strategy can result in an underdeveloped industrial sector and slow productivity growth. Given that China's GDP per capita is only 14% that of the US, we believe it is way too early to shift towards services-led growth."

Just How Big Is China’s External Surplus? Measurement Matters: Here are two views of China’s (goods) trade. Both use the exact same data. The first presents China’s goods exports and imports as a share of the rest of the world’s GDP:The second presents China’s goods exports and imports as a share of China’s own GDP: From the point of view of the world, the gap between China’s goods exports and its imports is as big as it has ever been. And China’s exports were, until recently, rising as a share of world GDP. From the point of view of China, exports have become less important as a share of China’s own GDP. And so have imports Though I would note the “rebalance” away from exports came immediately after the global crisis, when China engaged in its massive credit fueled off balance sheet stimulus that juiced investment. Since 2011 or so, both China’s exports, net of processing imports, and its manufacturing surplus have both been fairly stable as shares of China’s GDP (exports net of processing are about 15 percent of China’s GDP, and the manufacturing surplus is 8-9 percent of China’s GDP). Stories that suggest that China has become significantly less competitive in manufacturing strike me as off, particularly now that the RMB has depreciated from its high last summer. China’s surplus in manufacturing reflects the balance between exports, where growth has slowed subsequent to the renminbi’s 2014-15 appreciation (though it could pick up again now that the appreciation has largely been reversed) and China’s imports. Export growth and export job growth has slowed. But manufactured imports—including imports of components—are falling sharply as a share of China’s GDP. More and more of the components in goods that are assembled in China are also now made in China.

China’s Reported Tourism Deficit Got Big, Fast -- Several times I have alluded to the suspicious rise in China’s tourism deficit. The tourism deficit more than explains the rise in China’s services deficit, and the rise in the services deficit explains why the increase in China’s current account surplus hasn’t tracked the increase in China’s goods surplus. Why the suspicion? Simple. Tourism imports soared in 2014, at a time when all other Chinese imports were either falling or experiencing a slowdown in the pace of growth. The actual data on tourism “visits” tells two stories. There is a big falloff in Chinese tourism to Hong Kong and Macau, falling retail sales in these traditional destinations for Chinese tourists, and soft Asian sales of “luxury” goods. But there is also no doubt destinations like Thailand and Japan (remember the yen move) saw a big increase in arrivals from China. Sum it all up though, and the number of tourists travelling abroad in 2014 looks to have increased by about 10 percent (from 100 to 110 million or so) in line with past growth. Look at this Goldman Report.* With an increase in nominal spending per tourist it is possible to imagine tourism growth of say 20 percent. Not 80 percent. 2015 seems similar. Visits to Hong Kong and Macau fell. So what is going on in the balance of payments (BoP) data? No doubt many things. China seems to have revised its methodology for “counting” tourism in the balance of payments in some way, leading to a jump in both imports and exports in 2014. Tourism imports rose by a giant $100 billion in 2014 (with a slowing economy) after growing by $40 billion in 2013. Tourism exports were adjusted up too, but not by nearly as much.

The South China Sea Is Really a Fishery Dispute | The Diplomat: Last week the Permanent Court of Arbitration in The Hague ruled overwhelmingly in favor of the Philippines in its case against China’s South China Sea (SCS) claims. The nearly 500 page ruling undercut Beijing’s claims to control all the land features and water inside China’s nine-dash line and concluded that the disputed land features are either rocks that generate small (12 nautical miles) territorial seas or low-tide elevations that convey no exclusive rights to exploit resources. Although the ruling—and much of the surrounding analysis—has necessarily placed considerable emphasis on sovereignty disputes in the SCS, less attention has been given to the underlying incentives that drive claimant positions and behaviors. Given its power and recent assertiveness in the South China Sea, China’s interests deserve special attention. Aside from enlarging China’s security perimeter, China’s regional interests can be roughly lumped into three “P”s—politics, petroleum, and proteins (fish). The last of these interests, competition over dwindling SCS fisheries, may be most consequential in driving competition, but has not received sufficient analytic attention. Although the SCS covers only 2.5 percent of the Earth’s surface, it is home to some of the world’s richest reef systems and over 3,000 indigenous and migratory fish species, comprising some 12 percent of the total global fish catch. Unfortunately, the region’s fisheries are in serious jeopardy. As of 2008, virtually all SCS fishery stocks are collapsed (roughly 25 percent), over-exploited (roughly 25 percent), or fully-exploited (roughly 50 percent). The situation is only worsening.  The most important aspect of the Spratly Island disputes is not oil or sovereignty—it is whether or not SCS fish continue to appear on Asia’s menus. Four trends in particular are important: sustainability, economic importance, rising demand, and declining access.

Fiscal Stimulus, Korean Style -- Korea is one country that unambiguously has fiscal space right now. Low government debt. The on-budget deficit was, until recently, more than offset by the off-budget surplus in Korea’s social security fund. With a slowing economy and a massive (almost 8% of GDP in 2015) current account surplus, Korea unambiguously should be running an expansionary fiscal policy. But I do not quite see how “paying down debt” can be part of a true fiscal stimulus package. Nor do I see how a fiscal stimulus can do much to spur the economy if won’t create a new borrowing need. The Wall Street Journal: “Unlike the heavily debt-funded supplementary budget last year, this year’s supplement will narrow the estimated deficit marginally, thanks to a partial debt repayment by the government. The finance ministry expects the country’s sovereign debt to stand at 39.3% of gross domestic product in 2016, lower than its initial estimate of 40.1%” It seems like Korea’s stimulus will be financed by “surplus” tax revenues, not new debt.  “The 11-trillion-won ($9.7 billion) additional budget will mostly be funded by surplus tax revenue and state funds left over from the previous fiscal year, the finance ministry said.”I get it. Intentionally underestimating tax revenues is one way of building a fiscal buffer into the budget. Without a supplementary budget, Korea presumably would have been on track to tighten fiscal policy this year. But please do not call less austerity a major shift in fiscal policy! Boosting demand growth and bringing Korea’s external surplus down will take a true shift in Korea’s fiscal stance, not the announcement of a fiscal stimulus that doesn’t really stimulate.

Japan’s Exports Decline Again in June, for Ninth Straight Month -  Japan’s exports dropped again in June, with shipments down for a ninth consecutive month, underscoring the continuing challenge of reviving the nation’s economy. Key Points

  • Overseas shipments declined 7.4 percent in June from a year earlier, the Ministry of Finance said on Monday.
  • This was better than the median estimate of economists surveyed by Bloomberg, which pointed to an 11.3 percent drop.
  • Imports slid 18.8 percent, leaving a trade surplus of 692.8 billion yen ($6.5 billion).
  • Japan had a trade surplus of 1.81 trillion yen in the January-June period, the first surplus since the second half-year of 2010.

The weak exports data show that the nation’s economic recovery remains tepid and come before the Bank of Japan meets later this week to consider whether to further expand monetary stimulus. Japan’s growth is at risk as a slowdown in overseas demand and the yen’s surge this year make the nation’s products less attractive overseas and hurt the earnings of exporters. Fast Retailing Co., owner of the Uniqlo casual-wear chain, and Toyota Motor Corp. have warned about the impact of the stronger yen.

It's official: Japan's debt mountain too high- -- Even an optimistic vision of Japan's economic future does not see the country's primary budget deficit becoming a surplus by fiscal 2020, despite a long-running government plan to move things that way. According to medium- and long-term fiscal outlooks submitted on Tuesday by the Cabinet Office to the Council on Economic and Fiscal Policy, Japan will have a primary deficit of 5.5 trillion yen ($52.4 billion) in fiscal 2020. Close The primary balance measures the difference between revenue and spending by the national and local governments. It does not take into account debt servicing. The latest estimate is down 1 trillion yen from the previous projection, made in January. The decline is largely due to a 1.3 trillion yen fall in expenditures as the government cut by half the rate at which spending is expected to rise in fiscal 2017. Previously, the government assumed spending would increase at a rate close to inflation. But the latest projection is based on a rate that is half the assumed increase in wages and prices. "The [latest] estimate took account of spending cuts to be included in a fiscal 2017 budget," a Cabinet Office official said. When the government earlier this year postponed a planned consumption tax hike, it caused estimated revenue for fiscal 2020 to drop. This pushed up the estimated primary deficit by 300 billion yen. Japan planned to raise the levy from 8% to 10% in April 2017. The current plan is to go ahead with the hike in October 2019.

