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

Saturday, January 23, 2016

week ending Jan 23

And You Thought QE Was Over: The Fed Will Monetize Half Of This Year's U.S. Treasury Issuance - The Fed may have officially tapered QE at the end of 2014 but that doesn't mean it is done buying Treasuries: since the Fed never ended rolling over maturing paper, it means that it will remain indefinitely active in the open market. And while there were no sizable maturities from the Fed's various QEs to date (only $474 million in 2014 and $3.5 billion in 2015) that will change dramatically this year, when Brian Sack's team will have to purchase about $216 billion to replace matured TSYs. According to JPM calculations, this represents half the net new government debt that will be issued over the next 12 months.  The amounts rise from there: $194 billion comes due in 2017, about $373 billion in 2018 and $329 billion in 2019 for a grand total of $1.1 trillion over the next four years as shown in the following Bloomberg chart: The Fed's intervention in the Treasury market is well known: here is a brief Bloomberg summary of where we've been and where we are going: The Fed is the biggest holder of the government’s debt. Its $2.5 trillion hoard, amassed in a bid to support the economy after the financial crisis, is more of a focus for some investors than the trajectory of interest rates. From this month through 2019, about $1.1 trillion of Treasuries in the portfolio are set to mature. Even though the Fed's holdings of Treasurys won't rise and remain flat at about $2.5 trillion, the Fed's reinvestment mandate means a return to active POMO which also means that there will remain a backstop net buyer for 1 of every 2 bonds issued by the US government.

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, signalling its faith that the economy had finally put the 2007-08 financial crisis behind it. Ferocious volatility fuelled 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.

Global Economy Can’t Withstand Four 2016 Fed Hikes - Larry Summers --Policy makers need to heed the message from global commodity and stock markets that “risks are substantially tilted to the downside,” said Summers on Bloomberg GO.  Given the weakness in prices and growth, it’ll be hard for the world to take in stride four interest-rate increases that forecasters are penciling in from the Federal Reserve this year, Summers said in a Bloomberg TV interview. “I would be surprised if the world economy could comfortably withstand four hikes, and I think that basically the markets agree with me,” he said, adding that’s why it’s important to prepare for a range of possibilities. “Really, what policy makers need to think about is, it is insurance against the more negative scenarios.” Markets around the world have been thrown into turmoil so far this year, as concern mounts about China’s slower growth prospects and its central bank’s ability to manage a transition into a more service-driven economy. The slowdown in China is also expected to prolong a slump in commodities, with oil dipping below $30 a barrel for the first time in 12 years on Tuesday. Fed policy makers’ latest median projections issued in December implied the central bank would raise the benchmark interest rate by one percentage point this year. The Fed boosted rates last month for the first time since 2006, and indicated further moves will be gradual. Summers also said there is a “significant risk” that within the next two years, Fed policy will have to reverse. The world economy is “riding heavily” on the U.S., which “is not without its own fragilities,” he said. The right posture is being ready, including increased fiscal spending, if things slow down in a meaningful way, he said.

It’s Time to Make a Hard U-Turn- Narayana Kocherlakota -- Market-based measures of long-term inflation compensation have fallen persistently and dramatically since mid-2014. This decline means that the Federal Open Market Committee (FOMC) is confronting a significant risk to its credibility. It must act aggressively in the near-term to eliminate this risk. It is true that there are two possible explanations for this decline in market-based measures of long-term compensation. The first explanation is that should be viewed as a transitory phenomenon, due to some mysterious (to me) interaction between the market for inflation-protected TIPS bonds and declining oil prices. The second is that the decline means that market participants believe that the FOMC will be unable or unwilling to keep inflation as high as 2% on a sustainable basis. This interpretation seems a lot less mysterious to me, since the FOMC continues to tighten policy in the adverse of severe disinflationary headwinds (associated in part with the decline in oil prices). There’s no easy way to tell these stories apart in the data. But this challenge is irrelevant for policymakers. All central bankers agree that, without anchored inflation expectations, a central bank cannot be effective at achieving its price and employment objectives. That’s why the main mission of a central bank is to keep inflation expectations well-anchored. The evidence continues to mount that the FOMC is failing at this task. The Committee needs to confront this significant credibility threat by reversing its tightening cycle quickly and decisively.

The Citadel Is Breached: Congress Taps the Fed for Infrastructure Funding - Ellen Brown - In a landmark infrastructure bill passed in December, Congress finally penetrated the Fed's "independence" by tapping its reserves and bank dividends for infrastructure funding. The bill was a start. But some experts, including Congressional candidate Tim Canova, say Congress should go further and authorize funds to be issued for infrastructure directly. . Countries with less in the way of assets have overtaken the US in innovation and efficiency, while our dysfunctional Congress has battled endlessly over the fiscal cliff, tax reform, entitlement reform, and deficit reduction. Both houses and both political parties agree that something must be done, but they have been unable to agree on where to find the funds. Republicans aren't willing to raise taxes on the rich, and Democrats aren't willing to cut social services for the poor. In December 2015, however, a compromise was finally reached. On December 4, the last day the Department of Transportation was authorized to cut checks for highway and transit projects, President Obama signed a 1,300-page $305-billion transportation infrastructure bill that renewed existing highway and transit programs. According to America's civil engineers, the sum was not nearly enough for all the work that needs to be done. But the bill was nevertheless considered a landmark achievement, because Congress has not been able to agree on how to fund a long-term highway and transit bill since 2005.That was one of its landmark achievements. Less publicized was where Congress would get the money: largely from the Federal Reserve and Wall Street megabanks. The deal was summarized in a December 1st Bloomberg article titled "Highway Bill Compromise Would Take Money from US Banks":The highway measure would be financed in part by a one-time use of Federal Reserve surplus funds and by a reduction in the 6 percent dividend that national banks receive from the Fed. . . . Banks with $10 billion or less in assets would be exempt from the cut.

Money and Banking – Part 2 -- Central bank balance sheet and immediate implications. The previous post reviewed basic balance-sheet mechanics. This post begins to apply them to the Federal Reserve System (Fed). For analytical purpose, the balance sheet of the Fed can be presented as follows:  Below is the actual balance sheet of the Federal Reserve System prior to the recent crisis (from Board of Governors’ series H4.1, Factors Affecting Reserve Balances). It sums the assets, liabilities, and capital of all twelve Federal Reserve Banks and consolidates them (i.e. removes what Fed banks owe to each other). The main asset was Treasury securities that amounted to about $718 billion in January 2005.  The main liability was outstanding Federal Reserve notes (FRNs) issued (i.e. held outside the twelve Fed banks’ vaults) that amounted to $718 billion in January 2005. This line in the balance sheet includes all FRNs issued regardless who owns them, which is different from L1 in the balance sheet above. Indeed, for analytical purpose, economists like to measure the amount of FRNs “in circulation,” that is FRNs held outside the Federal Reserve banks, the U.S. Treasury and private banks (i.e. “vault cash”). A distant second liability was reserve balances that amounted to $31 billion. Capital consists mostly of the annual net income of the Fed (“surplus” line) and the shares that banks must buy when becoming members of the Federal Reserve System (the “capital paid in” line). These shares are not tradable, cannot be pledged (i.e. banks cannot use them as collateral or cannot be discounted), do not provide a voting right to banks, and pay an annual dividend representing 6% of net income.

Key Measures Show Inflation close to 2% in December -- The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning: According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.1% (1.8% annualized rate) in December. The 16% trimmed-mean Consumer Price Index also rose 0.1% (0.8% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report. Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers fell 0.1% (-1.3% annualized rate) in December. The CPI less food and energy rose 0.1% (1.5% annualized rate) on a seasonally adjusted basis.  Note: The Cleveland Fed has the median CPI details for December here. Motor fuel was down 38% annualized in December. This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.4%, the trimmed-mean CPI rose 1.8%, and the CPI less food and energy also rose 2.1%. Core PCE is for November and increased 1.3% year-over-year. On a monthly basis, median CPI was at 1.8% annualized, trimmed-mean CPI was at 0.8% annualized, and core CPI was at 1.5% annualized. On a year-over-year basis, two of these measures suggest inflation remains below the Fed's target of 2%, and two measures, core CPI and median CPI, are above 2%. Using these measures, inflation has been mostly moving up, and three of the measures are close to the Fed's target (Core PCE is still way below).

Alarm bells ring louder on US inflation - Even as the Federal Reserve was lifting short-term interest rates last month, several policymakers were expressing misgivings about tightening in the absence of inflation. Since then alarm bells have rung louder as measures of expected inflation have sunk in the markets, alongside a further slide in the oil price and sharp volatility in global equities and bond prices. Last week James Bullard, the head of the St Louis Federal Reserve, said falling inflation expectations were “becoming worrisome”, while Charles Evans of the Chicago Fed, said the situation was “troubling”. The problem is that it is far from clear how much weight the Fed should be putting on these declines in expected inflation. Gauging inflation expectations is a fraught business, and many central bankers and market practitioners question whether the financial instruments being seized upon by pessimists are a useful measure of the outlook for prices. “This is obviously something that must be worrying them,” said Torsten Sløk, chief international economist at Deutsche Bank. “That said, these financial instruments have relatively limited predictive power when it comes to actual inflation.” Movements in market prices in recent weeks have been striking. The 10-year break-even rate — derived from comparing the yields of conventional and inflation-linked US government debt — fell to just 1.39 per cent on Friday, within a whisker of the six-year low of 1.38 per cent touched last September. The five-year break-even rate is just 1.11 per cent, and the two-year is 0.45 per cent. The so-called five-year, five-year break-even rate — a popular measure with officials because of its long-term nature — gauges market pricing of five-year inflation starting in five years. It has slipped to 1.95 per cent, which is close to the record 1.92 per cent touched last year. The long-term average is 2.84 per cent.

The Deflation Monster Has Arrived - Chris Martenson - As we’ve been warning for quite a while (too long for my taste): the world’s grand experiment with debt has come to an end. And it’s now unraveling. Just in the two weeks since the start of 2016, the US equity markets are down almost 10%. Their worst start to the year in history. Many other markets across the world are suffering worse. If you watched stock prices today, you likely had flashbacks to the financial crisis of 2008. At one point the Dow was down over 500 points, the S&P cracked below key support at 1,900, and the price of oil dropped below $30/barrel. Scared investors are wondering:  What the heck is happening? Many are also fearfully asking: Are we re-entering another crisis? Sadly, we think so. While there may be a market rescue that provide some relief in the near term, looking at the next few years, we will experience this as a time of unprecedented financial market turmoil, political upheaval and social unrest. The losses will be staggering. Markets are going to crash, wealth will be transferred from the unwary to the well-connected, and life for most people will get harder as measured against the recent past. It’s nothing personal; it’s just math. This is simply the way things go when a prolonged series of very bad decisions have been made. Not by you or me, mind you. Most of the bad decisions that will haunt our future were made by the Federal Reserve in its ridiculous attempts to sustain the unsustainable. In spiritual terms, it is said that everything happens for a reason. When it comes to the Fed, however, I’m afraid that a less inspiring saying applies: “Sometimes the reason is that you’re stupid and make bad decisions” Yes, it’s easy to pick on the Fed now that it’s obvious that they’ve failed to bring prosperity to anyone but their inside coterie of rich friends and big client banks. But I’ve been pointing out the Fed’s grotesque failures for a very long time. Again, too long for my tastes.

Downsizing The Treasury Market’s Inflation Forecast - Inflation expectations in the US are sliding again, raising new concerns about the economic outlook. Perhaps today’s update on consumer prices for December (due out at 8:30 am eastern) will allay fears that disinflation risk has reaccelerated. Meantime, Mr. Market has been lowering his outlook for pricing pressure… again. The yield spread on nominal less inflation-indexed 10-year Treasuries dipped to 1.36% last Friday (Jan. 15)—a six-year low, based on daily data from The market’s implied inflation forecast rebounded a bit yesterday, ticking up to 1.38%. But it’s clear that expectations for the future path of inflation are again moving in a worrisome direction. Meanwhile, the yield curve has shifted down across the maturity spectrum. Other than the short end of the curve, where the Fed’s influence is greatest, there’s been a decline in yields over the past 30 trading days through Jan. 19–from the 6-month maturity up to the 30-years (black line in chart below). Recent comments from two Fed officials have helped fan the flames for worrying about a new phase of disinflation risk. “Headline inflation will return to target once oil prices stabilize, but recent further declines in global oil prices are calling into question when such a stabilization may occur,” noted St. Louis Fed President James Bullard last week. Meanwhile, Chicago Fed President Charles Evans on Jan. 13 observed that by some accounts the equilibrium inflation-adjusted rate is currently near zero. This rate should rise gradually as the headwinds fade over time. But until they do, monetary policy rates must be even lower than they otherwise would be to provide adequate accommodation for economic growth.

U.S. Growth and Employment Data Tell Different Stories - The stock market has been sinking since the beginning of the year and oil prices have plummeted, yet auto sales are at record highs and Federal Reserve officials are expressing confidence that the economy is on the upswing.  Bidding wars are breaking out for sought-after hires in software and technology even as corporate behemoths like DuPont, BP and Morgan Stanley disclose plans to lay off tens of thousands.  Measured by traditional yardsticks for growth, like gross domestic product, the American economy definitely looks weak. View it through the prism of hiring and employment, however, and the economy seems surprisingly strong.“It is a real mystery how you can have nearly 300,000 new jobs created in December with the economy growing by 1 percent or less,” . “We can’t have this discrepancy for a long period of time.”  The proportion of Americans in the labor force is the lowest since the 1970s, and wage gains for most workers in the recovery have been scant. The explanation for this dissonance may lie at least in part in the changing nature of the American economy. Indeed, a crucial cause of the split is that the sectors that have been hardest hit — manufacturing and energy production — nowadays count for much less in terms of employment than they do in output. The nation’s vast array of service industries, which are more labor-intensive, are actually doing far better, And the thriving, domestically driven sectors like restaurants, health care, and professional and business services are serving as a firewall protecting the American economy from growing turbulence overseas

"If Assets Remain Correlated, They'll Be A Depression": Ray Dalio Says QE4 Just Around The Corner - CNBC’s Andrew Ross Sorkin and Becky Quick, donning their finest goose down bubble coats to remind viewers they’re reporting live from scenic Davos, generously took some time out of their busy schedules to chat with Ray Dalio on Wednesday and unsurprisingly, the “zen master” again predicted the Fed will reverse course and embark on more QE. Dalio begins by noting that the Fed’s move to inflate financial assets by pumping money into the system means there’s an “asymmetric risk on the downside.” The rationale is simple: the trillions in fungible, excess cash the Fed unleashed in the wake of the crisis has driven asset prices into bubble territory and at this juncture, there’s essentially nowhere to go but down.That, Dalio says, will create a “negative wealth effect”, the opposite of Bernanke’s infamous virtuous circle wherein Americans would supposedly spend more and thus boost the economy if only the Fed could repair the damage their 401ks suffered in 2008. In short, Dalio reiterated his contention that the Fed will ultimately be forced into QE4 and that the much ballyhooed tightening cycle will essentially amount to a one-off, “just to show you we could do it,” blip on the ZIRP radar screen. “Every country in the world needs easier monetary policy,” Dalio said, before noting that central banks now have less room to ease. He made similar comments in September of last year in an interview with Bloomberg TV.  Dalio also said he’s concerned that the Fed isn’t concerned. When Becky Quick suggested the FOMC is more vigilant than the market might think, Dalio responded with this: “I hope you’re right.”

$20 Oil No Longer Seen As Good For The Economy - The reasons for the 20 percent decline in oil prices since the start of the year range from rapidly growing concerns over the Chinese economy, fears of a persistent glut in oil supplies, and most recently the removal of sanctions on Iran.  While low energy prices are thought to provide a boost to the global economy as consumers benefit from lower costs, there are growing signs that the dramatic collapse in oil prices – so sudden and so severe – is actually creating economic headwinds. The oil and gas industry spent $200 billion on drilling, refining, and new equipment in 2013, and the sharp cutback in spending is being felt beyond just the oil patch. Last week Wood Mackenzie estimated that $380 billion worth of oil and gas projects were scrapped by the industry.  In The New York Times on January 16, Paul Krugman explored the issue. Oil and gas companies start to have liquidity problems when oil prices crash by 70 percent in less than two years. The drop off in spending hurts broader industrial activity. Meanwhile, oil-producing countries like Saudi Arabia have to undertake painful austerity.  The effects show up in a variety of ways. A slowdown might be felt in demand for drilling-related materials such as engines, trucks, steel, and rail capacity. But the effects can also be financial. As the FT reports, big banks are feeling the pain. Citigroup reported a 32 percent increase in non-performing corporate loans in the fourth quarter, compared to the same period in 2014. Wells Fargo also reported an increase in charges, largely due to the decline in oil and gas. JP Morgan said it might have to add more money to its reserve base because of its deteriorating energy portfolio.

Why cheap oil is not an economic blessing -  When the price of a key input such as oil comes down as much as it has in recent months, supply-side theory would tell you this is pro-growth, especially in a country like ours that is still a net importer of energy. And yet … let us count the ways this simple insight — cheaper inputs lead to more output — requires a much more nuanced understanding.

  • Global financial markets: The larger-than-expected decline in the price of oil — it was more than $90 a barrel before it started falling and was last seen breaking $30 a barrel — has rippled through financial markets, generating losses in share prices and higher volatility both here and abroad. The finance channel is another supply-side channel, and the negative impact of oil’s sharp falloff has the potential to hurt growth through negative wealth effects (declining asset values, even just on paper, make people feel poorer, so they spend less).
  • — “Sheiks and shale:” Why has the price of oil fallen so much? Scott Tinker of the University of Texas at Austin compactly summarized it as “sheiks and shale.” . A market response to the sharply negative price signal would have been to reduce production, but the Saudis et al. have not done so. That has led to a much larger drop in price than expected and generated some of the destabilizing outcomes that we don’t typically associate with cheaper inputs on the supply side.
  • — Industry mix: The simplest story about cheap oil is that how it affects your macroeconomy depends on whether you’re a net importer (helps you) or exporter (hurts you). “True dat,” but here again, nuance is required. That shale boom noted above has made us more of a global player, as the United States has doubled its domestic oil production since 2008, with the boom adding 3 million barrels per day to a global market that consumes 94 million per day. So although we’re still a net importer, a lot more jobs, families and towns are now engaged in energy extraction.

This Time, Cheaper Oil Does Little for the U.S. Economy  — It has been a truism of the American economy for decades: When oil prices rise, the economy suffers; when they fall, growth improves. But the decline of oil prices over the last two years has failed to deliver the usual economic benefits. As oil prices have fallen to levels not seen since 2003 — sagging below $27 a barrel on Wednesday before rebounding to about $30 on Thursday — many experts now say they do not expect lower prices to bolster the domestic economy significantly in 2016. “We got this wrong,” John C. Williams, president of the Federal Reserve Bank of San Francisco, told an audience in Santa Barbara, Calif., this month. Lower oil prices historically were a cause for celebration in the developed world, including the United States. The effect was akin to a tax cut for consumers who could fill their gas tanks for less money. And since much of that oil was imported, the windfall was generally larger than the damage to domestic oil producers.  Every dollar gained by consumers was a dollar lost by producers, but when the dollars were lost by foreign producers, the American economy should have benefited. But this time is different. The losses from lower prices are larger and quicker than expected as energy companies cut back on investment and lay off workers, while the gains are smaller and slower to materialize, as consumers save some of their windfalls. Economists at JPMorgan Chase, who predicted last January that lower oil prices would add about 0.7 of a percentage point to the economic growth rate in 2015, now estimate that lower prices might have shaved 0.3 of a percentage point off the growth rate. This year, JPMorgan predicts that lower prices will help expand economic activity by just 0.1 of a percentage point, while economists at Goldman Sachs said they expected an impact “around zero.”

Prepare for the Post Pax-Americana era, says Citi - Izabella Kaminska - Students of the Roman Empire will know all about Pax Romana. (Though, mind you, so will readers of Isaac Asimov’s Foundation series.). In its new Global Political Risk report, Citi analyst Tina Fordham and team draw on how the post-Second World War period created a Pax Americana equilibrium for much of the world. Within the US protection framework (the vast array of international agreements and organisations that guard the system), those economies which subscribed to the American value system were able to flourish. A period of great wealth and prosperity followed. This era, however, may be coming to an end. From Citi (our emphasis): During the Cold War, and for the most part after it ended, the United States served as the direct and indirect guarantor of stability around the globe. Its national interests were globally defined, and by protecting them, it supported and promoted the interests of many other nations interested in regional stability, free markets, open trade routes, and unfettered access to global commodity markets. The United States, through diplomatic activism backed up by unrivaled military power, kept many regional conflicts under control (or pacified them), , most nations buying into the post-Cold-War surge of economic globalization consumed US stability services around the world, even those who openly or clandestinely opposed America’s relative dominance. But this fortunate power structure has changed significantly over at least the last decade.  Less political capital is available in Washington to underpin America’s global role, leading to a “leadership from behind” culture that is considered to be ineffective and widely perceived as US weakness. Inward-looking, isolationist leanings have gained political traction in America’s political mainstream. The threshold of what constitutes US national interest has narrowed markedly in comparison to previous decades.

Recession At The Gate: JPM Cuts Q4 GDP From 1.0% To 0.1% - We already noted the cycle-low Q4 GDP forecast by the Atlanta Fed, which in a release which came out just as the crashing US equity market closed revised the last quarter GDP to just 0.6%, which delay however according to the same Atlanta Fed was due to "nothing more nefarious than technical difficulties." Curiously, JPM had no problems with the 15 second exercise of plugging in raw data into the GDP "beancount" model. And, according to chief economist Michael Feroli, in the 4th quarter, the same quarter in which Yellen finally felt confident enough to declare the US economy strong enough to withstand a rate hike and a tightening cycle, US growth ground to a halt and as a result JPMorgan just cut its Q4 GDP forecast from 1.0% to 0.1%. If JPM is right, and if the US economy effectively did not grow in the fourth quarter, this would make it the worst GDP print since Q1 of 2014, and tied for the third worst quarter since 2009, which incidentally was our kneejerk assessment after yesterday's latest round of abysmal economic data. Another downward revision to GDP: Yellen may have raised rates in a negative GDP quarter.  The cherry on top: JPM also cut its Q1 2016 GDP forecast from 2.25% to 2.00%. Expect many more downward revisions to forward GDP in the coming weeks. Below is a chart of what US GDP looks like if JPM's forecast proves to be accurate: Here is JPM explaining why "Q4 GDP growth is still positive, but barely" We are lowering our tracking of real annualized GDP growth in Q4 from 1.0% to 0.1%. Two reports out today contributed to this downgraded assessment. First, retail sales in December came in rather shockingly weak, which was accompanied by modest downward revisions to October and November retail sales. Second, the business inventories report for November suggest a fairly aggressive push by business to reduce the pace of stockbuilding last quarter. We now see inventories subtracting 1.2%-points from growth last quarter, offset by a disappointing but not disastrous 1.3% increase in real final sales.

Chicago Fed: "Index shows economic growth below average in December" -- The Chicago Fed released the national activity index (a composite index of other indicators): Index shows economic growth below average in December The Chicago Fed National Activity Index (CFNAI) moved up to –0.22 in December from –0.36 in November. Two of the four broad categories of indicators that make up the index increased from November, but three of the four categories made negative contributions to the index in December. The index’s three-month moving average, CFNAI-MA3, decreased to –0.24 in December from –0.19 in November. December’s CFNAI-MA3 suggests that growth in national economic activity was somewhat below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.  This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967. This suggests economic activity was somewhat below the historical trend in December (using the three-month average).

Chicago Fed: US Growth Eased Again In December -- US economic growth continued to decelerate in December, according to this morning’s update of the Chicago Fed National Activity Index. The benchmark’s three-month average (CFNAI-MA3) ticked down to -0.24—the third consecutive month of negative (below-trend) growth and the lowest reading since last March. Despite the latest deceleration in output, CFNAI-MA3’s current level is well above the tipping point (-0.70) that marks the start of new recessions for the US, based on the Chicago Fed’s guidelines. “December’s CFNAI-MA3 suggests that growth in national economic activity was somewhat below its historical trend,” the bank said in a statement. “The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.” Today’s update offers quantitative support for arguing that the US economy was still expanding at 2015’s close—a message that echoes yesterday’s business-cycle analysis. But while the risk is low that an NBER-defined downturn started in December, it’s also clear that economic output has slowed sharply in recent months. The Atlanta Fed’s GDPNow model is currently projecting (as of Jan. 20) that next week’s “advance” estimate of fourth-quarter GDP (due on Jan. 29) will post a substantial downshift: 0.7% growth from 2.0% in Q3, based on seasonally adjusted annual rates.

U.S. Growth May Struggle to Find Support From the Third Quarter’s Strongest Industries - The Commerce Department’s breakdown of gross domestic product by industry shows broad-based growth through the third quarter of last year. But some of the strongest performers have since faltered, leaving underlying strength of the economy in question through the end of 2015. The latest report is meant to complement the department’s widely followed gauge of economic output by types of expenditure, such as personal consumption, trade and business investment. In the third quarter—which ended way back in September—retail trade, health care and social assistance, and agriculture were leading contributors to a 2% gain in GDP. Overall, 15 of the 22 industry groups tracked by Commerce helped the advance.But since, the farm economy has faltered and retail sales numbers have looked weak. Together with other indicators, fourth-quarter forecasts are looking for tepid growth, at best. According to Commerce, the retail industry’s real value added, a measure of an industry’s contribution to GDP, increased a healthy 7.1% in the third quarter, largely reflecting an increase for general merchandise stores.But retail sales were flat in October and fell 0.1% in December while inventory accumulation slowed markedly from the third quarter.Meanwhile, agriculture, forestry, fishing and hunting’s real value added increased 37.5% in the third quarter. The volatile sector has since been buffeted by bad weather and crashing commodity prices, so another quarter of such fast-paced growth is unlikely.Other big contributions came from service industries such as professional and business services, and goods-producing industries like manufacturers of nondurables (goods designed to last less than three years, such as clothes). While the U.S. service sector has held up and still appears to be chugging along, the factory sector is expected to weigh on fourth-quarter growth.

Will a Blizzard Freeze U.S. Economic Growth for a Third Straight Year? - WSJ: Will a storm threatening to drop a foot or more of snow on Washington, Philadelphia and other East Coast cities put a winter chill on the U.S. economy for a third straight year? It’s unlikely. Unseasonably cold winters the last two years caused the U.S. economy to get off to a frosty start in 2014 and 2015. The economy contracted at a 0.9% seasonally adjusted annual pace during the first three months of 2014 and limped along at 0.6% growth to begin 2015. Both readings were among the weakest quarterly performances of what’s been a mostly lackluster recovery. But an emerging snow threat this week is unlikely to present a serious headwind to the economy this year. (Not to say that suffering financial markets, China’s downward spiral, and a free-fall in oil prices won’t.) For one, the timing of the storm alone, expected to hit the Washington area Friday evening into Saturday, will limit the impact. “Though the storm will disrupt millions of lives, the timing is good from an economic perspective,” Moody’s Analytics economist Ryan Sweet said Wednesday. “Its greatest impact will likely occur over the weekend, minimizing the amount of lost output.” The region expected to be affected by the storm produces about $16 billion in a daily economic output. But since many businesses and the federal government are, for the most part, already closed on the weekends, the storm shouldn’t result in a dramatic increase in lost wages or consumption tied to workers’ daily routines. What’s more, on the East Coast, this winter has been warmer than typical and relatively storm-free.

December 2015 Leading Economic Index Declined: The Conference Board Leading Economic Index (LEI) for the U.S.declined this month - and the authors believe "the index continues to suggest moderate growth in the near-term despite the economy losing some momentum at the end of 2015". This index is designed to forecast the economy six months in advance. The market (from Bloomberg) expected this index's value at -0.3 % to 0.2 % (consensus -0.1 %) versus the -0.2 % reported. ECRI's Weekly Leading Index (WLI) is forecasting very slow or possible negative growth over the next six months. Additional comments from the economists at The Conference Board add context to the index's behavior. The Conference Board Leading Economic Index® (LEI) for the U.S. declined 0.2 percent in December to 123.7 (2010 = 100), following a 0.5 percent increase in both November and October. "The U.S. LEI fell slightly in December, led by a drop in housing permits and weak new orders in manufacturing," said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. "However, the index continues to suggest moderate growth in the near-term despite the economy losing some momentum at the end of 2015. While the LEI's growth rate has been on the decline, it's too early to interpret this as a substantial rise in the risk of recession." The Conference Board Coincident Economic Index® (CEI) for the U.S. increased 0.1 percent in December to 113.0 (2010 = 100), following a 0.1 percent increase in November, and a 0.2 percent increase in October.

Why This Slump Has Legs -  We’ve only really been in two weeks of trading in the new year, things are looking pretty bad to say the least, so predictably the press are asking -and often answering- questions about when the slump will be over. Rebound, recovery, the usual terminology. When will we get back to growth? For me personally, but that’s just me, that last question sounds a bit more stupid every single time I hear and read it. Just a bit, but there’s been a lot of those bits, more than I care to remember. Luckily, the answer is easy. The slump will not be over for a very long time, there will be no rebound or recovery, and please stop talking about a return to growth unless you can explain what you want to grow into. I’m sorry, I know that’s not what you want to hear, but life’s a bitch and so’s the economy. You’ve lived on pink fumes for a long time, most of you for their whole lives, but reality dictates that real ‘growth’ stopped decades ago, and you never figured that out because, and I quote here (see below), you and the world you’re part of became “addicted to borrowing money, spending it, and passing this off as ‘growth'”. That you believed this was actual growth, however, is on you. You fell for a scam and you’re going to have to pay the price. If there’s one single thing people are good at, it’s lying. It’s as old as human history, and it happens every day, so you’re no exception to any rule. You’re perhaps just not particularly clever. How do we know a ‘recovery’ is so far off it’s really no use to even talk about it? As I said, it’s easy. Let me lead this in with a graph I saw just today, which deals with a topic the Automatic Earth has covered a lot: marginal debt, or more precisely, the productivity/growth gained from each additional dollar of debt.  Please note, this particular graph deals with private non-financial debt only, we’ll get to other kinds of added debt, but that restriction is actually quite illuminating.

U.S. Budget Deficit to Widen for First Time Since 2009 - WSJ: —Last month’s frenzy of deal-making by Congress and the White House on spending and taxes will send deficits widening this year for the first time since 2009, the Congressional Budget Office said Tuesday. Deficits will also widen because economic growth has been lower than expected, tamping down forecasts for how much revenue the government will collect. The CBO said the budget deficit will climb to $544 billion, or 2.9% of gross domestic product, for the current fiscal year, which ends Sept. 30. That is up from the $439 billion deficit recorded last year, or 2.5% of GDP, which had been the lowest since 2007. The projections also show deficits rising as a share of GDP in every year after 2018. Cumulative deficits over the next decade are expected to run around $1.5 trillion higher than projected last year. Half of that increase results from last year’s budget and tax agreements. The remainder stems from downward economic revisions and technical changes. The deficit’s increase for the current year is overstated somewhat by a quirk in the calendar. Because Oct. 1, which is the first day of the fiscal year, falls on a weekend, payments that would ordinarily be made in 2017 will instead occur in 2016. After accounting for the shift, the deficit this year would rise to $500 billion, or 2.7% of GDP. Deficits could widen further if growth slows this year. The CBO, like many professional forecasters, has consistently overestimated economic growth. This year, it sees the economy expanding 2.7%, followed by 2.5% growth next year, up from 2% growth last year. It also projects that the unemployment rate will fall to 4.5% at the end of this year from its current level of 5%.

Budget Deficit Will Increase to $544 Billion: —A government report released Tuesday estimates that this year’s budget deficit will rise to $544 billion, an increase over prior estimates that can be attributed largely to tax cuts and spending increases passed by Congress last month.The estimate from the Congressional Budget Office also sees the economy growing at a slower pace this year than it predicted just a few months ago. It projects the economic growth will slow to 2.7 percent this year; it foresaw 3.0 percent growth in 2016 in last summer’s prediction.Over the coming decade, CBO predicts deficits totaling $9.4 trillion. That’s up $1.5 trillion from its August estimate, with much of the increase mostly due to last month’s tax legislation, which permanently extended several tax cuts that Congress had typically renewed temporarily.Last year’s deficit registered $439 billion, the lowest of President Barack Obama’s term in office.The deficit increase to $544 billion is due to several factors, CBO said, particularly the retroactive extension of tax cuts that had expired at the beginning of last year and additional spending for the Pentagon and domestic agencies that’s a result of last year’s budget deal. A timing shift are large payments is also at work. The current budget year ends Sept. 30.

Four Takeaways From CBO’s Budget and Economic Outlook - The Congressional Budget Office released a summary of its latest budget and economic outlook this week. The full version comes out Monday, but the summary and projections contain important information. A few of the key takeaways:

  • 1. The share of the U.S. economy going to interest payments on the debt will more than double in 10 years.  CBO estimates that net interest payments on the federal debt will rise steadily from 1.4% of gross domestic product this year to 3.0% of GDP in 2026. It
  • 2. The public debt is growing faster than our economy. The federal budget deficit, the annual excess of government spending over revenues, is projected to reach 2.9% of GDP this year. That percentage exceeds the growth rate of GDP, which CBO expects to be 2.7% this year, fall to 2.5% next year, and average just 2.0% over the next three years.
  • 3. Debt is on an unsustainable path even before it reaches 100% of GDP. Debt will rise from less than 75% of GDP now to more than 86% of GDP in just 10 years. Some seem to think that 100% of GDP, a rate of public debt the U.S. hasn’t had since World War II, is some magic threshold past which the U.S. economy will plunge into crisis.
  • 4. Recent legislation has made things worse, not better. Since the last CBO outlook, projected budget deficits from 2016 to 2025 have increased by $1.55 trillion. The December legislation that extended tax cuts and set spending levels for this year cost nearly $850 billion. The CBO summary report indicates that the role of the economy and technical factors may ultimately shrink to less than that of this legislative binge.

Pentagon accused of wasting Afghan aid money - A top Defense Department official and the federal watchdog charged with overseeing U.S. spending in Afghanistan clashed on Wednesday about a now-defunct Pentagon task force that spent $43 million to build a natural gas station in that country, among many other questionable expenditures. The Pentagon’s Task Force for Business and Stability Operations (TFSBO), which received more than $800 million from Congress to spend on economic redevelopment in Afghanistan, has come under intense scrutiny on Capitol Hill following a series of reports about wasteful spending. On Wednesday, the Senate Armed Services Committee Readiness and Management Support subpanel finally had a chance to question John Sopko, the Special Inspector General for Afghanistan Reconstruction (SIGAR), and a top Pentagon official about the task force. “What happened to the money,” asked subpanel chair Kelly Ayotte (R-NH), who is up for re-election this year. “All of it.” But rather than reach definitive conclusions about TFSBO, Sopko and Brian McKeon, principal deputy undersecretary of defense for policy, engaged in a two-hour debate about the watchdog’s access to agency files and personnel and the price tag of the gas station that prompted the hearing in the first place.

The Pentagon Has No Clue How Many Weapons It Has Lost to ISIS - For more than a decade, the United States has supplied huge quantities of weapons and military hardware to the Iraqi government—and a large chunk of that equipment has disappeared and landed in the hands of ISIS fighters and members of Iranian-backed Shiite militias responsible for massacring civilians. Everything from M-16s and bullets to Humvees and tanks have been lost. But neither the US nor Iraqi governments can say how much US-supplied materiel has been diverted to militant groups or how it's ending up there. Losing weapons to extremists and insurgents has long been a problem for the US military and the Iraqi army, but it became more urgent after ISIS seized chunks of Iraq in 2014, overrunning Iraqi troops and sweeping up their weapons. With that equipment, ISIS solidified its hold on its captured territory and drew the United States back into Iraq. Still, the Pentagon has not been able to monitor the loss of its weapons and other supplies to ISIS. "The bottom line is that the US military does not have a means to track equipment that has been taken from the Government of Iraq by ISIL," Commander Elissa Smith said.  It's not supposed to work this way.   If the United States wants to provide arms to another country, the Department of Defense is required by law to obtain assurances that the weapons will be secured. There's a Pentagon organization called the Defense Security Cooperation Agency that carries out and monitors these arms shipments and makes sure the weapons are being used for their intended purposes. And a 2013 UN treaty bars the United States from providing arms to countries where weapons could end up with armed groups committing human rights violations. But despite these mechanisms, significant amounts of US-supplied arms—including rifles, pistols, and ammunition—are still going missing, largely thanks to the Iraqi military's patchwork supply system.

Who Runs the Pentagon? | The Nation: The crippling and pervasive defects in us national-security policy—costly exertions that, time and again, fail to yield the promised results—are patently obvious, consistently bemoaned, and yet effectively tolerated. To say that the apparatus principally responsible for implementing those policies is an underperforming behemoth qualifies as a considerable understatement. The kindest verdict one can offer regarding the Pentagon is that it marginally outperforms its first cousin, the Department of Veterans Affairs. Ad Policy The next president will enter office in January 2017 vowing to correct those defects. The likelihood that he or she will succeed in doing so is nil. The reasons why are legion, but prominent among them is the fact that those who ascend to the top of the national-security apparatus invariably arrive in the Pentagon as unwitting agents of the status quo. By the time they land one of the top jobs, they have long since forfeited any capacity for critical thought. To illustrate the point, consider the case of Ashton Carter, now a year in office as secretary of defense. The 25th person to hold that position since its inception just 69 years ago, Carter is seasoned, able, and undoubtedly well-intentioned. Yet he is as much a creature of the Pentagon as he is its CEO. He embodies the culture of national security, having absorbed its assumptions, worldview, habits, and language.

Investment Manager GMO Debunks Mythology of “Sound Finance,” or Deficit Hawkery - naked capitalism - Yves here. Sometimes it is best to let things speak for themselves. In that spirit, I am embedding a very important paper by the well-respected investment management firm GMO which debunks the tenets of “sound finance,” meaning the claim that governments need to balance their budgets. I expect to be referring to it regularly, particularly the section on why debt does not burden future generations, a particularly nasty bit of fear-mongering used to pit the young and old against each other, as opposed to rentiers and socialism for the rich. To encourage you to read it in full, below is the executive summary: In the context of the role that debts and deficits play in overall economic policy, in this paper I focus on the philosophy known as “sound finance,” which includes adherents who believe that governments should seek to balance their budgets. I, however, take a different view, and believe that the role of government when dealing with budget deficits should be one of “functional finance,” which ensures that the policies implemented help to reach the overarching goals of macroeconomic policy (generally held to be full employment and price stability).  This paper attempts to show why the proponents of sound finance are mistaken by defining and unpacking a series of “myths” that are foundational to, or at least helpful to, convincing us that sound finance requires that governments run a balanced budget. Though not a complete list, following are the “myths” presented:

    • Myth 1: Governments are like households
    • Myth 2: Printing money to finance budget deficits is inflationary
    • Myth 3: Budget deficits/high debt lead to high interest rates
    • Myth 4: Budget deficits are unsustainable
    • Myth 5: Debt is a burden on future generations

To conclude, I offer some thoughts on the actual impact of monetary policy on the real economy, which I believe to be quite small. These thoughts include a brief discussion about how fiscal policy, once the nature of government debts and deficits is fully understood, can be a viable alternative to monetary policy. GMO on Debts, Deficits, and Delusions

New Paper Makes Powerful Case Against Tax Treaties  - Tax treaties are an arcane but important part of the international trade and investment system. When a business from one jurisdiction invests in another, the question then arises as to which jurisdiction gets to tax which bits of the income that the investment generates. So countries have for years signed Double Tax Treaties or Double Tax Agreements (DTAs) with each other, to sort out these and other questions. Since the global treaty system began to emerge (after Austria-Hungary signed one with Prussia in 1899), the core aim of the system’s designers has been to make sure that multinationals don’t get taxed twice on the same income: so-called ‘double taxation’. Countries sign them because they think they will attract and smooth the flow of inward investment. It will make their country more ‘competitive,’ the thinking goes. All of which sound like perfectly reasonable ideas. But of course, beneath these reasonable ideas there’s a world of possible mischief. The first question is: who designs these tax treaties? Well, the standard answer is this: the OECD. Rich countries. They design the model treaties, which countries then incorporate into their national legislation. In treaty-speak there are “residence countries” (where multinationals are based or ‘resident’, nearly always rich countries) and “source countries”, where the income is sourced: that is the recipient of the inward investment, which is often a poorer country. No prizes for guessing which principle — source or residence — is dominant, in terms of taxing rights. Yes, the rich countries have rigged the game against the poorer countries, and the latter grouping end up with ugly terms that stop them being able to properly tax multinationals that invest in their countries. And, as we’ll see, these treaties are at the end of the day pretty much useless at attracting inward investment.

Sixty-Two People Now Have a Greater Net Worth Than Half the World's Population - As the world's wealthy and powerful gather this week in Davos, Switzerland, for the World Economic Forum, research has revealed the richest 1 percent of the world's population now own more than the rest of the population combined. An Economy for the 1%, a report by anti-poverty NGO Oxfam, said although the number of people living in extreme poverty halved between 1990 and 2010, the average annual income of the poorest 10 percent has risen by less than $3 a year in the past quarter of a century. An even starker figure was the charity's finding that just 62 people — 53 of them men — own as much wealth as half the world's population. This figure has fallen from 388 five years ago. The wealth of the poorest half of the world's population — more than 3.6 billion people — has fallen by a trillion dollars (41 percent) since 2010. Meanwhile the value of the richest 62 people has increased by more than half a trillion dollars to $1.76 trillion. "Far from trickling down, income and wealth are instead being sucked upwards at an alarming rate," the report said.

The 0.1%’s Marie Antoinette Moment -- Yves Smith - When you think you’ve seen everything imaginable in the “shameless” category, count on someone in finance to reach a new low. Private equity billionaire, Blackstone’s Steve Schwarzmnan is famed for his spending ($6 million 60th birthday party) and verbal excesses (comparing a proposal to end the carried interest tax loophole that made him super rich as opposed to merely rich to Hitler invading Poland). But those have either been to gratify his outsized ego or to defend his money machine. And although extreme, Schwarzman is hardly alone. In fact, Wall Street throwing tantrums over even small-potatoes threats to its profits is part of the new normal.  But Schwarzman at Davos has reveled himself to be utterly out of touch. His remarks in a Bloomberg interview: What’s remarkable is the amount of anger, whether it’s on the Republican side or the Democratic side. Bernie Sanders to me is almost more stunning than some of the stuff going on on the Republican side, How is that happening, why is that happening? What is the vein in America that is being tapped into across parties that’s made people so unhappy? That’s something you should spend some time on. Read his statement again, or listen to the segment. “What is the vein…that is being tapped into…that is making people so unhappy?” has a bizarre lack of agency. And it also suggests that the the unhappiness is somehow being created or cultivated aso opposed to is a long-standing, genuine sentiment that has finally found political outlets. As Clinton said, “It’s the economy, stupid.” Yet Schwarzman blandly intimates that populists on both sides of the aisle have managed to stir up such malcontent. Something must have failed on the messaging front.

How Taxes Have Kept Wealth White: The concept of institutional racism, thanks to the Black Lives Matter movement, is moving right onto America’s political center stage. The institution under the brightest spotlight? That has to be America’s criminal justice system. But considerable attention has also focused on other institutions as well, most notably education and the financial industry. But one institution hardly ever comes to mind when talk turns to institutional racism: our tax system. Most of us simply do not think about racism when we think about taxes. Andre Smith does. Smith currently teaches at the Delaware Law School, and he has a new book out — Essays on the Relationship Between Tax Law and Racial Economic Justice: Black Tax — that just may redefine what we mean by institutional racism. Smith shared his perspectives last month with Too Much editor Sam Pizzigati.

About half of retiring senators and a third of retiring House members register as lobbyists - Vox: Members of Congress now make $174,000 a year — not a bad living. But usually they can at least quintuple that salary by switching over to lobbying once they retire. And many of them do just that. A new study by three political scientists has some good data on the trends. Jeffrey Lazarus, Amy McKay, and Lindsey Herbel went all the way back to 1976 to see who went on to lobby after leaving Congress. Their results are reported in a new article, "Who walks through the revolving door? Examining the lobbying activity of former members of Congress," in the journal Interest Groups & Advocacy. The below image comes from that article.  As the graph makes clear, the rate of retiring members going to lobby has grown steadily over time, though it seems to have peaked around 2000. The Senate exhibits more up and downs because fewer senators retire each year, making the percentage trends more sensitive to small fluctuations.

Should It Be Easy for Wall Streeters to Take Government Jobs? --The AFL-CIO, one of America’s most powerful labor groups, is trying to make it harder for Wall Streeters to jump directly into government jobs. The AFL-CIO’s proposal, specifically, is to ban a practice that allows “bank executives heading for top government jobs to be paid their unvested stock and equity awards when they leave, rather than forfeit them as they normally would at resignation,” Dealbook reports. The effect of this practice is to make the prospect of taking a government position much more attractive for Wall Streeters, because they are not forced to take a large financial hit for doing so. There are two ways of looking at this, based primarily on your own internal beliefs about the way the world works. ONE WAY: Government work is public service. We should encourage our best and brightest to take government positions, because it benefits us all. Wall Street has some of the top talent in America. THE OTHER WAY: An important role of the government is to act as a check on the power of institutions like Wall Street, through tough regulation. Wall Street has a strong financial interest in undermining the power of government regulation. The primary reason Wall Street banks want to encourage their own to take high government positions is because those bankers will naturally be more amenable to laws that help Wall Street banks.  If one person holds the first view and another holds the second view they can talk at each other for hours and hours and never come any closer to agreement because their fundamental assumptions about reality are different, and we just have to accept that, even though the first view is wrong.

Senator Elizabeth Warren Calls for Action to Root Out Influence of Money in Politics YouTube

What the Liberal Attacks on Bernie Sanders Are Really About -- Dave Dayen -- Self-styled liberal wonks and opinion writers decided to turn their guns on Bernie Sanders this week, deriding him as myopic, unrealistic and even wrong on the merits of his arguments on behalf of single-payer healthcare and systemic financial reform. But at least on financial reform, they weren’t actually attacking Bernie. They were attacking Elizabeth Warren. It’s Warren, not Sanders, who represents the leftward pole in the intra-Democratic debate over how deeply to reform the financial sector. Warren, not Sanders, manifests part of her vision in the bill she wrote — the 21st Century Glass-Steagall Act, named for the two Depression-era lawmakers who initially separated commercial and investment banking. When Hillary Clinton and her supporters in the media dismiss Glass-Steagall as unnecessary and dangerous, they dismiss a consensus in most developed nations about the need to break interconnections in finance. The radicals in this debate, in other words, are those protecting the deregulatory status quo.  Here’s one such radical: Paul Krugman, who derided the restoration of Glass-Steagall as “nowhere near solving the real problems.” As many commentators do, Krugman takes a detour into identifying whether the investment/commercial bank firewall caused the 2008 crisis, an irrelevant parlour game, unless you think the next financial crash will occur in precisely the same way. He is wedded to the idea that the rise of shadow banking — non-bank institutions performing bank-like activities outside the regulatory perimeter — represents the real threat.

Why I (Still) Think Shadow Banking is Key to Financial Reform - Checking the Internet, I’m learning from David Dayen at The Fiscal Times that I’m part of “Clinton and her minions,” “trying on contradictory criticisms to make a political point” to deliver “a mortal wound to the cause of [Senator Elizabeth] Warren’s life.” [1] Zach Carter, Jason Linkins, Shahien Nasiripour at The Huffington Post notes that I’m part of a crew “peddling a myth about how the financial crisis happened” and it’s a “sad new world when respected liberals start echoing the arguments” of financial lobbyists. Two weeks before a contested primary is probably not the time for subtlety and details, but I want to contest the arguments in these pieces. Though Dayen tries to catch me in a contradiction, I’ve long thought that the project of combating shadow banking was to extend banking regulations to financial activities rather than silo them. So there’s no inconsistency there. Though I’m supportive, I also think that “breaking up the banks” is being overplayed as a financial crisis issue, doing more work as a problem and a solution than its proponents say it does. It’s also a useful check how my mind has and hasn’t changed since 2010.

SHERIFF OF WALL STREET: We're no longer able to bring certain insider trading cases -- The Sheriff of Wall Street has had one of his guns taken away, and he is not happy about it.  US Attorney Preet Bharara, often called the '"Sheriff of Wall Street," in December gave up on a big insider trading case.  That was the direct result of an earlier, successful appeal against the SEC's case against Diamondback Capital Management's Todd Newman and Level Global fund manager Anthony Chiasson.The appeals court ruled that "the government failed to present sufficient evidence that the defendants willfully engaged in substantive insider trading or a conspiracy to commit insider trading in violation of the federal securities laws." The US Supreme Court in October refused to review that ruling, marking the end of a lengthy legal battle and what some consider to be a shift in the law.   On Friday, CNBC's Andrew Ross Sorkin interviewed Bharara. He asked him whether the Supreme Court ruling in the Newman case had made it harder to bring an insider trading case. He started out by saying that he thought the Newman decision was wrong and changed the law, and that some kinds of cases will still be able to be bought as they were before. He added:  It will make it hard and arguably, very, very hard if not impossible to bring a certain kind of insider trading case. For example, if you have the CEO of a company, who has in advance knowledge about what the numbers are going to be for the quarter and decides to gift that information to a college buddy, or a nephew, or a son, and say, “You know, we are going to beat the numbers by a dollar. Knock yourself out.”

SEC Data Show Reduction in Criminal Prosecutions Since 2010 -- David Dayen -  Every year the SEC delivers an annual report right around the holidays that gets virtually forgotten by everyone. But a tipster highlighted one part of the document that matches recent research about the way in which the agency plays with numbers. Urska Velikonja, assistant professor at Emory School of Law, released the study late last year, showing that the SEC artificially over-counts and inflates its enforcement statistics to position itself as a tough regulator. Once you weed all that out, you find that the agency has not increased its enforcement numbers significantly since 2002, financial crisis be damned. Here’s a sample of the SEC’s statistical schemes:For example, the SEC includes in its enforcement statistics what Velikonja calls “follow-on” actions, such as barring offenders from various professional associations, or revoking registrations of broker-dealers or investment advisers, or preventing individuals from appearing as an attorney or auditor before the SEC. These follow-on actions are all based on a “primary enforcement action against the same offender based on the same set of facts,” Velikonja writes. Yet they are counted separately.The SEC, for instance, followed a civil action against Robert A. Gist in 2013 for defrauding clients of $5.4 million with an associational bar and a suspension of Gist’s ability to practice law before the SEC. All three of these actions are counted in the SEC’s 2013 tally. Plenty more on this at the link. Which brings us to the annual enforcement report for fiscal year 2014, the most recent update. And if you go to page 43, you find “Performance Indicator 2.3.4,” subtitled “Criminal actions related to conduct under investigation by the SEC.” The data comes from the SEC’s case management and tracking system. And it shows a regression.

U.S. congressional committee subpoenas ex-drug CEO Shkreli | Reuters: A U.S. congressional committee has demanded that former drug executive Martin Shkreli appear at a hearing on drug prices to testify about his former company's decision to raise the price of a lifesaving medicine by more than 5,000 percent, congressional aides said on Wednesday. Shkreli, who is separately facing federal criminal charges that he defrauded investors, has been served with a subpoena to appear on Jan. 26 before the U.S. House of Representatives' Committee on Oversight and Government Reform, the aides said. The Senate's Special Committee on Aging, which is also investigating the company's drug pricing practices, said on Wednesday that Shkreli has invoked the U.S. Constitution's Fifth Amendment against self-incrimination, and has refused to produce subpoenaed documents. Shkreli, 32, fired back at lawmakers on Twitter, writing on Wednesday that the House was "busy whining to healthcare reporters about me appearing for their chit chat next week. Haven't decided yet. Should I?" He declined an interview request.

Margin Rules Changes Force New Private Funding Of Public Debt - The Federal Reserve and other regulators around the world (including all members of the G-20) have recently agreed to alter margin rules, which will allow them to claim new powers over lending and leverage. In the United States these developing regulatory changes will not be restricted to the Fed's legal oversight over banks alone, but will affect all financial companies. The new margin rules will impact about $4.4 trillion in investments in the US. In combination with new rules for $2.7 trillion in money funds, the regulations are changing for about $7 trillion in investments. And the combined effect of these changes may be to drive up to $2.5 trillion out of the private investment markets and into purchasing the debts of a heavily indebted US government, thereby providing a very low cost source of funds. In a matter of a few months and with almost no notice, changes in obscure regulations are being used to create a new captive market for US Treasuries and agencies that is approximately equal to the total amount of federal debt purchased by the Federal Reserve over the course of many years of quantitative easing. The headlines are that the United States is starting to slowly release its control over interest rates, and return them to private market control. The reality is that the government is doing just the opposite, and is capturing formerly free and private money at a fantastic rate. Which brings up the question: just why is the government quietly deploying two massive financial stabilizers for the federal debt in 2016?

Bloomberg Spotlights Poor Private Equity Returns From Last “Peak of Cycle” Mega Deals -- Yves Smith - It should hardly be a surprise that when you violate the hoary old rule of investing, “buy low, sell high,” you probably won’t do so well. It is thus a testament to the mythology that private equity has managed to create around its returns that Bloomberg felt it needed to prove, in what is admittedly a well-resesarched story both in terms of data and quotes, that deals done in the buying frenzy of 2006 and 2007 haven’t been terribly successful. Bloomberg to its credit focused on 20 transactions intended to skirt the problem fueled by the famed pre-crisis “wall of liquidity,” of too much money chasing too few targets. The biggest firms pursued mega deals, intended to leapfrog the company size where the competition would be heated. Some of these were done on a “club” basis where a group of firms would team up. These arrangements were later pursued successfully by the Department of Justice for violating anti-trust rules.  The problem was that even though the private equity firms might have bought these companies at somewhat more favorable prices, whatever benefit they gained here was offset by the greater difficulty of exiting well and making improvements. From Bloomberg: The mega-deals produced mostly mediocre returns, falling well short of the profits that leveraged buyout shops typically seek, according to separate compilations by Bloomberg and asset manager Hamilton Lane Advisors. In more than half the deals — each valued at more than $10 billion — the firms would have been better off if they had put their investors’ money into a stock index fund… A former private equity executive said via e-mail: While ego is undoubtedly part of the story, it seems obvious to me that the main driver of these deals was that they were incredibly profitable under any scenario for the PE firms that did them. The reason is embedded in the fee structure that PE firms charge, where they get an asset management fee and also portfolio company fees, both of which do not depend on the deal being profitable.

Red Ink Spreads Across All The Major Asset Classes For 1yr Returns -- Last week’s selling wave pushed most of the major asset classes into the red for the five trading days through Jan. 15, based on a set of proxy ETFs. For the one-year trailing period, everything has lost ground. Negative momentum, in other words, is in high gear.  Swimming against last week’s red-ink tide: US investment-grade bonds. The Vanguard Total Bond Market ETF (BND) inched higher for the five days through Jan. 15, gaining 0.1% on a total return basis. Otherwise, losses in varying degrees prevailed across the board. Meanwhile, all the major asset classes have slipped below zero in the total-return column for the trailing one-year period (252 trading days) through Jan. 15. Even the US investment-grade bond space via BND is suffering with a slight loss for this trailing window. The last time BND’s one-year total return was under water: the spring of 2014.

Fears grow of repeat of 2008 financial crash as investors run for cover --- Fears that the global economy could be heading for a repeat of the 2008 financial crash have sent shockwaves through financial markets – prompting a rush to safe havens by investors. Oil prices fell to a fresh 12-year low on Wednesday and metal prices tumbled in response to warnings that China’s slowdown could derail the global recovery at a time when central banks, which came to the rescue in the credit crunch, have only limited firepower. As world and business leaders gathered for the annual World Economic Forum in Davos, Switzerland, the FTSE 100 was gripped by panic selling, especially of mining and oil companies that have been hit hard by the global slowdown in manufacturing and trade. Earlier this week, China recorded the slowest rate of economic growth for 25 years. The index dropped more than 200 points to finish the day down more than 20% from its peak of 7,122, reached in April last year. Such a 20% decline marks the beginning of a bear market. In New York, shares on the Dow Jones Industrial Average closed 249 points down (1.56%), recovering from a 550-point-drop earlier in the day, while Brent crude dropped to $27.78 a barrel – down by about 70% from its summer 2014 level of $115 a barrel.

How Stories Drive the Stock Market - - Robert Shiller - Since the stock market began falling at the beginning of this year, there seems to have been a palpable change in the stories we have been hearing. Suddenly there is more willingness to entertain the possibility of a major stock market correction, or of an economic recession.It is no surprise that this kind of talk appears after a market drop: The stock market is perhaps the most famous leading indicator of a recession, though hardly a perfect one. That status has been well known at least since the 1920s.Narrative psychology, as in the work of the New York University psychologist Jerome Bruner, for example, suggests that popular narratives, particularly human interest stories, are fundamental drivers of motivation. Several such narratives are worth looking at more closely. One tale that has been intensified lately has focused on the Chinese economy and its stock market, including sharp market declines at the beginning of 2016. Long-abiding concerns about Chinese overinvestment, shadow banking issues, ghost cities that were built but never inhabited and similar problems have been amplified. In the West the narrative has been colored with emotions. China’s mistakes have been contrasted with Western optimism, our sense of patriotism and our sense of competitiveness.The prevalence of such stories encourages a gross exaggeration of the importance of the Chinese economy for our markets. Consider that United States exports in goods to China have recently accounted for only six-tenths of 1 percent of our gross domestic product. (United States imports in goods from China, though about four times bigger, are still relatively small as an overall proportion.) But once story-based thinking gets started, there is comparatively little public interest in such numbers.

Funds Hold Most Cash Since GFC -- naked capitalism - Yves here. I don’t want readers to think we’ve gone all soft, but it is worth pointing out that investor cash holdings are at an unusually high level and that in recent history has been a good indicator of market bottoms. However, there are reasons to wonder whether the past will be a predictor of the future. First, more and more trading is algo-driven. That creates the potential for both downdrafts and rallies to move faster, and more important, further than they would have in the past. In other words, the market structure is not the same as in 2008. Second, the 2008 crisis came after three previous crisis phases, each of which the authorities beat back, albeit with more effort each time. And in the September-October debacle, the credit markets had seized up, the payment system was at risk, and the authorities were in all-hands-on-deck mode to prevent firms from collapsing and do what they could to calm badly-rattled nerves. This time, probably because the credit and payment systems are not the focus of the upheaval, The Powers That Be have largely sat pat. The lack of intervention (and political obstacles in the US to dropping rates through zero, not that we would advocate that course of action) means the markets may move on a different path. Third, in deflation, what you want to hold is cash and cash equivalents and high quality bonds. Period.  The wee problem, of course, is that these institutional investors are presumably being paid to do something else, like invest in stocks or bonds of a certain flavor, so one has to wonder when holding unduly high cash balances, which may prove to be a winner from their client’s perspective, gets them punished for style drift. And if we really are going into deflation, there is another possible development in the wings: the end customers will figure out that they should hold only cash, cash equivalents, and high quality bonds, and will flee funds that do anything else, leading to a considerable thinning of the investment management sector. On the one hand, we’ve long said the financial services industry is hypertrophied and needs to shrink, and more and more economists, and even the IMF, have endorsed the idea that the financial services industry of the size of America’s is a drag on growth. But transitioning to a better-balanced has transition costs, and finding a next act for once-highly-paid and narrowly-skilled professionals may prove to be one.

Why Are Corporations Hoarding Trillions? -- There is an economic mystery I’ve been struggling to understand for quite some time, and I’m not the only one who’s confused: Among financial experts, it is often referred to as a conundrum, a paradox, a puzzle. The mystery is as follows: Collectively, American businesses currently have $1.9 trillion in cash, just sitting around. Not only is this state of affairs unparalleled in economic history, but we don’t even have much data to compare it with, because corporations have traditionally been borrowers, not savers. The notion that a corporation would hold on to so much of its profit seems economically absurd, especially now, when it is probably earning only about 2 percent interest by parking that money in United States Treasury bonds. These companies would be better off investing in anything — a product, a service, a corporate acquisition — that would make them more than 2 cents of profit on the dollar, a razor-thin margin by corporate standards. And yet they choose to keep the cash. Take, for example, Google. Its new parent company, Alphabet, is worth roughly $500 billion. But it has around $80 billion sitting in Google’s bank accounts or other short-term investments. So if you buy a share in Alphabet, which has sold for roughly $700 lately, you are effectively buying ownership of more than $100 in cash. With $80 billion, Google could buy Uber and its Indian rival Ola and still have enough left over to buy Palantir, a data-mining start-up. Or it could buy Goldman Sachs outright or American Express or most of MasterCard; it could buy Costco or eBay or a quarter of Amazon. Surely it could use those acquisitions to earn more than 2 cents on the dollar.

Someone Is Trying To Corner The Copper Market - It may not be as sexy as gold and silver, but sometimes even doctor copper needs a littlesqueeze and corner love as well, and according to Bloomberg, that is precisely what someone is trying to do. One company whose identity is unknown, is "hoarding as much as half the copper available in warehouses tracked by the London Metal Exchange." However, unlike the famous cornering of silver by the Hunts in 1980 which sent the price soaring if only briefly, in this case the unknown manipulator is trying to push the price of the physical lower. By taking control of half the available copper, the trader can help drive up the fees associated with rolling forward a short position, making it tougher for speculators to keep their bearish, explains Bloomberg. Indeed, as shown in the chart below, this week the borrowing cost jumped to the highest in three years, almost as if someone is desperately trying to punish the shorts in a strategy very comparable to what Shkreli did with KBIO, when he bought up 70% of the outstanding stock and then made removed his shares from the borrowable pool, forcing a massive short squeeze.

Art Cashin: This Is "What You Get Before You Slip Into A Crisis" -- Around the globe financial markets are in turmoil. Alarming news out of China and the crash in the oil market is causing angst among investors everywhere. In the United States, the S&P 500 is down more than 8% since the beginning of the year. Art Cashin, director of floor operations for UBS at the New York Stock Exchange, thinks that the rate hike of the Federal Reserve is one of the main reasons for the sell-off in the stock market. The highly respected Wall Street veteran fears that America will fall into a recession if the Fed doesn’t change its course and lowers interest rates back to zero.  Mr. Cashin, the pressure on the financial markets is rising. How’s the mood on the trading floor of the New York Stock Exchange? The mood is both concerning and frustrated. On Friday, we traded temporarily lower than we got during the August spike down. That is never a good indication and it is troublesome. Here in the US, there was some concern that the markets will be closed for a holiday on Monday whereas the exchanges in Europe and in Asia are going to be open. So a lot of investors were worried about the exposure they will have for this extra day. You’re working on the floor of the stock exchange for almost six decades. During that time you have seen many difficult moments. How severe is the situation right now? It is very similar to what you get before you slip into a crisis. Also, it’s earnings season and because of that many corporate buybacks have to be paused during this period. That removes an important potential support for the market. Over the last year, companies buying back their own stock have put more money into the market than all of the public has. The cessation of those buybacks is probably a reason why we’re seeing the rather sharp selling that has occurred. A main source of concern is the sharp drop in oil prices. Both, WTI and Brent, closed below $30 on Friday. Why is this causing so much havoc on Wall Street? Investors are concerned that many of the small and domestic producers here in the United States have money owned in the high yield market. So if oil prices continue to go lower they’re afraid that up to two thirds of those fracking companies may go into bankruptcy. They fear that through financial contagion those bankruptcies would then begin to spread into other areas of the financial markets. Several market participants have been asked to put up more collateral to prepare for bad loans.  Forced selling and margin calls are very hard to deal with because such an investor basically has no latitude. Positions must be sold at any price and that’s very difficult for the market.

Geithner Ghostwriter Mike Grunwald Tries to Shift Financial Crisis Narrative Away From The Big Short - David Dayen - It’s sad that you have to be something of a detective to decipher what passes for content at most major American news outlets. In the case of Michael Grunwald, however, we have a decent set of indicators about the normally hidden agenda. The Politico writer worked with Tim Geithner on his memoir. In fact, I believe he has said publicly that he didn’t know a lot about finance before meeting Geithner. So when Grunwald decides to leap into anything involving this topic, we can assume the end result is not altogether different than what it would look like if Geithner wrote it with his own byline. The latest example is a nominal review of The Big Short, which is not really a review. It’s an attempt to steer the narrative of what happened, in the financial crisis and its aftermath, to territory that comforts elites. Geithner has repeatedly tried to rewrite that history, as a means to self-flatter about his actions, and to ensure that nothing more punitive or disruptive befalls our money center banks. This non-review review represents another chapter in that story.

What The Big Short Gets Right (and What Politico Gets Wrong) - Mike Konczal -- Imagine there was no financial crisis. No panic, no bailouts, no TARP. There’d be nothing to be mad about, right? Actually there’s everything to be mad about. We’d still have six million foreclosures destroying communities and people’s lives. The Great Recession would have happened almost exactly as it did, throwing millions of people out of work and scarring their productive lives. And there still would have been a wave of individuals who profited enormously through bad mortgage instruments, leaving everyone else on the hook. One of the many things I like about the new movie The Big Short is that it doesn’t focus on the financial crisis, which normally dominates all the stories about what happened. Instead it focuses on how the housing bubble was created and sustained while previewing the destruction it would take on the people whose homes were in those mortgages bonds.  But we are now getting the counter-narratives, arguing that the film is entirely wrong with its message. First came the crazytown bananapants stuff from the American Enterprise Institute, arguing that the whole film is a lie. [1] But now we have Michael Grunwald at Politico, arguing that the movie “whiffs on the big message of the crisis.” The crisis is just a story about a general housing mania, which all the attention the movie pays to the complicated mess of mortgage-backed securities and collateralized debt obligations (MBS, CDOs) needlessly complicates. The real problem was short-term leverage and the panics that ensued in the financial crisis. However those problems were handled well enough during the bailouts, and Dodd-Frank has made significant strides in fixing the problems the movie brings up.I think these are all wrong, full-stop. And they are all wrong in a way that limits our ability to really understand the crisis, and where we are now.

