week ending Jan 30

A month after raising rates, Fed faces darker global economy — Since the Federal Reserve raised interest rates from record lows last month, the global picture has darkened. Stock markets have plunged. Oil prices have skidded. China’s leaders have struggled to steer the world’s second-biggest economy. All of which raised a delicate question: Did the Fed err in raising rates for the first time in nearly a decade? Don’t expect the central bank to answer or even acknowledge that question when it issues a statement after its latest policy meeting ends Wednesday. But in their meeting, the Fed’s policymakers will surely grapple with whether — and, if so, how — to respond to an altered economic landscape. No one thinks the Fed will suddenly reverse course and roll back the quarter-point increase in its key short-term rate it announced Dec. 16. But some analysts say the Fed might signal that the pace of three or four additional rate increases that many had expected this year could become more gradual — with perhaps only two rate hikes this year and not starting until midyear. “People are just scared right now,” said David Wyss, a former Fed staff economist and now an economics professor at Brown University. “It isn’t just China weighing on things. Europe hasn’t solved its problems, we have geopolitical risks in the Middle East and in the United States there is a lack of confidence in the political parties and the candidates.” The most visible sign of the economic fear has been the sharp fall in the stock market. Even after a gain of 211 points Friday, the Dow Jones industrial average shed more than 7 percent of its value in the first three trading weeks of 2016.

Talk of Fed 'policy error' grows - FT.com The long-awaited rate increase went smoothly, but simmering concerns over China, the global economy as a whole, deflating commodities and financial market valuations have since risen to the fore. Even fund managers that were relaxed about slightly tighter monetary policy last month are now wondering whether that was complacent. “Historically the Fed has raised rates because either growth or inflation was uncomfortably high. This time is different — growth is slow; wage growth is limited; deflation is being imported.” Perhaps most of all, many investors now fret that they are operating without a safety net they had grown attached to during the post-financial crisis era. Markets have been buffeted by powerful headwinds since 2008-09, ranging from predictable Middle East strife to the spectre of the disintegration of the European common currency. But central banks have been a constant source of comfort in hard times, suppressing interest rates and market volatility, thereby reinforcing the view among investors of a ‘central bank put’, or downside protection. Such an assurance now appears less certain given the recent approach from central banks. The Bank of Japan has failed to expand its quantitative easing programme as expected; the European Central Bank dashed unrealistically high hopes of more eurozone QE in December; the People’s Bank of China has failed to calm concerns over China through aggressive action; and the Fed has started tightening monetary policy. “It was fun while it lasted, as the recovery of financial asset prices from the nadir of the great financial crisis has been dramatic, one of history’s most fruitful periods for investors. But 2015 returns were rather different, and the early experiences of 2016 only reinforce the likelihood of a new investment climate,”

Monetary Policy is Not About Interest Rates -  Narayana Kocherlakota -  The Federal Open Market Committee has a problem.  The problem is not that it raised rates by a scant quarter percentage point in December.   The problem is the overall policy framework that led the Committee to take that action.  The Committee needs to switch to a framework that is less focused on a particular time path of interest rates, and more focused on the achievement of its goals.     The FOMC’s current policy framework can be defined by two key words gradual and normalization.  Both words refer to the level of monetary accommodation.  In terms of the target range for the fed funds rate, the word “gradual” is generally interpreted by those who watch the Fed closely to mean about four increases of a quarter percentage point.   The word “normalization” is generally interpreted to mean “returning to about 3.5 percent”.    Unfortunately, this mission of gradual interest rate normalization seems increasingly inconsistent with the FOMC’s being able to achieve its macroeconomic objectives over the medium-term.  In terms of the FOMC’s employment mandate: the fraction of those aged 25 to 54 who have a job remains well below what Americans should view as “normal”. The nation needs above-trend growth for several more years to cure this problem - and that’s certainly not my forecast for 2016.  The above is somewhat arguable (because some see the low labor force participation rate as either desirable and/or beyond the reach of monetary policy).  But the inflation picture is clear.  Inflation has run below the FOMC’s target of 2% for almost four years.  Like many others (including, as the December minutes indicate, the FOMC’s own staff), I don’t expect it to return to target for several more years.

FOMC Statement: No Change to Policy, Uncertain about rise in inflation  -- FOMC Statement:  Information received since the Federal Open Market Committee met in December suggests that labor market conditions improved further even as economic growth slowed late last year. Household spending and business fixed investment have been increasing at moderate rates in recent months, and the housing sector has improved further; however, net exports have been soft and inventory investment slowed. A range of recent labor market indicators, including strong job gains, points to some additional decline in underutilization of labor resources. Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation declined further; survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.  Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen. Inflation is expected to remain low in the near term, in part because of the further declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.

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

Fed Watch: FOMC Recap - The FOMC held steady today, as expected. The reaffirmed their basic forecast, but gave a nod to current global economic and financial economic uncertainty. That is all that should have been expected.Still, there is a deeper story.Puzzle over the opening paragraph for a moment (thanks to the WSJ FOMC Statement Tracker):I feel like I will soon be going down the hall and grabbing an English professor to help me translate these statements. I hate to do this sort of thing, but notice that they brought the labor market forward and pushed the overall economy back? I think there are two things going on here. First is that the FOMC, on average, has a Phillips Curve view of the world. They aren't going to let go of the labor market until it turns. And turns hard given that the unemployment rate is hovering near their estimate of NAIRU. Hence they will tend to emphasize the labor data.But something else is going on. Next week we get the fourth quarter GDP number. No one is expecting miracles. I would be totally unfazed by a negative print. Considering the normal variance in quarterly GDP numbers in the context of a two percent potential rate of growth, you are going to see more negative prints during expansions. Get over it.The Fed isn't expecting miracles either. But what they are confused by is that in the first quarter of 2015, GDP growth slowed sharply:Now they have slow GDP growth and fast employment growth. That will make brains explode on Constitution Ave. They don't know what to do with that when unemployment is at 5%. You see where it cuts either way. If the recessionistas are correct, then they already made a mistake in December. If the optimitistas are correct, they will fall behind the curve if they hold in March.And that is without the uncertainty of the financial markets. Did the Fed release a little steam by shifting into a tightening cycle, the avalanche control of Mark Dow? Or did they set in motion the next financial crisis? And recognize that this is within the context of a no-win political situation. If they miss on the upside with higher inflation, they will be pilloried by the right (and ultimately, I suspect, the left). If they miss on the downside with recession, they will be pilloried by the left and right. Rock, meet hard place.

Banks' Influence on Congressional “Reforms” of the Fed - Narayana Kocherlakota: Senator Sanders’ December 23 NYT op-ed expressed concern about what he perceived to be an undue influence of the financial sector on the Federal Reserve. In my last post, I explained how the Fed could allay these concerns through greater transparency about the role of the Board of Governors. In this post, I elaborate on what I see as a much bigger problem: the financial sector’s influence on Congress as it seeks to “reform” the Fed. Here’s an example of what I mean. Last year, Congress amended Section 10.1 of the Federal Reserve Act. That section now requires a person who is experienced with community banks to be on the Board of Governors. How should one interpret this new statutory requirement?  Congress wants the Fed to tilt supervision, regulation, and monetary policy to be more favorable to community banks. This interpretation is consistent with the fact that the passage of this statutory change came after six years of lobbying from the Independent Community Bankers of America. This statutory preference for community banks is disturbing. It’s true that community banks are often located on Main Street. But the interests of community banks are absolutely not the same as the interests of Main Street. In terms of supervision and regulation: lax supervision and regulation increases the probability of bank failure. Bank failures impose a cost on the FDIC which is, ultimately, backstopped by the taxpayer. Community banks operating in the interests of their shareholders should not - and don’t - fully internalize these taxpayer costs. Accordingly, community banks systematically favor less supervision and regulation than would be in the public interest.  I’m not intending to be critical of community banks. They’re private businesses. No one should expect the interests of a given private business to coincide with the general public interest. The problem is with Congress. Congress is supposed to act in the interest of the public. But this law is not in the public interest. Instead, it is a rather clear attempt to influence the Fed so that it acts more in the interest of (part of) the financial sector.

Fed Leaves Rates Unchanged As Inflation Expectations Inch Up -- The Federal Reserve kept the target Fed funds at the 0.25%-to-0.50% range in yesterday’s policy announcement. The Treasury market’s reaction was muted, with yields sticking close to the levels we’ve seen all week. But one curious development that’s worth keeping an eye on in the days ahead: the modest rise of late in the Treasury market’s implied inflation forecast, which continued to tick higher yesterday (Jan. 27), based on daily data via Treasury.gov. Consider how the market’s inflation forecast stacks up based on the yield spread for the nominal 10-year Treasury less its inflation-indexed counterpart. Last week this estimate of future inflation touched a post-recession low of 1.28%. But Mr. Market has reversed that slide in recent days, pushing up the expected 10-year inflation rate to 1.40% as of yesterday. Is that because crude oil–a key source of deflationary pressure in recent years–has rallied sharply in recent days? In any case, the market’s inflation estimate is still low by recent standards, but it’ll be interesting to see if there’s more upside to come in the days and weeks ahead. The decisive factor, of course: the next round of economic reports, starting with tomorrow’s fourth-qujarter GDP update.   Meantime, the Fed yesterday reminded that “inflation has continued to run below the Committee’s 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports.”

Downside Inflation Risk - Carola Binder  - Earlier this month, New York Federal Reserve President William Dudley gave a speech on "The U.S. Economic Outlook and Implications for Monetary Policy." Like other Fed officials, Dudley expressed concern about falling inflation expectations:  With respect to the risks to the inflation outlook, the most concerning is the possibility that inflation expectations become unanchored to the downside. This would be problematic were it to occur because inflation expectations are an important driver of actual inflation. If inflation expectations become unanchored to the downside, it would become much more difficult to push inflation back up to the central bank’s objective.Dudley, perhaps because of his New York Fed affiliation, pointed to the New York Fed’s Survey of Consumer Expectations as his preferred indicator of inflation expectations. He noted that on this survey, "The median of 3-year inflation expectations has declined over the past year, falling by 22 basis points to 2.8 percent. While the magnitude of this decline is small, I think it is noteworthy because the current reading is below where we have been during the survey history."  The 22 basis-points decline in 3-year inflation expectations that Dudley referred to is the median for all consumers. If you look at the table below, the decline is more than twice as large for consumers with income above $50,000 per year.

Dollar’s Rise Poses Risk for Fed Plans - As Federal Reserve officials prepare to release interest-rate guidance Wednesday, investors are bracing for the dollar to renew its rise against America’s major trading partners and intensify unrest throughout the world’s financial markets. Unlike stocks and bonds, the dollar has had a relatively muted start to 2016, and investors worry that any resumption of its gains could weigh further on global growth. While the Fed is expected to stand pat on rates this month, after raising them for the first time in nine years at its December meeting, traders and economists are becoming increasingly anxious about how the Fed will communicate its reading on the economy, and how currency markets will react.  In effect, a rising dollar has the same impact on markets as a Fed rate increase, analysts said. The strong currency—the WSJ Dollar Index is up 23% over the past two years—has run ahead of the Fed’s plans to raise interest rates, complicating the central bank’s efforts to slowly move rates higher while having little negative effect on the economy.  A strong U.S. currency tends to exacerbate some of the challenges that have been most visible in the global economy in recent years, such as falling oil prices and soft developed-world inflation, while intensifying financial strains in vulnerable emerging markets. The U.S. currency’s gains have been muted so far in 2016. The WSJ Dollar Index has risen 1.3%, contrasting with the dramatic moves in global stock indexes and the rally in government-bond prices.  But many traders expect the dollar’s appreciation to accelerate.

The Dollar Keeps Rising, for Good or Evil - Just the other day I got an email in which Ron Paul eagerly proclaimed that his “final prediction of a dollar collapse is about to become reality.”The email was a bit extreme, perhaps, with references to the hyperinflation of Weimar Germany, Robert Mugabe’s Zimbabwe and the Book of Genesis.  Other, more serene analysts have also predicted a weak dollar. Martin Feldstein, who was a top economic adviser to President Ronald Reagan, argued some five years ago that the country’s large trade deficit and ultralow interest rates, coupled with sales of United States assets by international investors and changes in the Chinese economy, would push the dollar down over coming years.  They were exactly wrong. The dollar’s rise, which started virtually the day Professor Feldstein made his prediction in 2011, shows little sign of abating. It amounts to only the third instance of such consistent appreciation since Richard Nixon took the United States off the gold standard in 1971.The American economy might just be bumbling along, but it is doing substantially better than the rest of the advanced industrial world. “It is quite natural,” said Barry Eichengreen of the University of California, Berkeley, “that the currency of the country whose economy is least bad should have the least worst currency.” But with many developing economies in a tailspin, commodity prices and stock markets tumbling sharply around the world, could a rising dollar damage a fragile economic order? Many economists argue it is mostly a good thing. A strong dollar should help Europe and Japan overcome their deeper economic weaknesses by making their products cheaper on world markets — an overall positive for global growth. The strengthening of the dollar, Olivier Blanchard, former chief economist at the International Monetary Fund, told me, “is a fundamentally healthy process.” But there are reasons to be cautious. A strong dollar will squeeze American manufacturers, which have otherwise benefited from falling energy prices and rising wages in China. That will weigh on growth in the United States and further suppress inflation, which is already well below the Fed’s target.

US slowdown is now a headache for the Fed - Before Friday’s relief rally, the recent severe market turbulence had three distinct phases. It started with concerns about Chinese exchange rate policy. Then came a renewed collapse in oil prices. Finally, last week, came increased fears of a persistent slow-down in the US economy, following weak activity data from the US industrial sector. The last of these factors is perhaps the most serious for the markets, since it represents the first genuine reason to worry that an important part of the global economy might actually be weakening. Until now, the bear phase in equity markets has not been backed by much evidence of a slow-down in global activity, though our “nowcasts” have been warning for some time that US growth has been out of line with the global aggregate, and is heading in the wrong direction. The markets have tended to agree with the Federal Reserve in viewing this as a temporary dip, driven largely by specific drags on the US manufacturing sector. But now investors are starting to worry that the slow-down could become much more persistent than previously believed. The drags from oil output, foreign demand and the rising dollar are proving to be more negative for the economy than forecasters, including the Fed, have recognised. What is the evidence that the US economy is slowing? It is still very mixed, with the robust labour market data providing strong evidence in the other direction. But the Atlanta Fed“nowcast”, which takes full account of the firm growth in employment, has nevertheless been tumbling, and it now reports that the GDP growth rate in 2016 Q4 was only 0.7 per cent. This is broadly in line with the latest Fulcrum “nowcast” for January (graph at right), which shows the underlying growth rate in the economy running at about 1.0-1.3 per cent, down from 2.5 per cent in mid 2015.

Chicago Fed: Economic Growth Below Average in December - "Index shows economic growth below average in December." This is the headline for today's release of the Chicago Fed's National Activity Index, and here are the opening paragraphs from the report: 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. The CFNAI Diffusion Index, which is also a three-month moving average, ticked up to –0.12 in December from –0.13 in November. Thirty-five of the 85 individual indicators made positive contributions to the CFNAI in December, while 50 made negative contributions. Fifty-one indicators improved from November to December, while 32 indicators deteriorated and two were unchanged. Of the indicators that improved, 26 made negative contributions. [Download PDF News Release] The previous month's CFNAI was revised downward from -0.30 to -0.36. The first chart below shows the recent behavior of the index since 2007. The red dots show the indicator itself, which is quite noisy, together with the 3-month moving average (CFNAI-MA3), which is more useful as an indicator of the actual trend for coincident economic activity.

Blizzard? Here’s the Weather Effect on the Economy You’re Not Thinking Of -  Weather often takes the blame for denting economic output. It rarely gets credit for helping it along. Indeed, a severe winter storm blanketing much of the East Coast will likely affect everything from hours worked to utility output to retails sales and restaurant traffic. More often overlooked is the case of mild weather. Recent research from the Brookings Institution shows just how helpful it can be. “For the month of December, higher-than-average temperatures appear to have had a significant effect on jobs, with warmer weather likely boosting construction employment above its seasonal norms,” said . Weather adjustments devised by Mr. Wright and Michael Boldin, senior economic analyst at the Federal Reserve Bank of Philadelphia, suggest that balmy weather accounted for about 23,000 new jobs in the Labor Department’s seasonally adjusted figure of 292,000. In October, the weather effect was about 25,000 and in November about 12,000–big contributions to a healthy quarter for job growth. What’s going to happen with the latest storm? Already, by some measures, the economy was only limping along in the fourth quarter of 2015. Bad weather could be an added weight on the economy. Still, forecasts aren’t especially dire. For one thing, a weekend blast won’t be as bad as a mid-week tempest. For another, the Labor Department already has surveyed businesses and households on employment for January. Mr. Wright estimates that the weather effect might knock 25,000 from payrolls, but that has to do with weather at mid-month, not the big blizzard. Finally, the U.S. economy has bounced back from previous storms–returning to fairly predictable, solid, unspectacular growth a little above 2% per year.

‘Snowzilla’ Blizzard Was No Monster for the Economy - The big snowstorm that socked the East Coast, shut down schools, the government and some businesses and disrupted the daily routine for millions will have only a small impact on the U.S. economy. Moody’s Analytics’ economists Ryan Sweet and Adam Kamins estimate the economic cost of the snowstorm at about $2.5 billion to $3 billion. That counts output that was lost and won’t be recouped through overtime, working from home and deferred spending. It doesn’t include possible costs from infrastructure damage. Put into context, $2.5 billion to $3 billion may as well be a snowflake in a blizzard. Americans spent $54.5 billion at restaurants and bars just in December. Total U.S. economic output in 2014—the most recent full year available—was more than $17 trillion. The storm put a mere 0.02% dent in the economy. So while in past years, extreme weather has taken a bigger chunk out of U.S. growth, this time there shouldn’t be a noticeable effect. That was pretty much expected. That doesn’t mean some businesses and workers won’t feel a squeeze. While the storm likely postponed consumer spending or shifted it from brick-and-mortar stores to online–rather than canceling it outright–much restaurant traffic was likely lost for good. Messrs. Sweet and Kamins said restaurants, counted as part of retail trade, will be the blizzard’s “big losers.”

East coast blizzard will cost up to $3 billion — The storm that hit the East Coast over the weekend likely cost businesses and residents about $2.5 billion to $3 billion. That estimate comes from Moody's Analytics, which estimates most of the cost of the storm is from businesses that lost sales and employees that lost wages when they could not get to work. Those losses were partly offset by people who earned extra wages due to the storm, such as workers who got overtime for plowing roads and parking lots. Also, this storm's damage to property and infrastructure was limited, according to AIR Worldwide, which comes up with estimates for insured losses, although some flooding was reported, particularly along the New Jersey shore.All things considered, the first big snowstorm of 2016 was relatively inexpensive. This weekend's $3 billion loss estimate is peanuts compared to the $26 billion in lost business and wages caused by Superstorm Sandy in 2012, according to Moody's Analytics. And Sandy caused an additional $45 billion in physical damage.

Mohamed El-Erian warns about a day of reckoning - Allianz Chief Economic Adviser Mohamed El-Erian said Tuesday the world economy is at the end of the era of borrowing growth and profits from the future in the form of easy monetary policies. "Either we validate the financial asset prices and growth faster, or alternatively we will slip into a global recession with financial disorder," El-Erian told CNBC's " Squawk Box ." He put a timetable of about three years on the outcome. "The path we're on right now — and that we've been on for a while— is ending," the former Pimco co-CEO said, advocating central banks step back and allow economies to determine their own futures. "There is nothing predestined about where we end up. We are heading toward this 'T-junction' and we can still take the right road," El-Erian said. The Federal Reserve took the first step, hiking U.S. interest rates in December for the first time in more than nine years. But El-Erian said the Fed waited too long to begin exiting from emergency polices designed to boost the economy after the 2008 financial crisis. "They were waiting, waiting, and waiting, and irony is that the economy has healed, but it is not unleashed," he said. "The notion that we're going to get four hikes this year is divorced from reality. I think, at most, we get two," El-Erian said, predicting a "very shallow path" higher for rates.

U.S. recession cries get louder - America's economy is not in a recession, but fears of one are growing fast.The chance of the U.S. sinking into a full-blown recession now stand at 18%, according to a CNNMoney survey of economists this week. That's nearly double what the nation's top economic policymaker predicted only a month ago. Federal Reserve chair Janet Yellen put the probability of a recession in 2016 at about 10% during her December press conference after the Fed raised interest rates for the first time in years. She has said repeatedly that she thinks a recession is not on the horizon. The U.S. has enjoyed two years of incredibly strong job growth -- the best since 1999 -- and the economy is expanding at a healthy pace of around 2% a year. "There are plenty of things to worry about in the world, but the health and ongoing strength of the U.S. economy is not one of them," says James Smith of EconForecaster.com. But the risks are rising, and the pessimists are getting bolder in their predictions. The stock market is off to its worst start ever to a year. China's stock market is tanking again, pulling much of Europe and Asia into bear market territory. While it's clear that China's economy is slowing down, no one is certain just how bad it is. Chinese data is questionable, and the country's head statistician is now under investigation for possible corruption.

Turmoil in the Oil Patch Is Hitting U.S. GDP Growth - The tumble in oil prices is set to take another bite out of overall U.S. economic output. The overall energy sector accounts for just about 4% of inflation-adjusted gross domestic product when adding up contributions from four areas: utilities; oil and gas extraction; petroleum and coal products; and pipeline transportation, and it represents just 1.5% of employment, according to estimates by Deutsche Bank chief U.S. economist Joseph LaVorgna. Given that small slice, many analysts and traders have assumed sharply lower energy-related capital spending isn’t a big threat to the broader economy. But the turmoil could weigh on GDP more than anticipated. Capital spending per employee is much higher in the oil sector than elsewhere, said Ian Shepherdson of Pantheon Macroeconomics, and oil firms can’t save themselves simply by cutting staff. (Their biggest expense is equipment.) Throngs of energy companies from giants Exxon Mobil and Chevron to smaller players like Anadarko Petroleum further hacked away at capital-expenditure budgets in the final months of last year. That’s as many of them cut jobs and whack dividends. Upstream spending–on things like drills and property, for example–typically accounts for the bulk of energy companies’ investment spending, said Jeff Barron, an economist at the U.S.Energy Information Administration. If the drop is big enough, even a small sector of the economy can have meaningful effect on quarterly GDP numbers. In the third quarter, total energy capex was $92.7 billion, nearly halved from a year earlier, according to Goldman Sachs analyst Daan Struyven. That was the lowest capital expenditure per barrel of oil produced in at least five years.

BEA: Real GDP increased at 0.7% Annualized Rate in Q4 -- From the BEA: Gross Domestic Product: Fourth Quarter and Annual 2015 (Advance Estimate) Real gross domestic product -- the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production, adjusted for price changes -- increased at an annual rate of 0.7 percent in the fourth quarter of 2015, according to the "advance" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 2.0 percent....The increase in real GDP in the fourth quarter primarily reflected positive contributions from personal consumption expenditures (PCE), residential fixed investment, and federal government spending that were partly offset by negative contributions from private inventory investment, exports, and nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased. The deceleration in real GDP in the fourth quarter primarily reflected a deceleration in PCE and downturns in nonresidential fixed investment, in exports, and in state and local government spending that were partly offset by a smaller decrease in private inventory investment, a deceleration in imports, and an acceleration in federal government spending. The advance Q4 GDP report, with 0.7% annualized growth, was below expectations of a 0.9% increase.

US Growth Slows Sharply In 2015’s Fourth Quarter - US economic output weakened in last year’s fourth quarter, according to this morning’s initial estimate of GDP. The pace decelerated to 0.7%, down from Q3’s 2.0% rise (seasonally adjusted annual rate). That’s the slowest pace since last year’s first quarter. The softer trend was broad based, showing up in virtually every corner of the major components in the calculation of the GDP data. The question now: Is the Q4 stumble a sign of things to come or just a slow patch that, as in previous years, will quickly right itself via stronger growth? The answer is unknown at this point, but clarity is coming in the next round of data, including next week’s January update on nonfarm payrolls. Meantime, it’s clear that the US economic trend suffered a sharp downgrade at 2015’s close. On a relatively encouraging note, consumer spending—a key driver of GDP—continued to expand at a respectable if unspectacular rate: +2.2% in Q4. That’s down from Q3’s +3.2%, but it’s strong enough to keep the economy moving forward… assuming another downgrade isn’t brewing for this year’s Q1. Note, too, that residential fixed investment and federal government spending delivered relatively strong performances in 2015’s final quarter relative to Q3. By contrast, the leading sources of weakness in Q4: a decline in business spending and tumbling exports. Combined with the slower growth in consumer spending, the resulting mix delivered a hefty deceleration in growth for the broad trend.

Fourth-Quarter U.S. Growth – The Numbers -- 0.7% Growth in gross domestic product during the fourth quarter, at a seasonally adjusted annual rate. The U.S. economy lost momentum from October through December, with growth slowing from the third quarter’s 2% rate and the second quarter’s 3.9% pace. Economists had expected the economy to grow at a 0.8% pace in the final quarter of 2015. 20152.4% Growth in gross domestic product for all of 2015 compared with all of 2014. Even with the fourth-quarter slowdown, the U.S. economy matched 2014 as the second-strongest year of growth in the six full calendar years since the recession. Over that stretch, economic growth has averaged 2.1% per calendar year. Size of Economy $17.94 Trillion. Gross domestic product for all of 2015. The world’s largest economy is now roughly an $18 trillion economy. Sales 1.2% - Real final sales of domestic product. The amount of American goods and services sold, rather than made, in the U.S. and abroad rose 1.2% in the fourth quarter from the third quarter. That figure suggests underlying demand for American products weakened amid global economic woes. Final sales—which strip out the effect of inventory buildup—grew 2.7% in the third quarter and 3.9% in the second quarter. Final sales are often a better gauge of the economy’s underlying health than the headline GDP figure, which measures everything produced, even the stuff that sat on stockroom shelves. Oil Woes -35%. Decline in spending on mining, shafts and wells for all of 2015. A sharp decline in business investment tied to energy-industry woes weighed on economic growth last year. The drop in spending on mining was the steepest since 1986.  Consumer spending 3.1% Growth in consumer spending for all of 2015. Consumers carried the economy last year, boosting spending at the quickest pace since 2005.

Advance Estimate 4Q2015 GDP Growth at 0.7%. Economic Growth Continues to Slow.: The advance estimate of fourth quarter 2015 Real Gross Domestic Product (GDP) is a positive 0.7 %. This is a significant decline from the previous quarter's 2.0 % if one looks at quarter-over-quarter headline growth. However, year-over-year growth declined so one could say economic growth was mixed. There are significant "buts" relative to this advance GDP estimate (see below). The major reasons for the decline in GDP growth were personal consumption for goods, fixed investment, and inventories.  One must consider:

• This advance estimate released today is based on source data that are incomplete or subject to further revision. (See caveats below.) Please note that historically advance estimates have turned out to be little more than wild guesses.

• Headline GDP is calculated by annualizing one quarter's data against the previous quarters data (and the previous quarter was relatively strong in this instance). A better method would be to look at growth compared to the same quarter one year ago. For 4Q2015, the year-over-year growth is 1.8 % - significantly down from 3Q2015's 2.1 % year-over-year growth. So one might say that GDP decelerated 0.3 % from the previous quarter.

The table below compares the 3Q2015 third estimate of GDP (Table 1.1.2) with the advance estimate of 4Q2015 GDP which shows:

• consumption for goods and services declined.
• trade balance degraded
• there was significant inventory change removing 0.45% from GDP
• there was slower fixed investment growth
• there was little change in government spending

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

Q4 GDP: Investment -- The graph below shows the contribution to GDP from residential investment, equipment and software, and nonresidential structures (3 quarter trailing average). This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.  In the graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. So the usual pattern - both into and out of recessions is - red, green, blue. The dashed gray line is the contribution from the change in private inventories. This can't be used blindly.  Residential investment is so low as a percent of the economy that the small decline early last year was not  a concern.

BEA 4th Quarter GDP 1st Estimate 0.7%; Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming?  -- The BEA "Advance GDP" estimate for 4th quarter came in today at +0.7% vs. an Econoday Consensus Estimate of 0.9%.  Consumer spending is the central driver of the economy but is slowing, at least it was during the fourth quarter when GDP rose only at a 0.7 percent annualized rate. Final demand rose 1.2 percent, which is the weakest since first quarter last year but is still 5 tenths above GDP. Spending on services, adding 0.9 percentage points, was a leading contributor to the quarter as was spending on goods, at plus 0.5. Residential investment, another measure of consumer health, rose very solidly once again, contributing 0.3 percentage points. Government purchases added modestly to growth. The negatives are on the business side especially those facing foreign markets. Net exports pulled down GDP by 0.5 percentage points. Non-residential investment pulled down GDP by more than 0.2 percentage points. Reduction in inventory investment, which the FOMC warned about on Wednesday, pulled the quarter down by 0.5 percentage points.  The Atlanta Fed "Final" GDPNow Estimate for the 4th quarter was posted on January 28. Q&A #1: Why Did GDPNow Rise After Durable Goods Report?  Answer: Patrick Higgins, Senior Economist for the Atlanta Fed, explains via email ... "Hi Mish, As you probably noticed the model forecast for the contribution of equipment investment to fourth quarter GDP growth declined 0.07 percentage point after the durable goods manufacturing report.  But this was more than offset by a 0.20 percentage point increase in the contribution of inventory investment to fourth quarter growth after that same report.  The model didn’t use the December data on shipments of nondefense aircraft & parts which had an unusually large decline last month (from $16.0 billion to $10.8 billion).  That data isn’t ever folded in until the exports and imports data for civilian aircraft and parts is released. The net shipments measure fed into the model is aircraft & parts shipments plus imports minus exports. Since the December international trade data won’t be released until after the GDP release, the December aircraft data won’t ultimately be used for the fourth quarter GDPNow forecast."

Tighten Your Seatbelt « U.S. Economic Snapshot: (11 graphs) Today’s release of the “advance” estimate for GDP for 2015 QIV shows 2015 ending with a dud as growth slowed throughout the year. Real GDP increased only 0.7% at a seasonally adjusted annual rate. Both real GDP and real personal consumption expenditures (PCE) have taken a decidedly downward turn. The weak numbers were widely anticipated, presaged by falling industrial production, declining exports and weak consumer demand. The question on everyone’s mind is whether this portends a more prolonged contraction in the economy. Looking at previous business cycles, it is clear that this recovery, while weak, is beginning to look mature. Job growth has continued strong and the unemployment rate is low but this recovery is mature. What are the forces weighing on economic growth that would tip the economy into a contraction? Exports have shown gradual flattening out and then more recently a decline precipitated by weak demand elsewhere in the world and a strong dollar. Expectations are that that will continue and continue to pull down U.S. growth. Consumption was also weaker in the fourth quarter after looking stronger earlier. PCE slowed to 2.2% after growing 3.6% and 3.0% in QII and QIII, respectively. Moreover, as the graph below shows, once PCE goes south it takes a while to reverse course. Investment in non-residential structures (-5.3%) and equipment (-2.5%) fell sharply, leading to an overall investment decline of -2.5%. Residential structures, however, grew at 8.1%.The U.S. economy has always been an important driver for growth elsewhere in the world. As the first picture below shows the fate of the U.S. economy is closely aligned with the fate of nearest and most important trading partners, Mexico and the U.S. but in the age of globalization other trading partners – China, Europe Japan are very important as well. As you can see from the following charts, Europe and Japan are stagnant and the emerging markets, while not completely foundering, are likely not to lift others, particularly as China’s growth slows.  These are serious concerns for the future strength of the U.S. recovery.

The U.S. is not in a recession - The Bureau of Economic Analysis announced today that U.S. real GDP grew at a 0.7% annual rate in the fourth quarter. That’s a bad quarter to be sure, and real GDP is up only 1.8% from a year ago. That’s a weak year judged by the U.S. postwar average of 3.1%, but is not far from the 2.1% annual growth we’ve been averaging since 2009:Q3. One concerning detail in today’s report was that nonresidential fixed investment fell during the quarter, pulled down in part by slashed capital spending in the oil patch. Inventory drawdown (often an erratic component) and net exports each subtracted almost half a percentage point from the annualized Q4 growth rate.  Weakness in the global economy and strong dollar were surely factors in the drop in net exports. The U.S. is not immune to developing concerns in Europe, China, Japan, and elsewhere. The Q4 GDP numbers produced a modest increase in the Econbrowser Recession Indicator Index up to 10%. The index uses today’s data release to form a picture of where the economy stood as of the end of 2015:Q3. That’s still way below the 67% threshold at which our algorithm would declare that the U.S. had entered a new recession. With much talk of recession in the air these days, I was curious to look at some other indicators. UCLA Professor Ed Leamer noted that a recession is usually characterized by an increase in the unemployment rate of 0.8 percentage points over a 6-month period. Today’s unemployment rate is actually 0.3% lower than it was in June.

It’s official: A lost decade for the US economy US real GDP growth was just 0.7% annualized in the fourth quarter, a weak way to end 2015. Never like to see the Zero Handle. Not that it was such a great full year, either. The American economy remained stuck in meh mode, expanding at just 2.4%, the same as in 2014. Now, from the end of World War II through 2005, the economy grew at an average annual rate of 3.5%. So 3%-ish growth has been what’s normal. Wait for it … welcome to the new normal. The economy hasn’t managed a single year of even 3% growth since 2005. A lost decade, at least by American standards. (We’re not Japan, after all.)  The rundown: Real GDP growth for 2015 was 2.4%; 2014, 2.4%; 2013, 1.5%; 2012, 2.2%; 2011, 1.6%; 2010, 2.5%; 2009, -2.8%; 2008, -0.3%; 2007, 1.8%; and 2006, 2.7%. But that’s what happens when you get a near-depression followed by an anemic recovery and expansion. Digging into the numbers, you find a combo of slowing labor force growth and weak productivity to blame. And it’s for those deeper structural reasons many forecasters, such as the Congressional Budget Office, think the US is now a permanent 2% economy rather than a more vigorous 3% economy. It may not seem like such a big difference but it is. It’s the difference between having a $21 trillion economy in 2026 or a $23 trillion economy. (That $2 trillion difference, by the way, is the size of the entire Italian economy.) And that gap grows larger year after year, decade after decade. And with that growth gap come fewer jobs, lower incomes, and less opportunity.

Debunking the Myth "Consumer Spending is 67% of GDP"  - It is widely believed that consumer spending accounts for approximately two-thirds of the economy. A few of us dispute that claim. In Is the US Economy Close to a Bust, Pater Tenebrarum at the Acting Man Blog points out ...  One thing that we cannot stress often enough is that the manufacturing sector is far more important to the economy than its contribution to GDP would suggest. Since GDP fails to count all business spending on intermediate goods, it simply ignores the bulk of the economy’s production structure. However, this is precisely the part of the economy where the most activity actually takes place. The reality becomes clear when looking at gross output per industry: consumer spending at most amounts to 35-40% of economic activity. Manufacturing is in fact the largest sector of the economy in terms of output. In The GDP Illusion Tenebrarum writes ...  Sure enough, in GDP accounting, consumption is the largest component. However, this is (luckily) far from the economic reality. Naturally, it is not possible to consume oneself to prosperity. The ability to consume more is the result of growing prosperity, not its cause. But this is the kind of deranged economic reasoning that is par for the course for today: let’s put the cart before the horse! In addition to what Tenebrarum states, please note that government transfer payments including Medicaid, Medicare, disability payments, and SNAP (previously called food stamps), all contribute to GDP.

Why GDP fails as a measure... period - At CBS Moneywatch, Mark Thoma reviews the standard "textbook" flaws in GDP that cause it to fail as a measure of wellbeing:

• It counts "bads" as well as "goods." 
• It makes no adjustment for leisure time. 
• It only counts goods that pass through official, organized markets, 
• It doesn't adjust for the distribution of goods. 
• It isn't adjusted for pollution costs.

Although useful as a framing introduction, Thoma's discussion misses three crucial points. First, GDP was never meant to be a measure of wellbeing but a measure of the revenue-generating capability of the economy. In this capacity, a more salient flaw is the arbitrary treatment of government expenditures as output for final consumption when much government spending would be better treated as intermediate goods to avoid double counting.  Another flaw results from the instability of the unit in which GDP is measured and reported. Change in GDP from period to period doesn't simply represent a proportional increase or decrease of the same goods and services at the same prices but a changing mix of goods and services at different prices. Adjusting for "real GDP" with an average index for inflation may provide a short term, rough estimate of the vitality of economic activity but cumulative changes in the GDPs composition renders long-term assessments of "growth" essentially meaningless.  The third point is actually a combination of that last flaw and Thoma's first point that GDP counts "bads" as well as goods. But first a clarification of Thoma's explanation. -- GDP doesn't count the earthquake; it counts the repairs and rebuilding. Thus the problem is that the accounting is asymmetrical -- adding the repairs without subtracting the damage that required the repair. The cumulative effect is thus not just additive but multiplicative in that the increasing proportion of remedial goods and services distorts the index by which the prices for welfare-enhancing goods and services are adjusted.  A rubber band yardstick would be unreliable. This one is silly putty

The Price Americans Pay for Slow Growth - By Noah Smith - Is slow economic growth here to stay? Writing in the Wall Street Journal, Ben Leubsdorf reports that this may be the case: Most Federal Reserve policy makers and private forecasters are...predicting little change in 2016 and beyond: an economy growing a little faster than 2%...Gross domestic product has expanded at an inflation-adjusted annual pace of 2.2% since the recession ended in mid-2009, far below its 3.6% average during the second half of the 20th century, according to Commerce Department data. Actually, the U.S. growth slowdown is far less dramatic than these numbers would seem to indicate, because they are not adjusted for population. Once we do that, we find that real GDP per capita rose at a 2.2 percent annualized rate between 1947 and 2000, and at a 1.4 percent rate since the end of the recession. Slower population growth, therefore, accounts for almost half of the growth slowdown. That said, a 0.8 percentage point slowdown in per capita GDP growth is no laughing matter. An economy expanding at 2.2 percent will double about once every 33 years, while an economy growing at only 1.4 percent will take 51 years to double. (If you want to do these calculations yourself, just use the handy “rule of 72.” The number of years something takes to double in size is approximately equal to the number 72 divided by the growth rate!) Here’s what that looks like when we project per capita GDP out to the year 2050:

The Anti-Fiscal Bubble - Paul Krugman - Jonathan Chait has been having some fun with the GOP orthodoxy that the Obama stimulus was a complete failure; as he notes, the overwhelming majority of economists, both in universities and in the private sector, disagree — but Republicans apparently know nothing about this. I’d like to add two points. First, it’s not just the Obama stimulus: the experience of austerity policies, which constitute an imperfect but still useful natural experiment, has convinced many economists — almost surely the large majority — that changes in fiscal policy have a Keynesian-type effect in the short run, especially when interest rates are near zero and can’t be cut. This view could be wrong, I guess; but if you want to argue that it is, you have to acknowledge that you’re in opposition not just to a broad consensus but to a consensus that is deeply grounded in recent data and experience. And second, which gets to Chait’s point: it’s clear that nobody on the Republican side is even aware that they’re taking a heterodox, problematic position. They’re living in a bubble in which the only “experts” who get heard are people who predicted runaway inflation from quantitative easing and massive job losses from Obamacare — and are never challenged about why they got it wrong.

Mitch McConnell Moves To Grant The President Unlimited War Powers With No Expiration Date - This morning, I came across an extremely important story with tremendous long-term negative implications for freedom in these United States. It relates to the fact that the always shady Senate Majority Leader Mitch McConnell is moving to fast track an Authorization of Military Force (AUMF) for the President that would allow for unrestricted warfare against ISIS. There would be no time or geographic restrictions on this authorization. Rather than being a favor to President Obama, this is primarily a means to ensure that whoever takes control in 2017 receives a blank check for unrestrained militarism with no expiration date. This is terrifying. Before I get into the issue at hand, some background is necessary. Many legal scholars, and indeed, even many members of Congress have admitted that Obama’s war against ISIS is illegal and unconstitutional. One of the best articles I’ve read on why this is the case, was published in the New York Times in 2014, which I covered in the post, Obama’s ISIS War is Not Only Illegal, it Makes George W. Bush Look Like a Constitutional Scholar. Here are a few excerpts: President Obama’s declaration of war against the terrorist group known as the Islamic State in Iraq and Syria marks a decisive break in the American constitutional tradition. Nothing attempted by his predecessor, George W. Bush, remotely compares in imperial hubris. Mr. Bush gained explicit congressional consent for his invasions of Afghanistan and Iraq. In contrast, the Obama administration has not even published a legal opinion attempting to justify the president’s assertion of unilateral war-making authority. This is because no serious opinion can be written. This became clear when White House officials briefed reporters before Mr. Obama’s speech to the nation on Wednesday evening. They said a war against ISIS was justified by Congress’s authorization of force against Al Qaeda after the Sept. 11, 2001, attacks, and that no new approval was needed

The U.S. May Build 500 Jets Before Finding Out If the F-35 Works - Tests of how Lockheed Martin Corp.’s F-35 will perform in combat won’t begin until at least August 2018, a year later than planned, and more than 500 of the fighter jets may be built before the assessment is complete, according to the Pentagon’s test office. “These aircraft will require a still-to-be-determined list of modifications” to be fully capable, Michael Gilmore, the U.S. Defense Department’s top weapons tester, said in his annual report on major programs. “However, these modifications may be unaffordable for the services as they consider the cost of upgrading these early lots of aircraft while the program continues to increase production rates in a fiscally constrained environment.” The Defense Department plans a fleet of 2,443 F-35s for the U.S., plus hundreds more to be purchased by allies, including the U.K., Italy, Australia and Japan. The costliest U.S. weapons program, at a projected $391 billion, the F-35 is being produced even as it’s still being developed, a strategy a top Pentagon official once called “acquisition malpractice.” Despite the plane’s many problems, “F-35 production rates have been allowed to steadily increase to large rates,” Gilmore said in his annual report to congressional defense committees. The Pentagon wants to increase the number of F-35s purchased for the U.S. to 92 annually by 2020 from 38 last year. The number jumps to 120 a year when foreign sales are included. For this year, Congress added 11 aircraft to the 57 requested.

What a Misleading Chart on U.S. Trade Looks Like - The Office of the U.S. Trade Representative has worked hard in recent years to help draft and adopt the Trans-Pacific Partnership, a trade deal between 12 major economies on the Pacific Ocean, including the U.S., Japan, Chile, New Zealand and Australia. It’s understandable that the USTR would want to promote the economic benefits of the agreement, but the agency published a series of misleading charts on Twitter to help make its case. Here’s a chart shared from the verified U.S. Trade Representative account Monday on Twitter: Notice anything wrong here? Look at those two values on the right side of the column. With the Trans-Pacific Partnership, U.S. real national income will be $25,885 billion in 2030. Without, it will only be $25,754 billion. That’s a difference of $131 billion. But the chart presents that gap as about the same, in size, as the gap between $18,154 billion and $25,754 billion. That’s a difference of $7.6 trillion. Yep, that’s trillion with a “t.” The figures above are correct (that is, they come from a new study from the Peterson Institute for International Economics, which is not responsible for the data visualization from the USTR). The Peterson Institute does indeed estimate that the Trans-Pacific Partnership will boost real incomes. And let’s be clear: We’re raising questions about the accuracy of the chart, not weighing arguments for or against the trade deal. But the USTR chart has made it appear that income growth will roughly double with the TPP. In fact, the Peterson Institute estimates that, compared with the size of the overall U.S. economy, the effect on income will be fairly modest, which you can easily see in a corrected version of the chart:

ObamaTrade Will Cost 448,000 American Jobs, New Study Finds -- One of the major purported selling points for the Trans-Pacific Partnership (TPP) is a supposed increase in new jobs as a result of the controversial trade deal. The deal involves 12 nations, including the U.S., Australia, Canada, New Zealand, Japan, Malaysia and more. However, two recent economic reports have contradicted the claims that jobs will increase. They have shown that, more than likely, the deal will lead to a loss of jobs. First there was a World Bank report that predicted that TPP would produce negligible boosts to the economies of the U.S., Australia, and Canada. This study was followed up by a review from Jerome Capaldo and Alex Izurieta at Tufts University.  Their study found that economic growth is likely to be limited — and negative — for some countries, including the United States. The researchers also found the TPP would probably lead to increased unemployment and inequality.  In the paper, the two researchers state that changes in GDP growth are “mostly projected to be negligible.” After using two sets of growth figures, ten-year measurements, and annual averages, they concluded the TPP “appears to only marginally change competitiveness among participating countries. Most gains are therefore obtained at the expense of non-TPP countries.” The fact that any gains — however negligible — will come at the cost of non-TPP countries should be a warning to all nations of the world, especially those who do not stand to benefit from the agreement. Concerning predictions of actual job losses or gains, the researchers write, “TPP would lead to employment losses in all countries, with a total of 771,000 lost jobs. The United States would be the hardest hit, with a loss of 448,000 jobs.” Finally, the researchers draw harrowing conclusions about the end result of the TPP.“Globally, the TPP favors competition on labor costs and remuneration of capital. Depending on the policy choices in non-TPP countries, this may accelerate the global race to the bottom, increasing downward pressure on labor incomes in a quest for ever more elusive trade gains.”

Are Economists in Denial About What’s Driving the Inequality Trainwreck? - Lynn Parramore (interview & transcript) A new paper by economist Lance Taylor for the Institute For New Economic Thinking’s Working Group on the Political Economy of Distribution takes on the way economists have looked at wealth and income inequality. Taylor’s research challenges some conclusions about what’s driving inequality made by Thomas Piketty and Joseph Stiglitz. What’s really causing the growing gap between haves and have-nots? Is it mechanical market forces? Outsourcing? Real estate? As Taylor sees it, economists have gotten the answer wrong. Worker exploitation and outsized business profits are factors, but even more key are the unjustified payments to the wealthy generated by our outsized financial sector. This hasn’t just “happened.” Flawed economic theory and politicians beholden to the rich lead to policies that make it happen. We can fix the problem, but it will take bold steps.

We desperately need major tax reform! Or maybe not… - Jared Bernstein -  It is an article of faith in national politics that the reform of the federal tax code is what’s standing between us and faster growth, higher productivity, better jobs, and whatever other good outcome you want to ascribe to this endeavor. ... The changes in the Federal tax code since 1986, including the substantial increases to the EITC and CTC, boosted the aftertax income of households in the first two quintiles of the income distribution by about seven percent without even counting any benefits from the additional labor force participation... These gains are an order of magnitude larger than the estimated gains from fundamental tax reform, which are generally measured in the tenths of a percent. So, let’s stop being distracted by the “fundamental reform fairy,” and pursue incremental reforms:

• — Close the carried interest loophole that privileges the earnings of investment fund managers. ...
• — Block corporate tax inversions, where U.S. companies merge with overseas companies just to move their tax mailbox to a low tax country.
• — End the “step-up basis” provision by which the wealthy can pass capital gains on to their heirs tax free.
• — Stop incentivizing multinationals to keep, or at least book, their profits overseas by letting companies repatriate their foreign earnings after paying a minimum tax (the Obama administration suggest a 19 percent minimum rate).
• — Increase the EITC for childless adults, who now get very little from it, an idea supported by both Obama and House Speaker Paul Ryan (R).

Above, I called these “tweaks” as opposed to major reforms. Though the contrast is apt, it’s the wrong word, as any such changes are hugely heavy lifts. But heavy lifts are at least in the realm of the possible. And that’s the right realm to be in if we actually want to improve our tax code.

New York Review of Books on How Oligarchs Use Philanthropy to Advance Their Social Agendas (and a Shout Out to NC) -  Yves Smith - I’m late to highlight an important essay in the New York Review of Books, How to Cover the One Percent, by Michael Massing. It focuses primarily on the 0.1% and describes how they are using philanthropy as Trojan Horse for social engineering. Massing stresses that these efforts to promote personal policy agendas go almost entirely unnoticed, in a striking contrast to how attentive the media is to political donations by the super-rich. Here’s his thesis: Over the last fifteen years, the number of foundations with a billion dollars or more in assets has doubled, to more than eighty. A significant portion of that money goes to such traditional causes as universities, museums, hospitals, and local charities…. The tax write-offs for such contributions, however, mean that this giving is subsidized by US taxpayers. Every year, an estimated $40 billion is diverted from the public treasury through charitable donations. That makes accountability for them all the more pressing. So does the fact that many of today’s philanthropists are more activist than those in the past. A number are current or former hedge fund managers, private equity executives, and tech entrepreneurs who, having made their fortunes on Wall Street or in Silicon Valley, are now seeking to apply their know-how to social problems. Rather than simply write checks for existing institutions, these “philanthrocapitalists,” as they are often called, aggressively seek to shape their operations. When donors approach a nonprofit, “they’re more likely to say not ‘How can I help you?’ but ‘Here’s my agenda,’”  . Mainstream news organizations haven’t caught on to this new activism, he said, adding that most of them are into covering “the ‘giving pledge,’” by which the rich commit to giving away at least half their wealth in their lifetime. David Callahan, the founder and editor of Inside Philanthropy,  says that “philanthropy is having as much influence as campaign contributions, but campaign contributions get all the attention. The imbalance is stunning to me.”

Davos: Rich 'should intervene' in politics - financier - Nowhere do the worlds of business and politics merge as seamlessly as in Davos, and perhaps no one personifies that blend better than Anthony Scaramucci. The sharp-talking American founded the hedge-fund firm Skybridge Capital, which manages $14.5bn in assets ("it was $15bn, but we got hit in the market", he jokes), and is a staple on the World Economic Forum circuit. Back home, he is courted by Republican presidential candidates in pursuit of financial contributions, as well as his ability to persuade other wealthy donors to support a particular candidate. But as the funding of political campaigns by a select group of billionaires comes under fire in the US - from Democratic candidate Bernie Sanders on the left and Donald Trump on the right - Mr Scaramucci unapologetically makes the case for the wealthy intervening in the political process. "I've always viewed myself as a business person," he says. "I never got involved in the political process until 2008-09, when it dawned on me that I have now become a minority partner in my own life. "Whatever money I'm making the government is taking more than 50%, so I should be involved, in my opinion, with the hiring decisions on the people that are the majority partners in my life".

Wall Street Declares War on Bernie Sanders - William K. Black --  Wall Street billionaires are freaking out about the chance that Bernie Sanders could be elected President.  Stephen Schwarzman, one of the wealthiest and most odious people in the world, told the Wall Street Journal that one of the three principal causes of the recent global financial trauma was “the market’s” fear that Sanders may be elected President.  Schwarzman is infamous for ranting that President Obama’s proposals to end the “carried interest” tax scam that allows private equity billionaires like Schwarzman to pay lower income tax rates that their secretaries was “like when Hitler invaded Poland.”  Schwarzman and Pete Peterson co-founded the private equity firm Blackstone.  Peterson leads the effort to destroy the safety net in America.  His greatest dream is to privatize Social Security so that Wall Street could increase its revenues by tens of billions of dollars.  Schwarzman’s claim that the global financial markets are tanking because of Bernie’s increasing support is delusional, but it is revealing that he used the most recent market nightmare as an excuse to attack Bernie.  The Wall Street plutocrats, with good reason, fear Bernie – not Hillary.  Indeed, it is remarkable how vigorous and open Wall Street has been in signaling through the financial media that it has no problem with Hillary’s Wall Street plan.  CNN, CNBC, and the Fiscal Times, under titles such as:  “Here’s Why Wall Street Has Little to Fear from Hillary Clinton,” pushed this meme. Michael Bloomberg was the second Wall Street billionaire to pile on to Bernie this week.  Bloomberg leaked to dozens of media outlets that he was again considering a run for the presidency.  The same leaks explained that Bloomberg’s fear of Bernie was the key.  Bloomberg is infamous for organizing the mass arrests designed to crush the Occupy Wall Street movement. 

NEP’s Bill Black on The Real News - Bill appears on The Real News along with Public Banking Institute founder Ellen Brown. They are discussing Hillary’s record on regulating Wall Street. You can watch the video below and for the video with transcript, you can visit The Real News here.

Krugman’s Cowardly, Dishonest Attack on David Dayen Over Krugman’s Misrepresentation of Sanders’ Financial Reforms -- Yves Smith - Paul Krugman’s recent posts have been most peculiar. Several have looked uncomfortably like special pleading for political figures he likes, notably Hillary Clinton. He has, in my judgement, stooped rather far down in attacking people well below him in the public relations food chain, violating one of the unwritten rules of discourse: if you are going to kick someone, you kick up or at least sideways. Perhaps the most egregious and clearest cut case is his refusal to address the substance of a completely legitimate, well-documented article by David Dayen outing Krugman, and to a lesser degree, his fellow traveler Mike Konczal, in abjectly misrepresenting Sanders’ financial reform proposals and attacking that straw man. Dayen pointed out that the proposal that both criticized, Sanders’ plan to break up big banks, was Elizabeth Warren’s so-called 21st Century Glass Steagall bill. That also meant they misrepresented Sanders as not addressing shadow banking and undermined Warren’s reform program. Similarly, as Dayen stressed, both tried to depict Sanders as a naive hair-on-fire idealist for wanting to break up the banks when both the FCIC and foreign bank regulators back the idea.  What so irritated Krugman, and led him to issue not one but two posts going after Dayen on a bizarre no-name, no-link basis? It’s doubtful that it was Dayen describing at length how Krugman’s attacks on Warren’s bill (had he even understood that that was what he was attacking) were at odds with his past position, or that Mike Konczal’s recent skepticism of Glass Steagall-type reforms, was a flip-flop from a long document he co-wrote in 2010. This is what appears to have set Krugman on tilt: The radicals in this debate, in other words, are those protecting the deregulatory status quo….But denying this consensus, and delegitimizing structural reform as silly and shortsighted, only does the work of banks and their lobbyists, who want to preserve the current system and cut off any avenues for a more far-reaching redesign. Why in the world are people who call themselves liberals helping them do it? Those wondering why Warren hasn’t endorsed Hillary Clinton yet should consider whether it’s because Clinton and her minions are delivering a mortal wound to the cause of Warren’s life.

­Elizabeth Warren: One Way to Rebuild Our Institutions - — WHILE presidential candidates from both parties feverishly pitch their legislative agendas, voters should also consider what presidents can do without Congress. Agency rules, executive actions and decisions about how vigorously to enforce certain laws will have an impact on every American, without a single new bill introduced in Congress. The Obama administration has a substantial track record on agency rules and executive actions. It has used these tools to protect retirement savings, expand overtime pay, prohibit discrimination against L.G.B.T. employees who work for the government and federal contractors, and rein in carbon pollution. These accomplishments matter. Whether the next president will build on them, or reverse them, is a central issue in the 2016 election. But the administration’s record on enforcement falls short — and federal enforcement of laws that already exist has received far too little attention on the campaign trail.  I just released a report examining 20 of the worst federal enforcement failures in 2015. Its conclusion: “Corporate criminals routinely escape meaningful prosecution for their misconduct.”  In a single year, in case after case, across many sectors of the economy, federal agencies caught big companies breaking the law — defrauding taxpayers, covering up deadly safety problems, even precipitating the financial collapse in 2008 — and let them off the hook with barely a slap on the wrist. Often, companies paid meager fines, which some will try to write off as a tax deduction.The failure to adequately punish big corporations or their executives when they break the law undermines the foundations of this great country. Justice cannot mean a prison sentence for a teenager who steals a car, but nothing more than a sideways glance at a C.E.O. who quietly engineers the theft of billions of dollars. These enforcement failures demean our principles. They also represent missed opportunities to address some of the nation’s most pressing challenges. Consider just two areas — college affordability and health care — where robust enforcement of current law could help millions of people.

The low tricks of high finance: how greedy bankers, weak politicians and timid journalists could cause a new crash Spectator. Michael Lewis interview. -- It amazes me, simply amazes me, that journalists aren’t all over these stories. Doesn’t it amaze you too?’  I’m in a plush room in a swanky central London hotel, in conversation with Michael Lewis. He is all fired up, leaning forward as he perches on the hard edge of the cushion-strewn sofa. He oozes incredulity, palms upward, shoulders raised. ‘I’m not saying there aren’t good financial journalists,’ he concedes. But the qualification seems half-hearted — and is quickly reversed. ‘The Wall Street Journal is a much worse newspaper than it was 20 years ago,’ he asserts, taking aim at the bible of US high finance. ‘The news side of the paper has the fingerprints of the finance industry all over it’. Lewis broadens his critique to the media as a whole. ‘We are underserved by critical, knowledge-able financial journalists who don’t have any fear whatsoever of what their subjects think of them.’ He winces as he speaks, as if pained by his own words. Lewis is in London to talk about his 2010 bestseller, The Big Short — a penetrating account of the build-up of the western world’s housing and credit bubble during the 2000s. Described by Reuters as ‘probably the best single piece of financial journalism ever written’, The Big Short analysed how the international banking system came off the rails, with devastating consequences for the global economy, due to the crass, immoral behaviour of those running some of the world’s biggest banks. Well aware of the potential cultural and political impact of a Hollywood movie (‘a lot more powerful than a mere book’), Lewis states his views on the financial reforms since the 2008 financial crisis. ‘Not nearly enough has been done — the regulatory response has been totally inadequate,’ he says. ‘The big banks have blocked serious reforms, meddling in the process so incentives haven’t changed enough to attack the heart of the problem — which is why it could happen again.’

J.P. Morgan to Pay $1.42 Billion to Settle Most Lehman Claims – WSJ - J.P. Morgan Chase JPM 0.63 % & Co. has agreed to pay the remnants of Lehman Brothers Holdings Inc. $1.42 billion in cash to settle most of the failed investment bank’s lawsuit over claims that J.P. Morgan illegally siphoned billions of dollars from Lehman before its collapse. Representatives for Lehman and J.P. Morgan declined to comment. The settlement comes after a federal judge last fall ruled for J.P. Morgan, saying the bank didn’t abuse its leverage as Lehman’s primary clearing bank to force the investment bank to hand over more collateral in the weeks before its September 2008 collapse.The deal, unveiled Monday night in a filing in U.S. Bankruptcy Court in New York, resolves the bulk of Lehman’s $8.6 billion lawsuit against J.P. Morgan and the bank’s counterclaims against Lehman. It also puts to rest Lehman’s challenges over J.P. Morgan’s closeout of thousands of derivatives contracts following the investment bank’s collapse. Although the settlement doesn’t resolve all the claims between Lehman and J.P. Morgan, it ends a “significant portion” of their disputes, court papers said, and allows the postbankruptcy Lehman estate to make another $1.5 billion distribution to the investment bank’s creditors.

Sen. Elizabeth Warren slams ‘shockingly weak’ punishments for corporate crime: Democratic U.S. Senator Elizabeth Warren released on Friday a report criticizing what she called “shockingly weak” punishments for corporate crimes and condemned the Justice Department and Securities and Exchange Commission for their lax approach. Warren, in a 13-page report titled “Rigged Justice,” outlined 20 civil and criminal cases from 2015 that she said illustrated patterns of weak and problematic enforcement of white-collar crimes, either as a result of “limited resources or lack of political will.” “The Obama administration has made repeated promises to strengthen enforcement and hold corporate criminals accountable, and the DOJ announced in September that it would place greater emphasis on charging individuals responsible for corporate crimes,” Warren wrote. “Nonetheless … accountability for corporate crimes is shockingly weak.” Warren called the SEC “particularly feeble” and said loose regulation at other agencies often turns legal rules into suggestions, which companies can freely ignore. Warren said federal law is unambiguous in stating that if a corporation has committed a violation, individuals working there also must be at fault, but that federal agencies rarely pursue convictions of large corporations or their executives.