PM Abe's plan for $265 billion stimulus puts pressure on BOJ to ease | Reuters: Japan's prime minister unveiled a surprisingly large $265 billion stimulus package on Wednesday to reflate the world's third-largest economy, adding pressure on the central bank to match the measures with monetary stimulus later this week. The earlier-than-expected announcement to boost the flagging economy sent Japanese and other Asian stock markets higher while it weighed on the safe-haven yen, but lacked crucial details on how much of the package would be direct government spending. The size of the package, at more than 28 trillion yen ($265.30 billion), exceeds initial estimates of around 20 trillion yen and is nearly 6 percent the size of Japan's economy. It will consist of 13 trillion yen in "fiscal measures," which likely includes spending by national and local governments, as well as loan program. "We need to take steps to support domestic demand and put the economy on a firmer recovery path," Shinzo Abe said in a speech in southern Japan on Wednesday. "I want to use various measures to increase our escape velocity from deflation." The market expects the Bank of Japan to produce some fire power of its own at its rate review ending on Friday. "The amount is so large that the stimulus package is bound to have a big economic impact. It is impossible to spend this much money in one extra budget, so this may take place over the next few years," said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.

Japanese ‘Helicopter Money’ Prospect Has Yen Traders On Edge - WSJ: The prospect of fresh stimulus from Japan is intensifying investor scrutiny of one of the most eventful relationships in financial markets this year, the yen-dollar exchange rate. The Bank of Japan 8301 -1.66 % is expected at its meeting on Friday to spell out its latest aggressive effort to revive inflation and economic growth. Investors say any letdown could roil markets dominated by investments that would benefit from yen depreciation. The yen has surged more than 14% against the dollar in 2016, making it the best-performing major currency and frustrating Japanese efforts to restart growth. Trading has been whipsawed this week by conflicting reports about Japan’s plans, including talk that Japan is considering an arrangement viewed by many analysts as akin to “helicopter money," an unprecedented stimulus in which the central bank buys long-term debt directly from the government to fund expanded fiscal spending. “There’s huge scope for disappointment,” said Steven Englander, head of G-10 foreign-exchange strategy at Citigroup.  “If they lowball the market, the market would say they’re trying to make a gracious exit out of the stimulus business.”   One fear among investors is that a move in the yen could quickly snowball if traders begin to unwind a popular foreign-exchange strategy known as the carry trade. Carry trades involve borrowing currencies associated with low interest rates—often the yen or euro—to buy currencies that offer higher rates like the Australian dollar, in hopes of profiting on the gap between the two. Record-low bond yields, coupled with expectations for looser monetary policy throughout much of the developed world, have revived interest in the high-yielding strategy in recent months. Exchange-traded funds that use carry trades have seen a surge in inflows.

'Helicopter money' might weaken currencies more than QE as sky's the limit | Reuters: Central banks might inject no more cash into economies by dropping money from aircraft -- whether real or imaginary -- than via well-worn QE schemes, but in breaking a long-standing taboo they may do far more damage to currencies. After decades of zero interest rates and quantitative easing-style asset purchases, Japan is still mired in deflation. As the country gears up for yet more stimulus, financial market speculation has swirled that the Bank of Japan may now go one step further and, by introducing direct funding of government with newly-minted notes, cross into the realm of 'helicopter money'. The BOJ, holding a two-day policy review that ends on Friday, insists such monetary financing is illegal. But the yen has tossed and turned regardless, its overnight volatility JPYSWO= reaching levels only seen twice in the past quarter century - in 2008 and the Asian crisis of 1998. One focus of the speculation has been on a scenario whereby the BOJ would match new public spending by buying government bonds with perpetual maturities at negligible interest rates that the state would, in effect, never pay back. The question for the rest of the world is whether the BOJ's dilemma is the future for all major central banks as the world economy stagnates and Japan's demographic of an aging population gradually spreads to other developed nations. Currency traders, meanwhile, are debating how - if at all - dropping money from the sky differs from QE.

Citi sees 'gradual shift towards helicopter money': Citi has forecast a "gradual shift towards helicopter money" by advanced economies, as countries struggle to boost growth and inflation in uncertain geopolitical climes. The bank's report came as the Bank of Japan started a two-day meeting on Thursday, after which it is widely expected to launch another major stimulus program. Prime Minister Shinzo Abe is seen announcing a fiscal stimulus package as well, which a report by news agency Jiji put at 28 trillion yen ($267 billion). That could be viewed as a move towards helicopter money, defined by Citi as a "temporary fiscal stimulus financed by a permanent monetary expansion." Others define it simply as central banks injecting cash directly into the real economy. "Amid large uncertainties, the policy outlook is once again of major importance. In our view, there is a gradual shift in policy orientation towards helicopter money," Citi analysts including Chief Economist Willem Buiter said in a report on Wednesday. Citi forecasts "moderate further easing" by the Bank of Japan this week and a new round of a quantitative easing from the Bank of England (BoE) next month.

 Koo on why helicopter money just won’t work --Izabella Kaminska - Helicopter money won't work in Japan, says Nomura's Richard Koo in a note on Tuesday, because when the typical Japanese citizen finds a 10,000-yen note lying on the ground, she will turn it in at the nearest police station rather than spend it. Put differently, a helicopter money policy can only work if the people in a country have little sense of right and wrong. Koo, of course, is talking about the effectiveness of actual banknotes being thrown out of helicopters in the sky. It's one of four ways he thinks helicopter money policy could be implemented -- since the real challenge with helicopter money is how it would be distributed, and to whom. The first option really is throwing bags of money out of the sky. But here be unintended social consequences. For example : No seller would exchange products for money that fell from the sky. Another critical omission from the argument that helicopter money will resuscitate the economy is that it focuses exclusively on the logic of buyers while ignoring the logic of sellers. Unethical buyers may try to go shopping with money that has fallen from the sky, but there is no reason for sellers to accept such money. Sellers are willing to take money in exchange for goods and services only because the supply of that money is strictly controlled by the central bank. If money starts falling from the sky, sellers will refuse to accept it as payment for their products. If the authorities actually began dropping money from helicopters, shops would either close their doors or demand payment in foreign currency or gold, and the economy would quickly collapse. There is no economy so wretched as one that no longer has a national currency the people trust. Because it plainly ignores the psychology of sellers in the market, literal helicopter money is not, in Koo’s opinion, the ultimate form of monetary accommodation. Taking it to this extreme would only lead to an economy’s collapse, not its recovery. More so, there’s no case in recorded history where an economy without a credible national currency outperformed an economy with one.

Richard Koo: If Helicopter Money Succeeds, It Will Lead To 1,500% Inflation -- After today's uneventful Fed announcement, all eyes turn to the BOJ where many anticipate some form of "helicopter money" is about to be unveiled in Japan by the world's most experimental central bank. However, as Nomura's Richard Koo warns, central banks may get much more than they bargained for, because helicopter money "probably marks the end of the road for believers in the omnipotence of monetary policy who have continued to press for further accommodation in the midst of a balance sheet recession, when such policies simply cannot work." As he continues, believers "have doggedly insisted that it is possible to control inflation because (1) inflation is everywhere and always a monetary phenomenon and (2) central banks control the supply of money. Based on this belief, they have implemented a variety of policies including quantitative easing, negative interest rates, forward guidance, and inflation targeting, each of which has failed to produce expected results. Now they have reached the end of the line, and the signpost reads “Last stop: helicopter money.” Koo continues to unload on central bankers, slamming their "faith that the economy will pick up if only money is dropped from the sky" that has provided a psychological foundation for economists and policymakers convinced of the efficacy of monetary policy. It also explains why nothing has worked yet. The Nomura strategist then mocks "their belief that dropping money from helicopters would revive the economy that has led them to assume that slightly less extreme policies such as quantitative easing and inflation targeting would also have a positive economic impact (albeit a more modest one)." This is precisely what we said in March 2009 when the Fed first launched QE, and were mocked. It has now become mainstream.

Thick and fast | The Economist: HAVING smouldered for more than a year, international investigations into 1MDB—a Malaysian state investment firm at the heart of a sprawling financial scandal—are now burning fiercely. On July 20th America’s Justice Department began proceedings to seize more than $1 billion of assets, which it alleged had been purchased with funds siphoned out of the firm. It is the largest single action the department has ever launched. The goodies concerned include luxury properties, artworks by Van Gogh and Monet, and a jet, according to court filings. Authorities say 1MDB’s money was also spent on gambling and used to make the “Wolf of Wall Street”, a film about a high-living swindler starring Leonardo DiCaprio. It was made by a production company co-founded by Riza Aziz, the stepson of Malaysia’s prime minister, Najib Razak. (A spokesman for the firm, Red Granite Pictures, said neither it nor Mr Riza had done anything wrong.)1MDB was launched in 2009, the year Mr Najib became prime minister. It was supposed to bring investment to Malaysia by forging partnerships with foreign firms. But by 2014 it was struggling to service debts of more than $11 billion. Questions about it multiplied last year when it was discovered that around $700m had entered Mr Najib’s bank accounts shortly before a close election in 2013. (Mr Najib says the money was not related to 1MDB, but was a perfectly legal, personal donation from a Saudi royal, much of which has been returned. Malaysia’s attorney-general agrees.)

