reality is only those delusions that we have in common...

Saturday, January 16, 2016

week ending Jan 16

 Why the Fed needs to prepare for the worst right now - Larry Summers - Often markets are volatile at the end of the year — as many traders go on holiday and those with losses unload them — and then settle down as a new year begins. Not this year. U.S. and European markets closed significantly lower on Friday after a very rough week despite a very strong U.S. jobs report. The week’s economic news was dominated by dramatic declines in China’s stock market and currency; the week also saw a further plunge in oil prices even in the face of major tension between Iran and Saudi Arabia. A week when bad market news repeatedly makes the front page raises the general question of how much forecasters and policymakers should look to speculative markets as indicators regarding future prospects. And it raises the more specific question of how alarmed policymakers should be about the prospect of a global slowdown, especially in light of the financial dramas playing out in China.  There is little question that markets are highly volatile relative to the fundamentals they seek to assess.  The best executives manage their company with an eye to long-run profitability, not daily stock price. And policymakers do best when they concentrate on strengthening economic fundamentals rather than on daily market fluctuations. At the same time, because markets aggregate the views of a huge number of participants, and because they are constantly assessing the future (unlike economic statistics, which only reflect the past), they are like canaries in coal mines: very valuable in giving warning when conditions change.  Policymakers who dismiss market moves as reflecting mere speculation often make a serious mistake. Markets were on to the gravity of the 2008 crisis well before the Federal Reserve was; to the unsustainability of fixed exchange rates in Britain, Mexico and Brazil while the authorities were still in denial; and to the onset of a slowdown or recession well before forecasters in countless downturns.

Overly Tight Macroeconomic Policy - Kocherlakota  The level of public debt is high by historical standards in many countries.  Central banks have set their nominal interest rate targets to extraordinarily low - sometimes negative - levels.  Despite these historical comparisons, though, macroeconomic outcomes tell a clear story: Macroeconomic policy remains much too tight in the US and around the world.   In terms of monetary policy, inflation remains low, and is expected to remain low for years.  Indeed, financial market participants are betting that most major central banks will fall short of their inflation targets over the next decade or two.  Nonetheless, those same central banks (including the Federal Reserve) continue to communicate a strong desire to "normalize" - that is, tighten - monetary policy over the medium term.    In terms of fiscal policy, many governments are able to borrow long-term at unusually low real interest rates.  They could invest those funds in needed physical and human infrastructure. Or they could return the funds to their citizens through tax cuts - tax cuts that could be tailored to incentivize physical investment or R&D.   But the relevant governments instead continue to emphasize the need to further restrict the level of public debt.   Economic policymakers can do better.   The key is to focus a lot more on the question of how to use available policy tools to achieve desirable macroeconomic outcomes, and a lot less on historical empirical regularities.   Just because debt is high by historical standards doesn't mean that governments cannot make their citizens better off by issuing more debt   Just because nominal interest rates are low by historical standards doesn't mean that central banks can't achieve their objectives more rapidly by lowering them still further. 

Overly-Tight Monetary Policy? - In case you haven't noticed, Narayana Kocherlakota has been writing blog posts since arriving at the University of Rochester. I'm interested mainly in the most recent of these, in which Narayana attempts to make the case that monetary policy in the United States is currently "overly tight." Narayana does not provide us with a definition of what "tight" might mean in a monetary policy context, but we can infer from what he has written that "too tight" means some combination of a fed funds target range that is too high, a balance sheet that is too small, and forward guidance that is insufficiently "accommodative." According to Narayana, tightening began on May 22, 2013, when Ben Bernanke announced his future intentions to Congress, and continued with the phasing out of the last QE program in late 2014, and the increase in the fed funds target range by 25 basis points in December of last year. Of course, the FOMC does not collectively think that policy is tight, and took great pains in the December 2015 statement to make that clear. In particular,  ...the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent. The stance of monetary policy remains accommodative after this increase, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation. And,   This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions. By conventional measures, it seems hard to objectively make the case that monetary policy is tight. For example, if we fit a Taylor rule, including the pce inflation rate and the deviation of the unemployment rate from the CBO's natural rate, to the 1987-2007 data, and project out-of-sample from 2008 on, here's what we get:

After the First Rate Hike - John C. Williams -The Federal Reserve has started the process of raising interest rates, in line with ongoing improvement in U.S. economic conditions. The path for subsequent interest rate increases, however, is likely to be shallow compared with past tightening cycles. This reflects in part growing evidence that the new normal for interest rates is lower than in the past. The following is adapted from a presentation by the president and CEO of the Federal Reserve Bank of San Francisco to the California Bankers Association in Santa Barbara, California, on January 8. Today I’d like to give my view of the economic outlook and discuss more extensively some of the issues that are probably on your mind: Interest rates, the path they’re on, and what we can expect when we reach full economic health.

Four rate hikes in 2016? Markets say "nonsense" even after the strong payrolls report -- On Friday the US Department of Labor report on US payrolls was significantly stronger than expected. Given such excellent economic news one would think the FOMC is going to continue on its path of steadily raising rates. Fixed income markets however don't believe that to be the case. The chart below shows the January 2017 Fed Funds futures contract over the past 3 days. The higher the value the lower the implied Fed Funds rate. The contract initially sold off sharply upon the announcement of the jobs figures but rallied shortly after. It ended up higher than it was prior to the report, indicating that the market expects the Fed to actually be less, not more aggressive in raising rates - even in the face of this strong employment report. The FOMC dot plot in December indicated that the Fed will hike rates four times in 2016. Surely with such an unexpected improvement in jobs, the Fed has to follow up on its "promises".  Nonetheless, markets are completely discounting this projection, assigning only a 6.5% probability to a 4 or higher number of hikes in 2016. The chart below shows the futures-implied probability of rate hikes in 2016, with the horizontal axis representing the number of rate increases. This 4-or-higher probability is in fact materially lower than it was a couple of days prior to the payrolls report.  We saw a similar reaction in the treasury market, with the 2-year note futures reversing a sharp selloff that occurred when the report came out - and finishing higher than it started. So much for the treasuries selloff many have been expecting.

Strangely Self-Confident Permahawks - Krugman  - An odd thing about permahawks — people who have been demanding, year after year, that the Fed raise rates now now now. (The same is true, actually, about the overlapping group warning nonstop about fiscal crisis.) They are, by and large, free-market acolytes who insist that markets know best; yet they also insist that we ignore financial markets that have been telling us that inflation is quiescent and the U.S. government is solvent. Now, it’s OK to conclude that markets are currently wrong, although if you believe that they make huge errors that should influence your views on policy in general. But your confidence in your dismissal of market beliefs should bear some relationship to your own track record. If you’ve been warning about inflation, wrongly, for six or so years, and markets current show no worries about inflation — if anything they’re saying that the Fed will undershoot its target — I would expect some diffidence about demanding higher rates yet again. But I’m not Martin Feldstein.

China may slow Fed's interest rate rises: Fed officials -- Headwinds from China and the world's commodity markets may once again be upending the U.S. Federal Reserve's plans less than a month into its first-in-a-decade tightening cycle. The rout in China's stock market, weak oil prices and other factors are "furthering the concern that global growth has slowed significantly," Boston Fed President Eric Rosengren said on Wednesday. Rosengren, who votes on the Fed's rate-setting committee this year, also said a second hike will face a strict test as the Fed looks for tangible evidence that U.S. growth will be "at or above potential" and inflation is moving back up toward the Fed's 2 percent target. Chicago Fed chief Charles Evans, who like Rosengren is one of the central bank's most dovish policymakers, expressed similar concerns. "It's something that's got to make you nervous," he said of the drag slower growth in China could have on economies like the United States that don't do much direct trade. Evans also said he was nervous about inflation expectations not being as firmly anchored as a year ago, and added it could be midyear before the Fed has a good picture of the inflation outlook.

Rate rise calls evaporate as markets plunge, murmurs of Fed reversal | Reuters: The worst ever start to a year for financial markets has left traders and economists rethinking the global monetary policy outlook, with some predicting the Federal Reserve will quickly reverse last month's historic rate rise. The Fed lifted U.S. interest rates for the first time in nearly a decade on Dec. 16, signaling its faith that the economy had finally put the 2007-08 financial crisis behind it. Ferocious volatility fueled by worries about China's currency and stock markets has since wiped trillions of dollars off world stocks, however, while a slowing China has exacerbated worries about the robustness of U.S. economic growth. Interest rate futures traders are already paring back their expectations of when the Fed might tighten again while several big banks this week dovishly revised their 2016 outlooks for the Bank of England, European Central Bank and Bank of Canada. "You shouldn't underestimate that a change in where the market sees rates going could happen pretty quickly. Another month of what we've seen this year, and we could be there,"The Fed made clear when announcing "liftoff" that it broadly anticipated four further 25 basis point increases this year, a view echoed by Fed officials in recent speeches. The latest Reuters poll of 120 economists points to the federal funds rate, currently 0.25-0.50 percent, reaching 1.00- 1.25 percent by the end of the year and rising more in 2017.

Negative interest rates a potential policy tool-Fed's Dudley | Reuters: Negative interest rates are a potential policy tool for the Federal Reserve to combat future U.S. economic downturns, but it is not "seriously considered" by policy-makers right now, New York Federal Reserve President William Dudley said on Friday. Dudley was asked about negative policy rates which are being used by the European Central Bank and Swiss National Bank right now to combat deflation.

Fed's Williams: "We Got It Wrong" -- In late 2014 and early 2015, we tried to warn anyone who cared to listen time and time and time again that crashing crude prices are unambiguously bad for the economy and the market, contrary to what every Keynesian hack, tenured economist, Larry Kudlow and, naturally, central banker repeated - like a broken - record day after day: that the glorious benefits of the "gas savings tax cut" would unveil themselves any minute now, and unleash a new golden ago economic prosperity and push the US economy into 3%+ growth. Indeed, it was less than a year ago, on January 30 2015, when St. Louis Fed president Jim Bullard told Bloomberg TV that the oil price drop is unambiguously positive for the US. It wasn't, and the predicted spending surge never happened.   However, while that outcome was not surprising at all, what we were shocked by is that on Friday, following a speech to the California Bankers Association in Santa Barbara, during the subsequent Q&A, San Fran Fed president John Williams actually admitted the truth. The Fed got it wrong when it predicted a drop in oil prices would be a big boon for the economy. It turned out the world had changed; the US has a lot of jobs connected to the oil industry. And there you have it: these are the people micromanaging not only the S&P500 but the US, and thus, the global economy - by implication they have to be the smartest people not only in the room, but in the world. As it turns out, they are about as clueless as it gets because the single biggest alleged positive driver of the US economy, as defined by the Fed, ended up being the single biggest drag to the economy, as a "doom and gloomish conspiracy blog"repeatedly said, and as the Fed subsequently admitted.

A Timeline of the Federal Reserve in 2010 -- The recession was over in 2010, but the Federal Reserve’s work had just begun. The U.S. central bank confronted stubbornly high unemployment and sluggish economic growth at home and financial strains emanating from Europe, where the Greek debt crisis was emerging as a major concern for the eurozone. The Fed held short-term interest rates near zero through the year. After months of internal debate, Chairman Ben Bernanke in November won support for a $600 billion bond-buying program a second round of quantitative easing aimed at stimulating the economy. The Fed also saw personnel changes in 2010, including the departure of Vice Chairman Donald Kohn. He was succeeded by Janet Yellen, previously the Federal Reserve Bank of San Francisco’s president. The central bank’s rate-setting Federal Open Market Committee held 10 policy meetings in 2010, including two unscheduled gatherings. Transcripts of those meetings are now available on the Fed’s website. To refresh readers’ memories of that hectic year, we provide below a timeline of key Fed-related events in 2010.

The Federal Reserve’s 2010 Transcripts — Live Dive -- Join us as we dig into full transcripts of the Federal Reserve’s policy-making Federal Open Market Committee meetings in 2010, released today by the Fed after its customary five-year delay. The recession was over, but the Fed’s work had just begun. The U.S. central bank confronted stubbornly high unemployment and sluggish economic growth at home and financial strains emanating from Europe, where the Greek debt crisis was emerging as a major concern for the eurozone. Who saw what was coming? Who missed the signs? What was the debate about launching a second round of quantitative easing? And what made policy makers laugh?  It’s been a long five years. Here’s timeline, cast of characters and other coverage to refresh your memory:

Reforming or Deforming the Fed? - Barry Eichengreen - The silly season that is a presidential election campaign in the United States has taken a particularly absurd turn as the candidates offer their proposals for monetary-policy reform. This is not the first time, of course, that presidential candidates have proposed changing how US monetary policy is conducted. But the radical, sometimes harebrained, nature of the current crop of schemes is exceptional by historical standards. Why such proposals appeal to the candidates and potential voters is no mystery. Since the financial crisis, the US Federal Reserve has taken a series of unprecedented steps, cutting interest rates to zero, massively expanding its balance sheet, and bailing out troubled financial institutions. Those measures were intended to treat the economy’s ills, but their very association with those ills encourages the belief that they are somehow the underlying cause.   Likewise, the Fed’s participation in rescues of troubled financial institutions is criticized for favoring Wall Street over Main Street. And, separately, the Fed is slammed for creating inequality, first by keeping interest rates low, which hurts those on fixed incomes, and now by raising rates, which keeps a lid on wage growth. Clearly, the Fed just can’t win – and for reasons that have nothing to do with current monetary policy. Two of the most deep-seated features of American political culture – with roots extending back to the eighteenth century – are suspicion of powerful government and distrust of concentrated financial power. The Fed is the single institution that best encapsulates those fears.

“Audit the Fed” is not about auditing the Fed - Ben Bernanke -- On Tuesday the Senate will vote on whether to invoke cloture (that is, allow to proceed to the floor) on S. 2232, the “Federal Reserve Transparency Act of 2015,” otherwise known as “Audit the Fed.”  Unfortunately, this approach raises serious concerns about Fed independence and the integrity of the process for making monetary policy.  You might think that legislation widely known as “Audit the Fed” would have something to do with auditing the Fed, in the conventional sense of reviewing the institution’s financial assets and liabilities, records, and operations.  You’d be wrong.  The Fed is already thoroughly audited in the usual sense, by an independent inspector general and by an outside accounting firm (currently, Deloitte and Touche), and the resulting financial reports are made public online. Every security owned by the Fed, up to the detail of the identifying CUSIP number, is also available online.  Moreover, the Government Accountability Office (GAO), which does in-depth reviews and analyses (“audits” of a different type) of government activities at the request of Congress, has wide latitude to review Fed operations, including supervision and regulation as well as other functions.  For example, as required by the Dodd-Frank Act of 2010, the GAO conducted reviews of the Fed’s emergency lending programs during the crisis and of the Fed’s governance structure.  Since the financial crisis, the GAO has done some 70 reviews of aspects of Fed operations.

Senate shoots down 'audit the Fed' proposal -- A proposal to audit the Federal Reserve failed to pass in the US Senate. The bill, proposed by Kentucky Republican Rand Paul, was opposed by the Democrats, the White House, and the business lobby. The procedural motion on the bill required 60 votes to pass, but managed to get only 53. "Both Republicans and Democrats agree that it is absurd we do not know where hundreds of billions worth of our money is going,” Paul said ahead of the vote, according to The Hill. Vermont Senator Bernie Sanders, an Independent currently vying for the Democratic presidential nomination, voted in favor of Paul's proposal.  "Requiring the Government Accountability Office to conduct a full and independent audit of the Fed each and every year, would be an important step towards making the Federal Reserve a more democratic institution that is responsive to the needs of ordinary Americans rather than the billionaires on Wall Street," Sanders said in a statement following the vote. Texas Senator Ted Cruz, running for the Republican nomination, reportedly did not show up for the vote. He had previously voiced support for the proposed audit. Senator Marco Rubio of Florida, often criticized for missing important votes, made an appearance and backed Paul's bill.

Inflation Expectations Collapse Post-Rate-Hike, Near Record Lows -- Since The Fed hiked rates in December, the market's inflation expectations have collapsed inyet another clear indication of "policy error." 5Y5Y Forward inflation swaps have crashed below 2.00% for only the 3rd time in history (Lehman 2008 and September's Fed Fold were the other two) as despite central banker promises of transitory low-flation, the money is being bet against them as the regime-shift from full-faith to no-faith in Fed support continues. But a rate-hike was supposed to stimulate inflation?

Fed hands record $117 billion in earnings to Treasury - — The Federal Reserve announced on Monday it transferred a record $117 billion in earnings to the U.S. Treasury during 2015. The transfer is nearly 21% more than the prior record of $96.9 billion, set in 2014. The transfer includes $97.7 billion in remittances, a side benefit of the U.S. central bank’s earnings from its massive bond-buying purchases. The Fed’s balance sheet now totals $4.5 trillion. In addition, the Fed transferred $19.3 billion to Treasury as required by the transportation spending measure signed into law late last year. That legislation mandated that the Fed’s capital surplus not exceed $10 billion.  Under Fed policy, residual Fed earnings are distributed to Treasury after covering expenses. The remittances to the Treasury are made weekly. The Fed could suffer losses on its Treasury holdings if interest rates rise sharply.

Fed sent record $97.7 billion in profits to U.S. Treasury in 2015 - The Denver Post: The Federal Reserve handed over a record $97.7 billion in profits to the Treasury Department in 2015, according to preliminary figures released Monday. The Fed uses revenue from various sources, including interest from its big portfolio of bonds and other assets, to cover its operating and other expenses. The rest of the money is sent to the Treasury to help pay the federal government's bills. In 2014, the Fed sent a then-record $96.9 billion to the Treasury. The Fed said Monday that the $97.7 billion figure for 2015 is preliminary and may be adjusted when the central bank's audited financial statements are published, likely in March. In addition, the Fed on Dec. 28 sent $19.3 billion to the Treasury under the terms of the federal highway bill enacted that month, which tapped the central bank's surplus capital account as a source of funding. Fed Chair Janet Yellen protested that using the Fed to finance fiscal spending "sets a bad precedent and infringes on the independence of the central bank." Including that one-time payment, the Fed sent $117 billion to the Treasury in 2015. The Fed's remittance to the Treasury has grown substantially since the financial crisis thanks to its three rounds of bond-buying, which expanded the central bank's balance sheet as it aimed to bolster the sagging U.S. economy.

Marshall Auerback: What US Treasury Yields Might Be Signaling -  Marshall Auerback - I’m fundamentally a deflationist at heart on the question as to how this mega moral hazard bubble finally resolves itself. This, in spite of the strong sudden explosive rise in the December US household measure of employment, (which has brought the smoothed household survey job growth up towards the stronger payroll survey job growth and seems to point toward further rate rises being engineered by the Federal Reserve as we move forward in 2016). So why didn’t bonds plummet (and yields soar) last Friday, following the December rise of 485,000 jobs, which took the 3 month average to 329,000? (Prior to this report household survey employment growth averaged 119,000 a month for the nine months through November) For that I think we have to look toward China. Even though China’s most recent data has shown signs of stabilization (and the current turmoil in the Chinese market will likely provide more Chinese policy stimulus via further overinvestment, which could perpetuate this capex bubble in the short term) it is likely that the US bond market is paying closer attention to the gradual unwinding of the country’s historically unprecedented investment ratio of around 45% to GDP. That ratio (down from a peak of 55%) suggests that China is poised to embark on a powerful accelerator multiplier dynamic to the downside. Add to that ongoing dollar strength, which has inflicted further deflationary pressures on resource producers, most particularly those who have borrowed dollars against declining resource revenues, all of which has put pressure on commodity prices.

"Unprecedented Demand" - US Mint Sells Nearly As Much Gold On First Day Of 2016 As All Of January 2015 -- While Chinese residents were lining up in front of banks and currency exchange kiosks, desperate to convert as many of their Yuan into dollars as the government will permit, Americans were likewise busy exchanging their own paper currency, so greatly in demand in China, into gold and silver. As Reuters reports, American Eagle silver coin sales jumped on Monday after the U.S. Mint said it set the first weekly allocation of 2016 at 4 million ounces, roughly four times the amount rationed in the last five months of 2015, after a surge in demand. It will not be enough.  According to the Mint, more than half of the week's allocation of silver sold on Monday, the first day of 2016 sales, a sign that demand entering 2016 is literally off the charts.  Putting the silver demand in context, the 2.76 million ounces of silver bullion coins sold today is exactly half of the 5.53 million ounces that sold in all of January 2015.

Fed's Beige Book: "Economic activity expanded" -- Fed's Beige Book "Prepared at the Federal Reserve Bank of Philadelphia and based on information collected on or before January 4, 2016." Reports from the twelve Federal Reserve Districts indicated that economic activity has expanded in nine of the Districts since the previous Beige Book report and contacts in Boston were described as upbeat. Meanwhile, New York and Kansas City described economic activity in their Districts as essentially flat. Atlanta and San Francisco characterized the growth in their Districts as moderate; Philadelphia, Cleveland, Richmond, Chicago, St. Louis, Minneapolis, and Dallas described their Districts' growth as modest. Contacts' outlooks for future growth remained mostly positive in Boston, Philadelphia, Atlanta, Chicago, Kansas City, and Dallas.  And on real estate: Residential real estate activity as measured in sales was generally positive in New York, Cleveland, Chicago, and St. Louis. Richmond experienced steady sales with pockets of strength, and Kansas City reported declines. Prices rose slightly to modestly overall in all reporting Districts, and inventories remained low in Boston, Richmond, and Minneapolis, and some parts of the New York District; however, New York City's rental vacancy rate increased. Though Boston contacts expected the market to perform well in 2016, contacts in Cleveland and Kansas City expressed concerns that higher interest rates may slow activity. Residential construction activity was described as modest or moderate in most Districts but was more subdued in New York, Atlanta, and Dallas overall.  

So You Think A Recession Is Imminent, Employment Edition, by Tim Duy: The recession drumbeat grows louder. This is not unexpected. Most forecasters have an asymmetric loss function; the cost of being wrong by missing a recession exceeds the cost of being wrong on a recession call. Hence economists tend to over-predict recessions. Eight of the last four recessions or so the joke goes. And while I don't believe a recession is imminent, there are perfectly good reasons to be wary that a recession will bear down on the economy in the not-so-distant future. Historically, when the Fed begins a tightening cycle, the clock is ticking for the expansion. By that time, the economy is typically in a late-mid to late-stage expansion, and you are looking at two to three years before the cycle turns, four at the outside.   So what I am looking for when it comes to a recession? It's not a recession until you see it economy wide in the labor markets. When it's there, you will see it everywhere. Clearly, we weren't seeing it in the final quarter of last year. But, you say, employment is a lagging indicator, so last quarter tells you nothing. Not nothing, I would say, but a fair point nonetheless. One would need to look for the leading indicators within the employment data. First, since the manufacturing sector is the proximate cause of these recession concerns, we would look to leading indicators in that sector. One I watch is hours worked: Hours worked are off their peak, just as prior to the 1900 and 2001 recessions, but not the 2007 recession (lagging indicator that time). But hours also dropped in 1994, 1998, 2002, and 2005. And that would be an extra four recessions that didn't happen. To add a bit more confusion, hours works are coming off a peak not seen since, sit down for this, World War II:

So You Think A Recession Is Imminent, Yield Curve Edition, by Tim Duy: If I had to rely on only two leading indicators of recessions, they would be initial unemployment claims and the yield curve (next in line would be housing). I talked about initial claims in the context of employment data in my last post. This post is about the yield curve. An inversion of the yield curve has typically given a 12 month or better signal ahead of recessions:  Note also that it is the inversion that is important. The yield curve was fairly flat in the late-90's, a period of supercharged growth in the US economy. So when the Financial Times fueled the recession fears last week with this: The US government bond market is blowing raspberries at the Federal Reserve. This could indicate trouble ahead for the American economy. Last month, the Fed lifted interest rates for the first time in nine years, and short-term bond yields have duly climbed higher. But longer-term Treasury bonds have shrugged, with yields actually falling since the US central bank tightened monetary policy. I was less concerned. In fact, I don't think the flattening yield curve should be any surprise as that is almost always the case after the Fed tightens policy: The yield curve typically flattens to a 50bp spread between 10 and 2 year rates within a year of the initial Fed rate hike. Only the 1986 episode is unusual. Not only that, but the flattening begins immediately: Even after the 1986 tightening the yield curve was flatter after the first 60 days. Currently, the flattening of the yield curve - and the lack of any upward movement in 10 year yields at all - is consistent with my long-standing concern that the Federal Reserve's long-run projection of the federal funds rate - 3.5% as of December - is a pipe dream. Also why I was wary about the Fed's determination to raise rates. My preference was the Fed to wait until they were absolutely sure rates could be "normalized."

Future Economists Will Probably Call This Decade the 'Longest Depression' | Brad DeLong -- Economist Joe Stiglitz warned back in 2010 that the world risked sliding into a "Great Malaise." This week, he followed up on that grim prediction, saying, "We didn't do what was needed, and we have ended up precisely where I feared we would." The problems we face now, Stiglitz points out, include "a deficiency of aggregate demand, brought on by a combination of growing inequality and a mindless wave of fiscal austerity."  He says the only cure is an increase in aggregate demand, far-reaching redistribution of income and deep reform of our financial system. The obstacles to this cure, he writes, "are not rooted in economics, but in politics and ideology." Indeed. Joe Stiglitz is right. Back before 2008, I used to teach my students that during a disturbance in the business cycle, we'd be 40 percent of the way back to normal in a year. The long-run trend of economic growth, I would say, was barely affected by short-run business cycle disturbances. There would always be short-run bubbles and panics and inflations and recessions. They would press production and employment away from its long-run trend -- perhaps by as much as 5 percent. But they would be transitory. After the shock hit, the economy would rapidly head back to normal. The equilibrium-restoring logic and magic of supply and demand would push the economy to close two-fifths of the gap to normal each year. In the aftermath of 2008, Stiglitz was indeed one of those warning that I and economists like me were wrong. Without extraordinary, sustained and aggressive policies to rebalance the economy, he said, we would never get back to what before 2008 we had thought was normal. I was wrong. He was right.

4th Quarter GDPNow Forecast Sinks to +0.6 Percent; Fed Futures Target 1 Hike in 2016; Disastrous Data Recap  -- I have never seen the Atlanta Fed take as long to post a scheduled update to their GDP Forecast as they did today. Their forecast came out late this afternoon, but it did beat the market close.The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2015 is 0.6 percent on January 15, down from 0.8 percent on January 8. The forecast for fourth quarter real consumer spending growth fell from 2.0 percent to 1.7 percent after this morning's retail sales report from the U.S. Census Bureau and the industrial production release from the Federal Reserve. 5 Disastrous Economic Reports From Today

  1. Inventory to Sales:Manufacturing Inventories Decline But Inventory-to-Sales Ratio Doesn't Budge; Another Recessionary Looking Chart
  2. Producer Prices: Producer Prices Decline More Than Expected, Services Disappoint; Oil Approaches $29
  3. Industrial Production: Industrial Production Numbers and Revisions Shockingly Bad; Autos Have Peaked
  4. Empire State Manufacturing: Empire State Manufacturing Index Posts Horrific -19.37, Lowest Reading Since April 2009
  5. Retail Sales: December Retail Sales Negative; Other Economic Data Horrid

Federal budget deficit was $14 billion in December, Treasury says - The U.S. budget deficit was $14 billion in December, the Treasury Department said Wednesday, compared to a surplus of $2 billion in the same month a year ago. For the third month of the current fiscal year, the federal government spent $364 billion and took in $350 billion. The Treasury said the government would have run a surplus of $38 billion in December if not for the timing of some transactions, like benefit payments shifting into December from January. For the fiscal year to date, the deficit is up 22% to $216 billion. Incorporating timing shifts, however, it’s up 5%. Receipts are running 4% higher than in the first three months of fiscal 2015, and spending is 7% higher. The U.S. government’s budget year runs from October through September.

Thinking about wealth taxes - As you might have heard, Thomas Piketty’s “Capital in the Twenty-First Century” has sparked a bit of conversation about the economics of inequality and growth. The book is part description of hundreds of years of data about the distribution of income and wealth, part theorizing about the roots of these trends, and part prescription for reducing these inequalities. The last part has been perhaps the most controversial, with the French economist calling for a global wealth tax. But as time has passed, economists and other analysts have taken a deeper look into some of the economics of the wealth tax—and some of the results are very interesting.  A session at the Allied Social Science Associations meeting in San Francisco last week dug into the topic of wealth taxation, with two of the papers citing Piketty’s proposal. One pape focuses on the forces Piketty cites in his analysis of wealth taxation: r and g, with r being the rate of return on capital and g the growth rate of the overall economy. In Piketty’s famous formulation, if r is greater than g then the economy will trend toward increasing inequality. Farhi and Werning focus on how the difference between r and g affects the optimal tax on bequests—the passing on of wealth to the next generation. A second paper at the same session took a different approach to looking at a wealth tax. Fatih Guvenen of the University of Minnesota, Gueorgui Kambourov and Burhan Kuruscu of the University of Toronto, and Daphne Chen of Florida State University look at the efficiency effects of taxation. The economists compare a tax directly on wealth to a tax on capital income (the income derived from wealth) and find that shifting to a wealth tax would improve the efficiency of the economy.

Is Vast Inequality Necessary?, by Paul Krugman -- How rich do we need the rich to be?  That’s not an idle question. It is, arguably, what U.S. politics are substantively about. Liberals want to raise taxes on high incomes and use the proceeds to strengthen the social safety net; conservatives want to do the reverse, claiming that tax-the-rich policies hurt everyone by reducing the incentives to create wealth.  Now, recent experience has not been kind to the conservative position.  Is there, however, a longer-term case in favor of vast inequality?  I find it helpful to think in terms of three stylized models of where extreme inequality might come from, with the real economy involving elements from all three. First, we could have huge inequality because individuals vary hugely in their productivity.. Second, we could have huge inequality based largely on luck, those who hit the jackpot just happen to be in the right place at the right time.  Third, we could have huge inequality based on power: executives at large corporations who get to set their own compensation, financial wheeler-dealers who get rich on inside information or by collecting undeserved fees from naïve investors. But the real question, in any case, is whether we can redistribute some of the income currently going to the elite few to other purposes without crippling economic progress.  And there’s no reason to believe that it would. Historically, America achieved its most rapid growth and technological progress ever during the 1950s and 1960s, despite much higher top tax rates and much lower inequality than it has today.

'Who Owns U.S. Business? How Much Tax Do They Pay?'  --  The importance of pass-through business entities has soared in the past three decades. Over the same period, the amount of pass-through business income flowing to the top 1 percent of income earners has increased sharply, according to Business in the United States: Who Owns It and How Much Tax Do They Pay? (NBER Working Paper No. 21651). "Despite this profound change in the organization of U.S. business activity, we lack clean, clear facts about the consequences of this change for the distribution and taxation of business income," "This problem is especially severe for partnerships, which constitute the largest, most opaque, and fastest growing type of pass-through." Pass-through entities — partnerships, tax code subchapter S corporations, and sole proprietorships — are not subject to corporate income tax. Their income passes directly to their owners and is taxed under whatever tax rules those owners face. In contrast, the income of traditional corporations, more specifically subchapter C corporations, is subject to corporate income taxes, and after-tax income distributed from the corporation to its owners is also taxable. In 1980, pass-through entities accounted for 20.7 percent of U.S. business income; by 2011, they represented 54.2 percent. Over roughly the same period, the income share of the top 1 percent of income earners doubled. Previous research has shown that the two phenomena are linked: The growth of income from pass-through entities accounted for 41 percent of the rise in the income of the top 1 percent. By linking 2011 partnership and S corporation tax returns with federal individual income tax returns, in particular Form 1065 and Form 1120S K-1 returns, the researchers find that over 66 percent of pass-through business income received by individuals goes to the top 1 percent.

A Progressive Way to Replace Corporate Taxes - Dean Baker - JUST about every American chief executive has the same dream: to get out from under the corporate income tax. For many, that means lobbying Congress to change the tax code. But for a growing number, it also involves increasingly creative — and successful — tricks to avoid their liability.  The latest fad is inversion. Over the last few years, some of the country’s largest companies have arranged to be taken over by smaller companies, conveniently headquartered in the Bahamas or some other tax haven. A company then has to pay tax only in the tax haven; it escapes American corporate income taxes altogether. For example, Pfizer, the pharmaceutical company, is being taken over by a much smaller company with headquarters in low-tax Ireland.  The Obama administration is trying to crack down on inversions, but it’s a losing battle. Other tricks will be found. Which leaves us with two paths forward. If we get less money from corporations, we have to make up the shortfall from other sources of revenue. Or we can come up with a radically new approach to corporate taxation. The tax avoidance game is an enormous waste of resources and energy. We would like to see Pfizer focused on developing better drugs, not figuring out how to lessen its tax liability. The corporate sector as a whole devotes an enormous amount of money and brainpower to tax gaming, which contributes zero to the economy. Suppose that, instead of taxing corporate profits, we required companies to turn over an amount of stock, in the form of nonvoting shares, to the government. We can fight over the percentage later (we’d want to match what we ideally get from corporate income taxes now, so presumably between 17 and 35 percent). But first we can focus on the principle.

Trump and Clinton tax plans scare Wall Street – FT - US private equity and hedge fund managers are growing concerned at an unprecedented two-pronged assault from the Republican and Democratic presidential frontrunners, who both threaten to scrap a tax break worth billions of dollars to Wall Street. The unusual consensus between Donald Trump and Hillary Clinton has hardened as the populist tone of the 2016 election campaign leaves American business fretting that its interests are being ignored by candidates. The bashing of investment partnerships using the tax break on “carried interest” profits highlights a desire to woo voters struggling in an economy that some feel is rigged in favour of the wealthy. On Wednesday Tom Donohue of the US Chamber of Commerce, corporate America’s top lobbyist, voiced his dismay at the presidential campaign. “I used to call the lead-up to the big national election ‘silly season’ but, given some of the rhetoric and proposals that we’re hearing from both parties, it’s not silly; it’s damn serious, and sometimes a little scary,” he said. Less than three weeks before voting begins with the Iowa caucuses, Mrs Clinton this week reaffirmed her determination to scrap the preferential tax treatment that critics call a loophole. A few days earlier Mr Trump said: “Wall Street has caused tremendous problems for us. We’re going to tax Wall Street.” Jeb Bush, once the favourite of Republican business people, and Bernie Sanders, who is mounting a leftwing challenge to Mrs Clinton, also want to scrap the tax break. The treatment of carried interest lets managers of private equity, venture capital and hedge funds pay less tax than most people because the cut they take on some investment gains — a key part of their remuneration — is taxed at a lower rate than a regular salary. While the top rate of income tax stands at 39.6 per cent, money managers’ portion of profits on assets held for at least a year is taxed at 20 per cent as a “long-term capital gain”.

Obama expected to push Congress to pass TPP | TheHill: Rep. Kevin Brady (R-Texas) is sounding a cautious tone about the Asia-Pacific trade deal's chances in Congress. The House Ways and Means Committee chairman said that passing the Trans-Pacific Partnership (TPP) agreement between the United States and 11 other nations “is difficult but doable” during a Politico Morning Money event Monday evening.  While that the TPP can get done because "the economic value of moving into the Asia-Pacific area under our trade rules [is] critically important,” Brady said. But he said that there are some challenges because White House made “some policy decisions that are costing them votes on both sides of the aisle." He noted that intellectual protections for high-tech medicines that fall short of the U.S. standard of 12 years and an exemption for manufactured tobacco products from investor-state dispute settlement rules have generated most of the concern among lawmakers. President Obama is expected on Tuesday night during his final State of the Union address to tout the benefits off TPP and urge Congress to pass the pact before he leaves office. Brady, who has said his committee would likely start hearings next month, suggested that the timing of a House vote would depend on how quickly the White House works through congressional concerns. “We’ve got to look at that agreement in its entirety, find ways to improve the agreement in areas where the agreement needs improving and bring it to the floor,” he said.

Trans-Pacific Partnership Agreement: Currency manipulation, trade, wages, and job loss -- Several members of the proposed Trans-Pacific Partnership (TPP)—including Japan, Malaysia, and Singapore—are well-known currency manipulators, and other currency manipulators—including South Korea, Taiwan, and China—have expressed interest in joining the agreement. Key conclusions of this analysis are:

  • Currency manipulation could nullify the benefits of the TPP.
  • Purchases and holdings of foreign-exchange reserves (broadly defined) would have a direct impact on exchange rates and trade flows in the TPP.
  • China, as the world’s largest currency manipulator, could affect trade in the TPP in at least two ways. First, as a result of relatively weak rules of origin, the U.S. and other countries would be vulnerable to increased imports from China through the TPP. Second, currency manipulation by China could influence other TPP members to adjust or manipulate the value of their currencies, in order to remain competitive with China, and thereby nullify some or all of the benefits of the TPP to the United States.
  • Japan is also an important currency manipulator, and this manipulation is the leading cause of the U.S. trade deficit with Japan, which displaced 896,600 U.S. jobs in 2013.
  • Models that have assumed full employment to evaluate the effects of the TPP and past free-trade agreements should not be used to evaluate the potential demand-shifting effects of currency manipulation on the members of the TPP.
  • Even if the TPP were a true free-trade agreement it would likely be hard on noncollege-educated American workers, who make up more than two-thirds of the U.S. labor force.
  • The TPP isn’t principally about free trade—it’s about providing increased protection for intellectual property rights for pharmaceutical makers, software vendors, and others, and stronger property rights for foreign investors, which encourages outsourcing, job losses, and a further decline in labor’s share of national income.

Will the Pacific Trade Pact Really Put Pressure on China? -- President Barack Obama, Donald Trump, and Sen. Rand Paul don’t agree on much. So it’s not a surprise that each is espousing totally different views on how a big Pacific trading agreement will affect China, which is not a member of the trade bloc. And as it turns out, each can claim support from experts and economists. Mr. Obama on Tuesday told members of Congress they should vote for the Trans-Pacific Partnership trade agreement because it will ensure that Washington’s commercial rules of the road become the norm in the Pacific, rather than China’s. “With TPP, China doesn’t set the rules in that region—we do,” Mr. Obama said in the State of the Union address, revisiting an argument he aired during his 2015 address, before the TPP was concluded in October. Obama administration officials say the rules will still challenge China to reform its economy in other ways. The TPP, endorsed by many former military officers, would also boost Washington’s ties with its allies in the region a time when China is flexing its economic and military muscles. Mr. Trump disagrees. “It’s a deal that was designed for China to come in, as they always do, through the back door and totally take advantage of everyone,” the billionaire GOP candidate said at the fourth GOP presidential debate, in November. Mr. Trump’s warning echoes criticism from labor unions and Democrats from auto-producing states in the Midwest. They point to the “rules of origin” in the TPP that allow much of the content of cars and other products traded duty-free to come from outside the bloc—including China. Mr. Paul, seem to think all the talk about China misses the point.  The Kentucky senator opposed legislation designed to expedite the TPP because he believes Congress, rather than the Obama administration, should be designing trade policy, whether it’s with China, Japan or the European Union.

The TPP as a set of international economic rules -  VoxEU - An agreement on the Trans-Pacific Partnership (TPP) has finally been reached. The TPP negotiations involved only 12 countries, but had to go through lots of twists and turns because of a criss-cross of confrontational relationships, i.e. large advanced economies versus emerging economies, exporters versus importers in agricultural trade, and market economy countries versus state capitalist countries. The successful conclusion of the TPP agreement, an ambitious trade liberalisation initiative, is surely an event worthy of celebration. It has been achieved despite various difficulties and came at a time with no evident signs of hope for the Doha Round of negotiations under the WTO. As the full text of the TPP agreement has not yet been released as of this writing, this is going to be guess work. But I would like to attempt to outline and share my ‘first impression’ of this new set of rules based on the summaries of the agreement and explanatory notes released by the governments of the TPP member countries and supplementary information from media reports.1

Surprise! Corporate America Is Throwing Down for the TPP - Truthdig:  American big business has now officially endorsed the Trans-Pacific Partnership (TPP), giving many all the proof they need that the 12-nation deal—poised to be the largest ever—is bad news for people and the planet. An association of Chief Executive Officers known as the Business Roundtable (BRT) announced its formal backing on Tuesday, indicating that it plans to use its muscle to press Congress to approve the deal this year. In fact, BRT president John Engler told The Hill that the association wants the TPP to pass as quickly as possible—before the summer. That endorsement followed Monday’s announcement from the National Association of Manufacturers (NAM) that it is throwing its weight behind the pact. “Open markets encourage cooperation and prosperity among nations and governments, rather than conflict, and the NAM has a long and proud history of promoting free and fair trade,” said NAM President and CEO Jay Timmons. With these two endorsements now established, some predict that the powerful U.S. Chamber of Commerce will be next.To be sure, multinational corporations have already been heavily influential in the TPP negotiations, which have been conducted in near complete secrecy. But the endorsements this week appear to be calculated to add momentum to the deal in Congress. Because the U.S. Senate passed Fast Track authority this summer, lawmakers will not be able to debate or amend the deal. But both houses must ratify the TPP, which will likely be submitted by the White House in the early spring.

TPP not equal to “free trade” --  Jared Bernstein - I have written extensively on this point: there’s a big difference between those magical words “free trade” that everyone invokes in this town whenever the topic comes up, and actual trade deals. But I think Rep. Sandy Levin thoroughly nails this distinction in testimony before the International Trade Commission this morning: The issue is not whether Members of Congress such as myself could pass an Econ 101 class,  Instead, the issue is whether we are going to face up to the fact that our trading system today is much more complex than the simplistic trade model presented in an Econ 101 class. What do David Ricardo and Adam Smith have to say about the inclusion of investor-state dispute settlement in our trade agreements? What do they have to say about providing a five-year or an eight-year monopoly for the sale of biologic medicines? About the need to ensure that our trading partners meet basic labor and environmental standards? How about the issue of currency manipulation? And what about trade in services on the internet or the offshoring of jobs that result from greater capital mobility? Does the theory of comparative advantage address these new issues?  No – and yet those are the kinds of issues at the crux of the debate over the TPP Agreement today. Levin’s full testimony is here and looks very thoughtful. He notes a new World Bank report that models the growth impact of the TPP by 2030 on both member and non-member countries. The magnitude of the US impact–maybe 0.3-0.4 percent–belies a lot of the noise you hear about this sort of thing, and is surely statistically indistinguishable from no change at all.

The Deeper, Uglier Side of TPP (video and transcript) naked capitalism - Yves here. If you have friends or colleagues who would might be new to the topic of how dangerous the investor state dispute settlement process is for not just regulation but national sovereignity, this Real News Network show provides a fine introduction. Even though this short but crisp segment will be largely old hat to regular readers, it does also discuss a device often used successfully in these kangaroo courts, called “stacking.” which increases the odds of win by the corporation suing for compensation.

Investors plan to cut hedge fund exposure - FT -- Global investors are planning to cut their exposure to hedge funds in 2016 following a disappointing performance in the past year, according to a survey. The poll data, from research group Preqin, will be met with dismay by the hedge fund industry, which had hoped volatile stock markets would encourage investors to seek alternative sources of return. It is also likely to add extra pressure on hedge fund fees. Preqin’s survey of institutional investors showed that more are planning to cut their hedge fund holdings this year than are planning to increase them, by 32 per cent to 25 per cent. The downbeat figures, which will be published this month in Preqin’s annual report on the industry, also show that one in three investors were disappointed by returns from their hedge fund portfolio in 2015 and have less confidence in future returns than they had a year ago. Institutions such as public pension funds have been questioning the high fees charged by hedge funds — sometimes as high as 2 per cent of assets, plus a 20 per cent cut of investment profits — for several years, but have still ploughed more money into the industry in search of returns that are uncorrelated to traditional equity and bond markets. The size of the global hedge fund industry was assessed by research firm HFR at $2.9tn at the end of the third quarter, but the Preqin survey suggests it may be close to peaking. A year ago, the same survey showed investors planning to increase their hedge fund holdings, by a margin of 26 per cent to 16 per cent who said they planned to reduce exposure. The balance appeared to tip in the middle of last year, when an interim poll by Preqin first showed a higher number planning to cut their holdings.

Memo to the Private Equity Growth Capital Council: No One Outside Your Echo Chamber Believes Your Big Lies Any More -- Yves Smith - The unpleasant task of telling a propaganda outfit, um, think tank, that it needs to up its game has fallen to your humble blogger. Specifically, the private equity industry’s official mouthpiece, the Private Equity Growth Capital Council, has taken to issuing such howlers that it is rapidly losing credibility. A think tank with no credibility is of no use to its backers. The Private Equity Growth Capital Council’s one and only one public relations strategy is The Big Lie. When confronted with a well-documented case against its sponsors’ interest, it responds with the loudest and most brazen statement of the opposite viewpoint. We have an object lesson that we’ll turn to shortly, its laughable response to an International Business Times story on the Rhode Island pension fund. This “bluster it out” strategy is popular in private equity. The few times professionals working for private equity firms have deigned to deal with me, they have, without exception, said things that are demonstrably untrue, as if the fact that someone from private equity was speaking meant of course the remark would be accepted as gospel. For instance, I had a Bain flack assert something that was flatly contradicted by Bain’s SEC filings. But what the Private Equity Growth Capital Council fails to appreciate is that Reich Minister of Propaganda Joseph Gobbels could use the Big Lie quite effectively because the German government controlled communications within Germany. Big Lies work only if you have a large share of voice (as they now call it in the trade) and weak enough opposition that you can drown out competing views. But in the world of messaging, the Private Equity Growth Capital Council is a pipsqueak. And thanks to the SEC exposing private equity misconduct and journalists getting further down the curve about how private equity really works, unsupported and worse, patently false assertions not only don’t cut it any more, they diminish whatever credibility the messenger had.

Q4 Will Be The Worst U.S. Earnings Season Since The Third Quarter Of 2009 - Couple of things: first of all, any discussion whether the US market is in a profit (or revenue) recession must stop: the US entered a profit recession in Q3 when it posted two consecutive quarters of earnings declines. This was one quarter after the top-line of the S&P dropped for two consecutive quarters, and as of this moment the US is poised to have 4 consecutive quarters with declining revenues as of the end of 2015. Furthermore, as we showed on September 21, when Q4 was still expected to be a far stronger quarter than it ended up being, in the very best case, the US would go for 7 whole quarters without absolute earnings growth (and even longer without top-line growth). Then, as always happens, optimism about the current quarter was crushed as we entered the current quarter, and whereas on September 30, 2015, Q4 earnings growth was supposed to be just a fraction negative, or -0.6%, as we have crossed the quarter, the full abyss has revealed itself and according to the latest Factset consensus data as of January 8, the current Q4 EPS drop is now expected to be a whopping -5%. And just to shut up the "it's all energy" crowd, of the 10 industries in the S&P, only 4 are now expected to post earnings growth and even their growth is rapidly sliding and could well go negative over the next few weeks.

Bond Investors Get Skittish as Record Wave of Acquisitions Push to Close Financings  - The world’s biggest beer conglomerate Anheuser-Busch InBev’s acquisition of the world’s second biggest beer conglomerate SABMiller, both of which are getting their clocks cleaned in the US by over 4,000 mostly upstart craft brewers, isn’t going to improve the flavor of their brewskis. But the $106-billion deal is going to flood the market with one of the largest bond offerings in history. It’s the first big bond deal this year. To fund and complete last year’s M&A frenzy, many more bond deals are looming on the horizon, at the worst possible time since 2009, according to Standard & Poor’s. AB InBev has now started marketing this bond monster. In October, it was rumored that it could eventually issue $55 billion of bonds, plus up to $15 billion of loans. About $630 billion in mega acquisitions from the record M&A frenzy in 2015 are scheduled to close this year and are still waiting for funding, according to Bank of America strategists cited by Bloomberg. They include Dell, Anthem, and Newell Rubbermaid. On top of the acquisitions this year. But the end of the credit cycle has set in. The ratings agency downgrade tango has started. Defaults are rising. Credit is tightening up. Investors are getting a little more skittish…. S&P Capital IQ Global Credit put it this way in its new report titled, “Global Corporate Rating Trends 2016: Largest Negative Swing Since 2009”: Corporate issuer ratings globally are at their highest negative level since 2009. Standard & Poor’s Ratings Services has the most number of ratings on negative outlooks relative to positive ones at Dec. 31, 2015, since June 2010. The net outlook bias deteriorated to a negative 11% at Dec. 31, 2015, four percentage points down from six months previously. This constitutes the worst half-year change in the net outlook bias since the 2008-2009 global financial crisis. OK, I get it, this is going to be a wild mess. For the US market, Standard and Poor’s credit outlook is “cautious.” It is fretting about the “rising negative outlook bias” for 2016:

If The High-Yield Bond Market Is "Fixed", Explain This...? -- Remember a week ago when every TV anchor, pundit, asset-gatherer, and commission-taker stormed onto mainstream media and proclaimed the credit market collapse "fixed" because prices had 'stabilized' over the holiday period "proving that 3rd Avenue was a one off" and this dip was a buying opportunity? Yeah, well that was all complete crap... as Investment-Grade cost of funding hits a 3-year high, HY bond spreads blew out to cycle wides, 'triple-hooks' soared to their worst levels in almost 7 years, and credit protection costs rose by the most in years. "Stabilized" (during the Christmas break) was the new "everything is awesome"... but now... High Yield Bond ETFs are dumping... The cost of high-yield credit protection is soaring... Equity prices are starting to catch down to that reality... As is the cost of equity risk protection (VIX following August's "wait what" reality-wake-up call path)... And that means trouble for the only pillar of non-economic stock buying left... Investment-Grade credit risk just hit 3-year highs crushing the economics of any debt-funded shareholder-friendly activities...

Wall Street feels the pain of low oil prices as loans sour - Bankers that backed the U.S. shale boom are setting aside more cash to cover souring loans as energy bankruptcies accelerate. JPMorgan Chase reserved $550 million in 2015 to cover potential losses in its oil and gas portfolio, including $124 million added in the fourth quarter, Marianne Lake, the bank’s chief financial officer, said Thursday in a discussion with analysts about fourth quarter results. BOK Financial Corp. said Wednesday that its provision for credit losses was expected to be $22.5 million, up from earlier forecasts of $2.5 million to $8.5 million. “A bank is supposed to be there for clients in good times and in bad times,” Jamie Dimon, JPMorgan’s chief executive officer, said during the conference call. “So to the extent that we can responsibly support clients, we’re going to. And if we lose a little bit more money because of it, so be it.” Oil prices plunged 36 percent in the past year and dipped to a 12-year low this week, putting an end to the debt-fueled drilling spree that pushed U.S. oil production to the highest level in more than 40 years. After years of spending more than they made, shale companies have parked their drilling rigs and laid off thousands of workers in an effort to conserve cash. In 2015, 42 oil and natural gas producers went bust owing more than $17 billion, according to the law firm Haynes & Boone LLP. Both Wells Fargo and Citigroup will announce fourth-quarter financial results on Friday. Both lenders reserved additional cash for energy losses last year.

JPMorgan Just Did Something It Has Not Done In 6 Years --Yesterday we reported something disturbing: a small regional bank, BOK Financial, announced that it had underestimated its exposure to energy loans, or rather loan, issued by just one company, and as a result its  previously forecasted provision for credit losses of $3.5 million to $8.5 million would be insufficient, and due to the unexpected loan impairment it would have to take a dramatic $22.5 million in credit losses." The reason this is troubling is because as we said yesterday "banks have taken every possible opportunity to assure investors they all overly provisioned for any potential losses stemming from their exposure to impaired energy loans." Clearly when it came to at least one lender this was not the case. And now the attention shifts to all the other banks, which brings us to the first big bank to report earnings earlier today, JPM. Earlier we spread the company's financials and showed that while revenues had barely grown, and in the all important Investment Banking and Trading division revenues actually declined (offset with big cuts to compensation expenses, read bonuses), something else stood out: when skimming through the company's loan loss reserve disclosure, we found that in Q4 JPM did something it hasn't done in 6 years: for the first time in 22 quarters, or since March 2010, JPM actually increased its loan loss provisions by $89 million, instead of reducing this amount.

Stock Markets See Worst Day in Four Months -- The Dow Jones Industrial Average ended the trading day down nearly 2.4% Friday, amid fears over plummeting oil prices and a slowdown in China. The rout, which also saw the S&P 500 drop 2.16%, squashed hopes that American markets might dodge the turmoil plaguing international trading floors late this week. It was the worst ten-day start to a year since records began. Oil’s fall to levels not seen since 2003 spooked investors for two reasons. First, it’s a nasty turn of events for energy firms, some of which are among the world’s biggest companies. But more broadly speaking, oil is seen as a proxy for global demand. Falling oil prices suggest overall demand is low, a sign the global economy may be cooling off.

Credit-Market Fear Gauge Soars as Oil Price Triggers Global Rout - The cost to protect against defaults by North American companies soared to a three-year high Friday as concerns over a deepening plunge in oil prices triggered a global rout in equities. The risk premium on the Markit CDX North American High Yield Index, a credit-default swaps benchmark tied to the debt of 100 speculative-grade companies, jumped 30.8 basis points to 557.7 basis point at 1:30 p.m. in New York, the highest since November 2012. A similar measure for investment-grade debt rose 6.5 basis points to 110.5 basis points, a three-year high. “Stocks are selling off, high yield is selling off, emerging-market debt is selling off, investment-grade bonds are selling off,” said Keith Bachman, the head of U.S. high yield at Aberdeen Asset Management Inc. in Philadelphia. “The higher spreads that we are seeing are reflective of the risk-off environment that we are in. Even though investment-grade credit is safer than high-yield credit, risk premiums are adjusting across the whole spectrum.” Oil fell to a new 12-year low below $30 a barrel in New York and the Bloomberg Commodity Index plunged to the lowest level since 1991. Stocks fell around the world as the Dow Jones Industrial Average sank more than 300 points. European stocks were poised to enter a bear market and the Shanghai Composite Index wiped out gains from an unprecedented state-rescue campaign. The carnage in commodities has lowered demand for the debt of the riskiest companies, with the extra interest investors demand to hold U.S. high-yield energy bonds over government debt rising to the highest level on record. Investors pulled $2.1 billion from U.S. high-yield funds this past week after withdrawing $809.1 billion the week earlier, according to data provider Lipper.

Fed Eyes Margin Rules to Bolster Oversight - WSJ: The Federal Reserve is dusting off a legal power it has largely ignored for four decades, a move that could significantly expand the Fed’s influence over financial markets. Margin requirements—rules limiting what portion of stocks or bonds can be purchased through borrowing—are moving up the Fed’s to-do list as officials fret about whether they have adequate tools to suppress dangerous asset bubbles that could lead to another financial crisis. They also allow the Fed to exert influence on all financial firms, not just banks. A little-noticed global agreement recently paved the way for the central bank to move forward with plans to alter margin requirements. Under the accord announced Nov. 12, regulators representing 25 economies agreed to adopt rules similar to ones the Fed is developing, a united front intended to prevent financial firms from moving transactions offshore in response to tighter Fed rules. Margin works as protection for lenders financing securities purchases. If an investor wants to borrow $100 for a day, a lender might ask the borrower to post a bond worth $105, leaving a $5 margin in case the value of the bond drops. Unlike earlier Fed margin rules, which focused largely on stock purchases, the new rules being crafted by the central bank would apply to securities-financing transactions, a multitrillion dollar market involving repurchase agreements, or repos, for stocks and bonds, as well as lending of securities.

Good News: The Fed Is Finally Going After Leverage in the Shadow Banking Sector -- Here's some welcome news. The Fed is bringing back an old tool to regulate leverage in the financial market: increased margin requirements. And in even more welcome news, these requirements will apply to everyone, not just banks: A little-noticed global agreement recently paved the way for the central bank to move forward with plans to alter margin requirements. Under the accord announced Nov. 12, regulators representing 25 economies agreed to adopt rules similar to ones the Fed is developing, a united front intended to prevent financial firms from moving transactions offshore in response to tighter Fed rules. ....Unlike earlier Fed margin rules, which focused largely on stock purchases, the new rules being crafted by the central bank would apply to securities-financing transactions, a multitrillion dollar market involving repurchase agreements, or repos, for stocks and bonds, as well as lending of securities.  Unlike most of the central bank’s regulatory authority, this rule would reach beyond banks and across the entire financial system, affecting investment funds and other nonbank players, reflecting the Fed’s growing concern about what has been called shadow banking. The tighter that regulations become on banks, the more incentive there is to move transactions into the shadow banking sector.1 That's why we need rules that apply everywhere. As we learned in 2008, a run on the shadow banking sector is every bit as dangerous as a run on ordinary banks. In fact, since shadow banks are so loosely regulated, shadow runs can be even more dangerous than normal runs.

Why Larry Summers is Wrong and Bernie Sanders is Right on Glass Steagall -  Yves Smith - Since Clinton and her operatives have become aggressive in trying to discredit Bernie Sanders on issues where he both has a better track record and better proposals, it’s time for a wee reality check, in this case, on Sanders’ financial reform package.  There’s a lot to like, for instance his insistence that executives be prosecuted for serious misconduct and for backing a Post Office Bank. There are also some things that need to be reworked, like his usury ceiling proposal.  The failing with the Sanders proposal is that he sets as fixed limit of 15.9%; it should be set in relationship to prevailing interest rates, as well as the length of the loan. Larry Summers, acting as a proxy for Team Clinton, took a swipe at the Sanders’ views in a Washington Post op-ed at year end. Admittedly this was a case of dueling op-eds; Summers was responding to a Sanders article in the New York Times which outlined his reform priorities.  However, one of Summers arguments, and one that Clinton has taken up now that Sanders has set forth his plan in more detail, is that Sanders’ “Glass Steagall” reform idea is all wet.  Clinton has brazenly mischaracterized Sanders’ proposal. She makes it sound as if it is a straight-up revival of the 1933 law, and asserts that it misses “shadow banking” and her reform proposals are much better on that front. We’ll discuss this issue in greater detail in a later post. The short version is that Sanders did not propose restoring the original Glass Steagall. He intends to implement the bill devised by former FDIC chairman Tom Hoenig and Elizabeth Warren which is informally described as the 21st century Glass Steagall Act. And yes, sports fans, it includes provisions to curb shadow banking.

Hollywood and Bernie Sanders Take Over Reforming Wall Street - Pam Martens - As Presidential candidate and Senator from Vermont, Bernie Sanders, stumps around the country telling tens of thousands of plundered Americans that Wall Street’s business model is fraud, Hollywood is amplifying that message to millions of moviegoers this year with a series of films that roll back the curtain on how Wall Street has morphed into a crime syndicate. Just as The Big Short movie, based on the Michael Lewis book by the same name, is drawing crowds at theatres and explaining in layman’s terms how the subprime mortgage fraud was perpetrated on Wall Street, a movie trailer for a new film, Money Monster, coming in the first half of this year, has been released. The official summary describes the plot as follows: “In the taut and tense thriller Money Monster, Lee Gates (George Clooney) is a bombastic TV personality whose popular financial network show has made him the money wiz of Wall Street. But after he hawks a high tech stock that mysteriously crashes, an irate investor (Jack O’Connell) takes Gates, his crew, and his ace producer Patty Fenn (Julia Roberts) hostage live on air. Unfolding in real time, Gates and Fenn must find a way to keep themselves alive while simultaneously uncovering the truth behind a tangle of big money lies.” In the trailer below, you’ll notice a distinct similarity to the character played by Clooney and the real-life Jim Cramer, host of “Mad Money” on CNBC. (They’re probably beefing up security on Cramer’s set as we write this.) According to Variety, also to be released this year is the movie “Equity,” starring Anna Gunn. The movie is officially billed as “the first female-driven Wall Street film” which “follows a senior investment banker who is threatened by a financial scandal and must untangle a web of corruption.” As it happens, untangling a web of corruption is the underlying theme of The Big Short, Money Monster, and Equity – all further buttressing the fact that when Senator Bernie Sanders says the business model of Wall Street is fraud, he ain’t just whistling Dixie.

Gaius Publius: Wall Street Reviews What Sanders Plans for Wall Street - naked capitalism Yves here. This post provides a solid overview of the Sanders Big Finance reforms, and as important, some of the ways it has been caricatured or flat-out misrepresented.  I wanted to add a couple of points.  Disingenuous critics treat the less-than-well-thought out details of the Sanders plan as if it were cast in stone. For example, the idea of a usury ceiling is sound. Classical economists like Adam Smith called for them because they could see in their day that lending with no interest rate curbs led creditors to target borrowers who were desperate or reckless but still had some ability to pay, which then was wealthy gamblers, not productive enterprise. The defect of the Sanders proposal is it sets one rate that is fixed across all products. It should instead be set in relationship to prevailing interests rates and (at a minimum) vary with the maturity of the obligation.  But as an aside, scare talk that there would be no credit cards except to very safe customers under this system is just bogus. The old pricing model for credit cards was to have an annual fee. That meant that the credit card issuer made money on every type of user: ones who didn’t use it much or paid off their balances in full every month, ones who only occasionally ran a credit balance. A second issue that Gaius does not challenge is how critics almost without exception mischaracterize Sanders’ “Glass Steagall” plan. It is not to restore the 1933 law, as most imply or even state explicitly, as the Wall Street analyst who is the focus of this post, Jaret Seiberg, does. It is to implement the bill proposed by Elizabeth Warren and backed by some Republicans, such as John McCain, which is described as the 21st Century Glass Steagall Act. It would break up banks along Glass Steagall lines, which is something the Bank of England and the Financial Services Authority fought hard to get implemented. They faced fierce opposition and had to settle for the half a loaf of ring-fencing. But it also included features to curb shadow banking, such as rolling back the section of the 2005 bankruptcy reform act that make derivative positions effectively senior in bankruptcy by allowing counterparties to hang on to collateral.

Not Too Big to Fail. Too Expensive to Exist - WSJ -- Forget too-big-to-fail.The operative question for the country’s largest financial firms is increasingly whether the government has made it too expensive to be big. On Tuesday, insurer MetLife became the second major firm in the past 10 months to decide that the demands of being “systemically important” in the eyes of regulators may outweigh the benefits of continuing to operate at its current size. General Electric made the same choice in April for its giant finance arm, GE Capital.  The moves show that while the U.S. government hasn’t heeded populist calls to “break up” the nation’s largest financial firms, those demands are at times being answered through indirect pressure from regulators. Next up could be MetLife rivals Prudential Financial Inc. and American International Group Inc., analysts say. The latter is facing a challenge from investors, including Carl Icahn, who argue in part that the firm is “too big to succeed” given the regulatory requirements it now must meet that restrain profits. The very largest U.S. banks, some of whom report earnings this week, are also facing increasing questions about whether they can remain profitable at their current size. In recent years, the Federal Reserve and other overseers have made it clear that being big will come with costs: Large U.S. banks have added $641 billion of capital since 2009 to meet tougher regulatory rules, according to the Fed. Those requirements make it tougher for firms to produce outsize returns.

Get Ready to Live the Sequel to "The Big Short": Why are the mega Wall Street banks throwing gasoline on the fire of this stock market rout? We’re talking about those mega Wall Street banks that can rarely bring themselves to put out a sell rating on a stock they follow, deciding to throw gasoline on a plunging stock market last week by issuing negative outlooks. A cynical person (like someone who has just seen The Big Short movie) might be inclined to suspect that the Wall Street banks have gotten their short positions in place and are now ready to make some serious fast money. Bloomberg News ran an article last Tuesday, in the midst of the rout, headlined: “Citi Has Cut U.S. Stocks to Underweight.”   Citigroup’s prior executives currently sit as Secretary of the U.S. Treasury who also heads the Financial Stability Oversight Council (Jack Lew) and Vice Chairman of the Federal Reserve (Stanley Fischer). Also on Tuesday, CNBC reported to its wide cable audience that “Bank of America Merrill Lynch’s Stephen Suttmeier said the S&P is in danger of dipping below 1,965, a key technical level that could unleash a torrent of selling….” JPMorgan Chase also jumped into the fray on Tuesday. CNBC carried an interview with Mislav Matejka, an Equity Strategist at JPMorgan Chase. Matejka had this to say: “We were positive on equities for quite a long time.  But we think structurally, this regime is coming to an end, and the regime that we should be having now is one of selling any rallies.” It would be so very nice, even quaint, to think that mega Wall Street banks simply can’t bear to see their customers lose money. But then there’s the past seven years of billion-dollar settlements for alleged crimes against their customers not to mention felony counts and the very recent reminder in The Big Short movie that some of the biggest banks on Wall Street were failing to mark down the falling prices of subprime debt until they had gotten their own short bets in place.