S.E.C. Is Criticized for Lax Enforcement of Climate Risk Disclosure -- As recently as 2011, shares in Peabody Energy, the world’s biggest private sector coal company, traded at the equivalent of $1,000. Today, they hover around $4 each. Over that time, investors who held the stock lost millions. Peabody, like other coal companies, has been hammered as cheap natural gas erodes the demand for coal. But concerns about climate change are also an issue for the company as customers and investors turn away from fossil fuels.  Peabody saw this coming. Even as the company privately projected that coal demand would slump and prices would fall, it withheld this information from investors. Instead, Peabody said in filings with the Securities and Exchange Commission that it was not possible to know how changing attitudes toward climate change would affect its business. Peabody’s double talk was revealed as part of a two-year investigation by the New York attorney general. In a settlement in November, Peabody agreed that it would disclose more about climate change risks in its regular filings with the S.E.C. In theory, however, Peabody should have been making such disclosures all along. In 2010, the S.E.C. told companies how it expected them to address the risks posed by climate change in their regular securities filings.  Initially, the S.E.C. appeared to put muscle behind its guidance. In the two years after the interpretive guidance, the S.E.C. issued 49 comment letters to companies addressing the adequacy of their climate change disclosures. But it issued only three such letters in 2012 and none in 2013.  To advocates of more robust climate change disclosure, the impression was that the S.E.C. had taken its eye off the ball. “They did back it up in the first few years,” said Jim Coburn, senior manager of investor programs at Ceres, a nonprofit organization that advocates sustainability in business and that has lobbied the S.E.C. on the disclosure. “But the current chair hasn’t shown much interest in this issue.”

The Rise of the Artificially Intelligent Hedge Fund -- LAST WEEK, BEN Goertzel and his company, Aidyia, turned on a hedge fund that makes all stock trades using artificial intelligence—no human intervention required. “If we all die,” says Goertzel, a longtime AI guru and the company’s chief scientist, “it would keep trading.” He means this literally. Goertzel and other humans built the system, of course, and they’ll continue to modify it as needed. But their creation identifies and executes trades entirely on its own, drawing on multiple forms of AI, including one inspired by genetic evolution and another based on probabilistic logic. Each day, after analyzing everything from market prices and volumes to macroeconomic data and corporate accounting documents, these AI engines make their own market predictions and then “vote” on the best course of action.  Though Aidyia is based in Hong Kong, this automated system trades in US equities, and on its first day, according to Goertzel, it generated a 2 percent return on an undisclosed pool of money. That’s not exactly impressive, or statistically relevant. But it represents a notable shift in the world of finance. Backed by $143 million in funding, San Francisco startup Sentient Technologies has been quietly trading with a similar system since last year. Data-centric hedge funds like Two Sigma and Renaissance Technologies have said they rely on AI. And according to reports, two others—Bridgewater Associates and Point72 Asset Management, run by big Wall Street names Ray Dalio and Steven A. Cohen—are moving in the same direction.

Volatility, oil and stock markets - "Down" is such a downer word. That's why when prices fall for practically anything Wall Street wants to sell you, Wall Streeters talk about volatility instead. Volatility allows for the possibility that prices will recover soon and go to new highs. Any setback is just temporary. The market turbulence, it seems, is merely designed by invisible market gods to test your character as a long-term investor. Don't give in to panic, the investment people say, and you'll be rewarded. Until you aren't! A year ago I said the crash in commodity prices signaled a weak economy and that financial markets would eventually have to reflect this fact. The widely watched S&P 500 Index closed at 1,994.99 on January 30, 2015 just prior to the publication of the linked piece. Last Friday's close was 1906.90. The U.S. stock market hasn't exactly reflected the weakness in commodities, but it hasn't gained any ground either. The continuing rout in oil prices began to underline not only the weakness in the global economy, but also the unclear situation at major banks holding large energy-related loan portfolios. The Dallas Federal Reserve Bank was reported to have encouraged banks in its jurisdiction to forebear on energy loans. Essentially, the Dallas Fed was telling banks to ignore losses in their energy portfolios until further notice so as not to cause a panic. The reserve bank quickly denied any such guidance to member banks. The truth in this particular instance may not matter since what we do know--that energy-related junk bond losses are at 2008 crisis levels--could suggest that energy-related losses at the world's banks may end up being the size associated with the subprime mortgage crisis that brought the global economy to its knees in 2008. It is worth remembering that in 2007 then-Federal Reserve Chairman Ben Bernanke assured the U.S. Congress that "the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained."

US junk-rated energy debt hits two-decade low The value of debt issued by junk-rated US energy companies has plummeted to the lowest level for more than two decades, sending a warning signal about the outlook for the North American oil industry. The average high-yield energy bond has slid to just 56 cents on the dollar, below levels touched during the financial crisis in 2008-09, as investors brace for a wave of bankruptcies. The slump in bond prices took a further step down last week, as crude dropped to 12-year lows below $28 per barrel. Although oil rebounded sharply, at about $32 per barrel on Friday, it was still 14 per cent lower than at the start of the year. The US shale revolution which sent the country’s oil production soaring from 2009 to 2015 was led by small and midsized companies that typically borrowed to finance their growth. They sold $241bn worth of bonds during 2007-15 and many are now struggling under the debts they took on. Very few US shale oil developments can be profitable with crude at about $30 a barrel, industry executives and advisers say. Production costs in shale have fallen as much as 40 per cent, but that has not been enough to keep pace with the decline in oil prices. “This year in shale will be very hard,” said Bielenis Villanueva Triana, an analyst at Rystad Energy. The three leading credit rating agencies have warned that high-yield defaults will rise in 2016 and 2017, driven by failures in the energy sector. On Friday, Moody’s placed 120 oil and gas companies on review for downgrade, including 69 in the US. Standard & Poor’s this month cut the oil price assumptions that it uses to assess credit quality and is working on ratings downgrades expected next month. Some investment grade companies are also likely to be downgraded. “Energy without a doubt is where the defaults will be concentrated,”

Moody’s Ponders Credit Downgrades for 120 Energy Companies --Oil prices received a jolt on January 21 and 22, as a cavalcade of bullish news conspired to push oil prices back into the $30s per barrel. The markets got excited at the possibility of more aggressive action from the European Central Bank on Thursday after comments from Mario Draghi, the bank’s president. Also, several voices weighed on oil prices, raising the questions about the unreasonable decline below $30 per barrel. The head of state-owned Saudi Aramco said that oil prices below $30 per barrel was “irrational,” and that he expected prices to rebound this year. Separately, Citigroup said that oil could be “the trade of the year,” because a price increase is nearly assured. After all, prices cannot go much lower, can they?  Meanwhile, even if prices rebound, the financial damage of $30 oil continues to impact energy companies around the world. Moody’s Investors Service, in several separate moves, put 175 oil, gas, and mining companies up for review for possible credit downgrades. 120 of them are in energy and 55 are mining companies. On January 21, Moody’s issued notices on 69 E&P companies. Included in the long list of companies were important names like Transocean, Schlumberger and Chesapeake Energy. “Even under a scenario with a modest recovery from current prices, producing companies and the drillers and service companies that support them will experience rising financial stress with much lower cash flows,” Moody’s wrote in a press release. Some companies are a lot worse off than others. In fact, Moody’s said that it will be looking at “multi-notch” downgrades in some credit ratings. “Multi-notch downgrades are particularly likely among issuers whose activities are centered in North America, where natural gas prices have declined dramatically along with oil prices,” Moody’s wrote.

Energy Creditors Lucky To Recover 15 Cents On The Dollar In Bankruptcy -- This past Wednesday, we reported that in the latest twist of the energy sector collapse, liquidating oil and gas producers, and specifically their creditors, got a nasty lesson in trough cycle asset values when in one after another bankruptcy "stalking horse" aka 363 auction, they were not only unable to cover the outstanding debt (both secured and unsecured) through asset sales, but barely able to cover a tiny fraction of it. "A lot of people got into this business and didn’t really understand the ups and downs of price cycles,” said Becky Roof, a managing director for turnaround and restructuring with the consulting firm AlixPartners. “They’re getting a very bad dose of reality right now.” Becky is right as the following bankruptcy liquidation sales tabulated by Bloomberg demonstrate:

• 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.

Then earlier today we learned that as part of its 363 Asset Sale, the 3rd largest bankruptcy of 2015 after Samson Energy and Sabine Oil, that of Quicksilver, the estate was only able to collect $245 million in cash proceeds from BlueStone Natural Resources. With $2.35 billion in debt, Quicksilver was one of the first casualties of the energy bust when it filed on March 17, 2015. Today's news means that the recovery for its creditors is a paltry 10 cents on every dollar of total debt, most of which will go to partially satisfy secured claims. The problem as the chart below shows is that these bankruptcy auctions confirm recoveries on existing debt will be paltry, and based on our limited dataset, average to roughly 15 cents on total debt exposure, which includes both secured and unsecured debt.

Wolf Richter: Moody’s Explains Why Junk Bonds Will Sink Stocks Further -- naked capitalism - After the white-knuckle sell-off of global equities that was finally punctuated by a rally late last week, everyone wants to know: Was this the bottom for stocks? And now Moody’s weighs in with an unwelcome warning. If you want to know where equities are going, look at junk bonds, it says. Specifically, look at the spread in yield between junk bonds and Treasuries. That spread has been widening sharply. And look at the Expected Default Frequency (EDF), a measure of the probability that a company will default over the next 12 months. It has been soaring. They do that when big problems are festering: The Financial Crisis was already in full swing before the yield spread and the EDF reached today’s levels! And so, John Lonski, chief economist at Moody’s Capital Markets Research, has a dose of reality for stock-market bottom fishers: For now, it’s hard to imagine why the equity market will steady if the US high-yield bond spread remains wider than 800 basis points [8 percentage points]. Taken together, the highest average EDF metric of US/Canadian non-investment-grade companies of the current recovery and its steepest three-month upturn since March 2009 favor an onerous high-yield bond spread of roughly 850 basis points. Moody’s EDF began spiking last summer and has nearly doubled since then to 8%, the highest since 2009. The average spread between high-yield bonds and Treasuries has widened to 813 basis points (8.13 percentage points). But at the lower end of the junk-bond spectrum (rated CCC and below), the yield spread is a red-hot 18.4 percentage points. This chart shows the average high-yield spread (blue line) and the CCC-and-below spread (black line). Note how far we were already into the Financial Crisis before both spreads reached the today’s levels: March 13, 2008, and September 30, 2008, respectively:

Fitch: U.S. High Yield Bond Default Tally Reaches 74 in 2015; Default Rate 3.4% - In 2015 74 U.S. high yield defaults, totaling $48.3 billion in outstanding bonds, defaulted on their debt, according to Fitch Ratings. This is up sharply from 37 companies with $31.7 billion in outstanding bonds in 2014 and the highest levels seen since 2009.The trailing 12-month (TTM) U.S. high yield bond default rate stood at 3.4% at end-December 2015. However, it will likely decrease at the end of this month, as Caesars' January 2015 bankruptcy filing exits the TTM default universe, even as other companies default. Arch Coal filed for bankruptcy on Jan. 11, accounting for $3.2 billion of default volume, while Verso Paper filed for bankruptcy today. In addition, Pacific Exploration & Production recently missed an interest payment. "Many of the commodity price-induced challenges that overwhelmed the energy and metals/mining sectors last year will persist in 2016, leaving the bond market exposed to a higher-than-normal number of defaults," said Eric Rosenthal, Senior Director of Leveraged Finance. Fitch predicts the 2016 U.S. high yield default rate will end 2016 at 4.5% and that distressed debt exchanges (DDEs) will remain a prominent source of default. The energy sector was a large executer of DDEs in 2015, accounting for 17 of the 28 completed.

Oil Bust May Put Onus on Pimco to Give Rio Retirees Debt Relief -- The sinking price of oil is threatening to put two of the world’s largest bond funds in an uncomfortable position. Pacific Investment Management Co. and Dodge & Cox are the biggest owners of $3.1 billion of notes sold by Rioprevidencia, a pension fund for public-sector workers from Rio de Janeiro. The fund relies on crude royalties from the state to pay the debt. With oil prices plumbing new depths almost daily, the bonds have fallen to a record low on speculation Rioprevidencia may have little choice but to ask creditors to restructure the debt or default. The selloff comes after Rioprevidencia persuaded investors to grant the fund a temporary waiver in September, when the fund said a metric fell below the minimum threshold required to prevent an acceleration of payments should more than half of bondholders demand their money back. In return, the fund boosted the coupon on the securities three percentage points to as much as 9.5 percent. But oil’s collapse has only worsened since that deal was struck, with prices falling 34.5 percent to a 12-year low. “At the end of the day, this is going to have to be restructured,” “Most likely, that will involve much lower coupon payments to bondholders and extending maturities. What the pension did with the covenant waiver was give itself time in case oil came back. The next time Rioprevidencia blows the covenant, which will almost certainly be when the waiver expires, will be the trigger for the restructuring.” Bondholders agreed to waive the so-called debt-service coverage ratio until March. Rioprevidencia said in September the measure fell to 1.2, below the 1.5 required in its debt contracts.

So Yes, the Oil Crash Looks a Lot Like Subprime - One year ago, analysts at Bank of America Merrill Lynch drew a parallel between the subprime mortgage crash and the disorderly fall in the price of oil. Led by Chris Flanagan, a veteran of the securitization space, the team drew attention to Markit's ABX Index, better known as the mother of all synthetic subprime credit indexes. Created in January 2006 and consisting of a basket of credit default swaps (CDS) tied to the welfare of subprime mortgages, it allowed a bevy of investors to bet on the future direction of riskier home loans and helped inflate the massive amounts of leverage tied to the U.S. housing bubble. Fast-forward to today and the BofAML analysts provide an update to their previous thesis, which was that the downward spiral in the price of oil was shaping up to look a lot like the negative trend that engulfed the subprime space circa the year 2007. Here's what they say: The pattern of the decline in the price of oil that began in mid-2014 is remarkably similar to the 2007-2009 pattern of the price decline of ABX, the credit derivative index that referenced subprime mortgages and, ultimately, the U.S. housing market (Chart 1). The ABX history suggests that oil will see more declines in the next couple of months and find a floor somewhere in the low 20s in the March-April time frame. Both the duration of the decline (1.5+ years) and the scale of the decline (100 neighborhood starting price down to the sub-30 neighborhood) are similar. Given that both housing and oil prices were fueled to spectacular heights in the two periods by massive credit expansion, it’s probably more than just coincidence that the respective “bubble” bursting patterns are so similar.

Office of Financial Research Warns of Corporate Debt Defaults, Particularly Related to Energy Loans, as Stability Risk - Yves Smith - We’ve warned for some time that the debt loads on fracking companies were substantial, and had accounted for a high percentage of new lending in the US over the last five years. We also warned that the fall in energy prices, which was widely ballyhooed as a boon for the economy, would not only hit energy companies, but would have knock-on effects by lower revenues and employment in oil/shale boom towns, employment cuts at oilfield service providers, and a downturn in real estate prices in affected communities, all of which could result in loan losses at regional banks. And remember the big rule of investing: tail risk is much greater than you assume. From the International Business Times: A financial watchdog set off the alarm bells on corporate debt Wednesday in its annual report to Congress. With companies feeling growing pressure from painful exchange rates and energy prices, the U.S. is at a higher risk of seeing a wave of corporate defaults, the report said.  The report from the Office of Financial Research, a division of the Treasury Department, listed credit risk as one of the top three financial stability dangers facing the economy in 2016…. It’s not just oil companies that are exposed, however. Regional banks that lend to the energy industry could suffer as a result of a default wave, the OFR report noted, adding that “the ultimate magnitude of losses in these industries and regions is uncertain.”  Moody’s had elevated the debt default concern by downgrading 175 energy-related companies last Friday. Standard & Poors followed suit quickly, but not with a raft of downgrades, but a big warning and a whack at the one-time fracking darling Chesapeake Energy.

Did Wall Street Banks Create the Oil Crash? -- Pam Martens - From June 2008 to the depth of the Wall Street financial crash in early 2009, U.S. domestic crude oil lost 70 percent of its value, falling from over $140 to the low $40s. But then a strange thing happened. Despite weak global economic growth, oil went back to over $100 by 2011 and traded between the $80s and a little over $100 until June 2014. Since then, it has plunged by 72 percent – a bigger crash than when Wall Street was collapsing. The chart of crude oil has the distinct feel of a pump and dump scheme, a technique that Wall Street has turned into an art form in the past.  Pretty much everything that’s done on Wall Street is some variation of pump and dump. Here’s why we’re particularly suspicious of the oil price action. Levin’s Subcommittee unearthed the following about Morgan Stanley: Morgan Stanley had purchased massive physical oil holdings, including the purchase of TransMontaigne, which managed almost 50 oil sites within the United States and Canada. It also had a majority ownership stake in Heidmar, which “managed a fleet of 100 vessels delivering oil internationally.” Morgan Stanley also owned Olco Petroleum, “which blended oils, sponsored storage facilities, and ran about 200 retail gasoline stations in Canada.” The report raised further concerns as to just what Morgan Stanley had morphed into with this finding: “One of Morgan Stanley’s primary physical oil activities was to store vast quantities of oil in facilities located within the United States and abroad. According to Morgan Stanley, in the New York-New Jersey-Connecticut area alone, by 2011, it had leases on oil storage facilities with a total capacity of 8.2 million barrels, increasing to 9.1 million barrels in 2012, and then decreasing to 7.7 million barrels in 2013. Morgan Stanley also had storage facilities in Europe and Asia. 

Investors Piling into Illiquid Assets to Avoid Discipline of Market Prices -- Yves Smith - The latest “you can’t make this stuff up” ruse on behalf of investors to hide from plunging asset prices is to run for the supposed cover of illiquid assets, where lax valuations allow fund managers to fudge valuations, meaning pretend things are less bad than they are. Not only is choosing to prefer flattering and misleading accounting over economic reality not a wise idea, but virtually all of the illiquid asset classes, like real estate, infrastructure investing, and private equity, rely on the liberal use of borrowed money. That means they are riskier, in investment terms, than those embarrassing, loss-exposing asset types like stocks and bonds. In other words, if the objective were to be retreating from risk, rather than trying to camouflage it, this would be the last place you’d want to go. But Wolf Richter tells us investors are herding to the false cover of so-called “alts” (alternative investments): BlackRock, the world’s largest asset manager, polled 174 of its largest institutional clients, including corporate pension funds (34%), public pension funds (25%), insurers (25%), endowments and foundations (7%), investment managers (6%), official institutions (1%), and others (4%). This might be an adequate sample of all institutional investors. The poll, conducted in December, sought to find out about changes in their asset allocations for 2016. The results are not exactly a vote of confidence for this stock market. “Institutional Investors to Embrace Illiquid Assets….” That’s how the headline of the announcement started out. And they would do so “to combat macro-economic trends, anticipated market volatility, and divergent monetary policy.”….With reductions in equities and bonds, what are they going to buy?“Long-dated illiquid strategies,” that’s where asset allocations are heading. In order of magnitude of the shift: private credit (“over half” plan to increase their portfolios), real assets (53% increase v. 4% decrease), real estate (47% increase v. 9% decrease), and private equity (39% increase v. 9% decrease). Illiquid assets — because they aren’t regularly traded, there is no pricing data — have an advantage over stocks and bonds for institutional investors in these trying times: their losses don’t have to be booked every time a statement goes out. Losses aren’t known, and certainly aren’t disclosed, until years down the road.

The $29 Trillion Corporate Debt Hangover That Could Spark a Recession - There’s been endless speculation in recent weeks about whether the U.S., and the whole world for that matter, are about to sink into recession. Underpinning much of the angst is an unprecedented $29 trillion corporate bond binge that has left many companies more indebted than ever. Whether this debt overhang proves to be a catalyst for recession or not, one thing is clear in talking to credit-market observers: It’s a problem that won’t go away any time soon. Strains are emerging in just about every corner of the global credit market. Credit-rating downgrades account for the biggest chunk of ratings actions since 2009; corporate leverage is at a 12-year high; and perhaps most worrisome, growing numbers of companies -- one third globally -- are failing to generate high enough returns on investments to cover their cost of funding. Pooled together into a single snapshot, the data points show how the seven-year-old global growth model based on cheap credit from central banks is running out of steam. “We’ve never been in a cycle quite like this,” “It’s setting up for an unhappy turn.” While not as pronounced as the rout in global equity markets, losses are beginning to pile up in the bond market too. The average spread over benchmark government yields for highly rated debt has widened to 1.84 percentage points, the most in three years, from 1.18 percentage points in March, according to Bank of America Merrill Lynch indexes. Investors lost 0.2 percent on global corporate bonds in 2015, snapping a string of annual gains that averaged 7.9 percent over the previous six years, the data show. Debt at global companies rated by Standard & Poor’s reached three times earnings before interest, tax, depreciation and amortization in 2015, the highest in data going back to 2003 and up from 2.8 times last year, according to the ratings company. Total debt at listed companies in China, the world’s second-largest economy, has climbed to the highest level in three years, according to data compiled by Bloomberg.

Hedge Funder John Paulson Puts Up His Own Fortune to Save His Firm | Vanity Fair: John Paulson, the hedge-fund manager who profited to the tune of several billion dollars by shorting the 2007 housing bubble, is now in need of his own refinancing. Paulson has been putting up his own wealth to back a line of credit his firm Paulson & Co. has had with HSBC since 2010, Bloomberg reported. It is not uncommon for a fund to establish these lines of credit, which are often used to meet payroll and other routine expenses as an assurance that there will be cash on hand to meet these recurring demands. Paulson & Co. first secured its credit line with the 1 to 2 percent management fee and a 20 percent performance fee the fund collects on profits each year, according to Bloomberg. But Paulson & Co. has hit a dry patch, and the steady flow of fees that once backed the firm’s credit line have dried up. The firm’s assets have tanked 50 percent, falling to $18 billion over the last five years or so, Bloomberg reported. The firm peaked in 2011, managing $38 billion, but investors have since fled. Paulson has put up his own fortune, worth nearly $11.5 billion, according to an estimate from Forbes, to combat the losses and back the firm’s borrowing to keep the credit line open for the short-term cash it relies on. Paulson infamously amassed his fortune as much of the world—Main Street, Wall Street, entire economies—had its decimated. In 2006, with the housing market one strong gust of wind away from implosion and the world on the brink of a total financial collapse, Paulson made a bet against the millions of financially vulnerable Americans who had taken out risky mortgages in order to buy a home of their own. He bought tons of credit-default swaps, investments that insured these risky mortgages, so that when homeowners defaulted and lost everything, Paulson would end up a king.

The corporate savings glut and the economic possibilities of the future - For decades, non-financial corporations were net borrowers from the financial system. If they wanted to hire more workers, expand investment, or acquire another company, they’d have to borrow funds from savers elsewhere in the economy via the financial system. Since 2000, however, the corporate sector has moved from borrowing funds from the rest of the economy to being a net saver. This dramatic transformation, sometimes called the “corporate savings glut,” is something economists and policymakers are still getting a handle on. But if one interpretation of these events is correct, it’s a sign for concern about future economic growth. In a column last week for The New York Times Magazine, Adam Davidson—also a co-founder of NPR’s “Planet Money”—wrote about the tremendous amount of savings U.S. corporations have these days. In total, U.S. corporations are sitting on $1.9 trillion worth of cash. And some of the largest and most-famous companies (Davidson highlights Google, Apple, and General Motors in particular) are holding on to colossal amounts of cash. This immediately raises the question: “Why?” Davidson runs through a number of potential reasons—such as tax avoidance—and finds pretty much all of them lacking. But looking at specific industries that are rewarded by the stock market for holding onto cash, he finds an optimistic message. He thinks that companies are holding on to more cash as a precautionary measure in order to leap onto the next big idea. There’s evidence, however, that exactly the opposite is happening. Think about the other side of the increase in net savings by corporations: the slowdown in investment growth. Since the turn of the century, investment has declined as a share of GDP across the advanced economies of the world. So as firms have held onto more cash, they’ve pulled back on investment.

5 Wall Street Banks Have Lost $219.7 Billion in Market Cap in 7 Months – Pam Martens - Yesterday, the U.S. Treasury’s Office of Financial Research (OFR) released its 2015 Annual Report to Congress. OFR was created under the Dodd-Frank financial reform legislation of 2010 to keep the Financial Stability Oversight Council informed on emerging threats to financial stability in the U.S. Perhaps in an effort not to panic our sleeping Congress, or to further aggravate an already volatile stock market, the report said that “the United States financial system has continued to improve and threats to overall U.S. financial stability remain moderate.” From there, it went on to eviscerate that calm assessment with an endless stream of hair-raising concerns. One of those concerns is the interconnectedness of big Wall Street banks – a matter the OFR released a detailed paper on last February. One fact you won’t find in the OFR report is that five of the biggest banks on Wall Street, which are also interconnected with one another, have seen their market capitalizations melt away like snow cones in July. Citigroup, Bank of America, JPMorgan Chase, Morgan Stanley and Goldman Sachs have cumulatively lost a total of $219.7 billion in market cap over the past seven months. All of the stocks are trading near their 12 month lows. The declines in market cap stack up as follows: Citigroup, down $60.74 billion; Bank of America, down $53.3 billion; JPMorgan Chase, down $47.7 billion; Morgan Stanley, down $30.3 billion; and Goldman Sachs, a decline of $27.7 billion. Not only are all of these Wall Street banks interconnected but they are also sitting with trillions of dollars of exposure to derivatives with the public in the dark as to whom the exposed counterparties are.

Is Bank of America on Life Support?: If the current economic trajectory for global recession holds, and I think it will, one of the victims is going to be Bank of America (BAC). And it probably won't survive. This is not because of any changes with respect to the company's business strategy. It's because no changes have been made. Since the Lehman-era crisis, Bank of America has been dealing with legacy issues, buying loan business by offering much lower interest rates to institutional borrowers on commercial and industrial (C&I) loans than the other money centers, and reducing costs by firing people. That's not a business strategy, though. That's just hunkering down and trying to outwait the economy and business environment with the expectation of "this too will pass." In the first several years following the Lehman era, the "this too will pass" belief was predicated on the Fed stimulus causing an increase in borrowers that would allow for an increase in economic activity and an ability to both absorb the legacy losses and eventually grow the bank again. The biggest problem facing the bank now is that while it waited, the business and substantive loan making opportunities that required a money center to fulfill were divided up among the other three: Wells Fargo (WFC), JPMorgan Chase (JPM) and Citigroup (C).

Announcing the Bank Whistleblowers’ Group’s Initial Proposals - William K. Black -- I am writing to announce the formation of a new group and a policy initiative that we hope many of our readers will support and help publicize.  Gary Aguirre, Bill Black, Richard Bowen, and Michael Winston are the founding members of the Bank Whistleblowers’ Group.  We are all from the general field of finance and we are all whistleblowers who are unemployable in finance and financial regulation because we spoke truth to power and committed the one unforgivable sin of being repeatedly proved correct. Our group is releasing four documents today and they will appear here at NEP over the next couple of days.  The first outlines our proposals, all but one of which could be implemented within 60 days by any newly-elected President (or President Obama) without any new legislation or rulemaking.  Most of our proposals consist of the practical steps a President could implement to restore the rule of law to Wall Street.  As such, we expect that candidates of every party and philosophy will find most of our proposals to be matters that they strongly support and will pledge to implement.The second document fleshes out and explains the proposals.  We ask each candidate to pledge in writing to implement the portions of our plan that they specify to be provisions they support.  Again, we invite President Obama to do the same. The third document asks each candidate to pledge not to take campaign contributions from financial felons.  That group, according to the federal agencies that have investigated them, includes virtually all the largest banks.  The fourth document explains why we formed our group is and contains our bios.  I am personally proud and honored to be associated with my colleagues in this endeavor.  We are (and have been) actively reaching out to encourage other bank whistleblowers to join our group.  The bank whistleblowers share some common traits, but are also highly diverse and we want our group to reflect that full diversity.  We cannot, however, in good conscience fail to act now given the urgency of the problems caused by the collapse of personal accountability for Wall Street elites.  Our economy and our democracy are both imperiled by that collapse and require urgent redress.  Please help us to get our proposals to every candidate, the media, and the public.

Case Sheds Light on Goldman’s Role as Lender in Short Sales - Gretchen Morgenson -- It would be easy to overlook the case against Goldman Sachs filed by the Securities and Exchange Commission on Jan. 14. It involved a complex piece of Wall Street plumbing, led to a minuscule $15 million fine and came on the same day that Goldman agreed to pay up to $5 billion to settle prosecutors’ claims that it sold faulty mortgage securities to investors.  But the smaller settlement merits close study because it sheds light on one of Wall Street’s most secretive and profitable arenas: securities lending and short-selling. Although the firm settled the matter without admitting to or denying the S.E.C.’s allegations, some of Goldman’s customers may now be able to recover damages from the firm, securities lawyers say. Essentially the regulator said Goldman advised its clients that it had performed crucial services for them when it often had not. The $15 million punishment is just petty cash for Goldman, but this case tells us a lot about one of the most important duties that Wall Street firms perform for their clients — executing trades for hedge funds and other large investors. When these clients want to bet against a company’s stock, known as selling it short, they rely on brokerage firms to locate the shares they must borrow and deliver to a buyer. Selling stock short without first locating the shares for delivery is known as naked shorting. It is a violation of Regulation SHO, a 2005 S.E.C. rule. Goldman’s failure meant that some of its clients were unknowingly breaching this important rule. The S.E.C. has said that naked shorting can be abusive and may drive down a company’s shares. Therefore, brokerage firms are barred from accepting orders for short sales unless they have borrowed the stock or have “reasonable grounds” to believe it can be secured.

Goldman Sachs Feeling the Pain of Mortgage Litigation - Call it payback for the Big Short. Goldman Sachs Group Inc. ended 2015 with its third straight quarter of shrinking profits, and the investment bank primarily blamed legal costs associated with its role in selling shoddy mortgage securities during the financial crisis eight years ago. In its latest financial report, released Jan. 20, the bank says noncompensation expenses were $12.36 billion for 2015, a 30 percent jump from 2014, “due to significantly higher net provisions for mortgage-related litigation and regulatory matters.” Specifically, the financial report says net provisions for litigation and regulatory proceedings for 2015 were $4 billion, “compared with only $754 million for 2014, both primarily comprised of net provisions for mortgage-related matters.” And nearly $2 billion of that landed in the fourth quarter.Goldman Sachs spokesman Michael DuVally says the company does not break out for the public how much was spent on outside law firms. He could offer no further details of the legal spending beyond the report. However, the report does say that the bank set aside $1.8 billion in the fourth quarter, and a total of $3.37 billion for 2015, for a settlement with the U.S. Financial Fraud Enforcement Task Force. DuVally could not say if those amounts included outside counsel fees.Goldman Sachs announced the tentative $5 billion settlement on Jan. 14, though the deal is subject to some further negotiation of details with various state and federal authorities.

Elizabeth Warren Denounces Travesty of Government "Settlement" With Goldman Sachs - Criticism of US government leniency on Wall Street legal transgressions is now being covered widely - even by trade publications such as the National Mortgage Professional Magazine. On January 18, the trade publication ran an article about Sen. Elizabeth Warren (D-Massachusetts) condemning the most recent US government settlement with a "too-big-to-fail" financial firm, in this case Goldman Sachs, for illegal abuse of the mortgage market: Sen. Warren used her Facebook page to denounce the agreement, noting that the settlement sum was “barely a fraction of the billions investors lost” while arguing that Goldman Sachs was not properly penalized for its actions. “That’s not justice – it’s a white flag of surrender,” she wrote. “It’s time to end this farce. These companies think they’re above the law – and too many government officials go along with them. A first step would be to pass the bipartisan Truth in Settlements Act to shine more light on these backroom deals. A second step would be to get government officials who have the backbone to fight back.”  Warren’s comments were echoed by the nonprofit U.S. Public Interest Research Group (U.S. PIRG). The publication, which is geared toward professionals in the mortgage industry, also tellingly noted, "In announcing the [$5.1 billion] settlement, Goldman Sachs made no admission of guilt or error, and no executive from the New York-based financial giant will face criminal or civil charges."  As we have noted in this space many times, the seemingly large financial penalties levied on Wall Street firms for illegal activity are not so large, in the context of those firms' budgets: The fines are generally less than the revenue that the firms generated by engaging in the often fraudulent practices in the first place. As The Huffington Post noted in a report on the recent settlement,

U.S. Net Worth Declines By $1.2 Trillion - We have become accustomed to constantly setting new records for U.S. net worth every quarter. Even with slow economic growth, the U.S. has experienced a record-breaking total net worth every quarter since 2012. That string was broken in the third quarter of 2015, according to the recent Flow of Funds section from the Financial Accounts of the United States report by the Federal Reserve. Our collective net worth fell in the third quarter by $1.2 trillion to a total of $85.2 trillion. The drop was attributed to the difficult quarter in the stock market. More than $2.3 trillion in corporate stock value was wiped out during the August market correction, and that loss could not be overcome by increases in other sectors such as the $482 billion in real estate gains. Equities remained relatively flat through the end of the third quarter and began to rise at the beginning of the fourth quarter. Barring an end-of year collapse, this quarterly drop in net worth should be an aberration. As of this writing, the market had experienced a sharp two-day drop, so a fourth-quarter net asset gain is not a given � but it is highly likely. For 2015, the U.S. averaged a net worth of $85.8 trillion, well above the $84.1 trillion registered at the end of the 2014. Barring an economic collapse, we should stay well above that mark. Net worth may have suffered in the third quarter, but the domestic non-financial debt picture looks a bit better compared to the previous quarter. Total domestic outstanding debt (non-financial) at the end of the third quarter was $44.2 trillion, representing a 2% annualized growth. That is down from a 4.6% annualized rate in the second quarter.

Freddie Mac: Mortgage Serious Delinquency rate declined in December, Lowest since September 2008 --Freddie Mac reported that the Single-Family serious delinquency rate declined in December to 1.32%, down from 1.36% in November. Freddie's rate is down from 1.88% in December 2014, and the rate in December was the lowest level since September 2008. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.   These are mortgage loans that are "three monthly payments or more past due or in foreclosure".   Note: Fannie Mae is expected to report early next week.Although the rate is declining, the "normal" serious delinquency rate is under 1%.   The serious delinquency rate has fallen 0.56 percentage points over the last year, and at that rate of improvement, the serious delinquency rate will not be below 1% until the second half of 2016.  So even though delinquencies and distressed sales are declining, I expect an above normal level of Fannie and Freddie distressed sales through 2016 (mostly in judicial foreclosure states).

Tax Credits and Dollars—Playing Charades with Low-Income Housing -- J.D. Alt -- Here is what the HUD.GOV website says about the status of low-income housing in America: “Families who pay more than 30 percent of their income for housing are considered cost burdened and may have difficulty affording necessities such as food, clothing, transportation and medical care. An estimated 12 million renter and homeowner households now pay more than 50 percent of their annual incomes for housing. A family with one full-time worker earning the minimum wage cannot afford the local fair-market rent for a two-bedroom apartment anywhere in the United States.”    This amounts to a significant number of people for whom the existing market-based housing solution simply doesn’t work. For a long time, the federal government has been trying, in various ways and with evolving strategies, to help these citizens be housed. What has evolved to become the predominant current strategy is something called “Low Income Housing Tax Credits” (affectionately referred to as “Lie-Techs.”) From the perspective of modern fiat currency, Lie-Techs, I think, are extremely interesting and revealing of our utter confusion about money. They basically work like this: Each year the federal government declares a certain dollar value of tax credits (a dollar for dollar cancellation of taxes due) and distributes them to the states. The state housing authorities make these federal tax credits available to regional housing developers who bid for the tax credits by submitting proposals to build specific multi-family rental housing projects. Next, the developers form an LLC partnership with investors—usually corporations with significant federal tax burdens. The structure of the LLC is that the corporate investors make a “capital contribution” to the partnership (cash—which is used to pay for the building of the housing project) and receive, in return, 99.9% of the tax credits allocated to the project, plus profits and depreciation write-offs.  Somehow this “process” makes it appear that private investors are financing affordable housing.

MBA: Mortgage Applications Increased in Latest Weekly Survey, Purchase Applications up 22% YoY  - From the MBA: Mortgage Applications Increase as Rates Continue to Drop in Latest MBA Weekly Survey Mortgage applications increased 8.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 22, 2016. This week’s results include an adjustment to account for the Martin Luther King holiday.  ...The Refinance Index increased 11 percent from the previous week. The seasonally adjusted Purchase Index increased 5 percent from one week earlier. The unadjusted Purchase Index increased 0.4 percent compared with the previous week and was 22 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, 4.02 percent, from 4.06 percent, with points decreasing to 0.40 from 0.41 (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 22% higher than a year ago.

Black Knight: House Price Index up 0.1% in November, Up 5.5% year-over-year   Note: Black Knight uses the current month closings only (not a three month average like Case-Shiller or a weighted average like CoreLogic), excludes short sales and REOs, and is not seasonally adjusted. From Black Knight: U.S. home prices rose 0.1% from October, and were up 5.5% on a year-over-year basis
U.S. home prices rose 0.1% from October, and were up 5.5% on a year-over- year basis
This puts national home prices up 27% since the bottom of the market at the start of 2012 and just 5.3% off its June 2006 peak
For the fifth straight month, New York led gains among the states, seeing 1.2% month-over-month appreciation
Ohio and Connecticut topped the list of 10 most negative price movements among the states, with home prices falling by 0.4% from October in each state
California home prices declined for the second straight month, though seasonally adjusted numbers suggest continued but slowing growth for the state
The Black Knight HPI increased 0.1% percent in November, and is off 5.3% from the peak in June 2006 (not adjusted for inflation). The year-over-year increase in the index has been about the same for the last year.

FHFA House Price Index January 26, 2016: Highlights Home prices are solid, up 0.5 percent in November according to FHFA data where the year-on-year rate is plus 5.9 percent. The Mountain states, at plus 10.0 percent, lead FHFA's year-on-year data followed by the Pacific at 8.6 percent and the South Atlantic, at 7.0 percent. The Middle Atlantic, at plus 2.6 percent, is the weakest of the nine regions in this report. The nearly 6 percent year-on-year rate in this report, and similar strength in Case-Shiller data that were also released this morning, isn't gangbusters but it is solid and, in an economy fighting deflationary trends, is a favorable source of price traction.The Federal Housing Finance Agency (FHFA) House Price Index (HPI) covers single-family housing, using data provided by Fannie Mae and Freddie Mac. The House Price Index is derived from transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac.

Case-Shiller: National House Price Index increased 5.3% year-over-year in November - S&P/Case-Shiller released the monthly Home Price Indices for November ("November" is a 3 month average of September, October and November prices). This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities) and the monthly National index.  From S&P:  The S&P/Case-Shiller U.S. National Home Price Index, covering all nine U.S. census divisions, recorded a slightly higher year-over-year gain with a 5.3% annual increase in November 2015 versus a 5.1% increase in October 2015. The 10-City Composite increased 5.3% in the year to November compared to 5.0% previously. The 20-City Composite’s year-over-year gain was 5.8% versus 5.5% reported in October....Before seasonal adjustment, the National Index posted a gain of 0.1% month-over-month in November. The 10- City Composite was unchanged and the 20-City Composite reported gains of 0.1% month-over-month in November. After seasonal adjustment, the National Index, along with the 10-City and 20-City Composites, all increased 0.9% month-over-month in November. Fourteen of 20 cities reported increases in November before seasonal adjustment; after seasonal adjustment, all 20 cities increased for the month.The first graph shows the nominal seasonally adjusted Composite 10, Composite 20 and National indices (the Composite 20 was started in January 2000). The Composite 10 index is off 12.9% from the peak, and up 0.9% in November (SA). The Composite 20 index is off 11.5% from the peak, and up 0.9% (SA) in November. The National index is off 4.3% from the peak, and up 0.9% (SA) in November. The National index is up 29.2% from the post-bubble low set in December 2011 (SA). The second graph shows the Year over year change in all three indices. The Composite 10 SA is up 5.4% compared to November 2014. The Composite 20 SA is up 5.8% year-over-year.. The National index SA is up 5.3% year-over-year. Prices increased (SA) in 20 of the 20 Case-Shiller cities in November seasonally adjusted. (Prices increased in 14 of the 20 cities NSA) Prices in Las Vegas are off 39.0% from the peak. The last graph shows the bubble peak, the post bubble minimum, and current nominal prices relative to January 2000 prices for all the Case-Shiller cities in nominal terms.

Case-Shiller Home Price Index November 2015 Improvement Continues: The non-seasonally adjusted Case-Shiller home price index (20 cities) year-over-year rate of home price growth improved to 5.8 %. The authors of the index say "Home prices extended their gains, supported by continued low mortgage rates, tight supplies and an improving labor market." 20 city unadjusted home price rate of growth accelerated 0.3 % month-over-month. [Econintersect uses the change in year-over-year growth from month-to-month to calculate the change in rate of growth]Comparing all the home price indices, it needs to be understood each of the indices uses a unique methodology in compiling their index - and no index is perfect. The National Association of Realtors normally shows exaggerated movements which likely is due to inclusion of more higher value homes.The way to understand the dynamics of home prices is to watch the direction of the rate of change. Here home price growth generally appears to be stabilizing (rate of growth not rising or falling). Case Shiller's David M. Blitzer, Chairman of the Index Committee at S&P Indices:"Home prices extended their gains, supported by continued low mortgage rates, tight supplies and an improving labor market," says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. "Sales of existing homes were up 6.5% in 2015 vs. 2014, and the number of homes on the market averaged about a 4.8 months' supply during the year; both numbers suggest a seller's market. The consumer portion of the economy is doing well; like housing, automobile sales were quite strong last year. Other parts of the economy are not faring as well. Businesses in the oil and energy sectors are suffering from the 75% drop in oil prices in the last 18 months. Moreover, the strong U.S. dollar is slowing exports. Housing is not large enough to offset all of these weak spots.

Case-Shiller Home Prices Miss For 7th Month In A Row As "Seasonal Adjustments" Dominate Gains -- While the Case-Shiller home price index rose modestly MoM (+0.87%), it continues to disappoint expectations with the 7th consecutive miss in a row. Notably, unadjusted the monthly rise in prices was just 0.1%. Year-over-year gains of 5.8% for the top 20 cities is the fastest price appreciation since July 2014 - thanks once again to seasonal adjustments. 7th miss in a row for the non-seasonally-adjusted data...And the "improvement" in the headline data is all seasonal-adjustments: Before seasonal adjustment, the National Index posted a gain of 0.1% month-over-month in November. The 10-City Composite was unchanged and the 20-City Composite reported gains of 0.1% month-over-month in November. After seasonal adjustment, the National Index, along with the 10-City and 20-City Composites, all increased 0.9% month-over-month in November. Fourteen of 20 cities reported increases in November before seasonal adjustment; after seasonal adjustment, all 20 cities increased for the month. As Case-Shiller notes, “Sales of existing homes were up 6.5% in 2015 vs. 2014, and the number of homes on the market averaged about a 4.8 months’ supply during the year; both numbers suggest a seller’s market. The consumer portion of the economy is doing well; like housing, automobile sales were quite strong last year. Other parts of the economy are not faring as well. Businesses in the oil and energy sectors are suffering from the 75% drop in oil prices in the last 18 months. Moreover, the strong U.S. dollar is slowing exports. Housing is not large enough to offset all of these weak spots."

Real Prices and Price-to-Rent Ratio in November - Here is the earlier post on Case-Shiller: Case-Shiller: National House Price Index increased 5.3% year-over-year in November The year-over-year increase in prices is mostly moving sideways now around 5%. In November 2015, the index was up 5.3% YoY.In the earlier post, I graphed nominal house prices, but it is also important to look at prices in real terms (inflation adjusted).  Case-Shiller, CoreLogic and others report nominal house prices.  As an example, if a house price was $200,000 in January 2000, the price would be close to $274,000 today adjusted for inflation (37%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation). It has been almost ten years since the bubble peak.  In the Case-Shiller release this morning, the National Index was reported as being 4.3% below the bubble peak.   However, in real terms, the National index is still about 18% below the bubble peak. The first graph shows the monthly Case-Shiller National Index SA, the monthly Case-Shiller Composite 20 SA, and the CoreLogic House Price Indexes (through September) in nominal terms as reported. In nominal terms, the Case-Shiller National index (SA) is back to September 2005 levels, and the Case-Shiller Composite 20 Index (SA) is back to May 2005 levels, and the CoreLogic index (NSA) is back to June 2005. Real House Prices The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices. In real terms, the National index is back to November 2003 levels, the Composite 20 index is back to July 2003, and the CoreLogic index back to January 2004. In real terms, house prices are back to 2003 levels. Note: CPI less Shelter is down 0.8% year-over-year, so this has been pushing up real prices recently.This graph shows the price to rent ratio (January 1998 = 1.0). On a price-to-rent basis, the Case-Shiller National index is back to July 2003 levels, the Composite 20 index is back to March 2003 levels, and the CoreLogic index is back to August 2003.

New Home Sales increased to 544,000 Annual Rate in December -- The Census Bureau reports New Home Sales in December were at a seasonally adjusted annual rate (SAAR) of 544 thousand. The previous three months were revised up by a total of 28 thousand (SAAR)."Sales of new single-family houses in December 2015 were at a seasonally adjusted annual rate of 544,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 10.8 percent above the revised November rate of 491,000 and is 9.9 percent above the December 2014 estimate of 495,000.... An estimated 501,000 new homes were sold in 2015. This is 14.5 percent above the 2014 figure of 437,000." The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate. Even with the increase in sales since the bottom, new home sales are still fairly low historically. The second graph shows New Home Months of Supply. The months of supply decreased in December to 5.2 months. The all time record was 12.1 months of supply in January 2009. This is now in the normal range (less than 6 months supply is normal).  Starting in 1973 the Census Bureau broke inventory down into three categories: Not Started, Under Construction, and Completed. The third graph shows the three categories of inventory starting in 1973.The last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate). In December 2015 (red column), 38 thousand new homes were sold (NSA). Last year 35 thousand homes were sold in December.

December 2015 New Home Sales Improve: The headlines say new home sales improved from last month. The rolling averages smooth out much of the uneven data produced in this series - and this month there was an improvement in the rolling averages. As the data is noisy, the 3 month rolling average is the way to look at this data. This data series is suffering from methodology issues. Econintersect analysis:

• unadjusted sales growth decelerated 1.1 % month-over-month (after last month's acceleration of 7.5 %).
• unadjusted year-over-year sales up 8.6 % (Last month was up 9.7 %).  Growth this month average for the range of growth seen last 12 months.
• three month unadjusted trend rate of growth accelerated 4.8 % month-over-month - is up 6.7 % year-over-year.

New Home Sales Surge but Prices Down Sharply; Prices Have Room to Fall; Is Everybody In?  -- December new home sales surged well over the high end Econoday estimate.  The outlook for the housing sector just got a boost from a sharp jump in new home sales, up 10.8 percent to a 544,000 annualized rate that is 44,000 over the Econoday consensus and 24,000 over the high estimate. The gain, however, may have been boosted by discounting as the median price slipped 2.7 percent to $288,900 for a year-on-year rate of minus 4.3 percent.  With builders slow to bring new homes to market, low supply remains a central factor holding back sales. Supply did rise 6,000 in the month to 237,000 but supply relative to sales fell back to 5.2 months from 5.6 months. A reading of 6.0 months is considered to be the balance point between supply and demand.   Regional data show a 32 percent sales surge in the Midwest where the year-on-year rate of 39 percent is the strongest. Sales in the West and Northeast both rose 21 percent in the month with the year-on-year rate in the West, which is a key region for new housing, up 22 percent while the Northeast, which is a very small region in this report, down 6.5 percent on the year. The South, which is the largest region, shows a fractional gain in the month and no change on the year. For full year 2015, new home sales rose 14.7 percent to 501,000 from 437,000 in 2014. Sales of new homes have been noticeably higher than prices, suggesting that prices have room to accelerate. This report follows special strength in existing home sales with both perhaps benefiting from December's warm weather but with both pointing nevertheless to new momentum for 2016. Why did sales surge 39% in the Midwest? Because this was one of the warmest December on record even discounting global warming silliness. Bloomberg calls this "new momentum" for 2016. Indeed it is, but that momentum is negative.  This statement by Bloomberg caught my eye: "Sales of new homes have been noticeably higher than prices, suggesting that prices have room to accelerate." I suggest home prices have room to fall.

New Home Sales Spike To 8 Year Highs, Prices Tumble To 7-Month Lows -- Following existing home sales post-regs change spike, new home sales (after 9 months of missed expectations) soared 10.8% in December to a seasonally-adjusted annualized rate of 544k (smashing expectations of just 500k). This is 1k short of the February 545k highs going back to Feb 2008. Median home prices dropped however (a good thing for affordability but not so much for The Fed's wealth illusion machine) to the lowest since May. Home Sales (SAAR) soar..And the good news (for affordability) is prices tumbled... One wonders where these two lines will converge. Charts: Bloomberg

Comments on December New Home Sales - The new home sales report for December was above expectations, and sales for September, October and November were revised up. Sales were up 9.9% year-over-year in December (SA). Earlier: New Home Sales increased to 544,000 Annual Rate in December. The Census Bureau reported that new home sales in 2015 were 501,000. That is up 14.5% from 437,000 sales in 2014. That is a strong year-over-year gain for 2015. Here is a table showing new home sales and the year-over-year changes since 2005: This graph shows new home sales for 2014 and 2015 by month (Seasonally Adjusted Annual Rate). The year-over-year gains were stronger earlier in 2015. The comparisons in early 2016 will be more difficult. And I expect lower growth this year. Overall 2015 was a solid year for new home sales. And here is another update to the "distressing gap" graph that I first started posting a number of years ago to show the emerging gap caused by distressed sales. Now I'm looking for the gap to close over the next few years. The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through December 2015. This graph starts in 1994, but the relationship has been fairly steady back to the '60s. Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales. I expect existing home sales to move more sideways, and I expect this gap to slowly close, mostly from an increase in new home sales. However, this assumes that the builders will offer some smaller, less expensive homes.

NAR: Pending Home Sales Index increased 0.1% in December, up 4.2% year-over-year  - From the NAR: Pending Home Sales Tick Up in December
The Pending Home Sales Index, a forward-looking indicator based on contract signings, crawled 0.1 percent to 106.8 in December from a downwardly revised 106.7 in November and is now 4.2 percent above December 2014 (102.5). The index has increased year-over-year for 16 consecutive months....The PHSI in the Northeast increased 6.1 percent to 97.8 in December, and is now 15.3 percent above a year ago. In the Midwest the index decreased 1.1 percent to 103.6 in December, but is still 3.6 percent above December 2014. Pending home sales in the South declined 0.5 percent to an index of 119.3 in December but are 1.0 percent higher than last December. The index in the West decreased 2.1 percent in December to 97.5, but remains 3.4 percent above a year ago.  This was below expectations of a 0.8% increase for this index.  Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in January and February.

Home Ownership Remains Near Its Interim Low - Over the last decade the general trend has been consistent: The rate of home ownership continues to decline. The Census Bureau has now released its latest quarterly report with data through Q4. The seasonally adjusted rate for Q4 is 63.7 percent, up slightly from 63.6 in Q3. The nonseasonally adjusted Q4 number is 63.8 percent, slightly above the Q3 number and up from the 63.4 percent interim low in Q2. The Census Bureau has been tracking the nonseasonally adjusted data since 1965. Their seasonally adjusted version only goes back to 1980. Here is a snapshot of the nonseasonally adjusted series with a 4-quarter moving average to highlight the trend. The consensus view is that trend away from home ownership is a result of rising residential real estate prices in general and limited supply of entry level priced homes that would attract first-time buyers. The snapshot below gives us a crude comparison of the US homeownership rate compared to seventeen other countries. Our data source is a subset of the nearly four dozen countries in this Wikipedia entry on home ownership. We included the outliers at the top and bottom, Romania at 95.6% and Switzerland at 44.0%, both as of 2013.  The underlying factors in the chart above are quite complex: Residential real estate affordability, financing options, household income distributions, demographics and cultural values, to mention some of the more obvious.

HVS: Q4 2015 Homeownership and Vacancy Rates --  The Census Bureau released the Residential Vacancies and Homeownership report for Q4 2015.   This report is frequently mentioned by analysts and the media to track household formation, the homeownership rate, and the homeowner and rental vacancy rates.  However, there are serious questions about the accuracy of this survey. This survey might show the trend, but I wouldn't rely on the absolute numbers.  The Census Bureau is investigating the differences between the HVS, ACS and decennial Census, and analysts probably shouldn't use the HVS to estimate the excess vacant supply or household formation, or rely on the homeownership rate, except as a guide to the trend. The Red dots are the decennial Census homeownership rates for April 1st 1990, 2000 and 2010. The HVS homeownership rate increased to 63.8% in Q4, from 63.7% in Q3. I'd put more weight on the decennial Census numbers - and given changing demographics, the homeownership rate is probably close to a bottom. The HVS homeowner vacancy was unchanged at 1.9% in Q4. This has been mostly moving sideways for the last 2+ years.

‘Glimmer of Hope’ That Homeownership Rate Is on the Upswing -  The homeownership rate ticked up slightly in the fourth quarter, bolstering economists’ hopes that it may finally be hitting bottom. The homeownership rate, not seasonally adjusted, ticked up slightly to 63.8% from 63.7% in the third quarter, according to estimates published Thursday by the Commerce Department. It is also up from a 48-year low of 63.4% in the second quarter. “It is certainly a little glimmer of hope that we are hitting bottom,” said Ralph McLaughlin, chief economist at real-estate information company Trulia. One reason the homeownership rate could be ticking up: Some of the 9 million owners who lost their homes to foreclosure, short sale or another distressed event could finally be returning to the market. Mr. McLaughlin pointed to a significant improvement in the homeownership rate among people ages 35 to 44, who were among the worst hit during the foreclosure crisis. The homeownership rate among that group increased to 59.3% from 58.1%. The quarterly estimates are viewed as not terribly reliable by some economists, but they see reason for optimism given that the homeownership rate has risen for two successive quarters. Still, there are a number of reasons not to be too sanguine. The homeownership rate was still down slightly year-over-year, from 64%, not seasonally adjusted, in the fourth quarter of 2014. Seasonally adjusted it has improved more modestly from the bottom, increasing to 63.7% in the fourth quarter from 63.5% in the second quarter.

Gasoline Prices and Exurbia - Here is a quote from an NPR article this morning: $1.22 A Gallon: Cheap Gas Raises Fears Of Urban Sprawl "With the fall of gas prices, in a place like Columbus and most Midwestern cities, it really is going to encourage more sprawl," [Cleve Ricksecker, directs two Downtown Columbus Special Improvement Districts] says. Sprawl can mean more traffic jams and air pollution. But he says only a spike in the price of gas would change the equation when people are making decisions about where to live and work. Lower gasoline prices make exurbia more attractive (people have short memories), and we might see a shift to people buying homes with longer commutes.   In 2008, I wrote a post: Temecula: 15% of homes REO or in Foreclosure. I noted that Temecula was being hit hard by both the housing bust and high gasoline prices: I remember visiting a friend in Temecula about 3 years ago. We were standing in his front yard, and he started telling me what his neighbors did for a living. "A mortgage broker lives there. A real estate agent there. That guy is in construction. Another mortgage broker there" ... and on and on. Over half of the households on his block were dependent on the housing market in way or another.So it is no surprise that the housing bust is hitting Temecula hard.  But look at Temecula on this map. San Diego is far to the south - living in Escondido is a tough enough commute to work in San Diego. And Orange County is an even more difficult drive to the west. Imagine what $5 gasoline will do. Here is that map. Now times are good in exurbia. The housing bust is over and gasoline prices are below $2 per gallon:

Weekly Heating Oil Price Update: Now at $2.11 per Gallon - With winter in full swing, we've been thinking about the cold weather and thus our heating bill. Commodities saw their prices drop in 2015 with a 41% decline in energy. With the warmer weather this holiday season and warmer forecasts thanks to El Niño, heating oil prices will likely continue to drop. We're already seeing lower prices than at this time last year.  We've used data based on the Energy Information Administration (EIA), which publishes price data weekly on home heating oil in 38 states. Unlike natural gas and electricity, home heating oil is provided by independent retailers. The latest price for home heating oil nationwide is $2.11, down a nickel from last week and at its lowest levels since 2009. EIA's heating oil data is seasonal - from October through March. Here's a look at the series since its inception in 1990. Here's a closer look since 2000.

American consumers showing more confidence in economy — A strong job market and low gasoline prices helped boost U.S. consumer confidence again this month. The Conference Board on Tuesday said that its consumer confidence index rose to 98.1 in January from 96.3 in December, the second straight monthly gain. The business research group said Americans were more confident about the future, though their assessment of current economic conditions was unchanged from December. Consumers shrugged off the recent sharp decline in the stock market and signs of economic weakness overseas. “The increase is rather surprising given the volatility in equities in the month,”   “A resilient labor market and low gasoline and utilities prices seem to have offset any negative sentiment stemming from financial markets.” The stock market has been rattled by the impact of China’s persistent economic slowdown and a plunge in the prices of commodities, including oil. From October through December, U.S. employers added a robust average of 284,000 jobs a month. The unemployment rate remained at a seven-year low 5 percent in December. The average price of a gallon of gasoline has reached $1.83 from $2 a month ago, according to AAA.

Final January 2016 Michigan Consumer Sentiment Fractionally Below December: The University of Michigan Final Consumer Sentiment for January came in at 92.0, a 1.3 point decrease from the 93.3 January Preliminary reading and a 0.6 point decrease from the December Final Reading. Investing.com had forecast an even 93.0. Surveys of Consumers chief economist, Richard Curtin makes the following comments: Consumer confidence has remained largely unchanged, as the January reading was just 0.6% below last month's level. The small downward revisions were due to stock market declines that were reflected in the erosion of household wealth, as well as weakened prospects for the national economy. The interviews conducted from last Friday until early this week provide no evidence that the East Coast blizzard influenced the data. To be sure, the overall level of confidence is below last January's peak, but thus far, the decline amounts to just 6.2%, indicating slower growth, not a recession in 2016. Consumers anticipate that the growth slowdown will be accompanied by smaller wage gains and slight increases in unemployment by the end of 2016. Importantly, favorable financial prospects have become dependent on very low inflation. The Fed's success at pushing the inflation rate higher may well exceed wage gains, thus erasing a critical strength in consumers' financial expectations. Consumers will actively demonstrate their resistance by moderating their purchases in the face of price hikes, thus acting to offset the Fed's rationale for higher rates. See the chart below for a long-term perspective on this widely watched indicator. Recessions and real GDP are included to help us evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.

Retail Sales vs. Consumer Confidence; Unwarranted Fed Faith in Wrong Surveys - The consumer conference board does a paper survey every month on consumer confidence. The boards technical notes say "The targeted responding sample size - approximately 3,000 completed questionnaires - has remained essentially unchanged throughout the history of the CCI."  I called up the board with a simple question: How many surveys do you send out to get 3,000 completed questionnaires?  The very snooty person who answered the phone told me to look in the technical notes. However, the information isn't there or I cannot find it. I had already read the technical notes before I called. Besides, my question was quite simple.  The Fed places a lot of faith in this survey. Yellen cites strong consumer confidence frequently, as did Bernanke before her. The numbers are out today. Consumer confidence is up. In general, confidence been high and rising for years.Happy consumers are supposed to be shopping like mad, especially given the collapse in the price of gasoline. Let's investigate those theories from today's Econoday Report. Alleged ties of this survey to consumer spending appear to be a complete bunch of hooey. I keep wondering if paper surveys are part of the problem. Are the people who respond to random paper surveys more likely to be happier than those who don't? The New York Fed also does a survey. The Fed Every month the New York Fed interviews a rolling group of 1200 people to produce a detailed Survey of Consumer Expectations. Here are the results of the Fed's latest survey. Why don't they believe their own survey?