What the Movie Big Short’s Brilliant Attack on Wall Street Misses, and Why Michael Lewis is to Blame - naked capitalism - The Big Short is a brilliant, wonderful movie, educational yet hilarious, enraging yet idealistic, detailed yet gripping. It is a story of a housing bubble, which only a small group of insightful yet weird short-sellers, the iconoclasts of Wall Street, could see.  The director, Adam McKay, captures the haze of mid-2000s Bush-led faux prosperity, from which we are ten years removed, and the anguish and narrative of these banker-heroes. But the narrative, and this comes from Michael Lewis, has two big problems. The first problem can be summed up in the testimony of Gail Burks, President of the Nevada Fair Housing Center, before the Financial Crisis Inquiry Commission. She noted that in 1999, eight years before the crash, Nevada consumers started complaining about predatory lending. By 2001, her nonprofit was receiving 400 complaints per month with predatory lending issues. Remember, Lewis’s narrative is that no one saw the housing bubble except for his storied few. Burks noticed problems in 2001. She wasn’t alone. Economist Dean Baker in 2003. Federal Reserve Board Governor Ned Gramlich tried to regulate the industry around that time, but was blocked by Alan Greenspan (Tim Geithner references this in his bio, so it was well-known). Another Fed official, Sabeth Siddique, conducted a survey of mortgage loan quality in 2005, finding the results to be “very alarming.” The FBI testified to Congress in 2004 about an “epidemic of mortgage fraud.” Cities and states all over the country were passing laws against predatory lending, and regulators were overriding those laws. In March, 2007, the SEC formed a subprime working group that focuses on CDOs sold during 2006 and 2007. Lewis just misleads so he can tell a better story.

Who is Morgan Stanley and Why Its $31 Trillion in Derivatives Should Concern You  - Pam Martens - According to a report from one of the regulators of national banks, the Office of the Comptroller of the Currency, as of September 30, 2015, insured U.S. commercial banks and savings associations had exposure to $192.2 trillion notional (face amount) of derivatives.  (Yes, that’s trillion with a “t”.) The report goes on to terrify with the revelation that only four banks hold 90.8 percent of all derivatives: Citigroup, JPMorgan Chase, Goldman Sachs and Bank of America.  . In Table 2 we learn that Morgan Stanley ranks right up there with the other big boys on Wall Street, holding $31 trillion notional in derivatives. (See chart below.) Adding in Morgan Stanley’s derivatives, the total rises to $247 trillion in notional derivatives with just these five banks holding 93 percent of the total. Equally noteworthy, the table shows that within Morgan Stanley’s $31 trillion in derivatives there are $1.6 trillion in notional credit derivatives – those pesky instruments that took down the big insurer AIG in 2008 and almost took down Morgan Stanley. Who and what exactly is Morgan Stanley and why should its derivatives concern us? . Last July Morgan Stanley reported that it now has 15,771 retail brokers. In its third quarter report for 2015 it reported that it had $404 billion in assets under management – that means how much it is managing of other people’s money, much of which are accounts for moms and pops, retirees and pension and retirement accounts.

CFTC Has Decade Of Audit Opinions Withdrawn After Massive "Error" Uncovered -- So impressed were we at the Commission’s dedication to preserving the integrity of our beloved “markets” that we sought last year to help the CFTC uncover further instances of manipulation in a series of articles (see here, here, and here) designed to help hapless regulators spot the very same type of tactics they swear Navinder Sarao used on the way to engineering the collapse of the entire US equity market from his basement.  Of course we jest and to the extent we believed there might be a shred of honesty and/or dignity buried somewhere in the bowels of the government body tasked with policing the derivatives market, our hopes were dashed on Tuesday when we learned that the Commission’s auditor has withdrawn “nearly a decade” of financial opinions after discovering that the books may be cooked. “The Commodity Futures Trading Commission understated liabilities by $194 million in fiscal 2014 and $212 million the following year,” Reuters reports, citing KPMG  documents. “The understatements are the equivalent to more than 75 percent of the CFTC's $250 million annual budget.” Apparently, the agency conveniently avoided accounting for the full cost of leasing facilities in Washington, Chicago, New York, and Kansas City. The government doesn’t see fit to give the Commission its own buildings, so the CFTC is forced to rent. “In its annual financial statements, the regulator was only accounting for a year's worth of rent payments,” Reuters says, before noting that KPMG claims the regulator is in violation of GAAP and may have run afoul of “the federal Anti-Deficiency Act, which prohibits government agencies from obligating or expending federal funds in excess of the amount available.”

Is Bitcoin Breaking Up? -- A prominent bitcoin developer has labeled the currency a failed experiment, widening the rift over an arcane but critical technical issue that has divided the community for nearly a year. “The fundamentals are broken, and whatever happens to the price in the short term, the long-term trend should probably be downwards,” developer Mike Hearn wrote on the blogging platform Medium. “I will no longer be taking part in bitcoin development and have sold all my coins.” The fight stems from growing congestion on the bitcoin network caused by size limits within the currency’s ledger of transactions. If the limits aren’t raised, the result could be debilitating bottlenecks. But fixing it requires altering a system that has been profitable for those that use heavy computer power to record transactions. Mr. Hearn has been a vocal proponent for expanding the size limits. The problem is bitcoin is open-source software, so any change has to be approved a majority of the community, and it hasn’t been able to agree.

Why Bitcoin is Not Disruptive -- naked capitalism Yves here. Get a cup of coffee. This is a deep dive into how Bitcoin works from a payment systems perspective, and why the failure of promoters and journalists to look at it in those terms has led them to greatly overestimate its significance.

JPM Explains How Crude Carnage Creates $75 Billion SWF "Contagion" For Equities - Back in August, we explained why the great petrodollar unwind could be $2.5 trillion larger than anyone thinks. China’s effort to “control” the glidepath for the yuan devaluation led to a dramatic decline of Beijing’s FX reserves and pushed reserve liquidation to the front of the market’s collective consciousness. But “the great accumulation” (as Deutsche Bank calls it) of USTs ended long before the RMB devalue forced the market to start talking about FX reserves. In short, the inexorable decline in crude prices (and commodities in general) forced producers to sell USD assets in an effort to offset pressure on their currencies and plug yawning budget gaps. And while the world is now fully awake to the fact that these asset sales amount to QE in reverse (global central banks are selling the same assets the Fed once bought), what isn’t as well understood is that looking strictly at official FX reserves paints an incomplete picture. “Crucially, for oil exporting nations, central bank official reserves likely underestimate the full scale of the reversal of oil exporters’ ‘petrodollar’ accumulation,” Credit Suisse wrote last year.“This is because a substantial part of their oil proceeds has previously been placed in sovereign wealth funds (SWFs), which are not reported as FX reserves (with the notable exception of Russia, where they are counted as FX reserves).” The difference between total SWF assets and official reserves for oil exporting nations is vast. "Currently, oil exporting countries hold about $1.7trn of official reserves but as much as $4.3trn in SWF assets," Credit Suisse went on to point out, adding that. "In the 2009-2014 period, oil exporters accumulated about $0.5trn in official reserves but as much as $1.8trn of SWF assets." Or, visually:  As you can see from the above, oil exporters' accumulation of SWF assets comes to a dramatic halt when crude prices fall. Critically, it's exceedingly possible that the accumulation of SWF assets turns negative now that the return of Iranian supply means oil prices are set to stay lower for longer. Or, as Credit Suisse put it, "now that the tide has turned, it is likely that not only official reserves drop but that SWF asset accumulation slows to nil or even reverses." Perhaps the best example of this is Norway's SWF which, at $830 billion, is the largest in the world:

Junk Bonds Go Sour, but the Question Is How Sour - Gretchen Morgenson - The tide has definitely turned against investors in high-yield debt, better known as junk bonds.Market indexes are down approximately 9 percent from their highs of last year. Plummeting prices for oil and other commodities have done most of the damage, but the decision last month by a well-known mutual fund, Third Avenue Focused Credit, to halt redemptions, has also spooked the market.Is the worst over in this $1.5 trillion arena? Not yet. And some strategists say that investors may be focusing too much on the role energy has played in the decline while underestimating other risks.Commodities companies, outsize issuers of junk debt in recent years, have certainly caused the most pain. Fully 27 percent of high-yield debt brought to market in 2014 came from oil companies, many of them riding the shale fracking boom.  And this is not just an issue for the high rollers. Much of this debt found its way into widely owned high-yield mutual funds. As of last September, the Franklin High Income fund, for example, had 16 percent of its assets invested in energy-related securities. And at the end of December, 14.5 percent of the assets in Nuveen’s High Income Bond fund were energy-related securities. These two energy holdings have no doubt contributed to the funds’ poor performance of late: The shares of both are down 20 percent from their peaks of 2015. But with oil falling below $30 and no bottom yet in sight, there is probably further pain ahead in the oil sector, according to Matthew Mish, global credit strategist at UBS, who also contends that prices on junk bonds outside of energy have not come down enough either.

Exclusive: Dallas Fed Quietly Suspends Energy Mark-To-Market, Tells Banks Not To Force Shale Bankruptcies - Earlier this week, before first JPM and then Wells Fargo revealed that not all is well when it comes to bank energy loan exposure, a small Tulsa-based lender, BOK Financial, said that its fourth-quarter earnings would miss analysts’ expectations because its loan-loss provisions would be higher than expected as a result of a single unidentified energy-industry borrower. This is what the bank said: “A single borrower reported steeper than expected production declines and higher lease operating expenses, leading to an impairment on the loan. In addition, as we noted at the start of the commodities downturn in late 2014, we expected credit migration in the energy portfolio throughout the cycle and an increased risk of loss if commodity prices did not recover to a normalized level within one year. As we are now into the second year of the downturn, during the fourth quarter we continued to see credit grade migration and increased impairment in our energy portfolio. The combination of factors necessitated a higher level of provision expense." Another bank, this time the far larger Regions Financial, said its fourth-quarter charge-offs jumped $18 million from the prior quarter to $78 million, largely because of problems with a single unspecified energy borrower. More than one-quarter of Regions’ energy loans were classified as “criticized” at the end of the fourth quarter. It didn't stop there and and as the WSJ added, "It’s starting to spread" according to William Demchak, chief executive of PNC Financial Services Group Inc. on a conference call after the bank’s earnings were announced. Credit issues from low energy prices are affecting "anybody who was in the game as the oil boom started,” he said. PNC said charge-offs rose in the fourth quarter from the prior quarter but didn’t specify whether that was due to issues in its relatively small $2.6 billion oil-and-gas portfolio. Then, on Friday, U.S. Bancorp disclosed the specific level of reserves it holds against its $3.2 billion energy portfolio for the first time. "The reason we did that is that oil is under $30" said Andrew Cecere, the bank’s chief operating officer. What else will Bancorp disclose if oil drops below $20... or $10?

Wells Fargo's Problem Emerges: $17 Billion In Junk Energy Exposure --When Wells Fargo reported its Q4 earnings last week, the one topic analysts and investors wanted much more clarity on, was the bank's exposure to oil and gas loans, and much more color on its energy book over concerns that Wells, like most of its peers, was underestimating the severity of the upcoming shale default wave. And while the company's earnings call indeed reveals that things are deteriorating rapidly in Wells energy book, perhaps an even bigger concern for Wells investors, which just happens to be the largest US mortgage lender, should be what is going on with its mortgage book. The answer: nothing. In fact, at $64 billion in mortgage applications in the quarter, this was not only a major drop from Q3, but also the lowest since the first quarter of 2014.  Needless to say, without significant growth in Wells' mortgage pipeline and originations, there can be no upside to Wells Fargo stock, meanwhile one can kiss the so-called housing recovery goodbye for the final time, because now that the US Treasury is cracking down on criminal and money laundering "all cash" buyers, we fully expect the housing industry to grind to a near halt in the coming 2-3 quarters. That covers the lack of upside. As for the substantial downside, here are the key parts from Wells Fargo's conference call discussing the bank's energy exposure. First: how big is Wells' loan loss allowance for energy: We've considered the challenges within the energy sector and our allowance process throughout 2015 and approximately $1.2 billion of the allowance was allocated to our oil and gas portfolio. It's important to note that the entire allowance is available to absorb credit losses inherent in the total loan portfolio.Then, from the Q&A, how much is Wells' total loan exposure, its fixed income and equity exposure toward energy: I would use $17 billion as outstandings  for energy loans. And for securities, I would use, call it, $2.5 billion which is the sum of AFS securities and non-marketable securities. In other words, a 7% loan loss reserve toward energy, perhaps the highest on all of Wall Street.

BofA Reports $21.3 Billion In Energy Exposure; Beats On EPS Despite Revenue Miss, Sliding Sales And Trading - In the aftermath of Citi and JPM's earnings last week, the only thing investors wanted to know about when it came to the just released Bank of America earnings moments ago, was the bank's energy exposure, and we'll get to that in a second, but first here are the housekeeping items. Bank of America reported Q4 EPS of $0.28, or $0.29 ex-DVA, a modest improvement from a year ago, and above the 0.27% expected, driven by ongoing expense reduction in the form of fewer lawsuits and fewer employees. However, GAAP revenue of $19.5 (not the non-GAAP revenue of $19.8 proudly featured), missed expectations of $19.8 billion, on continued deterioration in Sales and Trading revenues. Finally, the full disclosure, as little as it may be, on the bank's commercial portfolio where all of its energy exposure is to be found, revealed that commercial net charge-offs increased $75MM compared to 3Q15, driven by losses in Energy, while the Allowance increased $144MM from 3Q15, driven by energy-related exposures and higher loan growth across the portfolio." The total allowance at Dec. 31 was $4.849 billion. What was the total loan loss provision related to energy? We don't know. As for the question if this was was enough, we will let readers decide when they consider that BofA revealed its "Utilized Energy exposure of $21.3B ($1B traded products)", down $2.6 billion from a year ago. BofA also notes that the "higher risk sub-sectors of Oil Field Services and Exploration & Production comprise 39% of utilized energy exposure." We suppose this is a euphemism for junk bond exposure. BofA also revealed that reservable criticized exposure increased $2.9B compared to 3Q15, driven by a $2.6B increase in Energy: a rather sizable jump. And then this unexpected whopper: "Energy reservable criticized exposure was $4.7B at 4Q15; increased from 3Q15 due primarily to a downgrade of one large single-name credit supported by a sovereign."

More Banks Take Hits on Energy Loans. Months of low oil prices are starting to take a toll on banks. Large U.S. banks reporting earnings Friday said they saw more energy loans go bad in the fourth quarter. Many lenders also added millions of dollars to reserves in anticipation that more oil-and-gas loans will sour. Credit issues from low energy prices are affecting “anybody who was in the game as the oil boom started,” Citigroup Inc. added to its rainy-day reserves for soured loans for the first time since 2009, adding $250 million specifically for energy and $494 million overall. “Obviously there is some pressure in the energy-related markets at this point in time,” As many as one-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 a barrel, many analysts say. Concerns about oil and gas exposure have battered the stocks of banks with big energy portfolios. Zions Bancorp shares are down 18% since the beginning of the year, while BOK’s are down 20% and Cullen/Frost Bankers Inc. shares are down 22% during that period. The KBW Nasdaq Bank Index is down 13% amid a broad market decline. Still, banks continue to maintain that any energy losses remain manageable. Wells Fargo & Co. had $90 million in higher losses in its oil-and-gas portfolio during the fourth quarter, and the bank said it boosted its commercial-loan reserves as a result. Wells Fargo played down the potential impact of the energy problems, noting that oil and gas loans remained around only 2% of its total loans, and that more than 90% of the problem oil-and-gas loans in its portfolio were current on their interest payments as of the end of 2015.

Oil Market Tests Banks’ Ability to Weather Losses -- Low oil prices are rattling global markets and destabilizing economies around the world. They are also posing one of the first big tests to the United States banking system since the financial crisis.  Banks of all sizes are marking down the value of loans and setting aside reserves to absorb additional losses as oil producers struggle to pay their debts. On Tuesday, Bank of America said provisions for credit losses increased $264 million in the fourth quarter, driven by the downturn in the energy sector. Citigroup, Wells Fargo and JPMorgan Chase reported last week that oil issues also weighed on fourth-quarter earnings. While the energy downturn is cutting into profits, it is not threatening the big banks’ capital cushions, a testament, analysts say, to the rigorous regulations put in place to protect the financial system after the collapse of the mortgage market in 2008. Still, the worst pain for the banks may lie ahead. While many banks have reduced credit lines to oil producers, some lenders are loath to cut off financing entirely for fear of forcing energy companies into bankruptcy, according to energy lawyers and consultants.The banks — and their regulators — are also trying to determine loan values and forecast future losses amid great uncertainty about the direction of oil prices, which have dipped below $30 a barrel. Some analysts and energy executives say prices could rebound in a few months if the global oil glut eases. Others say it could take years for prices to rise again as the global economy slows and new supply comes online from countries like Iran.

Big banks brace for oil loans to implode: - Firms on Wall Street helped bankroll America's energy boom, financing very expensive drilling projects that ended up flooding the world with oil.Now that the oil glut has caused prices to crash below $30 a barrel, turmoil is rippling through the energy industry and souring many of those loans. Dozens of oil companies have gone bankrupt and the ones that haven't are feeling enough financial stress to slash spending and cut tens of thousands of jobs. Three of America's biggest banks warned last week that oil prices will continue to create headaches on Wall Street -- especially if doomsday scenarios of $20 or even $10 oil play out. For instance, Wells Fargo (WFC) is sitting on more than $17 billion in loans to the oil and gas sector. The bank is setting aside $1.2 billion in reserves to cover losses because of the "continued deterioration within the energy sector." JPMorgan Chase (JPM) is setting aside an extra $124 million to cover potential losses in its oil and gas loans. It warned that figure could rise to $750 million if oil prices unexpectedly stay at their current $30 level for the next 18 months.  " Citigroup (C) built up loan loss reserves in the energy space by $300 million. The bank said the move reflects its view that "oil prices are likely to remain low for a longer period of time."  If oil stays around $30 a barrel, Citi is bracing for about $600 million of energy credit losses in the first half of 2016. Citi said that figure could double to $1.2 billion if oil dropped to $25 a barrel and stayed there.The oil crash has already caused 42 North American oil companies to file for bankruptcy since the beginning of 2015, according to a list compiled by Houston law firm Haynes and Boone. It's only likely to get worse. Standard & Poor's estimates that 50% of energy junk bonds are "distressed,"meaning they are at risk of default.

Default risk in energy debt seen as higher than Great Recession - The market has less faith in energy companies than in the peak of the financial crisis. ByEllieIsmailidou Markets reporter Markets are pricing in a higher default risk for the energy sector than they did at the peak of the Great Recession, according to data from Schwab Center for Financial Research and Barclays. As continued concerns about oil’s global supply glut pushed crude futures below $27 a barrel, sparking a global stock selloff, energy spreads surpassed their 2009 peak. A spread is a yield differential between the index and comparable risk-free Treasurys. Widening spreads mean investors are pricing in more risk for the energy sector and require a higher yield as compensation for their risk. As the following chart shows, the spread on the energy sector of the Barclays U.S. Corporate High-Yield Bond Index, a widely followed gauge of market-priced risk, reached 1,530 basis points as of Tuesday’s close, compared with 1,420 basis points reached during the height of the financial crisis seven years ago. Credit-market spreads are often viewed as a leading indicator for equity markets. Spreads in the energy sector have been widening since the summer of 2014, and spiked over the past few months amid the recent rout in oil prices.  Widening credit spreads imply that “the market is clearly expecting the default rate to pick up, as the balance sheets of some of the riskier energy companies won't be able to sustain this drop in oil prices”

Rumors on Mark-to-Mark Accounting and Loan Loss Provisions: What's the Real Story?  -- Bank loan loss impairments related to the energy sector are set to rise rapidly. Banks have made drilling loans to companies that are only profitable at oil prices above $50. And the price of oil just closed under $30 for the first time in about 12 years.   Zero Hedge has an interesting post on Saturday entitled Dallas Fed Quietly Suspends Energy Mark-To-Market On Default Contagion Fears. In his post, ZeroHedge claims "The Dallas Fed met with the banks a week ago and effectively suspended mark-to-market on energy debts and as a result no impairments are being written down. Furthermore, as we reported earlier this week, the Fed indicated 'under the table' that banks were to work with the energy companies on delivering without a markdown on worry that a backstop, or bail-in, was needed after reviewing loan losses which would exceed the current tier 1 capital tranches." You cannot suspend what has already been suspended.  On April 3, 2009, the Wall Street Journal reported FASB Eases Mark-to-Market Rules.  Suspension of mark-to-market account was one of the factors that ignited the stock market in Spring of 2009.There have been no subsequent changes. And here we are, back in bubble land, with hidden losses mounting again. By, how much? Who the hell knows because mark-to-market accounting has already been effectively suspended.  ZeroHedge's initial rumor the "Dallas Fed members had met with banks in Houston and explicitly told them not to force energy bankruptcies and to demand asset sales instead." could very well be true.  There's not much shocking in that statement actually. Regardless of what Kaplan instructed the banks to do, bankruptcies cannot be avoided by selling assets.  Sell what assets? At what price?

Moody’s puts 175 energy and mining companies on downgrade watch - FT - Several of the world’s biggest oil and gas groups — including Royal Dutch Shell, Total and Chesapeake Energy — are among 175 energy and mining companies at risk of rating downgrades following a collapse in crude and other commodities markets, Moody’s warned on Friday. Downgrades that could increase financing costs are seen as most likely for exploration and production companies in North America, where the sharp fall in oil prices is putting pressure on many groups that led the US shale boom. Moody’s has put on review for downgrades 69 US-based companies — including Schlumberger, the oil services group which on Thursday announced 10,000 job losses, and Chesapeake, the gas producer. “Multi-notch downgrades are particularly likely among issuers whose activities are centred in North America, where natural gas prices have declined dramatically along with oil prices,” said the rating agency. In a review of the natural resources industry, Moody’s blamed China’s economic slowdown for its gloomy outlook and pointed to a “substantial risk” that oil prices will recover only slowly from 12-year lows this week of less than $30 a barrel. “Oil prices have deteriorated substantially in the past few weeks and have reached nominal price lows not seen in more than a decade,” said Moody’s. “Even under a scenario with a modest recovery from current prices, producing companies will experience much lower cash flows.” Moody’s notice for 120 energy companies and 55 miners is its largest single warning of potential corporate downgrades since the financial crisis.

Big Bank Stocks Have Been Crushed: Here’s Why - Pam Martens - The conventional wisdom was that the Fed’s rate hike on December 16 of last year was going to help big bank stocks by boosting their ability to charge heftier interest rates on loans. That theory has pretty much been relegated to the dust bin of financial fairy tales along with the Fed’s prediction that the slump in oil prices would be “transitory.”   Among big U.S. bank stocks, Citigroup has taken the worst drubbing. Even after reporting what were perceived to be fairly good earnings last Friday, its share price fell by 6.41 percent by the close of trading. That brings its stock losses to 30 percent from its July 2015 high.  The Wall Street Journal expressed this theory on Citigroup’s travails last Friday: “ A portfolio manager looking to limit exposure to the impact of lower oil or a Chinese slowdown is a natural seller of CitiThe saving grace in all this? The selloff isn’t about worries of banks blowing up. It is more investors throwing in the towel on the idea that things will be getting meaningfully better for them soon.” The minute U.S. corporate media tells you that “the selloff isn’t about worries of banks blowing up,” you know the worries are about banks blowing up. There’s three major elements tied to the worry about U.S. mega banks – derivatives, interconnectedness and what investors can’t see until the bank blows up. Even though Morgan Stanley has much smaller foreign exposure than Citigroup according to the Office of Financial Research, its stock has lost 37 percent since its July high, 7 percent more than Citigroup. Goldman Sachs has lost 29 percent in market value since June; Bank of America is off 22 percent from July and JPMorgan is down by 19 percent in the same period. What these five mega Wall Street banks have in common, according to a February 2015 report from the Office of Financial Research (OFR), a unit of the U.S. Treasury Department, is mega intrafinancial system assets and liabilities – in other words, they’re on the hook to each other. The data used by the OFR was as of December 31, 2013. (Wells Fargo, which is a huge bank but not as interconnected, is down just 17 percent since its July 12-month high.)

Wall Street Banks Are Trading as a Herd Because They are Highly Interconnected - Pam Martens - Market action since the Federal Reserve’s first, in a promised series, of rate hikes on December 16 to put the U.S. back on a path of “normalization” and end its seven-year zero-interest-bound policy has reminded us of that line from the movie “Six Days Seven Nights.”: I don’t know how much more of this vacation I can take.  What U.S. investors woke up to this morning was another day of market hell. Futures on the Dow Jones Industrial Average were showing a loss of more than 300 points; Europe and Asia stocks had been pummeled overnight; and domestic crude oil (West Texas Intermediate) had sunk to a new 12-year low under $28 a barrel. According to Bloomberg News, on a global basis, as measured by the MSCI All-Country World Index, stocks have now lost over $15 trillion since May. As for the Fed’s ability to get interest rates moving back up, the 10-year U.S. Treasury note which closed at a yield of 2.29 percent on the day of the Fed’s rate hike announcement on December 16, has this morning broken below 2 percent to trade at a yield of 1.97 percent. Two Wall Street banks, Citigroup and Morgan Stanley, have seen their share prices decline by more than 30 percent since July. JPMorgan Chase, Goldman Sachs and Bank of America have also experienced double-digit declines in the same period.The hubris of incompetent regulation of the behemoth Wall Street banks, which Congress not only failed to tame after the 2008 crash but allowed to grow much larger in terms of systemic risk, has now come home to roost. If these banks own up to losses and boost loan loss reserves for what is inevitably coming, their share prices will dive further. If they don’t, markets will assume they’re lying and guess at what their share price should be, potentially hurting them even more.

Bank Debt Worries Overhang Markets: FDIC’s Hoenig Speaks Out - Pam and Russ Martens -- We are in the midst of an unprecedented collapse in commodity and oil markets, fueling fears about every kind of debt from emerging markets to junk bonds held in U.S. listed Exchange Traded Funds (ETFs). In this midst of this raging fear, what has the U.S. Federal Reserve proposed? It’s proposed a plan to make banks “safer” by making them issue more debt and become more highly leveraged. We’re not kidding folks. The plan is called TLAC, short for Total Loss-Absorbing Capacity, which boils down to having the systemically dangerous banks that might put taxpayers on the hook again for another bailout in a crisis, to hold more long-term debt that would absorb losses after stock equity is wiped out (think Citigroup in 2008). This would, in theory, allow recapitalization of subsidiaries so that they could continue operating. In other words, the bank holding company would file for bankruptcy while, ideally, the retail brokerage firm and the insured depository bank would remain solvent and continue operating. Good luck with that. Where did this idea originate? At the Financial Stability Board, a pack of foreign central bankers and regulators, including U.S. representation, who are desperately attempting to reassure their respective constituents that they’ve cured the need for future taxpayer bailouts of the global banking behemoths.This plan ignores the total history of Wall Street panics. What happened at E.F. Hutton after the crash in 1987 and following its 1985 guilty pleas to 2,000 fraud counts related to check kiting; what happened at Shearson in 1990; what happened at Bear Stearns and Lehman Brothers and Citigroup in 2008. In the midst of a financial panic, depositors and investors take their money and head for the door and the more highly leveraged the bank, the faster they exit. Here’s how we reported Citigroup’s evaporation during November 2008:

‘Too Big to Fail’ Banks Thriving a Few Years After Financial Crisis -- Nearly eight years after the onset of the financial crisis, its unintended consequences continue to startle and amaze.For instance, who would have thought that many of the big European banks – among them Barclays, Credit Suisse, Deutsche Bank and UBS – would have new chief executives, two of whom are American, and be more or less in retreat from the global investment banking business?Who would have thought that the big banks would pay nearly $200 billion in fines and other considerations to various branches of federal and state governments and that not a single top Wall Street executive would be held responsible for perpetrating the wrongdoing represented by those huge fines?   And who would have thought that nearly a decade after the start of the crisis some of those big banks, in particular JPMorgan Chase and Wells Fargo, would have year after year of record, or near-record, profits?These days, the “too big to fail” banks have less competition than ever, they get their raw material — cash from depositors — nearly free and they have never had more ways to make vast amounts of money. In other words, despite the endless complaining about how difficult Washington has made things for bankers, we have entered a new Golden Age of Wall Street, where competition is minimal, profits will continue to be high (as long as the economy continues its rebound) and regulation, while present as never before, can be “managed” as just another cost of doing business.

Bank Failures by Year -  Bill Mcbride -  In 2015, eight FDIC insured banks failed. This was the lowest level since 2007. Most of the great recession / housing bust / financial crisis related failures are behind us. However there might be an increase in energy related bank failures over the next couple of years. The first graph shows the number of bank failures per year since the FDIC was founded in 1933. Click on graph for larger image. Typically about 7 banks fail per year, so the 8 failures in 2015 was close to normal. Note: There were a large number of failures in the '80s and early '90s. Many of these failures were related to loose lending, especially for commercial real estate. A large number of the failures in the '80s and '90s were in Texas with loose regulation. Even though there were more failures in the '80s and early '90s, the recent financial crisis was much worse (large banks failed and were bailed out). The second graph includes pre-FDIC failures. In a typical year - before the Depression - 500 banks would fail and the depositors would lose a large portion of their savings. Then, during the Depression, thousands of banks failed. Note that the S&L crisis and recent financial crisis look small on this graph.

Cyberhacking as the next systemic banking risk - Izabella Kaminska - We all know how subprime lending triggered the Global Financial Crisis of 2008. We also know how faced with only two options — financial meltdown or the transfer of state wealth to the banking sector — governments felt they had no choice but to save the system at a cost to the taxpayer. But could something as innocuous as shoddy password management or a data breach lead to a very similar set of circumstances in the not too distant future? A group of experts gathered at the World Economic Forum at Davos to talk about cyber-resilience seemed to think that, yes, yes it could. Speaking at the Designing for Cyber-Resilience panel on Wednesday Michael Bodson, President and Chief Executive Officer Depository Trust & Clearing Corporation (DTCC), warned how the hacking of even a mid-size US bank could, if its records got wiped, cause a major panic in the banking system. “The one thing I’m truly paranoid about is cyber risk,” Bodson said. André Kudelski, Chairman and CEO of software company Kudelski, echoed his sentiments saying hackers were no longer motivated by the fun of it, but rather by the opportunity to make money from selling, ransoming or blackmailing people with stolen data. And naturally, because that’s where the money is, banks were once again becoming primary targets. Of notable concern to the panel were recent developments in the economies of hacking, which in the last six months had led to a substantial increase in the amount of cyber fraud. Moreover, they added, if putting up simultaneous defences was the only solution to the problem, it might not be cost effective for market.

Why this subprime lender funds loans through the Cayman Islands  -- Elevate Credit calls its customers in the US and the UK the “New Middle Class”, selling them loans in the latter at a representative APR of 1295 per cent. It is gearing up to float in New York this week and, if successful, the Texas-based business will be the “first tech IPO of 2016”.The company claims that unlike payday lenders, it has transparent fees “in order to help our customers facing financial hardships”. But while its front-end might be simple, the funding for one of its loans is a complex web of financial engineering involving a Chicago-based private-equity firm and a special purpose vehicle in an offshore tax haven.The documents filed for Elevate’s IPO not only show a company trying to raise “as much as $80 million while admitting it may not be completely legal”, as MarketWatch put it last week, they also provide an insight into the mechanics of modern finance, describing a flow of money from stressed borrowers* in the US to the Cayman Islands and then seemingly back again.It’s a demonstration of how “fintech” companies are more financial wizardry than technological innovation.  Elevate has three products, all with happy sounding names that disguise the fact that they are high interest loans for people with few other options. “Rise” and “Elastic” in the US, and “Sunny” in the UK. The company itself used to go by a different name. In 2014, it was spun out of Think Finance, itself a sky high-interest lender that changed its name from ThinkCash in 2010. Its chairman and chief executive Ken Rees was previously the chief executive of Think Finance and the company is 27 per cent owned by Sequoia Capital.

The impact of consumer financial regulation: evidence from the CARD Act: In the wake of the financial crisis, there has been a surge of interest in regulating consumer financial products (e.g., Campbell et al., 2011). In the United States, the 2010 Dodd-Frank “Wall Street Reform and Consumer Protection Act” established a Consumer Financial Protection Bureau to monitor and regulate mortgages, credit cards, and other similar products. In July 2013, the European Commission proposed new legislation to simplify disclosures and tighten guidance requirements for financial products.Does such regulation benefit consumers? Critics have expressed skepticism about the effectiveness of regulation, while warning of unintended consequences. Proponents argue that it is necessary, as consumer financial markets have become increasingly unfair, with firms taking advantage of consumers’ behavioral biases—such as inattention and present bias—to earn large profits.In Agarwal et al. (2015), we aim to advance this debate by examining the consequences of one such regulation. We study two aspects of the 2009 Credit Card Accountability Responsibility and Disclosure (CARD) Act in the United States:

  • Restrictions on certain types of credit card fees and
  • The introduction of a repayment “nudge.”

We find, first, that consumer fees declined after the regulation. But we find no evidence of an offsetting increase in interest rates or the reduced access to credit that critics had warned of (American Bankers Association, 2013).  Second, we find that the repayment nudge had a small but significant effect on consumer behavior. These findings come from a panel dataset of 160 million credit card accounts held by the eight largest banks in the US. The data include account-level information on contract terms, utilization, and payments at the monthly level from January 2008 to December 2012. They also include consumers with different levels of credit worthiness: about 30% of consumers in our data have a FICO score of “fair or lower” (below 660) and about 17% have a score of “bad” (below 620). ...

Black Knight's First Look at December Mortgage Data - From Black Knight: Black Knight Financial Services’ “First Look” at December 2015 Mortgage Data, 2015 Ends with 22 Percent Improvement in Foreclosure Inventory, 15 Percent Decline in Delinquencies According to Black Knight's First Look report for December, the percent of loans delinquent decreased 3% in December compared to November, and declined 15% year-over-year. The percent of loans in the foreclosure process declined 1% in December and were down 22% over the last year.  Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 4.78% in December, down from 4.92% in November. The percent of loans in the foreclosure process declined in December to 1.37%.  The number of delinquent properties, but not in foreclosure, is down 425,000 properties year-over-year, and the number of properties in the foreclosure process is down 192,000 properties year-over-year. Black Knight will release the complete mortgage monitor for December in early February.

MBA: Mortgage Applications Increased in Latest Weekly Survey, Purchase Applications up 17% YoY - From the MBA: Refinance Mortgage Applications Increase as Rates Fall in Latest MBA Weekly Survey Mortgage applications increased 9.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 15, 2016. ...The Refinance Index increased 19 percent from the previous week. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index increased 4 percent compared with the previous week and was 17 percent higher than the same week one year ago. .. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to its lowest level since October 2015, 4.06 percent, from 4.12 percent, with points increasing to 0.41 from 0.38 (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. The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is 17% higher than a year ago.

Mortgage News Daily: "Lenders quoting 30yr fixed rates of 3.875% on top tier scenarios" -- Mortgage rates are nears the lows of the last two months ...From Matthew Graham at Mortgage News Daily: Mortgage Rates Back Away From Long Term LowsMortgage rates moved higher today, but remained near the lowest levels in more than 2 months. Friday's drop was uncharacteristically sharp and put rates in a position to break 7 month lows had today gone the other direction. Most lenders are quoting conventional 30yr fixed rates of 3.875% on top tier scenarios. 4.0% is the next most prevalent quote with only a select few of the most aggressive lenders down at 3.75%. All of these assume top tier scenarios.
emphasis added 
Here is a table from Mortgage News Daily: Home Loan Rates View More Refinance Rates

Existing Home Sales increased in December to 5.46 million SAAR -- From the NAR: Existing-Home Sales Surge Back in December Existing-home sales snapped back solidly in December as more buyers reached the market before the end of the year, and the delayed closings resulting from the rollout of the Know Before You Owe initiative pushed a portion of November's would-be transactions into last month's figure, according to the National Association of Realtors®. ...Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, ascended 14.7 percent to a seasonally adjusted annual rate of 5.46 million in December from 4.76 million in November. After last month's turnaround (the largest monthly increase ever recorded), sales are now 7.7 percent above a year ago. ... Total housing inventory at the end of December dropped 12.3 percent to 1.79 million existing homes available for sale, and is now 3.8 percent lower than a year ago (1.86 million). Unsold inventory is at a 3.9-month supply at the current sales pace, down from 5.1 months in November and the lowest since January 2005 (3.6 months). This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993. Sales in December (5.46 million SAAR) were 14.7% higher than last month, and were 7.7% above the December 2014 rate. The second graph shows nationwide inventory for existing homes. According to the NAR, inventory decreased to 1.79 million in December from 2.04 million in November. Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer. The third graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.Inventory decreased 3.8% year-over-year in December compared to December 2014. Months of supply was at 3.9 months in December.

December Existing Home Sales Surge Most In History After November Collapse -- Following November's collapse in existing home sales (-10.5% - worst since July 2010),December saw home sales soar 14.7% (the biggest MoM jump ever). Don't get too excited as this is simply the new (know before you owe) mortgage rules delayed sales coming back. All in all it was a wash over the 2 months and NAR is careful to warn not to expect 2016 to be as good as 2015 for sales. Biggest jump ever after biggest drop since the crisis... Lawrence Yun, NAR chief economist, says December's robust bounce back caps off the best year of existing sales (5.26 million) since 2006 (6.48 million)."While the carryover of November's delayed transactions into December contributed greatly to the sharp increase, the overall pace taken together indicates sales these last two months maintained the healthy level of activity seen in most of 2015," he said. "Additionally, the prospect of higher mortgage rates in coming months and warm November and December weather allowed more homes to close before the end of the year."The median existing-home price for all housing types in December was $224,100, up 7.6 percent from December 2014 ($208,200). Last month's price increase marks the 46th consecutive month of year-over-year gains. But Larry warns "Although some growth is expected, the housing market will struggle in 2016 to replicate last year's 7 percent increase in sales," adds Yun. "In addition to insufficient supply levels, the overall pace of sales this year will be constricted by tepid economic expansion, rising mortgage rates and decreasing demand for buying in oil-producing metro areas."

Existing Home Sales Bounce Big; Supply Drops to 11-Year Low: Is that a Problem? --December existing Home Sales bounced a whopping 14.7% from November's dismal showing.  It appears there was a big distortion of sales pushed into December on account of new documentation rules. Smoothing out the distortions, the average of the last two months was 5.11 million. That's well below the 5.43 average of the prior six months. So, there was a distortion, but there is also weakness.  Bloomberg Econoday reports ...  Existing home sales bounced back sharply in December, up an outsized 14.7 percent to a 5.46 million annualized rate that just tops Econoday's top-end forecast. Year-on-year, sales are up 7.7 percent in a major contrast with the minus 3.8 percent rate of November. But November was an unusual month skewed lower by new documentation rules that pushed sales into December. Averaging the two months together shows a 5.11 million rate that is well below the 5.43 average of the prior six months. Total sales for 2015 came in at 5.26 million, well up from 4.94 million in 2014. Single-family homes led December's bounce, surging 16.1 percent to a 4.82 million rate and a 7.1 percent year-on-year gain. The trend for condos has been much stronger with the year-on-year gain at 12.3 percent and with monthly growth in December at 4.9 percent to a 0.640 million rate. Low supply in the market has been a big negative for sales and is a major concern in this report. Total homes on the market fell to 1.79 million from November's 2.04 million with supply relative to sales falling to only 3.9 months, far below 5.1 months in November and sizably below 4.4 months in December 2014. Supply right now of existing homes is as low as it's been in nearly 11 years, a factor the report warns that may slow sales during the spring. But low supply is a plus for prices where data in this report are firming. The median is up 1.9 percent in the month to $224,100 for a very respectable 7.6 percent year-on-year gain.

December 2015 Existing Home Sales Headlines Say Sales Jumped.: The headlines for existing home sales say "December's robust bounce back caps off the best year of existing sales (5.26 million) since 2006 (6.48 million)". Our analysis of the unadjusted data shows that home sales did improve, but considerably less than the headlines - and consider even with this improvement that the rolling averages declined. Econintersect Analysis:

  • Unadjusted sales rate of growth accelerated 6.1 % month-over-month, up 6.1 % (no typo) year-over-year - sales growth rate trend declined using the 3 month moving average.
  • Unadjusted price rate of growth accelerated 0.8 % month-over-month, up 4.7 % year-over-year - price growth rate trend is modestly improved using the 3 month moving average.
  • The homes for sale inventory declined again this month, remains historically low for Decembers, and is down 3.8 % from inventory levels one year ago).

NAR reported:

  • Sales up 14.7 % month-over-month, up 7.7 % year-over-year.
  • Prices up 7.6 % year-over-year
  • The market expected annualized sales volumes of 5.000 to 5.450 million (consensus 5.20 million) vs the 5.46 million reported.

A Few Random Comments on December Existing Home Sales -- Everyone expected a rebound in existing home sales in December. The key reason for the decline in November was the new TILA-RESPA Integrated Disclosure (TRID). In early October, this new disclosure rule pushed down mortgage applications sharply, however applications bounced back - and so did home sales in December. No surprise.  Note: TILA: Truth in Lending Act, and RESPA: the Real Estate Settlement Procedures Act of 1974. However, most analysts underestimated the strength of the rebound. (Not CR readers who expected an above consensus report).  As I've noted before, there are some economic reasons to expect some softness in existing home sales in 2016. Low inventory is probably holding down sales in many areas, and there will be weakness in some oil producing areas (see: Houston has a problem).   I expected some increase in inventory in 2015, but that didn't happened.  Inventory is still very low and falling year-over-year (down 3.8% year-over-year in December). More inventory would probably mean smaller price increases and slightly higher sales, and less inventory means lower sales and somewhat larger price increases.  The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Here’s what a $1 million home looks like in 20 different cities - Buying a home? The money you spend in Minneapolis will buy you something a lot different than what you will get in Miami.  Either way, home prices are rising at the fastest annual rate since August 2014, according to the latest data from the S&P/Case-Shiller 20-city composite index, which measures the value of residential real estate in 20 major U.S. metropolitan areas. Here’s a look at homes for sale in the $1 million range in each of the cities tracked in the 20-city composite.   The following homes and photos were randomly selected from the real-estate site Redfin ...

 Housing Starts declined to 1.149 Million Annual Rate in December -  From the Census Bureau: Permits, Starts and Completions. Privately-owned housing starts in December were at a seasonally adjusted annual rate of 1,149,000. This is 2.5 percent below the revised November estimate of 1,179,000, but is 6.4 percent above the December 2014 rate of 1,080,000. Single-family housing starts in December were at a rate of 768,000; this is 3.3 percent below the revised November figure of 794,000. The December rate for units in buildings with five units or more was 365,000. An estimated 1,111,200 housing units were started in 2015. This is 10.8 percent above the 2014 figure of 1,003,300.  Privately-owned housing units authorized by building permits in December were at a seasonally adjusted annual rate of 1,232,000. This is 3.9 percent below the revised November rate of 1,282,000, but is 14.4 percent above the December 2014 estimate of 1,077,000. Single-family authorizations in December were at a rate of 740,000; this is 1.8 percent above the revised November figure of 727,000. Authorizations of units in buildings with five units or more were at a rate of 455,000 in December.The first graph shows single and multi-family housing starts for the last several years. Multi-family starts (red, 2+ units) decreased in December. Multi-family starts are up 6% year-over-year. Single-family starts (blue) decreased in December and are up 7% year-over-year. The second graph shows total and single unit starts since 1968. The second graph shows the huge collapse following the housing bubble, and then - after moving sideways for a couple of years - housing is now recovering (but still historically low), Total housing starts in December were below expectations, however starts for October and November were revised up. And starts were up 10.8% in 2015 compared to 2014

Housing Starts Miss, Permits Beat Despite Drop In Rentals --Today's batch of housing data, namely the December update of housing starts and permits, which as a reminder has a quite substantial "confidence interval" was relatively uneventful. Total housing starts of 1,149K was a drop from last month's upward revised 1,179K, and a miss to the 1,200K expected. This was due to a drop in both 1-unit structures, which declined from 794K to 768K in all regions by the Northeast, as well as a decline in multi-family, or rental, units which declined from 378K to 365K, which however declined across all four regions.  The silver lining to the Starts miss was the Permits print, which at 1,232K beat expectations of 1,200K, although the December number was likewise a drop from the November 1,282K.  And while rental unit permits dropped by a notable 13.5% to 455K, the single-family permit rose by 1.8% to 740K - this was the highest singlefamily permit print since 2007. Then again as the charts above show, both Starts and Permits for single-family units have barely regained half their losses since the housing bubble burst in 2007. Finally, keep in mind this is a very lagging indicator, and while we expect rental construction will continue to grow, now that the Chinese bid is being pulled away from the US market following the Treasury crackdown, we would not be surprised if the construction for single-family homes has now peaked.

An Unexpected Decline For US Housing Construction In December -- And that makes three in a row. Last Friday’s double shot of disappointing economic news in December for retail sales and industrial output was joined by today’s surprisingly soft numbers for residential construction. Economists were anticipating a modest improvement, but this morning’s update on housing starts in 2015’s final month dispatched a downside surprise. New construction eased by 2.5% last month, accompanied by a 3.9% fall in newly issued building permits, according to the US Census Bureau. The year-over-year comparisons are still positive, which offers some cover for delaying judgment about this sector’s overall signal for business-cycle analysis. But in the current climate of heightened macro worry, the red ink in the latest monthly changes will take another toll on sentiment. Today’s numbers are clearly part of a worrisome pattern lately: weaker growth. There’s still no clear-cut case for arguing that the US slipped into a recession—based on published data through December across a broad spectrum of indicators. (Details to follow in tomorrow’s monthly business cycle update; meantime, here’s last month’s profile). But today’s numbers certainly offer more support for the Atlanta Fed’s recent nowcasts that point to sharply lower fourth-quarter GDP growth. Curiously, yesterday’s report on sentiment in the home building industry betrays no sign of trouble. The NAHB’s Housing Market Index (HMI) was unchanged at 60 in January, close to a ten-year high. “There are a number of positive indicators that provide solid evidence this will be a good year for housing and the economy,” said NAHB Chief Economist David Crowe. Perhaps, although the softer year-over-year rise in starts and permits implies that any growth will be modest. “Builders are extremely cautious to increase spending for fear of over-extending themselves in case there’s an economic downturn,”

Parade of Weakness: Housing Starts and Permits Slump in December --Housing starts, one of the presumed strengths in the economy, took a dive in December.  The Econoday Consensus Estimate was for 1.200 million starts vs. the actual report of 1.14 Million.  Housing starts and permits both fell back in December but follow large gains in November. Starts came in at an annualized 1.149 million rate in December for a 2.5 percent monthly dip while permits came in at 1.232 million for a 3.9 percent decline. Yet both of these readings for November surged more than 10 percent. Year-on-year, starts are up a healthy 6.4 percent with permits especially strong at 14.4 percent.Starts for both single-family homes and multi-family homes fell in the month, down 3.3 percent to a 768,000 rate for the single-family category and down 1.0 percent to 381,000 for multi-family. Year-on-year, both are close at respective gains of 6.1 and 7.0 percent. The breakdown in permits shows a downdraft for multi-family homes, 11.4 percent lower to a 492,000 rate but which follows very strong gains in the prior two months. Permits for single-family homes rose 1.8 percent in the month to 740,000.Housing completions jumped 5.6 percent in the month to edge over 1 million at 1.013 million, reflecting in part favorable weather. Homes under construction, also benefiting from the winter's mild weather, rose 1.7 percent with the year-on-year rate at plus 18.5 percent. This report is below expectations and soft on a historical basis, but readings still point to respectable strength underway for new housing.

December 2015 Residential Building: Ends A Positive Year: Be careful in analyzing this data set with a microscope as the potential error ranges and backward revisions are significant. Also the nature of this industry variations from month to month so the rolling averages are the best way to view this series - and the data remains in the range we have seen over the last 3 years. This month was worse than last month, but the overall picture is relatively good.

  • The unadjusted rate of annual growth for building permits in the last 12 months has been around 10% - it is a +17.4 % this month.
  • Construction completions are lower than permits this month for the 12th month in a row (when permits exceed completions - this sector is growing)..
  • Unadjusted 3 month rolling averages for permits (comparing the current averages to the averages one year ago) is 13.7 % (permits) and 7.8 % (construction completions):
  • The 2015 rate of growth of this sector was equal to pre-recession levels.
  • Building permits growth decelerated 6.3 % month-over-month, and is up 17.4 % year-over-year.
  • Single family building permits grew 8.2 % year-over-year.
  • Construction completions decelerated 6.7 % month-over-month, up 4.8 % year-over-year.

US Census Headlines:

  • building permits down 3.9 % month-over-month, up 14.4 % year-over-year
  • construction completions up 5.6 % month-over-month, up 7.9 % year-over-year.

December housing permits: a mixed report, with a bias to the upside: Housing permits, always important, assume some extra weight this month considering the meltdown in the production economy suggested by last Friday's industrial production and related data. As usual, I look at housing because it is the most leading sector of the US economy, with the growth or decline tending to filter through the wider economy over the ensuing 12 -18 months.Permits tend to slightly lead starts, and starts are about twice as volatile, which is why I emphasize permits, which were positive even if behind November's pace. Now here are permits broken down into single family homes (blue) and multi-unit structures (red): New single family homes had their best reading of the expansion. This is a strong positive. Meanwhile multi-family units continued at a strong pace, higher than the last 30 years. The former were almost certainly affected by record warmth in the eastern half of the country in December. The latter reflect the huge Millennial generation continuing to move out of their parents' basements into condos and apartments. There is an extra reason to discount the Northeast this month, because the extaordinarily warm December weather certainly was behind a surge of permits in the Northeast, which blew out the seasonal adjustment to the upside: Here are permits ex-the Northeast: The remaining parts of the country pulled back to a rate slightly behind several other months this year. This was the one significant negative in the report. Next week there will be an update with state-by-state breakdowns.   Bottom line: this was a mixed report, but with a bias to the upside. This morning's CPI report, showing deflation in December, means that retail sales in real terms did not decline in December, and remain at their expansion peak. Taken together with this morning's housing report, we have pretty good confirmation that the economic downturn remains confined to the commodity and export sectors of the economy. The domestic consumer economy remains positive.

Comments on December Housing Starts --Total starts were up 10.8% in 2015 compared to 2014. My guess was for an increase of 8% to 12%.  Here is a table showing 1 unit and 5+ unit housing starts since the peak year in 2005.  This also shows the year-over-year change for both categories.  Single family starts were up 10.4% in 2015 compared to 2014.  Starts for 5+ units were up 12.5% compared to 2014. Note that the year-over-year change for 5+ units is smaller in 2015, and will probably be even smaller in 2016.  Last year, after the June data was released, I pointed out that that might be the peak for the cycle (524 thousand SAAR in June 2015).  I expect multi-family starts to move more sideways going forward. This first graph shows the month to month comparison between 2014 (blue) and 2015 (red). Starts were up year-over-year in 9 of 12 months in 2015. The year started slow - weather impacted starts in February and March - but overall growth was about as expected. Below is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment). These graphs use a 12 month rolling total for NSA starts and completions. The blue line is for multifamily starts and the red line is for multifamily completions. The rolling 12 month total for starts (blue line) increased steadily over the last few years, and completions (red line) have lagged behind - but completions have been catching up (more deliveries), and will continue to follow starts up (completions lag starts by about 12 months). Multi-family completions are increasing sharply year-over-year. I think most of the growth in multi-family starts is probably behind us - in fact multi-family starts might have peaked in June (at 524 thousand SAAR) - although I expect solid multi-family starts for a few more years (based on demographics).

Housing Economists See Job Gains Offsetting Stock-Market Pains - Economists are betting the U.S. housing market will take its cues from the labor market this year rather than unsettled financial markets. The housing market faces a number of headwinds including potentially higher interest rates, volatile financial markets and falling oil prices hitting some oil-rich areas. Housing-affordability concerns and a shortage of construction workers also are slowing the pace of building. But that is likely outweighed by rising household formation, improving employment and wage numbers and steep rent increases that could start pushing renters to buy, economists said at the International Builders Show in Las Vegas. “If we look at all the metro areas of the country, almost all of them suggest that we should see sustained growth in the coming year,” said David Berson, chief economist at Nationwide Insurance. Mr. Berson said he sees some weakness in areas heavily dependent on oil, such as North Dakota and Houston. He also has some concerns about areas such as Denver that have seen steep price run-ups out of line with income growthBut even if the stock market has a rocky year, he said, that has relatively little effect on demand for homes, which are much more driven by employment, or the economy overall.Frank Nothaft, chief economist at CoreLogic, said he expects new home sales to rise 13% in 2016, although he expects just a 3% increase in existing home sales. The latter is driven in part by a positive trend—fewer distressed sales. David Crowe, chief economist at the National Association of Home Builders, said he expects single-family home starts, which were just 55% of normal historical levels in the third quarter of 2015, to rise to 65% of normal levels in 2016, or 840,000 starts. He said they could hit 87% of normal levels in 2017, or more than 1 million starts. “Home building has finally started to surge,” Mr. Crowe said.

AIA: "Architecture Billings Index Ends Year on Positive Note" - Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.   From the AIA: Architecture Billings Index Ends Year on Positive Note  There were a few occasions where demand for design services decreased from a month-to-month basis in 2015, but the Architecture Billings Index (ABI) concluded the year in positive terrain and was so in eight of the twelve months of the year. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the December ABI score was 50.9, up from the mark of 49.3 in the previous month. This score reflects a slight increase in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 60.2, up from a reading of 58.6 the previous month.“As has been the case for the past several years, there continues to be a mix of business conditions that architecture firms are experiencing,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “Overall, however, ABI scores for 2015 averaged just below the strong showing in 2014, which points to another healthy year for construction this year."  Regional averages: West (53.7), South (53.3), Northeast (46.7), Midwest (46.1) Sector index breakdown: multi-family residential (52.9), institutional (52.2), commercial / industrial (47.3), mixed practice (46.5)This graph shows the Architecture Billings Index since 1996. The index was at 50.9 in December, down from 49.3 in November. Anything above 50 indicates expansion in demand for architects' services. Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions. The multi-family residential market was negative for most of the year - suggesting a slowdown or less growth for apartments - but has been positive for the last three months. According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. This index was positive in 8 of the last 12 months, suggesting a further increase in CRE investment in 2016.

NAHB: Builder Confidence unchanged at 60 in January --  The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 60 in January, unchanged from December (revised). Any number above 50 indicates that more builders view sales conditions as good than poor. From the NAHB: Builder Confidence Holds Firm in January Builder confidence in the market for newly-built single-family homes held steady at 60 in January from a downwardly revised December reading of 60 on the National Association of Home Builders/Wells Fargo Housing Market Index. “After eight months hovering in the low 60s, builder sentiment is reflecting that many markets continue to show a gradual improvement, which should bode well for future home sales in the year ahead,” said NAHB Chairman Tom Woods, a home builder from Blue Springs, Mo. “January’s HMI reading is right in line with our forecast of modest growth for housing,” said NAHB Chief Economist David Crowe. “The economic outlook remains promising, as consumers regain confidence and home values increase, which will help the housing market move forward.”...The HMI component gauging current sales condition rose two points 67 in January. The index measuring sales expectations in the next six months fell three points to 63, and the component charting buyer traffic dropped two points to 44.  .
Looking at the three-month moving averages for regional HMI scores, all four regions registered slight declines. The Northeast, Midwest and West each posted a one-point decline to 49, 57 and 75, respectively, while the South fell two points to 61.

U.S. Economic Confidence Index Improves, Highest Since June:  -- Gallup's U.S. Economic Confidence Index improved markedly last week, rising five points to -7 for the week ending Jan. 17. The current score is the highest since June. The results are based on Gallup Daily tracking interviews conducted Jan. 11-17. President Barack Obama on Jan. 12 delivered his State of the Union address, during which he made a strong case that the U.S. economy has improved. Many Americans appear to have heard his message, although a closer look at the data reveals that the improvement in economic confidence since the State of the Union took place only among Democrats, with no change in Republicans' confidence. The latest weekly index reading marks a break from more than six months of fairly stable scores, with Gallup's index figures consistently between -10 and -17 since early July. The index remains higher than it has been for most of the time since 2008, but below the positive readings of +1 to +5 recorded about a year ago. Gallup's Economic Confidence Index is the average of two components: how Americans rate current economic conditions and whether they feel the economy is getting better or getting worse. The index has a theoretical maximum of +100 if all U.S. adults say the economy is doing well and getting better, and it has a theoretical minimum of -100 if all U.S. adults say the economy is doing poorly and getting worse.

The consumer is alright  -- The negative deflation report for consumer prices in December confirms that the US consumer is alright, and workers' paychecks in real terms continue to grow. In nominal terms, retail sales declined -0.1% in December. After adjusting for inflation, we now know they were flat: Further, December's decline of -1.0% in general merchandise sales, the 3rd worst in the last 5 years: was almost certainly weather related, since nobody east of the Mississippi was buying winter goods as they basked in September-like warmth. The average American is a worker as well as a consumer, and since nominal wages grew +0.1% in December, real wages grew +0.2% to a new 35 year high: Aggregate real wages also grew, and are now up +18.7% for this expansion: If there is a fly in the ointment, it is that YoY CPI inflation has gone from 0 to +0.7% in the last 3 months, meaning that YoY real wage growth decelerated in the second half of 2015: So I don't want to overstate this. We still have real problems with underemployment and sluggish wage growth. But the average American is doing better now than they have in a decade, and the consumer economy - 70% of the total - is simply not rolling over.

Two-thirds of Americans can't afford a $500 emergency - Your 17-year-old son comes home from his part-time job and says the family car he uses to get to work developed a "clunking" sound underneath the vehicle when he hits the gas pedal. Turns out he hit a pothole, and the left front tire is now damaged beyond repair. OF course, the tire rim may be damaged, too. Total cost of repair: $500. Or, you play flag football on Sunday afternoons, and you break your tibia diving for the end zone. A trip to the hospital emergency room sets the damaged leg, but not before emergency room fees hit $1,000 — and your health insurance plan's deductible won't cover the charge. If you're among the 63% of adult Americans who don't have the savings to pay for a $500 car repair, or a $1,000 emergency room visit, you've got a problem — and a bill you can't afford to pay because of low savings. As usual, the numbers tell the tale.Only 37% of U.S. adults have enough savings to pay for these unexpected expenses, according to a new report from Of those Americans who could not pay off that $500 or $1,000 bill, 23% would reduce their spending on other things to make ends meet, 15% would use credit cards and another 15% would borrow from family or friends, the report states. "More than four in ten Americans either experienced a major unexpected expense over the past 12 months or had an immediate family member who did," says Sheyna Steiner,'sior investing analyst. "This proves that an emergency savings cushion is more than just a personal finance cliché, yet most Americans are ill—prepared for life's inevitable curveballs."Yet most financial professionals aren't exactly floored when they hear so many Americans are cash-starved these days, and can't handle unexpected, budget-busting bills.  "I hear this from folks in all income brackets,"

December 2015 CPI: Inflation Continues to Grow: According to the BLS, the Consumer Price Index (CPI-U) year-over-year inflation rate was 0.7 % - a continuing growth of inflation beginning two months ago. The year-over-year core inflation (excludes energy and food) rate grew 0.1% to 2.1 %, and now is slightly above the target set by the Federal Reserve.As a generalization - inflation accelerates as the economy heats up, while inflation rate falling could be an indicator that the economy is cooling. However, inflation does not correlate well to the economy - and cannot be used as a economic indicator. The major influence on the CPI was energy prices. The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.1 percent in December on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 0.7 percent before seasonal adjustment. The indexes for energy and food both declined for the second month in a row, leading to the decline in the seasonally adjusted all items index. The energy index fell 2.4 percent as all major component energy indexes declined. The food index fell 0.2 percent as the index for food at home decreased 0.5 percent, led by a sharp decline in the index for meats, poultry, fish, and eggs. The index for all items less food and energy rose 0.1 percent in December, its smallest increase since August. The index for shelter continued to rise, and the indexes for medical care, household furnishings and operations, motor vehicle insurance, education, used cars and trucks, and tobacco also increased in December. However, a number of indexes declined, including those for apparel, airline fares, personal care, new vehicles, and communication. The all items index rose 0.7 percent over the last 12 months, compared to the 0.5 percent 12 month increase for the period ending November. The food index rose 0.8 percent over the last 12 months, though the index for food at home declined. The energy index fell 12.6 percent, with all its major components decreasing. The index for all items less food and energy increased 2.1 percent over the last 12 months.

CPI Drops -0.1% for December -- The Consumer Price Index decreased by -0.1% for December as energy prices declined.  Gasoline alone decreased -3.9% for the month.  Inflation without food or energy prices considered increased 0.1% for the month.  From a year ago overall CPI has increased 0.7%, which is very tame and the second slowest rate in 50 years.  Without energy and food considered, prices have increased 2.1% for the year.   CPI measures inflation, or price increases.  The flat yearly overall inflation is shown in the below graph, driven by low energy prices. Core inflation, or CPI with all food and energy items removed from the index, has increased 2.1% for the last year.  This is the highest annual core inflation increase since July 2012.  For the past decade the annualized inflation rate has been 1.9%.  What this shows is other things like homes and rents have increased dramatically and are countering out the break cheap gasoline is giving consumers.  Core CPI's monthly percentage change is graphed below.  This month core inflation increased 0.1%.  Within core inflation, shelter increased 0.2%.  Apparel prices dropped -0.2%, used cars increased 0.1%, transportation services increased 0.2% and airfare dropped -1.1% for the month.  Auto insurance increased 0.5% for the month and increased 1.1% the previous. The energy index is down -12.6% from a year ago.   The BLS separates out all energy costs and puts them together into one index.  For the year, gasoline has declined -19.7%, while Fuel oil has dropped -31.4%.  Fuel oil dropped -7.8 % for the month alone.  Graphed below is the overall CPI energy index. Graphed below is the CPI gasoline index only as gas-guzzlers rejoice.  Core inflation's components include shelter, transportation, medical care and anything that is not food or energy.  The shelter index is comprised of rent, the equivalent cost of owning a home, hotels and motels.   Shelter increased 0.2% and is up 3.2% for the year.  Rent just keeps increasing and this month by 0.2% and is up 3.7% for the year.  Graphed below is the rent price index. Food prices decreased -0.2% for the month.  Food and beverages have now increased just 0.8% from a year ago.  Groceries, (called food at home by BLS), plunged -0.5% for the month, and are down -0.4% for the year.  The reason was the meats, poultry, fish, and eggs index declined by -1.4%.  This is the largest decrease since August 1979.  The beef index fell by -2.4% and eggs dropped by -3.4%.   Eating out, or food away from home increased 0.1% for the month and is up 2.6% for the year.

More Bad News For The Fed: CPI Drops In December Despite Rising Shelter Prices - Great news for American Consumers - the price of the stuff you buy with stagnant incomes dropped in December by 0.1% (missing expectations of a 0.0% move). But what's good for Americans is bad news for The Fed as this is a resumption of deflation from mid-2015, and the biggest miss since January 2015. And then there is the ugly news that behind ths headline is a 3.7% surge in shelter costs YoY. The breakdown is weak - with energy- and food-related deflation offset by shelter The all items index rose 0.7 percent over the last 12 months, compared to the 0.5 percent 12 month increase for the period ending November. The food index rose 0.8 percent over the last 12 months, though the index for food at home declined. The energy index fell 12.6 percent, with all its major components decreasing. The index for all items less food and energy increased 2.1 percent over the last 12 months. Headline CPI dropped mostly due to a -2.4% decline in energy prices in December The indexes for energy and food both declined for the second month in a row, leading to the decline in the seasonally adjusted all items index. The energy index fell 2.4 percent as all major component energy indexes declined. The food index fell 0.2 percent as the index for food at home decreased 0.5 percent, led by a sharp decline in the index for meats, poultry, fish, and eggs

 December 2015 Sea Container Counts Continue to Show a Weak Economy: A summary for 2015 is that imports insignificantly declined from 2014 - but export contraction continued for the second year. Imports more closely align with USA economic health, and imports are saying there was NO economic growth in 2015. This series is a physical count and not monetary based - so inflation adjustments are not required. For the month of December, imports ended the year on a positive note whilst exports remained deeply in contraction year-over-year. This continues to indicate weak economic conditions domestically and globally. Consider that imports final sales are added to GDP usually several months after import - while the import cost itself is subtracted from GDP in the month of import. Export final sales occur around the date of export. Container counts do not include bulk commodities such as oil or autos which are not shipped in containers. For this month: As the data is very noisy - the best way to look at this data is the 3 month rolling averages. There is a direct linkage between imports and USA economic activity - and the change in growth in imports foretells real change in economic growth. Export growth is an indicator of competitiveness and global economic growth. The continued underperforming of exports is not a positive sign for GDP as the year progresses.  There is reasonable correlation between the container counts and the US Census trade data also being analyzed by Econintersect. But trade data lags several months after the more timely container counts. Econintersect considers import and exports significant elements in determining economic health (please see caveats below). The takeaway from the graphs below is that neither imports or exports have returned to pre-2007 recession levels.