Goldman Sachs Will Pay $5 Billion in Mortgage Settlement: — Goldman Sachs has reached a $5 billion settlement as part of a federal and state probe into its role in the sale of mortgages in the years leading up into the housing bubble and subsequent financial crisis.Goldman will pay $2.39 billion in civil monetary penalties, $875 million in cash payments and provide $1.8 billion in consumer relief in the form of mortgage forgiveness and refinancing. The settlement, announced late Thursday, was reached between Goldman and the U.S. Department of Justice, the attorneys general of Illinois and New York and other regulators.Goldman has been one of the last banks to settle with regulators for its role in the financial crisis. Bank of America, JPMorgan Chase and others all reached substantial settlements in 2014 and 2015.

Goldman to Pay Up to $5 Billion to Settle Claims of Faulty Mortgages -  More than seven years after the worst of the financial crisis, Goldman Sachs is again paying a price for the role it played.The Wall Street firm said on Thursday it had agreed to a civil settlement of up to $5 billion with federal prosecutors and regulators to resolve claims stemming from the marketing and selling of faulty mortgage securities to investors. Goldman announced the settlement — the final terms of which are still being negotiated — after the markets closed.  Goldman, which is scheduled to report fourth-quarter earnings on Wednesday, said the settlement would reduce earnings in that period by approximately $1.5 billion on an after-tax basis.   Goldman’s settlement is far smaller than the sums paid by other firms for selling flawed mortgage securities. Goldman is among the last firms to reach a civil settlement with a task force of federal prosecutors, state attorneys general and regulators empowered to investigate Wall Street’s role in cobbling together securities from all the mortgages that borrowers found themselves unable to afford.  The agreement in principle requires Goldman to pay $2.385 billion in civil penalties and $875 million in cash and provide up to $1.8 billion in relief to consumers. Bank of America in 2014 paid about $16.6 billion in a similar settlement with federal and state agencies, and JPMorgan Chase paid about $13 billion in 2013. In all, the banks have paid more than $40 billion in settlements to resolve claims investigated by the task force.

Multnomah County approves $9.6 million settlement with controversial mortgage registration firm -- Multnomah County commissioners have approved a $9.6 million settlement of a lawsuit alleging fraud against a national mortgage registry company. Mortgage Electronic Registration Systems Inc. was used by banks to bypass public recording requirements and fees, and critics have accused it of fueling practices that led to the 2010 national foreclosure crisis. Other lawsuits against the company have been filed around the country, with mixed results. Of the total settlement, the county will receive $6.1 million. The remainder will go to three outside law firms the county hired to pursue the case. In return for the money, county commissioners will be restricted on what they can say outside of public meetings. According to a script negotiated by the outside lawyers, they can say only that the case was settled and they are happy with the outcome. Several commissioners took the opportunity to raise concerns about the "gag order" and decry the corporate behavior that led to the crisis. "People lost their jobs, people lost their health care and people lost their homes because of this," said Commissioner Judy Shiprack. The effects are "still rippling though the lives of the people that I represent." The county originally filed the case as a $38 million lawsuit, but last May filed an expanded lawsuit seeking damages of $160 million. The case moved from state court to federal court, then to mediation.

Are stocks and housing off on another bubble? -Alex Brummer reports: As a new year gets under way [Nobel Laureate Robert] Shiller fears that advanced economies could be on the cusp of another stock market and property bubble that could end in tears…. “I’ve tried to inquire why we are having these booms right now at a time of so-called secular stagnation with low interest rates, and arrived at the thought that low interest rates are promoting these bubbles.” One of Professor Shiller’s academic contributions was construction of a monthly time series analogous to the current S&P 500 stock price index along with dividends and earnings going all the way back to 1871. One summary he has used for how expensive stocks are at any point in time is the ratio of the inflation-adjusted value of stocks in month t to the average real earnings on those stocks over the previous decade, with the averaging helping to standardize the measured P/E with respect to business-cycle fluctuations. The current value of that backward-looking P/E (even with last week’s stock market losses) is 24.4, well above the historical average of 16.6.The way we’ve usually seen a high P/E return to the historical average is through subsequent below-normal growth of stock prices (that is, by lowering the numerator in the price/earnings ratio). Between 1881 and 2005, if you bought stocks in a month when the P/E was 25 or higher, your average annual real capital gain from holding stocks over the next decade would only be 1.2%. In a third of those months, the real value of the stocks would actually turn out to be lower after holding them for ten years than what you paid.Another useful series that Shiller developed is an index of the real value of U.S. homes going back to 1890. For about a century, house prices in Shiller’s estimates rose on average at about the same rate as other prices, leaving the real value of the index in 1975 about where it had been in 1890. The house price bubble of 2000-2005 is a pretty dramatic outlier from that historical stability, and was followed by a spectacular crash that returned the index in the neighborhood of the historical norm by 2012. But since then U.S. house prices have once again been significantly outpacing inflation, with the index now back up to 157.

Black Knight November Mortgage Monitor: First Time Foreclosure Starts Lowest on Record - Black Knight Financial Services (BKFS) released their Mortgage Monitor report for November today. According to BKFS, 4.92% of mortgages were delinquent in November, up from 4.77% in October. BKFS reported that 1.38% of mortgages were in the foreclosure process. This gives a total of 6.30% delinquent or in foreclosure. Press Release: Black Knight’s November Mortgage Monitor: Refinanceable Population Shrinks While Tappable Equity Rises; HELOC Originations Continue to Climb This month, Black Knight revisited the population of refinanceable borrowers and found that approximately 5.2 million borrowers could likely both qualify for and benefit from refinancing at today’s interest rates. However, as Black Knight Data & Analytics Senior Vice President Ben Graboske explained, this population is diminishing, and as mortgage interest rates rise, it will only continue to shrink further. “Looking at current interest rates on existing 30-year mortgages and applying a set of broad-based underwriting criteria, we found that there are still approximately 5.2 million borrowers that make good candidates for traditional refinancing,” said Graboske. “Of course, that’s down from over 7 million as recently as April 2015, when interest rates were below 3.7 percent. If rates go up 50 basis points from where they are now, 2.1 million borrowers will fall out of the running; a 100-basis-point increase would eliminate another million, leaving only 2 million potential refinance candidates, the lowest population of refinance candidates in recent history. This graph from Black Knight shows the first time foreclosure starts since 2005. From Black Knight:  Looking more closely at November’s foreclosure starts, we see that the month’s 31,000 first time foreclosure starts were the lowest in over 10 years  In fact, the lowest number of foreclosure starts seen in 2005 (when Black Knight began tracking this data) was 37,700 in January – so not only are we back to pre-crisis levels, but November was 18 percent below the lowest level of first time foreclosure starts in all of 2005.  Likewise, repeat foreclosures were at their lowest level since April of 2008

Why Mortgage Rates Dropped After The Fed Rate Hike: This month, the Federal Reserve System hiked rates for the first time in nine years. In the days since the Fed move, mortgage rates actually dropped. How is this possible? And will this trend hold as home-buyers make plans for 2016?  Most U.S. mortgage loans up to $417,000 are packaged into bonds called Mortgage Backed Securities (MBS), and these bonds trade daily in global markets. Throughout each day, mortgage rates fall when MBS prices rise, and mortgage rates rise when MBS prices fall. Mortgage rates rose as investors sold MBS ahead of the December 16 Fed meeting. It was widely expected the Fed would hike the short-term Fed Funds Rate, but without knowing how the Fed might position 2016 rate policy overall, MBS investors took the conservative stance of selling ahead of the meeting. Then when the Fed meeting announcement actually came out, the Fed said it was only hiking the Fed Funds Rate by .25 percent, and will take a "gradual" approach to tightening rate policy from here. Bond markets reacted positively, and MBS buying resumed, pushing mortgage rates down. Now markets are estimating the "gradual" Fed Funds Rate hikes will happen about four times in the next year, for a total of about one percent. But the Fed Funds Rate is intended to influence broad rate markets overall, not to have a direct impact on mortgage rates.

MBA: Mortgage Applications Increased in Latest Weekly Survey, Purchase Applications up 19% YoY - From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey: Mortgage applications increased 21.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 8, 2016. The previous week’s results included an adjustment for the New Year’s holiday. .. The Refinance Index increased 24 percent from the previous week. The seasonally adjusted Purchase Index increased 18 percent from one week earlier. The unadjusted Purchase Index increased 74 percent compared with the previous week and was 19 percent higher than the same week one year ago.. “MBA’s purchase mortgage application index reached its second highest level since May 2010 on a seasonally adjusted basis last week, second only to the week prior to the implementation of the Know Before You Owe rules,” said   The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.12 percent from 4.20 percent, with points decreasing to 0.38 from 0.42 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index since 1990. Refinance activity was higher in 2015 than in 2014, but it was still the third lowest year since 2000. Refinance activity will probably stay low in 2016, and will probably be lower than in 2014 and 2015. The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is 19% higher than a year ago.

FNC: Residential Property Values increased 6.0% year-over-year in November --In addition to Case-Shiller, and CoreLogic, I'm also watching the FNC, Zillow and several other house price indexes.  FNC released their November 2015 index data.  FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values were unchanged from October to November (Composite 100 index, not seasonally adjusted).   The 10 city MSA increased 0.5% (NSA), the 20-MSA RPI increased 0.2%, and the 30-MSA RPI increased 0.1% in November. These indexes are not seasonally adjusted (NSA), and are for non-distressed home sales (excluding foreclosure auction sales, REO sales, and short sales).  Notes: In addition to the composite indexes, FNC presents price indexes for 30 MSAs. FNC also provides seasonally adjusted data. The index is still down 14.5% from the peak in 2006 (not inflation adjusted).

Cheap Oil Hits Housing In North Dakota, Texas, & Others - Low crude oil prices since the second half of 2014 have created a boon for consumers as the cost to fill up at the pump has plunged. The extra cash in the pockets of millions of motorists is often likened to an unexpected tax cut, which could help stimulate the economy.  Leaving aside the true extent of such a stimulus, which is debatable, there is a flip side to that coin. The collapse in crude oil prices is a huge blow to areas where oil extraction and associated industries are the bread and butter of the economy. As petro-economies suffer from the bust in crude prices, the effects are showing up in the housing market. Take North Dakota, for example, which was on the front lines of the oil boom between 2011 and 2014.   The economy is smaller and thus more dependent on the oil boom than other places, such as Texas. The state saw an influx of new workers over the past few years, looking for work in in the prolific Bakken Shale. A housing shortage quickly emerged, pushing up prices. With the inability to house all of the new people, rent spiked, as did hotel rates. The overflow led to a proliferation of “man camps.”  Now the boom has reversed. The state’s rig count is down to 53 as of January 13, about one-third of the level from one year ago. Drilling is quickly drying up and production is falling."The jobs are leaving, and if an area gets depopulated, they can't take the houses with them and that's dangerous for the housing market," as per CNN Money. New home sales were down by 6.3 percent in North Dakota between January and October of 2015 compared to a year earlier. Housing prices have not crashed yet, but there tends to be a bit of a lag with housing prices. JP Ackerman of HouseCanary says that it typically takes 15 to 24 months before house prices start to show the negative effects of an oil downturn.

Mortgage News Daily: "Lenders quoting 30yr fixed rates in a range of 3.875% to 4.0%" -- Mortgage rates are nears the lows of the last two months ... From Matthew Graham at Mortgage News Daily: Mortgage Rates Lower as Markets Grow Anxious Ahead of Fed  Yesterday was best described as 'unchanged,' and today's rate sheets were almost imperceptibly weaker. In other words, we've spent the last few days bouncing along the lowest levels in more than 2 months. Lenders are back to quoting conventional 30yr fixed rates in a range of 3.875% to 4.0%.  Here is a table from Mortgage News Daily:  Home Loan Rates.  View More Refinance Rates

U.S. Will Track Secret Buyers of Luxury Real Estate - Concerned about illicit money flowing into luxury real estate, the Treasury Department said Wednesday that it would begin identifying and tracking secret buyers of high-end properties.  The initiative will start in two of the nation’s major destinations for global wealth: Manhattan and Miami-Dade County. It will shine a light on the darkest corner of the real estate market: all-cash purchases made by shell companies that often shield purchasers’ identities.  It is the first time the federal government has required real estate companies to disclose names behind cash transactions, and it is likely to send shudders through the real estate industry, which has benefited enormously in recent years from a building boom increasingly dependent on wealthy, secretive buyers. The initiative is part of a broader federal effort to increase the focus on money laundering in real estate. Treasury and federal law enforcement officials said they were putting greater resources into investigating luxury real estate sales that involve shell companies like limited liability companies, often known as L.L.C.s; partnerships; and other entities. Future investigations, they said, will focus increasingly on professionals who assist in money laundering, including real estate agents, lawyers, bankers and L.L.C. formation agents. The use of shell companies in real estate is legal, and L.L.C.s have a range of uses unrelated to secrecy. But a top Treasury official, Jennifer Shasky Calvery, said her agency had seen instances in which multimillion-dollar homes were being used as safe deposit boxes for ill-gotten gains, in transactions made more opaque by the use of anonymous shell companies.

NMHC: "Apartment Markets Recede in the January NMHC Quarterly Survey" -- From the National Multifamily Housing Council (NMHC): Apartment Markets Recede in the January NMHC Quarterly Survey All four indexes in the January 2015 National Multifamily Housing Council (NMHC) Quarterly Survey of Apartment Market Conditions fell below the breakeven level of 50, indicating a decline over the past quarter. The last time Market Tightness (47), Sales Volume (46), Equity Financing (46) and Debt Financing (37) all landed below 50 was in October 2013. “After an incredible year for the apartment industry, some weakening has appeared reflecting seasonal patterns along with additional pullback in some markets,” “2015 was one for the record books. Construction of new apartments rose to the highest level in almost 30 years, while the occupancy rate continued to climb and rent growth accelerated,” said Obrinsky. “All signs point to continued strong demand for apartment residences. With new supply finally approaching the level needed to meet new demand, we may well see some moderation in both occupancy and rent growth.” Consumer demand for apartments declined slightly, with the Market Tightness Index coming in at 47 from 53 last quarter. This marks the first time in two years that the index showed a contraction from the previous quarter. This graph shows the quarterly Apartment Tightness Index. Any reading below 50 indicates looser conditions from the previous quarter. This indicates market conditions were looser over the last quarter.

CoStar: Commercial Real Estate prices "Continued Climb" in November, up 12% year-over-year -  Here is a price index for commercial real estate that I follow.   From CoStar: CRE Prices Continued Upward Climb in November  U.S. commercial real estate continued to post broad price gains in November 2015, with market fundamentals reflecting healthy levels of absorption and continued rental gains, even as construction levels slowly increased. The two broadest measures of aggregate pricing for commercial properties within the CCRSI — the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index — each increased by 0.9% in November 2015, contributing to annual gains of 12.2% and 11.7%, respectively, for the 12 months ended November 2015.  This graph from CoStar shows the the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index indexes. The value-weighted index increased 0.9% in November and is up 12.2% year-over-year. The equal-weighted index increased 0.9% in November and up 11.7% year-over-year. Note: These are repeat sales indexes - like Case-Shiller for residential - but this is based on far fewer pairs.

Construction Spending Historical Data Contained a Processing Error - Likely No Big Deal. - This past week the U.S. Census unveiled a "processing error".  The statement in the November 2015 construction spending release from the U.S. Census Bureau: In the November 2015 press release, monthly and annual estimates for private residential, total private, total residential and total construction spending for January 2005 through October 2015 have been revised to correct a processing error in the tabulation of data on private residential improvement spending. A quick look at what happened to construction spending (values in $ millions): From the above graphic - it is clear that the significant change was that some monies were NOT included in construction spending since 2014 and especially during the 2014 calendar year itself. Simply, the area under the curve improved, meaning GDP may have been understated - could be by as much as 0.3 to 0.4 % some quarters. I say MAY because the BEA has to allocate expenditures, and the monies could have been put in the wrong pocket (but still accounted for within GDP). The graph below shows the fraction of GDP attributable to construction. [Note that this is the new construction spending data against the existing GDP data.] At this point, I would not read too much into this annual revision of construction spending. In any event, construction spending annual rate of growth still exceeds 10% for much of 2015.

Consumers Expect Lower Household Income, Earnings and Spending Growth - NY Fed - The December 2015 Survey of Consumer Expectations (SCE) results indicate that median expected growth in household income, earnings and especially household spending all declined. Labor market expectations are mixed compared to last month: Perceived layoff risk declined, but the perceived likelihood of finding a new job (if one were to lose their job today) also declined, although it remained at the high end of the range recorded since the inception of the survey. Median expected inflation remained flat at the one-year ahead horizon, tying last month’s series low, whereas it increased slightly at the three-year horizon.

Gallup US ECI January 5, 2016: December's economic confidence index averaged minus 11 in December, slightly better than averages from July through November. Confidence was a bit lower in December than in early 2015, but better than it's been for most of the time since 2008. The Economic Confidence Index rose sharply in late 2014 and early 2015 coincident with falling gas prices. In January, Gallup's index reached positive territory, with a monthly score of plus 3, for the first time since the recession. Confidence ebbed slightly in March and April, returning to negative index scores. From May to September, though, the index dropped a bit each month, dipping as low as minus 14 in September. It has since remained below minus 10. The slight improvement in the overall index in December is attributable to Americans' improved views of the current economy. In December, 25 percent of Americans rated current economic conditions as "excellent" or "good," while 29 percent rated them as "poor." This resulted in a current conditions score of minus 4, up from minus 7 in each of the prior three months and the highest since June. The economic outlook score was minus 18, matching November's score. This was the result of 39 percent of Americans saying the economy is "getting better" and 57 percent saying it is "getting worse." Americans' outlook for the economy is similar to what Gallup has measured since July, but remains down significantly from earlier in 2015. Not surprisingly, Americans' confidence in the economy is related to their own financial situation. Those in the highest-income households consistently have more confidence in the economy than those in households with the lowest annual incomes.

Retail Sales decreased 0.1% in December -- On a monthly basis, retail sales were down 0.1% from November to December (seasonally adjusted), and sales were up 2.2% from December 2014.  From the Census Bureau report: The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for December, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $448.1 billion, a decrease of 0.1 percent from the previous month, and 2.2 percent above December 2014. Total sales for the 12 months of 2015 were up 2.1 percent from 2014.  This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). Retail sales ex-gasoline was unchanged. The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993. Retail and Food service sales ex-gasoline increased by 3.9% on a YoY basis (22.2% for all retail sales including gasoline). The increase in December was below expectations of unchanged, however retailed sales for November were revised up from a 0.2% increase to a 0.4% increase. The headline number was weak, however sales ex-gasoline are up a solid 3.9% YoY.

Headline Retail Sales Marginally Declined In December 2015?: Retail sales marginally declined according to US Census headline data. Our view is that this month's data was stronger than last month, There was an improvement of the rolling averages. Consider that the headline data is not inflation adjusted and prices are currently deflating making the data better than it seems. Backward data revisions were generally upward. Econintersect Analysis:

  • unadjusted sales rate of growth accelerated 1.0 % month-over-month, and up 2.8 % year-over-year.
  • unadjusted sales 3 month rolling year-over-year average growth accelerated 0.2 % month-over-month, 2.1 % year-over-year.
  • unadjusted sales (but inflation adjusted) up 3.7 % year-over-year
  • this is an advance report. Please see caveats below showing variations between the advance report and the "final".
  • in the seasonally adjusted data - furniture, building materials, sporting goods, and food services were strong, but mostly everything else was soft.

U.S. Census Headlines:

  • seasonally adjusted sales down 0.1 % month-over-month, up 2.1 % year-over-year (last month was 1.7 % year-over-year).
  • the market was expecting (from Bloomberg):

Retail Sales: December Numbers Are a Huge Disappointment - The Census Bureau's Advance Retail Sales Report released this morning shows that seasonally adjusted sales in December decreased 0.1% month-over-month and are up 2.2% year-over-year. Core Retail Sales (ex Autos) also declined 0.1% MoM and are up only 1.2% YoY The forecasts were 0.1% for Headline and 0.2% for Core Sales. The chart below is a log-scale snapshot of retail sales since the early 1990s. The two exponential regressions through the data help us to evaluate the long-term trend of this key economic indicator. The year-over-year percent change provides another perspective on the historical trend. Here is the headline series. Here is the year-over-year version of Core Retail Sales.The next two charts illustrate retail sales "Control" purchases, which is an even more "Core" view of retail sales. This series excludes Motor Vehicles & Parts, Gasoline, Building Materials as well as Food Services & Drinking Places. Here is the same series year-over-year. Note the highlighted values at the start of the two recessions since the inception of this series in the early 1990s.

December Retail Sales Negative; Other Economic Data Horrid --Despite glowing reports of last minute Christmas sales, none of which I believed, December retail sales are best described as awful. Apparel was a standout, down 0.9%. The surprise here is that nobody blamed the weather. The Econoday Consensus Estimate was flat, and the result was not that far off at -0.1%, but the details were awful.  Retail sales proved disappointing in December, down 0.1 percent in a headline that is not skewed by vehicles or even that much by gasoline. Ex-auto sales also fell 0.1 percent while the core ex-auto ex-gas reading came in unchanged which is well below both expectations as well as low-end expectations. The Beige Book yesterday warned us about weak apparel sales which in this report fell a very steep 0.9 percent, in a decline that likely reflects more than just import-price contraction. The general merchandise category, which is very large, fell 1.0 percent in the month. Electronics & appliances also show contraction.December winds up what was a not-so-great year for the nation's retailers. Total sales rose only 2.1 percent in the year, the smallest gain since 2009 and well down from 3.9 percent in 2014. Excluding motor vehicles, sales rose 0.9 percent, far lower than 2014's 3.1 percent.  There are, however, some positives in the report including another strong gain for restaurants, up 0.8 percent, and also another gain for furniture & home furnishings, up 0.9 percent in strength that confirms ongoing improvement in the housing sector. But sales at non-store retailers rose only 0.3 percent for a second straight month which are moderate gains that do not confirm anecdotal reports of unusual holiday strength for online shopping. Upward revisions do take some of the sting out of the December report but not much. November total sales are revised 2 tenths higher to plus 0.4 percent and reflects a sharp upward revision to vehicle sales to plus 0.5 percent. But vehicle sales couldn't muster any strength in December, coming in unchanged. And sales at gasoline stations extended their long run of contraction that reflects falling oil prices, down 1.1 percent in December.

US Consumer Officially In Hibernation: Retail Sales End Weakest Year Since 2009 As Control Group Tumbles -- Several days ago, Bank Of America was "confused" why retail spending refuses to pick up, although it hoped that this would be a one time aberation and that the official government data would disprove what it was seeing in its card data. Well, that did not happen after the headline retail sales printed moments ago at -0.1% in December, falling from an upward revised 0.4%.  But BofA's confusion should at least be resolved when looking at the core data, which was a big disappointment, as the Retail Sales ex auto was down 0.1% in December, below the 0.2% expected. Putting this miss in context, 66 out of 69 economists thought December retail sales ex autos would've been higher than actual. But the biggest disappointment was the GDP-feeding control group which tumbled by 0.3%, a mirror image of the expected increase of 0.3%, and down from the revised 0.5% in November.And just like that US retail sales put the wrap on the weakest year since 2009 as the manufacturing recession is now officially starting to spread to the service sector.So much for those "gas savings" prompting Americans to spend, spend, spend...More details from the WSJ: December’s sales slump was broad-based, as consumers spent less on general merchandise, clothing and accessories, groceries and gasoline. Excluding motor vehicles, sales were down 0.1% in December, and excluding gasoline, sales were unchanged. Excluding both categories, sales were still flat last month.

Michigan Consumer Sentiment: January Preliminary Inches Upward -- The University of Michigan Preliminary Consumer Sentiment for January came in at 93.3, a 0.8 point increase from the 92.6 Decemeber Final reading. had forecast an even 93.0. Surveys of Consumers chief economist, Richard Curtin makes the following comments: Consumer confidence inched upward for the fourth consecutive month due to more positive expectations for future economic growth. Personal financial prospects have remained largely unchanged during the past year at the most favorable levels since 2007 largely due to trends in inflation rather than wages. Indeed, expected wage gains fell to their lowest level in a year in early January, but were more than offset by declines in the expected inflation rate. The result was that inflation-adjusted income expectations rose to their highest level in nine years. Consumer optimism is now dependent on the continuation of an extraordinarily low inflation rate. Rather than welcoming a rising inflation rate as a signal of a strengthening economy, consumers are now more likely to reduce the pace of their spending and thus act to erase the Fed's rationale for higher interest rates. Given the favorable overall state of the Sentiment Index, the data continue to indicate that real personal consumption expenditures can be expected to advance by 2.8% in 2016. [More...] 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.

Household Inflation Uncertainty Update - Carola Binder - In my job market paper last year, I constructed a new measure of households' inflation uncertainty based on people's tendency to use round numbers when they report their inflation expectations on the Michigan Survey of Consumers. The monthly consumer inflation uncertainty index is available at a short horizon (one-year-ahead) and a long horizon (five-to-ten-years ahead). I explain the construction of the indices in more detail, and update them periodically, at the Inflation Uncertainty website, where you can also download the indices. I recently updated the indices through November 2015. As the figure below shows, short-horizon inflation uncertainty reached a historical maximum in February 2009, but has since fallen and remained relatively steady in the last two years. Consumers are less uncertain about longer-run than shorter- run inflation since around 1990. This makes sense if at least some consumers have anchored expectations, i.e. they are fairly certain about what will happen with inflation over the longer run, even if they expect it to fluctuate in the shorter run. In my paper, I interpreted the decline of long-run consumer inflation uncertainty over the 1980s as a result of improved anchoring during and following the Volcker disinflation, but noted the apparent lack of improvement since the mid-90s, despite the Fed's efforts to improve its communication strategy and better anchor expectations. With an extra year of data, it looks like long-run inflation uncertainty may have actually declined, if only slightly, in the last few years. Still, that doesn't mean that consumers' expectations are strongly anchored, as I show in another working paper (which Kumar et al. follow up for New Zealand with similar results).

Producer Price Index: A Slight Decrease in December - Today's release of the December Producer Price Index (PPI) for Final Demand came in at -0.2% month-over-month seasonally adjusted, down from 0.3% in November. It is down -1.0% year-over-year, the twelfth consecutive month of YoY shrinkage. Core Final Demand (less food and energy) came in at 0.1% MoM, down from 0.3% the previous month and is up 0.3% YoY. The forecasts were for -0.2% headline and 0.1% core Here is the summary of the news release on Final Demand: The Producer Price Index for final demand decreased 0.2 percent in December, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices increased 0.3 percent in November and fell 0.4 percent in October. On an unadjusted basis, the final demand index fell 1.0 percent in 2015, after rising 0.9 percent in 2014. (See table A.) In December, the decrease in the final demand index can be traced to a 0.7-percent decline in prices for final demand goods. In contrast, the index for final demand services moved up 0.1 percent. More… The BLS shifted its focus to its new "Final Demand" series in 2014, a shift we fully support.. Since our focus is on longer term trends, we continue to track the legacy Producer Price Index for Finished Goods, which the BLS also includes in their monthly updates. As this overlay illustrates, the Final Demand and Finished Goods indexes are highly correlated.

Producer Prices Decline More Than Expected, Services Disappoint; Oil Approaches $29 - Producer prices are down again this month followed by an unexpected rise last month. If oil prices stick, expect more of the same next month. Crude is down $1.80 today, another 5.77%, to a new interim low of $29.28. The session is not over yet so it remains to be seen if today is the first close below $30 since 2003. The Econoday Consensus Estimate was -0.1%, and the actual headline number -0.2%.  The producer price-final demand headline in December fell 0.2 percent, nearly reversing November's 0.3 percent increase which now, regrettably, looks like an upside outlier. Year-on-year, the headline is down 1.0 percent. The ex-gas ex-food core rate did rise, but only 0.1 percent while the year-on-year rate is down 2 tenths in the month to only plus 0.3 percent. The ex-gas ex-food ex-services headline is up 0.2 percent with the year-on-year rate unchanged, also at plus 0.3 percent. Services are the disappointment in this report, unchanged in the month following November's 0.5 percent bounce back that followed, however, two prior months of decline. Lack of price traction in services is a blow to Federal Reserve policy makers who are counting on improvement in domestic prices to offset ongoing contraction in fuel and commodity prices. Year-on-year, service prices are up only 0.4 percent. Energy prices fell 3.4 percent in the month with the year-on-year rate at minus 16.2 percent. Food prices, which have been another source of weakness, fell 1.3 percent with the year-on-year rate at minus 5.2 percent. Two other areas of weakness are export prices, down 0.1 percent and 3.4 percent year-on-year, and also, in bad news for manufacturers, finished goods prices which fell 0.7 percent and are down 2.7 percent on the year. Construction prices, which have been a source of strength, were unchanged though up 1.8 percent on the year.

What’s Wrong With The Producer-Price Index? Rent Is Too Damn High - Prices in the U.S. are either rising or falling, depending on how you measure them. The best-known measure of consumer inflation, the Labor Department’s consumer-price index, rose 0.5% from a year earlier in November. The Federal Reserve prefers to use the Commerce Department’s personal-consumption expenditures price index, which rose 0.4% on the year in November. So why did another Labor Department inflation yardstick, the producer-price index, decline 1.1% on the year in November? The answer may be simple: Housing costs are rising faster than pretty much anything else, and they’re not part of the PPI. A little background first. The PPI tracks price changes at the business level, and it was overhauled two years ago to cover a broader base of goods and services. In some cases, it can reveal inflationary pressures in the pipeline before they show up in consumer prices. It also happens to be first broad inflation gauge released each month, earning it extra attention from economists and investors. The December PPI report will be released Friday morning, while the CPI won’t be out until next Wednesday and the PCE price index won’t be available until Feb. 1. The PPI has generally moved in tandem with the two consumer-facing price gauges, but it has diverged from both measures over the past year. All three inflation gauges fell toward zero after oil prices began to tumble in mid-2014. The PPI kept going, dropping into negative annual territory and staying there, while the CPI and PCE measures have stabilized at low levels. The likely culprit: rising rents. The cost of shelter, as measured by the CPI, rose 3.2% in November from a year earlier for the third consecutive month—the fastest growth in eight years. But while rent (and its equivalent for homeowners) makes up nearly a third of the CPI basket and a smaller but still substantial share of the PCE index, it’s absent from the PPI.

Import and Export Price Year-over-Year Deflation Continues in December 2015.: Trade prices continue to deflate year-over-year, and energy prices again drove this month's decline. Import Oil prices were down 9.5 % month-over-month, and export agricultural prices decreased 1.0 %. Agriculture price decline was essentially the same as other export price decline.

  • with import prices down 1.2 % month-over-month, down 8.2 % year-over-year;
  • and export prices down 1.1 % month-over-month, down 6.5 % year-over-year..

There is only marginal correlation between economic activity, recessions and export / import prices. Prices can be rising or falling going into a recession or entering a period of expansion. Econintersect follows this data series to adjust economic activity for the effects of inflation where there are clear relationships. Econintersect follows this series to adjust data for inflation.

Deflationary Pressures Mount: Export Prices Sink 1.1%, Import Prices Sink 1.2% -- Export and import prices continued the collapse today according to the latest BLS Data. Export prices fell 1.1%, over double the Econoday consensus estimate of -0.5% and also lower then the lowest economist's forecast of -0.8%. Import prices sank 1.2% less than the consensus estimate of -1.4%.  Cross-border price pressures continue to sink into deep contraction, down a month-to-month 1.2 percent for December import prices and down 1.1 percent for export prices. Falling petroleum prices, down a monthly 10.0 percent on the import side, are responsible for much of the deflationary pressure but not all of it as prices for non-fuel imports, down 0.3 percent in the month, are showing their weakest year-on-year pressure, at minus 3.4 percent, since 2001. Year-on-year, total import prices for 2015 fell 8.2 percent which is the largest drop since 2008. Export prices, down 6.5 percent in 2015, are at a record low for the entire series which goes back to 1989. Export prices excluding agriculture, down 5.9 percent, is also a record low. Weakness is spilling into finished goods prices where capital goods imports, down 0.3 percent in the month, are at a year-on-year minus 2.5 percent which is the steepest decline since 2002. Other readings here are also weak including exported consumer goods which are down 0.4 percent in the month and down 2.4 percent on the year.  Import prices from Canada, down 2.8 percent in the month for a year-on-year minus 14.8 percent, are the weakest of all and reflect deflation for oil and commodities. Latin America is next, down 1.5 percent for a year-on-year minus 11.2 percent. China shows the least downward pressure, only 0.1 percent lower in the month and down only 1.7 percent on the year..

China Exports Most Deflation To The US Since December 2009 - The December import price index report from the BLS showed a modest deterioration at the headline level: declining by 1.20% this was fractionally better than the expected decline of -1.40% however a notable drop from last month's -0.50%. While most of the December decrease was attributable to falling fuel  prices, nonfuel prices continued to trend down as well, with Import prices ex-fuels dropping 0.3% (after falling 0.2% in Nov), suggesting the rest of the world continues to export substantial deflation to the US. Annually, the pace of declines also picked up modestly dropping "only" -8.2% from a year ago, higher than the -9.5% slide in October. Import prices have now seen an annual decline for 17 consecutive months starting in July 2014. Fuel prices decreased 9.5 percent in December, following a 3.5-percent drop in November. The December decline was the largest 1-month fall in the index since a 12.7-percent decrease in August and was led by a 10.0-percent drop in petroleum prices. Natural gas prices also declined in December, falling 6.8 percent.  Before blaming only sliding commodity costs for the continuing collapse in import prices, read this: prices for nonfuel imports fell 0.3 percent in December and have not  recorded a monthly advance since the index rose 0.1 percent in July 2014. Lower prices for nonfuel industrial supplies and materials; foods, feeds, and beverages; and each of the major finished goods categories all contributed to the overall drop in nonfuel prices. The price index for nonfuel imports declined 3.4 percent over the past year, the biggest calendar-year drop since the index was first published in 2001.

Weekly Heating Oil Price Update: Lowest Levels Since 2009 - - With winter in full swing, we've been thinking about the cold weather and thus our heating bill. Commodities saw their prices drop in 2015 with a 41% decline in energy. With the warmer weather this holiday season and warmer forecasts thanks to El Niño, heating oil prices will likely continue to drop. We're already seeing lower prices than at this time last year. We've used data based on the Energy Information Administration (EIA), which publishes price data weekly on home heating oil in 38 states. Unlike natural gas and electricity, home heating oil is provided by independent retailers. The latest price for home heating oil nationwide is $2.18, unchanged from last week and down 0.79 from last year and at its lowest levels since 2009. EIA's heating oil data is seasonal - from October through March. Here's a look at the series since its inception in 1990. Here's a closer look since 2000. EIA breaks the data down into regions and sub-regions. Here we've overlayed the US average with the East Coast and Midwest regions. Notice the US average and East Coast are almost identical.

PayPal, others buy stolen data from criminals to protect users- In early 2014, hackers gained control of a small number of eBay employee log-ins and breached a company database containing customer information. The breach would prove so vast that eBay was forced to ask more than 100 million people to reset their passwords. PayPal, then the digital-commerce arm of eBay, sought to ensure it wouldn’t have to ask its users to do the same.So, PayPal did something it acknowledges is a “regular course of business.” It tasked a middleman to buy data from criminals: a small sample of 32 accounts offered online for about $100. Such sales are widely known within cybersecurity circles, but purchases of data advertised as stolen are seldom discussed publicly, in part because of the messy ethical questions they raise. A dozen people — including several current and former senior executives at major Silicon Valley mainstays and cybersecurity vendors — detailed to The Chronicle the process and its importance to counterintelligence investigations. Companies that engage in the practice include top technology firms and banks, which reportedly bought back stolen credit and debit card numbers in the wake of the breach at Target in 2013.  According to insiders, the tactic requires companies and intelligence vendors to infiltrate a complex criminal ecosystem of chat rooms and forums where stolen data are bought and sold, and participants are often vetted for their underworld bona fides.

U.S. Heavy Truck Sales -- The following graph shows heavy truck sales since 1967 using data from the BEA. The dashed line is the December 2015 seasonally adjusted annual sales rate (SAAR). Heavy truck sales really collapsed during the recession, falling to a low of 181 thousand in April 2009 on a seasonally adjusted annual rate basis (SAAR). Since then sales increased more than 2 1/2 times, and hit 492 thousand SAAR in November 2015 - even with weakness in the oil sector. Heavy truck sales declined in December to 440 thousand SAAR. The level in November 2015 was the highest level since December 2006 (9 years ago). Sales have been above 400 thousand SAAR for 18 consecutive months, are now above the average (and median) of the last 20 years.  (graph)

Rail Traffic Is Saying Something Worrying About the U.S. Economy - It's not the jobs report or the latest housing data but railway cargo that has analysts at Bank of America concerned. Railroad cargo in the U.S. dropped the most in six years in 2015, and things aren't looking good for the new year.  "We believe rail data may be signaling a warning for the broader economy," the recent note from Bank of America says. "Carloads have declined more than 5 percent in each of the past 11 weeks on a year-over-year basis. While one-off volume declines occur occasionally, they are generally followed by a recovery shortly thereafter. The current period of substantial and sustained weakness, including last week’s -10.1 percent decline, has not occurred since 2009." BofA analysts led by Ken Hoexter look at the past 30 years to see what this type of steep decline usually means for the U.S. economy. What they found wasn't particularly encouraging: All such drops in rail carloads preceded, or were accompanied by, an economic slowdown (Note: They excluded 1996 due to an extremely harsh winter). "Similar periods of weakness have occurred in only five other instances since 1985: (1) the majority of 1988, (2) the first half of 1991, (3) several weeks in early 1996, (4) late 2000 and early 2001, and (5) late 2008 and the majority of 2009 … all either overlapped with a recession, or preceded a recession by a few quarters."

Rail Week Ending 09 January 2016: Year Begins In Contraction: Week 1 of 2016 shows same week total rail traffic (from same week one year ago) declined according to the Association of American Railroads (AAR) traffic data. Intermodal traffic remained in expansion year-over-year, which accounts for approximately half of movements but the weekly railcar counts remained deeply in contraction. A summary of the data from the AAR: U.S. weekly rail traffic was 498,160 carloads and intermodal units, down 3.7 percent compared with the same week last year. Total carloads for the week ending Jan. 9 were 239,221 carloads, down 13.5 percent compared with the same week in 2015, while U.S. weekly intermodal volume was 258,939 containers and trailers, up 7.5 percent compared to 2015. Five of the 10 carload commodity groups posted an increase compared with the same week in 2015. They included miscellaneous carloads, up 23 percent to 8,552 carloads; motor vehicles and parts, up 10.6 percent to 13,276 carloads; and chemicals, up 6.2 percent to 32,302 carloads. Commodity groups that posted decreases compared with the same week in 2015 included coal, down 30.7 percent to 75,112 carloads; metallic ores and metals, down 18.1 percent to 19,419 carloads; and petroleum and petroleum products, down 15.1 percent to 13,096 carloads. For the first week of 2016, U.S. railroads reported cumulative volume of 239,221 carloads, down 13.5 percent from the same point last year; and 258,939 intermodal units, up 7.5 percent from last year. Total combined U.S. traffic for the first week of 2016 was 498,160 carloads and intermodal units, a decrease of 3.7 percent compared to last year.

U.S. freight volume falls for first time in almost three years -- Freight volumes in the United States have fallen year on year for the first time since 2012 and before that the recession of 2009, according to the Bureau of Transportation Statistics. The total volume of freight moved by road, rail, pipeline, inland waterways and as air cargo in November 2015 was 1.1 percent lower than in the corresponding month a year earlier ( Freight demand growth has been slowing since the start of last year but the slowdown intensified in the second half and November marked the first time that year-on-year growth turned negative ( Volumes have been hit by a combination of factors. Coal shipments to power producers have fallen as a result of cheaper natural gas and stricter environmental regulations. Exports of manufactured products and basic commodities are down thanks to a stronger dollar which has made U.S. producers less competitive in global markets. Farmers have delayed shipping some grains, especially corn and soy beans, in the hope that prices will recover in future. Manufacturers, wholesalers and retailers have cut new orders as they struggle to reverse excess inventories built up as a result of over-ordering in 2014 and early 2015. Freight shipments related to oil, gas and mining have tumbled as the plunge in commodity prices forces a widespread slowdown in drilling and quarrying. Total traffic on major U.S. railroads fell 2.5 percent last year, according to the Association of American Railroads (AAR).

LA area Port Traffic Decreased YoY in December  - There were some large swings in LA area port traffic early last year due to labor issues that were settled in late February. Port traffic surged in March as the waiting ships were unloaded (the trade deficit increased in March too), and port traffic declined in April. This will impact the YoY changes soon. Container traffic gives us an idea about the volume of goods being exported and imported - and usually some hints about the trade report since LA area ports handle about 40% of the nation's container port traffic. The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container). To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.  On a rolling 12 month basis, inbound traffic was up 0.1% compared to the rolling 12 months ending in November. Outbound traffic was down 0.8% compared to 12 months ending in November. The recent downturn in exports might be due to the strong dollar and weakness in China. The 2nd graph is the monthly data (with a strong seasonal pattern for imports).

Ocean Imports to Remain Flat for Several Months, Retail Report Says - WSJ: Retail imports at U.S. ports are declining in line with a seasonal post-holiday lull and are unlikely to grow beyond historic norms as store operators continue to cope with stubbornly high inventories, a retail group said Friday. Beginning in November, import volumes at the nation’s major seaports fell below 1.5 million 20-foot equivalent units, a standard measure for cargo containers, according to the Global Port Tracker report by the National Retail Federation and Hackett Associates LLC. The monthly report said the import volume likely will remain flat from month to month as retailers assess holiday sales before stocking stores for the spring. From November through February, volumes are expected to stay in the range of 1.41 to 1.48 million containers—well below peak monthly import volumes of 1.68 million TEUs the ports handled in August, Compared with late 2014 and early 2015, however, monthly volumes will look stronger against a severe disruptions at West Coast ports that cut into imports in last year’s first quarter. By November 2014, congestion was mounting at the Pacific ports as protracted labor negotiations between dockworkers and their employers turned more contentious, causing severe delays. In November 2015, major seaports handled a total of 1.48 million import TEUs, 6% more than they had the previous November. “Enough time has passed since the disruption on the West Coast that we can no longer look to that for justification of the high level,”

Fed: Industrial Production decreased 0.4% in December --From the Fed: Industrial production and Capacity Utilization Industrial production declined 0.4 percent in December, primarily as a result of cutbacks for utilities and mining. The decrease for total industrial production in November was larger than previously reported, but upward revisions to earlier months left the level of the index in November only slightly below its initial estimate. For the fourth quarter as a whole, industrial production fell at an annual rate of 3.4 percent. Manufacturing output edged down in December. The index for utilities dropped 2.0 percent, as continued warmer-than-usual temperatures reduced demand for heating. Mining production decreased 0.8 percent in December for its fourth consecutive monthly decline. At 106.0 percent of its 2012 average, total industrial production in December was 1.8 percent below its year-earlier level. Capacity utilization for the industrial sector decreased 0.4 percentage point in December to 76.5 percent, a rate that is 3.6 percentage points below its long-run (1972–2014) average. This graph shows Capacity Utilization. This series is up 9.6 percentage points from the record low set in June 2009 (the series starts in 1967). Capacity utilization at 76.5% is 3.6% below the average from 1972 to 2014 and below the pre-recession level of 80.8% in December 2007. Note: y-axis doesn't start at zero to better show the change. The second graph shows industrial production since 1967. Industrial production decreased 0.4% in December to 106.5. This is 21.5% above the recession low, and 0.8% above the pre-recession peak. This was below expectations of a 0.2% decrease, mostly due to "cutbacks in utilities and mining"

US Industrial Output & Retail Spending Slump In December -- Today’s December updates on retail sales and industrial production for the US delivered disappointing news. Negative comparisons weighed on both indicators for last month, raising more doubts about the strength of the US economy. There’s also a bit of good news on the margins in the year-over-year comparisons. Nonetheless, it’s hard to overlook the deterioration in these numbers as last year came to a close. Let’s start with retail spending. Last month’s 0.1% decline marks the first monthly setback since September. The good news is that the year-over-year pace picked up for headline spending. Retail sales rose 2.2% in December vs. the year-earlier level—the strongest annual advance since July. Meanwhile, stripping out gasoline sales reveals that spending climbed 3.9% in annual terms last month, roughly in line with the year-over-year gain in the previous month. The stability in spending ex-gas reflects a degree of resilience that’s not obvious in the monthly comparison. Moving on to industrial production, output fell 0.4% in December–the third monthly decline in a row. In contrast with retail sales, the year-over-year comparison is negative for the industrial sector, and sinking deeper into the red. Production fell 1.8% for the year through December, marking an acceleration vs. the decline posted in November, which delivered the first round of red ink in annual terms since late-2009.  Note, however, that the manufacturing component for industrial activity is still posting a year-over-year gain for December. The annual growth for manufacturing is weak, but it’s stable at +0.8% for the second month in a row. That’s a tepid gain, but it could be a clue for thinking that output will stabilize in the months to come.

Industrial Production Down for Three Months in a Row  -- The Federal Reserve Industrial Production & Capacity Utilization report shows more malaise for the U.S. manufacturing sector.  The bad news is industrial production dropped by a hefty -0.4% for December.  Worse, November was revised downward 0.3 percentage points to a -0.9% monthly decline  October also was negative, a -0.2% decline, and September showed no change.  The further bad news is while a very warm December resulted in a -2.0% decline in utilities, mining dropped by -0.8% and manufacturing also contracted slightly.  The G.17 industrial production statistical release is also known as output for factories and mines. Total industrial production has now decreased -1.8% from a year ago.  Currently industrial production is now 6.0 percentage points above the 2012 average.  Below is graph of overall industrial production's percent change from a year ago.  Here are the major industry groups industrial production percentage changes from a year ago.

  • Manufacturing: +0.8%
  • Mining:              -11.2%
  • Utilities:            -6.9%

For the month manufacturing overall decreased by -0.1%, but had a Q4 annualized 0.5% increase.  Manufacturing output is 6.0 percentage points above its 2012 Levels and is shown in the below graph. Within manufacturing, durable goods was a wash up 0.1%, with vehicles and parts dropping by -1.7% for the month and up 3.7% for the year.  Primary metals dropped by -3.5%.  Electrical equipment, appliances and components increased 2.3% while computers increased 1.6%.  Machinery dropped by half a percentage point for the month. Nondurable goods manufacturing declined by -0.2 percentage points for the month.  Petroleum and coal products dropped -1.2% for the month while food and beverages increased 0.2%. Mining decreased -0.8% and is now down -11.2% for the year.  Mining includes gas and electricity production and the Fed have a special aggregate index for oil and gas well drilling.  Oil and gas well drilling decreased -7.4% and for the year is down -61.7%.  This month the decline was due to coal mining. Below is oil and gas well drilling and one can see the boom and bust cycle with the amazing downturn now.  Utilities decreased by -2.0% for the month and is down -6.2% for the year.  Utilities are volatile due to weather and why the below graph shows the wild swings.  Natural gas declined most for the month of December.

Industrial Production Numbers and Revisions Shockingly Bad; Autos Have Peaked --Not only was December industrial production an awful -0.4%, November was revised lower from -0.6% to -0.9%.  Not to fear, economists blame the weather for much of the decline.  The Econoday Consensus Estimates for industrial production and manufacturing were -0.2% and +0.0% respectively. The actual results were -0.4% and -0.1%.  December was not a good month for the industrial economy as industrial production fell a sharper-than-expected 0.4 percent. Utility output, down 2.0 percent, declined for a third straight month reflecting unseasonably warm temperatures. Mining, reflecting low commodity prices and contraction in energy extraction, has also been week, down 0.8 percent for a fourth straight decline. Turning to manufacturing, which is the most important component in this report, production fell 0.1 percent for a second straight month (November revised downward from an initial no-change reading). Details on manufacturing include a second straight contraction for vehicles, down 1.7 percent following November's 1.5 percent decline. Weakness here, along with weakness in the motor vehicle component of this morning's retail sales report, will raise talk that the auto sector, which had been one of the highlights of the 2015 economy, may slow down in 2016, at least the early part of the year. Construction supplies are a positive, up 0.6 percent for the second strong showing in three months and confirming strength underway in data for construction spending. Capacity utilization fell 4 tenths from a downwardly revised November to 76.5 percent. A low utilization rate, which is running roughly 4 percentage points below its long-term average, holds down the cost of goods. Year-on-year rates confirm weakness, down 1.8 percent overall with utilities down 6.9 percent and mining down 11.2 percent. Manufacturing is in the plus column but it's nothing spectacular, at plus 0.8 percent. Making matters worse is a downward revision to November, now at minus 0.9 percent vs an initial decline of 0.6 percent. Looking at the annualized rate for the fourth quarter, industrial production fell 3.4 percent though manufacturing did increase but not much, up 0.5 percent. Weather factors are skewing utility output but otherwise, readings are fundamentally soft and reflect the downturn in global demand made more severe for U.S. producers by strength in the dollar.

December 2015 Industrial Production Now In Contraction Year-over-Year: The headlines say seasonally adjusted Industrial Production (IP) declined (the manufacturing portion of this index was also down month-over-month). Consider this a soft data point that was worse than expected. Our analysis is similar to the headline view. Headline seasonally adjusted Industrial Production (IP) decreased 0.4 % month-over-month and down 1.8 % year-over-year. Econintersect's analysis using the unadjusted data is that IP growth decelerated 1.9 % month-over-month, and is down 1.3 % year-over-year. The unadjusted year-over-year rate of growth decelerated 1.0 % from last month using a three month rolling average, and is down 0.0 % year-over-year.  IP headline index has three parts - manufacturing, mining and utilities - manufacturing was down 0.1 % this month (up 0.8 % year-over-year), mining down 0.8 % (down 11.2 % year-over-year), and utilities were down 2.0 % (down 6.9 % year-over-year). Note that utilities are 10.6 % of the industrial production index, whilst mining is 15.5 %.  Unadjusted Industrial Production year-over-year growth for the past 2 years has been between 2% and 4% - it is currently in contraction.

Empire State Manufacturing Index Posts Horrific -19.37, Lowest Reading Since April 2009 -- Economic data today was awful, at best. Retail Sales Were Negative, and that was arguably the best report. Let's now take a look at the other reports starting with Empire State Manufacturing. The Econoday Consensus estimate was for a slight improvement to -4 from a November reading of -4.59. The actual result was -19.37 with the lowest economic estimate -7.50.  The contraction in factory activity in the New York manufacturing region, which began way back in August, unfortunately is picking up a lot of steam this month, at minus 19.37 for the January headline which is the lowest reading since April 2009. New orders, at minus 23.54, are contracting for an eighth straight month and at the sharpest pace since March 2009. Unfilled orders, at minus 11.00, are in an even deeper string of contraction. Employment, at minus 13.00, is down for a sixth straight month as is the workweek, at minus 6.00. And there's a crumbling going on in the 6-month outlook which, at 9.51 is still in the positive column but shows the least optimism since way back in March 2009. This report is grim and offers an initial look at January's factory activity which, based on these results, appears to be getting hit by global concerns.

Empire State Manufacturing Disappoints Forecast, Declined at Fastest Pace Since Recession -- This morning we got the latest Empire State Manufacturing Survey. The diffusion index for General Business Conditions at -19.4 (-19.37 to two decimals) shows a significant decrease from last month's -6.21, which signals a faster decline in activity. The forecast was for a reading of -4.0.The Empire State Manufacturing Index rates the relative level of general business conditions in New York state. A level above 0.0 indicates improving conditions, below indicates worsening conditions. The reading is compiled from a survey of about 200 manufacturers in New York state. Here is the opening paragraph from the report. The January 2016 Empire State Manufacturing Survey indicates that business activity declined for New York manufacturers at the fastest pace since the Great Recession. The headline general business conditions index fell thirteen points to -19.4. The new orders and shipments indexes plummeted, indicating a steep decline in both orders and shipments. Price indexes suggested that both input prices and selling prices increased. Labor market conditions continued to deteriorate, with employment indexes remaining in negative territory. The six-month outlook was noticeably weaker, with the index for future general business conditions falling to its lowest level since early 2009. Here is a chart of the current conditions and its 3-month moving average, which helps clarify the trend for this extremely volatile indicator:

January 2016 Empire State Manufacturing Index Contracted At the Fastest Pace Since the Great Recession: The Empire State Manufacturing Survey improved but remains in contraction. Expectations were for a reading between -7.50 to 1.00 (consensus -4.0) versus the -19.4 reported. Any value above zero shows expansion for the New York area manufacturers. New orders and unfilled orders sub-index of the Empire State Manufacturing Survey are in contraction. This noisy index has moved from +10.0 (January 2015), +7.8 (February), +6.9 (March), -1.2 (April), +3.1 (May), -2.1 (June), 3.9 (July), -14.9 (August), -14.7 (September), -11.4 (October), -10.7 (November), -4.6 (December) - and now -19.4. As this index is very noisy, it is hard to understand what these massive moves up or down mean - however this regional manufacturing survey is normally one of the more pessimistic. Econintersect reminds you that this is a survey (a quantification of opinion). Please see caveats at the end of this post. However, sometimes it is better not to look to deeply into the details of a noisy survey as just the overview is all you need to know. From the report: The January 2016 Empire State Manufacturing Survey indicates that business activity declined for New York manufacturers at the fastest pace since the Great Recession. The headline general business conditions index fell thirteen points to -19.4. The new orders and shipments indexes plummeted, indicating a steep decline in both orders and shipments. Price indexes suggested that both input prices and selling prices increased. Labor market conditions continued to deteriorate, with employment indexes remaining in negative territory. The six-month outlook was noticeably weaker, with the index for future general business conditions falling to its lowest level since early 2009.

Warmest December on record impacting economy in strange ways - December was the warmest on record, helping to trip up several sectors, including retail, energy and manufacturing, and making life difficult for economists trying to track the economy. The Federal Reserve reported Friday that utility output fell sharply in December. The data show that power plants had more slack in December than any time on record, according to a measure of capacity in use in the sector. Michael Gregory, head of U.S. economics at BMO Capital Markets, noted that heating energy requirements, as measured by the population-weighted heating degree days, were the lowest for any December in 66 years of data. Abnormal weather “makes it more difficult to tease the signal from the noise,” Economists use seasonal adjustments to track the economy sequentially instead of over a year on year basis. “Deviations make it hard to read the underlying sign of what the economy is actually doing,” he said. The National Centers for Environmental Information reported December’s temperature was 6.0 degrees Fahrenheit above average. This broke the previous record set in 1939. In the eastern half of the nation, 29 states had the warmest December on record. The weather in December fit the pattern of a strong El Nino,  The western portion of the country has had snowier conditions with the East Coast has a more southerly flow with milder conditions. Hurwitz now thinks the economy decelerated to a 0.4% annual rate in the fourth quarter from 2% in the third quarter. The warm weather has helped lower growth by reducing consumer spending on heating and winter clothes.

National Association of Manufacturers’ criticisms of the Obama overtime proposal all miss their mark -- Last September, the National Association of Manufacturers (NAM) filed comments in opposition to the Labor Department’s proposed rule on overtime pay for salaried workers, which would raise the salary threshold under which all workers are eligible for overtime pay from $23,660 to $50,440. NAM’s chief criticism boils down to this: “The Labor Department set the salary level threshold for exemption too high.” The evidence NAM presents to support that criticism, however, is inaccurate, irrelevant, or contradicts its claims.First, NAM claims, “The proposed salary threshold is grossly out of step with nearly 80 years of historical practice and precedent.” The evidence is a chart that purportedly shows the historic levels after each past increase, adjusted for inflation. But the chart is misleading. It cherry picks the lowest of the several potential levels set in the past, instead of the level that corresponds to the current duties test. When the correct levels are compared, DOL’s proposed $50,440 salary threshold is lower than the levels set in the Truman, Eisenhower, Nixon, and Ford administrations. As Tammy McCutchen testified in Congress on behalf of the U.S. Chamber of Commerce, the short test salary threshold varied between a low of $51,957.36 and a high of $63,741.60. Even if you take NAM’s misleading chart at face value, it shows an increase in the threshold of 22% in the ten years from 1949 to 1959, or 2.2% per year. If the same rate of increase were applied to the 1975 threshold of $35,625, the 2015 threshold would be almost 90% higher, or about $67,000. NAM should be grateful that the Labor Department chose such a modest level.

NFIB: Small Business Optimism Index increased slightly in December -- From the National Federation of Independent Business (NFIB): NFIB Survey Remains Flat, With Small Business Owners Divided on Sales Outlook, Business Conditions: The overall Index gained a modest 0.4 points in December. It now stands at 95.2, which is well below the 42-year average of 98. ... Reported job creation faded a bit in December, with the average employment gain per firm falling to -0.07 workers from .01 in November, basically flat for the last few months. Fifty-five percent reported hiring or trying to hire (unchanged), but 48 percent reported few or no qualified applicants for the positions they were trying to fill. ... Twenty-eight percent of all owners reported job openings they could not fill in the current period, up 1 point and at the highest level for this expansion. This is a solid reading historically and indicates no significant change in the unemployment rate. A seasonally adjusted net 15 percent plan to create new jobs, up 4 points, a nice gain, possibly driven by the surge in expected real sales gains.

December 2015 Small Business Optimism Index Insignificantly Improves.: The National Federation of Independent Business's (NFIB) optimism index rose insignificantly in December after many stagnant months. The NFIB says the Index is stuck in a "below average" rut. The market was expecting the index between 93.6 to 96.0 with consensus at 95.0 - versus the actual at 95.2. NFIB chief economist Bill Dunkelberg states Small business owners will be listening to the President's address tonight hoping to hear him talk about things that will grow the economy and help the little guys. The President appears to be shifting his attention away from the economy and toward foreign policy and guns so it's no surprise that few small business owners expect the business climate to be better in the next six months. In December, Congress made expensing permanent and passed other favorable tax changes that had an immediate impact on bottom lines. However, prospects for any other substantive policy changes in 2016 are not good. Congress has a lot of economic growth supporting legislation under consideration, but most is politically difficult to pass or unlikely to receive Presidential approval.

December Unemployment Report Belies Other Economic Metrics  -  Robert Oak - The December unemployment report seems like nothing but good news.  The official unemployment rate did not change and is 5.0%.  The ranks of employed swelled and those not in the labor force shrank.  The labor participate rate ticked up a tenth of a percentage point to stand at a still very low 62.6%.  Overall, this month's CPS report belies some of the other ominous economic news.  This article overviews and graphs the statistics from the Employment report Household Survey also known as CPS, or current population survey.  The CPS survey tells us about people employed, not employed, looking for work and not counted at all.  The household survey has large swings on a monthly basis as well as a large margin of sampling error.  This part of the employment report is not about actual jobs gained but people and their labor status.Those employed soared by 485,000 this month and stands at 149,929,000.  From a year ago, the ranks of the employed has increased by 2.49 million.  The annual gain jumped up by half a million from last month's annual figure.  Those unemployed decreased by -20,000 to stand at 7,904,000.  From a year ago the unemployed has decreased by -800 thousand.  Below is the month change in unemployed which typically has wild swings from month to month.  Those not in the labor force decreased for the third consecutive month, this time by -277,000 to 94.103 million.  The below graph is the monthly change of the not in the labor force ranks.  Those not in the labor force has increased by 1,218,000 in the past year and this annual gain has been halved in recent months. The labor participation rate ticked up another 0.1 percentage points to 62.6%,  While still in 1980's lows, upward movement is a very good sign. Below is a graph of the labor participation rate for those between the ages of 25 to 54.  The rate is 80.9%, which is a 0.1 percentage point increase from last month.  These are the prime working years where one should not see record low participation rates.  While the increase is a trend, this participation rate is still at March levels, a long way to go to return to 83% 2007 levels. The civilian labor force, which consists of the employed and the officially unemployed, increased by 466 thousand this month and was the 2nd consecutive month increase.  The civilian labor force has grown by 1,691,000 over the past year.  New workers enter the labor force every day from increased population inside the United States and immigration, both legal and illegal.  Those not in the labor force has grown less than the civilian labor force, a revision from trends earlier in the year.

Stockman Exposes Jobs Report Lie: Only 11,000 Created: Here’s a newsflash that CNBC didn’t mention. According to the BLS, the US economy generated a miniscule 11,000 jobs in the month of December. Yet notwithstanding the fact that almost nobody works outside any more, the BLS fiction writers added 281,000 to their headline number to cover the “seasonal adjustment.” This is done on the apparent truism that December is generally colder than November and that workers get holiday vacations. Of course, this December was much warmer, not colder, than average. And that’s not the only deviation from normal seasonal trends. The Christmas selling season this year, for example, was absolutely not comparable to the ghosts of Christmas past. Bricks and mortar retail is in turmoil and in secular decline due to Amazon and its e-commerce ilk, and this trend is accelerating by the year. So too, energy and export based sectors have been thrown for a loop in the last few months by a surging dollar and collapsing commodity prices. Likewise, construction activity has been so weak in this cycle — and for the good reason that both commercial and residential stock is vastly overbuilt owing to two decades of cheap credit — that it’s not remotely comparable to historic patterns. Never mind. The BLS always adds the same big dollop of jobs to the December establishment survey come hell or high water. In fact, the seasonal adjustment has averaged 320,000 for the last 12 years! For crying out loud, folks, every December is different — and not just because of the vagaries of the weather.  Capitalism is about incessant change and reallocation of economic activity and resources. And now the globalized ebbs and flows of economic activity have only accentuated the rate and intensity of these adjustments. Yet the statistical wizards at the BLS think they can approximate a seasonal adjustment factor for December that at +/- 300k amounts to just 0.2% of the currently reported 144.2 million establishment survey jobs, and an even smaller fraction of the potential adult work force which is at least 165 million.

Weekly Initial Unemployment Claims increase to 284,000 -- The DOL reported: In the week ending January 9, the advance figure for seasonally adjusted initial claims was 284,000, an increase of 7,000 from the previous week's unrevised level of 277,000. The 4-week moving average was 278,750, an increase of 3,000 from the previous week's unrevised average of 275,750.  There were no special factors impacting this week's initial claims.  The previous week was unrevised at 277,000. The following graph shows the 4-week moving average of weekly claims since 1971.

BLS: Jobs Openings increased in November -- From the BLS: Job Openings and Labor Turnover Summary The number of job openings was little changed at 5.4 million on the last business day of November, the U.S. Bureau of Labor Statistics reported today. Hires and separations were little changed at 5.2 million and 4.9 million, respectively. Within separations, the quits rate was 2.0 percent, and the layoffs and discharges rate was 1.2 percent. ... ..Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. ... There were 2.8 million quits in November, little changed from October. The number of quits has held between 2.7 million and 2.8 million for the past 15 months. The quits rate in November was 2.0 percent. The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.  Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for November, the most recent employment report was for December.Jobs openings increased in November to 5.431 million from 5.349 million in October. The number of job openings (yellow) are up 11% year-over-year compared to November 2014. Quits are up 6% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits"). This is a solid report. Job openings are close to the record high set in July, and Quits are up 6% year-over-year. 

November 2015 JOLTS Job Openings Year-over-Year Growth Rate Marginally Improved: The BLS Job Openings and Labor Turnover Survey (JOLTS) can be used as a predictor of future jobs growth, and the predictive elements show that the year-over-year growth rate of unadjusted private non-farm job openings marginally improved from last month. The growth rate trends marginally improved in the 3 month averages, but the 2015 year-to-date averages continue to decline.  The number of unadjusted PRIVATE jobs openings - which is the most predictive of future employment growth of the JOLTS elements - shows the year-over-year growth marginally accelerated. The year-over-year growth of the unadjusted non-farm private jobs opening rate (percent of job openings compared to size of workforce) also marginally improved. The graph below looks at the year-over-year rate of growth for job opening levels and rate.The relevance of JOLTS to future employment is obvious from the graphic below which shows JOLTS Job Openings leading or coincident to private non-farm employment. JOLTS job openings are a good predictor of jobs growth turning points.The graph below uses year-over year growth comparisons of non-seasonally adjusted non-farm private BLS data versus JOLTS Job Openings - and then compare trend lines.•The JOLTS Unadjusted Private hires rate (percent of hires compared to size of workforce) and the separations rate (percent of separations compared to size of workforce - separations are the workforce which quit or was laid off) both grew. .