Redbook: US Retail Sales Down 1.4% First 3 Weeks Of Jan Vs Dec: National chain store sales are down in January, falling 1.4% in the first three weeks of the month compared with December, according to Redbook Research's latest indicator of national retail sales released Tuesday. The fall in the index was compared to a targeted 1.2% drop. The Johnson Redbook Index also showed seasonally adjusted sales for the period were up 1.1% from last year. The targeted increase was 1.2%. "The focus on clearance and inventory reshaping continued to make for thin, sporadic activity during the third week, typical of the transitional month of January with its small volumes and volatile conditions," Redbook said. "At discount stores, consumable staples such as drugs, housewares and food were the week's top seller, displacing prime clearance categories like seasonal apparel and consumer electronics. As most retailers enter the final week of the fiscal year, inventories are reported to be clean, easing the transition of spring merchandise." Sales for the week were up 1% from a year earlier. -

How Credit Cards Tax America: How much money did you send your bank this year when you used your credit card? Did you notice that you paid a $400 fee—one of the highest in the world? Paying with a credit card seems simple. You swipe your card, wait a moment, and then grab your groceries and go. Yet behind the scenes, your trip to the grocery store initiates a complicated transaction—a vestige of a time when banks had to communicate by phone. Over the next several days, two banks, Visa or Mastercard, and multiple intermediaries will communicate back and forth until money is moved from your bank to your grocer’s bank. And each bank and middleman charges a fee for their role. You won’t notice this fee. It’s charged to the merchant, and your credit card is seemingly free to use. An issuer probably sent it for free, and promised you free stuff like cash back or airline miles if you use it.  But there’s a reason companies reward you for using credit cards. In America, credit cards are banks’ most profitable lending business. This is the aspect of credit cards that consumer advocates usually criticize: banks charge interest rates of 15% to 20% on $700 billion in outstanding credit card loans. Yet even if you pay your bill on time, Visa, Mastercard, and the banks still make lots of money off you. Every year, they earn more than $40 billion from transaction fees. At 2%, the average credit card fee can seem small. Sixty-three percent of American adults have a credit card, though, even more have debit cards that work similarly, and Americans use both to spend trillions of dollars each year. It adds up.

American Drivers Are Back on the Road in Record-Setting Fashion - An expanding economy and dramatically cheaper gas prices have lured Americans back onto the roads, where they’re racking up record mileage, new data shows. U.S. vehicle-miles traveled surged 4.3% in November 2015 compared with November 2014, the largest increase since 1999, according to the Transportation Department. That put 2015 on pace to become the most heavily traveled year in history. In the 12 months leading up to November, drivers covered 3.14 trillion miles, up 3.6% from the same period in 2014, the highest year-over-year increase since 1997, according to the department. For decades, the number of miles driven reliably increased every year as a growing population and greater access to cars pushed more people on the roads. That changed in 2008, as the recession took hold. Overall vehicle-miles traveled dropped in 2008 and 2009 and struggled to rebound. But a labor market that added roughly 221,000 jobs a month last year and gas prices that skirted the $2-per-gallon mark have all but ensured that 2015 will set a new high point. The uptick in driving comes at a time when fewer young people are getting driver’s licenses even as the share of older people with a license is rising. While it’s possible those younger people could eventually start driving as they age, it could be that driving may be about to lose its allure among younger generations.

Vehical Fuel Economy, 2007 - 2015 - From the University of Michigan: the average sales-weighted fuel-economy rating (window sticker) of purchased new vehicles for October 2007 through December 2015 -- The average sales-weighted fuel economy was calculated from the monthly sales of individual models of light-duty vehicles (cars, SUVs, vans, and pickup trucks) and the combined city/highway fuel-economy ratings published in the EPA Fuel Economy Guide (i.e., window sticker ratings, not actual fuel consumption) for the respective models.  Vehicles purchased from October 2007 through September 2008 were assumed to be model year 2008. Analogous assumptions were made for vehicles purchased in each following model year.  The fuel-economy information was available for 99.7% of vehicles purchased. The period selected by the U of M to highlight is noteworthy in that the data covers exactly the period in which the Bakken boom began in North Dakota (2007) and continues to the end of 2015, a full year in which gasoline prices plummeted.  First the graph and then the table.Regular readers know that there will be a relative shortage of oil in 2017, possibly as early as 2016, as the majors shut down / delay / cancel "big cap" projects in 2014/2015 due to the slump in the price of oil. Now, add that to the fact that auto and light truck manufacturers are out to put every American in a big pick-up truck. Those big pick-up trucks are gas guzzlers.So, a perfect storm for some folks in 2017, maybe in 2016, certainly by 2018. But it gets even better for oil and gas investors (see disclaimer): the CAFE standards that favor big pickup trucks (and possible bigger SUVs) do not change until 2022. The NHTSA says it will look at the rise of big pickup trucks as part of a review of the CAFE rules that will apply to model years 2022 to 2025. That review doesn’t have to be finished until 2018, but the skirmishing has already begun.

Why Lower Gasoline Prices Are Not Stimulating The Economy --Fed officials and financial news reporters are collectively wondering why the economy seems to be slowing down, even though lower oil and gasoline prices ought to be a stimulative factor.  If consumers are spending less of their money on gasoline, then they ought to have more to spend on other stuff, or so goes the reasoning.  So why is it not working?  The problem is one of magnitude, and most analysts fail to take the time to do the math.  The EIA publishes data on consumption for a variety of energy products, including gasoline.  In November 2015 for example (the most recent month for which there are data), Americans consumed gasoline at a rate of 358 million gallons per day.  The 12-month average is 360 million gallons.  That sounds like a really large number, but when you realize that there are roughly 322 million resident Americans, that works out to 1.11 gallons per day for every American.    But the falling prices for automobile fuel are making consumers eschew the more efficient choices, and consume more gasoline.  They are also consuming more diesel, which is not part of these computations, but it is nevertheless a real factor.  Looking at the math, if the price of gasoline drops from $3.00 to $2.00 (round numbers to make the math easier), that means an extra $1.11 in your pocket every day, assuming you are the average man, woman, and child in America.  If you find a dollar on the sidewalk, pick it up and put it in your pocket, are you going to go out and adjust your spending patterns?  Probably not.  But if you found a dollar on the sidewalk every day for a month, or for several months, maybe you will start supersizing your Happy Meal, buying more Pokemon cards, or making other adjustments to your consumption.  This is the point that former Fed Chairman Ben Bernanke made in his famous speech about dropping money from helicopters, a point he borrowed from Milton Friedman.  Aggregating all of those savings, a $1 drop in gasoline prices amounts to around $10.8 billion of supposed stimulus in the form of consumers keeping more of their own money.  That’s $1 multiplied by an average of 360 million gallons per day, times 30 days in an average month.  Now, $10.8 billion per month is a pretty big number, but it is nowhere near the $85 billion per month that the Fed was pumping into the banking system during QE3, for example. 

Vehicle Sales Forecast: Sales to Reach 10-Year High for a January --The automakers will report January vehicle sales on Tuesday, February 2nd. Note:  There were 24 selling days in January, down from 26 in January 2015. From WardsAuto: Forecast: January SAAR Set to Reach 10-Year High A WardsAuto forecast calls for U.S. automakers to deliver 1.13 million light vehicles in January. The resulting daily sales rate (DSR) of 47,126 units, a 10-year high for the month, over 24 days represents a 6.8% improvement from like-2015 (26 days) and a 19.2% month-to-month decline from December (28 days).The 5-year average December-to-January decline is 26%, but the traditional pull-ahead of sales in December was not as strong as expected this time. Lighter deliveries allowed dealers to remain well-stocked with vehicles highest in demand going into January.The report puts the seasonally adjusted annual rate of sales for the month at 17.3 million units, compared with a year-ago’s 16.6 million and December’s 17.2 million. Looks like another solid month for car sales.

Auto Carriers Accused of Bid Rigging and Price Fixing Before Federal Maritime Commission - The Federal Maritime Commission has received a Class Action Complaint filed by Cargo Agents, Inc., International Transport Management, Corp., and RCL Agencies, Inc. against some of the world’s top vehicle transport services providers. The complaint filers are purchasers of vehicle carrier services and allege that the some of the largest providers of deep-sea vehicle transport, names in the complaint, violated provisions of the Shipping Act of 1984, by conspiring “to allocate customers and markets, to rig bids, to restrict supply, and otherwise to raise, fix, stabilize, or maintain prices for vehicle carrier services for shipment to and from the United States, pursuant to agreements between and among them that were not filed with the Federal Maritime Commission.” The carriers charged in the conspiracy are NYK, MOL, World Logistics Service (U.S.A.), Inc., ‘‘K’’ Line, Eukor Car Carriers Inc., Wallenius Wilhelmsen Logistics, CSAV, Hoegh Autoliners, Autotrans, and Nissan Motor Car Carrier Co., and other related entities. The complaining parties request that the FMC investigate and hold hearings on the charges, that the FMC find that the carriers have violated the Shipping Act and commission regulations, that the commission order the carriers to cease and desist from price fixing and bid rigging, and that the complaining companies be awarded damages. The proceeding has been assigned to the Office of Administrative Law Judges. The FMC has announced that an initial decision of the presiding officer will be issued by January 6, 2017 and that a final decision will be issued by July 20, 2017.

December Durable Goods Report Disappoints Expectations - dshort - Advisor Perspectives: The Advance Report on Manufacturers’ Shipments, Inventories and Orders released today gives us a first look at the December durable goods numbers. Here is the Bureau's summary on new orders: New orders for manufactured durable goods in December decreased $12.0 billion or 5.1 percent to $225.4 billion, the U.S. Census Bureau announced today. This decrease, down four of the last five months, followed a 0.5 percent November decrease. Excluding transportation, new orders decreased 1.2 percent. Excluding defense, new orders decreased 2.9 percent. Transportation equipment, also down four of the last five months, led the decrease, $10.1 billion or 12.4 percent to $71.3 billion. Download full PDF The latest new orders headline number at -5.1 percent was below the Investing.com estimate of -0.6 percent. This series is down -0.6 percent year-over-year (YoY). If we exclude transportation, "core" durable goods came in at -1.2 percent month-over-month (MoM), which was below the Investing.com estimate of -0.1% percent. The core measure is down to -3.2 percent YoY. If we exclude both transportation and defense for an even more fundamental "core", the latest number is up at 2.6 percent MoM and is down at -4.0 percent YoY. Core Capital Goods New Orders (nondefense capital goods used in the production of goods or services, excluding aircraft) is an important gauge of business spending, often referred to as Core Capex. It posted a -4.3 percent decline and is down 7.5 percent YoY. For a look at the big picture and an understanding of the relative size of the major components, here is an area chart of Durable Goods New Orders minus Transportation and Defense with those two components stacked on top. We've also included a dotted line to show the relative size of Core Capex.

Inadequate Corporate Investment Falls Even Further  -- Wolf Richter - American corporations borrowed more in the years following the Financial Crisis than ever before. Debt was dirt-cheap even for the riskiest borrowers, and they went out and sold bonds and borrowed from banks, and blew the proceeds on funding operating losses, buy each other out in a record-breaking wave of M&A, and buy back their own shares. And not enough went into productive investments that would help their businesses grow and thrive.This has been one of the reasons the economic recovery has been so crummy. Business investment is crucial, and there just wasn’t enough. And now it’s getting even worse. Orders for non-military capital goods excluding aircraft, a measure of investment in business equipment, fell 4.3% in December on a monthly bases, the sharpest drop in 10 months. They’re down 8.1% year-over-year. This is what companies order to build and expand their businesses, update their technologies and equipment, become more competitive, and move the company forward. These orders, at $65.87 billion in December, were the lowest since October 2013 ($64.1 billion), then September 2012 ($64.5 billion), and November 2011 ($64.47 billion). This was also the lower end of the range in 2006 and 2007, which speaks of long-term stagnation of business investment interrupted by violent cutbacks during the Financial Crisis. Neither QE nor ZIRP that made borrowing historically cheap, nor a soaring stock market, had any positive impact on business investment: The broadest measure, orders of all durable goods, dropped 5.1% in December to $225.4 billion, the lowest since polar-vortex February 2015, and then October 2013. Excluding transportation equipment — volatile aircraft orders plunged 29.4% in December — durable goods orders still fell 1.2%. This pull-back was broad-based and not exactly encouraging.

Durable Goods New Orders Lower in December 2015: The headlines say the durable goods new orders decreased. The three month rolling average improved this month but remains in contraction. This is not a good report. . Econintersect Analysis:

• unadjusted new orders growth decelerated 4.0 % (after accelerating an downwardly revised 3.4 % the previous month) month-over-month , and is down 1.7 % year-over-year.
• the three month rolling average for unadjusted new orders accelerated 0.5 % month-over-month, and down 0.1 % year-over-year.
• Inflation adjusted but otherwise unadjusted new orders are down 2.5 % year-over-year.
• The Federal Reserve's Durable Goods Industrial Production Index (seasonally adjusted) growth accelerating 0.1 % month-over-month, up 0.5 % year-over-year [note that this is a series with moderate backward revision - and it uses production as a pulse point (not new orders or shipments)] - three month trend is decelerating, and has been decelerating for a year..
• unadjusted backlog (unfilled orders) growth accelerated 0.3 % month-over-month, down 1.9 % year-over-year.
• according to the seasonally adjusted data, most of the data was soft - but defense capital goods were the major drag.
• note this is labelled as an advance report - however, backward revisions historically are relatively slight.

December Durable Goods Horrific as New Orders Plunge -5.1% -- The Durable Goods, advance report shows new orders just jumped off of a cliff in December.  New orders plunged -5.1% and even worse, November new orders was revised down to -0.5%.  Not to be outdone, December shipments is also horrific with a -2.2% drop.  Core capital goods new orders also plunged by -4.3%.  Without transportation new orders, which includes aircraft, durable goods new orders would have decreased by -1.2%.  Generally speaking there are numerous disturbing declines in new orders, it is not just aircraft.  Below is a graph of all transportation equipment new orders, which plunged by -12.4% for the month.  Nondefense aircraft & parts new orders dropped by -29.4%.  Aircraft & parts from the defense sector decreased by -60.1%.   Aircraft orders are notoriously volatile.  Motor vehicles and parts declined by -0.4%. Core capital goods new orders decreased by -4.3%.  November's core capital goods new orders increased by -1.1%.  Core capital goods is an investment gauge for the bet the private sector is placing on America's future economic growth and excludes aircraft & parts and defense capital goods.  Capital goods are things like machinery for factories, measurement equipment, truck fleets, computers and so on.  Capital goods are the investment types of products one needs to run a business. and often big ticket items.  A decline in new orders indicates businesses are not reinvesting in themselves.  This month is really horrific in this regard.  Machinery new orders dropped by -5.6%, computers & electronics new orders dropped by -2.0% as communications equipment plunged by -20.5%.  Shipments didn't fare much better and decreased by -2.2% after a November 0.6% increase.  New orders are not necessarily shipped the next month an order is made.  Below is the monthly shipments; percent change for all durable goods shipments. &nbsp:Shipments are part of GDP. Shipments in core capital goods decreased -0.2% after a November -1.1% decline.  The below graph goes back to 1990 to show how core capital goods shipments tracks recessions, the gray bars in the graph.  Inventories, which also contributes to GDP, increased 0.5% after a November -0.2% contraction and a -0.3% October change.  While changes in inventories is in real dollars and durable manufacturing inventories are only part, these figures suggest not to look to inventories to save Q4 GDP.

Durable Goods Devastation: Capital Goods Orders Crash To Fresh Crisis Lows, Scream Recession  -- Durable Goods Orders crashed 5.1% MoM, far below the worst Wall Street forecast.... and turned back negative YoY as both sets including and ex-transports continues to deteriorate, flashing that a recessionary environment is already upon us (if not an actual recession). However, it is in the core - non-defense ex-aircraaft - segment that we see the real bloodbath as shipments plunged and new orders collapsed 7.5% YoY - another "worst since Lehman" moment. Of course we still have bartenders and waitresses to maintain the US economy so this is just transitory weakness in the stock market's most-dependent segment of the economy. Headline data turned back red YoY. Ex-Transports remains in recessionary negative territory. Actual shipments of core capex tumbled along with everything else: And finally the real carnage - capital goods orders are collapsing at the fastest rate since... Lehman. Note that the US economy has never seen a decline like this in recent history without it being in recession, or just ahead of one.

Shocking Crash: Durable Goods Orders Plunge 5.1%, Shipments Drop 2.2%, Huge Negative Revisions; Inventories Rise; Recession Here? -- Crash! Durable goods orders and shipments crashed in December.  The Econoday Consensus Estimate for durable goods new orders was a 0.2% rise. Here are the amazing results.Econoday called the results a "giant thud". The words "giant crash" seem more appropriate. Econoday reports ... The factory sector ended 2015 with a giant thud. Durable goods orders fell 5.1 percent in December vs expectations for a 0.2 percent gain and a low-end estimate of minus 3.0 percent. Aircraft orders didn't help but they weren't the whole cause of the problem as ex-transportation orders fell 1.2 percent vs expectations for no change and a low-end estimate of minus 0.4 percent. Core capital goods, which exclude defense equipment and also aircraft, are especially weak, down 4.3 percent following a 1.1 percent decline in November. Shipments for core capital goods, which are an input into GDP, slipped 0.2 percent following a downward revised 1.1 percent decline in November (initially minus 0.4 percent). Orders for civilian aircraft lead the dismal list, down 29 percent in December. The other main subcomponent for transportation, motor vehicles, also fell, down 0.4 percent in a reminder that vehicle sales were slowing at year end. Capital goods industries show deep declines: machinery down 5.6 percent, computers down 8.7 percent, communications equipment down 21 percent, and fabricated metals down 0.5 percent. Other readings include a surprising 2.2 percent monthly drop in total shipments and a 0.5 percent drop in total unfilled orders. All this weakness isn't a plus for inventories which rose 0.5 percent to lift the inventory-to-shipments ratio sharply, to 1.69 from 1.64. The rise in inventories poses a headwind to the sector and will dampen future shipments as well as employment and is a reminder of the inventory warning in yesterday's FOMC statement.

Why the Manufacturing Contraction Might Not Signal a Recession - Demand for manufactured products sank sharply last year, a rare occurrence outside a recession. But that doesn’t necessarily mean the six-and-a-half-year-old expansion is about to end. Orders for durable goods, long-lasting products such as appliances and machinery, declined 3.5% in 2015 from a year earlier, the Commerce Department said Thursday. The drop is largest annual decline outside a recession on records back to 1992. (It’s only the fifth annual decline in 24 years.) Does that mean the U.S. economy is on the brink of a contraction? Manufacturing data has long been closely watched not just for what it says about factories, but for the signal it sends about demand in the wider economy. If consumers are ordering washing machines, they’re probably spending at restaurants. If businesses are investing in new computers, they’re likely to be hiring. The gauge of durable-goods orders, specifically, is watched as a forward-looking signal because it might take months, or even years, for a car, ship or airplane to be delivered. But it’s possible that manufacturing isn’t the economic fortune teller it once was.Manufacturing is now a relatively small share of the U.S. economy, accounting for just 12% of total output. That makes it about the same size as professional and business services.  In World War II, more than a third of workers held manufacturing jobs. The share remained above 20% into the 1980s. It slipped below 10% during the last recession.

Dallas Fed: "Texas Manufacturing Activity Falls Sharply" in January -  From the Dallas Fed: Texas Manufacturing Activity Falls Sharply Texas factory activity fell sharply in January, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index—a key measure of state manufacturing conditions—dropped 23 points, from 12.7 to -10.2, suggesting output declined this month after growing throughout fourth quarter 2015. Other indexes of current manufacturing activity also indicated contraction in January. The survey’s demand measures—the new orders index and the growth rate of orders index—led the falloff in production with negative readings last month, and these indexes pushed further negative in January. The new orders index edged down to -9.2, and the growth rate of orders index fell to -17.5, its lowest level in a year. The capacity utilization index fell 15 points from 8.1 to -7, and the shipments index also posted a double-digit decline into negative territory, coming in at -11. Perceptions of broader business conditions weakened markedly in January. The general business activity and company outlook indexes fell to their lowest readings since April 2009, when Texas was in recession. The general business activity index fell 13 points to -34.6, and the company outlook index slipped to -19.5. Labor market indicators reflected a decline in January after exhibiting strength in November and December 2015. The employment index dropped from 10.9 to -4.2, with 17 percent of firms noting net hiring and 21 percent noting net layoffs. The hours worked index plummeted 23 points to -9.2, suggesting a sharp pullback in employee hours. Texas manufacturing is in a recession - no surprise with the sharp decline in oil prices.

Texas Economy Collapses - Dallas Fed Survey Crashes To 6-Year Lows As "D" Word Is Uttered - For the 13th month in a row, The Dallas Fed Manufacturing Outlook was contractionary with a stunning -34.6 print following December's already disastrous collapse back to -20.1, post-crisis lows. With "hope" having plunged back into negative territory (-2.2) in December, January saw a complete collapse to -24.0 as one respondent exclaimed, "we expect the continued depression in the oil and gas industry to negatively impact our customer base and result in significant demand reduction." Bloodbath...And its across the board with production, employment, and shipments all collapsing...

Dallas Fed Region Activity Plunges to Lowest Reading Since 2009; Production Collapsed -- Those expecting a bounce in manufacturing following an alleged improvement in the Philadelphia Region were mistaken. In Philadelphia, all that really happened was that things got worse at a decreasing rate.  The Dallas Fed General Activity Index plunged to -34.6 from a revised reading last month of -20.1. The Econoday Consensus Estimate was -14.0 in a range of -17.0 to -10.0. The production index, also plunged. Last month the index was in positive territory at 12/7. It's now -10.2.  Manufacturing data from the Dallas Fed, along with that of the Kansas City Fed, have been offering the most striking evidence of oil-related contraction. Dallas' general activity index came in at an extremely negative score of minus 34.6 for the January report which is the lowest reading since the beginning of the recovery in 2009. New orders are falling deeper into contraction as are unfilled orders. Hours worked are now in the negative column as is employment. And finally falling into contraction -- and in a big way -- is the production index which had through last year, despite long weakness in orders, held in positive ground, but not anymore with the reading at minus 10.2 for a nearly 23 point monthly plunge. Price data in this report remain well into the minus column, at nearly double-digit monthly declines. Manufacturing reports this month have been mixed, with this and Empire State pointing to another buckling but not the most closely followed report, the Philly Fed which is pointing to stability for the sector. Watch for the Richmond Fed report tomorrow and the Kansas City report on Thursday.

"How Bad Can Texas Get?" Goldman Answers - As we showed in November, layoffs in Lone Star land far outrun job losses in any other state: "The Texas recession is only in its early innings," we said on Friday, because we are just now beginning to witness the bankruptcies and shut-ins that will soon become endemic and sweep across the entire US oil patch as revolvers are reigned in and Wall Street suddenly refuses to finance uneconomic producers' funding gaps. So what happens when the pain really begins to hit home in Texas, you ask? And what are the implications for the broader economy considering the state has for years served as a kind of counterbalance to a job market that increasingly resembles a feudal system as opposed to the manufacturing-led middle class utopia American enjoyed five decades ago? Here with some answers is Goldman who sets out to address the US oil patch's burning question: "How bad can Texas get?" The historical episode most similar to today’s ‘lower for longer’ environment is the oil bust of the 1980s, when WTI oil prices fell from $31/bbl in 1984 to $10/bbl in 1986. Given its high exposure to the energy sector, Texas experienced significant stress in the 1980s. The unemployment rate in Texas rose sharply to 9.2% in 1986, an all-time high for the state. Real house prices fell 30% peak to trough, and the number of bankruptcy filings (including both business and non-business filings) more than doubled from 1984 to 1986. The experience of the 1980s has naturally raised concerns over oil and Texas today. When banks reported their 2015Q4 earnings recently, bank executives stated that they are increasing reserves in anticipation of losses in the energy sector. Loans backed by properties in the oil-producing states of Texas, North Dakota, Oklahoma and Louisiana comprise 10% of US commercial mortgage-backed security collateral, so the performance of commercial real estate in these areas is in focus for structured product investors. The office vacancy rate in Houston increased sharply in the early 1980s, likely driven by a combination of two recessions, elevated supplies and the oil price plunge. In 2015, the vacancy rate of Houston office properties also moved up, but remains far below the levels seen in the 1980s. We expect the vacancy rate to climb further over the next few quarters, posing downside risk to loans backed by Houston commercial properties. But we do not think default rates will match the 1980s experience.

Richmond Fed Manufacturing Survey Remains Barely In Expansion in January 2016.: Of the four regional Federal Reserve surveys released to date, three are in contraction and one is in expansion.  The actual survey value was +2 [note that values above zero represent expansion]. Fifth District manufacturing activity grew mildly in January, according to the most recent survey by the Federal Reserve Bank of Richmond. The volume of new orders grew modestly this month, although shipments decreased. Hiring increased at a slightly slower pace compared to last month, although average wages continued to increase at a moderate pace in January, and the average workweek lengthened. Raw materials prices rose at a somewhat slower pace, while prices of finished goods rose at a faster pace than in December. Manufacturers were more optimistic about future business conditions than they were a month ago. Survey participants expected faster growth in shipments and in new orders. Additionally, producers looked for increased capacity utilization and anticipated rising backlogs. Expectations were for longer vendor lead times. Survey participants planned more hiring, along with robust growth in wages and a pickup in the average workweek during the next six months. Firms looked for faster growth in prices paid and prices received over the next six months, although their outlook was below December's expectations. Current Activity Overall, manufacturing activity grew mildly in January, but the growth was slower compared to a month earlier. The composite index lost four points, softening to a nearly flat reading of 2. New orders grew modestly in January, although the index slipped four points from a month earlier to end at 4. In addition, the index for shipments decreased to a reading of −6. Hiring moderated this month. At an index of 9, the indicator finished three points lower compared to last month.

Kansas City Fed Manufacturing Index January 28, 2016: Kansas City manufacturing, along with that of Dallas, are suffering the worst of any regions in the nation's factory contraction. Kansas City came in at minus 9 for the ninth contraction in 10 months. Minus signs sweep nearly all readings including new orders and backlogs which are in extremely deep contraction, at minus 27 and minus 36 respectively. Production is at minus 8 with shipments at minus 7. Employment is at minus 7 with price readings moving deeper into contraction, at minus 14 for raw materials and, ominously for inflation expectations, at minus 15 for finished products. One of the few pluses in the report, ironically, is the index for new export orders which came in at a very modest plus 1. But it's not only exports that have been pulling down the factory sector but also energy equipment, the latter which is especially sinking the nation's energy patch. Though not all early indications on January have been negative, this one certainly is. The order readings in this report point to another repeat of this morning's very disappointing durable goods report.

Kansas City Fed: Regional Manufacturing Activity Declined Further in January - From the Kansas City Fed: Tenth District Manufacturing Activity Fell Again The Federal Reserve Bank of Kansas City released the January Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity fell again in January. “We saw another moderate drop in regional factory activity in January, marking the eleventh straight month of slight to moderate declines,” said Wilkerson. “However, firms remained optimistic that conditions would improve slightly in coming months.” ...The month-over-month composite index was -9 in January, unchanged from -9 in December but down from -1 in November....The employment index was largely unchanged at -15. ...Most future factory indexes were somewhat lower, but on net positive overall. The future composite index was basically unchanged at 5, while the shipments, employment, and new orders for exports indexes increased somewhat. This was the last of the regional Fed surveys for January. Four our of five of the regional surveys indicated contraction in January, especially in the Dallas region (oil prices). Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Kansas City Fed Survey: Moderate Declines in January, Composite Unchanged - The Kansas City Fed Manufacturing Survey business conditions indicator measures activity in the following states: Colorado, Kansas, Nebraska, Oklahoma, Wyoming, western Missouri, and northern New Mexico Quarterly data for this indicator dates back to 1995, but monthly data is only available from 2001. Here is an excerpt from the latest report: According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity fell again in January. "We saw another moderate drop in regional factory activity in January, marking the eleventh straight month of slight to moderate declines," said Wilkerson. "However, firms remained optimistic that conditions would improve slightly in coming months." [Full release here] Here is a snapshot of the complete Kansas City Fed Manufacturing Survey. The three-month moving average, which helps us visualize trends, is back to levels last seen in April.

Chicago PMI Jumps Back in January  The Chicago Business Barometer, also known as the Chicago Purchasing Manager's Index, is similar to the national ISM Manufacturing indicator but at a regional level and is seen by many as an indicator of the larger US economy. It is a composite diffusion indicator, made up of production, new orders, order backlogs, employment, and supplier deliveries compiled through surveys.  The January report for Chicago PMI came in at 55.6, a 12.7 point jump from last month's 42.9. Here is an excerpt from the press release: Chief Economist of MNI Indicators Philip Uglow said, "While the surge in activity in January marks a positive start to the year, it follows significant weakness in the previous two months, with the latest rise not sufficient to offset the previous falls in output and orders. Previously, surges of such magnitude have not been maintained so we would expect to see some easing in February. Still, even if activity does moderate somewhat next month, the latest increase supports the view that GDP will bounce back in Q1 following the expected slowdown in Q4." Let's take a look at the Chicago PMI since its inception.

Chicago PMI increases Sharply, Final January Consumer Sentiment at 92.0 -- Chicago PMI: Jan Chicago Business Barometer Jumps 12.7 Points to 55.6 The Chicago Business Barometer bounced back sharply in January, increasing 12.7 points to 55.6 from 42.9 in December, the highest pace of growth in a year.  “While the surge in activity in January marks a positive start to the year, it follows significant weakness in the previous two months, with the latest rise not sufficient to offset the previous falls in output and orders. Previously, surges of such magnitude have not been maintained so we would expect to see some easing in February. Still, even if activity does moderate somewhat next month, the latest increase supports the view that GDP will bounce back in Q1 following the expected slowdown in Q4.
This was well above the consensus forecast of 45.5. The final University of Michigan consumer sentiment index for January was at 92.0, down from 92.6 in December:  "Consumer confidence has remained largely unchanged, as the January reading was just 0.6% below last month's level. The small downward revisions were due to stock market declines that were reflected in the erosion of household wealth, as well as weakened prospects for the national economy. The interviews conducted from last Friday until early this week provide no evidence that the East Coast blizzard influenced the data."

Chicago PMI Spikes Most Since 1980... Yeah, Seriously - After crashing to post-Lehman lows in December, there was some hope for a bounce in January but this is simply idiotic. Chicago PMI soared 30%  - the most sicne 1980 - from 42.9 (7 year lows) to 55.6 (1 year highs). This was miraculously driven by double-digit and all-time record gains in new orders and order backlogs.As MNI adds, While the surge in activity in January marks a positive start to the year, it follows significant weakness in the previous two months, with the latest rise not sufficient enough to offset theprevious falls in output and orders. On previous occasions, surges of such magnitude have not been maintained. While there is typically a mild seasonal pick up in January, some purchasers noted the "typical 'hockey stick' order cycle was not as steep as in previous years. The uptick in ordering and output was not accompanied by a surge in hiring, though it can lag. Employment, which did not suffer as much during November and December's output downturn, contracted at a slower pace, marking its fourth consecutive contraction.

Weekly carload traffic down nearly 20% | Railway Age: For the week ending Jan. 23, 2016, total U.S. rail traffic was 490,324 carloads and intermodal units, down 10.5% compared with the same week in 2015, the Association of American Railroads (AAR) reported on Jan. 27. U.S. carloads fell nearly 20%, with only one of 10 commodity groups posting an increase. Total carloads for the week ending Jan. 23 were 237,190 carloads, down 19.5% compared with the same week in 2015, while U.S. weekly intermodal volume was 253,134 containers and trailers, down 0.1% compared to 2015. One of the 10 carload commodity groups posted an increase compared with the same week in 2015. It was miscellaneous carloads, up 15.3% to 9,018 carloads. Commodity groups that posted decreases compared with the same week in 2015 included coal, down 35.8% to 74,128 carloads; petroleum and petroleum products, down 19% to 12,409 carloads; and metallic ores and metals, down 16.2% to 19,418 carloads. For the first three weeks of 2016, U.S. railroads reported cumulative volume of 719,081 carloads, down 16.6% from the same point last year; and 775,836 intermodal units, up 2.7% from last year. Total combined U.S. traffic for the first three weeks of 2016 was 1,494,917 carloads and intermodal units, a decrease of 7.6% compared to last year. North American rail volume for the week ending Jan. 23 on 13 reporting U.S., Canadian and Mexican railroads totaled 323,156 carloads, down 17.5% compared with the same week last year, and 324,000 intermodal units, down 0.1% compared with last year. Total combined weekly rail traffic in North America was 647,156 carloads and intermodal units, down 9.6%. North American rail volume for the first three weeks of 2016 was 1,958,155 carloads and intermodal units, down 7% compared with 2015.

U.S. Service Sector Expanded at Slower Pace in December - WSJ: The part of the U.S. economy that covers service industries expanded at the slowest pace in more than a year and a half in December, though underlying signs pointed to stable economic growth. An index of nonmanufacturing activity fell to 55.3 last month, the slowest pace since April 2014, the Institute for Supply Management, a trade group, said Wednesday. The index stood at 55.9 in November. A reading above 50 indicates expansion. The report offered a mixed outlook on the U.S. economy. Service providers—covering everything from hair stylists to financial advisers to physicians—represent between 80% and 90% of the economy. That the sector continues to grow suggests the overall U.S. economy remains stable despite troubles abroad. Last month’s slowdown was likely temporary, reflecting holiday-related factors, said Anthony Nieves, who heads the ISM survey. Supplier deliveries—one of four components of the overall index—jumped earlier in the fall as service companies prepared for holiday business. That led to sharp decline in supplier deliveries in December. The ISM index’s other three components—measuring output, new orders, and hiring—all picked up last month, pointing to steady demand from American households and companies.

US Services Economy Catches Down To Manufacturing - Slumps To Weakest In 13 Months - Following December's disappointing drop in Services PMI data, January's initial print of 53.7 (missing expectations of 54.0) is the weakest since December 2014. It appears the "manufacturing recession doesn't matter" meme was wrong after all. As Markit notes, the survey data paint an inauspicious start to the year for the US economy. Confirming ISM Services drop to May 2014 levels, PMI's drop shows that it appears there is a link between an industrial recession and slowing services... As Markit notes, the survey data paint an inauspicious start to the year for the US economy.“A struggling manufacturing economy is being accompanied by a services sector where growth showed further signs of losing momentum in January even before the bad weather hit. “The data are by no means disastrous, signalling a 1.5% annualised rate of economic growth at the start of the year, but the drop in business confidence to one of its lowest levels for over five years suggests that firms are bracing themselves for worse to come. Worries about financial market volatility, the impact of slower growth overseas, a downturn in the energy sector and uncertainty about higher interest rates all took their toll and set the scene for further weakness in coming months.” “The data are by no means disastrous, signalling a 1.5% annualised rate of economic growth at the start of the year." So the silver lining is - it's not a disaster?

The Missing Startup Recovery - America’s entrepreneurs still hadn’t regained their footing six years after the recession ended, a troubling sign for an economy that once counted on fast-growing startups for employment and ideas. A new report by the Labor Department shows 232,000 establishment “births” in the second quarter of 2015, a slight decline from the prior quarter. Those accounted for 831,000 jobs. As a share of the overall labor market, the number of jobs attributed to such births has fallen noticeably since before the recession, from about 12.5% of the total to a little more than 11%. Commerce Department data, which isn’t as current but reaches back to the 1970s, shows the trend stretching back decades. Overall, of course, the economy has been adding jobs at a steady clip. Opening and expanding private-sector establishments added a seasonally adjusted 7.6 million jobs while those contracting and closing shed 6.7 million during the second quarter of 2015, the Labor Department said. All together, there was a net gain of 829,000 in the three-month span. Every sector except natural resources and mining added jobs. But the apparent loss of dynamism—the decline of startups—has been a puzzle for economists and a potential roadblock for economic growth. The creation and destruction of companies and jobs should, at least in theory, make way for new technology and innovation, allow people to better match their skills to openings and boost productivity.

TPP's Economic Impact Will Be Fewer Jobs, More Inequality, New Study SaysThe Trans-Pacific Partnership meant to create the world’s largest free trade area will cost Canada 58,000 jobs and increase income inequality, says a new U.S. study. Perhaps more surprisingly, the study found that the two largest economies in the TPP — the U.S. and Japan — would actually shrink as a result of the trade deal, and that the deal would result in fewer jobs overall in all the participating countries. Ten years after the TPP were to come into force, Canada’s economy would be 0.28 per cent larger than it would have been without it, the study from Tufts University, near Boston, found.  That amounts to an additional $5 billion in economic activity, on an economy worth some $1.8 trillion today. That boost is only slightly more than the $4.3-billion subsidy the Harper government proposed for the dairy industry, to absorb the shock of an open dairy market. The U.S. economy would be about 0.54 per cent smaller with the TPP, or about US$100 billion smaller. The country would see a net loss of 448,000 jobs due to the agreement.

Mandatory arbitration unfairly tilts the legal system in favor of corporations and employers --Employers are increasingly forcing employees to give up their right to sue in court and to accept private arbitration as their only remedy for violations of statutory and common law rights. Private arbitration can forbid class actions, limit damages, allow the employer to choose the arbitrator, and cut off appeals, resulting in a system unfairly tilted in the employer’s favor. As Stone and Colvin find, employees are much less likely to win in mandatory arbitration than in federal court: employees in mandatory arbitration win only about a fifth of the time (21.4 percent), whereas they win over one-third (36.4 percent) of the time in federal courts. Differences in damages awarded are even greater. The typical award in mandatory arbitration ($36,500) is only 21 percent of the median award in the federal courts ($176,426). While there are additional factors to consider in comparing the two systems, at the outset it is important to recognize that in a simple comparison, mandatory arbitration is massively less favorable to employees than are the courts.

Jobless Claims Fell Last Week But Rise Vs. Year-Earlier Level - New filings fell 16,000 last week to a seasonally adjusted 278,000. That’s an encouraging sign for two reasons: the latest slide pulls claims back from the six-month high in the previous update and pushes filings closer to the multi-decade low of 255,000 from last summer. Unfortunately, the latest decline isn’t enough to keep the year-over-year comparison from rising—the first annual increase, in fact, since last August. The sight of claims rising on a year-over-year basis isn’t a smoking gun for recession risk, courtesy of the low absolute level of filings. We’ve seen annual increases pop up from time to time in recent years but it turned out to be noise in the context of looking or an early recession signal. Ongoing year-over-year increases in the weeks ahead would change the calculus, but for the moment there’s nothing especially ominous here. Next week’s payrolls data for January will provide a crucial clue for adding context to today’s report. Meantime, the big-picture trend still points to economic growth, as per last week’s macro profile of recession risk.

BLS: Unemployment Rate decreased in 25 States in December -- From the BLS: Regional and State Employment and Unemployment Summary Regional and state unemployment rates were little changed in December. Twenty-five states had unemployment rate decreases from November, 14 states had increases, and 11 states and the District of Columbia had no change, the U.S. Bureau of Labor Statistics reported today. ... North Dakota had the lowest jobless rate in December, 2.7 percent, followed by Nebraska and South Dakota, 2.9 percent each. New Mexico had the highest rate, 6.7 percent. Click on graph for larger image. This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). All states are well below the maximum unemployment rate for the recession. The size of the blue bar indicates the amount of improvement. The yellow squares are the lowest unemployment rate per state since 1976. The states are ranked by the highest current unemployment rate. New Mexico, at 6.7%, had the highest state unemployment rate. The second graph shows the number of states (and D.C.) with unemployment rates at or above certain levels since January 2006. At the worst of the employment recession, there were 11 states with an unemployment rate at or above 11% (red). Currently no state has an unemployment rate at or above 7% (light blue); Only eight states are at or above 6% (dark blue).

Hiring rises in 36 US states in December — Employers added jobs in 36 states last month, led by big gains in California, Texas and Florida, evidence that hiring remains solid nationwide. Low oil prices caused job losses in energy-rich states.  The widespread hiring helped push down unemployment rates in 25 states in December, with the sharpest drops occurring in Missouri and Oregon. The unemployment rate doesn’t always decline even when more hiring occurs, because more Americans may start job hunting and push up the rate even as others are hired. Unemployment rates rose in 14 states and were unchanged in 11. California added 60,400 jobs last month, followed by Texas with 24,900 and Florida with 21,900. States with the largest percentage gains were Alaska, where payrolls grew 0.8 percent, followed by Arkansas, South Carolina and Tennessee, all of which saw 0.7 percent increases. Oil-rich states are still shedding jobs, with North Dakota losing 4,000 and Oklahoma 5,100. Nationwide, employers added 292,000 jobs last month and the unemployment rate remained 5 percent for the third straight month. The economy added 2.7 million jobs last year, a solid total but below 2014’s gains of 3.1 million. The two years combined were the best for hiring since 1998-99.  The solid job gains occurred despite slower global growth and a strong dollar that have hurt manufacturing. Americans are still buying homes, and consumer spending has been steady. That is boosting job gains in restaurants, health care and construction.

States heavily reliant on the energy sector had a tough year, but most other states finished 2015 heading in the right direction -Tuesday’s release of December state employment and unemployment data from the Bureau of Labor Statistics capped a year of steady progress for most state labor markets. All but seven states gained jobs in 2015, and all but eight ended the year with lower unemployment than in December 2014. The states that lost jobs were almost exclusively states where the energy sector plays an outsized role in the state economy and where falling energy prices have led to cutbacks in oil and gas production: Alaska, Louisiana, North Dakota, Oklahoma, West Virginia, and Wyoming. Similarly, only two states (New Mexico and West Virginia) had meaningful increases in unemployment over the past year, also likely the product of cutbacks in oil production and coal mining.In the final quarter of the 2015, 43 states and the District of Columbia added jobs, with Idaho (1.8 percent) Arizona (1.6 percent), and Tennessee (1.3 percent) having the largest percentage job growth. During the same period, six states lost jobs, with North Dakota (-1.7 percent), Wyoming (-1.1 percent), and Louisiana (-0.5 percent) posting the largest percentage losses. Over the full year (December 2014 to December 2015), Idaho (4.4 percent), South Carolina (3.3 percent), Utah (3.2 percent), and Oregon (3.0 percent) had particularly strong job growth. Over the same period, the U.S. averaged 1.9 percent job growth. With some exceptions, these states experienced job growth outpacing the national average in all major industry categories. All four states consistently outpaced the national average for growth in education and healthcare, leisure and hospitality, and government employment.

Where the Commodity Glut is Driving Down Jobs - Cheap oil and a squeeze on coal are slicing away at payrolls in what was one of the fastest-growing states and what remains one of the poorest. North Dakota lost 18,800 jobs, or 4% of the total nonfarm payrolls, from December 2014 to December 2015 and West Virginia shed 11,800, or 1.5%, the Labor Department said Tuesday. Wyoming, another state with a significant natural resources sector, also saw big losses. The bulk of the downturn came in the mining sector, which includes activities related to oil, gas and coal extraction. The declines stand in contrast to most other states. Over the year, 43 saw job creation, led by Idaho (4.4%), South Carolina (3.3%) and Utah (3.2%) in percentage terms. Indeed, the broader jobs outlook has been fairly upbeat despite a range of economic crosscurrents. Cheap oil is one of the major economic themes in recent months. Oil prices have been in freefall for more than a year, plunging from more than $100 a barrel as recently as July 2014 to below $30 in recent days. That’s helped consumers but ravaged the oil and gas industry, particularly in states like North Dakota. Coal, meanwhile, has faced competition from cheap natural gas, dwindling overseas demand and tighter environmental rules. The effect is most noticeable in the biggest coal-producing states—West Virginia and Wyoming. Despite the heavy job losses, North Dakota still had the nation’s lowest unemployment rate in December at 2.7%. That may reflect the transient nature of the workforce–people show up when there are jobs and leave when they disappear.

Philly Fed: State Coincident Indexes increased in 39 states in December --From the Philly Fed:  The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for December 2015. In the past month, the indexes increased in 39 states, decreased in seven, and remained stable in four, for a one-month diffusion index of 64. Over the past three months, the indexes increased in 41 states, decreased in seven, and remained stable in two, for a three-month diffusion index of 68.  Note: These are coincident indexes constructed from state employment data.The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average).This is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged). In December, 41 states had increasing activity (including minor increases). Five states have seen declines over the last 6 months, in order they are Wyoming (worst), North Dakota, Alaska, Montana, and Louisiana - mostly due to the decline in oil prices. Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession, and is mostly green now.

Wages fell in 80 of 100 biggest U.S. cities during recovery -  Out of America's 100 largest metro areas, almost each one improved on some measure of economic growth, employment, productivity or average wealth per person. The one red flag: wages. Median wages declined in 80 of those cities between 2009 and 2014, according to a new study released Thursday by the Brookings Institution. The wage declines were more pronounced among minorities than whites. Also, the wage gaps widened between races in cities with economies that ranked high overall. So while almost all of the top 100 cities grew and prospered between 2009 and 2014 on some measures, many struggled to create a more inclusive or stronger economy.  Only eight cities out of the largest 100 saw median wages and employment rates rise while its poverty rate fell. "I was surprised by how few metro areas saw improvement in each of the three measures of economic inclusion," said Richard Shearer, one author of the Brookings report. The three metrics of "economic inclusion" in the Brookings report were: change in median wages, its poverty rate and its employment rate. Denver, San Jose, Calif., Provo, Utah and Charleston, S.C. are among those few metro areas that saw economic inequality decrease overall.

Illinois budget fix: Just don't pay the bills: Halfway through its current fiscal year, still without a budget and locked in a political stalemate with no end in sight, Illinois has come up with an effective way to close its widening budget gap. Just don't pay the bills. As Republican Gov. Bruce Rauner Wednesday prepared to deliver his annual state of the state speech to a legislature controlled by Democrats, there was little sign that a long-running, fiercely fought budget battle is any closer to resolution. The state's budget for the current fiscal year should have taken effect July 1, but Rauner rejected the original plan offered by Democratic lawmakers. Instead, he has held out for a budget deal that includes reforms such as curbing union powers, setting term limits for lawmakers and cutting costs for businesses. Many states, meanwhile, are already at work on next year's budget. (Pennsylvania is the only other state still operating without a completed budget.) The Illinois budget impasse is further complicated by a wide shortfall in revenues needed to pay for the roughly $34 billion in spending approved in last year's budget. That shortfall amounts to about $4 billion, or 12 percent of state spending; a series of tax cuts that took effect a year ago have cut revenues by about $3.6 billion, 20 percent, through June 30, Moody's estimates.

New Mexico lobbyists dole out $750K in campaign donations  — Lobbyists and their clients handed out about $750,000 in campaign contributions to New Mexico lawmakers, Gov. Susana Martinez and others in the months leading up to this year’s legislative session, according to the latest disclosure reports. The contributions were in addition to nearly $90,000 spent by lobbyists since last spring for food, drinks, gifts and entertainment for lawmakers and other state officials. The disclosures submitted to the secretary of state’s office cover contributions and spending from May through Jan. 15 and are the first reports to be filed after the office issued guidelines aimed at increasing transparency within the state’s campaign finance reporting system.

Zephyr Teachout Announces Bid for New York Congressional Seat - — Zephyr Teachout has a name that can be both hard to remember and, for Gov. Andrew M. Cuomo, probably hard to forget.In 2014, Ms. Teachout’s grass-roots campaign for the Democratic nomination for governor proved embarrassingly potent to Mr. Cuomo, who — despite incumbency, millions in the bank and a famous political pedigree — won only 63 percent of the vote.Mr. Cuomo went on to handily win a second term that fall, but Ms. Teachout’s campaign was widely seen as a victory by liberals who had been frustrated by the governor’s often centrist policies. It also apparently gave Ms. Teachout, a Fordham law professor who had not previously run for office, a taste for politics.On Monday, Ms. Teachout, 44, announced her candidacy for New York’s 19th Congressional District, adding a decidedly liberal voice to what is shaping up to be one of the state’s more competitive congressional campaigns.Continue reading the main story In an interview, Ms. Teachout said she was running to “stand up for ordinary people who have been shut out of the political system,” while promising to travel all over the large district — comprising parts of 11 upstate and Hudson Valley counties — to get her message out.

S&P slashes Atlantic City credit rating four notches deeper into junk | Reuters: Atlantic City, New Jersey's distressed gambling hub, had its credit rating cut four notches deeper into junk territory on Friday on the likelihood of a debt default in the next six months. Standard & Poor's Ratings Services issued the super-downgrade of the city's bonds, to 'CCC-' from 'B,' because a default or distressed exchange or redemption "appears to be inevitable" unless there is an "unforeseen positive development," said S&P analyst Timothy Little in a comment. The city's cash flow will run dry by April unless the state takes extraordinary action to help. However, on Tuesday Governor Chris Christie vetoed legislation that had aimed to stabilize the city's property tax base and boost its current cash flow. He also shot down a bill that would have redirected funds to pay debt service specifically. S&P's rating could be cut further, he said, if the city files for municipal bankruptcy, which local officials are scheduled to consider at an emergency City Council meeting next week.

UN Experts Catalog Seemingly Endless List of Racial Discrimination in US - From being victims of police killings to facing barriers to educational and health equity, African Americans are facing "systemic racial discrimination" and deserve reparatory justice, a United Nations working group said Friday. Having just completed an 11-day mission with visits to Washington D.C., Baltimore, Jackson, Miss., Chicago and New York City, the five-member Working Group of Experts on People of African Descent say they are "extremely concerned about the human rights situation of African Americans." The statement comes from their preliminary findings after hearing from state and federal officials, as well as individuals and civil society organizations. "Despite substantial changes since the end of the enforcement of Jim Crow and the fight for civil rights, ideology ensuring the domination of one group over another continues to negatively impact the civil, political, economic, social, cultural, and environmental rights of African Americans today," said human rights expert and working group head Mireille Fanon Mendes France. "The persistent gap in almost all the human development indicators, such as life expectancy, income and wealth, level of education, housing, employment and labour, and even food security, among African Americans and the rest of the US population, reflects the level of structural discrimination that creates de facto barriers for people of African descent to fully exercise their human rights,"

A Task Force Just Explained How to Cut the US Federal Prison Population -   Two years ago, the United States Congress appointed a bipartisan panel, the Charles Colson Task Force on Federal Corrections, to develop practical, data-driven ideas for enhancing public safety and creating a more just and efficient prison system. On Tuesday, Colson's namesake took a step toward that goal, releasing a report recommending a reduction in the number of US federal prison inmates by 60,000 over the next decade. Criminal justice reformers won't exactly be shocked that the report found mandatory-minimum sentences for drug crimes to be "the primary driver" of prison overcrowding, and suggested such sentences be only dished out only to the most violent criminals. The authors also found a whopping 80 percent of inmates convicted of drug crimes had no prior records or criminal history, and encouraged Congress to offer a path for prisoners who've served more than 15 years to have their cases looked at again. "The task force's recommendations go further than any sentencing reform bill in Congress does and line up with the opinion of almost 80 percent of voters—mandatory minimum drug sentences should become a thing of the past," Molly Gill, government affairs counsel at the advocacy group Families Against Mandatory Minimums, told me in an email. "The punishment should fit the crime and the individual. The task force remembers that important American value, which has been utterly lost in the federal criminal justice system. I hope the bipartisan recommendations add wind to the sails of the reform efforts pending in Congress."

Obama bans solitary confinement for juveniles in federal prisons - U.S. President Barack Obama in an opinion piece published in the Washington Post on Monday announced that he is banning solitary confinement for juveniles in federal prisons, citing concerns about its harmful psychological effects. The move comes amid a national movement demanding criminal justice reform, which was sparked by numerous high-profile police killings in recent years. In the opinion piece, Obama also said solitary confinement could no longer be used as a punishment for low-level infractions. He said the package of changes would include an expansion of treatment for mentally ill prisoners and an increase in the amount of time inmates in solitary can spend outside of their cells. He said the changes would affect some 10,000 federal prisoners and stemmed from a review of the practice he directed the U.S. Justice Department to conduct last summer.  Obama said research suggests solitary confinement has been linked to depression, alienation, withdrawal, a reduced ability to interact with others and the potential for violent behavior.

The continued surveillance of poor black kids -- Cathy O’Neil -- There’s a new data-driven app out there called Kinvolved, featured this morning in the New York Times, and it’s exactly my worst fear. It tracks Harlem school children’s whereabouts, sending text messages to parents when they are tardy or absent from school.   When you look at the user agreement, it seems to say that the data is relatively safe and presumably not available for resale to marketers, but they also say they are allowed to change the agreement at any time. Here’s my specific fear: what about when they go out of business? I’m thinking the data might be valuable at that point, and their investors might want some money back. And there’s a market, too: data brokers would love to get their grubby little hands on such data to add a layer to their profiles of poor black and brown kids. This is a situation where FERPA, which is the federal child privacy law, is clearly not strong enough. Right now FERPA allows Kinvolved to be designated as “school officials” who have a “legitimate interest” in using and accessing any education records. And once they have that data, I don’t think there are real constraints to its use.

Teacher assistants in the Mississippi Delta have an enviable job. Also, they earn $9 an hour.  —Every weekday morning, Jasmine Riley, a single parent, drops her three children off at day care and school by 7:30 a.m. so she can start a long day as a teaching assistant at Greenville’s McBride Pre-K Academy. Despite the long hours and low pay—she makes just under $21,000 a year—Riley has an enviable situation compared with many residents of the Mississippi Delta. She can pay most of her bills, works a family-friendly calendar, has health insurance, and might soon pull herself into the middle class—if her studying pays off and she can move from teaching assistant to teacher.    Throughout many parts of the Delta, teaching assistant jobs attract scores of candidates; a vacant position can draw upward of 75 applicants. The jobs provide one of the few ways many families can break free from generational poverty,  Teaching assistants “feel like, ‘If I go into this, this is not just a job, this is a career, and I can start to break down some of the barriers that have kept my family down for so long.’ ” Williams says, “They’re proud of it. .... It’s a noble job.” The stature a job that pays as little as $9.04 per hour has speaks depressingly to the severe economic degradation of large swaths of rural America, where limited public sector and fast-food jobs can be practically all that’s available. It also demonstrates the pivotal role that teaching continues to play as a path to the middle class, particularly for black women. But as the experiences of several Mississippi Delta teaching assistants show, that path can be winding, and those on it are by no means guaranteed to reach its terminus. In many instances, the middle class remains an elusive destination in these communities, even for those willing to work hard and pursue higher degrees.

Chicago school bond sale may attract unusual investors | Reuters: Chicago's struggling public school district could lure hedge funds and other investors with an unusual opportunity to buy high-yield municipal assets while pivoting attention away from Puerto Rico's distressed debts. The Chicago Board of Education's $875 million bond issue next week comes as the nation's third-largest public school system struggles with a structural budget deficit of at least $1 billion. Rated below investment-grade, the Chicago Board of Education is likely to attract a new class of investors not typical to the municipal bond market. The new deal may see interest from hedge funds and private equity funds, taxable investors who do not necessarily benefit from tax-exempt paper, said Michael Comes, portfolio manager and vice president research at Cumberland Advisors. “This is similar to what happened in Puerto Rico, where it shut itself out of the muni market,” said Comes. “I think we’re at the cusp of that with the Chicago Board of Education deal.” This week, Republican legislators pushed the idea of a state takeover and potential bankruptcy plan, a proposal favored by Illinois Governor Bruce Rauner but quickly shot down by Democrats who control the legislature. Such distress signs also caught the attention of municipal bond insurers such as Assured Guaranty, MBIA, and Ambac Financial Group, which have until now been focusing intently on developments in Puerto Rico. But news from Illinois served “as a reminder that there are multiple drivers of the insurers’ share prices,”

Chicago Board of Education Yanks $875 Million Bond Sale Over 7.75% Yield; Five Questions for Chicago - On Wednesday, the Chicago Board of education pulled the plug on a proposed $875 Million Bond Sale.  Facing hefty yields, the financially ailing Chicago Public Schools (CPS) postponed Wednesday's planned $875 million bond sale and will evaluate the timing on a day-to-day basis, a school official said.  The nation's third-largest public school system is struggling with a structural budget deficit of at least $1 billion. Its fiscal woes led Illinois Governor Bruce Rauner and Republican lawmakers last week to push for a state takeover and potential bankruptcy for CPS - moves that were quickly shot down by Chicago Mayor Rahm Emanuel, who controls the school system, and leaders of the Democratic-controlled legislature.  A pre-pricing marketing scale circulated by underwriters on Tuesday for the "junk"-rated general obligation bonds showed yields topping out at 7.75 percent with coupons of 7.25 percent for bonds due in 2041 and 7 percent for bonds due in 2044. That yield indicated a so-called credit spread over Municipal Market Data's benchmark triple-A yield scale of as much as 506 basis points.That spread was wider than the 464 basis-point spread the school system's 19-year bonds were fetching in secondary market trading last week. Five Questions for Chicago:

1. Will the yields be any lower tomorrow? Next week? Why?
2. How the heck is the school district going to close a hole of at least $1 billion?
3. Will Emanuel push for yet another massive tax hike just to pay teacher pensions?
4. How can another tax hike do anything but postpone the problem?
5. Since the most likely outcome is bankruptcy, why was the yield offering so good?

Delayed Chicago school bond sale tainted by bankruptcy talk | Reuters: The Chicago Public Schools (CPS) postponed Wednesday's planned $875 million bond sale that became tainted by bankruptcy talk for the financially ailing district. Carole Brown, the city of Chicago's chief financial officer, said the delay will give investors more time to evaluate the district's credit and the structure and terms of the "junk"-rated general obligation bond deal. "There will be a 'go, no go' decision evaluation day-to-day until they're in the market," she told reporters on a conference call. A proposal pushed by Illinois Republican lawmakers last week for a state takeover and potential bankruptcy filing for the school system made some investors skittish. Governor Bruce Rauner backed the proposal. Nicholos Venditti, a portfolio manager at Thornburg Investment Management, said investors became concerned about how much they could recover on their investment should the district file for bankruptcy, which is currently not authorized by Illinois law. "Bankruptcy talk a week ago is probably the biggest mistake that could ever been made," he said.

Last-Minute Deal Delay Raises Concerns on Chicago Schools - The Bond Buyer: – The Chicago Public Schools stirred up more uncertainty when the junk-rated district yanked a $875 million general obligation bond sale from Wednesday's negotiated offerings, moving it to the day-to-day calendar. The district's finance officials said the decision was made to give investors more time to digest the deal and the underwriting syndicate time to tinker with an accommodating structure. Market participants said while some borrowers – especially troubled, high yield credits -- have made a similar 11th-hour decision, they described such a delay after a marketing blitz and release of the pre-marketing scale as a rarity and a clear illustration of the district's deep fiscal distress. The Chicago Board of Education had intended to sell $795 million of tax-exempt securities and $89 million of taxable paper. JPMorgan is the bookrunner and Barclays is also a senior manager with another 10 firms rounding out the syndicate. The deal was slated to sell after a fresh round of rating downgrades last week, which also saw the General Assembly's GOP minority leadership announce legislation backed by Gov. Bruce Rauner to put the district under state oversight and put it on a possible path to bankruptcy.

Teachers would pay more toward pensions under city's latest contract offer: Chicago Public Schools' contract offer to teachers would bar layoffs, cap the number of privately run charter schools and provide moderate pay increases as part of a four-year deal, sources familiar with the negotiations confirmed Friday. In exchange for those provisions, teachers would have to pay more toward their pensions and make higher heath care contributions, sources said. After more than a year of negotiations, the Chicago Teachers Union on Thursday agreed to take the city's latest offer to its "Big Bargaining Team," a group of 40 members who help guide the negotiations process, for a Monday vote. If the bargaining team votes to accept a tentative agreement, CTU President Karen Lewis would present the deal to the union's House of Delegates for a vote to accept the contract. The House of Delegates, made up of hundreds of union members, is scheduled to meet Wednesday. Inking a four-year contract with the city's 27,000 teachers and school support staff would remove a major near-term obstacle for Mayor Rahm Emanuel as he continues to deal with fallout from the release of the Laquan McDonald police shooting video. Under the city's latest offer, CPS would not be allowed to make any "economic layoffs" through the end of the contract's term in 2019, sources said. The district could, however, eliminate jobs through retirements and attrition, a source said.

Racially charged Facebook posts by DOE leader vanish after our questions -- Look at the Facebook postings below from an associate superintendent with the Georgia Department of Education. (Heed the warning first about offensive images.) Are the comments and images appropriate for an official of the state of Georgia to post himself or allow to be posted on his public Facebook page, which anyone can access?A concerned reader notified us of these posts by Jeremy Spencer, the associate superintendent of virtual instruction for DOE and the twin brother of state Rep. Jason Spencer, R-Woodbine. Before joining DOE, Spencer was a high school teacher in southeast Georgia.You can read here about Richard Woods‘ hiring of Spencer last year for the $138,000-a-year associate superintendent job.Spencer identifies himself as a DOE leader on his Facebook page and shares DOE news and announcements among his posts about minorities, guns, deportation of immigrants, Ted Cruz and Donald Trump. Many of Spencer’s posts speak directly to Georgia educators about DOE issues and programs, so he was aware his Facebook page was being read by teachers around the state.A note before you continue: There is a disturbing lynching image someone shared in response to an anti-Obama cartoon Spencer posted on Nov. 19.Let me stress: Spencer did not post the lynching photo, but he controls the content that appears on his Facebook page and did not remove the photo, which was displayed for more than two months.