Rail Week Ending 16 January 2016: Contraction Continues: Week 2 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: For this week, total U.S. weekly rail traffic was 506,433 carloads and intermodal units, down 8.2 percent compared with the same week last year. Total carloads for the week ending Jan. 16 were 242,670 carloads, down 16.6 percent compared with the same week in 2015, while U.S. weekly intermodal volume was 263,763 containers and trailers, up 1.1 percent compared to 2015. Three of the 10 carload commodity groups posted an increase compared with the same week in 2015. They were miscellaneous carloads, up 21.4 percent to 8,437 carloads; motor vehicles and parts, up 2.8 percent to 16,751 carloads; and chemicals, up 2.2 percent to 31,687 carloads. Commodity groups that posted decreases compared with the same week in 2015 included coal, down 32.6 percent to 75,308 carloads; metallic ores and metals, down 24.2 percent to 18,690 carloads; and petroleum and petroleum products, down 18.5 percent to 12,852 carloads. For the first 2 weeks of 2016, U.S. railroads reported cumulative volume of 481,891 carloads, down 15.1 percent from the same point last year; and 522,702 intermodal units, up 4.2 percent from last year. Total combined U.S. traffic for the first 2 weeks of 2016 was 1,004,593 carloads and intermodal units, a decrease of 6 percent compared to last year.

Deep “Freight Recession” Hits Railroads, Trucking, Air Freight -- Wolf Richter -- As much as we would have liked to, the Dow Transportation Average wasn’t kidding. It has plunged 27% since its high on December 5, 2014. Nearly two-thirds of that plunge came over the past two months. Transportation companies are singing the blues. Railroads, trucking, air freight…. Union Pacific, the largest US railroad, reported awful fourth-quarter earnings Thursday evening. Operating revenues plummeted 15% year over year, and net income dropped 22%. It was broad-based: The only category where revenues rose was automotive (+1%). Otherwise, revenues fell: Chemicals (-7%), Agricultural Products (-12%), Intermodal containers (-14%), Industrial Products (-23%), and Coal (-31%). Shipment of crude plunged 42%. So Union Pacific did what American companies do best: it laid off 3,900 people last year. This is what CEO Lance Fritz told Reuters about the American consumer: “What’s causing us some concern is it’s hard to figure out where the consumer is at.” Canadian Pacific, which is trying to buy US rival Norfolk Southern in a deal that is vigorously contested by other railroads, reported a 4% drop in fourth-quarter revenues and a 29% drop in net income. Among its biggest decliners: crude-oil shipments (-17%) and consumer-products shipments (-24%). It garnished the report with an announcement of up to 1,000 layoffs. CSX, in its earnings release earlier in January, reported a revenue decline of 7% for the year. On January 7, the Association of American Railroads (AAR) reported on the deterioration in shipment volumes late last year. In December, total volume dropped 8.9% year over year: intermodal containers and trailers, which had been holding up for much of the year, edged down 0.7%; and carloads (bulk commodities, autos, and the like) plunged 15.6% [read…  Rail Shipments Plummet to Recessionary Levels].

Trucking Tonnage Mixed In December 2015 With One Index in Expansion and One in Contraction.: Truck shipments were weak in 2015. One index is still in expansion year-over-year in December, whilst the other is in contraction. ATA Trucking The American Trucking Associations' (ATA) trucking index improved 1.0 % in December, following a decrease of 0.9 % during November.In December, the index equaled 135.6 (2000=100), up from 134.3 in November, and 0.1% below the all-time high of 135.8 reached in January 2015. From ATA Chief Economist Bob Costello: Tonnage ended 2015 on a strong note, but it was not strong for the year as a whole. With year-over-year gains averaging just 1.2% over the last four months, there was a clear deceleration in truck tonnage. At the expense of sounding like a broken record, I remain concerned about the high level of inventories throughout the supply chain. The total business inventory-to-sales record is at the highest level in over a decade, excluding the Great Recession period. This will have a negative impact on truck freight volumes over the next few months at least. And, this inventory cycle is overriding any strength from consumer spending and housing at the moment.FTR's Trucking Conditions Index (TCI) measure for November jumped by more than three points to a reading of 8.64, a potential reflection of the improvements expected for truckers in 2016. FTR expects the worry among shippers about tight capacity to grow in the second half of the year, which will strengthen the carrier environment. However, downside risks for carriers could turn this around if freight fails to grow as expected because of weak industrial output. Both the number of shipments and freight transportation expenditures continued their downward slide in December, falling 4.9 and 2.7 percent respectively. The declines are not unusual for December, but they capped off a second quarter of decline. In retrospect, 2015 did not even begin to reach the heights we reached in 2014. By the end of 2015, both shipment volume and expenditures fell back to 2013 levels. Expenditures for freight transportation were 5.2 percent lower than at the end of 2014 and shipment volume was down 3.7 percent from the same period.

DOT: Vehicle Miles Driven increased 4.3% year-over-year in November - With lower gasoline prices, driving has really picked up! The Department of Transportation (DOT) reported today: Travel on all roads and streets changed by 4.3% (10.4 billion vehicle miles) for November 2015 as compared with November 2014. Travel for the month is estimated to be 253.2 billion vehicle miles. The seasonally adjusted vehicle miles traveled for November 2015 is 264.0 billion miles, a 3.4% (8.8 billion vehicle miles) increase over November 2014. It also represents less than a 0.1% increase (13 million vehicle miles) compared with October 2015. The following graph shows the rolling 12 month total vehicle miles driven to remove the seasonal factors. The rolling 12 month total is moving up - mostly due to lower gasoline prices - after moving sideways for several years. . In the early '80s, miles driven (rolling 12 months) stayed below the previous peak for 39 months. Miles driven (rolling 12) had been below the previous peak for 85 months - an all time record - before reaching a new high for miles driven in January. The second graph shows the year-over-year change from the same month in the previous year.

Trump Will Force Apple "To Build Its Damn Computers And Things" In America - In case you didn’t get the message, Donald Trump is going to “make America great again.” Typically, campaign slogans try to capture something or other about the candidate by alluding to experience or values or whatever it is politicians believe will set them apart from the field. But not Trump. No, the brazen billionaire decided instead to go with something more grandiose by eschewing the slogan for a proclamation - an explicit promise to restore some bygone glory the billionaire imagines has been lost over the past two centuries.  For one thing, Trump thinks, we should shutdown Foxconn and get to making iPhones in the Rust Belt. "We're going to get Apple to build their damn computers and things in this country instead of in other countries," Trump told a crowd at Liberty University in Virginia on Monday. As ZDNet notes, Trump didn't elaborate on how he's going to compel Tim Cook to build his "damn computers" in America (perhaps Trump's friend Carl Icahn can help with that), but presumably he's threatening to impose punishing tariffs. "Trump has similar plans for carmaker Ford, which he once again censured for investing $2.5bn on manufacturing plants in Mexico," ZDNet writes. "His answer to forcing the auto-maker's hand on the issue is a new tariff on vehicles made in Mexico, although the plants he referred to in fact make parts, rather than entire vehicles." "For every car, truck and whatever else you're building, you're going to pay a 35 percent tax every time you bring a car across the border," he said. We suppose you can just substitute "iPhone" for "car" in the bolded passage above. Note that there's something terribly ironic about claiming to support "free trade" and then threatening to impose 35% tariffs on imports.

How Much Would Donald Trump’s American-Made iPhone Actually Cost? - Donald Trump’s latest idea for how to make America great again? Force Apple to build its products in the US. Trump, in a Monday speech at Liberty University in Virginia, said he’d “get” Apple to build its “damn computers and things in this country instead of in other countries.”   So how much would an American-made iPhone cost, and what would it take to get one?   The iPhone 6s Plus, which retails for $749, is estimated to cost Apple $236 to make.) “It would be kind of nutty to ship components halfway around the world [from Asia to the US], adding a layer of complexity to the manufacturing process when everything is much more easily accessible in Asia.” Wayne Lam, principal analyst of telecom electronics at research firm IHS Technology, told me over the phone. These components includes displays, memory, and enclosures that are all sourced from Asia, Lam said. I then called up Kyle Wiens, the CEO of electronics repair specialists iFixit, to get a ballpark estimate of just how much a US-assembled iPhone might cost consumers. “Building [Apple products] in the US isn’t impossible, but a matter of whether or not consumers are willing to pay more for them,” iFixit CEO Kyle Wiens told me over the phone. Doing some back-of-the-envelope math, Wiens said that consumers could pay around $50 more for an iPhone that was assembled in the US versus one that was assembled in China.  That’s because many Chinese manufacturing employees earn "just above the minimum wage, which at about $270 a month in China is less than a quarter that in America," according to the Economist. That difference has to come from somewhere, and it’s not likely to be from Apple’s (admittedly large) piggy bank. “You wouldn’t be building everything here overnight,” Wiens added, “but if you started slowly and moved 10 percent of your manufacturing to the US each year,” pretty soon Apple could have a significant percentage of its products assembled in the US—assuming Tim Cook and co. are OK with higher US assembly wages.

Philly Fed Manufacturing Survey showed "modest" contraction in January -- From the Philly Fed: January 2016 Manufacturing Business Outlook Survey Manufacturing conditions in the region contracted modestly this month, according to firms responding to the January Manufacturing Business Outlook Survey. The indicator for general activity remained negative this month; however, it rebounded from a lower reading in December... The diffusion index for current activity increased from a revised reading of -10.2 in December to -3.5 and has now been negative for five consecutive months ... The survey’s labor market indicators suggest weaker employment. The employment index decreased 4 points, from 2.2 to -1.9.  This was close to the consensus forecast of a reading of -4.0 for January. Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The yellow line is an average of the NY Fed (Empire State) and Philly Fed surveys through January. The ISM and total Fed surveys are through December.  The average of the Empire State and Philly Fed surveys decreased in January, and was solidly negative.  This suggests another weak reading for the ISM survey.

January 2016 Philly Fed Manufacturing Remains Contraction.: The Philly Fed Business Outlook Survey continued in contraction. Key elements are also in contraction. Both manufacturing surveys released so far for this month are in contraction, This is a very noisy index which readers should be reminded is sentiment based. The Philly Fed historically is one of the more negative of all the Fed manufacturing surveys but has been more positive then the others recently. The index declined from a revised -10.2 to -3.5. Positive numbers indicate market expansion, negative numbers indicate contraction. The market expected (from Bloomberg) -5.0 to 8.0 (consensus 1.2). Manufacturing conditions in the region contracted modestly this month, according to firms responding to the January Manufacturing Business Outlook Survey. The indicator for general activity remained negative this month; however, it rebounded from a lower reading in December. Other indicators offered mixed signals: Shipments increased this month, but new orders and employment declined modestly. The survey's price indexes suggest continued downward pressure on manufacturing prices. With respect to the manufacturers' forecasts, nearly all the survey's future indicators showed continued weakening this month while remaining positive. Most Current Indicators Suggest Weak Activity: The diffusion index for current activity increased from a revised reading of -10.2 in December to -3.5 and has now been negative for five consecutive months. The index for current new orders remained negative but increased 10 points, to -1.4. Firms reported an increase in shipments to begin the new year: The shipments index increased 12 points, its first positive reading in four months. Firms reported continued declines in inventories: The inventories index remained negative and decreased 10 points. Firms' backlog of unfilled orders also declined this month, and delivery times were shorter, according to the responding firms.

Philly Fed Contracts For 5th Month In A Row As "Hope" Crashes To 3-Year Lows -- Philly Fed improved from a dismal -10.2 to a just terrible -3.5 for the 5th consecutive month of contraction with the number of employees and average workweek both tumbling. Shipments increased but new orders remain in contraction as inventories dropped. The more troubling news is the total collapse in "hope" as the six-month-forward outlook collapsed to Nov 2012 lows...

US Manufacturing PMI Bounces Despite Drop In Employment Index - US manufacturing PMI printed a preliminary 52.7 for January, boucing from the 38-month lows of December and above expectations as output and new business improved (somewhat aberrantly given every other indication). This is still the 2nd lowest print for US manufacturing since October 2013. It's not all great news though as job creation dropped to 4-month lows "softer overall employment growth reflected a wait-and-see approach to staff recruitment at the start of the year and, in some cases, the need to focus on efforts to reduce costs." Bounce? We will wait for the final print...

Weekly Initial Unemployment Claims increase to 293,000 -- The DOL reported: In the week ending January 16, the advance figure for seasonally adjusted initial claims was 293,000, an increase of 10,000 from the previous week's revised level. The previous week's level was revised down by 1,000 from 284,000 to 283,000. The 4-week moving average was 285,000, an increase of 6,500 from the previous week's revised average. The previous week's average was revised down by 250 from 278,750 to 278,500.  There were no special factors impacting this week's initial claims.  The previous week was revised down to 283,000. The following graph shows the 4-week moving average of weekly claims since 1971.

Jobless Claims Unexpectedly Rise To 6-Month High -- Another day, another (modestly) disappointing economic report. This time it’s the labor market. Initial jobless claims unexpectedly increased 10,000 last week to a seasonally adjusted 293,000, the Labor Department reports. That’s still low by historical standards, but economists were looking for a modest decline. Instead, new filings for unemployment benefits rose for the week through Jan. 16 to the highest level since last July. The good news: claims are still falling on a year-over-year basis. Unfortunately, the annual decline continues to wither; the latest decrease–down 2.7% vs. the year-ago figure–is the smallest since early December. Let’s be clear: jobless claims are still nowhere near the point of signaling trouble for the US economy. Unfortunately, there are cautionary signs in other corners of the economy–see today’s monthly business-cycle profile. But for the moment, the claims trend—a crucial leading indicator—is still signaling growth. If and when we see claims consistently rising on a year-over-year basis we’ll have a genuinely dark reading for this data. Meantime, claims appear to be telling us that the big improvements in the labor market have passed. Surprising? Not really. Payrolls have been rising since early 2010. The six-year upswing isn’t particularly old by historical standards. But there are clouds gathering on the business-cycle horizon, albeit clouds that collectively still fall short of a clear sign that the economy has slipped off the edge.

Employment gains for blacks accelerated in 2015, indicating the recovery is not over yet  - African-American workers continued to make notable employment gains in 2015, even as employment growth for whites and Hispanics slowed. The share of African-American adults with a job (i.e., the black employment-to-population ratio, or EPOP) has increased 2.5 percentage points since 2013—more than whites (0.5 percentage points) and Hispanics (1.6 percentage points). Over half of the increase in the African-American EPOP (1.4 percentage points) occurred in 2015, a slight acceleration from the previous year (in which the black EPOP increased by 1.1 percentage points). Meanwhile, employment gains for whites and Hispanics slowed from 2014 to 2015: the increase in the share of white adults with a job fell from 0.3 to 0.2 percentage points and the increase in the share of Hispanic adults with a job fell from 1.2 to 0.4 percentage points. Though African-American workers have benefited from solid job growth over the last couple years, they also suffered greater losses during the Great Recession and continue to have a lower EPOP than whites and Hispanics. At the end of 2015, the black EPOP was 56.4 percent, slightly lower than whites (59.9 percent) and Hispanics (61.4 percent). This reflects the fact that African-American workers are often hardest hit during a recession and do not fully recover without robust job growth that significantly reduces the national unemployment. This is why it is important for the Federal reserve to prioritize very low rates of unemployment until all groups have had a chance to fully recovery and wages begin to grow.

The Largest Number Of Jobs In The Economy Is, By Far, Jobs Requiring Less Than A College Degree At Entry - Atlanta Fed - On December 8, 2015, the U.S. Bureau of Labor Statistics (BLS) released its latest projections of labor force needs facing the U.S. economy from now until 2024. Every two years, the BLS undertakes an extensive assessment of worker demand based on a number of factors: projected growth in the overall economy, dynamics of economic growth (such as which industries are growing fastest), labor force demographics (for example, the aging of the labor force), and expected changes in the labor force participation rate. Total worker demand includes both the number of workers needed to meet economic growth as well as the number of workers needed to replace current workers expected to retire. A number of observations about these projections have already been identified. For example: overall employment growth will be slower, health care jobs will continue growing, and computer programmer jobs will lose ground. In addition to the number of workers that will be in demand in different occupations in the U.S. economy, the BLS reports the skills that are needed for entry into those occupations - skills pertaining to both education levels and on-the-job training. As I perused this report, I was surprised at how much attention the press pays to the growth in high-skilled jobs at the expense of attention paid to those occupations requiring less skill but actually employ the greatest numberof workers. To be clear, the BLS does not project the educational requirements that will be needed for entering each occupation in 2024. It merely reports the most common education, training, and experience requirements needed to enter each occupation in the base year (in this case, 2014). Also it's important to note that these estimates of education needed to enter an occupation do not necessarily (and almost surely do not) match the average education of workers in that occupation at any given time, as those averages will reflect workers of many different ages and experience.

Independent economists: TPP will kill 450,000 US jobs; 75,000 Japanese jobs, 58,000 Canadian jobs -Proponents of the secretly negotiated Trans Pacific Partnership -- which lets companies force governments to get rid of their labor, environmental and safety rules in confidential tribunals -- say it's all worth it because it will deliver growth and jobs to the stagnant economies of the rich world.  Independent analysis from the World Bank put paid to the idea that TPP states would experience any growth, but didn't address the question of jobs. But a new working paper from Jerome Capaldo and Alex Izurieta, economists from Tufts University's Global Development and Environment Institute and Jomo Kwame Sundaram -- formerly the United Nations Assistant Secretary-General for Economic Development takes a critical, independent look at the economic modeling performed by the TPP's proponents and finds it based on a set of nonsensical, nonstandard assumptions about how economies perform. The researchers revisited the pro-TPP research using a "realistic" set of modeling assumptions, based on the widely accepted United Nations Global Policy Model (GPM). When they re-run the numbers on the TPP's impact on jobs, they come back with a stark finding: developed nations that sign TPP can expect to hemorrhage jobs by the tens of thousands -- and poor countries will gain few, if any jobs from those losses.

Obama unveils wage insurance plan to spur job seekers | Reuters: U.S. President Barack Obama on Saturday laid out a plan to help support the income of workers who lose their jobs and end up in lower paying positions, as part of a push to get unemployed Americans back to work. The proposal would offer experienced workers who now make less than $50,000 a form of wage insurance, allowing them to replace half of their lost pay. The benefit would cover up to $10,000 over two years. "It's a way to give families some stability and encourage folks to rejoin the workforce - because we shouldn't just be talking about unemployment; we should be talking about re-employment," Obama said in his weekly radio and Internet address, broadcast on Saturday. The wage insurance proposal will be included in a broader effort to overhaul the unemployment insurance system. Details about the program's proposed funding will be further outlined in Obama's budget for fiscal year 2017 expected to be released next month. Obama promised in his State of the Union earlier this week to advocate for legislative action on issues with bipartisan support during his last year in office. During the address, he pointed to wage insurance as one measure where lawmakers may be able to work together. The White House plan would require states to provide insurance for workers laid off from jobs they had held for at least three years. The plan would be federally-funded, but it would be administered through state unemployment insurance programs.

The H-2B temporary foreign worker program: For labor shortages or cheap, temporary labor? -- The Essential Worker Immigration Coalition (EWIC)—a lobbying group representing the interests of employers—claims that it is “concerned with the shortage of both semi-skilled and unskilled (‘essential worker’) labor” and thus “supports policies that facilitate the employment of essential workers by U.S. companies that are unable to find American workers.” Representatives of other influential corporate lobbying groups, including the U.S. Chamber of Commerce and ImmigrationWorks USA, have made similar claims.  These groups are advocating to deregulate and expand the H-2B temporary foreign worker program, which permits U.S. employers to temporarily hire workers from abroad with H-2B nonimmigrant visas for lower- and semi-skilled occupations that are non-agricultural and seasonal in nature. And, claiming that “many American businesses could not function without the H-2B program” the Chamber and ImmigrationWorks USA want Congress to create a new and much larger program that would permit them to hire lower- and semiskilled guestworkers for year-round jobs.  While Congress debates whether to expand existing temporary foreign worker programs and whether to create a larger new program, it should note the lack of credible evidence that there are labor shortages in lesser-skilled jobs. This report does not attempt to establish whether labor shortages exist in H-2B occupations, but instead looks at employment growth, wages, and unemployment rates in the main occupations of H-2B workers. Following are the main findings of the report.

Supreme Court to decide whether Obama can shield millions of immigrants from deportation: The Supreme Court set the stage for what could be a landmark ruling on immigration law and presidential power when it agreed Tuesday to decide whether President Obama has the authority to offer a “lawful presence” and a work permit to as many as 5 million immigrants living in the country illegally. The decision is likely to come this June in the middle of the 2016 presidential campaign, in which the question of how to cope with the nation’s immigration problem has deeply divided the two parties. Some leading Republican candidates have called for deporting immigrants and building a wall with Mexico, and Democrats have vowed to go even further than Obama in helping those here illegally come out of the shadows. At issue for the court is whether current law gives the president power to temporarily shield millions of longtime immigrants from deportation. At the request of Texas state lawyers who are suing to block the president’s program, the justices also agreed to decide whether Obama violated his constitutional duty by failing to “take care that the laws be faithfully executed.” If the court rules that Obama overstepped his authority, it would send the message that only Congress can change and reform the nation’s immigration laws. On the other hand, justices have given the executive branch broad discretion in setting deportation policy. Even if Obama wins, he may run out of time to fully implement the program before leaving office, making it easier for a future GOP president to unwind it. Under the best-case scenario for the president, he would have six months to implement the program — enough time to process a few hundred thousand applications, experts estimate.

Wal-Mart Stores to hike pay for 1.2 million workers in 2016 - Wal-Mart Stores Inc said Wednesday that more than 1.2 million employees would get a raise in 2016, and the retailer will allow paid days off to be carried over into the next year as it aims to retain workers amid a tight U.S. labor market. The company announced plans for the raise last year as part of a two-step, $2.7 billion investment in wages, benefits and training, although it had not disclosed details of the second phase in which it is bumping its mininum pay to $10 an hour, following an increase to $9 in April. In a statement the company said all employees hired before Jan. 1 would be paid at least $10 an hour, with entry-level hires after that date eligible for that wage after completing a training program. The latest raise would increase the average full-time hourly wage at Wal-Mart to $13.38 from $12.96 and average part-time wage to $10.58 from $10. The federal minimum is $7.25. The world's largest retailer also announced that workers would, for the first time, be able to carry over paid days off, with full-time employees transferring up to 80 hours into following year. The move highlights how Wal-Mart and other employers are responding to a tight labor market with the U.S. unemployment rate at a 7-1/2 year low of 5 percent. Wal-Mart has said its investment in wages is depressing profits; labor costs were a main factor behind an earnings warning in October. But it believes better pay is leading to improved service and boosting U.S. sales.

The poverty of the US working class  -- Excerpts from an important article in the Atlantic. Read the whole thing here. For the last several months, social scientists have been debating the striking findings of a study by the economists Susan Case and Angus Deaton. Between 1998 and 2013, Case and Deaton argue, white Americans across multiple age groups experienced large spikes in suicide and fatalities related to alcohol and drug abuse—spikes that were so large that, for whites aged 45 to 54, they overwhelmed the dependable modern trend of steadily improving life expectancy. While critics have challenged the magnitude and timing of the rise in middle-age deaths (particularly for men), they and the study’s authors alike seem to agree on some basic points: Problems of mental health and addiction have taken a terrible toll on whites in America—though seemingly not in other wealthy nations—and the least educated among them have fared the worst.  Meanwhile, other recent research has piled on the bad news for those without college degrees. A Pew study released last month found that the size of the middle class—defined by a consistent income range across generations—has shrunk over the last several decades. In part, this is because high-paying jobs for the less educated are vanishing. The study builds on other recent research that finds that almost all the good jobs created since the recession have gone to college graduates. ...Yet there is clearly more to the despair of the working class than empty wallets and purses. Patches of the social fabric that once supported them, in good times and bad, have frayed. When asked in national surveys about the people with whom they discussed “important matters” in the past six months, those with just a high-school education or less are likelier to say no one (this percentage has risen over the years for college graduates, too). This trend is troubling, given that social isolation is linked to depression and, in turn, suicide and substance abuse.

14 states raised their minimum wage at the beginning of 2016, lifting the wages of more than 4.6 million working people - At the beginning of the year, 14 states raised their minimum wages, lifting wages for over 4.6 million workers in states across the country. Unlike last year’s increases, the majority of these increases (12) were scheduled increases initiated by legislation or approved by voters through ballot measures. The other two (Colorado and South Dakota) were changed as a result of inflation indexing—a process adopted by 15 states by which the minimum wage is automatically adjusted each year to match increases in prices. Table 1 below shows the magnitude of the minimum wage increase in each state, ranging from an increase of 5 cents in South Dakota to 1 dollar in four states (Alaska, California, Massachusetts, and Nebraska). Because inflation was very low in 2015, nine of the 11 states with inflation indexing set to go into effect at the beginning of the year did not adjust their minimum wages in 2016. Colorado and South Dakota were the only exceptions, yet their increases were small, and thus the increases affected relatively small shares of each state’s workforce: 2.1 percent and 3.4 percent, respectively. Minimum wage increases affected a much larger portion of the workforce in states that initiated larger increases through legislation. For example, California’s $1.00 minimum wage increase lifted wages for 18.6 percent of the state workforce. All together, these increases will provide 4.6 million workers over $3.5 billion in higher annual wages. This additional pay, though modest, represents a significant boost to the spending power of low-wage workers and their families. For example, a worker in Nebraska who was previously earning the state minimum wage of $8.00 an hour in 2015 will see their hourly pay increase by 12.5 percent.

Gun Deaths Now Outpace Motor Vehicle Deaths in 21 States -- It's a fact that in the United States, the federal government regulates every consumer product for health and safety, except for one: guns. In fact, guns are specifically exempt from federal health and safety regulation. While the federal Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) is charged with enforcing the federal gun laws on the books, it lacks the health and safety powers routinely granted other federal regulatory agencies, such as standard setting, recall capability for defective products, and comprehensive data collection. To understand how this contrast plays out in the real world, look no further than how we regulate motor vehicles. We've spent decades making improvements in vehicle and highway design to protect public safety. As a result, as President Obama said, "Traffic fatalities have gone down drastically during my lifetime." And while the actions of the federal National Highway Traffic Safety Administration have made motor vehicles safer, the gun industry has gone in the opposite direction: embracing heightened lethality as its driving force.  A new study by the organization I head, the Violence Policy Center, finds that gun deaths now outpace motor vehicle deaths in 21 states and the District of Columbia. The number of states where gun deaths exceed motor vehicle deaths has increased from just 10 states in 2009 to 21 states in 2014, the most recent year for which data is available. Nationwide, nine out of 10 households have access to a motor vehicle while fewer than a third of American households have a gun. Yet there were 33,599 gun deaths in 2014 compared to 35,647 motor vehicle deaths in 2014.  The graph below shows how motor vehicle deaths have steadily declined since 1999 while firearm deaths have gone up:

Oil's Collapse Hurting States That Were Counting on $50-a-Barrel -- When Louisiana, one of the nation’s biggest energy-producing states, decided how much tax money the government would have to spend this year, it forecast that the price of oil would be almost $50 a barrel. It’s since tumbled to below $32, casting economic ripples that helped create a $750 million budget shortfall. The price of crude, which is recovering from a 12-year low, has emerged as a major source of fiscal strain on the nation’s oil-patch states, none of which predicted how swift or deep the drop would be. That’s prompted a reversal-of-fortune in capitals that once reaped revenue windfalls from America’s energy-industry renaissance and are now racing to adjust. “They’re playing catch-up in getting their estimates in line with what’s happening with spot prices,” A report released Thursday by S&P said the energy rout is a main culprit in at least five of the 11 states that are facing financial pressure this year as jobs and counted-on tax collections disappear. The price of oil, which traded for more than $100 less than two years ago, has been cut in half since June amid concerns about the slowing pace of overseas economies, even with a rally Friday that pushed it up more than 7 percent. Besides Louisiana, it’s being felt largely in Alaska, New Mexico, Oklahoma, and North Dakota, the credit-rating company said. But it’s also cropping up elsewhere: In Texas, the largest producer, the impact has crimped sales-tax collections and increased the cost of public-assistance programs for those out of work. In states with the big energy industries, payrolls expanded by 0.9 percent in the year through November, less than half the rate for the U.S., according to S&P.

Oil plunge upends state budget session in New Mexico — New Mexico lawmakers conferred with energy market experts and economists about plunging oil prices Wednesday as the Legislature crafts a new state budget that relies heavily on oil and natural gas revenues. The price of U.S. crude sank almost below $27 a barrel Wednesday to its lowest price since 2003 amid a glut in oil global supplies. That’s down from the $100 range in mid-2014. New Mexico legislators are considering whether to put $77 million in planned state salary raises on hold as low oil prices erode the state’s revenue forecast. Oil and natural gas revenues provided about 35 of state general fund revenues in fiscal year 2014 and may shrink to about 21 percent during the current fiscal year, according to estimates from the New Mexico Tax Research Institute. Jim Peach, a professor of economics at New Mexico State University, said the state would be wise to reconsider any spending increase this year because oil prices may remain low and also trigger production cuts at New Mexico rigs. He recommended setting aside greater reserves than currently planned to prevent future revenue shortfalls.

Alaska Faces Budget Deficit As Crude Oil Prices Slide - For decades, Alaska has relied on oil to pay its bills. In recent years, up to 90 percent of state spending came from oil revenue. With crude prices at a 12-year low, the state faces at least a $3.5 billion deficit — or two-thirds of its budget.Lawmakers gathering in Juneau on Tuesday face some unpopular choices, including the first income tax in decades.To understand why Alaska has a budget problem, stop by any gas station. In Anchorage, gas sells for $2.30 a gallon. A year and a half ago, people here were shelling out more than $4 a gallon. And that's the problem.Tour guide Lynne Jablonski stopped to fill up her car."It's a mixed feeling, right? Because it's a great thing when I look at my credit card bill, but it's not so good for the state that the oil prices are so low," Jablonski says.As crude prices have dropped, the state's budget has tanked. So America's most oil-dependent state is trying to figure out what to do.Alaska always knew this day would come. When companies struck oil in Prudhoe Bay in 1968, leaders worried how to manage the windfall."You've got to remove the money. Put it behind a rope where you cannot utilize it for flamboyant expenditures," says Jay Hammond, Alaska's governor, speaking in 1980. Hammond helped create the Permanent Fund. Call it Alaska's retirement account. Each year, a share of oil money is set aside. The fund has grown to about $50 billion — and the state isn't allowed to touch it, just the earnings.Hammond saw it as a source of income for when oil ran out.In the past 40 years, those earnings have been used for pretty much just one thing: Everyone in the state receives an annual share. Last year's check was more than $2,000. If the state wants to use the fund's earnings to cover the deficit, it will reduce that dividend.

Illinois Budget Crisis: Big Banks Aren’t Sharing State Debt Woes:  The state of Illinois has been without an official budget since July, and service providers that rely on state funding have felt the squeeze. Programs that deliver hot food to seniors in southwestern Illinois and outside of Chicago, for example, are preparing to halt operations, and low-income college students have seen promised tuition subsidies vanish. The western Illinois Child Abuse Council has responded to the frozen state budget by reducing therapy services staffing by 20 percent and home visits by 40 percent. The nonprofit's counseling program, which serves children under 5 years old who have suffered trauma and abuse, has begun turning away families as the waitlist stretches to record length. “We’re the only ones providing these services in the community,” said Angie Kendall, the organization’s director of development. “We don’t have an alternative at this point.” Even as crucial social service programs face deep reductions, one set of institutions has enjoyed an uninterrupted flow of funds from Springfield: banks. Financial service providers continue to pull in nearly $70 million a year in payments on complicated public debt deals from the early 2000s.  With the state’s financial woes deepening, banks — including JPMorgan Chase, Goldman Sachs and Citigroup — stand to take in as much as $1.45 billion on interest rate swap payments by 2033. That’s the conclusion of a new report from the ReFund America Project, which tabulated the costs stemming from the swaps weighing on the state’s books.

Study: Food tax sends Kansans across state lines to buy groceries - A new study indicates more Kansans are leaving the state to buy groceries. Researchers at Wichita State University estimate Kansas has lost $345 million in food sales to surrounding states because of higher sales taxes on groceries. In Kansas, food is subject to a 6.5 percent sales tax. In Missouri, it’s 1.225 percent. Local city and county taxes can make the percentage even higher. A family that spends about $500 on groceries will save about $26 per month by crossing the state line to shop in Missouri. That adds up to about $320 per year. The study found Johnson County, Kansas, has suffered the greatest loss in food sales, some $93 million. Many shoppers who spoke to KMBC 9 News Monday said they didn’t realize how much difference there is in food taxes. “To save an extra tank of gas, I could definitely drive across the little state line here just to get some groceries for less,” said shopper Hannah Swihart.

A bi-partisan agreement on school meals policy -- Alan Bjerga and Erik Wasson at Bloomberg yesterday report that a bi-partisan agreement in the Senate Agriculture Committee this week preserves key parts of the First Lady's school nutrition goals, while still allowing all sides to claim victory.  After half-a-decade of trying to dismember Michelle Obama's signature effort to make school lunches healthier, Republicans compromised with Democrats to preserve much of what the first lady wants while loosening rules in ways that benefit major food companies.  Bjerga and Wasson quote me with a favorable opinion on the Senate Agriculture Committee proposal:  "School nutrition policy can't thrive with just part of the country behind it," said Parke Wilde, a nutrition-policy professor at Tufts University in Boston. "Even if some of the compromises were painful, it seems hugely beneficial for the kids involved to have bipartisan legislation moving forward. This still is better off than where we started."  To give some background for this viewpoint, here is a commentary that a Friedman School graduate student, Mary Kennedy, and I contributed to Choices Magazine a few years ago. Characterizing the School Food Authorities that actually serve the meals as businesses, we considered the conditions that would allow these not-for-profit businesses to provide healthier school meals without going broke.  We argue, as do many others, that serving healthy meals through the federal meals program may require policies to address less healthy food from other sources in the school environment.

100,000 NYC School Children Face Airport-Style Security Screening Every Day --On the coldest morning New York City has seen this winter, a stream of teenage students hit a bottleneck at the front of a Brooklyn school building. They shed their jackets, gloves and belts, shivering as they wait to pass through a metal detector and send their backpacks through an x-ray machine. School safety agents stand nearby, poised to step in if the alarm bleats. It’s an everyday occurrence for more than 100,000 middle and high school students across the city. On this morning, as on every school day, senior Justin Feldeo prepares to be pulled aside for separate screening by a hand wand. Feldeo is studying to be a firefighter and the boots he wears for class trigger the metal detectors. Fifteen minutes after the formal start of the school day, students are still pouring in, even later for having to go through the machines. Almost as many New York City students run the gauntlet of x-ray machines each day as pass through the scanners at busy Miami International Airport. And the procedure is numbingly similar. Students must remove belts, shoes, and sometimes bobby pins as the wait stretches as long as an hour. A ProPublica survey found that the daily ritual is borne disproportionately by students of color; black and Hispanic students in high school are nearly three times more likely to walk through a metal detector than their white counterparts.

KISD Suspends Student For Leaving Class To Carry Asthmatic Stude - A Killeen mother is defending her son who was suspended after helping a fellow student having an asthma attack. Anthony Ruelas, 15, said his eighth grade classmate was wheezing and gagging for three minutes Tuesday morning while no one did anything. But when Ruelas did do something, he apparently broke the rules.When she picked her son up from school for the suspension she told him,”No, they already told me what happened you walked out of class, and he was like 'ok forget it', but I can tell, ya know you know your kids, I could tell he was upset." The reason Ruelas walked out of class? He was carrying a friend to the nurse’s office. According to Ruelas, the teacher was waiting on an email from the nurse and told the class to remain calm and stay in their seats. Fearing for the girl’s health, Ruelas didn’t listen and after several minutes of inaction, went against the teacher’s wishes to help his friend. Ruelas’ referral form from his teacher reads in her handwriting: “During 5th period another student complained that she couldn't breathe and was having an asthma attack. As I waited for a response from the nurse the student fell out of her chair to the floor. Anthony proceeded to go over and pick her up, saying ‘f—k that we ain’t got time to wait for no email from the nurse.’ He walks out of class and carries the other student to the nurse.” "I broke rules but, she need help, like she needed help,” said Ruelas.

Teacher sick-outs close nearly all DPS schools: Teacher absences forced 88 Detroit schools to close today, the largest sick-out meant to call attention to large class sizes, dilapidated buildings and other problems in Michigan's largest school district. The sick-out idled most of Detroit Public Schools' 46,000 students.  "Things have been happening for so long, and I think teachers felt like they had no voice," said Lacetia Walker, an instructional specialist in special education for DPS. "This has been a way for us to draw attention to the conditions of the buildings, the fact that teachers' STEP pay has been frozen for years. ... “We realized that nobody is coming to save us, so we have to save ourselves.” Lacetia Walker, DPS Instructional Specialist "We realized that nobody is coming to save us, so we have to save ourselves." District officials said they had no choice but to close schools amid the sick-out. "This means that 44,790 of the district's 46,325 students lost a critical day of instruction," spokeswoman Michelle Zdrodowski said. "There were, however, nine district schools that stayed open today. We appreciate the teachers and staff at those schools for being in their classrooms and ensuring that their students are learning today." Zdrodowski said the district has been meeting with teachers since last week to discuss their concerns but said the sick-outs could make a legislative fix harder.

A major US city closed almost all of its schools after teachers started protesting deplorable school conditions - Almost every public school in Detroit, Michigan was closed on Wednesday after teachers called out sick to protest what they say are deplorable school conditions, CNN reported.  Eighty eight of the roughly 100 schools in the system closed, accounting for about a 90% closure rate, according to CNN. Teachers launched the so-called sickout to call attention to the unsafe school conditions they say are widespread across the district. They are looking for city and state government officials to step in and take action to improve school conditions. “Detroit’s public schools are in a state of crisis,” the Detroit teachers’ union wrote on its website. “Children are struggling in schools with hazardous environmental and safety issues. Educators have made significant sacrifices for the good of students, including taking pay cuts and reductions in health benefits.”  Some of those hazards were on display when Detroit Mayor Mike Duggan took a tour of Detroit schools in mid-January. Duggan said he saw a dead mouse, freezing classrooms where students were wearing coats, and severely damaged rooms, according to the Associated Press. Duggan's school tour was precipitated by an earlier teacher sickout that closed 64 schools. "Our children need our teachers in the classroom," Duggan said in January, according to the AP. "But there's no question about the legitimacy of the issues that they're raising."

Fitch drops Chicago Board of Education rating to B-plus | Reuters: The Chicago Board of Education's credit rating sank deeper into "junk" on Tuesday with a Fitch Ratings downgrade to B-plus with a negative outlook from a previous rating of BB-plus. "The downgrade reflects the limited progress Chicago Public Schools (CPS) has made in addressing a structural budget gap approximating 20 percent of spending for the current fiscal year," the credit rating agency said in a statement Fitch's action followed a similar move on Friday by Standard & Poor's, which cut the rating for the financially struggling district two notches to B-plus. In its rating report, Fitch said CPS faces a "relatively inflexible expenditure profile," an extremely limited independent ability to raise revenue and will likely deplete its reserves by the end of fiscal 2017. The nation's third-largest public school system plans to sell $875 million of general obligation bonds next week. A recently posted online investor presentation for the bond sale indicated that CPS continues to push for more funding from the state of Illinois and aims to eliminate a more than $1 billion structural budget deficit by fiscal 2018.

State takeover of Chicago Public Schools and bankruptcy on GOP agenda - -The Republican leaders of the Illinois House and Senate are stepping into the financial crisis at Chicago Public Schools, and it sounds like they're proposing a solution that City Hall will not like. In a press conference scheduled for Wednesday morning, Senate GOP leader Christine Radogno and her House counterpart, Jim Durkin, will propose legislation that would allow the state to take control of CPS and potentially push it into bankruptcy, according to knowledgeable sources. The latter move—forcing the school system to reorganize and in the process dumping its union contracts—has been strongly pushed by Gov. Bruce Rauner but resisted by Mayor Rahm Emanuel. But the Radogno-Durkin proposal comes at a very sensitive time for Emanuel. CPS has been pleading for state help to fill a $480 million budget hole even as Emanuel's power has been restricted by fallout from the Laquan McDonald police shooting. I've also confirmed that the bankruptcy clause would apply to the city itself, which has its own financial problems, and result in electing members of the Board of Education, who now are selected by the mayor. That measure could appeal to some, even some Springfield Democrats, who have grown disaffected with Emanuel's leadership and handling of the school board. Specifically, I'm told, the package offered by the two top Republicans would extend to Chicago a measure authored by Sen. Heather Steans, D-Chicago, that allows the state to intervene in and effectively run troubled downstate and suburban districts. Such a move would be initiated by an independent review panel appointed by the State Board of Education.

"B" Word Hits Chicago: Illinois Governor Proposes Bankruptcy for Chicago Public School System - At long last, Illinois has a a sensible proposal to help Chicago schools: Bankruptcy. The cause of Chicago's problem is untenable pension promises, ridiculous union contracts, and bloated administration payrolls. As a direct result of those problems, the Chicago Board of Education, the nation’s third-largest district, is under fiscal siege. The CBOE operating deficit is projected to reach $1 billion a year through 2020. Yet, union arrogance abounds. The Chicago's teachers union is threatening to strike, demanding still more benefits. The solution, proposed by Governor Bruce Rauner and key Republican leaders on January 20, is a State Takeover and Bankruptcy for Chicago Schools. Christine Radogno and Jim Durkin, the state’s top Republicans in the legislature, outlined a proposal Wednesday that would allow the state to take control and even push the system, charged with educating almost 400,000 students, into Chapter 9. “What we’re proposing is a lifeline,” state Senator Radogno told reporters in Chicago. “We didn’t come to this lightly. The track record of Chicago and its public school system is abysmal.”  Illinois Governor Bruce Rauner, a Republican who has been at odds for months with the Democrat-controlled legislature over the state budget, has said he won’t bail out Chicago’s school system unless Mayor Rahm Emanuel supports limits on unions or other proposals he’s seeking to enact. School officials passed a budget for the year that started July 1 with a $480 million hole, asking the state for the money to fill the gap. Without it, the district faces drastic cuts and more borrowing, officials have said. “The mayor is 100 percent opposed to Gov. Rauner’s ‘plan’ to drive CPS bankrupt,” Emanuel’s spokeswoman, Kelley Quinn, said in a statement. “If the governor was serious about helping Chicago students, he should start by proposing -- and passing -- a budget that fully funds education and treats CPS students like every other child in the state.”

Chicago Public Schools Bankruptcy? -- The local press has been abuzz the last two days with talk of Illinois Republicans' plans to take over Chicago Public Schools (CPS) and allow/force it to file for municipal bankruptcy. I immediately wondered whether this was just political rhetoric, part of Governor Rauner's quite clear plan to undermine public union power, especially in the school system, or if bankruptcy was the right tool for what ails CPS. As my image here suggests, it seems to me ... not so much; that is, CPS isn't quite "bankrupt" in the sense that Chapter 9 might help.  Not yet, and maybe not ever.  CPS doesn't seem to be insolvent in the Chapter 9 sense--it has been managing to pay its bills (including debt service) as they come due by collecting larger property and replacement (business) tax revenues and accessing the bond market, despite its plummeting credit rating. CPS's ordinary debt service amounts to only about $500 million a year, a small fraction of its nearly $7 billion budget. CPS seems to have two main problems (no surprise): labor and pensions. Back to where I started, it seems the main purpose of a Chapter 9 filing would be to provide leverage for CPS in union negotiations. "Instruction" understandably represents the largest budget line and about half of the CPS budget. The relationship between CPS and the teachers' union has been strained in recent years, to put it mildly, with the union threatening another imminent strike just recently. Public authorities like CPS have little to no leverage in negotiations with a public union, especially the massive and powerful teachers' union. This makes talk of the smallest of labor concessions (such as small contributions to health care costs, salary freezes, or reductions in planned raises, to say nothing of staffing reductions) either monumentally difficult or impossible. Chapter 9 bankruptcy seems to be about the only real leverage that CPS and other public employers have in dealing with public unions, though I wonder whether even that would be enough in light of the acrimony I've witnessed here in the city.

Charter Schools: The End of Public Education As We Know It? -- Have you noticed the gradual creep of the charter school movement—the slippery slope meant to take over free public education as we know it and transform our schools to elitist institutions? It touts itself as the best way to educate our children but it defies the principals upon which our public education system has been built (commencing all the way back to the early tradition of free public schools espoused by our leaders during the American Revolutionary period). Sure, many charters boast high scores, but those results are often skewed because at-risk children, those with a variety of disabilities, many from dysfunctional backgrounds, and others are far too often not part of most charter programs—deliberate “exclusions” that at first blush help make the charters, particularly the independent ones, look so good. Granada Hills Charter High School (GHCHS), near to where I live, opened several years ago with an atmosphere that reminded me of a police state–cameras and invasive ID cards everywhere (Big Brother constantly looking over everyone’s shoulder, including the teachers and other staff members).  Many of my middle school students who went on to attend GHCHS would return to me to complain about the practices of what was then a new charter. These visits often reflected views from students representing a wide spectrum of abilities. A genuine feeling of despair seemed to emanate from many of these young people.

How Measurement Fails Doctors and Teachers - TWO of our most vital industries, health care and education, have become increasingly subjected to metrics and measurements. Of course, we need to hold professionals accountable. But the focus on numbers has gone too far. We’re hitting the targets, but missing the point.Through the 20th century, we adopted a hands-off approach, assuming that the pros knew best. Most experts believed that the ideal “products” — healthy patients and well-educated kids — were too strongly influenced by uncontrollable variables (the sickness of the patient, the intellectual capacity of the student) and were too complex to be judged by the measures we use for other industries.By the early 2000s, as evidence mounted that both fields were producing mediocre outcomes at unsustainable costs, the pressure for measurement became irresistible. In health care, we saw hundreds of thousands of deaths from medical errors, poor coordination of care and backbreaking costs. In education, it became clear that our schools were lagging behind those in other countries.So in came the consultants and out came the yardsticks. In health care, we applied metrics to outcomes and processes. All of this began innocently enough. But the measurement fad has spun out of control. There are so many different hospital ratings that more than 1,600 medical centers can now lay claim to being included on a “top 100,” “honor roll,” grade “A” or “best” hospitals list. Burnout rates for doctors top 50 percent, far higher than other professions. A 2013 study found that the electronic health record was a dominant culprit. Another 2013 study found that emergency room doctors clicked a mouse 4,000 times during a 10-hour shift. The computer systems have become the dark force behind quality measures.

The problem is that free college isn’t free -- “Free public college” is a great political talking point, but it is flawed policy. First, free college isn’t free, it simply shifts costs from students to taxpayers and caps tuition at zero. That tuition cap limits college spending to whatever the public is willing to invest. But it does not change the cost of college, or what institutions actually spend per student. If the past is any guide, that cost will continue to grow, and an influx of federal money may lead profligate administrators to spend even more. Enrollments will also increase, further multiplying the cost of free college.  The key question, then, is what happens if public generosity does not keep pace with rising college costs, increases in demand, or both? Barring a drastic improvement in efficiency, tuition-free colleges won’t have the resources to serve additional students without compromising the quality of their offerings.As progressive advocates of free college are so eager to point out, public funding hasn’t kept up with such changes in the past. For instance, California has the cheapest community college fees in the nation. During the recession, enrollments boomed and the state budget for higher education took a hit. Unable to raise additional revenue through a tuition increase, California’s community collegesturned away 600,000 students. A national push for tuition-free college would strain public budgets even further, leading to shortages rather than increased access. And because middle and upper-income students will gobble up many of the free public slots, rationing will hurt those who need access the most.

Human Capital Contracts Would Discriminate - Mike Konczal - Human capital contracts continue to be all the rage in higher education funding. Beth Akers of Brookingswrites that they can tackle “the growing risk associated with investing in higher education.” They are also playing a role in the presidential debate over higher education. Greg Mankiw, discussing higher education costs, is excited that Marco Rubio “wants to establish a legal framework in which private investors help pay for a student’s education in exchange for a share of the student’s earnings after college. In essence, the student would finance college less with debt and more with equity.” One thing never mentioned in these discussions is the way these kinds of financial instruments would exacerbate inequality. As we’ll see, even a preliminary financial model of these instruments shows that, when it comes to the percentage of income, women would pay 8–22 percent more relative to men, and a poor woman of color would easily pay 40 percent more relative to a rich white male, in order to attend college. One of the most important parts of private “income-share agreements” (ISAs) to their advocates is that the percentage of future earnings you have to pay isn’t fixed, but instead is set depending on your school and predicted earnings. Many proponents say that this will drive people to better schools with higher graduation rates as well as in-demand majors. Why? Because, since students will end up making more money this way, the private ISA lender can charge them a lower rate. A quick model I ran shows that there’s no reason to believe it would lead students to schools with higher graduation rates, because at reasonably high discount rates this instrument would prefer the smaller payments upfront that one would get from a dropout. More generally, it’s tough to model small changes in future payments from things you could discern at the age of 18. But there are three things you know at 18 that are correlated with future income: gender, race, and parental income.

Illinois Budget Deadlock Hits College Enrollments - WSJ: The budget impasse in Illinois is beginning to depress enrollments at the state’s colleges and universities, as state money earmarked for low-income students remains tied up in a political stalemate that shows no signs of easing. More than 1,000 students failed to return for the second semester as their schools stopped picking up the tab for the $373 million Monetary Award Program, said Randy Dunn, president of the Southern Illinois University system. The program normally provides grants of up to nearly $5,000 to some 128,000 students with mean family incomes of about $30,000, said Lynne Baker, spokeswoman for the Illinois Student Assistance Commission, which administers the program. But with no state budget in place since summer, the program’s funding has stopped. “There are a lot of students at risk right now of losing money and dropping out of school,” said Mitch Dickey, student body president at the University of Illinois. “We are at a really critical point.” The problem is poised to grow quickly as schools wait for their share of about $1 billion in state funding. Chicago State University, where many of the school’s 4,800 students receive money under the program, can’t keep covering the cost of the grants, said Tom Wogan, the school spokesman. “By March, we will be close to not having enough money to operate.”

Budget battle to leave Chicago State University broke by March - Like all of Illinois’ nine public universities, Chicago State University is waiting for long-overdue state funding. Come March, however, the predominantly black school on Chicago’s South Side said it won’t have the money to pay its employees. The problem at Chicago State is shaping up as a wider higher-education funding crisis because of the six-month budget standoff between Republican Gov. Bruce Rauner and Democratic leaders in the General Assembly. All of Illinois’ public universities have cut spending while they plead with the state to get the money flowing before they have to further – and drastically – cut programs. Already, the state has stopped the flow of Monetary Award Program grants that many low-income students rely on. Universities so far have been covering grant costs but say they can’t do that indefinitely. And Chicago State, a former teacher’s college that caters to many low-income students, lacks outside resources like a pool of well-off donors that schools such as the University of Illinois can fall back on.

Why Letting the Koch Brothers Create a “Center for Free Enterprise” at Public University WCU is a Bad Idea --About a week ago, I wrote about the events leading up to the dilemma faced by Western Carolina University faculty and administration with being offered a $2 million grant from a Koch Brothers foundation. What I did not mention is the recent domination of the North Carolina university system by Republican minded-administrators such as Margaret Spellings former President Bush Secretary of Education adding to the complexity.   Mark Jamison continues with the depiction of the dilemma Western Carolina University faces and provides the argument as to why the faculty and administration should reject this Koch Brothers donation. This article can also be found in the “Smoky Mountain News” as a guest column by Mark.

Thousands Apply to U.S. to Forgive Their Student Loans, Saying Schools Defrauded Them -- Americans are flooding the government with appeals to have their student loans forgiven on the grounds that schools deceived them with false promises of a well-paying career—part of a growing protest against years of surging college costs. In the past six months, more than 7,500 borrowers owing $164 million have applied to have their student debt expunged under an obscure federal law that had been applied only in three instances before last year. The law forgives debt for borrowers who prove their schools used illegal tactics to recruit them, such as by lying about their graduates’ earnings. The U.S. Education Department has already agreed to cancel nearly $28 million of that debt for 1,300 former students of Corinthian Colleges—the for-profit chain that liquidated in bankruptcy last year. The department has indicated that many more will likely get forgiveness. The program could prove to be one of the few lifelines for hundreds of thousands of Americans buried in student debt after attending disreputable schools that failed to land them a decent job. Federal law prohibits student debt from being discharged in bankruptcy, except in rare circumstances, and the Supreme Court last week declined to hear a case that could have expanded bankruptcy options. The sudden surge in claims has flummoxed the Education Department, which says the 1994 forgiveness program is overly vague. The law doesn’t specify, for example, what proof is needed to demonstrate a school committed fraud. Last week, the department a began monthslong negotiation with representatives of students, schools and lenders to set clear rules, including when the department can go after institutions to claw back tuition money funded by student loans.

"Most Of Us Ended Up At Office Depot": Thousands Of Angry Students "Flood" Government With Demands For Debt Relief -- Last summer, Corinthian Colleges closed its doors amid government scrutiny of for-profit colleges. The school - which had been the recipient of some $1.5 billion in annual federal aid funding - was variously accused of employing deceptive marketing practices, falsifying job placement records, and lying about graduation rates. As we noted when the doors were shut, for-profit students won’t have a particularly easy time transferring their credits (meaning they would have to start over at another school if they wanted to complete their degrees). That means that when a government mandated closure leaves them out in the cold, they’ll likely seek to take advantage of their 'right' to have their debt discharged. Sure enough, the government quickly found itself scrambling to respond after Secretary of Education Arne Duncan received a group request from 78,000 former Corinthian students requesting loan forgiveness in late May. Essentially, the law says students can have their debt expunged in the event they’ve been defrauded. In cases like Corinthian, where the government itself has effectively accused the school of fraud, it’s difficult to deny students’ claims. We immediately suggested that in the wake of the Corinthian affair, many more of the nation’s heavily indebted students and former students would seek to have their loans forgiven as well. Fast forward nine months and sure enough, “thousands” of students are “flooding the government” with appeals to have their student loans discharged on the grounds they were the victims of fraud. "In the past six months, more than 7,500 borrowers owing $164 million have applied to have their student debt expunged under an obscure federal law that had been applied only in three instances before last year," WSJ wrote on Wednesday. "The law forgives debt for borrowers who prove their schools used illegal tactics to recruit them, such as by lying about their graduates’ earnings."

How to Apply for Student-Debt Forgiveness for Victims of School Fraud – At A Glance -  Americans who believe they were defrauded by their colleges and universities can apply to have their federal student loans forgiven. The Education Department program is called “borrower defense,” or “defense to repayment,” and is intended to help student borrowers whose schools violated a state law during the recruiting process. The program is open to anyone who borrowed from the government’s Direct Loan program for any institution. The Education Department explains the program. Borrowers can apply for forgiveness. (Even though each page addresses Corinthian Colleges students, the program is open to all borrowers with direct federal loans.) The law says students are entitled to forgiveness of existing debt—and, possibly, reimbursement of any repaid loans—if they can show their school violated state law in getting them to take out the debt. (An example might be if a school lied in its advertisements about how many of its graduates landed jobs.) However, it’s not clear what documentation the borrower needs to prove fraud. The Education Department is currently drafting rules to clarify that. The agency has made clear that the program isn’t intended to reimburse students who simply are frustrated about their job prospects and regret taking on the debt. The program’s been in place since 1994, though it hasn’t been used much. The Education Department says that before last year, it received five applications for forgiveness—three of them granted. Higher education expert Ben Miller wrote about the history of the law in a post for the New America Foundation last year.

Door Prepares to Slam for Student Loan Forgiveness Due to Fraud - Back in October of 2014 I wrote a story titled "Millions of Federal Student Loans Lining Up to Be Eliminated and Borrowers Repaid". As I said then, "Recently the Department of Education brought a section of federal law to light that would allow federal loans to be eliminated if, "the borrower may assert as a defense against repayment, an act or omission of the school attended by the student that would give rise to a cause of action against the school under applicable State law." For more information on this, click here." And today the Wall Street Journal ran a story that said "Americans are flooding the government with appeals to have their student loans forgiven on the grounds that schools deceived them with false promises of a well-paying career -- part of a growing protest against years of surging college costs." The interesting part of the Wall Street Journal article is this quote, "The sudden surge in claims has flummoxed the Education Department, which says the 1994 forgiveness program is overly vague. The law doesn't specify, for example, what proof is needed to demonstrate a school committed fraud. Last week, the department a began monthslong negotiation with representatives of students, schools and lenders to set clear rules, including when the department can go after institutions to claw back tuition money funded by student loans." If I was right in reading the tea leaves about the regulation allowing people to apply for federal student loan forgiveness when they were defrauded, then I would bet the government will be closing that door soon. So if you feel you had been defrauded I would urge you to get your claim in as soon as possible.

Young Teachers Lose By Paying for Older Teachers' Pensions - US News: Where does your paycheck go? Your compensation is spread over not just salary but also retirement and other benefits. State and local governments take their share, of course. But for public school teachers in many areas there is another (hidden) line item: paying for the retirement of those who came before them. By now we are all familiar with the crushing debt facing many states due to unfunded pension liabilities, much of which is tied to promises made to teachers. Pension benefits were too generous, assumed rates of return on investments too high and contributions to cover future obligations too low. These policy failures have caught up to us. Many states and localities have been forced to make difficult budget decisions, and some are on the verge of bankruptcy. Someone has to pay for these debts. To a large extent policymakers have asked young teachers to make up for the deficit that their predecessors and shortsighted budgeting caused. In a recent paper for the Center for Analysis of Longitudinal Data in Education Research, a team of economists calculated that 10 percent of the earnings for an average public school teacher goes toward paying for pension liabilities accrued on the behalf of prior cohorts of teachers. That's money they could be taking home in salary.

WaPo Does Another OMG! Editorial on Social Security and Medicare -- Dean Baker -- Yes, the Washington Post is again urging cuts to Social Security and Medicare. The headline tells it all, "A nation that is getting older -- fast." The editorial lays out the case: "The implication [of an aging population] is clear: A larger, older cohort will depend on a smaller, working-age cohort. Payroll taxes fund Social Security and Medicare; yet the Congressional Budget Office forecast last year that the ratio of workers to retirees will decline from 3-to- 1 to 2-to- 1 between now and 2040. "Relatively modest reforms to entitlement programs for retirees could put them on a sound financial footing, with money left over to fund education, health care and other needs of young people. During the Obama years, however, the president episodically tackled entitlement reform only to see compromise fail over tax increases, which he favored and Republicans opposed. In the end, some tweaks — a fix to Medicare’s annual spending growth formula and new rules for Social Security disability insurance — have been enacted. But we are left with a problem that, while still manageable, becomes less so with each passing year." There's much room for fun here. First, let's get the numbers right. According to the Social Security Trustees Report, the current ratio of workers to retirees is 2.8 to 1. That is projected to decline to 2.1 to by 2040 (actually it hits this ratio in 2035). That isn't hugely different from the Post's numbers, but the difference matters because it is important to realize that a declining ratio of workers to retirees is not new. If we go back to 1960 it was 5 to 1. Yet we have much higher standards of living today than we did in 1960, even though we have just 2.8 workers to support each Social Security beneficiary. In fact, as recently as 2002 the ratio was 3.4 to 1. This means that in the last 14 years we saw the ratio fall by 0.6 workers to retiree, while in the next twenty years we will see a drop in the ratio of 0.7 workers to retiree, and the Post wants us to panic.

Florida ditches surgical standards after failing hospital donates to GOP -- Children’s heart doctors in Florida are reeling from a recent decision by the state to drop surgical standards for pediatric open heart surgery, CNN reports. To add insult to injury, doctors and medical experts suspect that the decision was purely political. The decision follows a 2014 medical review and a June 2015 report by CNN, which found that one particular medical facility, St. Mary’s Medical Center and Palm Beach Children’s Hospital, had an abysmal track record for pediatric open-heart surgery—a death rate more than three times the national average. And the two reports found that the facility was failing to meet the now-repealed standards, which include proficiency in performing the surgeries themselves. The St. Mary’s facility is run by Tenet Healthcare, which coincidentally donated $200,000 to the state’s republicans between 2013 and 2014, including $100,000 to Republican Governor Rick Scott’s political action committee. Those donations were the highest of any Tenet gave to political groups in other states. A month after CNN’s report, the state announced that it would repeal the standards for children’s heart surgery. Florida’s health department explained the move by saying that the standards were never properly approved by the legislature, but it failed to explain to reporters why legislative approval was not sought upon realizing the lapse.Doctors and top medical experts are strongly against the repeal. They also suspect that the decision to cut the standards came directly from the Governor’s office.

TINA and the ACA - Paul Krugman -- Lucy just snatched the football away, again. Republicans assured us that this year they really would, seriously, roll out their alternative to Obamacare. Or, maybe, not.  But I have the sense that some political analysts still don’t understand why the GOP keeps sheering away from proposing an alternative. It’s not because Republican leaders are cowards. It’s not because there are sharp divisions within the party about the shape of their plan. The reason Republicans haven’t offered an alternative is because there is no alternative. Specifically, if you want to propose some other, less-intrusive system that won’t cause 10 or 15 or 20 million people to lose health insurance, it can’t be done. The Affordable Care Act looks the way it does because it has to. My sense is that even reformocons, who imagine themselves more open-minded than the party’s base, still don’t get that. But the logic has been clear from the beginning. Start with a goal almost everyone at least pretends to support: making coverage available to people with preexisting conditions. How can you do that? Well, unless you simply want to provide government insurance, you have to prohibit discrimination based on medical history by private insurers: guaranteed issue and community rating.  But just doing that isn’t enough, because community rating on its own means that people don’t sign up until they get sick, and you have a very poor risk pool. So you have to include an individual mandate, requiring that everyone get coverage. Note, by the way, that the individual mandate is essential in a way the employer mandate isn’t. Yet you can’t have an individual mandate without some way of making insurance affordable for lower-income families. So the mandate has to be backed by means-tested subsidies.

Feds tighten when people can enroll in Obamacare plans: Bowing to pressure from insurers, federal officials on Tuesday tightened the conditions under which people can sign up for plans on the exchange outside open enrollment. The move by the Centers for Medicare and Medicaid Services comes after complaints by health insurers that it was too easy for people to wait until they were sick to sign up and to drop coverage after they got treatment. Earlier Tuesday, UnitedHealth announced a 19% drop in profit and downgraded its earnings forecast citing concerns about its Obamacare enrollment and the flexibility people had to change insurance plans. CMS announced it would eliminate six more "special enrollment period" categories, a month after dropping the one that allowed people to enroll late if they became surprised by the penalty they face for not having insurance at tax time. This year, special periods will not be allowed for people, including non-citizens who had errors in their premium tax credits and others who weren't aware of mistakes or eligibility. . The state and federal exchanges have to work well for consumers, but they also "must be attractive for insurance companies that offer plans on it," said CEO Kevin Counihan in a blog post late Tuesday. CMS also issued guidance to clarify just who is eligible to sign up during special enrollment periods, which Counihan said is designed to prevent abuse.

Bernie Sanders Releases Health Plan And It's Even More Ambitious Than You Thought: Bernie Sanders on Sunday released his plan to reform the American health insurance system -- or, more accurately, to reinvent it from scratch. It's a plan to create a single-payer health care system, which means the government would provide everybody with insurance directly. Sanders is calling it "Medicare for All," because Medicare, which provides government-financed insurance to the elderly, is the closest thing to a single-payer system in the U.S. But that term actually understates the ambition of what he is proposing. Sanders wouldn’t just replace existing private insurance plans. He would also replace existing public plans -- including Medicaid, the Children’s Health Insurance Plan and the private plans available through the Affordable Care Act. He'd even upgrade the coverage that Medicare provides. To pay for this plan, Sanders would replace existing insurance premiums with taxes and put a huge squeeze on the drug industry -- the kind that would be extremely difficult to push through the political system. And while Obamacare has produced a historic decline in the number of uninsured Americans, the Sanders plan would reach many, if not most, of the remaining uninsured (roughly 10 percent of the population, according to recent estimates) through automatic enrollment. “Universal health care is an idea that has been supported in the United States by Democratic presidents going back to Franklin Roosevelt and Harry Truman,” Sanders said. “It is time for our country to join every other major industrialized nation on earth and guarantee health care to all citizens as a right, not a privilege.”

Paul Krugman, Bernie Sanders, and Medicare for All – Dean Baker 0 Paul Krugman weighs in this morning on the debate between Bernie Sanders and Hillary Clinton as to whether we should be trying to get universal Medicare or whether the best route forward is to try to extend and improve the Affordable Care Act. Krugman comes down clearly on the side of Hillary Clinton, arguing that it is implausible that we could get the sort of political force necessary to implement a universal Medicare system. Getting universal Medicare would require overcoming opposition not only from insurers and drug companies, but doctors and hospital administrators, both of whom are paid at levels two to three times higher than their counterparts in other wealthy countries. There would also be opposition from a massive web of health-related industries, including everything from manufacturers of medical equipment and diagnostic tools to pharmacy benefit managers who survive by intermediating between insurers and drug companies. Krugman is largely right, but I would make two major qualifications to his argument. The first is that it is necessary to keep reminding the public that we are getting ripped off by the health care industry in order to make any progress at all. The lobbyists for the industry are always there. Money is at stake if they can get higher prices for their drugs, larger compensation packages for doctors or hospitals, or weaker regulation on insurers. The public doesn’t have lobbyists to work the other side. The best we can hope is that groups that have a general interest in lower health care costs, like AARP, labor unions, and various consumer groups can put some pressure on politicians to counter the industry groups. In this context, Bernie Sanders’ push for universal Medicare can play an important role in energizing the public and keeping the pressure on.