JOLTS, Labor Market Conditions update: In the last few days, the Labor Market Conditions Index and JOLTs data have given us a more detailed look at the jobs market. The Labor Market Conditions Index is a good leading indicator for the YoY growth in jobs. It has been positive, but abysmally so, for most of the last year. The November data, just released, is the best of this poor lot: This suggests to me to expect a marked slowdown in job growth in upcoming months -- at very least not so good as early 2015. But it also is not negative, and so not consistent with imminent recession. The JOLTS is a study in sharp contrasts. First, here is a comparison of job openings (blue) and hires (red). We only have one compete past business cycle to compare this with, so lots of caution is required, but in that cycle, hires peaked first and then openings turned down in the months just prior to the onset of the Great Recession: Which is what we are seeing now. On the other hand, quits made a new post-recession record: This does not suggest anything imminent. Note, I am discounting the 2001 spike at the far left, since we have no idea whether the data before that spike would have been higher or lower. Overall, this still looks like a late cycle slowdown, but not an actual contraction.

Voluntary Job-Quitting Climbs to the Highest Level Since 2008 - The number of Americans who voluntarily quit their jobs in November climbed to the highest level since April 2008, as 2.8 million Americans left an employer. The figure, from the Labor Department’s monthly Job Openings and Labor Turnover Survey, is seen by many economists as a barometer of economic health. In a stronger economy, workers are more likely to voluntarily leave their jobs and in a weaker economy they are more likely to be laid off. The report also tracks the monthly pace of hiring, firing and job openings, which were little changed this month. Each month, millions of jobs are posted—there were 5.4 million open jobs at the end of November—and millions of people start a new job, quit an old job, or are laid off. When hiring exceeds job separations, then the total number of jobs in the economy is growing. That figure for monthly job creation is revealed in a separate report from the Labor Department, published last week.. This report on the economy’s churn shows a labor market that has yet to fully return to its prerecession vigor. The monthly levels of quitting and hiring remain below peaks of the mid-2000s and significantly below levels that were recorded before the recession of 2001. The monthly level of job openings, however, has reached a new peak, with over five million jobs posted since February. On the one hand, that’s good news, signaling that many jobs are available. During the recession there was only one job posted for every seven unemployed people. As of November, there was one job for every 1.5 unemployed people. On the other hand, while job openings are at record levels, the pace of hiring remains subdued as employers are not actually filling many of their posted positions.

The road to full employment is long, but we are moving in the right direction = The labor market ended the year on a positive note, adding an additional 292,000 jobs in December. Of course, all economic woes are not solved. It’s clear from the data that we are still far from a full employment economy. Notably, wage growth is still not where it ought to be, and the prime-age employment-to-population ratio is barely half-way back to its 2007 level, which was not a banner year for full employment to begin with. The Job Openings and Labor Turnover Survey (JOLTS) data released this morning provide further evidence that the economy is chugging along, but has a ways to go before the labor market is fully recovered. While my favorite indicators to watch on jobs day are nominal wage growth and the prime-age employment-to-population ratio, my favorite indicator on JOLTS day is the quits rate. There are three key lines in the graph below: the hires rate, the quits rate, and the layoffs rate.

The Job Gains Have Gone To The Least Educated, And Lowest-Paid, Workers" -- One of the recurring themes in Obama's final State of the Union address was describing the strength of the economic recovery as witnessed by the number of job gains over the past 6 (if not exactly 7) years, clearly a purely quantitative metric. There was no discussion of the qualitative component of these job gains for one simple reason: as we have explained for years, the bulk of new labor has gone to undereducated, minimum wage (and often part-time) workers. We have dubbed this the "waiter and bartender" recovery for a reason that becomes immediately clear when looking at the chart below. So today we give the podium to the ECRI's Lakshman Achuthan who explains it so well even a US president would get it. from ECRIThe sustained decline in the official jobless rate – now near the Fed’s estimate of “full employment” – is a misleading indicator of labor market health. Indeed, the stagnation in nominal wage growth is consistent with the weakness in the employment/population (E/P) ratio. After dropping to three-decade lows in the wake of the Great Recession, the E/P ratio has barely improved since the fall of 2013, reversing only a quarter of its decline from its pre-recession highs. Furthermore – as a breakdown of the E/P ratio by education level shows – even this modest improvement is illusory.Since 2011, when the E/P ratio for those with less than a high school diploma bottomed, that metric has regained almost two-thirds of its recessionary losses (orange line in chart). But the E/P ratio for high school or college graduates – i.e., eight out of nine American adults – has not recovered any of its recessionary losses, and has barely budged in four years (purple line).This data underscores how the jobs recovery has been spearheaded by cheap labor, with job gains going disproportionately to the least educated — and lowest-paid — workers, many of whom have to work multiple jobs to make ends meets.

Solar energy industry now employs more than O&G extraction -- The solar energy industry now employs more workers than the oil and gas extraction sector, reports CNN Money. Over the past five years, the number of domestic jobs in the solar industry has more than doubled. According to the Solar Foundation, a nonprofit group not funded by the industry, there were 35,000 jobs added to the sector last year, up 20 percent from 2014. Meanwhile, the oil and gas industry continues to suffer from stubbornly low oil prices and growing stockpiles. CNN reports that in 2015, nearly 17,000 oil and gas exploration and production jobs were eliminated. Earlier this week the benchmark price for West Texas Intermediate crude dipped to a 12-year low just above $30 per barrel. Total, there are approximately 209,000 workers in the solar industry, more than oil and gas extraction, and nearly three times the amount working in the coal industry. According to the Bureau of Labor Statistics, there were 184,500 workers employed in the oil and gas extraction sector as of December 2015. CNN also notes that wages paid to solar employees are rising. Across the U.S. in 2015, wages increased by about 2.5 percent. Wages in the solar industry, however, are up 5 percent from the year prior. Solar installers, on average, earn about $21 an hour. A variety of factors, such as tax credits and technological advances, have been steadily driving up both commercial and consumer demand. According to one solar company owner, the industry is “a good place to go now if you’re looking for a career change.”

WalMart To Fire 16,000 As It Closes 269 Stores Globally - The last 12 months have not been kind to WalMart.  When the world's largest retailer bowed to pressure to raise wages for its lowest-paid employees, the living wage crowd cheered. In short order, it became apparent that the reverberations from the $1.5 billion endeavor would spell trouble for the company. When a series of ill-fated efforts to squeeze the supply chain failed to plug the gap, the company resorted to store closures (or "plumbing" as WalMart calls it), job cuts in Bentonville, and reduced hours.  Finally, in October, WalMart threw in the towel and cut guidance. It's shares plunged.  Now, we learn the retailer is set to close nearly 300 stores, affecting some 16,000 employees worldwide.Wal-Mart Stores, announced plans to close 269 stores in the U.S. and globally. In October 2015, the company said an active review of the portfolio was underway to ensure assets were aligned with strategy. Today’s action follows a thorough review of Walmart’s nearly 11,600 worldwide stores that took into account a number of factors, including financial performance as well as strategic alignment with long-term plans. In total, the impacted stores represent less than 1 percent of both global square footage and revenue.

Why Do People Say They Aren't In the Labor Force? - Although the unemployment rate has dropped to 5%, the labor force participation rate has continued its long-term decline. For those not clear on the difference in these terms, the government only counts people as unemployed if they are both without a job and also looking for a job.  A person who is out of a job but not looking for one is not counted as "unemployed," but instead is counted as out of the labor force. This definition makes some sense: after all, it would seem peculiar to count those who are happily retired or spouses who stay home by choice as "unemployed." But the definition also raises a legitimate concerns that the drop in unemployment is only in part the healthy sign of a recovering economy, but could also be the unhealthy sign of potential who have given up on looking for a decent job with decent pay. How can we distinguish between these possibilities? One piece of evidence is to look at the reasons that those who are out of the labor force give as to why they are not looking for a job. Steven F. Hipple of the US Bureau of Labor Statistics pulls together evidence from a US Census Bureau survey called the Annual Social and Economic Supplement, which is part of the  Current Population Survey. "People who are not in the labor force: why aren't they working?" appears in the BLS newsletter Beyond the Numbers As a starting point, here's the overall civilian labor force participation rate. The long rise in the share of US workers in the labor force from about 1970 up through the mid 1990s is usually associate with a much larger share of women entering the (paid) labor force. There's a peak in the late 1990s, and a decline since then, which suggests that the main causes of the decline are long-run, not rooted in the Great Recession of 2007-2009.

Six Years Later, 93% of U.S. Counties Haven’t Recovered From Recession, Study Finds - More than six years after the economic expansion began, 93% of counties in the U.S. have failed to fully recover from the blow they suffered during the recession. Nationwide, 214 counties, or 7% of 3,069, had recovered last year to prerecession levels on four indicators: total employment, the unemployment rate, size of the economy and home values, a study from the National Association of Counties released Tuesday found. The reality is slowing population growth and industry shifts mean some parts of the country will likely never fully recover. But by the end of last year, more counties had not recovered on any one of the four indicators, 16%, than had recovered on all of them. “Americans don’t live in a single economic place,” said Emilia Istrate, the association’s director of research and outreach and one of the study’s authors. “It tells you why many Americans don’t feel the good economic numbers they see on TV.” As was the case in 2014, when just 65 counties had fully recovered, most of those that bounced back are in states benefiting from the energy boom. Last year, 72 of the recovered counties were in Texas, the most of any state. Nebraska followed with 22. Minnesota, Kentucky, North Dakota, Montana and Kansas each had at least 10 fully recovered counties. Meanwhile, in 27 states, not a single county had fully recovered.

Working as a Barista After College Not as Common as You Think - NY Fed -  The image of a newly minted college graduate working behind the counter of a hip coffee shop has become a hallmark of the plight of recent college graduates following the Great Recession. Recurring news stories about young college graduates stuck in low-skilled jobs make it easy to see why many college students may be worried about their futures. However, while there is some truth behind the popular image of the college-educated barista, this portrayal is really more myth than reality. Although many recent college graduates are “underemployed”—working in jobs that typically don’t require a degree—our research indicates that only a small fraction worked in a low-skilled service job in the years following the Great Recession. We find that underemployed recent college graduates held a wide range of jobs and, while most of these positions were clearly not equivalent to jobs that require a college education, some were actually fairly skilled and well paid. Further, our analysis suggests that many of those who started their careers in a low-skilled service job transitioned to a better job after gaining some experience in the labor market.

Record Numbers Of Retired Americans Are Working Part-Time Jobs --  Every other aspect of the US economy may be going to hell in a handbasket, with an acute manufacturing recession starting to spill over into the services sector, but at least the US jobs number is "stellar", right? Wrong. We showed one way how the BLS fudges the number higher, when we reported on Friday that of the surge in December jobholders, a whopping 324,000 of these new "jobs" were by multiple jobholders, as in 1 person = 2 (or more) jobs, effectively cutting the job gain in half (or worse). Worse, the total number of jobholders surged to 7.738 million, just shy of an all time high, and the highest since August 2008. And then there is this.According to a Bloomberg report, a record number Americans who are retired (or are collecting Social Security) worked part-time last month. In December, a record 2.6 million workers had either reached full retirement or restricted themselves to work-weeks of 34 hours or less due to Social Security income limitations. Individuals can collect Social Security and work with no limit on earnings once they reach full retirement age. However, if they receive Social Security before full retirement age they will lose some of their benefit if they exceed the annual earnings limit. For 2016, this cap is $15,720. The penalty is a $1 deduction in Social Security for every $2 earned above the limit.

The Boss Doesn’t Want Your Résumé - WSJ: Compose Inc. asks a lot of job applicants. Anyone who wants to be hired at the San Mateo, Calif., cloud-storage firm must write a short story about data, spend a day working on a mock project and complete an assignment. There is one thing the company doesn’t ask for: a résumé. Compose is among a handful of companies trying to judge potential hires by their abilities, not their résumés. So-called “blind hiring” redacts information like a person’s name or alma mater, so that hiring managers form opinions based only on that person’s work. In other cases, companies invite job candidates to perform a challenge—writing a software program, say—and bring the top performers in for interviews or, eventually, job offers. Bosses say blind hiring reveals true talents and results in more diverse hires. And the notion that career success could stem from what you know, and not who you know, is a tantalizing one. But it can be tough to conceal a person’s identity for long. Kurt Mackey, Compose’s chief executive, realized his managers tended to pick hires based on whom they connected with personally, or those with name-brand employers like Google Inc. on their résumés—factors that had little bearing on job performance, he says.

Silicon Valley Doesn’t Believe U.S. Productivity Is Down: “Contrarian economists at Google and Stanford say the U.S. doesn’t have a productivity problem…it has a measurement problem. Google Inc. chief economist Hal Varian says sluggish U.S. productivity doesn’t reflect a high-tech wave of innovations that save people time and money. ‘There’s a lack of appreciation for what’s happening in Silicon Valley,’ he says, ‘because we don’t have a good way to measure it.’…  U.S. productivity, meanwhile, has hit the skids. From 1948 to 1973, it grew at an annual average of 2.8%. The rate through the 1980s slowed to half that, even as computers spread through the economy, driving everything from welding robots in auto plants to bank ATMs. In 1987, during the last period of productivity hand-wringing, Nobel Prize winning economist Robert Solow quipped: ‘You can see the computer age everywhere but in the productivity statistics.’ From 1995 to 2004, it finally looked like the digital age was paying off: Productivity growth rates closed in on post-World War II highs of near 3%. Then average gains fell to 2% from 2005 to 2009; since 2010, they have dipped below 1%…. ‘You can’t be in the Valley without thinking we’re in the middle of a productivity explosion,’ Mr. Bloom says. ‘And when they do discuss it, everyone jumps to Hal’s conclusion here.’… Outside Silicon Valley, the arguments aren’t as persuasive. University of Chicago economist Chad Syverson said there might be some measurement problems, but that has always been the case. And, he says, he doubts it would account for more than a small part of the recent productivity slowdown….

Study claiming right-to-work in West Virginia will create job growth is fundamentally flawed -- The economic impact of so-called “right-to-work” (RTW) laws has become a hotly contested issue in recent years. These laws restrict the ability of unions to collect dues from workers whose interests they represent. Advocates for these laws claim that RTW status can boost employment in a state, because, they argue, it will attract businesses with lower labor costs. Those opposed to RTW laws claim that by hamstringing the power of unions, these laws can lower workers’ wages, disproportionately so for low- and moderate-wage workers.  The latest attempt to assess the economic impact of RTW laws is a study from Deskins, Bowen, and Christiadi (2015) associated with the West Virginia University School of Business (the “WV study” henceforth). In this latest study, the authors claim to identify the causal effect of RTW laws on employment growth rates by examining a panel of state-level data on employment from 1990 to 2013. In doing so, they claim that RTW laws lead to faster employment growth. While they would appear on first glance to have an impressive dataset to tackle an ambitious question, the WV study is fraught with several problems, outlined here and described in more detail below:

Interactive: A new look at who earns what in the United States - Discussions of how wages vary for different workers are often abstract. Most analyses focus on just wage levels, paying little attention to who the workers are, what they do, or other factors—such as gender and race—that play a critical role in shaping the wage distribution. This interactive offers a new and more concrete look at the wage distribution in the United States, using data from the Current Population Survey to reveal how a worker’s wage is connected to their job as well as their gender and race.The interactive divides the U.S. workforce into “deciles”—10 groups of equal size—ordered from least paid to highest paid. The simplest version of the interactive shows the top hourly wage paid within each tenth of the workforce. The bottom tenth of workers all make less than $8.76 per hour. The next tenth of workers make more than $8.76 but less than $10.37, and so on until the top tenth, where we report only the minimum pay required to enter the tenth decile. To give an idea of the kinds of workers in each wage group, we list the three most common occupations within each decile. These occupations are a broad description of the jobs that workers perform (cook, nurse, or lawyer, for example). To give a sense of how much different jobs pay within each wage group, we also list each occupation’s wage ranges. The interactive further lets you look separately at wages and occupations across gender (men and women) and race (whites, African Americans, Hispanics/Latinos, and Asians) and see comparisons between these demographic groups.

City and metropolitan inequality on the rise - Brookings The issue of high and rising income inequality continues to influence policy and political debates at all levels of government. Local officials, such as mayors and county executives, are increasingly finding themselves at the center of those debates given a federal government hamstrung by partisan gridlock and budget constraints.  The localization of the debate also reflects new research by Stanford economist Raj Chetty and colleagues that finds local conditions and dynamics matter importantly to economic mobility for the poor. And although Kentucky senator and GOP presidential candidate Rand Paul misleadingly blamed them for the high inequality present in their cities, many Democratic mayors have embraced tackling inequality as a framework for advancing a range of progressive policies on issues such as wages, education, and affordable housing. Inequality at the local level may be undesirable for a variety of reasons. It may diminish the ability of schools to maintain mixed-income populations that produce better outcomes for low-income students. It may narrow the tax base from which municipalities raise the revenues needed to provide essential public services and weaken the collective political will to make those investments. And local inequality may raise the price of private-sector goods and services for poor households, making it even more difficult for them to get by on their limited incomes.

Why don't black and white Americans live together? - BBC News: Legal segregation in the US may have ended more than 50 years ago. But in many parts of the country, Americans of different races aren't neighbours - they don't go to the same schools, they don't shop at the same stores, and they don't always have access to the same services. In 2016 the issue of race will remain high on the agenda in the United States. The police killings of unarmed black men and women over the past few years reignited a debate over race relations in America, and the reverberations will be felt in the upcoming presidential election and beyond. Ferguson, Baltimore and Chicago are three cities synonymous with racial tensions - but all three have another common denominator. They, like many other American cities, are still very segregated. In my reporting across the United States I've seen this first hand - from Louisiana to Kansas, Alabama to Wisconsin, Georgia to Nebraska. In so many of these places people of other races simply don't mix, not through choice but circumstance. And if there's no interaction between races, it's harder for conversations on how to solve race problems to even begin.

More Than Half of Americans Reportedly Have Less Than $1,000 to Their Name -- In a recent survey, 56 percent of Americans said they have less than $1,000 in their checking and savings accounts combined, Forbes reports. Nearly a quarter (24.8 percent) have less than $100 to their name. Meanwhile, 38 percent said they would pay less than their full credit card balance this month, and 11 percent said they would make the minimum payment—meaning they would likely be mired in debt for years and pay more in interest than they originally borrowed. It paints a daunting picture of the average American coming out of the spend-heavy holiday season: steeped in credit card debt, living paycheck-to-paycheck, at serious risk of financial ruin if the slightest thing goes wrong.  It's a reminder that, while the larger economy has steadily recovered from the Great Recession, the gains have not yet surfaced at the local level. Another study reports that just 65 of the 3,069 counties in the U.S. have fully recovered from the near-collapse in 2008. But it also speaks to the enduring effect of decades of wage stagnation, when many Americans' pay has not kept up with inflation and they have been left further and further behind.

Myth of the middle class: Most Americans don’t even have $1,000 in savings - American politicians constantly speak of the middle class. Democrats, Republicans and even many independents all insist their policies defend it. But what does it really mean? This question is rarely asked. What exactly is the middle class? A new study suggests that the U.S. hardly even has one. More than half of Americans — 56 percent, to be exact — have less than $1,000 combined in their checking and savings accounts, according to a recent survey, Forbes reported. This is to say, most Americans are living paycheck-to-paycheck. Furthermore, almost two-thirds of Americans — 63 percent — do not have enough in their savings for an emergency. A substantial majority of Americans would need to borrow money if faced with an unexpected expense. U.S. politicians frequently rant about supposed “American exceptionalism,” but, compared to other industrialized nations, the U.S. has grossly disproportionate poverty rates. Roughly 15 percent of Americans live in poverty — 46.7 million people, in 2014. Close to one in every four American children suffers from poverty. And, among black and Latina/o Americans, the economic hardship is even worse. This poverty has tangible, evident implications. It means that the U.S. has the sixth-highest hunger rate out of all of the economically developed OECD nations.  In other words, more people go hungry in the U.S. than do in Poland and the Slovak Republic. Slightly fewer people go hungry in the U.S. than in Estonia. And hunger is much less widespread in the poverty-stricken nations of India and Brazil.

The New Inequality Debate: ore and more mainstream economists have lately discovered a phenomenon that their discipline too often assumes away. They have discovered power. And this fundamentally changes the nature of the debate about inequality. In the usual economic model, markets are mostly efficient. Power is not relevant, because competition will generally thwart attempts to place a thumb on the market scale. Thus if the society is becoming more unequal it must be (a favorite verb form) because skills are receiving greater rewards, and the less-skilled are necessarily left behind; or because technology is appropriately displacing workers; or because in a global market, lower-wage nations can out-compete Americans; or because deregulation makes markets more efficient, with greater rewards to winners; or because new financial instruments add such efficiency to the economy that they justify billion-dollar paydays for their inventors. Increasingly, however, influential orthodox economists are having serious second thoughts. What if market outcomes and the very rules of the market game reflect political power, not market efficiency? Indeed, what if gross inequality is not efficient, and there is a broad zone of indeterminate income distributions consistent with strong economic performance? What if greater liberalization of financial markets produced tens of trillions of costs to the economy, benefits that are hard to discern, and billion-dollar paydays for traders that don’t comport with their contributions to general economic welfare? Evidence like this is piling up, and hard to ignore.

Why The Powerball Jackpot Is Nothing But Another Tax On America's Poor -- Now that the Powerball Jackpot has just hit a record $1.4 billion, people, mostly those in the lower and middle classes, are coming out in droves and buying lottery tickets with hopes of striking it rich. American adults spent an average of $251 on lottery tickets.  With a return of 53 cents on the dollar, this means the average person threw away $118 on unsuccessful lotto tickets – not a great investment.  So why are we spending so much?  Well, lotteries are a fun, cheap opportunity to daydream about the possibility of becoming an overnight millionaire (or in this case billionaire), but on the flip side people tend to overestimate the odds of winning. Lower-income demographics spend a much greater portion of their annual earnings on lottery tickets than do wealthier ones.  Since lotteries are state-run, that effectively means that the less affluent pay more in taxes (albeit by choice) than broadly appreciated.  And even winning the lottery doesn’t guarantee financial success.  More than 5% of lottery winners declare bankruptcy within 5 years of taking home the jackpot.  Despite their drawbacks, though, lotteries are no doubt here for the long haul – in states that have lotteries, an average of 11% of their total revenues come from lottery ticket sales, and the number is even as high as 36% in 2 states (West Virginia and Michigan).    In Massachusetts, where the lottery is more popular than in any other state, people spend an average of $634 a year on Mega Millions, Powerball and the like.  Delaware comes in at number 2 with $504 spent per person, while Rhode Island ($469), West Virginia ($388) and New York ($357) round out the top 5.  North Dakota brings up the rear with per capita lottery spending of $34.  You can see the full list in the table following the text.  It’s difficult to pinpoint exactly who is investing so much money in a product that provides poor returns, but numerous studies show that lower-income people spend a much greater proportion of their earnings on lotteries than do wealthier people.  One figure suggests that households making less than $13,000 a year spend a full 9 percent of their income on lotteries.  This of course makes no sense – poor people should be the least willing to waste their hard-earned cash on games with such terrible odds of winning.

More Than 500,000 Adults Expected to Lose SNAP Benefits in 2016 (VIDEO) -  More than half a million of the poorest Americans will lose a critical tool to help keep food on the table this year, we explain in our new video.  That's because a three-month limit on the Supplemental Nutrition Assistance Program (SNAP, or food stamps) for jobless adults aged 18-49 who aren't disabled or raising minor children is returning in 23 states for the first time since the Great Recession. The time limit applies to those who can't find a job that offers 20 hours a week of work or a qualifying job training program, regardless of how hard they're looking for work or whether job training programs are available. SNAP is a critical stepping stone for millions of Americans, reducing hunger and helping them to make ends meet. Those subject to the time limit -- including part-time workers, veterans, homeless adults, jobless workers who don't qualify for unemployment insurance, and people actively looking for work but who can't find a job -- are very poor and typically qualify for no other assistance. Cutting off food assistance to poor unemployed and underemployed workers doesn't help them to find a job or secure more hours of work. No one should lose food assistance because they can't find a full-time job.

States Try To Hide the Burden of Debt by Fudging Numbers – The national debt of America is around $18 trillion. That is something that we knew. Now, there is another hard truth that needs to be known by the public; that the state governments are neck deep in debts that could run into trillions of dollars. The truth is being hidden from the public by under reporting debt. This information has been unveiled in a report by think tank State Budget Solutions. Unfunded liabilities stand at around $5 trillion, or a staggering $15,000 per American! The worst case scenario is seen in Illinois where the “unfunded liability” for each person is $25,740, but the government shows it as being $8,133 per person.  According to Joe Luppino-Esposito from State Budget Solutions, “Public pensions assume they will make 7-8 percent every year. Obviously, they don’t. That, combined with states that aren’t putting as much money as they promised into pension plans, causes many states to be in a huge liability hole.” The worst sufferers will be the citizens who are dreaming of a particular pension which they are unlikely to get – ever. The states are defending themselves, and the worst offender – Illinois – says that they have already passed a bill and if it is upheld by the court then the pension plan will fall into place within 30 years.

Supreme Court strikes down Florida death sentence process - Florida's death penalty sentencing process violates the constitutional rights of criminal defendants by granting judges powers that juries should wield, the U.S. Supreme Court ruled on Tuesday, siding with a man convicted of murdering a fried-chicken restaurant manager. The court's 8-1 decision means death row inmate Timothy Hurst, 37, could be re-sentenced for the 1998 murder of Cynthia Harrison in Pensacola, potentially avoiding capital punishment. The case will return to the Florida Supreme Court to determine whether Hurst's death sentence can be upheld on other grounds. Liberal Justice Sonia Sotomayor, writing on behalf of the court, said the right to an impartial jury guaranteed by the U.S. Constitution's Sixth Amendment "required Florida to base Timothy Hurst's death sentence on a jury's verdict, not a judge's fact-finding." Conservative Justice Samuel Alito was the sole dissenter. The court faulted Florida's system for allowing judges, not juries, to find aggravating factors that determine whether a defendant is eligible for execution.

Puerto Rico on the Brink of Losing Access to Gasoline & Electricity amid Economic Crisis  - The economic crisis in Puerto Rico is threatening the country's access to gasoline and electricity, officials said on Monday.  Late last week, Puerto Rico arrived at a tentative deal with Total Petroleum Puerto Rico Corp. after the company decided that it would no longer supply gasoline to state vehicles due to the nation's debt exceeding more than $16 million, said Danny Hernandez, a spokesman for the General Services Administration, NZ Herald reported. Hernandez noted that the agreement is in effect only if Puerto Rico's government makes a $3 million payment on Monday and another $4 million payment before January ends, the news outlet added. The government's lack of liquidity has also almost left the island's ambulances, patrol cars, fire trucks, and other public vehicles without gas supply this Monday. The head of the Legal Department at Total Petroleum Puerto Rico Corp., Denise Rodriguez, said that "a friendly accord" was reached to maintain the fuel supply, according to Fox News Latino. Rodriguez noted that the French major oil and gas corporation started its operations in Puerto Rico eight years ago and that it intends to maintain that relationship, Fox News Latino reported. The goal is to keep the debt below $10 million, the limit Total set on credit line.

"St. Louis Taxpayers Aren't Finished Paying For The Stadium The Rams Abandoned" -- The St. Louis Rams' decision to relocate to Los Angeles brought a double dose of bad news for the city's residents on Tuesday: Not only are they losing the football team they've hosted for the last 21 years, they also still have to pay for the stadium they built to lure the Rams to their hometown in the first place. At the beginning of 2015, city and state taxpayers still owed more than $100 million in debt on the bonds used to finance the Edward Jones Dome, the stadium St. Louis put $280 million in public funds behind in 1995. It isn't scheduled to pay off that debt until at least 2021, and that could be more difficult without the Rams and the $500,000 rent payment the team made each year. The city itself owes $5 million per year over that period, and the loss of the Rams could increase costs in the short-term. ... ... the manner in which the team left St. Louis underscored the way backstopping stadiums with taxpayer funds often benefits already wealthy owners instead of the public. It was, after all, a curious provision in the lease deal that helped attract the Rams to St. Louis -- and ultimately allowed them to leave taxpayers footing a larger portion of the bill, without a football team to boot.

Chicago's $500 million bonds fetch hefty yields | Reuters: Chicago continued to pay a hefty penalty in the U.S. municipal market on Tuesday for its budget and pension woes with the city's $500 million bond issue priced with a top yield of 4.875 percent. That yield for bonds due in 2038 with a 5 percent coupon is 229 basis points over Municipal Market Data's benchmark scale for AAA-rated debt. The city's so-called credit spread over the scale narrowed since a July bond sale, which resulted in a 252 basis-point spread for bonds due in 2039. Underwriters led by Citigroup on Tuesday repriced the general obligation bonds with lower yields in several maturities, with the 2038 yield falling to 4.875 percent from an initial 4.93 percent and Monday's premarketing level of 4.95 percent. Chicago Chief Financial Officer Carole Brown told reporters that the deal, which resulted in an overall 4.5 percent interest rate, attracted 2.5 to 3 times more orders than there were bonds.

Meanwhile In Chicago, 120 People Shot In First 10 Days Of 2016 -- Even as Obama takes his anti-gun crusade to new highs with every passing week, having recently started dispensing executive orders, the president conveniently continues to ignore the state of affairs in his native Chicago - a city in which guns are banned - yet where the shooting epidemic has never been worse, and is truly emblematic of the "gun problem" America has. Judging by the most recent developments, Obama will have nothing to say about Chicago gun violence either during tonight's state of the union address, or ever for that matter, because recent developments are downright disastrous.

Virginia GOP bill would require schools to verify children’s genitals before using restroom  A bill filed by a Virginia lawmaker this week would require schools to be certain that children are using the restroom corresponding to their “correct anatomical sex.” The legislation, which would prohibit transgender students from using the bathroom matching their gender, is being sponsored by Republican Del. Mark Cole. House Bill 663 defines “anatomical sex” as “the physical condition of being male or female, which is determined by a person’s anatomy.” “Local school boards shall develop and implement policies that require every school restroom, locker room, or shower room that is designated for use by a specific gender to solely be used by individuals whose anatomical sex matches such gender designation,” the measure states. Under the bill, any student who violated the bathroom rules could be fined $50 by law enforcement. Schools would have the discretion of allowing students to use a “single stall restroom or shower” or to have “controlled” access to an otherwise unoccupied restroom. Cole’s legislation would also allow law enforcement to fine anyone who knowingly used a public restroom that did not correspond to their “anatomical sex.”

Chicago Schools In "Dramatic Trouble": "They're Looking At A Disaster," Illinois Governor Warns - Chicago’s schools are in trouble. Deep trouble.  Amid Illinois’ intractable budget crisis, the city’s public school system opened with a budget shortfall of nearly a half billion dollars. Borrowing and trimming the proverbial fat helped close some of the $1.1 billion hole but once the board reached the point where “further cuts would reach deep into the classroom” (to quote system chief Forrest Claypool), the schools asked Springfield to make up the difference which amounts to $480 million. The Chicago Public School (CPS) system has nearly 400,000 students and more than 20,000 teachers. Around 1,400 jobs were eliminated in an effort to save money and more layoffs may be just around the corner if Springfield - which is mired in budget gridlock - doesn’t step in.  One problem is the CPS pension liability. As WSJ noted four months ago, “the district’s pension costs have more than doubled in recent years after the board took a partial 'holiday' for three years from paying the amount needed to put the retirement system on a path to long-term solvency.”“It is like the board is a desperate gambler at the end of their run,” remarked Jesse Sharkey, vice president of the Chicago Teachers Union. Governor Bruce Rauner wants nothing to do with bailing this “desperate” bunch of “gamblers” out. “Let’s be clear Chicago Public Schools are in dramatic trouble,” he said last week. “They’re looking at a disaster somewhere in the next nine months in the Chicago public schools.” As Bloomberg reminds us, "CPS is the only state district that pays for its teachers pensions." Rauner went on to predict that Springfield would be blamed if (or perhaps “when” is the better word) disaster finally strikes: “For them to say ‘hey you owe it to us, it’s Springfield’s fault, pick up our pension liability and let us kick the can in the rest of our pension liability, no, no, not happening.”

Two-Thirds of Detroit Schools Close Due to Teacher ‘Sick-Out;' Could Strike Be Near?: Despite the Detroit school system telling parents on Sunday to expect a possibility of closed schools Monday morning due to a ‘minority’ of teachers staying home in protest, it was forced to keep thousands of students home today after two-thirds of its schools were closed. The “sick-out” was organized by local labor leader Steve Conn in preparation for building a statewide strike. Interestingly enough, though the city’s main teachers union- the Detroit Federation of Teachers- is aware of the frustration and poor working conditions for the city’s teacher force, it did not have any involvement with sanctioning the sick-outs. And though Conn claims to have affiliations with the union, the DFT says he was removed from his position as the elected DFT president last year, CNN reported. Detroit teachers are experiencing much frustration because the district is “starved” for funding, something the school system acknowledges. But as is the case with many teacher strikes, the system is calling for the state legislature to act. "We understand and share (the teachers') frustration...given the reality of the District's financial distress, it is becoming clearer every day that the only way that we are going to be able to address these serious issues in any way is through an investment in DPS by the Michigan Legislature,”

Mich. school head to DPS: Address health, safety issues: With more than half of Detroit Public Schools closed Monday by a teacher sickout, Michigan’s top school official called for the district’s emergency manager to address health and safety issues in classroom buildings – hours after union leaders and members publicized problems at two public events. State superintendent Brian Whiston said in a statement that DPS Emergency Manager Darnell Earley should set up a meeting with state, local and district representatives in response to a press conference and a rally where teachers complained of buildings with leaky roofs, rat infestations, broken boilers and shortages of books and other supplies. “I care deeply about the safety and well-being of teachers in Detroit, just as I do the students,” Whiston. “They all still need to be in the classrooms teaching and learning, though. If buildings have health and safety issues, they need to be addressed immediately with the district administration and all appropriate agencies.”

Coalition renews call for action to fix Detroit school system | Michigan Radio: A coalition of business and community leaders continues to push for reform and repair of Detroit's education system.  The Coalition for the Future of Detroit School Children's co-chairs held a press conference today to discuss the current state of the Detroit education landscape, and to renew a call for action to lawmakers. Last year, the State Board of Education supported the coalition's recommendations to return the schools to local control, reduce debt, and improve quality control. Coalition members say they consulted with the mayor, governor, and legislature to create the proposal. The group says it has been nine months since the governor adopted 85% of their recommendations, but they have not seen any further action by lawmakers. Tonya Allen is president and CEO of the Skillman Foundation. She says some legislators have made it clear that that the coalition's recommendations are not a priority. "And it is unacceptable to us for anyone to say that Detroit's children are not a priority in the state of Michigan,"

Detroit Public Schools face bankruptcy if lawmakers don't act - (WXYZ) - State Superintendent of Schools Brian Whiston says lawmakers need to urgently take action to address the Detroit Public Schools debt. The district is on track to run out of cash to pay for any operations by April. "They will have to file bankruptcy," said Whiston of the district's options if no action is taken. Whiston warns a Detroit Public Schools bankruptcy will have more significant ramifications for the state than the Detroit City bankruptcy. "When the city filed bankruptcy, they were able to negotiate lower debt right? If the schools file bankruptcy there is no negotiations," explains Whiston. All of the debt will become the state's responsibility. "There would be about $100 million in legal fees. Then the state is responsible for the debt," said Sen. Goeff Hansen (R-Muskegon). "It is over a billion and a half dollars that the state would be on the hook for." On Thursday Sen. Hansen introduced Senate Bills 710 and 711. The bills follow a plan proposed by Gov. Rick Snyder last year. They would create two school districts. Detroit Public Schools would be the "old district" - only responsible for debt. It would still collect millage money to pay off the debt. It would not run schools. A "new district" called the Detroit Community School District would provide education.

Boston Schools' Budget May Fall Short By $50 Million, Chang Says — Superintendent Tommy Chang said Tuesday that Boston Public Schools could fall short by as much as $50 million next year. BPS will not close any schools in the 2016-17 school year, Chang pledged in a letter to parents. “We have chosen not to close schools in this current budget,” Chang wrote. “Closing schools must be a deliberate process based on equity of access and student needs.” Last year, budget cuts led to the closing of two schools in Hyde Park. This year, Chang said the district has already identified $20 million to cut in central departments and investments.The district will also reduce per-student funding for district high schools. District data shows Boston high schools will collectively absorb $7 million in cuts. And schools will receive less money for their students with autism or emotional impairments, who will have larger maximum class sizes as a result. BPS expects to receive a $1.027 billion budget for next school year, $13.5 million more than the current year. “While the city has continued to invest in the education of our youth,” Chang wrote, “rising expenses are outpacing current revenue sources.” City Councilor Tito Jackson said the current budget is “unacceptable” for district schools. “Really looking at a budget as a value statement, the City of Boston needs to step forward and fully fund the Boston Public Schools,” Jackson said. School officials say charter school reimbursements are a leading cause of the projected deficit.

Back to school for children displaced by Los Angeles-area gas leak | Reuters: In the latest disruption from the biggest methane gas leak in California history, nearly 2,000 Los Angeles children returning to class this week after winter break have been reassigned to schools outside the affected area over health concerns. The Los Angeles Unified School District, the nation's second-largest public school system, announced the plan after students described headaches, bloody noses, nausea and breathing irritations. Eleven-year-old Cameron Michaels said he suffered daily health problems from the gas leak. "You can't focus, you can't concentrate, you can't learn at all," he said. Hundreds of residents have reported similar symptoms to the Los Angeles County Public Health Department, a county official said. County health officials said in a report the symptoms are likely temporary. "I hope they're absolutely right, but I can't take that chance," said School Board member Scott Schmerelson, who led the student relocation effort. "I'd rather err on the side of safety."

‘Difficult conversation’ on charters finally comes to LAUSD board - After three revisions, a resolution aimed at curtailing future charter school expansion in LA Unified is finally coming before the school board for a vote on Tuesday. While the measure is largely symbolic in that it cannot change policy regarding charter growth — that is a state matter — it’s a way to open a “difficult conversation that is long overdue,” said its only sponsor, Scott Schmerelson. General in scope, the resolution is an obvious response to the Broad Foundation-inspired plan, Great Public Schools Now, that is proposing a dramatic increase in the number of LA Unified charters over the next eight years. Schmerelson and other board members have characterized the plan as dangerous to the district’s traditional schools.  As impassioned as the resolution may be, it’s effectively toothless in terms of changing how the district deals with charter applications and renewal requests that come before the board. State law creates the rules for charters, and it only provides for denials in the cases of questionable finances or managerial weakness.“It should be noted that any analysis done by the district on any charter school proposal needs to be in accordance with the provisions of the Education Code.” He added, “The Board should be cautioned against using any fiscal impact to the district and potential decrease in revenues as bases for denying a charter.”

Here is the Report On N.C. Charters That State Leaders Don’t Want You to Read -- Diane Ravitch -- This report on charter schools in North Carolina was written in 2015 by three members of the Duke faculty. It was cited in a summary written for the Legislature by the Department of Public Instruction. The DPI summary is being withheld by the Lt. Governor Dan Forest because it is too “negative.” The original report on charters was written by Professors Helen Ladd, Charles Clotfelter and John Holbein of Duke University. It will be published in the Journal of Education Policy and Finance.   What it shows, among other things, is that charter schools are less diverse than public schools as a sector and are more segregated than public schools. Charter schools are facilitating the resegregation of the schools in North Carolina. You can download the report here.   Sorry, Governor McCrory and Lt. Governor Forest: You may bully the DPI, but you can’t suppress the work of distinguished academics. They don’t work for you. They have tenure.

A primer on the damaging movement to privatize public schools - When, about 30 years ago, corporate interests began their highly organized, well-funded effort to privatize public education, you wouldn’t have read or heard about it. They didn’t want to trigger the debate that such a radical change in an important institution warranted. If, like most pundits and politicians, you’ve supported that campaign, it’s likely you’ve been snookered. Here’s a quick overview of the snookering process. Talking Points: (a) Standardized testing proves America’s schools are poor. (b) Other countries are eating our lunch. (c) Teachers deserve most of the blame. (d) The lazy ones need to be forced out by performance evaluations. (e) The dumb ones need scripts to read or “canned standards” telling them exactly what to teach. (f) The experienced ones are too set in their ways to change and should be replaced by fresh Five-Week-Wonders from Teach for America. (Bonus: Replacing experienced teachers saves a ton of money.) (g) Public (“government”) schools are a step down the slippery slope to socialism. Tactics:

Lily Tang Williams: “Common Core Is The Communist Core I Went Through In China” (video)

Dear Parents: Everything You Need to Know About Your Son and Daughter’s University But Don’t - Los Angeles Review of Books - For years I have been attempting to persuade colleagues, university administrators, and students that something is going desperately wrong in modern universities. To no avail. Readers may have a sense of the type of problem that concerns me from recent events at Yale, in which no less than 13 administrators felt compelled to compose a letter advising adult students on how to dress for Halloween. This was clearly an absurd thing to do, as was a segment of the student response to a lecturer who had the audacity to point out the absurdity in a reasoned and principled email. It was a strange situation in which students and administrators found themselves on the same side of the barricades on the question of the need for sensitivity and creating a place of comfort in the academy. Students siding with administrators against professors? Young people wanting comfort more than truth? If you’re over 50 it will seem strange indeed, but it’s not — not any more. It is the rule now, and it explains in part the trouble I’m having finding someone to talk to.  For years I had been thinking that the reason no one was being educated was due to a failure, one that could be rectified if only we were able to discover its real source(s) — mine, the students’, the university’s. That was my rational world, a world in which we were all in agreement about the goal of the enterprise but were having some trouble sorting out the details of how to reach it. It was my belief in that world that led me repeatedly to try to fix things: by improving my lectures, by arguing with administrators about lax standards and inflated grades, by proposing ever more complex and vigorous course structures and supports to encourage students to take the material seriously. But then my epiphany occurred, and that was when I realized that what I was experiencing wasn’t failure in the sense of a deviation from a shared norm, but a wholesale abandonment of the enterprise itself. My university world was no longer rational.

Universities and Donations – Western Carolina University - What does a public university do when a donation to it comes with strings? This is the situation Western Carolina University finds itself in today as a $2 million donation is being given to it by a Charles Koch Foundation to establish a Center for the Study of Free Enterprise under BT&T bank sponsored department chair Dr. Robert Lopez.   Just to be clear, this is not the only donation ever made by a Charles Koch Foundation to colleges and universities, the the “Koch brothers and their various funding arms awarded $108 million to 366 colleges and universities from 2005 to 2014 — with $19.3 million across 210 college campuses in 2013 alone — according to political funding analysis by the Institute for Southern Studies and Center for Public Integrity.”  This is not only happening at universities or colleges, you can see conservative or other groups showing interest in think tanks such as CAP and Brookings for topics such as student loans and changing the law with regard to “mens rea.” The later being a direct attempt to change the law so as to protect their business. It is difficult for a college or a university, much less a think-tank, to accept a donation from an outside interest with ties to an ideology or interest without favoring it in the future.  “The Faculty Senate voted in majority opposing the establishment of this new center, which is consistent with what I have heard from the general faculty,” said Dr. Bill Yang, chair of the faculty senate rules committee.  “It is not a small stakes issue here. This is the academic integrity of the institution over the long run” and suggesting it is “fairly unique” to have the overwhelming majority of faculty take a stand one-way and the administration do the opposite. In a subsequent interview WCU Provost Alison Morrison-Shetlar claimed “the majority of written comments from faculty support the creation of a free enterprise center.  According to an analysis of the written faculty responses by The Smoky Mountain News; “The written comments showed 20 were against the center, 14 were for it and three were in the middle.” Still a majority against the donation.

Free College and Student Debt - Sara Goldrick-Rab -- Over at Brookings, Susan Dynarski is doing some sensible explaining about student debt, attempting to help people understand that the real crisis lies with borrowers with some debt (not a lot) and no degree. It’s a piece with a worthy objective, (and I preferred it more when she made it over at the Upshot). But I disagree with her that the only issue facing these borrowers is their earnings, however. The key issue is that they do not have postsecondary credentials — and this was predictable. It isn’t rocket science to predict who will and won’t complete college — and it hasn’t changed much over time. We know that people from low-income families have especially high rates of non-completion and it is one reason why we have worked to provide grant aid, which lowers the risk of trying college. Yes, we want them to try — for if they succeed, it brings great social and personal benefits. But over time we have eroded grant support to the poor and saddled them with loans. They now face tremendous, predictable risk, and that’s a problem we can and should deal with. Adjusting repayment plans, as Dynarski suggests, does nothing to improve their odds of degree completion. But lowering the price of college would. Focusing on repayment may be less expensive, but that hardly makes it the right thing to do.

Why Student Loan & Debt Crisis Is Worse Than People Think - This year, more than two-thirds of college graduates graduated with debt, and their average debt at graduation was about $35,000, tripling in two decades.  Since family income has been flat since 2000, students must either borrow more to pay for college or enroll in lower-cost colleges. That shift in enrollment, from private colleges to public colleges and from four-year colleges to two-year ones, has also been responsible for a decline in bachelor’s degree attainment among low- and moderate-income students.  In a recent policy paper, I defined student loan debt as affordable if half of the after-tax increase in income that a student gains from obtaining a college degree is sufficient to repay that student’s loans in 10 years or less. For example, the average starting salary for a bachelor’s degree recipient in the humanities was about $45,000 in 2015, according to the National Association of Colleges and Employers. That compares with about $30,000 in average income for high-school graduates—or a $15,000 difference. After considering taxes, the net increase is about $9,000. Half of that ($4,500) is about 10% of gross income and would be enough to repay roughly $35,000 in student loans over a 10-year repayment term. This is also consistent with my rule of thumb that total student loan debt at graduation should be less than the borrower’s annual starting salary.  Given this definition of affordable debt, I analyzed data from the Baccalaureate & Beyond Longitudinal Study and found that the percentage of bachelor’s degree recipients graduating with excessive debt grew from 9.8% in 1993-94 to 14.4% in 2007-08. If the percentage has continued to grow at the same rate, about 16.7% of college graduates are now graduating with excessive debt. However, even this percentage underestimates the problem. That’s because it includes all students who graduate with a bachelor’s degree—even those without any debt at all. If we look only at students who borrow to attend college, it appears that more than a quarter (27.2%) of them are graduating with excessive debt.

Counseling Help for Distressed Student Loan Borrowers? --  At least two major organizations are about to join or have recently stepped into the effort to provide help to distressed student loan borrowers. National Foundation for Credit Counseling is launching an effort that was piloted by several of their larger members. Also, Neighborworks is launching an effort. We need high quality counseling for these borrowers, but the counseling programs face many challenges including the following

  •             a. Training must include not only the very complicated technical issues, but also counseling and interpersonal techniques; trainers must know both areas;
  •             b. These will hopefully be more than just diagnosis and pointing to the right program; digging into each individual case to help the borrower find the best option is complicated and takes time and skills;
  •             c. This counseling requires more than a single session and previous NFCC programs have not accommodated follow up sessions;
  •             d. The programs require serious quality control; and   
  •             e.  Finally,each provider MUST have a relationship with a legal services program or law school clinic that has expertise in student loan borrower programs so that referrals are smooth;

Use of adjuncts at many law schools is undergoing major changes. In a few months I hope to start on a factual review of what is happening and comment on what that means for legal education. The fall in number of students the last several years at most law schools and the continuing pressure by the Bar for more practice-oriented education are two factors. And then there is the question of the most effective way of integrating adjuncts with the full time faculty and the general curriculum. More on this topic down the road after more numbers are in.

Wall Street Fine Print: Retirees Want FBI Probe Of Pension Investment Deals -- Diane Bucci and her fellow retired Rhode Island schoolteachers were angry about a deal last year to cut their promised retirement benefits. For 28 years, the elementary school teacher devoted between 7 and 9 percent of her paycheck to the state’s pension system. In return, the 72-year-old had been promised a consistent cost-of-living increase to make sure her retirement stipend kept pace with inflation. Now, though, state officials were trimming her check in the name of replenishing the depleted pension fund.  “There was a lot of unrest and anger among teachers, but at that point we buckled down and focused on how we could get to solvency,” said Bucci, who is on the board of the 700-member Rhode Island Retired Teachers Association. “So even though we aren’t Wall Street experts, we just started to ask questions about how the pension fund was managed, and what it was invested in. That’s when we realized the fees we’ve been paying to the investment companies were the problem.” Those levies — which hit $79 million last year — were the product of the state’s recent investment strategy. Following a controversial national trend, Rhode Island pension officials led by then-General Treasurer Gina Raimondo shifted roughly a quarter of the state’s pension portfolio into high-fee hedge funds, private equity firms and other so-called “alternative investments.”  The shift by Raimondo, a Democrat who is now governor, has generated big revenues for Wall Street firms, but only middling returns for a $7.6 billion pension fund on which more than 58,000 current and future retirees rely. When they dug deeper, they stumbled onto an even more disturbing revelation. What they found, they say, is evidence that some investors can obtain special rights that may let them secretly siphon money from the state pensioners’ retirement savings.

Why is CalPERS Understating Its Cost of Investing in Private by Roughly $1.6 Billion, Meaning 80%? -- Yves Smith - It’s a mystery why CalPERS keeps putting its hand in the buzzsaw by continuing to present misleading or outright false information, now that the trade and even the mainstream press is becoming more savvy about private equity.  The latest example is the content of and the messaging surrounding the publication of CalPERS’ most recent Comprehensive Annual Financial Report, or CAFR, as they are called in the public pension fund world, for the year ended June 30, 2015. CalPERS doubled down on its incomplete and therefore inaccurate reporting of private equity fees and costs.   We’ll start with the big items and then dip into some details. Let’s start with the headline from Private Equity International, CalPERS paid $414m in fees to PE funds in 2014. As we will discuss post haste, this headline is utterly false. CalPERS’ fees to PE were more on the order of $2 billion, making this a massive understatement, approximately $1.6 billion, or 80%. And that headline was not the result of helpful cherry-picking by a private-equity-friendly trade publication; it faithfully picked up CalPERS’ messaging. From the article: "The California Public Employees’ Retirement System (CalPERS) paid $414.1 million in fees and costs to private equity funds in 2014, according to CalPERS annual investment report released on 7 January.This is down 6 percent from $439.7 million it paid the previous year.CalPERS spokesman Joe DeAnda told Private Equity International that the fees include “everything besides carried interest” and consist of “mostly management fees.” The fees and costs were paid in relation to CalPERS’s Public Employees’ Retirement Fund (PERF).In November CalPERS released carried interest data for the first time, showing a total $3.4 billion shared in profits with managers advising funds for the pension system, as PEI reported.   First, it is absolutely false to say that fees include “everything besides carried interest”.

Pensions, Mutual Funds Turn Back to Cash - WSJ: U.S. public pension plans and mutual funds are sheltering more of their holdings in cash than they have in years, a sign of growing stress in financial markets. The ultradefensive stance reflects investors’ skittishness about global economic growth and uncertain prospects for further gains in assets. Pension funds have the added need to cut more checks as Americans retire in greater numbers, while mutual funds want cash to cover the risk that investors spooked by volatile markets will pull out more of their money. Large public retirement systems and open-end U.S. mutual funds have yanked nearly $200 billion from the market since mid-2014, according to a Wall Street Journal analysis of the most recent data available from Wilshire Trust Universe Comparison Service, Morningstar Inc. and the federal government. That leaves pension funds with the highest cash levels as a percentage of assets since 2004. For mutual funds, the percentage of assets held in cash was the highest for the end of any quarter since at least 2007. The data run through Sept. 30, but many money managers say they remain very conservative. Pension consultants say some fund managers are considering socking even more of their assets into cash as they wait for the markets to calm down.

How the Government Underestimated the Extent of Income Inequality - The financial picture for Social Security isn’t as dire as some describe: Without any modifications to its funding, Social Security will generate enough revenue to pay for three-quarters of promised benefits. The main reason it’ll fall short, though—the reason that that remaining one-quarter of benefits hasn’t yet materialized—is that the method of funding for Social Security was calibrated to an America with much less inequality than the nation currently has. Since the late ‘70s, most of the growth in workers’ earnings has gone to the people who have made the most money. To be precise, the wages of the top 1 percent of workers have grown 138 percent since 1979, while the wages for the bottom 90 percent grew only 15 percent during that period. If all of that income growth were taxed evenly, Social Security would have no shortfall. But it’s not taxed evenly: Any dollar that an American earns beyond $118,500 is, under current laws, not subject to Social Security taxes. In other words, someone who makes $118,500 this year is going to pay the same amount in Social Security taxes as someone who makes $4 million this year. For most people, this doesn’t really matter: Less than six percent of wage-earners last year took home more than $120,000. But because lots of the last three decades’ earnings growth has been in the realm beyond $118,500 a year, much of it has escaped Social Security taxes.

Kentucky governor to dismantle state's health insurance exchange: newspaper (Reuters) – Kentucky Governor Matt Bevin has notified U.S. authorities that he plans to dismantle the state’s health insurance exchange created under the Obama Administration’s Affordable Care Act, the Courier-Journal reported on Monday. Bevin’s office was not immediately available for comment. Bevin, a Republican, has said his goal is to complete the transition of the state’s system, known as “kynect,” by the end of 2016 to the federal system, the Louisville newspaper said. Bevin had pledged to dismantle the health exchange authorized by executive order of his predecessor, Democrat Steve Beshear. Bevin’s letter said he wants the transition to the federal site to occur “as soon as is practicable,” the newspaper said.

Shared Sacrifice? 1 In 3 Americans Slash Staples Spending To 'Afford' Obamacare - Health insurers are in panic mode as the Obama administration, ever eager maximize coverage optics for Obamacare, has, as The NY Times reports, allowed large numbers of people to sign up for insurance after the deadlines in the last two years, destabilizing insurance markets and driving up premiums. This surge in costs, from unintended consequences, has left 1 in 5 Americans with health insurance is having problems paying medical bills; and, as a new poll finds, more than one in three Americans, or 35 percent, said they were unable to pay for basic necessities such as food, heat, and housing because of medical bill problems...Among people with health insurance, one in five (20%) working-age Americans report having problems paying medical bills in the past year that often cause serious financial challenges and changes in employment and lifestyle, finds a comprehensive new Kaiser Family Foundation/New York Times survey. As expected, the situation is even worse among people who are uninsured: half (53%) face problems with medical bills, bringing the overall total to 26 percent.While insurance can protect people from problem medical bills, the survey suggests that those with employer coverage or other insurance suffer similar consequences as the uninsured once such problems occur. Among those facing problems with medical bills, almost identical shares of the insured (44%) and uninsured (45%) say the bills had a major impact on their families. People with insurance who face problem medical bills also report a wide range of consequences and sacrifices during the past year as a result,including delaying vacations or major household purchases (77%), spending less on food, clothing and basic household items (75%), using up most or all their savings (63%), taking an extra job or working more hours (42%), increasing their credit card debt (38%), borrowing money from family or friends (37%), changing their living situation (14%), and seeking the aid of a charity (11%). These shares generally are as large as or larger than the shares among uninsured people with problem medical bills.

The Cadillac Tax will Now Be Deductible. Here’s What That Means. --As the dust settles from the recent Congressional tax and spending negotiations, policymakers and taxpayers are beginning to sort through the 887-page bill to figure out what it will mean for the 2016 tax year and beyond. Some of the provisions buried in the tax bill will have interesting consequences that have yet not been explored. For instance, one section of the bill that has not yet received enough attention is a provision that makes the Cadillac Tax deductible.For some background – the Cadillac Tax is an excise tax on employers that offer high-cost health insurance plans. The tax was designed to curb healthcare cost growth, roll back the favorable tax treatment of employer-provided insurance, and raise money to fund the Affordable Care Act. Nevertheless, it has long been unpopular with businesses, labor unions, and politicians on both sides of the aisle. Initially, the Cadillac Tax was scheduled to begin in 2018. However, due to widespread dissatisfaction with the tax, the latest tax bill has pushed the start date to 2020. However, there’s a catch: not all payers of the Cadillac Tax will be able to deduct it from their income tax returns. The Cadillac Tax applies to non-profit organizations and state and local governments – neither of which generally pay income taxes. Because these organizations have no income taxes to pay, they will be unable to deduct the Cadillac Tax, so their Cadillac Tax rate will remain at 40 percent. All in all, making the Cadillac Tax deductible is more or less the same as lowering the Cadillac Tax rate to 26 percent for businesses that pay corporate income taxes and leaving it at 40 percent for tax-exempt organizations and state and local governments.

ObamaCare’s Neoliberal Intellectual Foundations Continue to Crumble -- ObamaCare is, of course, a neoliberal “market-based” “solution.” ObamaCare’s intellectual foundations were expressed most clearly in layperson’s language by none other than the greatest orator of our time, Obama, himself (2013):If you don’t have health insurance, then starting on October 1st, private plans will actually compete for your business, and you’ll be able to comparison-shop online.There will be a marketplace online, just like you’d buy a flat-screen TV or plane tickets or anything else you’re doing online, and you’ll be able to buy an insurance package that fits your budget and is right for you.  Let’s leave aside the possibility that private plans are phishing for your business, by exploiting informational asymmetries, rather than “competing” for it. Obama gives an operational definition of a functioning market that assumes two things: (1) That health insurance, as a product, is like flat-screen TVs, and (2) as when buying flat-screen TVs, people will comparison shop for health insurance, and that will drive health insurers to compete to satisfy them. As it turns out, scholars have been studying both assumptions, and both assumptions are false.  Here’s the key assumptoin that Obama (and most economists) make about heatlth insurance: That it’s a commodity, like flat screen TVs, or airline tickets, and that therefore, there exists a “a product that suits your budget and is right for you” because markets. Unfortunately, experience backed up by studies has shown that this is not true. From ObamaCare is a Bad Deal (for Many). From Mark Pauly, Adam Leive, Scott Harrington, all of the Wharton School, NBER Working Paper No. 21565 (quoted at NC in October 2015):

Pfizer hikes U.S. prices for over 100 drugs on January 1 - - Pfizer Inc, which plans a $160 billion merger with Ireland-based Allergan Plc (AGN.N) to slash its U.S. tax bill, on Jan. 1 raised U.S. prices for more than 100 of its drugs, some by as much as 20 percent, according to statistics compiled by global information services company Wolters Kluwer. Pfizer confirmed a 9.4 percent increase for heavily advertised pain drug Lyrica, which generated $2.3 billion in 2014 U.S. sales; a 12.9 percent increase for erectile dysfunction drug Viagra, which had 2014 U.S. sales of $1.1 billion; and a 5 percent increase for Ibrance, a novel breast cancer drug launched last year at a list price of $9,850 per month, or $118,200 per year. Company spokesman Steven Danehy could not immediately confirm the remaining price increases, which were compiled by a unit of Wolters Kluwer Health and published in a research note by UBS Securities. U.S. lawmakers, and presidential candidates, have in recent months stepped up criticism of U.S. drug prices trends, driven in part by eye-popping price hikes from companies with recently acquired generic drugs. UBS said Pfizer increased prices by 20 percent for anticonvulsant Dilantin, hormone therapy Menest, angina drug Nitrostat, Tykosyn for irregular heartbeat, and antibiotic Tygacil.

Drug prices up more than 10 percent in 2015 -  Columbus Dispatch: Drug prices were big news in 2015, thanks in large part to Martin Shkreli, who drew outrage for hiking the price of a life-saving drug by 5,000 percent. Such eye-popping increases were rare. But plenty of drugs became more expensive during the past year. How much did prescription drug prices rise overall in 2015? More than 10 percent — well in excess of the U.S. inflation rate — according to an analysis released on Monday by Truveris, a health-care data company that tracks drug prices. The firm analyzes data involving hundreds of millions of payments that public and private insurers, businesses and patients make each year to U.S. pharmacies. The result is an index that measures the average price of prescription drugs, driven by the most commonly prescribed medications. “We’re in our third year of double-digit (increases),” said A.J. Loiacono, the firm’s chief innovation officer, adding that the increases occurred across virtually every drug category. “ Double-digit inflation is concerning. I don’t care if it’s for gas or food; it’s rare.”

How Americans Got So Fat, in Charts -- Americans should eat more fruits, vegetables, and whole grains, while cutting back on added sugars, sodium, and saturated fat, according to new dietary guidelines published by the federal government Thursday. The guidelines, which influence school lunch menus and federal nutrition policy, also recommend eating more seafood in place of other proteins like meat, poultry, and eggs. Our poor nutrition has contributed to a generations-long national weight gain. Today two-thirds of U.S. adults are overweight or obese. Half are afflicted with chronic conditions like diabetes or high blood pressure that can often be prevented with better diets.We didn't get this way overnight. The average calories available1 to the average American increased 25 percent, to more than 2500, between 1970 and 2010, according to data from the U.S. Department of Agriculture. It's not like we added an extra meal to the day: Rather, an evolution in the type of foods we eat led to steady growth in calories.Added fats and grains account for a growing share of total caloric intake. These two categories, which include oils and fats in processed foods and flour in cereals and breads, made up about 37 percent of our diet in 1970. By 2010, they were 46 percent—a larger share of the growing pie.

One in coma after clinical trial in France - A clinical trial of a new drug in France has left one person brain-dead and another five people in hospital, the health minister says. The oral trial was being conducted by a private laboratory in the north-western city of Rennes, Marisol Touraine said. The trial has been suspended and the firm is recalling the volunteers. It is unclear how many people are involved. Media reports that the drug is a cannabis-based painkiller have been denied by the health ministry. The Paris prosecutor's office said an investigation had been opened. The drug was taken in a licensed laboratory, the ministry said in a statement (in French). Ms Touraine, who was heading for Rennes on Friday, pledged to "get to the bottom... of this tragic accident". The first people to fall ill were taken into hospital earlier this week, French media say. The study was a Phase I clinical trial, in which healthy volunteers take the medication to evaluate the safety of its use, the ministry said.

Cancer screening has never been shown to 'save lives,' argue experts: Harms of screening are certain, but benefits in overall mortality are not -- ScienceDaily: Cancer screening has never been shown to "save lives" as advocates claim, argue experts in The BMJ. This assertion rests on reductions in disease specific mortality rather than overall mortality, say Vinay Prasad, Assistant Professor at Oregon Health and Science University and colleagues. They argue that overall mortality should be the benchmark against which screening is judged and call for higher standards of evidence for cancer screening. There are two chief reasons why cancer screening might reduce disease specific mortality without significantly reducing overall mortality, write the authors. Firstly, studies may be underpowered to detect a small overall mortality benefit. Secondly, disease specific mortality reductions may be offset by deaths due to the downstream effects of screening. Such "off-target deaths" are particularly likely among screening tests associated with false positive results (abnormal results that turn out to be normal) and overdiagnosis of harmless cancers that may never have caused symptoms, they explain.

A little-known, untreatable virus just arrived in the US — and we're woefully underprepared - A little-known virus which has already gained a major foothold in South and Central America just arrived in the US via someone traveling from South America, NBC News reports. The virus was diagnosed in someone in Houston on Monday. Notably, this isn't the first time a tourist has carried Zika to North America, but some experts say there is cause for concern. Peter Hotez, Dean of the National School of Tropical Medicine at Baylor College of Medicine and Director of the Texas Children's Hospital Center for Vaccine Development told NBC News that some American cities could be vulnerable to Zika's spread, though a single tourist is unlikely to be the cause of an outbreak here. "The problem with it is we have to act now," Hotez said. "This is such an unusual virus. It tends to produce low-level symptoms." Zika, which has only recently moved beyond Africa and Southeast Asia, has already had debilitating effects in the Americas. It's especially problematic in Brazil, where it's appears to be connected to a serious birth defect.The Zika virus was originally identified in 1947 in Uganda. It's primarily transmitted by tropical mosquitoes — the same kind known for spreading dengue — that pick up the virus from infected people, according to the CDC. It was relatively unknown until 2007, when there was an outbreak of the virus in Micronesia. Until 2014, the virus had only broken out in Africa, Southeast Asia, and the Pacific Islands. That year, it spread to Easter Island and Chile. By May 2015 Zika had made its way to Brazil. In the past year, Brazil has seen have been more than 84,000 cases of the virus. So far, there are no vaccines or treatments for Zika. The only way to prevent the infection is to avoid being bitten by mosquitoes.