Rethinking College Admissions - Over recent years there’s been a steady escalation of concern about the admissions process at the most revered, selective American colleges. And little by little, those colleges have made tweaks.But I get the thrilling sense that something bigger is about to give.The best evidence is a report to be released on Wednesday. I received an advance copy. Titled “Turning the Tide,” it’s the work primarily of the Harvard Graduate School of Education, though scores of educators — including the presidents and deans of admission at many of the country’s elite institutions of higher education — contributed to or endorsed it. Top administrators from Yale, M.I.T. and the University of Michigan are scheduled to participate in a news conference at which it’s unveiled.  “Turning the Tide” sagely reflects on what’s wrong with admissions and rightly calls for a revolution, including specific suggestions. It could make a real difference not just because it has widespread backing but also because it nails the way in which society in general — and children in particular — are badly served by the status quo. Focused on certain markers and metrics, the admissions process warps the values of students drawn into a competitive frenzy. It jeopardizes their mental health. And it fails to include — and identify the potential in — enough kids from less privileged backgrounds. “It’s really time to say ‘enough,’ stop wringing our hands and figure out some collective action,” Richard Weissbourd, a senior lecturer at Harvard’s education school, told me. “It’s a pivot point.”

College application questions about police contact under scrutiny | Reuters: U.S. colleges and universities that ask applicants to disclose run-ins with law enforcement including stops and detentions are facing scrutiny from a legal advocacy group concerned the practice discriminates against minorities. The Lawyers' Committee for Civil Rights Under Law said it began contacting 17 schools in the South on Thursday about their practice of asking prospective students to detail interactions with the criminal justice system even if they have not been convicted. The organization believes schools nationally have similar policies that may disproportionately affect minority males. "Inquiries regarding stops and detentions and arrests pose unnecessary barriers for vast numbers of African Americans, given the racial disparities that we see across our criminal justice system," said Kristen Clarke, president and executive director of the nonprofit advocacy group based in Washington, D.C. She said asking about such interactions, some of which may have been dismissed by courts, has "no predictive value whatsoever on whether or not a kid can succeed in a classroom."

The sad reality of gender bias among college students -- Graphic of the Day (From The Economist): Conclusion: Economics professors are horribly brilliant (or is it brilliantly horrible?) My experience is that students either love or hate economics.  So the contrast here doesn't surprise me.  But I think there is a more important, and troubling, conclusion to draw from this:  Female professors are universally more horrible and less brilliant than male professors. It is time to recognize the reality and ban females from the classroom. We need to stop this unjust and unfair treatment of students and reform our education system to ensure our students are getting the education they deserve, from the professors best equipped to teach them.  The male professors. Of course I am being facetious. Students rate female professors lower independent of the quality of teaching.  Why? Well...I don't know why.  But there is evidence that this is the case.  A faculty member in our department (who happens to be female), forwarded me this article from NPR last week.  The conclusion is stark: A new study argues that student evaluations are systematically biased against women — so much so, in fact, that they're better mirrors of gender bias than of what they are supposed to be measuring: teaching quality. The evidence? The French students were, in effect, randomly assigned to either male or female section leaders in a wide range of required courses. In this case, the study authors found, male French students rated male instructors more highly across the board. Is it bias? Or were the male instructors, maybe, actually, on average, better teachers? (It's science; we have to ask the uncomfortable questions.) Well, turns out that, at this university, all students across all sections of a course take the same, anonymously graded final exam, regardless of which instructor they have. In fact, they found, the students of male instructors on average did slightly worse on the final. Overall, there was no correlation between students rating their instructors more highly and those students actually learning more.

The Job Market for Recent College Graduates - NY Fed -  Many newly minted college graduates entering the labor market in the wake of the Great Recession have had a tough time finding good jobs. But just how difficult has it been, and are things getting better? And for which graduates? These questions can be difficult to answer because timely information on the employment prospects of college graduates has been hard to come by. To address this gap, today we are launching a new interactive web feature to provide data on a wide range of job market metrics for recent college graduates, including trends in unemployment rates, underemployment rates, and wages. We also provide data on the demand for college-educated workers, as well as differences in labor market outcomes across college majors. These data will be updated regularly and are available for download.  The website contains a series of interactive charts that focus on four aspects of the labor market for college graduates.

• Unemployment: We provide a chart that shows the unemployment rate over time for recent graduates compared with a number of other groups, such as similarly aged workers without a college degree.
• Underemployment: We also include charts plotting the underemployment rate—that is, the share of college graduates working in jobs that typically don’t require a college degree—and trends in the types of jobs held by those who are underemployed.
• Wages: Another chart shows the median wage earned by recent college graduates compared with individuals who only have a high school diploma, as well as some information about the distribution of earnings for recent college graduates.
• Demand: Finally, we provide a chart that tracks the demand for college graduates, as measured by online job advertisements.

Richest US universities reel in donors The US’s richest universities are winning an increasingly large share of donors’ money and enjoying better investment returns on their endowments than are other institutions, according to new surveys. A record $40.3bn was raised by US colleges and universities in 2015, according to the Council for Aid to Education, but 18 per cent of that went to just 10 institutions — and Stanford University alone raised $1.63bn. The CAE study was released on Wednesday, the same day the National Association of College and University Business Officers (Nacubo) said that the largest endowments returned an average 4.3 per cent in the most recent financial year, compared with a 2.3 per cent average for the sector. Evidence of the increasing concentration of wealth among elite institutions will stoke a debate about the best places for wealthy individuals to direct their philanthropy at a time of concern about inequality. While opponents argue that giving to elite schools perpetuates inequality, many donors say their money supports scholarships and other programmes to widen access. “When donors give money to support academic activity, endow chairs and build buildings that house laboratories or classrooms, that means we do not have to cover the cost of those things through tuition,” said John Walda, chief executive of Nacubo. The 18 per cent share taken by the top 10 is the highest on record, up from 15 per cent in 2000. After Stanford, Harvard was the next most effective fundraiser in 2015, with a $1.05bn haul. The pair have held the top two spots in the CAE survey for 14 of the past 16 years.

The Self-Serving Apologists For Student Debt-Serfdom -- Mankiw's claim that college costs are the inevitable result of Baumol's Disease is pure self-serving rubbish.  Everyone who isn't blinded by self-interest sees that the cost of higher education in America--and the way we pay for it, by turning students into debt-serfs-- is unsustainable. Those benefiting richly from the bloated, ineffective bureaucracy see no alternative, of course; their self-serving handwringing would be laughable if it wasn't so destructive to the nation and the economy. Greg Mankiw, professor at Harvard, recently offered up a typical helping of self-serving handwringing: Three Reasons for Those Hefty College Tuition Bills. Mankiw squeezes out a few insincere (but necessary for PR purposes) alligator tears over the soaring costs of a college degree, and then trots out the usual justifications for maintaining the status quo, which just so happens to reward him so well. Let's dismantle his bogus justifications one by one.  Mankiw predictably trots out the Gold Standard of justifying the absurdly high cost of an often-ineffective and useless college degree: those with college degrees earn $1.5 million more over a lifetime of work than those without degrees. But this data is completely out of date. Yes, a college degree offered substantial lifetime wage increases back when four years of college cost about as much as a new car, not a new house, i.e. the current cost; but as recent graduates have discovered, a four-year college degree offers little advantage, and substantially underperforms journey-person wages for skilled trades workers such as pipefitters, plumbers, etc. The exception is of course highly technical degrees in engineering, computer science, biotechnology, etc. But this reality has led to a systemic over-supply of graduates with STEM degrees (science, technology, engineering, math), as the economy does not create paid positions in these fields simply because more people have studied these subjects. As I often note here (and in my book that proposes a much cheaper and more effective system of higher education, The Nearly Free University and the Emerging Economy: The Revolution in Higher Education), employers can only hire employees if the business will earn a profit from their labor--and opportunities to earn a profit in STEM fields are not as abundant as boosters of the status quo claim.

Chart Of The Day: $17 Trillion In Student Debt By 2030 – (infographic) Student Loan Debt is a cancer for our society. This misconception that getting a college education equals a steady career has been dashed by the recession. For-profit colleges pray on undereducated and low-income individuals. Text book prices have risen exponentially while the cost of a quality education has as well.

California on the hook for $74 Billion in health care costs for retirees : California’s taxpayers are staring at a bill of $74.1 billion to pay for health and dental benefits for retired public employees, says state Controller Betty Yee. This so-called “unfunded liability” is a closely watched figure that represents the present-day cost to provide retiree health and dental benefits earned as of June 30, 2015 – one of the state’s largest long-term debts. The total liability grew $2.38 billion compared to the prior fiscal year, but the size of the increase was $1.50 billion less than estimated in last year’s report. Health care claims did not grow as rapidly as expected, and changes in health care delivery and assumptions about long-term trends helped to lower costs by $1.76 billion. Conversely, demographic shifts added more than a quarter billion dollars to the liability. These costs have increased dramatically over the past 15 years. In 2001, retiree health care costs accounted for 0.6 percent of the state General Fund budget. This year, they will total $1.90 billion, or about 1.6 percent of the budget, says Ms. Yee. The state traditionally paid these costs as they came due rather than setting aside and investing money beforehand. If no changes are made to the state’s method of funding retiree health care costs, the current $74.1 billion unfunded liability will grow to more than $100 billion by the 2020-21 fiscal year, and to $300 billion by 2047-48. “California has a duty to ensure it can meet obligations to workers who earned these retirement benefits,” says Ms. Yee, the state’s chief fiscal officer and a board member of CalPERS and CalSTRS, the nation’s two largest public pension systems. “We need to assure through collective bargaining that we set aside money to meet this obligation and keep the state on sound fiscal footing.”

NYC’s Biggest Pension Fund Lost $135 Million From Oil and Gas Holdings - A new report from Advisor Partners revealed that in one year alone, New York City’s largest pension fund lost around $135 million from their holdings in the top 100 oil and gas companies. The Teacher’s Retirement System of the City of New York, representing more than 200,000 teachers, educators and workers, incurred a 25 percent reduction in returns of their $60 billion fund from investments in oil and gas.“If it’s wrong to wreck the climate, it’s wrong to profit from that wreckage—but our city’s pension funds are incurring nothing but losses by investing in fossil fuels,” Mimi Bluestone, a member of the United Federation of Teachers and a campaigner with 350NYC, said. “The money lost from oil and gas investments just in the last year is equivalent to putting about 7,000 students through school for a year. It’s time for New York City to get out of the business of climate destruction.” The findings of this report add significant momentum to activists calling for fossil fuel divestment. Organizers with 350NYC have been campaigning for the city council to divest the city’s five pension funds from all fossil fuels for over three years. During the Paris climate talks, it was announced that more than 500 institutions representing over $3.4 trillion in assets under management have committed to some level of fossil fuel divestment.

Obamacare enrollment projections down nearly 40 percent -   Obamacare enrollment is lagging far behind what economists had projected, the Congressional Budget Office said in a new report that cuts the total number of customers expected to buy plans on the exchanges from 21 million down to just 13 million this year. Of those, 11 million will be getting government subsidies — down from the 15 million the CBO had projected just a year ago. The updated projections came as part of the CBO’s 2016 budget outlook, and confirm the administration’s own dim estimates of how many people would take advantage of the health exchanges, which are at the heart of President Obama’s health law. Enrollment has lagged behind what analysts had projected when the law was passed in 2010 as the exchanges were plagued with technical problems, with stricter payback requirements for those who claim too much in federal tax credits, and with a higher-than-anticipated number of Americans gambling on paying the tax penalty rather than buying coverage. The CBO said it would release a full analysis of health enrollment in a couple of months, but for now, the updated projections for 2016 will add to the challenges facing Mr. Obama, who has less than a year left in office to try to set his health law on firmer footing. The Obama administration had already dropped its own projections of enrollment, saying the pool of available customers was smaller than it thought, so there are simply fewer people to be nudged into signing up.

Obamacare markets face fresh troubles - From Donald Trump to Ted Cruz to Marco Rubio, the Republican presidential contenders are united in wanting to tear down President Barack Obama’s signature healthcare reforms. But if some diagnoses are right, they may not need to, because a key part of Mr Obama’s legacy is in danger of unravelling on its own. At the heart of the new Obamacare insurance system were government-backed online shopping centres, or exchanges, set up to help consumers secure low-cost private insurance, often for the first time. But doubts are growing about the exchanges’ viability. But according to health insurance practitioners and former policymakers, Obamacare is facing a fresh round of more fundamental troubles that lie with the insurance markets themselves. “It’s a thrown-together system that is showing some signs of failing,” says Joe Minarik, a senior economist in President Bill Clinton’s White House and who is at the Committee for Economic Development, a business-led think-tank. At issue is the balance that insurers need to make their businesses work between healthy customers and those making claims. The Obamacare formula was that first-time customers on the exchanges would draw in the insurers, and competition among insurers would push down premium rates for customers. But the worry today is that Obamacare has a potentially unsustainable mix of too many sick people and too few affordable healthcare plans. UnitedHealth, the US’s biggest private insurer, lost $720m on the government-backed exchanges last year and is debating whether to abandon them entirely. Other insurers have increased premiums while complaining clients are less healthy than expected. And in a blow to hopes for more competition, 11 of 23 new insurance start-ups fostered by the reform legislation have failed.

Drug Shortages Forcing Hard Decisions on Rationing Treatments - — In the operating room at the Cleveland Clinic, Dr. Brian Fitzsimons has long relied on a decades-old drug to prevent hemorrhages in patients undergoing open-heart surgery. The drug, aminocaproic acid, is widely used, cheap and safe. “It never hurt,” he said. “It only helps.”Then manufacturing issues caused a national shortage. “We essentially did military-style triage,” said Dr. Fitzsimons, an anesthesiologist, restricting the limited supply to patients at the highest risk of bleeding complications. Those who do not get the once-standard treatment at the clinic, the nation’s largest cardiac center, are not told. “The patient is asleep,” he said. “The family never knows about it.”   In recent years, shortages of all sorts of drugs — anesthetics, painkillers, antibiotics, cancer treatments — have become the new normal in American medicine. The American Society of Health-System Pharmacists currently lists inadequate supplies of more than 150 drugs and therapeutics, for reasons ranging from manufacturing problems to federal safety crackdowns to drugmakers abandoning low-profit products. But while such shortages have periodically drawn attention, the rationing that results from them has been largely hidden from patients and the public.At medical institutions across the country, choices about who gets drugs have often been made in ad hoc ways that have resulted in contradictory conclusions, murky ethical reasoning and medically questionable practices, according to interviews with dozens of doctors, hospital officials and government regulators.

Don’t engage in indoor tanning. Just don’t. - From JAMA Dermatology, “Association Between Indoor Tanning and Melanoma in Younger Men and Women“:  Melanoma is on the rise. Researchers wanted to see if there was an association between indoor tanning in people younger than 50 years. They conducted a case-control study of women and men in Minnesota.They included 681 patients between the ages of 25 to 49 years who were diagnosed with melanoma between 2004 and 2007. They matched them to 654 controls. The exposure of interest was indoor tanning, including any use, the age of first use, and total number of sessions.First off, women who were younger than 40 were more likely to have started tanning at a younger age. Those over 40 started tanning at 25; those younger than 40 started at 16. Those under 40 tanned more, too – 100 sessions on average versus 40 for the older women.Younger women who tanned were six times more likely to have melanoma than those who did not, and those who tanned more were more likely to have melanoma.Yes, this is a case-control study, and, yes, those are relative risk increases. But consider this: Pretty much all the women in the study (96.8%) who developed melanoma before 30 years of age had engaged in indoor tanning. All of them had started indoor tanning before they were 25 and, and almost all of them tanned more than 10 times a year.Don’t do it. Just don’t.

Problem drinkers account for most of alcohol industry's sales, figures reveal - The alcohol industry makes most of its money – an estimated £23.7bn in sales in England alone – from people whose drinking is destroying or risking their health, say experts who accuse the industry of irresponsible pricing and marketing. While the industry points to the fact that most people in the country are moderate drinkers, 60% of alcohol sales are either to those who are risking their health, or those – labelled harmful drinkers – who are doing themselves potentially lethal damage, figures seen by the Guardian show. Work by Prof Nick Sheron of Southampton University, co-founder of the Alcohol Health Alliance of more than 40 concerned organisations and colleagues, has established that people who drink dangerously are the industry’s best customers. “We looked at data from the Health Survey for England and did some calculations on that and we found that in terms of the total alcohol consumed within that survey, 69% was consumed by hazardous and harmful drinkers together,” he said. Of the 69%, he said, 38% was consumed by “hazardous” or “increasing risk” drinkers who exceed the old guidelines of 14 units a week for women and 21 for men (these have recently come down to 14 units each, with some alcohol-free days), either by bingeing or regular drinking. The rest was consumed by harmful drinkers on more than 50 units a week for men or 35 for women, whose addiction might lead to liver problems including cirrhosis. Public Health England estimates that 10.8 million people drink at risky levels and 1.6 million may have some level of dependence on alcohol.

New study sheds light on what happens to women who are denied abortions -- In the US, there are many laws limiting when and how women can receive abortions. But there is almost no research on what happens to women who seek out abortions and are denied them. Now a team of health researchers at the University of California, San Francisco has completed a longitudinal study of a group they call "Turnaways," women who tried and failed to get abortions due to local laws. The researchers found that women who received abortions were over six times as likely to have and achieve positive life plans than Turnaways. In its first analysis of turnaway data published two years ago, the team found that women seek out abortions for complicated reasons, with the most common being a feeling of financial unpreparedness. This earlier analysis also showed that 86 percent of turnaways chose to keep their children, and 67 percent of them wound up below the poverty line a year later. By comparison, 56 percent of women granted abortions in the study were below the poverty line a year later. This finding lent credibility to many turnaways' concerns that being financially unprepared would cause problems down the line. It also raised another question. Turnaways often said they wanted abortions because they felt that having a child would "interfere with their future plans." Researcher Ushma Upadhyay wanted to know what this meant and whether it was true, so she led a team in a new analysis of the data. They sought to find out how turnaways planned for the future and whether they carried through on those plans. Upadhyay and her colleagues detailed their findings in a recent paper published in BMC Women's Health.

Babies Born To Obese Mothers Have Nearly Twice The Risk Of Autism: (Reuters Health) - Mothers who are obese during pregnancy have almost twice the odds of having a child with autism as women who weigh less, a U.S. study suggests. When women are both obese and have diabetes, the autism risk for their child is at least quadrupled, researchers report in the journal Pediatrics. “In terms of absolute risk, compared to common pediatric diseases such as obesity and asthma, the rate of autism spectrum disorder (ASD) in the U.S. population is relatively low, however, the personal, family and societal impact of ASD is enormous,” said senior study author Dr. Xiaobin Wang, a public health and pediatrics researcher at Johns Hopkins University in Baltimore. About one in 68 children have ASD, which includes autism as well as Asperger syndrome and other pervasive developmental disorders, according to the U.S. Centers for Disease Control and Prevention. Put another way, that’s about 1.5 percent of U.S. children. The study findings suggest the risk rises closer to about 3 percent of babies born to women who are obese or have diabetes, and approaches 5 percent to 6 percent when mothers have the combination of obesity and diabetes.

Joining The Fight Against ‘Flushables’: The term “flushables” is, of course, a misnomer. It describes pre-moistened towelettes of the type used for diligent personal wiping and takes its name from inaccurately descriptive advertising. The towelettes may be flushable in that they technically make it down the toilet drain when prompted, but they are not flushable in the sense that they are properly dispensed with that way. After traveling down and into the sewer system, these fiendish rags do not break down like toilet paper but instead jam pipes, wrap themselves around motors, and mix with other substances to form monstrous, passage-blocking globules[1]. The phenomenon can cause millions of dollars in damage to a single utility and countless hours of maintenance work to remedy. “Hundreds of employee hours are invested annually to unclog sewer lines, clear screens, and repair broken pumps,” said Nicole Kaiser, the water communications coordinator for DC Water. “Some utilities have estimated significant costs with damage from these items, including the installation of specialized equipment to break material down before they enter the treatment process.” While playing defense against the problem with such specialized equipment is an option, the machinery can cost into the millions to install and does nothing to prevent the flushables from entering the system in the first place. Many of the affected parties have been forced to take action at the source of the problem, the manufacturers.

A Scary New Superbug Gene Has Reached at Least 19 Countries -- Just two months ago, researchers in China identified a gene that can make bacteria resistant to a last-resort antibiotic called colistin. It was a bombshell discovery for people who follow superbugs. Now that gene has been detected in at least 19 countries, and scientists are alarmed.  Colistin is what doctors give you in the U.S. when nothing else works. Because it’s toxic, it can have some harmful side effects, but colistin can help defeat infections that shrug off every other antibiotic in their arsenal. If bacteria resist everything, including colistin, you're out of luck. Since the paper identifying colistin-resistant E. Coli in China was published in the the Lancet Infectious Diseases journal on Nov. 18, the gene has been detected in 19 countries in bacteria from farm animals, retail meat, or humans, according to a new tally by the Natural Resources Defense Council, which advocates for reducing the use of antibiotics in farm animals. It is in Southeast Asia, Europe, Canada, and Japan.. Scientists are finding it retrospectively in older samples of bacteria now that they know what to look for. In Denmark, for example, the gene was found in bacteria from food inspections as far back as 2012, when the current system of monitoring was started.  Antibiotic-resistant bacteria  sicken 2 million Americans each year and kill 23,000, according to estimates from the Centers for Disease Control. These are such bugs as CRE (Carbapenum-resistant Enterobacteriaceae) or MRSA (Methicillin-resistant Staphylococcus aureus). It’s not clear how many people are affected by colistin-resistant strains. The gene hasn’t been identified in samples from the U.S. yet. But scientists fear that colistin-resistant bugs will become more widespread. The bacteria themselves can travel on people, live animals, and food.

20 Dead, 200 Hospitalized After Reports US Lab "Leaks" Deadly Virus In Ukraine -- Amid the so-called "ceasefire" in Ukraine, yet ongoing shelling in many regions, the Donbass news agency reports that more than 20 Ukrainian solders have died and over 200 soldiers are hospitalized after an apparent leak of a deadly virus called "California Flu" from a US lab near the city of Kharkov. As Donbass News International reports, More than 20 Ukrainian soldiers have died and over 200 soldiers are hospitalized in a short period of time because of new and deadly virus, which is immune to all medicines. Donetsk People's Republic intelligence has reported that Californian Flu is leaked from the same place where research of this virus has been carried out.The laboratory is located near the city of Kharkov and its base for US military experts. Information from threatening epidemic is announced by Vice-Commander of Donetsk Army, Eduard Basurin.Leak of deadly virus in Ukrainian side was published first time on 12.1.2016: "According to the medical personnel of the AFU units (Ukrainian troops) there were recorded mass diseases among the Ukrainian military personnel in the field. Physicians recorded the unknown virus as a result of which the infected get the high fever which cannot be subdues by any medicines, and in two days there comes the fatal outcome. Thus far from the virus there have died more than twenty servicemen, what is carefully shielded by the commandment of the AFU from the publicity", said Basurin in daily MoD situation report. Outbreak of deadly virus continues and Friday 22.1.2016 Vice-Commander told new information from epidemic: "We keep registering new facts of growing the epidemics of acute respiratory infections among the Ukrainian military. Just since the beginning of this week more than 200 Ukrainian military have been taken to civil and military hospitals of Kharkov and Dnepropetrovsk. It is important to repeat that the DPR intelligence previously reported the research being carried out in a private laboratory in the locality Shelkostantsiya, 30 km away from the city of Kharkov, and involving US military experts. According to our information, it is there where the deadly Californian flu strain leaked from," Basurin said.

Brain-Shrinking Zika Virus Bound for U.S., WHO Predicts -- The Zika virus, a mosquito-borne illness that shrinks the heads and brains of fetuses, will likely soon be found through “all the Americas,” the World Health Organization warned on Sunday. "Zika virus will continue to spread and will likely reach all countries and territories of the region where Aedes mosquitoes are found,” officials from WHO's Pan American Health Organization said. Aedes mosquitoes are found in every country in the Americas besides Canada and Chile and also transmit diseases like yellow fever and West Nile virus. The infection is native to Africa but spread to the Western Hemisphere, where populations lack natural immunity to the virus, in 2015. The first case was reported in Brazil in May, and it has since spread to 21 countries in the Caribbean and the Americas. While 80 percent of those who contract Zika experience no effects, and most others suffer only mild flulike symptoms, the virus is profoundly damaging to the unborn. In Brazil, 3,500 cases of microcephaly — babies born with shrunken heads and tiny brains — have been linked to Zika since October, according to the BBC. That epidemic of birth defects has led some governments to discourage women from getting pregnant, with El Salvador suggesting all pregnancies be delayed until 2018. Last week, three New Yorkers who had recently traveled outside the country were diagnosed with Zika, the Associated Press reports. The state’s Department of Health assured residents Friday that there is “virtually no risk of acquiring Zika virus in New York State at this time as the virus cannot be spread by casual contact with an infected person and mosquitoes are not active in cold winter months.” But the virus can, apparently, be spread through not-so-casual contact. PAHO announced Sunday that the infection had been “isolated in human semen” and that one instance of “possible person-to-person sexual transmission has been described.”

Mosquito-borne Zika virus expected to expand across US: Centers for Disease Control - Rates of travel-related Zika virus infections are expected to increase in the U.S., according to the Centers for Disease Control and Prevention (CDC). A report published Friday by the federal health agency said imported cases of the mosquito-borne illness may result in local transmission in limited areas of the continental U.S. Earlier this week, the CDC reported that health officials in the U.S. have so far confirmed 12 cases of Zika, in Florida, Hawaii, Illinois, New Jersey and Texas. The CDC said all known cases were among people who had recently returned from a country affected by an outbreak. Zika is a flavivirus related to West Nile, yellow fever, Chikungunya and dengue fever, all of which have made their way to the U.S. in recent years. Zika is transmitted primarily by Aedes aegypti mosquitoes.  As of mid-January 2016, local Zika transmission has been identified in 20 countries in the Americas. In Brazil, Zika has become a public health crisis: The virus has infected pregnant women there, and the country has begun to see a growing rate of infants with microcephaly, in which a baby is born with an abnormally small skull and incomplete brain development. The condition is thought to be connected to Zika infections. Health officials in Brazil reported 3,530 cases of microcephaly, including 46 deaths, as of the first week of January. By comparison, there were, on average, 163 cases of microcephaly each year between 2010 and 2014. In the past, Guillain-Barré syndrome, a type of autoimmune condition in which the immune system attacks the nerves, has been reported in patients who were infected with Zika.

Wash. D.C. harboring mosquitoes capable of carrying Zika virus: Researchers reported on Monday they have identified a major population of Aedes aegypti, the mosquito responsible for carrying dengue fever, chikungunya, and the Zika virus in a capital hill neighborhood in Washington, D.C. Even more compelling is that the research team found genetic evidence that the mosquitoes have overwintered for at least the past four years, leading them to believe the mosquitoes are adapting for persistence in a northern climate that is well out of their normal range. Science Daily is reporting that researchers at the university of Notre Dame's Department of Biological Sciences, lead by Professor David Severson, are particularly concerned that the species has developed the ability to survive in the northern climes of Washington, D.C. This is a significant worry because the mosquito is usually found in tropical and sub-tropical regions of the world. In the United States, the Aedes mosquito is most often found no further north than Alabama, Mississippi, Georgia and South Carolina. "What this means for the scientific world," said Severson, "is some mosquito species are finding ways to survive in normally restrictive environments by taking advantage of underground refuges." Severson went on to explain the significance of the research, saying there was a real potential for transmission of a mosquito-borne tropical disease in some of the popular tourist locations in the capital, like the National Mall. This led Severson to add, "Hopefully, politicians will take notice of events like this in their own backyard and work to increase funding levels for mosquitoes and mosquito-borne diseases."

Zika Virus: The Making of an Epidemic | Popular Science: Up until a few months ago, most Americans had never heard of the Zika Forest in Uganda, or the virus that bears this region’s name. Today, news of the infectious disease is spreading across the country sparking fear and concern. The mosquito-borne virus has gripped many parts of Brazil and has been found in many adjacent countries. It now threatens the United States as transmission has already been found in Puerto Rico.  At this moment, there have been no locally-acquired cases in the rest of America but that may change with the coming spring and summer months. Of course, epidemics usually don’t just happen in an instant and this was the case with Zika. Although over the decades since its discovery in 1947, the virus gained little public attention, some researchers tracked its movement across the globe. It slowly spread across Africa to the Middle East, and eventually into Asia. During this time, cases were sporadic with little signs of an epidemic nature. Then in 2008 a rather strange case of transmission in absence of a mosquito vector was noted. A scientist working in Senegal contracted the virus and then infected his wife after he arrived home. This apparent sexual transmission of the virus suggested a greater scope of infection within the body and possibly, an opportunity for viral evolution to improve virulence. This transmission was again seen in 2013 suggesting the 2008 cases were not unique. By 2015, sexual and other routes of human to human transmission became a concern as a result of detection of viral RNA in serum, saliva and urine. Although the virus most rapidly spread through mosquitoes, this data suggested a secondary path could lead to even greater spread.

Three new Zika virus cases confirmed in the USA: Los Angeles, Virginia, Minnesota - Well, that epidemic didn't take long to start scaring the crap out of America. The first confirmed case of the Zika virus in Los Angeles County was reported by the U.S. Centers for Disease Control today. Separately, cases have been confirmed over the past 48 hours by state agencies in Virginia and Minnesota. No known transmissions of Zika have taken place inside the US. The virus isn't contagious between humans but is spread by mosquitoes. These 3 new U.S. victims are said to have acquired Zika abroad. The California patient is a young girl from Los Angeles County who traveled to El Salvador last November, where she apparently became infected. She has since recovered. The infection usually has no symptoms, but is of great concern because it appears linked to a recent spike in Brazil of a serious birth defect. Health officials in the U.S. are warning female travelers of child-bearing age in particular to take special precautions when visiting other countries, or cancel trips abroad entirely for now. The hunt is on for a vaccine.

Zika virus spreading explosively, says World Health Organisation - The World Health Organisation has convened an emergency committee to discuss the “explosive” spread of the Zika virus, which has been linked to thousands of birth defects in Latin America. “Last year the disease was detected in the Americas, where it is spreading explosively,” Margaret Chan, the WHO director general, said at a special briefing in Geneva. It was “deeply concerning” that the virus had now been detected in 23 countries in the Americas, she added. One WHO scientist estimated there could be 3-4m Zika infections in the Americas over the next year. The spread of the virus has prompted governments across the world to advise pregnant women against going to the areas where it has been detected. There is no vaccine or cure for Zika, which has been linked to microcephaly, a serious condition that can cause lifelong developmental problems. Chan said: “The level of alarm is extremely high. Arrival of the virus in some cases has been associated with a steep increase in the birth of babies with abnormally small heads.”

Zika Virus ‘Spreading Explosively’ in Americas  - President Obama called for urgent action and research Tuesday over concerns of the spread of the Zika virus. The virus is now active in much of South and Central America, and has spread north rapidly, even reaching the U.S. where there are at least six confirmed cases. And today, officials from the World Health Organization (WHO) said that the Zika virus was “spreading explosively” in the Americas and that they would convene an emergency meeting on Monday to decide whether to declare a public health emergency. “The level of alarm is extremely high,” Dr. Margaret Chan, the director general of the WHO, said in a speech in Geneva. Dr. Sylvain Aldighieri, a unit chief for the Pan American Health Organization, said as many as three to four million people in the Americas could be exposed to the virus in the next 12 months.  “As I told you, we have big gaps in terms of confirmation of the real situation,” he said. “These are estimates. These are mathematical estimations.” Dr. Chan, in a brief to the executive board of WHO, shared four main reasons why the organization needs to be deeply concerned about this rapidly evolving situation:

• the possible association of infection with birth malformations and neurological syndromes
• the potential for further international spread given the wide geographical distribution of the mosquito vector
• the lack of population immunity in newly affected areas
• and the absence of vaccines, specific treatments and rapid diagnostic tests.

With Zika outbreak, Brazil's slump is becoming a nightmare.: Brazil is justifiably concerned that the ongoing Zika virus outbreak could deter visitors from this summer’s Olympics in Rio de Janeiro, and has announced plans to prevent the spread of the mosquito-borne disease during the games in August, including inspections and daily sweeps for insect breeding grounds.  Zika, which is spreading rapidly throughout Latin America, has been linked to an unusually high number of cases of microcephaly, a birth defect that causes babies to be born with unusually small heads. The U.S. Centers for Disease Control has advised pregnant women to avoid travel to a number of countries, including Brazil, where transmission of the disease is ongoing. Though the fever caused by Zika isn’t that dangerous for people who are not pregnant, it seems likely that the warning will make travelers jittery, casting a pall over the event as well as Brazil’s lucrative tourist industry as a whole. Brazil is fighting to catch up with the disease, and the country’s health ministry recently announced the deployment of 22,000 members of the country’s armed forces in mosquito eradication efforts ahead of next month’s Carnival celebrations and the distribution of mosquito repellent to pregnant women. Officials have also suggested women delay getting pregnant until the crisis has passed. Most forms of contraception, including the birth control pill, are legal in Brazil, though abortion is not in most cases.)

Mutant mosquitoes to be deployed to stop Zika outbreak in Brazil: A Brazilian town plans to release millions of genetically modified mosquitoes to suppress the wild mosquito population responsible for Zika and Dengue outbreaks. Genetically modified male mosquitoes were released in parts of Piracicaba city in Southern Brazil as a pilot project in April 2014. Studies have shown that these GM mosquitoes have reduced the wild mosquito population by 82% in areas covered under the pilot project. The city now plans to expand the program to other neighborhoods. Oxitec, a company that breeds genetically modified (GM) mosquitoes, is opening a factory in Piracicaba to produce millions of genetically modified mosquitoes after getting approval from Brazil's National Biosafety Committee for releases throughout the country. City mayor Gabriel Ferrato said: The city of Piracicaba has always sought innovative solutions to serious problems. In the case of Aedes aegypti, we looked for the tool that seemed most appropriate to help in the tough battle against this mosquito that transmits dengue, Zika and chikungunya. Based on the results presented today, we decided to extend the project in CECAP/Eldorado district for another year and also signed a record of intent to expand the project to the central area of Piracicaba. The mosquitoes produced by Oxitec are genetically modified so that when mated with wild-type mosquitoes they produce larvae that don’t make it to adulthood.

Genetically modified mosquitoes released in Brazil in 2015 linked to the current Zika epidemic? -- This seems like a case to me where mankind's arrogance may have backfired on us. Here is Oxitec back in 2015 proudly announcing that their GM mosquito has decimated the local mosquito population in a field trial: http://www.oxitec.com/press-release-oxitec-mosquito-works-to-control-aedes-aegypti-in-dengue-hotspo/ Here is a map showing where Juazeiro is located. Here is a map showing where all the deformed babies are being born.  Zika was first confirmed in Brazil in may of 2015, but had been seen in other nations before. Question: Why didn't it cause an epidemic of birth defects in any other countries? How exactly would you miss a tenfold increase in children born with most of their brain missing? Zika in Brazil does not seem to behave like the Zika we were familiar with before.  How could the Zika catastrophe be linked to genetically modified mosquitoes?   The OX513A strain of male mosquitoes released in Juazeiro creates larvae that normally die in the absence of antibiotics, which is supposed to help decimate wild mosquito populations when these males are released in the wild. Problem here being of course, that "life, uh, finds a way". An estimated 3-4% of the larvae survive to adulthood in the absence of the tetracycline antibiotic. These larvae should then be free to go on and reproduce and pass on their genes. In fact, they may be the only ones that are passing on their genes in places that have their wild mosquito population decimated by these experiments.

Zika Outbreak Epicenter In Same Area Genetically-Modified Mosquitoes Released In 2015 -- The World Health Organization announced it will convene an Emergency Committee under International Health Regulations on Monday, February 1, concerning the Zika virus ‘explosive’ spread throughout the Americas. The virus reportedly has the potential to reach pandemic proportions — possibly around the globe. But understandingwhy this outbreak happened is vital to curbing it. As the WHO statement said: “A causal relationship between Zika virus infection and birth malformations and neurological syndromes … is strongly suspected. [These links] have rapidly changed the risk profile of Zika, from a mild threat to one of alarming proportions. “WHO is deeply concerned about this rapidly evolving situation for 4 main reasons: the possible association of infection with birth malformations and neurological syndromes; the potential for further international spread given the wide geographical distribution of the mosquito vector; the lack of population immunity in newly affected areas; and the absence of vaccines, specific treatments, and rapid diagnostic tests […] “The level of concern is high, as is the level of uncertainty.” Zika seemingly exploded out of nowhere. Though it was first discovered in 1947, cases only sporadically occurred throughout Africa and southern Asia. In 2007, the first case was reported in the Pacific. In 2013, a smattering of small outbreaks and individual cases were officially documented in Africa and the western Pacific. They also began showing up in the Americas. In May 2015, Brazil reported its first case of Zika virus — and the situation changed dramatically. Brazil is now considered the epicenter of the Zika outbreak, which coincides with at least 4,000 reports of babies born with microcephaly just since October.

Monsanto Seed Report - Here’s a Monsanto seed mini-report. I looked at five Monsanto companies: Lewis Hybrids, Kruger Seeds, Specialty Hybrids, Stewart Seeds, Stone Seed. The websites are now completely standardized. The results were pretty much the same for all five, and similar to 2014 and 2015. Each has an information page about Roundup Ready Xtend soybeans (glyphosate and dicamba-tolerant) but says those aren’t yet available pending further regulatory approval. But they’re expected to become available for 2016. For maize, SmartStax (eight transgenes, six expressing eight Bt poisons plus Roundup Ready and the pat glufosinate-tolerance trait – that’s ten GMO-affiliated poisons total loading up your corn, plus neonics, atrazine, fungicides, sprayed insecticides, god knows what else) has the most varieties followed by DoublePro (Roundup Ready plus two anti-borer Bt toxins), with four of the five sellers having considerably fewer TriplePro (same as DoublePro plus an anti-rootworm toxin). Makes sense. If you’re going to take on rootworm “insurance”, as farmers often convince themselves to see it, might as well go for SmartStax which has Dow’s Cry34/35AB1, the only rootworm toxin which was still working semi-reliably last I heard. All DroughtGard varieties are DoublePro. The number available ranged from one to five. Each had a handful of Roundup Ready 2 (RR2) corn varieties. Available non-GM conventional ranged from zero to three varieties. All soybeans are Roundup Ready 2 Yield (RR2Y) except for two sellers who carried one conventional variety each.

The USDA/Monsanto Deliberate Campaign to Contaminate All Alfalfa -If successful, this campaign would lead to a Monsanto monopoly on alfalfa seed and render organic meat and dairy impossible under the current USDA standards. The USDA has always wanted GMOs to qualify under the organic standard, and has long seen GM alfalfa as a mode of attack to bring on this result.   If the US government and Monsanto see that this surging contamination is an inevitable direct effect of their action in deploying GM alfalfa and they continue with the deployment, that proves that this contamination is part of the intended effect. The major effects of a large-scale action are always an organic whole. It’s never true that a necessary government policy has ambivalent results. On the contrary, the major effects are always the desired effects, because if the government desired different effects, there’s always an alternative which could preserve the “good” effects without the allegedly “bad”. There’s really no such thing as “collateral damage”. That’s just a propaganda distinction to help with the lie that some effects weren’t sought by the policy-maker and are deplored by it. But if there really were major effects which the government did not anticipate and found bad, it would change the policy so as no longer to produce those effects in a major way. Persistence proves either that the effect, if truly unanticipated, is nevertheless welcome, or else that it was anticipated and consciously intended all along. Morally and practically it makes no difference. In the case of GM alfalfa there’s no question that USDA and Monsanto had full prior knowledge of its extremely high rate of contamination. It’s a perennial pollinated by wide-ranging bees. So as soon as GM alfalfa is planted it’s off on an imperialistic campaign for the next 4-8 years. Indeed, the USDA was aware of contamination of alfalfa seed stocks just from GM field trials at least as early as 2005. There’s zero doubt that the rapid contamination was consciously anticipated.

Seattle Sues Monsanto Over PCB Contamination, Becomes 6th City to Do So - Seattle joins the growing list of cities in the American West that has slapped Monsanto with a PCB lawsuit. PCBs, or polychlorinated biphenyls, is a highly toxic chemical that the company manufactured decades ago.  The complaint, filed on Monday with the U.S. District Court in Seattle, alleges that Monsanto knew that the chemicals were polluting the environment and causing harm to people and wildlife, as Seattle City Attorney Pete Holmes explained to The Seattle Times. “When the profit motive overtakes concern for the environment, this is the kind of disaster that happens,” According to Seattlepi.com, the suit concerns PCB contamination in 20,000 acres that drain into the lower Duwamish, which is a federal Superfund site (meaning it’s so polluted that that the U.S. Environmental Protection Agency has to help with cleanup). It also concerns areas that drain to the East Waterway adjacent to Harbor Island, also a federal Superfund site. The lawsuit also states: PCBs were detected in 75 percent of more than 1,000 samples collected from catch basins and drainage lines in the Lower Duwamish drainage area. In the East Waterway drainage areas, PCBs were detected in 82 percent of samples collected with “in-line grabs” of sediment in drainage pipes and PCBs were detected in 73 percent of samples collected from catch basins in street right-of-ways. The city is likely seeking millions of dollars from Monsanto to pay for the cleanup. “The ultimate cost depends on how far you go in cleanup,” Holmes told Seattlepi.com, adding that it would be “impossible” clean up all the PCBs found mainly in the city’s industrial zone.

Monsanto Slammed for Violating European Patent Law for GMO Melon -- The European Patent Office has revoked a false patent on genetically modified (GMO) melons held by Monsanto, the world’s largest seed company, after a Jan. 20 public hearing in Munich, Germany. The Europe-based coalition No Patents on Seeds spearheaded the opposition. According to a press release from the organization, Monsanto claimed that melons with a natural resistance to plant viruses was its own invention even though the resistance was already detected in indigenous melon varieties in India. As the The Hindu explained: Melons have a natural resistance to certain plant viruses. In the case of Cucurbit Yellow Stunting Disorder virus (CYSDV)—which has been spreading through North America, Europe and North Africa for several years—certain melons are known to be naturally resistant to it. Using conventional breeding methods, this type of resistance was introduced from an Indian melon to other melons and has now been patented as a Monsanto “invention.” Opponents feared that by arming itself with this patent—”closterovirus-resistant melon plants,” or EP1962578, issued May 2011—the St. Louis-based agribusiness “could block access to all breeding material inheriting the virus resistance derived from the Indian melon,” The Hindu reported.No Patents on Seeds argued that Monsanto’s patent was awarded to the company even though European patent law does not allow patents on plant varieties and processes for conventional breeding. “The patent was based on essentially biological processes for breeding and claimed plant varieties. This was a clear violation of European patent law,” said No Patents on Seeds coordinator Christoph Then in a statement.

Russia May Ban Corn And Soybeans - Moscow might ban soybeans from the United States over possible contamination, says Russia's food safety watchdog. Earlier this week, Rosselkhoznadzor said imports of US corn also face a possible embargo.  Regular supplies of the contaminated products may not only affect Russia’s food safety, but also increase the risk for other members of the Eurasian Economic Union, according to a statement from the regulator. The Russian agency says it notified US authorities on Monday to halt exports of corn contaminated with dry rot to Russia. The agency cites health reasons for the measures “especially in conditions of import replacement of quarantined goods.” The possible cost of the quarantined goods to Russia is about 10 to 15 billion rubles ($125 million-$188 million), according to the watchdog. Russian officials say they plan to discuss the problem with the US. Depending on the results, the regulator may introduce temporary restrictions on supplies of corn and soybeans from America.

Upcoming PBS Documentary: The Ethanol Effect - k.m. -  David Biello, the long time energy and environment editor for Scientific American, is working on a documentary about corn ethanol that is to be released "coming in time for the 2016 elections". The film trailer calls it a civil war going on in the heartland on the family farm about corn grown to be burned. One of the questions he asks is "What pits agriculture against the environment?" and he pits "clean energy against clean water". Biello is working with Detroit Public Television on this hour-long documentary for PBS. (video)

More Babies Are Being Born with Organs Outside Their Bodies, and Experts Have No Idea Why - Related? Pesticides in Paradise: Hawaii’s Spike in Birth Defects Puts Focus on GM Crops: Sidney Johnson, a pediatric surgeon at the Kapiolani Medical Center for Women and Children who oversees all children born in Hawaii with major birth defects and operates on many, says he’s been thinking about pesticides a lot lately. The reason: he’s noticed that the number of babies born here with their abdominal organs outside, a rare condition known as gastroschisis, has grown from three a year in the 1980s to about a dozen now. —Via: Washington Post: When Brooke gave birth, her infant daughter’s intestines protruded outside her body, dark and slick and alien-looking. It would take a nerve-wracking operation and weeks in the intensive care unit until her internal organs were back were they belonged and baby Anna could finally come home, Brooke wrote for the CDC (the post does not give her last name). Anna was born with gastroschisis, a rare birth defect that the Centers for Disease Control and Prevention said has become worryingly more common in recent years, particularly for young African American mothers.  In a report published Friday, the public health agency said that it found 30 percent more cases of the disease between 2006 and 2012 than it did from 1995 to 2005. Among African American mothers who were younger than 20, the number of babies born with the disease jumped 263 percent.

First Engineered 'Autistic' Monkeys Spark Excitement And Concern --For the first time, scientists in China have genetically engineered monkeys that carry a human autism gene and develop symptoms similar to people who have the disorder.  The hope, they say, is to better understand autism in humans and potentially develop treatments.Statistics from the Centers for Disease Control and Prevention show that 1 in 68 children is on the autism spectrum.  The research, the subject of a paper published this week in the journal Nature, was conducted by a team at the Institute of Neuroscience in Shanghai.   The Chinese scientists created special test-tube monkeys for the research. They attached MECP2 genes -- thought to be linked to autism in humans -- to a harmless virus, which they then injected into the eggs of macaque monkeys. The eggs were then fertilized and implanted into female monkeys. At around 11 months of age, the transgenic offspring began showing asocial behavior, including pacing in circles and becoming stressed when looked in the eyes. "As compared to the wild type monkeys, MECP2 transgenic monkeys gained weight more slowly, had fatty acid metabolism abnormalities, exhibited a higher frequency of repetitive circular locomotion and showed increased stress responses in threat-related anxiety tests,"

When The Water Turned Brown— Standing at a microphone in September holding up a baby bottle, Dr. Mona Hanna-Attisha, a local pediatrician, said she was deeply worried about the water. The number of Flint children with elevated levels of lead in their blood had risen alarmingly since the city changed its water supply the previous year, her analysis showed.   Within hours of Dr. Hanna-Attisha’s news conference, Michigan state officials pushed back — hard. A Department of Health and Human Services official said that the state had not seen similar results and that it was working with a much larger set of data. A Department of Environmental Quality official was quoted as saying the pediatrician’s remarks were “unfortunate,” described the mood over Flint’s water as “near-hysteria” and said, as the authorities had insisted for months, that the water met state and federal standards. Dr. Hanna-Attisha said she went home that night feeling shaky and sick, her heart racing. “When a state with a team of 50 epidemiologists tells you you’re wrong,” she said, “how can you not second-guess yourself?”  Nearly a year and a half after the city started using water from the long-polluted Flint River and soon after Dr. Hanna-Attisha’s news conference, the authorities reversed course, acknowledging that the number of children with high lead levels in this struggling, industrial city had jumped, and no one should be drinking unfiltered tap water. Residents had been complaining about the strange smells and colors pouring from their taps ever since the switch. Yet interviews, documents and emails show that as every major decision was made over more than a year, officials at all levels of government acted in ways that contributed to the public health emergency and allowed it to persist for months. The government continued on its harmful course even after lead levels were found to be rising, and after pointed, detailed warnings came from a federal water expert, a Virginia Tech researcher and others.

How Flint traded safe drinking water for cost-cutting plan that didn't work  - The decision to switch the city of Flint’s drinking water source to the Flint River was pegged as a cost-cutting maneuver aimed at saving $5m over a two-year period. But almost two years and a massive lead contamination crisis later, that move and subsequent decisions not to treat the water supply already carry a financial price tag of $45m and climbing. Since early October, when Michigan governor Rick Snyder first conceded that lead contamination in the Rust Belt community of 100,000 was far more serious than he initially understood, state and federal agencies have pledged at least $45m to address the ongoing crisis, including: In October, Snyder announced a $12m plan to transfer Flint back to the city of Detroit’s water system. The state covered half the cost, while Flint kicked in $2m and the Charles Stewart Mott Foundation contributed $4m. Last week, Barack Obama approved Snyder’s request to declare a federal emergency in Flint, providing $5m in financial assistance through the Federal Emergency Management Agency for additional water, water filters and water test kits. On Tuesday, during his state of the state address, Snyder promised a $28m aid package for the city of Flint that includes $17.2m for bottled water and filters; $3m for city utilities for loss of revenue; and nearly $4m for behavioral health care for children with elevated blood lead levels. The plan has since been approved by the Michigan house of representatives, and is pending in the state senate.

Flint Refuses to Be Poisoned -  Flint, Michigan, a city of some 100,000 people, is being poisoned.  In April 2014, the Michigan state government forced Flint to change its water supply from Lake Huron, which had served the city for half a century, to the Flint River. The water in the river is corrosive enough to cause the lead in city pipes to seep into the water supply, and out through the taps.  As a result of the switch, which was implemented to save $19 million over eight years, Flint's water system has been delivering lead-contaminated water to the city's homes, schools, businesses and public buildings.Lead poisoning is most deadly for children. Kids exposed to high levels of lead are at risk of anemia and decreased bone and muscle growth, as well as damage to reproductive organs and the nervous system, according the World Health Organization. The damage will last long after Flint River water stops flowing through the city system. As Flint resident Sada Brandt explains in Undrinkable: The Flint Water Emergency, a documentary made by local high school students at Davison Community Schools, "The only way that it's going to get fixed is if they fix the pipes at this point, because they've already corroded the pipes so badly." To add insult to injury, the state insists to this day that residents of Flint continue to pay for the poison that comes out of their taps, charging exorbitant rates that have driven thousands of residents into debt.

Race is in the Air We Breathe and the Water We Drink - How would you feel if you realized your children’s water was being poisoned, and your government didn’t seem to care? That’s the story of the parents of 8,000 mostly poor and black children in Flint, Mich., (which means most all of the children in urban Flint) that has finally hit our media front pages. The evening news I am watching as I write warns the parents of Flint not to bathe their young children in city water. But the fact that most Americans realize this would never happen in affluent white Michigan suburbs (or any other white affluent communities in our country), still doesn’t penetrate our very souls. This fundamental contrast between black and white experiences in Michigan, just north of my home town of Detroit, points to the structural racism that is still the primary moral contradiction of American life. The news about Flint is just the most recent consequence of America’s Original Sin, the title of the new book we have just launched. This fundamental contrast between black and white experiences in Michigan ... points to the structural racism that is still the primary moral contradiction of American life. The poisoning of the majority-black population of the city is a product of a system failing the people of Flint on many levels over a long period of time. To really start unpacking the historical roots of the crisis, you have to go back to slavery itself, which debased the humanity and devalued the lives of black people from well before our nation's founding; followed by the Jim Crow era of legal segregation, discrimination, and violence against black Americans, which resulted in early 20th century migrations of black people from the segregated south to urban manufacturing centers of the northern United States. When they got there, they found cities without legal segregation, yet with de facto segregation and discrimination alive and well in both white attitudes and systems.

Activists File Suit Asking For Lead Free Pipes As Polluted Water Corrodes The System  On Wednesday, a coalition of local citizens and national organizations seeking federal court intervention filed the latest lawsuit against city and state officials. Citing distrust, groups said they want to ensure through the courts that safe water returns to Flint. “The people in Flint cannot rely on the government entities that created this problem to fix this problem,” said Sarah Tallman, attorney with the Natural Resources Defense Council, to ThinkProgress.  Children, who are most vulnerable to lead’s harmful effects including brain injury, are known to be poisoned with the toxic substance. What’s more, the city of some 100,000 is still without safe tap water. As the city and the state officials scramble to explain how this public health catastrophe came to be, lawsuits are mounting.  According to Virginia Tech independent researchers in Flint, the city’s water supply coming from the Flint River has about eight times more chloride than its previous supplier, Detroit’s water system. High chloride levels made the water excessively corrosive to Flint’s pipes, which polluted the water with lead. The chloride polluting the Flint River likely came from salts used to keep ice from the roads during the winter time, according to published reports. Flint did not apply corrosion inhibitor chemicals commonly used to mitigate such problems. Tallman said the lawsuit against seven officials, including state Treasurer Nick Khouri, doesn’t seek monetary damages. “We are seeking a court order requiring defendants … to follow the rules for testing water for lead, for monitoring for lead in Flint area homes, and for treating the water to control its corrosiveness.”“We are also asking the court to order the full replacement of all the lead containing pipes,” Tallman added. “It’s a shame that in 2016 America we have to sue state government agencies to do what they are paid to do.”

What Went Wrong In Flint -- Officials at the Michigan Department of Environmental Quality, the agency in charge of making sure water is safe in the state, made a series of decisions that had disastrous consequences:

• Against federal guidelines, they chose not to require the Flint water plant to use optimized corrosion control, despite telling the Environmental Protection Agency they were doing so in an email on Feb. 27, 2015.
• They took few samples and took them from the wrong places, using a protocol known to miss important sources of lead, which some say didn’t comply with a 25-year-old law meant to prevent lead exposure in residential water.
• They threw out two samples whose inclusion would have put more than 10 percent of the tests above what’s known as the “actionable level” of lead, 15 parts per billion. Had the DEQ not done so, the city would have been required to warn residents that there was a problem with lead in the water back in the summer of 2015, or possibly earlier.¹

Because of those transgressions, the Flint River’s corrosive water ate through the protective film inside the city’s old pipes, allowing odorless, tasteless lead to leach into the water. They are also what has featured in most of the news coverage of Flint: important questions about which officials knew what, and when. Gov. Rick Snyder has said the failures here had nothing to do with the fact that Flint’s residents are largely poor and majority black, but that didn’t assuage many who feel this wouldn’t have happened in a wealthier, whiter city. If it weren’t for a few dozen residents and a handful of crusading experts who pushed back against the official narrative, we still wouldn’t know the truth.

These 4 Videos Expose the Horrific Reality of the Flint Water Crisis -- On Wednesday night, in a special edition of The Rachel Maddow Show, Maddow hosted a town hall meeting inside the Brownwell/Holmes STEM Academy, one of three Flint, Michigan, schools where the water inside was polluted well beyond the federal limit. While Flint’s water crisis has been well documented, Maddow said many may not know that the problem isn’t actually fixed yet. “Months after this problem was first acknowledged, and weeks after the state declared a disaster, the damaged pipes of Flint are still in the ground,” Maddow said. “The water is still undrinkable, and there’s no timetable for when the pipes will be replaced and the issue rectified.”  While the city has stopped getting its water from the corrosive Flint River and has restored its connection to Detroit’s water system, which comes from Lake Huron, “the damage is done to all of the pipes and that is why you still cannot drink the water here,” Maddow says in the video below.Over the course of the evening, Maddow hosted a number of experts, including Flint Mayor Karen Weaver; Dr. Mona Hanna-Attisha, a pediatrician at Hurley Medical Center in Flint, who was the first to confirm the elevated lead levels in Flint’s children; Marc Edwards, a professor of engineering at Virginia Tech University who detailed the issue alongside University of Michigan professor Martin Kaufman; Michigan Sen. Debbie Stabenow; and Reverend Charles William III, a member of the civil rights organization National Action Network.

State Gave Its Workers In Flint Clean Water As It Assured Residents Taps Were Safe - A state building in Flint, Michigan, had clean water quietly trucked in for government employees even as city residents expressed concerns about unsafe water, emails among state officials show.  Emails obtained by the advocacy group Progress Michigan reveal state officials acknowledging concerns in  Jan. 7, 2015 about the water quality while brushing off residents' uneasiness. At the time, the city had warned residents of high levels of chemical byproducts in the water, but said individuals didn't need to worry about ingesting the water unless they had compromised immune systems. The water was later shown to have high levels of lead due to the incorrectly treated water corroding the supply's pipes.  The emails are the latest evidence that Gov. Rick Snyder (R) and his administration at multiple junctures failed to take the water crisis seriously or take timely action. They also show another instance of the administration taking secretive action on the water while publicly touting its safety.  Snyder helped deliver 1,500 water filters to Flint-area pastors in August, even as his officials assured the public the water was safe. The pastors were given the filters to distribute on the condition they didn't talk about it publicly, MLive reports.  Flint residents had complained of discolored, smelly and foul-tasting water since April 2014, when the city switched water sources. Officials in Snyder's administration denied lead issues until October of 2015, when a local pediatrician documented Flint children with high levels of lead, which can cause stunted growth and brain damage in young children.

Flint: Let Them Drink Pollution?  -- The tragic crisis in Flint, Michigan, where residents have been poisoned by lead contamination, is not just about drinking water. And it’s not just about Flint. It’s about race and class, and the stark contradiction between the American dream of equal rights and opportunity for all and the American nightmare of metastasizing inequality of wealth and power. The link between environmental quality and economic inequality was spelled out more than two decades ago in a memorandum signed by Lawrence Summers, then chief economist of the World Bank, excerpts of which appeared inThe Economist under the provocative title, “Let them eat pollution.” Starting from the premise that the costs of pollution depend on “the forgone earnings from increased morbidity and mortality,” Summers concluded that “the economic logic of dumping a load of toxic waste in the lowest-wage country is impeccable and we should face up to that.” A different logic is supposed to underpin U.S. environmental policies.  Even when cost-benefit calculations are brought to bear on environmental policy, the EPA uses a single “value of a statistical life” – currently around $8.7 million – for every person in the country, rather than differentiating across individuals on the basis of income or other attributes. In practice, however, the role of costs and benefits in shaping public policies often depends on the power of those to whom they accrue. When those on the receiving end are poor, their interests – and their lives – often count for less, much as the Summers memo recommended. And when they are racial and ethnic minorities, the political process often discounts their well-being even more. So it was that Flint – the city with the second highest poverty rate in the nation(surpassed only by Youngstown, Ohio), where more than half the population is black – wound up with lead in its water supply up to 866 times the legal limit. The levels in some residents’ homes were high enough for the EPA to classify the water as “toxic waste.”

The Great Lead Water Pipe Disaster - The disaster in Flint, Michigan is being treated as an aberration but Werner Troesken’s excellent book The Great Lead Water Pipe Disaster demonstrates that there is a history of such problems in the United States.  In The Great Lead Water Pipe Disaster, Werner Troesken looks at a long-running environmental and public health catastrophe: 150 years of lead pipes in local water systems and the associated sickness, premature death, political inaction, and social denial. The harmful effects of lead water pipes became apparent almost as soon as cities the world over began to install them. Doctors and scientists noted cases of acute illness and death attributable to lead in public water beginning in the middle of the nineteenth century, and an editorial in the New York Herald called for the city to study the matter after a bizarre illness made headlines in 1868. But officials took no action for many years. New York City, for example, did not take any steps to reduce lead levels in water until 1992, long after the most serious damage had been done. By then, in any case, much of the old lead pipe had been replaced with safer materials.