The Single Payer Plan to Save Healthcare in the US --What I do not see on AB is Bernie’s Plan. Take a moment and read what his plan is before you comment. If you read the plan, you will see Bernie subsidizes the expansion of single payer based on taxes on all households, separate taxes on the rich in income and also capital, the elimination of tax subsidies to healthcare companies, taxes on inheritance, the elimination of the income subsidy to people for ESI (this is also a tax break for companies), etc. Other than a few sentences on the issue, Bernie does not address how he is going to control rising healthcare costs (other than eliminate healthcare insurance which is not the cost driver). He does not address it in his “How Much Will It Cost and How Do We Pay For It?.” Ezra Klein comments on the reality of Bernie’s plan “individuals will have to fight with the government rather than private insurers when their claims are denied”. Ezra adds; “But the implication to most people, I think, is that claim denials will be a thing of the past — a statement that belies the fights patients have every day with public insurers like Medicare and Medicaid, to say nothing of the fights that go on in the Canadian, German, or British health-care systems.What makes that so irresponsible is that it stands in flagrant contradiction to the way single-payer plans actually work — and the way Sanders’s plan will have to work if its numbers are going to add up.” Bernie tells you how much healthcare costs today, how much it will cost in the future, and what the price tag will be in taxes, etc. Bernie superficially glances at what also needs to be done in one paragraph of a couple of sentences and never really touches upon the real issue of rising healthcare costs.

Nurses Applaud New Sanders Plan for Healthcare for All -- National Nurses United today enthusiastically welcomed Sen. Bernie Sanders’ new plan for achieving the dream of countless Americans for nearly a century – healthcare coverage for everyone. Sanders’ plan also aligns with the official position of the AFL-CIO, which has endorsed single payer health care, Medicare for all – most recently again last July when the AFL-CIO specifically endorsed single payer as part of its national Raising Wages campaign, noted NNU Executive Director RoseAnn DeMoro, a national vice president of the AFL-CIO. “Finally, a real plan from a leading Presidential candidate that will guarantee healthcare for every American, just as every other major nation has done,” DeMoro said. “This is a plan that will end the long nightmare facing the nation’s uninsured, and those having to choose between getting the care they need or putting food on the table for their families. And it protects our most precious gift, our health,” DeMoro said. “By eradicating the crisis of the 29 million who are still uninsured, and the tens of millions more facing medical debt, even with the gains made under the Affordable Care Act, this plan would cut health care costs, put money back in consumers’ pockets, create jobs, and address a major cause of income inequality, un-payable medical bills.” “Instead of being held hostage to a corporate system based on profits and price gouging, with Sanders’ Medicare for all plan we can finally have a system based on patient need, with a single standard of quality care for all, regardless of ability to pay, race, gender, age, or where you live. That’s a beautiful thing,” DeMoro said.

Are Americans Willing to Hear “No” on Health Care? - For months now I have been saying that Bernie Sanders needed to release a plan on how single payer health insurance would work. Especially among Democrats, single payer is popular. But in order to know if we’re really ready for that kind of change, we need more specifics.  Just prior to last night’s debate, Sanders released a plan. We can now see how he proposes to shift away from the current mix of health care funding to a single payer system. As part of the document, he identifies the taxes he would implement as an alternative.  But Sanders also says this about cost savings:  Other industrialized nations are making the morally principled and financially responsible decision to provide universal health care to all of their people—and they do so while saving money by keeping people healthier. Those who say this goal is unachievable are selling the American people short.   It has always been an assumption that single payer would be cheaper than our current system because of lower administrative costs. But here is a quote Ezra Klein got about the actual numbers in the Sanders plan.  “They assumed $10 trillion in health-care savings over ten years,” says Larry Levitt, vice president at the Kaiser Family Foundation. “That’s tremendously aggressive cost containment, even after you take the administrative savings into account.” Both Klein and Paul Krugman point out that, if we want to capture the cost savings that Sanders refers to, Americans will have to get used to hearing “no” when it comes to health care. Here’s Krugman: Now, it’s true that single-payer systems in other advanced countries are much cheaper than our health care system. And some of that could be replicated via lower administrative costs and the generally lower prices Medicare pays. But to get costs down to, say, Canadian levels, we’d need to do what they do: say no to patients, telling them that they can’t always have the treatment they want.

Why creating single-payer health care in America is so hard - The Hillary Clinton campaign is taking some hard knocks from liberals over its maladroit attacks on Bernie Sanders’ single-payer proposal. In one sense, the knocks are well-deserved. Even if single-payer markedly lowers medical expenditures, proponents such as Larry Seidman estimate that a tax increase of at least 8 percent of GDP would likely be required to finance it. That’s a heavy political lift. It’s about as much as the entire federal income tax on individuals.Yet as proponents rightly observe, these taxes would replace many visible and invisible ways we now provide to support a health sector that consume more than 17 percent of our economy. The experience of peer industrial democracies suggests that a well-designed single-payer system would be more humane and markedly less expensive than what we have right now. Such a system would certainly be less convoluted and bureaucratically hidebound. Aggressively deploying government power to rein in prices, a well-designed single-payer system would be more fiscally disciplined, and would probably be more effective in targeting resources to best promote public health. Sanders deserves credit for noting the real virtues of a well-executed single-payer system. In another way, though, the Clintons’ critique raises uncomfortable questions that deserve greater attention. It’s commonplace (though true) to note that single-payer is beyond the current boundaries of American politics. But what if, by some miracle, liberal Democrats won comprehensive victories that created a window of opportunity in which single-payer becomes realistically possible?

UnitedHealth expects to lose nearly $1 billion on Obamacare - UnitedHealth expects to lose nearly $1 billion on Obamacare policies, the nation's largest insurer said Tuesday. UnitedHealth (UNH), which is weighing an exit from the Obamacare exchanges, reported it lost about $475 million on Obamacare-compliant plans in 2015 and expects to lose more than $500 million this year. The insurer, the parent company of United Healthcare, ended last year with about 500,000 enrollees in Obamacare exchange plans. It expects that number to grow towards 800,000 during the 2016 open enrollment period, which ends Jan. 31, before dropping again as some members get jobs, stop paying premiums or find insurance elsewhere. (Also in 2015, it had about 150,000 enrollees who signed up outside the exchanges for individual policies that are compliant with Obamacare.)   UnitedHealth, which sat out the first year of Obamacare in 2014, said it is not looking to grow its exchange business. Instead, it has increased prices, eliminated marketing and commissions and withdrawn its top-tier products. In an effort to stem the losses, it is also working more closely with providers and enrollees to manage their illnesses and care. UnitedHealth warned in November that it might pull out of the Obamacare exchanges altogether in 2017, citing higher-than-expected claims. In particular, it blamed the large number of members signing up outside the open enrollment period who were using a lot of medical services.

Not Going to Take it Anymore – Doctors in the Pacific Northwest Unionize -- We have posted about the plight of the corporate physician.  In the US, home of the most commercialized health care system among developed countries, physicians increasingly practice as employees of large organizations, usually hospitals and hospital systems, sometimes for-profit.  The leaders of such systems meanwhile are now often generic managers, people trained as managers without specific training or experience in medicine or health care, and “managerialists” who apply generic management theory and dogma to medicine and health care just as it might be applied to building widgets or selling soap. We have also frequently posted about what we have called generic management, the manager’s coup d’etat, and mission-hostile management.
Managerialism wraps these concepts up into a single package.  The idea is that all organizations, including health care organizations, ought to be run people with generic management training and background, not necessarily by people with specific backgrounds or training in the organizations’ areas of operation.  Thus, for example, hospitals ought to be run by MBAs, not doctors, nurses, or public health experts

How Corporations and Politicians Lie With Numbers — and How Not to Be Fooled -- Americans, as P.T. Barnum once noted, are not all that difficult to fool, and our nation’s somewhat weak math skills don’t help. A Pew Research Center report issued last year, which studied test results of 15-year-olds, ranked the United States 35th in the world in math. Not only has this weakness in understanding numbers created opportunities for mass exploitation by Big Pharma and other industries, it has led to needless and mostly unwarranted fear. While Americans don’t understand math, be assured that corporations do, and they happily use it to mislead and obfuscate in the name of selling their products.The pharmaceutical business, no surprise, is a big numbers abuser. How many advertisements have we seen touting the wonders of a particular drug? “Lowers risk of heart attack by 50 percent!” Well, yes it does lower the risk by half. Dig a little deeper and you discover that your risk of heart attack has dropped from two in a million all the way down to one in a million. That’s a 50 percent drop! Of course, your original two-in-a-million risk wasn’t all that risky, and side effects from the drug might include a few nasty things, but hey, details. This is known as reporting test results in relative, rather than absolute, numbers. Big Pharma is well aware that saying your risk drops from two in a million to one in a million isn’t so remarkable. They also know that using phrases like “50 percent less risk” will fool most of the people most of the time. They can defend themselves by pointing out that they aren’t outright lying, after all. An osteoporosis drug once claimed to reduce hip fractures by the same whopping 50 percent. Again, technically true, and it sounds impressive. Unmentioned was that out of all untreated osteoporosis sufferers, only about two percent are at risk for hip fractures. So the drug reduced the risk of hip fractures from two percent of all osteoporosis victims to one percent of all of them, from two in 100 to one in 100. Doesn’t sound all that fabulous when stated in those terms, especially when taking into account the often higher cost of many of these drugs.

6 Prescription Drugs That Aren’t as Safe as the Government Claims - What stands between Big Pharma's desire for blockbuster drug sales and drug safety? In addition to the FDA, it is often medical journal editors who see, evaluate and publish early research. In fact, the benefits of drugs in the "pipeline" that have not been approved yet are sometimes floated in medical journals to "preposition" the marketing and brand the drug candidate. For example, five years before the recent approval of the drug flibanserin for low female sex drive, the British journal Women's Health published research titled "Flibanserin: a potential treatment for Hypoactive Sexual Desire Disorder in premenopausal women." Just trying to get a jump on things. A quick look at drugs or drug uses that later turned out to be risky shows a disturbing trail of  “bought” science in major medical journals—"support" from the drug company that is actually making the drug is not disclosed.

Drug Overdoses Propel Rise in Mortality Rates of Young Whites -  Drug overdoses are driving up the death rate of young white adults in the United States to levels not seen since the end of the AIDS epidemic more than two decades ago — a turn of fortune that stands in sharp contrast to falling death rates for young blacks, a New York Times analysis of death certificates has found.The rising death rates for those young white adults, ages 25 to 34, make them the first generation since the Vietnam War years of the mid-1960s to experience higher death rates in early adulthood than the generation that preceded it.The Times analyzed nearly 60 million death certificates collected by the Centers for Disease Control and Prevention from 1990 to 2014. It found death rates for non-Hispanic whites either rising or flattening for all the adult age groups under 65 — a trend that was particularly pronounced in women — even as medical advances sharply reduce deaths from traditional killers like heart disease. Death rates for blacks and most Hispanic groups continued to fall.The analysis shows that the rise in white mortality extends well beyond the 45- to 54-year-old age group documented by a pair of Princeton economists in a research paper that startled policy makers and politicians two months ago.While the death rate among young whites rose for every age group over the five years before 2014, it rose faster by any measure for the less educated, by 23 percent for those without a high school education, compared with only 4 percent for those with a college degree or more.The drug overdose numbers were stark. In 2014, the overdose death rate for whites ages 25 to 34 was five times its level in 1999, and the rate for 35- to 44-year-old whites tripled during that period. The numbers cover both illegal and prescription drugs.

Dozens Feared Exposed as Sierra Leone Confirms New Ebola Death - — A woman who died of Ebola this week in Sierra Leone potentially exposed dozens of other people to the disease, according to an aid agency report on Friday, raising the risk of more cases just as the deadliest outbreak on record appeared to be ending.Just a day earlier, the World Health Organization (WHO) had declared that "all known chains of transmission have been stopped in West Africa" after Liberia joined Sierra Leone and Guinea in going six weeks with no reported new cases. The three countries had borne the brunt of a two-year epidemic that killed more than 11,300 people.The WHO warned of the potential for more flare-ups, as survivors can carry the virus for months. But the new case in Sierra Leone is especially disquieting because authorities failed to follow basic health protocols, according to the report seen by Reuters.Compiled by a humanitarian agency that asked not to be named, the document said the victim, Mariatu Jalloh, had come into contact with at least 27 people, including 22 in the house where she died and five who were involved in washing her corpse. But its account suggested others could also be at risk. Jalloh, 22, began showing symptoms at the beginning of the year, though the exact date is unknown, the report states. A student in Port Loko, the largest town in Sierra Leone's Northern Province, she traveled to Bamoi Luma near the border with Guinea in late December.

Zika virus may infect up to 700,000 people in Colombia: government | Reuters: The mosquito-borne Zika virus has already infected more than 13,500 people in Colombia and could hit as many as 700,000, the health minister said on Wednesday. According to Pan-American Health Organization figures, the country is second only to Brazil in infection rates, health minister Alejandro Gaviria told journalists. "We expect an expansion similar to what we had with the chikungunya virus last year, to finish with between 600,000 to 700,000 cases," Gaviria said. Some 560 pregnant women are among those infected, the minister said, though so far no cases of newborns suffering from microcephaly, a congenital defect caused by zika, have been registered in the country. The government is advising Colombian women to delay becoming pregnant for six to eight months in a bid to avoid potential infection. The U.S. Center for Disease Control and Prevention last week warned pregnant women to avoid travel to 14 countries, including Colombia, and territories in the Caribbean and Latin America affected by the virus.

Zika virus: El Salvador urges women not to get pregnant until 2018 in order to avoid birth defects  - El Salvador has urged women to avoid getting pregnant until 2018 to avoid their children developing birth defects from the mosquito-borne Zika virus which has rampaged through the Americas. The Zika virus is transmitted by the Aedes aegypti mosquito, which is also known to carry the dengue, yellow fever and Chikungunya viruses. Health experts are unsure why the virus, which was first detected in Africa in 1947 but unknown in the Americas until last year, is spreading so rapidly in Brazil and neighboring countries. Reuters said that although research is still underway, significant evidence in Brazil has suggested a link between Zika infections and rising cases of microcephaly, a neurological disorder in which infants are born with smaller craniums and brains.On Thursday, El Salvador’s Deputy Health Minister, Eduardo Espinoza, said 5,397 cases of the Zika virus had been detected in the country in 2015 and the first few days of this year. “We’d like to suggest to all the women of fertile age that they take steps to plan their pregnancies, and avoid getting pregnant between this year and next,” he said. Official figures show 96 pregnant women are suspected of having contracted the virus, but so far none have had babies born with microcephaly.

It’s The Beginning Of The End For Meat Raised With Antibiotics -- On the heels of news from the U.S. Food and Drug Administration that sales of antibiotics for livestock rose 23 percent in recent years, the agriculture industry is bracing for regulators to set what are expected to be much stricter regulations for their usage by the end of 2016. At the same time, major food companies like McDonald’s and Subway are pledging to stop serving meat raised with antibiotics, applying additional pressure for the industry to turn away from a practice that many scientists believe presents a major health risk.  Specifically, a growing number of researchers has linked the excessive use of antibiotics in livestock with fueling drug resistance in humans, putting the population at risk of falling victim to “superbug” bacterial mutations. Some have warned increased resistance means humanity is nearing a "post-antibiotic era." Alarm around antibiotic use in livestock, however, is nothing new -- even if it’s taken several decades for the issue to go mainstream. In 1976, Dr. Stuart Levy, director of Tuft University’s Center for Adaptation Genetics and Drug Resistance, published the results of his and his colleagues’ study to determine what impact the addition of antibiotics to the feed of a farm’s chickens would have on both the chickens themselves, but also in the farm workers who were in contact with them. The results, published in the New England Journal of Medicine, “shocked people,” Levy recently told The Huffington Post. The chickens, just a week after being given feed supplemented with tetracycline, developed tetracycline-resistant bacteria, as did the farm workers who were caring for them.

Ruffling Feathers: Farmers reveal secrets of chicken meat trade in America - RT video - Chicken farms in the US are notoriously hard to access if you're not involved in the industry. But one American farmer, contracted to a meat processing company, has thrown open the barn doors. He claims firms routinely mislead customers about the conditions the birds are reared in and their health. Maria Finoshina went to meet him.

Saudi Arabia Is Buying Up American Farmland To Export Agricultural Products Back Home -- Just what we need, cornfield crucifixions. Seriously though, this is very troubling. The Saudis are explicitly conserving their own resources at home, while exploiting land and water supplies here in America. CNBC reports: Saudi Arabia and other Persian Gulf countries are scooping up farmland in drought-afflicted regions of the U.S. Southwest, and that has some people in California and Arizona seeing red. Saudi Arabia grows alfalfa hay in both states for shipment back to its domestic dairy herds. In another real-life example of the world’s interconnected economy, the Saudis increasingly look to produce animal feed overseas in order to save water in their own territory, most of which is desert. Privately held Fondomonte California on Sunday announced that it bought 1,790 acres of farmland in Blythe, California — an agricultural town along the Colorado River — for nearly $32 million. Two years ago, Fondomont’s parent company, Saudi food giant Almarai, purchased another 10,000 acres of farmland about 50 miles away in Vicksburg, Arizona, for around $48 million. But not everyone likes the trend. The alfalfa exports are tantamount to “exporting water,” because in Saudi Arabia, “they have decided that it’s better to bring feed in rather than to empty their water reserves,” said Keith Murfield, CEO of United Dairymen of Arizona, a Tempe-based dairy cooperative whose members also buy alfalfa. “This will continue unless there’s regulations put on it.”  Recall, this is precisely the type of investment Michael Burry of “Big Short” fame recently said he was involved in. In a statement announcing the California farmland purchase, the Saudi company said the deal “forms part of Almarai’s continuous efforts to improve and secure its supply of the highest quality alfalfa hay from outside the (Kingdom of Saudi Arabia) to support its dairy business. It is also in line with the Saudi government direction toward conserving local resources.”

Apple May Be Using Congo Cobalt Mined by Children, Amnesty Says - Chinese companies that buy cobalt from the Democratic Republic of Congo and supply mobile-phone and laptop makers such as Apple Inc. and Samsung Electronics Co. aren’t fully checking their suppliers and may be acquiring the mineral from mines that rely on child labor, Amnesty International said. Congo, the world’s biggest cobalt producer, mined an estimated 67,735 metric tons of the material last year. While the majority was from industrial operations, as much as 20 percent may come from artisanal mines in the southeastern Katanga region, where adults and children work in dangerous conditions, Amnesty and African Resources Watch, a Congolese non-governmental organization, said Tuesday in a report. Amnesty said Apple didn’t directly answer its questions about purchasing components containing cobalt processed by the main Chinese supplier. The company is evaluating “dozens of different materials, including cobalt, in order to identify labor and environmental risks as well as opportunities for Apple to bring about effective, scalable and sustainable change,” it told Amnesty. Samsung Electronics directed requests for comment to Samsung SDI Co., its battery supplier. SDI, told Amnesty it doesn’t do direct business with the major Chinese suppliers mentioned in the report and that they aren’t in its supply chain. Samsung acknowledged it is supplied by another company identified by Amnesty’s researchers, but said it was “impossible” to determine if the cobalt it receives comes from the Katanga mines, according to Amnesty.

'Blood And Earth' Shows How Two Modern Evils Are Linked: Slavery And Environmental Degradation A 2014 report by the United Nations estimates that tens of millions of people in the world are currently enslaved. Most of them are in the developing world, where they work in mines, quarries or shrimp farms for no money and without hope of escape."Slavery is the complete control of one person by another, and violence is used to maintain that control in all forms of slavery," author Kevin Bales explains to Fresh Air's Dave Davies. "The adults in that situation know that if they attempt to leave, they may be killed." Bales is the co-founder and former president of the organization Free the Slaves. His new book, Blood and Earth, chronicles the lives of people living in bondage and the environmental devastation he says the practice of slavery causes. From the mineral mines of eastern Congo to the tidal mangrove forests of Bangladesh and India, Bales says that slavery and environmental degradation are often linked. "Every place I was finding slaves I was finding them in situations in which the local environment ... been destroyed," he says.

The Planet’s Fisheries Are In Even Worse Shape Than We Thought: The world’s oceans have been overfished far more than reported, according to a new study. The report, published in the journal Nature Communications, reanalyzed worldwide catch data and compared it to information that the Food and Agriculture Organization of the United Nations uses. Researchers found that from 1950 to 2010, up to 30 percent more fish — more than 35 billion tons a year — were caught than reported to the agency. Much of this unreported seafood stems from small-scale fisherman, illegal operations and millions of tons of bycatch, or fish accidentally caught and then discarded. In the same time period, global catch rates have fallen nearly three times faster than estimated as the industry struggles to find healthy populations to fish. “You have a situation where we have long ceased to live off the interest,” said Daniel Pauly, a professor at the University of British Columbia. “We now live off the capital.”

There Will Be More Plastic Than Fish in the Ocean by 2050 - There will be more plastic than fish in the ocean by 2050, warned the Ellen MacArthur Foundation in a report published Tuesday. The report, The New Plastics Economy: Rethinking the Future of Plastics, was produced by the foundation and the World Economic Forum with analytical support from McKinsey & Company.  Every year “at least 8 million tons of plastics leak into the ocean—which is equivalent to dumping the contents of one garbage truck into the ocean every minute,” the report finds. “If no action is taken, this is expected to increase to two per minute by 2030 and four per minute by 2050.“In a business-as-usual scenario, the ocean is expected to contain one ton of plastic for every three tons of fish by 2025, and by 2050, more plastics than fish (by weight).” Plastic production has increased 20-fold since 1964, reaching 311 million tons in 2014, the report says. It is expected to double again in the next 20 years and almost quadruple by 2050. New plastics will consume 20 percent of all oil production within 35 years, up from an estimated 5 percent today.  Only 5 percent is properly recycled, while 40 percent is sent to a landfill and a third ends up in the environment, including in the world’s oceans. Much of the rest is burned, which generates energy, The Guardian noted, but also causes “more fossil fuels to be consumed in order to make new plastic bags, cups, tubs and consumer devices demanded by the economy.”

By 2050, there will be more plastic than fish in the world’s oceans, study says - There is a lot of plastic in the world’s oceans. It coagulates into great floating “garbage patches” that cover large swaths of the Pacific. It washes up on urban beaches and remote islands, tossed about in the waves and transported across incredible distances before arriving, unwanted, back on land. It has wound up in the stomachs of more than half the world’s sea turtles and nearly all of its marine birds, studies say. And if it was bagged up and arranged across all of the world’s shorelines, we could build a veritable plastic barricade between ourselves and the sea. But that quantity pales in comparison with the amount that the World Economic Forum expects will be floating into the oceans by the middle of the century. If we keep producing (and failing to properly dispose of) plastics at predicted rates, plastics in the ocean will outweigh fish pound for pound in 2050, the nonprofit foundation said in a report Tuesday. According to the report, worldwide use of plastic has increased 20-fold in the past 50 years, and it is expected to double again in the next 20 years. By 2050, we’ll be making more than three times as much plastic stuff as we did in 2014.  About a third of all plastics produced escape collection systems, only to wind up floating in the sea or the stomach of some unsuspecting bird. That amounts to about 8 million metric tons a year — or, as Jenna Jambeck of the University of Georgia put it to The Washington Post in February, “Five bags filled with plastic for every foot of coastline in the world.”

Excess amount of lead found in water in Youngstown-area community - Excessive levels of lead have been found in the water in a Youngstown-area community. The Sebring school district in western Mahoning County, just east of Alliance, canceled classes Friday and Sebring village leaders said children and pregnant women should not drink water from its system after tests found lead levels that exceed federal standards. WFMJ-TV in Youngstown reports Sebring village manager Richard Giroux issued an alert Thursday night after tests found lead levels of 21 parts per billion at seven homes. The U.S. Environmental Protection Agency requires alerts to water customers when lead levels exceed 15 parts per billion.  At least 10,000 Cleveland-area children over the past five years have been poisoned in their homes by exposure to lead. Even at low levels, lead poisoning in young children diminishes intelligence, reduces reading and math test scores, causes lifelong health problems, and increases the likelihood of arrest for violent crime.The Sebring school district canceled classes on Friday for its 650 students.Sebring Water Superintendent Jim Bates told WKBN-TV in Youngstown tests of the water were conducted in August and September, and the results that recently came back showed lead levels above those recommended by the EPA. "Some of those samples were a little bit too high, but it was not a violation. It was higher than they'd like to see it," he said.

Federal Emergency Is Declared in Flint Over Contaminated Water -  President Obama signed an emergency declaration on Saturday for Flint, Mich., that clears the way for federal aid for the city, which is struggling with a drinking water crisis.The White House issued a release calling for the Federal Emergency Management Agency to coordinate all disaster relief efforts to “alleviate the hardship and suffering” on residents. Flint switched water supplies in 2014, and the corrosive water from the Flint River leached lead from old pipes. FEMA has been authorized to provide water, filters, cartridges and other items for 90 days. Direct federal funding also will be made available.Gov. Rick Snyder requested the declaration late Thursday, saying needs “far exceed the state’s capability,” and emergency measures could cost $41 million. His letter to Mr. Obama painted a bleak picture of the troubled city, describing Flint as an “impoverished area” that has been overwhelmed by the release of lead from old pipes. The tap water in Flint, population 99,000, became contaminated after the city switched its water supply to the Flint River from the Detroit water system while a pipeline to Lake Huron is under construction. The corrosive water lacked adequate treatment and caused lead to leach from old pipes in homes and schools. Flint returned to the Detroit system in October after elevated lead levels were discovered in children, and could tap into the new pipeline by summer. But officials remain concerned that damaged pipes could continue to leach lead, exposure to which can cause behavioral problems and learning disabilities in children, and kidney ailments in adults.

The EPA's Hush-Hush Response to the Flint Water Crisis - Officials with the U.S. Environmental Protection Agency (EPA) for months knew about the poisoning of the Flint water supply and, rather than raise alarm and stop residents from drinking the lead-tainted water, took a backseat on the matter.The Detroit News reported late Tuesday that federal officials began making inquiries in February and the region's top EPA official, Susan Hedman, confirmed to the newspaper this week that as early as April the agency knew about the lack of corrosion controls in the water system.According to the reporting:An EPA water expert, Miguel Del Toral, identified potential problems with Flint’s drinking water in February, confirmed the suspicions in April and summarized the looming problem in a June internal memo. The state decided in October to change Flint’s drinking water source from the corrosive Flint River back to the Detroit water system. Critics have charged Hedman with attempting to keep the memo’s information in-house and downplaying its significance. Federal officials for months engaged in a bureaucratic, behind-the-scenes "battle" with Michigan’s Department of Environmental Quality (DEQ) "over whether Flint needed to use chemical treatments to keep lead lines and plumbing connections from leaching into drinking water," the paper reports. Hedman argued that it was not the "role" of the federal agency to regulate local water operations. All the while, residents of the poor, largely African American community blindly continued to drink the poisoned water. In September, researchers at nearby Hurley Children's Hospital discovered that children living in two Flint zip codes had elevated levels of lead in their blood.

Sanders calls for Michigan gov to resign over water crisis | TheHill: Sen. Bernie Sanders (I-Vt.) on Saturday called for Michigan Gov. Rick Snyder (R) to resign over his handling of the crisis in Flint, Mich., over lead in the water supply. “There are no excuses,” the Democratic presidential candidate said in a statement. “The governor long ago knew about the lead in Flint's water. He did nothing. As a result, hundreds of children were poisoned. Thousands may have been exposed to potential brain damage from lead. Gov. Snyder should resign.” Pressure has been building on Snyder over his handling of the situation. State officials have acknowledged that they did not respond quickly enough to complaints of lead contamination in the water supply, stemming from a decision almost two years ago to change the source of tap water. “Because of the conduct by Gov. Snyder's administration and his refusal to take responsibility, families will suffer from lead poisoning for the rest of their lives,” Sander said. “Children in Flint will be plagued with brain damage and other health problems. The people of Flint deserve more than an apology.” Snyder on Friday asked President Obama to declare a federal disaster, and the National Guard is now assisting in distributing bottled water in the city.

Michael Moore: 10 People in Flint Have Now Been Killed by These Premeditated Actions of the Governor of Michigan - Dear President Obama,  I am writing this to you from the place where I was born—Flint, Michigan. Please consider this personal appeal from me and the 102,000 citizens of the city of Flint who have been poisoned—not by a mistake, not by a natural disaster, but by a governor and his administration who, to “cut costs,” took over the city of Flint from its duly elected leaders, unhooked the city from its fresh water supply of Lake Huron and then made the people drink the toxic water from the Flint River.  This week it was revealed that at least 10 people in Flint have now been killed by these premeditated actions of the Governor of Michigan. This governor, Rick Snyder, nullified the democratic election of this mostly African-American city—where 41 percent of the people live below the “official” poverty line—and replaced the elected Mayor and city council with a crony who was instructed to take all his orders from the governor’s office.  One of those orders from the state of Michigan was this: “It costs too much money to supply Flint with clean drinking water from Lake Huron (the 3rd largest body of fresh water in the world). We can save a lot of money doing this differently. So unhook the city from that source and let them drink the water known as ‘General Motors’ Sewer’—the Flint River.”  And, as if things couldn’t get any worse, the news of 87 people with Legionnaires Disease happened this week. Ten Flint residents have been killed by this disease which is caused by tainted water. Not by gun violence, not in Afghanistan, but by an act of racism and violence perpetrated by the—I’m sorry to say—white, Republican governor of Michigan who knew months ago the water was toxic. All fingers from the doctors and scientists point to the filthy, toxic Flint River as the cause of this Legionnaires Disease outbreak. Ten human souls deceased. In an average year, Flint already had an astounding eight cases (and rarely a death) of people contracting Legionnaires Disease. Since the citizens of Flint were forced to use the water from the Flint River, 87 cases of Legionnaires Disease have happened! And 10 deaths! And the number is expected to rise.

Why Are Flint Residents Being Forced to Pay for Their Toxic Water? -- National advocacy group Food & Water Watch today joined local Flint, Michigan residents calling for a moratorium on water service bills until the water flowing from taps is free of lead and other contaminants. The move is an effort to raise awareness about the alarming shutoff notices Flint residents are facing for non-payment, even as people are not able to drink their tap water or cook with it.  “In 2016, it’s shocking that an entire U.S. city cannot drink its tap water. Now they are shutting off residents for overdue bills. But no one should have to pay for poisoned tap water,” Wenonah Hauter, executive director of Food & Water Watch, said. “Today we’re calling on Mayor Karen Weaver, City Administrator Natasha Henderson and Flint’s Chief Financial Officer Jody Lundquist to stop the water shut offs in Flint; restore service where it has been disconnected, which is necessary for basic sanitation and hygiene; and to cease billing Flint residents for water until this tragic situation has been corrected.” “Skin rashes, hair loss and long-term health consequences that result from copper and lead poisoning are just some of the impacts that Flint residents like me and my family have been dealing with for over a year,” Melissa Mays, Flint resident and founder of Water You Fighting For?, said. “To be told our water was safe to drink when it wasn’t is criminal and to continue to have to pay for it is unconscionable.”

As Water Problems Grew, Officials Belittled Complaints From Flint - — A top aide to Michigan’s governor referred to people raising questions about the quality of Flint’s water as an “anti-everything group.” Other critics were accused of turning complaints about water into a “political football.” And worrisome findings about lead by a concerned pediatrician were dismissed as “data,” in quotes.That view of how the administration of Gov. Rick Snyder initially dealt with the water crisis in the poverty-stricken, black-majority city of Flint emerged from 274 pages of emails, made public by the governor on Wednesday.The correspondence records mounting complaints by the public and elected officials, as well as growing irritation by state officials over the reluctance to accept their assurances.It was not until late in 2015, after months of complaints, that state officials finally conceded what critics had been contending: that Flint was in the midst of a major public health emergency, as tap water pouring into families’ homes contained enough lead to show up in the blood of dozens of people in the city. Even small amounts of lead could cause lasting health and developmental problems in children.

Race, Class, and Social Reproduction in the Urban Present: The Case of the Detroit Water and Sewage System -- In the last decade, especially after the 2008 financial crisis, the urban centers of the Midwest such as Chicago and Detroit, but also in the Northeast, such as Baltimore and Philadelphia, have developed a new dynamic: the use of the state (in the form of local or regional governments) to transfer infrastructural resources and their control out of or away from marginalized urban populations, which are predominantly black, brown, and immigrant.1 These infrastructures range from health and educational resources to natural and civic resources such as water and sewage systems. There has been a tendency to read these battles around infrastructure as just another round of neoliberalism – another example of the “shrinking state.” Such an approach, however, seems unable to grasp how these infrastructural grabs, rather than a consequence of the state shrinking, are in fact a distinct kind of raced and classed resource transfer mobilized and sanctioned by the state. Nowhere is this clearer than in Detroit, where the predominantly white suburbs succeeded under the cover of Detroit’s 2013-14 bankruptcy proceedings to pry the possession of the water and sewage infrastructure away from the city proper. Not only have the mostly African-American residents of the city lost control of these infrastructures, they now have to subsidize the social reproduction of the predominantly white, wealthier Detroit suburbs.

The Flint water crisis and the criminality of American capitalism - In the midst of growing anger over the poisoning of residents of Flint, Michigan and the exposure of criminal actions by state and local authorities, Governor Rick Snyder gave a State of the State address Tuesday night in which he insisted that neither he nor any other top official should be held accountable. The governor’s tone betrayed something of a siege mentality, as more than a thousand protesters marched outside the state capitol building in Lansing, many calling for his resignation and indictment. After hailing record profits for the Michigan-based Big Three auto companies and touting the supposed “turnaround” of Detroit in a year the city emerged from bankruptcy, Snyder came to the subject of the Flint water crisis. The millionaire former corporate executive gave an empty apology to the people of Flint and asserted that it was “now time to tell the truth about what we have done,” promising to release his emails concerning Flint the next day. After the obligatory “the buck stops here” declaration, he evaded any responsibility for decisions that have permanently disabled thousands of Flint residents, including infants and children, and will likely result in an unknown number of early deaths. His effort at cover-up and damage control involved striking a pose of contrition (“The government has failed you”) and acknowledging that various officials had made “mistakes”—meaningless statements that were meant to evade any real accountability.

Finally, We Know Exactly What Led to the Flint Water Crisis: In response to the overdue but increasing amounts of attention being paid to the lead-poisoning crisis in Flint, Michigan governor Rick Snyder has released his emails relating to Flint from 2014 and 2015. Up top is the first email in the pile, sent three months before the city switched from Detroit’s treated Lake Huron water supply to the water from the Flint River. The move was a temporary measure, and was intended to save about $5 million over two years; it has now killed at least 10 people and sickened up to 10,000. Let’s get a closer look at what the rest of this extremely telling email says. Advertisement Sorry, what was that? Sorry, I am a little rusty on that old provincial tongue called The Most Important Email In This Shitpile Has Been Totally Redacted. Show me whatever else you got. Sponsored GREAT! Work your way through these emails if you dare: it’s a nightmarish tangle of local bureaucracy trying and failing to manage a city whose post-industrial depression has left it with no tax base, in which the wild decision to semi-permanently damage public health in the city by switching to a water supply from the notoriously unclean Flint River is laid out in terms like this resolution, signed by the emergency manager on March 29, 2013.

What Snyder Knew: Flint Email Dump Shows Attempts to Shift the Blame - Redacted emails released Wednesday by Michigan Gov. Rick Snyder show that his administration was informed of problems with Flint's water almost a year ago, many months before the embattled governor or his staff begrudgingly admitted to bearing any responsibility for poisoning a city—or for fixing the problem. A background memo sent to the governor on February 1, 2015, "dismissed the pleas of Flint's then-mayor Dayne Walling for state assistance, saying that the mayor had 'seized on public panic … to ask the state for loan forgiveness and more money for infrastructure improvement'," the Guardian reports from Detroit. According to FOX2 Detroit, the email says the governor and Walling "had a telephone conversation and the mayor has pledged to work together on solutions." Furthermore, it adds that Flint Representative Sheldon Neeley had "sent the governor a letter, saying that his constituents are on the verge of civil unrest" due to the water issue.  Also included in the backgrounder were statements from the Michigan Department of Environmental Quality, listing three factors affecting the appearance of water in Flint. CNN reports: "It's the Flint River," it said first. "With hard water, you get a different flavor and feel. It's why General Motors suspended use of Flint Water—it was rusting their parts." "This should have been a red flag," FOX2 points out. "The water was rusting GM's parts—but safe to drink?" In fact, the cost-saving measure of switching the city’s drinking water source from Detroit to the polluted Flint River had for months corroded the inside of pipes in thousands of households across the city, leaching chemicals including lead into the water supply.

EPA official resigns over Flint water crisis - The regional Environmental Protection Agency (EPA) chief responsible for Michigan is resigning amid charges that she did not do enough to prevent the Flint, Mich., drinking water crisis. Susan Hedman, regional administrator for the EPA’s Chicago-based region 5, submitted her resignation Thursday, effective Feb. 1, the EPA said. “EPA Administrator Gina McCarthy has accepted given Susan’s strong interest in ensuring that EPA region 5’s focus remains solely on the restoration of Flint’s drinking water,” an EPA spokeswoman said late Thursday. Hedman told The Detroit News last week that her office knew in April 2015 that Flint’s action to switch its water supply could cause increased pipe corrosion and spiked lead levels. She did not notify the public or take similar action, instead only pushing Michigan officials to fix the problems, the News said.

The lead crisis in Flint will affect the city for years to come -- By now, the story of what’s happening in Flint is well known. The city has been struggling since the decline of its automobile industry. Its financial troubles were severe enough that the city went into state receivership and an emergency manager was appointed by the state of Michigan to fix the budget. One way to lighten Flint’s financial woes was to cease piping water all the way from Detroit and instead source water locally. A water treatment facility that would be used to get water from Lake Huron would not be ready for a couple of years, so as a stopgap measure, the city began piping water from the polluted Flint River. Residents started complaining about the water almost immediately. City authorities waffled—issuing boil orders, telling residents to run their taps for five minutes before using the water, and adding large amounts of chlorine (creating another problem), before finally admitting that the water was undrinkable. Since the switch to Flint River water, the number of children in Flint with blood lead levels over 5 micrograms per deciliter has doubled. In some Flint zip codes, the numbers are even higher. And those are only the children we know about. The number of children who are lead poisoned is likely much higher. Children who have been exposed to lead suffer irreversible learning deficiencies and behavioral problems and the effects of early exposure persist throughout life. Even very low levels of lead contribute to cognitive impairment, including reductions in IQ, verbal, and reading ability, with no identifiable safe bottom threshold. Lead exposure also affects young children’s behavior, leading to a greater propensity to engage in risky behavior and violent or criminal activity later in life.

It’s not just Flint — every major American city has hazardous amounts of lead hurting kids - The story of Flint, Michigan's children being poisoned by lead-contaminated drinking water has, rightly, shocked and scandalized the nation. But while the situation in Flint is certainly an extreme case, the problem is much more widespread than many realize: Children in essentially every city in America are being exposed to hazardous levels of toxic lead, and very little is being done about it.  At the most severe levels, according to the World Health Organization, "lead attacks the brain and central nervous system to cause coma, convulsions, and even death." Thankfully, very little lead poisoning that severe is happening in the United States. But lead's impact on the brain — particularly the developing brains of children and fetuses — is severe and systematic, "resulting in reduced [IQ], behavioral changes such as shortening of attention span and increased antisocial behavior, and reduced educational attainment." At least mild versions of these impacts are felt at even low levels of exposure "that cause no obvious symptoms and that previously were considered safe." The CDC recommends follow-up and intervention for kids who have more than 10 micrograms of lead per deciliter of blood. But this is basically just a nice round number that leads to the happy conclusion that most kids' brains aren't being poisoned by lead. The underlying science offers the much less reassuring conclusion that any amount of lead is harmful and tons of kids are ingesting more lead than they should: Neurological research is demonstrating that lead's effects are even more appalling, more permanent, and appear at far lower levels than we ever thought. For starters, it turns out that childhood lead exposure at nearly any level can seriously and permanently reduce IQ. Blood lead levels are measured in micrograms per deciliter, and levels once believed safe—65 μg/dL, then 25, then 15, then 10—are now known to cause serious damage. The EPA now says flatly that there is "no demonstrated safe concentration of lead in blood," and it turns out that even levels under 10 μg/dL can reduce IQ by as much as seven points. An estimated 2.5 percent of children nationwide have lead levels above 5 μg/dL.

As Flint Struggles With Contaminated Water, Congress Tries To Gut Clean Water Rule -- The latest attempt to do away with a federal water rule that protects millions of miles of streams failed Thursday, as senators couldn’t garner enough votes to override a presidential veto and block the contested Waters of the United States rule. The attempt to veto the rule, which protects bodies of water that provide drinking water for one-third of Americans, comes in the midst of a water contamination crisis in Flint, Michigan. The vote was deeply divided among partisan lines, with 52 senators voting to upheld the veto, eight abstaining and the remaining 40 voting against it. While the vote was close, overriding a veto requires a super-majority. Senate Majority Leader Mitch McConnell (R-KY) filed for the vote, which was considered a long-shot from the start, less than a day after President Obama vetoed a resolution that would have blocked the water rule.  “Too many of our waters have been left vulnerable,” Obama said in a message to Congress. “Pollution from upstream sources ends up in the rivers, lakes, reservoirs, and coastal waters near which most Americans live and on which they depend for their drinking water, recreation, and economic development.” The mandate, often referred to as the Clean Water Rule, was finalized in May after some eight years of design. It aimed to clarify what waters the Environmental Protection Agency can regulate under the Clean Water Act, experts told ThinkProgress. With its unveiling, the rule expanded protection to two million miles of streams and 20 million acres of previously unregulated wetland.

EPA ban on wood stoves is freezing out rural America: It seems that even wood isn’t green or renewable enough anymore. The EPA has recently banned the production and sale of 80% of America’s current wood-burning stoves, the oldest heating method known to mankind and mainstay of rural homes and many of our nation’s poorest residents. The agency’s stringent one-size-fits-all rules apply equally to heavily air-polluted cities and far cleaner plus typically colder off-grid wilderness areas such as large regions of Alaska and the American West. While the EPA’s most recent regulations aren’t altogether new, their impacts will nonetheless be severe. Whereas restrictions had previously banned wood-burning stoves that didn’t limit fine airborne particulate emissions to 15 micrograms per cubic meter (μg/m3) of air, the change will impose a maximum 12 μg/m3 limit. To put this amount in context, the EPA estimates that secondhand tobacco smoke in a closed car can expose a person to 3,000-4,000 μg/m3 of particulates. Most wood stoves that warm cabin and home residents from coast to coast cannot meet that standard. Older stoves that don’t cannot be traded in for updated types, but instead must be rendered inoperable, destroyed, or recycled as scrap metal. The impacts of the EPA ruling will affect many families. According to the U.S. Census Bureau’s 2011 survey statistics, 2.4 million American housing units (12% of all homes) burned wood as their primary heating fuel, compared with 7% that depended upon fuel oil. Local governments in some states have gone even further than the EPA, banning not only the sale of noncompliant stoves, but even their use as fireplaces. As a result, owners face fines for infractions. Puget Sound, Washington, is one such location. Montréal, Canada, proposes to eliminate all fireplaces within its city limits.

2015 wildfires burned a record-breaking 10.1 million acres — The summer of 2015 was unlike anything most career firefighters had ever seen. Across the United States, fires erupted not only in dry woodlands, but also in grasslands, rainforests, and tundra, ignited by lightning strikes and careless campers. Flames dripped from lichen-covered trees in the Pacific Northwest, and in Alaska, ate into permafrost. Two hundred. U.S. military personnel were called in to battle the ferocious blazes across the West — as were Canadians, Australians, and New Zealanders.By year’s end, wildfires would consume more than 10.1 million acres of land in the U.S., destroying 4,500 homes and taking the lives of 13 wildland firefighters. Fighting the blazes cost an unprecedented $2.6 billion, the majority spent in the West. "While the news that more than 10 million acres burned is terrible, it's not shocking, and it is probable that records will continue to be broken,” said Secretary of Agriculture Tom Vilsack in a press release last week. The burned acreage surpasses the 2006 record of 9.9 million acres, which itself was the biggest year documented since modern record keeping began in 1960 (during the 1920s through 1940s, burned acreage averaged 30 million to 50 million acres). Though more than 68,000 fires flared this summer, it was ultimately Alaska that put 2015 into the record books. More than 5.1 million acres burned up north, the state’s second largest fire season after 2004.

Oregon militia's behavior increasingly brazen as public property destroyed -- The militiamen occupying a wildlife refuge in eastern Oregon have adopted increasingly bold and risky tactics in their protest against the federal government, raising questions about how long law enforcement officials can allow the standoff to continue.  Now entering their third week of occupying the Malheur national wildlife refuge in rural Harney County, leaders of the militia appear to be testing the patience of the local sheriff’s department and the FBI by brazenly commandeering and in some cases destroying public property while escalating their anti-government rhetoric.  Community leaders and government officials in Oregon and beyond say they fear there could be major damage at the refuge and elevated safety risks for employees and local residents if the militia continues to stand its ground, seemingly emboldened by the continuing lack of consequences. “For these people to go in and just be destructive, they’re really trying to get a rise out of somebody,” said Charlotte Rodrique, chairwoman of the local Paiute Indian tribe, who has argued that Native Americans have much more of a claim to the public land in question than the out-of-state militiamen running the takeover. “They really want a confrontation.”   On Friday evening, Rodrique said she was horrified to learn that the militia, led by Nevada rancher Ammon Bundy, had paved a road through part of the wildlife sanctuary. That move came days after occupiers destroyed part of a US Fish and Wildlife Service fence, to allow cattle to freely graze on public lands the federal government controls.

Oregon governor calls on feds to act against armed group - (AP) — Oregon's governor said she's frustrated with the way federal authorities are handling an armed group's continued occupation of a national wildlife refuge and it's time to end it.Exasperated by a tense situation that has caused fear among some southeastern Oregon residents since it began Jan. 2, Gov. Kate Brown said at a news conference Wednesday that federal officials "must move quickly to end the occupation and hold all of the wrongdoers accountable." "The residents of Harney County have been overlooked and underserved by federal officials' response thus far. I have conveyed these very grave concerns directly to our leaders at the highest levels of our government: the U.S. Department of Justice and the White House," Brown said. The Democratic governor said the occupation has cost Oregon taxpayers nearly half a million dollars. "We'll be asking federal officials to reimburse the state for these costs," Brown said. Brown spokeswoman Melissa Navas said in an email that number is coming from labor costs for an additional law enforcement presence in the area, including overtime, travel reimbursement, lodging and meals for officers. Federal authorities did not return calls seeking comment.

Forget El Niño: California May Never Get Out of Drought, UC Berkeley Prof Says - It's an El Niño winter, and the news is full of rain, sleet, and snow. If only California was as well.   Precipitation so far in this wet winter that is supposed to save us from the worst drought of our lifetimes is only slightly above "normal"  — and in some parts of California, including the southern Sierra, precipitation is still below normal.  Think about that. The long-awaited wet weather event has, so far, just barely pushed things to around what's supposed to be "normal."  This may be a hard fact to fathom this weekend, as you drive through more rain in order to reach the snowed-in approaches to Lake Tahoe — lucky you; drive safely — but other scientists agree. The four-year drought that's seen reservoirs and groundwater supplies dry up is not over — not unless several more El Niños follow on this one's heels.  In fact, according to one U.C. Berkeley researcher, the state may never recover from the drought.   First, let's take a peek at conditions as of now.That dark red splotch of the worst-possible drought conditions? That's most of us.  As for the dire prediction that very dry may be the new normal, that's from Berkeley professor B. Lynn Ingram, one of the two authors of a book, The West Without Water, which predicts just such a dire, dry future. Ingram thinks that rainfall for the 2015-2016 water year — the rainy period that normally runs from October to April — will be at 170 percent of normal. That's wet — very wet. But that won't make up for the four preceding exceptionally dry years, and it also won't help next year, when some scientists believe a dry La Niña will appear.

Disappearance of Bolivia's No. 2 lake a harbinger -  Overturned fishing skiffs lie abandoned on the shores of what was Bolivia's second-largest lake. Beetles dine on bird carcasses and gulls fight for scraps under a glaring sun in what marshes remain. Lake Poopo was officially declared evaporated last month. Hundreds, if not thousands, of people have lost their livelihoods and gone. High on Bolivia's semi-arid Andean plains at 3,700 meters (more than 12,000 feet) and long subject to climatic whims, the shallow saline lake has essentially dried up before only to rebound to twice the area of Los Angeles. But recovery may no longer be possible, scientists say. "This is a picture of the future of climate change," says Dirk Hoffman, a German glaciologist who studies how rising temperatures from the burning of fossil fuels has accelerated glacial melting in Bolivia. As Andean glaciers disappear so do the sources of Poopo's water. But other factors are in play in the demise of Bolivia's second-largest body of water behind Lake Titicaca. Drought caused by the recurrent El Nino meteorological phenomenon is considered the main driver. Authorities say another factor is the diversion of water from Poopo's tributaries, mostly for mining but also for agriculture. More than 100 families have sold their sheep, llamas and alpaca, set aside their fishing nets and quit the former lakeside village of Untavi over the past three years, draining it of well over half its population. Only the elderly remain. "There's no future here,"  Record-keeping on the lake's history only goes back a century, and there is no good tally of the people displaced by its disappearance. At least 3,250 people have received humanitarian aid, the governor's office says.

Southern Africa's drought leaves millions hungry -- About 14 million people in Southern Africa are facing hunger because of last year's poor harvest, caused by the El Nino weather pattern, the World Food Programme says.  In a statement released on Monday, the WFP, which is the UN's food-assistance branch, gave warning that the number of people without enough food is likely to rise further in 2016, as the drought worsens throughout the region. "Worst affected in the region by last year’s poor rains are Malawi (2.8 million people facing hunger), Madagascar (nearly 1.9 million people) and Zimbabwe (1.5 million) where last year's harvest was reduced by half compared to the previous year because of massive crop failure," the WFP statement said. "In Lesotho, the government last month declared a drought emergency and some 650,000 people - one-third of the population - do not have enough food." The WFP said that food prices across Southern Africa have risen sharply because of the reduced production and availability. Al Jazeera weather presenter Richard Angwin says El Nino, which strictly refers to the surface warming of the eastern and central Pacific Basin, has had a knock-on effect across much of the world.  "It is certainly the strongest since the last major El Nino of 1997-98, and it stands every chance of being the strongest since at least 1950," he said. While this El Nino has brought drier conditions to Southern Africa and wetter ones to East Africa, Ethiopia has also been hit by its worst drought in 30 years. The UN said this week that 400,000 Ethiopian children are suffering from severe acute malnutrition and more than 10 million people need food aid. Save the Children, an international non-governmental organisation, says the drought in Ethiopia represents as big a potential threat to children's lives as the war in Syria.

Africa Is Going Through Serious Drought And El Niño Is Making it Worse - Six of South Africa's nine provinces, including the North West province where the Du Plessis have a farm, have been hit by drought, with three provinces declared disaster areas. El Niño may be reaching its peak but in southern Africa it’s still triggering hunger and loss. An estimated 14 million people face food shortages in more than ten countries, the United Nations World Food Program announced this week. The outlook for the coming months, according to the WFP, is “alarming” since El Niño has exacerbated a crippling drought interrupting the rainy season used for planting much needed crops. The drought is unlikely to improve any time soon, experts reached said, because in southern Africa El Niño events are associated with dry weather. “And this year’s El Niño is among the three strongest events in the past 100 years,” said Bradfield Lyon, a climate analyst and associate research professor at the University of Maine.El Niño occurs when ocean temperatures across the equatorial Pacific are abnormally warm, driving extreme weather events globally. More than 40 million rural and 9 million urban people in southern Africa live in geographic zones that are highly exposed to the fallout from El Niño, according to WFP food security assessments. Lyon explained that when rainfall is lacking, soils tend to dry out, which increases the chances of heat waves developing, further exacerbating the drought conditions already in place. “That is very likely happening this year,” he told ThinkProgress.The drought has led to reduced water availability, delayed planting, permanently wilted corps, and livestock mortality, according to the National Oceanic and Atmospheric Administration. “We see some areas recording less than ten days of rainfall (from) November to present,”

Drought, famine, and starvation -- brought to you by climate change -- Policymakers on Capitol Hill got a dire warning that climate change threatens food production, safety and affordability. That stark message came in a briefing by the American Meteorological Society to congressional staff members, climate scientists and federal regulators that linked climate change to a host of troubling scenarios involving worldwide food availability. Wednesday's briefing drew on a peer-reviewed study by the U.S. Department of Agriculture released during the Paris Climate Conference last month. That report, "Climate Change, Global Food Security and the U.S. Food System," concluded that the effects of climate change on food will strike urban and rural populations in wealthy and poor nations alike. While the threat depends on many factors, its impact will increase by mid-century, according to the report. Under the least-optimistic scenario––based on high carbon emissions and low international cooperation to combat climate change––agricultural yields could fall by as much as 15 percent, and food prices could rise more than 30 percent by 2050. Widespread drought caused by climate change could decrease crop production, . At the same time, sea level rise could impact cargo ships' access to docks for importing and exporting food. "There are many, complex factors that have to be considered when assessing the threat to food security,"

Flooded Cities -- During the past couple of months alone, floods have displaced 100,000 people or more in Kenya, in Paraguay and Uruguay, and in India, as well as more than 50,000 people in the UK. And rising sea levels due to climate change loom. This column assesses the risk and the challenges for policymakers. It details the effects of flooding in cities around the world, showing that economic activity is concentrated in low-elevation urban areas, despite their much greater exposure to flooding. And worryingly, economic activity tends to return to flood-prone low-lying areas rather than relocating.

Bill McKibben, The Real Zombie Apocalypse - -- Here we are just a couple of weeks into 2016 and we already know that last year was the second-warmest on record in the continental United States (the winner so far being 2012); the month of December was a U.S. record-breaker for heat and also precipitation; and it’s assumed that, when the final figures come in later this month, 2015 will prove to be the hottest year on record globally. Even before this news is confirmed, we know that 14 of the 15 warmest years on record have occurred in the twenty-first century which, at least to me, looks ominously like a pattern. And early expectations are that this year will top last, with the help of a continuing monster El Niño event in the overheating waters of the Pacific that has only added to the impact of global warming and to fierce weather around the world. Everywhere it seems increasingly possible to see the signs of climate change: the melting Arctic; the destabilizing ice sheets in both the Antarctic and Greenland; the already rising sea levels that are someday destined to submerge major coastal cities; the disappearing glaciers (and so, in some regions, endangered water supplies); monster typhoons; severe droughts; and the burning that goes with a globally expanding fire season; the -- in a word -- extremity of it all. When I was a kid, I was creepily fascinated by the wrongheaded idea, current in my grade school, that your hair and your fingernails kept growing after you died. The lesson seemed to be that it was hard to kill something off -- if it wanted to keep going. Something similar is happening right now with the fossil fuel industry. Even as the global warming crisis makes it clear that coal, natural gas, and oil are yesterday’s energy, the momentum of two centuries of fossil fuel development means new projects keep emerging in a zombie-like fashion.

Global Temperatures Set Record for Second Straight Year - WSJ: Federal climate experts announced Wednesday that 2015 was the warmest year world-wide since reliable global record-keeping began in 1880, easily surpassing a record set in 2014. If official predictions for the year ahead prove true, the average global temperature in 2016 also will rise to record levels, driven by one of the strongest El Niño currents in modern times. The National Oceanic and Atmospheric Administration and the National Aeronautics and Space Administration, which announced their finding at a news conference Wednesday, independently track temperature world-wide and, using slightly different analytical methods, calculate annual climate trends to guide government policy makers. By their scientific reckoning, the thermostat of Earth is inexorably warming, in response to rising concentrations of carbon dioxide, methane and soot, and to land-use changes. During 2015, the average temperature across global land and ocean surfaces was 1.62 degrees Fahrenheit (0.90° Celsius) above the 20th-century average, NOAA officials said. This was the highest among all 136 years in the 1880–2015 record, surpassing the previous record set last year by 0.29°F (0.16°C) and marking the fourth time a global temperature record has been set this century, they said. The U.K.’s Met Office, which also tracks global temperature trends, recently concluded that the years 2011 through 2015 were the warmest five-year period in the record.

We Just Lived In The Hottest Year On Record – Romm -  NOAA and NASA have announced that 2015 was by far the hottest year on record globally. In fact, NOAA reports that “2015 is Earth’s warmest year by widest margin on record.” 2015 set the record for setting records! While global temperature records are normally measured in hundredths of degrees Fahrenheit, NOAA reports 2015 crushed the previous record just set in 2014 by nearly three tenths of a degree, or 0.29°F (0.16°C) above the previous record, which was set in 2014.  Last month was not just the hottest December on record, blowing out the previous record (set in 2014) by a staggering half degree — 0.52°F (0.29°C). NOAA reports “The December temperature departure from average was also the highest departure among all months in the historical record and the first time a monthly departure has reached +2°F from the 20th century average.” The NOAA and NASA findings are consistent with other key global surface temperature datasets. For instance, Berkeley Earth — originally funded in part by deniers like Charles Koch to disprove global warming — reported last week that “2015 was unambiguously the hottest year on record.” The blowout record warmth of 2015 erases the notion of a so-called pause in warming. NASA and Columbia University climatologists explain that “the updated global temperature record makes it clear that there was no global warming ‘hiatus’.” Similarly, Berkeley Earth’s Scientific Director Richard Muller, says 2015 “confirms our previous interpretation” that “global warming has not slowed.”

Why 2015 Was the Hottest Year on Record  --Last year topped the chart as the warmest year in the modern record, according to data released Wednesday by the world’s top meteorological agencies. Global temperature in 2015 was 0.75C above the 1961-1990 long-term average and a full 1C above preindustrial times, according to official figures from the UK’s Met Office.  Using the historical observational record, which now extends back more than a century and theoretical computer models, which have been used to simulate even longer periods, we are able to calculate what happens to global temperature in the run up to an El Niño (or La Niña) and in its aftermath. The effects are very clear: there is a little warming in the period preceding the winter El Niño peak, but the big effect on global temperature comes in the following calendar year as it takes a few months for heat to increase in other ocean basins around the world. The bottom line is that for each 1 degree of El Niño the global temperature in the following year rises by about 0.1 degrees. El Niño was growing in 2015 and only reached its peak this winter. So, we think El Niño made only a small contribution (a few hundredths of a degree) to the record global temperatures in 2015. Does that mean human activity was the biggest driver of 2015’s record temperature? Yes. The nominal record global average temperature of 2015 was well predicted in advance and well explained as being primarily due to global warming, itself mainly due to greenhouse gas emissions of human origin. El Niño made only a small contribution.

Thorough, not thoroughly fabricated: The truth about global temperature data - “In June, NOAA employees altered temperature data to get politically correct results.” At least, that's what Congressman Lamar Smith (R-Tex.) alleged in a Washington Post letter to the editor last November. The op-ed was part of Smith's months-long campaign against NOAA climate scientists. Specifically, Smith was unhappy after an update to NOAA’s global surface temperature dataset slightly increased the short-term warming trend since 1998. And being a man of action, Smith proceeded to give an anti-climate change stump speech at the Heartland Institute conference, request access to NOAA's data (which was already publicly available), and subpoena NOAA scientists for their e-mails. Smith isn't the only politician who questions NOAA's results and integrity. During a recent hearing of the Senate Subcommittee on Space, Science, and Competitiveness, Senator Ted Cruz (R-Tex.) leveled similar accusations against the entire scientific endeavor of tracking Earth’s temperature.“I would note if you systematically add, adjust the numbers upwards for more recent temperatures, wouldn’t that, by definition, produce a dataset that proves your global warming theory is correct? And the more you add, the more warming you can find, and you don’t have to actually bother looking at what the thermometer says, you just add whatever number you want.” There are entire blogs dedicated to uncovering the conspiracy to alter the globe's temperature. The premise is as follows—through supposed “adjustments,” nefarious scientists manipulate raw temperature measurements to create (or at least inflate) the warming trend. People who subscribe to such theories argue that the raw data is the true measurement; they treat the term “adjusted” like a synonym for “fudged.”

Rampant El Nino offers glimpse of future climate risks - El Nino years can be useful when you’re looking at risks associated with climate change. According to the World Meteorological Organization (WMO), the 2015-2016 weather phenomena could be one of the strongest yet. And while experts say this event is gradually dying down, it’s testing the ability of countries around the world to deal with extreme weather events. The impacts left Indonesians facing a grim few months of forest fires and toxic haze; parts of Australia are facing their worst drought on record. Lack of rain means 3 million in El Salvador, Guatemala and Honduras are relying on food aid; too much rain caused the biggest floods in 50 years across Brazil, Argentina and Uruguay. Aid workers at Oxfam say poor rains linked to El Nino afflict the horn of Africa, Zimbabwe and Malawi, causing failed crops, famine and internal migration. Record US temperatures over Christmas and some of the UK’s worst floods on record over the same period are also linked to the weather episode, say scientists at the UK Met Office. Flood defences have been overwhelmed, poor irrigation systems exposed. Resilience in the developed and developing world is being tested to its limits.  The consequences of unexpected and especially severe weather events are clear: countries are as yet not prepared for the worst climate change could pose.

Climate change, El Niño & Pacific Decadal Oscillation could result to unbearable summer this year - The unbearable summer could get hotter, with little respite. While 2015 has been recorded as the hottest year, meteorologists say 2016 will be warmer. Days after 195 countries at the UN sponsored climate meet in Paris agreed to restrict global temperature rise to "well below 2 degrees Celsius" above pre-industrial levels - and to try and keep it within 1.5 degrees Celsius - the UK Met Office released its forecast for 2016. Based on computer models and statistical methods, the UK Met Office expects that global average temperatures in 2016 would be 1.1 degrees Celsius above 1850-1899 averages, referred to as the pre-industrial levels.  The five-year period from 2011 to 2015 period has been the hottest on record, with average global temperatures last year breaching the "symbolic milestone" of 1 degree Celsius above the pre-industrial era. Scientists attribute it to a combination of human-induced climate change and the impact of a naturally occurring weather phenomenon known as El Nino. The current El Nino event has been among the strongest in the recent past. In India, scientists are attributing the higher-thanaverage temperatures across the country, barring the northern reaches including Jammu and Kashmir and some surrounding areas, to El Nino. Average temperatures have been 4 to 5 degrees above normal across the country.  Meteorologists suggest this current phase is likely to stretch till early summer this year. However, according to the Indian Meteorological Department, the current El Nino event is unlikely to adversely affect the monsoons this year, though it could delay its onset. Scientists have observed that the monsoon rainfall is usually normal or above normal following strong El Nino years.

Heat Absorbed by Oceans Has Doubled Since 1997 -- The ocean is taking up twice as much heat now as it was just two decades ago, relative to pre-industrial times. According to new research, a third of that heat—and rising—is finding its way into the deep ocean below 700m, temporarily slowing warming at Earth’s surface. That the oceans are warming isn’t a surprise to scientists—it’s what we would expect from rising greenhouse gases. The more surprising part is the speed at which it is taking place. The new study, published yesterday in Nature Climate Change, says as much heat entered the oceans in the last 18 years as in the previous 130 years. The new findings add to a growing body of research on the unseen impact of human activity on the oceans and the role they play in moderating the temperature we feel on Earth’s surface, say scientists not involved in the study. The oceans take up more than 90 percent of the heat trapped by greenhouse gases. It follows, then, that we would look to the oceans in seeking the fingerprint of human-caused climate change.

Antarctic ice sheet has stopped expanding for the first time in four years: (Reuters) - Although the Arctic ice sheet gets all the media attention, noteworthy activity has been brewing in the Antarctic. The Antarctic ice sheet has stopped expanding for the first time in four years, and in fact, sea ice extent has dipped below average levels. The Antarctic ice sheet holds roughly 61 percent of the Earth's fresh water, and despite the mass shrinking of its Arctic cousin over the last decade, the Antarctic has experienced several periods of growth over the same time frame. At the start of 2015, Antarctic sea ice extent was at all-time high levels for the time of year since records began in 1979, extremely far above the long-term mean. Sea ice remained anomalously high until July, when rapid shrinking began ( ). In August 2015, monthly sea ice extent fell below average levels for the first time since November 2011. For the duration of 2015, sea ice extent hovered very close to average levels. By Jan. 6, even though sea ice was only a sliver below 30-year averages for the date, it measured at the lowest relative levels in 10 years. Although global temperatures hit an all-time high in 2015, it is uncertain whether this directly caused the shrinking of the ice sheet, and there is even more uncertainty around upcoming trends for Antarctic sea ice.

Giant icebergs help the Southern Ocean soak up carbon | Ars Technica: The natural movement of carbon through the Earth and its inhabitants is essential to life as we know it. Carbon is needed in our atmosphere for photosynthesis, it’s present in plants and our bodies, and it’s expelled back into the atmosphere by our respiration. The world’s ocean represents a significant sink in the global carbon cycle, containing the majority of the world’s CO2 in a dissolved form. Dissolved CO2 is required for many chemical and biochemical processes critical for marine organisms. For example, the sunlit level of the ocean is filled with phytoplankton, an organism that uses sunlight and dissolved carbon dioxide to create sugars via photosynthesis. Iron is a trace nutrient that is critical for photosynthesis. The Southern Ocean has low concentrations of dissolved iron compared to other oceans, leading to lower levels of carbon sequestration—approximately 10 percent of the global sequestration. However, scientists think that sources of iron can lead to elevated localized levels, which could dramatically increase carbon sequestration. The impact of these local changes on the overall carbon sequestration of the Southern Ocean is not well understood. In a publication in Nature Geoscience, a team explored the influence of giant icebergs on the carbon sequestration of the Southern Ocean. (Giant icebergs have a horizontal dimension that is larger than 18 km.) Typically, dozens of these giant icebergs are floating around the Southern Ocean. They can carry different amounts of iron and nutrient depending on the location where they originated. They also discharge large volumes these materials into the ocean when melting, altering the local nutrient and mineral composition.