Nigeria's Central Bank Hikes Interest Rate to 14 Percent - — The Central Bank of Nigeria has raised its benchmark interest rate to 14 percent, a 10-year high, as the naira currency continues its free-fall and the West African oil producer heads into recession.Bank Gov. Godwin Emefiele on Tuesday said the rate hike will encourage savings and investment.Nigeria is suffering inflation running at 16.5 percent, and the oil-dependent government is short of cash and foreign currency because of low oil prices and output slashed by militant attacks.Nigeria's government spent a year supporting the naira before allowing it to float in June. It has fallen from an official rate of 198 to 310 to the dollar while ordinary Nigerians are forced to buy the dollar at up to 378 naira on the parallel market.Continue reading the main story

  Black Lives Matter protest Rio police violence ahead of Olympics | Reuters: American activists from the Black Lives Matter movement marched with Brazilian partners through central Rio de Janeiro on Saturday, to protest police violence before the city hosts the first-ever Olympics in South America next month. The activists, better known for campaigning against police brutality and racial profiling in the United States, traveled to Rio to highlight some of the similarities with their cause in Brazil. The country, Latin America's biggest, is home more than 200 million people, a majority of whom identify themselves as black or mixed. Those with darker skin, nonetheless, face significant social and economic constraints compared with whites in addition to a dramatically higher rate of conflicts with police. Organized by a group of six activists associated with the U.S.-based movement, Saturday's march included about 200 Brazilian activists and a ceremony at Candelaria cathedral, the infamous site of a 1993 massacre in which a death squad, including off-duty policemen, killed eight children and adolescents who slept on the church steps. "The most important thing that we can do is build together and mobilize our people to spread the word," said Daunasia Yancey, a Boston-based Black Lives Matter activist, noting what she called "astronomical" death rates among blacks in conflicts with police in Brazil.

In Athletes’ Housing at Rio Olympics: Blocked Toilets, Leaking Pipes and Exposed Wiring -  — Adding to the list of setbacks and stumbles for the Rio Olympics, the athletes’ village, home to thousands of athletes during the Summer Games, has been called unfit for occupancy.Sunday was supposed to be move-in day for many athletes, but the leader of the Australian Olympic delegation said its athletes would not be checking in because of problems with the gas, electricity and plumbing.The opening ceremony for the Rio Games is scheduled for Aug. 5.Among the issues with housing units at the village were “blocked toilets, leaking pipes and exposed wiring,” said Kitty Chiller, the chef de mission in Rio de Janeiro for the Australian Olympic Committee. There was also bad lighting in many stairwells and “dirty floors in need of a massive clean,” she said in a written statement.“Water has come through the ceiling resulting in large puddles on the floor around cabling and wiring,” Chiller said.Chiller said that delegations from Britain, New Zealand and other countries were experiencing similar problems in the village, which is in an area of western Rio called Barra da Tijuca. Sweden’s women’s soccer team also refused to move into its apartments because of similar problems, the Brazilian newspaper Folha de S. Paulo reported. The newspaper article said the United States, Italy and the Netherlands had paid to hire workers to finish their rooms.Australian athletes have been staying at hotels as local organizers in Rio try to fix the problems, according to Australian officials.

Brazil Real Falls as Economists Cut Outlook and Bank Sells Swaps - Brazil’s real joined a slide in emerging markets on Monday as policy makers intervened to weaken the currency and economists cut economic forecasts amid uncertainty on budget plans. The real weakened 1 percent to 3.2885 per dollar at 12:04 p.m. after the monetary authority placed 10,000 reverse currency swaps, equivalent to buying $500 million in the futures market. Policy makers revived the intervention program in March as the real posted the world’s biggest gains this year, dimming the outlook for exports, and have since sold $50.3 billion of the contracts. The currency strengthened 23 percent in the first half amid optimism that the government of Acting President Michel Temer can trim the country’s budget deficit and restore confidence in its ailing economy. Temer’s economic team is seeking a $6 billion spending freeze as ministers and the president debate where cuts should fall. Brazil will eventually need to raise taxes if Congress doesn’t approve a bill to cap spending, Finance Minister Henrique Meirelles told Folha de S.Paulo newspaper. “The government has not announced budget cuts and in fact spending is increasing, which will likely result in a larger deficit,” said Georgette Boele, an Amsterdam-based commodity and foreign exchange strategist at ABN Amro Bank NV. Meanwhile, “the central bank continues to dampen the real upside.” The country will achieve its target for the fiscal deficit this year despite the recent increase in expenses and drop in revenues, Meirelles said

Peak Irony: Mexico Wants To Build The Wall To Stop Illegal Immigration -It turns out that Donald Trump’s proposed border wall is not such a bad idea after all. Though Mexico’s current and former Presidents have both lambasted Trump for implying that a wall would curb immigration, it turns out that Mexicans like the idea. There is one small caveat, however. Mexicans don’t want to build the wall on the U.S.-Mexico border, but rather, they want to stem the tide of immigration into their own country  by building the wall on their southern border with central America: One of the largest newspapers along Mexico’s border with Texas is calling for a border wall with Central America, similar to the one being promoted by Republican Presidential Candidate Donald J. Trump. The editorial board of El Mañana, one of the largest newspapers in the border state of Tamaulipas, penned a piece called “Yes to the Border Wall … but in Mexico’s South.” The piece praises the idea of border wall, not on the border with Mexico, but on the border with Central America.“Along the Mexican border peace and quiet came to an end, Central Americans played a large influence,” El Mañana’s piece claimed.  The Mexican border newspaper provides a controversial view on the Border Wall; which is one of the main topics in Trump’s campaign. “Mexico’s southeast has two borders; one with Guatemala and one with Belize, that do not provide any benefit, but on the contrary only problems are brought by these crossing points that are being used for the new invasion. The one use by Central American’s looking for a way into the United States. ” El Mañana’s editorial board wrote.

 Canada GDP Shrinks Most Since 2009 as Wildfires Crimp Oil Output -- Canada’s gross domestic product contracted at the fastest pace in more than seven years in May as wildfires curbed Alberta oil production. The economy shrank 0.6 percent after an April expansion of 0.1 percent, Statistics Canada said Friday in Ottawa. The median forecast in a Bloomberg survey was for a 0.5 percent contraction. The drop was “primarily due” to the record 22 percent plunge in non-conventional oil production, the agency’s report said. Excluding non-conventional oil, output shrank by 0.1 percent in May. Manufacturing fell by 2.4 percent, also the fastest since 2009, on disruption to transportation equipment makers and a 15 percent drop at oil refineries. The wildfires are another chapter in a long-delayed economic recovery following years of weak global demand and a more recent plunge in energy investment.  Bank of Canada Governor Stephen Poloz, who is standing by a prediction for an export recovery in the second half, kept his key lending rate at 0.5 percent on July 13, pointing to signs oil production was resuming after fires knocked about 1 million barrels a day offline and forced the evacuation of 80,000 people from Fort McMurray. Poloz also projected the economy would rebound with annualized growth of 3.5 percent in the third quarter after shrinking 1 percent in the second. Conventional oil production rose 0.6 percent in May, as most refineries for that industry were outside the fire zone, Statistics Canada said.

As goes correspondent banking, so goes globalisation - FT Alphaville --The IMF’s Christine Lagarde gave a speech to the New York Fed last week, lamenting another sign of globalisation going backwards — the decline of correspondent banking in some of the world’s most precarious countries: Correspondent banking is like the blood that delivers nutrients to different parts of the body. It is core to the business of over 3,700 banking groups in 200 countries. A global bank like Société Générale, for example, manages 1,700 correspondent accounts and processes 3.3 million correspondent transactions every day. There is a real concern expressed by many of our IMF member countries that their financial lifeline is at risk: in Africa, the Caribbean, in Central Asia, and in the Pacific… And to see how much the issue is preying on the minds of officials at the IMF, you only have to look at its recent Article IV country reports, everywhere from Panama, to the Marshall Islands and — as an example of a country encouraging its own banks to end these relationships — the US itself. The perceived problem, as we’ve covered before, relates to heightened banking standards in the wake of the global financial crisis — everything from Know Your Customer (KYC), Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) rules. They are eating into banks’ cost-benefit rationale for servicing countries such as small island states, war-torn nations or other developing frontiers. At the best of times these areas are only barely profitable for banks. In many cases they’re loss-leading. These days, however, the increased expense is making it an unviable business, causing many banks to withdraw entirely. Banks are not charities, after all.

Regime changes in the global financial markets - Ever since the crash of 2008, the global financial markets have been subject to prolonged periods in which their behaviour has been dominated by a single, over-arching economic regime, often determined by the stance monetary policy. When these regimes have changed, the behaviour of the main asset classes (equities, bonds, commodities and currencies) has been drastically affected, and individual asset prices within each class have also had to fit into the overall macro pattern. For asset managers of all types, it is therefore important to understand the nature of the regime that applies at any given time. This is not easy to do, even in retrospect. There will always be inconsistencies in asset performance which cause confusion and require interpretation. Nevertheless, it is an exercise which is worth undertaking, because it can bring a semblance of order to the apparent chaos of asset markets. Two main regimes have been in place in the asset markets of developed economies since 2012. (The emerging markets also fit the pattern, with some slight differences.) These regimes are, first, the period in which quantitative easing was the dominant factor, from 2012 to mid 2015; and, second, the period in which deflation risk has been the dominant factor, from mid 2015 to now. It is possible that the markets are now exiting the period of deflation dominance, and they may even be entering a new regime of reflation dominance, though this is still far from certain. Secular stagnation is a powerful force that will be hard to shake off.