Lead pipes lurk in older neighborhoods across the nation: (AP) — Lead pipes like the ones that led to contamination of the tap water in Flint, Michigan, carry water into millions of older homes across the U.S. every day, a legacy of an era before scientists realized the severe long-term health consequences of exposure to the heavy metal. Replacing these buried pipes would be costly in many cases, so chemicals often are added to prevent the plumbing from corroding and leaching lead and other dangerous metals into the drinking water. That's a step authorities in Flint failed to take, for reasons that are being investigated. Some researchers question whether chemical treatment and routine testing for lead in the water are enough, arguing that the only way to remove the threat is to replace the pipes. Utility operators say what happened in Flint — a largely poor and predominantly black city of about 100,000 people that was once an automobile manufacturing powerhouse — is unlikely to be repeated, pointing to a series of mistakes at every level of government. The city began drawing drinking water from the Flint River, and state environmental regulators failed to make sure the corrosive water was treated to prevent leaching from old pipes. The result: Flint children have been found with high blood levels of lead that could cause lifelong health problems, and parents and others are furious at public officials. Lead pipes are predominantly found in older neighborhoods, especially in the East and Midwest, because most cities stopped installing them in the 1930s. The pipes carry water from main lines under the streets and into homes.

America’s lead poisoning problem isn’t just in Flint. It’s everywhere -- The city of Flint, Michigan, is in the midst of a terrible and rightly shocking lead poisoning crisis. The number of kids testing positive for elevated lead levels in their bloodstreams has doubled in the past few years, after the city switched to a new, cheaper water source.  This is an extreme case, but the problem of lead exposure among children is not a local Flint story. If you look at public health data, you begin to realize two things. The first is that it's actually really hard to get good data on which kids do and don't experience lead exposure, and which parents should worry about the issue. Second: The data that is available shows that lead exposure is a pervasive issue in the United States. In some places outside of Flint, more than half of children test positive for lead poisoning. Houston County, Alabama, reported the highest rate of lead poisoning in the nation of any counties that sent data to the Centers for Disease Control and Prevention. Houston County tested 12 children for lead poisoning in 2014, which it defines as kids who have more than 5 micrograms of lead per deciliter of blood. Seven of those tests came back positive. Nine counties nationwide told the CDC that 10 percent or more of their lead poisoning tests came back positive. These are places that have told the federal government they actually have higher rates of lead poisoning than Flint, where officials say the number hovers around 4 percent. But these aren't places we talk about that much. The map above uses CDC data to show lead poisoning rates across the country. The reason so many of the counties are light gray is that most counties simply don't report this information — nor are they required to.

Gov. Snyder lied: Flint water switch was not about saving money, records show  - The Flint water crisis that led to thousands of people being poisoned began because state officials maintained it would save the cash-strapped city money by disconnecting from the Detroit Water and Sewerage Department (DWSD) and using a different source. But it turns out, DWSD offered the state-controlled city a deal that would have saved Flint more money by staying with Detroit. An e-mail obtained by Motor City Muckraker shows the deal would have saved the city $800 million over 30 years, which was 20% more inexpensive than switching to the Karegnondi Water Authority. A high-ranking DWSD official told us today that Detroit offered a 50% reduction over what Flint had been paying Detroit. In fact, documents show that DWSD made at least six proposals to Flint, saying “the KWA pipeline can only be attributed to a ‘political’ objective that has nothing to do with the delivery – or the price – of water.”  The offer by DWSD raises serious questions about whether Gov. Rick Snyder was lying when he insisted the water switch was motivated by saving money for Flint, which was under the control of a state emergency manager. “When compared over the 30 year horizon the DWSD proposal saves $800 million dollars or said differently – saves 20% over the KWA proposal,” then-DWSD Director Sue McCormick said in the e-mail dated April 15, 2013.

Michael Moore: 10 Things They Won’t Tell You About the Flint Water Tragedy, But I Will  -- News of the poisoned water crisis in Flint has reached a wide audience around the world. The basics are now known: the Republican governor, Rick Snyder, nullified the free elections in Flint, deposed the mayor and city council, then appointed his own man to run the city. To save money, they decided to unhook the people of Flint from their fresh water drinking source, Lake Huron, and instead, make the public drink from the toxic Flint River. When the governor’s office discovered just how toxic the water was, they decided to keep quiet about it and covered up the extent of the damage being done to Flint’s residents, most notably the lead affecting the children, causing irreversible and permanent brain damage.  Here are 10 things that you probably don’t know about this crisis because the media, having come to the story so late, can only process so much. But if you live in Flint or the State of Michigan as I do, you know all to well that what the greater public has been told only scratches the surface.

1. While the Children in Flint Were Given Poisoned Water to Drink, General Motors Was Given a Special Hookup to the Clean Water. A few months after Gov. Snyder removed Flint from the clean fresh water we had been drinking for decades, the brass from General Motors went to him and complained that the Flint River water was causing their car parts to corrode when being washed on the assembly line. The governor was appalled to hear that GM property was being damaged, so he jumped through a number of hoops and quietly spent $440,000 to hook GM back up to the Lake Huron water, while keeping the rest of Flint on the Flint River water. Which means that while the children in Flint were drinking lead-filled water, there was one—and only one—address in Flint that got clean water: the GM factory.

Okay, Somebody Should Go to Jail Over the Flint Water Crisis -- I am now of the Michael Moore persuasion.  Rick Snyder and several other somebodies in his administration belong in the pokey, if not hauled off to The Hague for crimes against humanity. The Snyder administration quietly trucked in water to state buildings in January of 2015 – ten months prior to Governor Snyder publicly admitting there was reason for concern in Flint, according to a document obtained by Progress Michigan. The document is a Facility Notification sent by the Department of Technology, Management and Budget (DTMB) in response to poor water quality in Flint. The notification stated that water coolers were being installed on each occupied floor next to the drinking fountains so that state workers could choose to continue to drink Flint water or a safe alternative. "It appears the state wasn't as slow as we first thought in responding the Flint Water Crisis. Sadly, the only response was to protect the Snyder administration from future liability and not to protect the children of Flint from lead poisoning," said Lonnie Scott, executive director of Progress Michigan. "While residents were being told to relax and not worry about the water, the Snyder administration was taking steps to limit exposure in its own building.

Flint Now Has an Empty-Water-Bottle Problem - On Monday, Diddy and Mark Wahlberg sent 1 million bottles of water to Flint, Michigan, where the municipal water supply has been declared unsafe. Other celebrities, nonprofits, and corporations have sent hundreds of thousands more. That’s a lot of bottles — and, now, a lot of plastic trash.  So a city that was already struggling to keep its head above (lead-contaminated) water now has a new problem. Flint has only three landfills and a two-year-old, voluntary recycling program in which few residents participate. A private waste-hauling company that donated four huge recycling bins to Flint told NBC News that each can fill up with 680 pounds of water bottles in 24 hours. To put that in perspective, the average American throws out 185 pounds of plastic a year. (Curbside recycling, while theoretically a good thing, is also more of a mirage than many people realize; one-third of “recycled” bottles of water end up in landfills. And whether they're recycled or not, all of that extra material still has to be picked up.) Flint native Michael Moore took to his website on Wednesday to tell philanthropists to lay off the shipments of Poland Spring, urging instead a much more comprehensive emergency measure: that each resident immediately receive a pair of 55-gallon drums, to be refilled daily with trucked-in water until the pipes are fixed. He points out that the cases of bottled water being shipped to Flint constitute a literal drop in the bucket: “100,000 bottles of water is enough for just one bottle per person – in other words, just enough to cover brushing one’s teeth for one day,” Moore wrote. “You would have to send 200 bottles a day, per person, to cover what the average American (we are Americans in Flint) needs.”

Libby Medicare for Flint - There is a precedent for expanding Medicare to a region suffering from a public health disaster. Montana Senator Max Baucus tucked into the Affordable Care Act a special section that expands Medicare to the people of Libby and the surrounding area who were poisoned by W. R. Grace's deadly mine causing mesothelioma and asbestos-related disease. Shouldn't the people of Flint, all of them not just the children, have Medicare also for life?  We must do much more, but, at least, we can start here. Below are two stories on this topic.  All of the supporting data appears in the bottom link of each story.  (For instance, here's the Libby link on the Social Security website.)

6 Cities In Michigan Have Even Higher Levels Of Lead Than Flint -- As the nation rightly focuses on Flint’s ongoing water crisis, other cities in the state of Michigan face even higher levels of lead contamination. The alarming pervasiveness of potentially toxic drinking water extends across the United States. The Detroit News reports that “Elevated blood-lead levels are seen in a higher percentage of children in parts of Grand Rapids, Jackson, Detroit, Saginaw, Muskegon, Holland and several other cities, proof that the scourge of lead has not been eradicated despite decades of public health campaigns and hundreds of millions of dollars spent to find and eliminate it.”  Of over 7,000 children tested in the Highland Park and Hamtramck areas of Detroit in 2014, 13.5 percent tested positive for lead. Among four zip codes in Grand Rapids, one in ten children had lead in their blood. In Adrian and south-central Michigan, more than 12 percent of 640 children tested had positive results. These overall numbers are higher than Flint’s, where Dr. Mona Hanna-Attisha found lead in up to 6.3 percent of children in the highest-risk areas; while The Guardian reported Dr. Hanna-Attisha has also said the rate is as high at 15 percent in certain “hot spots,” the size of those samples was not listed. Even so, the overall figures across Michigan are lower than in previous years. In 2012, children tested across Michigan had lead in their blood at a rate of 4.5 percent, about five times less than the rate ten years prior, which reached an alarming 25 percent. In spite of the decrease in recent years, however, thousands of children in Michigan are still affected. “In 2013, that level sank to 3.9 percent and fell again to 3.5 percent in 2014. But that is still 5,053 children under age 6 who tested positive in 2014,” the Detroit News explained. “Each had lead levels above 5 micrograms per deciliter. (Though no amount is considered safe, 5 micrograms is the threshold that experts say constitutes a ‘much higher’ level than most children.)” One Detroit zip code had a rate of 20.8 percent of children who tested positive in 2014, and 20.3 percent the following year. Lead, a known toxin, is associated with both physical and mental ailments, and according to one Detroit teacher, has harmed the cognitive abilities of students.

Erin Brockovich to Stephen Colbert: 'Flint, Michigan Is the Tip of the Iceberg' - Environmental activist Erin Brockovich appeared on The Late Show with Stephen Colbert to talk about the Flint water crisis. Brockovich said members of the Flint community reached out to her a year ago because they were concerned about how their water looked, tasted and smelled. She sent a team of experts to Flint to investigate and even drafted a protocol for how the city should deal with the problem.  She explained to the audience what went wrong in Flint and what the city needs to do to provide residents with potable water. Colbert then asked Brockovich if Flint was the tip of the “leadberg.” Are there other communities facing similar problems?, he asked. Brockovich answered with a resounding yes. “I can tell you that Flint, Michigan is the tip of the iceberg,” she said. “I can tell you for certain that this is a national crisis that we are not getting ready to face. The crisis is already here. Even since Flint has hit the national stage, we’ve found out that Sebring, Ohio has the same problem … The same thing is happening in Louisiana, and we’re just now hearing rumors—I haven’t verified it before I came out—we’re having the same situation in Wisconsin.”  Watch the interview with Brockovich here:

Sebring, Ohio: Schools closed as water tests demanded - CNN.com -- Following on the heels of the tainted water crisis in Flint, Michigan, Ohio officials have shut down schools in a small town over concerns about its drinking water. The Ohio Environmental Protection Agency has warned some residents not to drink tap water after samples from homes and schools showed unsafe lead levels in Sebring, a town 70 miles southeast of Cleveland.  Schools in Sebring will be closed Monday and Tuesday as the state EPA conducts additional water testings.  Tests showed lead levels at 21 parts per billion in some homes, according to Heidi Griesmer, spokeswoman for the Ohio EPA. The feds require the levels not to exceed 15 parts per billion. Health officials found lead levels as high as 27 parts per billion in Flint, according to CNN's Dr. Sanjay Gupta.  The Ohio EPA said it's taking steps to revoke the license of the Sebring water treatment operator in the wake of the water crisis. "We have asked for assistance from the federal EPA's criminal investigation division," Griesmer said.

Another Lead Water Poisoning Scandal Has Erupted, This Time in Ohio - Amid the Flint, Michigan water crisis, experts warned that what’s happening in Flint could happen elsewhere. And now it appears it already has. The town of Sebring, Ohio outside of Youngstown learned Thursday that high levels of lead were detected in some residents’ water last summer. Residents are now demanding to know why they have been left in the dark for months. According to the AP, schools have been closed for three days, children are being tested for lead poisoning, bottled water is being handed out and state regulators are calling for a criminal investigation of the town’s water plant manager. According to AP, last summer, seven of 20 homes where the water is routinely tested showed excessive levels of lead. The Ohio Environmental Protection Agency (EPA) said the manager of the small water system failed to notify the public within the required 60 days and submitted “misleading, inaccurate or false reports.” Plant manager James Bates said the allegations were an “outright lie.” But Bates does not have the best record. The Ohio EPA accused him in 2009 of “repeatedly violating state rules over the previous several years and operating the plant in a manner that endangered public health,” the AP reported. In those previous violations, he attempted to ignore poor water readings and submitted misleading, inaccurate or false reports. The Ohio EPA issued an emergency order Monday prohibiting Bates from working at the Sebring village water treatment plant and informing him that the agency intends to revoke his operating license. According to CBS News, the Ohio EPA had been asking Bates for months when he would alert the public. Village manager Richard Giroux claimed that he did not know about the elevated lead levels until last week, but a letter released by the Ohio EPA showed that Giroux knew since December.

Flint All Over Again? Lead Poisoning Scandal Strikes Ohio Town - Schools in Sebring, Ohio, were closed for a third day on Tuesday and pregnant women and children have been advised not to drink the water, after tests showed elevated levels of lead in the local water supply. Though the village of about 4,300 in northeastern Ohio is much smaller than Flint, Michigan, the drinking water crises in the neighboring states share troubling aspects. According to local news station WKBN: “Correspondence from the Ohio Environmental Protection Agency and the Village of Sebring show concerns with water testing, beginning in late September. Elevated lead levels were noted by the EPA in November, but customers didn’t learn of the issues until Thursday, meaning that some people could have been drinking water containing lead for months.” WKBN has a full timeline of events here. Scores of Sebring residents turned out for a village council meeting on Monday night, “many frustrated, angry or looking for answers,” reports FOX8 Cleveland. “A lot of us have kids at home, and we’re extremely afraid, and we need a mayor to stand up, be honest with us, hold people accountable and fix this problem,” said one man in attendance. Meanwhile, the Youngstown Vindicator reports that Village Manager Richard Giroux has placed (pdf) Sebring water treatment plant superintendent Jim Bates on paid administrative leave pending the outcome of a state investigation into the incident.OEPA’s criticism stretches to other local officials, as well. “The games the Village of Sebring was playing by giving us incomplete data time and time again, and not submitting the required documents, made it difficult for our field office to determine whether or not they had notified their customers,” said Heidi Griesmer, an agency representative. To that end, OEPA director Craig Butler has asked the U.S. EPA to open a criminal investigation into what occurred in Sebring.

Another Town Just Got Caught Covering Up Lead Contamination In Its Water Supply -- Residents in Sebring, Ohio, can commiserate with those in Flint, Michigan, considering their water supply has also been contaminated with lead that “exceeds the action level,” according to the state’s EPA. Like Flint, the case of Sebring — involving some 8,100 water customers in Sebring, Beloit, Maple Ridge, and parts of Smith Township — already has the appearance of criminal negligence and a possible cover-up. “The first the notifications were discussed with the EPA and my staff was [Thursday] morning [January 21],” said Village of Sebring Manager Richard Giroux, as reported by WKYC. This statement is virtually inexplicable, as evidenced by an Ohio EPA notice posted by WKBN, dated the same day, that the village was in violation for its failure to inform residents back in November of elevated lead levels in the drinking water supply. Yet, on Thursday, according to WKBN, pregnant women and children received the first warning not to drink the city’s water due to lead contamination. That warning, as local NBC affiliate WKYC reported, was expanded to include the entire Village of Sebring on Saturday. Documents posted online by WKBN clearly show the EPA’s ongoing contact and discussion with village officials, who were aware of the lead contamination — and who were repeatedly advised to issue notice to residents.A letter from the Ohio Environmental Protection Agency addressed to Giroux states the agency’s testing found the “water system has exceeded the lead action level” and lists steps the village should have taken to inform the public — by November 29, 2015. According to the EPA’s requirements for actionable lead levels, as stated clearly in that letter, dated December 3, Giroux was supposed to “distribute informational notices to each person served by the [village’s water] system,” as well as “post informational notices” in public common areas “in each building.”

Lawmakers questioning Ohio agency over lead-tainted water -  Ohio Democrats in Congress and the legislature are asking the state’s environmental agency why months passed before residents found out about their lead-tainted tap water. Congressman Tim Ryan of the Youngstown area is calling on the director of the Ohio Environmental Protection Agency to resign, saying the state should have stepped in sooner. A state EPA spokeswoman says agency director Craig Butler moved to fix the problem as soon as he learned about the contaminated water. The EPA says operators of the small water system in Sebring near Youngstown ignored their earlier directives to issue a warning after tests showed high levels of lead last summer. Environmental regulators say the water manager also falsified reports about alerting the public. The plant manager calls those allegations a lie.

Gas Leak in Los Angeles Has Residents Looking Warily Toward Flint— Health officials have tested the air and deemed it safe. Yes, the awful smell from a huge natural gas leak near the Porter Ranch neighborhood may cause vomiting, nosebleeds and other short-term symptoms, they say, but they have assured residents that it does not pose long-term health risks. Many people here, however, simply do not buy it. And now they look warily toward Flint, Mich., where the switch to a new water supply, which state officials insisted for months was safe, has left children with high levels of lead in their blood. With Flint as a potent warning, confidence in public agencies has collapsed here after the gas leak. Unconvinced by health department reassurances, residents have turned for guidance to lawyers who are spearheading lawsuits. And the eroding public trust now poses its own threat to the community: Of the thousands of families who have fled the area, many say they are not sure when they will feel safe returning, if ever.“Do we believe the health department? No,” . “The gas company? No. If the gas company called tomorrow and offered to buy our house, I’d do it in a heartbeat.” Public trust has been a frequent casualty of environmental disasters. Hinkley, Calif., has slowly turned into a ghost town in the two decades since residents won a $333 million settlement from Pacific Gas & Electric for contaminating the water with chromium 6, a cancer-causing heavy metal, as fears about the water have persisted. And two years after a chemical spill in Charleston, W.Va., some residents still will not drink the tap water.

The Bark Beetle Plague -- Yale's Environment 360 recently conducted an interview with Montana entomologist Diana Six. Here's the part that got my attention. e360 —The scale of the current epidemic is unprecedented. Since the 1990s more than 60 million acres of forest, from northern New Mexico through British Columbia, have suffered die-offs. By the time the outbreak in British Columbia peters out, some 60 percent of the mature pines in the province may be dead. That’s a billion cubic meters of wood. People who have not been to the Rockies lately may not grasp the extent of the tree die-off due to the bark beetle infestation. Could you paint a picture of what is going on there?
Six — It’s pretty amazing. There have been tens of millions of acres of trees killed. If you go north to British Columbia, a really big province, something like 80 percent of the trees are dead. You can get in a plane and fly for literally hours over dead forest. So this is massive. Beetle outbreaks are normal, they have been happening for thousands of years. But this one is estimated to be more than ten times bigger than any event we know of in the past. And there is no end in sight. 80 percent! Well, OK—in April, 2015, National Geographic said: The scale of the current epidemic is unprecedented. Since the 1990s more than 60 million acres of forest, from northern New Mexico through British Columbia, have suffered die-offs. By the time the outbreak in British Columbia peters out, some 60 percent of the mature pines in the province may be dead. That’s a billion cubic meters of wood. 60 percent? Maybe it's closer to 80% now. At this level of die-off, what's the difference? You would think this story would be getting more attention. Check out this map.

Indonesian birds on the brink as forests plundered - Daryono is among a small number trying to turn the tide in a country where once-common bird species are being driven to the brink of extinction, as an obsession for bird-keeping and even avian singing contests fuels unprecedented demand. The jungles of the archipelago are home to 131 threatened bird species, according to wildlife trade watchdog TRAFFIC, more than any other country except Brazil. There are a dizzying array of exotic species, from the Sumatran Laughingthrush, to the Chattering Lory and the Black-winged Myna.  At an emergency meeting convened in Singapore to discuss the crisis last year, wildlife experts declared Indonesia's rampant bird trade more of a threat to many native species than habitat loss, and called for urgent intervention to stop the plunder. "The scale is massive. It involves millions and millions of birds every year," TRAFFIC's Chris Shepherd told AFP. "It's just really reaching a point now, a critical point, where it's now or never for a lot of these species."

Paul Allen megayacht destroyed most of protected coral reef, officials say - One of Paul Allen’s big yachts has destroyed a high percentage of a protected coral reef in the Caribbean, according to officials in the Cayman Islands.  Yacht & Boating World reported that the Caymans’ Department of Environment has accused Allen, the Microsoft co-founder and owner of the Seattle Seahawks and Portland Trail Blazers, of having caused serious damage to the protected coral reef in the West Bay replenishing zone.  After an inspection by local divers to assess the damage, officials have found that Allen’s 303-foot yacht MV Tatoosh wrecked a high percentage of the coral, which is essential for marine life. It is thought that the accident was caused by a yacht’s chain when it was anchored near the Doc Poulson shipwreck and The Knife dive site.

California Fish Species Plummet To Record Lows - - Fish species ranging from endangered Delta Smelt to Striped Bass continued to plummet to record low population levels in 2015 in the Sacramento-San Joaquin River Delta, according to the annual fall survey report released on December 18 by the California Department of Fish and Wildlife (CDFW). Only 6 Delta Smelt, an endangered species that once numbered in the millions and was the most abundant fish in the Delta, were collected at the index stations in the estuary this fall. The 2015 index (7), a relative number of abundance, “is the lowest in history,” said Sara Finstad, an environmental scientist for the CDFW’s Bay Delta Region. The Delta Smelt, a 2 to 3 inch fish found only in the San Francisco Bay-Delta Estuary, is an indicator species that demonstrates the health of the Delta, an estuary that has been dramatically impacted by water exports to corporate agribusiness interests and Southern California water agencies during the record drought, along with other factors including increasing water toxicity and invasive species.   The population of striped bass, a popular gamefish, has also declined to record low levels. The 2015 abundance index (52) is the second lowest in history. Only 42 age 0 striped bass were conducted at the survey stations, noted Finstad. Likewise, Longfin Smelt, a cousin of the Delta Smelt, declined to the lowest abundance index (4) in the history of the survey. Only 3 longfin smelt were collected at the index stations throughout the three-month period.

El Niño rains only slightly increased historic low reservoir levels in California - The recent onslaught of El Niño storms only slightly increased the levels of California reservoirs that stand at half of historic depths for this time of year, federal officials said on Friday while releasing an initial water outlook for 2016. Heavy rainfall has soaked into a landscape that has been parched by four years of drought, and the snowpack in the Sierra Nevada has grown but hasn’t started to melt off and replenish the critically low reservoirs, . “It’s going to take a lot more,”  The bureau’s outlook comes as federal water managers prepare to announce how much water will be available for Central Valley farmers this summer. The federally operated reservoirs that supply farms and cities throughout California’s Central Valley are now 49% full, compared with 47% on 1 October. Lake Shasta – the state’s largest reservoir, located in northern California – is at 68%, but San Luis Reservoir in Central California is at 20% of its historical average, the bureau reports. Federal authorities typically announce in late February how much water will be available to farmers for the warmer growing months beginning in the spring. San Joaquin Valley farmers have said they hope that the wet winter will provide them with at least some surface water supplies, unlike the past two years. Federal authorities operate the Central Valley Project, part of a system of canals and reservoirs that delivers water throughout California. California’s department of water resources operates the State Water Project, which delivers water to millions of southern California residents.  “With this promising news and El Niño storms beginning to materialize, we are feeling encouraged,”  “However, storage in our reservoirs remains low, and we must be prudent.”

An extreme drought is wreaking havoc in Thailand -  Thailand is facing its worst drought in ten years, as the government seeks to prevent mass crop failures. The Thai government has implemented various water saving measures in efforts to ensure reservoirs can sustain the country until the end of the dry season in May. The National Water Board has directed farmers not to use water for irrigation, instead rationing existing water stocks for personal use (drinking, cleaning, bathing). The Thai government has also set aside $96 million to drill an additional 4,300 wells to tap into ground water reservoirs. Moreover, Thailand is also filling dams to maximum and considering partially diverting the waters of the Yuan and Salween rivers. These rivers lie on the border with Myanmar, so Thailand’s foreign ministry has been actively negotiating with Burmese authorities on a deal regarding the international waterways. The drought threatens the livelihoods of a significant portion of Thais, as some 40 percent of the population continues to work in agriculture, despite the country’s ‘recently industrialized’ status. While farmers are facing restrictions on crop irrigation this year, last year they were also told to limit water use, and plant alternative, less water intensive crops. The government even set up a multi-million dollar fund to aid drought affected farmers.  Farmers have been complaining that after last year’s trouble, the subsidies they are receiving from the government are too small, barely offsetting rising production costs and the high cost of living. Due to the drought, rice production has declined 16 percent from 19.8 million tons to 16.5 million, with 9 million set aside for export.  To add to Thailand’s woes, the rubber industry is facing a series of challenges. Alongside drought conditions, Thailand – as the largest producer of natural rubber – has been hit hard by an oversupply in international rubber markets.

Africa: El Niño Threatens At Least 60 Million People in High-Risk Developing Countries - The United Nations World Health Organization (WHO) and its partners announced today they predict a major global increase in health consequences of emergencies this year due to El Niño. . "From Ethiopia to Haiti to Papua New Guinea, we are seeing the damage from El Niño, and we believe the impact on public health is likely to continue throughout 2016, even after El Niño winds down," said Dr Richard Brennan, Director of WHO's Emergency Risk Management & Humanitarian Response Department, in a press release. "To prevent unnecessary deaths and illnesses, governments must invest now in strengthening their preparedness and response efforts," he highlighted. According to a new report by WHO, severe drought, flooding, heavy rains and temperature rises are all known effects of El Niño that can lead to food insecurity and malnutrition, disease outbreaks, acute water shortages, and disruption of health services.The health implications are usually more intense in developing countries with fewer capacities to reduce the health consequences. The current El Niño from 2015 to 2016 is predicted to be the worst in recent years, and comparable to the El Niño in 1997-1998 which had major health consequences worldwide. In Eastern Africa, as a result of the El Niño in 1997-1998, WHO found that rainfall patterns were unusually heavy and led to serious flooding and major outbreaks of malaria, cholera and Rift Valley Fever. Based on the latest UN figures, the report estimates 60 million people will be impacted by El Niño this year with many suffering health consequences. Thus far, requests for financial support by seven high-risk countries--Ethiopia, Lesotho, Kenya, Papua New Guinea, Somalia, Tanzania and Uganda--have reached $ 76 million.

Southern Africa's Food Crisis in Numbers - allAfrica.com: Southern Africa is facing the threat of extensive crop failures this year as a result of record low rainfall in a region in which 29 million people are already going hungry. "With little or no rain falling in many areas and the window for the planting of cereals closing fast or already closed in some countries, the outlook is alarming," the World Food Programme has warned. "The region is ill prepared for a shock of this magnitude, particularly since the last growing season was also affected by drought. This means depleted regional stocks, high food prices, and substantially increased numbers of food insecure people," the UN agency said. Southern Africa is feeling the impact of an intense El Niño that began last year. According to the Famine Early Warning Systems Network, continued below-average rainfall and high temperatures are likely to persist in 2016, with the food crisis lasting into 2017. The following are the worst-affected countries:

• South Africa - The biggest victim of the drought. It's the region's main maize producer, but last year output fell 30 percent below the bumper 2014 season and it may have to import around 6 million tonnes. Planting of the 2016 cereal crop began later than normal due to delayed rains.
• Malawi The 2014/15 cereal harvest was 24 percent down on the five-year average. Currently, 2.8 million people are hungry out of a population of 16 million as a result of flooding and drought last year.
• Zimbabwe The 2014/15 cereal harvest was 42 percent down on the five-year average. An estimated 1.5 million people currently don't have enough food, with 600,000 in "crisis" phase.
• Angola - A drought that scorched Namibia spread into Angola's three southern provinces - Cunene, Huila, and Cuando Cubango.  In Cunene, 800,000 people - 72 percent of the population - have been hit by crop losses and livestock deaths, with child malnutrition rates beyond the emergency threshold of 15 percent.
• Mozambique --El Niño's climate impact splits the country in two - in the north there has been flooding, in the south drought. More than 176,000 people are in crisis in the provinces of Gaza, Inhambane, Sofala, and Niassa, until at least the next harvest. .
• Zambia --Zambia has been an exporter of maize to the region, but last year's production was 21 percent down on 2014.
• Lesotho Some 650,000 people - one third of the population - do not have enough food.
• Madagascar Nearly 1.9 million people - 46 percent of the population - were "food insecure" in 2015, with 450,000 of them in crisis.

Congress Actually Dealt with Climate Change in the 2016 Budget Bill. Really. - President Obama's plan to safeguard the nation from increasing flood risk due to climate change was quietly green-lighted by Congress last month in the 2016 omnibus budget bill. It marks one of the only actions Congress took on global warming in all of 2015, and it came as a surprise considering the longstanding opposition from Republicans. And it is a critical one, several policy experts said. It will impact billions of dollars of federally funded construction projects across the country, from highways and bridges to hospitals and housing complexes, at a time when flooding in the U.S. is getting worse every year because of climate change. "The policy illustrates the awareness that we should not build things that are vulnerable to flooding now or in the future," said Rob Moore, a policy analyst and director of the Natural Resources Defense Council's Water and Climate Team. "That may not seem like a revolutionary idea, but unfortunately it is. We have a long history of building things that easily get soggy." Obama's plan, executive order No. 13690, mandates that all federally funded projects located in a floodplain be built higher and stronger than previously required. It is the first update to the Federal Flood Risk Management Standard since the policy was created 38 years ago. It applies to both new construction and rebuilding following a disaster. Under the old standards, enacted by President Jimmy Carter in 1977, buildings in the floodplain had to be elevated to the 100-year flood level. Under Obama's executive order, buildings must now be elevated 2 or 3 feet above the 100-year flood level (the higher standard is for "critical" infrastructure, like hospitals), or at the 500-year flood level. A third option is for federal agencies to analyze future climate change scenarios and build according to those projections, such as for sea level rise or expected heavier rain events.

Record hot years near impossible without manmade climate change – study - The world’s run of record-breaking hottest years is extremely unlikely to have happened without the global warming caused by human activities, according to new calculations. Thirteen of the 15 hottest years in the 150-year-long record occurred between 2000-14 and the researchers found there is a just a 0.01% chance that this happened due to natural variations in the planet’s climate. 2015 was revealed to have smashed all earlier records on Wednesday, after the new study had been completed, meaning the odds that the record run of heat is a fluke are now even lower. “Natural climate variations just can’t explain the observed recent global heat records, but manmade global warming can,” : “It has led to unprecedented local heatwaves across the world, sadly resulting in loss of life and aggravating droughts and wildfires. The risk of heat extremes has been multiplied due to our interference with the Earth system, as our analysis shows.”  The UN World Meteorological Organization (WMO) confirmed on Monday that the global average surface temperature in 2015 shattered all previous records and said 15 of the 16 hottest years on record have all occurred since 2000. “We have reached for the first time the threshold of 1C above pre-industrial temperatures. It is a sobering moment in the history of our planet,” said WMO secretary-general Petteri Taalas.

Record hot 2015 gave us a glimpse at the future of global warming: 2015 smashed the record for hottest year by about 0.14°C. To put that into perspective, the previous two hottest years (2014 and 2010) only broke the prior records by 0.002°C, according to Berkeley Earth data. The only time the temperature record was shattered by such a large margin was in the monster El Niño year of 1998. While the current El Niño event is also becoming monstrously strong, it’s only now reaching its peak intensity, and there’s an approximately 4-month lag before changes in El Niño are reflected in global surface temperature changes. Thus, the El Niño of 1998 had a greater warming influence than its 2015 counterpart. 2015 was nevertheless more than 0.2°C hotter than 1998, due to human-caused global warming. As the animated graphic below shows, there’s a consistent warming trend among El Niño years, La Niña years, and neutral years. Over the past 50 years, there’s a 0.16°C per decade trend among each category, and individual years fall close to those trend lines. That underlying human-caused global warming trend is what’s causing annual temperatures to so frequently break records, with 4 new record-hot years in the past decade. As NASA GISS director Gavin Schmidt said,  The El Niño that we’re seeing is starting at the end of 2015, and so there hasn’t been enough time for that to really have an impact on the annual mean temperatures. So 2015 was warm even though there was an El Niño, and it would’ve been a record year even if you abstract out the El Niño affect, 2015 would’ve been a record warm year by a long chalk. And due to the aforementioned lag, 2016 could be even hotter yet. Prof Adam Scaife, head of long-range forecasting at the Met Office, said in an interview with Carbon Brief, If 2016 breaks the temperature record yet again, it will be the first time in the past 150+ years that three consecutive years set a new annual global temperature record.

Modern European summers are warmest since Roman times, study finds - Europe has almost certainly experienced warmer summers in the last three decades than at any other time since the Roman empire, according to a study published on Friday in the Environmental Research Letters journal.Since 1986, mean summer temperatures have been about 1.3C hotter than they were two millennia ago, while heatwaves have been longer, more frequent and more persistent, the study says.The paper was compiled by 40 prominent academics, using tree-ring analysis, climate modelling and historical documentary evidence from the notes of doctors, priests and monks.“This degree of warming is unprecedented in the last two thousand years,” Professor Jürg Luterbacher, the report’s coordinator, told the Guardian. “It is exceptionally high and cannot be explained by natural variability, tropical volcanoes or solar changes. It is because of anthropogenic [manmade] climate change.”While the paper offers new insights into the effects that volcanic eruptions, solar variability and land use change can have on climate, its range is limited to periods between June and August. Much of the data for the period before 755 comes from analysis of tree rings and density information from three pine tree species in Finland, Austria and Sweden. These trees grow in warm weather but are dormant in the cold, meaning that their rings, density – and the outside temperatures – can only be measured in summer.

The World Has Discovered a $1 Trillion Ocean - There’s no doubting the melting of the Arctic ice cap, and the unveiling of resources below, presents mind-boggling opportunities for energy, shipping, fishing, science, and military exploitation. Russia even planted its flag on the sea floor at the North Pole in 2007. Energy and shipping have been first up. Norway made its national fortune drilling in northern waters, and Arctic fossil fuel exploration has become a more prominent part of U.S. energy policy. Melting ice means that in summer months, cargo can travel approximately 5,000 km from Korea to New York, rather than the 12,000 km it takes to pass through the Panama Canal. Warming waters also open up access to commercial fish stocks, making the Arctic a growing source of food. Scott Minerd, chairman of investments at Guggenheim Partners, joined a World Economic Forum advisory council. Its task? Develop guidelines for those nations looking to do business at the top of the world. That framework is to be released Thursday, in Davos. “The history of economic development in regions of the world has really been fraught with a mass of mistakes,” said Minerd, who before Guggenheim worked at Credit Suisse and Morgan Stanley. “It really seems that someone needed to start developing a minimum standard, as a guide for economic development in the region.” The Arctic Investment Protocol, developed by a 22-member WEF “global agenda council,” puts forward sustainability principles similar to initiatives developed for mature economies in recent years. The focus is long-term: tap the expertise of indigenous communities and treat them as commercial partners, protect ecosystems (even as rising temperatures change them before our eyes), and prevent corruption while encouraging international collaboration. The Arctic nations include Canada, Denmark, Finland, Iceland, Norway, Russia, Sweden and the U.S., so there is a lot of collaboration to be had.

The Arctic Is Melting And Big Business Is Chomping At The Bit To Dig In -- Leonardo DiCaprio briefly smiled before the World Economic Forum as he received an award for his leadership in tackling climate change. Once settled under the spotlight, he quickly moved away from his grateful statements, and began railing on corporate avarice. “We simply cannot allow the corporate greed of the coal, oil, and gas industries to determine the future of humanity,” said DiCaprio last week while at Davos, Switzerland, where some 2,500 top global business leaders, politicians, and intellectuals gathered to discuss politics, economics, and social issues. But while DiCaprio was cheered Wednesday as he stepped off the stage with his Crystal award, the international business community appears interested in venturing into new areas despite potential ecological costs. In fact, a day after recognizing environmental leadership, a World Economic Forum advisory group launched the Arctic Investment Protocol, and with that came a tacit push for extracting resources from one of the least-developed areas of the world.  The Arctic Investment Protocol is a voluntary set of guidelines for nations looking to do business where diminished ice coverage from man-made climate change is allowing access to once-unreachable sea routes as well as vast mineral and fossil fuel reservoirs.The protocol calls for building resilient societies through economic development, pursuing measures to protect the Arctic environment, and respecting and including local communities, to name a few. The Guggenheim Partners, a major global investment and financial services firm, quickly endorsed the protocol, saying the Arctic represents one of the last great economic frontiers. With more than $240 billion in assets, Guggenheim Partners was the first major firm to endorse these guidelines. In doing so, it also gave a strong indication of where global business is headed as South America, Asia, and Africa receive increasing investment.

Warmer Indian Ocean could be 'ecological desert', scientists warn: Anslem Silva has fished for four decades from this popular harbor on Sri Lanka's west coast, but for five years now filling his boat has become increasingly difficult. "We seem to be spending more and more time out at sea looking for catch. Where there were fish for decades, now there is very little. It is strange, but all of us have been noticing that,"  Overfishing is responsible for some of the lowered catch, but another problem may also be contributing: lack of food for the fish themselves, driven by global warming. "Rapid warming in the Indian Ocean is playing an important role in reducing phytoplankton up to 20 percent," said Roxy Mathew Koll, a scientist at the Centre for Climate Change Research at the Indian Institute of Tropical Meteorology in Pune. Over six decades, rising water temperatures appear to have been reducing the amount of phytoplankton - microscopic plants at the base of the ocean food chain - available as food for fish, according to research released in December by Koll and other scientists from the United States, South Africa and France. That "may cascade through the food chain, potentially turning this biologically productive region into an ecological desert," Koll said. Such a change would curb food security not only in Indian Ocean rim countries but also global fish markets that buy from the region, he said. As waters in parts of the Indian Ocean have warmed by 1.2 degrees Celsius over the last century, the mixing of surface water and nutrient-rich deeper waters have slowed, the scientists said. That has prevented nutrients from reaching the plankton, which are mostly active in surface waters.

Pakistan's Response to Climate Change - Pakistan has made only a small contribution to climate change through carbon emissions.  And yet, it counts among the dozen or so nations considered most the most vulnerable to its damaging effects. These include rising temperatures, recurring cycles of floods and droughts and resulting disruption in food production. What can Pakistan do to minimize these impacts?  Pakistan is working with both sources and sinks of carbon. Among the sources, the nation is focusing on increasing production of clean, renewable energy that does not produce carbon emissions. At the same time, there is a reforestation effort underway in Khyber Pukhtunkhwa province to plant a billion trees to remove carbon from the atmosphere. Reforestation project in Khyber Pukhtunkhwa province is part of the Green Growth Initiative launched in February 2014 in Peshawar by Pakistan Tehrik e Insaf (PTI) leader Imran Khan whose party governs the province.  The initiative aims to boost local economic development in a way that uses natural resources sustainably, with a focus on increasing clean energy uptake and forest cover, according to a report in Christian Science Monitor.  The KP government has turned forest restoration into a business model by outsourcing nurseries to the private sector, including widows, poor women, and young people, according to the paper. It reports  that the government buys saplings to plant while providing green jobs for the community. "At the same time, illegal logging has been almost eliminated in the province following strict disciplinary action against some officials who were involved. Other measures include hiring local people to guard forests and banning wood transportation", the Christian Science Monitor reports. Pakistan has installed about 300 megawatts of wind-energy capacity through six projects working in the Sindh province, according to a Bloomberg report. That may grow to 800 MW by year-end as eight projects in the same region get commissioned, says Alternative Energy Board chief Syed Aqeel Husain Jafri. The Quaid e Azam solar park in Punjab province will add another 300 megawatts of capacity to the existing 100 megawatts by March or April, he said. Chinese firm Zonergy Co Ltd. will set up 900 megawatts in this 1-gigawatt solar park.

Indonesia’s Fires Blamed For Potent Greenhouse Gases - Indonesian fires that are expected to flare up again in the coming months may affect temperatures far away from the nation’s watery borders. Carbon dioxide and methane from the fires is already known to be accelerating global warming, and new research is linking high levels of another potent greenhouse gas with forest and peat fires in Indonesia and elsewhere. Analysis of tropospheric data gathered using specially-modified jets during Guam-based missions has linked elevated levels of ozone with forest fires. Like methane, ozone is a potent but short-lived greenhouse gas. “Pretty much every time we were flying, we were seeing levels of ozone that were above what the air quality standard is in the U.S.,” said Daniel Anderson, a PhD candidate at the University of Maryland and one of the university and government scientists involved with the research. “We were interested in where that was coming from, since it’s far away from any polluting sources.” The research linking the fires with the mid-tropospheric ozone was published last week in Nature Communications. It came as a surprise to many, and not all scientists involved with the Guam missions are ready to accept its conclusion without further proof. Other papers analyzing data gathered during the missions will be published by different teams of scientists in the months and years ahead.

The World Is Hemorrhaging Methane, and Now We Can See Where: For more than two months now, a ruptured storage well has poured thousands of tons of gas into the Porter Ranch section of Los Angeles. The Aliso Canyon leak is huge—California’s largest known source of methane emissions at this point—but not compared to another font of wasted gas miles away in Venezuela. Punta de Mata is home to the world’s largest gas flare, one of the flaming chimneys used to burn off excess natural gas at oil wells and other energy sites. In 2012, it incinerated about 768,000 metric tons of natural gas, almost 10 times the amount given off so far from the Southern California Gas Company’s facility at Aliso Canyon. Methane, the primary component of natural gas, is 84 times more potent as a greenhouse gas than carbon dioxide over two decades. As countries seek to comply with the new UN climate accord by slashing emissions, both gas flaring and leaks remain persistent problems. Though widespread, they can be difficult to track, given that methane gas is invisible and odorless. Now, high-tech cameras and satellites are capturing those releases better than ever, putting pressure on companies and officials to take action. Flaring gas has a much lower impact on the climate than a vent directly into the atmosphere—the flame converts gas into an amount of carbon dioxide that will have 30 times less warming potential in the near term. Still, the methane hotspots spanning the globe add a hefty sum to its greenhouse gas pollution.

Florida mayors to Rubio: We’re going under, take climate change seriously - A group of mayors from communities in south Florida has released an open letter to one of their senators, Marco Rubio, in which they call for a meeting to discuss the challenges posed by climate change. The mayors, from communities like Key Biscayne, Miami, and West Palm Beach, say that the challenge of climate change requires a strong presidential commitment to action, one they argue Rubio is lacking. "As mayors representing municipalities across Florida, we call on you to acknowledge the reality and urgency of climate change and to address the upcoming crisis it presents our communities," the letter reads. "Our cities and towns are already coping with the impacts of climate change today." Flooding at high tides, severe storm surges, and the intrusion of saltwater into municipal water supplies are all problems these cities face. Those issues come thanks to 20cm of sea-level rise over the previous century. Studies project that the area could see up to another 30cm rise by 2050, which the mayors say "could wipe out as much as $4 billion in taxable real estate in the four-county region of Southeast Florida." If those projections are low, things get bad quickly; a 90cm rise takes out $31 billion and leaves cities and the Everglades decisively under water.

Doomsday Clock Stays at Three Minutes to Midnight: At the ‘Brink’ of Man-Made Apocalypse - With “utter dismay,” the Bulletin of the Atomic Scientists announced Tuesday that the symbolic Doomsday Clock will hold at three minutes to midnight—at the “brink” of man-made apocalypse—because world leaders have failed to take the necessary steps to protect citizens from the grave threats of nuclear war and runaway climate change. “Three minutes (to midnight) is too close. Far too close,” reads the statement by the Bulletin’s Science and Security Board.   The decision not to move the hands of the Doomsday Clock “is not good news,” it continues, “but an expression of dismay that world leaders continue to fail to focus their efforts and the world’s attention on reducing the extreme danger posed by nuclear weapons and climate change. When we call these dangers existential, that is exactly what we mean: They threaten the very existence of civilization and therefore should be the first order of business for leaders who care about their constituents and their countries.” The Bulletin’s Science and Security Board in consultation with its Board of Sponsors, which includes 17 Nobel Laureates, ruled last year to move the clock forward from five minutes to midnight to three in response to the competing threats of “unchecked climate change, global nuclear weapons modernizations and outsized nuclear weapons arsenals.” The board acknowledged some bright spots over the past year, namely the Iran nuclear agreement and the Paris Climate Accord, but said that “they constitute only small bright spots in a darker world situation full of potential for catastrophe.”

Climate Deal’s First Big Hurdle: The Draw of Cheap Oil - Barely a month after world leaders signed a sweeping agreement to reduce carbon emissions, the global commitment to renewable energy sources faces its first big test as the price of oil collapses.Buoyed by low gas prices, Americans are largely eschewing electric cars in favor of lower-mileage trucks and sport utility vehicles. Yet the Obama administration has shown no signs of backing off its requirement that automakers nearly double the fuel economy of their vehicles by 2025.In China, government officials are also taking steps to ensure that the recent plunge in oil prices to under $30 a barrel does not undermine its programs to improve energy efficiency. Earlier this month, the country’s top economic planning agency introduced a new regulation, effective immediately, aimed at deterring oil consumption. For the climate accord to work, governments must resist the lure of cheap fossil fuels in favor of policies that encourage and, in many cases, require the use of zero-carbon energy sources. But those policies can be expensive and politically unpopular, especially as traditional fuels become ever more affordable.“This will be a litmus test for the governments — whether or not they are serious about what they have done in Paris,” said Fatih Birol, executive director of the International Energy Agency. So far, there is no sign that the world’s two largest energy consumers — the United States and China — are wavering. With those two countries staying the course, albeit in the early days since the signing, there is optimism among backers of the accord that the momentum is too strong to stop. And despite the recent turmoil in energy markets, renewable industries are prospering.

California solar owners face new fees, utilities say costs should be higher-- California utility regulators narrowly passed new rules that will increase costs for owners of rooftop solar systems, part of a broad reshaping of the state's energy future. The California Public Utilities Commission, on a 3-2 vote Thursday, stopped short of the even higher charges that the state's investor-owned utilities wanted. The opposing commissioners said they voted against the proposal because of the last-minute elimination of an electricity transmission fee, a move that they said made the overall arrangement too rich for the solar industry. The decision, which initially applies only to new solar panel systems, was viewed by some as a compromise. But others say it's a defeat for the utilities. Southern California Edison, San Diego Gas & Electric and Pacific Gas & Electric had pressed the commission to charge solar owners hefty fees that the solar industry said would crush their business.From the Los Angeles Times: Under the decision, new solar customers would face a one-time charge, what the commission calls “a reasonable interconnection fee,” to tie into the electric grid. The commission estimates the fee would range from $75 to $150 per solar customer. In addition, rooftop solar customers would pay a fee estimated at 2 cents per kilowatt-hour for electricity used from the utility companies, no matter how much power their solar systems generate. This fee would amount to about $6 more a month for the average solar user. Utilities also would place new solar customers on time-of-use rates, which rise during periods of high electricity demand. 

A New Grid Could Enable High Penetration of Renewables - Decarbonizing the power sector without dramatically increasing the cost of electricity is critical to limiting global climate change. A new study concludes that we can cut emissions associated with the electricity sector by 80 percent while keeping prices at or below their current levels. The key will be a nationwide, modernized grid. The work of a team of researchers led by Alexander MacDonald of the National Oceanic and Atmospheric Administration and Christopher Clack of the Cooperative Institute for Research in Environmental Sciences at the University of Colorado and published today in Nature Climate Change, the study concludes that we can provide large amounts of carbon-free electricity by viewing the continental U.S. as a single, interconnected energy market. Such a large-scale system would eliminate the problem of intermittency in power generation from wind and solar resources. “If wind or solar power are not available in a small area, they are more likely to be available somewhere in a larger area,” write MacDonald and colleagues. The plan would require big investments in high-voltage direct-current transmission lines. Indeed, the researchers compare the expansion to building the interstate highway system in the 1950s. Currently, there are three separate grids in the United States, and most transmission lines are based on alternating current. That limits both the voltage and the thickness of the wires, thus limiting the amount of power that can be transported. But MacDonald and Clack say that the benefits of expanded transmission capacity far outweigh the costs. “Even doubling the cost of the transmission lines wouldn’t alter the results, because the benefits of building this infrastructure are so large,” says MacDonald.

The U.S. Could Switch to Mostly Renewable Energy, No Batteries Needed | Science | Smithsonian: The United States could lower carbon emissions from electricity generation by as much as 78 percent without having to develop any new technologies or use costly batteries, a new study suggests. There’s a catch, though. The country would have to build a new national transmission network so that states could share energy.  “Our idea was if we had a national ‘interstate highway for electrons’ we could move the power around as it was needed, and we could put the wind and solar plants in the very best places,” says study co-author Alexander MacDonald, who recently retired as director of NOAA’s Earth System Research Laboratory in Boulder, Colorado. Several years ago, MacDonald was curious about claims that there was no technology available that could mitigate carbon dioxide emissions without doubling or tripling the cost of electricity. When he investigated the issue, he discovered that the studies behind the claims did not incorporate the country’s variable weather very well. One of the big issues with wind and solar power is that their availability is dependent upon the weather. Solar is only available on sunny days, not during storms or at night. Wind turbines don’t work when the wind doesn’t blow enough—or when it blows too much. Because of this, some studies have argued that these technologies are only viable if large-capacity batteries are available to store energy from these sources to use when they aren’t working. That would raise the cost of electricity well beyond today’s prices.

Cheap Gas Pinches Power Generators - WSJ - The lowest electricity prices in more than a decade are testing the whole business model of independent power-generation companies. While most companies are thrilled when their fuel costs drop, plunging natural-gas prices have pushed wholesale electricity prices down to rock-bottom levels. That trend is pressuring the sales and stock prices of some of the biggest power-plant owners in the U.S.   So far this year, they are down between 4% and 19%.   A U.S. Supreme Court decision this week put additional pressure on generators’ stocks with a ruling that allows big consumers to receive payments for cutting their electricity use that are equivalent to what generators are paid to make electricity.  The companies mostly burn coal and natural gas to generate electricity, but it is gas prices that often dictate electricity prices in places like California, Texas and the northeast. That is because the country’s fleet of power plants has dramatically changed over the last 20 years to run on more gas as coal plants have shut down due to old age and new pollution regulations. Today nearly 30% of U.S. power is generated from gas, up from less than 20% two decades ago.The average U.S. electricity price last year fell by about a third to 3.5 cents a kilowatt-hour, according to a Wall Street Journal analysis of statistics compiled by Intercontinental Exchange Inc. In December, as gas prices hit a 14-year low, the price in some regions was even lower. In the mid-Atlantic power sold for a little as 2.7 cents per kilowatt-hour, according to federal data.

World’s Top Carbon Reserves That Must Be Kept in the Ground to Prevent Climate Chaos -- Just days after scientists named 2015 the hottest year on record, top environmental groups Greenpeace, Sierra Club and 350.org have released a new report, Keep It In the Ground, identifying the top climate threats facing the planet. The report examines the fossil fuel reserves around the world that, if developed, would push the globe past 1.5C and then 2C of warming, the threshold beyond which the effects of climate change would make the Earth unlivable. Fresh off a series of victories in 2015, these groups and others are taking on many of the challenges identified in the Keep It In the Ground report as part of a global push to stand up to the fossil fuel industry and accelerate a just transition to 100 percent renewable energy. “Climate change is already bringing flood waters and wildfires right to our doorsteps,” May Boeve, executive director of 350.org, said. “At this point, continuing to burn fossil fuels is truly lethal. The effort by fossil fuel companies to dig up and burn coal, oil and gas despite the consequences is the biggest threat our planet faces. All around the world people are now mobilizing to keep fossil fuels in the ground.” Keep It in The Ground lays out the carbon risk of fossil fuel deposits in Africa, the Arctic, Australia, Brazil, Canada, China, India, Indonesia, Russia, Saudi Arabia and the U.S., measuring each against a global carbon budget meant to prevent catastrophic climate change. The report also assesses the changing public policies surrounding each fuel source, fossil fuel industry efforts to develop them and citizens’ ongoing efforts to keep them in the ground.

Judge in climate suit tells feds to re-examine coal mine — Federal officials must re-examine a 117 million-ton expansion of an eastern Montana coal mine after a judge sided with environmentalists who sued over the project’s potential to make climate change worse and cause other environmental damage. U.S. District Judge Susan Watters gave the Interior Department nine months to look again at the proposal for the Cloud Peak Energy’s Spring Creek mine near Decker, Montana, along the Wyoming border. In its prior review, the agency “failed to take a hard look” at the expansion, Watters wrote Thursday. One of the plaintiffs in the case, WildEarth Guardians, is pursuing legal challenges against the coal industry that affect 11 mines in five states. The group has highlighted how burning coal contributes to climate change. Watters’ decision follows similar rulings affecting two mines in Colorado and setbacks to the industry from company bankruptcies and falling domestic and international demand for coal. Interior Secretary Sally Jewell imposed a moratorium last week on new coal sales from public lands pending a three-year review of the program. That could tie up two other expansions sought by Cloud Peak Energy, a second one at Spring Creek and one at its Antelope mine near Gillette, Wyoming. Those combined involve more than 600 million tons of coal.

Alpha Natural Resources laying off nearly 900 at West Virginia mines — Bankrupt coal producer Alpha Natural Resources announced Monday it plans to lay off 831 miners and dozens more support staff at eight underground mines and two processing plants in southern West Virginia as a result of the industry’s downturn. Bristol, Virginia-based Alpha said it has sent 60-day layoff warning notices to Boone and Raleigh counties. The announcement includes 468 miners and 40 support staff at five underground mines at Marfork Coal Co. in Naoma and Whitesville, and 363 miners and 15 support staff at three underground mine at Elk Run Coal operations in Sylvester and near Whitesville. The notice said the layoffs will occur around March 25. “It is a direct result of an oversupply of coal in the marketplace and dramatically reduced demand, which has driven prices down to unsustainable levels, particularly for central Appalachia coal,” Alpha said. The move marks the latest blow to an industry that has seen U.S. coal production fall to its lowest level in nearly 30 years.

Murray urges bigger cut than West Virginia governor laid out - West Virginia Gov. Earl Ray Tomblin plans to give struggling coal producers a break by dropping a tax used to pay off a workers’ compensation debt. Massive coal company Murray Energy, however, isn’t satisfied with just eliminating the extra 56-cent-per-ton cost. Amid a dire outlook for the state’s finances, Murray is pushing for West Virginia’s larger tax on mining coal to drop from 5 percent to 2 percent. Tomblin’s administration warned the move would cause an additional hole of more than a $100 million a year into the state budget, and hurt counties further. West Virginia already expects a $384 million gap this budget year and a $466 million gap in 2017. The St. Clairsville, Ohio-based company has announced layoffs for more than 1,000 people at its northern West Virginia mines since April 2014. Each time, Murray called West Virginia’s coal severance tax “extremely excessive.” Murray’s tax-break pitch is likely to take center-stage Wednesday in Charleston. Company namesake Robert Murray, a GOP bankroller and outspoken critic of President Barack Obama, is giving the keynote address to the West Virginia Coal Mining Symposium. “This will still make West Virginia coal extraction at a higher rate than in the states with which we compete,”

States seek court delay in enforcement of Clean Power Plan — A coalition of 25 states opposing President Obama’s plan to reduce greenhouse gas emissions is asking the Supreme Court to stop the new regulations from taking effect until after their legal challenge is resolved. West Virginia and Texas are leading the group of largely Republican states that on Tuesday asked the high court to immediately bar the Environmental Protection Agency from enforcing the Clean Power Plan. The move comes after an appeals court in Washington last week denied a similar request, handing a significant procedural victory to the Obama administration. The federal plan aims to stave off the worst predicted impacts of climate change by reducing carbon dioxide emissions at existing power plants by about one-third by 2030. Courtroom arguments in the case are set to begin in June.

States Asks High Court to Delay EPA Carbon-Emissions Rule - WSJ: —A group of 26 states on Tuesday filed a last-ditch request at the Supreme Court seeking the delay of a key Obama administration environmental rule to cut carbon emissions from power plants. The move, which faces long odds, comes days after a U.S. appeals court declined the states’ request to halt the Environmental Protection Agency’s regulation, issued last year, while they challenge it in court. The appeals court said the state challengers, led by West Virginia and Texas, hadn’t satisfied the demanding legal standards to win a stay of an agency regulation during litigation. The challenger states argued a stay was warranted because they would otherwise need to begin spending considerable time and money planning for the EPA requirements. The agency said there was no reason to halt the regulation because states don’t have to comply until 2022.The EPA rule is an important part of President Barack Obama’s strategy for addressing climate change. It seeks to reduce carbon-dioxide emissions from hundreds of power plants across the U.S. The regulation requires a 32% cut in power-plant carbon emissions by 2030 based on emissions levels of 2005. It is designed to force the utility industry, the largest source of U.S. carbon emissions that contribute to climate change, to shift toward cleaner-burning energy sources over the next several decades.

In coal-powered China, electric car surge fuels fear of worsening smog | Reuters: Automakers' latest projections for rapid growth of China's green car market have added to concerns of worsening smog as the uptake of electric vehicles powered by coal-fired grids races ahead of a switch to cleaner energy. Volkswagen plans 15 new-energy models over 3-5 years, its China chief told a green car conference in Beijing on Saturday, predicting - like the government - that Chinese production of electric and plug-in hybrid vehicles would grow almost six times to 2 million annually by 2020. At the same event, BYD Co Ltd's  chairman told media that the Chinese automaker's electric vehicle sales would double in each of the next three years. The government has been promoting electric vehicles to cut the smog that frequently envelops Chinese cities, helping sales quadruple last year and making China the biggest market, the finance minister said at the conference. Less than 1 percent of passenger cars are now new energy, but the pace of growth raises their potential to worsen smog. A series of studies by Tsinghua University, whose alumni includes the incumbent president, showed electric vehicles charged in China produce two to five times as much particulate matter and chemicals that contribute to smog versus petrol-engine cars. Hybrid vehicles fare little better.

China ban on new coal mines overshadowed by surplus capacity: (Reuters) - China's decision to stop approving new coal mines for three years has been applauded by green groups, but the move is likely to make barely a dent on the world's biggest coal industry given its vast existing production capacity. Some estimates suggest China's surplus capacity could be as high as 2 billion tonnes of coal a year - more than 50 percent of 2015 output - in a country with nearly 11,000 mines. Beijing wants to cut the share of coal in its energy mix to contain pollution and meet climate change goals, while it is also trying to manage the fortunes of a struggling sector that employs nearly 6 million people. And so far efforts to rein in production appear to have had limited market impact with Chinese coal prices losing a third last year. "The ban on new approvals will have little impact because capacity is already too much," Wang Zhixuan, head of the China Electricity Council, said on the sidelines of an coal industry meeting last week. The ban, which was announced in December, was described by environmental group Greenpeace as "a nail in the coffin for king coal", but still leaves huge mining production capacity. China is estimated to have produced around 3.7 billion tonnes of coal in 2015 and Jiang Zhimin, vice-secretary of the China National Coal Association (CNCA), said there were enough mines in operation to produce as much as 5.7 billion tonnes, meaning that many collieries are working well below capacity. "There's no doubt that China's annual production capacity is more than 5 billion tonnes and it is difficult to make changes,"

Japan restarts nuclear reactor using plutonium-mixed fuel — Japan on Friday restarted a nuclear reactor that uses plutonium-based fuel, the first of that type to resume operations under stricter safety rules introduced after the 2011 Fukushima disaster. Japan’s large stockpile of plutonium has raised international nuclear security concerns, and the government has come up with the idea of burning it in reactors as it desperately tries to reduce the amount. The stockpile stems from Japan’s ambition to reprocess spent fuel — an ambition yet to be realized. The No. 3 reactor at Takahama nuclear plant in western Japan, operated by Kansai Electric Power Co., went back online Friday. It is the first that uses a plutonium-uranium hybrid fuel known as MOX to go back online since the accident. Dozens of people protested outside the plant in Fukui prefecture, where preparations for a restart of another reactor, No. 4, were underway. Fukui has more than a dozen reactors, the biggest concentration in one prefecture, causing major safety concerns to neighbors including Kyoto and Shiga, whose Lake Biwa is a major source of drinking water for western Japan. Nearly five years since an earthquake and tsunami caused reactor meltdowns, about 100,000 people still can’t return to areas near the Fukushima Dai-ichi plant, where workers continue to struggle with the decommissioning of the plant, which will take decades.