Climate change disaster is biggest threat to global economy in 2016, say experts -- A catastrophe caused by climate change is seen as the biggest potential threat to the global economy in 2016, according to a survey of 750 experts conducted by the World Economic Forum. The annual assessment of risks conducted by the WEF before its annual meeting in Davos on 20-23 January showed that global warming had catapulted its way to the top of the list of concerns. A failure of climate change mitigation and adaptation was seen as likely to have a bigger impact than the spread of weapons of mass destruction, water crises, mass involuntary migration and a severe energy price shock – the first time in the 11 years of the Global Risks report that the environment has been in first place. The report, prepared by the WEF in collaboration with risk specialists Marsh & McLennan and Zurich Insurance Group, comes a month after the deal signed in Paris to reduce carbon emissions. The WEF said evidence was mounting that inter-connections between risks were becoming stronger. It cited links between climate change and involuntary migration or international security, noting that these often had “major and unpredictable impacts”.

Dawn of the Anthropocene: five ways we know humans have triggered a new geological epoch - Is the Anthropocene real? That is, the vigorously debated concept of a new geological epoch driven by humans. Our environmental impact is indeed profound – there is little debate about that – but is it significant on a geological timescale, measured over millions of years? And will humans leave a distinctive mark upon the layers of rocks that geologists of 100,000,000AD might use to investigate the present day? Together with other members of the Anthropocene Working Group we’ve just published a study in Science that pulls much of the evidence together. The case for the Anthropocene might be distilled into five strands:

  • 1. Carbon in the atmosphere. The increased levels of carbon dioxide in the atmosphere – now higher than at any time in at least the past few million years – can be found as fossil bubbles in the geologically short-lived “rock” that is polar ice.
  • 2. We’re adding chemicals to the environment. There is now about twice as much reactive nitrogen at the Earth’s surface than in the past, courtesy of the Haber-Bosch process used in the fertiliser industry, while the amount of phosphorus at the surface has also doubled. This is changing the biology and chemistry of environments ranging from far northern lakes to the growing ocean “dead zones” found along polluted coasts.
  • 3. We’ve made new materials that may outlast us. Human ingenuity and industry are creating thousands of new materials that wouldn’t exist without us, from compounds now harder than diamond to plastic, which has seen extraordinary growth from negligible pre-World War II to something like 300m tons a year today.
  • 4. Life itself is changing The rate of extinctions is now many times above background levels, and is accelerating.
  • 5. It all adds up.  The changes are comparable in scale to those of earlier epochs.

12 Experts Comment: What Oil Below $30 Means for Efforts to Tackle Climate Change - The oil price slide below $30 a barrel is reverberating through the global economy. With sanctions against Iran being lifted, prices face further downwards pressure.  The new lows come after prices spent much of the past year around the $50 mark, as Saudi Arabia’s attempts to win back market share from U.S. shale firms produced limited results. There are recessions in Russia and Brazil. Saudi Arabia is burning through its reserves, its stock markets are in freefall and its population is feeling the squeeze, as it looks for new sources of cash. Fossil fuel subsidies are being cut, from Saudi Arabia to India and Bahrain. The UAE is looking towards a life beyond oil. Oil majors are facing hard times, too, with BP set to axe 4,000 jobs as the total of shelved oil investments breaches $400bn since the price slump began in late 2014. For all that, some papers have found reason for optimism. An editorial in The Times says cheap oil is “bolstering Britain’s recovery.” The Financial Times says cheaper oil “may not be good for the prospects of reducing carbon emissions in the near term, but it is certainly of significant net benefit for the global economy and employment.” With some predicting oil could fall as low as $10, an article in the Guardian looks at the tax, consumer and jobs effects for the UK.From a global perspective, cheap oil might raise demand as well as putting pressure on oil producers. If oil remains cheap, the incentive to keep burning it could be stronger.   So, what does $30 oil mean for efforts to tackle climate change in the wake of the Paris agreement signed in December? Carbon Brief asked a range of experts for their views.

Carbon Capture: ‘Only Realistic and Affordable Way to Dramatically Reduce Emissions’ --Governments may no longer be investing in the capture of carbon dioxide in the atmosphere. But a new study says that doesn’t mean it’s a bad idea. It argues that the world just needs to think harder and spend more to make the technology work because, to contain climate change, it may prove the only realistic and affordable way to dramatically reduce carbon emissions. Many governments appear to agree and include carbon capture and storage in their plans to keep the world from dangerous climate change. But, at the same time, many are abandoning the trials that are needed to make it work.  David Reiner, senior lecturer in technology policy at the University of Cambridge Judge Business School, argued in the new journal Nature Energy that stopping trials is foolish. In a world addicted to fossil fuel energy, but threatened with catastrophic climate change driven by the greenhouse gas emissions from those same fossil fuels, he said that one effective answer would be to capture the carbon dioxide before it gets into the atmosphere and then store it. He wrote that the only way to find out how to do this is to spend billions on a range of possible attempts at carbon capture and storage (CCS) and then choose the best one.

Here’s everything said about climate change at the GOP debate - Surprise! That was a trick. The Republican presidential candidates didn’t say anything about climate change at Thursday night’s debate. The closest moment came when Ohio Gov. John Kasich, who is apparently still running, mentioned America’s need for energy independence. And how does Kasich suggest we achieve this energy independence? Investment in solar and wind, perhaps? Energy efficiency, maybe? Training gerbils to run on a massive wheel? Nope! Kasich thinks the answer is fracking. That’s right — fracking, the earthquake-making, water-polluting, cancer-causing, testes-enlarging natural-gas extraction process that releases more methane into the atmosphere than a herd of gassy cows. Back to the drawing board, Kasich. As for the rest of the debate, just imagine Punch and Judy with flag pins and you’ve pretty much got it.

What Sarah Palin Really Wants From Her Donald Trump Endorsement  - Sarah Palin is expected to endorse Donald Trump for president today, a move that could provide a needed boost for Trump as he heads into the competitive Iowa caucuses.  Does the former Alaska governor and 2008 vice presidential candidate want anything in return? Most likely, yes — Palin, who popularized the term “drill, baby, drill,” has said she’d like to be Trump’s Secretary of Energy. And Trump has said he’d be willing to give Palin a position in his cabinet, should he be elected president.“I’d love that,” Trump said back in July during an interview with Mama Grizzly Radio, a station which offers only news about Sarah Palin. “Because she really is somebody who knows what’s happening and she’s a special person.”  Shortly afterward, Palin was asked on CNN what position she would like to have in Trump’s administration. Without missing a beat, Palin said she’d want to head the Department of Energy — but only so she could eventually get rid of it.“I think a lot about the Department of Energy, because energy is my baby: oil and gas and minerals, those things that God has dumped on this part of the Earth for mankind’s use,” she said. “If I were head of that, I’d get rid of it.” Watch:

Carbon capture risks running out of steam - For many years, carbon capture and storage (CCS) — trapping carbon emissions as they are emitted by power stations and industrial installations and storing them underground — has been hailed as vital to helping decarbonise the economics of energy. The circumstances are stark, says Luke Warren, chief executive of the Carbon Capture and Storage Association: “If you remove CCS from the mix, the cost of meeting the target of limiting average temperature to two degrees centigrade rises by 138 per cent.” Nonetheless, progress in establishing the credentials of the process has been slow. According to Greenpeace, the environmental pressure group: “Despite years of vociferous backing from the International Energy Agency, the Intergovernmental Panel on Climate Change and a host of major world leaders, CCS continues to move forward at only a snail’s pace”. The world’s first commercial-scale plant was opened in 2014 at the Boundary Dam coal-fired power plant in Saskatchewan, Canada, and two more plants are due to be commissioned this year, one in Mississippi and the other in Texas. Shell’s Quest scheme in the Canadian province of Alberta, launched in November 2015, is the world’s first CCS project to reduce emissions from the processing and burning of oil sands.

New Methane Emission Rules Proposed by Interior Department - The Obama administration on Friday proposed a new rule aimed at curbing emissions of planet-warming methane from oil and gas drilling on public land. It would force companies to use equipment to capture leaked gas and raise the costs they pay for extracting fuel on government property.The draft regulation, proposed by the Interior Department, is the latest step by President Obama to use his executive authority to clamp down on the fossil fuel emissions that contribute to climate change, and to make it more expensive for oil, gas and coal companies to mine and drill on public land. It follows last week’s controversial move by the Interior Department to halt new leases for coal mining on public lands, and to reform the government’s program for leasing federal lands to coal companies with an eye to raising their costs. It also comes as the administration has particularly targeted emissions of methane, a chemical contained in natural gas that is about 25 times more potent than carbon dioxide. The Obama administration wants to cut methane emissions from the oil and gas sector by 40 to 45 percent from 2012 levels by 2025. The problem of methane leaks from natural gas equipment has drawn fresh national attention because of a broken pipe in Los Angeles that has been spewing methane for months, sending thousands of people from their homes. The proposed rule on natural gas leaks, which will be open to public comment before it is finalized, would not apply to situations like the one in California. It is aimed at accidental gas leaks and at the process of venting and burning off leaked gas — known as flaring — from oil and gas wells on public lands. It would require companies to use equipment to both capture leaked gas and to limit the process of releasing and flaring the gas.

DOI Proposes Regulations Aimed At Reducing Methane Emissions From Oil And Gas Operations On Public / Tribal Lands -- -- Oil & Gas Journal is reporting: The US Department of the Interior proposed regulations aimed at reducing methane emissions from oil and gas operations on public and tribal lands. Three leading industry associations immediately said the proposed rules are unnecessary because operators already are curbing methane releases voluntarily.  “We need to modernize decades-old standards to reflect existing technologies so that we can cut down on harmful methane emissions and use this captured natural gas to generate power and provide a return to taxpayers, tribes and states for this public resource,” US Interior Secretary Sally Jewell said as the proposal was announced on January 22, 2016. The proposed rule would revise provisions related to venting, flaring, and royalty-free use of gas in a 1979 notice to lessees and operators of onshore oil and gas leases on federal and Indian lands. Comments will be accepted for 60 days ... Developed by the US Bureau of Land Management, the proposed rule would require producers to adopt currently available technologies, processes, and equipment that would limit the rate of flaring at oil wells on public and tribal lands, make operators periodically inspect their operations for leaks, and replace outdated equipment that vents large quantities of gas into the air. Operators also would be required to limit venting from storage tanks and use best practices to limit gas losses when removing liquids from wells. The new measures also would clarify when operators owe royalties on flared gas, and ensure that BLM’s regulations provide congressionally authorized flexibility to set royalty rates at or above 12.5% of the value of production.

Obama Administration Announces Rule To Slash Methane Pollution On Public Lands - In an effort to curb emissions and prevent waste of taxpayer dollars, the Bureau of Land Management (BLM) on Friday announced its long-awaited draft rule regarding methane pollution on public lands. The draft rule will slash the venting, flaring, and leaking of methane — the main component in natural gas — from new and existing oil and gas operations on public lands. It will do so by requiring the oil and gas industry to take measures to reduce the instances of venting and flaring and to plug leaks through equipment upgrades. The rule is expected to reduce both venting and flaring by at least 41 percent and could prevent up to 169,000 tons of methane emissions per year.  The rule is considered a key component of President Obama’s Climate Action Plan.“I think most people would agree that we should be using our nation’s natural gas to power our economy — not wasting it by venting and flaring it into the atmosphere,” said Interior Secretary Sally Jewell in a statement. “We need to modernize decades-old standards to reflect existing technologies so that we can cut down on harmful methane emissions and use this captured natural gas to generate power and provide a return to taxpayers, tribes and states for this public resource.” The rule earned praise from a wide range of supporters and stakeholders, including conservation groups, sportsmen and women, tribal leaders, western congressional delegations, and consumer watchdog groups. The rule will save as much energy as could be used to power every household in Dallas and Denver combined, every year.

False emissions reporting undermines China's pollution fight - Widespread misreporting of harmful gas emissions by Chinese electricity firms is threatening the country's attempts to rein in pollution, with government policies aimed at generating cleaner power struggling to halt the practice. Coal-fired power accounts for three-quarters of China's total generation capacity and is a major source of the toxic smog that shrouded much of the country's north last month, prompting "red alerts" in dozens of cities, including the capital Beijing. But the government has found it hard to impose a tougher anti-pollution regime on the power sector, with China's energy administration describing it as a "weak link" in efforts to tackle smog caused by gases such as sulfur dioxide. No official data on the extent of the problem has been released since a government audit in 2013 found hundreds of power firms had falsified emissions data, although authorities have continued to name and shame individual operators. "There is no guarantee of avoiding under-reporting (of emissions) at local plants located far away from supervisory bodies. Coal data is very fuzzy," said a manager with a state-owned power company, who did not want to be named because he is not authorized to speak to the media.

Britain abandons onshore wind just as new technology makes it cheap - Telegraph: The world’s biggest producer of wind turbines has accused Britain of obstructing use of new technology that can slash costs, preventing the wind industry from offering one of the cheapest forms of energy without subsidies. Anders Runevad, chief executive of Vestas Wind Systems, said his company's wind turbines can compete onshore against any other source of energy in the UK without need for state support, but only if the Government sweeps away impediments to a free market. While he stopped short of rebuking the Conservatives for kowtowing to 'Nimbyism', the wind industry is angry that ministers are changing the rules in an erratic fashion and imposing guidelines that effectively freeze development of onshore wind. “We can compete in a market-based system in onshore wind and we are happy to take on the challenge, so long as we are able to use our latest technology," he told the Daily Telegraph. “The UK has a tip-height restriction of 125 meters and this is cumbersome. Our new generation is well above that," he said. Vestas is the UK's market leader in onshore wind. Its latest models top 140 meters, towering over St Paul’s Cathedral. They capture more of the wind current and have bigger rotors that radically change the economics of wind power.

US Navy launches carrier group powered partly by biofuels — The U.S. Navy is launching a carrier strike group to be powered partly by biofuel, calling it a milestone toward easing the military’s reliance on foreign oil. But critics, including environmentalists, say biofuel production is too costly and on a large scale may do more harm than good. Most of the group’s ships will run on a mix of 90 percent petroleum and only 10 percent biofuels, though that could change. The Navy originally aimed for the ratio to be 50/50. Navy Secretary Ray Mabus and Agriculture Secretary Tom Vilsack were scheduled on Wednesday to inspect the ships before they set sail off San Diego. “In 2010, we were losing too many Marines in convoys carrying fossil fuels to outposts in Afghanistan, and the prohibitive cost of oil was requiring us to stop training at home in order to keep steaming abroad, a dangerous and unsustainable scenario,” Mabus said in a statement. The Defense Department uses 90 percent of the energy consumed by the federal government, spending billions of dollars annually on petroleum fuels to support military operations.

Missouri River power generation below average in 2015 — Electric power generation from Missouri River dams fell below average in 2015, as water was kept in upstream reservoirs to balance levels in the river system, according to the U.S. Army Corps of Engineers. The Corps, which manages dams and reservoirs along the 2,341-mile river, said energy production from the six dams in the Dakotas, Montana and Nebraska was 8.5 billion kilowatts of electricity last year, down from 9.6 billion kilowatts in 2014. The plants have generated an average of 9.3 billion kilowatt hours of electricity since 1967, including a high of 14.6 billion kilowatts in 1997, said Mike Swenson, a corps engineer in Omaha, Nebraska. The Western Area Power Administration, which buys and sells power from 56 hydropower plants around the nation, says the six Missouri River dams are WAPA’s second-largest producer of energy. Kara Lamb, a WAPA spokeswoman in Lakewood, Colorado, said the shortfall in electricity production from hydropower meant WAPA had to get energy from other, more expensive sources. That will ultimately mean higher costs for ratepayers as those costs are passed on. WAPA spent about $67.5 million to purchase power in the open market to help make up the shortfall, she said.

Natural gas likely overtook coal as top U.S. power source in 2015 | Reuters: Last year looks like it was an unwelcome watershed for the embattled U.S. coal industry. Power companies in 2015 for the first time may have burned more natural gas than coal to generate electricity, according to analysts who attribute it to the cheapest gas prices in 16 years and a record number of coal-fired plants retired from service because of the high cost of meeting environmental regulations. Data from the U.S. Energy Information Administration showed that power plants used more gas than coal to produce electricity in five of the first 10 months of 2015, including the last four months data was available - July, August, September and October. While EIA does not forecast that gas produced more electricity than coal in 2015, some analysts conclude it did because gas in November and December traded at the lowest levels for the entire year, prompting more substitution in what was already an unrivaled year for coal-to-gas switching. Coal has been the primary source of fuel for U.S. power plants for the last century, but its use has been declining since peaking in 2007, which is expected to continue as the federal government imposes rules to limit carbon emissions. EIA said gas produced a record high 37 million megawatt hours per day of electricity on average during the first ten months of 2015. Coal, meanwhile, produced about 39 MWh per day. One megawatt is enough to power about 1,000 U.S. homes.

Coal lease suspension affects 30-plus mining projects— At least 30 applications from companies seeking to mine hundreds of millions of tons of coal face suspension as the government reviews its sales of the fuel from public lands, U.S. officials disclosed Friday. The coal leasing program is on hold for up to three years while the Interior Department reviews fees paid by mining companies and the environmental effect of burning coal, agency Secretary Sally Jewell said. The Associated Press obtained a Bureau of Land Management list of affected sites ahead of its public release, and it includes mining proposals in nine states. Some of the largest projects are in the Powder River Basin of Wyoming and Montana, the nation’s top coal-producing region. Other projects are in Utah, Kentucky, Alabama, Arkansas, Colorado, Oklahoma and North Dakota. The announcement marks another major blow to the struggling coal industry, which has been hit with increased competition from cheap natural gas, new anti-pollution regulations and faltering international coal markets that have dimmed hopes to boost exports. The nation’s second largest coal company, Arch Coal of St. Louis, declared bankruptcy Monday. Even before further leasing was suspended, work at many of the sites was unlikely to begin for years because of the time it takes companies to navigate the government coal program.

Wyoming officials back various schemes in bid to rescue coal - Public enemy No. 1 for climate change and no longer the fossil fuel utilities prefer to burn to generate electricity, coal has few allies these days. But one state is still fighting to save the industry: Wyoming. From a proposal to burn the stuff underground to hosting a contest to find profitable uses for carbon dioxide from power plants, the top coal-producing state has spent tens of millions of dollars for a coal savior — with little to show. Big-time state spending was easy in Wyoming not long ago. Good times for coal, oil and natural gas created huge budget surpluses. Now that all three industries are suffering from low prices, looming deficits in the Cowboy State are raising an old question: Is it time to diversify the economy beyond fossil fuels? “They’ve chosen to support the coal industry whether it makes any sense or not. I mean, we’re basically a coal colony,” Wyoming regulators recently agreed to let an Australian company pollute groundwater to experiment with a use for coal that doesn’t involve burning it in a power plant.Underground coal gasification involves partially burning coal still in the ground. The process yields a mix of gases called syngas, which can be burned more cleanly than coal directly.  An Australian company, Linc Energy, has proposed a demonstration plant in the Powder River Basin, an arid coal-mining region in northeast Wyoming and southeast Montana that supplies about 40 percent of the nation’s coal.

Mother Nature’s Invisible Hand Strikes Back Against the Carbon Economy - Is the hydrocarbon economy too big to fail? If the woefully inadequate outcome of the Paris climate conference is any indication, the answer is still a resounding "Yes!" That's because the overly optimistic agreement conspicuously ignored the core issue driving up the earth's temperature and warping the world's already misshaped markets. The problem is Big Oil. Simply put, Big Oil is a bad investment fueled by irrational exuberance, chronic cronyism and an increasingly indefensible misallocation of capital. And decades of throwing good money after bad has produced a distorted economic system that socializes risk, privatizes profits, externalizes costs and misallocates capital. This continues because policy makers sustain it with taxpayer-funded subsidies, costly tax breaks and low-overhead access to publicly held resources. By failing to institute much-needed cost internalization mechanisms and by completely avoiding the key problem of government subsidization, the cork-popping cadre of COP21 tacitly admitted what most cynics already knew - policy makers still believe "Big Oil" is far too big to fail. But, like other distorted markets in history, the correction is coming. The growing impact of climate change is exposing the key fallacy at the heart of the hydrocarbon economy: Big Oil cannot simply exempt itself from the natural economy governing all things in this closed system called planet Earth.

Power plant suing after state refuses to let it run on Hudson River — A nuclear power plant owner has filed a federal lawsuit seeking to throw out the state’s refusal to authorize the plant to operate on the Hudson River. Entergy Nuclear Operations filed the suit Thursday against Secretary of State Cesar Perales. The Poughkeepsie Journal reports that Perales in November rejected a permit request that would allow the Indian Point plant to use the river. He says the plant, located about 30 miles north of Manhattan in Buchanan, has killed at least a billion fish. Entergy says only federal regulators can regulate nuclear plants due to safety standards. Gov. Andrew Cuomo directed state regulators to investigate operations and safety protocols at the plant. That investigation is expected to be finished next month.

US, New Mexico ink settlements over nuclear radiation leak (AP) — New Mexico and the U.S. Department of Energy have inked $74 million in settlements over dozens of permit violations stemming from a radiation leak that forced the closure of the nation’s only underground nuclear waste repository. The settlements are the largest ever negotiated between a state and the Energy Department and come after months of negotiations. The Waste Isolation Pilot Plant has been closed since February 2014, when a container of waste burst and released radiation that contaminated parts of the underground facility. The container came from Los Alamos National Laboratory. The settlements call for the Energy Department to funnel millions of dollars toward road improvements and environmental projects in New Mexico. The state initially proposed more than $54 million in penalties against the federal agency and its contractors for numerous violations at the lab and waste dump.

What Could Go Wrong? China Builds A Floating Nuclear Power Plant  -- Back in August, a horrific explosion at a chemical storage facility in the Chinese port of Tianjin killed more than a hundred people and dispersed an unknown amount of toxic sodium cyanide into the air and water. Despite officials’ best efforts to play down the environmental impact, a series of “unexplained” events occurred in the days and weeks following the tragedy including a massive fish die-off and the appearance of an eerie white foam on the streets following a thunderstorm.   The blast itself was described by some as akin to a nuclear explosion and indeed, the footage backs up that assessment: Well don’t look now, but China is set to take it up a notch when it comes to creating the conditions for a "nuclear" disaster because as World Nuclear News reports, Beijing is now all set to build a portable, floating nuclear reactor. Here’s more: China General Nuclear (CGN) expects to complete construction of a demonstration small modular offshore multi-purpose reactor by 2020, the company announced. The 200 MWt (60 MWe) reactor has been developed for the supply of electricity, heat and desalination and could be used on islands or in coastal areas, or for offshore oil and gas exploration, according to CGN.

A different kind of ash-hole problem: Does the distribution of costs matter to economists?  - Coal-ash is a by-product of coals fired electricity production. The ash from burning coal is stored in big lagoon-like ponds called ash-impoundments, or as I like to call them, ash-holes. Beyond the obvious yuck factor and potential standard externality problems associated with leakage and breeches of the lagoons, location of these ash-holes near low-income populations creates concerns over environmental justice. A federal civil rights commission is holding a hearing this week about whether coal ash disproportionately affects low-income and minority populations.  Ohio's coal-ash containment areas are mainly in rural, low-income areas, and most are along the Ohio River...Economists are often bad at considering the distributional impacts of policies: To the point that we often ignore issues of equity in favor of the more objective measure of efficiency. If two policies were to result in the same net benefits to society, but different distribution of those benefits within society, the efficiency-oriented economist would have trouble distinguishing between the policies. But what if one distribution of benefits (or costs) is socially preferred to another. Or put a different way, what if society were willing to forego resources (willing to pay?) to ensure a different distribution of benefits (or costs)? In that case, the distribution of resources might fit within the realm of the efficiency paradigm as now society can be viewed as better or worse off depending on the distribution of resources.Of course this raises all kinds of questions about morals, ethics, social welfare, interdependent utility...but it is at least a recognition that the distribution of resources has real and tangible benefits and costs and might be considered within the neoclassical economic framework. Just a thought.

Trustees weigh in on state fracking bill - Star Beacon — Local officials expressed concerns this week that a proposal to regulate the fracking industry in Ohio doesn’t go far enough.   State reps. John Patterson and Sean O’Brien heard impassioned feedback from township trustees on the legislation they introduced earlier this month seeking middle ground between the advance of the fracking industry and protection against potential environmental dangers. O’Brien, ranking member of the state House’s Energy and Natural Resources Committee, to which House Bill 422 has been assigned, said the bill — which he and Patterson summarized for trustees during a county Township Association meeting Thursday — is still “fluid,” and the lawmakers have been touring the district and taking notes from constituents. O’Brien said he expects sponsored testimony at the capital in the coming weeks.   Some of the proposals addressed county recorders’ and some homeowners’ need to have “a direct line to the deeds” for oil and gas wells, as Patterson put it. Often, interested parties aren’t notified when well ownership changes hands, or they have no recourse if the owner dies and the well’s paperwork falls into limbo.O’Brien said the bill also draws attention to distance setback requirements already in place for oil and gas extraction wells, but not for frackwater injection wells.The proposed regulations would dictate wells may only be installed between 150 to 200 feet from unconsenting properties in urbanized areas. In rural areas, that becomes 2,000 feet from any occupied private home or a body of water, unless the Ohio Department of Natural Resources — fracking’s sole regulatory entity in the state — considers otherwise.

Small Progress with Drilling in Ohio’s Wayne National Forest - There’s been some progress on the now nearly 10-year delay in drilling in the Wayne National Forest (WNF) in Ohio. WNF is the only national forest in Ohio and portions of it are found in Athens, Gallia, Hocking, Jackson, Monroe, Morgan, Noble, Lawrence, Perry, Scioto, Vinton, and Washington counties. WNF is a “patchwork” of public land scattered among private land. Some 60% of the mineral rights below WNF are privately owned. Those mineral rights owners have been denied the use of their property rights going on a decade. It’s a travesty. The federal Bureau of Land Management (BLM) controls drilling on federally-protected lands like WNF. Last November the BLM held a series of hearings about finally beginning to drill in WNF. The hearing held in Marietta (Washington County) was civil and orderly, with landowners respectfully asking questions and getting answers (see Overwhelming Support for Wayne Natl Forest Drilling @ BLM Mtg). The hearing held in Athens, OH, a hotbed of lefty lunatics, got out of control when they didn’t have a microphone to throw up on (see Anti-Frackers Out of Control at Athens Mtg on Wayne Natl Forest). Athens antis can breathe easy. The BLM has decided to wait on pursuing drilling in the “Athens Unit” until 2017. However, the BLM is taking the next step in the “Marietta Unit” now… 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.

Chesapeake Suspends Preferred Stock Dividends - With Chesapeake Energy hitting its lowest stock price since 2000 earlier this week, it was only a matter of time before US gas giant Chesapeake halted all "discretionary" cash payments, which it did moments ago when it announced it would halt dividend payments on its preferred stock. From the release: Chesapeake Energy Corporation (CHK) announced today that it has suspended payment of dividends on each series of its outstanding convertible preferred stock effective immediately. Doug Lawler, Chesapeake's Chief Executive Officer, commented, "The board and management believe this decision is in the best long-term interest of all Company stakeholders. Today's decision to suspend our preferred stock dividends will allow the company to retain approximately $170 million of additional cash per year and use these funds to purchase debt at significant discounts in the near term. Given the current commodity price environment for oil, natural gas and natural gas liquids, we believe that redirecting this cash toward debt retirement provides better returns for the Company. We currently have senior debt securities trading at significant discounts, and we will continue to take advantage of that within the coming year." Suspension of the dividend does not constitute an event of default under the Company's revolving credit facility or outstanding bond indentures. We expect many more energy companies to follow in CHK's shoes.

Wolf administration to tighten methane rules for drillers- A proposal to require natural-gas drillers to reduce methane emissions will help make Pennsylvania a “national leader” in efforts to combat global warming, the Wolf administration said on Wednesday. Requiring the industry to reduce methane leaks at well pads, compressor stations and processing facilities in the Marcellus Shale could result in a 40 percent reduction in emissions, Environmental Secretary John Quigley told reporters. “We’ve looked at how the nation’s second-largest natural gas producing state can minimize its contributions to climate disruption in ways that make economic sense,” he said. The Department of Environmental Protection said it will develop a new general permit for operators that would require them to use “best available technology” to detect and plug leaks of methane, a powerful greenhouse gas that contributes to warming. An emissions inventory shows that unconventional gas wells, compressor stations and pipelines in Pennsylvania leaked 115,000 tons of methane in 2014, a number that Quigley said is almost certainly far higher because fugitive emissions are so difficult to quantify.

'Corbett's office cooked the books,' Gov. Tom Wolf's policy secretary says - Industry advocates say Gov. Tom Wolf’s office played political games when it lowered the number of jobs created by Marcellus Shale development. The state Department of Labor & Industry last year revised Gov. Tom Corbett’s count from 250,000 jobs created during the drilling boom to about 29,000. That figure grows to about 80,000 when calculations include suppliers and service providers, such as architects, engineers, restaurants and physicians who care for workers. Frack Job Losses That decrease of about 170,000 removes several positions previously included by Corbett, such as every job in trucking, highway construction, hookers, steel mills, coal-fired power plants, bartenders, sewage treatment plants, man-camp operators and others. “Governor Corbett’s office cooked the books. Everyone knows Corbett was in bed with the Marcellus Shale industry,” said John Hanger, Wolf’s policy secretary. How many jobs has Marcellus Shale drilling really created? The state labor department during Gov. Ed Rendell’s leadership counted six core industries as Wolf is doing now, according to department spokeswoman Sara Goulet. Those core industries focus on jobs involved in drilling, extraction, support operations, and pipeline construction and transportation.

PA Gov Wolf’s Pathological Need for a Severance Tax - We suspect that Pennsylvania Gov. Tom Wolf may suffer from OCD–obsessive compulsive disorder. What else could explain the fact that even though PA doesn’t have a completed 2015 budget, he’s about to introduce a 2016 budget that once again calls for a severance tax on oil and gas–when the industry in his state has gone nearly dormant because of low prices? Shale drillers are struggling to stay solvent and to keep drilling at least a few new wells. And Wolf is, once again, insisting on a severance tax, that will essentially stop all drilling. Perhaps a better word for it is pathological… Pennsylvania’s natural gas industry and lawmakers in Harrisburg are preparing for another battle over a severance tax on production, even before the current state budget is settled. “It’s going to return in a big way as the budget situation remains completely unresolved,” Muhlenberg College political scientist Christopher Borick said about the debate that has lingered since Gov. Tom Wolf campaigned on the promise of a tax in 2014. “It’s a sore point out there for the governor. It’s a complicated issue for some of the Republicans in the state. It’s not going away.” Wolf intends to take another shot at imposing the tax when he introduces his next budget package in a speech Feb. 9, said his spokesman, Jeffrey Sheridan. “Our position on that has not changed,” he said. Nor has opposition from the industry, which has spent the past year arguing that low prices and a slowdown in drilling make this the wrong time to increase taxes.

W.Va. Production Numbers ‘Shocking’ - A single Ohio County Marcellus Shale well yielded enough natural gas in 2014 to provide electricity for 24,315 homes, according to new numbers released by the West Virginia Geological & Economic Survey.There's also plenty of what industry leaders term "light crude" oil being produced right here in the local region, including 45,260 barrels of oil from a well in the name of the Ohio County Commission in 2014. Overall, with traditional vertical drilling included with horizontal fracking, West Virginia produced more than 1 trillion cubic feet of natural gas in 2014. Drillers also extracted more than 8.3 million barrels of natural gas liquids (consisting of ethane, propane, butane, pentanes and other liquids) in 2014, according to the most recent data available from the state's Geological & Economic Survey, an arm of the Department of Commerce. The state also produced another 5.2 million barrels of oil."They are remarkable. They are shocking," Charlie Burd, executive director of the Independent Oil and Gas Association of West Virginia, said of the numbers. "We were at about 260 billion cubic feet in 2008. Now, it just keeps going up because of fracking and horizontal drilling."  One billion cubic feet of natural gas can provide electricity to 24,315 homes for an entire year. Therefore, a single EQT Corp. well in Wetzel County provided sufficient fuel in 2014 to generate power for 77,322 homes for one year with its 3.18 Bcf. This was the most prolific well in the entire Mountain State in 2014, and serves as an easy example as to why natural gas prices are currently about $2 per Mcf.

Natural gas prices expected to rise - Natural gas prices are expected to rise in the coming months as a national supply glut is drawn down, according to the US Energy Information Administration. Although prices have been low during the first few months of this year’s winter, lower production volumes and cooler weather are anticipated to bring them up slightly in 2016. As of January 1st of this year, over 3.6 billion cubic feet of gas were stockpiled in the US, which is about 15% higher than average inventories in the past five years. The large amounts of gas in storage, combined with a record amount of natural gas in the ground and technologically advanced, highly efficient extraction techniques, have created a supply overhang. The low natural gas prices were further compounded by El Nino, which triggered abnormally warm weather throughout much of the East Coast and caused demand for heating and natural gas to drop towards the end of 2015. 75.5 billion cubic feet per day was consumed on average last year, which is somewhat lower than anticipated future consumption averages. Due to the abundant gas supply and depressed heating demand, natural gas prices and futures have been falling for the past few weeks, dropping to their lowest point in a decade around mid-December.  However, gas prices are expected to begin rising again within the next few weeks and months. The peak heating season in the United States (November to March) is only half over, and cooler weather is anticipated in many areas during the rest of the winter, especially in the southern half of the U.S. A recent cold snap has helped draw down some of the excess gas supply; during the last week of December, natural gas supplies fell more than expected, outstripping the forecasts by over 28%. This led to a surge in prices which was further boosted by speculators, counting on cooler weather to increase demand.

Radioactive Fracked Gas - FYI – Ionizing Radiation has a cumulative effect on living things, so even a little bit can add up to a large exposure if spread though-out the environment where daily contact/exposure is unavoidable for animals and humans alike.  Radioactivity is a special kind of energy that is given off when unstable atoms release particles from their nucleus.  Our natural surroundings, including the air, water, rocks, and even many foods contain various radioactive elements, producing a low level of background radioactivity. Our bodies can easily handle such low doses of radioactivity. However, exposure to levels of radioactivity much higher than background can harm our bodies, especially by causing cancer.  Does Marcellus shale pose a radioactivity risk? Marcellus shale deposits contains natural radioactivity due to the presence of a few elements. They include the elements uranium and thorium, and their radioactive decay products – notably radium-226. Moreover, radioactive varieties – called radioisotopes – of the element potassium also contribute to Marcellus Shale’s radioactivity5. Marcellus has particularly high levels of natural radioactivity compared to those of other shales, It contains emissions that are 20 times higher than the typical background radiation due to high uranium content. In fact, because of this characteristic, drilling companies and geologists use radiation detection to identify the location of the Marcellus Shale deposit.  Natural gas drilling in the Marcellus Shale can result in NORM being brought to the surface as rock cuttings from drilling operations, as well as flowback of hydraulic fracturing fluid. Because gas companies are now recycling their fracing water multiple times, its resulting radioactivity may continue to increase with reuse.

TENORMS in Fracked Natural Gas: The Role of Lead & Polonium FYI – Pb-210 and Po-210 can be a problem for the maintenance workers who access the internals of equipment without monitoring or protection. The lead and polonium levels can be very significant (> million dpm/100 cm2 was reported at the NORM North America Conference in 2013 at a petrochemical plant turnaround (Halter). There is a direct pathway for ingestion and inhalation of Po-210 as well as the Pb-210. There are similar problems with pigging operations (rouge). The major companies have good health and safety practices, but smaller firms may not. The workers are often not rad trained and subject to public dose limits. The maintenance facilities may or may not be licensed by the State. NRC does not have authority to license those facilities as the progeny are TENORM and not source, byproduct or special nuclear material. The attention with TENORM in oil and gas usually centers around radium, but the lead and polonium cannot be ignored . . . While these are not new issues, the relatively new practice of horizontal drilling into host formations (as opposed to reservoirs) using enhanced stimulation (fracking shale deposits) has changed the profile of the TENORM residuals. There are larger volumes of cuttings, produced water, sludges, and spent filters to manage, and radium levels can be significant. USGS reported > 20,000 pCi/L in some produced water samples in 2011 in the Marcellus shale in PA. SEE:

Toxins in Fracking Wastewater Could Harm Human Health, Study Says - More recent signs are echoing what environmentalists have been asserting for years: fracking isn’t a good idea. In less than a week, there were 12 earthquakes in frack-happy Oklahoma. Even the EPA’s own scientists went rogue by going against the agency’s pro-fracking propaganda that fracking doesn’t contaminate drinking water. Now a new study from Yale University and published in the Journal of Exposure Science and Environmental and Epidemiology suggests that fracking can also be detrimental to human health. Over 1,000 toxins — some of which are linked to reproductive and developmental health problems — were found in fracking fluids and wastewater. As reported in Science Daily, the 1,000 plus chemicals are used in and produced by hydraulic fracturing (fracking), a chemical intensive process where oil and natural gas are extracted from deep in the ground. As a result of the wastewater created and the fractured bedrock, there’s “a potential threat to both surface water and underground aquifers that supply drinking water.” And the wastewater and fracking by-products could be more hazardous than the fracking fluids themselves. The researchers specifically looked at 240 substances and found that 157 of them are linked to either developmental or reproductive toxicity. Some of the most alarming substances that they found include: arsenic, benzene, cadmium, lead, formaldehyde, chlorine, and mercury. And 67 of these substances had federal health-based standards or guidelines, but the researchers couldn’t determine whether these levels were in compliance or not. Overall, the researchers didn’t have enough information to go on, and that’s why they’re making an urgent plea for more studies that will assess threats to human health from these toxins. More specifically, Nicole Deziel, the senior author of the study and an assistant professor of public health, explains what future studies are needed: Quantification of the potential exposure to these chemicals, such as by monitoring drinking water in people’s homes, is vital for understanding the public health impact of hydraulic fracturing.

NY attorney general objects to Constitution pipeline tree-cutting request — New York’s attorney general filed objections Thursday to the Constitution Pipeline Company’s request to cut trees along the proposed route of its 124-mile natural gas pipeline, citing the lack of a state water quality permit and pending requests for a rehearing of the federal agency order that cleared the way for the project. The Federal Energy Regulatory Commission approved the pipeline in 2014 with certain conditions, including a water quality permit from the New York state Department of Environmental Conservation. No timetable has been given for a decision on a water permit. In objecting to the company’s request, Attorney General Eric Schneiderman asked FERC to deny permission to start any work until a state water quality permit is issued and the commission decides on numerous motions on rehearing its 2014 decision. Several of those requests argue that FERC failed to conduct an adequate environmental review. Schneiderman also said the planned clearing of trees could cause irreparable harm to thousands of acres in New York. Constitution Pipeline Company, a partnership formed by Cabot Oil & Gas, Williams Partners and Piedmont Natural Gas Company, asked FERC last week for permission to cut trees along the pipeline right-of-way from Pennsylvania’s shale gas fields to upstate New York.

Officials Reject Gas Pipeline Route That Would Have Run Through National Forests - A massive interstate natural gas pipeline proposed to run through two national forests suffered a setback Thursday, as the proposed route was rejected following concerns about endangered wildlife.  The U.S. Forest Service said in documents that the $5 billion Atlantic Coast Pipeline and its 550-mile route lacks “minimum requirements” to safeguard wildlife. The now-rejected route would have crossed the Monongahela and George Washington national forests, and in doing so, the forest agency said, threaten endangered salamanders, flying squirrels, and red spruce ecosystem restoration areas.  “Alternatives must be developed to facilitate further processing of the application,” the letter reads. The Atlantic Coast Pipeline, unveiled in 2014, would transport 1.5 billion cubic feet of natural gas a day, and if approved by the Federal Energy Regulatory Commission (FERC), it would carry gas from the Marcellus Shale basin, one of the largest natural gas reservoirs in the world. For its approval, however, the pipeline needs the support of the U.S. Forest Service.Dominion, Duke Energy, Piedmont Natural Gas, and AGL Resources are all involved in the Atlantic Coast Pipeline, which would supply power stations in Virginia and North Carolina. The pipeline would also fulfill a growing demand among local gas companies in Hampton Roads in Virginia and eastern North Carolina, Dominion told ThinkProgress via email. Critics of the plan hailed the route’s rejection as significant, but a Dominion spokesman said the rejection is not a final decision. The “letter is part of the permitting process as we work cooperatively to find the best route with the least impact,” said Jim Norvelle to ThinkProgress via email. Indeed, the project is still in the early parts of permitting process — it filed for permits with FERC in September 2015.

Texas lawyer files suit in Marathon refinery fire -- A Texas lawyer filed a lawsuit, on behalf of Samuel Salache, against Marathon Petroleum Company, Ray Brooks and Innovative Ventilation Systems Inc. On Jan. 11, 2016, Salache was working as a foreman at the Marathon Refinery in Texas City, Texas, when a fire occurred. A spark ignited fumes causing an intense fire. According to a press release, Salache ensured that his entire crew escaped the fire. However, he suffered severe smoke inhalation and other potential injuries. Salache is suing the defendants on the grounds of negligence in terms of the following:

  • Failing to provide plaintiff with a safe place to work, and requiring plaintiff to work in unsafe conditions
  • Failing to provide sufficient personnel to perform operations
  • Failing to properly follow protocols and policies, proper safety monitoring and control practices
  • Failing to exercise due care and caution
  • Failing to avoid this incident
  • Failing to maintain the plant equipment
  • Creating an environment and condition that allowed an explosion and fire at the Marathon Refinery
  • Failing to comply with OSHA 1910.119 Process Safety Management regulations
  • Other acts of negligence which will be shown more fully at the trial

More quakes rattle Oklahoma but state avoids tough measures - In Oklahoma, now the country’s earthquake capital, people are talking nervously about the big one as man-made quakes get stronger, more frequent and closer to major population centers. Next door in Kansas, they’re feeling on firmer ground though no one is ready yet to declare victory. A year ago, the states had a common problem — earthquakes caused by the disposal of wastewater from oil and gas exploration. They chose different solutions. Kansas, following early scientific studies, decided to restrict how much and how fast the wastewater could be pumped back underground. Oklahoma instead initially concentrated on the depth of the wastewater injections. Developments since then haven’t been reassuring in Oklahoma, where a quake knocked out power in parts of an Oklahoma City suburb several weeks ago and where fears are growing that the worst is yet to come. On Friday, about 200 unhappy residents packed a forum at the state capitol convened by critics of the state’s response. A governor’s task force is studying the problem but officials have so far avoided taking tougher measures.

Fracking Industry-Linked Earthquakes in Oklahoma Crack Political Party Lines - DeSmog (blog) -- Sara Winsted, a resident of Edmond, Oklahoma, an upscale Oklahoma City suburb, won’t be surprised if her house falls down before state legislators take action to stop the earthquakes.  Her feeling of hopelessness intensified after she attended two public meetings: a town hall organized by State Rep. Lewis Moore (R-Arcadia) at the University of Central Oklahoma (UCO) in Edmond, and a public hearing at the state capitol in Oklahoma City led by State Rep. Richard Morrissette (D-OKC). Though the U.S. Geological Survey has determined the use of fracking wastewater disposal injection wells is the cause of the state’s earthquakes — and predicted a magnitude 5.5 or greater quake is probable — the use of disposal injection wells continues.Winsted joined the grassroots group Oklahoma Coalition Against Induced Seismicity, which has called on legislators to pass a temporary moratorium on injection wells that are disposing of fracking wastewater. Instead of doing that, state legislators passed SB 809 in May last year. The law limits the ability of local governments to regulate oil and gas operations. Now only the governor and the Oklahoma Corporation Commission (OCC), the agency that regulates the state’s oil and gas industry, can take any meaningful action. The new law follows Texas legislation passed a few months after Denton residents approved a ban on fracking, negating the initiative.   Ariel Ross thought it was great that people were finally given a forum to speak out, but was skeptical an event organized by Rep. Moore would lead to any kind of meaningful action.  “Moore has publicly asked if the quakes could be caused by drought,” Ross told DeSmog, “but now he is saying that there needs to be more action since his home has damage, and women are calling him concerned about their ‘nests.’” Ross questions his authenticity and fears the meeting was a publicity stunt.

Negative Oil Prices Arrive: Koch Brothers' Refinery "Pays" -$0.50 For North Dakota Crude - Do you have some extra space in your garage or attic? Or perhaps you own an oil tanker you aren’t currently using. Or maybe you have a storage unit that’s got a little extra room next to an old mattress and box springs. If so, you may want to call up oil producers in North Dakota and ask if they’d care to send you some free oil, because the crude glut is now so acute that the Koch brothers are actually charging $0.50/bbl to take low grade oil at their Flint Hills Resources refining arm. North Dakota Sour is a high-sulfur grade of crude and “is a small portion of the state’s production, with less than 15,000 barrels a day coming out of the ground,” Bloomberg notes, citing John Auers, executive vice president at Turner Mason & Co. in Dallas. “The output has been dwarfed by low-sulfur crude from the Bakken shale formation in the western part of the state, which has grown to 1.1 million barrels a day in the past 10 years.  High-sulfur grades are more expensive to refine and thus fetch lower prices at market. As Bloomberg goes on to note, “Enbridge stopped allowing high-sulfur crudes on its pipeline out of North Dakota in 2011, forcing North Dakota Sour producers to rely on more expensive transport such as trucks and trains [and] the price for Canadian bitumen -- the thick, sticky substance at the center of the heated debate over TransCanada Corp.’s Keystone XL pipeline -- fell to $8.35 last week, down from as much as $80 less than two years ago.”  So there you have it. The global deflationary supply glut has now reached the point that the market is effectively forcing producers to pay to give their oil away or else see it sit in bloated storage facilities until Riyadh decides enough is enough and until the world comes to terms with the return of Iranian supply. In other words, for some US producers the business isn't just loss making, it's an exercise in sadomasochistic futility.

Worthless North Dakota Sour priced less than zero dollars --With the oil market still awash with bounties of cheap crude oil, one buyer is asking producers to pay them to take shipments of a particular low-grade Bakken crude, reports Bloomberg. On Friday Koch Industries’ refining branch Flint Hills Resources offered a list price of -$0.50 a barrel for high-sulfur North Dakota Sour crude blends. One year ago that price was $13.50, and in January 2014 it was $47.60, according to Bloomberg. Low grade crudes such as the high-sulfur North Dakota Sour are priced differently than their higher quality counterparts to compensate for poor quality and transport costs. The negative price offered by Flint Resources can mostly be attributed to inadequate pipeline infrastructure, and capacity, for low quality blends. In 2011 Enbridge actually stopped allowing high-sulfur crudes in its North Dakota pipelines. The president of a Houston-based oil consulting firm told Bloomberg, “Telling producers that they have to pay you to take away their oil certainly gives the producers a whole bunch of incentive to shut in their wells.” The vice president of a Texas-based petroleum consulting company said, “You don’t produce stuff that’s a negative number. You shut in the well.” Although the high sulfur blend of North Dakota crude only accounts for less than 5 percent of daily production levels in North Dakota, it illustrates the acute pain oilfields are experiencing. On Monday oil prices dipped below $28 per barrel on anticipation of Iran sanctions being lifted and the country’s intent to increase production by 500,000 barrels per day. Securities analyst Bart Melek told Reuters,  “You can’t say this was unexpected but the Iran news is an additional factor that’s working against oil prices.”

Oil That's Worth Less Than Nothing - Oil is so plentiful and cheap in the U.S. that at least one buyer says it would pay almost nothing to take a certain type of low-quality crude. Flint Hills Resources LLC, the refining arm of billionaire brothers Charles and David Koch’s industrial empire, said it offered to pay $1.50 a barrel Friday for North Dakota Sour, a high-sulfur grade of crude, according to a corrected list of prices posted on its website Monday. It had previously posted a price of -$0.50. The crude is down from $13.50 a barrel a year ago and $47.60 in January 2014. While the near-zero price is due to the lack of pipeline capacity for a particular variety of ultra low quality crude, it underscores how dire things are in the U.S. oil patch. U.S. benchmark oil prices have collapsed more than 70 percent in the past 18 months and fell below $30 a barrel for the first time in 12 years last week. West Texas Intermediate traded as low as $28.36 in New York. Brent, the international benchmark, settled at $28.55 in London. “Telling producers that they have to pay you to take away their oil certainly gives the producers a whole bunch of incentive to shut in their wells,” Andy Lipow, president of Lipow Oil Associates LLC in Houston, said of the price that was posted as negative until Flint Hills revised it on Monday. Jake Reint, a Flint Hills spokesman, said the price was fixed on the website after the firm incorrectly posted it as negative. The prices reported by Flint Hills Resources and rivals such as Plains All American Pipeline LP are used as benchmarks, setting reference prices for dozens of different crudes produced in the U.S. Plains All American quoted two other varieties of American low quality crude at very low prices: South Texas Sour at $13.25 a barrel and Oklahoma Sour at $13.50 a barrel.

North Dakota's Steady Production Shows Why Market Rebalancing Is Hard  North Dakota's oil production has been flat for more than a year, but it hasn't fallen despite the sharp drop in prices, illustrating the challenges of rebalancing the oil market. Output first hit this level September 2014 and has been essentially unchanged for the last 15 months, the longest and deepest pause in growth since the shale boom began. The reduction in actual output of around 450,000 bpd compared with the previous trend is a measure of how far lower oil prices have already gone towards rebalancing the market. But most analysts and forecasters expected the state's crude output to have fallen sharply by now rather than just to have levelled off. Shale production was supposed to respond much faster to declining prices because it required the drilling of a large number of new wells to offset rapid decline rates from old ones. Instead, shale output has proved unexpectedly resilient, as producers have found ways to maintain output while slashing drilling and costs

North Dakota sour crude wells could stop with poor prices  — Decades-old oil wells that pump low-grade North Dakota sour crude are in danger of being shut down if prices hold at near worthless levels, the state’s oil industry group said Tuesday. Sour crude is oil that’s high in sulfur and more difficult to refine than low- or no-sulfur sweet crude. Sour crude represents about 0.5 percent of North Dakota’s oil production and most of the 754 wells pumping it are in aging fields on the northern edge of the state’s oil patch in Bottineau and Renville Counties, near the U.S.-Canada border. Sour crude prices slipped to $1.50 a barrel on Friday but rebounded to $8.50 a barrel on Tuesday. North Dakota sour crude fetched about $14.80 in January 2015. North Dakota Petroleum Council President Ron Ness said if sour crude prices were to hold at just a couple of dollars a barrel, the wells will likely be shut down until prices rebound. Some of the wells have been producing since oil was first discovered in North Dakota in the 1950s, he said. “It would be a horrible deal for producers and mineral owners but those wells would be shut in, waiting for a better market,” Ness said. North Dakota’s Department of Mineral Resources said the state produced an average of 1.1 million barrels of oil daily in November, the latest figures available. Agency spokeswoman Alison Ritter said sour crude make up only 7,400 barrels of that daily production.

North Dakota to make decision on Dakota Access Pipeline — North Dakota regulators are slated to consider the approval of the biggest-capacity pipeline proposed to date to move crude from the state’s oil patch. The North Dakota Public Service Commission is slated to decide the permit for the Dakota Access Pipeline on Wednesday. Dallas-based Energy Transfer Partners wants to build the $3.8 billion, 1,130-mile pipeline to move crude from North Dakota to Illinois. The North Dakota portion is the longest leg of the pipeline. The company says regulators in South Dakota and Illinois already have approved permits for the project. The company says it expects regulators in Iowa to make a decision on the pipeline next month.

Utility may have understated health threat from gas leak — The utility whose leaking natural gas well has driven thousands of Los Angeles residents from their homes has publicly understated the number of times airborne levels of the cancer-causing chemical benzene have spiked over the past three months, the company’s own data suggests. In trying to reassure the public there’s no long-term health risk from the leak, Southern California Gas Co. has said in news releases and FAQs on its website that since the crisis began, just two air samples briefly showed elevated concentrations of the substance. But a closer look at the online data by The Associated Press and outside experts actually shows that a dozen samples from the Porter Ranch community contained at least twice the amount of benzene that Southern California air regulators consider the normal background level. The possible reason for the discrepancy: SoCalGas apparently uses a different background level. The company was given repeated opportunities to explain its conclusions but couldn’t. “I don’t know what would explain it,” spokeswoman Melissa Bailey said.

Utility may have understated health threat from gas leak - – The utility whose leaking natural gas well has driven thousands of Porter Ranch residents from their homes acknowledged Thursday that it understated the number of times airborne levels of the cancer-causing chemical benzene have spiked during the crisis. Southern California Gas Co. had been saying on its website and in emails to The Associated Press that just two air samples over the past three months showed elevated concentrations of the compound. But after the AP inquired about discrepancies in the data, SoCalGas said higher-than-normal readings had been found at least 14 times. SoCalGas spokeswoman Kristine Lloyd said it was “an oversight” that was being corrected. The utility continued to assert that the leak has posed no long-term risk to the public. The World Health Organization and U.S. government classify benzene as an undisputed cause of leukemia and other cancers. “No safe level of exposure can be recommended,” WHO has said. For noncancerous ailments, California has said repeated exposures of 1 part per billion is unsafe. In the Los Angeles area, benzene is typically between 0.1 and 0.5 parts per billion, according to the South Coast Air Quality Management District. Tests showed that, at least 10 times in November, it exceeded 1 part per billion in Porter Ranch; one reading showed 5.6 parts per billion.

Fracking may be linked to Porter Ranch gas leak - Did fracking play a role in the Porter Ranch natural gas leak, one of the biggest environmental disasters in recent California history? In October, a ruptured storage well in the Aliso Canyon oil field began spewing hundreds of thousands of tons of noxious gas into Los Angeles neighborhoods. Three months later, this massive leak still hasn’t been stanched. Thousands of people in the Porter Ranch area have been driven from their homes, schools and businesses by horrible smells and spiking levels of cancer-causing benzene. State regulators don’t seem to know what caused the leak, or how to stop it. But newly uncovered documents show that hydraulic fracturing was commonly used in the Aliso Canyon gas storage wells – including a well less than a half-mile from the leak. Gov. Jerry Brown should immediately halt fracking in gas storage facilities throughout California. This technique – injecting fluids, including toxic chemicals, at enormous pressures into the wells – poses a huge threat to public safety. The facts about this little-known practice were buried in a recent California Council on Science and Technology report. “Hydraulic fracturing facilitates about a third of the subsurface storage of natural gas in the state,” and is especially common in Aliso Canyon, the report says. Operators frack storage wells to increase gas production, which decreases by about 5 percent a year, according to a U.S. Department of Energy report.

Air regulators considering methane burn-off from gas leak — Southern California air regulators delayed making a decision Saturday on whether to trap and burn leaking natural gas that has persisted for 12 weeks and driven thousands from their Los Angeles homes. The South Coast Air Quality Management District postponed voting on an order of abatement requiring Southern California Gas Co. to stop the leak until concluding the final phase of the hearing process Wednesday, agency spokesman Sam Atwood said. Its board members must also consider a plan to bring residents more immediate relief by capturing leaking methane and disposing the gas — either by burning it or by using carbon filters — and a proposal by many residents to permanently shut down the massive gas storage field once the leak is stopped. Atwood said air regulators would approve the plan to trap and burn the gas if it is deemed safe to do so. This past week, the state Public Utilities Commission expressed concerns that the damaged well could be vulnerable to an explosion, and the U.S. Environmental Protection Agency said it would assess the safety of burning the gas. Residents of Porter Ranch have complained about nausea, headaches, nosebleeds and other symptoms that have persisted since the leak at the Aliso Canyon storage field, the largest facility of its kind west of the Mississippi River, was reported Oct. 23.

Alert: LA gas well has ‘destabilized’, large crater develops in area — Officials: “Could be catastrophic” — TV: Risk of massive fire, possible explosion — Expert: “If wellhead fails, the thing is just going to be full blast… a horrible, horrible problem” — Company refuses to provide photos or media access (VIDEO): Efforts to plug Porter Ranch-area gas leak worsened blowout risk, regulators say — Southern California Gas Co… is trying to avoid a blowout, which state regulators said is now a significant concern after a seventh attempt to plug the well created more precarious conditions at the site. If a blowout occurs, highly flammable gas would vent directly up through the well… rather than dissipating as it does now… State officials said a blowout would increase the amount of leaked gas… That natural gas also creates the risk of a massive fire… The risk of fire already is so high that cellphones and watches are banned from the site… [The gas company's attempts to stop the leak] expanded a crater around the wellhead, state and gas company officials said. The crater is now 25 feet deep, 80 feet long and 30 feet wide, those officials said… [The gas company] declined repeated requests from The Times… The gas company would not provide current photos of the site or allow media access… In one internal state report obtained by The Times, an agency official described [one] kill effort as a “blowout to surface.” “A large column of gas, aerated mud, and rock formed a geyser around the wellhead,” the state observer wrote. Scott McGurk, senior oil and gas field regulator assigned to daily watch at Aliso Canyon, Jan 15, 2016: The site and wellhead were made more unstable by the gas company’s attempts to stop the leak by pumping a slurry directly into the well… The wellhead sits exposed within the cavernous space, held in place with cables attached after it wobbled during the plugging attempt… During one of [the plugging] attempts Nov. 13, a hole in the ground opened 20 feet north of the well… Gas that had seeped through diffuse rock fissures on the western side of the narrow ridge began streaming instead from the new vent… the vent allowed a “serious amount of gas” to escape. Gene Nelson, a physical sciences professor at Cuesta College, Jan 15, 2016: “If the wellhead fails, the thing is just going to be full blast… It will be a horrible, horrible problem. The leak rates would go way up.”

Gas company forced to resume offering rental houses to Porter Ranch families - The Los Angeles city attorney has forced the Southern California Gas Co. to back down from a plan the utility quietly put in place this week to stop offering rental houses to Porter Ranch families dislocated by the nearby gas leak. The company instructed its relocation specialists on Tuesday to no longer place residents in rental houses because they are increasingly hard to find and expensive for short-term lease. The utility, noting that it expects to plug the leak in four to five weeks, told agents to put families in hotels and motels instead. The utility reversed its decision after City Atty. Mike Feuer threatened legal action under a court order his office won last month establishing rules governing the relocations. “It would be totally unacceptable for SoCal Gas to harm residents further by rolling back its relocation policy,” said Feuer, who learned of the gas company’s action from The Times. “My office spoke to SoCal Gas on Wednesday, putting it on notice that such a change would violate the court’s order.” On Thursday, Stephanie Donovan, a spokeswoman for the company, said it had asked its relocation agents to “focus attention on short-term accommodations such as hotel rooms to quickly accommodate the greatest number of residents given the difficulty of finding homes available for short-term rentals.” “The city attorney did not agree with our approach and we agreed to continue to look for houses for residents who request those accommodations,” Donovan said. But some effects had already been felt. On Tuesday and Wednesday, some residents seeking relocation were told houses were no longer available. Some landlords saw the utility cancel plans to lease their residential units.

Do Hundreds of Other Gas Storage Sites Risk a Methane Leak Like California's? - Earlier this week, the massive methane leak spewing from an underground natural gas storage facility in California’s Aliso Canyon passed a symbolic milestone: its duration exceeded BP’s 2010 Deepwater Horizon oil spill in the Gulf of Mexico. Now, a growing number of environmentalists, engineers and industry watchdogs say the disaster on the outskirts of Los Angeles could happen elsewhere. There are  more than 400 underground natural gas storage sites spread across 31 states, and, like Aliso Canyon, decades-old equipment is deteriorating at many of them. There is little federal oversight for the storage of trillions of cubic feet of potentially explosive fuel that is also a potent greenhouse gas. More than 100 facilities like Aliso Canyon that are owned and operated by local utility companies are subject to a patchwork of state regulations, which vary significantly from state to state. In California, multiple agencies have some responsibility for underground gas storage, with no designated lead authority, according to state lawmakers.  More than 200 other storage sites are part of an interstate natural gas pipeline network and fall under the jurisdiction of U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA). That agency, however, does not inspect or regulate these storage units, deferring instead to state regulators. After a storage leak in Kansas led to a fatal explosion in 2001, a federal court barred Kansas regulators from imposing tougher standards, leaving the state’s storage facilities without any regulatory oversight.  The issue of gas storage facilities is a classic example of an important piece of the natural gas supply chain that has just fallen through the cracks,”

Oil below $30 fans wipeout fears among U.S. shale survival artists - Across oil fields from Texas to North Dakota fears are growing that crude's plunge below $30 a barrel is more than just another market milestone and marks a countdown to an endgame for many shale producers that so far have braved the 18-month downturn. Oil prices tumbled by more than a fifth this month to 12-year lows 70 percent below mid-2014 levels and traders brace for more declines as world production keeps outpacing demand. Yet many of around 50 listed U.S. independent oil producers and scores of smaller ones need $40-$60 a barrel to break even, according to several analysts. A longer spell of $30 oil will confront them with stark choices: bankruptcy, debt writedowns in return for deep concessions to creditors or fire sales of assets at a time when potential buyers are skittish."There's no place to make cuts anymore. There's not much else you can do now. Companies are losing money on a monthly basis. It's bad everywhere," "I went through the bust in the 1980s and it's beginning to feel like that again." The deepest downturn of the pre-shale era lasted five years and it took two decades for prices to fully recover. In the heart of the Eagle Ford formation in south Texas, where the fracking boom unlocked vast supplies, contributing to the global abundance that is now sinking prices, some say the latest plunge may be just too much. "We're going to reach a breaking point here," "If anybody says they are making money in the oilfield they are lying," Potts said. The once crowded trailer parks housing workers are nearly deserted, stacks of drill pipes rust and idled rigs spread over acres lay down on their sides.

How The Banks Are Tightening The Noose On U.S. Oil Firms -- Two weeks ago, we reported that even as U.S. lenders were professing to their investors that there is no risks with their energy exposure and that they are comfortably reserved for any potential losses, they were reducing their unfunded (and total) exposure to oil and gas exploration companies due to balance sheet, default and contagion concerns. We showed a list 25 deeply distressed companies, whose banks we found have quietly shrunk the borrowing base of their credit facilities anywhere from 6% in the case of Black Ridge Oil and Gas to a whopping 51% for soon to be insolvent New Source Energy Partners. Following up on this distrubing development, here is Markit with its take on how "Leverage is tightening the noose on US oil firms." Evaporating credit lines are set to finally squeeze US energy firms as oil prices break through $30 a barrel and US banks sound the alarm on rising bad loans in the sector.

  • US oil firms more levered than at the start of 2015 according to Markit Research Signals
  • Geared energy names underperform peers by 24% over the last 12 months
  • Shorts clamour for Chesapeake Energy as cost to borrow surges; third of shares sold short

Half of U.S. Fracking Industry Could Go Bankrupt as Oil Prices Continue to Fall -- As expected this morning, the oil price has fallen below $28 a barrel on the back of the historic news over the weekend of sanctions being lifted on Iran. This is the lowest level for oil since 2003. The markets are spooked that the lifting of sanctions means the imminent introduction of half a million or so more barrels of oil per day from Iran into an already oversupplied market. The country has the world’s fourth largest reserves of oil.  “Major producers are currently delivering 2-2.5 million barrels per day more than demand, so the question is how long they can continue to overproduce for at that level.” Already struggling with oversupply from various countries, the market now has Iran to contend with too. Analysts from Barclays said simply: “Iranian exports come at a very bad time.” That can only mean one thing: a market awash with oil, which will only add a downwards pressure on the already low oil price. And there is no respite in store.  HSBC chief executive Stuart Gulliver said he predicted the price of oil to be somewhere between $25 and $40 in a year’s time. The American shale industry needs oil at about the 60 to 70 dollar a barrel level in order to survive. Having limped along last year hoping for a rebound in prices this year, the industry is heading for deep trouble.

Some Bankrupt Oil and Gas Drillers Can't Give Their Assets Away -- In mid-2014, when the crude price topped $100 a barrel, Terry Clark made an offer to buy properties from Dune Energy Inc., a small driller with money trouble. Dune turned him down. A year later, as oil plunged to $60 a barrel, Dune filed for bankruptcy and Clark picked up the assets at auction at a deep discount. “What we offered versus what we got it for, it’s a great price,” Clark said.   Winners and losers are emerging from the energy bust. What’s a meal for Clark is indigestion for banks that financed the boom using oil and gas properties as collateral. The four biggest U.S. banks -- Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. -- have set aside at least $2.5 billion combined to cover souring energy loans and have said they’ll add to that if prices stay low. There’s plenty to keep Clark bargain-hunting. Last year, 42 U.S. energy companies went bankrupt, owing more than $17 billion, according to a report from law firm Haynes & Boone.  Dune went belly up owing $144.2 million. Its assets sold for $20 million. In May, American Eagle Energy Corp. filed for bankruptcy with debts of $215 million. Its properties sold for $45 million in October. BPZ Resources Inc. owed $275.2 million. Its assets fetched about $9 million. Endeavour International Corp. went into bankruptcy owing $1.63 billion. The company sold some assets for $9.65 million and handed over the rest to lenders. ERG Resources LLC opened an auction with a minimum bid of $250 million. Response? No takers. “A lot of people got into this business and didn’t really understand the ups and downs of price cycles,”  “They’re getting a very bad dose of reality right now.”  More pain will come, according to Roof’s firm. Crude prices, down more than 70 percent since June 2014 and sinking below $30 a barrel, could head down further, according to an AlixPartners report.