GRAPHIC-Global QE now a record $180 bln a month thanks to ECB, BOJ | Reuters: Eight years after the global financial crisis and years after the U.S. and UK central banks stopped their "quantitative easing" bond-buying programmes, the amount of QE stimulus being pumped into the world financial system has never been higher. The European Central Bank and Bank of Japan are buying around $180 billion of assets a month, according to Deutsche Bank, more globally than at any point since 2009, even when the Federal Reserve's QE programme was in full flow. If market consensus proves accurate, that total is about to rise by billions, with the ECB, BOJ and Bank of England all expected to expand their QE programmes soon to try and bolster fragile growth and lift stubbornly low inflation. The $180 billion total is roughly split down the middle between the ECB and BOJ, according to Deutsche, and is based on a rolling 12-month basis.

Central bank digital currency: the end of monetary policy as we know it? -  Central banks (CBs) have long issued paper currency. The development of Bitcoin and other private digital currencies has provided them with the technological means to issue their own digital currency. But should they? Addressing this question is part of the Bank’s Research Agenda. In this post I sketch out how a CB digital currency – call it CBcoin – might affect the monetary and banking systems – setting aside other important and complex systemic implications that range from prudential regulation and financial stability to technology, operational and financial conduct. I argue that taken to its most extreme conclusion, CBcoin issuance could have far-reaching consequences for commercial and central banking – divorcing payments from private bank deposits and even putting an end to banks’ ability to create money. By redefining the architecture of payment systems, CBcoin could thus challenge fractional reserve banking and reshape the conduct of monetary policy.

  Europe's first-ever regulated bitcoin product is launching in Gibraltar this week : (Reuters) - Europe's first regulated bitcoin product - an asset-backed exchange-traded instrument that will invest exclusively in the digital currency - begins trading this week on the Gibraltar Stock Exchange and Germany's Deutsche Boerse. The Web-based currency can be used to send money instantly around the world, free of charge and with no need for third-party checks. It is accepted by several major online retailers and is used in more than 200,000 daily transactions. Its value has been highly volatile, peaking at more than$1,200 in late 2013 before crashing after the collapse of the Mt. Gox bitcoin exchange. It has since stabilized somewhat, trading at around $655 on Monday, up more than 50 percent this year. BitcoinETI will be available through regulated brokerages across Europe, and settlement will be handled through Clearstream and Euroclear, the Gibraltar Stock Exchange said, rather than via bitcoin's shared ledger system - the blockchain. In the United States, where regulation of bitcoin and financial technology more broadly tends to be more onerous, twins Cameron and Tyles Winklevoss - entrepreneurs who famously sued Facebook founder Mark Zuckerberg for allegedly stealing their idea - have been waiting for approval for a proposed bitcoin exchange-traded fund for three years. Their proposed Winklevoss Bitcoin Trust would be the first ETF issued by a U.S. entity that invests solely in bitcoin.

United Stag-Nations – the decayed decade for GDP per head — When looking at how economies are doing, we tend to look mainly at the trend in GDP. But in terms of economic well-being, a clearer (though still imperfect) indicator is GDP per head of population – how the economy is doing relative to changes in population. In general, since the end of World War 2, in most all so-called advanced economies, there was an almost inexorable upward slope in any chart on GDP per head of population. But over the last decade, and in particular since 2007-08, many countries - and notably those in Europe (especially the Eurozone) have reached a virtual plateau. In a few cases, there is still a tiny, upward glide. In others, the line is flat. And in several cases, the slope is downward. GDP per head Indicators There are two indicators we can use for comparing trends in GDP per head. The first is simply to take real GDP (assessed in constant US dollars or in Euros), and the second is to look at GDP per head in purchasing power parity (PPP). I have taken both indicators, using data from the World Bank’s “TheGlobalEconomy” website – the first in GDP per head in constant 2005 US dollars, and the second in PPP [1]. I have taken a set of 10 European countries, EU members plus Switzerland, but excluding the central and eastern European joiners since 2004, whose development path is different, and looked at the changes in GDP per head since 1975. Six of the ten countries have been members of the Eurozone since it was set up. The chart at the head of this article shows the position for GDP per head in constant US dollars from 2005 to 2015. Overall, I feel that the Flat Earth Society would feel quite at ease in this chart. For most of the lines are indeed, well, flattish - though with a financial crisis kink in 2009. There were, on this indicator, 7 countries whose GDP per head was higher in 2015 than in 2005 – the three losers over the whole decade were Denmark, Spain and Italy.

UK joins Greece at bottom of wage growth league - Britain has suffered a bigger fall in real wages since the financial crisis than any other advanced country apart from Greece, research shows. A report by the TUC, published on Wednesday, shows that real earnings have declined more than 10% since the credit crunch began in 2007, leaving the UK equal bottom in a league table of wages growth. Using data from the OECD’s recent employment outlook, the TUC found that over the same 2007-2015 period, real wages grew in Poland by 23%, in Germany by 14%, and in France by 11%. Across the OECD, real wages increased by an average of 6.7%. The TUC found that between 2007 and 2015 in the UK, real wages – income from work adjusted for inflation – fell by 10.4%. That drop was equalled only by Greece in a list of 29 countries in the Organisation for Economic Cooperation and Development (OECD). The UK, Greece and Portugal were the only three OECD countries that saw real wages fall. The TUC general secretary, Frances O’Grady, who was a vocal backer of the campaign to remain in the EU, said the figures highlighted the strains on household finances even before the vote for Brexit. “Wages fell off the cliff after the financial crisis, and have barely begun to recover,” she said. “People cannot afford another hit to their pay packets. Working people must not foot the bill for a Brexit downturn in the way they did for the bankers’ crash.”

Why Libraries Are Everywhere in the Czech Republic - — In the age of Amazon and the internet, the idea of going to a public library to borrow a book may seem ever more quaint and old-fashioned in many parts of the world, but one country, at least, is clinging to it tenaciously: the Czech Republic.There are libraries everywhere you look in the country — it has the densest library network in the world, according to a survey conducted for the Bill and Melinda Gates Foundation. There are more libraries than grammar schools. In fact, there is one library for every 1,971 Czech citizens, the survey found — four times as many, relative to population, as the average European country, and 10 times as many as the United States, which has one for every 19,583 people.Why so many Czech libraries? Well, for decades they were mandatory — every community, from a big city down to a tiny village, was required by law to have one.The law was enacted in 1919, soon after Czechoslovakia emerged as an independent country. The idea was to promote universal literacy and education after the country was free of the German-speaking Austro-Hungarian Empire. And it worked. The library law survived the German occupation, the communist era and even the breakup with Slovakia in the early 1990s. What it couldn’t survive, in the end, was budgetary pressure. To save money, the requirement was dropped in 2001, when there were about 6,019 libraries in the country; since then, about 11 percent have merged or closed.

  Middle Ages in Greece: More than 120,000 employees get paid less than 100 euros per month! - It appears that the European Financial Dictatorship managed to surpass goals concerning Greece, with the help of the IMF mafia. We repeatedly mentioned that a final goal in the Greek experiment would be minimum wage at the range of 300 euros per month. Yet, new shocking data show that much lower slavery wages are already start to dominate in country's labor market. From greekreporter.com : Thousands of Greeks are getting paid salaries lower than 1-year unemployment benefits offered by the Greek Manpower Employment Organization (OAED) at 360 euros per month. The Ministry of Labor sent its shocking report to a committee of experts reporting that 126,956 employees receive gross payments of less than 100 euros per month, and 343,760 workers receive wages of 100 to 400 euros per month. Greek daily newspaper, Naftemporiki, reports that the workers are offered casual rates. The Greek state social security organization IKA reports that the average gross wage for part-time labor is at 400-420 euros per month. According to this data, the number of workers receiving gross wages of up to 510 euros per month is at 432,033. [...] The data shows that the Greek recession served to widen the level of part-time labor with a growing number of casual workers since 2012 as well as a wide number of work contracts being changed from full to part-time labor. For six years now, the IMF recipe nearly destroyed the Greek economy. All the public property is about to be sold off, the social state struggles to survive, but the neoliberal "pundits" insist on further "reforms" in the labor market, meaning lower wages, mass layoffs, zero labor rights and generally, absolute deregulation and flexibility for the exclusive benefit of the big corporations who have come to wipe-out the small-medium business sector, exploiting the new slavery workforce.