Mutated strain detected in S. Korean MERS virus outbreak - A mutation of the Middle East Respiratory Syndrome (MERS) virus, which has killed dozens during its South Korean outbreak, could have created a more potent and contagious stain, scientists have revealed. After testing the bodily fluids of eight people infected with MERS, the Korea Centers for Disease Control and Prevention (KCDC) discovered that the virus had genetically mutated compared to previous cases reported in the world. In particular, the mutation resulted in a spike of glycoprotein, the element that is responsible for infiltrating human cells and proliferating. The virus was first identified in humans in 2012 in Saudi Arabia and by February 2015 the global death toll had reached 385. MERS comes from the same family of viruses as SARS. Although it is more deadly, it is not as contagious, and there is currently no guaranteed cure or vaccine. Since the outbreak of the virus in South Korea was first confirmed on May 20 last year, more than 15,000 have undergone isolation and incubation periods for possible infection. Before Seoul declared the country to be MERS free on December 23, the virus claimed the lives of 38 people. Overall, 187 people were infected. But while potential danger of the new strain becoming more contagious exists, KCDC said that they cannot determine if the mutation indeed altered the way the virus spread. “All we know for certain is that a mutation occurred, with more detailed analysis needed to see what affect it had on the spread,” the agency said according to Yonhap.

Malaria treatment fails in Cambodia because of drug resistance - researchers: Malaria-carrying parasites in parts of Cambodia have developed resistance to a major drug used to treat the disease in Southeast Asia, according to research published on Thursday in The Lancet Infectious Diseases journal. The drug piperaquine, used in combination with the drug artemisinin, has been the main form of malaria treatment in Cambodia since 2008. The combination is also one of the few treatments still effective against multi drug-resistant malaria which has emerged in Southeast Asia in recent years, and which experts fear may spread to other parts of the world. "(Treatment) failures are caused by both artemisinin and piperaquine resistance, and commonly occur in places where dihydroartemisinin-piperaquine has been used in the private sector," researchers said. Artemisinin resistance has been found in five countries in Southeast Asia - Cambodia, Laos, Myanmar, Thailand and Vietnam. Resistance to both artemisinin and drugs used in combination with it has developed in parts of Cambodia and Thailand. Experts are particularly concerned that artemisinin resistance will spread to sub-Saharan Africa where about 90 percent of malaria cases and deaths occur. "Because few other artemisinin combination therapies are available, and because artemisinin resistance will probably accelerate resistance to any partner drug, investigations of alternative treatment approaches are urgently needed," the researchers said.

Chipotle To Close All Stores Next Month For Meeting On How Not To Poison People - America’s love affair with “fast casual” darling Chipotle ended in a wave of severe nausea last year as a food poisoning outbreak that started in July spread to multiple states and sickened hundreds of patrons. Since last summer, authorities have tied Chipotle to at least six outbreaks spanning two types of bacteria (E. coli and salmonella) and one virus (the “winter vomiting bug”). As The Chicago Tribune recounts, the incidents “included one that started in October in Oregon and Washington and spread to seven other states, sickening more than 50 people by mid-November, [one in] December [in which] about 200 were sickened by norovirus after eating at a Chipotle in Boston, five cases of E. coli poisoning in Kansas, North Dakota and Oklahoma, five illnesses tied to one Seattle store in July, 100 illnesses [linked to] an outlet in Simi Valley, California,” and an unfortunate episode “in September [when] more than 60 fell ill in Minnesota.”Now, the chain is set to hold a kind of ad hoc “try not to poison anyone” meeting on February 8, when all stores will close “for a few hours” so that management can “discuss some of the changes [its] making to enhance food safety, to talk about the restaurant’s role in all of that and to answer questions from employees.” Yes, "questions from employees", who might ask if their jobs are on the line after same store sales collapsed 30% in December and after the company was served with a Grand Jury Subpoena in connection with an official criminal investigation being conducted by the U.S. Attorney's Office for the Central District of California.

Yet another food product has been approved by the FDA: The Food and Drug Administration said on Tuesday that a potato genetically engineered to resist the pathogen that caused the Irish potato famine is as safe as any potato on the market. Idaho-based J.R. Simplot Co. has passed another hurdle in their quest to market their genetically engineered potato seeds after being told their product doesn't differ substantially in composition or safety than other products on the market. The FDA added that no issues were raised that would require the agency to conduct more stringent premarket testing. The U.S. Department of Agriculture approved the potato in August 2015. Cole says the potato has to be cleared by the Environmental Protection Agency later this year before they can market the potato to the public. This latest potato is a second-generation of Simplot's "innate" brand potatoes, called Russet Burbank Generation 2, It contains the first version's reduced bruising, but less of some kind of chemical that is produced at high temperatures that has been found to cause cancer, according to Phys.Org.  But a chemical that causes cancer at high temperatures aside, this second-generation potato has been engineered with a special trait, allowing the potatoes to be stored at colder temperatures to avoid spoilage, thus saving food.

IVF: First genetically-modified human embryos 'could be created in Britain within weeks' -- The first genetically-modified human embryos could be created in Britain within weeks according to the scientists who are about to learn whether their research proposal has been approved by the fertility watchdog. Although it will be illegal to allow the embryos to live beyond 14 days, and be implanted into the womb, the researchers accepted that the research could one day lead to the birth of the first GM babies should the existing ban be lifted for medical reasons. A licence application to edit the genes of “spare” IVF embryos for research purposes only is to be discussed on 14 January by the Human Fertilisation and Embryology Authority (HFEA), with final approval likely to be given this month.Scientists at the Francis Crick Institute in London said that if they are given the go-ahead they could begin work straight away, leading to the first transgenic human embryos created in Britain within the coming weeks or months. The researchers emphasised that the research concerns the fundamental causes of infertility and involves editing of the genes of day-old IVF embryos that will not be allowed to develop beyond the seven-day “blastocyst” stage – it will be illegal to implant the modified embryos into the womb to create GM babies.However, they accepted that if the research leads to a discovery of a genetic mutation that could improve the chances of successful pregnancies in women undergoing IVF treatment, it could lead to pressure to change the existing law to allow so-called “germ-line” editing of embryos and the birth of GM children.

GMO News Summary January 15th, 2016 - *Soon, maybe next week, Agriculture Secretary Tom Vilsack will hold his secret conference of “stakeholders” to hammer out a plan to prevent Vermont’s GMO labeling law from going into effect in July and destroy the labeling democracy movement (the state-level movement) once and for all. Campbell’s timed its public call for FDA “mandatory” labeling in order to coincide with the Vilsack conference and push this proposal as a major subject at the conference. It’s peculiar how many people can say “Don’t mess with Vermont” at the same time they’re saying “Go Campbell’s!” Meanwhile Mark Lynas says the Campbell’s plan is a great thing. NOW we know it’s anti-GMO! Lynas’ position on labeling has been clear for a long time. He thinks Dark Act Plan A won’t work and is bad politics, but that a weak and fraudulent, but “mandatory”, FDA policy which preempts real labeling at the state level (DARK Act Plan B) would not only destroy the labeling movement but destroy the rising trend of advocacy beyond labeling toward outright bans. He thinks this will help normalize and maximize GMOs in our food. Campbell’s is the first big industry “stakeholder” to agree completely with this position in public. There is a perfect consensus among establishment types – politicians, industry, insider NGOs. Wherever else they may sometimes disagree, they’re all firm that the #1 purpose of any federal standard is to preempt the labeling democracy movement and forestall the abolition movement.

59 Indigenous Corn Varieties at Risk as Monsanto Eyes Mexico -- Mexico’s unique and treasured native corn varieties could be under threat as Monsanto, the world’s largest seed producer, vies to plant genetically modified (GMO) corn in the country. In August 2015, a Mexican judged overturned a September 2013 ban on GMO corn, thus opening more business opportunities for Monsanto and other agribusinesses pending favorable later court decisions. Monsanto even announced in October 2015 that it was seeking to double its sales in the country over the next five years. The GMO corn ban remains pending a ruling on the appeal, but a final decision could end up in Mexico’s supreme court. Monsanto, which is seeking five permits to grow GMO corn in five areas in northern Mexico, touts that the bioengineered crop is a ticket out of poverty for small farmers since the crops purportedly result in higher yields and profits, the Financial Times reported. “It’s incredible that we are not giving [small farmers] the option to cross the poverty line,” Monsanto’s chief executive for northern Latin America, Manuel Bravo told the publication. He added that the controversial multinational company has trouble “communicating” its message. However, community advocates and chefs warn that Mexico’s 59 indigenous corn varieties could be under threat by GMOs. As you can see in this video from the Financial Times, the country’s most noted chefs are speaking out against a possible takeover. Roughly 80 other Mexican chefs have also joined the fight against GMO corn. ( video)

The EPA and Glyphosate  -- In 2015 the World Health Organization’s International Agency for Research on Cancer (IARC) reviewed the entire scientific record on glyphosate and conservatively decided that the herbicide is a probable human carcinogen.  This finding contradicts decades of public assurances from the US EPA and Monsanto that glyphosate is safe, and in particular that it does not cause cancer. It calls into question the integrity and the competence of the EPA, which as recently as 2013 reaffirmed its position that “glyphosate does not pose a cancer risk to humans” and licentiously raised the tolerance levels for glyphosate residues* in many foods. This is part of the well-worn regulatory path of mechanically raising tolerance levels for pesticide residues in food in accordance with whatever the manufacturer projects will be the result of a new product or use pattern. In the same way that the EPA mechanically raises the allowed poison residue levels at the corporations’ command, so it also has a history of changing its assessments of the carcinogenicity of corporate products in response to changing corporate needs. The most notorious example is glyphosate. EPA knew since at least the early 1980s that glyphosate causes cancer. The evidence was so conclusive that, in spite of EPA’s doing all it could to interpret Monsanto’s own test results in the best possible light, it felt compelled to give the poison Classification C – “Suggestive evidence of carcinogenic potential”.

The EPA Fights For 2,4-D and Dioxin -- Since the 1970s the EPA has been an ardent booster of maximal poison spraying and the application of poisons to ever new frontiers. One of the expanded corporate welfare programs was government contracts for herbicide spraying in national forests. Private companies also receive subsidies for massive spraying of 2,4,5-T, and 2,4-D, and glyphosate. This is a direct handout to the timber companies and ultimately a laundered handout to the poison manufacturers.  By the late 1970s EPA was aware of huge spikes in birth defects and miscarriages in the timber regions where this spraying was most intense. Alsea, Washington was stricken with a local epidemic of miscarriages and birth defects including babies being born with fatal brain defects or being stillborn without brains. EPA investigators found dioxin in local creek sediments and accumulating in the bodies of local people. By the early 1980s EPA was tracking similar outbreaks in Washington, Oregon, Montana, Wisconsin, and Oklahoma. Internal EPA memos make clear that EPA quickly zeroed in on the dioxins contained in 2,4,5-T and 2,4-D as the likely cause of the outbreaks. A 1981 memo called the dioxin TCDD “the most toxic chemical ever known”, cancer-causing and acutely lethal at “exceedingly low doses”. By the late 70s 2,4,5-T had such a bad reputation for its toxicity, and was relatively less important to the Poisoners than other herbicides such as 2,4-D and the triazines, that the US government decided it was expendable and banned it. EPA took the opportunity to blame the epidemics of birth defects and miscarriages on 2,4,5-T while letting 2,4-D off the hook. This was in spite of the fact that at least as early as 1983 EPA was aware that 2,4-D also contains dioxin. This information is from a piece by Evaggelos Vallianatos, one of many he’s written presenting information from his recent book Poison Spring. This is a whistle-blowing story based on Vallianatos’s 25 years as an EPA science analyst. Poison Spring describes the EPA’s systematic cover-ups and its lies to the people and Congress on behalf of the corporations that distribute poison. It’s a Nuremburg brief.

EU dropped pesticide laws due to US pressure over TTIP, documents reveal - EU moves to regulate hormone-damaging chemicals linked to cancer and male infertility were shelved following pressure from US trade officials over the Transatlantic Trade and Investment Partnership (TTIP) free trade deal, newly released documents show.  Draft EU criteria could have banned 31 pesticides containing endocrine disrupting chemicals (EDCs). But these were dumped amid fears of a trade backlash stoked by an aggressive US lobby push, access to information documents obtained by Pesticides Action Network (PAN) Europe show.  On 26 June 2013, a high-level delegation from the American Chamber of Commerce (AmCham) visited EU trade officials to insist that the bloc drop its planned criteria for identifying EDCs in favour of a new impact study.  Minutes of the meeting show commission officials pleading that “although they want the TTIP to be successful, they would not like to be seen as lowering the EU standards”. The TTIP is a trade deal being agreed by the EU and US to remove barriers to commerce and promote free trade.Responding to the EU officials, AmCham representatives “complained about the uselessness of creating categories and thus, lists” of prohibited substances, the minutes show.

Why Doesn’t the USDA Test for Residues on Food From Monsanto’s ‘Cancer Causing’ Glyphosate? - When microbiologist Bruce Hemming was hired two years ago to test breast milk samples for residues of the key ingredient in the popular weed-killer Roundup, Hemming at first scoffed at the possibility. Hemming, the founder of St. Louis-based Microbe Inotech Laboratories, knew that the herbicidal ingredient called glyphosate was not supposed to accumulate in the human body. But Hemming, who previously worked as a scientist for Roundup maker Monsanto Co., said his lab’s testing did find residues of glyphosate in the samples of breast milk he received from a small group of mothers who were worried that traces of the world’s most popular herbicide might be invading their bodies. Food companies, consumer groups, academics and others have also solicited testing for glyphosate residues, fueled by fears that prevalent use of the pesticide on genetically engineered food crops may be contributing to health problems as people eat foods containing glyphosate residues.Those fears have been growing, stoked by some scientific studies that have shown health concerns tied to glyphosate, as well as data from the U.S. Department of Interior finding glyphosate in water and air samples. The concern surged last year after the World Health Organization’s cancer research unit said it had found enough scientific evidence to classify glyphosate as a probable human carcinogen.  Consumers groups have been calling on the U.S. government to test foods for glyphosate residues on behalf of the public, to try to determine what levels may be found and if those levels are dangerous. But so far those requests have fallen on deaf ears.

US Department Of Agriculture TAFTA/TTIP Study: Small Gains for US, Small Losses for EU - As we are constantly reminded by its supporters, the TAFTA/TTIP agreement currently being negotiated between the US and the EU is huge: together, the two regions account for around half of global GDP. Given that scale, and the impact that TTIP is likely to have on both the US and EU, you might expect there would be dozens of detailed studies looking at the likely effects -- and whether, on balance, it would be a good idea. And yet such studies are very thin on the ground.  The main one (pdf), produced by the London-based CEPR for the European Commission, dates back to 2013. Initially, its figures were widely quoted to bolster the case for TTIP; and then, almost overnight, it was quietly dropped. It's not hard to see why. Once people started digging more deeply into its oft-cited figures it turned out that these were from an "ambitious" deal, and referred to the cumulative effect of TTIP in 2027, after it had been in operation for ten years. Even that best-case scenario worked out at just 0.05% extra GDP per year -- little more than a rounding error.  That dearth of high-quality research makes the recent appearance of a new report from the Economic Research Service of the US Department of Agriculture entitled "Agriculture in the Transatlantic Trade and Investment Partnership: Tariffs, Tariff-Rate Quotas, and Non-Tariff Measures" (pdf) all-the-more welcome.  As you would expect given its provenance, it's a rigorous piece of work, and confirms that the GDP gains from TTIP are likely to be tiny: in the best case, around 0.1% for the US, and 0.29% for the EU. Both of those are cumulative gains, which means that the annual GDP boost for both sides is once more extremely small. What makes the new study particularly valuable is that it naturally concentrates on the agricultural sector, and provides us with the first detailed breakdown of how the proposed agreement is likely to affect what is a very important -- and highly influential -- industry for both sides.

The Lawyer Who Became DuPont’s Worst Nightmare - DuPont rechristened the plot Dry Run Landfill, named after the creek that ran through it. The same creek flowed down to a pasture where the Tennants grazed their cows. Not long after the sale, Wilbur told Bilott, the cattle began to act deranged. They had always been like pets to the Tennants. At the sight of a Tennant they would amble over, nuzzle and let themselves be milked. No longer. Now when they saw the farmers, they charged.  Wilbur fed a videotape into the VCR. The footage, shot on a camcorder, was grainy and intercut with static. Images jumped and repeated. The sound accelerated and slowed down. It had the quality of a horror movie. In the opening shot the camera pans across the creek. It takes in the surrounding forest, the white ash trees shedding their leaves and the rippling, shallow water, before pausing on what appears to be a snowbank at an elbow in the creek. The camera zooms in, revealing a mound of soapy froth.‘‘I’ve taken two dead deer and two dead cattle off this ripple,’’ Tennant says in voice-over. ‘‘The blood run out of their noses and out their mouths. ... They’re trying to cover this stuff up. But it’s not going to be covered up, because I’m going to bring it out in the open for people to see.’’The video shows a large pipe running into the creek, discharging green water with bubbles on the surface. ‘‘This is what they expect a man’s cows to drink on his own property,’’ Wilbur says. ‘‘It’s about high time that someone in the state department of something-or-another got off their cans.’’At one point, the video cuts to a skinny red cow standing in hay. Patches of its hair are missing, and its back is humped — a result, Wilbur speculates, of a kidney malfunction. Another blast of static is followed by a close-up of a dead black calf lying in the snow, its eye a brilliant, chemical blue. ‘‘

Federal Lawsuit Filed Over North Carolina Anti-Whistleblower Law -- A coalition of animal protection, consumer rights, food safety and whistleblower protection organizations filed a federal lawsuit today challenging the constitutionality of a North Carolina law designed to deter whistleblowers and undercover investigators from publicizing information about corporate misconduct.  Under the law, organizations and journalists who conduct undercover investigations and individuals who expose improper or criminal conduct by North Carolina employers, are susceptible to suit and substantial damages if they make such evidence available to the public or the press. According to the complaint filed today, the law’s purpose is to punish those “who set out to investigate employers and property owners’ conduct because they believe there is value in exposing employers and property owners’ unethical or illegal behavior to the disinfecting sunlight of public scrutiny.” The plaintiffs, People for the Ethical Treatment of Animals (PETA), Center for Food Safety, Animal Legal Defense Fund, Farm Sanctuary, Food & Water Watch and the Government Accountability Project, said today that they are taking legal action because North Carolina’s law “blatantly violates our rights to free speech, to a free press and to petition our government and violates the Equal Protection Clause. It places the safety of our families, our food supply and animals at risk.”The North Carolina law is part of a growing number of so-called “ag-gag laws” passed by state legislators across the country. The bills, which are pushed by lobbyists for corporate agriculture companies, are an attempt to escape scrutiny over unsafe practices and animal abuses by threatening liability for those who expose these improper and, in many cases, illegal practices. North Carolina’s version is written so broadly that it would also ban undercover investigations of all private entities, including nursing homes and daycare centers. The North Carolina law threatens to silence conscientious employees who witness and wish to report wrongdoing.

Starvation Suspected in Massive Die-off of Alaska Seabirds  --Seabird biologist David Irons drove recently to the Prince William Sound community of Whittier to check on a friend's boat and spotted white blobs along the tide line of the rocky Alaska beach. He thought they were patches of snow.  A closer look revealed that the white patches were emaciated common murres, one of North America's most abundant seabirds, washed ashore after apparently starving to death. "It was pretty horrifying," Irons said. "The live ones standing along the dead ones were even worse." Murre die-offs have occurred in previous winters but not in the numbers Alaska is seeing. Federal researchers won't estimate the number, and are trying to gauge the scope and cause of the die-off while acknowledging there's little they can do.  Scientists say the die-offs could be a sign of ecosystem changes that have reduced the numbers of the forage fish that murres depend upon. Warmer water surface temperatures, possibly due to global warming or the El Nino weather pattern, may have affected murre prey, including herring, capelin and juvenile pollock.

You Thought We Canadians Controlled Our Fisheries? Think Again - Wild fisheries are humankind's greatest single source of protein. They are fully renewable, we don't have to till soil, plant seeds, apply fertilizer or pesticide, water them or feed them; we just have to manage the harvest. As global populations continue to grow, much is at stake as we determine who benefits from the greatest renewable food resource. At home who benefits from fish harvested in B.C.'s waters? You'd be logical in thinking the answer is mostly people who make the B.C. coast their home and who fish for a living. And you'd be wrong. Take B.C.'s halibut fishery for instance, which is run in such a perverse way that most fishermen have seen their rewards so whittled down that it barely makes financial sense to leave the wharf. New fishermen are scarcer than blue whales, and the bulk of the benefits flow to "investors," big processing companies, even foreign corporations. And now, Fisheries and Oceans Canada (DFO) wants to do the same harm to B.C.'s emblematic salmon fishery. We don't think they should. To understand how we got here, and what needs to change, requires a brief course in something called the Individual Transferable Quota system. Stay with us. This won't take long.

Toxic “Reform” Law Will Gut State Rules on Dangerous Chemicals -- A NEW SET OF BILLS that aims to update the 1976 Toxic Substances Control Act may nullify the efforts of states such as Maine and California to regulate dangerous chemicals. The Senate’s bill, passed last month, just before the holidays, is particularly restrictive. The Frank R. Lautenberg Chemical Safety for the 21st Century Act — named, ironically, for the New Jersey senator who supported strong environmental protections — would make it much harder for states to regulate chemicals after the EPA has evaluated them, and would even prohibit states from acting while the federal agency is in the process of investigating certain chemicals. The Senate’s version has some significant differences from the House bill — the TSCA Modernization Act, which passed in June — and the reconciliation process is now underway. If the worst provisions from both bills wind up in the final law, which could reach the president’s desk as soon as February, the new legislation will gut laws that have put Oregon, California, Maine, Vermont, Minnesota, and Washington state at the forefront of chemical regulation.

Modern Urban Water Crisis TED Talk by David Sedlak - k.m. - Showing graphs of water supply to large cities such as Brisbane, São Paulo, and LasVegas which have all become dangerously close to running out of water in recent years, David Sedlak goes on to describe four ideas to make urban water supplies more resilient, ideas such as maximizing rainwater collection. In LosAngeles, for example, they are building a natural treatment process rainwater collection park that collects rainwater through gravel filtered underground which can then be harvested. (I wish he'd mentioned limiting population growth in regions that exceed their water carrying capacity.) This is an important subject because urban areas that develop and grow, and consequently need more water usually expect to convert agricultural allotted water to urban. I watch as development and population growth continue to rapidly expand population here on the front range of Colorado and never is water supply questioned, as it is assumed some future solutions will always appear.

Contaminated Tap Water Could Become More Common Thanks to Failing Infrastructure - In Flint, Michigan, lead, copper, and bacteria are contaminating the drinking supply and making residents ill. If other cities fail to fix their old pipes, the problem could soon become a lot more common.  In the past 16 months, abnormally high levels of e. coli, trihamlomethanes, lead, and copper have been found in the city’s water, which comes from the local river (a dead body and an abandoned car were also found in the same river). Mays and other residents say that the city government endangered their health when it stopped buying water from Detroit last year and instead started selling residents treated water from the Flint River. “I’ve never seen a first-world city have such disregard for human safety,” she told me. While Flint’s government and its financial struggles certainly have a role to play in the city’s water woes, the city may actually be a canary in the coal mine, signaling more problems to come across the country. “Flint is an extreme case, but nationally, there’s been a lack of investment in water infrastructure,” said Eric Scorsone, an economist at Michigan State University who has followed the case of Flint. “This is a common problem nationally— infrastructure maintenance has not kept up.”

Expert says Michigan officials changed a Flint lead report to avoid federal action --The Environmental Protection Agency says it’s conducting a full review of what happened in Flint. For more than a year, state officials assured city residents their water was safe. Those assurances turned out to be wrong.  And it wasn’t until some residents got outside experts involved -- who not only found elevated lead levels in the drinking water, but that blood lead levels were also rising in Flint kids – that the state admitted there was a problem. One of the more troubling charges made against the state is that the Michigan Department of Environmental Quality knowingly dropped lead test samples to avoid exceeding a federal drinking water standard. Curt Guyette with the ACLU of Michigan wrote about this in September: An investigation by the ACLU of Michigan -- conducted in conjunction with the study of Flint's water by researchers at Virginia Tech and the citizen group Coalition for Clean Water -- has found that the city, operating under the oversight of the Michigan Department of Environmental Quality, took multiple actions that skewed the outcome of its tests to produce favorable results. State officials maintain they followed the testing rules for lead under the Safe Drinking Water Act.

This is how toxic Flint’s water really is -- The city of Flint, Mich., is in the midst of a water crisis several years in the making. The city opted out of Detroit's water supply and began drawing water from the Flint River in April 2014, part of a cost-saving move. Eighteen months later, in the fall of 2015, researchers discovered that the proportion of children with above-average lead levels in their blood had doubled. The city reconnected to Detroit's water system in October, but the damage was done. Water from the Flint River was found to be highly corrosive to the lead pipes still used in some parts of the city. Even though Flint River water no longer flows through the city's pipes, it's unclear how long those pipes will continue to leach unsafe levels of lead into the tap water supply.  A group of Virginia Tech researchers who sampled the water in 271 Flint homes last summer found some contained lead levels high enough to meet the EPA's definition of "toxic waste." The researchers posted their test results online, which I represent graphically below with other visuals to help understand just how high above normal Flint's lead levels really were. Lead in water is measured in terms of parts per billion (ppb). If a test comes back with lead levels higher than 15 ppb, the EPA recommends that homeowners and municipalities take steps to reduce that level, like updating pipes and putting anti-corrosive elements in the water when appropriate. But 15 ppb is a regulatory measure, not a public health one. Researchers stress that there is no 100 percent "safe" level of lead in drinking water, only acceptable levels. Even levels as low as 5 ppb can be a cause for concern, according to the group studying Flint's water.

Legionnaires’ disease spikes in Flint amid poisoned water crisis; National Guard activated -- As Flint, Michigan residents continue to deal with a state of emergency declared over their contaminated water supply, a sharp increase in cases of an atypical pneumonia known as Legionnaires’ disease has hit the community. Tags HealthOn Wednesday, state officials hosted a press conference acknowledging the uptick in the cases of Legionnaires’ disease, but gave no new advice to the public regarding water usage, saying they have yet to determine the cause of the disease. Dr. Eden Wells, chief medical executive of the state’s Department of Health and Human Services, said a more thorough analysis was still to come. Between June 2014 and November 2015, there were 87 cases of Legionnaires’ disease in Flint, with 10 ending in death, according to Wells. The fatality rate for the disease ranges from 5 to 30 percent depending on access to antibiotics and other factors, according to the US National Library of Medicine.The source of the drinking water in Flint was changed from Lake Huron to the Flint River in April 2014. Although the river water was sent to a city water treatment plant, its salt levels were overlooked, causing the lead pipes to corrode. The changeover was noticed by residents right away. Though they complained of bad tastes and smells after the changeover, the Department of Environmental Quality only conceded its failure in October of 2015. DEQ had not added the chemicals necessary to combat corrosion in the pipes, leaving the water to dissolve lead, a poisonous metal.

Flint Wants Safe Water, and Someone to Answer for Its Crisis - — A caravan of Genesee County sheriff’s office cruisers snaked its way through the streets here on Thursday, doling out water filters and jugs of water to frustrated and terrified residents who have been trying to cope for more than a year with the public health crisis that has been flowing out of their taps.  Shortly after officials switched the source of their drinking water to the Flint River from Lake Huron in April 2014 to save money, residents started complaining that their tap water looked strange, tasted bad and caused rashes. But not until the fall of 2015, when the water was found to have elevated levels of lead that were reflected in children’s blood, did state officials swing into action.  Now they are scrambling to address a situation that has endangered the health of Flint’s children and generated untold costs and anxiety. “It’s ridiculous we have to live in such a way,”   Switching the source of drinking water was meant to relieve some of the financial pressures on this struggling city. Flint has high rates of gun violence and crumbling infrastructure. And as manufacturing jobs have moved overseas, the population has steadily dropped to fewer than 100,000 — more than 40 percent of whom live below the poverty line. But it was not long before some in Flint were pointing out the nasty color and odor of what was coming out of their taps, and digging into their wallets to buy bottled water for drinking and cooking, and baby wipes for bathing.

EPA, Republicans in Congress Battle Over Water Regulation: It has long been the opinion here at the shebeen that we are dooming ourselves to nearly endless political, cultural, and perhaps literal fistfights over water over the next several decades. We're seeing a particularly grotesque example of this underway in Flint, Michigan, at the moment. (Most recently, Governor Rick "Accessory Before The Fact" Snyder has called out the National Guard to help hand out bottled water and other supplies. I'm sure it has nothing to do with the need for possible "pacification" duties if the residents of Flint finally get completely fed up with being poisoned.) But there are things happening in the Congress as well. On Wednesday, the House voted to overturn the Environmental Protection Agency's "Waters of the United States" rule that asserted federal environmental protections over the country's smaller waterways. This action came on a Senate bill that was passed in November, the chief sponsor of which is my new friend, Senator Joni Ernst of Iowa. The usual rhetoric about over-reaching and jackboots has attended the passage of the bill, which undoubtedly will be vetoed if it ever gets to the White House. The GOP says the administration is seeking to assert federal control over puddles, ditches, areas that are occasionally wet and other large sections of private or state land in violation of the intent of the Clean Water Act. They say the rule would be disastrous to farmers, developers, landowners and other businesses that would need a federal permit for routine tasks such as digging ditches. "The federal government shouldn't be regulating every drop of water," said House Transportation and Infrastructure Committee Chairman Bill Shuster (R-Pa.), whose panel has authority over water policy. Just about every wet area in the country is open to federal regulation under this rule. The rights of landowners and local governments will be trampled."

New York Company Claims Trademark Rights to “Yosemite National Park” -- A company in New York claims that it owns the trademark rights to "Yosemite National Park" and wants $50 million to give it up. This is not a joke. It's actually happening. The Park Service isn't yet giving in on this, but it is caving on a bunch of other names, including the Ahwahnee Hotel: On March 1, the famed Ahwahnee — a name affixed to countless trail guides and family memories — will become the Majestic Yosemite Hotel. And Curry Village, a collection of cabins near the center of the park that has carried the same name since the 1800s, will become Half Dome Village, park spokesman Scott Gediman said Thursday. ...Also affected will be: Yosemite Lodge at the Falls, becoming Yosemite Valley Lodge. Wawona Hotel, becoming Big Trees Lodge. Badger Pass Ski Area, becoming Yosemite Ski & Snowboard Area. Coming soon: Yellowstone National Park will be renamed Majestic Geysers Park. Redwood National Park will become Incredible Trees Park. And Everglades National Park will become Big Swampy Park.

This map shows the huge amount of land the federal government owns in the American West - Since Saturday, armed antigovernment protesters constituting a self-styled militia have occupied a federal wildlife refuge in Oregon.  At the heart of the protest is the militia members' desire to transfer ownership of the land from the federal government to private hands. Ammon Bundy, the apparent leader of the militia, told reporters earlier this week that the protesters would not leave the land until such a plan was in place. Federal land ownership has been the source of a long-standing dispute among government agencies and many in more rural farming and ranching regions. It's especially prevalent in the western portion of the US. The reason? The federal government owns a huge amount of land there. The US Geological Survey maintains maps of federally owned land. According to the USGS, here is the land owned by the US government, in purple:

Nitrogen dioxide levels are down overall but hotspots remain - Levels of a key air pollutant have changed "quite dramatically" over the past decade, according to scientists who tracked data from NASA’s Aura satellite. Nitrogen dioxide (NO2) is emitted whenever something burns, from automobile exhausts to factory smokestacks. It’s harmful to breathe and helps produce ground-level ozone, another pollutant, as well as affecting water quality and biodiversity, according to NASA’s Bryan Duncan. Launched in 2004 with a nominal life span of six years, Aura is still circling Earth in a near polar orbit, covering each swathe of the surface every 16 days. One of the satellite’s four detectors is the Dutch/Finnish Ozone Monitoring Instrument (OMI), which observes chemicals related to ozone production, including NO2. Duncan presented an animated map showing changes in NO2 levels from 2005–2014 during the Fall Meeting of the American Geophysical Union in San Francisco, US, in December. Thanks to OMI’s high-resolution detectors, researchers can for the first time focus on small areas – within cities, for example – to track sources of NO2 and how they change over time. "The human race is keeping very busy," Duncan said, "either polluting more or cleaning up a bit." Post-industrial societies, including North America, Europe and Japan, evidenced reduced NO2 pollution due to environmental regulation, he said, while in China, "the world’s manufacturing hub", researchers saw large increases in pollution. NO2 levels in the coal-fired industries of the North China plain grew by 20 to 50% over the last decade. Some Chinese cities, including Shanghai, showed marked decreases, which Duncan attributed to the demands of their increasingly middle-class residents for cleaner air.NASA’s Anne Thompson reported on OMI data for western Europe. Almost everywhere, ozone pollution from NO2 had decreased, often significantly, during the decade. Thompson credited environmental regulations, especially concerning NO2 emissions from cars and trucks. The most dramatic improvement, she said, was noted in northern Italy’s Po valley.

NOAA says 2015 was U.S.' second hottest year on record: (Reuters) - Last year was the second hottest on record in the contiguous United States, and included 10 major weather and climate events, such as droughts and storms, that each led to over $1 billion in damages, the National Oceanic and Atmospheric Administration said on Thursday. The average temperature in 2015 was 54.4 degrees Fahrenheit (12.4 degrees Celsius), compared with 55.3 F (12.9 C) in 2012, the warmest year recorded since the government started keeping records in 1895, NOAA said. Much warmer than average annual temperatures were recorded across the West, including Washington state and Oregon, as well as in the Southeast, including Florida. It was also the third wettest year on record, with Oklahoma and Texas setting records for precipitation. There were 10 extreme climate and weather events in 2015 including storms, floods and a wildfire that each caused more than $1 billion in damages, NOAA said. These events resulted in the deaths of 155 people. Last November, the World Meteorological Organization said that 2015 would be the hottest on record globally, and 2016 could be even hotter due to the El Niño weather pattern.

December 2015 was the wettest month ever recorded in UK – December was the wettest month ever recorded in the UK, with almost double the rain falling than average, according to data released by the Met Office on Tuesday.   Last month saw widespread flooding which continued into the new year, with 21 flood alerts in England and Wales and four in Scotland in force on Tuesday morning.  The record for the warmest December in the UK was also smashed last month, with an average temperature of 7.9C, 4.1C higher than the long-term average.   Climate change has fundamentally changed the UK weather, said Prof Myles Allen, at the University of Oxford: “Normal weather, unchanged over generations, is a thing of the past. You are not meant to beat records by those margins and if you do so, just like in athletics, it is a sign something has changed.” The Met Office records stretch back to 1910 and, while December saw a record downpour particularly affecting the north of England, Scotland and Wales, 2015 overall was only the sixth wettest year on record.The high temperatures in December would normally be expected in April or May and there was an almost complete lack of air frost across much of England. The average from 1981-2010 was for 11 days of air frost in December, but last month there were just three days. Across 2015, the average UK temperature was lower than in 2014, though globally 2015 was the hottest year on recordAllen said it has been predicted as far back as 1990 that global warming would mean warmer, wetter winters for the UK, with more intense rainstorms. The flooding caused by Storm Desmond, centred on Cumbria, is estimated to have been made 40% more likely by climate change.

United Nations News Centre - El Niño has put world in 'uncharted territory,' UN relief chief says, urging action now to mitigate impacts: – Briefing United Nations Member States today on the widely varied and devastating impacts of the current El Niño weather phenomenon – which for months has sparked massive floods in some countries while leaving others, often in the same region, bone dry – the top UN relief official urged the international community to act now to help millions of people facing food insecurity. “We are here to re-sound the alarm; to spur a collective response to the humanitarian suffering caused by changes in weather patterns linked to El Niño and to take action now to mitigate its effects,” said Stephen O'Brien, the UN Under-Secretary-General for the Coordination of Humanitarian Affairs, who added: “If we act now, we will save lives and livelihoods and prevent an even more serious humanitarian emergency from taking hold.” He said that in some regions, millions of people are already facing food insecurity caused by droughts related to El Niño. “In other parts of the world, we have a short window of opportunity now to prepare for what we know will happen within months. In both cases, we must act together and we must act quickly,” he stressed.  “The strength of the current El Niño has put our world into uncharted territory,” continued Mr. O'Brien, explaining that while the phenomenon is not caused by climate change, the fact that it is taking place in a changed climate means that its impacts are less predictable and could be more severe. While the current El Niño is expected to decline in strength in the first months of 2016, “this does not mean that the danger is past.”

Earth is Experiencing a Global Warming Spurt - Cyclical changes in the Pacific Ocean have thrown earth’s surface into what may be an unprecedented warming spurt, following a global warming slowdown that lasted about 15 years. While El Niño is being blamed for an outbreak of floods, storms and unseasonable temperatures across the planet, a much slower-moving cycle of the Pacific Ocean has also been playing a role in record-breaking warmth. The recent effects of both ocean cycles are being amplified by climate change. A 2014 flip was detected in the sluggish and elusive ocean cycle known as the Pacific Decadal Oscillation, or PDO, which also goes by other names, including the Interdecadal Pacific Oscillation. Despite uncertainty about the fundamental nature of the PDO, leading scientists link its 2014 phase change to a rapid rise in global surface temperatures.The effects of the PDO on global warming can be likened to a staircase, with warming leveling off for periods, typically of more than a decade, and then bursting upward.“It seems to me quite likely that we have taken the next step up to a new level,” said Kevin Trenberth, a scientist with the National Center for Atmospheric Research. The 2014 flip from the cool PDO phase to the warm phase, which vaguely resembles a long and drawn out El Niño event, contributed to record-breaking surface temperatures across the planet in 2014.

In warming ocean, record number of seals and sea lions sicken and starve – ‘Their liver, their pancreas, their intestines are basically shut down, and they are eating themselves from the inside.’ – Malnourished and dying California sea lion pups are likely to be seen again in high numbers on California beaches this winter and spring. Scientists with the National Oceanic and Atmospheric Administration have been monitoring sea lion rookeries on the Channel Islands and have found the lowest weights in pups in 41 years of recorded history. “We’re preparing for higher than normal numbers, because the information that’s coming from the islands, from the scientists, are saying that the pups are the smallest that they’ve really ever been,” said Justin Viezbicke, stranding coordinator for the National Marine Fisheries Service in California. Since January 2013, starving California sea lion pups have been washing up on beaches at alarmingly high numbers. The cause is believed to be a wide swath of abnormally warm water that has depressed the number of sardines in typical hunting areas. Sardines are important food sources for nursing mothers. Viezbicke said strandings on the mainland could be high, because many pups are continuing to survive in the rookeries. When they leave, they’re not able to forage successfully and end up washing ashore on mainland beaches. Those strandings could begin occurring in late December and early January. “If that’s similar to what we were having last year, where the pups are good enough to get off the island but not overall healthy enough to last within the system that they’ve got because of their situation, then we’re anticipating seeing higher than normal strandings again this year,”

Extreme Weather and Global Growth by Kenneth Rogoff - – Until recently, the usual thinking among macroeconomists has been that short-term weather fluctuations don’t matter much for economic activity. Construction hiring may be stronger than usual in a March when the weather is unseasonably mild, but there will be payback in April and May. If heavy rains discourage people from shopping in August, they will just spend more in September. But recent economic research, bolstered by an exceptionally strong El Niño – a complex global climactic event marked by exceptionally warm Pacific Ocean water off the coast of Ecuador and Peru – has prompted a rethink of this view. Extreme weather certainly throws a ringer into key short-term macroeconomic statistics. It can add or subtract 100,000 jobs to monthly US employment, the single most-watched economic statistic in the world, and generally thought to be one of the most accurate. The impact of El Niño-related weather events like the one this year (known more precisely as “El Niño Southern Oscillation” events) can be especially large because of their global reach.  Recent research from the International Monetary Fund suggests that countries such as Australia, India, Indonesia, Japan, and South Africa suffer adversely in El Niño years (often due to droughts), whereas some regions, including the United States, Canada, and Europe, can benefit. California, for example, which has been experiencing years of severe drought, is finally getting rain. Generally, but not always, El Niño events tend to be inflationary, in part because low crop yields lead to higher prices.

Hurricane Alex strengthens in Atlantic - It has been nearly four decades since a winter storm in the Atlantic earned a name, and the National Hurricane Center went a step further Thursday, upgrading Alex to a hurricane. At 4 p.m. ET Thursday, Hurricane Alex packed sustained 85-mph winds as it spun some 350 miles (about 563 kilometers) south of Portugal's Azores islands, parts of which are under a hurricane warning. Its strength is surprising. because tropical storms thrive most over warm waters, something that's unexpected in the North Atlantic in the middle of winter. The Atlantic hurricane season officially runs from June 1 to November 30, but that doesn't mean tropical systems don't pop up at other times, although it is infrequent. Alex is not just the first named storm of 2016, but it's also the first named storm to form in the Atlantic in January since 1978, the first January-born hurricane since 1938, and the fourth known storm to arrive in that month since records began in 1851.

Large and increasing methane emissions from northern lakes – Climate-sensitive regions in the north are home to most of the world’s lakes. New research from universities in Sweden and the US, shows that these northern freshwaters are critical emitters of methane, a more effective greenhouse gas than carbon dioxide. Methane is increasing in the atmosphere, but many sources are poorly understood. Lakes at high northern latitudes are such a source. However, this may change with a new study published in Nature Geoscience. By compiling previously reported measurements made at a total of 733 northern water bodies – from small ponds formed by beavers to large lakes formed by permafrost thaw or ice-sheets – researchers are able to more accurately estimate emissions over large scales. “The release of methane from northern lakes and ponds needs to be taken seriously. These waters are significant, contemporary sources because they cover large parts of the landscape. They are also likely to emit even more methane in the future”, says Martin Wik, PhD student at the Department of Geological Sciences and Bolin Centre for Climate Research, Stockholm University, who led the study. With climate warming, particularly at high northern latitudes, longer ice-free seasons in combination with permafrost thaw is likely to fuel methane release from lakes, potentially causing their emissions to increase 20–50 precent before the end of this century. Such a change would likely generate a positive feedback on future warming, causing emissions to increase even further.

Melting of the surface of Greenland's ice sheet is adding to sea level rise faster than previously realized  – Water may be flowing from the Greenland icecap and into the sea more quickly than anybody expected. It doesn’t mean that global warming has got conspicuously worse: rather, researchers have had to revise their understanding of the intricate physiology of the Northern Hemisphere’s biggest icecap. There is enough ice and snow packed deep over 1.7 million square kilometres of Greenland that, were it all to melt, would cause a rise in global sea levels of about six metres. Since the icecap is melting as the atmospheric levels of the greenhouse gas carbon dioxide rise, and global temperatures rise with them, as a consequence of the human combustion of fossil fuels, the rate at which summer meltwater gets into the oceans becomes vital to climate calculations. The latest rethink begins not with the pools of water that collect on the surface each summer, or the acceleration of the glaciers as they make their way to the ocean, but with a granular layer of snow just below the surface, called firn. This is old snow in the process of being compacted into glacier ice, and covers the island in a layer up to 80 metres thick. Until now, researchers have understood this firn layer as a kind of sponge that absorbs meltwater and holds it, thus limiting the flow of melting ice into the sea. But a new study in Nature Climate Change by researchers from the US, Denmark and the University of Zurich suggests that earlier assumptions may be wrong. “Meltwater couldn’t penetrate vertically through the solid ice layer, and instead drained along the ice sheet surface towards the ocean” However, the findings are not definitive, and they deliver a picture more of science in progress, rather than any long-term conclusion.

New Report and Maps: Rising Seas Threaten Land Home to Half a Billion - Carbon emissions causing 4°C of warming — what business-as-usual points toward today —- could lock in enough sea level rise to submerge land currently home to 470 to 760 million people, with unstoppable rise unfolding over centuries. At the same time, aggressive carbon cuts limiting warming to 2°C could bring the number as low as 130 million people. These are the stakes for global climate talks December in Paris. Our analysis details the implications of different warming scenarios for every coastal nation and megacity on the planet, and our globally searchable Mapping Choices tool maps them. We are also publishing Google Earth fly-over videos and KML contrasting these different futures for important cities around the world, and printable high-resolution photorealistic images of select global landmarks. We have made these visualizations embeddable and downloadable. These are the stakes for global climate talks, in pictures. Some of our major findings include:

  • China, the world’s leading carbon emitter, leads the world, too, in coastal risk, with 145 million people living on land ultimately threatened by rising seas if emission levels are not reduced.
  • China has the most to gain from limiting warming to ​2°C, which would cut the total to 64 million.
  • Twelve other nations each have more than 10 million people living on land at risk, led by India, Bangladesh, Viet Nam, Indonesia, and Japan.
  • The U.S. is the most threatened nation outside of Asia, with roughly 25 million people on implicated land.
  • Meeting the 2°C​ goal would cut exposure by more than half in the U.S., China, and India, the world’s top three carbon emitters, as well as in many other nations.
  • ​Global megacities with the top-10 largest threatened populations include Shanghai, Hong Kong, Calcutta, Mumbai, Dhaka, Jakarta, and Hanoi.

Signs of the ‘Human Age’ -- Welcome to the “Anthropocene” — a new epoch in our planet’s 4.5 billion year history. Thanks to the colossal changes humans have made since the mid-20th century, Earth has now entered a distinct age from the Holocene epoch, which started 11,700 years ago as the ice age thawed. That’s according to an argument made by a team of scientists from the Anthropocene Working Group. Scientists say an epoch ends following an event – like the asteroid that demolished the dinosaurs and ended the late Cretaceous Epoch 66 million years ago – that altered the underlying rock and sedimentary layers so significantly that its remnants can be observed across the globe. In a paper published Thursday in Science, the researchers presented evidence for why they think mankind’s marks over the past 65 years ushered in a new geological time period. Here are a few examples:

NASA Study Concludes When Civilization Will End, And It’s Not Looking Good For Us -- Civilization was pretty great while it lasted, wasn't it? Too bad it's not going to for much longer. According to a new study sponsored by NASA's Goddard Space Flight Center, we only have a few decades left before everything we know and hold dear collapses. The report, written by applied mathematician Safa Motesharrei of the National Socio-Environmental Synthesis Center along with a team of natural and social scientists, explains that modern civilization is doomed. And there's not just one particular group to blame, but the entire fundamental structure and nature of our society. Analyzing five risk factors for societal collapse (population, climate, water, agriculture and energy), the report says that the sudden downfall of complicated societal structures can follow when these factors converge to form two important criteria. Motesharrei's report says that all societal collapses over the past 5,000 years have involved both "the stretching of resources due to the strain placed on the ecological carrying capacity" and "the economic stratification of society into Elites [rich] and Masses (or "Commoners") [poor]." This "Elite" population restricts the flow of resources accessible to the "Masses", accumulating a surplus for themselves that is high enough to strain natural resources. Eventually this situation will inevitably result in the destruction of society. Elite power, the report suggests, will buffer "detrimental effects of the environmental collapse until much later than the Commoners," allowing the privileged to "continue 'business as usual' despite the impending catastrophe."

Delhi residents give up cars to stop toxic air pollution -- Smog-choked residents of New Delhi welcomed the new year on Friday by largely complying with dramatic new driving restrictions designed to pull millions of cars off the roads and improve air quality. The temporary measures allow private vehicles to operate only on alternate days until January 15.   "Delhi has done it! Reports so far v encouraging. Delhiites! U give me hope that U are capable of achieving big challenges," Delhi Chief Minister Arvind Kejriwal said on Twitter.  Additional traffic cops were deployed to ensure only cars with odd-numbered license plates were on the roads. Violators face a 2000 rupee ($30) fine if caught. Vehicles with even-numbered plates will be allowed to operate on Saturday.   Government ministers made a show of carpooling to work, and by mid-morning had declared the experiment a success. While traffic was light in the city center, many businesses were closed for the holiday.  On Twitter, a sense of civic pride emerged. "Very proud of Delhi people. They are following odd even formula with [an] open heart," one user said.

Beijing to end coal usage by 2020 to reduce smog - China's capital and its adjoining areas will end coal usage by 2020 to reduce the recurring smog in Beijing and improve air quality with a host of measures including replacement of coal-fired stoves with that of electricity and gas. An official of the Beijing's Environmental Protection Bureau said boosting efforts to cut air pollution in northern China, especially winter smog from the burning of coal, is a mission for this year. Among the efforts, Beijing has declared that it will wipe out coal use in its most rural areas by 2020, state-run China Daily reported. As much as "60 per cent of smog content is caused by coal burning in the starting phase of each smog", Fang Li, an official with Beijing's Environmental Protection Bureau said. Studies showed that 30 per cent of the pollution comes from automobiles. To start with, Beijing will replace coal-fired heating stoves with those powered by electricity or gas in 400 villages this year, before taking the campaign to the districts of Chaoyang, Haidian, Fengtai and Shijingshan by 2017, said Guo Zihua, a municipal rural development official.Beijing's downtown districts of Dongcheng and Xicheng eliminated coal burning last year, officials said.

China faces nuclear energy choice — China is coming to a crossroads as it hurriedly increases nuclear energy production to cope with rising electricity demand and cut carbon emissions: Should it reprocess its nuclear waste or store it? Nonproliferation advocates warn that recycling waste would generate weapons-usable plutonium, posing a security risk and potentially stirring a nuclear rivalry in East Asia. A new Harvard University study, co-authored by a senior Chinese nuclear engineer, gives another reason against reprocessing — that it doesn’t make economic sense. The study says China could save tens of billions of dollars by storing the spent fuel, and the savings could be spent on research and on building nuclear reactors. It recommends postponing major investments in reprocessing and so-called “breeder” reactors that produce more plutonium than they consume. “China has the luxury of time, as it has access to plenty of uranium to fuel its nuclear growth for decades to come, and dry casks can provide a safe, secure, and cost-effective way of managing spent fuel for decades to come, leaving all options open for the future,” the study says. China has aimed for a “closed” nuclear cycle — recycling reactor fuel instead of using it just once and disposing of it — since the early 1980s. The State Administration of Science, Technology and Industry for National Defense told The Associated Press that remained China’s policy, to enhance its use of uranium resources and to cut production of nuclear waste. But the numbers of countries that do reprocessing has dwindled, because of the high costs, technical difficulties involved and the growing availability of uranium on world markets. While reprocessing reduces the level of radioactivity in nuclear waste, The Union of Concerned Scientists — an advocacy group that was founded by scientists and students at the Massachusetts Institute of Technology — says it does not reduce the need for storage and secure disposal of waste.

U.S. coal production falls to lowest level in nearly 30 years (01/11/16): U.S. coal production has fallen to its lowest level in nearly 30 years, as cheaper sources of power and stricter environmental regulations reduce demand, according to preliminary government figures. A report released Friday by the U.S. Energy Information Administration estimates 900 million short tons of coal were produced last year, a drop from about 1 billion short tons in 2014. That's the lowest volume since 1986. The slump has led to bankruptcies and layoffs at mining companies, and the effects have rippled outward, stressing state budgets and forcing layoffs in other sector such as railroads, which are transporting less coal. Power plants are increasingly relying on cheaper and cleaner-burning natural gas to provide electricity and comply with regulations aimed at reducing pollution that contributes to climate change. The average daily spot price for natural gas at the benchmark Henry Hub fell to $2.61 per million British thermal units last year, a 40 percent decrease from 2014, according to the government report. A sweeping agreement adopted last month by nearly 200 countries determined to reduce greenhouse gas emissions further is likely to make coal an even less viable choice in the decades ahead. Last year's drop in demand hit hardest in the central Appalachian basin, where production plunged 40 percent below its annual average from 2010 through 2014, according to the report.

Arch Coal files for Chapter 11 bankruptcy protection (AP) — Arch Coal, which has been hurt by the weakening demand for coal, filed for Chapter 11 bankruptcy protection Monday. The coal industry is struggling as electric power companies shift to using natural gas, which costs less than coal and produces less pollution. Other coal companies have filed for bankruptcy protection recently, including Alpha Natural Resources Inc. and Patriot Coal Corp. Arch Coal warned late last year that it may file for bankruptcy protection. Filling for Chapter 11 bankruptcy protection allows companies to reorganize their debt while they keep their business operating. Arch Coal Inc. said its mines will remain open and its employees should not be affected by the bankruptcy process. It said employees will continue to be paid and their benefits, including health care and retirement plans, will also continue. The company said it reached a deal with its lenders to reduce its debt by more than $4.5 billion. In filings with a bankruptcy court, the St. Louis-based company says it has $6.5 billion in debt and $5.8 billion in assets. Arch Coal operates mines in Colorado, Illinois, Kentucky, Maryland, Virginia, West Virginia and Wyoming. Its coal is used to make steel or generate power.

One Of The Largest Coal Companies In The United States Just Filed For Bankruptcy - Arch Coal, one of the United States’ largest coal companies, filed for bankruptcy on Monday in the hopes of eliminating more than $4.5 billion in long-term debt, according to a press release issued by the company. The news comes as several of Arch’s competitors — Patriot Coal, Walter Energy, and Alpha Natural Resources — have also filed for bankruptcy. Arch Coal is the second largest supplier of coal in the United States behind Peabody Energy, and its mines represent 13 percent of America’s coal supply. …it shows that the second-largest coal company in the United States is unable to pay its debts and provide any return at all to its shareholders  Low natural gas prices and environmental regulations made 2015 a tough year for the U.S. coal industry, with domestic production levels slumping to a 30-year low. Coal production has been on the decline for years, since peaking in 2008, and 2015’s production numbers represent a 10 percent decline from 2014. Recent climate policies have also hampered coal use, which is more expensive and polluting for utilities than natural gas. In April, natural gas surpassed coal, for the first time ever, as the primary source of electricity generation in the country (though it remained in the top spot for only a month before being overtaken by coal). “U.S. coal consumption is declining dramatically as coal-fired power plants are shutting down. Coal is being displaced by renewables and natural gas, and the Asian markets that all coal companies were looking to as their saviors are moving in the opposite direction,”

Cramer: House votes to protect coal industry from needless regulations – Congressman Kevin Cramer announced today the U.S. House of Representatives passed H.R. 1644, Supporting Transparent Regulatory and Environmental Actions in Mining Act or the STREAM Act. The bill directs the Office of Surface Mining Reclamation and Enforcement (OSM) of the Department of the Interior to make available to the public 90 days prior to its publication any draft, final, or emergency rule as well as any related environmental analysis, or economic assessment relied on in the issuance of a rule.  The Secretary would additionally be required to make publicly available the raw data used for a federally funded scientific product.  If the Department of Interior were to fail to make publicly available any such data within six months, the Secretary of the Interior would be required to withdraw the rule or guidance. Cramer is a co-sponsor of the legislation.“These regulations exceed OSM’s authority under the Surface Mining Control and Reclamation Act and will destroy the coal industry while terminating thousands of good paying jobs,” said Cramer.  “A review indicates the rule will cost producers in North Dakota alone approximately $50 million annually in compliance costs and sterilize (or strand) more than 600 million tons of otherwise mineable coal reserves worth approximately $12 billion at today’s minemouth prices.” He said OSM’s own analysis has cited the rule would result in a loss of at least 7,000 jobs in Appalachia alone and drastically reduce coal production in 22 states.  While there are no specific numbers for North Dakota, it is expected the new regulations will cause job loss in the state.”

Coal Ash Wastewater Will Be Dumped Into Virginia Rivers - The Possum Point Power Station will transfer millions of gallons of treated water from toxic coal ash ponds into Virginia's Quantico Creek (pictured above). The state Water Board said Thursday that Dominion, an energy company, can do so following certain limits. The same will happen in the James River with another Dominion owned facility. Millions of gallons of treated wastewater from coal ash ponds can be disposed in two major Virginia rivers — one a tributary of the Potomac River — the Virginia Water Control Board ruled Thursday. The decision comes as some residents and environmentalists questioned the stringency of permits that allow Dominion Virginia Power to release wastewater with some levels of arsenic, lead, copper, and other substances into nearby waterways rich in wildlife. Wastewater will come from the Possum Point Power Plant located by Quantico Creek, and the Bremo Power Plant located by the James River. The company sought these permits to comply with a recent federal Environmental Protection Agency mandate to safely close coal ash pits. Coal ash, which contains hazardous substances like arsenic, lead, and mercury, is the byproduct of burning coal for heat or energy. Coal ash is regulated similarly to household garbage.

Obama administration will announce halt on new coal leases (AP) — The Obama administration will announce a moratorium Friday on any major new coal leases on federal lands until it completes a comprehensive review of whether the fees charged to mining companies provide a fair return to American taxpayers and reflect coal's impact on the environment. An administration official says companies will continue to be able to mine the coal reserves already under lease. The official spoke on condition of anonymity in advance of the announcement. Roughly 40 percent of the coal produced in the United States comes from federal lands. The vast majority of that mining takes place in Wyoming, Montana, Colorado, Utah and New Mexico. It's unclear what impact the moratorium will have on many coal companies given the declining domestic demand for coal and the closure of numerous coal-fired power plants around the country. Coal companies have already stockpiled billions of tons of coal on existing leases. But the announcement will no doubt please environmental groups that have long said the government's fee rates encouraged production of a product that contributed to global warming. The Obama administration has held a handful of public hearings last year to get feedback on the adequacy of the fees charged companies for coal mined on federal lands. The government collects a 12.5 percent royalty on the sale price of strip-mined coal. The rate was established in 1976. The money is then split between the federal government and the state where the coal was mined. Coal companies also pay a $3 fee annually for each acre of land leased.

Obama Ends New Coal Leases On Public Lands - The Obama administration announced Friday that it is stopping most new coal leasing on America’s public lands as it moves to modernize and reform the federal coal leasing program, which has not been updated in more than 30 years.  “Given serious concerns raised about the federal coal program, we’re taking the prudent step to hit pause on approving significant new leases so that decisions about those leases can benefit from the recommendations that come out of the review,” Secretary of the Interior Sally Jewell said Friday. The plan includes three measures to address these issues and update the federal coal program to account for taxpayer interests and environmental challenges. The Interior Department will conduct a review to identify potential reforms to the outdated program, put a temporary pause on new coal leasing (which will not apply to existing leases), and direct the U.S. Geological Survey to begin annual tracking and reporting on greenhouse gas emissions that result from fossil fuels extracted on public lands.  “A complete assessment of the federal coal program is overdue,” said Dan Bucks, former director of the Montana Department of Revenue. “There are a host of energy, environmental, social, fiscal, and managerial issues that need to be addressed. The coal industry, coal workers and communities, and the public deserve answers to the many questions that create uncertainty for this source of energy.” These actions follow a series of listening sessions held by the Department of Interior last year to address issues of royalty rates, transparency, and climate change, as well as concerns raised by the Government Accountability Office, Inspector General, and several members of congress. With Friday’s announcement, the administration is responding to calls from local communities, sportsmen and women, taxpayer advocates, landowners, environmentalists, and others to modernize a federal coal program that they say is outdated and unfair to taxpayers.

Obama’s Coal Announcement Takes Us One Step Closer to Keeping All Fossil Fuels in the Ground - President Obama has taken a major step to move us away from coal and accelerate the transition to clean, renewable energy and we applaud his leadership. The federal coal program has undermined President Obama’s efforts to address climate change by giving away our coal at subsidized rates, propping up this outdated energy source without regard for the damage done to communities or our climate. An honest, comprehensive review will show that we don’t need to prop up desperate and outdated coal companies with any more giveaways and instead should keep coal in the ground. A Greenpeace report in 2014 calculated that on average, federal coal has recently been sold for only $1.03 per ton, while each ton will cause damages estimated at between $22 and $237, using the federal government’s social cost of carbon estimates.  Several organizations wrote to Interior Sec. Jewell on her first day on the job calling for a moratorium on new coal leasing, and a comprehensive review of the federal coal leasing program.

3 Reasons Big Coal Had a Bad Week  - Here are three reasons Big Coal had a bad week:

  • 1. Sec. of the Interior Sally Jewell announced Friday that the Obama Administration will be putting an immediate suspension on all future and modified coal leases in order to create time and space to fully review the program for its consequences for taxpayers, our environment and the climate. The announcement followed President Obama’s groundbreaking statement in the State of the Union that he would “push to change the way we manage our oil and coal resources, so that they better reflect the costs they impose on taxpayers and our planet.”
  • 2. Arch Coal, Inc., the second largest coal supplier in the U.S., announced Monday that it would be filing for bankruptcy after suffering several quarters of losses and being unable to restructure its debt. Arch Coal Inc. added its name to a list of nearly 50 coal companies that have filed for bankruptcy since 2012 (including Patriot Coal, Walter Energy Inc. and James River Coal Co.), according to an analysis by SNL energy.
  • 3. Governor Cuomo announced that New York state will phase out coal completely by 2020. We’ve seen this trend picking up globally over the past few months, as the UK and the province of Alberta in Canada have also recently announced their plans to completely phase out coal. And as the Washington Post points out, clean energy is on the rise.

“A profound shift is happening right now in America’s energy landscape,” Michael Brune, executive director of the Sierra Club, said. “One-third of the nation’s coal plants are slated for retirement due to grassroots advocacy, public demand, and increased competition from clean, renewable energy like solar and wind becoming more affordable and more accessible by the day. The markets, the public and our elected officials are increasingly recognizing this transition, making decisions that hit the accelerator on the transition from dirty fuels toward an economy powered by clean energy that works for all.”

Feds gathering info for EA on oil/gas leasing in Wayne - The federal government has taken its next step in a process that could result in oil and gas drilling on the Wayne National Forest in southeast Ohio, though any drilling on federal land in Athens County is unlikely for at least a few years. In a news release issued earlier this week, the federal Bureau of Land Management (BLM) announced that it’s now preparing an environmental assessment (EA) “to consider whether or not to lease parcels for the purpose of oil and gas exploration and development.” Parcels under consideration, as a result of the BLM receiving “dozens of Expressions of Interest from industry operators,” total 18,800 acres on the Wayne National Forest in Washington and Monroe counties, the news release said. While the BLM and U.S. Forest Service previously said that 3,150 acres in Athens and Perry counties, and another 9,975 acres in Lawrence County, also were being considered for oil and gas leasing, the current EA is limited to the listed acreage in the national forest’s Marietta Unit, far to the northeast of Athens. That’s an area with active oil and gas development, via horizontal hydraulic fracturing (fracking), whereas the Athens and Lawrence county areas so far have seen little or none of that sort of drilling.

Appeals court in fracking case should stand up for basic rights | Letters | On Wednesday, Jan. 6, the Eighth District Court of Appeals in Cleveland considered a suit brought against the state of Ohio by Mothers Against Drilling in Our Neighborhood (MADION) intended to uphold a popular vote in their city of Broadview Heights to prevent further fracking in the city. In its 13 square miles Broadview Heights already has 90 wells. As readers may know, Broadview Heights was sued over the anti-fracking law and bill of rights, which were approved by voters. It lost in court, at least in part, because the city lawyers failed to make an appropriate defense of the law. MADION was denied the opportunity to intervene in the case. So they sued. In Wednesday’s case, the state of Ohio and Bass Energy made the same argument that Bass Energy made in winning their previous case, namely that state law preempts local law. Representing MADION, attorney Terry Lodge argued that inalienable rights, claimed at any level, cannot be overturned by any law, federal or state, making the question of preemption irrelevant. The three judges must decide if the rights claimed qualify as inalienable rights. The right claimed is the right to local community self-government, in this case to protect citizens’ health and safety by preventing further drilling in Broadview Heights. The court will decide whether to recognize the right of communities to take local action to protect from pollution the air they breathe and the water they use. A 4-3 Ohio Supreme Court decision last February prohibited Munroe Falls, a suburb of Akron, from using local zoning laws to impose limits to oil and gas drilling in their city, but this is the first time an Ohio court has been asked to consider this matter as a question of the fundamental right to local self-government.