The great condensate con: Is the oil glut just about oil? -- My favorite Texas oilman Jeffrey Brown is at it again. In a recent email he's pointing out to everyone who will listen that the supposed oversupply of crude oil isn't quite what it seems. Yes, there is a large overhang of excess oil in the market. But how much of that oversupply is honest-to-god oil and how much is so-called lease condensate which gets carelessly lumped in with crude oil? And, why is this important to understanding the true state of world oil supplies?  .  Lease condensate consists of very light hydrocarbons which condense from gaseous into liquid form when they leave the high pressure of oil reservoirs and exit through the top of an oil well. This condensate is less dense than oil and can interfere with optimal refining if too much is mixed with actual crude oil. Refiners are already complaining that so-called "blended crudes" contain too much lease condensate, and they are seeking out better crudes straight from the wellhead. Brown has dubbed all of this the great condensate con.  Brown points out that U.S. net crude oil imports for December 2015 grew from the previous December, according to the U.S. Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy. U.S. statistics for crude oil imports include condensate, but don't break out condensate separately. Brown believes that with America already awash in condensate, almost all of those imports must have been crude oil proper.Brown asks, "Why would refiners continue to import large--and increasing--volumes of actual crude oil, if they didn’t have to--even as we saw a huge build in [U.S.] C+C [crude oil plus condensate] inventories?" Part of the answer is that U.S. production of crude oil has been declining since mid-2015. But another part of the answer is that what the EIA calls crude oil is actually crude plus lease condensate. With huge new amounts of lease condensate coming from America's condensate-rich tight oil fields--the ones tapped by hydraulic fracturing or fracking--the United States isn't producing quite as much actual crude oil as the raw numbers would lead us to believe. This EIA chart breaking down the API gravity of U.S. crude production supports this view.

Southwestern Energy to shed 1,100 jobs - Southwestern Energy Co. announced layoffs Thursday as drilling activity stalls. The Houston-based company will reduce its workforce by more than 40 percent, according to filings with the Securities and Exchange Commission. The oil and natural gas driller expects to shed 1,100 jobs as it copes with falling natural gas prices. About 300 of those laid off are part of Southwestern’s Houston headquarters, according to Fuel Fix.  Employees were notified of a workforce reduction plan Thursday. Affected employees are being offered a severance package, which includes a one-time cash payment depending on length of service and, if applicable, amendments to outstanding equity awards to modify forfeiture provisions on separation from the company. Some affected employees are being offered the opportunity to accept reduced roles with the company. The company expects the plan to be substantially implemented by the end of the first quarter this year.

Oklahoma-based Devon Energy plans layoffs over next few months — Oklahoma City-based Devon Energy Corp. has announced that it is planning employee layoffs over the next few months. Company executives made the announcement during a town hall meeting with employees Wednesday morning. Spokesman Tim Hartley said that the layoffs are a necessary part of cost management efforts for Devon as oil and natural gas prices remain weak. Hartley said that it has not been determined how many employees will lose their jobs, but that a majority of the layoffs will happen by the end of March. According to a document filed with the Securities and Exchange Commission last year, Devon had about 5,500 employees as of Dec. 31, 2014.

Layoffs to Hit 10K in Shell BG Group Merger - Royal Dutch Shell and BG Group will continue layoffs this year. The companies estimate a total of 10,000 employees and direct contractors will be let go, dating back to last year.The cuts come as the companies slash operating costs and try to extract synergies from their upcoming merger. In a preliminary four-quarter earnings report, Shell announced it reduced operating costs by $4 billion last year and expects to trim another $3 billion in costs this year. According to Royal Dutch Shell CEO Ben van Beurden, Shell is taking steps to refocus and reduce capital spending. The company’s capital investment is projected to be $29 billion, or 20 percent less than 2014 levels. Shell plans to be more efficient and selective of new investments. No other details were provided about its job cuts. The company announced approximately 7,500 layoffs in 2015.  Shell’s acquisition of BG Group is subject to shareholder approval, but is expected to close in the coming weeks. The transaction was originally valued at more than $70 billion, but the price fell as Shell’s shares declined with falling oil prices.

Schlumberger Fires 10,000 As It Announces A $10 Billion Stock Buyback - When your organic growth is over, your revenue just missed consensus expectations once again ($7.74Bn vs $7.77BN expected), your stock is trading near 4 years lows and and you are stuck in the imploding energy sector, what do you do? Why you announce a $10 billion stock buyback, but since you will have to fund it with more debt (whose cost in recent weeks has soared) you have to get rid of "overhead." How do you do that? Simple: you announce you are firing 10,000 workers. The commentary: “In anticipation of an extended activity weakness in the first half of 2016, we implemented another significant adjustment to our cost and resource base during the fourth quarter. This included a further workforce reduction of 10,000 employees, as well as greater streamlining of our overhead, infrastructure and asset base. This led us to recognize in the fourth quarter $530 million in pretax restructuring charges for expanding the incentivized leave of absence program and reducing our workforce, as well as a largely non-cash $1.6 billion pretax impairment charge for fixed assets, inventory write-downs, facility closures, contract terminations, and other asset impairments. So sorry for the pink slips, but they were instrumental to make sure the shareholders enjoy at least a few more weeks of higher stock prices at which they can sell, ideally back to the company (and its latest bondholders):

Schlumberger Lays Off 10,000 More People; U.S. Land Activity Decline 'Sharpest' Since 1986 -- Schlumberger Ltd. lost more than $1 billion in the fourth quarter and reduced its workforce by another 10,000 as tight exploration budgets slammed profits for the world's largest oilfield services company. With the United States continuing to be the No. 1 region for its business, the earnings report foreshadows what’s ahead for the rest of the services sector as well as exploration and production (E&P) results. To cope with the poor environment and likely downturn through at the least the first half of this year, Schlumberger laid off another 10,000 people during the fourth quarter. The company had indicated in December it was reducing the workforce, but it had not indicated how many people would lose their jobs (see Shale Daily, Dec. 1, 2015). In January 2015 the company laid off close to 11,000 employees, or 15% from 3Q2014 levels (see Shale Daily, April 17, 2015). At least 20,000 jobs were cut by Schlumberger prior to the December layoffs (see Shale Daily, Oct. 16, 2015). The company currently employs about 105,000 people. The "extended activity weakness" is seen persisting through June, CEO Paal Kibsgaard said. Reducing the workforce led to pretax restructuring charges in 4Q2015 of $530 million. The number of land rigs exploring for oil and gas in the United States was down 68% in the fourth quarter from its 2015 peak, he said. "The decrease in land activity was the sharpest seen since 1986," and "massive overcapacity in the land services market offers no signs of pricing recovery in the short to medium term."

Warren Buffett Buys Phillips 66 For Fourth Consecutive Day -  Warren Buffett continues to build his stake in Phillips 66 PSX, reporting Monday his third purchase filing this month. Buffett’s company Berkshire Hathaway said it bought 1,645,887 shares of the company on January 7, 2016, at prices ranging from $76.45 to $78.01 per share. This represents a 2.64% increase from the number of shares Buffett owned the day before. The purchase also shows Buffett’s growing interest in the company. It follows a 107% increase to his holding in the third quarter, a total 0.08% increase January 4 and January 5, 2016, and 1.23% increase January 6, 2016. His Phillips 66 holding now totals 63,940,380 shares. A spin-off from ConocoPhillips, Phillips 66 is a midstream energy company that operates chemicals, oil refining and market businesses. Oil refiners tend to benefit when oil prices drop, and the price per barrel fell to a 12-year low near $30 Tuesday. Buffett, however, has said the refinery business was not the primary appeal for him. “We’re buying it because we like the company and we like the management very much,”

Buffett's firm buys another 1.6 million Phillips 66 shares  -- Berkshire Hathaway is continuing this month string of Phillips 66 stock purchases, and Warren Buffett’s conglomerate now controls 12.9 percent of the oil refiner. Berkshire filed documents with the Securities and Exchange Commission on Friday that disclosed purchases of another 1.6 million Phillips 66 shares. Buffett’s company has now bought nearly 7.5 million shares of Phillips 66 this month. It’s possible the buying may continue because Phillips 66 share prices haven’t increased above the range where Berkshire has been buying. Berkshire first revealed owning over 10 percent of Phillips 66 stock in August when it disclosed a stake of 55 million shares. This month’s purchases are the first Berkshire made since September.

Hillary Clinton’s Complicated Ties to Big Oil  -- This week, Greenpeace and more than 20 partners called on all 2016 presidential candidates to commit to a people-powered democracy. That means their potential administrations would prioritize reforms to get money out of politics and protect voting rights. To prove they mean business, we’re asking all candidates to start off their pledge with a commitment to refuse all campaign donations from fossil fuel companies. Already, presidential candidate Bernie Sanders has signed the pledge and vowed to reject dirty energy money. Now our sights are set on candidates Hillary Clinton and Martin O’Malley. Secretary Clinton has already said that she believes Exxon should be prosecuted for misleading the public on what it knew about climate change going back to the 1970s. New evidence has surfaced showing that other fossil fuel companies, including Shell and Chevron, also knew. But when asked last month whether her campaign would stop taking money from the fossil fuel industry, Clinton wavered, saying that she wasn’t aware if her campaign had taken money, but would look into it.   Well, we looked into it. While it’s true that Clinton’s campaign committee has not taken any money from Exxon or Exxon’s political action committee, it has taken money from fossil fuel lobbyists. Analyzing just Exxon, seven of the company’s lobbyists gave the maximum allowable amount to Clinton’s presidential campaign. Clinton’s campaign bundlers also have strong ties to the fossil fuel industry. Bundlers act as lobbyists for campaigns, recruiting other people they know to make individual donations. Outside analysis showed that nearly all of the Clinton campaign’s registered bundlers have worked for the fossil fuel industry.

Company sues feds over funds for Gulf oil leak --  The company responsible for a continuing oil leak that began a decade ago in the Gulf of Mexico is suing the federal government to recover more than $400 million that the company set aside for work to end the leak. New Orleans-based Taylor Energy Company’s lawsuit, filed Monday in the U.S. Court of Federal Claims, says the government violated a 2008 agreement requiring the company to deposit approximately $666 million in a trust to pay for leak response work. The company says the government must return the remaining $432 million. Taylor Energy claims nothing can be done to completely eliminate chronic sheens at the site off Louisiana’s coast. Regulators warn the leak could last a century or more if left unchecked. Taylor Energy has lobbied to recover at least a portion of the remaining money. Since December 2014, at least four members of Louisiana’s congressional delegation have sent letters urging the Obama administration to take up a settlement proposal by Taylor Energy. But federal authorities rebuffed the company’s settlement overtures last year and ordered it to perform more work at the site, where a Taylor Energy-owned platform toppled during Hurricane Ivan in 2004. An underwater mudslide triggered by waves whipped up by Ivan also buried a cluster of oil wells under treacherous mounds of sediment, preventing the company from using conventional techniques to plug its wells.

Company: "Act of God" caused decade-old oil leak - The president of a New Orleans-based company responsible for a decade-old oil leak in the Gulf of Mexico says it was caused by “an act of God event.” Taylor Energy Company President William Pecue also told a gathering of industry experts and environmental advocates on Wednesday that the company cares “very deeply” about the environment. Oil slicks often stretch for miles at the site where a Taylor Energy-owned platform toppled off the coast of Louisiana during Hurricane Ivan in 2004. Federal regulators estimate the leak could last a century or more if left unchecked. Wednesday’s forum in Baton Rouge is a requirement of a court settlement that Taylor Energy reached in September with environmental groups, which accused the company of withholding information about the leak.  Taylor Energy Company agreed to hold Wednesday’s forum in Baton Rouge when it reached a court settlement in September with environmental groups that accused the company of withholding information about the leak. . Taylor Energy has said nothing can be done to completely eliminate the chronic sheens that frequently stretch for miles off Louisiana’s coast at the site where one of its platforms toppled during Hurricane Ivan in 2004.

Looming environmental disaster in Quebec as discarded ship could break up - Local authorities in Quebec are warning of a looming environmental disaster if nothing is done to salvage a discarded bulk carrier. The Kathryn Spirit was abandoned by its Mexican owners four years ago at the city of Beauharnois near Montreal and the St Lawrence River. The Mexican firm has since declared bankruptcy and all pumping operations to keep the ship upright have come to a halt. Beauharnois mayor Claude Haineault has warned rain and snow are accumulating in the hold of the ship, and with the pumping operations stopped, he is concerned the open hatch ship could begin to list and eventually capsize. “I think it will be a very big environmental disaster very soon,” Haineault said, suggesting oil could leak into the river and affect Montreal’s access to drinking water. The mayor has asked both federal and provincial governments to help salvage the 1967-built vessel.

Fracking in Alberta: Daily quakes and thirsty residents: 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 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 company said it didn't know when operations will restart. Local municipal authorities have warned of the environmental costs of large-scale oil extraction in this region rich in hydrocarbons. "Industry and the provincial government (of Alberta) have been turning a blind eye to what has been going on in our area," Fox Creek Mayor Jim Ahn said in a letter to the AER. "We have industry pulling water from our rivers, streams and lakes at rates we feel far exceed their capabilities to replenish themselves." Water shortages have become a persistent problem, he said, adding that the municipality had to spend more than Can$300,000 (US$206,000) to bring in potable water for its residents.

Alberta feels quakes almost daily as energy companies extract oil with fracking method – 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 km (160 miles) northwest of Edmonton. Some days, seismic activity is higher, such as last Sept. 11, when a record 18 earthquakes were felt. On Tuesday, a magnitude -4.8 quake on the Richter scale was recorded 30 km 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.”  AER has not confirmed a link between Tuesday’s small quake and fracking in the region. Spokeswoman Carrie Rosa said the agency is investigating.

Scientists still studying link between earthquakes and fracking - 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.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."

B.C. commission confirms 4.6-magnitude quake in August caused by fracking -- The British Columbia Oil and Gas Commission has confirmed that fracking caused a 4.6-magnitude earthquake in August -- the largest linked to the industry in the province to date. The commission says an investigation has determined that the Aug. 17 quake in northeastern B.C. was caused by fluid injection from hydraulic fracturing, also known as fracking. It says 4.6-magnitude seismic events typically cause brief shaking felt at the surface but aren't a risk to public or environmental safety. Progress Energy, which is owned by Malaysia's Petronas and would supply gas to the planned Pacific NorthWest LNG terminal, paused its operations after the quake struck about 114 kilometres outside of Fort St. John. The company held the previous record for the largest known fracking-caused quake in B.C. with a 4.4-magnitude tremor in 2014. A statement from Progress Energy says it takes the incident very seriously and it has 17 monitoring stations in its operating area to accurately detect seismic activity

US$4.5 Billion Deal Reached: Suncor to Acquire Canadian Oil Sands - After months of posturing and wrestling for shareholder approval, the boards of Suncor (ticker: SU) and Canadian Oil Sands (ticker: COS) have reached a merger agreement. The joint announcement, released on January 18, 2015, includes a sweetened transaction value of CN$6.6 billion (about US$4.5 billion) for COS, inclusive of an estimated CN$2.4 billion (about US$1.6 billion) in debt. The transaction is a straight stock-for-stock exchange and each COS shareholder will receive 0.28 SU shares (CN$8.74/share) in exchange for each COS share, a 12% increase compared to the initial offer of 0.25 SU shares (CN$7.81/share) in exchange for a full COS share. Once the merger is complete, the Suncor will own nearly half the interest in Alberta’s massive Syncrude oil sands project. COS estimates the project will average 2016 gross production of 260 to 301 MBOPD in a guidance document. Completion of the transaction is still dependent on feedback from COS shareholders. The offer expires on February 5, 2016 and needs at least 51% approval. COS owes Suncor a breakup fee of $130 million if the deal is not completed.

Forget $20 - Oil Prices At $8 Per Barrel In Canada --Where is the cheapest crude oil in the world? And how low can you get that barrel of oil? WTI has declined to $30 per barrel, the lowest level in more than 12 years. But heavy oil producers in Canada would love to have $30 oil. The price for a barrel of bitumen, the tar-like oil sands that comes from Alberta, fell to just over $8 per barrel this week. That is not a typo. Bitumen traded at $8.35 per barrel on Tuesday. In fact, sells oil drums – just the barrel, not the oil – for $78, almost ten times the cost of the actual bitumen. To be fair, that drum holds 55 gallons instead of the industry-usual 42 gallons. But even a 30-gallon barrel – again, an empty barrel – costs 7 times more than the oil sands that would go in it. Single-digit oil prices for oil sands is not just a problem, it is an existential crisis. That is because heavy oil is some of the costliest stuff around. Bitumen production is way more expensive than oil from shale. Heavy oil producers are now losing money on every single barrel that they sell, even from facilities that are already up and running. Forget the fixed costs of development; just the operating costs of keeping a project online are significantly higher than the revenue that an oil sands producer would earn from selling their bitumen.

Alberta Hit With Debt Ceiling Warning, Pipeline Snub: — Beleaguered Alberta took two more gut punches Thursday as a credit-rating agency reported the province is close to its debt ceiling and Quebec mayors slammed a critical pipeline project. "Today has been a very tough day indeed for Alberta,'' said Wildrose Opposition Leader Brian Jean. Toronto-based agency DBRS affirmed Alberta's top-drawer triple-A credit rating, but downgraded the province's fiscal outlook from stable to negative. It said with oil prices so low and the government's borrowing plans so high, Alberta will exceed its own self-imposed legislated debt limits this fiscal year.  Alberta, under a law passed last year by Premier Rachel Notley's NDP government, cannot borrow more than 15 per cent of its gross domestic product. Finance Minister Joe Ceci has said the limit is critical to ensure future generations of Albertans are not saddled with crippling debt payments. DBRS is the third major credit agency to downgrade Alberta's prospects since the new year. Free falling oil prices over the last year and a half have removed billions of dollars from Alberta's economy and plunged the government deep into the red. To rectify that imbalance, the province is trying to drum up support for pipeline construction to get its crude to ports and transport it to emerging markets such as Asia. One pipeline project, Energy East, would take Alberta crude through central Canada to refineries and ports in New Brunswick. But on Thursday, Montreal Mayor Denis Coderre, speaking for the region's mayors, rejected the pipeline as too risky environmentally against limited profit for the area.

TransCanada, First Nations groups sign deals for Coastal GasLink project - Oil & Gas Journal - TransCanada Corp. reported that its Coastal GasLink Pipeline Project has signed long-term agreements with Nadleh Whut’en First Nation and West Moberly First Nations. The Coastal GasLink project has now secured 11 project agreements and continues to make “good progress” toward concluding deals with other First Nations along the pipeline route, TransCanada said.“Our early and consistent engagement with First Nations has helped establish trust and lay the groundwork for these project agreements,” said Rick Gateman, Coastal GasLink president. “The deep familiarity and knowledge that First Nations have with their land is a tremendous benefit that TransCanada draws upon throughout its project planning process.” Coastal GasLink is proposing to construct and operate a 670-km natural gas pipeline from the Groundbirch area near Dawson Creek, BC, to the proposed LNG Canada LNG export facility near Kitimat, BC. The project is a key component of TransCanada’s capital growth plan, which includes more than $13 billion in proposed gas pipeline projects. In third-quarter 2014, TransCanada was issued an environmental assessment certificate by the British Columbian Environmental Assessment Office for the Coastal GasLink project (OGJ Online, Oct. 27, 2014).

3 ‘Knitting Nannas’ Arrested Protesting 850 Proposed Gas Wells --Three women from Knitting Nannas Against Gas, an anti-coal seam gas group, have been arrested after locking themselves by their necks to the gates of a wastewater treatment plant in New South Wales, Australia.The three women were detained, charged and then released from the Narrabri police station.  The women—Angela Dalu, 70, Dominique Jacobs, 51, Theresa Mason, 48—chained themselves this morning to the gates of the Santos Leewood Water treatment plant south of Narrabri. The plant is the proposed site of 850 coal seam gas wells. “The action today has seen three ladies from the Knitting Nannas Against Gas lock themselves to the Santos gates to prevent workers gaining access to the controversial Leewood evaporative ponds,” the group posted to its Facebook page. “This is where almost 600 million liters of toxic CSG [coal seam gas] waste is stored. Santos are trying to build a reverse osmosis plant on this site to concentrate the waste and use treated water for neighboring crops.” The Knitting Nannas, who were joined by some 60 other anti-coal seam gas activists, were charged with obstructing traffic and failure to comply with police direction, The Guardian reported. They did not resist arrest, local police said

Activists oppose oil drilling around Congo protected area — Conservation groups want Uganda’s government to end plans to drill for oil in a lake on Uganda’s western border with Congo, saying oil exploration there threatens Africa’s oldest national park. All six new oil licenses being offered by Uganda’s government are for exploration in protected areas, including one that borders Congo’s Virunga National Park. Oil activity in the Lake Edward basin may have a devastating impact on Virunga, more than 60 conservation and tourism groups, including Global Witness and the Zoological Society of London, said Thursday. Lake Edward, which lies across Uganda’s border with Congo, “is at the heart of Virunga’s precious ecosystem,” the groups said in a statement, adding that oil exploration there will also be harmful to Uganda’s growing tourism sector. “Oil activity in one part of the lake will affect all of it – the wildlife who call the lake home aren’t aware of these national borders,” said George Boden, a campaigner with Global Witness. “There are also over 200,000 people who are dependent on Lake Edward for food. UNESCO and the governments of Uganda and Congo need to act urgently to stop oil exploration in the entire lake for good.” The Ugandan government said the licensing of new oil blocks would proceed next week despite the criticism.

How the Shale Revolution Has Reduced Geopolitical and Price Risk - Despite America’s recent re-emergence as an energy superpower, thanks to revolutionary, Made-in-the-USA extraction technologies, we are still coming to grips with how U.S. shale production has completely rearranged the world’s energy order. As the price of oil plummeted below $30 per barrel, explanations for the collapse have focused on Saudi market strategy and concern about China’s jittery economy, not on the emergence of shale in America.Even as the U.S. rig count has retreated (see chart above), shale remains the key to understanding the global oil landscape. The lack of geopolitical risk in the oil marketplace is an important clue. Consider that despite all of the turmoil in key oil-producing regions, namely the Middle East, oil prices have not spiked. They have only continued to slide. Geopolitical risk, which tends to wreak havoc on oil prices at the most inopportune times, is nonexistent. Nothing — not Russian intervention in Syria, not ISIS attacks on Libyan oil infrastructure, not the torching of the Saudi Embassy in Tehran — has been able to stop the oil price collapse. It’s tempting to dismiss the lack of risk considerations as simply a reflection of the size of the oil glut or the concerns about China’s economy. But that would be wrong. The prices for oil futures contracts get us closer to the real story. Contracts for Brent crude oil futures don’t rise above $50 per barrel until mid-2020. Geopolitical risk hasn’t just been removed from the oil marketplace for the next few months or year, but for the next five years.

 Drowning in a Sea of Oil: Oil prices could fall further this year as the market faces an “enormous strain” on its ability to absorb new supplies from producers such as Iran, a top world energy monitor said Tuesday. “The oil market faces the prospect of a third successive year when supply will exceed demand by 1 million barrels per day and there will be enormous strain on the ability of the oil system to absorb it efficiently,” said the International Energy Agency in its first monthly report of the year. The oil markets could be left with a surplus of 1.5 million barrels a day in the first half of 2016, and “unless something changes, the oil market could drown in oversupply,” it said. Crude oil prices have plunged over the last 18 months on vast new oil supplies from inside and outside the Organization of the Petroleum Exporting Countries. On Monday Brent crude touched its lowest level since 2003 . The low price of crude has seen oil companies laying off thousands of workers and cutting their capital spending. A report by energy consultancy Wood Mackenzie published on Thursday found oil companies had delayed making decisions on 68 major projects world-wide last year. This accounts for some 27 billion barrels of oil and equivalent natural-gas volumes, the report said, and brings total industry-wide deferred spending for 2015 to $380 billion.

Shell Fires Another 10,000; Energy Layoffs Top 250,000; Oil Breaks $28 Again; In Search of Jobs --As reflective of trends in the industry Shell Fires 10,000 Workers As its fortunes collapse due to falling oil prices, Royal Dutch Shell PLC will fire 10,000 people in an effort to bolster margins. Operating costs have reduced by $4 billion, or around 10% in 2015, and the company expects Shell’s costs to fall again in 2016 by a further $3 billion. Synergies from the BG combination will be in addition to that. Together, these actions will include a reduction of some 10,000 staff and direct contractor positions in 2015-16 across both companies, as streamlining and integration of the two companies continue. The "BG combination" mention above but not explained refers to the Shell Takeover of BG announced in December.  Royal Dutch Shell is pressing ahead with its $60bn (£40bn) takeover of BG Group despite doubts among some shareholders about the deal’s viability given the falling oil price.  Some Shell shareholders believe the company is paying over the odds for BG because the deal was agreed in April on the assumption that oil prices would recover to $90 a barrel by 2020. The price of oil has slumped from $115 a barrel in summer 2014 to less than $40. On Monday it dropped to an 11-year low of $36.17. David Cumming, head of equities at Standard Life Investments, called on Shell’s boss, Ben van Beurden, to pay a $750m break fee to scrap the deal or renegotiate the terms. The only other option is for shareholders to vote against the takeover, he said. Management is never fired for questionable, even outright bad, corporate decisions. Employees, not management takes the hit. In this case, chalk up another 10,000 employee synergies.

Oil Speculators Raise Bets on Falling Prices to All-Time High -- Hedge funds increased bearish oil wagers to a record as global equities fell and Iran was poised to add to the crude supply glut. Oil dropped below $30 a barrel in New York for the first time in 12 years on Jan. 12 amid concern that turmoil in China’s markets will curb fuel demand. Prices dropped further as the week progressed on signs that sanctions against Iran would be lifted, allowing a boost in crude shipments from OPEC’s fifth-biggest member.  Speculators’ short position in West Texas Intermediate crude rose 15 percent in the week ended Jan. 12, data from the U.S. Commodity Futures Trading Commission show. It’s the highest in records dating back to 2006. Net-long positions fell to the lowest in more than five years. WTI slumped 15 percent to $30.44 a barrel in the report week on the New York Mercantile Exchange. Prices on Monday dropped as much as 3.6 percent to $28.36 a barrel, the lowest in intraday trade since October 2003, and changed hands at $29.38 as of 12:32 p.m. London time.  Iran is targeting an immediate increase in shipments of 500,000 barrels a day, Amir Hossein Zamaninia, deputy oil minister for commerce and international affairs, said on Sunday. It plans to add another half-million barrels within months. Analysts and economists surveyed by Bloomberg said it can only add 400,000 barrels after six months. U.S. crude inventories climbed in the week ended Jan. 8, adding to the glut, Energy Information Administration data show. Supplies at Cushing, Oklahoma, the delivery point for WTI, rose to a record. Speculators’ short position in WTI rose by 25,899 contracts to 200,975 futures and options, CFTC data show. Longs, or bets that prices will rise, climbed 7.4 percent, the biggest gain in a year. Net longs dropped 9.3 percent. “There are a lot of people who thought oil can’t go down much further and tried to call a bottom,” “When we have monster pullbacks, things don’t end politely. I think we’ll drop to $24 or $25 and then have a sharp V-shaped rally.”

Why crude oil prices keep falling and falling, in one simple chart - For the last two years, global oil prices have been in free-fall, and no one seems to know when the bungee cord will catch. In June 2014, you had to plunk down $110 to purchase a barrel of Brent crude. By early 2015, that had dropped to $60. Today, it costs less than $30 to buy a barrel of oil — a level not seen since 2004. It's a breathtaking decline.  I've written a longer explainer of the rise and fall of oil prices, but the basic dynamic can be seen in the chart below, from the International Energy Agency's Oil Market Report. Since mid-2014, the world has been producing far more oil than anyone needs: Oil supply* (in green) remains much higher than demand (yellow) — about 1.5 million barrels per day higher — with the excess getting saved for later in stockpiles. And, according to the IEA, that glut is currently expected to persist for the rest of 2016: "Unless something changes, the oil market could drown in over-supply."  Between 2010 and 2014, as you can see above, oil demand was soaring around the world, as countries recovered from the financial crisis but global production was struggling to keep up, and prices soared to around $100 per barrel.  Those high prices, however, spurred drillers in the United States to use innovative hydraulic fracturing and horizontal drilling techniques to unlock vast quantities of oil from shale formations in places like North Dakota and Texas. It's hard to overstate the impact of the fracking boom: US crude oil production has nearly doubled since 2010. Eventually, supply caught up with demand — and then surpassed it. That's when the crash came.

IEA: Oil prices may fall further this year — The International Energy Agency says oil prices may fall further this year due to low demand, warm winter weather and an oversupply of crude. The organization, which advises countries on energy policy, said in its monthly report Tuesday that global excess supply may reach 1.5 million barrels per day during the first half of the year. “Unless something changes, the oil market could drown in over-supply,” the IEA said. U.S. crude prices have fallen 24 percent since the beginning of the year. Benchmark U.S. crude fell $1.03, or 3.5 percent, to $28.39 a barrel in New York on Tuesday. Many oil companies, including Chevron and BP, have cut jobs and reduced spending to save money. The IEA noted mild temperatures at the outset of winter in the U.S., Japan and Europe lowered demand for oil. Meanwhile, more oil from Iran could boost global supplies further. Iran has said it is aiming to increase its oil production by 500,000 barrels per day now that sanctions have been lifted under a nuclear deal with world powers. “There will be enormous strain on the ability of the oil system to absorb it efficiently,” the IEA said, referring to the overall excess supply.

Oil tumbles under $28 on February contract’s expiration day - Oil futures traded sharply lower on Wednesday, as a fresh slide in the global financial markets and continued concerns about the glut of crude pushed the February West Texas Intermediate crude contract below $28 a barrel ahead of its expiration. The International Energy Agency said in a report released Tuesday that the world may soon drown in oversupply. There is also “a record short position in hedge funds and we have the promise of more Iranian oil on the world market,” said Phil Flynn, senior market analyst at Price Futures Group. “Add it all up and it’s causing the crude-oil market to crater around the globe,” he said in a note Wednesday.   On the New York Mercantile Exchange, February WTI crude  fell $1.19, or 4.2%, to $27.27 a barrel ahead of the contract’s expiration at Wednesday’s settlement. March crude  which will become the front-month contract, dropped $1.11, or 3.8%, to $28.46 a barrel. WTI prices continue to trade at their lowest levels since September 2003. Brent crude for March delivery, the global oil benchmark, was down 93 cents, or 3.8%%, to $27.68 a barrel on London’s ICE Futures exchange, after trading as low as $27.70.

Oil Slides After API Reports Another Large Crude, Gasoline Inventory Build -- With December's seasonal shenanigans out of the way, and following 2 record-breaking weekly builds in gasoline stocks, with expectations of a 2.3mm barrel build API reported a large 4.6mm inventory build (double expectations) . Cushing inventories built 63k, rising for the 12th week in a row. Gasoline stocks rose once again (+4.7mm) and Distillates also (+1.5mm). December is over... Charts: Bloomberg

Oil — ‘Almost as cheap as the world has seen in 50 years’ - Consider this chart from Charles Robertson at Renaissance Capital. Click to enlarge…Rather than waste his time with nominal price comparisons or eat far too much time trying use suitable inflation stats, Robertson simply compares the oil price to global GDP. The peak was 1979, when the world spent 7.5 per cent of total GDP on oil — more than education and defence spending globally, combined.The low came in 1998, when spending on oil amounted to 1.1 per cent of global GDP — and pretty much the entire emerging world was ins some sort of crisis.And now? If oil AVERAGES $23 in 2016 – then it comes in at 1.0% of GDP vs the IMF GDP estimate for 2016. That price would be a 50 year low.  WTI at pixel: $26.88 for Feb.

US Oil Futures Plunge by Nearly 7%, to $26.55 a Barrel; Stocks Swoon -- Yves Smith - “I love the smell of deflation in the morning” doesn’t have quite the right ring to it. But that’s the sort of carnage we are seeing. From the Wall Street Journal: The selloff in oil prices accelerated Wednesday, intensifying a slide in global financial markets as investors worried that oil’s relentless downdraft signaled global economic gloom.The front-month U.S. oil contract settled down 6.7%, posting the biggest one-day loss since September. Oil prices have dropped more than 25% this year. Much of the 19-month oil-market selloff has been driven by concerns about ample supplies. What’s increasingly weighing on investors is the fear that demand growth is wilting, particularly in China, which could reflect deeper economic woes….Oil investors fear that demand in China, which consumes about 12% of world’s crude, may falter as the country shifts to a less energy-intensive economic model. On Tuesday, the Chinese authorities announced the country’s gross domestic product rose 6.9% in 2015, its slowest pace in 25 years. ESAI Energy LLC said Wednesday that the pace of demand growth in China from 2015 to 2030 will be 60% slower than the pace of demand growth from 2000 to 2015. Brent was not hit as hard. Again from the Journal:Brent, the global benchmark, fell 82 cents, or 2.9%, to $27.94 a barrel on ICE Futures Europe, also on track for the lowest settlement since 2003.From Bloomberg: Crude sank the most in more than four months, dragging down shares of oil and gas producers to the lowest in almost seven years. Futures fell as much as 8 percent to the lowest since May 2003. Royal Dutch Shell Plc, the first global major oil company to report fourth-quarter earnings, said Wednesday it expects profit to drop at least 42 percent. Markets could “drown in oversupply,” sending prices even lower as oil demand growth slows and Iran boosts exports, the International Energy Agency said Tuesday. “At this point things are ugly and there’s no reason to buy into this market,”

Spread Between Low- And High-Sulfur VGO Is At Widest Point In More Than Six Months -- January 20, 2016 -- Platts is reporting: The spread between low- and high-sulfur VGO barges in the US Gulf Coast cash market stood Wednesday at its widest point in more than six months as cargoes of the more sour product from Northwest Europe, Scandinavia and the Baltic states head for US shores. High-sulfur VGO at maximum 2% sulfur was heard traded late Tuesday at the equivalent of cash February WTI plus $4.50/b, compared with a trade of low-sulfur VGO at maximum 0.5% sulfur at the equivalent of $7.35/b over crude. The spread of $2.85 is the widest since low-sulfur VGO was also $2.85 over the sour product July 8. It points to the balance of product recently shipped from Europe tilting toward higher-sulfur VGO. About 10 VGO cargoes have been dispatched to the Gulf and West Coast markets in recent weeks from European ports, and market sources said one cargo of VGO from Colombia also is expected in the Gulf Coast early next month. "There is no doubt at the moment that there are too many cargoes either in the USG or on the way there for the market to absorb," a European feedstocks trader said Wednesday.  High-sulfur VGO is fed into a refinery hydrocracker to make gasoline and diesel, while low-sulfur VGO goes into a fluid catalytic cracker to produce naphtha for reforming into gasoline, according to energy consultant RBN Energy. Early Wednesday, high-sulfur VGO was heard traded at March cash WTI plus $3/b, the equivalent of February cash WTI plus $4.10/b and suggesting further weakness in sour product. No trades were heard in low-sulfur VGO, implying that the $2.85 spread is unchanged.

Oil Rallies Despite Surge in Inventories, Demand Drop, And Production Pop -- WTI Crude has ramped into this morning's DOE data back to the scene of the crime from last night's API ugly data dump. With API reporting a build that doubled expectations, DOE reports a 3.6mm build but worse still yet another major (4.6mm barrel) build in gasoline stocks for the largest 3-week build in history. Crude initially tumbled but the algos took over and ramped to yesterday's highs...running stops (but how long will that last?)


The data breaks down as follows...

  • Crude +2.2m estimate (BBG users est 3.75mm) vs +4.6m API
  • Cushing crude +400k estimate vs +63k API
  • Gasoline +1.9m estimate vs +4.7m API
  • Distillates +800k estimate vs +1.5m API

As the following chart shows, Gasoline and Crude saw major builds and Cushing the 12th weekly build in a row... And as inventories surge, Proroduction rises for the 6th week in a row.... And Demand collapses... The reaction in crude is clear - after the algos ramped to run stos at the API ledge from last night... but the algos then took over again and ramped us...Don't hold your breath! And credit risk signals today's bounce is overdone... So to sum up, demand is plunging, supply is surging, inventories are rising at a record pace and credit is collapsing... so oil rallied!?

The World Is Not Running Out Of Storage Space For Oil -- The IEA struck a dour tone on the state of the global economy in 2016 in its latest monthly Oil Market Report, and even included a stark warning that the markets could “drown in over-supply” because of rising storage levels around the world.  Oil analysts have closely watched storage levels as an important barometer of where the markets were heading. The thinking was that inventories would rise as the supply overhang persisted, but storage facilities would then drawdown relatively quickly as production slowed. But in early 2015 a funny thing happened: Inventory levels surged to their highest levels in 80 years in the U.S., pushing oil prices down into the $40s per barrel.  By April, oil stocks began drawing down. But by the end of the summer, inventories began rising again and prices crashed. As of early 2016, there is a lot more pessimism as storage levels have barely declined from their 80-year highs of 490 million barrels in the United States.  Around the world things do not look much better. The IEA says that the world added 1 billion barrels of oil into storage in 2015. Worse yet, global inventories could climb by another 285 million barrels this year before all is said and done. The stock build will likely “put midstream infrastructure under pressure and could see floating storage become profitable,” the Paris-based energy agency concluded. Last year the IEA warned that available storage could entirely run out.OECD oil inventories are just shy of 3 billion barrels. In the fourth quarter of 2015, oil storage levels increased by 1.8 million barrels per day (mb/d), a record high for the time of year. In fact, the fourth quarter is normally a time that stocks are drawn down, not added, and there have only been four other times in which inventories climbed at the end of a given year. The IEA cautioned that the lack of transparency and good data on storage capacity levels in most parts of the world make it difficult to “assess whether there is currently additional spare storage capacity outside of the US.” In fact, oil tankers at several key trading hubs have had some difficulty unloading their volumes because of a lack of onshore storage capacity. In Europe, one important area to watch is the Amsterdam-Rotterdam-Antwerp (ARA) hub, an area that has seen tankers back up because storage onshore has “remained at close to full capacity amid difficulties moving product into central Europe.”Adding to the storage woes will be the nearly two dozen tankers from Iran that have been sitting offshore holding Iranian crude that were trapped because of sanctions. They could soon set sail.

Saudi Arabia says $30 oil is ‘irrational’ Saudi Arabia has described the collapse in oil prices to below $30 as “irrational” and expects the market to recover in 2016 even as the country continues to keep production high. Khalid al-Falih, chairman of state oil company Saudi Aramco, told the World Economic Forum in Davos that current prices could not last, with many smaller producers facing financial difficulties. “The market has overshot on the low side and it is inevitable that it will start turning up,” said Mr Falih, predicting higher prices by the end of the year. He reiterated that Saudi Arabia, the world’s biggest oil exporter, would not cut supplies unilaterally or make way for rival producers. A surge in US shale output over the past five years has contributed to a global supply glut that has pushed oil prices down 75 per cent in 18 months. The sell-off has accelerated this year, with crude dropping 30 per cent as Iran, Saudi Arabia’s regional rival, prepares to re-enter the market after the lifting of sanctions. The latest downward lurch in oil prices comes as fears of a wider global economic slowdown have rattled financial markets and placed further strain on the budgets of Opec’s financially weaker members. While he called the short-term oil outlook “bleak”, Mr Falih said Saudi Arabia, which is considering a stock market flotation of part of Saudi Aramco, would weather the downturn better than many of its rivals. US shale producers are pumping flat out in an attempt to generate enough cash to pay down large debts built up during rapid expansion, as prices averaged near $100 a barrel between 2010 and 2014. Many are predicted to go bankrupt this year if prices do not rise $30 a barrel.

Kero-Jet Prices Plummet Toward Earth. Crude oil prices staged a recovery of sorts yesterday (January 21, 2016) after a crushing first two weeks of the year. But even if this proves to be the turning point, a lot of damage has been done to crude and refined product prices along the way. Jet fuel is a case in point. The U.S. Gulf Coast spot price for kerosene-type jet fuel closed on Wednesday (January 20, 2016) at $0.78/Gal - the lowest it’s been since September 2003, and barring a dramatic recovery in crude oil prices, the refined petroleum product, that is mostly used for aviation and by the military, will remain cheap this year. That’s good news for the airlines and, one would hope, for air travelers too. But it’s bad news for refiners because of narrowing jet margins over crude oil.  Today, we examine the global market for jet fuel, and how it’s affecting U.S. refiners. Several major airlines have been highlighting their efforts to develop alternative fuels for powering jets. Many of them are “biofuels” derived from organic waste, woody biomass or cooking oil; another (backed by Sir Richard Branson, founder of Virgin Atlantic) is produced by using a microbe to ferment captured carbon-monoxide and carbon-dioxide waste gases into ethanol and upgrading the ethanol into jet fuel. (You’ve got to admire the guy’s outside-the-box thinking. Don’t forget, his Virgin Records signed the Sex Pistols when no one else would touch them.) But at best these efforts over the next few years are likely to garner only a tiny sliver of the total jet fuel market, which from the beginning of the jet era 70-odd years ago has been the sole domain of kerosene-based jet fuel, also known as kero-jet or jet-kero. Kero-jet is produced from crude oil at refineries primarily through atmospheric distillation (see Complex Refining 101 Distillation). It then goes through various treatments to remove unwanted elements such as sulfur, nitrogen and metals, resulting in a pure, clean-burning fuel. Data from the Energy Information Administration (EIA) shows that average U.S. refinery yields of jet-kero have been between 9 and 10% of refined product output consistently since the early 1990’s.

10 Reasons why Sub $30 Oil Is A Major Problem -- A person often reads that low oil prices–for example, $30 per barrel oil prices–will stimulate the economy, and the economy will soon bounce back. What is wrong with this story? A lot of things, as I see it:

  • 1. Oil producers can’t really produce oil for $30 per barrel. A few countries can get oil out of the ground for $30 per barrel. Figure 1 gives an approximation to technical extraction costs for various countries. Even on this basis, there aren’t many countries extracting oil for under $30 per barrel–only Saudi Arabia, Iran, and Iraq. We wouldn’t have much crude oil if only these countries produced oil.
  • 2. Oil producers really need prices that are higher than the technical extraction costs shown in Figure 1, making the situation even worse.
  • Oil can only be extracted within a broader system. Companies need to pay taxes. These can be very high. Including these costs has historically brought total costs for many OPEC countries to over $100 per barrel.
  • 3. When oil prices drop very low, producers generally don’t stop producing.  There are built-in delays in the oil production system. It takes several years to put a new oil extraction project in place. If companies have been working on a project, they generally won’t stop just because prices happen to be low.
  • 4. Oil demand doesn’t increase very rapidly after prices drop from a high level. People often think that going from a low price to a high price is the opposite of going from a high price to a low price, in terms of the effect on the economy. This is not really the case.

Don't fear the oil price crash - unless it heralds the beginning of a global downturn - No one watching the past week’s oil price moves could be more smug than a Scottish unionist. As the price of Brent has plunged, many will be glad that Scotland did not decide to go it alone.  Economic predictions by the Scottish government formed the backbone of the case for independence. They rested on the assumption that a barrel of crude would fetch $110, which it had in the summer of 2014. The commodity’s price has since crumbled, falling below $30 over the past week.  Nicola Sturgeon, Scotland’s First Minister and SNP leader, has admitted the party got it wrong. If Scotland was now an independent economy, it would be facing the same kind of fiscal threat as many oil-exporting nations.  Already, the Scottish economy has begun to reel. GDP grew just 0.1pc in the third quarter of last year, against growth of 0.4pc across the UK as a whole, according to the latest figures. However, Sturgeon noted that, while the Scottish government’s predictions came undone, so too did those of practically other forecaster. When the SNP was talking about $110 a barrel, the UK Government’s Department of Energy and Climate Change had pencilled in a price above $120. “Everybody’s projections about oil were wrong,” Sturgeon concluded. Forecasting oil’s movements is notoriously difficult, but it is a variable that cannot be ignored. Its recent moves have already reverberated through financial markets, driving stock and bond prices. Changes in the price of oil will force governments to reassess their spending plans, and central banks to re-examine their plans for interest rates.

Oil Spikes As Citi Calls It "Trade Of The Year" Even As OPEC Oil Basket Price Near Lowest On Record - With all eyes on the overnight spike in crude oil prices (up 5% and back over $30, this must be the bottom right?), OPEC remains far from impressed with its basket price hovering at (or near) record low levels at $22.48. In fact, the collapse of the OPEC basket price in the last 3 weeks has been the fastest drop since October 2008. However, no matter the chaos occurring various oil instruments (OIL 40% premium to NAV), Citi has decided this is it and dubbed being long oil from here "the trade of the year." WTI Crude Oil is spiking (back to critical stop-run high volume nodes)...

U.S. Oil Rig Count Declines by 5 - WSJ: The U.S. oil-rig count fell by 5 to 510 in the latest week, according to Baker Hughes Inc., BHI 3.22 % 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 8 to 127. The U.S. offshore-rig count was 29 in the latest week, up three from the previous week and down 25 from a year earlier. Oil prices rebounded from depressed levels Friday, helping boost shares of energy companies. U.S. crude oil surged 6.5% to $31.44 a barrel, on track for its second straight day of gains.

Crude Unmoved As Rig Count Extends Decline To New 6 Year Lows -- With crude soaring despite DOE showing inventories surging, production up fgor the 7th week in a row, and demand plummeting, Baker Hughes oil rig count dropped 5 more to 510 this week - the lowest since April 2010 (after a de minimus 1 rig drop last week). Crude had ripped higher into this print but was thoroughly unimpressed in its unchangedness. The lagged crude price suggests rig count declines are about to accelerate...

Oil Rises in Biggest Rally in Seven Years Amid Volatility Surge - Oil rallied, capping the biggest two-day advance in more than seven years after a slump to a 12-year low prompted some investors to buy back record bearish bets. Front-month futures jumped 21 percent after the February contract expired Wednesday at $26.55 a barrel, the lowest settlement since 2003. Speculators this month amassed the biggest-ever short position in U.S. crude amid concern that turmoil in China’s markets would curb fuel demand at a time when fresh exports from Iran exacerbate a global glut. Pierre Andurand, the founder of the $615 million Andurand Capital Management who correctly predicted the slump in oil prices, said the commodity will end the year higher. "Oil is going to rally into the spring," . "It’s a short-covering rally, but we do think it has legs to continue." Oil is down about 13 percent this year as turbulence in global markets adds to concern over brimming U.S. stockpiles and the prospect of additional Iranian barrels. Markets could “drown in oversupply,” sending prices even lower, according to the International Energy Agency. The energy industry is facing “very sharp shocks” as it struggles to deal with a “flood of oil,” BP Plc Chief Executive Officer Bob Dudley said at the World Economic Forum in Davos, Switzerland. West Texas Intermediate for March delivery gained $2.66, or 9 percent, to $32.19 a barrel on the New York Mercantile Exchange. The 21 percent gain in two days is the most since Sept. 2008. The volume of all futures traded was 36 percent above the 100-day average. Brent for March settlement climbed $2.93, or 10 percent, to $32.18 a barrel on the London-based ICE Futures Europe exchange.  Oil may be the “trade of the year” if it can weather the surge in the Middle East producer’s shipments, according to Citigroup Inc.

Pepe ESCOBAR - Planet of Fear - -- The Davos annual talkfest is about to begin; that’s one of those occasions when the Masters of the Universe – who usually decide everything behind closed doors – send their minions to «debate» the future of their holdings. The current debate centers on whether we are still in the midst of the Third – digitalized – Industrial Revolution and the Internet of Things or whether we’re already entering the Fourth. In the real world though all the cackle is about the age of old-fashioned oil. Which brings us to the myriad effects of the cheap oil strategy deployed by the House of Saud under Washington’s command. Persian Gulf traders, off the record, are adamant that there is no longer any real global oil surplus of consequence as all shut-in oil has been dumped on the market based on that Washington command. Petroleum Intelligence Weekly estimates the surplus is at a maximum 2.2 million a day, plus 600,000 barrels a day coming from Iran later this year. The US consumption of oil – at 19,840,000 barrels a day, 20% of world production – has not increased; it’s the other 80% that have been mostly absorbing the dumped oil. Some key Persian Gulf traders are adamant that oil should be surging by the second half of 2016. That explains why Russia is not panicking with oil plunging towards $30 a barrel. Moscow is very much aware of the «partners» that are carrying oil market manipulation against Russia, and at the same time is anticipating this won’t last too long. That explains why Russia's Deputy Finance Minister Maxim Oreshkin issued a sort of «keep calm and carry on» message; he expects oil prices to remain in the $40-60 range for at least the next seven years, and Russia can live with that.

The trade consequences of the oil price | VOXEU - The price of oil rose to unprecedented highs in the 2000s, and its recent plunge took many by surprise. Although there are many consequences of such price fluctuations on the world economy, they are notoriously difficult to pin down. This column examines the trade consequences of varying shipping costs caused by oil price fluctuations. High oil prices are found to increase the distance elasticity of trade, making trade less global. The recent drop in oil prices could thus be a boon for globalisation.

Nuclear sanctions lifted as Iran, U.S. agree on prisoner swap - Reuters: Iran emerged from years of economic isolation on Saturday when world powers lifted crippling sanctions against the Islamic Republic in return for Tehran complying with a deal to curb its nuclear ambitions. In a dramatic move scheduled to coincide with the scrapping of the sanctions, Tehran also announced the release of five Americans including Washington Post reporter Jason Rezaian as part of a prisoner swap with the United States. Together, the lifting of sanctions and the prisoner deal considerably reduce the hostility between Tehran and Washington that has shaped the Middle East since Iran's Islamic Revolution of 1979. Tens of billions of dollars worth of Iranian assets will now be unfrozen and global companies that have been barred from doing business there will be able to exploit a market hungry for everything from automobiles to airplane parts. The U.N. nuclear watchdog ruled on Saturday that Iran had abided by an agreement last year with six world powers to curtail its nuclear program, triggering the end of sanctions. "Iran has carried out all measures required under the (July deal) to enable Implementation Day (of the deal) to occur," the Vienna-based International Atomic Energy Agency said in a statement.

Iran’s Sanctions End as Deal Takes Effect - WSJ: July’s nuclear deal between Iran and six world powers came into effect Saturday evening, triggering an end to years of sweeping economic and financial sanctions on the Islamic Republic over its nuclear work. In a joint statement, the European Union and Iran said many of the nuclear-related U.S., EU and United Nations sanctions were immediately coming off Iran after it had completed the steps needed to implement July’s deal. The U.N. atomic agency minutes earlier confirmed it had issued a report verifying that Iran carried out those steps, which significantly scale back its nuclear infrastructure. “The EU has confirmed that the legal framework providing for the lifting of its nuclear-related economic and financial sanctions is effective. The United States today is ceasing the application of its nuclear-related statutory sanctions on Iran,” said EU foreign policy chief Federica Mogherini, reading the joint statement. “All sides remain firmly convinced that this historic deal is both strong and fair, and that it meets the requirements of all; its proper implementation will be a key contribution to improved regional and international peace, stability and security.  Under July’s deal, Iran’s nuclear activities will be severely constrained and remain under strict oversight for the next decade, but Tehran will then be able to scale up its production of nuclear fuel.

Oil glut dampens Iran’s hopes for big cash flows as sanctions lift - When U.S. and other international sanctions were tightened in 2012 and took nearly 700,000 barrels a day of Iranian crude oil off world markets, the price of an average barrel of OPEC oil ran $109.45. But with the easing of those sanctions today, Iran is poised to boost its sales of oil in the middle of a massive glut, with the OPEC benchmark average barrel selling for just $25, less than a quarter of the 2012 level. The result will be sharply lower revenue for Iran than its leaders anticipated two years ago when they began negotiations to end sanctions linked to the Iranian nuclear program. The oil glut will force a slower ramping up of Iran’s oil fields and exports than Iran had planned, and it could make international oil companies more wary and tight-fisted about making new investments. “In many respects, this could not come at a worse time for Iran, because oil is at 11-year lows and the International Monetary Fund has recently offered quite dismal remarks about Iran’s banking system, economic growth prospects and tepid recovery,” Moreover, the lifting of sanctions on Iran could heighten tension over reestablishing production quotas in OPEC — especially between Iran and Saudi Arabia, the cartel’s co-founders and longtime rivals. Eager to protect its market share, Saudi Arabia has been pumping at high levels despite calls by some OPEC members that the kingdom rein in output to prop up falling prices. The return of production in Iran would further fuel simmering tensions. The Iranian’s hinted that they might hold back. “We don’t want to start a sort of a price war,” Mohsen Qamsari, director general for international affairs at the National Iranian Oil Company (NIOC), told Reuters on Jan. 6. “We will be more subtle in our approach and may gradually increase output,” 

Iran's Oil Will Just Make Life Worse for Gulf Rivals - Governments across the six-nation Gulf Cooperation Council are taking unprecedented measures to counter the slump in oil prices, curtailing some of the world’s most generous welfare systems to plug widening budget deficits. In some countries, contractors are facing delays in government payments, while companies are reducing their workforces to trim costs. Every major stock index in the Middle East, with the exception of Tehran’s, plunged on Sunday as the prospect of Iran adding to an oil supply glut pummeled markets already reeling from falling crude prices and a global sell-off in equities. With oil priced below $30 a barrel, governments may have to eat further into benefits that citizens have enjoyed for decades -- at a time of growing regional turmoil and a proxy confrontation with Iran from Syria to Yemen.  The Saudi Arabian central bank’s net foreign assets fell by $96 billion in the first 11 months of 2015 to $628 billion, and the government sold bonds for the first time since 2007 to finance a budget deficit of about 15 percent of economic output.  “The political contract between the rulers and the citizens is based on a provision of wealth to the citizens, so any adjustment of the subsidies or of the other services will have some political risk,”

Oil Industry Braced for Re-Entry of Iran - The oil industry is braced for an increase in Iranian production after western powers lifted many of the sanctions linked to its nuclear programme, paving the way for Tehran’s full return to the international market. The re-emergence of Iran, which claims it can swiftly boost production and exports by 500,000 barrels a day, threatens to add to the glut of oil that has pushed prices to a 12-year low of less than $30 a barrel. It comes as relations between Iran and Saudi Arabia, Opec’s largest producer and de facto leader, have soured. UN inspectors said on Saturday that Iran had dismantled significant elements of its nuclear programme, paving the way for the country to increase exports of its crude to global markets after nearly four years under economic and financial sanctions. Hassan Rouhani, Iran’s president, on Sunday announced “we have started selling more oil as of today”. But a senior oil official told the Financial Times that there had been no rise in sales yet. “When we say we sell more crude, we mean we already have the capacity to increase exports by 500,000 bpd almost immediately,” he said. “Now, we have customers to buy about 300,000 more barrels per day and will do it as soon as financial restrictions are removed which may take one more week.”

Iran to boost oil output by 500,000 barrels — Iran is aiming to increase its oil production by 500,000 barrels per day now that sanctions have been lifted under a landmark nuclear deal with world powers, a top official said. In comments posted on the Oil Ministry’s website Monday, Deputy Oil Minister Roknoddin Javadi said Iran is determined to retake its share of the oil market, which plunged after crippling sanctions were imposed in 2012. The U.N. nuclear agency certified Saturday that Iran has met all its commitments under last summer’s agreement, prompting the lifting of a broad range of economic sanctions, including those covering the oil industry. Other sanctions unrelated to Iran’s nuclear program remain in place. Iran used to export 2.3 million barrels per day but its crude exports fell to 1 million in 2012. Iran’s total production currently stands at 3.1 million barrels per day. “In the wake of removal of sanctions, Iran is prepared to increase its crude output by 500,000 barrels per day. Today, a government order was issued to increase production,” Javadi said, adding that it will take a year to return to pre-sanctions production levels.

Prospects for Iran as the Next Investor's Darling -- Capital goes to where profits are to be made. Is this place one of them for foreign investors?Even in these rather blah economic times, there lie opportunities...for those brave enough to take them on, I suppose. With the rest of the world economy becoming rather stagnant, where is the smart money supposed to go? How about a country with a population of 77 million that has been locked out of the international community for years on end due to sanctions? With normalized economic relations set to resume this week (with the major exception of the United States), Iran looks like the destination country of choice for any number of multinational corporations. Starved of modern capital and consumer goods, Iran certainly will have some appetite for them: With global growth moribund, multinational firms have been waiting with bated breath for the lifting of international sanctions against Iran for access to a country in desperate need to modernise. After nearly a decade of limited access to the outside world, many sectors of the Iranian economy need new equipment including the oil and gas industry, railways, and airlines. Plus there are 80 million Iranian consumers, many of them keen to buy cars and other goods. Access is expected to begin opening up, now that the International Atomic Energy Agency has issued a report concluding that Iran has fulfilled its obligations under a nuclear deal reached last year with world powers.  Yes, oil prices are at near-historic lows, but still, Iran's energy sector needs to modernize rather quickly to keep up with the others. So, oil services companies certainly have Iran in their sights: "The infrastructure and energy sectors offer the best opportunities for our firms", Italy's economic development ministry said recently.

Iran Unleashes Oil Flood, Will Quintuple Crude Revenue In 2016 - On Saturday, Iran marked what President Hassan Rouhani called a “golden page” in the country’s history when the IAEA ruled that Tehran had stuck to its commitments under last year’s nuclear accord. Moments after the ruling was handed down, the US and the EU each lifted nuclear-related financial and economic sanctions on the “pariah state,” much to the chagrin of Israel and Tehran’s regional rivals who view the West’s rapprochement with the Iranians with deep suspicion. In addition to the never-ending feud with the Israelis, Tehran is embroiled in a worsening conflict with Riyadh triggered by Saudi Arabia’s execution of prominent Shiite cleric Nimr al-Nimr and subsequent attacks on the Saudi embassy and consulate in Iran. The argument has raised the specter of an all-out conflict between the Sunni and Shiite powers and stoked sectarian discord across the region. With sanctions lifted, Iran will now have access to some $100 billion in frozen funds and will be able to increase its oil revenue exponentially even as prices remain suppressed. It’s easy to see why the Saudis and other Gulf Sunni monarchies are nervous. Iran plans to immediately boost output by 500,000 b/d with an additional 500,000 b/d coming online by year end. “The oil ministry, by ordering companies to boost production and oil terminals to be ready, kicked off today the plan to increase Iran’s crude exports by 500,000 barrels,” the official Islamic Republic News Agency reported on Sunday, citing Amir Hossein Zamaninia, deputy oil minister for commerce and international affairs. “Iran could haul in more than five times as much cash from oil sales by year-end as the lifting of economic sanctions frees the OPEC member to boost crude exports and attract foreign investment needed to rebuild its energy industry,” Bloomberg reports, adding that “the lifting of sanctions means Iran can immediately boost oil revenue to about $2.35 billion a month, based on the country’s estimated current output of 2.7 million barrels a day and oil at $29 a barrel.”

With wave of Iranian oil imminent, a shudder in Saudi Arabia — A new wave of oil from Iran will flow into a global market awash in oil where prices are plunging to depths not seen in a dozen years. With a historic nuclear deal between Iran, the U.S. and five other world powers set into place this weekend, a European oil embargo on the world’s seventh-largest oil producer will end. The impact may be felt widely when crude begins trading in Asian markets Monday, but the return of Iranto global energy markets created tremors even before the first trade was made. Saudi Arabia’s stock market plunged more than 5 percent Sunday. Saudi Arabia is the biggest oil producer within OPEC, the oil cartel with waning influence to which Iran also belongs. Saturday was dubbed Implementation Day, when Iran was freed from international sanctions after being deemed as having dismantled most of its nuclear program under the deal established last summer. “Implementation Day for the nuclear agreement means a new oil day for Iran,” Daniel Yergin, vice chairman of research firm IHS and author of a Pulitzer Prize-winning book on the history of oil, said Sunday. The oil market has anticipated the unchained tide of Iranian oil for months, and some of that may be reflected in new lows for oil prices in the past week. U.S. crude oil prices have trended down for a year and a half, and have fallen almost 40 percent in just the past three months. On Friday, the price slid 6 percent to $29.42 a barrel. That compares with a high of over $100 a barrel in the summer of 2014, and close to $150 per barrel before the U.S. recession. There are predictions of barrels going for $20 soon.

Oil market could ‘drown in oversupply’ — IEA -- The oil market “could drown in oversupply” as a rise in Iranian output offsets production cuts elsewhere, threatening a further price collapse, the world’s leading energy forecaster has said. In a stark assessment of the challenges facing the global oil industry, the International Energy Agency warned on Tuesday of an overhang of at least 1m barrels a day for a third consecutive year in 2016. Production outside the Opec cartel would decline this year, the IEA said. But that would be offset by slower demand growth and higher production from Iran now that sanctions linked to its nuclear programme had been lifted. “Unless something changes, the oil market could drown in oversupply,” the wealthy nations’ energy watchdog said in its closely watched monthly oil market report. It said if Iran — a powerful member of the producers’ group — moved quickly to offer its oil under attractive terms and its Opec peers such as Saudi Arabia refused to “stay on the sidelines”, prices could lurch lower. In this scenario the Paris-based agency said there would be enormous strain “on the ability of the oil system to absorb” the glut. “The exact pace of the flow is hard to tell, but Iran is showing they are back in the game,” said Neil Atkinson, the new head of the IEA’s oil market division. “Saudi Arabia and others are going to ensure they don’t lose out. They are not going to give up the fight and say ‘welcome back’. For all intents and purposes, this is a free market.”

OilPrice Intelligence Report: IEA Says World Might “Drown” in Oil -  The big news from the past week is the removal of international economic sanctions on Iran following the implementation of the July 2015 nuclear agreement. Iran’s oil ministry immediately ordered the ramp up of 500,000 barrels per day in production. It is unclear how quickly this will happen, although Iran says it can achieve the target almost immediately.  Iran has oil tankers loaded with 50 million barrels of crude ready to depart, although the FT reported that satellite imagery showed that none had departed as of January 18. Still, Iran’s assertive approach to returning to the oil market is straining relations between Iran and Saudi Arabia further, if that is possible.  OPEC members warned Iran would sink oil prices further. “Anyone who will introduce more supply in current situation will make it worse,” UAE energy minister Suhail bin Mohamed said. Iranian officials responded that prices will remain low until a “logical consensus to manage the oil market” emerges, a dig at Saudi Arabia’s current strategy.  Iran has every incentive to sell more oil, just like any other producer who is trying to make up for falling revenue by shipping more volume. But Iran also appears aware of the dangers.  “Iran is not interested in entering the market in a disorderly manner, which is self-defeating. However, it is also not interested to sacrifice further, to benefit those who gained from its absence,” a former Iranian oil official told the FT. “It is a delicate balance.” Oil prices sank below $29 per barrel on Monday following the news. The IEA and OPEC each released their monthly oil market reports this week. Not much changed from OPEC’s perspective, as the cartel expects the markets to continue to rebalance later this year. The IEA took a more somber tone. The Paris-based energy agency said that oil demand slowed dramatically in the fourth quarter due to weak economic conditions in China, Brazil, Russia and other commodity exporters. Also, crude oil inventories could add another 285 million barrels to storage this year before drawing down, which will come on top of the notional 1 billion barrels in storage increases in 2015. IEA warned of the implications of rising storage: “While the pace of stock building eases in the second half of the year as supply from non-OPEC producers falls, unless something changes, the oil market could drown in over-supply.”

World oil supply and demand -- According to the Energy Information Administration’s Monthly Energy Review database, world field production of crude oil in September was up 1.5 million barrels a day over the previous year. More than all of that came from a 440,000 b/d increase in the U.S., 550,000 b/d from Saudi Arabia, and 900,000 b/d from Iraq. If it had not been for the increased oil production from these three countries, world oil production would actually have been down almost 400,000 b/d over the last year. But the U.S. situation will be very different in 2016. The number of active U.S. oil rigs today is about a third of the levels reached in 2014. JODI’s separate database estimates that U.S. oil production was already down year-over-year by October 2015. And the EIA’s drilling productivity model estimates that production from the U.S. counties associated with the tight oil boom will have fallen another 500,000 b/d from the September values by the end of next month. Still, it is hard to see prices increasing until U.S. inventories begin to come down. The much-discussed increase from Saudi Arabia only puts the kingdom’s oil production back to where it had been in August 2013. It’s worth noting that also leaves Saudi exports of crude oil significantly below their recent peak. One important factor in the increased Saudi crude production since last year was the need to supply its greatly expanded refinery capacity. As a result, Saudi Arabia is now exporting more refined products in place of crude oil. The big story up to this point has been Iraq. The country continues to log impressive increases in production despite ongoing turmoil in the region. And next up will be Iran, whose production has been depressed as a result of international sanctions that are now being lifted. Iran intends to increase oil exports by 500,000 b/d right away, in addition to the 30 million barrels Iran has stored in oil tankers in the Persian Gulf. If Iranian production is about to surge, Iraqi production remains high, and the Chinese economy is stumbling, that can only mean that even bigger drops in U.S. oil production are inevitable.