 U.S. Presses Greece on Economic Overhauls Ahead of Debt Talks —U.S. Treasury Secretary Jacob Lew on Thursday urged Greece’s leadership to press ahead with promised economic overhauls as Athens struggles to roll out another round of politically tough policy overhauls and contentious debt talks loom. Mr. Lew and his lieutenants are trying to help broker a compromise between Greece and its European creditors still at odds over how to cut the country’s debt. The U.S. hopes nudging Greece toward a stronger roll-out of overhauls will smooth the way for debt-restructuring negotiations in the coming weeks. Washington is eager to prevent the Greek crisis metastasizing again, especially as the global economy is buffeted by a multitude of headwinds. Anemic European growth is dragging on U.S. output. The U.K. vote to exit the European Union threatens the bloc’s fate and is weighing on consumer sentiment and investment. And weak Italian banks are at risk of spreading broader contagion throughout the financial system. Greece, the International Monetary Fund and its European creditors agreed in May to a third bailout based on Athens further trimming its spending, raising taxes and liberalizing its economy. The IMF, which has lent the program credibility to help Greece’s European creditors continue financing the country, said it needs a concrete debt-relief program before it coughs up more cash for Greece. Greece’s fragile left-led coalition government sold the controversial policies with the promise of a substantial cut in its debt. But that deal has yet to be struck. Debt relief is anathema in Germany, with negotiations made more difficult as Berlin’s leadership eyes elections next year. Participation by the IMF, which is seen as essential to secure debt relief for Greece, isn’t assured. Failure to resolve the Greek debt problem could exacerbate broader fears about the eurozone, and the U.S. sees preserving Greece’s stability as vital to its economic and geopolitical interests, especially given the recent failed coup in Turkey and the regional immigration crisis.

Spain's cash-strapped pensions system paid out €300mn to dead people - It turns out Spain does not always stop paying pensions to people who died and might spend as much as €300mn taxpayers’ money a year this way. An audit has found “holes and deficiencies” in the way authorities keep track of people’s deaths. A report issued by Spain’s Audit Office revealed that almost 30,000 people whose deaths have officially been registered were still included on the receipt of a pension last year, Spanish media said. “There was a total of 29,321 retirees receiving pensions amounting to €25.3 million per month whose names were included in the National Statistics Institute’s (INE) register of deaths,” the Audit Office said according to El Pais. As many as 95 percent of these names were found on the list of people receiving a pension in October 2015, the report said.Overall, the Audit Office said that there were “holes and deficiencies” in the Spain’s Social Security system which appears to have been struggling with keeping a proper track of the citizens’ deaths. The auditors noticed the alleged problem after they compared the lists of people who died between 1987 and August 2015 with the list of people receiving a state pension in December 2014. “The INSS doesn’t employ effective controls over who it pays pensions to, and neither do the banks through which pensions are paid,” the Audit Office said referring to the National Social Security Institute. Advertisement: Replay Ad Ads by ZINC INSS, however, said that it was very unlikely there have been any faults in the system which relied on the identification cards of the deceased. “It seems highly likely that there have been errors in entering identification numbers, or that they have been duplicated,” he said, El Pais reported.

Catalonia Parliament Approves Independence Path in Defiance of Constitutional Court Michael ShedlockWednesday afternoon, the Catalonia Parliament Approved a Track Towards Independence in open defiance of Madrid and the constitutional court.Via translation for El pais …The Junts pel Sí “Together for Yes” and CUP (popular unity) coalition, which has an absolute majority in the Catalonia parliament, gave parliamentary approval to the conclusions of the independence study commission.The document outlines the steps for the “independence” of Catalonia from the rest of Spain.The text was approved by 72 votes of the deputies Junts pel Sí Yes and CUP, but 36 deputies of Citizens (25) and PP (11) left the Chamber arguing the vote was not constitutional. Before the vote, there was a bitter legal dispute about the legitimacy of the act.Xavier García Albiol of the Popular Party (PP) stressed the vote was a “coup” against the Constitutional court, likening the event to the methods used in Venezuela by Nicolas Maduro. “Separatists Gentlemen: This is an undemocratic act and outside the rule of law,” said Albiol.

French PM: 'France needs new relationship with Islam' - The Local: As France struggles to get to grips with an increasing number of terror attacks the French PM says the country needs a new relationship with Islam.In an interview in Le Monde on Friday Valls said France, which is home to around five million Muslims, needs to forge a new rapport with Islam. "We need to reset and invent a new relationship with Islam in France," Valls said. The PM has long wanted to help nurture a more French version of Islam, without extremists elements and said in Friday he was in favour of a ban on foreign funding of mosques. He also wants Imams to be trained in France rather than abroad. The PM has warned in the past that Salafists were "winning the ideological and cultural battle" in France, home of Europe's biggest Muslim population. And he has pledged to "massively" increase France's security and defence budgets in the coming years, as the country grapples with a growing jihadist threat after two deadly attacks last year. "The Salafists must represent one percent of the Muslims in our country today, but their message -- their messages on social networks -- is the only one we end up hearing," he said.

French second quarter growth unexpectedly grinds to a halt on weak consumer spending | Reuters: French economic growth stalled unexpectedly in the second quarter on weak consumer spending and investment in a blow to President Francois Hollande's claims the economy is getting stronger, official data showed on Friday. The result fell short of economists expectations for growth of 0.2 percent from the previous quarter, and was even worse than the lowest estimate in a Reuters poll of 34 analysts for 0.1 percent. It also marks a sharp slowdown from the first quarter when the economy grew 0.7 percent, the strongest rate in nearly three years. The INSEE statistics office revised that figure up from a preliminary estimate of 0.6 percent. Finance Minister Michel Sapin said the "disappointing" figures" reflected exceptional factors like strikes at refineries in addition to the slowdown from the particularly strong first quarter. He said the government was nonetheless sticking with its 2016 growth forecast of 1.5 percent. Nine months from a presidential election, the figures will do little to convince voters that the economy is gaining momentum as Hollande claimed in his Bastille Day interview earlier this month. Traditionally the main driver of French growth, consumer spending showed no growth at all in the quarter, which was hurt by floods, strikes and violent street protests over a contested labor law. The Euro soccer tournament offered little boost to consumer spending with most of the ticket purchases recorded already in the first quarter figures, INSEE said. Spending on food and hotels was also down in the quarter.

 Italian pension funds under pressure to help fund bank rescue plan | Reuters: Specialist Italian pension funds will consider a government request to pour money into a bank bailout fund at a meeting on Monday, days before European stress tests are expected to show the country's third-largest lender is in need of urgent capital. The Italian government is looking for ways to support struggling lenders without breaking European Union state aid rules that require investors to take a hit first to shield taxpayers. Monte dei Paschi, Italy's third-biggest bank by assets, is likely to be found short of capital under an adverse scenario when EU stress tests results are announced on Friday. A deeper financial crisis at the bank could further undermine confidence in Italy's banking sector, the euro zone's fourth-largest. The chairman of ADEPP, the association of sector-specific pension funds, told Reuters that the government had asked association members to invest in the state-sponsored Atlante fund, which is working with Monte dei Paschi on the sale of 10 billion euros (£8.3 billion) in bad debts after writedowns. "The government has made a request," Alberto Oliveti said, adding each pension fund would decide independently after a meeting of association members later on Monday. He would not comment on media reports that the funds could contribute 500 million euros in total. Italian state financing agency Cassa Depositi e Prestiti (CDP) is also ready to provide up to 500 million euros and a similar amount would come from SGA, another Treasury-controlled entity, sources have said. However, their contributions must be limited to a minority stake to avoid breaking state aid rules.

Italian Banks, Pre-Stress Test - From afar, it seems like the wheels of European policy may be moving towards some kind of near-term fix for either Italy’s banks—or, more likely, for the specific problems of Monte dei Paschi di Sienna.  The risk here is obvious. The intersection of Italian politics and European rules is pushing for the most narrow of solutions, one that will not recapitalize the broader Italian banking system. At least not quickly. The recapitalization need even under pessimistic assumptions is actually fairly modest, as such things go. Less than Spain spent on the two rounds of recapitalization that were required to solve Spain’s banking crisis. Maybe less than the €30 billion Germany injected into Commerzbank and a few others in 2009, or the massive “bad” bank it set up for Hypo Real Estate (Hypo Real Estate was not retail funded, and even now, it seems like it has some performing subordinated debt—who knew). Probably less, relative to the size of Italy’s economy, than the €22 billion that the Dutch put into ABN-Amro. But Italy’s government clearly doesn’t want to bail-in the heavily retail holders of Italian subordinated debt. Monte alone has about €5 billion in subordinated debt, and over 60 percent of that seems to be held by retail investors. A smaller subordinated debt bail-in late last year was politically controversial. And Europe wants Italy to respect the banking and competition rules, which have been interpreted to require some form of subordinated debt bail-in. There are ways around the ”banking union” Bank Recovery and Resolution Directive (BRRD) bail-in requirement (8 percent of liabilities, a sum that implies a substantial write down of the subordinated debt). Europe’s rules already include an exemption for a precautionary recapitalization to address difficulties identified in a stress test. Getting around the state aid requirements seems harder, though perhaps not impossible if some of the flexibility used in the global financial crisis remains.*