Laying down the law Bill would regulate fracking industry – Star Beacon — After months in the making, state representatives have introduced a bill they expect will help fracking business grow in the state, while strengthening environmental regulations. State Reps. John Patterson, D-Jefferson, and Sean O'Brien, D-Bazetta, co-sponsors of Ohio House Bill 422, are calling it a "win-win-win." "What we're trying to do is strike a balance between economic progress and environmental preservation," Patterson said. The 44-page bill contains several key provisions, including a ban on any future permanent vault storage of brine. A Kleese Development Associates-owned brine well in Trumbull County, O'Brien's district, was the origin of an early 2015 spill that put Vienna Township residents' drinking water in danger. "KDA was overstimulating a well," O'Brien said, and adverse weather conditions kept the leakage invisible for some time. "(We're) taking some of the mistakes that were made; some of the lessons that were learned, and incorporating them into this bill.  HB 422 also calls for engineering oversight on any new injection wells, "so we know they're safe, we know they're uniform," Patterson said. "There's no such requirement now." Another provision would mandate GPS devices on all brine trucks. The bill also would establish a new Ohio Department of Natural Resources fund to pay for ground and surface water monitoring measures at fracking sites, to signal leakage early on — dumpers would contribute 5 cents per brine barrel into the fund, Patterson said — and ensures future injection wells aren't built near homes, waterways or 100-year flood plains."From cradle to grave, we are monitoring the brine from where it's produced to where it's injected," Patterson said. "We know where it is at all times."

Can Ohio avoid North Dakota's fracking problems? - While our states certainly differ with respect to geography, number of towns and population, will we be spared the same social and environmental problems as horizontal fracking operations expand here? The biggest environmental cost of fracking is that each oil well wastes an average of 5-to-6 million gallons of freshwater during its lifetime. It comes from groundwater aquifers, reservoirs and other local sources. Until oil can be drunk, this is a terrible trade on a mostly saltwater planet containing only 3.5 percent freshwater. Of that 3.5 percent, almost 69 percent is tied up in glaciers, ice caps and permanent snow cover and a little over 30 percent is underground. In California, the water table has measurably dropped and caused massive sinkholes. In parched Oklahoma and Texas, thousands of fracking wells have accelerated the aquifer’s decline. In North Dakota and elsewhere, drinking water wells have been permanently contaminated, streams polluted and pastures ruined by deliberate and accidental brine spills. Their Department of Health reports over 10,000 environmental incidents since drilling began in 2006, defined as spills onto the ground or into the water or air. Most spills are not just minor puddles. The highest volume so far was a 3 million gallon brine spill near Williston, N.D. in January that beat an earlier 800,000 gallon spill near Dickenson, N.D. Ohio has already found one operator guilty of disposing used brine 33 times in one year into a storm sewer that enters the Mahoning River near Youngstown. How many other undetected spills have and will continue to occur?  With inadequate pipelines to transport it within and from North Dakota, over 25 percent of the natural gas is just being wasted — flared off while the more lucrative oil is shipped away. In the Dakota Badlands, most of the Bighorn sheep that were restocked to re-establish the population have been killed by tanker trucks on their now ever-busy highways. In Ohio, that could translate to more road killed deer and other wildlife. Bored, off-duty workers have been caught poaching fish, deer, bison and other game in the Dakotas, a scenario that could be repeated here with our fish and game. Sex crimes, bar fights, illegal drugs, DUI and numerous traffic problems keep understaffed small town law enforcement officers overwhelmed. Several railroad derailments leading to explosions and tremendous fires have resulted in loss of lives and homes as this highly volatile oil variety is transported across Canada and the U.S. to refineries. Ohio needs to diligently check all railroad lines used to transport oil. The AFL-CIO reports that North Dakota has four times as many job-related fatalities as second-place Wyoming, another giant oil producing state.

Pennsylvania DEP issues revised drilling rules -— The Pennsylvania Department of Environmental Protection announced some new regulations in the oil and gas industry to protect the public’s health, safety and the environment. The rules will impact both the conventional and unconventional oil and gas industries. The rules referred to as Chapter 78 are for conventional wells; the rules referred to as the Chapter 78a are designated for unconventional or shale wells. The amendments to the oil and gas regulations will impact five areas, including water resources; adding public resource considerations; protecting the public’s health and safety; addressing landowner concerns; and improving data management. Well drillers will have to address potential impacts to public resources during the well permitting process. The permit applicant will have to identify the potentially impacted public resources and notify the public resources agency.. If the well is within 1,000 feet of a water well, surface water intake, reservoir or other water supply extraction point used by a water purveyor (unconventional wells only), then notifications have to be made as well. Well operators must identify active and inactive wells within 1,000 feet of the vertical and horizontal wellbore prior to hydraulic fracturing. The identification process requires operators to review the department’s orphan and abandoned well database, review farm line maps, and submit a questionnaire to landowners whose property lies within the area of review prior to drilling in cases where hydraulic fracturing activities are anticipated at the well site. Other databases and historical sources must also be consulted.

Gas-to-liquids (GTL) technologies: A remedy for low natural gas prices in the marcellus shale  -- The energy industry continues to be astounded by the superabundance of the Marcellus shale, a band of natural gas-rich Devonian shale that stretches across the eastern Appalachian basin. The Marcellus, which produced little gas 10 years ago, currently accounts for about 20% of the nation’s output. The result has been cheap energy prices, spectacular job growth and renewed prosperity for regional economies. But the Marcellus is threatened by its own success. Its extraordinary productivity, combined with the lack of an adequate pipeline infrastructure to move the gas to other regions of the country, is exerting strong downward pressure on prices. Lower gas prices are making it less attractive for producers to drill wells, and in some cases are forcing them to temporarily shut in new production. .But there is a silver lining to this picture. The discrepancy between the spot prices at the Marcellus and the Henry Hub is creating an arbitrage opportunity in the form of gas-to-liquids (GTL) technologies that can convert gas into products such as high quality gasoline, methanol, or diluent. The opportunity to convert low-value gas into high-value products allows exploration and production companies to protect their investments by monetizing undervalued fossil fuel resources. This also allows the nation to protect the economic viability of a region with potential as a net natural gas exporter. GTL technologies also can benefit the Marcellus in another way. Much of the gas in the Marcellus is wet gas. While dry gas consists mostly of methane, wet gas includes natural gas liquids (NGLs) such as propane, butane, and ethane that can be extracted and sold separately. Energy companies can sell propane into regional markets and transport butane to refineries via truck or rail, but the shale revolution has created a glut of ethane, which can only be stripped out through an expensive deep refrigeration process that is often not justified by current low ethane prices.

For Europe, Marcellus ethane is in the 'pipeline' - - Next month, the first shipment of Marcellus Shale ethane will set sail from Marcus Hook to Norway, launching a new export trade for the Delaware River port that is being hailed as a boost to the gas industry, local maritime interests, and European manufacturing. Sunoco Logistics Partners L.P. has committed $2.5 billion to the Mariner East pipeline network to transport ethane and other liquid fuels, such as propane and butane, across Pennsylvania from the Marcellus fields to that Marcus Hook terminal, erected on the site of a former oil refinery. The 300-mile system, now undergoing testing, will begin its first deliveries of ethane in the coming weeks, Sunoco says. European chemical producer INEOS has spent $1 billion to complete the link between Marcus Hook and Europe by creating a "virtual pipeline" of 575-foot tankers to ferry ethane across the Atlantic to petrochemical plants in Norway and Scotland. "The start of ethane shipments on Mariner East 1 represents the next phase of the project and a re-orienting of the Marcellus and Utica Shale resources to benefit Pennsylvanians directly, through local use, while strengthening the state's economy through access to other markets, both domestic and international," Sunoco Logistics spokesman Jeffrey P. Shields said. Natural-gas liquids are to petrochemical manufacturing as wheat is to baking. In that sense, the Marcellus and Utica Shales in Pennsylvania, West Virginia, and Ohio are metaphorical amber waves of ethane.

Rockefeller Price Gouging Returns to Petroleum Industry -- Next time you fill your gas tank, the price will likely be inflated by a few pennies per gallon because the sightless sheriffs at the Federal Energy Regulatory Commission, or FERC, have ignored a return of the 19th century price-gouging techniques made infamous by John D. Rockefeller. Unless FERC acts, everyone soon will have their pockets picked as pipeline charges are illegally jacked up, by as much as 500 percent, or about 25 cents per gallon, FERC records show. In this case, the price gouging is by pipeline shippers with rights to transport refined petroleum. They resell those rights at a huge markup and get kickbacks. The Supreme Court in 1959 reminded us that the Interstate Commerce Act makes it “unlawful for a common carrier to grant rebates to individual shippers by any device whatsoever or to discriminate in favor of any shipper directly or indirectly.” Illegal fees for transporting refined petroleum products in interstate commerce can result in criminal charges and up to two years behind bars upon conviction. But instead of seeking civil damages and criminal prosecution, FERC is holding a one-day technical conference on Jan. 26 that may institutionalize price gouging rather than stop it.

Banning Fracking Isn’t Enough: How We Fight to Stop Pipelines, Compressor Stations and Gas Plants - [Editor’s note: Hundreds of climate activists and renewable energy advocates gathered for aState of the Climate rally and march outside of Gov. Cuomo’s State of the State address in Albany Wednesday. Here below are the prepared remarks from Sandra Steingraber’s speech. Shortly after, from the top of a stairway in the Capitol building, fracking infrastructure opponents unscrolled a 40-foot petition, bearing 1,000 signatures, that urgently calls on the governor to oppose the storage of dangerous, explosive LPG (propane and butane) in abandoned salt caverns under the shores of Seneca Lake. Like methane, propane and butane are the products of fracking. Along with the petition scroll, the group also delivered more than 500 letters to Gov. Cuomo’s office.]

Columbia plans pipeline project in Virginia, West Virginia  — Columbia Gas Transmission has filed an application with the Federal Energy Regulatory Commission for a natural gas pipeline project in West Virginia and Virginia. Parent companies Columbia Pipeline Group Inc. and Columbia Pipeline Partners LP said Friday that Columbia Gas is proposing to construct and operate two compressor stations, replace 26 miles of pipeline along existing corridors and built 2.9 miles of new pipeline in the two states. If it receives regulatory approval, construction on the $850 million WB Xpress Project would begin in 2017 and start deliveries in the second half of 2018. The companies also say in a news release that FERC has approved an application for the construction of five miles of new pipeline, modifications to existing compression facilities in Kanawha County and safety technology enhancements.

Track record plagues Kinder Morgan in pipeline operations - As residents in South Carolina, Georgia and northeast Florida join the debate over Kinder Morgan’s proposal to construct the 360-mile Palmetto Pipeline through their states, they may want to consider the company’s track record when it comes to promoting its pipeline plans in other states. Its most recent misstep comes as it is proposing a similar pipeline, called the Northeast Energy Direct (NED) natural gas pipeline, which would run through several Northeastern states.This month, the town of Nassau, N.Y., located 15 miles southeast of Albany, is preparing to investigate allegations of misconduct by individuals affiliated with the proposed pipeline and the impact on local properties, including town land and rights-of-way.According to Nassau Town Supervisor David Fleming, residents have complained about alleged trespassing by pipeline representatives. Residents have said that company employees passed themselves off as working for the town and have identified themselves as members of law enforcement, Fleming said.“Nassau is seriously concerned about the potential impacts on town property and our roadways from the construction of this pipeline and more so since this private corporation may be attempting to utilize public property without advance disclosure or consent,” Fleming told a reporter with the Times Union in Albany. In Pittsfield, Mass., another city that would be impacted by the pipeline, physician Joseph L. Pfeifer was supported by more than 20 other physicians in an opinion piece published in the Berkshire Eagle in September which raised health concerns and challenged a “disingenuous attempt” by Kinder-Morgan to cast the NED pipeline in a favorable light.

Tugboats at Sabine Pass ready for LNG exports - Four dedicated tugboats waited seven years to do their job. At Cheniere Energy’s $15 billion Sabine Pass LNG Terminal on the Texas-Louisiana border, the tugboats are stationed to ensure safe and timely escorts by crews trained to berth LNG vessels. But the shale revolution left the tugboats useless. Shale gas drillers started producing enough natural gas for the country, and imports were no longer needed. Cheniere was able to avoid financial losses on its import facilities because space was reserved by customers even if they didn’t use it. Chevron Corp. and Total SA are contracted to pay approximately $5 billion over 20 years to keep the tugboats, including crew members, and the Sabine Pass import terminal operating. Now, the tugboats prepare for a job they never expected: escorting ships that carry exports. The United States now produces about 80 billion cubic feet of its own gas every day. The country is set to become a net exporter next year. Cheniere plans to build at least five liquefaction facilities, a risky bet with gas prices in Asia and the United States near multi-year lows. But Cheniere is paid a capacity registration fee at its terminals regardless of the price of gas and could be well-placed to expand if the energy industry rises out of the continued slump.

The Impact And Reach Of U.S. Natural Gas -- A couple of data points from the U.S. Energy Information Administration (EIA) that help illustrate the impact of the natural gas portion of the American energy revolution. First, EIA reports that wholesale electricity prices at major trading hubs, on a monthly average for on-peak hours, were down 27 percent to 37 percent across the U.S. in 2015 compared to 2014. The reason for the decrease, EIA says, is lower natural gas prices. EIA’s chart: Another EIA chart, showing electrical generation by power source: EIA: Low natural gas prices in 2015 made natural gas-fired generation more competitive with coal-fired generation than it had been in the past. During April, July, August, September, and October, more electricity was generated from natural gas-fired generators than from coal-fired generators (data for November and December are not yet available). … As the average capacity factor for coal-fired generators declined modestly in 2015, the capacity factors for natural gas-fired generators increased, especially for combined-cycle plants. On average, natural gas combined-cycle units across the country operated at capacity factor rates consistently 5%-11% higher each month than either of the past two years.Recently, EIA reported that 2015 natural gas spot prices at the national benchmark Henry Hub averaged $2.61 per million Btu (MMBtu), the lowest annual average since 1999. Interestingly, declining prices did not result in lower production, EIA says: Despite declining prices, total natural gas production, measured in terms of dry gas volume, averaged an estimated 74.9 billion cubic feet per day (Bcf/d) in 2015, 6.3% greater than in 2014. This increase occurred even as the number of natural gas-directed drilling rigs decreased. As of December 18, there were 168 natural gas-directed rigs in operation, only about half the number of rigs at the beginning of 2015.

Here's the Big Problem With Those Low Gas Prices Obama Is So Happy About -- In his State of the Union address this week, President Barack Obama gave an approving nod to the price of oil, which is now the lowest it has been in more than a decade. "Gas under two bucks a gallon ain't bad, either," he said. For motorists, that logic is unassailable. But depending on where in the country you live, the low oil price could come back to haunt you in unexpected ways. According to new federal data, half a dozen states with prominent oil drilling industries have taken heavy blows to their budgets. That could prompt a sweep of spending reductions and cuts to education, poverty programs, and other social services. "It could be hugely problematic for some of these states," said Michael Leachman, director of state fiscal research at the Center on Budget and Policy Priorities.  The data show a steep drop in revenue from severance taxes, which natural resource companies pay to states when they extract oil, coal, or natural gas. When oil prices drop, oil production drops next, followed by severance tax revenue. And for states such as Alaska, Wyoming, and North Dakota, which draw a majority of their income from severance taxes, that means the budget can quickly implode. Now, policymakers in those states are scrambling to make up the shortfall in other ways and decide which state programs could face the chopping block.

Energy jobs struggle through oil downturn - The oil bust is more severe than any downturn in 45 years, according to the Houston Chronicle. Roughly 70,000 energy jobs have been lost so far and oil prices fell below $31 a barrel Monday. U.S. Crude fell to $30.98 a barrel on the New York Mercantile Exchange in morning trading. It was the sixth-straight day of losses in 2016. Brent fell to $31.33 on the ICE Futures Europe. Crude prices have fallen further and for a longer time than the 1986 oil bust. Oil prices have yet to reach its floor, and some analysts predict oil could hit $20 a barrel.With the dropping price of oil, consumers may benefit from lower gasoline prices. However, jobs may be lost as energy companies struggle through hard times.The Railroad Commission of Texas issued 727 original drilling permits in December 2015.The number is in stark contrast to permits issued last year. In December 2014, the Commission issued 1,506 permits. The Midland district leads the state with 275 permits to drill oil or gas wells.Total well completions for 2015 are 19,503; down from 29,554 listed in 2014.  According to Baker Hughes, there were 308 active rigs in Texas, which represents 46 percent of all active rigs in the United States.

Goodrich Petroleum among recent energy companies delisted from New York Stock Exchange - Goodrich Petroleum Corp., a Houston-based oil and gas producer, is the latest victim of low oil prices. The price of WTI slipped below $30 yesterday, and an impending rebound doesn’t seem likely. The company noted in a press release Goodrich it was removed from the New York Stock Exchange for “abnormally low price levels,” closing at only 16 cents on Wednesday. The stock has traded below $1 per share since July. The company will not appeal the delisting and anticipates its common stock will begin trade through Over the Counter Markets under the symbol GDPM. The company was warned in September of last year of the possible delisting. Goodrich is the largest company operating in the Tuscaloosa Marine Shale, located across Louisiana through parts of Mississippi. The emerging shale play is less economical for producers due to the early stages of development coupled with geological challenges, including varying degrees of clay and silt and inconsistent results. Most companies operating in the TMS have opted to focus on development in other areas to minimize risk in this potentially oil-rich, yet unproven formation. Goodrich also owns assets in the Eagle Ford Shale in South Texas as well as the Haynesville Shale in parts of Texas and Louisiana. Since the price of oil began its drastic drop near the close of 2014, around 40 oil and gas companies have filed for bankruptcy protection, 36 of those filing in 2015. Goodrich joins SandRidge Energy Inc, removed from the NYSE earlier this week when its stock price remained below $1 for over seven months. The Oklahoma-based producer announced Wednesday it will eliminate 226 jobs in its home state.

‘A millennium’s worth of earthquakes’: Fracking’s devastating impact on the the American west: -Oklahomans don’t blink when they hear warnings about tornadoes, drought or ice-storms. Earthquakes, however, catch their attention.   Increasingly tied to tremors shaking the west, fracking for natural gas is creating alarm and division around western states that until recently enjoyed a boom in jobs and revenue. In Oklahoma, seismologists have warned that significant temblors last week could signal a larger, more dangerous earthquake to come in a state where drilling is destabilizing the bedrock.Last Wednesday night two earthquakes, measuring 4.7 and 4.8 on the Richter scale, struck rural northern Oklahoma, beneath a major oil and gas producing area. The state historically experiences two shakes a year registering above level three. According to the National Earthquake Information Center (NEIC), which is based in Colorado, in 2014 Oklahoma experienced 585 such quakes. In 2015 there were 842. “That’s almost a millennium’s worth of earthquakes in two years,” George Choy, a seismologist at the center, told the Guardian on Friday. “When you see that you suspect something is going on.” Choy added: “Even a magnitude four in the right place could cause great damage. The industry in Oklahoma is producing a tremendous amount of wastewater, more than 200 million barrels a month, which is on the way to a trillion a year. Water is finding its way to underground faults and there is always the possibility of a big earthquake. We are concerned."

String Of Small Earthquakes Shake Near Fairview - - - A string of small earthquakes shook near Fairview, Oklahoma, Monday morning. At 3:04 a.m., a 2.7 magnitude earthquake was recorded 16 miles northwest of Fairview, and 38 miles east of Woodward. It was about three miles deep. At 7:12 a.m., a 2.9 magnitude earthquake was recorded 18 miles northwest of Fairview, and 37 miles east of Woodward. It was about five miles deep. At 8:16 a.m., a 3.0 magnitude earthquake was recorded 18 miles northwest of Fairview, and 36 miles east of Woodward. It was about three miles deep. At 9:18 a.m., a 3.2 magnitude earthquake was recorded 18 miles northwest of Fairview, and 38 miles east of Woodward. It was about three miles deep. Meanwhile, a 2.7 magnitude earthquake was recorded at 2:48 a.m., two miles southeast of Crescent, and eight miles west, northwest of Guthrie. No injuries or damage were immediately reported following these earthquakes.

Is A Massive Earthquake Inevitable In Oklahoma? -- When Americans speak of “the big one,” they’re talking about the potential for a super-massive earthquake that could essentially destroy most of quake-prone California. Now some scientists believe something similar could happen in the once geologically placid Oklahoma. Oklahoma was shaken late Wednesday night by two of the strongest earthquakes to hit the state in recent years, the latest in a series of temblors that many researchers believe are caused by the burial of wastes from oil and gas drilling in the state. The quakes struck 30 seconds apart and had magnitudes of 4.7 and 4.8 on the Richter scale. While considered light, both were centered directly beneath a region in northwestern part of the state near Fairview, Oklahoma, that produces significant amounts of oil and gas. The second temblor was the fourth-largest ever recorded in Oklahoma. These and other recent earthquakes could be precursors to a much larger, more damaging event, according to some scientists. The frequency of earthquakes in Oklahoma has been rising for nearly a decade. Before 2008 there were fewer than two earthquakes in Oklahoma each year, on average. By 2010 the state had only three quakes with a magnitude of 3 or more, meaning their shaking is barely felt on the surface. In 2015, the number of such temblors had grown to 907. Geologists say the reason is the way oil companies dispose of drilling waste. The water they use in drilling can’t be reused, so it must be discarded, usually injected deep below ground level. This water makes underlying rocks slippery, causing them to shift against one another, which sets off earthquakes.The quakes have become something of a political issue in Oklahoma. Gov. Mary Fallin, who said she felt Wednesday night’s temblors, continued to express confidence in the Oklahoma Corporation Commission, which she said is the agency best suited to address the growing problem. But critics say the agency isn’t acting quickly enough. One who has been demanding more action is Democratic state representative Cory Williams, who said he believes the state Legislature needs to step in, though he adds that he doubts it will. “Absent a catastrophic loss of life or property, there will be zero reaction from the Oklahoma House or Senate,” he said. “They don’t want to touch it.”

Oklahoma Residents Sue Energy Companies Over Earthquake Damage -  Oklahoma has been hit by swarms of earthquakes over the last few years, and some residents have had enough. This week, a group of 14 homeowners in Edmond, Oklahoma filed a lawsuit against 12 energy companies, claiming that the companies’ fracking operations have contributed to this uptick in earthquakes. Specifically, the lawsuit targets the companies’ wastewater disposal wells, claiming that the injection of fracking wastewater into these wells “caused or contributed” to earthquakes and constituted an “ultrahazardous activity.”   In the lawsuit, filed in Oklahoma County court, the residents focus on two earthquakes — of 4.3 and 4.2 magnitude — that struck Edmond on December 29 and January 1. The plaintiffs say they suffered damage from the earthquakes, and that the energy companies were “negligent, careless, and reckless” in their treatment of the earthquake risks surrounding wastewater injection.  “As a direct and proximate result of defendants’ negligence, plaintiffs have suffered and will continue to suffer severe and permanent damage to their persons and property,” the lawsuit states. This damage includes “cracked and broken interior and exterior walls” and “movement of the foundations beneath their dwellings.” These damages have taken a toll on the residents psyches, too, causing “mental and emotional anguish, fear, and worry.” These earthquakes have also spurred other lawsuits in the state. The Oklahoma Supreme Court ruled last year that people could sue oil companies for damages claimed to be caused by earthquakes. That was good news for Sandra Ladra, who sued Tulsa-based oil and gas company New Dominion LLC for damages related to a November 2011 earthquake. The Oklahoma Supreme Court ruling means that her case can proceed. And another lawsuit seeks class-action status for residents affected by earthquakes in multiple Oklahoma counties.

Oklahoma Residents Sue 12 ‘Reckless’ Fracking Companies for Earthquake Damage -- Oklahoma has seen a dramatic uptick in earthquakes in recent years, and some residents refuse to sit idly by. On Monday, 14 residents of Edmond, Oklahoma filed a lawsuit against 12 energy companies, claiming their fracking operations contributed to a string of earthquakes that hit central Oklahoma in recent weeks. The plaintiffs are specifically targeting the companies wastewater disposal wells, alleging that the injection of fracking wastewater into these wells “caused or contributed” to earthquakes and constituted an “ultrahazardous activity.” The companies named in the lawsuit are Devon Energy Production, Grayhorse Operating, Marjo Operating Mid-Continent, New Dominion, Northport Production, Pedestal Oil, Rainbo Service, R.C. Taylor Operating, Special Energy, Sundance Energy, TNT Operating and White Operating.  Citing “reckless disregard for the consequences to others,” the plaintiffs argue in the lawsuit that the companies “injected large volumes of drilling waste in disposal wells located near the cities of Edmond and Oklahoma City, in the vicinity of the plaintiffs’ properties, under conditions that defendants knew or should have known would result in an increased likelihood that earthquakes or other adverse environmental impacts would occur, thereby unreasonably endangering the health, safety and welfare of persons and property, including plaintiffs and others. “The use of disposal wells by defendants created conditions which, among other things, are the proximate cause of unnatural and unprecedented earthquakes that continue unabated, increasing in both frequency and magnitude within Oklahoma County and elsewhere in the state of Oklahoma, which have damaged plaintiffs and others and threaten to do so in the future.”

Fire crews are battling an oil rig fire in Oklahoma — Firefighters in Oklahoma are battling a fire on an oil rig. Authorities say the oil rig is about 6 miles east of Chickasha. Video of Wednesday’s blaze showed a large plume of thick black smoke rising from the rig. The Oklahoma Department of Transportation says nearby roads are closed because of the smoke. Department spokesman Cody Boyd says the road may remain closed for several hours. The owner of the site, Continental Resources, said in a statement to KWTV that all employees have been accounted for and are safe and that the cause of the fire is unknown. A Continental spokeswoman did not immediately return a phone call from The Associated Press for additional comment. Chickasha is about 45 miles southwest of Oklahoma City.

Crews Responded To Large Fracking Operation Fire In Grady County - Crews responded to a large fracking operation fire just east of Chickasha late Wednesday afternoon. The Grady County Fire Department responded to HWY 62 and 39, about six miles east of Chickasha after the reported fire. Upon arrival, crews reported numerous trucks on fire. According to a diagram News 9 received from the University of Kansas, the frack pumps caught fire and all of the trucks connected by metal piping are on fire. All 22 trucks are said to costs about $1 million each. Crews reported explosions as the fire fuels but it is contained in the area. The Oklahoma Department of Transportation said all lanes at SH 39 and County Road 2910 in Grady County, and all lanes from County Road 2940 west of HWY 62 were shut down due to the fire. The roadways were reopened about 9:45 p.m. There was also reports of heavy amounts of smoke crossing the highway. "I really don't know what caused it. They were in the process of fracking a well and that's where it all started," Grady County fire spokesman Buddy Myers said.

Fracking fire damage totals almost $50 million | - The raging fire sent flames and thick black smoke into the sky. It broke out around 4 p.m. Wednesday afternoon at a Continental Resources oil field site just east of Chickasha.  On Thursday – the devastating damage was clear. The Grady County Fire Chief tell us 22 different truck/trailer combinations were completely destroyed – each one valued at $1.8 million dollars. Despite that, the fire chief tells us it could have been much worse.“Yesterday, when we arrived on the scene, the first thing we did is figured out what hazardous chemicals might be there, what might happen if they mixed with water, what might happen if they mixed together, what catastrophic event would we have if we made a mistake like that,” said Grady County Fire Chief Buddy Meyers. Chief Meyers says they took an offensive approach to keep the fire away from the worst chemicals. “Some of these chemicals, if they mixed with water, if they caught on fire, if they mixed with each other, could’ve caused on explosion. Well, the evacuation distance was one half mile away,” said Meyers.Despite the heavy damage, a lot was saved. “About $50 million worth of other equipment. We saved the chemicals. We saved the trucks that are transporting the chemicals. We saved the tank battery, saved the well head. We saved the crane.” And, lives were spared not only because of the fire fighting but the emergency plans in place for the oil field crews.

Eco-groups urge Obama to halt oil, gas leases on federal lands - -- From a press release today:  Call to Obama Administration: Keep Our Oil and Gas in the Ground -- Environmental groups today called on President Obama to order a review of the climate change implications of the federal oil and gas program and a halt to new oil and gas leases on American public lands. The call comes as the Obama Administration has leased millions of acres of U.S. public lands to oil and gas companies, opening the door for extensive drilling and fracking of some of the nation’s most treasured landscapes. Thirty-four million acres of public lands are now under the control of the oil and gas industry.  “It’s unbelievable that our government keeps leasing public land to dirty energy companies while turning a blind eye to the climate implications—it’s time to get the government out of the oil and gas business and return public lands to the people.”  This development is responsible for massive amounts of carbon pollution from methane leaks and oil and gas burning. Estimates indicate 4% of all U.S. global warming pollution from U.S. energy sources comes from public lands drilling and fracking, although a comprehensive review of the climate impacts of public lands oil and gas has yet to be undertaken.   “By taking into account the significant impacts of drilling and fracking on our natural heritage, the reality is that the costs to our lands, waters and climate are way too high. Until those costs are known, publicly owned oil and gas must remain in the ground.” In the letter today, the groups echoed the President’s own call to keep fossil fuels in the ground and his State of the Union remarks that America needs to change the way its oil and coal are managed to “better reflect the costs they impose on taxpayers and the planet.”

House speaker wants outside audit on Sandpiper pipeline project emails — Minnesota House Speaker Kurt Daudt has asked the legislative auditor to do a separate investigation of Minnesota Pollution Control Agency activity on the Sandpiper oil pipeline project. Daudt says news reports on an agency employee’s seemingly slanted emails to groups fighting the project raise bigger doubts about impartiality about the regulatory review for Enbridge Energy’s proposed pipeline to carry crude oil from North Dakota to Wisconsin. The state Capitol’s top Republican wrote Legislative Auditor Jim Nobles on Friday to seek a review beyond the one Gov. Mark Dayton says his administration will conduct. Nobles said his office would begin a preliminary review before deciding on a full investigation. Daudt says the public and lawmakers need to know if state resources were misused, if information was improperly disseminated and whether the Sandpiper and other projects are getting a fair shake.

N.D. oil trains shift route back to northeast Mpls. tracks, BNSF reports -  Most of the North Dakota crude oil trains crossing Minnesota no longer pass through west metro suburbs and downtown Minneapolis, according to a railroad route update. BNSF Railway, the largest Bakken oil hauler, notified Minnesota officials in December that it has shifted crude-by-rail traffic back to its usual route via Detroit Lakes, St. Cloud, Anoka and northeast Minneapolis. The shift had been expected. BNSF spokeswoman Amy McBeth said Friday that with the end of construction season, traffic is back to more traditional routes. Over the summer, as BNSF worked on a $326 million system upgrade in Minnesota, it shifted most oil trains — about 11 to 23 per week — to tracks through Willmar, Dassel, Delano, Wayzata and St. Louis Park. This sent trains through the downtown, past Target Field and across Nicollet Island, worrying some local and state officials, including Gov. Mark Dayton. The downtown oil train traffic tapered off in October, and now has returned to the usual level of 0-3 per week, BNSF reported. Although the report says those trains are “westbound to Willmar,” McBeth said they could be going in either direction. Overall, the report said, 28 to 48 oil trains pass through Minnesota each week, unchanged since last spring. Each train carries 1 million gallons of Bakken crude oil or more. After leaving Minneapolis, most oil trains pass through St. Paul and into Wisconsin bound for East Coast oil refineries.

ND lawmakers react to Keystone XL Pipeline lawsuits -- Last week, the company that proposed the construction of the Keystone XL Pipeline, TransCanada, filed legal challenges to the United States’ rejection of the project. One of the lawsuits will seek more than $15 billion in damages. Suffice it to say, North Dakota state representatives aligned themselves with TransCanada’s reasons for filing the suits, placing the blame solely on the Obama Administration. In a statement, Sen. John Hoeven said, “Unfortunately, the president’s arbitrary decision to turn down the Keystone XL pipeline means we do not have this important energy infrastructure project under construction, or the jobs and other benefits that go with it…” He added, “The president denied the Keystone XL pipeline permit, even though Congress approved it on a bipartisan basis, all six states along the route approved it and the American people overwhelmingly support it.” Congressman Kevin Cramer shared similar sentiments. In a statement, he said, “The President’s short-sighted decision to reject construction of the Keystone XL Pipeline cost us a vital energy infrastructure project which would have created thousands of jobs and billions of dollar in economic benefits throughout the country.” He continued, “Unfortunately, given Canada’s recent track record in suing the United States, I am afraid the American taxpayer will be left holding the bag for billions in penalties because of President Obama’s extreme environmental agenda.”

Pipeline leak spills saltwater and oil in North Dakota - State officials are monitoring the cleanup of a pipeline leak that spilled saltwater and oil in Stark County. The Health Department says an estimated 5,880 gallons of saltwater and 420 gallons of oil were released at a site operated by C12 Energy North Dakota LLC. It happened Monday about half a mile north of Dickinson. Officials say it does not appear any surface water was impacted. Officials with the Health Department and the state Oil and Gas Division are at the scene.

Regulators to give written reason for cutting oilfield fines — North Dakota regulators say they will provide written justification if fines and other sanctions are lowered against companies that violate the state’s oil and gas laws. Department of Mineral Resources Director Lynn Helms says he was directed by the state Industrial Commission on Monday to provide the documentation. Regulators have been publicly criticized for easing penalties as much as 90 percent against companies involved in spills and other oilfield violations. Regulators say it promotes cooperation. The Industrial Commission that includes Gov. Jack Dalrymple met behind doors with attorneys for more than 90 minutes Monday, discussing six cases against companies that are facing sanctions. No action was taken.

Company drills in wrong area; forfeits North Dakota oil - (AP) — North Dakota regulators ordered a Denver company to forfeit crude oil that was obtained from an area where it did not hold a lease. The North Dakota Industrial Commission on Monday ordered Gadeco LLC to forfeit the 800 barrels of oil. Proceeds from the sale of the oil will go into the state's general fund. State Mineral Resources Director Lynn Helms says the company drilled into an area in Williams County in error. He says the company spent more than $8 million drilling the well, which is now plugged. Helms says it's the first time such an incident has happened in North Dakota.

North Dakota oil output rises slightly in November — North Dakota’s Department of Mineral Resources says the state’s oil production increased by about 5,200 barrels a day in November, while natural gas production rose to a record level. The agency says the state produced an average of 1.17 million barrels of oil daily in November. The November production was about 51,200 barrels per day less than the record set in December 2014. North Dakota also produced 1.66 million cubic feet of natural gas in November, beating the previous record set in July. The November tally is the latest figure available because oil production numbers typically lag at least two months. There were 49 drill rigs operating in North Dakota’s oil patch on Friday. That’s down 15 rigs from November.

North Dakota Oil Output Defies Calls For A Decline  |  Rigzone --North Dakota's oil production once again defied expectations for a decline in November, even seeing a slight uptick for the second consecutive month, as unusually warm weather helped offset the deepening decline in fracking activity. Production in the second-largest U.S. oil producing state rose by 5,000 barrels per day (bpd) to 1.18 million barrels, monthly data from the Department of Mineral Resources showed. Last month, it also rose 5,000 bpd. Output in North Dakota's Bakken shale fields has generally outpaced expectations even as oil prices have plunged to about $30 a barrel this week from over $100 in mid-2014. Despite repeated forecasts for a decline, even from the U.S. government itself, output has remained surprisingly resilient. Last October, the U.S. Energy Information Administration forecast that Bakken output would slide by 23,000 bpd to 1.16 million bpd. "Looking at the weather, we had relatively few days where there was too much wind and (there was) no precipitation in November. It was a very dry month, and it was not a cold month," Lynn Helms, director of the state's Department of Mineral Resources, told reporters on a conference call on Friday.

Fewer Bakken rigs, fewer oil worker deaths -- Oil worker deaths in the Bakken were down in 2015, but officials can’t say why just yet, reports The Bismarck Tribune. According to data collected from the Occupational Safety and Health Administration, there were three oil and gas-related worker deaths in 2015 compared to the seven in 2014 and 10 the year before that. Eric Brooks, director of OSHA’s Bismarck area office, told The Tribune that he anticipates that within a year, it will become more apparent whether or not the decrease is due to improved safety or fewer workers. Over the past few years, overall workplace injuries have been declining steadily. As reported by The Tribune, North Dakota Workforce Safety and Insurance noted that although workforce injuries were higher than normal in previous year, the injuries sustained in the oilfield have never been disproportionate to the number of workers. In a statement, WSI Director Bryan Klipfel said, “As the workforce has declined out in the oil patch, [this agency] has seen a corresponding drop in the number of injured worker claims. There are fewer workers, so there are proportionally fewer injuries.” He added that more experienced workers are typically retained the longest throughout the slump, which makes for a more safe work environment.

EIA Updates Oil Severance Taxes For Six US States -- EIA updates oil severance taxes for Alaska, Texas, North Dakota, Wyoming, Oklahoma, and West Virginia. No surprises. No surprises, but Alaska is in a heap of trouble based on the graphs. Look at the last seven quarters for Alaska -- all of 2014 and the first three quarters of 2015: the state received no revenue from the oil and gas industry in two of the last three quarters; and, in a third quarter (3Q14) almost nothing. Note the huge spike in 2Q14 preceded and followed by very low numbers. One can say the weather turns better in 2Q14 but that would also be true in 3Q14 and that was one of the worst quarters. The trend is a disaster; the volatility is terrifying.  Alaska taking action: Alaska Gov. Bill Walker announced a hiring freeze and limits on travel by state employees [January 5, 2016] as part of an effort to control a growing $3.5 billion budget gap. He had previously proposed Alaska's first state income tax in 35 years.

Deal averts Montana coal mine shutdown — A central Montana coal mine reached an agreement Monday with environmentalists and state regulators that is intended to avoid a major shutdown as a declining coal market leaves the future of some mining companies in doubt. The deal comes after a state review panel rejected an expansion permit granted to the Bull Mountain Mine in 2013, threatening to halt most operations if the dispute could not be resolved. The panel said a Montana agency failed to consider the mine’s long-term potential to contaminate nearby water supplies. The agreement gives state regulators six months to look again at the effects from the underground mine. Mine owner Signal Peak Energy cut about 20 percent of its workforce last month, citing a poor market that is hammering companies across the United States, including in the nation’s largest coal-producing region. Montana and Wyoming combined produce almost half the coal in the U.S. “We’re trying to meet their interests in ensuring ongoing production and not having further layoffs, and also meet our interest in assuring water resources are fully protected for people living in the area,” said attorney Shiloh Hernandez, who represents the Montana Environmental Information Center. The Montana Board of Environmental Review still must approve the deal and will consider it Tuesday. The agreement allows expansion development work to proceed, which is scheduled to begin in March.

1,000 People Attend Hearing on Proposal for Nation’s Largest Oil-by-Rail Terminal  - The people—a lot of people—have spoken loud and clear against the proposal to build the nation’s largest oil-by-rail terminal at the Port of Vancouver in Washington. After 10 hours of testimony with more than 1,000 people in attendance last week, Washington’s Energy Council had to hold a second hearing to accommodate the overflow testimony. And now with Congress lifting the crude oil export ban, stopping this massive shipping terminal takes on added importance. Tesoro Savage would ship almost half as much crude oil as the Keystone XL pipeline, but on trains. Tesoro would offload the trains onto large oil tanker ships to sail over the notorious Columbia River bar to the Pacific Ocean. Washington’s Gov. Jay Inslee will make the final decision on the oil proposal, after a recommendation from his energy council. In a normally quiet area of southwest Washington an unprecedented cross section of local businesses, labor leaders, conservation groups, tribal nations, physicians and even the city governments of Vancouver and Portland are taking a stand to protect the region. Here are many of the diverse voices opposing Tesoro’s oil-by-rail project:

Proposed terminal at Grays Harbor won't handle Bakken crude oil — The new owner of a Grays Harbor biodiesel facility has dropped plans to handle crude oil as it pursues an expansion project at the Port of Grays Harbor on Washington’s coast. Iowa-based biofuel producer Renewable Energy Group wants to expand its existing facility to handle bulk liquids, but it said crude oil won’t be in its future plans, according to written comments it made to state and local regulators last year. The project was one of three crude oil terminals proposed at the Port of Grays Harbor that would bring crude oil by train from the Bakken region of North Dakota and Montana, where it would be stored and loaded onto tankers or barges. “We at REG are happy to be producing lower carbon, renewable fuel at Grays Harbor and look forward to building relationships with all local and regional stakeholders,” company spokesman Anthony Hulen said in an email Wednesday.

Experts to study food safety of oilfield wastewater - More farmers in drought-stricken California are using oilfield wastewater to irrigate, and a new panel on Tuesday began taking one of the state’s deepest looks yet at the safety of using the chemical-laced water on food crops. In the fourth year of California’s drought, at least five oilfields in the state are now passing along their leftover production fluid to water districts for irrigation, for recharging underground water supplies, and other uses, experts said. Chevron and the California offshoot of Occidental Petroleum are among the oil companies supplying oilfield wastewater for irrigating tens of thousands of acres in California. Almond, pistachio and citrus growers are the main farmers already using such water. California’s aging oilfields require intensive drilling methods and generate lots of wastewater. In Central California’s San Joaquin Valley, a center of the state’s agriculture and oil businesses, oil companies in 2013 produced 150 million barrels of oil — and nearly 2 billion barrels of wastewater. Central California leads the country in food production. It’s also the main oil-producing base in California, the country’s No. 3 oil-and-gas producing state. For farmers in California’s drought, the question is “where’s the water going to come from if you want to maintain agriculture,”

Porter Ranch Methane Leak Spreads Across LA’s San Fernando Valley - It now looks like the catastrophic Porter Ranch gas leak, which has spewed more than 83,000 metric tons of noxious methane for nearly three months, has spread across Los Angeles’s San Fernando Valley. On Wednesday, Los Angeles City Councilman Mitchell Englander called on the Southern California Gas Co. to extend residential relocation assistance to residents in Granada Hills, Chatsworth and Northridge who live near the Aliso Canyon gas leak above Porter Ranch. These residents reported symptoms related to the exposure of natural gas such as nausea, vomiting, headaches and respiratory problems. This latest development compounds with a new analysis from Home Energy Efficiency Team (HEET). The Cambridge-based nonprofit sent Boston University Professor Nathan Phillips and Bob Ackley of Gas Safety to take methane measurements around the San Fernando Valley for several days and their findings were disturbing. As the Los Angeles Daily News wrote, “the researchers recorded elevated levels of the main ingredient in natural gas—10 miles away from the nation’s largest gas leak.” “It’s not just in Porter Ranch, it’s going all the way across the [San Fernando] Valley,” Ackley told Inside Climate News. According to HEET, the researchers drove a high precision GIS-enabled natural gas analyzer down the roads around the gas leak to create a comprehensive map of the leak around San Fernando Valley. The red on the map indicates where they drove and the levels of methane they found is shown by the height of the peaks.

Stopping natural gas leak near Los Angeles is a complex fix — A tricky fix is in the works to plug a massive gas leak from an underground storage well that has sickened residents of a Los Angeles neighborhood for 11 weeks. Gas company workers are drilling a relief well to intercept a leaking pipe from a natural gas storage field a mile and a half underground. The work could be completed by the end of February. The leak detected Oct. 23 was in one of 115 wells where Southern California Gas Co., a division of San Diego-based Sempra Energy, stores natural gas in a vacant oil field beneath the Santa Susana Mountains above Porter Ranch. The company injects the fuel when demand is low and pumps it out during colder weather or when it’s needed to fire up natural gas-fueled power plants. It is the largest natural gas storage facility west of the Mississippi River and can provide energy to all of Southern California for a month. The leak was initially believed to be minor and coming from the top of the head, but was probably about 500 feet underground. Pressure averaging 2,700 pounds per square inch prevented plugging the pipe with a mud and brine solution, spraying an oily mist at one point. The relief well will target the pipe more than a mile below the leak. If successful, mud and brine will be used to plug the leaking well. Because it’s difficult to hit such a tiny target a mile and a half underground, or in case the muddy solution doesn’t stop the leak, the company plans to begin drilling a second relief well later this month.

Regulators probing whether fracking was connected to Aliso Canyon gas well leak: State regulators are investigating whether the controversial drilling practice of hydraulic fracturing, or fracking, contributed to the massive natural gas leak near Porter Ranch. Fracking at Aliso Canyon had not been widely reported, though it is common at California’s underground gas storage facilities. More than two months after Southern California Gas Co. detected a leak at its Aliso Canyon field, observers are searching for reasons the well may have failed. Some environmentalists are drawing attention to fracking, while experts caution that such a rupture is unlikely.   The leaking well’s maintenance records don’t indicate that it was fracked, according to a review of the file released by the state Division of Oil, Gas & Geothermal Resources. But at least one nearby well in Aliso Canyon was fracked, the records show. Called “well stimulation,” fracking is used by natural gas operators to increase production from underground reserves. A state-commissioned report found that Aliso Canyon was a major producer of hydraulically fractured gas, compared to California’s other natural gas storage facilities. Collectively, about a third of the gas stored in these state reservoirs is derived from fracking, according to the 2015 report by the California Council on Science and Technology. “Obviously, fracking these old wells raises some real concerns about dangers to well integrity — fracking can cause casing to fail,” said Patrick Sullivan, spokesman for the Center for Biological Diversity.

The Company Behind LA’s Methane Disaster Knew Its Well Was Leaking 24 Years Ago -- Last fall, a 7-inch injection well pipe ruptured 500 feet below the surface of Los Angeles, after ferrying natural gas for six decades. The resulting methane leak is now being called one of the largest environmental disasters since the BP oil spill, has pushed thousands of people out of their homes, and has quickly become the single biggest contributor to climate change-causing greenhouse gas emissions in California. But it's not the first time this well sprang a leak—and Southern California Gas Company (SoCalGas), which owns and operates the well, knew it.  Over the past three months, engineers have had a terrifically difficult time plugging the leak. Normally in the case of a methane leak, a column of fluid would be pumped down into the well, to stem its tide. But with this particular well, that hasn’t been working. Instead, workers must drill down to the base of the well, 8,000 feet underground, creating a relief well to relieve the incredibly high pressure of the leak. Only then can the leak be repaired safely. So who’s to blame for a leak that cannot be stopped? Aging natural gas equipment may have contributed. According to documents filed with the California Division of Oil, Gas & Geothermal Resources, this particular well, referred to as Standard Sesnon 25, was originally drilled in 1953, and showed signs of leakage 24 years ago, in 1992. Inspectors reported that they could hear the leak through borehole microphones. . The regulatory decision filing shows that SoCalGas was granted $898,000 per year (in addition to the regular fund of about $3 million per year for repairs) to replace 5 percent of its safety valves at Aliso Canyon. According to EDF, these extra funds weren’t used as they should have been—to prevent a leak of this magnitude.

California’s Gas Leak Disaster Signals a State of Emergency for Us All - Dave Dayen - If you drive down Porter Ranch Boulevard you would have little sense of why this Los Angeles suburb has made national news. There isn’t a lot of foot traffic, but that’s a function of being a southern California bedroom community with no town square where everyone has to drive to reach anything. But the library and the YMCA are packed. Traffic flows robustly along the avenues.  . The smell kind of sneaks up on you, kind of like if you stand too long outside a Shell station. It’s not particularly pungent, or at least wasn’t on the windy day I visited. But after about an hour or so in Porter Ranch, I did feel a slight headache coming on.  Despite Gov. Jerry Brown issuing a state of emergency for Porter Ranch due to the massive Aliso Canyon gas leak, which has been ongoing since October with no end in sight, life mostly goes on. And this actually upends some long-held assumptions about environmental justice, particularly the idea corporate polluters only prey on the weakest, most vulnerable communities. If a wealthy Los Angeles suburb like Porter Ranch cannot rouse action, there’s little hope for the rest of us.

Report on 2015 California refinery blast to be unveiled -- Investigators from the U.S. Chemical Safety Board are expected to discuss that near-hit and other safety issues today as they present a report on the Feb. 18, 2015 blast that injured four contractors and coated neighboring homes and cars with white ash. ExxonMobil sold the refinery to New Jersey-based PBF Energy Inc. in September, but continued repairs have delayed the deal. California workplace regulators issued $566,000 in fines last summer for health and safety violations related to the blast. The plant is located in a densely populated area of the city of Torrance, about 20 miles southwest of Los Angeles. A state investigation by the California Occupational Health and Safety Administration — also known as Cal OHSA — blamed the blast on a vapor that leaked from a fluid catalytic cracker unit into an electrostatic precipitator. The fluid catalytic cracker unit refines gasoline and is critical to producing California-grade fuel. Management knew the leak posed a hazard but didn’t correct the problem and had had problems with the FCC unit for as long as nine years, Cal OHSA said.Debris from scaffolding went flying during the explosion and could have caused a “potentially catastrophic release of extremely toxic modified HF into the neighboring community,” the U.S. Chemical Safety Board said in a statement. Residents have formed a watchdog group to pressure the refinery over its use of modified hydrofluoric acid, which is used as a catalyst to make higher-octane fuels, since last year’s incident. “A piece of equipment was sent flying out and it landed just feet from a tankful of modified hydrofluoric acid. Even though the explosion didn’t cause a release, it was just because of dumb luck,”

Editorial: WSJ on Obama’s endorsement of a new pipeline -- TransCanada took Uncle Sam to court last week to reclaim some of the damage done by the Obama Administration’s multiyear, drawn-out rejection of the Keystone XL pipeline. It may not come up in the litigation, but someone should point out that the same Obama Administration that rejected Keystone seems to have no problem supporting a new oil pipeline project in Africa.That was the story last week out of Kenya, where U.S. Ambassador Robert Godec told Kenya’s energy minister that Washington would help Nairobi raise $18 billion to finance its PowerAfrika project. The pipeline would stretch from Kenya’s Rift Valley to Lamu on the coast. “Kenya needs $18 billion worth of financing,” Mr. Godec said, according to a dispatch in, “so one of the questions we are discussing is how we can work together with the private sector and governments to raise that sum, to find ways to make certain that this financing becomes available.”Has Mr. Godec checked with Secretary of State John Kerry, or, perhaps more important, anti-oil Democratic financier Tom Steyer? Kenya and Northeast Africa could certainly use the investment and jobs that would come from the oil project. Then again, so could the United States. What’s with the double standard on pipelines?

Oil Industry to Feds: Enough Already With the Regulations - These should be happy days for the U.S. oil and gas industry. The United States leads the world in oil and gas production, providing a level of global energy stability unthinkable just a few years ago. As the Wall Street Journal reported, “Monday’s decline illustrates how political unrest in the Persian Gulf, the world’s largest oil-producing region, is no longer a sure-fire source of price gains at a time when there is close to a record amount of crude available in storage and continued robust production in the U.S.” But despite record production levels by API member companies, industry officials are increasingly frustrated by the growing roster of federal regulations that govern their operations. Jack Gerard, president of the American Petroleum Industry, detailed API's complaints at a Washington event Tuesday to release the group’s annual report.  Not surprisingly, the frustration is felt most acutely in the Western states, where the federal government owns much of the land. The API report compares oil and gas development in energy-rich Utah, where 67 percent of the land is under federal control, with that of Pennsylvania, which has a similar political climate and history of energy production, but where only 2 percent of the land is under federal control: Utah’s production increased to only 434.6 million cubic feet, barely 1 percent, while Pennsylvania’s production increased more than twenty-fold to 4,174.4 million cubic feet. The stark difference between the trajectory of energy production in Utah and Pennsylvania is not a result of geologic science but of federal energy policy.  The federal government’s permitting process is much more cumbersome than that of the states. For example, API notes that the state of Colorado on average takes fewer than four weeks to issue a drilling permit, whereas “it took an average of 236 days just to submit all the required paperwork required by [the Bureau of Land Management’s] permit application, and an additional 11 weeks to issue a decision on the permit.”

U.S. exports first freely traded oil in 40 years -  The ink is barely dry on legislation to lift a 40-year-old ban on exporting U.S. crude and energy companies already are jockeying to ship American oil overseas. Two tankers filled with freely traded U.S. oil have pulled out of Texas ports in the past two weeks, with more shipments expected. The first American oil sales abroad are flowing to Europe but, in the longer term, Latin America and Asia could become natural markets, according to industry experts. U.S. oil sales to foreign buyers have been quick to start after President Barack Obama signed the bill that abolished the crude export ban less than a month ago. Big energy infrastructure companies including Plains All American Pipeline and Enterprise Product Partners LP have spent the past five years pouring billions of dollars into building new pipelines, oil storage tanks and dock space at ports. The first freely traded cargo of U.S. oil was shipped from Corpus Christi, Texas, on New Year’s Eve. ConocoPhillips pumped the oil from around Karnes County, Texas, 60 miles south of San Antonio. From there it will travel about 5,000 miles to Bavaria in Germany. A second cargo of U.S. oil shipped from Enterprise’s Houston terminal at the start of the year is sailing to Marseilles, France. From there it will move by pipeline to a refinery in Switzerland.

Reuters Predicts Minimal Decrease In Shale Production Month-Over-Month -- If this turns out to be accurate -- that US shale production falls 120,000 bopd month-over-month -- as reported by Reuters/Rigzone -- that's trivial. Even if the entire decrease was due to the Bakken/North Dakota, it wouldn't be remarkable. If the 120,000 bopd is spread across the Bakken, the Eagle Ford, and the Permian (not to include the half-dozen other shale plays, the decrease is exceedingly trivial -- considering.  Reuters/Rigzone is reporting: U.S. shale oil production is expected to fall for a seventh month in a row in February, declining at about the same rate as the month before as drillers manage to eke out a few more barrels from each new well, U.S. data showed on Monday.   Total output was set to decline by 116,000 bpd to 4.8 million bpd in February compared with January, a U.S. Energy Information Administration's (EIA) drilling productivity report said. Production was estimated to have fallen by about the same margin in January, despite some expectations that the decline rate would begin to quicken as companies slash spending.  If true, the decline would take U.S. shale output to 638,000 bpd below the March 2015 peak, a far slower drop than many analysts had expected just a few months ago.  Shale firms' resilience in the face of crashing crude oil markets has added to the selloff, pushing prices to near 13-year lows this week.  Bakken production from North Dakota and Montana was set to fall 24,000 bpd, while production from the Eagle Ford in South Texas was expected to fall 72,000 bpd. But some regions were still growing, 18 months into the oil slump.  Production was forecast to rise by 5,000 bpd in the Permian Basin in West Texas and eastern New Mexico, the data showed.

The “Hanging in There” Game for Oil Producers --The latest EIA report shows the US Production rate steady and holding at the 9.2 million barrels per day. And although there have been some anecdotal reports out of Canada at the start of the year on this recent down leg in oil prices, that this has triggered them to shut down production, that at these prices it makes no sense to continue operations; the rest of the beleaguered producers in the oil space are continuing to operate and hold on throwing more bad money after bad money. Was the Business Case for $40 oil? These producers arent getting it, these producers didnt get into the business for $40 oil, these projects were started when the floor for WTI was $90 a barrel, with the extreme lows of a solid 5-year timeframe in the low $80s per barrel for oil. No business plan had a model with 16 months of average oil prices in the $45 barrel range. It might just take oil prices going to $25 a barrel for hands to be forced, so somebody will finally make the call, and pull the plug on some of these operations.It seems everyone is on the hopium alternative reality trip that oil prices will recover at the back of 2016, and if they can just stay in business until then, then they can survive. But they aren`t getting it, the only way prices move higher by enough magnitude where they could actually survive, is if enough US production goes offline permanently, i.e., people go out of business – namely these same beleaguered producers who didnt get into the business for $45 oil. Thus the Catch – 22 that none of these firms are getting is that sure prices may rise in the future, but not until you go out of business.  You are the problem, taking US Production from 5 million barrels per day to 9.5 million is what is currently unsupportable in the market. The market will not clear and rationalize until you get out of the business for good. This isnt a have your cake and eat it too moment. Oil prices don`t recover until you go out of business, so you are just delaying the inevitable. I cannot believe how stupid people are in the oil industry, 9.2 million barrels per day of US Production is just too much given the last 16 month`s pricing environment in oil markets. US Production needs to drop fast, stop looking around at your neighbor to stop producing, if you got into the business the last 5 years, prices are not recovering until you leave for good.

Rig Count: Capitulation? - Art Berman - After last week’s moderate drop in rig count, the amount of horizontal oil rigs seems to implode this week. The U.S. land rig count was down 37 this week and the land horizontal rig count was down 30. Is this capitulation? Hard to say but it's the biggest drop since March 2015. And, the Fayetteville Shale play officially bit the dust this week with zero rigs for the first time since the play began in 2005. The tight oil horizontal rig count was down by 20 and the key Bakken-Eagle Ford-Permian HRZ rig count was down by 14. The Bakken lost 3 rigs, the Eagle Ford, 4, and the Permian, 7. Shale gas lost 8 HRZ rigs. The Haynesville lost 2, the Marcellus, 6, the Utica 1, the Fayetteville, 1. The Woodford and Barnett each gained 1 rig.

Drilling slump saps U.S. diesel demand -  El Nino and the warm winter weather are being blamed for the weak demand for distillate fuel oil in the United States, but the slump in oil production is probably having a bigger impact. The oil industry was the fastest-growing customer for middle distillates like diesel between 2009 and 2014, according to the U.S. Energy Information Administration (EIA). The oil industry itself accounted for 20 percent of all the increase in diesel consumption during the five-year drilling boom. Businesses engaged in oil drilling, pipelines and refining consumed 2.1 billion gallons of diesel in 2014, the most recent data available, up from just 760 million gallons in 2009. By 2014, oil producers accounted for 3.5 percent of all distillate fuel oil sales in the United States, up from 1.4 percent in 2009. Drilling rigs and the massive pumps employed for hydraulic fracturing all use high-horsepower engines which run 24 hours per day and consume prodigious quantities of fuel. The heavy trucks used to haul drill pipe, frac sand and water to well sites, and carry away crude before the well is hooked up to gathering pipelines, are all diesel powered. And since many oil fields are in remote rural areas with little or no electricity supply from the main power grid, most of the electricity used for heating and lighting also comes from diesel generators. So as the number of active drilling rigs and crews rose five-fold from around 300 in 2009 to more than 1500 in 2014, diesel consumption surged as well. Direct diesel sales to customers in the oil industry rose from 50,000 barrels per day to almost 140,000 barrels per day (bpd). For comparison, in 2014, around 2.5 million bpd of distillate was were sold as road fuel, while 250,000 bpd were sold to residential customers, 240,000 bpd to the railroads and 200,000 bpd to farms.

Zombies: Shrinking Cash Flow And Rising Debt Turn Some E&Ps Into The Walking Dead. From waves of reanimated corpses feeding on unfortunate strangers trapped in a western Pennsylvania farmhouse in Night of the Living Dead to the hordes stalking the beleaguered survivors in the current smash TV hit The Walking Dead, zombies have captivated audiences. But real life zombie companies aren’t as entertaining.  The dramatic and sustained plunge in hydrocarbon prices since mid-2014 has ravaged the finances of oil and gas producers to the extent that some observers have labeled the weakest of these “zombie” companies. These cannot sustain themselves on current pretax cash flow and look to be shuffling slowly toward their ultimate demise. Today we take a walk through the living dead to uncover the zombies. To identify the walking dead, we first screened the income statements and balance sheets of over 50 U.S. independent E&P companies. Within that universe we looked for companies with an Interest Coverage ratio (defined as earnings before interest, taxes, depreciation, amortization, and exploration expense or EBITDA divided by Interest) below 3 times, and a Debt to Capital ratio above 75% based on 3Q/15 financial results. Having these metrics makes it difficult or impossible for companies to access traditional capital markets to remedy their financial issues.  To determine each company’s ability to replace production, we estimated normalized 2016 cash flow (excluding non-recurring items) based on 3Q/15 results and compared it with “maintenance capital”, the level of investment needed to replace 2015 production. We estimated maintenance capital by multiplying estimated 2016 finding and development costs per barrel of oil equivalent (boe) by 2015 production volumes.  We estimated 2016 finding and development costs by taking average 2014 finding and development costs of about $19/boe and reduced that number by 25% for 2015 and another 25% for 2016 based on the level of cost reductions we have seen in the industry, and rounded the result to $11/boe. The twelve companies that met our interest coverage and debt metrics and are unable to replace production from estimated 2016 cash flow made our list of zombies (see Table 1). 

Energy Industry to Face a $100 billion-plus Cash-flow Gap in 2016, Says AlixPartners Study — The year 2016 will likely be another year of low oil prices and deteriorating energy-industry revenues and profits, turning it into a watershed for the already-troubled industry, including for the more than 130 publicly-traded exploration & production (E &P) companies operating in North America which are predicted to post a combined negative net cash flow (operating cash minus interest payments and currently-planned capital expenditures) of more than$100 billion in 2016. That’s according to a new study released today by AlixPartners, the global business-advisory firm. This dramatic funding gap underscores the critical and immediate need the entire industry—from E &P companies (including integrated majors) to oilfield services and equipment (OFSE) companies to midstream companies to refiners and beyond—faces, globally, to generate cash. That’s because while companies can go a long time without profits, they can survive only a short time without cash, the lifeblood needed by any type of company to pay its bills. And, even for companies that have cash cushions, weathering this severe industry downturn intact is not assured. The study says industry profits for the past year as measured by earnings before interest and taxes (EBIT) will likely be down 20% to 30%, and it finds that the industry’s overall return on capital employed (ROCE) today is only about 3%, a far cry from the 20% returns of a decade ago. In order to produce cash and make it through this downturn intact, says to the study, companies in the industry need to adopt “lights-on,” zero-based operating and staffing budgets to reflect the realities of much lower activity levels today, budgets which should include:

Delayed oil projects total nears $400bn -- Energy groups have shelved nearly $400bn of spending on new oil and gas projects since the crude price collapse, pushing back millions of barrels a day in future output from areas including the Gulf of Mexico, Africa and Kazakhstan. In an authoritative study published on Thursday, the energy consultancy Wood Mackenzie says development of some 68 major projects, or 27bn barrels of oil equivalent in reserves, has been put back as companies scramble to curtail costs and protect dividend payouts. The latest figures show that the amount of deferred capital spending on projects awaiting approval has almost doubled since June, from $200bn to $380bn, with 2.9m barrels a day of liquids production — equivalent to Kuwait’s crude output — now not due to come on stream until early in the next decade. The savage new year sell-off in Brent crude, which has tumbled more than 70 per cent from its summer 2014 peak of $115 to about $30 a barrel — close to 12-year lows — has lent renewed urgency to cost-cutting. US crude erased gains on Wednesday after a weekly petroleum report showed that stocks at Cushing, a key delivery point, had climbed to a record high. “Company budgets have shrunk drastically and investors are favouring those delivering severe capex cuts,” the Wood Mac report says. “As a result, there is a growing backlog of deferred greenfield and incremental developments that require significant investment.”High In what the consultancy describes as a “bleak” outlook for the “vast majority” of such fields — many of which are high-cost deepwater projects — only a handful of projects are likely to get the go-ahead this year, while billions of dollars more spending is expected to be postponed.

2016 brings more pain to U.S. shale companies as crude sinks | Reuters: Pain is quickly growing more acute in the new year at beleaguered U.S. shale companies as a global supply glut sinks crude further to 11-year lows, putting added financial stress on the most heavily indebted. Debt and equity investors have all but given up on the exploration and production sector as oil prices tumble lower. In the last year, the SIG index of oil companies fell 42 percent, compared with a 0.6 percent decline in the Standard & Poor's 500 index.  SandRidge Energy, a once high-flying Oklahoma-based shale company backed by billionaire investors Leon Cooperman and Canada's Prem Watsa, was delisted by the New York Stock Exchange on Wednesday. The stock last traded on the NYSE for less than 20 cents a share. Though companies ended 2015 with enough cash on hand to cover interest payments for well into next year, they cannot afford to drill new wells. The gloomier outlook is expected to prod more of them to restructure and give up on trying to ride out a downdraft showing no signs of abating soon. Oil CLc1 is down 10 percent since Dec. 31 to $33 a barrel, falling away from the crucial $50 to $60 level that many shale companies need for long-term survival. "You are going to see a lot more bankruptcies and restructurings this year," said Bill Costello, an energy analyst at Westwood Holdings Group Inc. "This year is going to be much worse for companies with weak balance sheets." He believes Penn Virginia Corp, Midstates Petroleum Company Inc, Ultra Petroleum Corp, GoodRich Petroleum and Resolute Energy Corp, all small producers, will have to restructure. Representatives for those companies did not comment.