Iranian Oil Production -- Another Drop In The Bucket? -- Rigzone, January 23, 2016 -- From Rigzone today:The world is awash in crude and overwhelming dwindling consumer demand. And just this week, the Western world responded by unleashing half a million barrels every day of Iranian oil, threatening to crush dismal commodities prices to stupefying lows.  Or so many theories go. But the energy sector in 2016 is in a different world than the one that existed in 2012, when those sanctions restricted Iran’s participation in the world market. Despite the vast volumes of hydrocarbons beneath Iran’s salty deserts, its production was weakening. Since that time, capital and technology have abandoned the country.  David Pursell, managing director and head of macro research at Tudor, Pickering Holt and Co. in Houston, said some estimates suggest Iran produced half of its fields years ago. Resuscitating them would require an influx of expensive technology when cash is in short supply. “If Iran was on a decline before sanctions, and all of a sudden, it’s pulling the fields less hard, but also underinvesting in both capital and technology, we would argue there’s a chance that 500,000 barrels a day might be a stretch,” Pursell told Rigzone. “The market is worried, if not scared, that it could be more than half a million barrels a day.”

US Treasury imposes new ballistic missile sanctions on Iran -  The US Treasury says it is imposing new ballistic missile sanctions on Iran after Tehran released five American prisoners. The move also comes less than a day after some of the sanctions imposed on Iran over its nuclear program were removed by the US and EU. Washington has imposed sanctions on 11 companies and individuals for helping to supply Iran’s ballistic missile program, the Treasury Department stated.“Iran’s ballistic missile program poses a significant threat to regional and global security, and it will continue to be subject to international sanctions,” Adam J. Szubin, acting Under Secretary for Terrorism and Financial Intelligence, said in a press release.“We have consistently made clear that the United States will vigorously press sanctions against Iranian activities outside of the Joint Comprehensive Plan of Action – including those related to Iran’s support for terrorism, regional destabilization, human rights abuses, and ballistic missile program.”The Treasury’s Office of Foreign Assets Control says it will also block the assets of Mabrooka Trading, a company based in the United Arab Emirates, for providing Iran with parts used in their ballistic missiles. Others sanctioned include companies and individuals involved in the program, which supervised the testing of two ballistic missiles in 2015. President Barack Obama’s administration delayed implementing the sanctions for more than two weeks, while negotiations to release two US prisoners being held in Iran were taking place, Reuters reported, citing its sources.

Why is the US so Anti Shia/Iranian ? - On the occasion of the implementation of the nuclear deal with Iran it is important to remember a few things: - It remains unclear as to whether the Iranians have had an active nuclear weapon development program since 2003 when they are thought by many to have ended it when the putative Iraqi threat was removed by the US. - The 9/11 attackers/plotters/funders were all Sunni. This is a a list of Muslim Groups presently actively hostile to the US: - The Islamic State (Sunni) - The Al-Nusra Front (Sunni) - Al-Qa'ida Central (Sunni) - Al-Qa'ida in Magheb (Sunni) - Al-Qa'ida in Arabian Peninsula (Sunni) - Boku Haram (Sunni) - Al-Shabbab (Sunni) - Khorassan Group (Sunni) - Society of the Muslim Brothers (Sunni) - Sayyaf Group in the Philippines (Sunni) - Taliban in Pakistan and Afghanistan (Sunni) - Lashgar i Taiba (Sunni) - Jemaa Islamiya (Sunni) - Houthis (Shia) ------------- Shia forces bombed US and French facilities in Beirut in 1983. That was 33 years ago. Shia militias fought the US COIN campaign in Iraq. So did Sunni forces. Shia forces are now fighting IS in Iraq and Sunni jihadis in Syria. So, why is it that US media consistently describe the Shia as a malevolent force throughout the Islamic World? Could it be because Israel/AIPAC and the Gulf Arabs want Iran contained as a geopolitical rival in the region?

Why the US Should Withdraw From the Middle East --Peter Van Buren: How can we stop the Islamic State?  American actions against terrorism — the Islamic State being just the latest flavor — have flopped on a remarkable scale, yet remain remarkably attractive to our present crew of candidates. (Bernie Sanders might be the only exception, though he supports forming yet another coalition to defeat ISIS.) Why are the failed options still so attractive? In part, because bombing and drones are believed by the majority of Americans to be surgical procedures that kill lots of bad guys, not too many innocents, and no Americans at all. As Washington regularly imagines it, once air power is in play, someone else’s boots will eventually hit the ground (after the U.S. military provides the necessary training and weapons). A handful of Special Forces troops, boots-sorta-on-the-ground, will also help turn the tide. By carrot or stick, Washington will collect and hold together some now-you-see-it, now-you-don’t “coalition” of “allies” to aid and abet the task at hand. And success will be ours, even though versions of this formula have fallen flat time and again in the Greater Middle East. Since the June 2014 start of Operation Inherent Resolve against the Islamic State, the U.S. and its coalition partners have flown 9,041 sorties, 5,959 in Iraq and 3,082 in Syria. More are launched every day. The U.S. claims it has killed between 10,000 and 25,000 Islamic State fighters, quite a spread, but still, if accurate (which is doubtful), at best only a couple of bad guys per bombing run. Not particularly efficient on the face of it, but — as Obama administration officials often emphasize — this is a “long war.” The CIA estimates that the Islamic State had perhaps 20,000 to 30,000 fighters under arms in 2014. So somewhere between a third of them and all of them should now be gone. Evidently not, since recent estimates of Islamic State militants remain in that 20,000 to 30,000 range as 2016 begins.

UK’s soft diplomacy approach to Saudi Arabia is not enough, say families of juveniles still on death row -  Britain’s soft approach to diplomacy with Saudi Arabia is not working – according to the families of three juvenile offenders held up by the UK as examples of its success.  Ali al-Nimr, Abdullah al-Zaher and Dawoud al-Marhoon were all children when they were arrested by the Saudi authorities for attending protests, and yet they were sentenced to death after a secretive court process. When he defended the Government’s meek response to the mass execution of 47 people in the kingdom on 2 January, Philip Hammond said the three juveniles showed Britain could get results in Saudi Arabia when it intervened in specific cases.  But The Independent can reveal that almost exactly three months after the Foreign Secretary told Parliament “private” UK diplomacy had secured clemency for the child offenders, nothing has really changed.  This newspaper understands Mr al-Zaher, the youngest of the boys who was just 15 when he was arrested, has been transferred to a prison in Riyadh where a number of the 47 executions were carried out at the start of the month. Mr al-Nimr and Mr al-Marhoon have also been moved since the mass executions from Riyadh to the infamous Dammam prison in the Eastern Province, a facility known for housing death row inmates in the past. According to Reprieve, a human rights organisation which is campaigning on behalf of the juveniles, sudden prison transfers are often a precursor to sentences being carried out, and the families say all three could be executed any day.   “Our son – who was just 15 when he was arrested and tortured – is awaiting execution in solitary confinement and being held miles away from his home,” they said in a statement. “We are in agony wondering what will happen to him. Other governments keep saying they 'do not expect' him and the other juveniles to be executed, but where is the proof? “We sincerely hope that the international community will demand the release of Abdullah and the other juveniles arrested at protests.”

Saudi Aramco – the $10tn mystery at the heart of the Gulf state - Along the King Fahd highway in downtown Riyadh, signs of the country’s wealth glitter and dazzle.  On nearby Tahliya Street, lined with young Saudi men watching black-robed, headscarfed women saunter past, crowds throng into American-style shopping malls flaunting the world’s priciest and most luxurious brands. Saudi wealth – whether in downtown Riyadh or Knightsbridge – is highly conspicuous. And they have the colossal Saudi Aramco oil corporation to thank for it. Locals were stunned by the sudden news of the possible sale of part of the company that has been synonymous with their country’s history almost since its foundation. Uncertainty about exactly what it would mean has not been laid to rest by the cautious statement confirming the impending plan to float the business later issued from Aramco’s headquarters in the eastern province of Dammam. There was also concern that news of the momentous decision was first aired in an interview given by the powerful deputy crown prince, Mohammed bin Salman, to foreign media. “Aramco is our spine and they suddenly announce this!” exclaimed Professor Fawziah al-Bakr, an education expert and women’s activist. Aramco’s history is the story of the “discovery and development of the greatest energy reserves the world has ever known and the rapid transformation of Saudi Arabia from desert kingdom to modern nation state,” the company says. Its pledge has always been to “maximise the value of the country’s petroleum reserves for the benefit of the kingdom’s citizens”. Exactly how that will be done if foreign investors can buy shares is a troubling and unanswered question, say critics.

Saudi Arabia's Secret Holdings of U.S. Debt Are Suddenly a Big Deal -- It’s a secret of the vast U.S. Treasury market, a holdover from an age of oil shortages and mighty petrodollars: Just how much of America’s debt does Saudi Arabia own? But now that question -- unanswered since the 1970s, under an unusual blackout by the U.S. Treasury Department -- has come to the fore as Saudi Arabia is pressured by plunging oil prices and costly wars in the Middle East. In the past year alone, Saudi Arabia burned through about $100 billion of foreign-exchange reserves to plug its biggest budget shortfall in a quarter-century. For the first time, it’s also considering selling a piece of its crown jewel -- state oil company Saudi Aramco. The signs of strain are prompting concern over Saudi Arabia’s outsize position in the world’s largest and most important bond market. A big risk is that the kingdom is selling some of its Treasury holdings, believed to be among the largest in the world, to raise needed dollars. Or could it be buying, looking for a port in the latest financial storm? As a matter of policy, the Treasury has never disclosed the holdings of Saudi Arabia, long a key ally in the volatile Middle East, and instead groups it with 14 other mostly OPEC nations including Kuwait, the United Arab Emirates and Nigeria. For more than a hundred other countries, from China to the Vatican, the Treasury provides a detailed breakdown of how much U.S. debt each holds. “It’s mind-boggling they haven’t undone it,” said Edwin Truman, the former Treasury assistant secretary for international affairs during the late 1990s, and now a senior fellow at the Peterson Institute for International Economics in Washington. Because relations were rocky and the U.S. needed their oil, the Treasury “didn’t want to offend OPEC. It’s hard to justify this special treatment for OPEC at this point.”

Gulf sovereign bond issues to surge as governments plug deficits | Reuters: Governments in the wealthy Gulf Arab oil exporting countries look set to borrow from the international bond market at a record pace this year, putting fresh pressure on bond prices, as they cover budget deficits created by low oil prices. For the first 18 months after oil began tumbling in mid-2014, governments largely held off from borrowing abroad, preferring to draw down their fiscal reserves and in some cases borrow domestically. That strategy is reaching its limits as the drawdown begins to alarm financial markets and push up local market interest rates. So governments in the six-nation Gulf Cooperation Council will turn to the foreign debt market to help cover deficits which are expected this year to near $140 billion, or 11 percent of gross domestic product (GDP), Moody's estimates. Sharjah, one of the seven United Arab Emirates, may issue a U.S. dollar Islamic bond after investor meetings that started last week. "This year I expect a meaningful uptick in GCC sovereign fund-raising," said Andy Cairns, global head of debt origination and distribution at National Bank of Abu Dhabi (NBAD). "From the capital markets side it is not inconceivable that we see $20 billion of GCC sovereign supply." That would be an eight-fold jump in supply; last year, the emirate of Ras Al Khaimah raised $1 billion in the international bond market and Bahrain raised $1.5 billion

Saudi central bank warns banks against riyal speculation | Reuters: The Saudi Arabian central bank has warned commercial banks against betting on depreciation of the riyal as tumbling oil prices put pressure on the Saudi currency, several bankers operating in the market said. The riyal, pegged in the spot market at 3.75 to the U.S. dollar since 1986, hit a record low against the dollar in the one-year forwards market last week as some banks and funds hedged against the risk that low oil prices might eventually prompt Riyadh to scrap the peg. But the bankers, declining to be named because of commercial sensitivities, said the Saudi Arabian Monetary Authority (SAMA) had now contacted them privately and urged them not to conduct derivatives trades that would pressure the riyal. "SAMA has ordered banks to stop giving structures for FX swaps. I mean banks can quote for straight forwards and FX swaps, but can't price for swap options," said one banker. They said the central bank's action had so far succeeded in supporting the riyal in the forwards market; one-year dollar/riyal forwards have dropped back to 690 points from a record 1,020 points last week, even though the Brent oil price has hit fresh 12-year lows below $30 a barrel.

Saudi Arabia Is Doomed  - Sometimes the biggest market indicators aren’t written on the charts. Sometimes, they’re written in the skies — with concrete, glass and steel. It’s a story as old as the Bible. In a moment of supreme confidence, someone decides the time is right for constructing a “world’s tallest building” to serve as a permanent monument, a statement of importance in the world. But by the time they turn on the air-conditioning, reality bites. It’s a monument all right — to sheer arrogance, overconfidence and failure to see the shifting economic tides. The Tower of Babel might have been the first example, but there have been plenty of others in the last century. And it’s playing out once more, right now — this time in Saudi Arabia. Remember the name of the project: Jeddah Tower. Right now, the structure is a stubby concrete skeleton rising from the desolate sands outside the Red Sea port city of the same name. The Saudis created an investment fund worth $2.2 billion to build the tower, plus another $20 billion to develop the larger project, “Jeddah Economic City,” at the base of the tower. When it’s completed in 2018 (or perhaps less optimistically, if it’s completed, given the price of oil and the country’s more intractable challenges), the Kingdom’s royal family will have built a 252-story glass tower, rising nearly 3,300 feet into the sky. At that height, it would be more than 500 feet higher than the current tallest building in the world, Dubai’s Burj Khalifa. And that’s what raises my point about “mega-tall structures” (the word architects like to use) as an all-too-obvious sign of an economy heading off (or about to head off) the rails…

Kuwait's emir urges management of spending, budget cut over oil price drop | Reuters: Kuwait's emir has called for better management of spending and for budget cuts to cope with declining revenues due to lower oil prices, state news agency KUNA said on Wednesday, in the second such call by the head of state since October. The remarks by Sheikh Sabah al-Ahmed al-Sabah, at a meeting with newspaper editors, appeared part of a drive to prepare the ground for politically difficult economic measures such as cuts in energy and food price subsidies, which could occur next year. "We are required to start with treatment and economic steps and programmes aimed at managing and reducing the budget articles, to deal with the shortages in the state financial revenues," Sheikh Sabah said, according to KUNA. He added that any such measures must ensure that the basic needs of Kuwaitis were addressed.

Azeri protests flag political risks of falling oil price | Reuters: Oil money and well-equipped security forces have long ensured public loyalty to President Ilham Aliyev in the Azeri town of Quba, but after months of rising prices people turned out on the streets last week to protest. Dragged down by the slump in world crude prices, Azerbaijan's manat currency has fallen by about a third against the dollar in the past 30 days, sparking public protests that could be a taste of unrest to come for other oil-funded economies. It has prompted Aliyev to consider such measures as tightening currency controls, helping banks, and selling off state assets. But the anger is mounting. "Prices are rising, officials are corrupt, there are no jobs, we can't pay off credits," said 28-year-old Afqan, sitting in an empty tea shop in the centre of Quba, in the foothills of the Caucasus mountains. Police have mobilised police in large numbers to stop such protests spreading in a year when Aliyev has courted publicity by securing the right to host the international Formula 1 motor race. "Our protest was not organised ... We did not have a leader, but about 5,000 people came and protested, because we could not tolerate it any more,"

Attacks on oil installations is costing Nigeria $2.4M a day - Multiple attacks on strategic oil and gas installations is costing Nigeria $2.4 million daily, a Cabinet minister said Tuesday as the military launched a manhunt for a militant and warned it will hold community leaders responsible for the “economic sabotage.” The attacks began Friday in the southern Niger Delta after a court issued an arrest warrant for former warlord Government “Tompolo” Ekpemupolo in connection with $17.4 million that has gone missing from government coffers. Explosions on a Nigerian Gas Company pipeline connected to the Escravos facility of Chevron Nigeria is costing the country $1.98 million daily in lost power and $400,000 in gas, Power Minister Babatunde Fashola said, adding repairs would cost another $600,000. Hundreds of people are fleeing the area and companies are evacuating workers for fear of a harsh military crackdown, community chieftain Elekute Macaulay told The Associated Press. Tompolo has denied involvement in the theft and the attacks, centered around his hometown of Gbaramatu. Residents said the military has launched a manhunt for Tompolo in the creeks and mangrove swamps and that militants are patrolling in home-made gunboats.

Nigeria’s oil fields face shutdown amid price slump: This is an uncertain period for the Nigerian economy due to the continuing fall in the price of crude oil, the nation’s main revenue earner, and projections for the petroleum industry are indeed grim, ’FEMI ASU writes With crude oil trading around $30 per barrel in the international market from a peak of $114 in June 2014, production from Nigeria now faces a decline as some fields face an imminent shutdown if the low oil price persists. Industry players say operating some of the fields in the country is becoming uneconomic, with the selling price of oil being driven down close to the production cost level. The price of the Nigerian crude oil, Bonny Light, has fallen to $29.47 per barrel, according to the latest data obtained from the Central Bank of Nigeria. “When oil price drops, we are all in serious trouble, because if the oil price and your unit operating cost are almost the same, it means that when you sell the oil, there is little profit or you are at a loss. Many companies are not far from there,” the Project Director for the Uquo gas field told our correspondent. “The unit technical cost of many of our producers is not far from $30 per barrel. So many companies are in trouble,”

China wades into the Iran-Saudi swamp - Pepe Escobar - Iran is back with a bang. And what a bang. The simplistic Western narrative rules that after the end of UN, US and EU sanctions – in fact a few still remain in place – Iran is rejoining global markets. That may be the case – from Tehran clinching a deal to buy 114 planes from Airbus to Iranian oil soon hitting Western markets. But the key question is actually how, at what pace, and with what partners Tehran plans to rejoin global markets. All the commotion, at the moment, predictably revolves around oil. Iran’s Deputy Oil Minister for Commerce and International Affairs, Amir Hossein Zamaninia, said the new oil export target is an extra 500,000 barrels a day within a few months. Tehran may indeed boost production by 600,000 barrels a day in six months, and add up to 800,000 barrel.  Not even the sharper oil analysts really know what this will mean in terms of an all-out, open market-share battle between Iran and Saudi Arabia. What even some sections of Western corporate media are not buying anymore are Saudi diversionist tactics about their cheap oil strategy – which has been essentially designed to hurt Iran, and Russia. The fact is Iran is already selling more oil as we speak. Over 1,000 lines of credit have been opened for banks, according to President Hassan Rouhani. Energy-hungry Europeans are predictably going nuts.  Meanwhile, Iran’s oil tankers are already sailing under Lloyd’s insurance. Into this frenzy steps in none other than the aspiring ‘New Master of the Universe’; Chinese President Xi Jinping, currently on a ultra high-profile Middle East tour of Saudi Arabia, Egypt and, of course, Iran.  This is Beijing’s cool, calculated way of laterally selling One Belt, One Road – or the New Silk Roads project – by carefully increasing “strategic cooperation” in the energy sphere.

China Wades Into Mid-East Melodrama As Xi Makes First Presidential Trip To Saudi Arabia, Iran  - China is “at the center of a clash between Saudi Arabia and Iran,” WSJ wrote on Tuesday, as Xi Jinping marks his first visit to Riyadh as President.  Going into the new year, the Saudis find themselves in a tough spot. The kingdom’s move to bankrupt the US shale space by deliberately suppressing crude prices has blown a giant hole in the kingdom’s budget. For 2016, the Saudis expect to run a deficit that amounts to some 13% of GDP. The financial strain has forced Riyadh to rollback popular subsidies, a move that won’t go over well with everyday Saudis. Meanwhile, financing the war in Yemen is becoming expensive. March will mark a year since the Saudis initially intervened to rollback the Iran-backed Houthis and the fighting is still just as fierce today as it was then. Iran, on the other hand, is now playing from a position of strength. The implementation of the nuclear accord will result in an immediate $100 billion windfall for Tehran and by the end of the year, the country could be raking in as much as $4 billion a month in crude sales. Additionally, Russia’s involvement in Syria’s protracted conflict has tipped the scales back in favor of Hezbollah and the IRGC forces fighting alongside Bashar al-Assad’s depleted army thus ensuring that Damascus won’t be falling to a puppet government of the US and the Saudis anytime soon. In short, the regional balance of power is shifting in Iran’s favor and the return of Iranian supply to an already oversupplied global oil market means the economic rivalry between Riyadh and Tehran may soon become just as tense as the ideological rift. As WSJ notes, “China has a strong interest in seeing the regional rivals tamp down their recent war of words [as] the countries accounted for nearly one-quarter of Chinese total imports in the first 11 months of 2015.”

Full Text of Chinese President's Signed Article on Iranian Newspaper -  Chinese President Xi Jinping published a signed article titled "Work Together for a Bright Future of China-Iran Relations" on Iranian newspaper Iran on Thursday, ahead of his state visit to the country. The following is the English version of the article:

Saudis Line Up Chinese Energy Deals As Competition For Asian Market Heats Up -- On Tuesday evening we checked in on Xi Jinping as he makes his first visit to the Mid-East as President. As we detailed extensively, the trip comes at a critical time for the region. Saudi Arabia and Iran are at each other’s throats following a series of unfortunate events that began with the execution of a prominent Shiite cleric and quickly escalated into an all-out diplomatic firestorm. Now, the spat is on the verge of triggering a wider sectarian conflict that could further destabilize an already precarious security situation. But it’s not all about the long-running ideological divide. The two regional powers are also at odds economically. The lifting of international sanctions against Tehran triggered a $100 billion windfall for the Iranians and increased access to global markets means Iran will be able to pull in as much as five times more per month from crude sales than it did under sanctions.

Vietnam demands that China remove oil rig - Vietnam said China has moved an oil rig into disputed waters in the South China Sea, in a possible repeat of a 2014 stand-off between the communist neighbors. Foreign Ministry spokesman Le Hai Binh said in a statement posted on the ministry’s website late Tuesday that Vietnam has raised concerns with China over the movement of Haiyang Shiyou oil rig, and has demanded that China stop any drilling and remove the rig from the area where the two countries’ continental shelves overlap and have not been demarcated. “Vietnam demands that China not conduct any drilling activities and withdraw Hai Duong 981 oil rig from this area,” he said, using the Vietnamese name for the oil rig. “Vietnam reserves all its legal rights and interests in the area in accordance with international law,” he said. Chinese Foreign Ministry spokesman Hong Lei defended China’s action at a regular news briefing in Beijing on Wednesday. “As far as I know, the operation of the HYSY 981 oil rig is being carried out in completely uncontested waters under China’s jurisdiction,” he said. “We hope the Vietnamese side will see this operation calmly and make joint efforts with China to properly handle maritime issues.”  The oil rig was at the center of a stand-off between the countries in May 2014 when China placed it off Vietnam’s central coast. It was towed away more than two months later, but the incident sparked deadly anti-China riots in Vietnam and plunged bilateral relations to their lowest point in years.

It Is Now Cheaper To Rent A Dry Bulk Tanker Than A Ferrari - China’s slowing growth has crushed shipping rates to such an extent that hiring a 1,100-foot merchant vessel would set you back less than the price of renting a Ferrari for a day. As Bloomberg reports, Rates for Capesize-class ships plummeted 92 percent since August to $1,563 a day amid slowing growth in China. That’s less than a third of the daily rate of 3,950 pounds ($5,597) to rent a Ferrari F40, the price of which has also fallen slightly in the past few years, according to Nick Hardwick, founder of The Baltic Exchange’s rates reflect the cost of hiring the vessel but not fuel costs. Ships burn about 35 metric tons a day, implying a cost of about $4,000 at present prices, data compiled by Bloomberg show. *  *  * Of course, it is hard to drive a 1,100-foot dry bulk tanker down The Vegas Strip or through midtown but still...

The Price of Oil, China, and Stock Market Herding -- Olivier Blanchard -- The stock market movements of the last two weeks are puzzling. Take the China explanation. A collapse of growth in China would indeed be a world changing event. But there is just no evidence of such a collapse. ... Take the oil price explanation. It is even more puzzling. Traditionally, it was taken for granted that a decrease in the price of oil was good news for oil importing countries such as the United States. ... We learned in the last year that, in the short run, the adverse effect on investment on energy producing firms could come quickly and temporarily slow down the effect, but this surely does not undo the general conclusion. Yet the headlines are now about low oil prices leading to low stock prices. ...  Maybe we should not believe the market commentaries. Maybe it was neither oil nor China. Maybe what we are seeing is a delayed reaction to the slowdown in the world economy... Maybe…  I think the explanation is largely elsewhere. I believe that to a large extent, herding is at play. If other investors sell, it must be because they know something you do not know. Thus, you should sell, and you do, and so down go stock prices. Why now? Perhaps because we have entered a period of higher uncertainty. ...

Oil Claims Another Victim as Cheap Fuel Keeps Metals Glut Going -- The collapse in oil and coal prices isn’t just bad news for the energy industry. It’s also compounding a global surplus in metals. Ores are extracted with diesel-engine diggers and trucks, while smelters that process metal run on electricity from coal-fired power plants. Energy accounts for as much as a third of the industry’s costs at a time when everything from aluminum to zinc is mired in a prolonged slump and more mines are losing money. With oil tumbling about 70 percent in the past two years to less than $30 a barrel, cheaper fuel is allowing metals companies to delay production cuts needed to halt their own slide in prices. “There is an incredibly powerful link between base metals and oil prices,” . “If we see oil going down to $20 or even lower, it’s going to mean lower metals prices. Short-term, things look pretty tough.” The biggest commodity rout in seven years has forced mining companies like Glencore Plc to trim operating costs and output, sell assets and shares, and reduce their debt. BHP Billiton Ltd. and Rio Tinto Group, the two largest producers, said in August that lower energy bills aided profits, as did weaker currencies in countries where they operate mines. Since then, Brent oil has tumbled about 50 percent.

Hoarding in plain sight 2016: the importance of Chinese stockpiling - Back in 2008, I wrote an article called Hoarding in Plain Sight, making the argument that the tightness in oil supplies was crucially augmented by the decision of the Bush Administration to double the amount of Oil secreted in the Strategic Reserve, at the same time as other countries such as China also decided to start their own such storage facilities.  I suspect an opposite trend is in play now.  After all, very few analysts are taking the position that China's economy is actually contracting, rather than just growing at a lower rate.  If it's still growing, why wouldn't it be using even more commodities, increasing global demand?  A change in stockpiling behavior is an answer that fits the data.      From 2009 through 2013, China wasn't just growing strongly, it was stockpiling all sorts of commodities.  Here are some examples:  Metals When metals warehouses in top consumer China are so full that workers start stockpiling iron ore in granaries and copper in car parks, you know the global economy could be in trouble.....China's refined copper imports have surged over 70 percent so far this year to 1.1 million metric tons, while demand from Chinese manufacturers was forecast to rise by up to 7 percent. Meanwhile, iron ore shipments have risen 6 percent, with traders reckoning that local demand growth is much lower. Coal If you are looking for an example of China's economic slowdown, visit the country's biggest coal port.The huge stockpiles of coal are growing ever higher as factories and power plants cut back. Fuel  CHINA, the world's largest coal producer and consumer, plans to build stockpiles of the fuel in the eastern province of Shandong to ensure supplies and help stabilise prices, the nation's top economic planner says.The province would complete the construction of four to six coal stockpile bases within the next three to five years,  Aluminum Rumours about stockpiling have been circulating widely in the market, with some saying that 2 million tonnes of aluminium will be stockpiled this time. According to the market talk, major aluminium producers, as well as some large-scale state-owned trading...

Oil Pain Hits China as MIE Debt at New Lows After Rating Cut -  Chinese oil producer MIE Holdings Corp. fell to record lows in the bond market after Fitch Ratings downgraded it further into junk territory citing uncertainty it will be able to renew bank facilities. The firm’s notes due in 2019 were quoted at a mid-price of 33.50 cents on the dollar and those due in 2018 were at 36.00 as of 09:57 a.m. in Hong Kong, Citic Securities International Company Ltd. prices showed. Fitch cut its rating to B- from B on Jan. 15, and kept it under negative watch, indicating the rating firm could move it into CCC if new bank loans aren’t secured within six weeks. Fitch said MIE has 300 million yuan ($45.6 million) of debt payments due this year.  A 41.5 percent drop in the price of oil over the past year has sparked defaults by oil producers from Colombia to the U.S. and Norway. Other Chinese oil companies have also taken a beating, with dollar notes of Anton Oilfield Services Group sliding to record lows around 27.6 cents. “Seemingly, time is running out for MIE, which could face serious liquidity issues if its banking facilities are reduced or indeed withdrawn in a couple of months,” "The company expects to meet our financial obligations for the year based on our cash, operation performance and access to capital," Kenneth Wong, an investor relations official at MIE, said by e-mail. "We are in the midst of renewing our credit facility with China Construction Bank Corp. and are in discussions with other financial institutions."

Indebted Chinese Companies Increase Pressures on Government -  Sainty Marine, a Chinese state-owned company, went on a debt-fueled binge over the last few years, opening its own shipyards and signing orders worth hundreds of millions of dollars each.Now, heavily indebted companies like Sainty Marine are at the center of the economic troubles in China that have unsettled currency, commodity and stock markets of late.Sainty Marine just found itself in court, as one of China’s biggest banks asked to dismantle the company to recoup overdue loans. Government regulators are investigating the accuracy of the company’s financial reports, its bank accounts have recently been frozen and its shares have not traded on the Shenzhen stock market since August.“It’s pretty dire,” said Matthew Flynn, a Hong Kong shipping consultant.Shipbuilding is part of a long list of Chinese industries, including steelmaking, coal mining and auto manufacturing, that borrowed heavily from state-run banks to expand during the good years, helping to propel the country’s three decades of double-digit annual economic growth. But growth has now slipped to around 7 percent, and many companies are running low on cash.

China devaluation – a necessary evil? -- The key question is whether China can restore confidence in its exchange rate policy, not least among its own citizens. For as long as a renminbi devaluation of unknown size continues to overhang the markets, an abatement in capital outflows, and a return to stability, seems difficult. It is even possible that the event that markets most fear – a controlled depreciation of 10 per cent or so – might be the only way of restoring calm, if accompanied by other reforms. Until the renminbi is deemed by the global financial system to be at a sustainable level, fear of disruptive change will dominate sentiment. The PBOC does not seem to agree. Last week, it finally intervened in the foreign exchange markets with enough conviction to halt the recent depreciation, temporarily at least. The new exchange rate regime has now been spelled out insome detail. The central bank has decided to maintain a “relatively stable” renminbi against a basket of foreign currencies, while allowing much greater flexibility than before against the dollar. However, there is a severe problem in the shape of the rebalancing of the economy away from old manufacturing sectors towards the new economy. Western economists have tended to see this as a silver lining in the recent economic history of China, arguing that the economy is successfully shifting resources towards the sectors that will dominate its future. But a careful look at the data suggest that this is far from the whole story: The optimists point to the rise in the share of services in nominal GDP, and the corresponding decline in industrial sectors, as shown in the above left graph. Measured in current prices, the rebalancing appears to be well underway, with the share of industrial sectors falling from 47 per cent in 2011 to 40 per cent now. However, almost the whole of this rebalancing in nominal terms has occurred because of a large drop in the relative price of industrial products compared to services. In real, inflation adjusted terms (above right graph), there has been no rebalancing whatsoever in the past decade taken as a whole (though there has been a percent or two in 2014-15). The needed shift in real resources – labour and capital – out of the moribund sectors has therefore barely started.

The Weak Spot in China's $3.3 Trillion Foreign Reserve Stockpile - By almost all measures, China’s $3.3 trillion foreign reserves, the world’s largest, look formidable. Except one. Compared with the amount of yuan sloshing around in the economy, a proxy for potential capital outflows, China’s firepower seems limited. The dollar reserves account for 15.5 percent of M2, a broad measure of money in circulation. That’s the lowest since 2004 and is less than levels in most Asian economies including Thailand, Singapore, Taiwan, Philippines and Malaysia, according to data compiled by Bloomberg. It is not to say all the money will leave China -- people need yuan to buy clothes, pay rent and fill up the gas tank. And by other traditional measures, China’s reserves stand comfortably above any crisis level. The reserves are sufficient to pay off the short-term dollar debt five times over and they are able to buy all the imports for the next two years, according to Nomura Holdings Inc. But the low coverage on the money supply does highlight the risk that the buffer can run down quickly if capital outflows, which approached $1 trillion over the last year through November, accelerate. That is perhaps why China has tightened capital controls and stepped up its defense of the currency to damp expectations of further depreciation, which may lead to more money leaving the country.

China: Economic Growth Down to 6.8% Last Quarter: — China’s economic growth edged down to 6.8% in the final quarter of 2015 as trade and consumer spending weakened, dragging full-year growth to its lowest in 25 years.Growth has fallen steadily over the past five years as the ruling Communist Party tries to steer away from a worn-out model based on investment and trade toward self-sustaining growth driven by domestic consumption and services. But the unexpectedly sharp decline over the past two years prompted fears of a politically dangerous spike in job losses.Full-year growth declined to 6.9%, government data showed Tuesday. That was the lowest since sanctions imposed on Beijing following its crackdown on the Tiananmen Square pro-democracy movement caused growth to plummet to 3.8% in 1990.The October-December growth figure was the lowest quarterly expansion since the aftermath of the global financial crisis, when growth slumped to 6.1 percent in the first quarter of 2009. Growth in the July-September quarter of 2009 was 6.9 percent.Growth in investment in factories, housing and other fixed assets, a key economic driver, weakened to 12% in 2015, down 2.9 percentage points from the previous year. Retail sales growth cooled to 10.6 percent from 2014’s 12 percent.“The international situation remains complex,” said Wang Bao’an, commissioner of the National Bureau of Statistics, as a news conference. “Restructuring and upgrading is in an uphill stage. Comprehensively deepening reform is a daunting task.”Growth was in line with private sector forecasts and the ruling Communist Party’s official target of about 7% for the year.Beijing responded to ebbing growth by cutting interest rates six times since November, 2014, and launched measures to help exporters and other industries. But economists note China still relies on state-led construction spending and other investment.

What happens if China’s economy has a hard landing? | East Asia Forum: The sudden, sharp fall of Chinese stock prices twice in 2015 and again this month does not necessarily herald a further slowdown of GDP growth. But investor confidence, the bedrock of a healthy economy, has been shaken both in China and throughout the world. As Chinese leaders struggle to implement market-based reforms, a severe economic crisis that causes social disruption cannot be completely ruled out. In such a case, what might happen? In current circumstances, China’s policymakers have few monetary or fiscal cards to play. The People’s Bank of China has already cut interest rates several times, reduced banks’ reserves requirements and allowed the currency to fall. A major stimulus package protected China from the global recession of 2008–09, but it cannot be easily replicated without expanding the existing pile of bad loans and thwarting Beijing’s efforts to reduce the share of investment in the economy. China’s future policy towards other countries and international institutions would depend, in part, on how much leverage it has over others and what its reputation is. Money talks, and China still has lots of it — despite drawdowns of roughly half a trillion dollars in its foreign exchange reserves in the latter part of 2015. Despite the crisis, China’s trade and investment partners would continue to promote deeper economic engagement. Yet a hard landing would spread alarm and exacerbate the pain already felt in those economies whose prosperity has depended on exports to a booming Chinese economy. Australia, Japan and developing Asia are all at risk of a further slowdown. Some might resort to beggar-thy-neighbour currency devaluation. The United States, too, will suffer losses, but its relative influence will rise if its economy can shrug off the Chinese downturn.

Bernanke Downplayed China Impact on World Economy - "I don't think China's economic slowdown is that severe to threaten the global economy," said Bernanke at the Asian Financial Forum held in Hong Kong.Bernanke argued that the global economy was more troubled by a global savings glut, which had long been a drag on investments. Bernanke also said the $28 trillion debt pile facing China was an "internal" problem, given the majority of the borrowings was issued in local currency. According to consultancy McKinsey & Co., government, corporate, and household debt in China had already hit 282% of the country's gross domestic product as of mid-2014. Bernanke said the correlation between different markets is higher than that between markets and the economy. He pointed out that worldwide market selloffs in times of distress was natural due to global asset allocations. "The U.S. and China are not as closely tied as the market thinks," Bernanke said. Contrary to Bernanke's views on the global impact of a Chinese slowdown, the IMF said in its latest World Economic Outlook Update released on Tuesday that "a sharper-than expected slowdown in China" was a significant risk that would bring "international spillovers through trade, commodity prices, and waning confidence."

Big Bad China  - It seems like every day we are inundated with news out of China. Investors are already concerned. The offshore renminbi (CNH) is more international than the onshore one (CNY), which is tightly managed by the government. As such, the rising spread (CNH-CNY) between the two may be indicative of mounting skepticism about China’s economy and its markets. Likewise, capital is fleeing the country as hot money flows have accelerated:  In the following sections we will attempt to analyze China’s markets and determine the biggest risks facing its economy. Lastly, we will try to answer the following question: does it matter to us?

Capital flight from China worse than thought - The flow of capital out of China and other emerging markets was significantly worse than previously thought in 2015, according to new estimates. In a report released on Wednesday the Washington-based Institute of International Finance said outflows increased as overseas investors pulled out of emerging markets and Chinese companies scrambled to pay off overseas loans in the final three months of the year amid a weakening renminbi. Emerging markets saw an estimated $735bn in net capital outflows last year with all but $59bn of that coming from China. In October, the global finance industry group had predicted 2015 would see net outflows from emerging markets of $540bn, the first since 1988. The latest grim data comes amid growing concerns about faltering growth in China and other major emerging economies that has led some to start calling the end of a charmed era for emerging markets. They also highlight the continuing opacity of many of those markets and the difficulty of measuring the extent of capital flight out of places like China that impose strict controls on the movement of money. The discrepancy revealed on Wednesday, the IIF said, came in large part because of accelerating capital flight from China in the final three months of last year via channels used to circumvent capital controls. Over-invoicing for exports, cash transactions and other such flows recorded as “errors and omissions” accounted for $216bn of the $676bn in China’s net outflows in 2015, according to the IIF.

China hemorrhaged $676 billion last year  - Money is flying out of China. An estimated $676 billion left the world's second-largest economy last year, according to a report from the Institute of International Finance.That's a lot more than the $111 billion that fled all emerging markets -- including China -- in 2014. Capital outflows from China accelerated in the final quarter of 2015, the report said, as overseas investors grew increasingly wary of the country's slowing economic growth and stock market turmoil. Chinese companies also rushed to pay off foreign loans as the yuan weakened. The bleeding doesn't look like it'll stop anytime soon. China is expected to "see further large overall capital outflows as it continues to struggle against macro headwinds and to intervene heavily to stabilize its currency," the report said. Investors have been trying to get at least some of their money out of China as the value of the yuan plummets, and the country's stock markets swing wildly. Many see better opportunities abroad, whether it's in real estate or foreign markets. A whopping $200 billion left China last August alone, when the People's Bank of China forced a surprise devaluation of the yuan, according to the U.S. Treasury. China limits the amount of money an individual can move out of the country to $50,000 per year. But in response to increased capital flight, Beijing last September went so far as to clamp down on the amount of cash its citizens can withdraw from ATMs overseas -- another attempt to stop money from leaving the country.

"China Banks Seem To Be Doing Whatever They Can To Avoid Paying Anyone In Dollars" -- Regular readers of our blog probably know that our basic mantra about getting money out of China is that if you have consistently follow all of China’s laws, it ought to be no problem. Not true lately. So what has been going on lately? Well if there is a common theme, it is that China banks seem to be doing whatever they can to avoid paying anyone in dollars. We are hearing the following:

  • 1. Chinese investors that have secured all necessary approvals to invest in American companies are not being allowed to actually make that investment. I mentioned this to a China attorney friend who says he has been hearing the same thing. Never heard this one until this month.
  • 2. Chinese citizens who are supposed to be allowed to send up to $50,000 a year out of China, pretty much no questions asked, are not getting that money sent. I feel like every realtor in the United States has called us on this one. The Wall Street Journal wrote on this yesterday. Never heard this one until this month.
  • 3. Money will not be sent to certain countries deemed at high risk for fake transactions unless there is conclusive proof that the transaction is real — in other words a lot more proof than required months ago. We heard this one last week regarding transactions with Indonesia, from a client with a subsidiary there. Never heard this one until this month.
  • 4. Money will not be sent for certain types of transactions, especially services, which are often used to disguise moving money out of China illegally. This is not exactly new, but it appears China is cracking down on this. For what is ordinarily necessary to get money out of China for a services transaction, check out Want to Get Paid by a Chinese Company? Do These Three Things.
  • 5. Get this one: Money will not be sent to any company on a services transaction unless that company can show that it does not have any Chinese owners. The alleged purpose behind this “rule” is again to prevent the sort of transactions ordinarily used to illegally move money out of China. Never heard this one until this month.

The tiny shifts that can signal huge changes - Gillian Tett, FT -  A couple of weeks ago China SCE Property Holdings, a company based in the coastal city of Xiamen, quietly redeemed an outstanding $350m dollar bond more than a year before it was due. I very much doubt that many among the elites crunching around in the snow at the World Economic Forum in Davos noticed this move. They have plenty of macro-level problems to distract them, with markets tumbling, the oil price sinking and geopolitical tensions sky-high. But the fate of that little $350m bond points to a trend that helps to explain some of today’s market turmoil — and also highlights the headache confronting policymakers in China, Washington and elsewhere. In recent years emerging markets companies in general — and Chinese groups in particular — have dramatically increased their dollar debts. The Bank for International Settlements calculates this now stands at $4,000bn for emerging markets as a whole, four times higher than in 2008. A quarter of this debt has emanated from China. Until lately, using dollar-based markets to issue bonds or take loans seemed a smart strategy for Chinese groups. After all, the US Federal Reserve has kept dollar rates at rock-bottom lows and the renminbi has strengthened against the dollar in the past decade. But now the US interest rate cycle has turned and the renminbi has weakened. Moreover, contrary to assurances made in Davos by China’s most senior regulator that Beijing is committed to maintaining a stable currency, most delegates I have spoken to expect the renminbi to fall 10-15 per cent against the dollar in the next year. A string of Chinese companies is seeking to get ahead of this trend by stealthily repaying dollar debts, often by raising funds in renminbi instead. While these repayments are tiny, estimated to be worth only a couple of billions of dollars so far, some Chinese and western government officials at Davos privately think this trend will fuel $500bn of capital outflows in the next couple of years. It looks like a case of a quasi-carry trade going into reverse.

Fears About China’s Economy Fester at Davos - — At the World Economic Forum here, chief executives and investors are blaming China for a slump in global markets.  Fears about the country’s downshift, as its official growth slowed to a quarter-century low, have dominated high-level discussions, both during public debates and in smaller, private meetings.The financier George Soros said at a dinner on Wednesday night that a “hard landing is practically unavoidable,” adding that China is the root of the current financial crisis.  But behind the gloom and doom a more complex picture is emerging among the global elite in this Alpine ski resort. Some of it is coming from those who have lived or worked in China. Melissa Ma, the founder of the $6.8 billion private equity firm Asia Alternatives, is one of them. “In Davos, there is a gap between perception and reality. If you’re on the ground in China, you’re not worried,” Ms. Ma said. China’s most influential executives have stepped in to argue for a more nuanced view on China. Some have defended China’s potential for growth as Western participants voiced concerns and doubts. Neil Shen, a veteran venture capitalist and one of China’s most successful entrepreneurs, told one panel discussion about the evolution of Chinese industry, that Chinese companies were already competing in their own right in industries like smartphone manufacturing.Within the arena of financial markets, Chinese and Western leaders alike argued that the fears demonstrated in rocky markets were overstated. Last week, stocks moved into bear market territory — which occurs when stocks are down more than 20 percent from a high — in large part on the news of China’s disappointing 2015 growth domestic product figures.

Chinese Stocks Face Derivatives-Driven Trigger Of Doom - Despite the collapse in Chinese stocks, Bloomberg reports annual sales of Chinese equity-linked structured notes across AsiaPac rose to a record (prompting Korea's financial regulator to warn investors in August that their holdings had become too concentrated in notes tied to the China H-Shares index). When banks sell the structured products to investors, they take on an exposure that's similar to purchasing a put option on the index... which needs to be hedged via index futures; and if BofAML is right, Chinese stocks in Hong Kong are poised for a fresh wave of selling now that HSCEI has crossed 8,000 as banks are forced to hedge.As Bloomberg details, [The selling pressure] is because the benchmark Hang Seng China Enterprises Index is approaching a level that forces investment banks to pare back their bullish futures positions, according to William Chan, the head of Asia Pacific equity derivatives research at BofA’s Merrill Lynch unit in Hong Kong. The trades, tied to banks’ issuance of structured products, are likely to start unwinding when the index falls through 8,000, a level it briefly breached on Wednesday. The gauge dropped 1 percent to 7,932.24 at 1:05 p.m. local time on Thursday.Banks have purchased futures on the gauge of so-called H shares to hedge exposure to structured products that they’ve sold to clients, according to Chan. Many of those products have a “knock-in” feature at the 8,000 level that will spur banks to cut futures positions to maintain the effectiveness of their hedges, he said. Additional pressure points may also come at lower levels, Chan said.“As the market goes lower from here, the downward move may accelerate,” he said. “There will be a large amount of hedging in futures which dealers need to unwind.” And it appears that has already begun as not only did stocks accelerate through the "pin" level of 8,000 but Chinese 'VIX' has surged as banks look for alternative ways to hedge their implied positions...

China Openly Pledges to Sink the Yuan vs. the Dollar -- On Thursday, I saw this MarketWatch headline: China Serious about Dropping Dollar Peg. I was totally unimpressed after reading the article. China will not do the one thing it has needed to do for decades: Let the Yuan float. China still insists on setting artificial pegs that the market openly mocks.  --A senior Chinese official Thursday affirmed China's intention to decouple its currency from the U.S. dollar, while the head of the International Monetary Fund urged Beijing to improve communication with markets about changes to its foreign-exchange regime.For years, China has hitched the yuan's value to U.S. dollar, but its central bank signaled in December that it would break the peg and instead manage the Chinese currency against a basket of 13 currencies. "We're serious about the basket approach," said Fang Xinghai, a senior economic adviser to the Chinese leadership, at a panel organized by the World Economic Forum here Thursday. "It's a decided strategy."  With a crawling peg, the yuan has appreciated with the strengthening U.S. dollar, hurting Chinese manufacturers while the economy is weakening. Decoupling the yuan from the dollar could help Beijing's effort to rekindle growth. "There's some catch-up to do" when it comes to adjusting the yuan's value against the dollar, said Mr. Fang, a director-general in the Office of the Central Leading Group on Economic and Financial Affairs, which functions like the White House's National Economic Council. "Once we're done with it, the yuan will be stable again," he said.

Ilargi: Square Holes and Currency Pegs - naked capitalism - Yves here. There’s a lot of merit in Ilargi’s piece, but I wanted to clear up some points. First, he draws a harder line between floating and pegged currencies than is often the case. For instance, Japan, which supposedly has a floating-rate currency, intervenes more than occasionally. For instance, when the yen got into nosebleed territory of over 80 to the dollar, the government did sit pat for longer than most observers expected, but finally took steps to lower its value. Similarly, its Abenomics was seen in its early stages by some commentators as more about reducing the value of the yen than the Japanese government was pretending (ie, it was positioned as a domestic economy program with any currency effects depicted as unfortunate by-products). And let us not forget that the US cleared its throat and basically told the Japanese government to halt the decline of the value of the yen when it had fallen back to 100 to the dollar.  Second, I take issue with this point: “Today’s major currency pegs are remnants of a land of long ago lore; they have no place in this world, they are financial misfits.” It’s not untrue but not for the reasons he implies. Ilargi like many, has appears to accept the current order of almost entirely open capital flows as a given. And indeed, in that world. it’s pretty hard to maintain a peg.  However, what I disagree with is the assumption that our current level of highly mobile capital is necessary or desirable. As Carmen Reinhart and Ken Rogoff showed in their work on 800 years of financial crises, high levels of international capital movements are strongly correlated with more frequent and severe financial crises. And there’s no good reason to think we need anywhere near the level of foreign exchange trading we do now. I did a study in 1984, which might as well have been the age of stone knives and bearskins, for Citibank’s London Treasury department. Foreign exchange trading had been its biggest profit center, but it was losing money in the strong dollar environment. That is a long-winded way of saying that Ilargi’s flip dismissal of pegs, while technically accurate, obscures the real issue: what is unsustainable about our current economic order is that the degree of international integration is too high to be stable for any length of time (see Dani Rodrik’s discussion his an “impossibility theorem” for the global economy for more detail as to why). Yet going back to a world that is more compartmentalized (as in quasi-autarkical) goes so much against orthodox economic thinking as to be seen as deviant.

China's dream of rail link to S-E Asia coming true - Long dreamed of, discussed and debated, China-backed plans to build high-speed rail networks that link countries in mainland South-east Asia and to open up a route for China to the maritime highways of the Gulf of Thailand and Bay of Bengal are seeing the first real steps taken. On Dec 2 last year, a ground- breaking ceremony attended by Lao and Chinese officials was held in Vientiane in a symbolic start of construction of a 427km railway to connect the Lao capital to the Chinese border. The US$6.04 billion (S$8.7 billion) Laos-China joint venture is expected to be completed in four to five years.The project could be transform-ational for landlocked Laos, though questions hang over the viability of the rail link when it is eventually commissioned. But it also means a lot to China, which has long sought southern access to the sea. Some 100,000 workers will be needed for the massive project, and it is unclear how many of them will be Chinese. Laos does not have railways - and thus has no workers skilled at building them.

Xi signs Egypt deals as China looks to boost Mideast clout - (AFP) - Chinese President Xi Jinping announced Thursday billions of dollars in special loans and investments in the Middle East as Beijing seeks to boost its economic ties and clout in the region.Xi offered China's financial support in an address to the Cairo-based Arab League after holding talks with Egypt's President Abdel Fattah al-Sisi during his first tour to the Middle East as president. Xi arrived in Cairo late Wednesday from Saudi Arabia and will travel on Friday to Iran, the last leg of his three-nation tour. Xi offered $55 billion in loans and investments to the Middle East. "China will offer $15 billion (13.8 billion euros) as special loans for industrial projects in the Middle East," he told the Arab League. Another $10 billion would be provided as commercial loans to boost cooperation in the energy sector and an equivalent amount will be offered as preferential loans, he said. Xi also announced the establishment of a common investment fund worth $20 billion for Qatar and the United Arab Emirates. Beijing has long taken a backseat to other diplomatic players in the Middle East but analysts say the region is crucial to Xi's signature foreign policy initiative -- known as "One Belt One Road" -- touted as a revival of ancient Silk Road trade routes.

Pro-China Party Falls As Taiwan Elects First Female President In "Historic" Landslide Election - "We failed. The Nationalist Party lost the elections. We didn't work hard enough,” Eric Chu said on Saturday before taking a long bow in front of a “thin” crowd of supporters. Chu stepped in to become the Nationalist Party (KMT) candidate in Taiwan’s presidential race when his predecessor was deemed too divisive. The island held two elections on Saturday, one for the presidency and one for seats in the national legislature - The Democratic Progressive Party scored resounding victories in both ballots. The DPP candidate and former law professor Tsai Ing-wen became the island’s first female president after claiming 56% of the vote in the biggest landslide since the island's first democratic election twenty years ago.Chu only managed to garner 31%. Tsai will enjoy a friendly body of lawmakers as the DPP won 68 seats in the 113-seat legislature versus 36 for the Nationalists. Previously, KMT held 64 seats and this will be DPP's first ever majority.

Taiwan 2015 export orders in worst slide in 6 years, more rate cuts seen | Reuters: Taiwan's export orders fell the most in six years in 2015 on weak global tech demand and a slowdown in China, cementing bets that the central bank will have to cut interest rates again. The deeper-than-expected slump in orders in the final month of 2015 suggests weak growth momentum will likely have persisted in the fourth quarter and signals more weakness for the global tech industry. Taiwan's December export orders fell 12.3 percent on year, its ninth straight decline and the biggest percentage slide since February 2013. That brought orders for the whole of 2015 down 4.4 percent, the ministry of economic affairs said on Wednesday. The monthly fall was worse than the 8 percent drop forecast in a Reuters poll and deteriorated from November's 6.3 percent decline. The full-year slump was the worst annual decline since an 8.33 percent slide in 2009. Total orders totalled $451.8 billion last year. In 2014, orders reached $472.8 billion due to a boost from Apple Inc's iPhone. "2015 orders fell 4.4 percent, marking the first negative growth in six years," the ministry said in a statement. "Global economic momentum remained soft. Handheld device demand has weakened...oil prices continued to plunge." Taiwan's export orders typically lead actual exports by two to three months. A lot of orders are sent to factories in China that are run by Taiwan companies, and from there are exported to end markets such as the United States and Europe.

Japanese stock market: Oil nation wealth funds seen unloading risky assets- Nikkei Asian Review: Sovereign wealth funds from oil-producing countries are suspected of selling off their risky assets, putting downward pressure on global stocks. These moves are likely the result of tumbling petroleum prices, which are believed to have caused budget shortfalls at those nations and heightened risk aversion at their investment funds. The Nikkei Stock Average slipped 191 points Monday to close at 16,955. The intraday low of 16,655 came in below 16,795, the lowest close since the start of 2015. Other Asian markets slumped as well, with Singapore stocks scraping a four-year three-month low and the Hong Kong market diving to its lowest level in three years and four months. Currencies of resource producers, including Russia's ruble and the South African rand, faced selling pressure also. Oil producers' sovereign wealth funds, hedge funds and other major investors are thought to be stepping up sales of risky assets. Middle Eastern investors linked to oil interests have been cashing out of mutual funds composed of Japanese stocks, a major fund management company said. "Markets have long feared that oil money could flee," an executive at the fund manager said. "That's finally coming to pass." Individual stocks thought to draw investment from Middle Eastern wealth funds have tumbled as well. Companies with shareholders going by names including Juniper and Sajap, both funds managed by Saudi Arabia's central bank, have been particularly hard-hit since the end of September 2015.

Exclusive: BOJ likely to cut coming fiscal year's CPI forecast below 1 percent - sources -- The Bank of Japan is likely to cut its core consumer inflation forecast for the coming fiscal year to possibly below 1 percent at a policy review next week, say three sources familiar with its thinking. A lower forecast to reflect a fresh slide in oil prices would be a sharp downgrade from the central bank's current forecast of 1.4 percent for the year beginning in April, and push it further away from its 2 percent target. Market expectations that the BOJ would cut its inflation forecast have been growing, but few analysts anticipate a reduction to below 1 pct. Such a move is likely to reinforce expectations that it will expand its already massive stimulus program again in coming months. However, the BOJ is seen largely maintaining its inflation forecast of 1.8 percent for fiscal 2017, the sources said, allowing it to argue that Japan is still on track to achieve the target - albeit at a disappointingly slow pace. "A sharp cut in next fiscal year's inflation forecast is unavoidable due to the oil effect," said one source on condition of anonymity.

Japan government forecasts to show fiscal discipline targets more distant: paper | Reuters: Japan's Cabinet Office will issue forecasts this week showing Prime Minister Shinzo Abe's administration is falling behind its fiscal discipline targets, a document viewed by Reuters showed. The forecasts could deal a blow to the credibility of Abe's fiscal policy and fuel lingering concerns that Japan is not using a recent increase in tax revenue to pare its debt burden, which is the largest among industrialized nations. The Cabinet Office, which helps coordinate economic policy, expects a primary budget deficit of 6.5 trillion yen ($55.20 billion) in fiscal 2020, the document showed. That is worse than the previous forecast of a 6.2 trillion yen deficit, which means the government is getting further from its goal of returning to a primary budget surplus in fiscal 2020. The primary budget, which is an important measure of a country's fiscal health, excludes debt servicing costs and income from bond sales. Abe's government also has a target of reducing the primary budget deficit to 1 percent of gross domestic product in fiscal 2018, which was intended to reassure investors that it will stick with fiscal discipline.

Government projects larger primary deficit of ¥6.5 trillion in fiscal 2020 | The Japan Times: The government is expecting a bigger than predicted primary deficit of ¥6.5 trillion ($55.6 billion) in fiscal 2020, reflecting the effects of a planned exemption of food items from a sales tax hike, Cabinet Office estimates showed Thursday. The latest estimates show Japan needs to make more effort to reach its goal of achieving a primary surplus by fiscal 2020, even if tax revenues are expected to grow on the back of an economic recovery led by expanding corporate profits. The deficit is projected to widen as the government has not come up with ways to make up for smaller potential tax revenues after deciding to exempt food items from the planned consumption tax increase to 10 percent in April next year from the current 8 percent. In July last year, the government estimated a primary deficit of ¥6.2 trillion in fiscal 2020. A deficit in the primary balance means the government cannot finance its annual budget, excluding debt-servicing costs, without issuing new bonds. The lower potential tax revenue, due to the exemption of food items from the sales tax hike, is likely to be around ¥1 trillion annually. The government plans to offset the shortfall with some ¥400 billion of savings gained by forgoing some social security spending. But it has yet to come up with ways to make up for the remaining ¥600 billion.

BOJ's Kuroda says no plan to adopt negative rates now | Reuters: Bank of Japan Governor Haruhiko Kuroda said he is not thinking of adopting a negative interest rate policy now, signalling that any further monetary easing will likely take the form of an expansion of its current massive asset-buying programme. "There are pros and cons of adopting negative interest rates ... The Federal Reserve didn't adopt negative interest rates and yet, its policy succeeded in stimulating the U.S. economy," he told parliament on Thursday. Speculation is growing in markets that the BOJ may expand stimulus as early as its rate review next week, as slumping oil costs push inflation further away from its 2 percent target and global stock market falls dampen business confidence. However, Kuroda has maintained his optimism on Japan's economy, saying that it continues to recover moderately and is helping keep inflation on a broad uptrend.

Half of Japan firms see no escape from deflation this year: Reuters poll -- Around half of Japanese firms believe their country will have failed to rid itself of deflation a year from now, a Reuters poll shows, a sign that authorities are not gaining the traction they want as they battle an entrenched deflationary mindset. Since the 1990s, deflation - sustained and broad declines in the prices of goods and services - has discouraged consumers from buying big or frequently as they seek better deals, and is seen as the root of decades of economic malaise. The central bank embarked on unprecedented monetary easing three years ago, vowing to create inflation. Recent consumer price levels have been mostly flat in year-on-year terms, an improvement on declines but far from the 2 percent inflation target the Bank of Japan has set itself. The question of whether Japan can decisively emerge from deflation is a matter of huge debate, and the Reuters Corporate Survey found many respondents worried by a steep slide in oil prices with some concerned that deflation has become too chronic a condition to change. "The nation has been in deflation for such a long time with everyone of the mind that they want to buy things just that little bit cheaper," wrote a manager at a machinery maker. The survey, conducted Jan. 5-15, found that 48 percent of companies expect Japan to be still be in deflation in a year's time, saying they could see no escape for the foreseeable future.

Govt to revise 2016 state budget because of falling oil prices - A slump in the global price of oil, which has fallen to below US$30 per barrel, may lead the government to revise a number of its economic assumptions for the 2016 state budget, a minister has said. Finance Minister Bambang Brodjonegoro said the falling oil prices would cause a decline in state revenues and the Indonesia crude price (ICP) assumptions in the 2016 state budget. “The state revenues will definitely decrease because of the slump in oil prices,” he said in the House of Representatives complex in Jakarta on Monday evening. In the 2016 state budget, the government has set an ICP assumption of $50 barrel, while state revenues from the oil and gas sector was expected to reach $11.65 billion. Concerning the situation, Bambang said, the government would revise its 2016 state budget but he refused to give details of the figures in the revised budget. “Many parties have predicted our revenues would be lower. Thus, there will be a [budget] revision,” he said. The Finance Ministry’s Fiscal Policy Office (BKF) head Suahasil Nazara said the government would release the details of the revisions before the deliberation period of the 2016 state budget began. “Oil price assumptions in the revised state budget will certainly be lower. How many percent the decline is, we are still counting it. Meanwhile, our economic growth assumption will be still at 5.3 percent,” said Suahasil. On the same occasion, Bank Indonesia Governor Agus Martowardojo said the central bank would remain cautious about the downward trend in oil prices, which could lead to a global economic contraction.

Bank Indonesia's deputy governor says there's room for more rate cuts: Indonesia could follow last week's interest rate cut with additional monetary stimulus, the deputy governor of the central bank said Tuesday. Speaking exclusively to CNBC's Bernard Lo at the Asian Financial Forum in Hong Kong, Hendar, who is the deputy-governor at Indonesia's central bank, said, "We see a room for cutting [existing] policy rates but of course we have to consider the impact on macroeconomic stability, as well as financial stability." Hendar emphasized the need for Indonesia to maintain a strong macroeconomic position given the volatility in global financial markets and headwinds to growth from a slowdown in China and weaker commodity prices."Because investors are looking for higher returns [on their] investment," he said. "The emerging economy [that] can offer a [stronger] macroeconomic fundamental and stability will attract foreign investments." He added that any decision to cut rates further will be motivated by a desire to accelerate economic growth and maintain stability in financial markets, while keeping an eye on developments in the global economy, particularly in China.

Malaysia Central Bank Looks to Lift Liquidity - WSJ: Malaysia’s central bank took markets by surprise Thursday, announcing a step to boost liquidity in the domestic financial system as deposit growth slows and a falling currency accelerates capital outflows.The cut in the statutory reserve requirement ratio to 3.5% from 4% as of Feb. 1—the first change since 2011—is meant “to ensure sufficient liquidity in the domestic financial system, and to support the orderly functioning of the domestic financial markets,” Bank Negara Malaysia said. The reserve-requirement ratio is the percentage of deposits a bank must keep at the central bank. The cut is not meant as a signal on monetary policy, added the central bank, which left interest rates unchanged at 3.25% Thursday—as expected despite the slowing economy, given concerns about capital outflows. All nine economists surveyed by The Wall Street Journal had expected the bank’s monetary-policy committee to stand pat. “Downside risks to growth have increased following greater uncertainty on both the global and domestic fronts,” Bank Negara Malaysia said in a statement. “In this challenging environment, the economy is expected to experience more moderate growth in 2016, after expanding by about 5% in 2015.” For Southeast Asia’s second-largest oil and natural gas, plummeting crude-oil prices have bitten deeply into export earnings, contributing to a halving of economic growth over recent quarters.

Moody's: Slower growth and capital flow volatility point to a more challenging year for Asian credit - Moody's Investors Service says that slower economic growth in Asia, coupled with heightened volatility in capital flows, will expose pockets of weakness across the region's credit markets, particularly in the corporate sector. "While emerging Asia will continue to outperform globally, most economies in the region will see GDP growth slow further compared to 2015," says Michael Taylor, a Moody's Managing Director and Chief Credit Officer for Asia Pacific. "China's slowdown will remain the main story, with headline economic expansion set to decelerate to 6.3% in 2016 from 6.9% in 2015, and this development will have spill-over effects on regional growth through weaker trade and investment flows," says Taylor. Asia's sovereigns appear reasonably well-placed to absorb the challenges of slower growth and volatility in capital flows. "External vulnerabilities in Asia, such as current account balances and foreign reserves, are comparatively well contained, while there is some policy space to counter unforeseen shocks," adds Taylor. However, after several years of rising leverage, corporate balance sheets in Asia are generally less healthy, and therefore slower growth will likely lead to a continuation of the ratings down-cycle observed last year, particularly for rated speculative grade corporates which have less financial flexibility. "For non-financial corporates in Asia, our expectation is that their elevated leverage, slowing growth and deteriorating liquidity will lead to further downward ratings pressure and defaults," says Brian Cahill, Managing Director for Moody's Fundamentals Group in Asia Pacific. "Roughly one third of ratings outlooks for speculative grade corporates in the region have a negative bias".

Australian CEOs gloomy about 2016 as world drowns in $200 trillion in debt: The world is burdened by $200 trillion in debt that won't get paid back and will ultimately destroy emerging market economies and global growth, according to ASX chief executive Elmer Funke Kupper. Mr Funke Kupper's comments come as a new survey shows Australian CEOs are less optimistic about growth in the world economy, as well as their own company's ability to make money in the coming year.PwC's 19th Annual Global CEO Survey, launched at the World Economic Forum in Davos on Wednesday, showed that just 31 percent of Australian CEOs are expecting an increase in global economic growth this year, down from 38 per cent in 2015.  The survey is based on interviews with more than 1400 CEOs of large companies in over 83 countries, including 49 Australians. Just over one third of Australian CEOs are 'very confident' they will see revenue growth in the next year, well down from 43 per cent last year.

Rupee closes at over 28-month low of 67.96 against US dollar - The Indian rupee weakened 0.48% to settle at over two-year low of 67.96 per dollar on Wednesday as stocks fell, hit by global and domestic factors that included concerns over China’s slowing economic growth and mounting pessimism in the domestic financial markets about the ability of the Narendra Modi-led government to keep its promise to pass goods and services tax (GST) bill in the next session. The local currency opened at 67.83 a dollar and touched a low of 68.17, a level last seen on 4 September 2013. Rupee closed at 67.96 a dollar, down 0.48% from its previous close of 67.65. The rupee has fallen over 8% during this fiscal year. The rupee is trading lower in nine out of 13 trading sessions and is the second worst performing Asian currency in 2016. The currency had recovered marginally towards the end of the trading session due to dollar sales by public sector banks, possibly at the behest of the Reserve Bank of India (RBI). “Rupee is largely following global cues. Major international currencies apart from the euro have all weakened against the dollar and the worries around the Chinese economy are still hovering around. The next level to watch out for would be 68.60 before we take any calls,” said Pramit Brahmbhatt, chief executive officer, Veracity Financial Services. India’s benchmark equity index, BSE Sensex, closed at 24,062.04 points, down 1.71%, or 417.80 points. The Sensex has lost over 19.86% since it hit an all-time high on 4 March 2015. So far this year, the Sensex is down over 7.87%, the rupee has weakened 2.67%, while foreign institutional investors have sold $1.12 billion from local equity markets and bought $271.80 million from the debt market. Brent crude is down 25.33%.