Battelle chosen to test storing radioactive waste underground - For decades, the United States has produced nuclear energy and made weapons, creating nearly 100,000 metric tons of waste. So far, most of that waste has been stored mainly at the sites where it was created. But those sites were supposed to be temporary solutions. And over the years, the U.S. government has spent billions researching potential permanent places to store nuclear waste. Enter Battelle. The U.S. Department of Energy recently announced that Battelle would lead an effort to drill a test hole more than 3 miles below ground to see whether nuclear waste can be safely stored. The contract is worth $35.7 million to conduct the tests. The waste the government wants to store is from weapons and other U.S. Department of Defense activities, not from power plants. But if the test hole is successful, similar deep-drilled storage could be a solution to solving America's nuclear waste conundrum. "The primary focus is to collect data so that we can evaluate the safety of the (deep-drilled hole) concept," The government has a few caveats for the test site: It has to be away from oil and gas activity. It has to reach a layer of geology that would be impermeable and suitable for containing dangerous substances. And it has to have a history free of earthquakes.

The Great Lakes and a High-Level Radioactive Nuke Waste Dump Don’t Mix - As if the Great Lakes didn’t have enough nuclear nightmares to deal with, now the Wisconsin state legislature is poised to repeal a 33-year-old ban on new atomic reactor construction. The most likely outcome of overturning the nuclear power plant moratorium is not a boom in construction jobs, nor high-tech riches, as the bill’s sponsors tout. Rather, as Al Gedicks of the Wisconsin Resources Protection Council warns, the legislation risks returning northern Wisconsin’s granite geology to the very top of the U.S. Department of Energy’s (DOE) target list for a national high-level radioactive waste dump. The 14,000-year-old Great Lakes, formed by the melting glaciers of the last Ice Age, serve as the drinking water supply for 40 million people in eight U.S. states, two Canadian provinces and a large number of Native American First Nations. They are the lifeblood of one of the world’s largest bi-national, bioregional economies. And they are but a single radioactive catastrophe removed from ruination forevermore. Here’s how Arnie Gundersen, chief engineer of Fairewinds Energy Education, put it in a recent blog post, Downstream: Imagine the 39-year-old Bruce station on Lake Huron or the 44-year-old Palisades plant in Michigan on Lake Michigan having a meltdown like Fukushima Daiichi did in March 2011. The concentration of radioactive waste in the water would be roughly 30,000 times higher in the Great Lakes than in the Pacific Ocean after the triple meltdown at Fukushima Daiichi. Think of the devastation that would occur as 40,000,000 people lose their water supply and the crops along these waterways are contaminated with nuclear waste for decades if not hundreds of years as the St. Lawrence River flows right past Montreal and Quebec City. What are the commercial ramifications for cities along the Great Lakes or the St. Lawrence River when ocean freighters choose to no longer travel there for fear of contaminating the vessels?

Ohio has yet to write rules for fracking industry - In June 2014, the state published a list of 20 rules it was working on to govern Ohio’s growing oil and gas industry. The rules were intended to cover serious environmental, financial and health issues, including recycling fracking waste, tracking wastewater pulled from wells developed with the hydraulic fracturing process and establishing a timetable for companies to report well leaks. But a year and a half later, the Ohio Department of Natural Resources has just one of those rules in place. It covers well pad construction and was finalized in July. Several laws enacted during the past five or so years require ODNR to write these rules to provide additional oversight of fracked wells in Ohio, require additional reporting of spills and gas leaks, create better tracking systems for fracking wastewater and cover storage and reuse of fracking waste. No rules means a lack of oversight and transparency, critics say. "Without rules, there's no way to keep ... ODNR accountable or to ensure that the facilities that ODNR allows to operate without regulatory safeguards are not going to be future time bombs," said Richard Sahli, a former Natural Resources lawyer who now represents environmental advocacy groups.  The state agency could not say last week where any of the 20 rules stood. A Dispatch review of records from the Ohio Joint Committee on Agency Rule Review, the body through which all state agency rules pass, shows the one written rule. Eric Heis, an agency spokesman, said the public should trust the state agency.

Time for fracking rules - The Star Beacon - As State Reps. John Patterson and Sean O’Brien make their trek around the state and district, they would do well to heed the concerns of officials at the ground floor of the fracking debate. Their proposed bill would add much needed regulations to the fracking industry, and the language in it is by no means set in stone — Patterson called it “fluid.” Which is why they are wisely seeking feedback. There are already big positives in it, so let’s start there. It would help close loopholes so interested parties are informed when oil and gas wells change ownership, or if an owner dies. It would enforce firm setbacks for where wells could be placed — 150 to 200 feet in urban areas and 2,000 feet in rural areas. The bill would also protect from wells being set up in flood plains or near bodies of water. But, of particular concern to local trustees, is the continued lack of oversight. Instead, the proposal would actually grant more authority — and funding — to the Ohio Department of Natural Resources, which is not well thought of as an oversight body when it comes to fracking. We have been among those arguing for more local control when it comes to injection wells, so it’s hard to get on board with ODNR having more power when it has not proved itself a solid watchdog in the past. Patterson and O’Brien said this concern is a “non-starter” for the oil and gas lobby, and while they stopped short of calling out their fellow lawmakers for kowtowing to oil and gas, that lobby clearly has long arms and powerful strings. That’s not to say there is no need for compromise. Fracking But the idea that the oil and gas lobby is deciding what safety and regulatory issues are “non-starters” is concerning.  Certainly compromise and negotiation are a big part of any legislation, but Patterson and O’Brien, for as noble as their efforts are, clearly have a lot more work to do to convince their peers of the need for stronger regulations.

Ohio Elected Officials and Statewide Groups Voice Support for Drilling in Wayne National Forest - Elected officials from both parties recently joined groups from across Ohio to advocate for responsible oil and gas development in the Wayne National Forest (WNF). The support has been overwhelming and bipartisan ahead of the public comment period coming to a close.  U.S. Senator Rob Portman, Congressman Bill Johnson, Ohio Treasurer Josh Mandel, state representatives, state senators, county commissioners, economic development agencies, chambers, and  labor unions submitted a flurry of letters to the Bureau of Land management (BLM) explain that drilling in the WNF will brings jobs and economic prosperity to the state.This news comes just days after the BLM made an announcement that it plans to move forward with oil and gas leasing on public lands. That must have been a blow to anti-fracking activists led by the “Keep it in the Ground” campaign and MoveOn.org’s  national petition, “Just say NO to fracking” on public lands. Despite the efforts of these groups, authentic local Ohio voices are prevailing and making it abundantly clear that there is strong support for drilling in the Wayne. Labor groups, including the International Union of Operating Engineers’ Local 18 attended all three public meetings held on WNF leasing and made the following comments:“The oil and natural gas industry has played an important role in the economic well-being of Ohio, and the state’s production is a strong contributor toward American energy security. … We are asking that the Bureau of Land Management approve leasing and expedite the process, as the U.S. Forest Service has already conducted a thorough NEPA review in 2012.”

Beaver County activists enlighten commissioners about the dangers of shale drilling - -- Two residents who are part of a group that aims to educate people about the potential risks associated with shale drilling came to the first night meeting of the new Beaver County Commissioners board Thursday to state their case against further oil and gas exploration and development in the county. The Rev. Jim Hamilton of Ambridge and Bob Schmetzer of South Heights are both part of the Beaver County Marcellus Shale Awareness Committee, a group that's been in place since 2010 that opposes further drilling in the county. Hamilton presented commissioners with packets of information about the danger of releasing uranium and radon that some say can be associated with shale exploration, including hydraulic fracturing (fracking) natural gas wells in the Marcellus and Utica shale that's been actively pursued in Pennsylvania since the group formed."What I'd like to have them (commissioners) do is move for a moratorium," Hamilton said after the meeting. It's something the Pennsylvania Council of Churches supports, he said."The churches can see it, the pope can see it (the dangers of drilling)," he said. Hamilton worries about the dangers drilling poses to people, he said.

As rig counts decrease, wastewater floods - In July, when the Shale Alliance For Energy Research released its outlook on the future of oil and gas wastewater, the so-called crossover point for this region was supposed to come in nine years.  That’s the point at which the volume of wastewater produced from shale gas extraction outpaces the industry’s ability to reuse it to drill and frack more wells. It was an academic estimate. “It’s a whole lot shorter in the real world,”  Mr. Hughes said the more realistic crossover point for this region might be closer to five years. But that was three months ago, before oil slid below $30 per barrel and natural gas companies — fairly or not — went along for the downhill ride. Shale wells produce water first in a gush, when the fracking fluids pumped underground to stimulate gas flow come back up the well bore, and then in more of a trickle over a longer period, as the salty brine that lives underground comes to the surface along with oil and gas. Oil and gas operators, particularly in Pennsylvania, have been able to recycle the majority of their so-called flowback and produced water by using it to drill and frack new wells. But with drilling and fracking activity down drastically — Consol Energy Inc. said it won’t drill any new wells in 2016, for example — more attention is turning to how to dispose of this water. “Now that the drilling has dropped off anywhere between 75 percent to 100 percent, there is this completely unexpected and unplanned-for tsunami of produced water that the operators are having to deal with,” “The slowdown is not good for the industry, but it puts a spotlight on what we’re doing,” According to Mr. Kalt, the limiting factor isn’t just that there are fewer opportunities to reuse this water but also that companies are moving away from deep well injection, a practice frequently linked to small earthquakes in states such as Oklahoma and Ohio.

U.S. Shale Gas Production Could Sharply Decline in 2016, World Bank Says - In the wake of tumbling oil prices, an onslaught on coal and a year of geopolitical tumult, the World Bank has released its 2016 report on the outlook for the world’s commodity markets.  Carbon Brief looks at the five key takeaways for climate change and energy.

• 1. There’s All-Round Bad News for Coal The report makes grim reading for coal industry executives. Coal prices are expected to continue their tumble downwards in 2016. Having fallen by more than 60 percent since 2011, prices are expected to drop a further 13 percent in the year ahead. This is attributed to a number of factors, which have, in turn, led to weak demand and oversupply.
• 2. Geopolitics Will Continue to Affect Energy Markets The energy market is not immune to the slings and arrows of wider geopolitical events. Oil and gas prices are highly susceptible to external conflicts and debates.
• 3. Warm Weather Depressed Oil Demand Growth, Which Will Continue to Shrink - 2015 was the hottest year on record and consumption of oil and gas reflected this..
• 4. U.S. Shale Gas Production Could Sharply Decline Growth in global oil production slowed sharply in 2015. Most of this occurred in non-OPEC countries, bucking the trend of the last two-and-a-half years, during which U.S. production of shale oil boomed.  U.S. crude oil production is also expected to accelerate its downward trend in 2016, as non-OPEC producers attempt to sustain oil prices of below $40 per barrel. Production from OPEC countries, on the other hand, is expected to rise.
• 5. Oil Prices Are Expected to Gradually Recover. The world watched on as oil prices continued their inexorable slide downwards in 2015, thanks to the lifting of sanctions on Iran, deteriorating growth in major energy-importing countries and OPEC’s refusal to cut oil production.

EIA: Consumption will drive natural gas prices up -- Natural gas prices are expected to rise, according to the EIA’s latest Short-Term Energy Outlook report. The average natural gas spot price at the benchmark Henry Hub for December 2015 was $1.93 per million British thermal units. That’s the lowest monthly average since March 1999. In the January report, the Nymex futures strip averaged $2.50/MMBtu for 2016 and $2.80/MMBtu for 2017. The Nymex futures strip represents the price of natural gas for delivery at each contract month. The expected price increases reflect consumption growth, mainly from the industrial sector, that outpaces near-term production growth. In September 2015, total marketed production of natural gas hit a record high of 80.2 billion cubic feet per day, according to data from the EIA’s survey of natural gas production. The EIA estimates growth will slow 0.7 percent in 2016, then increase 1.8 percent in 2017 as natural gas prices rise and more demand comes from the industrial sector and liquefied natural gas exporters. Total natural gas consumption is also expected to increase. U.S. consumers used an estimated 75.7 Bcf/d of natural gas in 2015. Forecasted natural gas consumption averages 76.6 Bcf/d in 2016 and 77.2 Bcf/d in 2017. The forecasts are increases of 1.5 and 0.8 percent, respectively. The report also predicts natural gas consumption in the residential and commercial sectors to increase over the next two years, reflecting higher heating demand.

Spread between Henry Hub, Marcellus natural gas prices narrows as pipeline capacity grows - Today in Energy - U.S. EIA - Natural gas spot prices around the United States are often compared to prices at the Henry Hub in Louisiana. At trading points in and around the Marcellus and Utica shale plays in Pennsylvania, West Virginia, and Ohio, natural gas prices consistently trade below the Henry Hub national benchmark price. However, the difference between these pricing points and the Henry Hub has narrowed in recent months as new pipeline projects have come online. Most of the natural gas produced in the region is consumed in other areas of the country. With limited infrastructure to deliver natural gas to consumers, the Marcellus region can quickly become oversupplied, causing prices within the Marcellus region (especially Pennsylvania) to be discounted. In times of high demand for heating in the winter, natural gas spot prices can rise substantially in market areas such as New York and Boston. New infrastructure projects have come online to alleviate the disconnect between prices in producing and consuming areas around the country. Although prices in the Marcellus region are still relatively low, trading under $1.50 per million British thermal units (MMBtu), the gap between Marcellus region price points and Henry Hub has narrowed. The price at Transcontinental Pipeline's (Transco) Leidy Hub in central Pennsylvania, for example, averaged 93 cents per MMBtu below the Henry Hub price from December 1 through January 15. In July 2015, this differential was much larger, averaging $1.65/MMBtu for the month.

Natural Gas Infrastructure In New England; New Solar Energy Fees In California -- From EIA, the natural gas pipeline network in New England. The projects that came on-line in late 2015 or early 2016:

• The Rockies Express Pipeline (REX) reversal project had added westbound capacity to flow natural gas to the Midwest in 2014. In late 2015, Texas Eastern Transmission Company’s (Tetco) OPEN project added 550 million cubic feet per day (MMcf/d) of pipeline takeaway capacity out of Ohio.
• Columbia Gas Pipeline's East Side Expansion, a 310 MMcf/d project that flows natural gas produced in Pennsylvania to Mid-Atlantic markets.
• Tennessee Gas Pipeline's Broad Run Flexibility Project, a 590 MMcf/d project originating in West Virginia that moves natural gas to the Gulf Coast states.
• Tetco’s Uniontown-to-Gas City project flows up to 425 MMcf/d of natural gas produced in the Marcellus region to Indiana.
• Williams Transcontinental Pipeline's Leidy Southeast project provides additional capacity to take Marcellus natural gas to Transco's mainline, which extends from Texas to New York. From there, the natural gas serves Mid-Atlantic market areas as well as the Gulf Coast.

Opposition Grows to Fracking and Fracking Infrastructure Projects - Over a seven day period last week there was a flurry of step-it-up activity on the East Coast in opposition to the planned expansion of fracking and fracking infrastructure. It began with a three-day walk over the Martin Luther King, Jr. weekend in sub-freezing, wintry weather in rural western Massachusetts against Kinder Morgan’s proposed Northeast Energy Direct pipeline. Upwards of 200 people took part in the walk, with an average of about 80 people walking 11-12 miles each day. The spirit and energy of the group was powerful.The movement against FERC and the expansion of fracked gas pipelines, compressor stations, and storage and export terminals has made great strides over the past year and this past week’s actions are an indication of what will be happening this year.  It continued on Wednesday in Harrisburg, Pennsylvania with a successful disruption of the last meeting of Gov. Tom Wolf’s gas-industry-stacked pipeline infrastructure commission. The commission was set up to sell the plan to build even more gas pipelines and expand fracking in the state.  And it ended on Thursday in Washington, DC with the 15th consecutive Beyond Extreme Energy disruption of the monthly Federal Energy Regulatory Commission (FERC) Commissioners’ meeting. This action was followed by one right near the White House at a Bank of America branch. Bank of America is a major funder of the being-built Cove Point, Maryland Liquified Natural Gas export terminal.Also this past week, on Monday, seven people were arrested at the latest blockade organized by We Are Seneca Lake in Ithaca, New York at the Crestwood gas storage facility; many hundreds have been arrested over the last year and a half in a campaign that shows no signs of letting up.

Experts Cast Doubt On EPA Fracking Investigation: Government analysts say the U.S. EPA’s investigation into the effects of fracking on drinking water may lack scientific credibility. The environmental agency released a landmark report last year that appeared to promote the controversial notion that fracking does not endanger drinking water. Fracking supporters celebrated the EPA’s announcement in June that it “did not find evidence that these mechanisms have led to widespread, systemic impacts on drinking water resources in the United States.” Now, a new government critique — from the agency’s own experts — is questioning that assessment. “The Hydraulic Fracturing Research Advisory Panel, a unit of the EPA’s Science Advisory Board (SAB), published its evaluation of the EPA’s report on Jan. 7,” NPR reported. The new report questioned the “clarity and adequacy of support” of several findings in the EPA’s fracking analysis. It said these findings “seek to draw national-level conclusions regarding the impacts of hydraulic fracturing on drinking water resources” but that the findings are inconsistent with “the observations, data, and levels of uncertainty” in the agency’s research. One of the biggest concerns is that the original EPA report said researchers “did not find evidence that hydraulic fracturing mechanisms have led to widespread, systemic impacts on drinking water resources in the United States.” That’s not a perfect statement, according to the new report.

US Forest Service rejects proposed forest route for pipeline — The U.S. Forest Service has rejected the proposed route of a 550-mile natural gas pipeline through national forests in Virginia and West Virginia because of concerns over the project’s impact on an endangered salamander and other resources. In a letter this week to federal regulators, the Forest Service said the builders of the proposed Atlantic Coast Pipeline will have to consider alternate routes through the George Washington and Monongahela national forests. Besides cow knob salamanders in Virginia, foresters also cited concerns about northern flying squirrels in West Virginia and red spruce restoration areas along the proposed pipeline route. The Forest Service described the two species and forestland as “irreplaceable.” Foresters said those species and forestland “must be considered in the development of alternatives.” Dominion Virginia Power, Duke Energy and other energy partners have proposed building the $5 billion pipeline, one of at least two interstate pipelines that would carve a path through West Virginia and Virginia. The pipelines are intended to deliver natural gas from the shale fields of northern West Virginia to Virginia and North Carolina. Its application to build the pipeline is before the Federal Energy Regulatory Commission.

Big Oil Takes Aim at the Atlantic Coast -- Sharks are circling in the Atlantic ocean and we’re not referring to the majestic wildlife found there. International oil supermajors Exxon, Shell and Chevron have all submitted public comments urging the government to open up as much of the U.S. coastline to oil exploration as possible, in particular the Atlantic offshore area stretching from Virginia to Georgia. In the next month or two, the Obama administration will be accepting public comments on a proposed five-year leasing program that may allow offshore oil drilling in the Arctic, Atlantic and Gulf of Mexico. Opening up new areas to risky oil extraction has prompted a wave of activism from the Pacific Northwest and Alaska to more than 100 coastal communities in the Southeast, but giant oil companies are using every ounce of their political clout to make sure they continue to have easy access to resources owned by the American people.In public comments submitted last year regarding the draft five year program, Exxon, Shell and Chevron all called for opening up the Atlantic Outer Continental Shelf (OCS) to leasing and attacked even the minor protections that the plan included. Exxon lamented that the program authorized oil and gas leasing in “only” eight of the 26 offshore planning areas and warned that any further restrictions would have “deleterious consequences” for the domestic economy.  All of the oil companies criticized a planned buffer zone that prohibits oil drilling within 50 miles of the shore—a protection that would likely cut profit margins for the drillers as they are forced to explore in deeper water. They also requested that the lease sale (currently planned for 2021) be moved up.

Florida Legislature 2016: House passes fracking bill -- After an intense debate spread over two days, the Florida House on Wednesday approved a bill that would revamp regulation of the controversial oil and gas drilling process known as “fracking.” The bill (HB 191) would bar local governments from imposing moratoriums on fracking, while requiring the state Department of Environmental Protection to undertake a wide-ranging study that would include looking at potential risks and economic benefits of the process. The bill spurred heavy debate Tuesday and Wednesday and passed in a 73-45 vote that was nearly along party lines. Republicans Halsey Beshears of Monticello, Chris Latvala of Clearwater, Mike Miller of Winter Park, Holly Raschein of Key Largo, Greg Steube of Sarasota, Jay Trumbull of Panama City and Charles Van Zant of Keystone Heights crossed party lines to vote against the measure. Supporters of the bill point, in part, to efforts to gain energy independence. Also, they say oil and natural-gas drilling has taken place in parts of Northwest Florida and Southwest Florida for decades.. “Wishing for a zero-risk process or some absolute safety is not possible,” Rep. Cary Pigman, a physician, said. “I acknowledge that oil and natural-gas production is an untidy process. So is all of mining, so is farming, so is industry, yet our society needs energy, we need food and we need the finished products made from natural resources.”

Florida Passes A Bill To Regulate Fracking, Bans Local Fracking Bans - This week, the Florida House approved a bill that would allow fracking to take place throughout the state as early as 2017, following an inquiry into the environmental and health impacts of the practice. The bill does not require fracking companies to disclose the chemicals or potential carcinogens used in the process, however, and includes a ban on local communities banning the practice entirely. Florida legislators also struck down attempts by Democratic lawmakers to alter the bill, opposing amendments that would have allowed local governments to regulate fracturing activity, required testing of water used in the process, and analyzed the impact of fracking chemicals on public health. Democratic lawmakers also introduced an amendment that would have required local voters to approve any fracking project before it began. That amendment was also struck down.  According to the Tampa Bay Times, the oil and gas industry has been incredibly active in supporting the bill, spending at least $443,000 in contributions to top Republican lawmakers since the last election. The bill calls for the Florida Department of Environmental Protection to conduct a $1 million study looking at the potential impact of fracking on the state’s geology and water supply. The study will also look at the impact of fracking on human health, something that lawmakers argued made an amendment requiring such studies redundant.

Texas crude oil export shipment reaches destination in France - The third of three crude oil export shipments that left Texas around the beginning of the New Year has reached its destination in France. A Liberian tanker named the "Angelica Schulte" reached the Port of Fos-Sur-Mer just outside Marseilles at 11:43 CST Monday.  The Angelica Schulte left the Enterprise Products Partners terminal at the Port of Houston on Jan. 9 and spent more than two weeks at sea before reaching Europe. Switzerland-based trading company Vitol bought the shipment and two others just like it shortly after American federal officials made a Dec. 18 decision to lift a decades old crude oil export ban. Oil industry history was made on New Year's Eve when a tanker named the "Theo T" left from the NuStar Energy terminal at the Port of Corpus Christi carrying the first unlicensed crude oil export shipment in more than 40 years time. A tanker named the "Seaqueen" carried the second unlicensed crude oil export shipment and left the Enterprise Products Partners terminal at the Port of Houston on New Year's Day. The Theo T arrived in Marseilles on Jan. 20 while the Seaqueen arrived in the Dutch port of Rotterdam on Jan. 21. Although the ultimate destination of the crude oil aboard the Angelica Schulte has not been publicized, the South European Pipeline in Marseilles connects to Vitol's Cressier Refinery in Switzerland. Historic low crude oil prices are putting the brakes on more exports, but the three shipments have been noted as important symbols.

Oklahoma approves $1.4m funding for earthquake research related to fracking - Energy Business Review: Oklahoma Governor Mary Fallin has approved $1.4m emergency funds to undertake research and understand increasing frequency of earthquakes in the region. The earthquakes are believed to be linked to wastewater disposal from the oil and gas wells. The funds will used by the Oklahoma Corporation Commission (OCC) and the Oklahoma Geological Survey (OGS). Fallin said: "I'm committed to funding seismic research, bringing on line advanced technology and more staff to fully support our regulators at they take meaningful action on earthquakes." In particular, OGS will use its share of $1m to install additional permanent seismic monitoring stations, update seismic monitoring network and software as well as analyze the response of seismicity to regulatory and market forces driving changes in produced water injection. It will also use to funding to characterize the properties of the Arbuckle formation and basement rock in a complex fluid reservoir and conduct workshops to share research results and define needs for additional studies. OGS director Jeremy Boak said: "The funds will enable us to provide better recommendations for remedial action to further reduce the rate and magnitude of induced earthquakes." Additionally, OCC will use a share of $387,000 for information technology upgrades, two contract geologists, contract clerical worker and geophysicist consultant as well as senior-level oil and gas attorney.

Appeals court says farmer may sue pipeline for crop damage  — An appeals court said Wednesday that a northeastern Iowa farmer may pursue a breach of contract lawsuit against a natural gas pipeline company and seek damages for decreased crop productivity on the ground above the pipeline. Roger Tiemessen rents land from his parents to grow corn and soybeans near New Hampton and says the land above Alliance Pipeline’s high pressure natural gas line is warmer, causing earlier thawing and quicker draining and drying than on nearby land. He says crop yields above the pipes installed in 2000 are poorer than other areas and he wants Alliance to compensate him for the loss. Damage amounts were not specified in court documents. Judge Richard D. Stochl dismissed the lawsuit in 2014, determining that Tiemessen had no cause of action against the company. “If he has any dispute with his ability to grow crops in the easement area, his dispute is with the landlord and not Alliance,” Stochl wrote. “He is free to negotiate a lower rental rate with the landlord if he finds the easement area defective. He has no direct cause of action against Alliance.” But the Iowa Court of Appeals said Tiemessen has presented enough of a question about crop damage in the area of the pipes to present to a jury. The court noted the easement agreement with Alliance says the company will pay for crop damages that may arise from operating the pipeline.

Oil stranded by pipeline break in Calif. could be trucked out — Eight months ago a ruptured pipeline created the largest coastal oil spill in California in 25 years, fouling beaches near Santa Barbara with crude and spreading goo as far as 100 miles away. The beaches reopened last summer, but the fallout is continuing. Santa Barbara County planners are expected to decide in about a week whether to grant Exxon Mobil Corp.’s latest request to use trucks to move more than 17 million gallons of oil stranded in storage after the pipeline shut down in May after the break. With the pipeline shut down indefinitely, the county last year rejected the company’s emergency application to truck the oil to refineries. In a second proposal filed this month, the company says it’s been determined the pipeline will be shut down for months, if not years, creating an “unusual risk” for the remaining oil. “The lack of a pipeline to quickly empty the … crude storage tanks during a natural disaster or unforeseen circumstance could potentially result in the loss or damage to property, the environment or essential public services,” the company warns. If approved, the company would run up to 30 truck trips a day for as long as six months to move the remaining crude. The plan has run into opposition from environmentalists who warn that transporting the marooned oil would be more dangerous than leaving it where it is.

Leaking Los Angeles gas well ordered shut down — The Southern California Gas Co. has been ordered to permanently close and seal a storage well that’s poured natural gas into the air over a Los Angeles neighborhood for months and driven thousands from their homes. A hearing board of the South Coast Air Quality Management District on Saturday also ordered the utility to fund an independent health study for residents of the Porter Ranch neighborhood and inspect all 115 wells at the Aliso Canyon storage facility to help prevent future leaks. “As a result of this order, SoCalGas must take immediate steps to minimize air pollution and odors from its leaking well and stop the leak as quickly as possible,” said Barry Wallerstein, SCAQMD’s executive officer. However, critics who say people have been sickened by the fumes were furious that the air regulators stopped short of ordering a complete and permanent shutdown of all wells at the huge storage field. “This is an ongoing disappointment and no one is managing this crisis situation,” said a statement from Matt Pakucko, president of the group Save Porter Ranch. “SQAMD’s failure to put Californians’ livelihoods first is shameful, and Governor Brown should intervene swiftly,” Michael Brune, executive director of the Sierra Club, said in the same press release. “There should be no other choice but to shut down the dangerous Aliso Canyon facility and look to close every urban oil and gas facility throughout California and our country, to ensure the health of our communities and our climate is never again sacrificed for corporate polluter profits.” Southern California Gas Co. did not immediately release any comment on the SQMAMD orders.

The Latest: California bill would cap abandoned oil wells - A California state senator is pushing legislation to monitor and cap abandoned and leaking oil wells. Democratic Sen. Hannah-Beth Jackson of Santa Barbara said Monday that her bill was inspired by the influx of oil onto Summerland Beach south of Santa Barbara. The popular beach was briefly closed last year while officials looked for the source of smelly oil and tar balls, and health officials have warned visitors to avoid the oil. Jackson says the Summerland Beach oil is believed to come from a well that dates to the 1890s. Jackson’s SB 900 would require the California State Lands Commission to plug abandoned offshore wells when the original oil company cannot be held responsible. Jackson says it costs an estimated $1 million to cap a well.

Reactions to BLM flaring rule – Government overreach or common sense? -- In the latest effort to extend the reach of its climate agenda, the Obama Administration proposed new rules to cut gas flaring and venting on public land. The United States Bureau of Land Management (BLM) last week proposed new rules to reduce natural gas waste from flaring, venting and leaks occurring on oil and gas production operations of public and Indian lands. The new rules, which will be implemented over the course of several years, would require producers to take measures to reduce this waste while modernizing existing and outdated production rules, as well as modifying the existing royalty rate provisions. In a release, the BLM listed the following facts about its proposed rules:

• The BLM’s onshore oil and gas management program is a major contributor to the nation’s O&G production. Over 100,000 federal onshore oil and gas wells account for five percent of the nation’s oil supply and eleven percent of its natural gas.
• Large quantities of natural gas are wasted during oil and gas production, enough to supply about 5.1 million households.
• States, Tribes and federal taxpayers are missing out on royalty revenues lost to wasted natural gas.
• The proposed rule would minimize waste of natural gas by making productive use of it, enough to supply up to about 760,000 homes each year.
• Inaction will be damaging to the environment because methane is a powerful greenhouse gas 25 more times potent than carbon dioxide, further exacerbating the effects of climate change.
• The BLM’s conservative estimates of the rules’ benefits indicate that the costs associated with its implementation will be recouped with net economic benefits ranging up to $188 million per year.
• Operators will be impacted minimally because many have already taken steps to reduce wasted gas.

Shale Oil Production in Bakken, Eagle Ford Little Changed - Platts: Oil production from key shale formations in North Dakota and Texas dropped slightly in December versus November, according to Platts Bentek, an analytics and forecasting unit of Platts, a leading global provider of energy, petrochemicals, metals and agriculture information. Oil production from the Eagle Ford shale basin in Texas was relatively unchanged in December, increasing about 11,000 barrels per day (b/d), or less than 1%, versus the previous month, the latest analysis showed. This marks the first time since March 2015 that the Eagle Ford shale did not decline. Conversely, crude oil production in the North Dakota section of the Bakken* shale formation of the Williston Basin dipped by less than 1% month over month in December, or about 9,000 b/d, continuing the trend of marginal decline that began in the summer. The average oil production from the South Texas, Eagle Ford basin in December was 1.5 million barrels per day. On a year-over-year basis, that is down about 7%, or about 110,000 barrels per day, from December 2014, according to Sami Yahya, Platts Bentek energy analyst. The average crude oil production from the North Dakota section of the Bakken in November was 1.2 million b/d, about 6% lower than year ago levels.

MDU Refinery Update -- January 27, 2016  -- Jack Kemp posted this graphic today:  Bloomberg posted this story: How the Oil Bust Wiped Out One North Dakota Oil Refiner's Profit -- For the first new refinery in the U.S. in seven years, the idea was simple: Buy cheap oil from shale producers, then score a quick profit by selling it right back to them as more expensive diesel needed to power their trucks and drilling rigs.  Now the shale bust is threatening to ruin a renaissance in small refineries, known as teapots, before it even begins. When Dakota Prairie Refining LLC was building its plant in 2014, it could buy some of the cheapest oil in America and sell among the most expensive diesel in America. But the oil bust obliterated its local diesel market, along with the fat premium the fuel used to fetch, as its potential customers shut down operations.  In the fall of 2014, when tiny Dakota Prairie was getting ready to open its processing plant in Dickinson, North Dakota, diesel fuel near the state’s Bakken oil fields sold for $100 a barrel more than the oil produced there. Now it’s selling for just $16 a barrel more.   "The last thing you want to be doing right now is running a refinery that makes a lot of diesel and very little gasoline," said Robert Campbell, head of oil-products research at Energy Aspects Ltd.  It’s a "double whammy," he said, as the diesel market weakens worldwide and demand in their specific local market plunges. Dakota Prairie lacks the pipelines and storage units a larger refiner uses to sell to customers farther away, and it’s not equipped to make vehicle-ready gasoline instead of diesel.

Spate of layoffs sweeps energy industry -- A sustained downturn led to thousands of layoffs this week as companies struggle to weather the prolonged energy market slump. Falling oil prices forced many producers to cut costs and streamline business. The International Energy Agency said oil prices may fall further this year due to low demand and an oversupply of crude. Schlumberger Schlumberger cut 10,000 jobs and reported a net loss of $1 billion during the fourth quarter of 2015 The largest oilfield services company eliminated about 20,000 jobs earlier in 2015. Schlumberger said it plans to buy back $10 billion in stock.  Southwestern Energy announced another round of layoffs Thursday. According to filings with the SEC, the company laid off 1,100 workers. Affected employees were offered a severance package and select employees were offered reduced roles within the company.  Layoffs at Royal Dutch Shell and BG Group will reach up to 10,000 employees as the companies prepare for a $70 billion merger. In a preliminary earning report, Shell announced it reduced operating costs by $4 billion last year and expects to trim another $3 billion in costs this year. The Daily Advertiser reported Halliburton and Baker Hughes hinted at thousands of layoffs in 2016. As a result of plunging oil prices, Baker Hughes said this week it plans to lay off about 7,000 employees. That number amounts to 11 percent of its workforce.Oklahoma’s Devon Energy stated this week it intends to layoff members of its workforce. However, the company wasn’t able to say when layoffs will occur or how many workers will be affected.  As oil hit 12-year lows earlier this month, BP announced plans to cut 4,000 jobs from upstream operations over the next two years.

Oil price plunge threatens fracking revolution  — Producers of oil and gas from once hard-to-tap shale deposits are now facing the payback of the energy revolution they wrought: ultra-low prices forcing them out of business. This year is expected to be a make-or-break year for US shale producers, after the 70% plunge in crude prices, with many at risk of failure. Dozens of shale drillers sought bankruptcy protection in the past year as low oil prices made their operations uncompetitive and they could not pay debts. But many are holding on toughly, hoping desperately for a turnaround in the market. It has been a rapid reversal for an industry barely a decade old. While shale and other deep-rock strata have long been known to hold substantial oil and gas deposits, it was only recently that techniques were developed to economically tap this "tight" oil by hydraulic fracturing, or "fracking" the strata to release it. Encouraged by US policy to cut the country’s dependence on imported energy, the fracking revolution led to a stunning increase in US domestic crude oil production. Total US output rose from about 5.6-million barrels a day in 2010 to 9.4-million barrels a day last year. But most of that surge, which made the US rival Saudi Arabia as a crude producer, came while crude prices held above $80 a barrel. That made the relatively costly process of tapping shale reserves lucrative. It is different now that crude is close to $30 a barrel, with estimates that US oil and gas producers as a group are losing about $2bn a week. With the estimated price for survival at $50 a barrel, "we expect a sharp jump in bankruptcies at some stage in 2016," VTB Capital analysts said in a note.

The myth of US self-sufficiency in crude oil --- Google for “US energy independence” and you will get 134k results, “US self sufficiency” yields 10k results. Here are some examples of what the media reports: In Aljazeera’s Inside Story, 10/1/2016, titled “How much support will Saudi Arabia win against Iran?” the delicate relationship between the US, Saudi Arabia and Iran is discussed with 3 panellists. The moderator wanted answers in the context of “the US is almost at a tipping point, is almost energy independent..” In the State of the Union Address 2014 Obama proudly announced: “Today, America is closer to energy independence than we’ve been in decades”. In the latest SOUA on 12th January 2016, we hear: “Meanwhile, we’ve cut our imports of foreign oil by nearly sixty percent” On 16/1/2016, the 7pm news of Australia’s public broadcaster ABC TV had this snippet:  Let’s look at the data: Crude imports Fig 1: The graph shows that crude production reached almost 9.5 mb/d in 2015, just short of the historic peak in 1970. But imports are still 7 mb/d. Exports were only around 500 kb/d (to Canada) due to an export ban (which was recently lifted). Let’s zoom into the period since 2007, the peak year of imports.  We have several phases in this crude oil import history:

• 3 year decline of imports due to recession as oil prices went up, followed by the financial crisis
• A rebound when quantitative easing started
• A 2 mb/d decline 1 year after the shale oil boom started

In 2013 the growing production curve intersects with the declining import curve at around 7.5 mb/d i.e. a production/import ratio 50:50. Since then production grew another 2 mb/d but has peaked in April 2015 because of low oil prices which hit the shale oil industry. Imports did not continue to decline but remained basically flat. Due to slightly declining crude production the ratio did not improve anymore in 2015 and appears to be stuck at 43%. Clearly, this is not “virtually self-sufficient in [crude] oil”.

There’s Only One Presidential Candidate Who Wants to Ban Fracking - There isn't much daylight these days between the Democratic candidates on the environment. Bernie Sanders, Hillary Clinton, and Martin O'Malley all agree that humans are responsible for climate change and that it's one of the world's most pressing problems. To that end, they support clean energy tax breaks, reject drilling offshore and in the Arctic, and oppose the (now-rejected) Keystone XL pipeline.  But there's one environmental issue where Sanders truly stands apart: He wants to ban hydraulic fracturing outright. Clinton and O'Malley have proposed lesser measures, and show no sign of going further. That's an indication of just how radical Sanders's stance really is, but it also raises an important question: Is a fracking ban remotely plausible?  There used to be more daylight between the candidates, especially Sanders and Clinton. The Vermont senator has long called for "a political revolution that takes on the fossil fuel billionaires, accelerates our transition to clean energy, and finally puts people before the profits of polluters"—and he's taken early, decisive stances in support of many of the environmental movement's top demands before he ever launched his presidential campaign.

A Look At Where Oil Production Keeps Rising - Located in my home state of Ohio is the Utica, a region that has become well known for producing oil and natural gas during the fracking revolution. Although less famous than other regions like Marcellus, the Permian, or Eagle Ford, the area does produce enough oil to warrant the attention of the EIA (Energy Information Administration), which includes its data on its monthly Drilling Productivity Report. As one of the smaller oil-producing regions, you would imagine that the Utica would lack the resources needed to continue producing ever-increasing amounts of crude in this current environment but it, unlike its peers, looks set to continue increasing output unless something material changes.  The area known as the Utica covers the Eastern portion of Ohio and sits right next to the Marcellus. In the image below, you can see the area it consists of, as well as the six other regions analyzed by the EIA; Permian, Eagle Ford, Bakken, Marcellus, Haynesville, and Niobrara. In past articles, I've looked at the Permian, Eagle Ford, and Bakken, the three largest regions covered by the organization, and found that, while Permian production could continue to grow a bit near-term, the overall trend for the other regions is (absent a rise in rig count) very much down.

Incremental Production in the Gulf of Mexico -- Deepwater and ultra-deepwater crude oil production projects in the Gulf of Mexico (GOM) are complex and take years to complete, so the several GOM projects on which exploration and production companies made final investment decisions in 2012-14 are only now coming online—just in time, it turns out, for the lowest oil prices in a dozen years.  So there’s this irony: Crude is selling for little more than $30/Bbl, but the new projects coming online in 2016 and beyond are likely to bring GOM production to record highs. Today, we continue our examination of still-rising production in the GOM with a review of more projects increasing the Gulf’s output.  A key aim of this blog series is to point out one of the reasons why—even after a year and a half of falling crude oil prices—U.S. oil production has remained so high and fairly steady. According to U.S. Energy Information Administration (EIA) monthly reports, domestic crude production peaked in April 2015, at 9.7 MMb/d and then fell by 400 Mb/d to 9.3 MMb/d in October (the latest monthly data). The less reliable weekly EIA domestic field production for the week ending January 15, 2016 showed output still averaged 9.2 MMb/d.  While U.S. production as a whole fell by 3.6% from April to October 2015 - production in the GOM is up by 4.8% to 1.6 MMb/d over the same period; and since oil prices started falling in June 2014 GOM production has increased by nearly 14%. The reasons for the still-widening gap between onshore production declines and GOM production gains are 1) that production from the best GOM wells typically remains high and flat for years (unlike most onshore shale wells, with their high initial production rates and quick falloffs), 2) that E&Ps active in the GOM take a decidedly long-term view of oil prices when considering whether to make a Final Investment Decision (FID) on a new production project, and 3) that (due to project scope and complexity) it typically takes at least several years to take a GOM project from FID to “first oil.”

US shale groups slash capital spending -- Three leading US shale oil producers have announced steep cuts in their planned capital spending, as they set their budgets to respond to the collapse in crude prices. Two of them also forecast that their oil and gas production would fall, showing how the financial squeeze on US companies is having a growing impact on the country’s output of crude. Oklahoma-based Continental Resources, controlled by its founder Harold Hamm, said it would cut capital spending by 66 per cent this year to $920m, following a 46 per cent reduction last year. New York-based Hess said it would cut spending by 40 per cent this year, following a 29 per cent cut in 2015. Noble Energy, based in Houston, said it planned a 50 per cent cut in spending for 2016, as it also reduced its quarterly dividend from 18 cents per share to 10 cents. Mr Hamm said Continental’s budget “confirms our intense focus on cash flow neutrality”: ensuring capital spending is covered by cash the business generates so the company does not need to raise additional financing. Greg Hill, chief operating officer of Hess, said it planned to “reduce activity at all of our producing assets” and would “pursue further cost reductions and efficiency gains”. John Hess, chief executive, said the company’s focus would be on “preserving the strength of our balance sheet”. Kenneth Fisher, chief financial officer at Noble, said its capital spending and dividend cuts were "part of a comprehensive effort to spend within cash flow" and reduce the company's debts. External financing from debt and equity markets for small and midsized US oil and gas producers slowed sharply in the second half of last year. Continental, Hess and Noble are the first US oil companies to announce budgets following the slump in crude prices this year to about $31 per barrel on Tuesday.

Halliburton posts 4Q loss, drop in revenue amid oil slump — Hurt by falling oil prices, Halliburton reported a loss for its fourth quarter and said its revenue dropped 42 percent from a year ago. Houston-based Halliburton provides drilling services to oil and gas operators, which have been cutting their spending due to falling oil prices and demand. The company reported a loss of $28 million, or 3 cents per share, in the fourth quarter, compared with a profit of $901 million, or $1.06 per share, in the same period a year ago. Earnings, adjusted for asset impairment costs and costs related to mergers and acquisitions, came to 31 cents per share, topping Wall Street expectations. The average estimate of 17 analysts surveyed by Zacks Investment Research was for earnings of 24 cents per share. Revenue fell to $5.08 billion from $8.77 billion a year ago, narrowly missing Street forecasts. Twelve analysts surveyed by Zacks expected $5.1 billion. For the year, the company reported a loss of $671 million, or 79 cents per share. Revenue was reported as $23.63 billion.

Hess Corp reports bigger 4Q loss amid oil slump — Hess, which announced a 40 percent cut in capital expenditures for 2016 this week, promised even deeper cuts Wednesday after reporting worse-than expected losses in the fourth quarter with crude prices hovering around $30 per barrel. The New York company reported a loss of $1.82 billion, or $6.43 per share, in its fourth quarter, compared with a loss of $8 million, or 3 cents per share, in the same quarter a year ago. Losses, adjusted for non-recurring costs and to account for discontinued operations, were $1.40 per share, 30 cents lower than Wall Street had projected, according to a poll by Zacks Investment Research was for a loss of $1.10 per share. Revenue was almost cut in half to $1.39 billion, which was also worse than expected. Major energy companies across the board are hunkering down by slashing expenses, cancelling projects, and laying off workers.

Valero Energy posts better-than-expected profit - Valero Energy reported higher-than-expected earnings on Thursday. The San Antonio-based company earned $862 million in profit during the fourth quarter 2015. The San Antonio oil refiner reported earnings of $1.79 per share, beating the average estimate of $1.41 per share. High crack spreads, the difference between crude oil and refined petroleum products, have meant strong profits for oil refiners despite low gasoline prices. The price of benchmark U.S. crude has fallen more than 70 percent since June 2014. In the fourth quarter, Valero Energy’s refining margin fell to $10.87, compared to $11.17 a year ago. Net income to Valero Energy’s stockholders fell 62 cents per share, down $298 million. Operating revenue fell 33 percent to $18.78 billion. In the fourth quarter, the company commissioned a new crude unit at its Corpus Christi refinery, completed a hydrocracker expansion at its Port Arthur refinery and completed a crude unit expansion at its McKee refinery.

SandRidge Energy On The Verge Bankruptcy: Would Be 2nd Largest Shale Chapter 11 In Past Year -- As we said two days ago when looking at the paltry recoveries on their total debt that bankrupt energy debtors are generating in liquidation and bankruptcy asset sales, "the energy bankruptcy party is only just starting." And sure enough, overnight we learned that another company is preparing to throw in the towel following a Reuters report that SandRidge Energy - a shale oil and gas producer in the Mid-Continent region of the U.S. - is exploring debt restructuring options, "as the heavily indebted U.S. oil and gas exploration and production company struggles with the fallout from plunging energy prices." In reviewing the company's options, Reuters writes that one choice is a pre-packaged bankruptcy. However, a decision on a way forward is not imminent and that the company has access to enough cash to continue doing business for at least several more months under its current structure. Other avenues SandRidge could pursue would include a debt exchange or filing for bankruptcy protection without any agreement with its creditors. What this really means is that having struggled to come to a prepackaged bankruptcy agreement for the past few weeks with its various stakeholders (Debtwire reported on Jan. 13 that Sandridge hired Houlihan Lokey to craft a restructuring plan), the company will likely have no choice but to file a "freefall" Chapter 11 and let a bankruptcy judge decide the fate of its $4 billion in debt.

Moody’s Ponders Credit Downgrades for 120 Energy Companies --Oil prices received a jolt on January 21 and 22, as a cavalcade of bullish news conspired to push oil prices back into the $30s per barrel. The markets got excited at the possibility of more aggressive action from the European Central Bank on Thursday after comments from Mario Draghi, the bank’s president. Also, several voices weighed on oil prices, raising the questions about the unreasonable decline below $30 per barrel. The head of state-owned Saudi Aramco said that oil prices below $30 per barrel was “irrational,” and that he expected prices to rebound this year. Separately, Citigroup said that oil could be “the trade of the year,” because a price increase is nearly assured. After all, prices cannot go much lower, can they?  Meanwhile, even if prices rebound, the financial damage of $30 oil continues to impact energy companies around the world. Moody’s Investors Service, in several separate moves, put 175 oil, gas, and mining companies up for review for possible credit downgrades. 120 of them are in energy and 55 are mining companies. On January 21, Moody’s issued notices on 69 E&P companies. Included in the long list of companies were important names like Transocean, Schlumberger and Chesapeake Energy. “Even under a scenario with a modest recovery from current prices, producing companies and the drillers and service companies that support them will experience rising financial stress with much lower cash flows,” Moody’s wrote in a press release. Some companies are a lot worse off than others. In fact, Moody’s said that it will be looking at “multi-notch” downgrades in some credit ratings. “Multi-notch downgrades are particularly likely among issuers whose activities are centered in North America, where natural gas prices have declined dramatically along with oil prices,” Moody’s wrote.

Oil Rout Has Banks Reining in Risky Loans, Adding to Energy Woes -- With crude trading near its lowest level since 2003, banks large and small are clamping down further on how much they’re willing to lend to risky oil-and-gas companies. Standard & Poor’s estimates that credit lines to these companies -- the amount banks are willing to lend based on the value of the firms’ reserves -- could be cut by 30 percent the next time banks conduct their twice-yearly reevaluations in April. That’s even after a reduction of about 10 percent in November, according to Thomas Watters, managing director of the credit rater’s oil and gas group. Banks including Wells Fargo & Co., Goldman Sachs Group Inc., Bank of America Corp. and JPMorgan Chase & Co. and regional banks such as Comerica Inc. and SunTrust Banks Inc. have all voiced caution about the sector as increasing numbers of energy companies file for bankruptcy. “The pressure on lenders to reduce the borrowing base during spring or discretionary redeterminations increases,” . “A few more months in this commodity pricing environment will result in a substantial increase in the number of restructurings and Chapter 11 filings.” Already, Wells Fargo lost $118 million on oil and natural gas loans in the fourth quarter and Citigroup Inc. added $250 million to its reserves to cover potential losses in its energy portfolio as oil fell from $90 to about $30 a barrel in the space of 15 months. Oil-and-gas securities accounted for 31 percent of the total amount of debt trading at a distressed level in January, according to a Standard & Poor’s report. Debt is considered distressed when it trades with yields of more than 10 percentage points above Treasuries.

Kinder Morgan Would Like To Build An "XL" Pipeline Through British Columbia -- Good Luck -- January 26, 2016 - It was reported just a few days ago that TransCanada and First Nations had agreed on a natural gas pipeline from Alberta through British Columbia to the west coast. Now we turn to crude oil. PennEnergy is reporting:  A proposed pipeline-expansion project in Canada will put the fishing rights and cultural heritage of U.S. tribes at risk, a lawyer representing several Washington state tribes told Canadian energy regulators. Kinder Morgan's Trans Mountain project would nearly triple oil pipeline capacity from 300,000 to 890,000 barrels of crude oil a day. It would carry oil from Alberta's oil sands to the Vancouver area to be loaded on to barges and tankers for Asian and U.S. markets. The project would dramatically increase the number of oil tankers that ply Washington state waters.  "This project will harm the cultures of the US tribes," said Kristen Boyles, an Earthjustice attorney who spoke against the project Friday on behalf of the Swinomish, Tulalip, Suquamish and Lummi tribes. She made final arguments to Canada's National Energy Board at a hearing in Burnaby, British Columbia, which was broadcast online. Boyles told the three-member panel that project officials didn't consult with the U.S. tribes and didn't consider the impacts to the tribes. "This project is all risk and no reward," she added.  The U.S. tribes are among the municipalities, environmental groups, First Nations and residents along the pipeline route who are intervenors in the case. Many have raised concerns about the risk of pipeline leaks, increased vessel traffic and potential oil spills.

US tribes oppose massive pipeline expansion in Canada — A proposed pipeline-expansion project in Canada will put the fishing rights and cultural heritage of U.S. tribes at risk, a lawyer representing several Washington state tribes told Canadian energy regulators. Kinder Morgan’s Trans Mountain project would nearly triple pipeline capacity from 300,000 to 890,000 barrels of crude oil a day. It would carry oil from Alberta’s oil sands to the Vancouver area to be loaded on to barges and tankers for Asian and U.S. markets. The project would dramatically increase the number of oil tankers that ply Washington state waters. “This project will harm the cultures of the US tribes,” said Kristen Boyles, an Earthjustice attorney who spoke against the project Friday on behalf of the Swinomish, Tulalip, Suquamish and Lummi tribes. She made final arguments to Canada’s National Energy Board at a hearing in Burnaby, British Columbia, which was broadcast online. Boyles told the three-member panel that project officials didn’t consult with the U.S. tribes and didn’t consider the impacts to the tribes. “This project is all risk and no reward,” she added. The U.S. tribes are among the municipalities, environmental groups, First Nations and residents along the pipeline route who are intervenors in the case. Many have raised concerns about the risk of pipeline leaks, increased vessel traffic and potential oil spills.

Bad Loans Pile Up In Alberta, As Oil Bust Weighs On State Lender -- As regular readers are no doubt acutely aware, Alberta is in trouble.The province is at the heart of Canada’s dying oil patch and crude’s inexorable decline has had a devastating economic impact.30% of provincial revenue is derived from resources and as crude collapsed, so did oil and gas investment. O&G spending plunged by more than a third in 2015  and as provincial authorities wrote in their latest fiscal update, “weakness in the oil and gas sector has spread to other sectors of the economy.” As the layoffs piled up, so too did the social consequences of the bust. Food bank usage rose, property crime soared, and suicide rates spiked. The recent rally notwithstanding, the outlook for oil prices is grim. Overnight, Saudi Aramco Chairman Khalid Al-Falih announced his company hasn’t reduced its investment capacity which suggests they’ll be no abrupt about face on the supply side from Riyadh and Iran is set to ramp production by 1,000,000 barrels per day by the end of the year.In Canada, WCS is sitting just a dollar above the marginal cost of production and Stephen Poloz didn’t do drillers any favors by eschewing a rate cut last week.

Alberta Loses Most Jobs In 34 Years As Oil Crunch Cripples Labor Market - Times are tough in Alberta and to be sure, we’ve piled it on heavy when it comes to cataloguing the long list of pitiable outcomes that have accompanied crude’s steep slide. The province is at the center of Canada’s dying oil patch and as crude extended its seemingly endless decline last year, Alberta saw oil and gas investment plunge by a third. That’s bad news for authorities who count on resources for 30% of provincial revenues. Rig activity fell by half in the first seven months of 2015 and as the job losses mounted, the sorrow deepened - literally. Suicide rates jumped by 30% and in Calgary commercial break-ins almost doubled from a year earlier, while bank robberies were up 65% and home invasions increased 52% (read more here). Meanwhile, food bank usage spiked as those who used to be donors found themselves depending on the free meals for subsistence. And speaking of food, prices for fresh fruit and vegetables are seeing double-digit inflation thanks to the plunging loonie. All in all, a very bad situation indeed and on Tuesday we learned that the picture was actually materially worse than an initial round of statistics led us to believe. “Statscan’s annual revisions of its national Labour Force Survey data ratcheted up Alberta’s net job losses last year to 19,600, from the 14,600 the statistical agency originally reported in its final 2015 survey released in early January,” The Globe And Mail reports, adding that the losses “exceed the 17,000 jobs Alberta shed in the Great Recession in 2009.”

Canada Just Announced A Major Pipeline Reform - Oil and gas pipelines now have a new hurdle to clear before they’re approved in Canada. Pipelines and natural gas export terminals proposed in the country will now be subject to a climate test, which will seek to determine how the project will impact greenhouse gas emissions, Canadian officials announced Wednesday. That test will take into account the “upstream” impacts of a project — meaning the emissions from the extraction of the oil or gas that the pipeline would carry or the gas the terminal would store — as well as the emissions created from building and maintaining the project. “The federal role is to put into place a process by which TransCanada and any other companies could demonstrate that their projects are in the public interest and could have public support,” Trudeau said Tuesday, ahead of the government’s official announcement. “What we are going to roll out very soon, as we promised in our election campaign, is to establish a clear process which will consider all the greenhouse gas emissions tied to a project, which will build on the work already done.” The announcement, which covers projects already proposed in Canada, is good news for environmentalists and others who are concerned about increased fossil fuel production “We were very, very excited to see this announcement,” said Lena Moffitt director of the Sierra Club’s Beyond Dirty Fuels campaign. “It’s exactly the kind of analysis that should be conducted in reviewing any major energy project, and it’s exactly the kind of thing we’d like to see the Obama administration institute.”

Book review: Slick Waters shows us the human face of fracking: (interview transcript) Andrew Nikiforuk is an award-winning journalist and author who has written about energy, economics and the West for more than three decades. In his new book he tells the story of Jessica Ernst — the biologist and longtime oilpatch consultant who alleges that energy giant Encana secretly fracked hundreds of gas wells around her home, piercing her community’s drinking water aquifer. She has an ongoing lawsuit against Encana, Alberta Environment, and the Energy Resources Conservation Board. Q: Tell us how you first discovered Jessica Ernst’s story and why you decided to dedicate a book to it (and the subject of fracking.)

Anti-fracking activist seeking to record evidence of gas leak found guilty of trespass - ABC News - An anti-fracking activist has been found guilty of trespass after entering a Buru Energy drilling compound to film evidence of a methane leak at one of its wells. Broome man Damien Hirsch, 44, admitted to breaking into the compound in 2014, but pleaded not guilty to trespass on the grounds that public health concerns warranted the action. The footage showed a handheld meter apparently recording dangerously high levels of methane being released from the Yulleroo 2 gas well, 70 kilometres east of Broome. Magistrate Stephen Sharratt found Hirsch guilty of trespass, but accepted he was genuinely concerned about inaction over the gas leak."I accept the valve was leaking to the extent it could be heard and smelt," he said.He said Mr Hirsch "wanted to show the department's inaction ... and committed trespass to gather evidence"."His motives were good, but jumping into the compound was not trivial ... it was dangerous, he took a great risk, he could have been blown up," Mr Sharratt said. He said acquitting him would set a precedent that would see "people committing trespass all over the state" when concerned about environmental issues.

Fracking fears raised by methane gas study - BBC News: Research on the amount of gas leaked from onshore oil and gas wells raises "serious questions" over the development of fracking in the UK, Greenpeace has said. Around a third of former onshore oil and gas wells are leaking methane gas, according to the research led by scientists at the University of Durham. But it found the leaks produced less methane than agricultural use. The industry body said the findings should reassure people. "What ReFINE has shown is that the public should have no health or environmental concerns about emissions from properly decommissioned wells adhering to current industry standards." "Indeed the research has found that in the minority of cases where they have recorded some methane emissions from decommissioned wells, these emissions are typically less than one would get from just a handful of livestock grazing in the same fields," said Ken Cronin, Chief Executive of UKOOG, the representative body of the UK Onshore Oil & Gas industry. Around 2000 onshore oil and gas wells have been drilled in the UK. Fracking for shale oil and gas could result in many more.

Why the oil price crash may have killed off fracking in Wales for decades - Fracking in Wales is unlikely to happen for at least a decade and arguably much longer, experts say. With the oil price plunging across the world and significant political opposition in Wales, it is thought the prospect of exploiting the shale gas and oil beneath South Wales is vanishing. It was revealed last week that Eden Energy, which owned 50% of the rights to exploit the shale beds in South Wales, has sold its share for a £1, plus a royalty if petroleum is ever produced. The sale was announced to the stock market in Australia where the Perth-based firm is listed. The economic reasons for fracking's uncertain future in Wales With the price of a barrel of oil hovering at around $30 on global markets, exploiting the reserves believed to be present in South Wales are simply too expensive. Professor Calvin Jones of Cardiff Business School said the oil price would need to “quadruple” before companies had an incentive to start shale gas extraction in the UK.

Exxon says oil and gas will still dominate energy in 2040 -— The way oil giant Exxon Mobil sees it, the global energy landscape won’t be radically different in 2040 than it is today. Oil and gas will remain king, accounting for an even slightly larger share of the energy supply. Coal will fall behind natural gas to become the third-largest source of energy. Exxon forecasts that emerging renewables such as solar and wind power will triple but remain small — just 4 percent of the world’s energy. And carbon emissions will continue rising until around 2030, when cuts in industrialized nations gain traction lead an overall reduction. Those are some of the highlights in the long-range outlook that Exxon Mobil Corp. released Monday. It is not likely to win an enthusiastic response from environmentalists, including some of the company’s dissident shareholders, who want a quicker pivot away from oil, gas and coal and faster progress to bring down carbon emissions. Exxon officials say it is a dispassionate forecast, not a political document. “Exxon Mobil uses the outlook to develop business strategies that underpin our billion-dollar investment decisions,” William Colton, the oil giant’s chief strategist, said in an interview. “We have every incentive to get it right.”