Crude at $10 Already a Reality for Canadian Oil-Sands Miners - Think oil in the $20s is bad? In Canada they’d be happy to sell it for $10. Canadian oil sands producers are feeling pain as bitumen -- the thick, sticky substance at the center of the heated debate over TransCanada Corp.’s Keystone XL pipeline -- hit a low of $8.35 on Tuesday, down from as much as $80 less than two years ago. Producers are all losing money at current prices, First Energy Capital’s Martin King said Tuesday at a conference in Calgary. Which doesn’t mean they’ll stop. Since most of the spending for bitumen extraction comes upfront, and thus is a sunk cost, production will continue and grow.  Bitumen is another victim of a global glut of petroleum, which has sunk U.S. benchmark prices into the $20s from more than $100 only 18 months ago. It’s cheaper than most other types of crude, because it has to be diluted with more-expensive lighter petroleum, and then transported thousands of miles from Alberta to refineries in the U.S. For much of the past decade, oil companies fought environmentalists to get the pipeline approved so they could blend more of the tar-like petroleum and feed it to an oil-starved world.  Environmentalists are hoping oil economics finish off what their pipeline protests started.

4.5-magnitude earthquake reported in Alberta fracking zone: — The federal government reported an earthquake Tuesday in an area of northwestern Alberta where fracking for energy development is common. Natural Resources Canada says the earthquake was “lightly felt” this morning in Fox Creek. No damage has been reported. The earthquake registered 4.5 on the Richter scale at about 11:30 Tuesday morning, which would make it the strongest quake reported to the Alberta Energy Regulator in a year. According to the Richter Scale, quakes of that magnitude are considered “light.” They’re likely to be felt by most people in the area and may cause noticeable shaking and rattling of indoor objects. The regulator’s website says a quake of that intensity is strong enough to require the responsible energy company to stop fracking. Concerns about seismic activity in the Fox Creek area began in December 2014, when a series of 18 earthquakes between 2.7 and 3.7 in magnitude rumbled the area. In January 2015, several events were recorded between magnitudes of 2.4 and 4.4. The regulator responded in February by imposing a new set of rules for the so-called Duvernay play near the town. “The order comes after several seismic events — possibly related to hydraulic fracturing — were recorded in the Fox Creek area,” the regulator said in a press release at the time. Before starting to frack, companies must consider the likelihood of resulting earthquakes.

Was Canada’s Latest Earthquake the Largest Fracking Quake in the World?  -- A 4.8-magnitude earthquake has indefinitely closed fracking operations in northern Alberta, an area that has experienced a spate of tremors in recent months.  While it is too soon to tell if the temblor was triggered by fracking, if fracking is indeed the culprit, Canada will once again set a world record for the largest earthquake triggered by the controversial drilling process.  The earthquake was reported Tuesday at 11:27 a.m. approximately 30 kilometres west of Fox Creek, Alberta.  Alberta Energy Regulator (AER) has ordered the shutdown of the site operated by multinational energy company Repsol Oil & Gas, CBC News reported. The regulator automatically shuts down a fracking site when any seismic activity registers above a 4.0. “The company has ceased operations … and they will not be allowed to resume operations until we have approved their plans,” AER spokeswoman Carrie Rosa said. A statement from Repsol confirmed that Tuesday’s earthquake occurred during fracking operations. “Repsol immediately shut down operations and reported the event to the AER and other local authorities,” the statement said.“The company is investigating the event, which includes reviewing and analyzing available geological and geophysical data, as well as the onsite seismic monitoring data. Operations will not resume at this location until a full assessment of the event has been completed and approval has been received from the AER.”

Scientists agree fracking can cause earthquakes, but how is still a mystery: A record-breaking earthquake this week in the middle of an Alberta oilfield heavily subject to hydraulic fracking is one of a growing number of such events across the continent, scientists say. But while the amount of research on "induced seismic activity" is growing, the link between fracking and quaking is still a mystery. "If we look at tens of thousands of wells that have been stimulated with hydraulic fracking in Western Canada, less than half a per cent are associated with induced earthquake activity," said David Eaton, a University of Calgary geophysicist. "What are the factors that make it prevalent in some areas and entirely absent in most other areas?" On Tuesday, an earthquake variously reported as measuring between 4.2 and 4.8 on the Richter scale shook pictures on the walls of homes in Fox Creek, a community in the centre of the Duvernay oil and gas field. The quake was the latest — and largest — of hundreds of similar shakers around the community since 2013. Fracking involves pumping high-pressure fluids underground to create tiny cracks in rock and release natural gas or oil held inside. Scientists agree that fracking or injecting waste water into wells can cause earthquakes. "Among the earth science community, I don't think there's any doubt," said Arthur McGarr of the United States Geological Survey. "The scientists are all on the same page." But many questions still have to be answered. Experts need to sort out when fracking is the cause of earthquakes and when they're caused by waste water pumped into deep aquifers. "Waste-water disposal, at least in the U.S., has been the primary cause of earthquakes," said McGarr. "In Canada, it's not clear that things work the same way. That's still a debated question."

Fox Creek fracking operation closed indefinitely after earthquake - Edmonton - CBC News: A hydraulic fracturing operation near Fox Creek, Alta., has been shut down after an earthquake hit the area Tuesday. The magnitude 4.8 quake was reported at 11:27 a.m., says Alberta Energy Regulator, which ordered the shutdown of the Repsol Oil & Gas site 35 kilometres north of Fox Creek. Carrie Rosa, spokeswoman for the regulator, says "the company has ceased operations … and they will not be allowed to resume operations until we have approved their plans." Rosa added the company is working with the energy regulator to ensure all environmental and safety rules are followed. In a statement, Repsol confirmed the seismic event and said the company was conducting hydraulic fracturing operations at the time it happened. "Repsol immediately shut down operations and reported the event to the AER and other local authorities," the statement said. "The company is investigating the event, which includes reviewing and analyzing available geological and geophysical data, as well as the onsite seismic monitoring data. Operations will not resume at this location until a full assessment of the event has been completed and approval has been received from the AER."

Canada’s Frack Quakes: Will Fracking Cause The BIG ONE? -- One earthquake is recorded on average each day in a western Canadian region where companies extract oil by fracking, according to statistics published by the Canadian province’s energy regulatory agency.The Alberta Energy Regulator (AER) said Friday that in the last year alone, there were 363 tremors in and around Fox Creek, a small town of 2,000 inhabitants located 260 kilometers (160 miles) northwest of Edmonton.Some days, seismic activity is higher, such as on September 11, 2015, when a record 18 earthquakes were felt.On Tuesday, a 4.8-magnitude quake on the Richter scale was recorded 30 kilometers west of Fox Creek, where Spanish firm Repsol SA is injecting liquids at high pressure into subterranean rocks to create fissures and extract oil and gas—the process known as fracking.Repsol confirmed it had been conducting fracking operations “at the time of the event.”The technology is widely used in Canada and the United States, helping to keep down energy costs. But some European countries ban it.The AER has not confirmed a link between Tuesday’s small quake and fracking in the region. Spokeswoman Carrie Rosa told AFP the agency is investigating.Meanwhile, Repsol has halted operations and is awaiting an AER go-ahead before resuming fracking—which is required for all seismic events of 4.0 or higher under new rules.

The Death Of The Canadian Oil Dream, A Firsthand Account -- We’ve spent quite a bit of time over the past 12 months documenting the trainwreck that is Alberta’s economy. Most recently, we brought you "This Is Canada's Depression: Surging Crime, Soaring Suicides, Overwhelmed Food Banks" and "For Canadian Repo Men, Business Has Never Been Better", but you can review the story in its entirety by revisiting the following posts:

In short, Alberta is at the center of Canada’s oil patch and has suffered mightily in the wake of crude's seemingly inexorable decline. Going into last year, Alberta expected its economy to grow at a nearly 3% clip. That forecast was reduced to 0.6% in March and further to -0.6% in the latest fiscal update. Oil and gas investment has fallen by a third while rig activity has been cut in half.The fallout is dramatic. Food bank usage in Alberta is up sharply and so, unfortunately, is property crime in places like Calgary where vacancy rates in the downtown area are at their highest levels since 2010. Suicide rates are on the rise as well while the outlook for unemployment continues to darken with each passing month of “lower for longer” oil prices.Below, find excerpts from an excellent account of the malaise penned by Jason ‎Markusoff who writes about Alberta, lives in Calgary, and has spent 12 years reporting for the city's largest newspapers.

Fracking test explosions allowed without planning permission - BBC News: The government is set to remove another obstacle to the exploration for shale gas deposits in the UK. Fracking firms will no longer need planning permission to drill exploratory boreholes and set underground explosive charges. The government says the same safety rules for oil and gas exploration will apply - and the use of explosives will be limited to avoid nuisance. But critics say it will rob local people of a say and cause disruption. Shale gas exploration using explosives to create shock waves to build up a map of rock forms is already in use in some parts of the country. The industry says it uses other techniques - such as "thumper trucks" - to create shock waves more often than explosive charges. A spokesman for industry body United Kingdom Onshore Oil and Gas said: "This simply brings the onshore oil and gas industry in line with water companies and other industries which drill dozens of boreholes a year and perform subsurface monitoring, including seismic surveys, as a matter of course, with no lasting impact on the environment and hardly anyone noticing."But anti-fracking campaigners said the changes would give local people less control over what is happening in their area. Kathryn McWhirter, of Frack Free Balcombe, said her main objection was that new planning rules would pave the way for full scale fracking. "It is a foot in the door. It is the beginning of 'permission creep,'" she told the BBC News website.

Householders affected by floods face insurance double-whammy if they live nearby planned fracking sites --  As householders across the UK continue the great flood clean-up, many are battling with insurance companies. Some are discovering that they now face an insurance “double whammy” – especially if they live in one of the areas covered by the new fracking licences announced by the Government before Christmas. Many of the UK’s best known insurance companies will not insure against fracking-related damage, an investigation by The Independent on Sunday and the campaign group Spinwatch has found.This could include contamination caused by polluted water from a fracking site being spread during exceptional flood events and could also include groundwater contamination from underground fracking operations. Companies representing two thirds of the UK insurance market will not insure against damage caused as a result of fracking, or else have exemptions covering potential pollution of water from the controversial technique. This means tens of thousands of people will find it difficult to insure themselves against fracking-related damage to their property or land. One in five of the 150 new fracking sites announced have been designated as having a significant risk of flooding and some flooded over the past month. Top domestic insurers were approached by a test consumer saying they lived within five miles of a proposed fracking well in Ryedale, North Yorkshire, where Third Energy has applied to frack. The application could be decided by North Yorkshire County Councillors next month, as the council is under pressure from the Government to fast-track shale gas exploitation.

BP to axe 1 in 5 North Sea jobs as oil giant cuts 4,000 staff worldwide -- BP is cutting one in five jobs at its North Sea operations as the oil price threatens to fall below $30 a barrel. The British oil and gas group is laying off 600 people in Scotland in a cost-cutting drive that will involve 4,000 employees axed worldwide. The redundancies are taking place against the backdrop of a slumping oil price, which has hit industry profits and forced producers to shelve projects around the world worth hundreds of billions of dollars. The North Sea cuts will affect oil rig workers as well as office-based staff and agency workers on long-term contracts, but there are no plans to close any oil rigs, BP said. The Unite trade union said the crisis gripping the British oil and gas sector was “far from over”. Unite’s regional officer, John Boland, said: “It is deeply worrying that we are now seeing a super-major making deep cuts to its workforce across the UK. We need an emergency convention of all the industry stakeholders – government, employers and trade unions – to tackle this crisis so we have a safe and sustainable industry for the next generation.”

BP to slash thousands more jobs in face of oil downturn | Reuters: British oil and gas company BP announced plans on Tuesday to slash 5 percent of its global workforce in the face of a continued slump in oil prices. It said it aims to reduce its global oil production, or upstream, headcount by 4,000 to 20,000 as it undergoes a $3.5 billion restructuring program. BP said its headcount totaled around 80,000 at the end of 2015. With crude oil prices at 12-year lows of around $32 a barrel, the world's biggest oil and gas producers are set to continue aggressively slashing spending this year as they face their longest period of investment cuts in decades. "We want to simplify (our) structure and reduce costs without compromising safety. Globally, we expect the headcount in upstream to be below 20,000 by the end of the year," a company spokesman said. In the North Sea, he said BP planned to reduce headcount by 600 people over the next two years with most cuts likely in 2016.  Oil companies including Royal Dutch Shell and Chevron have already slashed tens of thousands jobs globally to deal with a near 75 percent drop in oil prices since June 2014 that has seen earnings collapse.  BP, which must also pay $20 billion in fines to resolve the deadly 2010 Gulf of Mexico spill, announced in October plans for a third round of spending cuts and said it would limit capital spending, or capex, to $17-19 billion a year through to 2017. The company, which has already sold over $50 billion of assets in recent years in order to cover the spill costs, said it expected an additional $3-5 billion of divestments in 2016.

Norwegians See Decrease In Production In 2016 -- Platts is reporting: The Norwegian Petroleum Directorate highlighted huge challenges facing the oil and gas industry in its annual forecasts Thursday, predicting total capital expenditure on the shelf would fall another 10% in 2016 to $15.3 billion as oil output contracted.  That downward adjustment followed the 17% plunge in total spend last year to $16.98 from record investment levels in 2013 and 2014 of around $20.4 billion.  The Stavanger-based directorate said more falls were to come, with spending declining in the next few years towards $13.6 billion.  The NPD said oil output was also expected to fall in 2016 to 89 million cubic meters (1.53 million b/d), despite an upward blip last year thanks to new fields such as Lundin Petroleum's Edvard Grieg. [The conversion factor appears to be 58.1699.] In round numbers, the Norwegians have been producing around, but never quite reaching, 2 million bopd, although their production has been decreasing.

Norway's Black Gold Fields Are A Sea Of Red - A Real-Time Map Of Crude Carnage --Norway is in trouble. As we have detailed previously (here, here, here, and here), the world's largest sovereign wealth fund has begun liquidating assets (after its largest quarterly loss) as the nation faces recessionary fears (key data deterioration as oil stays lower for longer) with expectations building (despite denials by the central bank) that ZIRP (or even NIRP) is coming. Why? Simple - as the following real-time map shows - every one of Norway's oil fields are currently underwater!  As we explained previously, while the slump in oil has pressured the krone and thus helped the country preserve some semblance of export competitiveness, the fact that i) everyone else is easing, and ii) global demand and trade are in the doldrums, serves as a kind of counterweight, leading directly to a situation wherein the currency, in Bloomberg’s words, “just can’t get weak enough.”  Here’s more, via Bloomberg:With oil prices still wobbling around $50, Norway is in danger of a recession that could drive its benchmark interest rates, already at a record low, to zero.That’s what economists at Svenska Handelsbanken AB in Oslo say as they warn that “recessionary risks are significant.” The central bank in September cut rates to 0.75 percent and signaled more than a 50 percent chance for a third reduction since the drop in oil prices accelerated, about a year ago. Handelsbanken sees three cuts next year, bringing the benchmark to zero by the end of 2016. “The Norwegian economy will now experience a deeper downturn than during the financial crisis, with output expected to stay below its potential for longer than it did last time,”

BHP Billiton books $7.2 billion writedown US shale assets: Top global miner BHP Billiton said on Friday it would book a $7.2 billion writedown on the value of its U.S. shale assets, reflecting a slump in oil and gas prices and a bleak near-term outlook. The hefty impairment is the third spawned by BHP's badly timed push into U.S. shale in 2011, when it spent $20.6 billion, including assumed debt, on two acquisitions at a time when oil and gas prices were much higher than they are now. "Oil and gas markets have been significantly weaker than the industry expected," BHP Chief Executive Andrew Mackenzie said in a statement. In the wake of the collapse in oil prices over the past year, BHP has sharply cut its operating costs and capital spending at its U.S. onshore operations, reducing the number of rigs from 26 to five. BHP said it has cut its oil price assumptions for the short to medium term and lowered its medium and long-term gas price assumptions, leading to the impairments on its U.S. onshore assets. The writedowns will take the carrying value of the business down to about $12 billion, excluding deferred tax liabilities of about $4 billion.

World's Largest Miner Books Massive $7.2 Billion Writedown On US Shale "Assets" -- Late last month, Freeport McMoRan co-founder and executive chairman James R. Moffett was shown the door. Moffett, known as the “last of the old-time wildcatters”, was a legend in the industry but made a fatal mistake in 2013: he paid $2.1 billion for McMoRan Exploration Co (an oil-and-gas company the parent company had separated from in the 1990s), and $6.9 billion for Plains Plains Exploration & Production. As WSJ put it, “the deals in part were a bet that oil prices would remain high.” Well, they didn’t, and the gamble ended up increasing the combined entity’s debt fivefold and Carl Icahn is now pushing Freeport to dump the “high cost” assets. Freeport wasn’t the only mining giant to make an ill-timed bet on US oil and gas assets. BHP Billiton, the world’s largest miner, spent $20 billion buying US assets in 2011, making it the largest overseas investor in US shale. Now, as “lower for longer” turns to “lower for longer-er”, the company is set to take a huge writedown on its US onshore portfolio. How huge, you ask? $7.2 billion huge (or $4.9 billion after taxes) on assets the company was carrying at just over $20 billion. The company now values its US assets at $16 billion. “While we have made significant progress, the dramatic fall in prices has led to the disappointing write down announced today,” CEO Andrew Mackenzie said. “However, we remain confident in the long-term outlook and the quality of our acreage. We are well positioned to respond to a recovery.” Mackenzie went on to say the company would cut the number of rigs operating in the US from 26 to just 5 by the end of the quarter. "In addition to the purchase costs, BHP has committed more than $15bn of capital investment [to the US assets]", FT notes, underscoring just how expensive a bet this truly was. "The impairments announced on Friday mean BHP has now written off almost $13bn on the deals."

Oil Goes Nonlinear - by Paul Krugman - When oil prices began their big plunge, it was widely assumed that the economic effects would be positive. Some of us were a bit skeptical. But maybe not skeptical enough: taking a global view, there’s a pretty good case that the oil plunge is having a distinctly negative impact. Why? Well, think about why we used to believe that oil price declines were expansionary. Part of the answer was that they reduced inflation, freeing central banks to loosen monetary policy — not a relevant issue at a time when inflation is below target almost everywhere. Beyond that, however, the usual view was that falling oil prices tended to redistribute income away from agents with low marginal propensities to spend toward agents with high marginal propensities to spend. Oil-rich Middle Eastern nations and Texas billionaires, so the story went, were sitting on huge piles of wealth, were therefore unlikely to face liquidity constraints, and could and would smooth out fluctuations in their income. Now, part of the reason this logic doesn’t work the way it used to is that the rise of fracking means that there is a lot of investment spending closely tied to oil prices — investment spending that has relatively short lead times and will therefore fall quickly. A 10 or 20 percent decline in the price might work in the conventional way. But a 70 percent decline has really drastic effects on producers; they become more, not less, likely to be liquidity-constrained than consumers. Saudi Arabia is forced into drastic austerity policies; highly indebted fracking companies find themselves facing balance-sheet crises.  Or to put it differently:  really big declines set in motion a process of forced deleveraging among producers that can be a significant drag on the world economy, especially with the whole advanced world still in or near a liquidity trap.

European banks and oil price exposure - Izabella Kaminska -- Fascinating what a few months of sub $90 per barrel oil prices can do to the dialogue about the respective merits of cheap energy. So, whilst three months ago it was all about “trillions in stimulus from cheap oil!!“, today it’s “$50 oil changes everything!” and ARGHH “energy defaults may be the new subprime!”. As FT Alphaville warned at the start of December: If it is true that the commodity ecosystem is collapsing, then it is also true that all dependent industries are at risk. On that basis, those analysts who say that low prices will be a boon for many western economies that depend on oil imports, all miss that none of this necessarily guarantees increased demand. Margins may be temporarily improved for intermediaries, manufacturers and retailers, but if we end up heading towards a price war on all fronts, all we get is a deflationary spiral that threatens contracts, salaries and debt. That’s not to say we concur with the commentary that this is the new subprime. Unlike that debt crisis, this time round the risk and its interconnection with the wider economy is much better understood. No-one, after all, was marketing shale energy bonds as risk-free play for asset managers. Nor were they marketing EM debt as a sure bet that comes without currency exposure of any sort. That does not diminish the pain that will be suffered by exposed parties. But it does change the nature of the potential systemic implications. A much bigger concern, as David Keohane has pointed out on Thursday, is the volume of so-called commodity-related dark-debt in the market. We ourselves have described some aspects of this as dark inventory in the past, and always worried about the systemic implications. This, we would think, is the real stuff to worry about because it’s poorly understood how much of it has found itself on institutional balance sheets by means of collateral-funded shadow banking routes. Also, it’s unclear if asset managers understand that the stocks and bonds of high-profile commodity traders they loaded up on may also include complex shadow-bank credit exposures. In any case here’s a table from RBC Capital mapping out the exposure that is at least currently understood for the European banking system:

Stratfor: Who Wins and Who Loses in a World of Cheap Oil - Oil prices hit their lowest level since summer 2004 this week, continuing the rapid tumble that began in June 2014. The global benchmark, Brent crude oil, closed trading Jan. 8 at $33.37 per barrel, closing out the lowest week of prices in more than a decade. A number of factors contributed to the drop. The Chinese economy and financial markets performed poorly this week, sparking fears that a slowdown will dampen demand. In the major markets of Europe and North America, a mild winter has lowered seasonal consumption of natural gas and heating oil. On the supply side, Iranian oil will soon be back on the global market, and OPEC signaled that it would continue to supply high volumes of oil. The United States, too, has managed to produce a significant amount of oil, despite increased financial pressure on many U.S. producers. All of this may well push prices into the $20 to $30 per barrel range. Oil is the most geopolitically important commodity, and the ongoing structural shift in oil markets has produced clear-cut winners and losers. Between 2011 and 2014, major oil producers became accustomed to prices above $100 per barrel and set their budgets accordingly. For many of them, the past 18 months have been a period of slow attrition. And with no end in sight for low oil prices, their problems are going to only multiply. Each nation, though, has its own particular level of tolerance, and the following guidance highlights the key break points to monitor.

U.S. Oil Prices Drop Below $32 a Barrel - WSJ: —U.S. oil prices dropped below $32 a barrel Monday for the first time since 2003 on a stronger dollar and continued concerns about Chinese demand. Prices slumped to 12-year lows this month as the global glut of crude that has weighed on oil prices for more than a year continues to persist. Production outpaces demand globally, even though producers have already cut billions in spending and sharply reduced new drilling. Ongoing turmoil in Chinese markets has fueled concerns about an economic slowdown in China, the No. 2 oil consumer. The Shanghai Composite Index fell 5.3% Monday, after falling 10% last week. “The global glut issue has been around for a while. Right now, it is the fear of a Chinese slowdown that is spooking the market,” . A stronger dollar is also weighing on commodity prices, by making dollar-traded raw materials like oil more expensive to foreign buyers. The WSJ Dollar Index, which tracks the greenback against a basket of other currencies, recently rose 0.2%. Light, sweet crude for February delivery recently fell $1.42, or 4.3%, to $31.74 a barrel on the New York Mercantile Exchange, on track for the lowest settlement since December 2003.

Oil Seen Heading to $20 by Morgan Stanley on Dollar Strength -- A rapid appreciation of the U.S. dollar may send Brent oil to as low as $20 a barrel, according to Morgan Stanley. Oil is particularly leveraged to the dollar and may fall between 10 to 25 percent if the currency gains 5 percent, Morgan Stanley analysts including Adam Longson said in a research note dated Jan. 11. A global glut may have pushed oil prices under $60 a barrel, but the difference between $35 and $55 is primarily the U.S. dollar, according to the report. “Given the continued U.S. dollar appreciation, $20-$25 oil price scenarios are possible simply due to currency,” the analysts wrote in the report. “The U.S. dollar and non-fundamental factors continue to drive oil prices.” Brent crude capped its third annual decline in 2015 and has already lost more than 11 percent so far this year. The Organization of Petroleum Exporting Countries effectively abandoned output limits in December, potentially worsening a global glut, while U.S. stockpiles remain about 100 million barrels above the five-year average. Oil tumbled last week on volatility in Chinese markets after the country sought to quell losses in equities and stabilize its currency. A 3.2 percent increase in the U.S. dollar -- as implied by a possible 15 percent yuan devaluation -- may drive crude in the high $20s, Morgan Stanley said. If other currencies move as well, the shift by both the dollar and oil could be even greater, according to the report.

Oil Tumbles To 11 Year Lows After Another Bank Joins "$20 Crude" Bandwagon -- Another algo-induced stop-run has tried and failed to maintain its gains this morning as Morgan Stanley becomes the latest (after Goldman) to join the "oil in the $20s is possible" bandwagon. Despite hopeful bullishness from Andy Hall who sees production destruction leading (an industry that couldn’t function at $50 certainly can't function with prices below $40) inevityably leading to higher prices, Morgan Stanley warns, "in an oversupplied market, there is no intrinsic value for crude oil. The only guide posts are that the ceiling is set by producer hedging while the floor is set by investor and consumer appetite to buy. As a result, non-fundamental factors, such as the USD, are arguably more important price drivers."  The "Ma" bounce has failed...Just as we predicted a year ago... ...because while equities are pricing in an unsustainable 23x in foward energy P/E, another market, that of interest rate forwards, is implying oil plunging down to $35! As a reminder, oil is among other things, a function of rate differentials or said simpler, USD strength, strength which appears is not going anywhere. And as the following calculation from Cornerstone implies, should the EURUSD tumble to parity which is what Draghi's desire seems to be, it would suggest a 22% plunge in oil from here, implying a $35.5 price of oil one year from now.  Morgan Stanley has now come to the realization that Material USD Appreciation Could Bring New Lows for Oil Oil in the $20s is possible, but not for the reasons often cited. … In an oversupplied market, there is no intrinsic value for crude oil. The only guide posts are that the ceiling is set by producer hedging while the floor is set by investor and consumer appetite to buy. As a result, non-fundamental factors, such as the USD, were arguably more important price drivers in 2015. In fact, when we assess the >30% decline in oil since early Nov, much of it is attributable to the appreciation in the trade-weighted USD (not the DXY). With the oil market likely to remain oversupplied throughout 2016, we see no reason for this trading paradigm to change.

Oil tumbles nearly 5 percent to new lows; analysts warn of $20s | Reuters: A brutal new year selloff in oil markets deepened on Monday, with prices plunging as much as 5 percent to new 12-year lows as further ructions in the Chinese stock market threatened to knock crude into the $20s. Morgan Stanley warned that a further devaluation of the yuan could send oil prices spiraling lower still, extending the year's nearly 15 percent slide. While China's ructions are spooking traders over the outlook for demand from the world's No. 2 consumer, drillers in the United States say they are focused are keeping their wells running as long as possible, despite the slump, executives told a Goldman Sachs conference last week. Brent crude futures fell $1.75 to $31.80 a barrel by 11:34 a.m. EDT, their lowest since April 2004. U.S. West Texas Intermediate (WTI) crude futures dropped $1.50 to $31.66 a barrel, the lowest since December 2003. The markets are positioned in a way where "traders are afraid to be long," . "The firm push for normalization with Iran has taken the last shred of geopolitical risk out of traders' minds."

Oil prices near $30 as selling continues -- The brutal sell-off that has hammered oil prices since the turn of the year continued on Tuesday with Brent crude slipping towards $30 a barrel, leading to further job cuts and fears that the rout has further to run. As traders bet on lower prices, Brent crude fell by more than 3 per cent to $30.43 a barrel, extending losses over the first seven trading sessions of 2016 to 17.3 per cent. On the other side of the Atlantic, West Texas Intermediate, the US oil benchmark, also dropped as much as 4 per cent to $30.08 — a fresh 12-year low. “Oil continues to trade as if 2016 was the year of the Bear rather than Monkey,” said analysts at Citi. As prices fell BP announced it will cut 4,000 jobs across its exploration and production business globally, including 600 at its North Sea operations, as the energy industry’s biggest players struggle to shore up revenues. “Oil markets have ‎begun 2016 poorly. An exceptionally warm start to the winter . . . has worsened the existing supply glut,” said analysts at Energy Aspects, a consultancy. “Meanwhile, rising macro concerns, due to the rout in Chinese stock markets and slowing US growth, are adding fuel to the fire.” Concerns about China’s economy, whose growth led a surge in global oil demand over the past decade, has added to concerns about a persistent supply glut that has pushed oil prices down by 70 per cent over the past 18 months.

Oil plunges to $30, Dallas Fed President Sucker-Punches any Leftover Oil Bulls -- You’d expect at least some artificial optimism when the president of the Dallas Fed talks about oil. You’d expect some droplets of hope for that crucial industry in Texas. But when Dallas Fed President Robert Kaplan spoke on Monday, there was none, not for 2016, and most likely not for 2017 either, and maybe not even for 2018.The wide-ranging speech included a blunt section on oil, the dismal future of the price of oil, the global and US causes for its continued collapse, and what it might mean for the Texas oil industry: “more bankruptcies, mergers and restructurings….” The oil price plunge since mid-2014, with its vicious ups and downs, was bad enough. But since the OPEC meeting in December, he said, “the overall tone in the oil and gas sector has soured, as expectations have decidedly shifted to an ‘even lower for even longer’ price outlook.” So how low is “even lower?”  He didn’t say. But here is what is happening right now, just hours after Kaplan got through speaking. On Monday during the day and in late trading, WTI plunged through the $32-level, through the $31-level, and hit $30.53 a barrel, as I’m writing this, down another 7.1%: This $30.53 a barrel is within a hair of the Financial Crisis closing low on Tuesday, December 23, 2008, of $30.28 a barrel. Oil had plummeted for days as traders had been checking out for the holidays. Practically no one wanted to buy oil. But on Christmas Eve, oil rose to $32.94. It was the first day of a V-shaped recovery. And on Friday, December 26, 2008, oil soared and closed at $37.58 a barrel.

OilPrice Intelligence Report: Bearish Sentiment Takes Complete Hold Of Oil Markets -- The extreme pessimism in crude oil markets continues. WTI and Brent have set new lows almost every day of 2016, now trading in the low $30s per barrel. Crude is down 15 percent on the year. The same gloominess surrounding oversupply has not changed. What is different this time are new worries over the Chinese economy. The Shanghai Composite has crashed by more than 5 percent in a single day multiple times in the past week and a half, and is off by 20 percent since late December. Fortunately, the index stabilized on January 12, closing out the trading day pretty much flat. But the turmoil in China’s stock market is far from over. At the same time, China’s currency is under pressure. The combined effect of a slowing economy with a weaker currency could do significant damage to China’s oil demand, which is why oil markets are so alarmed. China’s stock market is a fraction of the size of its western counterparts, but the Chinese economy is so intertwined with so many trading partners that when China sneezes, much of the world will catch a cold. The WSJ published a nice analysis of the far-reaching of effects that China’s current economic situation is having – pushing down currencies around the world, depressing commodity prices, and slowing global trade. In other words, China’s turmoil raises the possibility of economic contagion.  With that backdrop in mind, crude oil has declined rapidly, and a price with a 2-handle is no longer a remote possibility. Goldman Sachs made the largest splash last year when it predicted $20 oil, but now other investment banks – including Morgan Stanley and Citigroup – are jumping on board with the bearish predictions. Unlike some of its peers, Morgan Stanley pinned much of the decline in recent months on the strong U.S. dollar. According to Wolfe Research, around one-third of U.S. oil and gas producers could be forced into bankruptcy by mid-2017 if oil prices remain low.

U.S. Oil Settles Above $30 a Barrel, After Dipping Below for First Time Since 2003 - WSJ - U. S. . oil prices briefly tumbled below $30 a barrel on Tuesday, underscoring the global economy’s difficulty with absorbing a relentless flood of crude supplies. The magnitude of the oil rout, now in its 19th month, has defied the forecasts of industry experts and Wall Street prognosticators who underestimated the ability of both big state-controlled producers and smaller private-sector energy firms to weather the historic slide in prices. The benchmark U.S. oil contract has dropped from $40 a barrel to $30 in just one month, and the pace of the selloff has rattled stock, bond and currency markets from Moscow to Riyadh to New York. Oil is down more than 70% since last trading in the triple digits, back in June 2014. Despite that fall, the steady supply in the oil markets has changed very little emboldening traders to push prices still lower. The amount of crude being stored is around record highs. Big exporters such as Saudi Arabia have kept pumping at a rapid clip even in the face of low prices. Meanwhile, U.S. producers are finding new ways to maintain their own output even as they cut costs. “We just really haven’t seen production (fall) in the U.S. and that’s what we need to see for oil to stop going down,”  Producers “pushed the technology and they really squeezed the most out of... these rigs.” Oil jumped back over $30 after dipping as low as $29.93 a barrel during intraday trading. U. S. oil’s losing streak hit a seventh session, the longest since its fall from above $100 began in the summer of 2014.

Tumbling oil trades below $30 a barrel for first time in 12 years - Oil fell briefly below the widely watched $30-per-barrel level on Tuesday, extending a selloff that has sliced almost 20 percent off prices this year amid deepening concerns about fragile Chinese demand and the absence of output restraint. Prices settled down 3 percent, a seventh straight daily decline for oil. Traders have all but given up attempting to predict where the new-year rout will end, with momentum-driven dealing and overwhelmingly bearish sentiment engulfing the market. Some analysts warned of $20 a barrel; Standard Chartered said fund selling may not relent until it reaches $10. By Tuesday, the crash had become almost self-fulfilling, with speculators too afraid to buy for fear of being burned by another false bottom. The slide appeared to first accelerate when it broke below the $32 area around 9 a.m. EDT (1400 GMT). The $30 mark is both a psychological and financial threshold. In recent days, traders have poured money into $30 put options for expiration in February and March. Hedging activity usually picks up as oil prices near big a options level, as buyers and sellers defend their interests. More than 15,000 contracts traded on Tuesday and 18,000 contracts traded on Monday for the February contract, more than doubling Friday's volumes.

WTI Slides After API Reports Massive Build In Gasoline & Distillate Inventories With the seasonally drawdown-prone December completed, we begin seasonally build-prone January with expectations for a 2mm barrel build. However, according to API, both total and Cushing inventory levels tumbled (-3.9mm and 300k respectively). Great news - so why is crude tumbling? Simple - massive builds in end-products again with Gasoline up a massive 7mm barrels and Distillates up 3.6mm barrels. Having ramped off sub-$30 levels after NYMEX closed, and lifted by the Iran-US news, WTI is sliding back rapidly. The largest 2-week Gasoline inventory build ever...

WTI Crude Crashes To "2" Handle After EIA Cuts Demand, Increases Production Forecast --In yet another hit for the energy complex, EIA just cut their global oil demand forecast to 95.19 million barrels a day this year (down from 95.22 million in December’s outlook). The energy agency also increased its forecast for global production to 95.93 million barrels a day (up from 95.79 million last month). This pressured WTI Crude back off a brief bounce and pushed it to a "2" handle at $29.97 for the first time since December 2003. Despite a short-term bounce after Jeff Gundlach suggested today would be a short-term bottom in crude, Jeffrey Gundlach, the widely followed investor who runs DoubleLine Capital and was prescient in his call for lower oil prices last year, said oil has hit a short-term bottom on Tuesday.As oil prices per barrel flirt with the $30-mark, Gundlach told Reuters:"Fundamentals are lousy but the technicals call for a short term bottom today."

Oil keeps falling. And falling. How low can it go? - — The price of oil keeps falling. And falling. And falling. It has to stop somewhere, right? Even after trending down for a year and a half, U.S. crude has fallen another 17 percent since the start of the year and is now probing depths not seen since 2003. “All you can do is forecast direction, and the direction of price is still down,” . On Tuesday the price fell another 3 percent to $30.51 a barrel in morning trading, its lowest level in 12 years. Oil had sold for roughly $100 a barrel for nearly four years before beginning to fall in the summer of 2014. Many now say oil could drop into the $20 range. The price of crude is down because global supplies are high at a time when demand for it is not growing very fast. The price decline, already more dramatic and long-lasting than most expected, deepened in recent days because economic turmoil in China is expected to cut demand for oil even further. Lower crude prices are leading to lower prices for gasoline, diesel, jet fuel and heating oil, giving drivers, shippers, and many businesses a big break on fuel costs. The national average retail price of gasoline is $1.96 a gallon. On Tuesday the Energy Department lowered its expectations for crude oil and most fuels for this year and next. The department now expects U.S. crude to average $38.54 a barrel in 2016.

Crude Curve Collapses - Market Sees Sub-$50 Oil Through 2021 -- The crude curve has just collapsed, especially since the rebound after China’s Golden Week reprieve ended around October 15. As Alhambra's Jeff Snider notes, the entire futures curve is under $50, an upsetting commentary on everything from US "demand" to long-term implications and especially those that are derived from economists’ somehow continued insistence that this is all just "transitory."

Forget $20 Oil: StanChart Says "Prices Could Fall As Low As $10 A Barrel" -- A little over a year ago, Paul Hodges was roundly mocked when in December 2014 he made a drastic call that "Oil May Drop To $25 On Chinese Demand Plunge, Supply Glut, Ageing Boomers." After oil got as close as 40 cents away from the dreaded 2-handle, Paul had the last laugh. But the bigger point is that not only is $20 oil not a shocker any more, it is largely expected and could be indeed welcomed, as first Goldman, then practically everyone else has now admitted it is just a matter of time before oil trades to levels not seen since the 20th century. So, perhaps to make a name for himself, the head of commodity research at Standard Chartered, Paul Horsnell decided to lower the bar into even more dramatic territory, and overnight suggested that oil prices could drop as low as $10 a barrel."Given that no fundamental relationship is currently driving the oil market towards any equilibrium, prices are being moved almost entirely by financial flows caused by fluctuations in other asset prices, including the USD and equity markets,” Horsnell said. "We think prices could fall as low as $10/bbl before most of the money managers in the market conceded that matters had gone too far."When does he see oil bottoming? "in extreme case, price floor may be set when entire market believes oil has undershot." So with a new, and even lower bogey, that means that an upper, or even lower $20-print in oil will be the shocker so many bottom hunters are looking for, but instead after this expectations reset, oil may have to indeed drop another $10 before the BTFD algos can finally make some money.

As oil plunges, energy companies cut jobs, postpone projects — The world’s biggest oil companies are slashing jobs and backing off major investments as the price of crude falls to new lows — and there may be more pain to come. Companies like BP, which said Tuesday it is cutting 4,000 jobs, are slimming down to cope with the slump in oil, whose price has plummeted to its lowest level in 12 years and is not expected to recover significantly for months, possibly years. California-based Chevron said last fall that it would eliminate 7,000 jobs, while rival Shell announced 6,500 layoffs. And it’s not even the big producers that will be affected most, but the numerous companies that do business with them, such as drilling contractors and equipment suppliers. While plummeting oil prices have been great news for motorists, airlines and other businesses that rely heavily on fuel, some 95,000 jobs were lost in the energy sector by U.S.-based companies in 2015, according to the consulting firm Challenger, Gray & Christmas. That was up from 14,000 the year before. Energy companies expanded as oil topped $100 a barrel in 2008 and stayed there during the early part of this decade, but prices have plunged over the past two years because of high supply and weakening demand The start of a new year hasn’t helped matters, with Brent crude, the benchmark for internationally produced oil, slipping below $31 a barrel on Tuesday, a drop of about 20 percent drop since Jan. 1 and the lowest since 2004.

Oil Plunge Sparks Bankruptcy Concerns - WSJ: Crude-oil prices plunged more than 5% on Monday to trade near $30 a barrel, making the specter of bankruptcy ever more likely for a significant chunk of the U.S. oil industry. Three major investment banks— Morgan Stanley, Goldman Sachs Group Inc. and Citigroup —now expect the price of oil to crash through the $30 threshold and into $20 territory in short order as a result of China’s slowdown, the U.S. dollar’s appreciation and the fact that drillers from Houston to Riyadh won’t quit pumping despite the oil glut. As many as a third of American oil-and-gas producers could tip toward bankruptcy and restructuring by mid-2017, according to Wolfe Research. Survival, for some, would be possible if oil rebounded to at least $50, according to analysts. The benchmark price of U.S. crude settled at $31.41 a barrel, setting a 12-year low. More than 30 small companies that collectively owe in excess of $13 billion have already filed for bankruptcy protection so far during this downturn, according to law firm Haynes & Boone.  Morgan Stanley issued a report this week describing an environment “worse than 1986” for energy prices and producers, referring to the last big oil bust that lasted for years. The current downturn is now deeper and longer than each of the five oil price crashes since 1970, said Martijn Rats, an analyst at the bank. Together, North American oil-and-gas producers are losing nearly $2 billion every week at current prices, according to a forthcoming report from AlixPartners, a consulting firm, that is set to be published later this week. “Many are going to have huge problems,” American producers are expected to cut their budgets by 51% to $89.6 billion from 2014, a reduction that exceeds the worst years of the 1980s, according to Cowen & Co. There is no relief in sight: The oil glut is expected to continue well into 2017, according to several banks, analysts and industry executives.

Brent below US$30 a barrel as US oil stockpiles grow - - Brent crude oil fell below US$30 a barrel for the first time in nearly 12 years on Wednesday (Jan 13) as an increase in US crude and fuel inventories added to the global oversupply. In London, Brent North Sea crude for February, the European benchmark for oil, fell 55 cents to US$30.31 a barrel, its lowest level since February 2004 and below the WTI price. Earlier Brent sank to US$29.96, its lowest level since April 2004. US benchmark West Texas Intermediate (WTI) for delivery in February pared earlier gains to close up a scant four cents at US$30.48 a barrel on the New York Mercantile Exchange. The US government's weekly inventories report on Wednesday snapped attempts by the benchmark contracts to rebound. The report showed a build in US commercial crude-oil stockpiles of 200,000 barrels in the week ending Jan 8. More significant was an 8.2 million barrel surge in gasoline inventories, and a 6.1 million barrel surge in distillate stocks, suggesting very sluggish consumption in the country. The report painted "a very bearish picture" of the market, said Bob Yawger, director of the futures division of Mizuho Securities USA. "Crude oil numbers ... are only 7.6 million (barrels) below their all-time record of 490.1 million," he said. Yawger also noted that crude-oil storage at the key Cushing hub was at an all-time record and nearing the terminal's maximum capacity, while gasoline's increase by 19 million barrels in the past two weeks was the biggest two-week build in history.

Crude Crashes On Biggest 2-Week Gasoline Inventory Build On Record - Confirming API data overnight, DOE reports that while total inventories of crude rose less than expected (+234k vs +2.1mm exp.) Gasoline and Distillates saw a massive build once again. Gasoline invenrtories rose 8.44mm barrels (following last week's 10.6mm record build) is thebiggest 2-week inventory build in history. Crude has crashed back from overenight "China is buying oil" demand hopes.


This is the biggest 2-week gasoline inventory build in history.  And crude is reacting how it should...

$10 oil: Crazy or the real floor beneath the oil crash? - Jan. 13, 2016: It's gotten so bad in the oil world that investment banks are practically falling over themselves to predict just how low crude will go. Oil prices crashed below $30 a barrel on Tuesday for the first time since December 2003. It's also a stunning 72% plunge from levels just 18 months ago. Few Wall Street firms saw the oil glut that has caused prices to collapse coming. Goldman Sachs infamously predicted in 2008 that an oil shortage would cause the commodity to skyrocket to $200 a barrel. But doom-and-gloom is all the rage now -- and price estimates keep falling. Just this week Morgan Stanley warned that the super-strong U.S. dollar could drive crude oil to $20 a barrel. Not to be outdone, Royal Bank of Scotland said $16 is on the horizon, comparing the current market mood to the days before the implosion of Lehman Brothers in 2008. Standard Chartered doesn't think those dire predictions are dark enough. The British bank said in a new research report that oil prices could collapse to as low as $10 a barrel -- a level unseen since November 2001. To put that in context, average U.S. gas prices slipped to $1.12 a gallon back then. American drivers are already cheering a steep decline in gas prices below $2 a gallon in recent weeks.

Jack Kemp's Weekly Energy Tweets -- January 13, 2016; Gasoline Demand Has Plummeted  - With regard to Jack Kemp's weekly energy tweets, we will start with gasoline demand and refer you back to this link. Shocking! Not only is current US gasoline demand significantly below demand for gasoline one year ago; the current demand is even below the ten-year median, a period in which the ObamaCare economy was mostly in need of “critical care.”  This has severe recession written all over it, unless things change dramatically over the next few months. It's very possible the combination of what is going on in the oil and gas industry and ObamaCare going into full implementation this year will create the perfect storm. And it won't be pretty.   From Jack Kemp:

  • US distillate demand (diesel fuel) has dropped off the chart (okay, almost):
  • Meanwhile, gasoline stocks have soared:
  • And look at this, US refineries processed a seasonal record -- and almost an all-time record --16.4 million bopd, up over a half-million bopd compared with 2015:
  • US distillate stocks soared 6.1 million bopd, close to a 10-year seasonal max set in 2011:

I really don't want to post all these graphs, but they are so incredibly amazing I don't want to lose them. So, I'm posting them for the archives. And if the graphs above don't get your attention, maybe this one will, the one that shows that US total refined product stocks rose almost 10 million bbls last week (I didn't mark the graph, hopefully you can spot the red line):

EIA Report Shows No Sign Yet of U.S. Production Cuts - The EIA report came out on Wednesday and the first thing that I look for, and really the only data point that matters for meaningful progress towards the market rebalancing is has U.S. Production started to decline. Well it hasn`t as last week we were at 9.219 million barrels per day, and this week we got 9.227 barrels per day, and this is slightly more than a year ago where we had 9.192 million barrels per day. Thus we are treading water for about a year at this 9.2 million barrels per day level, but that just isn`t going to cut it considering the drop in spot prices of crude oil. These guys are literally brain dead, even cars at auction have a reserve price. Apparently crude oil has no reserve price, they will sell it for $5 at this rate. At some point this data metric is going to drop like a rock, but it isnt this week. The next thing I look at is crude inventories and they seem to be stabilizing, probably because of the oil exporting ban being lifted to some extent. But I am still expecting some 10 million barrel weekly builds around maintenance season, as we had several 10 million type weekly builds last year around this time. We are basically flat for the week at 482.6 million barrels in storage, with Cushing at 64 million barrels in storage, and the gulf coast at 236.6 million barrels in storage, down about three million barrels on the week due to increased exports I am guessing as refinery inputs were nothing to write home about down about 200,000 barrels per day from the previous week at 8.562 from 8.775.The most striking part of the report was the build in products for the second week in a row, not sure what is going on here. But these builds seem a little odd, I cannot place my finger on it, but gasoline stocks have round tripped to 240.4 which matches where they were a year ago at 240.3 which looks like a double top on the charts. Of course gasoline prices are much lower this time around at 1.128 this year and 1.323 this time last year, almost a 20 cent difference and nearly the exact same level of stocks. Gasoline demand has dropped versus last year but this is a noisy number and I am not reading too much into this data point right now as we were at 8.159 for the first week, this week we did 8.500 million barrels per day of gasoline demand, and this time last year we were at 8.875 million barrels per day on average for the week.

OilPrice Intelligence Report: Oil Sinks Below $30 As Traders Fear Tidal Wave Of Iranian Oil: Oil prices briefly dipped below $30 per barrel this week as the depressed market continues. Market watchers seemed to be competing with each other to see who could publish the lowest prediction for oil prices, with Standard Chartered raising the possibility of $10 oil. It wasn’t too long ago that sub-$30 oil sounded ridiculous, so nobody can predict where the true bottom will be. The only thing that everyone knows is that today’s prices are unsustainably low since a large portion of global oil production is not profitable right now. The big question is when we will hit bottom. The ongoing crash in oil markets led to Wood Mackenzie’s much-publicized figure that $380 billion worth of oil projects have been cancelled since 2014. The totality of cancellations will result in nearly 3 million barrels of oil production that will not come online over the next decade. The markets have yet to grasp the ramifications of such massive cut backs, but the world could find itself dearly short of supply in the coming years given the dramatic pullback in exploration. For now, everyone is focused on the near-term. Bond prices for embattled energy companies are rapidly deteriorating. The Wall Street Journal reported that bonds for WPX Energy and Oasis Petroleum plummeted on Thursday, with each losing about 12 percent of their value. Oasis’ bonds with a 2019 maturity date are trading at just 53 cents on the dollar while WPX’s bonds maturing in 2023 are trading at just 65.5 cents on the dollar. Cheniere Energy  was set to ship the first LNG cargo from U.S. shores this month, but the company has hit a snag. The Sabine Pass export terminal will delay that inaugural shipment until February or March over “instrumentation issues.” The setback is a minor one for an $18 billion facility.

No, Goldman Is Not Calling For An "Oil Bull Market": Here Is What It Really Said And Why It's Bad News For Banks - There has been some confusion overnight whether Goldman, in a note released overnight, is calling for a new "bull market" in oil and commodities in general. Goldman did not call for a bull market.  While Goldman has long been one of the bigger bears on commodities in general, and oil in particular, earlier today, the firm's energy analyst Jefferie Currie released a note that offered a faint glimmer of hope for oil bulls. This is what he said: In oil, most of the demand improvement to lower prices occurred in 2015, and non-US supply reductions have been extremely modest, while in the US supply is only down about 150,000 b/d yoy as of year-end. In metals, supply has yet to materially come off as it is simply too easy to store excess output. What this suggests is that the key theme for 2016 will be real fundamental adjustments that can rebalance markets to create the birth of a new bull market, which we still see happening in late 2016. Ok so new "bull market"... eventually... maybe. For now, however, Currie explains why $20 oil is not the firm's base case yet: "while the surplus in oil continues to pressure oil timespreads wider and reversed the WTI-Brent spread as European surpluses are moved to the US Gulf Coast where spare storage exists, we still aren’t adopting the $20/bbl scenario as our baseline forecast since balances have not deteriorated further following our mid-December update."

Oil Prices Plunge 5% As Traders Fear A Wave Of Iranian Oil - WTI and Brent hit fresh lows on Friday over persistent fears of oversupply. The latest thing to drag down oil is the prospect of Iran quickly returning some significant volumes of oil to the market. That is because “Implementation Day,” the day that Iran fulfills all necessary requirements stemming from the historic nuclear agreement reach last year, is expected imminently. U.S. Secretary of State said on Wednesday that the achievement would be reached “within the next coming days.” The IAEA is expected to issue a report as soon as today that will affirm Iran’s compliance.  That means the sanctions on Iran could be lifted as soon as next week, and as such, Iran could quickly bring back some oil production and exports. Iran has promised to ramp up oil exports by 500,000 barrels per day almost immediately. Iranian officials have also said that within a year of the removal of sanctions, it could bring back 1 million barrels per day. At the same time, Iran has dialed back the ambition in recent weeks, saying that it will only produce as much as global demand justifies.  For now, oil markets are taking in the news and expecting more price pressure. WTI and Brent dropped nearly five percent during intraday trading on January 15.

U.S. Oil-Rig Count Falls By 1 - WSJ: The U.S. oil-rig count fell by 1 to 515 in the latest week, according to Baker Hughes Inc., BHI -3.11 % extending a recent streak of declines. The number of U.S. oil-drilling rigs, viewed as a proxy for activity in the oil industry, has fallen sharply since oil prices began to fall. But it hasn’t fallen enough to relieve the global glut of crude. There are now about 68% fewer rigs from a peak of 1,609 in October 2014. According to Baker Hughes, the number of gas rigs declined in the latest week by 13 to 135. The U.S. offshore-rig count was 26 in the latest week, down one from the previous week and down 28 from a year earlier. Oil prices tumbled below $30 a barrel on Friday, with daily losses rivaling their biggest of the winter as flailing Chinese markets and the soon-coming increase of Iranian exports adds to concerns that the global glut will linger. U.S. crude oil prices recently fell 5.99% to $29.33 a barrel.

Eagle Ford rig count falls as oil prices dip below $30 per barrel - With crude oil prices falling to 12-year lows, new drilling activity is slowing down in the Eagle Ford and other shale basins across the United States. West Texas Intermediate crude oil plunged below $30 per barrel on Friday morning, while new figures from the Baker Hughes Rig Count show that new drilling fell to 68 rigs in the Eagle Ford. At the same time last year, there were 185 active rigs in the vast oil-rich region just south of San Antonio. The drop in rig counts is representative of the struggles that the oil and gas industry have endured of late — including the Eagle Ford Shale, which has been a major economic generator for not only several counties south of San Antonio, but for the Alamo City as well. Baker Hughes reported losses also for other important shale basins in Texas and the United States. In the Permian Basin of West Texas, new drilling fell to 202 rigs from last week's number of 209. Across the Lone Star State, new drilling went down from 308 to 301 rigs in a week. Nationwide, there are now only 650 active rigs in the United States. The supply glut and low oil prices are expected to remain in place for at least the first six months of 2016. The U.S. Energy Information Administration reports that the Eagle Ford is expected to produce 72,000 fewer barrels of oil per day, but national crude oil inventories remain at 80 year highs.

Oil plunges below $29 on prospects of more Iran crude, China worries - Oil prices crashed 6 percent on Friday to close below $30 a barrel for the first time in 12 years, resuming this year's breathtaking rout as Chinese stock markets fell further and traders braced for an imminent rise in Iran's exports. After closing higher for the first time in eight sessions on Thursday, U.S. and Brent crude futures plumbed new lows, taking this year's losses to more than 20 percent, the worst two-week decline since the 2008 financial crisis. The slump was not over yet, some analysts warned, as the lifting of sanctions on Iran opens the door to a wave of new oil. The International Atomic Energy Agency (IAEA) is expected on Saturday to issue its report on Iran's compliance with an agreement to curb its nuclear program, potentially triggering the lifting of Western sanctions. Shares in China, the world's No. 2 oil consumer, tumbled on Friday, with the Shanghai index ending down 3.5 percent to its lowest close since December 2014 and the yuan weakening sharply offshore. Adding to fuel demand concerns, U.S. data showed retail sales fell and industrial production weakened in December. Brent  settled down $1.94, or 6.3 percent, at $28.94 a barrel, sticking below the pivotal $30 a barrel mark after briefly dipping below that level in the previous two days. It fell as far as $28.82, the lowest since February 2004.

Credit-Market Fear Gauge Soars as Oil Price Triggers Global Rout - The cost to protect against defaults by North American companies soared to a three-year high Friday as concerns over a deepening plunge in oil prices triggered a global rout in equities. The risk premium on the Markit CDX North American High Yield Index, a credit-default swaps benchmark tied to the debt of 100 speculative-grade companies, jumped 30.8 basis points to 557.7 basis point at 1:30 p.m. in New York, the highest since November 2012. A similar measure for investment-grade debt rose 6.5 basis points to 110.5 basis points, a three-year high. “Stocks are selling off, high yield is selling off, emerging-market debt is selling off, investment-grade bonds are selling off,” said Keith Bachman, the head of U.S. high yield at Aberdeen Asset Management Inc. in Philadelphia. “The higher spreads that we are seeing are reflective of the risk-off environment that we are in. Even though investment-grade credit is safer than high-yield credit, risk premiums are adjusting across the whole spectrum.” Oil fell to a new 12-year low below $30 a barrel in New York and the Bloomberg Commodity Index plunged to the lowest level since 1991. Stocks fell around the world as the Dow Jones Industrial Average sank more than 300 points. European stocks were poised to enter a bear market and the Shanghai Composite Index wiped out gains from an unprecedented state-rescue campaign. The carnage in commodities has lowered demand for the debt of the riskiest companies, with the extra interest investors demand to hold U.S. high-yield energy bonds over government debt rising to the highest level on record. Investors pulled $2.1 billion from U.S. high-yield funds this past week after withdrawing $809.1 billion the week earlier, according to data provider Lipper.

Meet Manifa (And Other Giant Oil Projects) That Will Add To The Global Oil Glut - World oil consumption is more than 90 million barrels a day. Between 2009 and 2014 oil was traded for about 110 dollars a barrel; now oil is changing hands for 32 dollars a barrel. Roughly a 7-billion-dollar cash flow a day is vanishing from the global market.  Norway’s sovereign wealth fund that has accumulated a stake of 4.5 billion dollars in Apple over the past years, will turn from an Apple buyer into an Apple seller.  The China Development Bank (a Chinese policy bank) has poured nearly 50 billion dollars into Venezuela in return for oil, with the country now collapsing under the Chinese debt, having no other choice but to drill for more oil.  These are just some of the challenges the world is facing in 2016 as oil prices are heading towards 20 dollars a barrel. Speculators and manipulators were able to manipulate the oil price to more than 120 dollars a barrel,  with the production cost being roughly between 20 and 80 dollars. With a huge profit margin the world was digging for more and more liquid gold.   Kashagan: Shell, Total S.A., Exxon Mobil and China National Petroleum Corporation are now stuck with a 50-billion-worth project in the Caspian Sea, called Kashagan. The project is full of problems and delays, but is expected to add 300.000 barrels of oil a day to the global oil glut the coming year. Manifa: While the media attention was directed to the shale oil boom in the US, the Saudis created a giant offshore oil project called Manifa. With one single project Manifa added 1 million barrels a day to the world oil glut. Manifa will expand its capacity the coming year, adding a further 500 million barrels a day to world markets.

Arthur Berman: Why The Price Of Oil Must Rise -Geologist Arthur Berman explains why today's low oil prices are not here to stay, something investors and consumers alike should be very aware of. The crazy-low prices we're currently experiencing are due to an oversupply created by geopolitics and (historic) easy credit, not by sustainable economics. And when the worm turns, we are more likely than not to experience a sudden supply shortfall, jolting prices viciously higher. This will be a situation not soon resolved, as the lag time for new production to come on-line will be much longer than the world wants: We started this conversation with your important observation that we’re only talking about a million or million and a half barrels a day of oversupply. So we could go from over-supply to deficit pretty quickly, because we’re not investing in finding that additional couple of million barrels a day that we need to be discovering. So we’re deferring major, major investments. We’re not just deferring exploration; we’re deferring development of proven reserves. Capital cuts across the world represent 20 billion barrels of development of known proven reserves. And so we will get to a point, and we will, we most certainly will, where suddenly everybody wakes up and says “Oh my God we don’t have enough oil! We’re now half million barrels a day low." And what will happen? The price will shoot up. That’s the way commodity markets work. And everybody will say “Whoopee! Let’s get back to drilling big time." Well there’s a big lag. There’s a huge time lag between when the price responds and people actually get around to drilling and they actually start bringing the oil onto the market and it becomes available as supply, because they’ve been asleep at the wheel for you know for how many months or years. And so you know you can’t just turn a valve and all of a sudden everything is okay again  Click the play button below to listen to Chris' interview with Arthur Berman (56m:07s)

Russia Breaking Wall St Oil Price Monopoly - Russia has just taken significant steps that will break the present Wall Street oil price monopoly, at least for a huge part of the world oil market. The move is part of a longer-term strategy of decoupling Russia’s economy and especially its very significant export of oil, from the US dollar, today the Achilles Heel of the Russian economy. Later in November the Russian Energy Ministry has announced that it will begin test-trading of a new Russian oil benchmark. While this might sound like small beer to many, it’s huge. If successful, and there is no reason why it won’t be, the Russian crude oil benchmark futures contract traded on Russian exchanges, will price oil in rubles and no longer in US dollars. It is part of a de-dollarization move that Russia, China and a growing number of other countries have quietly begun. The setting of an oil benchmark price is at the heart of the method used by major Wall Street banks to control world oil prices. Oil is the world’s largest commodity in dollar terms. Today, the price of Russian crude oil is referenced to what is called the Brent price. The problem is that the Brent field, along with other major North Sea oil fields is in major decline, meaning that Wall Street can use a vanishing benchmark to leverage control over vastly larger oil volumes. The other problem is that the Brent contract is controlled essentially by Wall Street and the derivatives manipulations of banks like Goldman Sachs, Morgan Stanley, JP MorganChase and Citibank.

Plunging Oil Prices – A Recipe for More War?  - Michael Klare - As 2015 drew to a close, many in the global energy industry were praying that the price of oil would bounce back from the abyss, restoring the petroleum-centric world of the past half-century.  All evidence, however, points to a continuing depression in oil prices in 2016 — one that may, in fact, stretch into the 2020s and beyond.  Given the centrality of oil (and oil revenues) in the global power equation, this is bound to translate into a profound shakeup in the political order, with petroleum-producing states from Saudi Arabia to Russia losing both prominence and geopolitical clout. To put things in perspective, it was not so long ago — in June 2014, to be exact — that Brent crude, the global benchmark for oil, was selling at $115 per barrel.  Energy analysts then generally assumed that the price of oil would remain well over $100 deep into the future, and might gradually rise to even more stratospheric levels.  Such predictions inspired the giant energy companies to invest hundreds of billions of dollars in what were then termed “unconventional” reserves: Arctic oil, Canadian tar sands, deep offshore reserves, and dense shale formations.  As of this moment, however, Brent crude is selling at $33 per barrel, one-third of its price 18 months ago and way below the break-even price for most unconventional “tough oil” endeavors. Worse yet, in one scenario recently offered by the International Energy Agency (IEA), prices might not again reach the $50 to $60 range until the 2020s, or make it back to $85 until 2040. The current rout in oil prices has obvious implications for the giant oil firms and all the ancillary businesses — equipment suppliers, drill-rig operators, shipping companies, caterers, and so on — that depend on them for their existence. It also threatens a profound shift in the geopolitical fortunes of the major energy-producing countries. Many of them, including Nigeria, Saudi Arabia, Russia, and Venezuela, are already experiencing economic and political turmoil as a result. (Think of this, for instance, as a boon for the terrorist group Boko Haram as Nigeria shudders under the weight of those falling prices.) The longer such price levels persist, the more devastating the consequences are likely to be.

U.S. Church Puts 5 Banks From Israel on a Blacklist -- The pension board of the United Methodist Church — one of the largest Protestant denominations in the United States, with more than seven million members — has placed five Israeli banks on a list of companies that it will not invest in for human rights reasons, the board said in a statement on Tuesday. It appeared to be the first time that a pension fund of a large American church had taken such a step regarding the Israeli banks, which help finance settlement construction in what most of the world considers illegally occupied Palestinian territories. Palestinian advocates, both in and outside the church, described the step as an important advance in the Boycott, Divest and Sanction campaign, or B.D.S., an international effort to pressure Israel economically over the Palestinian issue. Others within the church, however, called those claims misleading, noting that the church remains invested in other Israeli companies and that members had overwhelmingly opposed divestment resolutions. There was no immediate comment from Israeli officials. Nonetheless, the inclusion of Israeli banks on what is essentially a blacklist compiled by the pension board of a large American church, appears bound to upset the Israeli government, which devotes considerable effort to combating resolutions by academic institutions, businesses and church organizations to divest from Israeli companies over the issue of Israeli settlements and the occupation of Palestinian lands held since the 1967 war.

Does The U.S. Have A Middle East Strategy Going Forward? - Senior-level sources in numerous Middle Eastern governments have privately expressed bewilderment at recent and current U.S. government strategies and policies toward the region. But a closer examination of U.S. policies, now almost entirely dictated by the Obama White House, shows no cohesive national goals or policies exist, but rather an ad hoc set of actions and reactions, which are largely dictated either by ideological positions, ignorance, whim, or perceived expedience. This is unique in U.S. history. In short, the consistent pattern of policies developed over the past century has now been broken up, apart from some of the physical consistencies of legacy military deployments and basing, and by some trade and weapons program commitments. Even there, military deployments have contracted substantially in the past few years, and new U.S. defense systems sales to the region have been lost to suppliers from France, Russia, the People’s Republic of China (PRC), Germany, Pakistan, and others.  In the 18 months until January 2016, the U.S. missed possibly $12- to $15-billion in sales of defense and energy systems in the Middle East, and a range of major new defense acquisitions from non-U.S. suppliers are under consideration by Middle Eastern states. At the same time, some of the U.S.’ major traditional allies in the region — Israel, Egypt, and Saudi Arabia, in particular — have felt compelled, for their own survival, to turn their back on Washington because of a perception of a divergence in values and goals. Most U.S. policy officials — especially in Defense — insist that U.S. commitments and strategies in the region have not changed, but the actions and policies dictated directly by the Barack Obama White House, and mirrored at Secretary of State level, have proven antithetical to most states in the greater Middle East, with the exception of Turkey and Qatar. Some regional states, such as Oman, are concerned; others, such as Ethiopia and Djibouti, are now left feeling strategically abandoned.