Italy Bank Crisis Looming With Rush to Rescue #3 Bank, Monte dei Paschi --  Yves Smith - The Financial Times warns today that the big Italian bank domino that observers have been watching most closely, Monte dei Paschi di Siena, will go critical this Friday if (more likely when) it fails the bank stress test. The non-trival problem is that implosion would be so large as to exhaust what is left of Italy’s rescue funds. Yet the ECB and European competition authorities have so far refused to give Italy a waiver under the new banking rules so that it can avoid subjecting small savers who were duped into buying bank bonds to bail-ins. Prime Minister Renzi has had a good bank/bad bank resolution plan ready to go since early this year, but using state funds to support such an approach as an alternative to bail-ins is verboten under the news rules.   So how are the Italians proposing to finesse this mess? A “private sector rescue”. That means having the less sick banks prop up the really diseased Monte dei Paschi. The net effect is to increase systemic risk, since it knits the banks together even more than before. We saw a variant of that in the US financial crisis, when bank regulators had the barmy idea of encouraging banks to buy other banks’ subordinated instruments, creating a major impediment to resolving mid and larger sized banks, since wiping out those instruments would produce losses at other banks, potentially a cascade of failures.However, the healthier banks have nixed a straight-up equity purchase. As you’ll see, the latest plan looks unworkable, since it calls for more fresh capital via a rights issue. And who pray tell will stump up for that?

Italy's Banks A 'Doom-Loop' Risk Could Bury EU? - Eight years after the global financial crisis, Italy’s economy remains weak and the country’s banks have a very high rate of shaky – or under-performing — loans at about 18%. That compares with rates of 5% in France and 1.5% in the United Kingdom. Since Italy is the third-largest economy in the European Union, a breakout of loan defaults or a run on bank deposits could quickly spread eurozone-wide, where many banks have been struggling, in part because of record-low interest rates cutting profit margins. What’s more, companies in Europe depend on bank loans far more than in the U.S., so struggling banks can mean that even successful companies face a credit squeeze. This has led to fears of a “doom loop,” where the potential failure of Italy’s banking system might require a state rescue at a time when the country is already heavily indebted at around 135% of GDP. And that is complicated by the fact that, as of January, new regulations require European banks to bail-in shareholders and bondholders – use their holdings to recapitalize a troubled bank — before any taxpayer-funded bailout can occur. Yet in Italy, many bondholders are actually small investors who were duped into buying bank bonds under the impression that they were as safe as insured deposits, explains Franklin Allen, an emeritus finance professor at Wharton and a finance professor at Imperial College in London. If small investors start to take a hit, it could spark a run on bank deposits and kick off a major crisis. In this Knowledge@Wharton interview, he looks at the big picture regarding risky Italian banks, assesses the odds of significant problems breaking out, and considers how officials might avoid a major new financial crisis. An edited transcript of the conversation appears below:

Monte Paschi Capital Wiped Out in European Bank Stress Test - Bloomberg: Banca Monte dei Paschi di Siena SpA was the worst performer in European regulators’ stress tests, the only lender of 51 to have its capital wiped out in the exam, as the region struggles to contain an Italian banking crisis that the nation said won’t require state funds. Monte Paschi’s fully loaded common equity tier 1 capital ratio, a measure of its resilience, dropped to a negative 2.4 percent in the adverse economic scenario, according to the test results released Friday, which put lenders through a simulation of a severe recession over three years. UniCredit SpA’s ratio fell to 7.1 percent, as measured under fully-loaded capital rules, the second-worst result of the five Italian lenders being examined. The exam intends to give supervisors across the European Union a common basis for measuring and bolstering lenders’ financial resilience. The test took on additional importance as the Italian government weighed methods to shore up Monte Paschi, sparking speculation that a shortfall would open the door to public support, though the nation’s treasury said Friday that such measures won’t be needed. “Italian banks’ credibility was strengthened,” Italian Banking Association President Antonio Patuelli said in a statement Saturday. “European and Italian institutions must continue their work to create common rules for fair competition in the banking sector.” Intesa Sanpaolo SpA, Italy’s second-largest bank, emerged as the strongest among Europe’s biggest lenders, Chief Executive Officer Carlo Messina said in a statement, with CET1 capital at 10.2 percent in a simulated recession.

Deutsche Bank's second-quarter net income plunges nearly 100% year-on-year: show chapters Deutsche Bank's Q2 net income plunges 10 Hours Ago|03:56 Deutsche Bank, the German bank which is an important part of the global financial system, announced revenue and income falls Wednesday which could add further concerns for investors made jittery by a combination of Brexit and previous issues at the bank. Deutsche's share price fell by 4 percent in early trading Wednesday after it announced second-quarter net income was down 98 percent from the same period in the previous year, to 20 million euros ($22 million), as it exited parts of its business while revenues were down 20 percent to 7.4 billion euro. Further cuts may be needed, John Cryan, chief executive of Deutsche Bank, warned. "If the current weak economic environment persists, we will need to be yet more ambitious in the timing and intensity of our restructuring," he said in a statement. Deutsche's CET1 ratio - a key measure of financial strength - improved slightly to 10.8 percent.

Deutsche Bank profits plummet 98%, CEO warns of further cuts - Germany’s biggest bank posted a net profit of €20 million in the second quarter of the year. This is down from €796 million in the same period in 2015.Deutsche's share price fell by four percent on Wednesday after the announcement. Analysts’ predictions had varied from more than a billion euro loss to half a billion profit. Deutsche Bank chief executive John Cryan warned about the possibility of further cuts. "If the current weak economic environment persists, we will need to be yet more ambitious in the timing and intensity of our restructuring," he said on Wednesday. Overall, Deutsche Bank’s shares have lost about 44 percent of their market value in 2016. This is partly due to increasing skepticism about the bank’s position in the market and $14 billion in fines. Revenue is down 20 percent in the three months, partly because of the Brexit vote. The investment bank slid 28 percent. At the same time, revenue from Deutsche’s foreign exchange business was flat, even though there was increased client demand for currencies in the wake of the British decision to leave the EU.

  How the ECB is Officially Above the Law  - The ECB and all of its affiliated national central banks are, by law, above the law of national jurisdictions and answerable only to the European Court of Justice, provided they are fulfilling the functions and responsibilities assigned to them by EU law. This is particularly true in relation to bailouts of Europe’s financial institutions, an issue that is once again on the front pages, as the financial sector of Italy readies itself for a bailout of potentially biblical proportions. No European institution is as immune from national law as the Luxembourg-based European Stability Mechanism (ESM), which was founded on September 27, 2012, as a permanent facility within the ECB to provide bailouts to countries that are in distress. It currently has an authorized capital limit of €700 billion, though that can be expanded at any time by the board of governors, and individual Eurozone member states are “irrevocably and unconditionally” required to cough up the funds. The institution has already provided €136.3 billion in bailout funds to three Eurozone members — Cyprus (€9bn), Greece, (€86bn) and Spain (€41.3bn) — but that amount is almost certain to increase in the coming months amidst calls from the ECB, among others, for the creation of a European TARP fund to mop up the non-performing loans clogging up the banking systems in Italy and Greece. In one fell swoop, tens of billions of newly created digital euros will flow from Frankfurt and Luxembourg to the central banks of Italy and Greece, and from there onto the balance sheets of distressed banks throughout the two nations. With such huge sums of money flowing between institutions of questionable repute and under conditions of virtual secrecy, the potential for fraud or outright theft on either or both sides of the transactions is huge, especially given blanket immunity.

IMF admits disastrous love affair with the euro and apologises for the immolation of Greece - The International Monetary Fund’s top staff misled their own board, made a series of calamitous misjudgments in Greece, became euphoric cheerleaders for the euro project, ignored warning signs of impending crisis, and collectively failed to grasp an elemental concept of currency theory. This is the lacerating verdict of the IMF’s top watchdog on the fund’s tangled political role in the eurozone debt crisis, the most damaging episode in the history of the Bretton Woods institutions. It describes a “culture of complacency”, prone to “superficial and mechanistic” analysis, and traces a shocking breakdown in the governance of the IMF, leaving it unclear who is ultimately in charge of this extremely powerful organisation.  The report by the IMF’s Independent Evaluation Office (IEO) goes above the head of the managing director, Christine Lagarde. It answers solely to the board of executive directors, and those from Asia and Latin America are clearly incensed at the way European Union insiders used the fund to rescue their own rich currency union and banking system. The three main bailouts for Greece, Portugal and Ireland were unprecedented in scale and character. The trio were each allowed to borrow over 2,000pc of their allocated quota – more than three times the normal limit – and accounted for 80pc of all lending by the fund between 2011 and 2014. In an astonishing admission, the report said its own investigators were unable to obtain key records or penetrate the activities of secretive "ad-hoc task forces". Mrs Lagarde herself is not accused of obstruction. “Many documents were prepared outside the regular established channels; written documentation on some sensitive matters could not be located. The IEO in some instances has not been able to determine who made certain decisions or what information was available, nor has it been able to assess the relative roles of management and staff," it said.