Study: Fracking in Germany would not contaminate drinking water --A study by geologists at the Federal Institute for Geosciences and Natural Resources (BGR) found that developing Germany’s shale oil and gas with hydraulic fracturing would not contaminate drinking water resources. A Reuters report summarized its findings. Geologists used computer simulations to study what would happen to fracking fluids when injected into the bedrock of the North German Basin. “We found that the injected fluids did not move upwards into layers carrying drinking water,”. The results of the study were published in Germany last week.   Ladage also noted that hydraulic fracturing could improve Germany’s development of natural gas. “Gas production from domestic resources has been falling for 10 years,” Ladage said. “Using shale gas resources in Germany primarily bears the potential of mitigating part of the ongoing decline.”The BGR reported that between 0.32 trillion and 2.03 trillion cubic meters of gas could be extracted in depths below 1,000 meters in northern Germany. One of the world’s largest energy consumers, Germany has to import most of its energy fuel. Imports account for 98 percent of crude oil and 88 percent of natural gas, according to the BGR.

One-Third of Ecuador's Rainforests to Be Auctioned Off to Chinese Oil Companies - Almost two years after a controversial bid by the country's politicians to auction off part of the Amazon Rainforest to Chinese oil drilling companies, the it seems like the deal is finally about to get finalized, according to The Business Insider. If the deal does go through, China would be free to exploit about 3 million of the country's 8.1 million hectares of pure, untouched Amazonian rainforest. The region has remained pristine despite the advent of industrialization, until now. Areas of the Amazon are widely believed to carry vast deposits of oil, one of the global market's primary commodities. With China growing at an unprecedented pace, its acquisition of the Amazonian rainforest would, of course, enable the Asian giant to access more resources Like Us on Facebook Of course, such a move carries undeniable consequences, most of all being the obvious negative effects on the Amazon's ecosystem. Ecuador, most especially the millions of hectares of pure rainforest, is extremely biodiverse and is widely thought to hold species of animals that are probably yet to be discovered. However, such biodiversity is also extremely delicate; thus, the oil exploration activities of China might very well compromise its balance.

Oil Drops as Saudis to Maintain Spending, China Diesel Use Falls  -- Oil dropped after Saudi Arabia, the world’s biggest crude exporter, said low prices won’t reduce its spending on energy projects and China’s diesel demand fell for a fourth consecutive month. Futures tumbled 5.8 percent in New York. Saudi Arabian Oil Co., also known as Saudi Aramco, is maintaining its investment plans despite the rout in the crude market, Chairman Khalid Al-Falih said Monday. Diesel use in China dropped 5.6 percent in December compared with a year earlier and gasoline consumption grew at the slowest pace in more than two years. Oil resumed its decline after the biggest two-day rally in more than seven years as concerns persist over ample U.S. stockpiles, steady production from Saudi Arabia and Russia and the outlook for increasing Iranian shipments after the end of sanctions. Prices may take as long as three years to normalize, according to Bank of Montreal Chief Executive Officer William Downe. "A decline is to be expected after a giant move like we just had," . "We’re also down because the Chinese demand numbers were off considerably, especially diesel. The Saudis aren’t helping the market by deciding that they will go full-speed ahead with their investment plans." West Texas Intermediate for March delivery dropped $1.85 to close at $30.34 a barrel on the New York Mercantile Exchange. Total volume traded was 28 percent higher than the 100-day averageat 2:57 p.m. Front-month prices rose 21 percent over two sessions at the close Friday after the February contract expired Wednesday at $26.55 a barrel, the lowest since 2003. Brent for March settlement fell $1.68, or 5.2 percent, to end the session at $30.50 a barrel on the London-based ICE Futures Europe exchange. The contract gained 10 percent to $32.18 Friday. The European benchmark crude closed at a 16-cent premium to WTI. 

Tankers Cutting Speeds Amid Oil Glut-- Ardmore Shipping Founder and CEO Anthony Gurnee discusses the impact of low oil prices on the shipping industry. He speaks on "Bloomberg Markets." 

A Constant Short Squeeze Threat: Oil Shorts Are At All-Time Highs --  While market participants will hardly need the caution, having experienced historic moves in the oil complex over the past few days including the biggest two-day surge in seven years at the end of last week, one reason why oil remains so remarkably jumpy on even the tiniest hint of supply rationalization as demonstrated this morning by the latest comments by the Iraqi oil minister, is that the short interest in both WTI and Brent is at nosebleed record highs and continues to rise with every passing week. As SocGen writes this morning, "we have seen extreme short positioning building up in the oil futures market. The quantity of short positions opened is at an all-time high for Brent, and still high for WTI futures."  SocGen correctly notes that there is now an asymmetric profile on oil: "a positive surprise could happen quite sharply, as short positions are likely to be squeezed by a profit-taking move. On WTI, the in-the-money short positions are really dominating at the front end of the curve while out-of-the-money long positions are dominating at the long end of the curve: the front end of oil curve could thus be more exposed to some profit-taking."  SocGen's conclusion is that "deflation fears could turn around rapidly and give more room to reflation and inflation talks" which considering all central banks are now actively blaming low oil prices for their monetary incompetence, is indeed notable.

Crude Plunges After API Reports Biggest Inventory Build Since 1996 -- After a day of exuberant hope from rumors of production cuts, WTI crude is plunging back to reality as API reports a stunning 11.4 million barrel inventory build. This is the biggest weekly build since May 1996. When moar is not better... And the reaction...  Let's hope that stocks can decouple from oil's harsh reality or all that dead cat bubble bounce will be gone before Janet gets to unleash her statement.

Fast And Furious -- January 27, 2016; US Crude Oil Stocks At Highest Inventory Level For Month Of December Since The Great Depression  -- Several interesting tweets one following the other, fast and furious:

• Reuters: Russian energy ministry says possible coordination with OPEC was discussed at meeting with Russian oil companies
• Russia's Transneft says Russia and OPEC will discuss possible output cuts -- Tass
• From John Kemp, Remains unclear whether Russia is seriously contemplating coordinated OPEC cuts but speculation intensifying
• From John Kemp: CAVEAT LECTOR: Earlier today Reuters carried this: Russia plans no joint action with OPEC
• US commercial crude oil inventories +8.4 million bbl for week ended Jan. 22 to 494.9 million bbl,
• From John Kemp: Canada's oil output projected to rise 56% to 6.1m b/d by 2040 under reference price scenario (most from oil sands)
• Oil Companies Holding On: Deloitte Says M&A Deals Down 53%.
• At 484 million bbl (+23% YOY), US crude oil stocks hit highest inventory level for December since 1930
• US oil output in December averaged 9.3 million b/d, down 1.4% YOY but 2nd highest for month since 1972,
• US petroleum demand in December was highest for month in 5 years.

That last bullet was a bit interesting in view of this graph that shows gasoline demand continues to fall, though it now "parallels" last year's decline:

Oil Oscillates As Inventories Surge Most In 9 Months And Demand Plunges - Following last night's huge 11.4mm barrel inventory build forecast from API (the largest since 1996), DOE reports an 8.4mm build (against analysts estimates of +4mm). It seems the blowback from the huge gasoline and inventory builds is flowing back upstream to crude but there is some good news as Cushing saw a 771k draw after 11 weeks of builds (and production dropped very modestly). On the demand side, it's just as ugly with Gasoline demand -2.5% YoY and Distillate demand down a stunning 14.8% YoY. Having tested the API ledge in prices twice this morning, WTI is hovering between $30.50 and $31.

• *CRUDE OIL INVENTORIES ROSE 8.38 MLN BARRELS, EIA SAYS
• *GASOLINE INVENTORIES ROSE 3.46 MLN BARRELS, EIA SAYS
• *DISTILLATE INVENTORIES FELL 4.06 MLN BARRELS, EIA SAYS

Oil Inventory Hits "Levels Not Seen in 80 Years"; Crude Jumps on News Russia May Cooperate with OPEC -- The supply glut in oil storage continues as crude. Inventories hit new all-time highs this past week. The above charts from EIA Weekly Supply Data shows the crude inventory of 494,920,000 (not counting strategic reserves) passed the previous high of 490,912,000 set on April 24, 2015.Reserves, including the Strategic Petroleum Reserve (SPR), reached 1,190,038 barrels, also a record high. Here are some interesting comments from the Weekly EIA Report. "At 494.9 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total motor gasoline inventories increased by 3.5 million barrels last week, and are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories decreased by 4.1 million barrels last week but are near the upper limit of the average range for this time of year. Propane/propylene inventories fell 6.2 million barrels last week but are well above the upper limit of the average range. Total commercial petroleum inventories decreased by 1.0 million barrels last week."  Despite the record inventory surge, crude jumped a bit from extremely oversold levels on news Russia Dangles Prospect of OPEC Cooperation. Oil futures surged on Wednesday, after Russia said it was discussing the possibility of co-operation with OPEC, fanning hopes that a deal was in the works to reduce oversupply that sent prices the lowest levels in a dozen years last week. Russia's energy ministry said possible coordination with the Organization of the Petroleum Exporting Countries (OPEC) was discussed at a meeting with Russian oil companies on Wednesday.  "I remain skeptical, at the end of the day, about that happening as the oil producers are looking at the other guy to cut production while maintaining their own levels,"

The “Great Divide” Between Crude and Natural Gas Is Shuttered By Low Prices -- West Texas Intermediate (WTI) CME NYMEX crude futures settled up 92 cents/Bbl yesterday (January 28, 2016) at $33.22/Bbl and NYMEX Henry Hub natural gas futures settled up slightly at $2.182/MMBtu. The crude-to-gas ratio - meaning the crude price in $/Bbl divided by the gas price in $/MMBtu - was 15.22 X. For most of this year so far the ratio has been less than 15X On January 20, 2016 it dipped to 12.5 X – its lowest point since March 2009. Over the 5 years between 2010 and 2014 the ratio averaged 27X - reaching a high of 54X in April 2012. That lofty five year run for the crude-to-gas ratio was arguably responsible for much of the crude and natural gas liquids production boom since 2011 and a “Golden Age” of natural gas processing. Today we begin a two-part series discussing the ratio and the market implications if it stays low.

$7 Crude? Deutsche Bank Downgrades Oil 'Lower For A Lot Longer' -- Oil prices around USD 30/bbl mean that an increasingly significant volume of future oil projects no longer make sense. Although Deutsche Bank does not expect US crude inventories to reach capacity, rising US inventories and high US crude imports may heighten downside pressures to push prices closer to marginal cash costs of USD 7-17/bbl for US tight oil.  With few plausible scenarios for a strong price recovery in the short term, Deutsche lowers their Q1-2016 price forecasts to USD 33/bbl for WTI and Brent. We see downside risks stemming from a lower demand growth outlook this year in the event that US product demand remains extremely weak, and from the possibility that equity market declines feed through into lower consumer confidence and spending. Upside risks may arise from either a weak or unsustained rise in Iranian exports, which may then lead to OPEC production in 2017 below our assumption of 32.4 mmb/d (excluding Indonesia). One might be tempted to claim that prices have detached from fundamentals given the rapidity of the decline since December. Although we could choose to attribute some part of price movement to outside factors such as market psychology, an undeniable rise in risk aversion since the start of the year, and associated equity market weakness, this would do little to advance the state of knowledge regarding oil fundamentals. Therefore we prefer to (i) identify a possible fundamental basis for the further decline in oil prices, which could sustain prices at a low level, and (ii) assess the likely impact of prices remaining around USD 30/bbl on the forward balance. With regard to the first point, the disappointment in Chinese economic growth for Q4-15 should not be a key driver as the most recent data on apparent consumption remains strong as of November 2015, with average year-on-year demand growth of +400 kb/d for the three months ending in November, Figure 2.

Russia says Saudis proposing global oil production cut | Reuters: Russia said on Thursday that OPEC's largest producer Saudi Arabia, had proposed oil production cuts of up to 5 percent in what would be the first global deal in over a decade to help clear a glut of crude and prop up sinking prices. Benchmark Brent futures jumped as much as 8 percent on Thursday to nearly $36 a barrel on news of the potential deal, which if implemented would immediately reduce surplus global output exceeding demand by 1 million barrels per day (bpd). Brent was trading at $34 a barrel at 1540 GMT. A turnaround in oil's fortunes would be welcomed by oil-rich countries where the price collapse has caused budget squeezes and political turmoil with some even forced to devalue their currencies. Russian Energy Minister Alexander Novak said Saudi Arabia had proposed that oil-producing countries cut production by up to 5 percent, which for non-OPEC member Russia - the world's top producer - would represent around 500,000 bpd. "Indeed, these parameters were proposed, to cut production by each country by up to 5 percent," Novak said. "This is a subject for discussions, it's too early to talk about." Saudi Arabian officials did not immediately comment on the proposal but a senior Gulf OPEC delegate said: "Gulf OPEC countries and Saudi Arabia are willing to cooperate for any action to stabilize the international oil market." The proposal did not come directly from Saudi Arabia but rather from OPEC members Venezuela and Algeria, one Gulf OPEC source said.

Oil Soars To 3 Week High On Saudi Production Cut Confusion; Futures Surge - Headline hockey continues in the energy complex as earlier confirmation of a pending OPEC meeting possible in February has seen more color added, via Reuters, that Saudi Arabia made a proposal that OPEC members cut production by a maximum of 5%. There remains confusion however as Bloomberg reports simply that Russian energy minister has said they "may discuss it," as opposed to being a specific proposal.  Reuters seems confident that The House of Saud has backed down and prosposed the cut... But Bloomberg is less confident that this is an actual proposal... And further, Interfax reports that this is nothing new... Crude is surging on the confusion... In summary: a story about a Saudi proposal for a 5% cut becomes one where a 5% cut may be discussed. For now however, the short squeeze has been started and the panicked  covering of shorts is in progress if only for the next few minutes.

U.S. rig count down 18; Louisiana drops 3  — Oilfield services company Baker Hughes Inc. says the number of rigs exploring for oil and natural gas in the U.S. declined by 18 this week to 619. The Houston firm said Friday 498 rigs sought oil and 121 explored for natural gas amid depressed energy prices. A year ago, 1,543 rigs were active. Among major oil- and gas-producing states, Texas declined by 13 rigs, New Mexico, four; Louisiana, three; and Kansas, North Dakota and Pennsylvania, one apiece. Alaska and Colorado each increased by two rigs and Oklahoma was up one. Arkansas, California, Ohio, Utah, West Virginia and Wyoming were all unchanged.

U.S. Oil-Rig Count Declines by 12 - WSJ: The U.S. oil-rig count fell by 12 to 498 in the latest week, according to Baker Hughes Inc., BHI 0.90 % accelerating 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 U.S. gas rigs declined in the latest week by 6 to 121. The U.S. offshore-rig count was 28 in the latest week, down one from the previous week and down 21 from a year earlier. On Friday, oil prices retreated from their push toward a three-week high as traders continued to debate the effect of attempts at economic stimulus and the possibility of output cuts from the world’s big exporters.

Saudi Production Cut Story Rejected: OPEC Delegates Say "No Plan For Meeting With Russia" - Headlines about "oil production cuts" are the new "Greece is saved" trial balloon. Following today's dizzying surge in crude oil on speculation by the Russian energy minister that the Saudis have proposed a 5% supply cut, which was subsequently trimmed to merely a statement that a "meeting may be called where a production cut could be discussed" we asked how long until the denial: The answer: 15 minutes when the following rejection hit:  OPEC DELEGATES SAY NO PLAN YET FOR MEETING WITH RUSSIA. And now that the squeeze is over, oil can resume tumbling.

TASS: Brent oil prices over $35 on Russia's confirmation of talks with OPEC: The price of Brent crude oil futures contract for March delivery on London’s ICE rose by 5.7% to $35.01 per barrel for the first time since January 6, 2016. Oil price increased following the statements of Russian Energy Minister Alexander Novak about being ready to take part in the upcoming meeting of the OPEC and non-OPEC members in February.  Russia on Thursday confirmed its participation in the meeting of OPEC member-states and other oil producers for discussing low oil prices and coordination of a potential crude production cut due in February. "Currently the OPEC member-states are trying to convene a meeting with participation of other OPEC (member-states) and non-(member-states) in February. Certain countries have come forward with this initiative, currently the issue is being worked out with the countries. On our part we’ve confirmed our potential participation in such a meeting," Novak said. Alexander Novak said he is ready to take part in the upcoming meeting though the question of its level hasn’t been solved yet.

Russia: No firm plans to coordinate oil output with OPEC — The Kremlin says there are no concrete plans to cut oil output in coordination with major producers Saudi Arabia and OPEC. Spokesman Dmitry Peskov told reporters on Thursday that Russia is “actively discussing the instability of oil markets,” with Saudi Arabia and OPEC, but, as of yet, there are no conclusions from the talks. On Wednesday, the head of the Transneft pipeline network Nikolai Tokarev, said talks on output cuts are planned, with the Saudis as the main negotiators. Russian Energy Minister Alexander Novak said Thursday that efforts are underway to convene talks involving OPEC countries and nonmember oil-exporting countries. The price of oil dipped below $30 a barrel last week, causing the ruble to plunge to record lows. The price ticked up slightly at the beginning of this week— due in part to discussions about coordinating oil output— and is now trading at $32.41 a barrel.

OPEC delegates deny talk of Russia meeting: report - Delegates from the Organization of the Petroleum Exporting Countries on Thursday said there were no plans to hold talks with Russia over potential production cuts, Bloomberg reported. Oil futures gave back a large chunk of the sharp rally scored earlier in the session on talk Russia and OPEC would meet next month to coordinate policy. West Texas Intermediate futures for March delivery on the New York Mercantile Exchange were up 92 cents, or 2.8%, at $33.21 after trading as high as $34.82 in earlier activity. April Brent crude on the ICE exchange was up $1.15, or 3.4% at $35.09 a barrel after trading as high as $36.77.

Oil rallied this week on false hopes for deal: There's little chance the OPEC cartel and nonmember Russia could reach a deal that would result in lower oil production, despite market intrigue and a jump in crude prices on talk of a possible agreement. Analysts said Iran would have to be on board in order for OPEC to be willing to strike any deal, but an unnamed Iranian official quoted by the Dow Jones news agency on Friday signaled the country would not participate. "It's very hard to see how this works with Iran ramping up production. What the key is now is how much Iran comes out in terms of putting stored oil back onto the market. The next shoe to drop is clarity about how much oil Iran could put in the market," said Daniel Yergin, vice chairman of IHS. Read MoreWhy oil glut not going away soon The official was quoted as saying Iran could not consider a cut until its exports increase by 1.5 million barrels a day, over its approximately 1.1 million barrels a day. For the past several days, news services have been reporting that OPEC and producers from outside the cartel may meet to discuss production cuts. Brent crude futures were up more 6 percent this week on speculation there would be a meeting. Adding fuel to the reports were comments from Russian Energy Minister Alexander Novak saying his country would cooperate with a deal to cut production. Novak also said Thursday that Saudi Arabia had proposed each country reduce oil output by 5 percent to support prices. Dow Jones, however, quoted a senior Gulf OPEC official as saying that the Saudis did not ask Russia to cut output by 5 percent. The official also said the proposal was an old suggestion from Algeria and Venezuela.

Venezuela’s del Pino to Talk With Russia About Oil Production - WSJ: Venezuelan oil minister Eulogio del Pino said late Friday he will travel to Russia and then to fellow OPEC members Iran and Saudi Arabia to discuss a meeting aimed at stabilizing oil prices. On Thursday, Alexander Novak, the energy minister of Russia, which isn’t a member of the Organization of the Petroleum Exporting Countries, said such a gathering was being planned, fueling speculation that his country may join a collective production cut. In a statement posted on the website of state-run Petróleos de Venezuela SA, Mr. Del Pino said the remarks had led to an increase in oil prices of about $4 a barrel. He said he would travel on Monday to Moscow to meet Mr. Novak before going to Qatar, Iran and Saudi Arabia.

What Oil Production Cuts: Iran Says It Won't Support Any Supply Cut Or Emergency OPEC Meeting - The main reason for oil's torrid surge over the past 2 days is that following yesterday's Russia-Opec "oil production cut" headline fiasco, crude traders - who as we previously reported already had a record net short position - scrambled to cover their exposure on the assumption that where there is oily smoke, there will be fire. We can now put to rest any speculation that OPEC will proceed with any supply cuts, whether Russia requests it or not, because as the WSJ reported moments ago, not only will OPEC not support a supply cut but it will also not support an emergency OPEC meeting.  BREAKING: Iran won't support a supply cut and won't support an emergency OPEC meeting. — Michael Amon Iran Would Not Join Immediate OPEC Production Cut -- Iranian Official — Summer Said (@summer_said)

Russian-OPEC Production Cut Remains A Long Shot - The rumors of a coordinated production cut between OPEC and Russia continue to grow more serious. The latest comes from the Russian energy minister Alexander Novak, who insisted that Russia will hold talks with OPEC in February on a possible agreement to reduce output. “There are very many questions, on checking cuts, from what base to count from. In order to start working through these issues, we need general agreement, it’s too early to talk about that. That’s the subject of the meeting and discussion (in February),” Novak told reporters, according to TASS. The headline figure: a 5 percent production cut across the board for all participants. That’s what Saudi Arabia floated last year. When asked if that was still on the table, Novak replied, “That is precisely the subject for debate.” The meeting could tentatively take place in February. It was originally proposed by Venezuela, which has pleaded for emergency measures to stabilize oil prices. Oil prices skyrocketed on Wednesday and Thursday after the comments from Novak. During intraday trading on January 28, prices shot up by more than 8 percent. By midday, WTI and Brent fell back a bit, but were still up more than 3 percent. That is the highest level since the first week of January. Coordination on production cuts between OPEC and Russia has always been a long shot, and probably still remains an unlikely development. The big difference this time around, though, is Russia’s change in tone. Saudi Arabia had hinted at its willingness last year to undertake a 5 percent production cut if Russia did the same, but up until now Moscow never really took the idea seriously.

Glencore Said to Store Oil in Ships Off Singapore Amid Contango -- Glencore Plc is said to be storing oil on ships off the coast of Singapore and Malaysia as a market structure known as contango allows traders to benefit from holding on to supplies for sale later. The commodities trader has at least 4 very large crude carriers, each of which can hold about 2 million barrels, floating at sea off the nations’ coast in Southeast Asia, people with knowledge of the matter said, asking not to be identified because the information is confidential. When a market is in contango, prices for supplies today are lower than those in future months, allowing traders with access to stored crude to potentially lock in a profit. Charles Watenphul, a spokesman for Glencore, declined to comment. While the oil market has been in contango since 2014, the premium fetched by future cargoes increased to the highest since February last month. The price difference between a Brent oil contract for immediate delivery and a year forward is at about minus $7 a barrel, twice the level in mid-July. “Traders will be closely watching the contango structure to determine whether to use more vessels for crude floating storage,” said Tushar Tarun Bansal, an analyst in Singapore at industry consultant FGE. “  The Brent contango structure just about covers the cost to time-charter a vessel for floating storage, though we also need to consider added costs such as from financing.  To benefit from the contango, profits from selling a stored cargo must exceed the cost of chartering ships to hold the supply. Euronav NV, Europe’s largest owner of supertankers, would charge about 75 cents per barrel each month for storing, its chief executive officer said on Thursday. Brent crude for April costs about 90 cents more than for March, data from ICE Futures Europe show. Traders incur additional expenses over and above freight.

Saudi central bank net foreign assets drop 3.1 pct m/m in December | Reuters: Net foreign assets at Saudi Arabia's central bank fell 3.1 percent in December from the previous month to 2.283 trillion riyals ($609 billion), the central bank said on Thursday. Assets dropped 15.9 percent from a year earlier to their lowest level since August 2012. They reached a record high of $737 billion in August 2014 before starting to shrink. The central bank, which acts as Saudi Arabia's sovereign wealth fund, has been drawing down its assets to cover a huge state budget deficit caused by low oil prices.

Saudi Arabia’s Sale Of Foreign Assets Accelerates - Saudi Arabia’s holdings of foreign assets slid some $19.4 billion last month, its largest one-month decline.  As Marketfield Asset Management CEO Michael Shaoul writes, this reduces its rolling 12 month holdings by $115.2 billion, outpacing Saudi Arabia’s record pace of accumulation in 2012. Certainly, the decline has only put holdings back to their August 2012 levels, double 2007 levels, but Shaoul writes that the speed of the decline is meaningful, as it “indicates a degree of duress.” Moreover, this December data doesn’t cover the latest oil selloff. More detail from his note: Our concern is not whether Saudi Arabia can “afford” to run down its foreign asset holdings (it clearly can, since even the current pace could be absorbed for two or three years and still leave a large reserve holding), but what the effect of a $230 bln swing in its funding position since 2012 means for global asset markets given that it comes on top of a much larger swing by China.We view Saudi Arabia as the second largest contributor to QT (Quantitative Tightening – a central bank divesting assets) and we suspect that a good deal of the liquidation has taken place in actual credit and equity markets rather than in treasuries (there is no transparency in the data so this is mere supposition on our part).

Saudi Arabia Hemorrhages $19.4 Billion In Reserves During December - Saudi Arabia - which was busy playing headline hockey with Russia this morning over a rumored 5% production cut proposal - is running out of money. Yes, we know, that sounds absurd. But believe it or not, the country whose monarch recently rented the entire Four Seasons hotel for a 48 hour stay in Washington DC, is in fact going broke. And at a fairly rapid clip. The problem: slumping crude. As we first discussed in November of 2014, Riyadh’s move to kill the fabled petrodollar in an effort to bankrupt the US shale complex was a risky proposition. If ZIRP kept US producers in the game longer than the Saudis anticipated, crashing crude could end up blowing a hole in the kingdom’s budget - especially if Iranian supply came back on line and added to the supply glut. Fast forward a 14 months and that’s exactly what’s happened. US production is down but not wholly out (yet) and the Iranians are adding 500,000 barrels per day in output in Q1 and 100,000,000 per day by the end of the year. Compounding the problem is the war in Yemen (which will enter its second year this March) and the cost of providing subsidies for everyday Saudis. All of this has conspired to leave Riyadh with a budget deficit of 16%. That’s expected to narrow in 2016 but at 13%, will still be quite large. Make no mistake, if crude continues to sell for between $30 and $35 per barrel, 13% will probably prove to be a rather conservative estimate.

OilPrice Intelligence Report: Weak Global Economic Growth Linked to Oil Price Collapse - Oil prices fell on Monday on negative news coming from China and on comments from top Saudi officials that there will be no let up in oil production. China revealed on Monday that its full-year consumption of diesel declined in 2015 compared to a year earlier, bolstering fears that China’s economy is faltering. On the same day, Saudi Aramco’s Chairman said that the state-owned oil company would continue to invest in new sources of oil production and that the country could endure low oil prices for “a long, long time.” Together, the news reversed the strong gains in oil prices from last week. Oil was back down to $30 per barrel to close out the day on January 25. But oil then rebounded on Tuesday by 2 percent. As of midday, WTI traded up to $31 per barrel and Brent hit $31.31. Of course, weighing on crude oil prices are concerns about the health of the global economy. Growth is sluggish in most parts of the world. Europe is stagnant, parts of Latin America are in recession, and China is no longer the growth engine that the world has counted on for the past decade. In fact, the markets are increasingly interpreting the collapse in commodity markets as a potential harbinger of a souring economy. In the past, plummeting commodity prices have only been associated with severe recessions (see: Global Financial Crisis 2008-2009). In normal times, short-term swings in commodity prices usually move inversely to global equities. Recently, however, moves in oil prices have been more closely correlated with moves in the stock market, and movements have occurred in in the same direction, a rare development that highlights fears about the global economy. In In fact, the correlation between oil and global stocks hit 0.5 over the past four months, the highest level in more than two years. But 2016 has started off even more worrying. The Wall Street Journal finds that so far in January, the correlation is at 0.97, meaning the two metrics are essentially moving in lock step. Again, to reiterate, such an unusual correlation is usually associated with recessions.

Why The Recent Crude Price Collapse Was Unusually Severe -- In Part 1 of this series we detailed the fundamental factors behind the downward spiral in crude oil prices since the beginning of 2016. The price for U.S. domestic benchmark WTI fell by 28% in the first 20 days of 2016 to $26.55/Bbl - down 75% from its $107/Bbl high in June 2014. The most significant of those fundamental factors is the approximately 1 MMb/d excess of current supply over demand. The U.S. Energy Information Administration (EIA) forecast the supply excess to continue until mid-2017. The world oversupply looks likely to be exacerbated by the return of 0.5 MMb/d of crude to the market from Iran following the lifting of sanctions on that country last week (January 16, 2016).  On Friday (January 22, 2016) West Texas Intermediate (WTI) crude prices on the CME/NYMEX futures exchange closed up $2.66/Bbl – the second day of a recovery from their 28% plunge during the first 20 days of 2016. The jury is still out on whether the recovery will be sustained. There was a similar (though less pronounced) price decline a year ago in January 2015 that did not last very long at the time. But in comparison the price destruction during this month’s collapse was unusually severe - not just because we saw prices under $30/Bbl for the first time since 2003. Today we explain why the extent of the price destruction along the forward curve this time suggests that last week’s recovery may be short lived.

Oil Prices In 2016 Will Be Determined By These 6 Factors -- The one given in this industry is that the analyst community is consistently wrong about where the price of oil is going in the near to mid-term. Just as $100 oil was a sentiment driven price that baked in the risk of every potential negative impact on the supply chain, $28, $30 or $40 dollars is equally sentimental, assuming that any and all incremental barrels are and will be available AND demand will slow or stop. So let’s just step away from the current noise and focus on a non-controversial outcome… that oil will be much more valuable in the future than it is today. What, exactly, will that future look like? Today’s pricing sentiment is driven by a global economic “Pick 6” today…

• 1. US production rates,
• 2. Saudi Arabia’s ability to grow production,
• 3. Iran’s latent ability to produce more oil,
• 4. Chinese economic slowdown and its impact on consumption,
• 5. Russia’s ability to add global production, and
• 6. OPEC’s inscrutable strategy.

Let’s stipulate a couple of assumptions. First, people will produce existing wells at rates that aren’t sustainable to preserve cash flow or compete for market share, because the cost to drill and bring online is already sunk. Second, new wells will not be drilled if there isn’t at least an outlook to breakeven producing them. That means an expectation of a sustained price over 1-3 years or until the well has been paid out.Certainly the unconventional revolution has been a huge factor in global production increases over the last 6 years. The item NOT generally recognized is that production typically lags drilling by some 5 months, thus the drilling in December 2014 is discernible in production records in April 2015. That analysts were alarmed at increasing production and supply during the 1st half of the year suggested that they did not understand this dynamic, nor did the business press. We predicted in April that monthly production would peak in May and then jump around between -100 mbpd and -350 mbpd for the rest of the year. When looking at additional production month over month, it is important to remember that it is building on a sloping foundation of natural decline.

Kuwait projects record deficit sharp decline in oil: The finance Minister reveled Thursday that Kuwait projected a record budget deficit for the fiscal year starting April 1 on the sliding price of oil. According to information from the twitter account of finance Minister The sharp decline in oil for 2016-2017 is estimated at 11.5 5 billion dinars ($38 billion) Spending was estimated at 18.9 billion dinars, just 1.6 percent lower than in the current year, according to the same source. Revenues were projected at 7.4 billion dinars, of which oil income is estimated at $19.1 billion or just 78 percent of the public revenues; whereas, in the past, income from oil contributed more than 94 percent of revenues in the Gulf emirate, before the decline in crude prices. Kuwait has projected a shortfall of $23 billion in the current fiscal year, which is the first deficit after 16 years of surplus.

Falling oil prices: good for producers, bad for importers? -- The intuitive impact of falling oil prices is that it’s a hammer blow for producers and a gift for countries that are net importers. There is obviously some truth in this. Saudi Arabia, for example, is having to take drastic action to cut its fiscal deficit, while Venezuela is in crisis, with chronic shortages of basic everyday goods. But as we have written before, falling oil prices also impose discipline on sovereigns who were previously able to use a torrent of petrodollars to cover up economic, political and social fractures. And conversely for emerging market importers, the benefit of lower oil costs is likely far outweighed by the broader carnage created by a collapsing energy industry, reversing petrodollar flows and the decreasing appetite for risky EM assets. In a note on Monday, Citi’s head of emerging market economics David Lubin carries that beacon further still: Oil importers are obviously enjoying a terms of trade gain which shows up on the current account of the balance of payments, but that gain doesn’t necessarily support growth. Take India and Turkey, for example: two countries where, two years ago, fears about external instability were at the forefront of investors’ minds. The fall in the oil price has helped to evaporate those fears. Turkey’s non-oil current account balance is once again in surplus, and overall deficit in the first 11 months of 2015 stood at US$28bn, compared with US$40bn a year earlier. In India, the current account may well be in surplus during the current quarter, and the overall deficit for fiscal 2015/16 is likely to be just US$18bn, or 0.8% GDP. The argument here, broadly, is that while oil exporters have a primary problem that can be taken care of by pulling relatively straightforward fiscal levers, oil importers face a rather trickier problem: achieving growth when global investors are racing to pull their money out of emerging markets. Although the capital flow problems affect both oil importers and exporters, the latter have more reliable fiscal policies. “While oil falling oil prices are undeniably bad news for oil exporters … the policy discipline that’s evident among some of these countries can help to put some kind of floor under their vulnerability,” says Rubin.

9 Billion Barrels Of Crude At Risk In Massive Nigerian Oil Shakeup -- Supermajors Shell and Italian Eni could be facing the loss of one of the biggest offshore oil exploration blocks in Nigeria, putting an estimated 9 billion barrels of crude oil at risk. As the new Nigerian government launches a rampaging anticorruption campaign, local media are reporting government recommendations to reclaim block OPL 245 from oil giants Shell and Eni. Nigerian Justice Minister and Attorney General Abubakar Malami is behind the recommendation, and is a key figure advising the government on the case. At issue is how Shell and Eni landed the block in the first place—a controversial deal that is now being investigated in the UK, Italy and Nigeria. If newly elected Nigerian President Muhammadu Buhari agrees with Malami’s recommendation, not only could Shell and Eni lose the block, but they could also face billions of dollars in fines for allegedly bribing corrupt public officials and private citizens. According to Global Witness, Shell’s and Eni’s Nigerian subsidiaries had agreed to pay the government $1.1 billion to acquire the offshore block. The watchdog also said that an investigation revealed that at the same time, the same amount was offered to Malabu Oil and Gas, a company widely reported to be controlled by former oil minister Dan Etete. Etete was convicted of money-laundering in France in 2007. Nigeria is Africa’s biggest economy, and it relies on oil exports for 58 percent of the government’s revenue. When Buhari officially took office in May, he said the coffers were empty and massive amounts of oil money had been embezzled—upwards of $150 billion. Now the country is facing a harrowing economic crisis. Buhari appears to be serious about shaking up the industry. He’s already split up the state-owned NNPC oil company into two entities. He also fired the former oil minister, Diezani Alison-Madueke, and had her arrested in London for allegedly facilitating the embezzlement of a whopping $20 billion. New investigations into former officials are being launched at breakneck speed. Things aren’t looking good for Shell and Eni. On top of the reclamation recommendation that would lose them one of the most lucrative plays in the country, both (along with French Total SA) are now being accused of getting a $3.3 billion extraordinary tax break from the previous government in relation to the Nigeria Liquefied Natural Gas (NLNG) consortium set up in 1999.

Security Woes Threaten OPEC's Second Largest Producer - Iraq has been one of the key contributors to the uptick in OPEC oil production over the past year and a half. Despite the fact that the country’s crude oil output has continuously been plagued by security concerns and altering payments to international oil companies from both the Kurdish regional government (KRG) and Baghdad and an ongoing row over oil export rights, it has still managed to ramp up production to record levels.Iraq’s consistent and record oil output last year is, by and large, contributable to the production in the south of the country. According to a January 16. Reuters report, exports from its southern region have been running at 3.297 million barrels per day (bpd) so far in January, representing around 75 percent of the country’s total production.Iraq’s South Oil Co.’s Deputy Director Salah Mahdi told Reuters in an interview that Iraq’s southern oil exports have been running smooth over the last year and in spite of recent tribal violence in the region, he expects the company’s drilling and export activities to continue undisturbed in 2016.The above chart gives a good view of the production increases of Iraqi oil in 2015. The latest OPEC Monthly Oil Report shows a slight decline in Iraq’s production output in December 2015.OPEC has Iraq’s oil production at 4,309 mmbpd in December and estimates its rig count at 51.  No reason to worry about Iraq’s oil future it seems… or is there? As mentioned, the lion share of Iraq’s oil is produced by Iraq’s South Oil Co. around its main export facility, in the province of Basra. The chart below shows the oil deposits in Iraq and all the yellow spots are either giant or supergiant oil fields.

Opec pleads for Russian alliance to smash oil speculators - Telegraph: The Opec oil cartel has issued its strongest plea to date for a pact with Russia and rival producers to cut crude output and halt the collapse in prices, warning that the deepening investment slump is storing up serious trouble for the future. Abdullah al-Badri, Opec’s secretary-general, said the cartel is ready to embrace rivals and thrash out a compromise following the 72pc crash in prices since mid-2014. "Tough times requires tough choices. It is crucial that all major producers sit down and come up with a solution," he told a Chatham House conference in London. Mr al-Badri said the world needs an investment blitz of $10 trillion to replace depleting oil fields and to meet extra demand of 17m barrels per day (b/d) by 2040, yet projects are being shelved at an alarming rate. A study by IHS found that investment for the years from 2015 to 2020 has been slashed by $1.8 trillion, compared to what was planned in 2014. Mr al-Badri warned that the current glut is setting the stage for a future supply shock, with prices lurching from one extreme to another in a deranged market that is in the interests of nobody but speculators. "It is vital that the market addresses the stock overhang,” he said. Leonid Fedun, vice-president of Russia’s oil group Lukoil, said Opec policy had set off a stampede, comparing it to a “herd of animals rushing to escape a fire”. He called on the Kremlin to craft a political deal with the cartel to overcome the glut. “It is better to sell a barrel of oil at $50 than two barrels at $30,” he told Tass. This is a significant shift in thinking. It has long been argued that Russian companies cannot join forces with Opec since the Siberian weather makes it hard to switch output on and off, and because these listed firms are supposedly answerable to shareholders, not the Kremlin.

Why A Russian-Saudi Deal On Cutting Oil Output Remains Elusive  -  With oil trading near $30 a barrel, calls for orchestrated output cuts to quell global oversupply have intensified this week. Trouble is, none of the world’s largest producers, most notably Russia and Saudi Arabia, have shown they’re ready to make a move. OPEC Secretary-General Abdalla El-Badri called on all countries, both inside and outside the group, to join efforts to revive oil prices. "It should be viewed as something OPEC and non-OPEC tackle together," he said on Monday. Iraq’s oil minister said on Tuesday that Saudi Arabia and Russia, the world’s two largest exporters, might be ready to become “more flexible.” Yet there’s little sign the countries themselves are ready to reach an agreement despite the economic damage wrought by the lowest prices since 2003. Long-standing obstacles remain -- Saudi Arabia’s desire to defend market share, Russia’s inability to cut production in winter months -- and analysts say talk of a deal probably reflects the hope of producers in pain rather than the expectation of concrete action. The two countries’ opposing views on Syria, where Russia is President Bashar Al-Assad’s closest ally and Saudi Arabia wants him gone, present another significant diplomatic obstacle. "It will not happen -- everybody is winking, hinting," said Kamel al-Harami, an independent oil analyst and former executive of state-owned Kuwait Petroleum Corp. "The Saudis won’t do it without the Russians. Unless Russia accepts to cut, I don’t see it happening.”

Potential Saudi Aramco IPO Won’t Include Reserves - WSJ -- Saudi Arabia’s potential sale of shares in its state-owned oil giant wouldn’t include the kingdom’s oil reserves and could be on local or international markets, the company’s chairman confirmed in an interview that aired Sunday.  “The reserves would not be sold, but the company’s ability to produce from the reserves is being studied,” Khalid al-Falih told Dubai-based al-Arabiya TV in an interview from Davos, Switzerland, where the annual World Economic Forum was held. “The reserves will remain sovereign,” said the chairman of the Saudi Arabian Oil Co., better known as Saudi Aramco, adding that options were being studied to reach the best formula for the initial public offering. Aramco says it has more than 260 billion barrels of proven oil reserves and the equivalent of 50 billion barrels of natural-gas reserves—more than 12 times the largest publicly traded oil company, Exxon Mobil Corp. Analysts didn’t expect the IPO to include oil reserves, and the potential IPO could still create a publicly listed company valued in the trillions of dollars.

Saudi Aramco chairman defends oil giant's possible IPO — The chairman of Saudi Aramco said on Monday that plans for a possible initial public offering are not being driven by a need for cash amid a global slump in oil prices, but instead signal a desire for greater openness to outside investors. Speaking at an investment conference in the Saudi capital of Riyadh, Khalid al-Falih said the potential listing of the world’s largest oil producer “is not for cash” but a “sign of the times” that the kingdom is open for business. “If we do it, the percentage will not be such that it’s going to move the needle significantly in terms of the government proceeds,” al-Falih said, a reference to the potential listing. He said that despite oil prices recently dipping below $30 a barrel, Saudi Aramco’s investments in oil and gas have not slowed down. Earlier, al-Falih told the Saudi-owned Al-Arabiya news channel that any initial public offering of the company would not include the kingdom’s oil reserves. Talking to reporters at the conference, al-Falih said excessively high oil prices “precipitated” the current slump since “everybody wanted to contribute to supply more than the demand that was coming in.” He said Saudi Arabia has the scale and capability to sustain the current slump in prices for “a long, long time” but that “obviously, we don’t wish for lower prices.”

Saudi Aramco Sees Demand Growth Stabilizing Oil Market - WSJ: The next five years will be critical for the crude oil markets but supply and demand will ultimately balance at a “moderate” price, according to the chairman of the Saudi Arabian Oil Co., better known as Saudi Aramco. The moderate price would be reached before long, said Khalid al-Falih on Monday, speaking on the sidelines of a conference in Riyadh. The head of the Saudi state-owned oil group didn’t say when he thought prices would stabilize.“Demand will grow, as it has already started in 2015, and there will be a period not far into the future [when] demand will catch up with supply,“ he said. But the crude markets may reach a point where there will be tight spare capacity and everybody will be looking to Saudi Arabia to save the world with more supplies. “We don’t want that day to come. We believe excessively high oil prices precipitated the world we are in,” Mr. Falih said High oil prices led to too much capital and investment being sucked into oil markets and created a world where “everybody wanted to contribute to supply more than the demand that was coming in,” he said. A moderate oil price, however, would result in demand and overall sustainability, he said. Top oil exporter Saudi Arabia will continue to be a low-cost producer even if lower oil prices persist. The kingdom could survive in this pricing environment for “a long, long time,” he said.

Royal Pains: Two Princes Vie for Power in Saudi Arabia, Make a Mess - NBC News: A rivalry between two princes may explain Saudi Arabia's sudden eagerness to pick fights at home and abroad, as the two men spark one international disaster after another while vying for the kingdom's throne. "To understand the Saudi royal family, you don't go to the Kennedy School of Government," says Bruce Riedel, the CIA's former national intelligence officer for the Middle East. "You read Shakespeare!" The struggle between Crown Prince Muhammad bin Nayef and Prince Mohammad bin Salman has all the elements of Elizabethan drama, including strange alliances, ambitious courtiers - and an ailing, ancient king who may be mentally incompetent. Diplomatic sources and U.S. officials believe 80-year-old King Salman, with whom Secretary of State John Kerry is scheduled to meet in Riyadh this weekend, shows signs of dementia. One official said that during a recent meeting, the king was only able to follow the conversation by pausing while an aide in another room typed a response that the king then read from an iPad. Some in the U.S. government believe that when King Salman declined to come to Camp David last spring to meet with President Obama, he was not just snubbing the president but trying to avoid embarrassment in front of world media.The princes who would take his place may be first cousins, but they're polar opposites. "MBN," as Crown Prince Muhammad bin Nayef is known, is 55 and a trusted U.S. ally. The interior minister and crown prince rose to power on his slow, steady success as head of the Saudi counterterrorism program, where he became a favorite of the CIA.   "MBS," Mohammad bin Salman, is King Salman's son. Just 29, he's the defense minister and a savvy publicity hound who shot to prominence in 2015 as the architect of Saudi Arabia's war against Yemen's Houthi rebels .

U.S. Relies Heavily on Saudi Money to Support Syrian Rebels -  When President Obama secretly authorized the Central Intelligence Agency to begin arming Syria’s embattled rebels in 2013, the spy agency knew it would have a willing partner to help pay for the covert operation. It was the same partner the C.I.A. has relied on for decades for money and discretion in far-off conflicts: the Kingdom of Saudi Arabia.Since then, the C.I.A. and its Saudi counterpart have maintained an unusual arrangement for the rebel-training mission, which the Americans have code-named Timber Sycamore. Under the deal, current and former administration officials said, the Saudis contribute both weapons and large sums of money, and the C.I.A takes the lead in training the rebels on AK-47 assault rifles and tank-destroying missiles. The support for the Syrian rebels is only the latest chapter in the decadeslong relationship between the spy services of Saudi Arabia and the United States, an alliance that has endured through the Iran-contra scandal, support for the mujahedeen against the Soviets in Afghanistan and proxy fights in Africa. Sometimes, as in Syria, the two countries have worked in concert. In others, Saudi Arabia has simply written checks underwriting American covert activities. The joint arming and training program, which other Middle East nations contribute money to, continues as America’s relations with Saudi Arabia — and the kingdom’s place in the region — are in flux. The old ties of cheap oil and geopolitics that have long bound the countries together have loosened as America’s dependence on foreign oil declines and the Obama administration tiptoes toward a diplomatic rapprochement with Iran. And yet the alliance persists, kept afloat on a sea of Saudi money and a recognition of mutual self-interest. In addition to Saudi Arabia’s vast oil reserves and role as the spiritual anchor of the Sunni Muslim world, the long intelligence relationship helps explain why the United States has been reluctant to openly criticize Saudi Arabia for its human rights abuses, its treatment of women and its support for the extreme strain of Islam, Wahhabism, that has inspired many of the very terrorist groups the United States is fighting.

Petrodollars are eurodollars, and eurodollar base money is shrinking - Izabella Kaminska - The world is waking up to the petrodollar reversal issue… as well as its significant liquidity impact on EM countries (i.e. NOT oil exporters, but importers). This, as we’ve explained before, is down to the contraction of petrodollar base money in the global monetary system, which acted as a sort of unofficial float for a market-controlled an international fractional reserve system. There’s also a significant feedback loop connected to what we’ve previously described as the petrodollar vendor financing circle, wherein those who are long petrodollars extend duration by investing them in countries which redeploy them on growth projects, which create demand for commodities. Global growth-based commodity consumption, in this way, is underpinned by the availability of recycled petrodollars. Kadhim has already referenced Citi’s report on counterintuitive low oil price side-effects for oil consumers, but it is worth adding one more snippet about from the report about the scale of this petrodollar liquidity contraction (our emphasis): The most important consequence of the disappearance of the oil exporters’ surplus is that it would accelerate the withdrawal of Petrodollars and likely put further downward pressure on capital flows to EM. With a sustained fall in oil prices and a return to current account deficits among oil exporters, it seems likely these countries could soon become net debtors to the international banking system. The point is this: the stock of Petrodollars (at least those which show up in Figure 5 and Figure 6) have been remarkably stable even while oil prices have been falling. That stability can’t last, and this should have a negative impact on risk appetite and capital flows. Perhaps a clearer way of getting at this point is to consider the withdrawal of Petrodollars from direct exposure to emerging markets assets. The IIF’s January 2016 analysis suggests that SWFs funded by commodity revenues (almost entirely oil and gas) may have reduced their direct exposure to EM assets from US$600 bn at the end of 2014 to some US$550bn last month. This is based on their estimate that some 15% of commodity-financed SWFs had been invested in EM. We assume that this direct exposure of Petrodollars to EM is also at risk.

Khamenei Issues His Biggest Challenge With Election Ban of Khomeini’s Grandson - Iran’s Supreme Leader has issued his biggest challenge since the mass protests after the disputed 2009 Presidential vote, as the Guardian Council imposed an election ban on the grandson of the founder of the Islamic Republic, Ayatollah Khomeini. Seyed Hassan Khomeini was one of 207 candidates barred by the Council — whose 12 members are named by Ayatollah Khamenei and the judiciary — from standing in February’s ballot for the 88-seat Assembly of Experts, the body which chooses and can nominally remove the Supreme Leader. Only 166 of the 800 applicants were approved, according to Deputy Interior Minister Hossein-Ali Amiri. All 16 female candidates were rejected. Last week the Council — with 12 members appointed by the Supreme Leader and judiciary — banned 60% of the more than 12,000 candidates for Parliament, including 50 current MPs and 99% of the 3,000 reformist applicants. Earlier this month, the Council had threatened to disqualify Khomeini because he did not take a written test to establish his religious credentials, a requirement for many candidates for the Assembly. However, the political reason appears to be fear of Khomeini’s support for a “centrist” bloc linked to President Rouhani and former President Hashemi Rafsanjani. Iran’s hardliners and some conservatives have been warning of a centrist Rouhani-Rafsanjani bloc, allied with reformists, gaining power in February’s elections. MPs, clerics, and military commanders have accused centrists and reformists, including Rafsanjani, of pursuing a foreign-backed “sedition” to undermine the Islamic Republic.

ISIS has destroyed key oil infrastructure in Libya - ISIS militants once again attacked key oil infrastructure in Libya. The Ras Lanuf port on the Mediterranean Coast, one of Libya’s largest oil export terminals, was the target of yet another attack by ISIS this week. Earlier this month, ISIS attacked and set fire to seven oil storage tanks at the port. Early reports say that the latest attacks have also resulted in huge plumes of black smoke emanating from the port.  ISIS also targeted oil pipelines that travel from the Amal oilfield to the port of Es Sider, which is located near Ras Lanuf. ISIS, at this point, does not have the manpower to take over large swathes of territory in Libya in the same way that it has done in Iraq and Syria. But the group is hoping to sow chaos in Libya and prevent the rival government factions from establishing control in the country. Libya’s oil production is down to about 400,000 barrels per day, which is only about one-quarter of the country’s capacity. Before the civil war and the downfall of former dictator Muammar Qaddafi, Libya was producing 1.6 million barrels per day.

US, Britain, France Ready Military Action In Libya As ISIS Closes In On Country's Oil - On January 19, representatives from Libya’s rival factions negotiating in Tunis announced they had formed a unity government comprised of a new 32-member cabinet. Six days later, lawmakers for the country’s internationally-recognized Parliament in Tobruk rejected the proposal. “The Parliament rejected the 32-member cabinet out of concern that it was too large, and that its members had been chosen not for their competency but to satisfy various regional factions,”The New York Times said on Monday.  As a reminder, there are two governments in Libya, an internationally recognized body operating out of Tobruk in the country’s east (where the House of Representatives was exiled in 2014 after elections produced an outcome that wasn't agreeable to Islamist elements in the west) and another group in Tripoli which claims to be the only legitimate authority. The country’s inability to come to some manner of political consensus has opened the door for ISIS which recently mounted a series of assaults on the country’s oil infrastructure. Earlier this month, Libya’s National Oil Corp issued a “cry for help” in the midst of the fighting. Even if officials in Tobruk manage to float a proposal that’s agreeable to their rivals in Tripoli, there’s little chance the fledgling government will be able to consolidate in time to halt the ISIS advance which means it’s time once again for the Western powers to get involved. Here’s The New York Times:The Pentagon is ramping up intelligence-gathering in Libya as the Obama administration draws up plans to open a third front in the war against the Islamic State. This significant escalation is being planned without a meaningful debate in Congress about the merits and risks of a military campaign that is expected to include airstrikes and raids by elite American troops. That is deeply troubling. A new military intervention in Libya would represent a significant progression of a war that could easily spread to other countries on the continent. It is being planned as the American military burrows more deeply into battlegrounds in Syria and Iraq, where American ground troops are being asked to play an increasingly hands-on role in the fight.

Oil producer Azerbaijan in talks for international aid — Representatives from the International Monetary Fund and World Bank arrived in Azerbaijan on Thursday to discuss financial support for the oil producing country’s ailing economy. The ex-Soviet nation in the Caucasus has been hit hard by the sharp drop in prices of its oil and gas exports over the last year. “The World Bank and the IMF are in active dialogue with the government of Azerbaijan, discussing both immediate and longer-term measures in response to the pressure on the local currency and low oil prices,” said Zaur Rzayev, spokesman for the World Bank’s local office. “The World Bank stands ready to provide necessary assistance to Azerbaijan, including budget support.” The World Bank is offering $1 billion in financial support, a government official told The Associated Press, while the European Bank for Reconstruction and Development will seek to help the private sector. The official spoke on condition of anonymity because talks were ongoing. The Azerbaijani government played down the importance of the talks. “Our situation is not so pitiful that we’ve asked someone for a loan in the very short term. Actually, we’re providing other countries with loans,” Finance Minister Samir Sharifov said, adding that “there are no negotiations about the urgent provision of large funds from the IMF and World Bank.”

IMF, World Bank move to avert oil-led defaults - Officials from the International Monetary Fund and the World Bank are heading to Azerbaijan to discuss a possible $4bn emergency loan package in what risks becoming the first of a series of bailouts stemming from the tumbling oil price. The Baku visit, which follows a currency crisis triggered by the collapse in crude, comes amid concern at the two global institutions over emerging market producers from central Asia to Latin America. The fund and the bank have also been monitoring developments in other oil-producing countries such as Brazil, which is now mired in its worst recession in more than a century, and Ecuador. The oil-driven crisis in Venezuela has even raised the possibility of repaired relations between the fund and Caracas, a city IMF staff last visited more than a decade ago. Azerbaijan depends on oil and gas for 95 per cent of its exports and the fallout of its currency weakness has sparked a series of protests across the country rattling the government of President Ilham Aliyev. Last week the former Soviet republic became one of the first countries in the world to resort to capital controls in response to the collapse in oil prices, imposing a 20 per cent tax on exporting foreign currency. The Azerbaijani currency, the manat, has fallen 35 per cent since the central bank in late December abandoned a dollar peg after spending more than half its reserves in a year. The IMF team would be in Baku from January 28 until February 4 for “a fact-finding staff visit at the authorities’ request”, an IMF spokesperson said. It would discuss possible “technical assistance” and “assess possible financing needs”. The financing package under discussion was worth about $4bn, people familiar with the discussions said.

OPEC Economies On Their Last Legs - - In November 2014 the OPEC countries met in Vienna and agreed to keep pumping oil to maintain their market share rather than cut production to support the oil price. In a post written a month later I addressed the question of how these countries were positioned to withstand an extended period of low oil prices and high budget deficits. More than a year has now passed, so it’s time to take a look at how they have done so far and to see what their actions presage for the future.  I made the following estimates from the October 2015 IMF World Economic Outlook Database. They include all the OPEC countries except war-torn Libya, where the data is not particularly meaningful. All the figures given in this post are in (or estimated from) US dollars unless otherwise specified: GDP, 11 OPEC countries combined: Down from $3,392 billion in 2014 to $2,849 billion in 2015, a decrease of $543 billion.  Budget deficit, 11 OPEC countries combined: Up from $17 billion (0.5% of GDP) in 2014 to $278 billion (9.8% of GDP) in 2015, an increase of $261 billion. The economic damage has clearly been serious, but how much of it was a result of lower oil prices? Data from the 2014 OPEC Annual Statistical Bulletin indicate that OPEC exported about 8.5 billion barrels of oil in 2015 at an average “OPEC basket” price of $49.49/bbl. This is $46.80 lower than the $96.29/bbl average basket price in 2014 and represents almost $400 billion in decreased revenue. Allowing for the damping effect on other sectors of the OPEC economies it’s reasonable to assume that most if not all of the damage was done by lower oil prices. The next question is, which countries have suffered the most? According to Figure 1, which plots the percent decrease in GDP between 2014 and 2015 by country, Venezuela, Iraq and Kuwait suffered the largest GDP decreases and Qatar, Iran and Ecuador the least. The rankings are, however, potentially skewed by country-specific factors and by devaluations, as discussed later:

Podcast: Vladimir Putin and the petro states are slowly losing a key weapon: Since the breakup of the Soviet Union, Russia has used natural gas as a weapon against Ukraine and Europe as a whole. Threatening to turn shut off the pipes as the weather turns cold is a pretty effective way to influence foreign policy. But now it looks like one of Vladimir Putin’s key weapons is losing some its punch. This week on War College we’re looking at how shifts in the production of oil and natural gas are effecting global security, and where that leaves the United States.

Slowing emerging markets hamper oil recovery: World Bank - Times of India: The World Bank has warned that slowing emerging-market economies were hampering an oil recovery, and prices could sink further in a blow to a "fragile" global economy. Crude oil in 2016 is projected to come in at USD 37 a barrel, down from its October estimate of $51, the World Bank said in a new quarterly report. "A faster-than-expected slowdown in major emerging markets economies - especially if combined with financial stress - could further reduce commodity prices considerably, setting back growth in commodity exporters and the global economy," it said in the Commodity Markets Outlook report. Oil prices fell below USD 30 a barrel in mid-January to lows last seen more than 12 years ago amid a global oversupply and weakening demand. The World Bank recently downgraded the growth projections for emerging-market and developing economies, after they slowed to a 3.3 per cent pace last year, their weakest showing since 2010. Emerging-market economies have been the main drivers of commodity demand growth since 2000, a reason why their weakening growth prospects are weighing on commodity prices, the World Bank said.

Silk Dragon Takes Persian Road - Pepe ESCOBAR - He came, he saw, and he pocketed all the deals that matter. Chinese President Xi Jinping’s tour of Southwest Asia – Saudi Arabia, Iran and Egypt – could easily be sold anywhere as your typical Chinese-style win-win. On the PR arena, Xi did a sterling job polishing China’s image as a global power. Beijing scored diplomatically on all counts, obtaining several more layers of energy security (over half of China’s oil come from the Persian Gulf) while expanding its export markets and trade relations overall. In Iran, Xi oversaw the signing of 17 politico-economic agreements alongside Iran’s President Hassan Rouhani. Yet another diplomatic coup: Xi was the second leader of a UN Security Council member country to visit Tehran after the nuclear deal struck in Vienna last summer; the first was President Putin, in November. Note the crucial Russia-China-Iran interaction. To make it absolutely clear, Xi issued a statement just before arriving in Tehran, confirming Beijing's support for Iran to join the Shanghai Cooperation Organization (SCO). That will solidify for good the key strategic partnership trio working for future Eurasia integration.Of course, this whole process revolves around One Belt, One Road – the official Chinese denomination of the larger-than-life New Silk Road vision. No other nucleus, apart from Russia-China, offers so much potential in terms of bilateral cooperation; Iran, as much as during the ancient Silk Road uniting imperial China and imperial Persia, is the ultimate hub uniting Asia with Europe. Xi’s high-tech caravan stopped first in Saudi Arabia and Egypt – the Arab world. Xi’s message could not be more crystal-clear: «Instead of looking for a proxy in the Middle East, we promote peace talks; instead of seeking any sphere of influence, we call on all parties to join the circle of friends for the Belt and Road initiative».

China Deal Shows Iran Tilting East, Not West - Iran already has signaled that it plans to do more business with Russia now that the crippling Western sanctions have been lifted from its economy. Iran has also made it clear that it will reach even farther east by moving to a strategic partnership with China, including increasing bilateral trade with Beijing to $600 billion over the next 10 years. Certainly Iran will resume its business ties with some Western concerns, but Iran’s supreme leader, Ayatollah Ali Khamenei, told visiting Chinese President Xi Jinping in Tehran on Saturday that Iranians don’t trust the West and would prefer to pursue closer relations with “independent and trustworthy countries” such as China. “Westerners have never been able to win the Iranian nation’s trust,” Khamenei told Xi, even though the six world powers that negotiated an agreement to lift the sanctions imposed on Iran included the leading Western powers Britain, France, Germany and the United States, as well as Russia and China. nKhamenei has said he feels no sense of gratitude to these countries. “If the bully of the neighborhood breaks into your house to take your properties away by force, and you try hard to finally kick him out of your house, is this a favor by him or an outcome of your power?” he’s quoted as saying on his website.