India Staring At Full-Blown Economic Crisis, Claims Congress: As stock markets witnessed a deep plunge, Congress today claimed that the country is staring at a "full-blown economic crisis" and wondered whether India's growth numbers projecting it as the fastest growing economy in the world were "credible." "The BJP government may be projecting India as the fastest growing economy but the world is doubting the numbers," party spokesman Deepender Singh Hooda told reporters. Mr Hooda quoted from a newsletter of Nevsky Capital to its client telling them that Chinese real GDP growth is 7.1 per cent and India's is 7.4 per cent are "substantially overstated." to drive his point. The investment company has wound up its operations in India, he said. Posing the question as to what the government is doing to bring exports back on track after 13 months of decline, he said that Prime Minister Narendra Modi has been travelling extensively but he is not marketing 'Purchase from India.' That would automatically boost manufacturing and exports, Mr Hooda added. "The irony is that the more the Prime Minister travels, the more the decline in exports", he said taking a dig at PM Modi. Noting that 20 of the 60 months of the government's term are over, he said that at the end of BJP's 1/3rd term in office, "the nation is looking at a full-blown economic crisis and every day we get more data that indicates that we are struggling to find the bottom of bad news."

France, India to focus talks on defense deal, clean energy | Amid the pomp of a military parade, the leaders of France and India are planning ambitious discussions next week in New Delhi that could end with a multibillion-dollar deal for combat airplanes and closer cooperation on counterterrorism and clean energy. French President Francois Hollande arrives Sunday to tour the northern city of Chandigarh before traveling to the Indian capital for meetings with officials and a place as guest of honor on Tuesday at India’s Republic Day parade, celebrating 66 years since the country adopted its constitution. High on the agenda will be India’s desire to purchase 36 Rafale combat planes for its air force, which Modi had announced during a visit to Paris in April, touching off several rounds of negotiations over pricing, offsets and servicing. Indian Defense Minister Manohar Parrikar said last week that the deal was “close to completion,” and another Indian official said this week that the two sides hoped to sign a deal during Hollande’s visit. That official spoke on condition of anonymity because he was not authorized to speak with media. India and France have shared close ties for decades, holding high-level meetings every year since signing a strategic partnership agreement in 1998. They share concerns over terrorism, climate change, space exploration and military cooperation.

Facebook slapped down by Indian regulator over astroturf campaign --We previously wrote about Facebook’s battle with Indian regulators over its “Free Basics” product, which is a stripped down version of the internet designed to ensure Facebook’s global dominance help bring the world’s poor online.  Trai, the Indian telecoms regulator, had launched a consultation in December about differential pricing for data services: effectively whether or not it’s ok to let telecoms companies charge different amounts for different parts of the internet. Readers in the US and Europe may know this debate by the term “net neutrality”. Unlike in the US, Zuckerberg came out strongly against net neutrality in India (or at least defined it in way that suits his product) and Facebook launched a big PR campaign, even enlisting its users by directing them to a pre-filled form that automatically sent a response to the email account set up by Trai for the consultation. And that seems to have pissed them off, as this Jan 18th letter released today shows (hat tip to Nikhil Pahwa and Rohin Dharmakumar). In it, Trai criticises Facebook for “reducing this meaningful consultative exercise designed to produce informed decisions in a transparent manner into a crudely majoritarian and orchestrated opinion poll” and for claiming to speak on behalf of the users who were told to respond to the consultation without, er, being shown any of the questions: No disclosure in the act of sending a message to TRAI using your platform to this effect has been issued to users. The only act to which such users have consented is the following: ‘By clicking Send Email, you agree to let Facebook send your name and this email to the TRAI.’ This does not in our view imply any consent on the part of the user to allow Facebook to speak on their behalf as you have done, urging TRAI to hear ‘the voice of these millions of Indians.’

Desperate for Slumber in Delhi, Homeless Encounter a ‘Sleep Mafia’ - — When midnight approaches in Old Delhi and a thick, freezing fog settles over the city, the quilt-wallah Farukh Khan sits on his corner, watching the market for his services come to life.They shuffle up one by one, men desperate for sleep. The bicycle rickshaw pullers, peeling one of his 20-rupee, or 30-cent, quilts off a pile, fold their bodies into strange angles on the four-foot seats of their vehicles. The day laborers curl their bodies on the frigid sidewalk, sometimes spooned against other men for warmth.Those who cannot afford to pay Mr. Khan build fires, out of plastic if necessary, and crouch over them, waiting for the night to be over.  Does any city have a more stratified sleep economy than wintertime Delhi? The filmmaker Shaunak Sen, who spent two years researching the city’s sleep vendors for a documentary, “Cities of Sleep,” discovered a sprawling gray market that has taken shape around the city’s vast unmet need for shelter. In some places, it breeds what he calls a “sleep mafia, who controls who sleeps where, for how long, and what quality of sleep.”Photo A man who paid for a blanket and a place to rest on a winter’s night in Old Delhi.  The story of privatized sleep follows a familiar pattern in this city: After decades of uncontrolled growth, the city government’s inability to provide services like health care, water, transportation and security has given rise to thriving private industries, efficient enough to fulfill the needs of those who can pay. But shelter, given Delhi’s extremes of heat and cold, is often a matter of survival. The police report collecting more than 3,000 unidentifiable bodies from the streets every year, typically men whose health broke down after years living outdoors. Winter presents especially brutal choices to homeless laborers, who have no place to protect blankets from thieves in the daytime hours. Some try to hide them in the tops of trees.

Pakistan Charsadda: Deadly assault on university - BBC News: Security forces have ended a gun and bomb attack on a university in north-west Pakistan in which 19 people were killed and 17 injured. Four suspected attackers also died in a battle that lasted nearly three hours at Bacha Khan University in Charsadda. There are conflicting reports about whether Pakistan Taliban militants carried out the assault. The group killed 130 students at a school in the city of Peshawar, 50km (30 miles) from Charsadda, in 2014.There have been conflicting claims about who could be involved in the attack, a sign of the kaleidoscopic mix of militant networks evolving along the Pakistan-Afghan border region in the north. The attack comes amid a sudden spike in militant violence in Pakistan, after a year of relative peace and quiet largely attributed to a 2014 military operation against militant sanctuaries in Waziristan. Questions are now being raised over whether that operation really destroyed the ability of militants to regroup and strike at will.

Militants storm Pakistan university, kill at least 20 | Reuters: Armed militants stormed a university in volatile northwestern Pakistan on Wednesday, killing at least 20 people and wounding dozens a little more than a year after the massacre of 134 students at a school in the area, officials said. A senior Pakistani Taliban commander claimed responsibility for the assault in Khyber Pakhtunkhwa province, but an official spokesman later denied involvement, calling the attack "un-Islamic". The violence nevertheless shows that militants retain the ability to launch attacks, despite a country-wide anti-terrorism crackdown and a military campaign against their strongholds along the lawless border with Afghanistan.A security official said the death toll could rise to as high as 40 at Bacha Khan University in the city of Charsadda. The army said it had concluded operations to clear the campus six hours after the attack began, and that four gunmen were dead. A spokesman for rescue workers, Bilal Ahmad Faizi, said 19 bodies had been recovered including students, guards, policemen and at least one teacher, named by media as chemistry professor Syed Hamid Husain. Husain reportedly shot back at the gunmen with a pistol to allow his students to flee. Many of the dead were apparently shot in the head execution-style, TV footage showed.

Tajikistan shaves 13,000 beards in 'radicalism' battle -  Tajikistan has struggled with poverty and instability since independence more than two decades ago. Police in Tajikistan have shaved nearly 13,000 people's beards and closed more than 160 shops selling traditional Muslim clothing last year as part of the country's fight against what it calls "foreign" influences. Bahrom Sharifzoda, the head of the south-west Khathlon region's police, said at a press conference on Wednesday that the law enforcement services convinced more than 1,700 women and girls to stop wearing headscarves in the Muslim-majority Central Asian country. The move is seen as part of efforts to battle what authorities deem "radicalism". Tajikistan's secular leadership has long sought to prevent an overspill of what it sees as unwelcome traditions from neighbouring Afghanistan. Last week, the country's parliament voted to ban Arabic-sounding "foreign" names as well as marriages between first cousins.The legislation is expected to be approved by President Emomali Rahmon, who has taken steps to promote secularism and discourage beliefs and practices that he sees as foreign or a threat to the stability of Tajikistan, Radio Liberty said.

What If The Imploding Baltic Dry Index Does Reflect Global Trade After All -- This is not new: we have been tracking the collapse of the Baltic Dry - aside for the occasional dead cat bounce - to all time lows, a proxy of global shipping and thus trade, for the past 7 years. To be sure, for staunch goalseeking Keynesian the collapse in Baltic Dry rates had little to do with actual demand for this services, and everything to do with the alleged supply of drybulk shipping, which was the stated reason for the collapse in costs. In other words, "trade was fine." Well, maybe not as the following chart from Capital Economics shows: Correlation may not be causation, but it sure is troubling. Which begs the question: as the baltic dry index continues to plumb new record lows, how long until central banks realize that for all their omnipotence and all their attempts to restore growth, inflation and the "wealth effect" they never mastered the only thing worth printing in a globalized world: printing trade?

Citigroup cuts global economic growth forecasts | Reuters: U.S investment bank Citigroup cut its growth forecasts for the world economy on Thursday, and said that risks of a global recession were increasing. Citi cut its forecasts for global economic growth for 2016 to 2.7 percent from 2.8 percent, citing pressures from disinflation. "Risks to our growth forecasts probably remain to the downside, with increasing risks of global recession," Willem Buiter, global chief economist at Citi, wrote in a research note. World stock markets have slumped since the start of 2016, as a slide in the price of oil has rattled investors and raised concerns about a slowdown in the global economy.

Morgan Stanley sees 2016 global recession risk as high as 20 percent | Reuters: The probability of a global economic recession this year is as high as 20 percent in a worst case scenario, U.S. investment bank Morgan Stanley said on Tuesday. Its economists said soft consumer demand in the United States and Japan and weakness in emerging markets due to worries over plunging oil and commodity prices and capital outflows from China were among the main risks. A global recession is loosely defined as growth below the roughly 2.5 percent needed for the world economy to keep up with an expanding population. "Two and a half percent seems to be the danger area for global recession, because historically that is the real GDP growth rate where you see GDP per capita go negative," said Elga Bartsch, Morgan Stanley's global co-head of economics. "Our base case is for a modest recovery to 3.3 percent. But the risks are skewed to the downside and appear to have risen recently."

Nearly $8 trillion wiped off world stocks in January, U.S. recession chances rising: BAML | Reuters: World stock market losses are approaching $8 trillion so far this year and investors last week poured the most money into government bond funds in a year, suggesting they fear the global economy could tip into recession, Bank of America Merrill Lynch said on Friday. The bank's U.S. economists also said on Friday that the likelihood of the world's largest economy entering a recession in the coming year has risen to 20 percent from 15 percent. While a repeat of the 2008-09 great recession "is a big stretch" and even the one-in-five chance of a normal recession remains low, they cut their 2016 growth forecast to 2.1 percent from 2.5 percent. Reflecting the increasingly bearish sentiment engulfing world markets, some $7.8 trillion was wiped off the value of global stocks in the three weeks to Jan. 21, BAML said. "We cannot rule out a recession in the next year. Accidents will happen, and we are concerned about the lack of policy ammunition to deal with a major shock," economists said in a note on Friday. "However, when markets are in such a fragile state there is a temptation to lose sight of the economic fundamentals. To us, the economy is okay and recession risks are low," they said.

GFC 2? ‘The situation is worse than 2007’: THE world is facing an avalanche of catastrophic bankruptcies and defaults that could lead to political and social upheaval, according to one leading global economist. William White, the chairman of the Organisation for Economic Co-operation and Development (OECD)’s review committee and former chief economist with the Bank of International Settlements made the dire predictions to the UK’s Telegraph on the eve of the World Economic Forum in Davos. “The situation is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up,” Mr White said. “Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief. “It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something. “The only question is whether we are able to look reality in the eye and face what is coming in an orderly fashion, or whether it will be disorderly. Debt jubilees have been going on for 5000 years, as far back as the Sumerians.”

South African growth outlook slashed but central bank to hike rates on January 28 | Reuters: South Africa's economic outlook has been hit hard as falling demand from China becomes more apparent but a weak rand and high inflation will force the Reserve Bank to tighten policy aggressively next week, a Reuters poll found. Nineteen of 31 economists said the central bank would raise interest rates by 50 basis points next Thursday to 6.75 percent while 11 said the Reserve Bank would raise by 25 basis points. Only one economist forecast rates unchanged. "It is clear that the SARB will hike rates at the next meeting," said Elna Moolman at Macquarie. "The question is just whether the Bank will maintain the recent pace of 25 basis points increments or revert to the 50 basis points increments that used to be the norm." If majority view is realized it would be the first time since July 2014 the Bank has added 50 basis points rather than the 25 basis point additions it has made since then. Moolman predicted a 25 basis point hike but said the risk of a more aggressive move had clearly increased and may largely depend on data – particularly the rand and oil price – in the run-up to the meeting.

IIF: Emerging markets set for US$448b outflows in 2016 ― After a thorny few years, emerging market bonds and equities are on track for another year of outflows driven by slowing global growth and corporate indebtedness, according to the Institute of International Finance. Emerging markets had net capital outflows of US$735 billion (RM3.2 trillion) in 2015, up from US$111 billion in 2014 and more than previously forecast, and are expected to see US$448 billion of outflows including errors and omissions in 2016, a report released today by the IIF said. The Washington-based group, an authoritative source of data on investment flows to and from the developing world, said heavy outflows from China, which reflect currency and growth worries, were the driving factor behind the losses in 2015. China had US$676 billion in outflows in 2015, according to IIF. The Chinese economy grew at its weakest pace in a quarter of a century last year, raising hopes Beijing would cushion the slowdown with more stimulus policies, which in turn prompted a rally on the country’s roller coaster share markets. “But the weakness extends well beyond China as we have seen persistent portfolio outflows out of a broad range of emerging markets, with investors increasingly worried about growth prospects and high corporate indebtedness,” said Charles Collyns, managing director and chief economist at the IIF. The organisation said Turkey, Brazil and South Africa are some of the countries most vulnerable to continued retrenchment in emerging markets because of weakness in macro policy, high levels of foreign exchange corporate indebtedness and significant current account deficits.

Rising Debt in Emerging Markets Poses Global Threat - WSJ:  Underlying this month’s market turmoil runs a deeper worry that mounting debt burdens in developing nations, particularly in Asia and Latin America, threaten to become a drag on global growth. Across the emerging world, concerns are rising about how well indebted companies will weather further turbulence. Ratings firms are accelerating corporate-debt downgrades and borrowing costs are climbing. Investors are pulling out of risky assets that looked appealing in better times. A net half-trillion dollars is estimated to have flowed out of developing countries last year, according to global banking industry group Institute of International Finance. After years of powering the global economy, emerging markets are caught between fading growth and tighter lending conditions, squeezing their private sectors, which had borrowed heavily during an era of low rates. The fallout from any debt defaults can spread fast: Foreign banks have lent $3.6 trillion to companies in emerging markets, and foreign investors hold, on average, 25% of local debt in developing economies. Standard & Poor’s Ratings Services said corporate defaults in emerging markets rose in 2015 to their highest levels since 2004. Corporate-debt downgrades in the five largest emerging economies outside of China increased sixfold over the past two years, to 154. Companies borrowed heavily in recent years, betting on stronger consumption, higher commodity prices and faster economic growth. Instead, growth in developing nations averaged less than 4% last year, nearly three percentage points below the International Monetary Fund’s 2011 forecasts for 2015, and commodity prices have plummeted.

For Emerging Markets, It Is Now Worse Than The Asian Financial Crisis - "It’s Black Wednesday for emerging markets," one strategist warned and Thursday is not looking any better, as SocGen's Berg warns "The rout in emerging markets could continue for some time, especially as the major global central banks have exhausted their ammunition in recent years, making it unlikely that they will rescue global markets this time around." In fact, as Bloomberg reports, this year's EM turmoil is already worse than in the same period in 1998's Asian financial crisis (and EM FX is even worse). The MSCI Emerging Markets Index dropped 3 percent to 692.76, the lowest close since May 2009. More than $2 trillion has been wiped out from the value of developing-nation equities this year as the MSCI Emerging Markets Index slid 13 percent, the worst start to a year since data began in 1988. As Bloomberg reports, The drop has exceeded the 7.9 percent decline in the gauge in the same period in 1998 during the Asian financial crisis and the drop in 2009 amid the global financial crisis.

Emerging Economies Lack Tools to Fight Capital Flight: Chile Finance Minister | Jakarta Globe: Developing countries must adjust quickly to deal with the "new reality" of prolonged economic slowdown, Chile's finance minister Rodrigo Valdes said on Thursday. Valdes told Reuters at the World Economic Forum in Davos that emerging markets lacked the credibility and tools to counter capital flight. The world's largest copper exporter is among the emerging economies hit hard by the slump in prices for the metal, and Valdes said the government was in the process of changing its growth and budget forecasts. "(Emerging markets) are seeing headwinds that we have not seen for at least 10 years, this is a different shock from 2009 when we had a v-shaped shock and we could do many things for the short term," Valdes said. "Here it is a gradual shock. It's important that we adjust to this reality. The worst thing you can do is to think this is not happening and act as if it were not happening." Emerging markets last year saw their first annual capital outflows since 1988, according to the Institute of International Finance which earlier this week estimated the total as $735 billion and said another $450 billion would flee in 2016. Most reckon a quick bounce back is unlikely The huge falls in emerging currency, stock and bond markets have prompted a suggestion by Mexico's central banker Agustin Carstens that emerging policymakers should emulate their developed market counterparts by becoming "market markers of last resort", possibly in a coordinated fashion. Valdes said he was not aware any such discussion was underway between emerging market policymakers.

Latam faces longest recession since 1980s - Latin America will suffer a second straight year of recession in 2016, the first time it has seen back-to-back years of economic contraction for more than 30 years, the IMF said today. As recently as October, the IMF forecast in its half-yearly World Economic Outlook that Latin America and the Caribbean would see economic growth of 0.8 per cent in 2016, bouncing back from a projected 0.3 per cent contraction last year. But just weeks into the new year, the Washington-based body has slashed its forecast for the region by 1.1 percentage points, and now predicts a further 0.3 per cent contraction this year. If this was to happen it would be the first back-to-back contraction in gross domestic product since 1982 and 1983, the start of Latin America’s “lost decade”, when debt default and high inflation ravaged the region, as the first chart shows. The IMF said the sharp downgrade was driven by the unexpectedly deep recession in Brazil, and “economic stress elsewhere in the region”. As recently as April 2015 it had been predicting growth of 2 per cent across the region this year. The fund will not publish comprehensive country-by-country revisions until Friday, but did say that it now expects Brazil’s economy to contract by 3.5 per cent this year, rather than the 1 per cent it forecast in October (and the growth of 1 per cent it envisioned in April 2015). The country is currently suffering its deepest recession since the Great Depression, while a vast corruption scandal at Petrobras, the state-run oil company has led to the arrests of some of the country’s top politicians and business people.

Venezuela Inflation Surges to 141% Amid `Economic War' -  Venezuela’s central bank published economic statistics for the initially time in a year, confirming the country had plunged deeper into recession and that inflation had spiraled into triple digits. The annual inflation rate ended the third quarter at 141.five percent, the central bank said in a report published Friday on its web site, compared with 68.five % the last time they reported the number in December 2014. Gross domestic product fell 7.1 % in the third quarter from the year earlier. The central bank laid blame for the economy’s plight upon collapsing oil rates -- Venezuela’s only significant export -- and an “economic war” it alleged was being waged against the South American country. President Nicolas Maduro, who addressed an opposition-controlled National Assembly for the first time, said the moment had come to raise gasoline rates and that he would look at adjusting the country’s fixed currency rates in the coming days. The central bank’s report was published just moments soon after the country’s newly appointed economy czar, Luis Salas, study an emergency decree signed by Maduro that would grant him powers to dictate economic measures. The powers had been needed to guard Venezuela from “speculation” and “fictitious” pricing, he stated. The central bank accused websites that track the street worth of the dollar of “destroying prices” and installing a “savage” kind of capitalism in the country, adding that 60 % of inflation was the result of currency manipulation.

Oil rout raises fears of Venezuela debt default | Reuters: crude prices have investors bracing for a messy default in Venezuela, where the sovereign and state-owned oil company PDVSA have some US$10bn in external debt payments due this year. With crude hovering around US$28 per barrel, Venezuela - which on Wednesday reportedly requested an emergency OPEC meeting - could have trouble satisfying its obligations Barclays said the country will have difficulty avoiding a credit event in 2016 - and that is based on the bank's forecast of US$37 oil, almost $10 higher than current prices. That sentiment seems to be widely shared in the market, even though President Nicolas Maduro assured the National Assembly last week that Venezuela would continue to pay what it owes. "It is a question of when, not if," "The only thing that could change that is a sharp recovery in oil prices, and/or a bailout from Venezuela's friends in China, Russia or Iran."

Brazil inflation reaches 12-year high in mid-January | Reuters -- Rising food prices and bus fares pushed Brazil's annual inflation rate to a 12-year high in mid-January, despite a severe recession which has cost more than 1.5 million jobs. Consumer prices as measured by the IPCA-15 index rose 10.74 percent in the 12 months through mid-January, up from 10.71 percent to mid-December and in line with market expectations, government data showed on Friday. Brazil is set to have both the worst recession and the third-highest inflation rate among G20 economies in 2016, according to Reuters Polls. The government, whose popularity has sunk to near record lows, has sent erratic signals about economic policy, stoking market volatility. On a monthly basis, prices rose 0.92 percent to mid-January, down from 1.18 to mid-December. Food prices jumped 2 percent in the month to mid-January as a strong El Nino sent heavy rainfall to many southern Brazilian states, raising the cost of carrots, tomatoes and onions by more than 15 percent. Bus fares also rose in many cities, including Sao Paulo and Olympic host Rio de Janeiro. The increase has fueled violent street protests, although in a smaller scale than in 2013. Adding to the unease, Brazil's economy shed a net 1.54 million payroll jobs in 2015, the Labor Ministry said on Thursday. Brazil's inflation soared last year after President Dilma Rousseff increased taxes, energy fares and fuel prices to avert a budget crisis and prop up embattled state-controlled oil producer Petrobras. Most Brazilians have endured bouts of hyperinflation until the creation of the real currency in 1994. Although the current spike is not nearly as severe as previous episodes of runaway inflation, it has helped erode the popularity of Rousseff struggling with a corruption scandal involving lawmakers from her Workers' Party and allied parties.

Mexico bank chief calls for EM monetary policy action: Central banks in emerging markets could follow counterparts in the developed world and become "market makers of last resort", using unconventional monetary policies to try and stimulate their flatlining economies, according to Mexico's central bank chief. The comments by Agustín Carstens will add to a rising chorus of concern about the deteriorating prospects for EMs in 2016, led by an economic slowdown in China. "Emerging markets need to be ready for a potentially severe shock," Mr Carstens told the Financial Times. "The adjustment could be violent and policymakers need to be ready for it." Policymakers and economists have warned that heavy selling of EM stocks and bonds by international investors since the middle of last year threatens to provoke a credit crunch that would make it hard for EM companies to service their debts. Many EM companies have filled up on cheap credit over the past decade, after a commodities boom and ultra-loose monetary policies led by the US Federal Reserve resulted in very low borrowing costs. As investors pull out, those costs are set to soar.Mr Carstens said the required policy response from EM central bankers would stop short of outright "quantitative easing" — the large-scale buying of financial assets undertaken by the Fed and other developed market central banks. But it would include exchanging high risk, long-dated assets held by investors for less risky, shorter-dated central bank and government liabilities.

Mexico central bank says sells $200 mln after peso slide | Reuters: Mexico's central bank on Wednesday said it sold $200 million of $200 million offered in an auction after the peso slid to a record low of 18.478 per dollar. The central bank sold the dollars at an average weighted price of 18.4399 pesos per dollar. An auction is triggered when the currency is trading 1 percent weaker than its fix rate in the previous session.

Bank of Canada to cut key rate to zero in 2016, Barclays says -  The Bank of Canada will cut its key interest rate to at least zero this year and could move toward negative rates to offset the crude oil price slump, according to Barclays PLC. The London-based bank expects the Bank of Canada to cut its overnight target rate 25-basis points to 0.25 per cent at its announcement on Wednesday, and a total of at least 50 basis points in 2016, Juan Prada and Andres Jaime Martinez wrote in a research note. “In our view, risks are tilted toward further easing, which would imply negative rates,” the strategists said. “The experience of countries like Switzerland, Sweden, Denmark and the euro area has taught central banks that zero is not the lower bound.” Persistent weakness in the price of crude oil, softer than expected economic data and concerns about the Chinese economy are weighing on the Canadian economy, the strategists wrote. Western Canadian Select, an Alberta oil-sands benchmark, has declined by half since the central bank’s October policy update while the Canadian dollar has depreciated by about 10 per cent. The Bank of Canada last cut interest rates in July to 0.5 per cent. Swaps traders are currently pricing in a 56-per-cent chance that the central bank will cut interest rates this week. In his October update, bank Governor Stephen Poloz said the effective lower bound for Canada was about minus 0.5 per cent, raising the possibility of negative interest rates.

Canada may slash key rate to negative on collapsing oil prices - The Bank of Canada may cut its key interest rate this year to zero and possibly go negative to compensate for falling crude prices, according Barclays analysts quoted by Bloomberg.  The Bank of Canada is expected to cut its overnight target rate 25 basis points to 0.25 percent on Wednesday and to zero during 2016. “Risks are tilted toward further easing, which would imply negative rates. The experience of countries like Switzerland, Sweden, Denmark and the euro area has taught central banks that zero is not the lower bound,” the experts said. The last cut in interest rates to 0.5 percent took place in June. Falling oil prices, a slowing Chinese economy and weak domestic economic data were the main reasons.  In October, Central Bank governor Stephen Poloz said the effective lower boundary for Canada was about minus 0.5 percent, raising the possibility of negative interest rates. "The odds of hitting the lower bound have obviously gone down if now you can go to minus 0.5 percent," he told Reuters. The collapse in oil prices has sent the Canadian dollar to its lowest level against the US dollar in twelve years.

Thanks to TPP, Canada Could Get Caught in Global Privacy Battle - Amazon's announcement last week that it plans to establish Canadian-based data centres to address mounting fears over the privacy and surveillance implications of information stored in the United States highlights how businesses and consumers have become increasingly concerned with where their data is transferred and stored. Yet two unconnected developments -- a recent European privacy decision and the Trans Pacific Partnership -- could create a Canadian privacy problem that even local data centres will not solve. The European case starts with Max Schrems, an Austrian law student, who became interested in privacy issues several years ago as a visitor at Santa Clara University in California. Concerned with the privacy implications of personal information collected by companies such as Facebook, he filed numerous complaints against the social media giant. While most were dismissed, one ended up before the European Court of Justice, which considered whether transferring data to the U.S. violated European privacy laws in light of the widespread use of government surveillance. Last fall, the court shocked observers by siding with Schrems, effectively declaring the agreement that governs data transfers between the U.S. and European Union invalid. The decision sparked immediate concern among the thousands of companies that rely on the decade-old "safe harbour" agreement.  European law sets strict restrictions on data transfers to countries without "adequate" privacy protections (as determined by European officials). The U.S. and European Union avoided an earlier data battle by compromising on the safe harbour approach in which the U.S. agreed to enforce privacy violations and the EU agreed to overlook the absence of a national privacy law.

The scary-simple way hackers cut electricity to 700,000 homes -  Hackers were able to cut the power to about 700,000 homes in Ukraine last month — marking the first time a cyberattack caused a blackout — and the way they did it was equal parts simple and scary. Though the Dec. 23 attack on a power company in Ukraine's Ivano-Frankivsk region caused people to lose electricity for at least a few hours, it wasn't all that sophisticated. The hackers got malware called "BlackEnergy" onto the company's systems using little more than email. "It was a targeted phishing email with an Excel spreadsheet attached," said Rohyt Belani, CEO of PhishMe, of emails designed to trick users into performing a task or giving up information. In the case of the Ukraine attack, Belani said those emails were sent to workers and tricked people into running malicious software. It worked like this: Cyberattackers conducted research on their target and identified people at the power company who might open and run their malware. Once identified, the attackers sent them a spoofed (faked as if it came from a different email address) message with an Excel spreadsheet attached.  After the user opened the Excel file, it told them the document was created in a newer version of Microsoft Office, and "Macros must be enabled to display the contents." It went on to show how a user could enable macros — a built-in feature that allows tasks to be automated in Office that hackers often use to insert malicious code. Once macros were enabled, BlackEnergy was loaded onto the system, which gave the attacker the ability to control the computer, delete files, or make the system unbootable. In essence, there was very little "hacking" because users basically infected the machines themselves without even knowing it. The hackers, which some believe to be a Russian-linked group dubbed Sandworm, then took some of the systems offline, triggering the blackout.

The TPP Hands Control Over Trade To The World's Wealthiest - If there is someone who knows about plutocrats, it is Chrystia Freeland, Canada’s international trade minister responsible for deciding what to do about the TPP, the foremost international agreement among plutocrats. She has been to the parties and observed the richest one per cent in their natural setting, with their superstar interior designers, cooks and fashion designers. As a financial journalist, she wrote a book, Plutocrats: the Rise of the New Global Super-Rich and the Fall of Everyone Else. In it, she recognizes the losses that have occurred under globalization. She echoes his concerns about the rules being set in the interests of the super-rich. “Trying to slant the rules of the game in your favour isn’t an aberration, it’s what all businesses seek to do. It is all about whether your society has the right rules and policing able to enforce them.” But her statements as a minister have been confusing. Now, she is saying that free trade is the key to middle-class prosperity and that opposing trade agreements is wrong-headed. Perplexed, I asked her about this during a visit she made to the Université de Montréal. The TPP sounds like the type of plutocratic agreement she would oppose: carved out in secret between the corporations of the world. In the U.S., more than 600 corporate lobbyists had access to the text during the negotiations, for example, while the U.S. Congress and Canadian Parliament did not. Advocacy group Open Media obtained a non-disclosure agreement for a group of people consulted in secret by the Canadian government on the TPP. Environmental groups were not consulted, nor were labour unions or citizens’ groups. In fact, those who did have access to the agreement could be arrested for revealing the information. Like Obama, Freeland claims to be concerned about income inequality but then advocates for the very instruments that will exacerbate the problem.

Russian ruble hits a new low as oil prices weaken — The Russian ruble, battered by weak oil prices, on Monday fell to an all-time low against the euro and dropped to its lowest level in more than a year against the dollar. The Central Bank set the official exchange rate at over 85 rubles to the euro on Monday. The national currency declined by 2 percent to 79.1 rubles to the dollar in Moscow, its lowest trading level since December 2014. Oil, the mainstay of the Russian economy, recently plummeted to under $30 a barrel, a 13-year low. The ruble is also under pressure from economic sanctions that the West imposed on Russia for its involvement in the Ukraine crisis. Russia is running a budget deficit of 3 percent of GDP this year, and the government is looking to cut 10 percent from the federal budget, which was drafted with oil prices of $50 a barrel in mind. All Russian ministries are expected to present their proposed cuts by the end of the month with a view to cutting 500 billion rubles ($6.3 billion) in government expenses, Finance Minister Anton Siluanov said. Prime Minister Dmitry Medvedev, in televised comments on Monday, said that the government finds the price of oil “difficult to predict” and that Russia should use this moment to diversify its economy away from oil since it “has got a chance now to do it as quickly as possible.” The government has recently downgraded its economy forecast for this year, from 0.7 percent growth to a 0.8 percent decline.

Russia′s recession woes deepen amid oil slump -- Russian authorities are preparing a stress test for the economy based on oil prices of $25 per barrel. Meanwhile, analysts warn the country could be in for a world of pain if prices continue to plunge.As oil prices fell below the psychological $30 (27.5 euros) per-barrel threshold, authorities in Moscow began to prepare a stress scenario for the economy based on an oil price of $25 per barrel. "We are preparing a stress test to be ready for every unexpected situation," Russia's Economic Development Minister Alexei Ulyukayev told Rossiya-24 TV channel last week. With about a half of Kremlin's revenues coming from oil and gas exports, officials are keeping a close eye on prices. The country's 2016 budget is based on oil selling at $50 a barrel. According to this calculation, the budget deficit - the difference between what the government spends and what it takes in - should amount to about 2.3 trillion ruble(26.7 billion euros, $29.2billion), or three percent of the country's GDP. In order to prevent this gap from growing amid falling oil prices, government expenditures would have to be "cut substantially," Prime Minister Dmitry Medvedev said Friday, and ordered all ministries and government agencies to submit proposals on which expenses to cut. Earlier that week, the Finance Ministry had recommended reducing spending by ten percent across all government institutions, Russian business daily Vedomosti reported, citing unidentified government officials. But analysts have warned that even deeper cut might be needed if oil prices continue their slide , dealing another blow to the average Russian, who has already been hard hit by the economic crisis.

Global Growth at Risk of Going Off Track - WSJ: In the months leading up to a meeting on China’s economic plan for 2016 late last year, President Xi Jinping’s top advisers sifted through studies on economic reforms once championed by former U.S. President Ronald Reagan and U.K. Prime Minister Margaret Thatcher.Beijing’s traditional reliance on cheap bank loans to stoke demand had reached its limits. The advisers sought new ways to jump-start China’s economy, including cutting taxes and business fees to encourage spending and investment. “The old model of Keynesian economics no longer works for China,” said a senior official close to China’s top leadership. Federal Reserve officials were doing their own game-planning at an October policy meeting. With the job market improving, they were preparing to start moving short-term interest rates higher, but a worry nagged at them. Some new shock could push the economy back into recession and quickly send rates right back down to zero. They would have little room to provide additional stimulus by cheapening credit. “Some participants noted that it would be prudent to have additional policy tools that could be used in such situations,” minutes of the meeting said.  In different global economic power centers, an ominous theme emerged as 2015 drew to a close. Credit-driven growth engineered by the world’s central banks has been pushed to its limits. If policy makers want to support a global expansion in 2016 and beyond, they are going to need to come up with new economic solutions, including a focus on long-term reform.

62 people own the same as half the world, reveals Oxfam Davos report -- The Oxfam report An Economy for the 1%, shows that the wealth of the poorest half of the world’s population has fallen by a trillion dollars since 2010, a drop of 41 percent. This has occurred despite the global population increasing by around 400 million people during that period. Meanwhile, the wealth of the richest 62 has increased by more than half a trillion dollars to $1.76tr. The report also shows how women are disproportionately affected by inequality – of the current ‘62’, 53 are men and just nine are women. Although world leaders have increasingly talked about the need to tackle inequality, and in September agreed a global goal to reduce it, the gap between the richest and the rest has widened dramatically in the past 12 months. Oxfam’s prediction, made ahead of last year’s Davos, that the 1% would soon own more than the rest of us, actually came true in 2015 - a year earlier than expected. Oxfam is calling for urgent action to tackle the extreme inequality crisis which threatens to undermine the progress made in tackling poverty during the last quarter of a century. As a priority, it is calling for an end to the era of tax havens which has seen the increasing use of offshore centers by rich individuals and companies to avoid paying their fair share to society. This has denied governments valuable resources needed to tackle poverty and inequality. Winnie Byanyima, Oxfam International Executive Director, who will again attend Davos having co-chaired last year’s event, said: “It is simply unacceptable that the poorest half of the world’s population owns no more than a few dozen super-rich people who could fit onto one bus.

You thought ISDS was bad? TTIP’s “regulatory cooperation” is even worse. -- Last month, Ars wrote about the threat posed by the inclusion of investor-state dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership (TTIP) agreement. ISDS allows foreign investors to sue entire nations in special tribunals for the alleged expropriation of future profits through changes in laws or regulations. One of the key problems with ISDS is that it creates a supranational court whose power to impose huge fines can have a chilling effect on the introduction of new legislation. Companies can use the threat of ISDS claims to discourage governments from introducing laws or regulations that might reduce corporate profits. That's an indirect way in which TTIP is likely to undermine national sovereignty. But there's another aspect of the proposed agreement that is explicitly designed to allow EU and US corporations to influence—and block—new laws.It goes by the mild-sounding name of "regulatory cooperation." It has been promoted as a key aspect of TTIP because of a fundamental problem at the heart of the proposed agreement: as the Ars feature last year noted, the European Commission's own study predicts extremely small economic gains from adopting TTIP. But even those vanishingly small economic gains will only be realised if TTIP goes beyond removing traditional tariffs—the import duties often slapped on foreign goods—and manages to eliminate what it calls "non-tariff barriers" (NTBs). These are things like health and safety regulations that are different in the EU and US, which means that companies have to submit their products for approval twice—an obviously wasteful process. Fully 80 percent of the claimed benefit from TTIP in the "ambitious" scenario is predicted to come from removing NTBs, and only 20 percent from abolishing tariffs, which are already very low for EU-US trade.

AP Interview: Davos chief says Europe, oil among worries — As leaders from the world of politics and business arrive Tuesday in droves for the start of the World Economic Forum in the Swiss ski resort of Davos, the event’s founder is in somber mood. Klaus Schwab, the 77-year-old chief of the world’s most recognized annual economic meeting, said he’s worried about Europe’s future, the fallout from plunging oil prices and gaping inequalities worldwide. With the world facing a myriad of problems such as climate change and war, Schwab said he wanted a “forward-looking” theme to dominate discussions this year, which officially runs from Wednesday through to Saturday: and has built this edition around the idea of the Fourth Industrial Revolution. He said vast, speedy technological advances in the digital age in areas like nanotechnology and automation threaten to leave many unskilled workers without jobs or at an economic disadvantage. In Davos, about two-thirds of the 2,500-plus attendees are decision-makers from the business world: The boardroom, not the shop room floor, has an outsize representation in this snow-capped, ultra-chic Alpine resort. World leaders, including U.S. Vice President Joe Biden, Prime Ministers David Cameron of Britain and Nawaz Sharif of Pakistan, and German President Joachim Gauck are set to attend. Iranian Foreign Minister Mohammad Javad Zarif is likely to be a headline-act after international sanctions against his country were lifted over the weekend under a deal on Tehran’s nuclear program. Some business leaders will be contemplating a resumption of economic ties with the long-isolated, oil-rich Islamic republic.

Why Some Economies Are Experimenting With Negative Interest Rates - Typically in a low interest rate environment, consumers will purchase new homes, automobiles or other big ticket items. Low interest rates also push down domestic currency relative to other major markets, making it more feasible for countries to boost exports and cut trade deficits. For investors, safe haven investment such as Treasury Bonds are disregarded in favor of higher return assets such as equities or emerging market bonds.Since the economy has been perceived to have stabilized, Central Banks around the world have begun the process of normalizing interest rates. Yet, normalization has come with obstacles that have led experts to believe that there is a higher chance of a new global recession. It is now suspected that interest rates should have been pushed down into negative territory instead of increased. By definition, negative interest rates occur when nominal interest rates are set below the theoretical zero lower bound. Negative rates are not a novel concept, in fact, they have already been used in European countries including Sweden, Denmark and even Germany. At the heart of negative rates is the intent to combat deflation which low interest rates could not. When the Federal Reserve decided to increase interest rates, they did so even though inflation did not meet their 2% target. A bold move like negative interest rates could convince the economy that the central bank is serious about meeting inflation targets. Theoretically, negative rates would depreciate currency enough to drive up the price of imports and boost exports. If exchange rates fall by enough, then negative interest rates might cause prices to fall elsewhere and generate inflation. Besides deflation, negative interest rates help sustain structural changes perpetuated by low interest rates. An unprecedented amount of debt was accumulated as a result of zero interest rates. These loans will have to be repaid at one point and with people leveraged to the max, it might be difficult for loan payments to be made. Under negative rates, banks essentially pay consumers to borrow which helps borrowers repay loans.

European Commission Plans New Try at Redistributing Migrants - The European Commission is seeking a sort of automatic mechanism for redistributing asylum seekers across Europe, despite most governments showing little support for the idea. A plan to reallocate migrants who have already come to Europe was the main response from the European Union’s executive arm to the bloc’s migration crisis last year—during which more than one million people from the Middle East and North Africa arrived, mainly via Turkey and Greece. But the EU program to relocate 160,000 asylum seekers out of Italy and Greece to the rest of the bloc has so far managed to move only 272 people, mostly because many have gone on their own to EU states that were more welcoming and gave more generous benefits, particularly Germany and the Nordic countries. Speaking to EU lawmakers on Thursday, migration commissioner Dimitris Avramopoulos said he envisaged a “system under which applicants will be quasi-automatically allocated to member states.” Mr. Avramopoulos gave no details as to how many people would be reallocated under such a plan, and under what circumstances. EU diplomats familiar with the talks say that if a country were faced with an influx it couldn’t cope with, a certain share of the burden would be evenly redistributed to other EU states. “We have to be realistic and honest,” he said. “The situation is getting worse. This year we had no winter break: There were 3,000-4,000 arrivals a day over Christmas and New Year.”

Davos Boss Warns Refugee Crisis Could Be Precursor to Something Much Bigger - As the crash in commodities prices spreads economic woe across the developing world, Europe could face a wave of migration that will eclipse today’s refugee crisis, says Klaus Schwab, executive chairman of the World Economic Forum. “Look how many countries in Africa, for example, depend on the income from oil exports,” Schwab said in an interview ahead of the WEF’s 46th annual meeting, in the Swiss resort of Davos. “Now imagine 1 billion inhabitants, imagine they all move north.” Whereas much of the discussion about commodities has focused on the economic and market impact, Schwab said he’s concerned that it will also spur “a substantial social breakdown.” That fits into what Schwab, the founder of the WEF, calls the time of “unexpected consequences” we now live in. In the modern era, it’s harder for policy makers to know the impact of their actions, which has led to “erosion of trust in decision makers.” “First, we have to look at the root causes of this,” Schwab said. “The normal citizen today is overwhelmed by the complexity and rapidity of what’s happening, not only in the political world but also the technological field.” That sense of dislocation has fueled the rise of radical political leaders who tap into a rich vein of anger and xenophobia. For reason to prevail, Schwab said, “we have to re-establish a sense that we all are in the same boat.”

Cologne puts Germany’s ‘lying press’ on defensive -  Germany’s police and politicians have faced increasing anger in the wake of the New Year’s sex attack spree in Cologne, but much of the public’s ire has been directed at a group more comfortable asking questions than answering them: the news media.  After largely ignoring the story for several days after the attacks, much of the national media appeared reluctant to explore possible links between the attacks and the recent influx of refugees. Some commentators went so far as to suggest it was unlikely asylum seekers were even involved. “In all likelihood, the people behind this have been here for a long time,” left-leaning daily Süddeutsche Zeitung declared in its lead editorial a week after the attacks. In other words, just as with the terror attacks in Paris, the culprits in Cologne were most likely homegrown “foreigners.” The real problem, the paper concluded, was likely “failed integration” — German society’s failure to assimilate foreigners. Just hours after the article appeared, a police report on the assaults surfaced, revealing that many of the suspects were, in fact, refugees. The German media’s timidity on the Cologne sex assault coverage has presented right-wing agitators with a useful “told you so” moment. A majority of Germans still trust the media, but more than 40 percent described the reporting on refugees as “one-sided.”  Instead of just reporting and analyzing events, some influential journalists, especially those who work for the public broadcasting networks, consider it their professional duty to serve as a counterweight to the populist rhetoric fueling the country’s right-wing revival, critics say. “Cologne has helped blow the top off,”

Danish and Swedish governments step up attacks on refugees - Denmark’s right-wing Venstre (Liberal) Party government led by Prime Minister Lars Løkke Rasmussen initiated a debate on a bill in parliament last week on legislation permitting the country’s border guards to seize money and personal belongings of refugees seeking asylum in the country. According to the draft law, which is expected to win the support of the opposition Social Democrats, the far right Danish People’s Party, and two smaller right-wing parties, money or valuables worth more than 10,000 kroner (€1,340) are to be confiscated from refugees entering the country. The only exception to this draconian measure, included only after a wave of outrage and protest from around the world, was for items of special emotional significance such as wedding or engagement rings. As the World Socialist Web Site has already noted, such proposals draw directly on the horrific traditions of the Nazi regime in Germany, which as part of its persecution of the Jewish population confiscated money and personal belongings in the lead up to and during the Holocaust. The proposal is the headline measure in a broader immigration bill containing a range of discriminatory anti-refugee measures. Venstre is suggesting extending the wait to three years before refugees can bring their families to the country, a length of time which virtually no refugee is allowed to stay in Denmark after the previous government moved to expand the use of temporary residency permits for asylum seekers lasting just one year.

Danish town says pork must be served at public institutions - A Danish town has made it mandatory for public institutions to serve pork, drawing mixed reactions in what has been dubbed the Nordic country’s “meatball war”. The town council of Randers in central Denmark said it wanted to ensure municipal institutions such as nurseries provided “Danish food culture as a central part of the offering – including serving pork on an equal footing with other foods”. While it said the aim was not to force anybody to eat anything that “goes against one’s belief or religion”, the move was welcomed by the anti-immigration Danish People’s party (DPP), which said it was “unacceptable to ban Danish food culture”. “The DPP is working nationally and locally for Danish culture, including Danish food culture, and consequently we also fight against Islamic rules and misguided considerations dictating what Danish children eat,” party spokesman Martin Henriksen wrote on Facebook. By contrast, a former integration minister from the Danish Social Liberal party, Manu Sareen, accused the Randers politicians of “wanting to impose a forced ideology ... in this case on children”. “It really is incredible what politicians ... get involved in,”

Caught On Tape: 1,000 Dutch Villagers Storm Town Hall In Anti-Migrant Melee - Now, right-wing movements like PEGIDA in Germany and the Soldiers of Odin in Finland are gaining popularity as nationalism rises from the ashes of Europe’s checkered past. Meanwhile, sales of gun and pepper spray are soaring and in a testament to just how frightened people are, one German town moved to ban male adult asylum seekers from public swimming pools. In the latest example of how quickly things are spiraling out of control, far-right Dutch politician Geert Wilders inadvertently incited a violent riot in tiny Heesch where town officials attempted to hold a public meeting to discuss plans to take in 500 refugees in the town over the next ten years. Hours before the meeting was set to take place, Wilders called for all Islamic male asylum seekers to be locked in their asylum centers in order to “protect our women.” Shortly thereafter, a Facebook page “Protest AZC Heesch” garnered some 3,000 likes and before you knew it, 1,000 angry villagers actually stormed the castle - literally. “The atmosphere turned nasty, and the meeting was abandoned as dozens of protesters tried to storm the town hall,” AFP writes adding that “the town gave police extra powers after the demonstration ran out of control." Below, find the footage.

Migrant crisis: EU at grave risk, warns France PM Valls - BBC News: French Prime Minister Manuel Valls has warned that Europe's migration crisis is putting the EU at grave risk. Mr Valls told the BBC Europe could not take all the refugees fleeing what he called terrible wars in Iraq or Syria. "Otherwise," he said, "our societies will be totally destabilised." More than a million migrants, mostly refugees, arrived in Europe last year, many making perilous journeys. On Friday, at least 21 people were killed as their boats sank off Greek islands. Mr Valls also said that France could keep its current state of emergency "for however long is necessary" because of the threat from Islamic State (IS) jihadists, whom he called "Daesh". The measures were introduced after the IS-led Paris attacks on 13 November and then extended for three months. Mr Valls said the war against IS could last for a generation. "As long as the threat is there we must use all means at our disposal."

Merkel looks to Turkey for help to deal with migrant crisis - - With Merkel facing increasing domestic pressure over the migrant crisis, the chancellor was expected to seek further cooperation with Ankara during Prime Minister Ahmet Davutoglu's visit on Friday. In a visit to Turkey a day earlier, German Defense Minister Ursula von der Leyen confirmed that the refugee influx would feature in the Berlin talks.  Von der Leyen is among the ministers scheduled to take part in the intergovernmental conference, along with Vice Chancellor Sigmar Gabriel, Foreign Minister Frank-Walter Steinmeier, Interior Minister Thomas de Maiziere, and Development Minister Gerd Müller. Each minister's counterpart from Ankara was also due to attend.  EU leaders have already pledged 3 billion euros ($3.3 billion) to Turkey to help care for Syrian refugees, as a measure aimed at reducing the numbers of refugees leaving Turkey and heading for Europe. Senior EU officials have said this funding has been blocked by Italy.

Greek Jan-Dec central govt budget surplus below target on lower revenue | Reuters: Greece's central government registered a primary budget surplus of 2.26 billion euros ($2.48 billion) last year, missing its target by 990 million euros as revenues fell, finance ministry data showed on Friday. The central government surplus excludes the budgets of social security organisations and local administrations and is different from the figure monitored by Greece's EU/IMF lenders, but indicates the state of the cash-strapped country's finances. The government's target was for a primary budget surplus - which excludes debt-servicing costs - of 3.25 billion euros for the January-to-December period. Tax revenues came in at 46.58 billion euros, 2.03 billion euros below a target of 48.61 billion euros, as the government did not receive budgeted income from euro zone central banks holding Greek government paper.

'We will come to Athens and burn them': political protest returns to Greece - Farmers’ roadblocks, ferries immobilised in ports, pensioners taking to the streets: protest has returned to Greece in what many fear could be the beginning of the crisis-plagued country’s most confrontational winter yet. From the Greek-Bulgarian frontier to the southern island of Crete, farmers are up in arms over the spectre of more internationally mandated austerity. “It’s war,” says Dimitris Vergos, a corn grower speaking from the northern town of Naoussa. “If they [politicians] go on pushing us to the edge, if they want to dehumanise us further, we will come to Athens and burn them all.” With the rhetoric at such levels, prime minister Alexis Tsipras’s leftist-led administration has suddenly found itself on the defensive. Faced with a series of demonstrations – fishermen and stockbreeders will join blockades on Thursday when public and private sector workers also take to the streets – analysts say any honeymoon period Tsipras may once have enjoyed is over. On Wednesday, convoys of tractors in Thessaly, the nation’s breadbasket, blocked the road at Tempi, effectively cutting the country’s main north-south highway. Hundreds more lined the seafront in Thessaloniki while, further north, police were forced to fire rounds of tear gas at protestors barricading Evangelos Apostolou, the agriculture minister, in an administrative building as fierce clashes erupted in Komotini. Their fury is focused on proposed pension and tax measures, the latest in a battery of reforms set as the price of the debt-stricken nation receiving a third, €86bn, bailout last summer.

Cosco agrees to pay 368.5m euros for control of key Greek port - Chinese shipping giant Cosco consolidated its hold over the Greek port of Piraeus Wednesday, agreeing to pay 368.5 million euros for a 67 percent stake in the country's biggest harbor, after increasing its offer to clinch control over a key thoroughfare into Europe. Cosco will pay 22 euros a share for the stake in Piraeus, according to the Athens-based Hellenic Republic Asset Development Fund. Cosco had been asked to submit a better offer last week after it emerged as the sole candidate bidding to buy the stake in Piraeus, an outcome that Greek officials called disappointing. The offer accepted is a 70 percent premium to the closing share price of Piraeus Port of 12.95 euros Wednesday and values the entire business at 550 million euros. HRADF said the whole value of the Cosco agreement would come to some 1.5 billion euros, taking into account purchase price, investments, dividends and income from the concession agreement. The result could provide Greek Prime Minister Alexis Tsipraswith some breathing space as he battles domestic opposition to state asset sales and tries to push through changes to pensions that have prompted strikes, including from seamen. Officials said last week the government would do its utmost to ensure Greece got the best possible price for a majority stake in Piraeus, a port that is key to China's plans to create a modern commercial empire pumping Chinese goods throughout the continent.

Portugal's austerity reversal may spell budget trouble | Reuters: Relatively calm euro zone debt markets are helping Portugal's new Socialist government deliver on promises to reverse austerity, but the risk of budget slippage could still spook investors and so damage the recovery. The minority government, under pressure from far-left allies in parliament to reverse the reforms and austerity drive of its predecessor, has dragged its feet presenting a 2016 budget in a possible sign it could struggle to deliver on all its promises. Prime Minister Antonio Costa has said a budget draft will be ready this week after initial hopes it would emerge at the end of December. Brussels has on various occasions urged Portugal to come up with a draft as soon as possible after Lisbon missed a mid-October deadline due to an election. Portugal exited a bailout in 2014 after austerity and reform measures and the economic recovery that started then accelerated in 2015. Investors had grown increasingly confident -– foreign direct investment jumped 39 percent in the first half of 2015 -- but a reversal of reforms has since raised concerns. Samuel da Rocha Lopes, professor at Nova University's business and economics school, said Portugal had "substantially improved its image" with a reform drive of Pedro Passos Coelho during the bailout that had started bearing fruit with an albeit still fragile recovery. "Now it seems like it wants to reverse everything back to the situation it was in before the rescue,"

Hollande says France in state of economic emergency - BBC News: President Francois Hollande has set out a €2bn (£1.5bn) job creation plan in an attempt to lift France out of what he called a state of "economic emergency". Under a two-year scheme, firms with fewer than 250 staff will get subsidies if they take on a young or unemployed person for six months or more. In addition, about 500,000 vocational training schemes will be created. France's unemployment rate is 10.6%, against a European Union average of 9.8% and 4.2% in Germany. Mr Hollande said money for the plan would come from savings in other areas of public spending. "These €2bn will be financed without any new taxes of any kind," said President Hollande, who announced the details during an annual speech to business leaders. "Our country has been faced with structural unemployment for two to three decades and this requires that creating jobs becomes our one and only fight." France was facing an "uncertain economic climate and persistent unemployment" and there was an "economic and social emergency", he said.

Hollande Outlines Jobs Plan to Tackle Economic 'Emergency' François Hollande has returned to traditional leftwing tenets for a last-ditch plan to cut persistently high unemployment and salvage his chances of re-election next year, saying France is in an economic “state of emergency”. The measures, which the president detailed in a speech on Monday, involve the creation of 500,000 vocational training schemes, additional subsidies for small companies and a programme to boost apprenticeships. “We have to act so that growth becomes more robust and job creation more abundant,” Mr Hollande said in an address to unions and business leaders. Since 2012, when Mr Hollande came to power, more than 600,000 people have joined the ranks of the unemployed at a time when joblessness has decreased in most of the other large European economies. Despite recovering margins, companies are still hesitant to hire workers. Under Monday’s announcement, which takes effect immediately, companies with fewer than 250 workers will receive a €2,000 payout for hiring youths and unemployed people on low salaries for contracts lasting more than six months. Temporary tax breaks, announced in 2014, will become permanent, Mr Hollande said. A package of liberalising reforms passed in parliament last year, spearheaded by Emmanuel Macron, the reformist economy minister, has not spurred employment significantly. Doubts are mounting over Mr Macron’s ability to push through additional reforms this year.

Italian Banks Collapse, Short Sales Banned As Loan Loss Fears Mount Italian bank stocks are crashing (with BMPS down 40% year-to-date) as Reuters reports that investors are growing increasingly nervous about how the sector will cope with lower interest rates and a 200 billion euro ($218 billion) pile of loans that are unlikely to be repaid. The broad banking sector is down 4% with stocks suspended, and in light of this bloodbath, Italian regulators have decided in their wisdom, to ban short-selling of some bank stocks (which has driven hedgers into the CDS market, spking BMPS credit risk). Italy's banking index was down over 4 percent with shares in several lenders, including the country's biggest retail bank Intesa Sanpaolo and the third biggest lender Banca Monte dei Paschi di Siena, suspended from trading after heavy losses. Bloodbath for Italian financials in 2016...

Italian bank shares plunge, sparking ban on short-selling - Telegraph: Shares in Italy's leading banks plummeted on Monday, bringing their losses to 17pc for the year so far, with brokers warning the negative tone is set to continue after a stellar performance in 2015. Investors are nervous about how the sector will cope with lower interest rates and a €200bn (£153bn) pile of loans that is unlikely to be repaid. Those concerns are trumping expectations about a wave of consolidation likely to sweep the sector, with cooperative banks under pressure to merge following government reform to reduce the number of lenders. Monday, Italy's banking index fell 5.7pc, with Monte dei Paschi di Siena the biggest loser with a 14.8pc drop. The slump, which also hurt the bank's riskier junior debt , prompted Italian market regulator Consob to introduce a temporary ban on short-selling. Monte dei Paschi chief executive Fabrizio Viola said the bank was financially sound and the share drop unwarranted. Italy's oldest bank, the only Italian lender to be bailed out during the financial crisis, is saddled with problematic loans equal to more than a fifth of its total client loans.

Italian banks say ECB is reviewing their bad loans - --A number of Italian banks said late Monday the European Central Bank has launched a review about their bad loans holdings and how they are managing these portfolios. The banks involved in the assessment include Italy's largest bank by assets UniCredit SpA (UCG.MI) and Banca Monte dei Paschi di Siena SpA (BMPS.MI). The news comes after Italian banks suffered heavy losses in Monday's trading as investors fretted that grim prospects on global growth could have an impact on a much-awaited consolidation process in the sector and the health of Italian banks. Local lenders have been struggling in recent years to digest the sheer volume of bad loans, which total around 200 billion euros ($217 billion) and have kept on growing for more than two years. The ECB's review, which will assess the lenders' strategy, processes and methodologies of management of their bad loans portfolios, will also target Banco Popolare SC (BP.MI) and Banca Popolare di Milano Scarl (PMI.MI), which are involved in advanced talks about a merger.

Is Italy the next Greece? - Italian banking stocks crashed again on Wednesday, continuing a month of poor performance and raising questions over the sustainability of the industry in its current structure – and even if it could end up in the same boat as Greece’s banking sector. Long-suffering Monte dei Paschi’s stock dived another 18.5pc on the day, meaning the shares are down 57pc so far this month. Even much more stable banks are witnessing a flight of investors – Unicredit’s shares are down 6pc on the day and 27pc since the start of the year. One potential outcome is that Italy’s major banks could club together to rescue Monte dei Paschi, taking out the worst performing lender and so reducing investors’ worries over the overall sector. The bank’s chief executive denies it is in trouble, arguing that revenues are improving and costs falling.  Sustained high levels of non-performing loans mean the country’s banks, and Monte dei Paschi in particular, are struggling to turn their position around.

A Hint of Trouble in European Debt - WSJ: A wave of selling has taken Europe’s corporate-bond market to levels typically seen during recessions, another indication that the turmoil in global markets could spread into the wider economy. The gap in yields, or spread, between Eurozone high-grade corporate debt and safer government bonds has ballooned to its widest level in nearly three years, according to Barclays bond indexes. Three years ago, the European economy was in recession following the sovereign-debt crisis that had engulfed the continent. The latest move comes as financial markets, from equities to oil, extended sharp falls on Monday. Concerns over the Chinese economy and a glut of commodities continued to weigh on prices. Asian shares closed lower and the Stoxx Europe 600 was down 0.4%, taking losses for the year to 10%. Brent, the global oil benchmark, was down 0.7%, near a 13-year low. While shares and commodities plunge, investors across all markets have been closely watching corporate bonds. Spreads hitting the levels they are currently trading at in Europe and the U.S. typically occurs during periods of heightened market stress. “Spreads in European corporate bond markets are at levels consistent with a recession,” said Zoso Davies, a credit strategist at Barclays PLC, who sees the current levels as reflective of a slowdown in global manufacturing and falls in commodity prices.

Europe’s future is bleak with an ageing population and policy failure - Bill Mitchell - The article – Europe’s Refugee Crisis Hides a Bigger Problem – discusses what it considers to be “three population related crises”, two of which at the forefront of public attention (because they are moving fast) – the “refugee crisis” and the “terrorism crisis”. The third is “Europe’s slow moving and in inexorable ageing crisis”, which is largely being ignored in the public debate. The article provides a basis to link the three crises together – in the sense that “Europe actually needs millions of migrants a year to mitigate its ageing crisis”. While I have some sympathy with the article, there are many omissions that reflect the bias of the author. Two major issues – mass unemployment and productivity growth are ignored completely. The emphasis in the article is on whether the public sector can afford not to bring in more people to offset the ageing of the EU28 population. That emphasis discloses the bias of the author and diminishes the strength of the article. The article argues that under “UN “zero migration” variant population projections by 2050, the labor force aged (15-64) population shrinks by 62 million in core Europe”, which is a substantial shift in 35 years in the composition of the population.The other aspect of this shrinkage in the labour force is the projected rise of 45 million in the over 65 year age bracket.The article says: Never has the combination of fertility changes and improvements in longevity produced such dramatic inversions of the demographic pyramid so that the aged so dramatically exceed the young.  The Eurostat population projections, which are different from the UN projections that the cited article uses, but which tell a similar story, show that in 2015 for the 28 nations making up the European Union, there were 2 persons of labour force age (15-64) to every person outside of the labour force age bracket. By 2050, under Eurostat’s No Migration assumption, this ratio falls to 1.2, and by 2080, remains at 1.2.

"Countdown To The End": EU Officials Say Europe Is "Going Down The Drain" Back in September, when Berlin and Brussels were busy devising a quota plan to settle the millions of Mid-East asylum seekers flooding into the country, Slovakia said that if Germany called for financial penalties against countries unwilling to accommodate their “share” of migrants, it would be “the end of the EU.” That might have seemed hyperbolic at the time, but since then, the situation has spiraled out of control. Border fences have been erected, refugee camps are overflowing, and anti-migrant sentiment is running high after a series of reported sexual assaults on New Year’s Eve sparked a bloc-wide scandal. In a testament to just how tense things have become, Austria suspended Schengen on Saturday as new rules came into effect for those seeking to traverse the country on the way north. "The Germans, founders of the postwar union, shut their borders to refugees in a bid for political survival by the chancellor who let in a million migrants," Reuters wrote on Sunday, describing a hypothetical European endgame. "And then -- why not? -- they decide to revive the Deutschmark while they're at it." Both Angela Merkel and Jean-Claude Juncker were out last week with stark warnings about the prospects for the union's survival in the face of widespread disagreement among member countries regarding how to handle the influx of asylum seekers. Europe is now "vulnerable" Merkel admitted, before saying the fate of the euro is "directly linked" to how the bloc handles the refugee crisis. "Nobody should act as though you can have a common currency without being able to cross borders reasonably easily," the Chancellor, whose ratings have slipped amid the migrant debate, said at a business event in Mainz. Juncker's assessment was more dire. Europe "is on its last chance" he warned, before saying he hopes this isn't "the beginning of the end."

ECB's Coeure says quantitative easing is working | Reuters: The European Central Bank's quantitative easing program is working and has helped bring about a "tremendous improvement" in euro zone capital markets, ECB executive board member Benoit Coeure said on Friday. Speaking in Davos, Coeure said the ECB was determined to push inflation back towards its goal of close to 2 percent, noting "we have not given up". On the same panel, UBS chairman and former Bundesbank chief Axel Weber said central banks were tempting fate by pushing interest rates deep into negative territory and blamed recent market turbulence on easy monetary policy he said had distorted the risk calculus.

EU to clamp down on corporate tax avoidance schemes - Multinational companies are facing severe constraints on their ability to avoid taxes on their activities in Europe as regulators seek to close loopholes laid bare by the LuxLeaks scandal. Pierre Moscovici, the EU’s tax policy chief, will set out plans next week to curb practices such as using debt interest payments to lower tax bills or shifting profits to minor subsidiaries in low-tax nations, according to a copy of the proposals obtained by the Financial Times. “The schemes targeted by this directive involve situations where taxpayers act against the actual purpose of the law, taking advantage of disparities between national ... systems,” the document says. Such techniques mean that “taxpayers may benefit from low tax rates or double deductions or ensure that their income remains untaxed”. The measures build on international proposals developed by the OECD and are one of the most far-reaching steps yet by the EU to seize the initiative in the wake of LuxLeaks. The LuxLeaks revelations emerged shortly after Jean-Claude Juncker became commission president in November 2014, and dogged his early days in office. They documented how during his two decades as Luxembourg prime minister, up to 340 multinational companies, ranging from Ikea to Pepsi, funnelled profits through the tiny country to lower their tax bills to as little as 1 per cent. The scandal was particularly resonant at a time of rising populist anger in Europe and a sense among many citizens that the pain from austerity measures had not been shared equally. The commission has sought to get on top of the affair by proposing regulatory changes and pursuing competition cases against tax deals governments have struck with multinationals such as Apple, Starbucks and Fiat.

English shoppers steal £26.7m worth of plastic bags since 5p charge introduced - Telegraph: Nearly £27m worth of plastic bags are believed to have been stolen in England since the 5p government charge was introduced last year. Large businesses have had to charge for single-use plastic bags in England since October 2015. Similar measures were already in place in Scotland and Wales, where carrier bag uptake reduced drastically. However, half of English shoppers say they have taken a plastic bag without paying, according to a poll by The research suggests £26.7m worth of carrier bags have been stolen. The thefts may have taken place at self-checkouts, which rely on customer honesty about how many bags they have taken. Asked why they stole the bags, 37pc of the light-fingered shoppers said they did not want to pay the charge because “it results in companies making more money”. Over a quarter said they thought it was a waste of money, while 22pc said they did it because no one would notice. Researchers asked 2,784 people about their plastic bag habits, finding 51pc admitted to stealing bags, taking an average of three a month. The results were then extrapolated to estimate that £26,671,664 worth of bags had been taken.

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