Oil's Sum of All Fears -  You should be pretty scared right now. Even a cursory glance at the news, or 30 seconds of listening to a presidential candidate, will inform you that terrorism is rampant, the Middle East is unraveling and that we're all basically done for. Yet there you are, selling oil at $30 a barrel. The geopolitical risk premium, an omnipresent if mercurial figure in the oil market over the past decade or so, has vanished. Consider that the past three months have witnessed the terrorist attacks in Paris, a Russian jet being downed by Turkey, the burning of Saudi Arabia's embassy in Tehran, Islamic State targeting Libyan oil tanks, and Venezuela entering a post-election political standoff.In response, oil has tumbled by a defiantly insouciant one-third. Even Tuesday's news that some U.S. Navy sailors were being held in Iran barely registered (they have since been released).This lack of fear is, well, alarming. The chief exhibit here isn't oil's spot price but the futures curve: Geopolitical risk has vanished along the Brent oil futures curve. In October, Brent crude futures for this year averaged $53 and change. Now, they don't average above $50 a barrel until 2020. The oil market isn't merely saying there's no risk to supply now; it isn't pricing in a problem right through the next president's first term.Betting on a quiescent five years in the Middle East hasn't been a good wager for most of my lifetime, and the odds look even longer than usual now, as the U.S. stands back and Iran and Saudi Arabia face off. Meanwhile, low oil prices are deterring investment pretty much everywhere else.Oil rotary rigs in operation haven't collapsed in the Middle East but have everywhere else All else equal, that means the market share of Middle Eastern producers should increase. In its latest short-term outlook, released on Tuesday, the Energy Information Administration projected non-OPEC supply to fall this year for the first time since 2008. With OPEC's own effective spare capacity thin, the risk of a supply shock is rising.

Can ISIS Actually Gain Power Over Libya's Oil? - As it turns out, Syria was merely a springboard for a much larger ISIS plan—replenishing terrorist coffers by taking over oil assets in war-torn Libya. The terror group has largely taken control of the Libyan city of Sirte and its hundreds of miles of coastline, and has ransacked two key oil terminals in an attempt to wrest control from fragile Libyan officials, ISIS is banking on taking over these oil facilities, and is now reportedly recruiting its own oil and gas engineers.Libyan crude should be an easier target than Iraqi oil, which has remained largely out of ISIS reach. If ISIS succeeds, it will have more revenues and more power. Reeling from warring parallel ''governments'' in a seething civil war, Libya is in no position to stop ISIS from filling the void.Libyan oil officials say ISIS has ravaged oilfields south of Sirte, clashing with guards at key oil terminals, shelling storage facilities, and setting oil tanks on fire. All that's left to do now is take over this part of the business in earnest.Last week, ISIS targeted two of Libya's largest export terminals—Es Sider and Ras Lanuf, which handle 80 percent of Libya's oil reserves. Combined, they have the capacity to ship 500,000 barrels today, barring civil war and terrorist hindrances. For the past year, these two export terminals have been closed down, but ISIS has plans to reopen them—eventually. After several days of clashes with ISIS and the death of at least 18 guards, Libya's National Oil Corporation has regained shaky control over the terminals and scrambled to empty the storage tanks at Ras Lanuf as a precaution. Meanwhile, fires have been put out at both terminals.

Bahrain, Oman cut gas subsidies as oil hits 12-year low — Bahrain and Oman are reducing government subsidies on gasoline, becoming the latest Gulf Arab countries to try to cut back on spending and offset the effect of oil prices, which have fallen to their lowest level since 2003. On Tuesday, gas prices at the pump rose by up to 60 percent in Bahrain, climbing to $1.25 per gallon (125 fils per liter) for regular gasoline and $1.60 per gallon (165 fils per liter) for premium fuel. Hundreds of people lined up at gas stations a day earlier to fill their cars before the higher prices went into effect. The tiny island-nation in the Persian Gulf ended subsidies on meat and poultry in October, increasing consumer prices between three and four-fold. Bahrain plans to make further cuts in electricity and water subsidies in March. Meanwhile, Oman said it would reduce gasoline subsidies starting Friday, with prices set to rise by 33 percent for premium fuel and 23 percent for regular fuel. The moves come as crude prices closed Monday at $31.41 a barrel on the New York Mercantile Exchange — the lowest in 12 years. The dip in global oil prices has cut into the revenues of oil-exporting countries, including many Gulf Arab states where citizens have become accustomed to generous government subsidies and state handouts. To reduce their growing budget deficits, the United Arab Emirates and Saudi Arabia reduced fuel subsidies last year. Kuwait’s parliament said Tuesday that it, too, is planning to study subsidy reform.

Iraq and the Kurds Are Going Broke - Iraqi and American officials leading the military campaign against the Islamic State now have to wrestle with a challenge that has the potential to change battlefield fortunes: the slumping price of oil. The semi-autonomous Kurdistan Regional Government in northern Iraq, an oil-producing region, has racked up $18 billion in debt, which has imperiled its ability to pay state workers and security forces. This is especially worrisome since Kurdish security forces have been instrumental in rolling back the Islamic State’s advances. The government in Baghdad, meanwhile, is scrambling to avoid a budget shortfall this year. Iraqi officials last year obtained a $1.7 billion loan from the World Bank and reached an agreement with the International Monetary Fund that will allow it to obtain additional loans. Baghdad is seeking to renegotiate with international energy companies new terms for oil contracts, which have become less advantageous for Iraq as the price of oil has crashed. And it is seeking a $2.7 billion loan from the United States to acquire military equipment. Iraq’s budget problems have rightly alarmed officials in Washington. While there is little appetite to bankroll a country where so much American money has been wasted and pilfered since the ill-conceived 2003 invasion, Iraq’s economic problems must be addressed. If they are to worsen, more Iraqis will almost certainly join the tide of refugees leaving the Middle East and the government will have a harder time rebuilding areas that Iraqi security forces have wrested back from Islamic State control.

Calling home the petrodollars! -- Izabella Kaminska - While the world contends with the consequences of shrinking petrodollar flows, Emad Mostaque at consultancy Ecstrat provides an interesting take on the potential benefits of such reversals for petro sovereign Saudi Arabia..As Mostaque explains, to-date Saudi Arabia’s rulers have supported a social contract with the populace wherein the state offers a level of employment surety through the public sector and benefits, while almost all of the private sector workers are foreigners without settlement rights: This worked when populations were smaller or when oil prices were high, but the burden of state spending became increasingly onerous in the wake of the Arab Spring, since which many budgets have doubled as a variety of spending increases were passed as a palliative measure to ensure that an alternative social contract based on democracy and a constitutional monarchy, could be avoided. A large part of this has also been due to rapid increases in military spending, something we have discussed the rationale for elsewhere.Indeed, the reality in the Gulf states has been that there is no representation of the people precisely as there is no taxation, with the governments adopting a paternalistic approach to their citizens.An unfortunate side effect of this system is that the state bureaucracy in these nations is notoriously inefficient as the correct incentive structures simply do not exist. As a consequence, Saudi domestic markets have never really served as a proper tool for capital allocation. They exist primarily, says Mostaque, for wealth redistribution and entertainment. Rules which require local majority ownership, for example, have always ensured an advantage for key Saudi families with large amounts of influence, allowing them to become immensely wealthy without directly participating in the oil business.But this set-up may be moving into reverse, says Mostaque. He views the Saudi prince’s comments in *that* Aramco Economist interview as hinting very strongly that Saudi will not only accelerate its economic diversification plan — with a goal of $100bn in non-oil revenue in five years — but also inject dormant assets into state funds with a view to raising Islamic bonds for development.

Oil Bust Could End Dollar Domination -  There is an overriding belief that the U.S. dollar can hold onto its status as the world’s king reserve currency simply because of petro dollars. But in recent years, a serious threat to this system has developed—and the risk of the dollar being dethroned is very real. The U.S. dollar has reigned supreme since the end of WWII, when the Bretton Woods system gave it is initial power. With Bretton Woods’collapse in 1971, oil became its new saviour and kingmaker as the U.S. dollar became the prime currency for crude oil transactions. In 1973, the U.S. made a pact with the Saudi King to conduct all crude oil trades in U.S. dollars—in return for U.S. protection of its oil fields. Because of world hunger for crude, the demand for U.S. dollars experienced a similar, sustained hunger. The major producers of crude oil had an abundance of dollars, which was recycled back into the system to purchase dollar-denominated assets. The consumers pay for crude oil in dollars; hence, they always have to keep a steady reserve of dollars, thereby maintaining a high demand for the the currency. This is now under threat, and history risks being repeated. The Bretton Woods system failed due to the over valuation of the dollar as spending increased over the war in Vietnam war and America’s Great Society programs.The argument that the U.S. dollar is a flawed currency is gaining ground. According to commodity guru Jim Rogers, this is illustrated by a string of Quantitative Easings by the U.S. Fed, an ultra-low interest rate policy and ever-increasing U.S. debt. Demand for the U.S. dollar has remained high despite this because of the world’s reliance on it to fund crude oil purchases. But this paints a false picture. Over the past few years, countries such as China, Russia, Iran, and Brazile, Russia, India, and China, and South Africa (the BRICS nations) have begun to pose a challenge to the current system, forming pacts to transact oil in local currencies, bypassing the petro-dollar.

The oil crash could bring a radical new change to Saudi Arabia's investment fund - (Reuters) - Saudi Arabia plans to create a new sovereign fund to manage part of its oil wealth and diversify its investments, and has asked investment banks and consultancies to submit proposals for the project, according to people familiar with the matter. Plunging oil prices have strained Saudi Arabia's finances. The kingdom's state budget deficit is at a record high and net foreign assets dived more than $100 billion in 15 months. The new fund could change the way tens of billions of dollars are invested and affect some of the world's leading asset managers, particularly in the United States, where the bulk of Saudi Arabia's foreign assets are managed. "Keeping the foreign reserves at a good level is necessary to maintain a solid financial position and support the riyal," said one of the sources. Another source said the Saudi government sent out a "request for proposal" to banks and consultants late last year, seeking ideas on how to structure a new fund. The sources asked not to be identified because the plans are confidential. They said the Saudi government did not tell them the size of the planned new fund. One source said the fund would focus on investing in businesses outside the energy industry, such industrials, chemicals, maritime and transportation. The sources stressed that no final decisions had been made, and a range of options were being studied. The sources said managers of the planned fund may be able to invest directly in companies rather than channelling investments through foreign asset managers. This could maximize returns.

Saudi Arabia Steps Up War of Words With Iran - WSJ -- Saudi Arabia on Saturday accused Iran of not acting like a nation state and said it is considering further measures against its regional rival, as tensions between the two countries escalated further over the kingdom’s execution of a dissident Shiite cleric. “Iran has to make a decision whether it is a nation state or a revolution. If it’s a nation state, it should act like one,” Saudi Foreign Minister Adel al-Jubeir said following an emergency meeting in Riyadh with his Gulf Arab counterparts to discuss the crisis with Iran. “Sectarianism wasn’t heard of in the region before the Iranian revolution.” “We are looking at additional measures to be taken against Iran if it continues with its current policies,” he said. The foreign ministers of the Gulf Cooperation Council—a six-country bloc comprising Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Bahrain and Oman—met amid concerns that the spat between Sunni Saudi Arabia and Shiite Iran may lead to serious repercussions for other conflicts in the region.

"Death To Saudi Arabia": Thousands Of Iranians Pour Into The Streets In Anti-Saudi Protests -- It’s now been nearly a week since Saudi Arabia set the Muslim world on fire (both figuratively and literally) by executing prominent Shiite cleric Nimr al-Nimr. The Sheikh was a leading figure in the 2011 anti-government protests staged in the kingdom’s Eastern Province and when the House of Saud moved to silence a dissident voice once in for all last Saturday, demonstrators poured into the streets from Bahrain to Pakistan to decry the execution.  In the six days since his death, Saudi Arabia and its allies have been busy cutting all ties (both diplomatic and commercial) with Iran. “Enough is enough”, was the message from Riyadh after protesters firebombed the Saudi embassy in Tehran last Saturday. Now, with tensions running higher than ever, the feud threatens to derail a fragile peace “process” in Syria on the way to plunging the region into an all-out sectarian shooting war. Each side accuses the other of being a state sponsor of terror and each side blames the other for fomenting sectarian discord. Needless to say, it’s difficult to look past the fact that Saudi Arabia’s promotion of Wahhabism is almost unquestionably to blame for the rise of extremist elements throughout the Islamic World. At the very least, Riyadh’s contention that Iran promotes sectarian strife is an egregious case of the pot calling the kettle black.In any event, Iranians are in no mood to forgive and forget. "Iranians held mass protests on Friday across the Islamic Republic, angered by Saudi Arabia's execution of a Shiite cleric that has enflamed regional tensions between the Mideast rivals," AP reports, adding that "after Friday prayers in Tehran, thousands of worshippers joined the rally, carrying pictures of al-Nimr and chanting "Death to Al Saud," referencing the kingdom's royal family." They also chanted "down with the US" and "death to Israel." Below, find the visuals which underscore the fact that the sense of outrage is palpable - to say the least.

Following their “civilized” allies: Saudi jets bomb health facility in northern Yemen -- From PressTV : New Saudi airstrikes have struck a health center operated by charity health organization Doctors Without Borders, also known by its French abbreviation MSF, in northern Yemen, killing at least four people and wounding several others, according to local reports.  The medical facility, located in the Razeh district of Sa’ada Province, was bombed on Sunday, Yemeni media report said. The reports said that at least 15 others were also injured in the deadly airstrikes, which sent shockwaves through the neighborhood. The Paris-based medical humanitarian organization strongly denounced the strike, describing it as part of a "worrying pattern" of attacks on medical facilities....She noted that the organization constantly shares the coordinates of its facilities with those warring sides fighting in the impoverished Arab nation. “All warring parties are regularly informed of the GPS coordinates of the medical sites where MSF works,” said Ayora, adding, “There is no way that anyone with the capacity to carry out an air strike or launch a rocket would not have known” the functioning health facility. Ayora concluded by saying that civilians were bearing the brunt of the ongoing war on Yemen. “Once more it is civilians that bear the brunt of this war.

April Fool's or Biggest IPO Ever? Floating Saudi Aramco -- Of all the darndest things I've heard during the start of the year when there was no lack of them, the idea of Saudi Arabia's state oil company Aramco listing its shares takes the cake. Certainly the timing is bad given that oil prices have dropped precipitously. Hovering around $100-something in mid 2014, the price of a barrel has fallen to about a third of that. Still, desperate times may call for desperate measures. To help close a yawning fiscal deficit, Saudi Arabia may resort to an IPO despite naysayers thinking this is some kind of prank:  When one financial adviser heard about Saudi Arabia’s plans to list a company larger than the economies of most nations, he had to pull over his car because he was laughing so hard. Saudi Arabian Oil Co., or Aramco, the world’s largest oil producer, said Friday it’s considering an initial public offering. It confirmed an interview with Deputy Crown Prince Mohammad bin Salman published in the Economist Thursday. The news was greeted with incredulity in the financial industry, according to interviews with a half dozen bankers who do business in the Middle East. They asked not to be identified to protect their business interests.For one thing, Aramco’s inner workings are opaque, making its true value a mystery. Then there’s the timing. The price of crude oil is near its lowest level in more than a decade. Discussions with Aramco about selling assets in the past had been about much smaller parts of the business, five of the people said. An initial public offering of the entire enterprise had only ever been discussed as a joke, one of the people said. Even if (a) oil prices have fallen by a huge amount and (b) any flotation will only see a few shares listed of subsidiaries and not the parent company, the sheer size of Aramco is something to reckon with. Given its massive proven oil reserves, some valuation models predict it will easily be the biggest initial public offering of all time. At the top of the range, astounding implied market capitalization figures of $7-10 trillion are being touted:

Several Blasts Rock Aramco Oil Facilities : A number of blasts hit Baqiq industrial city in the Southern Saudi province of Jizan where the kingdom's giant Aramco oil facilities is located. The local residents of Al-Sharqiya region where the Baqiq industrial city and the Aramco oil facilities are located confirmed huge explosions near the huge oil facilities, the Arabic-language media outlets reported on Tuesday. Baqiq industrial city belongs to Aramco oil company which itself is Saudi Arabia's biggest economic enterprise. The oilfields of Aramco, including Qawareh oilfield, are located in Shiite-populated Eastern Saudi Arabia. Aramco oil facilities have come under repeated missile attacks by the Yemeni army and popular forces in the last several months. The Yemeni forces targeted the oil company in Jizan with Qaher-I ballistic missiles twice from mid to late December. "The missile precisely hit Aramco oil company on Monday night," the Arabic-language media outlets quoted an unnamed Yemeni army official as saying after the second December attack. He reiterated that the missile attack came in retaliation for the Saudi-led aggressors' violation of the UN-sponsored ceasefire. The two attacks were launched on December 21 and 29, but the multi-trillion-dollar company has come under attack, at least, two times more in the last several months. Qaher-I is an updated version of a Russian-made surface-to-surface missile.

Saudi riyal forwards crash through key 1000 level to hit record low | Reuters: The Saudi Arabian riyal hit a record low in the forwards market on Tuesday, breaching the key 1000-point mark as a fresh slip in oil prices raised fears that the kingdom will eventually scrap or loosen its currency peg to the U.S. dollar. One-year dollar/riyal forwards - contracts used by counterparties to lock in a future exchange rate - climbed as high as 1020 points in very volatile trade. This topped their previous record of 850 points hit during a bout of speculation against the riyal in 1999, according to Thomson Reuters data. The move has come despite comments from Saudi Arabia's central bank governor on Monday that recent volatility in the forwards market is due to speculation based on unrealistic expectations. He restated policy makers' commitment to the peg. "Forwards are moving higher on speculation that Saudi Arabia may soon have to either abandon, or at the very least loosen its currency's peg to the dollar, as its reserves will dramatically fall if oil prices continue to slide further," said a currency trader at a major Gulf bank. The riyal is pegged in the spot market at 3.75 to the dollar. Some banks and funds use the forwards market to hedge against the risk that the peg might eventually be broken. Persistently low oil prices have raised fears that the world's top oil exporter may have to run down its foreign assets - still totaling $628 billion at the end of December - at a much faster rate than the $100 billion used in 2015 to cover a record state budget deficit, forecast for this year to be 326 billion riyals.

Last Days Of The House Of Saud -- While the Saud family enjoys the last few moments of its dictatorship, the decapitation of the leader of the opposition, Nimr al-Nimr, deprives half of the Saudi population of all hope. In one year, the new king of Saudi Arabia, Salman, 25th son of the founder of the dynasty, has managed to consolidate his personal authority to the detriment of other branches of his family, including the clan of Prince Bandar ben Sultan and that of the old King Abdallah. However, we don’t know what Washington has promised the losers in order to dissuade them from making attempts to regain their lost power. In any case, certain anonymous letters published in the British Press lead us to believe that they have not abandoned their ambitions. Forced by his brothers to nominate Prince Mohamad ben Nayef as heir, King Salman quickly isolated him and restricted his powers to the advantage of his own son, Prince Mohammed ben Salman, whose reckless and brutal nature is not restrained by the family Council, which no longer meets. De facto, he and his father govern alone, as autocrats with no counter-power, in a country which has never elected a Parliament, and where political parties are forbidden. So we have seen Prince Mohammed ben Salman take over presidency of the Council for Economic Affairs and Development, force a new direction on the Ben Laden Group, and seize control of Aramco. Each time, the goal is to distance his cousins from power and place liegemen at the head of the kingdom’s major companies.

War Between Saudi Arabia And Iran Could Send Oil Prices To $250 -- The rift between Saudi Arabia and Iran has quickly ballooned into the worst conflict in decades between the two countries. The back-and-forth escalation quickly turned the simmering tension into an overt struggle for power in the Middle East. First, the execution of a prominent Shiite cleric prompted protestors to set fire to the Saudi embassy in Tehran. Saudi Arabia cut off diplomatic relations and kicked out Iranian diplomatic personnel. Tehran banned Saudi goods from entering Iran. Worst of all, Iran blames Saudi Arabia for an airstrike that landed near its embassy in Yemen. Saudi Arabia’s Sunni allies in the Arabian Peninsula largely followed suit by downgrading diplomatic ties with Iran. However, recognizing the dire implications of a major conflict in the region, most of Saudi Arabia’s Gulf State allies did not go as far as to entirely sever diplomatic relations, as Saudi Arabia did. Bahrain, the one nation most closely allied with Riyadh, was the only one to take such a step. Many of them are concerned about a descent to further instability. Nations like Kuwait and Qatar have trade links with Iran, plus Shiite populations of their own. Crucially, Qatar also shares a maritime border with Iran as well as access to massive natural gas reserves in the Persian Gulf. These countries are trying to split the difference between the two belligerent nations in the Middle East. But what if the current “Cold War” between Saudi Arabia and Iran turned hot? Dr. Hossein Askari, a professor at The George Washington University, told Oil & Gas 360 that a war between the two countries could lead to supply disruptions, with predictable impacts on prices. “If there is a war confronting Iran and Saudi Arabia, oil could overnight go to above $250, but decline [back] down to the $100 level,” said Askari. “If they attack each other’s loading facilities, then we could see oil spike to over $500 and stay around there for some time depending on the extent of the damage.”

Iran fills heavy water nuclear reactor core with cement: Fars | Reuters: Iran has removed the core of its Arak heavy water nuclear reactor and filled it with cement as required under a nuclear deal signed with world powers last year, the semi-official Fars news agency said on Monday, citing an informed Iranian source. Any such move, reducing the plant's ability to produce plutonium, might signal imminent implementation of the nuclear deal and clear the way for Tehran to receive relief from economic sanctions. Separately, the European Union's foreign policy chief said that EU nuclear-related sanctions on Iran could be lifted soon. "I can tell you that my expectation is that this day could come rather soon. The implementation of the agreements is proceeding well," Federica Mogherini said during a visit to Prague. The fate of the reactor in central Iran was one of the toughest sticking points in the long nuclear negotiations that led to an agreement in July between Iran and six world powers, known as the Joint Comprehensive Plan of Action (JCPOA). Under the deal's terms, Iran accepted that the Arak reactor would be reconfigured so it could not yield fissile plutonium usable in a nuclear bomb.

Kerry says Iran may be 'days away' from satisfying nuke deal — Secretary of State John Kerry said Thursday that Iran may be “days away” from complying with last summer’s nuclear deal, a step that would compel the U.S. and other Western nations to immediately suspend many sanctions on the Islamic republic. The landmark could usher in a new phase in the budding U.S.-Iranian rapprochement. Kerry told reporters he spoke earlier in the day with Iran’s Foreign Minister Mohammad Javad Zarif, who made it clear that the Iranians intend to satisfy their nuclear obligations “as rapidly as possible.” The Obama administration, Kerry said, is “prepared to move on that day” on the nuclear-related sanctions on Iranian oil, banking and commerce that it promised to end as part of the July agreement. “We are days away from implementation if all goes well,” Kerry said. Speaking just hours after a House committee advanced a bill that could interfere with the administration’s plans, Kerry said the nuclear accord already has delivered significant results. Iran shipped out most of its stockpile of enriched uranium overseas last week, extending the time period it would need to develop a bomb to about nine months, from as little as the two months it needed before the deal. “Iran literally shipped out its capacity, currently, to build a nuclear weapon,” he said, adding that “in the next days, with the completion of their tasks, we will meet our target of being more than a year of breakout time.”

US, Iran forge new relationship as nuke deal advances — For diplomats from countries without diplomatic relations, Secretary of State John Kerry and Iranian Foreign Minister Mohammad Javad Zarif sure are doing a lot of diplomacy. As Iran races to satisfy the terms of last summer’s nuclear deal and the U.S. prepares to suspend sanctions on Tehran as early as Friday, Kerry is talking to Zarif more than any other foreign leader. Those talks included several emergency calls Tuesday to secure the release of 10 U.S. sailors after Iran detained them in the Persian Gulf. Since the beginning of the year, Kerry and Zarif have spoken by phone at least 11 times, according to the State Department. They’ve focused on nuclear matters, Iran’s worsening rivalry with Saudi Arabia and peace efforts in Syria. By contrast, America’s top diplomat has talked to Saudi Foreign Minister Adel al-Jubeir only twice. He has consulted once each with Saudi Deputy Crown Prince Mohammed bin Salman, Jordan’s King Abdullah and the foreign ministers of Britain, Egypt, France, Germany, Russia and the European Union. Kerry left Washington Wednesday evening to meet al-Jubeir in London. He may extend the trip to see Zarif, too, elsewhere in Europe.

The Woman Shaping Iran’s Oil Future -  Raised in a pistachio-farming family in tradition-minded southern Iran, Hassanzadeh, 31, earned her law degree and Ph.D. in the U.K. on scholarships. She literally wrote the book on Iran’s natural gas industry since the 1979 Islamic revolution—it was published last year by Oxford University Press. She has returned to Iran to head a consulting firm, Energy Pioneers, based in Tehran and London, that’s at the vanguard of Iran’s all-out push to lure back foreign investors after the expected lifting of sanctions in coming months. Iran is counting on Western technology and hoping to raise $100 billion in overseas financing to double its oil and gas production in the next five years. Hassanzadeh is building a business by parlaying a deep knowledge of Iran’s energy resources, close ties to government technocrats and industry leaders in Tehran, and high-level contacts at major oil companies, law firms, and investment houses in the West. Her clients are impatient. “Foreign companies should open offices in Tehran immediately and buy shares in local companies who can be their agents and help with management,” says one of Hassanzadeh’s dinner companions, B.M. Hazrati. He’s the managing director of Arsa International Construction and head of a contractors’ trade group. “Unfortunately, they’re still looking at us like it’s 15 years ago.” Despite her age, she cultivated a wide network of industry players in Europe during her years at the Oxford Institute for Energy Studies. Some of these contacts may have skirted U.S. law by merely discussing business with an Iranian, so Hassanzadeh names no names as she shares what she’s learned: Significant Western involvement in Iran’s oil sector is at least 18 to 24 months away, maybe much more. Prospective partners don’t trust the project information they’re getting out of Tehran, she says, and the big banks and investment funds “still need a clear green light” from the U.S. Department of the Treasury before committing money to Iran. “For them, Iranian stability is still questioned,”

ENCORE! - Iran: Lifting the veil on Tehran's cultural life - France 24 - mini-documentary - Long considered the country of ayatollahs and suspected nuclear weapons, Iran is now moving towards reengaging with the West after years of sanctions. In the first of a two-part series, FRANCE 24's culture show Encore! visits the country's capital, Tehran, to find out what it means for the world of culture. From rocker King Raam to director Ali Raffi, Iranian artists tell us about their country – minus the clichés – and discuss the continuing censorship of their work. Click here to watch part two of our special series on Iran.

US says waiting for IAEA to verify Iran nuke compliance — The White House says it’s not ready to suspend economic sanctions against Iran because its compliance with the nuclear deal hasn’t been verified. White House spokesman Josh Earnest says Iran is making important progress toward curbing its nuclear program. He says it’s possible the Islamic Republic has already completed all the necessary steps. But Earnest says Iran won’t get any sanctions relief until the International Atomic Energy Agency has independently verified that all steps have been completed. He says the U.S. wants to make sure Iran doesn’t “cut any corners.” U.S. officials earlier in the week had said that “implementation day” for the Iran nuclear deal could occur within days. Iran will receive billions of dollars in economic sanctions relief in exchange for pulling back its nuclear program.

Western-imposed sanctions against Tehran to be lifted Saturday – Iranian FM - International sanctions against Iran are due to be lifted Saturday, according to Tehran’s Foreign Minister Mohammad Javad Zarif. The move will take effect when the International Atomic Energy Agency has issued its final report concerning Iran’s nuclear program. Trends Iran tensionThe International Atomic Energy Agency (IAEA) is expected to release a final report in the Austrian capital of Vienna, which will confirm that Iran has stuck to its end of the bargain in regard to honoring the nuclear deal, which was struck between Tehran and six world powers last year. "Today with the release of the IAEA chief's report the nuclear deal will be implemented, after which a joint statement will be made to announce the beginning of the deal," Zarif was quoted as saying by state news agency ISNA, as cited by Reuters. The nuclear deal, which was signed on July 14, 2015, saw Iran agree to shrink its atomic program. In return, the US, EU and UN said they would lift sanctions that have hampered Tehran’s economic growth."Today is a good day for the Iranian people as sanctions will be lifted today," the ISNA cited Zarif as saying. The Iranian foreign minister is also due to meet US Secretary of State John Kerry later Saturday. Oil majors Total and Shell have already sent senior executives to Tehran ahead of the expected lifting of sanctions, Iran’s Mehr news agency reports. They are set to meet with officials from Iranian state oil companies on Sunday.

India wants to pay Iran for oil in rupees -- India’s media reported on Sunday that the country is trying to encourage refiners to settle all outstanding payments to Iran over past oil purchases in rupees. The reported plan flies in the face of an earlier announcement by officials in Tehran that the Islamic Republic wants New Delhi to make settle all unpaid money for oil purchases in euros only. The Press Trust of India (PTI) has quoted a senior government official as saying that the country’s Finance Ministry plans to exempt payments to Iran from hefty withholding tax if Tehran approves to receive full payment for oil it sells to India in rupees. With sanctions against Tehran blocking payment channels, 45 percent of the oil India imports from Iran are settled in rupees since January 2012. The remaining gets accumulated and cleared as and when easing of sanctions opens payment window. In June last year, Iran agreed to receiving all of the payment in rupees but wanted waiver of 40 percent withholding tax, the PTI added. India’s Finance Ministry will issue the required waiver, the PTI has quoted the senior government official as saying. "Iran may no longer be keen on taking payments in rupee when the option of getting payment in hard tradable currencies like US dollar and Euro is on the verge of opening, the PTI warned. Indian refineries should pay some $6.5 billion in outstanding oil dues that have been frozen in bank accounts as a result of sanctions against Iran. Iran said in late December 2015 that it wants India to pay outstanding oil dues in euros, stressing that it needs the euros to pay the installments for the loans it has received for its infrastructure projects. India has already started the proceedings to make the outstanding payments to Iran in several installments each valuing at several hundred million dollars. Yaqoubi-Miab emphasized that once the sanctions are lifted, a large share of the cash for Iran that has been frozen in Indian accounts will be transferred to government accounts in Tehran, Shana reported. He said Iran wants its assets that have been frozen in Indian accounts to be transferred to Iran immediately after the removal of the sanctions.

China Imports Record Crude as Price Crash Accelerates Buying - China imported a record amount of crude last year as oil’s lowest annual average price in more than a decade spurred stockpiling and boosted demand from independent refiners. The world’s largest energy consumer increased imports last year by 8.8 percent to a record 334 million metric tons, or about 6.7 million barrels a day, according to preliminary data released by the Beijing-based General Administration of Customs on Wednesday. Inbound shipments in December jumped to 33.19 million tons, while oil product exports rose to 4.32 million metric tons, both also records.China has exploited a plunge in crude prices by easing rules to allow private refiners, known as teapots, to import crude and by boosting shipments to fill emergency stockpiles. The nation’s overseas purchases may rise to 370 million metric tons this year, surpassing estimated U.S. imports of about 363 million tons, according to Li Li, a research director with ICIS China, an industry researcher. “China’s crude appetite will continue to be driven by a boom in teapot imports this year and the filling of strategic reserve sites amid multi-year low prices,” Li Li said by phone from Guangzhou. “In the meantime, U.S. dependency on oil imports will gradually decline with higher domestic output.” China may start four additional strategic petroleum reserves this year as part of a plan to stockpile enough oil to cover 100 days worth of net imports by 2020 and thirteen independent refiners have been granted import quotas totaling a combined 55 million tons, or 18 percent of the nation’s annual imports. The nation’s crude imports last month was equivalent to 7.85 million barrels a day, 6 percent higher than the previous record of 7.4 million in April, Bloomberg calculations show.

China’s crude oil price exposure --Izabella Kaminska - We don’t think of China as an oil producer. And yet, it very much is.China’s oil production in 2014 amounted to about 4.2 mbpd in 2014, according to BP statistics — equal to that of Canada’s production at 4.2 mbpd in 2014 and nearly double that of Nigeria’s at 2.4 mbpd.Then, of course, there’s the mark-to-market value of China’s strategic petroleum reserve, which the country has been building up for years. We don’t know the actual size of the SPR because the numbers are not public, but oil experts say it stands close to 100m barrels, with a sizeable portion of the reserve built up during the $80-$100 per barrel price era.One reason we tend to overlook China’s production prowess is linked to its net importing status. Last year, for example, China imported 6.2m barrels per day, making it a clear net beneficiary of lower oil prices.  And yet, there have been significant repercussions for its domestic oil sector. No better indication of the stress is this week’s adjustment of China’s retail oil product pricing mechanism, which saw the National Development and Reform Commission (NDRC) introduce a $40 per barrel floor price for the crude valuation it bases its domestic retail gasoil and gasoline prices on. Until now the floor was set at $80 per barrel, with product price cuts passing on most of the global energy price decline at a cost to domestic refiners.

Tanker Rates Tumble As Last Pillar Of Strength In Oil Market Crashes -- If there was one silver-lining in the oil complex, it was the demand for VLCCs (as huge floating storage facilities or as China scooped up 'cheap' oil to refill their reserves) which drove tanker rates to record highs. Now, as Bloomberg notes so eloquently, it appears the party is over! Daily rates for benchmark Saudi Arabia-Japan VLCC cargoes have crashed 53% year-to-date to $50,955 (as it appears China's record crude imports have ceased). In fact the rate crashed 12% today for the 12th straight daily decline from over $100,000 just a month ago... China has exploited a plunge in crude prices by easing rules to allow private refiners, known as teapots, to import crude and by boosting shipments to fill emergency stockpiles. The nation’s overseas purchases may rise to 370 million metric tons this year, surpassing estimated U.S. imports of about 363 million tons, according to Li Li, a research director with ICIS China, an industry researcher.  But given the crash in tanker rates - and implicitly demand - that "boom" appears to be over. Shipbroker analysts blame fewer January cargoes and oil companies using their own vessels for shipment as the main reasons for the dramatic decline. China imported a record amount of crude last year as oil’s lowest annual average price in more than a decade spurred stockpiling and boosted demand from independent refiners. China's crude imports last month was equivalent to 7.85 million barrels a day, 6 percent higher than the previous record of 7.4 million in April, Bloomberg calculations show.

China’s Hunger for Commodities Wanes, and Pain Spreads Among Producers - Chile is expanding its largest open-pit copper mine below the northern desert to dig up 1.7 billion additional tons of minerals, even as metal prices plummet around the globe.India is building railroad lines that crisscross the country to connect underused coal mines with growing urban populations, threatening to dump more resources into an already glutted market.Australia is increasing natural gas production by roughly 150 percent over the next four years, as energy companies build half a dozen export terminals to serve dwindling demand.Across the commodities landscape, this worrisome mismatch mainly traces back to the same source: China.  For years, China voraciously gobbled up all manner of metals, crops and fuels as its economy rapidly expanded. Countries and companies, fueled by cheap debt, aggressively broadened their operations, betting that China’s appetite would grow unabated.Now everything has changed. China’s economy is slumping. American companies, struggling to pay their debts as interest rates rise, must keep producing. All the excess is crushing prices, hurting commodity-dependent economies across emerging markets like Brazil and Venezuela and developed countries like Australia and Canada.

Copper prices falling like it's 2009 - Copper prices hit Monday a six-year low after more equity losses in Shanghai increased concerns over the Chinese economy, the world’s largest consumer of the red metal. The effects on most miners were as dramatic as quick. Diversified miner BHP Billiton, the world’s largest mining company, reached the lowest in a decade, closing almost 5% down in Sydney to $15.55. Rio Tinto’s shares also fell, though not as much — it closed 3.34% lower at $40.5  Copper is a key component in manufacturing of everything from high tech devices to houses, and it is often looked to as a gauge of economic health. China’s speedy expansion of recent years has been a strong demand driver, but weakening conditions there and robust global production have come to weigh heavily on the market. Some analysts insist there is light at the end of the tunnel. “Copper continues to face headwinds moving into 2016,” wrote the commodity strategists at Bank of America Merrill Lynch. However, “another round of production cuts on top of those announced last year could help rebalance the market. Meanwhile, if some of the copper intensive sectors in China continue to rebound, copper prices could find increasing support towards 2H16,” they added.

Is this the Final Leg Down in the Commodity Cycle? How Much Lower for How Much Longer? — If anything is clear after the start of 2016, the global economic rebalancing that central banks around the world are trying to engineer is not proceeding according to plan. The circuit breaker fiasco in the Chinese equity markets is the latest example giving investors pause with respect to what is truly “going on” in China. The Shanghai composite equity index has lost almost 15% of its value YTD and few see good reason for this slide to halt aside from intense government support and RMB devaluation. Money continues to flow out of China as we speak. This drains China’s FX reserves – a tool the Chinese need to manage a weakening RMB, a headache with global repercussions. Additionally, it appears increasingly likely that the US Federal Reserve just raised short term rates into a weakening US economy (December jobs growth not withstanding). When the central banks of the world’s two largest economies are losing credibility, it’s no wonder financial turbulence has increased. Various geopolitical tensions such as an intensifying Saudi-Iran face off and North Korean nuclear test are the “cherries on the geopolitical sundae”. These increased geopolitical and financial stresses have served to absolutely crush commodity currencies such as the CAD, ZAR, and RUB with the USD as the beneficiary (though this USD strength may turn out to be a phyrric victory). It appears that all commodities are headed lower, and the “lower for longer” mantra should only be ignored at your peril. We may or may not be at the bottom, but how long we stay here is the crucial question to answer. The continued collapse in oil with WTI and Brent currently below $32 per barrel and copper trading below $2.00 per pound currently are but two examples.

Glencore Debt Swaps Jump to Six-Year High as Copper Price Slides - -- The cost of insuring Glencore Plc’s debt against default rose to a more than six-year high as the price of raw materials such as copper continued to tumble. The trader and miner’s credit default swaps increased to as much as 946 basis points, the highest since April 2009 on a closing basis, according to data from S&P Capital IQ’s CMA. Slumping commodity prices have battered Glencore, prompting it to scrap a dividend payment, sell new shares and outline asset sales as it seeks to curb debt to maintain its investment- grade rating. Copper dropped to a six-year low amid a rout in metals as muted Chinese inflation increased concern that demand from the world’s largest buyer of raw materials will slow. “CDS levels are driven by commodity prices and in the case of Glencore, especially copper,” said Max Mihm, a Frankfurt- based portfolio manager at Union Investment, which holds Glencore bonds among assets totaling about $271 billion. “If prices fall further and stay low Glencore will need to do more to protect its IG ratings.” A Glencore spokesman declined to comment on its credit default swaps. Copper for delivery in three months fell 1.9 percent to $4,399 a metric ton as of 4:46 p.m. on the London Metal Exchange, the lowest since April 2009. The Bloomberg World Mining Index of 80 equities fell for a fourth day to the lowest since June 2004.

Chinese hospital bulldozed with patients and staff inside: A Chinese hospital was bulldozed with patients, nurses and doctors still inside. Part of the hospital demolished also housed the hospital's morgue with bodies. The morgue is now buried under the rubble, bodies included. According to the Xinhua News Agency, part of a hospital in China was unexpectedly demolished by bulldozers on January 7. The affected part of the hospital housed patients receiving care as well as staff working there. The hospital's morgue was also involved in the area of demolition. The morgue had six bodies waiting to be processed for funerals or autopsies. Those bodies are now buried under the rubble of the demolished area of the hospital.  The Xinhua News Agency reported that the hospital claims the unscheduled bulldozer incident stemmed from the hospital's refusal to agree to the demolition project for a road expansion as requested by the local government. Huiji District Government Information Office said in an online statement:  They had asked the hospital in vain to demolish the CT room and morgue itself. It said workers had made sure there were no people inside the buildings before tearing them down, and there had been no casualties.  But to the contrary, the hospital's deputy propaganda chief, Zhang Yuan, said,  "Burying the remains of patients is enormously disrespectful to the dead. I never imagined anything like this would ever happen." The No. 4 Hospital of Zhengzhou University in Henan province said the unexpected demolition work on Thursday morning buried six bodies stored in the morgue, caused nearly 20 million yuan worth of damage to medical equipment and injured several hospital staff, according to Xinhua.

China Declares War on Currency Speculators; Interbank Yuan Rates Spike to Record High 13.4% -- In yet another example of currency intervention madness that will fail soon enough, China Declared War on Currency SpeculatorsChina has opened a new front in its war to curb currency depreciation by buying up renminbi offshore, foiling the burgeoning carry trade and driving the cost of borrowing to a record high. The elevated overnight CNH Hong Kong Interbank Offer Rate (Hibor) shows how volatility in China’s currency. It is also a potent sign of the lengths to which China's central bank is prepared to go to support the value of offshore renminbi, known as CNH. The overnight CNH Hibor, a daily benchmark for offshore renminbi interbank lending, hit a record-high 13.4 per cent on Monday, up from 4 per cent on Friday and the highest level since the benchmark was launched in 2013. The one-week rate surged from 7.1 per cent to 11.2 per cent. The People’s Bank of China, acting through state-owned banks in Hong Kong, is buying up renminbi to curb CNH weakness and narrow the gap between CNH and onshore renminbi, known as CNY, analysts say. “It looks like PBoC wants to maintain a high cost of shorting CNH,”

The Dubious Logic of Stock-Market Circuit Breakers - Paul Kedrosky - Stock-market circuit breakers, which trigger cooling-off periods in financial systems, are a good idea in theory, but they weren’t in the Chinese design. Circuit breakers in financial markets, which are intended to automatically shut down trading when the market declines by a predetermined amount, arguably belong to the misguided safety measure group. This was evident last week in China, where new circuit breakers, put in place to prevent market crashes like the ones the country experienced last summer, were suspended on January 7th, only four days after being implemented.The Chinese circuit breakers were designed to kick in progressively, at two levels of decline. The first threshold was a market drop of five per cent, which would cause an automatic fifteen-minute pause in trading. The second one, which would shut down trading for the day, kicked in after a seven-per-cent decline. But in practice, rather than protecting investors, the controls appear to have made the markets more crash prone, causing wholesale trading shutdowns last Monday and Thursday. On Thursday, trading stopped after only twenty-nine minutes. The appeal of circuit breakers in financial markets is obvious: when market behavior starts to present a major risk, the breaker trips, much like a real-world fuse would, imposing a cooling-off period before anything (a toaster, an economy) gets fried. They’re a good idea, at least in theory, but they weren’t in the Chinese design.

Offshore Yuan Liquidity Dies, Sending Interbank Rate Soaring - The liquidity in the offshore yuan market is drying up, squeezing short-term interbank borrowing rates to extreme levels. On Monday morning, the overnight rate that banks in Hong Kong charge each other to borrow yuan soared from 4% Friday to 13.4% (annualized), an all-time high since the Treasury Markets Association started publishing this benchmark rate in 2013. The one-week (annualized) rate surged to 11.23% from 7.05% Friday. It comes after Chinese banks, proxy for China’s central bank, intervened in the market and bought up the yuan last week. “As these banks are holding the yuan instead of releasing it to the market, liquidity has dried up,” says a senior trader at a major local bank. “A lot of channels bringing money from onshore to offshore market have been blocked, which also contributes to the shortage of yuan in Hong Kong,” said Tommy Ong, head of Wealth Management Solutions at DBS in Hong Kong. This effectively increased the cost for speculators to borrow and short the yuan, traders say. The spot CNH, or offshore yuan, has become quieter in transaction and stabilized in value. The USD/CNH stands up 6.6727 versus 6.6820 late Friday.

China will find it tough to achieve over 6.5 percent growth over 2016-2020: state adviser | Reuters: China will face great difficulty in achieving economic growth above 6.5 percent over the 2016-2020 period due to slowing global demand and rising labor costs at home, the China Securities Journal quotes a top state adviser as saying. Li Wei, president of the State Council's Development Research Centre, made the comments at a conference over the weekend, the newspaper reported on Monday. "In the last 30 years of reforms and opening up, China's gross domestic product has posted annual growth of around 10 percent. Against this, 6.5 percent is not high, but it will be very difficult to achieve this pace of growth," he said.He said the main impeding factors were a likely global economic slowdown, rising labor costs that were eroding China's competitive advantage, and growing environmental concerns which meant that the country could not industrialize arable land at as rapid a pace as before. President Xi Jinping has said that China must keep annual average growth at no less than 6.5 percent over the next five years to hit the country's goal of doubling gross domestic product and per capita income by 2020 from 2010. China is set to release fourth-quarter and full-year GDP data on Jan. 19. It is expected to report 2015 growth cooled to around 7 percent, the slowest in a quarter of a century.

China Trade Balance Surges As Exports Surprise To The Upside -- Mission Accomplished? It's a modern monetary miracle - China's trade surplus surged to CNY382bn (from 434bn), dramaticlaly higher than the expected drop to 338bn thanks to better than expected data for imports and exports. Imports dropped 4.0% (less than the 7.9% drop expected) and the smallest decline since December 2014 but it was exports that "proved" China's policymakers are large and in charge. For the first time since February 2015, China exports rose year-over-year (by 2.3%) dramatically better than the 4.1% plunge expected. Everything is awesome again!! So - no need for more policy support... despite earlier comments from officials of export policy support? Now we look forward to all of China's trading partners report how their exports also rose this month (leaving some magical off-Earth entity making up the "difference"). And finally - not wanting to pour cold water on the celebrations, we note that it is crucial to understand this is the extremely seasonal period leading up to Chinese New Year and is most likely an extreme outlier... but for now, everything is awesome.

China said to plan $911b regional bond issuance this year - China is planning to increase bond issuance quotas for local governments this year as authorities seek funding to shore up a slowing economy, according to people familiar with the matter. Regional authorities could sell about 6 trillion yuan ($911 billion) of bonds, which will include new debt as well as securities sold to swap expensive local government debt with cheaper municipal notes, the people said. Last year, 3.2 trillion yuan was allocated for the swap program, while a 600 billion yuan ceiling was imposed for new issuance. “This shows that regional authorities hope to seek financing that could be invested in infrastructure and other projects to bolster growth, which is positive for the economy in the long term,” said Li Bo, Shanghai-based chief investment consultant at GF Securities Co. “But still, local governments will have to repay the amounts eventually, which could still pose a risk to the economy.” Details such as the allocations for the swap program haven’t been decided yet, according to the people, who asked not to be identified because the discussions are private. The Ministry of Finance didn’t immediately reply to a faxed request for comment.

The Return of Public Investment - Dani Rodrik  The idea that public investment in infrastructure – roads, dams, power plants, and so forth – is an indispensable driver of economic growth has always held powerful sway over the minds of policymakers in poor countries. It also lay behind early development assistance programs following World War II, when the World Bank and bilateral donors funneled resources to newly independent countries to finance large-scale projects. And it motivates the new China-led Asian Infrastructure Investment Bank (AIIB), which aims to fill the region’s supposed $8 trillion infrastructure gap.  But this kind of public-investment-driven growth model – often derisively called “capital fundamentalism” – has long been out of fashion among development experts. Since the 1970s, economists have been advising policymakers to de-emphasize the public sector, physical capital, and infrastructure, and to prioritize private markets, human capital (skills and training), and reforms in governance and institutions. From all appearances, development strategies have been transformed wholesale as a result.  It may be time to reconsider that change. If one looks at the countries that, despite strengthening global economic headwinds, are still growing very rapidly, one will find public investment is doing a lot of the work. In Africa, Ethiopia is the most astounding success story of the last decade. Its economy has grown at an average annual rate exceeding 10% since 2004, which has translated into significant poverty reduction and improved health outcomes. The country is resource-poor and did not benefit from commodity booms, unlike many of its continental peers. Nor did economic liberalization and structural reforms of the type typically recommended by the World Bank and other donors play much of a role. Rapid growth was the result, instead, of a massive increase in public investment, from 5% of GDP in the early 1990s to 19% in 2011 – the third highest rate in the world. The Ethiopian government went on a spending spree, building roads, railways, power plants, and an agricultural extension system that significantly enhanced productivity in rural areas, where most of the poor reside. Expenditures were financed partly by foreign aid and partly by heterodox policies (such as financial repression) that channeled private saving to the government.

Chinese Shipyards "Vanish" As Baltic Dry Collapses To New Record Low - Another day, another plunge in The Baltic Dry Index, which just dropped a further 3.1% to 402 today - a new record low. While the index is driving headlines, under the surface, reality in the shipping (and shipbuilding) industry is a disaster. Total orders at Chinese shipyards tumbled 59% in the first 11 months of 2015, and as Bloomberg reports, with bulk ships accounting for 41.6% of Chinese shipyards’ $26.6 billion orderbook as of December, there is notably more pain to come, as one analyst warns "Chinese shipbuilders won’t be able to revive even if you try breathing some life into them."  About 140 yards in the world’s second-biggest shipbuilding nation have gone out of business since 2010, and more are expected to close in the next two years after only 69 won orders for vessels last year, JPMorgan Chase & Co. analysts Sokje Lee and Minsung Lee wrote in a Jan. 6 report. That compares with 126 shipyards that fielded orders in 2014 and 147 in 2013.  As Bloomberg reports, the weakening yuan and China’s waning appetite for raw materials have come around to bite the country’s shipbuilders, raising the odds that more shipyards will soon be shuttered. “The chance of orders being canceled at Chinese yards is becoming greater and greater,” said Park Moo Hyun, an analyst at Hana Daetoo Securities Co. in Seoul.

Chinese GDP to worry central banks at home and abroad --  China is set to report its weakest full-year growth figure in 25 years on Tuesday on the back of slowing output and sagging investments, troubling news that will likely dominate discussion at the European Central Bank and Bank of Canada policy meetings. Economists said the expansion of the Chinese economy was held back by sluggish domestic and external demand, weak investments, factory overcapacity and high property inventories, which exacerbated deflationary pressures in the economy. The poor figures bolster arguments for more Chinese monetary policy easing on top of the six interest rates cuts seen since November 2014 and suggest that more currency depreciation is coming to prop up corporate profitability, bad news for advanced economies. An even weaker yuan will export China's deflationary pressures to advanced economies that are already struggling with anemic price growth, amplified by a fall in oil prices to 12-year lows. China's annual fourth-quarter GDP likely slowed to 6.8 percent from 6.9 percent in the third quarter, the weakest reading since the global financial crisis, while full-year growth is seen at a 25-year low of 6.9 percent.

The Next Global Recession: Made in China? -- The portents from China are not good. There are ominously titled news articles aplenty; the WSJ asked in August if a global recession is brewing in China. Wonkblog asks How China could trigger a global crisis: When China sneezes, the rest of the world might not catch a cold, but it does feel bad for a couple of days. The question, though, is whether China is sicker than it seems and how contagious that would be for the global economy. A common thesis is that the crisis in China forces a policy retrenchment that involves a yuan devaluation that in triggers a currency war. I don’t doubt that emerging market currency values hinge, in many cases, on the Chinese currency’s value, or alternatively, on commodity prices. It’s going to be difficult to parse out the effects on emerging market currencies between Fed tightening (see this post) from China’s slowdown. I’ll take a slightly different approach – and that is to look at the increments to world GDP under different assumptions. That is, I’ll compare the forecasted increments using the October 2015 IMF World Economic Outlook ([1]) versus those assuming real growth is halved for 2016-2018. These two breakdowns are shown in Figures 1 and 2. The above mechanical calculations assume no spillover effects, i.e., the Chinese slowdown has no impact on rest-of-world growth. Clearly, if there are multiplier effects, then rest-of-world growth would be lower. This is not indicative of a global recession, but we are in uncharted territory. As Kose and Terrones (2015) point out, all four global recessions after 1960 have involved the United States (although not all US recessions are global recessions). One can then ask if the China slowdown presages a new era in which global recessions are driven by Chinese fluctuations – much like the ascent of the US in the 19th century was signaled by the global impact of the Panic of 1857 (see e.g., here), and the subsequent recession.

China’s slowdown, financial mayhem cast long shadow across world -- China’s economic slowdown and financial mayhem are fostering a cycle of decline and panic across much of the world, as countries on nearly every continent see escalating risks of prolonged slumps, political disruption and financial losses. South Africa’s currency, the rand, plunged Monday after stocks once again sold off in China, which is the country’s largest trading partner. South Africa’s economy -- like those of many countries on the African continent -- had been fueled by China’s hunger for natural resources, but the slowing demand now threatens to compound its many other problems and worsen a food crisis. Throughout South America, China’s declining appetite for commodities has led to deep recessions and talk of a “lost decade.” Venezuela is facing inflation in the double or triple digits, Brazil is experiencing rising unemployment, and both countries are confronting political upheaval as leaders strain to preserve public benefits. And there are less direct effects. China’s slowdown is one of the big drivers of the massive fall in oil prices, which hit a 12-year-low on Monday of $31.56 for a barrel of Brent crude, and that is causing its own problems. Petro-states Saudi Arabia and Russia have taken massive hits from the collapse in oil prices, and are facing serious domestic financial challenges as a result. The two countries each export about 14 percent of their oil to China, according the Energy Information Administration.

The Cost Of China's "Neutron Bomb" Exploding: $7.7 Trillion And Higher - Today, months after we first covered the breadth of this most disturbing for Chinese bulls topic, the FT caught up with this critical, for China's financial system, issue and reports that "the downturn in China’s fortunes — particularly across its heartland heavy industry — is already hitting the banks. Annual non-performing loan rates have been doubling annually since 2012. China Merchants Bank, China Everbright and ICBC are seen as among the most troubled."  That's based on official data, which is grotesquely low and completely fabricated. The true NPLs data is well-hidden by everyone from the lowliest bank teller to the Politburo in Beijing, who all know that merely the recognition of the problem would be sufficient to spark if not a full-blown panic then certainly accelerate capital outflows form the nation to an unstoppable degree, especially if the latest estimate which we presented last November from Fitch's Charlene Chu, of 21% in non-performing loans, is accurate.  Actually if Fitch is right, the problem is in the trillions, but let's assume a more modest figure. Here is what the FT says next: Some policymakers are privately worried about yet another underestimated issue — whether loan losses, when they materialise, will be recoverable. In western banking markets, so-called loss given default rates can typically range between 30 and 70 per cent. In China, where property accounts for the bulk of collateral used to back loans, LGDs may be far higher. Even if inflated property values do not collapse, collateral values may prove far too optimistic. In China’s nascent property ownership culture, the land on which developments are built is typically state-owned, limiting recovery values.

China’s Central Bank Injects $15 Billion Into the Market - WSJ: —China’s central bank said it injected 100 billion yuan ($15.18 billion) of funds into the market via a medium-term lending facility Friday in a bid to keep ample liquidity in the nation’s banking system. The People’s Bank of China said it offered the funds to nine financial institutions at an interest rate of 3.25%. The lending will have a six-month maturity and it aims to guide banks to step up lending to the nation’s small businesses and agricultural sector. The central bank said earlier this month that its medium-term lending facility, or MLF, outstanding totaled 665.8 billion yuan at the end of December. The MLF is a monetary tool that was adopted by the PBOC in 2014.

‘Sell everything,’ global banking giant tells investors and brace for ‘cataclysmic year’ --  RBS has advised clients to brace for a “cataclysmic year” and a global deflationary crisis, warning that the major stock markets could fall by a fifth and oil may reach US$16 a barrel.The bank’s credit team said markets are flashing the same stress alerts as they did before the Lehman crisis in 2008. “Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small,” it said in a client note. Andrew Roberts, the bank’s credit chief, said both global trade and loans are contracting, a nasty cocktail for corporate balance sheets and equity earnings, and uncharted waters given that debt ratios have reached record highs. “China has set off a major correction and it is going to snowball. Equities and credit have become very dangerous, and we have hardly even begun to retrace the ‘Goldilocks’ love-in of the last two years,” he said. Roberts expects Wall Street and European stocks to fall by 10 per cent to 20 per cent, with an even deeper slide for the FTSE-100 thanks to its high weighting of energy and commodities. “London is vulnerable to a negative shock. All these people who are ‘long’ oil and mining companies thinking the dividends are safe are going to discover that they’re not at all safe,” he said. Brent oil prices will continue to slide after breaking through a key technical level at US$34.40, with a “bear flag” and “Fibonacci” signals pointing to a floor of US$16.

Alarm bells sound in manufacturing over global economy - Alarm bells are ringing for Britain’s manufacturing companies as increased global volatility and growing pressures at home batter confidence within the sector. Almost twice as many manufacturing companies say that risks in 2016 outweigh opportunities, according to a new study from EEF. The industry trade body’s annual executive survey found that 44pc of manufacturers said their company faces more downside potential than upside, with 23pc thinking the positives outweigh the negatives. The downbeat outlook is feature across all areas of the sector, and the negative outlook is “particularly strong” among bigger businesses, EEF found. As a consequence, jobs could be axed at more than a third of manufacturing companies, with 34pc of businesses in the sector saying restructuring their workforces are a priority this year.  Also on the “to do” lists for 35pc of companies are organisational changes, while 31pc said that “across the board” cost-cutting was a priority.  The findings echo George Osborne’s warning last week that Britain faces a “dangerous cocktail” of global risks that could place the UK’s economic recovery in danger, and country needs to be “shaken” out of its complacency.

Escalating China woes to stunt Singapore’s growth this year - Singapore will have to settle for sub-par growth this year on back of poor external demand and the ongoing domestic restructuring crunch, according to a report by BMI. In particular, with the China faltering and other major players such as Indonesia and Thailand failing to reverse their own cooling economies, Singapore faces an increasingly difficult external outlook. BMI Research noted that Chinese demand is unlikely to recover any time soon as the mainland grapples with significant overcapacity, a high debt load, and financial market instability. Over in the Pacific, while the US economy has been somewhat resilient in the face of a deteriorating global growth environment over recent years, we are witnessing incipient signs of a slowdown. “Singapore will remain mired in a slow growth environment over the near future as external and domestic factors continue to act as a drag on economic activity,” said BMI Research.

S.Korea's 2015 foreign outflows highest since 2008 | Reuters: Foreign investors took out 3.85 trillion won ($3.20 billion) from South Korean financial markets in December, official data showed on Thursday, translating into the biggest annual outflow since 2008 for Asia's fourth-largest economy. Offshore investors took out 3.07 trillion won from the stock market, the Financial Supervisory Service (FSS) said in a statement, marking the biggest outflow since August due to the U.S. Federal Reserve's rate hike. Foreigners took out a net 784 billion won from the bond market in December, marking the biggest outflow since September as redemption on matured debt outweighed net purchases. For all of 2015, foreigners took out 2.99 trillion won from the South Korean market to mark the biggest outflow since 2008. Foreign outflows from the stock market amounted to 3.46 trillion won during the year while the bond market saw a net inflow of 467 billion won. Foreign outflows from South Korean markets in December also marked a four-month high.

10-year yield hits record low - (Reuters) — Benchmark Japanese government bond prices posted their first loss of 2016 on Thursday after earlier gains, which took the benchmark 10-year yield to a record low, prompted profit-taking. The 30-year yield rose 5.5 basis points from the previous close to 1.230 percent, the largest rise in nine-and-a-half months. “The sharp reversal in superlong bonds we saw today suggested that quite a lot of people had bought them for capital gains,” said Akito Fukunaga, chief fixed income strategist at Barclays. “I think the market will become volatile after a move like today. The market’s rally since December has come to an end.” JGBs had rallied in recent weeks as the fall in oil prices and concerns about China’s economy encouraged investors to dump risk assets and park their funds in the safety of government bonds. Nomura BPI, a widely-used Japanese bond index, rose 0.5 percent since the start of year until Wednesday.

BOJ's Negative Corporate Bonds Yields Adds to Distortions - The Bank of Japan’s purchase of corporate debt at negative yields for the first time adds to distortions in Japan’s bond markets and raises risks for investors and banks, according to Mana Nakazora, the chief credit analyst in Tokyo at BNP Paribas SA. The central bank bought corporate bonds in market operations at minus 0.03 percent on Wednesday, according to data from the central bank. While the BOJ has purchased company notes at zero interest in the past, it’s the first time for it to buy the debt at negative levels, according to data compiled by Bloomberg. “The BOJ could end up becoming the final arbiter of everyone’s creditworthiness by deciding whether or not to buy a bond,” said Nakazora, ranked Japan’s No. 1 credit analyst in an Nikkei Veritas investor poll in 2015. “Investors will be saddled with risks if credit spreads aren’t reflective of a company’s creditworthiness.” “The market had looked at the 0.1 percent level as the floor for corporate bonds but if investors can be confident that they can sell the debt to the BOJ at negative levels, that level may come down,” said Takayuki Atake, an analyst in Tokyo at SMBC Nikko Securities Inc., a unit of Sumitomo Mitsui Financial Group Inc. “It’s a landmark that we’ve reached negative yields for corporate bonds.”

China rout threatens India - Khaleej Times: A deepening slowdown in China threatens to derail India's economic growth, triggering financial market upheaval and a falling currency, Vishal Kampani, the nation's top investment banker, said. "If China keeps getting hit like this, the yuan has to devalue, and we will see another crisis in India," Kampani, managing director at JM Financial Ltd, the South Asian country's top mergers and acquisitions adviser last year, said in a January 8 interview. "I refuse to believe that India will stand out and will look very different." Indian stocks and the rupee fell on Monday, tracking declines in other emerging markets as volatility in China sapped risk appetite globally. China's efforts to stabilise the yuan failed to halt equity losses, reviving concern about the Communist Party's ability to manage an economy set to grow at its weakest pace since 1990. India's benchmark S&P BSE Sensex Index fell 0.4 per cent on Monday in Mumbai after dropping as much as 1.4 per cent earlier. The rupee weakened 0.2 per cent to 66.7725 against the dollar as of 4:11pm local time. A devaluation of the yuan could weaken the rupee, creating "huge problems" for Indian companies that have to pay back dollar loans, Kampani said.  China is India's largest trade partner and third-largest export market, so a slowdown there could prolong a record slump in the South Asian nation's overseas shipments, which declined 12 straight months through November. A

India''s Industrial Output Contracts Unexpectedly - India's industrial output contracted unexpectedly in November while inflation accelerated in December, complicating the picture for policymakers as they try to maintain economic momentum without allowing inflation to slip out of control. Government data Tuesday showed that the output of factories, mines and utilities fell 3.2% from a year earlier, turning around sharply from a 9.9% increase in October, which was the greatest increase in more than five years. November's contraction was the first in 13 months and the biggest since October 2011. Production typically rises ahead of Diwali as manufacturers gear up to meet higher demand during the festival when many Indians consider it auspicious to make big-ticket purchases. It cools off afterwards as festive demand fades and manufacturers look to exhaust leftover inventory. The festival's timing also affects the number of days factories operate due to public holidays. The data showed manufacturing output, which contributes three quarters of the country's industrial production, shrank 4.4%, driven by a 24.4% fall in output of capital goods, a segment that has in the past shown extreme volatility, leading to big swings in the headline numbers. The mining sector did better with a 2.3% rise in output, while electricity production grew 0.7%. Separate government data also released Tuesday showed the benchmark consumer inflation rate climbed for the fifth month in a row to 5.61% from a year earlier in December, from 5.41% in November, driven by food prices. The reading was in line with economists' prediction of 5.6%.

The Pakistani Dystopia - Imagine a country that is embroiled in a long and bloody conflict with its neighbor, and each time its democratically elected Prime Minister tries to reach out and make peace, his own army launches an attack to make sure the peace doesn’t take hold. You might think you were trapped inside a dystopian movie. Unless, of course, you’ve been to Pakistan, where this happens all the time. This week, Pakistani officials said they had detained Masood Azhar, the leader of Jaish-e-Mohammed, a militant group, for his alleged role in overseeing the attack on an Indian airbase in the city of Pathankot earlier this month. The attack left seven Indians dead. Jaish-e-Mohammed is one of several Pakistani militant groups whose members routinely cross into India and carry out attacks there, for the ostensible purpose of prying loose Jammu and Kashmir, India’s only Muslim-majority state. Azhar’s detention is almost certainly a farce, staged to placate foreign leaders. If the past is any guide, Azhar, who has been detained many times before, will soon be free and able to carry out more attacks. This is the way it has worked in Pakistan for years.