Banker Bonus Curbs Work, But Too Onerous for Small Lenders - “The EU rules on remuneration brought in after the financial crisis are working,” European Justice Commissioner Vera Jourova said in a statement. “They have proven useful tools to curb excessive risk-taking by staff and to ensure their focus on longer-term interests of credit institutions and investment firms, thereby contributing to financial stability.” Rules could be made “more proportionate and less burdensome,” especially for smaller firms, Jourova said. The Brussels-based commission plans to carry out an impact assessment on possible adjustments as part of a broader review of capital rules planned for the end of the year. A limit on bonuses at twice fixed pay, which has been around since 2014, was intended to rein in behavior blamed for causing the global financial crisis. It wasn’t yet possible to draw final conclusions on that part of the bonus rules, because it “was recently introduced and has yet to show its full effects,” according to the statement. The EU measures have been roundly criticized by the industry and officials in some countries, notably the U.K. The Bank of England earlier this year defied EU regulators by retaining an exemption for smaller U.K. financial firms. In December, the European Banking Authority said the bonus cap “should not be subject to any exemption,” even as it called for EU law to be changed so that rules on “deferral arrangements and pay out of instruments” could be put aside for “small and non-complex institutions and for staff that receives only a small amount of variable remuneration.”

In China meeting, G20 has chance to soothe post-Brexit jitters | Reuters: Finance heads from the world's leading economies will confront fresh fears about protectionism when they meet in China this weekend, with Brexit fallout and dwindling policy options to boost global growth expected to dominate talks. The Group of 20 finance ministers and central bankers meeting will put the spotlight on Britain's new Chancellor of the Exchequer, Philip Hammond, who makes his international debut at the gathering and will need to answer questions about how London will manage its exit from Europe. Also overhanging the G20 meeting in the southwestern city of Chengdu will be Donald Trump's U.S. Presidential campaign in which protectionist themes are expected to be central, after his official nomination as the 2016 Republican candidate this week. "(On Brexit), the focus will be on what message G20 can deliver to ease concerns," said an Asian financial official involved in G20-related issues. "We still need to remain vigilant." The International Monetary Fund this week cut its forecast for global growth, specifically on Britain's vote to leave the European Union. A South Korean finance ministry official said "expanded downside risks to global economic growth" post-Brexit would feature in the Chengdu talks. "With everything aside, talk about strengthening cooperation regarding monetary, fiscal and macro policy to recover global growth will be essential," said the official.

G20 will use 'all policy tools' to lift growth as Brexit weighs | Reuters: The world's biggest economies will work to support global growth and better share the benefits of trade, policymakers said on Sunday after a meeting dominated by the impact of Britain's exit from Europe and fears of rising protectionism. Philip Hammond, Britain's new finance minister, said the uncertainty about Brexit would begin to abate once Britain laid out a vision for a future relationship with Europe, which could become clearer later this year. But there could be volatility in financial markets throughout the negotiations in the years ahead, Hammond said after the meeting of finance ministers and central bankers from the Group of 20 (G20) major economies in China's southwestern city of Chengdu. "What will start to reduce uncertainty is when we are able to set out more clearly the kind of arrangement we envisage going forward with the European Union," Hammond told reporters. "If our European Union partners respond to such a vision positively - obviously it will be subject to negotiation - so that there is a sense perhaps later this year that we are all on the same page in terms of where we expect to be going. I think that will send a reassuring signal to the business community and to markets." A communique issued by the G20 ministers at the end of the two-day meeting said Brexit, which dominated discussions, had added to uncertainty in the global economy where growth was "weaker than desirable". It added that members, however, were "well positioned to proactively address the potential economic and financial consequences". "In light of recent developments, we reiterate our determination to use all policy tools – monetary, fiscal and structural – individually and collectively to achieve our goal of strong, sustainable, balanced and inclusive growth."

London to Trump: Brexit is Protrade, Thank You Very Much -- Donald Trump sees a “big parallel” between the U.K. vote to exit the European Union and his own supporters’ desire to put America first and “take their borders back.” Many other political observers have drawn a line between Brexit and the antitrade and anti-immigrant sentiments now roiling the U.S. election.The U.K.’s new Conservative government, though, makes a sharp distinction between concerns over the free movement of people and support for free movement of goods and services through international trade.“The first thing is to dispel the idea that Britain leaving the European Union was somehow an anti-free market decision,” said the U.K.’s new international trade secretary, Liam Fox, who is visiting Washington, Chicago and Los Angeles this week to promote the idea that Britain can lower trade barriers further—at least with non-European countries—after it exits the EU.  “In fact it was the reverse: In my view, it was about Britain becoming a much more outward-looking country,” Mr. Fox said in an interview.That’s not the political message emanating from the U.S. campaign trail, where both Mr. Trump and Democratic presumptive nominee Hillary Clinton have rejected the Pacific trade agreement that the Obama administration negotiated with 11 partners in the region and cast doubt on the ability of trade liberalization to improve the lives of Americans.

 Too soon to start bilateral UK trade talks - U.S. trade chief | Reuters: U.S. Trade Representative Michael Froman told his new British counterpart on Monday that the two countries cannot launch negotiations on bilateral trade and investment deals until more is known about Britain's future relationship with the European Union. The U.S. Trade Representative's office said in a statement that Froman told UK Trade Secretary Liam Fox in a meeting in Washington "that the United States will be prepared to engage in conversations with the United Kingdom about how to develop our trade and investment relationship in the best way at the appropriate time." Britain has yet to launch separation negotiations with the EU since the June 23 Brexit vote, and little is known about the level of future economic integration between an independent Britain and the trading bloc that will be reduced to 27 countries. At stake are whether UK-EU tariffs will be reimposed, the ability of London-based financial firms to operate on the continent and immigration rules affecting employees. "As a practical matter, it is not possible to meaningfully advance separate trade and investment negotiations with the United Kingdom until some of the basic issues around the future EU-UK relationship have been worked out," the USTR office said in the statement. The Obama administration also is evaluating how Britain's departure from the EU will affect negotiations for the U.S-EU Trans-Atlantic Trade and Investment Partnership free trade deal.

Ford considers closing factories and raising prices in Europe in wake of Brexit -- Ford has warned it is considering closing factories and raising prices in the UK and Europe in the wake of Britain’s vote to leave the European Union. Announcing disappointing results on Thursday, the motor company forecast that the referendum decision could cost the company $1bn over the next two years. Ford is the largest car brand in the UK and Bob Shanks, Ford’s chief financial officer, warned price rises would be necessary there in order to offset currency fluctuations in the wake of Brexit. The pound has crashed 11% against the dollar since the Brexit vote on 23 June. Sterling’s devaluation and an expected slowdown in UK car sales would cost Ford $200m this year and another $400m to $500m each year over the next two years, said Shanks. “We’re going to have to look more at cost,” he said. The company would find a way to “claw that back”. Shanks’ comments are likely to stoke further fears about the fate of the UK car market in the wake of Brexit. Trade deals will now have to be renegotiated with the rest of Europe leading some analysts to speculate car firms may delay or cancel plans to expand in the UK or quit altogether. Ford has two remaining manufacturing plants in the UK, at Dagenham and Bridgend. Asked if the group would shut its remaining UK manufacturing operations after Brexit, Shanks said: “Everything is going to be on the table across Europe”.

UK economic growth sped up ahead of Brexit vote - BBC News: The UK economy grew by 0.6% in the three months to the end of June, as economic growth accelerated in the run-up to the vote to leave the EU. Second-quarter gross domestic product grew faster than expected, up from 0.4% growth in the previous quarter, the Office for National Statistics said. Any uncertainty ahead of last month's referendum seemed "limited", ONS said. However, by far the strongest growth was in April, followed by a sharp easing off in May and June. On a yearly basis the economy grew by a healthy 2.2%. The pick-up in economic activity was boosted by the biggest upturn in industrial output since 1999, particularly from car factories and pharmaceutical firms. 'Position of strength' ONS chief economist Joe Grice said that as well as the industrial gains, there was also "strong growth across the services sector, particularly retailing". "Any uncertainties in the run-up to the referendum seem to have had a limited effect," he said. "Very few respondents to ONS surveys cited such uncertainties as negatively impacting their businesses." Economists, including those at the Bank of England, had estimated second-quarter growth would be about 0.5%. Chancellor Philip Hammond said the better-than-expected figures showed the fundamentals of the UK economy were "strong". "It is clear we enter our negotiations to leave the EU from a position of economic strength," Mr Hammond said. But he also told the BBC's economics editor Kamal Ahmed it was "far too early to say how the economy is responding" to the referendum result.