RBS cries ‘sell everything’ as deflationary crisis nears -- RBS has advised clients to brace for a “cataclysmic year” and a global deflationary crisis, warning that major stock markets could fall by a fifth and oil may plummet to $16 a barrel.  The bank’s credit team said markets are flashing stress alerts akin to the turbulent months before the Lehman crisis in 2008. “Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small,” it said in a client note. Andrew Roberts, the bank’s research chief for European economics and rates, said that global trade and loans are contracting, a nasty cocktail for corporate balance sheets and equity earnings. This is particularly ominous given that global debt ratios have reached record highs. “China has set off a major correction and it is going to snowball. Equities and credit have become very dangerous, and we have hardly even begun to retrace the 'Goldlocks love-in' of the last two years,” he said.  Mr Roberts expects Wall Street and European stocks to fall by 10pc to 20pc, with even an deeper slide for the FTSE 100 given its high weighting of energy and commodities companies. “London is vulnerable to a negative shock. All these people who are ‘long’ oil and mining companies thinking that the dividends are safe are going to discover that they’re not at all safe,” he said.

Indonesia's central bank cuts key rate to help weak economy - Indonesia's central bank, which resisted cutting its benchmark interest rate for months, did so on Thursday in a bid to lift an economy growing at its slowest rate in six years. The benchmark policy rate was lowered by 25 basis points to 7.25 per cent, while the overnight deposit facility rate and lending facility rate were also cut by the same amount to 5.25 per cent and 7.75 per cent respectively. The last time the benchmark rate was changed was in February, when it was reduced by 25 basis points to 7.50 per cent.The decision was announced hours after explosions and gunfire in central Jakarta less than two kilometres from where Bank Indonesia (BI) was holding its first policy meeting of 2016. Ten of 16 analysts in a Reuters poll had predicted a rate cut on Thursday. Some analysts expect Thursday's cut will be the first in an easing cycle. BI said it will assess the need for further monetary policy loosening in future.

Fitch: Emerging Markets Risks Abound in 2016; Private Debt Key Challenge - Fitch Ratings says emerging markets (EMs) are facing a wide range of risks across many sectors in 2016 and sovereign, corporate and bank ratings will continue to be under pressure. The share of EM ratings on Negative Outlook in these core sectors are all at their highest since 2009. EM sovereigns are being challenged by higher US interest rates, a stronger US dollar, weak commodity prices, sluggish global trade and heightened political risks. In December, Fitch downgraded both Brazil and South Africa's sovereign ratings, adding to the list of negative rating actions for large EMs, following the downgrade of Russia in January 2015. This contrasts with the trend in the last decade of stable-to-improving ratings for large EM sovereigns. Rating prospects are nearly the mirror image of those in developed markets, with a Negative/Positive Rating Outlook ratio of about 2:1. The macroeconomic headwinds are also affecting the outlook for corporates and banks in EMs. In addition, FX volatility is a threat for many leveraged companies, especially those with foreign currency debt to refinance.

S&P’s debt report says global debt has outstripped income growth - The world has amassed debt at a faster pace than income growth since the 2008-2009 financial crisis. That pace contrasts greatly between developed and developing economies. The ratio of debt to GDP (a proxy for income in new analysis from Standard & Poor’s in its latest global debt report. The Asia-Pacific and Latin America has far outstripped that for Europe and North America. Further, the composition of debt has varied substantially by nonbank entities--government, corporate, and household--based on a study of 27 countries. S&P calculates that the ratio of total debt of nonbank entities to GDP has grown by an average of 1.7 percentage points annually to 235% between 2009 and June 2015. The average growth number, however, masks a dichotomy between developed and developing economies. While annual growth in the debt-to-GDP ratios of Europe and North America over the period averaged a conservative 0.2 and 0.5 percentage points respectively, Asia-Pacific and Latin America chalked up a more aggressive rate of 3.2 and 3.6 percentage points. The ratings agency selected the 20 largest national economies as measured by nominal GDP and another seven economies (Greece, Hong Kong, Malaysia, Portugal, Singapore, South Africa, and Thailand) that it believes are of interest to investors. These 27 economies also combine to make up about 85% of world GDP, so their experience has weight.

Free capital flows can put economies in a bind - When Margaret Thatcher took power in Britain in 1979, one of her first decisions as prime minister was to scrap capital controls. It was the beginning of a new era and not just for Britain. Free capital movement has since become one of the axioms of modern global capitalism. It is also one of the “four freedoms” of Europe’s single market (along with unencumbered movement of people, goods and services). We might now ask whether the removal of the policy instrument of capital controls may have contributed to a succession of financial crises. To answer that, it is instructive to revisit a debate of three decades ago, when many in Europe invested their hopes in a combination of free trade, free capital mobility, a fixed exchange rate and an independent monetary policy.  In the early 1990s, Britain put this to the test, joining the single European market and pegging its currency to Germany’s. The music soon stopped; after less than two years in the exchange-rate mechanism, sterling went back to a floating exchange rate. Other European countries took a different course, sacrificing monetary independence and creating a common currency. Both choices were internally consistent. What has changed since then is the rising importance of cross-border finance. Many emerging markets do not have a sufficiently strong financial infrastructure of their own. Companies and individuals thus take out loans from foreigners denominated in euros or dollars. Latin America is reliant on US finance, just as Hungary relies on Austrian banks. With the end of quantitative easing in the US and rising interest rates, money is draining out of dollar-based emerging markets. Theoretically, it is the job of a central bank to bring the ensuing havoc to an end, which standard economic theory suggests it should be able to do so long as it follows a domestic inflation target. But if large parts of the economy are funded by foreign money, its room for manoeuvre is limited — as the French economist Hélène Rey has explained. In the good times, Prof Rey finds, credit flows into emerging markets where it fuels local asset price bubbles. When, years later, liquidity dries up and the hot money returns to safe havens in North America and Europe, the country is left in a mess. There is very little the central bank can do to moderate inflows and outflows of foreign money.

Multipolarity: The Next Step After Globalization? -- The world economy during the last few decades has experienced "globalization," a broad and admittedly vague term which refers among other factors to a rise in the ratio of world exports to world GDP, as well as the pattern that an ever-rising share of global economic output is happening in the "emerging markets" rather than in the traditional high-income countries. But since the Great Recession, there has been a slowdown in the rise of global trade. If globalization falters, what might evolve next? The Credit Suisse Research Institute asks in a September 2015 report: "The End of Globalization or a More Multipolar World?" The report makes this argument: Our sense is that the world is currently in a benign transition from full globalization to multipolar state, though this is not complete. ... We find evidence of region-specific trends in economic, social and technological factors that are distinct from aggregate world trends. ... In this context, we are increasingly mindful of George Orwell’s 1984, where he divided the world into three regions – Oceania, East Asia and Eurasia on the basis of economic power and form of government. Although it requires some conceptual shoehorning we could well fit the major countries of the world into the following categories: Oceania (USA, Canada and Latin America), Eurasia (Europe, the Middle East and Russia), East Asia (Africa, Asia and the Pacific economies). Some countries like the UK, Japan and Australia could just as easily fit in two categories. In today’s world, Orwell’s classification is not a ‘clean’ one but the three broad regions he has set out give a sense as to how a multipolar world might evolve at a high level.

Is Bloomberg Hiding Something? -- Bloomberg has been gathering data on the total of Central Bank International Reserves for many years. Since December 1, 2010, the information has been updated every Friday, and has been available on a Bloomberg website, accessible only by subscription. On Friday, December 11 of the present year, Bloomberg published no information regarding International Reserves as of that date. On Friday, December 18, once more, Bloomberg published no information regarding International Reserves as of that date. Curiously enough, on Monday, December 1, 2015, we published an article on this website, "The Crumbling World Order, and Who Will Pick Up the Crumbs?" which pointed out that International Reserves have been contracting since August 2014 and up to November 27, 2015, had diminished by $752 billion dollars, or 6.25% of the total achieved at the peak back in August, 2014. And we remarked that this contraction was unprecedented, since we have data going back to 1948, and never, ever, has there been a sustained contraction in the total of Central Bank International Reserves since the creation of the present international monetary system in 1944, at Bretton Woods. In our opinion, the present contraction of International Reserves announces a secular change of trend to liquidation of international debt and consequently to Depression. Why has Bloomberg decided to suspend the publication of International Reserves on its website? Is Bloomberg hiding information from the public? Has Bloomberg been pressured to suspend publication of sensitive data? We hope Bloomberg resumes publication of the important data on International Reserves at once.

A wave of sovereign debt crises can come sweeping | When it comes to sovereign debt, the term “default” is often misunderstood. It almost never entails the complete and permanent repudiation of the entire stock of debt; indeed, even some Czarist-era Russian bonds were eventually (if only partly) repaid after the 1917 revolution. Rather, non-payment – a “default”, according to credit-rating agencies, when it involves private creditors — typically spurs a conversation about debt restructuring, which can involve maturity extensions, coupon-payment cuts, grace periods, or face-value reductions (so-called “haircuts”). If history is a guide, such conversations may be happening a lot in 2016. Like so many other features of the global economy, debt accumulation and default tends to occur in cycles. Since 1800, the global economy has endured several such cycles, with the share of independent countries undergoing restructuring during any given year oscillating between zero and 50 per cent. Whereas one- and two-decade lulls in defaults are not uncommon, each quiet spell has invariably been followed by a new wave of defaults. The most recent default cycle includes the emerging market debt crises of the 1980s and 1990s. Most countries resolved their external-debt problems by the mid-1990s, but a substantial share of countries in the lowest-income group remain in chronic arrears with their official creditors. Like outright default or the restructuring of debts to official creditors, such arrears are often swept under the rug, possibly because they tend to involve low-income debtors and relatively small dollar amounts. But that does not negate their eventual capacity to help spur a new round of crises, when sovereigns who never quite got a handle on their debts are, say, met with unfavourable global conditions.

The International War on Cash - Back in 2008, I began warning of increasing capital controls that we would see in the future, as a component in the decline of Western economies (Western in the broad sense, including Japan, Australia, etc.) Along the way, it occurred to me that, at some point, governments might collectively attempt to eliminate paper currency in favour of an electronic currency - transferred from party to party solely through licensed banks. Sound farfetched?  Well, maybe, but what if the U.S. and EU agreed on an overall plan, then suggested it to other governments? On the face of it, this smacks of conspiracy theory, yet certainly, all governments would benefit from this control and would be likely to get on board. In fact, it might prove to be the only way out of their present economic problems. So, how would it play out? Here’s roughly how I saw Phase I:

  • •Link the free movement of cash to terrorism (Create a consciousness that any movement of large sums suggests criminal activity.);
  • •Establish upper limits on the amount of money that can be moved without reporting to some government investigatory agency;
  • •Periodically lower those limits;
  • •Accustom people to making all purchases, however small or large, through a bank card;
  • •Create a consciousness that the mere possession of cash is suspect, since it’s no longer “necessary”. When I first wrote on the subject, there was considerable criticism as to the possibility that such a programme would ever be attempted, let alone succeed. And, granted, it was so Orwellian that it was understandably seen as a crackpot idea. But since that time, the programme has been developing extremely rapidly. In the last six months alone, it has become so visible that it has even garnered a name - “the War on Cash”.

BIS redefines inflation (again): An interview with Hyun Song Shin, economic adviser and head of research at the BIS, reposted in the BIS web site reminds us of the strange and heterodox views that the BIS (and others) have about the behavior of inflation. The views run contrary to most of what we all teach about inflation. They can only be understood if one has a very special and radical view on what determines inflation and are supported by a unique reading of the data. You probably need to read the whole interview to understand what I mean but here is a summary of the new BIS theory of inflation:

    • 1. Inflation is a global phenomenon, not a national one. Monetary policy has very little influence on inflation, demographics and globalization are much more relevant factors.
    • 2. The idea that monetary policy affects demand and possibly inflation is a "short-term" story that is too simple to understand the recent behavior of inflation.
    • 3. Deflation is not that bad. The Great Depression is a special historical event that holds no lessons for what we have witnessed during the Great Recession.
    • 4. While central banks are powerless at controlling domestic inflation, they are very powerful at distorting interest rates and rates of returns for long periods of time (decades).
    • 5. Central banks have a problem when inflation is the only goal (they end up creating distortions in financial markets).
    • 6. Monetary policy is a cause of all China's problems (he admits that there are other causes as well).

In summary, central banks are evil. Their only goal is to control inflation but they cannot really control it and because of their superpowers to distort all interest rates they only end up causing volatility and crises. And this is coming from an organization whose members are central banks and its mission is "to serve central banks". Surreal.

Populations of Young Are Declining Worldwide (Except Africa)...Masked by Old Living Far Longer (Except Africa): The global economy and global finance demand and require massive growth to allow for the huge debts to be serviced and excess to be created above and beyond expenses (aka, profit). But a massive wrench has been thrown in the works. The segments at the bottom of our population have ceased growing. If you don't have population growth coming, the only means for growth are higher wages, less saving/more spending, and/or more credit. All of the later mentioned means of growth have pretty much run their course. So let's explore the demographics for now. If you want to know if a population is truly growing or simply growing older...let's look at the annual 0-5yr/old global population vs. the total annual population (chart below). Both segments grew from 1950 until 1990...but since 1990, the 0-5yr old population has been flat-lining while the total global population has been soaring. So, shocker, people are living fact, nearly all population "growth" since 1990 has been people living longer, not any increase in the numbers of young.The chart below again highlights the relative dearth of growth in the population of the 0-5 year olds (aka, babies/toddlers). And below is how that looks annually averaged over the different periods. And like so many government tricksters, all the growth is in the far out years to balance out the declines over the next 15 years. I'll definitely take the under on that and guess 2030-2050 looks more like 2016-2030. For those curious what depopulation (from the bottom up) looks like, the linked article showing Japan, Germany, and China may be of interest here or more broadly here.

Brazil Unemployment Rate Rises to 9% in August-October Period - --Brazil's unemployment rate rose between August and October while wages declined, as layoffs continued. Joblessness rose to 9% from 8.6% in the previous three-month period and 6.6% a year earlier, the Brazilian Institute of Geography and Statistics, or IBGE, said Friday. The drop in wages comes as the country's economic recession continues. After contracting at a projected level of 3.71% last year, Brazil's economy is expected to shrink 2.99% this year, according to a weekly central bank survey of 100 economists. Friday's data were from a new, nationwide unemployment survey, known as PNAD, that the IBGE is phasing in. The survey that it replaces only collected data from six major metropolitan areas.

Brazil's economic activity falls 0.52 pct in November - -- A gauge of economic activity in Brazil fell at a slower-than-expected pace in November on a seasonally adjusted basis, official data showed on Friday. The Brazilian central bank's IBC-Br economic activity index fell 0.52 percent in November from the prior month, the bank said. A Reuters survey of 17 analysts forecast a 1.00 percent decline in the indicator, a gauge of activity in the farming, industry and services sectors.

How Australian households became the most indebted in the world -- The results are in: Australian households have more debt compared to the size of the country’s economy than any other in the world.  Research by the Federal Reserve has shown the consolidated household debt to GDP ratio increased the most for Australia between 1960 and 2010 out of a select group of OECD nations. Australia’s household sector has accumulated massive unconsolidated debt compared with other countries. As of the third quarter of 2015, it now has the world’s most indebted household sector relative to GDP, according to LF Economics’ analysis of national statistics. Denmark long held this unholy accomplishment, but has been slowly deleveraging over the last several years as its housing bubble peaked and burst during the GFC. The latest debt-financed boom in Sydney and Melbourne has resulted in Australia now overtaking Denmark, a comparison of official figures from Australia and Denmark has shown.

South African rand dives to record low in Asian trade as Japanese sell: South Africa's rand tumbled to a fresh record low against the U.S. dollar in erratic Asian trade on Monday, with dealers talking of Japanese sellers in a very illiquid market. The dollar surged as much as 10.3 percent at one stage to reach 17.9950 rand and was last quoted at 17.2500, a huge move from 16.3150 late in New York on Friday. Dealers said Japanese investors were selling rand for U.S. dollars, where there was at least some liquidity, and then exchanging those dollars for yen. The resulting flows pushed the yen up broadly, with the dollar dropping as far as 116.70 yen from 117.27 late on Friday.

Nigeria: Central Bank Cuts Dollar Supplies to Bureaux De Change As Currency Crisis Worsens - Forbes: Nigeria’s central bank has announced that it will halt all US dollar sales to bureau de change operators, as the country struggles to cope with a crippling shortage of hard currency. Under the new measures, Nigerian banks will also be able to accept dollar deposits. The collapse in the oil price over the past year has gutted Nigeria’s foreign exchange earnings. Oil typically accounts for around 70% of government revenues, while the country imports much of its food and refined fuel. The Central Bank of Nigeria has already put in place a number of currency controls aimed at reducing the flow of hard currency out of the economy, including limiting the availability of dollars for importers of a range of goods from rice to private jets. Holders of naira bank accounts are only able to spend or withdraw $300 at a time overseas. The CBN has so far resisted any devaluation of the naira, and has spent billions from the country’s reserves maintaining the official exchange rate of between 197-199 naira to the dollar. On the black market the exchange rate is around 250 to the dollar. In a press statement, CBN governor Godwin Emefiele said that bureaux de change operators were now routinely going beyond their mandate to serve small buyers of currency, and had now become wholesale dealers in foreign exchange. Accusing them of greed and “rent-seeking behaviour”, he announced an immediate end to the central bank’s sales to the sector.

Nigerian central bank stops dollar sales to FX operators, naira sinks | Reuters: Nigeria's central bank is halting dollar sales to non-bank foreign exchange operators and letting commercial banks accept dollar deposits with immediate effect, its governor said on Monday, in an effort to shore up dwindling foreign reserves. Africa's biggest economy, an OPEC member state that depends on oil sales for about 95 percent of its foreign reserves, has been hammered by a collapse in global oil prices, which has triggered a slide in its naira currency. Godwin Emefiele said the sale of foreign exchange to bureaux de change would be discontinued because they were using up the country's foreign reserves for illegal transactions and selling the dollar at 250 naira compared to the official central bank rate of 197 naira. The currency hit a record low of 282 per dollar on the unofficial market on Monday after the central bank's announcement. Emefiele said foreign reserves stood at around $28 billion compared with $37 billion in June 2014, and that the bureaux were depleting them at a rate of $28.4 million per week.

Nigerian currency in lowest level in 43 years - The Nigerian financial sector appears to have entered a heightened pressure, as both the foreign exchange and stock market sustained major negative trends on Wednesday. According to local media reports, the naira depreciated further to a 43-year low at N305 to the dollar as scarcity of dollars intensified in the unofficial market. From an average of N287 to the dollar on Tuesday, the parallel market exchange rate rose to an average of N305 to the dollar across the country. Similarly, the new year stock market haemorrhage entered the eighth day on Wednesday with a total N1.22 trillion losses to investors, giving a year-to-date decline of 12.36 percent in market capitalisation. The market key index, the Nigerian Stock Exchange All Share Index, NSE ASI, declined year-to-date by same margin. The stock exchange, which opened this year at market capitalisation of N9.851 trillion began a free fall till Wednesday, closing at N8.63 trillion while the NSE ASI which opened the year at 28,642.25 points closed at 25,103.05 points.

Africa-China exports fall by 40% after China slowdown - BBC News: African exports to China fell by almost 40% in 2015, China's customs office says. China is Africa's biggest single trading partner and its demand for African commodities has fuelled the continent's recent economic growth. The decline in exports reflects the recent slowdown in China's economy. This has, in turn, put African economies under pressure and in part accounts for the falling value of many African currencies.  Presenting China's trade figures for last year, customs spokesman Huang Songping told journalists that African exports to China totalled $67bn (£46.3bn), which was 38% down on the figure for 2014. BBC Africa Business Report editor Matthew Davies says that as China's economy heads for what many analysts say will be a hard landing, its need for African oil, metals and minerals has fallen rapidly, taking commodity prices lower.  There is also less money coming from China to Africa, with direct investment from China into the continent falling by 40% in the first six months of 2015, he says. Meanwhile, Africa's demand for Chinese goods is rising.

Baltic index slump continues on demand concerns | Agricultural Commodities | Reuters: (Reuters) - The Baltic Exchange's main sea freight index, which tracks rates for ships carrying industrial commodities, touched a record low for the ninth straight session Friday, mostly due to vessel oversupply and lack of global demand. The overall index, which gauges the cost of shipping dry bulk cargoes including iron ore, cement, grain, coal and fertiliser, was down 10 points, or 2.61 percent, at 373 points. The index has plunged by over hundred points or about 22 percent this year. On Wednesday, it fell below 400 points for the first time on record. The capesize, panamax and handysize indices also touched record lows on Friday. The dry bulk sector has taken a beating from the slowdown in Chinese business at a time when the sector is struggling with huge overcapacity. The capesize index shed 27 points, or 12 percent, to 198 points on Thursday. Average daily earnings for capesize vessels dropped $193 to a record low of $2,748. "(The) fundamental problem is not fleet growth but negative demand growth. Slowing economic growth and significant turmoil in commodity prices is resulting in extremely low chartering activity," said Clarksons Platou analyst Frode Morkedal. Morkedal expects ship scrapping activities to surge and newbuild deliveries to be postponed, resulting lower fleet growth this year. Capesizes typically transport 150,000-tonne cargoes such as iron ore and coal and have been particularly affected by a fall-off in coal and iron ore demand in China.

Shipping Said to Have Ceased… Is the Worldwide Economy Grinding to a Halt? --  Last week, I received news from a contact who is friends with one of the biggest billionaire shipping families in the world.  He told me they had no ships at sea right now, because operating them meant running at a loss. This weekend, reports are circulating saying much the same thing: The North Atlantic has little or no cargo ships traveling in its waters. Instead, they are anchored. Unmoving. Empty.  You can see one such report here.  According to it, Commerce between Europe and North America has literally come to a halt. For the first time in known history, not one cargo ship is in-transit in the North Atlantic between Europe and North America. All of them (hundreds) are either anchored offshore or in-port. NOTHING is moving. This has never happened before. It is a horrific economic sign; proof that commerce is literally stopped. We checked and it appears to show no ships in transit anywhere in the world.  We aren’t experts on shipping, however, so if you have a better site or source to track this apparent phenomenon, please let us know.

Maersk hit by ‘toxic cocktail’ of low oil prices and slack box demand - It has been a very bad start to the year to Danish giant AP Moller-Maersk’s share price, dropping more than at any other time in the past two decades. And analysts are predicting worse is to come. Maersk’s stock lost 9.8% in the first week of 2016, its worse start to a year since at least 1992, according to Bloomberg. A report out by Nordea analyst Stig Frederiksen says Maersk is being hit “by a toxic cocktail with challenges in both the oil and the container division, [but] it’s now become the oil price that’s the main driver.” Maersk Oil, which mainly explores in Qatar and in the North Sea, has set its breakeven level at around $55per barrel, considerably higher than today’s price and indeed the average forecast price by readers of this site for the year ahead. Maersk shares will probably be driven by the price of oil “for a while,” the Nordea analyst predicted. Frederiksen did however maintain that Maersk Line, the world’s largest containerline, would stay in the black this year. Sensing stormy conditions ahead, Maersk announced swingeing cuts across the whole group last October including 4,000 redundancies at its containerline.

Ontario's Nipigon River bridge fails, severing Trans-Canada Highway -  A newly constructed bridge in northern Ontario has heaved apart, indefinitely closing the Trans-Canada highway — the only road connecting Eastern and Western Canada.  The Nipigon River Bridge has been closed for "an indefinite time due to mechanical issues," according to the Ontario Provincial Police. The bridge remains open to pedestrian traffic. Steven Del Duca, minister of transportation for Ontario, said in a statement late Sunday the ministry "will do everything they can do to restore the bridge quickly, while also making sure that the safety of the travelling public remains of paramount importance."  The west side of the bridge has pulled away from the abutment connecting it to the river bank's edge, lifting up about 60 centimetres. As a result, police have shut down Highways 11 and 17 at the bridge, which is located about 100 kilometres northeast of Thunder Bay, Ont.  The estimated duration of the closure is "uncertain" with police noting it could be "possibly days." "It's not just us. It's all of Canada that has a problem right now," Nipigon Mayor Richard Harvey told CBC News. "This is the one place in Canada where there is only one road, one bridge across the country." Engineers are on site trying to determine what caused the bridge to fail, but "the reality is nobody really knows what happened," said Harvey. He said transport traffic in the area has backed up and the township is opening up community centres to give anyone stranded a place to stay.

Loonie Lurches To 13 Year Lows As Crude Nears '2' Handle - Today's renewed plunge in WTI Crude (on the verge of a '2' handle any second) has extended the Canadian Dollar's weakness (among many other oil producers). For the first time since early 2003, the Loonie is worth less than 70c... (anyone for skiing?)  This can only serve to worsen the death of the Alberta Dream, and all the societal depressions that is bringing with it.

Canada's dollar dips below 70 cents U.S. for first time since spring of 2003 - – Oil and the Canadian dollar breached two benchmarks Tuesday, with crude briefly dipping below US$30 a barrel and the loonie slipping beneath the 70-cent U.S. level during a volatile day on the markets. At one point in early afternoon trading, a barrel of West Texas Intermediate fell as low as US$29.93 before it regained some ground to settle at US$30.44 a barrel. That was still down 97 cents from Monday’s close. The Canadian dollar hovered above and below the 70-cent U.S. mark throughout the day, at one point dropping as low as 69.85 cents U.S., before ending the day at 70.14 cents U.S. — down 0.17 of a cent and its lowest level since April 2003. Oil prices have dropped precipitously over the last year and a half, falling from above US$105 in June 2014 to levels not seen in more than a decade. And the loonie is heavily influenced by the global price of oil, one of the country’s major exports. Sadiq Adatia, chief investment officer at Sun Life Global Investments, said the Bank of Canada is eyeing the low price of oil as it considers where to take its benchmark interest rates after cutting them twice last year. “Every passing day that oil drops, there’s more likelihood of a rate cut and more likelihood of more drops in the Canadian dollar,” he said. At the same time the loonie has fallen, the greenback has surged against numerous currencies, including Canada’s, as its economy gains strength.

Canadians Panic As Food Prices Soar On Collapsing Currency -- As regular readers are no doubt acutely aware, Canada is struggling through a dramatic economic adjustment, especially in Alberta, the heart of the country’s oil patch. Amid the ongoing crude carnage the province has seen soaring property crime, rising food bank usage and, sadly, elevated suicide rates, as Albertans struggle to comprehend how things up north could have gone south (so to speak) so quickly.  The plunging loonie “can only serve to worsen the death of the 'Canadian Dream'" we said on Tuesday. As it turns out, we were exactly right. The currency's decline is having a pronounced effect on Canadians' grocery bills. AsBloomberg reminds us, Canada imports around 80% of its fresh fruits and vegetables. When the loonie slides, prices for those good soar. "With lower-income households tending to spend a larger portion of income on food, this side effect of a soft currency brings them the most acute stress," Bloomberg continues. Of course with the layoffs piling up, you can expect more households to fall into the "lower-income" category where they will have to struggle to afford things like $3 cucumbers, $8 cauliflower, and $15 Frosted Flakes. Have a look at the following tweets which underscore just how bad it is in Canada's grocery aisles.

Oil price slide sends Canadian dollar to lowest since 2003 | Reuters: Oil-rich Canada's dollar fell to its lowest level since April 2003 on Thursday as crude prices slid to their weakest in 12 years, fuelling speculation the Bank of Canada could cut interest rates as early as next week. Ahead of the Bank of England's latest monetary policy meeting and interest rate decision, sterling hit an 11-month low against the euro of 75.77 pence. The euro was up across the board on a Reuters report that European Central Bank policy makers are sceptical about the need for further policy action in the near term. The loonie - traders' name for the Canadian dollar - fell to C$1.4389 against its U.S. counterpart as benchmark brent crude hit a new 12-year low. Canadian heavy crude also collapsed to around $15 a barrel this week, the lowest level since the benchmark was introduced in 2004. "Negative oil price momentum is negative for Canada generally, given that it's a major oil exporter, and also it seems to have become the case that BOC rate expectations are also linked directly to the oil price," said RBC Capital Markets currency strategist Adam Cole. "So the move in the currency is being compounded." The market gave sterling a wide berth even though the consensus is for the BOE to leave interest rates on hold at its first monetary policy decision of the year on Thursday. It traded at $1.4401, close to a 5-1/2-year low hit earlier in the week.

New NAFTA lawsuits reveal disturbing, dangerous trend  - Abitibi Bowater is at it again. In 2010 the company squeezed $130 million out of Canadian taxpayers after the Government of Newfoundland and Labrador expropriated Abitibi’s hydroelectric assets in Grand Falls-Windsor and took back water and timber rights. The company threatened to sue Canada under Chapter 11 of the North American Free Trade Agreement (NAFTA), prompting the Harper administration to settle out of court. This all went down after Abitibi chose to pull out of the province and used the excuse of imminent bankruptcy to give minimum compensation to workers and pensioners, while paying nothing toward cleaning up the environmental damage it had caused. The company never did go out of business; after emerging from bankruptcy proceedings under a new name, Resolute Forest Products, it was business as usual on the mainland. This time the company closed down a mill in Shawinigan, Que., and is again suing under NAFTA because, it claims, a competing mill in Port Hawkesbury, N.S. was given an unfair trade advantage when it was subsidized by the Government of Nova Scotia.  The original argument for including an investor-state dispute settlement mechanism in NAFTA was to prevent governments from discriminating against foreign corporations in favour of local businesses. There is a loophole in NAFTA, however, which allows Canadian corporations to register in the United States and then claim they are American for the purpose of suing Canada. This can be done as a mail box company in the state of Delaware, for instance.

Russian Shares and Ruble Fall as Oil Prices Continue to Tumble -  — Russia’s main stock indexes plummeted on Monday, the first day of trading after a lengthy winter holiday here, as the drop in oil prices cast a pall over the country’s energy-dependent economy.The retreat for Russian shares was in line with declines on other exchanges around the world in the first week of the year, when financial markets in Moscow were closed for the Eastern Orthodox Christmas holiday.One broad index of Russian stocks, the Micex, closed 3.75 percent lower on Monday. Another index, the RTS, which prices Russian shares in dollars and therefore reflects changes in the exchange rate as well as in the stock market, fell 4.9 percent.The ruble dropped sharply at the opening of trading to more than 76 to the dollar, from 74.75, before recovering to close at 75.8.Oil and other commodities like natural gas and steel, which make up the bulk of Russia’s exports, have fallen sharply on fears of a slowdown in the Chinese economy. A barrel of the benchmark Brent crude was trading at less than $32, down more than 4 percent for the day.

Russia warns cuts needed to avoid repeat of '98 crash -— Russia’s leaders are warning the government will need to make more cutbacks if the nation is to avoid a repeat of the 1998 financial crash, the country’s biggest post-Soviet economic trauma. The economy, which is heavily reliant on its massive oil and gas industry, is getting hammered by the plunge in global energy prices. State revenues are running dry and the cost of living is soaring for Russians as the currency drops. Faced with the prospect of the economy languishing in recession in an election year, the government sought Wednesday to manage expectations. “Our task is to bring the budget in line with new realities. If we don’t do that, then the same thing will happen as in 1998 and 1999, when the people pay through inflation for what we haven’t done,” finance minister Anton Siluanov was quoted as saying by state news agency Tass. At the time, Russia devalued its currency and defaulted on its debts, events that caused inflation to jump to around 85 percent. Analysts say Russia’s situation is not as dire now, as it has very little debt. But its economic prospects grow darker as energy prices drop. The International Monetary Fund forecast in November that the Russian economy would shrink by 0.6 percent in 2016. Since that estimate was made, oil has dropped almost another 40 percent, to about $30 per barrel. The Russian budget drawn up in October is based on oil at $50 a barrel.

Low oil prices cast shadow on Russian economy — The Russian ruble fell sharply on its first day of trading after a ten-day holiday period, as a drop in the price of oil cast a shadow across the energy-exporting economy. The national currency dropped by nearly 2 percent half an hour into trading, to 76.1 rubles, as the Moscow exchange resumed trading in foreign exchange for the first time since Dec. 31. The price of oil, the backbone of the Russian economy, has declined over the past week amid fears about a slowdown in China’s growth. Russia has also been hit by economic sanctions that Western nations imposed following the 2014 annexation of Ukraine’s Crimea. The sharp decline in the price of oil, now trading at 12-year lows at $34 per barrel for Brent crude, will likely cause a drain on Russia’s reserves and push the government to cut down on expenses. Russia has based its budget this year on an average oil price of $50 per barrel and Finance Minister Anton Siluanov indicated last month that the government is prepared for cuts if crude were to fall to $30. The Russian daily Vedomosti last month quoted a ministry draft proposal that would see budget expenses cut by 5 percent across the board. Russia is running a budget deficit of 3 percent of GDP this year and since President Vladimir Putin has ordered it to be kept below that level, the government will have to let the ruble depreciate further to balance the budget.

Catalonia elects new leader tasked with breakaway from Spain - Yahoo News: (AFP) - A fiercely secessionist leader was elected president of the wealthy region of Catalonia thanks to a last-minute show of unity, giving fresh impetus to attempts to break away from Spain after months of infighting.The appointment of Carles Puigdemont, just hours before a deadline which would have forced fresh regional elections, drew an immediate rebuke from Spanish Prime Minister Mariano Rajoy. "The government won't allow a single act that could harm the unity and sovereignty of Spain," Rajoy warned in a live televised appearance in Madrid. Rajoy's remarks came after Catalonia's pro-independence faction that won regional parliamentary elections in September finally came to an agreement this weekend over who should lead the new local government. The sticking point had been Artur Mas, the incumbent, separatist regional president whom the far-left CUP -- part of the secessionist faction that topped the polls -- rejected over his support for austerity and corruption scandals linked to his party. In a surprise move Mas agreed to step aside on Saturday, naming the relatively unknown politician Puigdemont as his successor and sparing Catalonia its fourth set of elections since 2010. Puigdemont, the 53-year-old mayor of Girona who comes from a fervently pro-independence family, will now appoint his cabinet.

Pro-Independence Spanish Parties Strike Deal to Form Government, New Catalan Election Called Off --On January 3, the Financial Times reported Leadership divisions deal a blow to Catalan hopes for independence. The two main independence parties — the mainstream Junts pel Si movement and the anti-capitalist CUP — won a majority of seats in the Catalan parliament in a landmark regional election last September. Since then, however, the CUP has made it clear that it will not support Artur Mas, the current regional president and the de facto leader of Junts pel Si, for another term in office. Mr Mas, a relatively late convert to Catalan independence, is seen by many CUP leaders and activists as too centrist and business-friendly. The Catalan president has also been damaged by a string of corruption scandals that hit his party over the past year.  The rejection of Mr Mas leaves the broader Catalan independence campaign in a difficult position — and with a clear sense of an opportunity wasted. For the Spanish government, meanwhile, Sunday’s decision will come as a relief. Madrid is fiercely opposed to Catalan independence, arguing that Spanish regions have no right of self-determination and that any step towards separation from Spain violates the constitution. With the Catalan independence camp in disarray, Spain’s mainstream parties can focus on resolving their own political dilemma: last month’s general election produced a highly fragmented parliament, with no party close to holding a governing majority.  The sigh of relief in Madrid was short-lived. At the last minute, a deal has been announced that will make matters worse for Madrid than if CUP had gone along with Artur Mas as president.  The new president will likely take an even firmer stance on independence, not only from Spain, but the EU.

Greece 2015 Budget Deficit Wider Than Forecast on Revenue Shortfall - --Greece's budget revenues fell short of target in 2015, contributing to a wider-than-estimated deficit, data from the Finance Ministry showed Friday. For the January-December period, revenues reached 51.4 billion euros ($56.3 billion), compared with the target of EUR53.1 billion, the ministry said in a statement. In December, budget revenues reached EUR6.48 billion. The total budget deficit came in at EUR3.53 billion, higher than the ministry's EUR2.57 billion estimate. The state budget only takes into account the operations of Greece's central government and doesn't include general government accounts, which comprise local government, a portion of military spending as well as some social welfare expenditure.

IMF demands debt relief as price for involvement in Greek bail-out - Telegraph: Greece has backed down over having the International Monetary Fund involved its new bail-out deal, after months of tension between Athens and its senior creditor. Greek finance minister Euclid Tsakalotos said his government was now committed to keeping the IMF on board, after his prime minister had attacked the institution for its "unconstructive" attitude during bail-out negotiations. “The involvement of the IMF is agreed," Mr Tsakalotos told Germany's Handelsblatt. "This is our commitment."The concession came as eurozone finance ministers met in Brussels to discuss the government's progress on implementing vital pensions reforms. But the IMF remained cool over the prospect of providing more financial aid to Greece, insisting its support was still conditional on the EU granting Greece substantial debt relief. "In addition to a comprehensive policy package, Greece also requires debt relief from European partners," said IMF spokesman Gerry Rice on Thursday. Reforms and debt relief were both "critical components" to secure IMF support, said Mr Rice. "The conclusion of discussions with us will depend on progress on both of these fronts," he said. Greek prime minister Alexis Tsipras had called for the IMF to stay out of the country's bail-out last month.

The Heavy Price of Economic Policy Failures --A lot of the media discussion on the global economy nowadays is based on the notion of the “new normal” or “new mediocre” – the phenomenon of slowing, stagnating or negative economic growth across most of the world, with even worse news in terms of employment generation, with hardly any creation of good quality jobs and growing material insecurity for the bulk of the people.. Yet these arguments that treat economic processes as the inevitable results of some forces outside the system that follow their own logic and are beyond social intervention, are hugely misplaced. Most of all, they let economic policies off the hook when attributing blame – and this is massively important because then the possibility of alternative strategies that would not result in the same outcomes are simply not considered. The costs of this failure are indeed huge for the citizenry: for workers who face joblessness or very fragile insecure employment at low wages; for families whose access to essential goods and social services is reduced; for farmers and other small producers who find their activities are simply not financially viable; for those thrown by crisis and instability into poverty or facing greater hunger; for almost everyone in the society when their lives become more insecure in various ways. Many millions of lives across the world have been ruined because of the active implementation of completely wrong and unnecessary economic policies. Yet, because the blame is not apportioned where it is due, those who are culpable for this not only get away with it, but are able to continue to impose their power and their expertise on economic policies and on governing institutions. For them, there is no price to be paid for failure.

The new Germans - The Economist -- For centuries the Germans were wont to leave their homeland, emigrating to places such as America, where the Statue of Liberty welcomed them among the “huddled masses yearning to breathe free”. For all the Germans remaining at home, however, nationality remained a matter of “blood” (jus sanguinis in Latin) rather than choice or place of birth.  And until recently the word for “people”, Volk, had an ethnic rather than a civic connotation. To this day its adjective, völkisch, retains ugly racist associations with the Nazis. All that is history and will definitively be buried in 2016. Today Germany is second only to America in the number of immigrants it attracts. Most come from within the European Union (EU), but many come from farther afield. Among rich countries Germany also takes by far the most refugees—today’s “huddled masses”. About 1m were expected in 2015 alone, and the numbers in 2016 are sure to be big too.  These newcomers from Syria, Afghanistan, Africa and elsewhere come into a country where one in five already has a “migration background”, as German bureaucratic jargon calls all those with foreign roots. These include the “guest workers” who came to West Germany—mainly from Turkey, Italy and Greece—in the 1950s and 1960s to provide labour, along with their German-born children and grandchildren. Then there are the former Yugoslavs who came in the 1990s during a previous big refugee crisis, as well as Poles, Romanians and Bulgarians who now enter freely as citizens of the EU, and many others.

Is Chancellor Merkel Openly Inviting More Sex Crimes by Refugees? In the wake of a New Year's Eve Sex Scandal in Cologne, Germany that involved approximately 1,000 refugees, Chancellor Merkel proposed Tougher Migrant Laws  Before: Asylum seekers are only forcibly sent back if they have been sentenced to at least three years' imprisonment, and providing their lives are not at risk in their countries of origin. Proposed: Deport "serial offenders" convicted of lesser crimes.  What We Know:

  • The Cologne incident involved at least 1,000 refugees of Arab or North African origin.
  • Women filed 379 criminal complaints of which 40% involve allegations of sexual offenses. Counts counts vary, story to story. 
  • There were at least two reported rapes. Again, counts vary.
  • Cologne's police chief Wolfgang Albers, was suspended after repeated claims that his force mishandled the incident. Albers has since resigned.
Not only did the Cologne police attempt to suppress the story, so did Chancellor Merkel.  The Telegraph reports 'Cover-Up' Over Cologne Sex Assaults Blamed on Migration Sensitivities The Daily Caller reports Germany’s Largest Broadcaster Apologizes For Not Reporting Sexual Assault Attacks Germany’s largest television station ZDF issued an apology Wednesday for not reporting on the New Year’s Eve sexual assault scandal in the city of Cologne, where more than 100 women were victims of a “civil war like” situation.  "The right to asylum can be lost if someone is placed on probation or jailed," warned Merkel.Excuse me for asking, but what "right of asylum" is there, if any, and what right should there be?

EU migrant crisis: Germany sends migrants back to Austria - BBC News: Germany has been sending an increasing number of migrants back to Austria every day since the beginning of the month, Austrian police say. Many had no valid documents, whilst others did not want to apply for asylum in Germany but in other countries, notably in Scandinavia, police said. New Year's Eve attacks on women in Cologne, blamed on migrants, have put pressure on Chancellor Angela Merkel. Most of those sent back to Austria are not Syrians, who usually get asylum. Instead, they are migrants mostly from Afghanistan as well as Morocco and Algeria, Austrian police said.  "The daily number of migrants being turned back has risen from 60 in December to 200 since the start of the year," David Furtner, police spokesman in Upper Austria state, told AFP news agency. Last week, Sweden, a favoured destination for many of the migrants, sought to stem the flow by imposing controls on travellers from Denmark.

Germany Erupts Into Chaos As Protesters Declare "Rapefugees Not Welcome" - Anger over a wave of sexual assaults that occurred across the EU on New Year’s Eve reached a boiling point in Germany on Saturday when some 1,700 people attended a rally organized by the anti-Muslim PEGIDA movement. PEGIDA, which nearly fizzled early last year, gained in popularity as hundreds of thousands of Mid-East asylum seekers responded to Angela Merkel’s open-door refugee policy by flooding across Germany’s borders. Initially, many Germans met the the migrants with hugs and gifts, but as the months wore on, sentiment gradually soured and attendance at PEGIDA rallies once again spiked with as many as 20,000 people showing up for an October demonstration. Seeking to capitalize off the assaults that were allegedly perpetrated by groups of marauding Arab refugees in Cologne, PEGIDA took to the streets this weekend and predictably, clashes with riot police ensued.  “Demonstrators, some of whom bore tattoos with far-right symbols such as a skull in a German soldier's helmet, had chanted ‘Merkel must go’ and ‘this is the march of the national resistance’”, Reuters writes. Another banner read: "Rapefugees not welcome."

Germany to speed up deportations after Cologne attacks | Reuters: German ministers outlined plans on Tuesday to speed up the deportation of foreigners who commit crimes, responding to sexual attacks on women by migrants in Cologne which have deepened doubts about the country's open-door refugee policy. The assaults on New Year's Eve, which are the subject of an ongoing investigation, have emboldened right-wing groups and unsettled members of Chancellor Angela Merkel's conservative party, raising pressure on her to crack down forcefully on migrants who commit crimes. Under plans unveiled by conservative Interior Minister Thomas de Maiziere and Social Democrat (SPD) Justice Minister Heiko Maas, foreigners who are found guilty of committing physical and sexual assaults, resisting police or damaging property, could be deported. Under current law, most of these crimes carry probationary sentences and do not trigger expulsion. Merkel welcomed the agreement between the two ministers who represent different parties in her right-left coalition. "We must make sure the law can take effect as soon as possible. First we have to think how to get the parliamentary process going as quickly as possible," conservative Merkel said.

"Neo-Nazis" Attack German Muslim Businesses As Ghost Of 1939 Beckons -- On Saturday, some 1,700 people turned out for a PEGIDA rally in Cologne, where demonstrators protested Chancellor Angela Merkel’s open-door migrant policy in the wake of the sexual assaults that occurred on New Year’s Eve in the city center. Ultimately, riot police were called in to disperse the crowds who held signs calling for the expulsion of “Rapefugees” and the ouster of Merkel. Subsequently, reports indicated that gangs of “bikers, hooligans, and bouncers” used Facebook to coordinate a migrant “manhunt” that led directly to attacks on a group of Pakistanis in Cologne. All of this points to the rapid disintegration of German society in the face of a refugee influx that numbers some 3,000 new asylum seekers per day.On Monday, the backlash against Mid-East refugees continued as thousands gathered in Leipzig to protest for and against the city’s local PEGIDA chapter. Here’s Deutsche Welle: LEGIDA members took to the streets on Monday to commemorate the first anniversary of the founding of their chapter, as well as to protest against the recent New Year's Eve sexual assaults in Cologne. "We are the people" "Resistance!" and "Deport them!" chanted the sign and flag-toting LEGIDA crowd. "Refugees not welcome!" read one sign, showing a silhouette of three men armed with knives pursuing a woman, while another declared "Islam = terror". In another area of the city, riots broke out when around hundreds of soccer "hooligans" started rioting in the district of Connewitz. The neighborhood is considered to be the stronghold of the leftist scene in Leipzig.

Germany Just Screwed Europe -- Germany needs young people.  Its population is dwindling.  It doesn't have enough of them to support a rapidly aging German population.

  • A smart solution to this shortfall would have been to actively recruit millions of young people from around the world -- from India to Tanzania to Argentina to Malaysia to the US.  
  • Instead, for some reason, the people running Germany thought it would be a good idea to use the Syrian crisis as a way to bring millions of young people to their country. 
  • It worked.  Germany imported 1.1 m migrants last year.  

However, if you dive into the details, it's clear this policy is very dangerous.

  • Almost all (~800,000) of these migrants were young, single men (Canada, in contrast, refuses entry to young single men) from Syria.  Insurgencies and terrorism run on a fuel of young men.
  • These young men are culturally incompatible with EU/US standards re: women, homesexuality, free speech, etc.  With a group this large and cohesive, cultural integration will be nearly impossible over any meaningful time period.
  • Most of these young men (~500,000-700,000) have recent combat experience earned on the killing fields of a fractured Syria, fighting for a variety of bad causes.  This makes them potentially dangerous.

Here's how I believe this will play out:

  • Social disruption will rise.  We are already seeing this with recent attacks by roving gangs of immigrants in Cologne.  Further, Schengen will disintegrate as transborder attacks by radicals ramp up.  
  • Over the long term?   As the demographics of these countries rapidly shift in favor of the new arrivals: open source insurgency.  An insurgency that will spread far from the borders of Germany.  An insurgency I'm not sure Germany, nor the EU, can win.

More people in Europe are dying than are being born: More people in Europe are dying than are being born, according to a new report co-authored by a Texas A&M University demographer. In contrast, births exceed deaths, by significant margins, in Texas and elsewhere in the U.S., with few exceptions. The researchers find that 17 European nations have more people dying in them than are being born (natural decrease), including three of Europe's more populous nations: Russia, Germany and Italy. In contrast, in the U.S. and in the state of Texas, births exceed deaths by a substantial margin."In 2013 in Texas, for example, there were over 387,000 births compared to just over 179,000 deaths," says Poston. "The only two states in the U.S. with more deaths than births are the coal mining state of West Virginia and the forest product state of Maine."The research focuses on the prevalence and dynamics of natural decrease in the counties and county-equivalents of Europe and the United States in the first decade of the 21st century (2000-2009). Findings reveal that 58 percent of the 1,391 counties of Europe had more deaths than births compared to just 28 percent of the 3,141 counties of the U.S.

European Gun Sales Soar On Refugee Fears As Racist Vikings Prowl Finland's Streets -- Last weekend, some 1,700 Germans turned out for a PEGIDA rally in Cologne to protest the wave of sexual assaults that unfolded in the city on New Year’s Eve in the town center. PEGIDA nearly faded into obscurity early last year when then-leader Lutz Bachmann posted a picture of himself dressed as Hitler on Facebook with the caption “He’s Back”, but thanks to the 1.1 million Mid-East asylum seekers that poured across Germany’s borders in 2015, the anti-immigrant group has seen something of a resurgence over the past six or so months.  While the group claims to be looking out for the interests of the German people, some draw disturbing parallels between PEGIDA and a dangerous far-right ideology linked to extreme nationalism. Unsurprisingly, movements like PEGIDA aren’t confined to Germany. In Finland the streets are now patrolled by the The “Soldiers of Odin,” a kind of vigilante justice brigade with political overtones and the trappings of a biker gang. The men don black bomber jackets adorned with the Finnish flag and a symbol of a Viking and say they are interested in helping police keep native Finns safe. Here's one of the group's members:

Mass migration into Europe is unstoppable -- In the 18th and 19th centuries, Europeans populated the world. Now the world is populating Europe. Beyond the furore about the impact of the 1m-plus refugees who arrived in Germany in 2015 lie big demographic trends. The current migration crisis is driven by wars in the Middle East. But there are also larger forces at play that will ensure immigration into Europe remains a vexed issue long after the war in Syria is over. Europe is a wealthy, ageing continent whose population is stagnant. By contrast the populations of Africa, the Middle East and South Asia are younger, poorer and rising fast. At the height of the imperial age, in 1900, European countries represented about 25 per cent of the world’s population. Today, the EU’s roughly 500m people account for about 7 per cent of the world’s population. By contrast, there are now more than 1bn people in Africa and, according to the UN, there will be almost 2.5bn by 2050. The population of Egypt has doubled since 1975 to more than 80m today. Nigeria’s population in 1960 was 50m. It is now more than 180m and likely to be more than 400m by 2050. The migration of Africans, Arabs and Asians to Europe represents the reversal of a historic trend. In the colonial era Europe practised a sort of demographic imperialism, with white Europeans emigrating to the four corners of the world.  When Europeans were populating the world, they often did so through “chain migration”. A family member would settle in a new country like Argentina or the US; news and money would be sent home and, before long, others would follow. Now the chains go in the other direction: from Syria to Germany, from Morocco to the Netherlands, from Pakistan to Britain.

Where Were the Post-Hebdo Free Speech Crusaders as France Spent the Last Year Crushing Free Speech?  --Glenn Greenwald -- It’s been almost one year since millions of people — led by the world’s most repressive tyrants — marched in Paris ostensibly in favor of free speech. Since then, the French government — which led the way trumpeting the vital importance of free speech in the wake of the Charlie Hebdo killings — has repeatedly prosecuted people for the political views they expressed, and otherwise exploited terrorism fears to crush civil liberties generally. It has done so with barely a peep of protest from most of those throughout the West who waved free speech flags in support of Charlie Hebdo cartoonists.  That’s because, as I argued at the time, many of these newfound free speech crusaders exploiting the Hebdo killings were not authentic, consistent believers in free speech. Instead, they invoke that principle only in the easiest and most self-serving instances: namely, defense of the ideas they support. But when people are punished for expressing ideas they hate, they are silent or supportive of that suppression: the very opposite of genuine free speech advocacy.

Now It Is Poland’s Turn -- Mathew D. Rose -- Oh well, here we go again. Now it’s the Poles who are being recalcitrant and rebelling against Germany’s dictate. And once again it’s the bloody minded voters who are to blame. Poles recently elected the Law and Justice party, providing it with an impressive mandate, being the first party in the post-Communist era to obtain an absolute majority, while routing the neo-liberal, quisling party Civic Platform.  The victorious Law and Justice party is conservative, Catholic, nationalistic, and Eurosceptic. Even worse in the eyes of Germany, the party espouses a Keynesian economic programme, including additional taxation of banks. Law and Justice’s unprecedented electoral support was a reaction to the corruption that is a hallmark of Civic Platform and the general perception that during eight years of Civic Platform government Poland’s economic growth, much in the tradition of the EU, has mainly benefitted a small elite.  Not only has the new government rapidly enacted legislation to increase government control over the constitutional court and the civil service, but it has passed a new media law giving control of Polish public radio and TV to a national media council close to the government, as well as permitting the treasury minister to hire and fire broadcasting chiefs – a role currently in the hands of a media supervisory committee, which was dominated by Civic Platform.

Poland is backsliding on democracy, and the EU is powerless to stop it -- Relations between Poland’s recently elected right-wing nationalist government and the European Union are going just about as badly as could be expected. The EU launched an unprecedented investigation Wednesday into recent measures taken by the Polish government, which critics accuse of backsliding on democracy. This is a sad development for a country seen until recently as emblematic of the formerly communist European countries’ transition to democracy. Unfortunately, it’s not clear there’s much Brussels can do about it.  The Law and Justice Party, which won a landslide victory in parliamentary elections last October, has worked quickly to consolidate power. Following its election, the Law and Justice–dominated Parliament voided the previous government’s appointment of five judges to the 15-member Constitutional Tribunal, which, similarly to the U.S. Supreme Court, rules on the constitutionality of new laws, and named five judges of its own. Then in December, a new law was passed requiring a two-thirds majority for most court rulings. This will make it extremely difficult for the court to overturn laws passed by parliament. Last week, Parliament passed another law, this one giving the government the authority to hire and fire the executives in charge of public television and radio stations. Most Poles get their news from these stations, which have operated independently of direct government control since the country’s transition to democracy. The president of the European Parliament likened the law to a coup d’etat, and the changes have prompted mass protests in cities across the country. The European Commission will now carry out an investigation to determine whether the new laws violate the EU’s requirements on democratic governance and human rights. If there is found to be “clear risk of a serious breach” of European values, Poland will get a series of warnings. If those don’t do the trick, a clause, Article 7, which has never been invoked, could allow the EU to impose sanctions against Poland or suspend its voting rights—the so-called nuclear option. 

How the Labor Cost Competitiveness Myth is Making the Eurozone Crisis Worse  -- It is high time to look more closely at the labor cost competitiveness myth. Progress in economics “is slow partly from mere intellectual inertia,” wrote Joan Robinson (1962, p. 79) long ago, because “[i]n a subject where there is no agreed procedure for knocking out errors, doctrines have a long life.” As a recent illustration of such inertia, it took more than five years since Eurozone crisis started full-force (in May 2010) to come to a more or less reasonable “consensus diagnosis” as proposed by a group of economists associated with CEPR (in “Rebooting the Eurozone,” published in Vox on 20 November 2015).1 Even though this diagnosis marked a substantial advance, it invited strong critiques by Peter Bofinger (2015), one of the five members of Germany’s Sachverständigenrat, and from Oxford University’s Simon Wren-Lewis (2015).2 Both critics argue that the “consensus diagnosis” inappropriately focuses just on the deficit-crisis countries of Southern Europe, while neglecting the role of Germany, and of German wage moderation in particular, in bringing about the intra-Eurozone current account imbalances which are arguably at the heart of the Eurozone problématique.The sad truth, however, is that Bofinger and Wren-Lewis are right for the wrong reason—hence their interventions are less than helpful, because rather than knocking out the remaining errors in the “consensus diagnosis”, they help perpetuate a mistaken doctrine: that relative unit-labor-costs matter are the prime determinant of a country’s international competitiveness, current account balance, and foreign indebtedness. The issue is serious: keeping alive the dangerous myth that labor costs drive “competitiveness” feeds the irrepressible urge of the orthodox mainstream to try to bring about economic recovery by reducing Eurozone unit labor costs,  

Unintended Consequence of Negative Interest Rate Madness: Swiss Canton Begs Taxpayers "Please Delay Tax Payments" -- Negative interest rates have had a new and unusual effect on taxing bodies in Switzerland: Swiss Canton Tells Taxpayers to Delay Settling BillsTaxpayers in parts of Switzerland this year face an unusual request from fiscal authorities: please delay settling your bill until as late as possible. Zug, the small but affluent canton outside Zürich, has announced it is ending discounts for early payment of tax bills. The reason? The longer it has cash on its books, the more likely it will incur costs as a result of negative interest rates charged by Swiss banks. The canton calculates that the move will save SFr2.5m ($2.5m) a year. Its extraordinary appeal — which could be followed by other cantons — is the latest unintended consequence of extraordinary steps taken by the Swiss central bank to weaken the strong franc, which is hitting export industries in the affluent Alpine economy.   “Considering the long lasting phase of low interest rates in Switzerland and the negative interest rates which have to be paid, the canton has no incentive to motivate taxpayers to make early payments,” Zug authorities said in a statement. “On the contrary, the canton has an interest in receiving money as late as possible — so it pays less negative interest.”   I will gladly receive on Tuesday what you may wish to pay today. Is a fine for bill prepayment the next logical step?

The Protocol of Frankfurt: a new treaty for the eurozone - European Policy Center -- At a time when the EU finds itself in a perfect storm of crises which it seems unable to overcome, a bold move is needed to reinvigorate the EU’s system of government and stave off the risk of disintegration. In order to address the inherent weakness of the EU’s monetary and economic governance, this pamphlet proposes a new treaty for the eurozone: the Protocol of Frankfurt. Written by Andrew Duff, former Member of the European Parliament and Visiting Fellow at the EPC, it is the first ever attempt to draft a treaty aimed at setting up a fiscal union. “The Protocol of Frankfurt provides the constitutional framework for a proper economic government and will, hopefully, also serve to accelerate the debate on the Five Presidents’ Report”. Realising that the time is not ripe for a major constitutional overhaul, the pamphlet instead puts forward a shorter treaty revision that concentrates on re-engineering the Maastricht arrangements for the economic and monetary union, taking on the form of a Protocol to be added on to the existing Treaties. Article 48(2) of the Treaty on European Union allows the government of any member state, the European Parliament or the Commission to table amendments to the Treaties. Our hope is that somebody, informed by this draft Protocol, does just that.   The Protocol of Frankfurt: a new treaty for the eurozone (pdf)

It’s time for Europe to turn the tables on bullying Britain -- As the European Union faces the worst and most dangerous crisis since its creation, not only is Britain refusing to help, it is actually using this historic moment of weakness to extract “concessions” from its fellow members. This is the back story to the “Brexit” referendum, in which the government is threatening to leave the EU unless its demands for a “better deal for Britain” are met. Indeed, why merely kick a man while he’s down if you can go through his wallet too.  The negotiations in Brussels over this deal are entering their final stages: last week cabinet members were told they’d be free to campaign for an exit whatever the outcome of the talks. So this makes it high time for Europeans to take a cold and honest look at the British. Or rather, the English. Scotland is largely pro-EU while Wales and Northern Ireland, with their smaller populations and the less imminent threat of secession, have far less influence. How to deal with the English, then, over Brexit?  Step one is to ask if this referendum is actually a once in a lifetime opportunity to cut the English loose. Why not let them simmer in their splendid irrelevance for a decade or more, and then allow them back in – provided they ask really, really nicely. The English will still be in Nato, and what are they going to do? The United States values Britain as its proxy seat at the European table. With that seat empty, why would Washington keep its poodle?

'Snooper's charter' will cost British lives, MPs are warned - The “snooper’s charter” legislation extending the mass surveillance powers of the intelligence agencies will “cost lives in Britain”, a former US security chief has warned MPs and peers. William Binney, a former technical director of the US National Security Agency (NSA), told parliamentarians that the plans for bulk collection of communications data tracking everyone’s internet and phone use are “99% useless” because they would swamp intelligence analysts with too much data. He was particularly critical of a previously secret GCHQ surveillance system disclosed by the whistleblower Edward Snowden called Black Hole, which was built in 2008 and helps list everyone in the world who has ever visited a website. “This approach costs lives, and has cost lives in Britain because it inundates analysts with too much data. It is 99% useless. Who wants to know everyone who has ever [been] at Google or the BBC? We have known for decades that that swamps analysts,” said Binney, who turned whistleblower after 36 years in which he conducted and led signals intelligence operations and research for the NSA.

Sterling's Slide Extended on Dismal Industrial Output Figures - A subdued Chinese session, with the yuan, little changed and local equities securing minor gains, let market participants look elsewhere for directional cues. The new lows in oil, near $30 a barrel, and the bankruptcy filing of Glencore's US subsidiary Sherwin Alumina seemed to weigh on the dollar-bloc currencies. However, it is sterling today that has the distinction of being the weakest of the majors. It is off about 0.4% near midday in London following disappointing BRC sales (0.1 vs. 0.5% expectations) and then a dreadful industrial production report. Like Germany and France, the UK reported an unexpected drop in November industrial output. The 0.7% drop compares with a flat consensus expectation and is the largest fall since January 2013. Adding insult to injury, the October gain of 0.1% was revised away. This means that the year-over-year pace is half of what it was (0.9% vs. 1.7%). Ironically, and this may be picked up in the US industrial report for December due later this week, the unseasonably warm weather weighed on energy output. Electricity, gas and steam output fell 2.1%. This is not to minimize the negative impulse emanating from the manufacturing sector. Manufacturing output fell 0.4% for the second consecutive month. UK manufacturing on a year-over-year basis has been contracting since July (-1.2% vs. -0.2% in October). We note that there appeared little in the manufacturing PMI that prepared investors for the disappointment. The November reading of 52.5 matched the six-month average.

2015: A Failing Fiscal Policy -- This post is a selection from a longer report on the state of the UK economy, “The Cracks Begin to Show: A Review of the UK Economy in 2015,” by Economists for Rational Economic Policies (EREP), kindly sent to us by occasional Triple Crisis contributor and EREP co-convenor John Weeks. The full report, whose contributors include Weeks, Ann Pettifor, Richard Murphy, Özlem Onaran, Jeremy Smith, Andrew Simms, and Jo Michell, is available here. When he became chancellor in May 2010 George Osborne pledged to eliminate the fiscal deficit, to “balance the books”.  In his first budget statement that summer he set a specific target, to borrow no more than £37 billion during fiscal year 2014/2015.  That fiscal year ended on 31 March 2015, and borrowing for the fiscal year weighed in at a tidy £90 billion, which by simple subtraction yields an over-run of £53 billion. The table below shows the major UK fiscal indicators for the latest available statistics, the 12 months ending 30 October 2015.  Despite not meeting the target he set for himself, the chancellor has boasted of success because the overall fiscal balance (i.e. government revenues less spending) is now just over minus £50 billion compared to over £100 billion when he took over Britain’s public finances (borrowing and fiscal balance numbers in the table differ due to asset sales, almost all from bailed out banks).

Scrap Bank of England’s powers after century of boom and bust, says think-tank -- The Bank of England should abolish the Monetary Policy Committee and dump its inflation target because the regime has been responsible for creating a century of boom and bust, a think-tank has claimed.  The Adam Smith Institute (ASI), a free market think-tank, has said in a report that the central bank’s monetary interventions have made the UK more prone to banking crises, and have caused the wider economy to become less stable.  At present, the nine-strong Monetary Policy Committee (MPC) decides on UK monetary policy. Eamonn Butler, the ASI’s director, said this group of experts had “done a very poor job of managing our money”.  He added: “They have created artificial booms, followed by genuinely painful busts, through decades of following their unreliable discretion.”  Anthony J Evans, the report’s author and an associate professor at the ESCP Europe business school, said that after a century of failure, the Bank’s control of money should be replaced with a system of “free banking”.  Private banks would yet again be responsible for the supply of money, as they were in 18th and 19th century Scotland. This arrangement led to a period of greater financial stability than we experience today, the report claimed. Free banking delivered fewer banking crises, and more stability in the wider economy, it claimed.

Bankers charged in euro rate-rigging case  -  A group of former bankers on Monday became the first to be formally charged with manipulating the Euro Interbank Offered Rate (Euribor) - a daily reference rate compiled from estimates that Eurozone banks give of their cost of borrowing. The case involves former employees of Deutsche Bank, Barclays and Societe Generale, and includes former middle managers, traders and rate submitters of six nationalities. However, nearly half of the defendants were no-shows in the London court, with just six of the total 11 suspects appearing for the preliminary hearing. A first hearing was scheduled for Wednesday. Lawyers for the absentees, four of them German and one French, cited different reasons for their clients' nonattendance, including ongoing investigations in Germany.