That Brexit apocalypse? It just isn’t happening: It has been a month since the UK voted to leave the European Union — but something is missing. Where is the economic collapse? What of EUpocalypse Now? Where is the Brexageddon that we were promised? To the shock of many — not least business titans who bankrolled the Remain campaign — the instant collapse doesn’t seem to be happening. The UK economy is, for now at least, taking Brexit in its stride. The oft-predicted job losses? During the three weeks from 23 June, job listings were up 150,000 compared to the same period last year according to Reed Group, a recruitment consultant. ‘That’s an 8 per cent rise,’ says James Reed, its chairman. ‘The vote hasn’t affected things — people are still hiring.’ How about all those international banks quitting the City of London? Last week the US banking thoroughbred Wells Fargo forked out £300 million for a new world headquarters — in London. Since Brexit, the likes of Goldman Sachs and JP Morgan have hailed the City as ‘one of the most attractive places in the world to do business’, citing its ‘stable legal system’ and ‘deep liquid capital markets unmatched anywhere in Europe’.  But surely leaving the EU is so rash it’ll spark financial collapse? While UK stocks took a hit straight after the referendum, the FTSE 100 share index is now 6 per cent higher than before we voted. Even the FTSE 250, comprised of smaller, more UK-centric firms, has almost completed its recovery.

UK faces ‘surge’ in EU migration before Brexit unless cut-off date applied, MPs warn: Britain faces a huge "surge" in European Union migrants before leaving the bloc unless Theresa May enforces a "cut off" date on those arriving, MPs have warned. The Home Affairs select committee has suggested three dates after which EU migrants cannot claim permanent residence, the earliest being the referendum date a month ago. Keith Vaz, the Labour MP who chairs the committee, said while EU citizens in Britain must not be used as “pawns in a complicated chess game” there was a chance of a migration surge. heresa May will visit Rome on Wednesday to hold talks with Matteo Renzi, the Italian Prime Minister, as she continues a diplomatic drive to meet EU leaders after taking office. She is expected to repeat that Britain does not want to abandon Europe despite the vote for Brexit and that the country remains open for business. Meanwhile Liam Fox, the new International Trade Secretary, has criticised Barack Obama’s decision to intervene before the EU referendum during an America trip to scope out the chance of a trade deal. He told a US radio show that UK voters “don’t really like being told by anybody outside their own borders” what to do after Mr Obama said Britain would be at the “back of the queue” for a trade deal after Brexit.

Theresa May reassures 800,000 Poles living in UK over Brexit and condemns 'shameful' post-referendum attacks: Theresa May has told nearly 800,000 Poles living in the UK that she “wants and expects” them to remain in the country after Brexit and condemned “shameful” post-referendum attacks during a visit to Poland.  Speaking in Warsaw on Thursday, the Prime Minister spoke out against the “despicable” hate crimes Poles have suffered in the wake of the Brexit vote last month.  She also promised to “always” fulfil Britain's obligations to Nato despite leaving the EU after UK troops were deployed to counter the threat of Russia in Eastern Europe. However in a challenge to Mrs May, Beata Szydło, the Polish Prime Minister, said that she wanted to save freedom of movement, which gives EU citizens the right to travel freely across the bloc. The Prime Minister is under pressure from Tory Eurosceptics to deliver "hard Brexit" that would see EU citizens lose their right to automatically come to the UK. The comments came as Mrs May met with Ms Szydło in the latest leg of a diplomatic blitz designed to smooth the path for Brexit negotiations Earlier in the day, Mrs May had held talks with Robert Fico, the Slovakian Prime Minister, where the pair also appeared to clash over limiting freedom of movement rules.

UK sees biggest fall in consumer confidence for 26 years after Brexit vote -- Growing worries about the economic outlook have dented the confidence of UK households and manufacturers, according to the latest reports to suggest the Brexit vote result will slow the economy. A poll by market researchers GfK recorded the biggest slide in consumer confidence for more than 26 years in July. The group said people were on average gloomier about their own finances, the broader economy and whether now was a good time to make big purchases such as furniture and household appliances. A separate survey of manufacturing companies, also published on Friday, paints a similar picture. Manufacturers’ organisation EEF said that the sector’s recovery was under threat as its poll revealed business confidence had fallen in every region of England and Wales. The GfK report on household reactions to the Brexit vote adds to evidence that consumers could rein in spending amid higher uncertainty about jobs, pay and the UK’s economic health. The headline confidence index fell to -12 in July from -1 in the June survey carried out before the referendum. That was the sharpest month-to-month drop since March 1990, shortly before the UK fell into recession. The latest result was also weaker than a reading in a one-off post-referendum GfK poll of -9 conducted from 30 June to 5 July. The researchers, who surveyed 2,000 people for the full report between 1 and 15 July, said the outlook for consumer confidence would depend on how quickly the UK’s trading position is clarified.

 Brexit’s Biggest Fans Face New £115 Billion Pension Hole - Turning 65 in the U.K. used to mean mandatory retirement and a future of endless holiday. But in 2016 it has come to signify a very different cut-off: membership in the single most pro-Brexit age group in the June 23 European Union referendum.About 60 percent of Britons 65 and older voted to leave the world’s largest trading bloc in the recent vote, the most of any age group, according to two separate exitpolls. The glaring irony is that senior citizens are also the most reliant on pensions, which face a worsening funding gap since the Brexit vote. The combined deficits of all U.K. defined-benefit pension schemes, normally employer-sponsored and promising a specified monthly payment or benefit upon retirement, rose from 820 billion pounds ($1.1 trillion) to 900 billion pounds overnight following the referendum, according to pensions consultancy Hymans Robertson. Since then, it has grown further to a record 935 billion pounds as of July 1.A sharp drop in U.K. government bond yields to record lows, and a similar decline in corporate bond yields, is largely to blame for the uptick in defined-benefit pension liabilities.  That’s because fixed income represented 47.5 percent of total 2014 assets for corporate pensions funds, of which about three-quarters were issued by the U.K. government and/or sterling-denominated, according to the 2015 Investment Association Annual Survey. And the slump may not be over yet. While the Bank of England held off on cutting rates or increasing asset purchases at its July 14 meeting, early signals point to serious pain ahead for the U.K. economy. If additional quantitative easing is ultimately required to offset growing uncertainty, this would suggest “that bond yields are going to fall, which makes pensions a lot more expensive to provide,” former pensions minister Ros Altmann told Bloomberg. “Deficits would be larger if gilt yields fall further.”

Brexit rewrites UK budget rules as borrowing set for first big rise since 2010 | Reuters: Britain could borrow nearly 65 billion pounds ($85 billion) more than planned in the next couple of years as new finance minister Philip Hammond seeks to 'reset' government budget policy to ease the shock of last month's vote to leave the European Union. Ratings agencies and economists widely expect borrowing to rise materially next year for the first time since 2010, as Hammond has to call time - temporarily - on the austerity which dominated his predecessor George Osborne's six years in office. After taking office two weeks ago, Hammond said the darker post-Brexit outlook meant policies the Conservative government had pursued since 2010 needed to change - and economists are now starting to put numbers on what this might mean. Hammond told reporters on Sunday the scale of any stimulus would hinge on how rapidly the economy was slowing by the time of the Autumn Statement, the half-yearly budget update that usually comes in late November or early December. "There is going to need to be a rethink," said Paul Johnson, director of the Institute for Fiscal Studies, a non-partisan think-tank which scrutinises the public finances. Just sticking with the plans Osborne set out in March means borrowing is likely to overshoot its target by tens of billions of pounds as tax revenues fall and spending on social security for the low-paid and unemployed rises, Johnson said.

EU Gives UK a Brexit Poke in the Eye by Appointing Michel Barnier, Nemesis of the City, as Key Negotiator --  Yves Smith - The yet-to-be started Brexit negotiations look to be getting off on a tit-for-tat footing. After the new Prime Minister took the provocative step of appointing Boris Johnson as Foreign Minister and David Davies as its chief negotiator, the European Commission has responded in kind by naming Michel Barnier as Chief Negotiator in charge of the Preparation and Conduct of the Negotiations with the United Kingdom under Article 50 of the TEU.  Jean-Claude Juncker, President of the European Commission, has been particularly hard-line in his posture towards the UK. For instance, at one point, he said if Cameron’s replacement was pro-Leave, he should invoke Article 50 the day he came into office, and if he was opposed, he could take a couple of more weeks. That remark illustrates the fact that Juncker isn’t all that skilled a bureaucratic infighter: he regularly overplays his hand and then gets reined in by more influential European leaders. But the appointment of Barnier looks to be a particularly astute move. First, in contrast to the role of the EC in the Brexit talks, where it was a secondary actor by virtue of not being a funding source, the Commission legitimately is one of the lead actors. Second, Barnier has extensive international experience, having been France’s minister for agriculture, then its foreign minister, and was also a member of the European Parliament. He has also served two terms at the European Commission. In his second post, as head of the single market commissioner, he negotiated post-crisis reforms. The memories of the tough stance he took there has the City in fits. From the Financial Times: An official statement did not mention the Frenchman by name and was drafted to suggest that the commission was the least important of three interlocutors in the Brexit talks. Some City financiers were even more scathing about the appointment. One chairman said: “My initial reaction was ‘Oh, God.’ It’s clearly provocative.”