Ecuador To Sell A Third Of Its Amazon Rainforest To Chinese Oil Companies - Ecuador is planning to auction off three million of the country’s 8.1 million hectares of pristine Amazonian rainforest to Chinese oil companies, Jonathan Kaiman of The Guardian reports. The report comes as oil pollution forced neighbouring Peru to declare an environmental state of emergency in its northern Amazon rainforest. Ecuador owed China more than $7 billion — more than a tenth of its GDP — as of last summer. In 2009 China began loaning Ecuador billions of dollars in exchange for oil shipments. It also helped fund two of the country’s biggest hydroelectric infrastructure projects, and China National Petroleum Corp may soon have a 30 per cent stake in a $10 billion oil refinery in Ecuador. “My understanding is that this is more of a debt issue – it’s because the Ecuadoreans are so dependent on the Chinese to finance their development that they’re willing to compromise in other areas such as social and environmental regulations,” Adam Zuckerman, environmental and human rights campaigner at California-based NGO Amazon Watch, told the Guardian. The seven indigenous groups who live on the land are not happy, especially because last year a court ruled that governments must obtain “free, prior, and informed consent” from native groups before approving oil activities on their indigenous land. “They have not consulted us, and we’re here to tell the big investors that they don’t have our permission to exploit our land,” Narcisa Mashienta, a leader of Ecuador’s Shuar people, said in a report.

Yuan speculator says China reserves could drop $200 billion in January | Reuters: The monthly fall in China's hard currency reserves could almost double to around $200 billion in January, bringing Beijing closer to a deeper devaluation of the yuan, one of the western hedge funds betting big against the currency said on Monday. A plunge in reserves of $108 billion in December was the biggest monthly fall on record and one of the factors spurring a wave of sales of the yuan by Chinese traders and speculative western funds earlier this month. Chinese reserves have fallen steadily over the past 18 months, from $3.99 trillion in June 2014 to $3.33 trillion in December. Omni Macro Fund Chief Strategist Chris Morrison said a change in how The People's Bank of China intervenes on the offshore market in the yuan CNH= would help push that figure sharply higher this month. "They are currently reporting zero for the intervention in dollar-CNH, because they have been rolling over the forwards and never actually delivering in U.S. dollars," Morrison said. "What was interesting in January was they didn't roll over the forwards, so that should be reported and add to the fall in reserves. January's fall will be larger than December's, I'm thinking around $200 billion."

PBoC in a quandary over capital controls - When the Bank of Japan’s governor said that capital controls could prove “useful” to Beijing in its efforts to calm fears about China’s currency and monetary policy, he was going against international — and recent Chinese — orthodoxy. But Haruhiko Kuroda was also shining a spotlight on the impossible trinity that Beijing now faces: the ability to manage interest rates and the exchange rate while simultaneously moving towards a free capital account. Beijing officially maintains that it has no plans to roll back capital account reforms that recently earned the renminbi IMF recognition as an official reserve currency. But reluctance at the People’s Bank of China to loosen liquidity and anecdotal evidence of tighter foreign exchange management suggests that behind closed doors it, too, shares Mr Kuroda’s concerns. “December was a shock,” says one person who advises Chinese policymakers. “The reserves loss has changed the game.” That multibillion-dollar loss provided a graphic illustration of the cost of buoying the currency while maintaining porous capital borders. China’s foreign exchange reserves have fallen about $700bn to $3.3tn over the past year, including a record $108bn drop in December. The PBoC has spent a chunk of its reserves in an effort to temper losses for the renminbi, which fell more 1.2 per cent against the dollar on January 5 and 6 and has now stabilised at Rmb6.58 against the US currency. But a PBoC memo leaked online at the weekend appeared to confirm official concerns about further renminbi devaluation and China’s dwindling reserves stockpile.

Capital Controls May be China’s Only Real Option - Chinese officials readily admit that communication has not been their strong point when it comes to dealing with international investors. Policymakers have now made it explicit that they have no wish to engineer a big devaluation. However, they are much less forthcoming about how they plan to reconcile a desire for currency stability with the realities of capital flight and a slowing economy. Central bank guidance is most effective when the policy is clear and it is relatively straightforward to work out how it will evolve in response to changes in economic data. At present, the reality in China is that the PBoC has no clear course of action and wants to leave itself flexibility. No amount of clarification would help to varnish the underlying problem: capital flight. The corruption clampdown and a lack of investment opportunities at home are driving Chinese people to take their money out of the country, just as the prospect of higher US interest rates is prompting companies to pay off dollar debt. Fear of a devaluation has fuelled the outflows. Far from seeking a weaker renminbi, the central bank has been forced to spend a big chunk of its reserves to prop it up.  This goes against the grain of recent liberalising measures, which last year helped China win the renminbi’s inclusion in the International Monetary Fund’s special drawing rights basket, alongside traditional reserve currencies. However, the IMF has become far more willing to accept the case for temporary capital controls since quantitative easing sparked huge flows of hot money into emerging markets. Capital controls are not a long-term solution but, at present, they are the correct step for Beijing to take in a very difficult situation. However, they will only work if China uses the breathing space to articulate a clear policy to rebalance its economy and liberalise its currency in the longer term — a process that will take many years.

IMF's Lagarde says markets need clarity on China currency | Reuters: Financial markets need more clarity on how Chinese authorities are managing their currency, particularly the relationship of the yuan to the U.S. dollar, IMF Managing Director Christine Lagarde said on Saturday. Sharp swings in the yuan have contributed, along with a dramatic fall in the price of oil, to global market volatility since the beginning of 2016. Bank of Japan Governor Haruhiko Kuroda, speaking on the same panel at the World Economic Forum in Davos, said he believed China should use capital controls to stabilize its currency while keeping domestic monetary policy loose. Asked whether she would back capital controls by China for a period, Lagarde avoided a direct reply but said: "Certainly a massive use of reserves would not be a particularly good idea ... Some of it was already used." She said that the market needed "clarity and certainty" about China's exchange rate basket "in particular with reference to the dollar, which has always been the reference".

China's banking stress looms like Banquo's Ghost in Davos - Telegraph: Bad debts in the Chinese banking system are four or five times higher than officially admitted and pose a mounting risk to the country's financial stability, the world's leading expert on debt has warned. Harvard professor Ken Rogoff said China is the last big domino to fall as the global "debt supercycle" unwinds. This is likely to expose the sheer scale of malinvestment that has built up during the country's $26 trillion credit bubble. Prof Rogoff said the official 1.5pc rate of non-performing loans held by banks is fictitious. "People believe that as much as they believe the GDP data," he told the World Economic Forum in Davos. The real figure is between 6pc and 8pc. He warned that unexpected problems can come "jumping out of the woodwork" once a debt denouement unfolds in earnest.Banks are disguising the damage by rolling over bad loans and pretending all is well, with the collusion of regulators, but this draws out the agony and ultimately furs up the financial arteries. Ray Dalio, founder of Bridgewater, said the worry is that credit in China is still growing faster than the economy even at this late stage, storing up greater problems down the road. The efficiency of credit has collapsed. It now takes four yuan of extra debt to generate a single yuan of economic growth, compared to a ratio of almost one to one a decade ago. China's foreign reserves have dropped by $700bn to $3.3 trillion as capital flight overwhelms the inflows from the country's trade surplus. Mr Dalio said the historical pattern is that falls of this magnitude are typically followed by 25pc devaluation.

More holes than fingers? Beijing struggles to plug capital flight | Reuters: As a slick slide presentation runs for the well-heeled investors jammed into the banqueting hall of Shanghai's Renaissance Yangtze Hotel, an image flashes up of a grinning Chinese man pushing a wheelbarrow full of cash into Europe. Another slide features a car bearing a Chinese flag preparing to drive into a pit. For wealthy Chinese, desperate to avoid further falls in a currency that has shed 6 percent against the dollar since August, the message is clear. "The yuan will keep depreciating as time goes by, so we should swap the money we have in hand into tangible assets," Li Xiaodong, chairman of Canaan Capital, tells his audience, while exhorting them to pull their money out of China while the going is still good and pour it into property in Spain and Portugal. Canaan Capital is one of a swarm of asset management firms leaping to profit from Beijing's latest policy headache: the swelling crowd of Chinese individuals and firms trying to get their money out of the world's second biggest economy as its growth slows to a quarter-century low. Weak real estate prices and the gyrations of the stock market, which plunged as much as 40 percent in a summer meltdown last year and has tumbled around 17 percent so far this year, have only encouraged the trend to seek better returns elsewhere. The risk for policymakers is that so much money will exit China it will undo their efforts to cut the cost of credit domestically and reinvigorate flagging productive investment.

George Soros in China’s Crosshairs After Predicting Tough Economic Times Ahead - China is putting a face on the economic pessimism it accuses of helping weaken the yuan and the economy: billionaire investor George Soros. A front-page commentary published in some editions of People’s Daily on Tuesday appeared to warn Mr. Soros would lose any bets he made based on a recent prediction that hard economic times for China are “unavoidable.” Other state media followed suit. Denouncing “radical speculators,” China’s official Xinhua News Agency dismissed the famed currency trader’s view as “the same prediction several times.” The Global Times, in its English edition, asked, “So why are so many Western pundits and media outlets so intent on talking China down?” AdvertisementThe rhetorical shots come as China is making broader efforts with market interventions and rule adjustments to offset the impact of its slowest growth rate in a quarter century, shore up grinding stock markets and stem surging capital outflows. China’s state-run media regularly note concerns the economy is cooling, but they tend to highlight positive aspects of what the government describes as a broad economic restructuring. The uniformity and prominent placement in government-run media of the challenges to foreign critics, including economists quoted by Western newspapers, appear to suggest growing concern in Beijing that negative sentiment is spreading. State media warnings directed at private individuals like Mr. Soros are rare. But his legend as an investor stems from a career making profitable currency bets – both real and rumored – that are widely studied in China. It comes just as China’s central bank is taking steps to limit flight from the Chinese yuan by its huge middle class.

China Warns George Soros Not to Bet Against Currency: China’s state press is warning George Soros not to bet against its currency after the hedge fund star-turned philanthropist predicted a “hard landing” for its economy last week.“Soros’ challenge against the renminbi and Hong Kong dollar is unlikely to succeed, there is no doubt about that,” the overseas edition of People’s Daily, the Communist Party’s main mouthpiece, said Tuesday .The admonition came after Soros predicted more trouble for the Chinese economy, which is hampered by capital outflows, old industries in recession, and still-mounting debt. Soros is known for his 1992 bet against the pound and famously breaking the Bank of England, earning $1 billion in the process. His investment record since then is far from perfect, but that 1992 bet sterling has been a warning to all central banks ever since against trying to defend unrealistically strong exchange rates.But China’s warning was strange for one reason: Soros never said he was betting against the renminbi or Hong Kong dollar. At the World Economic Forum in Davos, Soros was light on specifics, only saying he was betting against U.S. stocks and Asian currencies. China has reason to be defensive. In addition to Soros’ history, the renminbi has weakened against the U.S. dollar over the past year—six percent since the summer—driving capital outflows, which according to estimates may have reached $1 trillion last year.

Hysteria over China has become ridiculous -  Hysteria over China has reached the point of collective madness. Forecaster Nouriel Roubini said in Davos that markets have swung from fawning adulation of the Chinese policy elites to near revulsion within a space of 12 months, and they have done so based on scant knowledge and a string of misunderstandings. The Chinese themselves are being swept up by the swirling emotions. State media has accused hedge fund veteran George Soros in front page editorials of attempting to smash China's currency regime by "reckless speculation and vicious shorting". "Soros’s war on the renminbi cannot possibly succeed – about this there can be no doubt,” warned the People's Daily. Articles are appearing across the world debating whether Mr Soros and his putative wolf pack will succeed in doing to the People's Bank of China (PBOC) what he did to the Bank of England in 1992 - in the latter case with entirely positive consequences. In fact, Mr Soros issued no such "declaration of war", and nor is he so foolish as to take on a foreign exchange superpower and net global creditor with $3.3 trillion in foreign reserves. As it happens, I was at the dinner at the Hotel Seehof in Davos - drinking white Rioja - where Mr Soros supposedly revealed his plot. What he did let slip is that he had been shorting some Asian currencies - the Malaysian Ringitt or the Thai Baht, perhaps, out of nostalgia for the 1998 crisis. Mr Soros made general comments, claiming that credit in China has reached 350pc of GDP and that the hard landing is already happening. "I’m not expecting it, I’m observing it,” he said. The observations were boilerplate, what are called "tourist" insights in hedge fund parlance. He is not a player in China

China Warns "Social Stability Threatened" As 400,000 Steel Workers Are About To Lose Their Jobs -  In late September, we were stunned to read (and report) that in the first mega-layoff in recent Chinese history, the Harbin-based Heilongjiang Longmay Mining Holding Group, or Longmay Group for short, the biggest met coal miner in northeast China had taken a page straight out of Jean-Baptiste Emanuel Zorg's playbook and fired 100,000 workers overnight, 40% of its entire 240,000 workforce. For us this was the sign that China's long awaited "hard landing" had finally arrived, because as China's paper of record, China Daily, added then: "now, many migrant workers struggle to find their footing in a downshifting economy. As factories run out of money and construction projects turn idle across China, there has been a rise in the last thing Beijing wants to see: unrest." Fast forward to today when, if not a full million, Xinhua reports that as part of China's proposed excess capacity production curtailments the country's steel production slash will translate into the loss of jobs for up to 400,000 workers, estimated Li Xinchuang, head of China Metallurgical Industry Planning and Research Institute. Li said more people will be affected in the upstream and downstream industries. According to some estimates just like every banker job in New York "feeds" up to three downstream jobs, so in China every worker  in the steel industry helps support between 2 to 3 additional job.s Which means, 400,000 primary layoffs would mean a total job loss number anywhere between 1.2 and 1.6 million jobs!

Inside China's Dying, Abandoned Factories - By now, the China narrative should be familiar to most regular readers. Indeed, anyone who pays attention to global macro should by all rights be able to recount the entire story off the top of their head. Massive credit expansion (from just a little over $7 trillion in 2007 to a staggering $28 trillion and climbing today) allowed the country to sidestep the economic malaise that followed the financial crisis. To whatever degree global demand and trade “recovered”, that recovery was underwritten by the Chinese, whose insatiable demand for raw materials buoyed commodity producers from Australia to Brazil.Unfortunately for the global economy, China was sowing the seeds for its own (and everyone else’s) economic demise. Beijing built, and built, and built, creating pockets of acute overcapacity throughout the country’s industrial complex and erecting sprawling ghost cities and other monuments to the idea that "if you build it, they will come".When the debt bonanza finally begin to taper off and China stepped back to assess the monster it had created, it was too late. Commodity producers the world over had come to depend on a perpetual bid from China. When demand began to slump as China set off down the long road towards creating a consumption and services-led economy, the world was caught flat footed. A global deflationary supply glut for commodities was born and the more quickly China’s economy decelerated, the larger it became.As for China itself, authorities are reluctant to allow the market to purge uneconomic productive capacity for fear of sparking social upheaval. That means perpetually bailing out companies that find themselves in trouble, thus preserving unwanted supply and fueling the disinflationary impulse.Or, as we put it back in October: “The cherry on top is that China itself is now trapped: it simply can't afford to let anyone default, as one bankruptcy would cascade across the entire bond market and wipe out countless corporations leaving millions of angry Chinese workers unemployed, and is therefore forced to keep bailing out insolvent companies over and over. By doing so, it is adding even more deflationary capacity and even more production into the market, which leads to even lower prices, and even greater bailouts!”

China Shares Plunge to Lowest Close Since Late 2014 - WSJ: China shares plunged Tuesday, with investors rushing to sell late in the session, while other Asian markets succumbed to tumbling oil prices. The Shanghai Composite Index, China’s main benchmark, finished down 6.4% at 2749.79—its lowest close since Dec. 1, 2014. It also marked the index’s largest one-day percentage loss since the Chinese government got rid of a “circuit breaker” mechanism on Jan. 8. The system, put into place at the beginning of the year, was blamed for sparking sudden selling instead of achieving the original goal of curtailing volatility. The Shanghai index is now down 47% from its June peak. China’s Nasdaq style ChiNext benchmark plunged 7.8%, while the Shenzhen Composite Index closed down 7.1%. “Pessimism became contagious on the market,” Some investors had expected the government to support the market once Shanghai reached around 2850. Instead, state-backed funds known as the “National Team”—which have at key pressure points bought shares to prop up the market—were absent on Tuesday, analysts said. In Hong Kong, the energy sector plunged 5.7%, dragging down the Hang Seng Index by 2.5%. The Hang Seng China Enterprises Index of Chinese firms trading in Hong Kong dropped 3.4% at 7895.16. That benchmark hit a closing low of 7835 last Thursday, and currently trades at its lowest levels since 2009.

The beginning of China’s deindustrialization? -- Further evidence that China starts to follow the bubble neoliberal model, through a systematic, central planning. Official announcements contain IMF-type phrases like "structural reforms" concerning the economy, which shows a trend by the political elite to develop further correlation with the Western economic bloc. The news are indicative of a probable intention by the central authority to lead the country towards a gradual deindustrialization, in order to meet the Western neoliberal model of the investment-bubble economy. From china.org: Chinese Premier Li Keqiang has reiterated the urgency and the government's resolve to cut excess capacity in steel and coal industries, as the country strives to restructure its economy. [...] The State Council didn't specify the deadline for such cut, but pointed out that China has cut its production capacity of crude steel by more than 90 million tonnes in recent years. China will reduce the production capacity of coal by “a relatively large margin,” according to the statement. [...] “Digesting overcapacity in steel and coal sectors is an important measure to promote the supply-side structural reforms,” the statement said, adding that the process will deliver the industries out of trouble and achieve upgrading. China's production of crude steel fell 2.3 percent to 804 million tonnes in 2015, the first time the industry reported negative growth in 34 years. Any newly-added capacity in crude steel and coal industries will be “strictly controlled,” the statement said. The government should be fully aware of the importance and challenges in digesting excess capacity, the statement said, adding that the government will introduce necessary measures to help the laid-off workers cope with difficulties and find new employment.

China Focus: Fund to help those made redundant by overcapacity cut - (Xinhua) -- China will raise funds to help workers reestablish themselves should they lose their jobs when coal and steel firms close amid campaigns to cut overcapacity. Industrial closures are on the horizon. Crude steel production capacity will be cut by 100 to 150 million tonnes, while coal production will be reduced by "a relatively large amount," the State Council said in a statement released Sunday without elaborating on a time frame. The steel production slash could translate into the loss of jobs for up to 400,000 workers, estimated Li Xinchuang, head of China Metallurgical Industry Planning and Research Institute. Li said more people will be affected in the upstream and downstream industries. "Large-scale redundancies in the steel sector could threaten social stability," said Li. In the coal sector, 7,250 mines with outdated production capacity have been closed in the last five years. A large number of coal workers are expected to be affected by future capacity cut, although the State Council did not specify the scale. To deal with looming redundancies, an "industrial restructuring fund" was initiated on Jan. 1, pooling money from factories across the nation based on their power consumption.

China’s Bumpy New Normal - Joseph E. Stiglitz - China’s shift from export-driven growth to a model based on domestic services and household consumption has been much bumpier than some anticipated, with stock-market gyrations and exchange-rate volatility inciting fears about the country’s economic stability. Yet by historical standards, China’s economy is still performing well – at near 7% annual GDP growth, some might say very well – but success on the scale that China has seen over the past three decades breeds high expectations. There is a basic lesson: “Markets with Chinese characteristics” are as volatile and hard to control as markets with American characteristics. Markets invariably take on a life of their own; they cannot be easily ordered around. To the extent that markets can be controlled, it is through setting the rules of the game in a transparent way.  All markets need rules and regulations. Good rules can help stabilize markets. Badly designed rules, no matter how well intentioned, can have the opposite effect.

Doing the Math: Why China’s Exports Aren’t Adding Up - Bloomberg video - Some numbers just don't add up. In its latest report on trade, Hong Kong's imports from the Chinese mainland were vastly different from what China said it had exported. It may confirm what many people already suspected - that Chinese exporters resorted to an old tactic of inflating shipments abroad. Bloomberg's David Ingles reports on "First Up."

China GDP Growth Could Be as Low as 4.3%, Chinese Professor Says - As growth in the world’s second-largest economy slows, the spotlight has intensified over the accuracy of China’s growth figures. This week, Xu Dianqing, an economics professor at Beijing Normal University and the University of Western Ontario, joined the debate with an estimate that China’s gross domestic product growth rate might just be between 4.3% and 5.2%. China’s official growth rate in 2015 was 6.9%, the slowest pace in more than two decades, allowing the government to hit its target of around 7%. But longstanding questions over China’s statistical methodology have spurred a cottage industry in alternate growth indicators. Many of these analyze other measures believed to be less subject to political pressure in estimating actual growth, including indices compiled by economists at Capital Economics, Barclays Bank, the Conference Board and Oxford Economics. Most peg China’s annual growth in the 4% to 6% range. Mr. Xu told reporters at a briefing this week that the focus of his concern is the growth rate for China’s manufacturing sector, which according to official figures grew 6.0% last year and accounts for 40.5% of the economy. A closer look at underlying indicators, however, including thermal power generation, railway freight volume, and output from the iron ore, plate glass, cement and steel industries released monthly by the National Bureau of Statistics paint a different picture, he said. Of some 60 major industrial products, nearly half saw output contract in the January to November period, while railway cargo volume fell 11.9% for all of last year, according to official sources.

This Could Be A Problem: China's Debt-To-GDP Rises To A Gargantuan 346% -- In early 2015, after years of China's massive debt pile being roundly ignored by most so-called experts (despite being profiled here many years prior), McKinsey released a report showing that not only has the world not delevered since the financial crisis, adding well over $60 trillion in debt (through 2016), but also revealing in a format so simple even an economist could grasp it, just how massive China's all-in leverage has become. Many were shocked when they read that China's total debt/GDP had risen by 125% in under 7 years, hitting 282% as of Q2 2014. Those same people may be just as shocked to learn that according to the head of financial markets research Asia Pacific at Rabobank, Michael Every, not only has China not begun to delever at all, but since McKinsey's update, its debt has risen by another 70% of GDP! According to Every, China's 2015 debt-to-GDP might be as high as 346%, and while that is in line with wealthier developed economies but is “vastly higher” than any EM peer.Cited by Bloomberg, Every adds that the time-frame for debt accumulation pre-crisis varies, but what always follows is a major currency drop afterwards, as has happened even with reserve currencies such as dollar, yen, euro and pound. He also adds that nominal GDP needs to rise faster than debt for a sustained period if deleveraging is to truly be under way, aka Dalio's beautiful deleveraging thesis. The problem, however, is that with even Goldman admitting that China's real GDP growth rate is about 4.5%, China's debt load is rising orders of magnitude faster than its underlying economy and is on the daily verge of entering the final phase of the Minsky Moment breakdown. While no surprise to people with common sense, Every concludes that debt must be repaid with interest, which acts as a drag on economic activity, and is the reason why such monstrous debt loads always lead to an economic collapse; making matters worse is that in China cheap credit is channeled to state-owned firms with low or no profitability.So what happens next? Every believes that China has no choice but to proceed with a massive devaluation, far bigger than the prevailing consensus, and expects the Yuan to plunge to 7.60 against the dollar over the next year.

Is China’s slowdown really so hard to understand? -- I have to confess to some frustration with some of the recent commentary on China coming from academic economists. Exhibit A is a survey of “top UK-based macroeconomists” about their expectations for China’s future growth. Many of the economists surveyed expect China’s GDP growth to be lower than 6% for several years, I view I agree with. The survey also asked for economists to give the reasons why they expect this slower growth, and here is what they came up with: “less space for catch-up growth,” “adverse demographic dynamics,” “problems in the financial sector,” “diminishing flows of rural-urban migrants,” “the ‘intentional’ rebalancing from high-growth industry to moderate-growth services,” “risks from ‘secular stagnation’ in developed economies.” Exhibit B is a recent piece by Jeffrey Frankel, in which he lists no fewer than six economic forces behind China’s slowdown. Like the respondents to the UK survey, he also cites less space for catch-up growth, adverse demographic dynamics, diminishing flows of rural-urban migrants, and the rebalancing to services, while adding “diminishing return to capital” to the list (he leaves off secular stagnation in developed economies). What I found amazing about these analyses is that they fail to even mention the most straightforward and direct explanation of why China’s growth is much slower today than it was in say, 2010 or 2007. It’s not like it’s a secret. From about 2003 to about 2010 China had the biggest construction boom of modern times and probably in all of human history. Then in 2011-12 the construction boom ended. That’s it. Really, that’s all you need to know. Well, you might need one more fact: housing and construction account for as much of a third of China’s GDP, once all their indirect linkages to other sectors are considered. I think a housing downturn explains very well the timing, severity and distribution of the economic slowdown that has actually occurred.

China’s central bank makes massive cash infusion - — China’s central bank is putting the largest amount of cash into the financial system in nearly three years, using a weekly market operation to pre-empt a holiday-induced funding squeeze and offset rapid capital outflows. The People’s Bank of China offered 340 billion yuan ($51.89 billion) of short-term loans, known as reverse repurchase agreements, to commercial banks in a routine money market operation Thursday. The central bank provided 440 billion yuan via similar tools Tuesday, the first leg of its twice-a-week liquidity-management exercises. Given the maturity of 190 billion yuan of previously issued loans, the PBOC’s net cash injection this week totals 590 billion yuan, the biggest of its kind since early February 2013, when it reached 662 billion yuan. The move follows an aggressive pump-priming exercise by the PBOC last week, when the central bank offered more than 1.5 trillion yuan in gross short- and medium-term lending to banks. The eye-popping liquidity injection is partly intended to satisfy typically surging demand for cash ahead of the Lunar New Year holiday that starts Feb. 7. It also constitutes an effort to stem accelerating capital flight as investors become more nervous about the health of China’s economy, and as the country’s main stock market has lost nearly 23% since the start of this year.

PBOC Cash Injection Hits Weekly Record - China’s central bank pumped an additional 100 billion yuan ($15.21 billion) into the financial system via an extra money-market operation Friday, pushing this week’s net cash injection to a record 690 billion yuan. The People’s Bank of China added the funds through the same short-term loans to banks that it offered both Tuesday and Thursday, the fixed days of its weekly liquidity exercise. The central bank occasionally conducts additional liquidity operations ahead of long public holiday breaks when demand for cash tends to surge. The latest move comes as China gears up to celebrate the weeklong Lunar New Year holiday that starts Feb. 7. However, authorities have also stepped up the pump-priming in recent weeks to pre-empt a cash crunch in the financial system as a weak economy and depreciating currency have prompted capital to flee the country at a torrid pace. Before Friday’s injection, the PBOC supplied 340 billion yuan to the money market Thursday, following an addition of 440 billion yuan Tuesday.

Taiwan GDP shrinks for second straight quarter - Taiwan's economy continued to stutter in the final quarter of 2015, contracting from the previous year for a second straight quarter of year-over-year falls as the island economy struggles in the face of falling global demand for its exports and limp domestic consumption. Gross domestic product shrank 0.28% in the fourth quarter from the previous year, following a 0.63% on-year contraction in the third quarter, government data showed Friday. The on-year figure compares with a median forecast by economists polled by The Wall Street Journal for a 0.06% contraction. On a quarter-over-quarter basis, though, GDP rose 0.79% from the October-December period, following contractions in the second and third quarters that put Taiwan in recession on a technical basis. The fourth quarter figures dragged average growth in 2015 down to 0.85%, below a 1.06% government forecast that had already been revised down to around a third of its original estimate. The island's economy has been hit by China's deceleration, sluggish global demand for electronics and falling energy prices, factors that have pushed its exports down, while domestic consumption remains limp. Two rate cuts by the central bank have yet to make a significant impact on lifting the economy or prices, while any fiscal stimulus measures to help the economy may have to wait until the island's new administration takes office later in the year.

Kuroda calls for China to tighten capital controls - FT… Japan’s central bank governor called on Beijing to impose more stringent capital controls to help stem massive outflows of hot money from China and stabilise its currency as the World Economic Forum in Davos wrapped up on Saturday. World economic leaders remain far more optimistic about the health of the global economy than turbulent financial markets have suggested in 2016 and Haruhiko Kuroda’s suggestion of temporary controls to help restore confidence was not rejected by Christine Lagarde, managing director of the International Monetary Fund. Controls on capital outflows from China would come at the cost of reversing the ease of use of the renminbi, but would reduce the relentless downward pressure on the Chinese currency, which has contributed to fears that China is about to seek a return to export-led growth as its domestic economy slows. Speaking at the closing global economy debate of the World Economic Forum, Mr Kuroda suggested capital controls would allow Beijing not to waste its foreign exchange reserves defending the currency while allowing its domestic monetary policy to stimulate consumption at home. “Capital controls could be useful to manage [China’s] exchange rate as well as domestic monetary policy in a constructive way,” he said. In the face of almost $700bn capital flight from China in 2015 as Chinese companies scrambled to pay off overseas loans amid a weakening renminbi, capital controls could reduce the downward pressure on the renminbi, allowing greater consumption in China to help rebalance the economy without a renewed surge in price-sensitive exports. Asked if she agreed with Mr Kuroda’s suggestion, Ms Lagarde dodged the question, but said: “I think the massive use of reserves is not a good idea”.

Capital controls no longer taboo as emerging markets battle flight -  When Haruhiko Kuroda, governor of the Bank of Japan, suggested last week that China should use capital controls to support its currency, it was as if he had broken a taboo. Asked if she approved, Christine Lagarde, managing director of the International Monetary Fund, sitting with Mr Kuroda on a panel at the World Economic Forum in Davos, dodged the question — although she did agree that it would be unwise for Beijing to burn through its foreign exchange reserves to support the renminbi. Her circumspection was not surprising. Policymakers talk of capital controls at their peril: merely to mention them can send jittery investors rushing for the exit. Investors in China, where the Shanghai index is down by 47 per cent from last June’s peak, have been extremely jittery this year. Nevertheless, more and more policymakers are suggesting the use of unorthodox methods. Days before Mr Kuroda spoke at Davos, Agustín Carstens, the widely-respected governor of Mexico’s central bank, told the Financial Times it might soon be time for emerging market central bankers “to become unconventional”. The reason lies in the recent, unprecedented outflows of capital from emerging markets (EMs). The Institute of International Finance, an industry group, estimates that total net capital outflows from EMs amounted to $735bn last year, the first year of net outflows since 1988. “These countries are bleeding,” . “They can’t just let their [foreign exchange] reserves go on propping up their currencies when markets have already made their own decisions.”

Bank of Japan, in a Surprise, Adopts Negative Interest Rate - As Japan’s economic doldrums have lingered, its leaders have tried a number of tricks over the years, from increasing up government spending to flooding the financial system with cash.With the global economy looking increasingly fraught, Japan is now taking a more dramatic step, by cutting interest rates below zero on Friday.The policy — which means banks are essentially paying for the privilege of parking their money — represents a last resort for a country that has struggled through a quarter-century of weak growth. In theory, negative rates will push banks to lend more to companies, which would then spend and hire.Japan is following other major central banks in going negative on rates, a sign of the continuing global trouble from plummeting low oil prices, stalling international trade and slowing growth in China. The move comes as Japan’s prime minister, Shinzo Abe, is seeking new ways to break the country’s cycle of decline.Mr. Abe has championed a system of temporary tax cuts and heavy government spending to spur growth and stoke inflation. But Japan, the world’s third-largest economy, has moved in and out of recession under his administration, sowing doubts about his policies.The bank’s policy makers, who voted 5-4 to approve the measure, took great pains to say the rate cut was based on global conditions, not the Japanese economy itself. The decision surprised financial markets, which moved higher in Asia trading.

Bank of Japan Adopts Negative Interest Rates: Surprise, Surprise We Lied Again; Meaning of "Now" - Eight days ago, the Bank of Japan governor Haruhiko Kuroda, said No Plan to Adopt Negative Rates Now. Well, that was then, and this is now. Today we learn Bank of Japan Adopts Negative Interest Rates.  The Bank of Japan has slashed interest rates to minus 0.1 per cent in a shock move that adds a new dimension to its record monetary stimulus.  Showing its willingness to expand the policy further, the BoJ said it “will cut the interest rate further into negative territory if judged necessary”. “The bank will lower the short end of the yield curve by slashing its deposit rate on current accounts into negative territory and will exert further downward pressure on interest rates across the entire yield curve.”  However, the BoJ will use a complicated three-tier system, which makes the negative rate much weaker than comparable moves by the ECB and other European central banks. Crucially, it will only pay negative rates on any new bank reserves resulting from its programme of asset purchases. All existing bank reserves — which amount to about $2.5tn or 50 per cent of gross domestic product — will continue to be paid interest at 0.1 per cent. That means there is unlikely to be any impact on bank profits or bank depositors in the short term. The negative interest rate will only have an impact over time as the BoJ keeps buying assets and creating new bank reserves. The move will add to Mr Kuroda’s reputation for surprises, suddenly adopting policies he has vehemently denied were even possible. Eight days ago he told parliament the BoJ was “not seriously considering” a negative rate.

That was then, this is now: BoJ and negative rates edition - 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.- Reuters, Jan 21  -- The Bank of Japan has adopted negative interest rates in their first benchmark rate move in five years, but has also chosen not to expand its quantitative and qualitative easing programme beyond its current level of buying Y80tn assets a year.The BoJ has adopted a benchmark rate of -0.1 per cent, from a previous level of 0.1 per cent. It is the first time they have moved interest rates since October 2010…. The BoJ also indicated it has not ruled out further imminent easing, saying “it] will cut the interest rate further into negative territory if judged as necessary.”- Now.  Wait, what?

Negative bond yield universe hits $5.5tn after Japan eases - Global markets have capped a tumultuous start to the year with a record amount of outstanding government debt at negative yields, reflecting heightened investor pessimism over the outlook for economic growth and inflation. The BOJ’s action, which sets the stage for further central bank stimulus later this year, spurred investors to buy government bonds and pushed the universe of outstanding negative yielding bonds in Japan and Europe to a new peak of $5.5tn. Negative yields, once considered an improbable theory, now account for one quarter of JPMorgan’s index for government bonds as global central banks adopt increasingly abnormal policies to ward off the threat of deflation, leading to a rally in government bonds. Market interest rates fall as prices rise, resulting in a bizarre scenario in which rates have fallen below zero and investors are paying governments to hold their money.  “The BoJ reinforces this year’s decline in global government bond yields even as the risk-off move in risky markets starts reversing,” . Across markets, investors have shunned stocks and riskier corporate bonds in favour of government debt this year as volatility in Chinese markets and falling oil prices dampen inflation expectations and the outlook for growth. Global equity markets have endured outflows this week, according to Bank of America Merrill Lynch, while government bonds have seen net inflows.

Analyst: Trans-Pacific Partnership 'unlikely to go ahead' - NZ Herald News: As the date for the signing of the Trans-Pacific Partnership in Auckland draws nearer, local and international commentators are making their views heard, with Washington-based analyst and director of public citizen global trade watch Lori Wallach saying it is unlikely the agreement will go ahead.Wallach, who has been visiting New Zealand where the agreement is set to be signed on February 4, told Larry Williams on Newstalk ZB that although studies around the agreement showed New Zealand would be one of the 'winners', the studies had ignored significant downsides to the agreement."Statistically the big winners are Malaysia, New Zealand and Singapore - you have a projection of a small increase in gross national product, the problem is to get that you have to assume things like full employment and no income inequality," Wallach said. "Your government is only looking at the upsides." Wallach is in New Zealand lobbying against formalising the agreement, and says that any country that rushes into signing the deal will end up in an embarrassing situation of having to make more concessions or approving something that hasn't been approved by other countries - although according to the analyst, the agreement was still unlikely to go ahead. "The TPPA cannot get through the US congress as it is," Wallach said. "Under the certification system the agreement won't get voted on or go into effect until the US congress is satisfied."

TPP economy figures tell us nothing -  The Government is throwing numbers at us as it steps up its efforts to sell the Trans-Pacific Partnership agreement.But a trenchant critique of the case it makes compels us to disregard those numbers. It is in a paper, The Economics of the TPPA, authored by Professor Tim Hazledine and Barry Coates of Auckland University's business school, Victoria University economist Geoff Bertram and business journalist Rod Oram.The first set of numbers the Government has been brandishing, most recently in this week's national interest analysis of the agreement, is the amount by which tariffs on New Zealand exports to other TPP countries will be reduced. It rises to $274 million a year when TPP is fully implemented.But as Hazledine points out, that tells us nothing about who would capture the benefit of those tariff cuts: New Zealand producers, consumers in the importing countries, or middlemen? It depends on who has market power at various points in the supply chain, and generalising about that is just silly.And as Coates argues, in the case of agricultural trade, such sums are dwarfed by the ongoing and massive subsidies to farmers in the United States, Japan and Canada, and by the normal fluctuations in commodity prices and exchange rates.The other number that is getting a rhetorical thrashing at the moment is the $2.7 billion (in 2007 dollars), or 1 per cent, by which New Zealand's gross domestic product is estimated to increase by 2030 as a result of the TPP. This is based on modelling commissioned by the Ministry of Foreign Affairs and Trade.

Malaysia to officially sign TPP after Senate gives green light - Malaysia's Senate approved a motion for the nation to sign on to the Trans Pacific Partnership Agreement (TPP). On Thursday (Jan 28), the Senate voted through the motion in a voice vote at a special sitting on the TPP. "There were 3, 4 people who didn't agree but the majority did," said International Trade and Industry Minister Mustapa Mohamed after the vote. The opposition was greater in the bipartisan Lower House of Parliament, or the House of Representatives, where the motion was passed on Wednesday with 127 supporting it and 84 against it. Opposition MPs in particular had strong reservations about the agreement involving 12 Pacific Rim nations including the United States, Australia, New Zealand and Vietnam. Critics argue that the US-led agreement is "colonialist" in nature, undermining the special rights of ethnic Malays and indigenous groups in Malaysia, and potentially driving up the costs of medicines. But Mr Mustapa, who has overseen negotiations for the deal, argued that Malaysia's economy only stood to benefit from the deal and it would lose out to countries like Vietnam if it chose not to participate

Oil slump forcing Malaysia to cut spending, widen fiscal deficit target - Prime Minister Datuk Seri Najib Razak is widely expected to cut 2016 spending and raise fiscal deficit targets on Thursday as poor oil prices disrupt budget plans unveiled three months ago. Economists expect budget spending to be cut about 2.5 percent, or nearly 7 billion ringgit ($1.65 billion), and the fiscal deficit target to be raised to 3.3 percent of gross domestic product from 3.1 percent. Some also expect this year's GDP growth forecast to be lowered from the current 4-5 percent target, which they say is unrealistic. This is the second straight year Najib has been forced to revise the budget due to woes rooted in the oil price, which is pivotal to Malaysia's economy. The country exports liquefied natural gas, whose price depends on crude oil. In the 2016 budget unveiled in October, Najib assumed oil prices would average $48 a barrel but they are now around $30. The earlier-scheduled budget revisions are being announced two days after Malaysia's attorney-general cleared Najib of any criminal offences or corruption, closing investigations into a multi-million dollar funding scandal that his opponents had hoped would bring him down.

Weak Singapore Dec factory output may lead to downgrade in Q4 GDP | Reuters: Singapore's industrial production in December suffered its biggest slump in eight months on a year-on-year basis, raising the prospect of the government revising down fourth-quarter economic growth from its initial estimate. Analysts say the chance of more monetary easing in the trade-reliant city state, which is under pressure from slackening global growth and plummeting oil prices, could grow in coming months. The manufacturing output data on Tuesday held few positives, with production falling a sharp 7.9 percent in December from a year earlier, data from the Economic Development Board (EDB) showed. That was the biggest year-on-year fall since a 9.0 percent contraction in April, and worse than the median market forecast of a 7.0 percent drop. On a month-on-month and seasonally adjusted basis, industrial production rose 2.0 percent in December. That came, however, after output for both November and October were revised down from previous estimates. "Although the weaker December IP reading may weigh on Q4 GDP ..our concern is that the weakness in production activity extends into January," . Fourth quarter gross domestic product will probably be revised lower, to growth of around 1.6 percent to 1.7 percent year-on-year, compared to the government's advance estimate of 2.0 percent growth.

Freeport questions Indonesia's demand for smelter deposit | Reuters: Indonesia's demand that Freeport McMoRan Inc pay a deposit for a new smelter to continue exporting copper concentrate is "inconsistent" with an agreement reached between the two sides in mid-2014, the firm's CEO said on Tuesday. Indonesia's government has said the U.S. mining giant must provide a $530 million deposit by Thursday to prevent a possible halt in copper concentrate exports from its massive Grasberg mine in the province of Papua. A halt in exports would deal a blow to Freeport's profits and deny the Indonesian government desperately needed revenue from one of the country's biggest taxpayers. It would also buoy global prices of the metal that have slipped 6 percent so far this year on worries over a glut. The U.S. firm's six-month export permit for its Indonesian unit is due to expire on Thursday, said Didi Sumedi, an official at the trade ministry, correcting a statement earlier this week that said the deadline was Tuesday. "Certain officials with the ministry of energy and mines have suggested that we should continue to pay an export duty and that we should make a sizeable escrow deposit to support the smelter development," Freeport CEO Richard Adkerson said on a call following the announcement of its Q4 financial results. "These points are inconsistent with the arrangements that we had worked with the government in mid-2014."

"Zombie Ships" - Why Global Shipping Is Even Worse Than The Baltic Dry Suggests -- One glance at The Baltic Dry Index's collapse is all that most need to see the painful state of the global shipping industry. However, as gCaptain reports, reality is even worse as the boom in so-called "zombie ships" suggests there is no recovery in sight for the beleaguered containership charter market, which is facing its biggest crisis since the 2008 financial crash. And it's not just over-supply... (trade is slowing rapidly)...World trade volume rose by only 0.5% YoY in October and was up 2.4% YoY in the first 10 months of 2015, while world trade value in USdollar terms declined by 12.2% YoY in October and was down 11.8% YoY in the first 10 months of 2015. But, as gCaptain details, reality is even worse for the world's shipping industry... Analysts agree there is no recovery in sight for the beleaguered containership charter market, which is facing its biggest crisis since the 2008 financial crash.However, unlike that bleak period for shipping, which ultimately resulted in a strong recovery for charter rates, this time the fundamentals are quite different. Overcapacity, stemming from the ordering strategy of carriers has been exacerbated by a growth slowdown in China and ultra-low oil prices. And according to the latest report from Alphaliner, with the possible exception of very small feeders, all containership sectors are struggling badly, with owners obliged to accept sub-economic charter rates and pay for positioning costs just to keep their ships busy. The revenue earned in charter hire is seen by owners as a “contribution” to vessel overheads, but is often insufficient to cover mortgage payments on the ship.

India’s Exports Shrink 15% In Dec, Trade Deficit Widens On Gold Imports – In line with dismal global demand scenario, exports contracted in December for the 13th month in a row and the trade deficit has worsened as gold imports more than doubled. Exports shrunk by 14.75% to $22.2 billion with analysts and industry calling it a cause for concern as there seems to be no relief from the weak demand overseas. Imports shrank 3.88% to $33.96 billion in December on yearly basis. Gold imports jumped almost three-fold thereby pushing up the trade deficit to a 4-month high of $11.66 billion, as against $9.17 billion recorded in December 2014. Gold imports rose to $3.80 billion last month, as against $1.36 billion in December 2014. Aditi Nayar, senior economist, ICRA, said the higher-than-anticipated volume of gold shipments may have followed from the dip in prices. Nayar added that the easing contraction of non-oil merchandise exports in December 2015 compared to the sharp 20% year- on-year decline in November was an aberration on account of fewer working days. There was also a decline in exports of engineering products by 15.68% at $5.82 billion. SC Ralhan, president, Federation of Indian Export Organisations, said prices of global commodities and crude oil are expected to go down because of less demand in the global market and expectation of more supply of crude with lifting of sanctions from Iran. He said as the commodities and crude oil prices have more than 40% bearing on India’s exports, it has further led to the continuous decline in exports. “Global demand also does not seem to be picking up. With only countries like the US showing little signs of improvement, this does not augur well for the country’s export sector in the long-run”, he said.

Terror at Bacha Khan U; Pakistan & China Leaders Visit Iran & Saudi Arabia - Who attacked Bacha Khan University in Charsadda? Is this a failure of Pakistan’s anti-terror campaign? Or just a phase of Pakistan’s campaign to end terror? How long will it take to prevent such attacks? What role do the regional dynamics of Afghan-Pakistan and India-Pakistan ties play in such attacks? Would it require a regional multi-lateral settlement to end proxy wars in South Asia? Or would greater focus on Pakistani sympathizers of terror outfits’ ideology yield better results?Why have the Chinese and the Pakistani leaders visited Tehran and Riyadh recently? Is this a coordinated Pak-China effort for regional peace and economic growth? Would it help broker peace in the Gulf and the Middle East regions? Can the two nations pull off a miracle here? Viewpoint From Overseas host Faraz Darvesh discusses these and other questions with panelists Misbah Azam and Riaz Haq (www.riazhaq.com http://www.dailymotion.com/video/x3o361u_terror-at-bacha-khan-u-pakistan-china-leaders-visit-iran-saudi-arabia_news Terror at Bacha Khan U; Pakistan & China... by ViewpointFromOverseas https://www.youtube.com/watch?v=TR729p54d9Y

Pak-China Defense Tech Ties "Irk West" --Growing defense collaboration between China and Pakistan irks the West, according to a report in the UK's Financial Times newspaper.  The paper specifically cites joint JF-17 Thunder fighter jet, armed drone Burraq and custom AIP-equipped submarines as examples of close cooperation between the two nations. Pakistan's bitter experience with the unreliability of its cold war allies as weapons suppliers has proved to be a blessing in disguise. It has forced Pakistan to move toward self-reliance in production of the weapons it needs to defend itself from foreign and domestic enemies. It all started back in 1965 when the US and its western allies placed an arms embargo on Pakistan during war with India. The bitterness grew stronger when the US forced France to cancel its contract to supply a breeder reactor to Pakistan in 1974 soon after India conducted its first nuclear test. Fortunately for Pakistan, the French had already given Pakistanis scientists drawings and specifications before canceling the breeder reactor contract. Work on Khushab reprocessing plant stated in 1974 when Pakistan signed a contract with the French company Saint-Gobain Techniques Nouvelles (SGN). In 1978, under U.S. pressure, France canceled the contract. Pakistan then proceeded to indigenously produce its own nuclear breeder reactors at Khushab. Four such reactors are now operating to produce plutonium for Pakistan's nuclear weapons program. Having done its first nuclear test in 1998, Pakistan now has a large and growing nuclear arsenal it needs to deter any enemy adventurism against it.

Currency Realignment and Export Growth --The realignment of currencies in the past 18 months has been the most dramatic in decades.  A perfect storm is occurring:  Federal Reserve tightening; Eurozone and Asian monetary easing; and  a collapse of major commodities, all conspire to drive  just about every currency in the world to lower values against the USD. Governments are anticipating that this re-alignment will revive economic growth, lead by the external sector.  How likely is to happen? Two recent studies, from the IMF and OECD,  draw attention to the question of how effective are devaluations in changing the fortunes of "open" economies. The term "open" refers to those economies which generate  a significant portion of national income from exports, such as Germany, Canada, and several Asian economies.  Before reporting on the studies, it is helpful to get a sense of the reasons behind devaluations, the extent of currency adjustments  and the importance of exports to major trading nations. Table 1 groups these devaluations by size and by importance as measured by the contribution of exports to national income.
* Depreciation in excess of 25% The greatest depreciations has happened in those countries that are highly dependent on commodity exports, --- Russia, Canada, Australia and South Africa. The worldwide collapse of major commodities resulted in significant declines in their respective trade accounts and national income.

*Depreciations of 20-25% . This group includes both manufacturing exporters ( eg Germany) and natural resource exporters ( eg Sweden). The European currencies have adjusted downwardly in part a reflection of the EU debt crisis and domestic deflation.
* Depreciations of 10-20%   This group includes highly industrialized countries such as Japan and the UK , countries that have benefited from lower commodity prices, and
* Depreciations of less than 10%. The final group features emerging economies, ( eg China, India)  that convert  imported raw materials  into intermediate and final goods for export.

The Global Economy’s Marshmallow Test - Jeffrey Sachs – The world economy is experiencing a turbulent start to 2016. Stock markets are plummeting; emerging economies are reeling in response to the sharp decline in commodities prices; refugee inflows are further destabilizing Europe; China’s growth has slowed markedly in response to a capital-flow reversal and an overvalued currency; and the US is in political paralysis. A few central bankers struggle to keep the world economy upright. To escape this mess, four principles should guide the way. First, global economic progress depends on high global saving and investment. Second, saving and investment flows should be viewed as global, not national. Third, full employment depends on high investment rates that match high saving rates. Fourth, high private investments by business depend on high public investments in infrastructure and human capital. Let’s consider each.

Emerging markets’ stressed debt reaches record levels FT -- The level of stressed debt in emerging markets has hit a new high, passing the previous peak reached at the height of the global financial crisis, in the latest sign of trouble for developing countries. Yields are rising across emerging markets as investors withdraw their money in a tide of outflows, meaning borrowers find it increasingly hard to refinance their debts. Stressed bonds are those trading at yields of 700 to 999 basis points over the yields on comparable US Treasury bonds. Distressed bonds trade at 1,000 basis points (10 percentage points) or more over Treasuries and, as market conditions deteriorate, a rise in the former is often followed by a rise in the latter. Data compiled by David Spegel, head of global EM strategy at ICBC Standard Bank, show that the combined total of stressed and distressed foreign-currency bonds issued by emerging market governments and corporations reached $221bn on January 15, more than the $213bn recorded in December 2008 as the global crisis unfolded. “What is noticeable is the recent increase in the stressed component,” said Mr Spegel. “We could very quickly get to a real distressed situation, with investors selling at very low prices.” The Institute of International Finance said last week that the flow of capital from China and other emerging markets was much worse than previously estimated, with $759bn in net outflows last year. Unlike in the US, where the number of issuers of distressed high-yield bonds has risen sharply in recent months, the number of distressed emerging market foreign currency issuers has fallen.

World faces wave of epic debt defaults, fears central bank veteran - Telegraph: The global financial system has become dangerously unstable and faces an avalanche of bankruptcies that will test social and political stability, a leading monetary theorist has warned. "The situation is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up," said William White, the Swiss-based chairman of the OECD's review committee and former chief economist of the Bank for International Settlements (BIS)."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," he said. "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," he told The Telegraph on the eve of the World Economic Forum in Davos. "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 5,000 years, as far back as the Sumerians." The next task awaiting the global authorities is how to manage debt write-offs - and therefore a massive reordering of winners and losers in society - without setting off a political storm. Mr White said Europe's creditors are likely to face some of the biggest haircuts. European banks have already admitted to $1 trillion of non-performing loans: they are heavily exposed to emerging markets and are almost certainly rolling over further bad debts that have never been disclosed.

Nigeria: Minister alleges $9 billion stolen from economy - — Fifty-five people, including former governors, Cabinet ministers and government workers, stole $9 billion dollars from Nigeria's treasury, the information minister said Monday. Lai Mohammed made the allegations as he kicked off a "national sensitization campaign," appealing to Nigerians to join the fight against corruption that is crippling what should be a rich nation with Africa's biggest economy, population and oil production. The looted 1.35 trillion Nigerian naira could have built 36 hospitals or educated 4,000 children through university, Mohammed said. He said it was stolen between 2006 and 2013, when the naira stood at about 150 to the dollar, half today's value. Mohammed did not identify the 55 accused but said bankers and businessmen are among them. The funds include $2.1 billion meant to buy weapons to fight Boko Haram's 6-year-old Islamic uprising that has killed some 20,000 people but instead was diverted to the election campaign of former President Goodluck Jonathan and his party, Mohammed said. Jonathan lost March 2014 elections to former military dictator Muhammadu Buhari, who promised to halt corruption and the insurgency. Buhari said Monday that a multinational force has driven Boko Haram into "fall-back positions" and uprooted them from all territory they held. Mohammed denied that the war against corruption was a vendetta against the opposition. He said, "If we don't kill corruption, corruption will kill Nigeria." Nigeria's judiciary is critical to the fight, he said. Three different courts have granted bail to Jonathan's former national security adviser, Sambo Dasuki, who is accused of being instrumental in the theft of the $2.1 billion and has said he diverted the money on Jonathan's orders. Buhari has said he will not allow Dasuki out of detention.

Nigeria's currency in free fall due to oil slump - Even though the naira is plunging on the street, a result of the collapse of global prices for oil exports, which Nigeria depends on for state revenue, the official exchange rate has yet to budge. But few think that situation can last much longer. Business owners like Oluwaseun say the widening gap between the official rate and the parallel rate is making it hard to keep their enterprises running. They will be looking to central bank governor Godwin Emefiele to announce policies to address a shortage of dollars at a news conference on Tuesday. "The exchange rate situation has become very difficult.... Everything is becoming very, very expensive," said Oluwaseun as she checked through her stocks in Abuja's sprawling Wuse market, where anything is sold from whiskey to TV screens and sofas. She pointed to two letters from food suppliers which just landed on her desk announcing yet more price increases for imports. Commercial banks have been running out of hard currency, forcing importers to tap the parallel market, where a dollar costs 305 naira, compared to the official rate of 198. A box of imported cranberry juice cartons now costs 700 naira more than a few weeks ago. "You cannot even get hard currencies such as the dollar, euro or pounds," said Chucks Okonkwo, a distributor of alcoholic drinks in the market. Some products had disappeared from shop shelves because customers refuse to pay the price increase.

Fears of Venezuela debt default rise as bond prices plunge - Curaçao Chronicle: In spite of Venezuela’s socialist president Nicolás Maduro reassuring bond investors that he will make good on more than $10bn of payments this year, economists say default is “practically inevitable” as prices for oil, the Caribbean country’s lifeblood, plummet. Crude oil accounts for 96 per cent of export revenues and falling prices, coupled with years of mismanagement, have crushed the country’s economy. A sell-off in sovereign bonds has pushed the price on benchmark 2026 debt to 37 cents in the dollar, a level considered a precursor to default. The cost of insuring Venezuelan bonds has tripled in the past 12 months. Analysts at Bank of America Merrill Lynch estimate that the recovery value on Venezuela’s $123bn of external debt could be as low as 21 per cent if current low oil prices persist. “Venezuela is running out of runway and falling oil prices are quickly shortening the tarmac,” says Russ Dallen, who heads investment bank, Latinvest. If the country does default there are fears that it may face an Argentina-stylefight with holdout investors thanks to the structure of its debt. A number of the bonds issued by Venezuela and state-run energy company PDVSA do not contain collective action clauses, meaning investors are not bound by a majority agreement and can sue for full repayment, delaying any credit resolution.

How Bad is Venezuela's Economic Situation?  -- Venezuela's central bank just did something totally unexpected: it released updated economic figures showing the country has sunk into its worst economic crisis in decades. Data this detailed hasn't been published by the BCV in over a year, and it makes for grim reading. The Bad News Few Venezuelans would be surprised to hear the economy isn't doing well, but the new figures released by the Central Bank of Venezuela (BCV) on January 15 still felt like a punch in the gut. Annual inflation hit 141.5 percent in 2015 – double the 2014 rate, and easily the worst in the world. High inflation is nothing unusual in Venezuela. Yet since 1999, Chavismo has done a relatively reasonable job of keeping inflation well below crisis levels. However, the new figures also show Gross Domestic Product (GDP) has nosedived, sinking 7.1 percent by third quarter 2015. Growth isn't everything, especially in an economy aiming to transition away from capitalism. Yet these numbers are extreme. Moreover, the devil is in the details. In its breakdown by sector, the Central Bank of Venezuela's (BCV) report indicated food costs are among the biggest drivers of inflation. Venezuelan consumers saw the cost of food lurch upwards by 55.7 percent in the third quarter. Overall, food costs rose a whopping 254.3 percent in 2015 – a figure that easily surpasses wage increases by any measure. Increases of basic food costs disproportionately impact the poor, who typically spend a larger chunk of their income on necessities like staple foods. However, the BCV's numbers also show the state apparatus as a whole is also bearing a heavy load.

New Venezuelan FinMin: Inflation Doesn't Exist -- The late Venezuelan President Hugo Chavez was once described as a "Narcissist-Leninist" by a number of economic commentators. As we've subsequently learned, self-ingratiating policies for the alleged benefit of the global workingman worked a lot better when oil was at $100/barrel instead of less than a third of that. In the latter situation which Chavez's successors find themselves, the scope for the Venezuelans spreading their largesse from oil revenues is greatly diminished since, well, the country is now faced with empty coffers selling the stuff at below cost for months on end. Enter Venezuela's new finance minister, Luis Salas. It's not a good start that he's not an economist by training but a sociologist, but it only gets more interesting. Recently, he declared that inflation does not exist: Venezuela's new economy czar Luis Salas is tasked with controlling what is believed to be the world's highest rate of inflation, but comes to the job with an unusual perspective: that inflation does not really exist. President Nicolas Maduro on Wednesday tapped the 39-year-old sociologist as vice president for the economy amid soaring consumer prices and chronic product shortages, signaling a move toward orthodox socialism in the OPEC nation struggling under low oil prices.  Essays written by Salas describe scarcity and spiraling prices as the result of exploitation by businesses rather than government policy, offering an academic underpinning to the "economic war" explanation that Maduro uses to describe the current malaise of recession, runaway prices and widespread product shortages.

Venezuelan president says economy shrank 5 percent in 2015 | Reuters: Venezuela's revenues slid 70 percent due to the oil price slump and its economy shrank 5 percent in 2015, President Nicolas Maduro said at a summit in Quito on Wednesday. The South American OPEC member's economy contracted 3.9 percent in 2014, according to central bank figures, and is projected to shrink further this year. Critics say 17 years of failed socialist policies are the root of Venezuela's problems, while the Maduro government blames an "economic war" by its foes. Both sides, however, agree the oil price slide has exacerbated the crisis. The annual inflation rate hit 141.5 percent at the end of the third quarter of 2015, according to latest official data Speaking to a meeting of heads of state of the Latin American and Caribbean bloc CELAC, Maduro said it was remarkable in such circumstances that Venezuela had kept the extreme poverty level down to 4.7 percent.

Brazil central govt' posts deficit of 115 bln reais in 2015 | Reuters: Brazil's central government posted a primary budget deficit of 115 billion reais ($28.01 billion) in 2015, according to Treasury data released on Thursday, its largest shortfall ever as the government struggles to shore up its accounts amid a crippling recession. The central government account, which covers federal ministries, the central bank and social security, had a primary deficit of 60.727 billion reais in December, slightly above market expectations for a gap of 59.5 billion reais. The government posted a primary deficit of 21.27 billion reais in November. The large monthly deficit was due to the government's decision to pay 56 billion reais that month in debt owed to state-run banks.

Brazil economy shed 1.5 million jobs in 2015 | Arab News: Brazil lost 1.5 million payroll jobs in 2015 amid a contracting economy that has led to high inflation and layoffs in the manufacturing and service sectors, the Labor Ministry said Thursday. The ministry said that 39.7 million workers were formally employed at the end of last year, compared to 41.2 million at the end of 2014 and 40.8 million in 2013. Labor Minister Miguel Rossetto said last year's job creation figures are the worst since they started being compiled in 1992. Most of the lost payroll jobs were in the industrial and civil construction sectors. The only positive job creation figures were posted by the agricultural sector, where close to 10,000 new positions were opened. Brazil's IBGE statistics bureau said last week that the jobless rate between August and October of last year came in at 9 percent, compared to 8.6 percent in the previous three-month period and 6.6 percent a year earlier. It was the highest jobless rate since 2012. Reacting to those figures, President Dilma Rousseff told reporters that her government was determined to lower jobless rates, saying "Unemployment is the government's biggest concern." Earlier this week, the International Monetary Fund said the recession affecting Latin America's biggest country will continue in 2016 with output contracting 3.5 percent. There will be no growth in 2017 and economic growth should resume in 2018, the IMF said.

Brazil 2015 budget gap hits record as austerity fails -- Brazil's overall budget deficit soared to a record 613 billion reais ($150.99 billion) in 2015, central bank data showed on Friday, nearly doubling from last year as efforts to rebalance fiscal accounts failed and interest rates shot up. The budget deficit equaled 10.34 percent of the gross domestic product, nearly five times its shortfall in the 12 months to mid-2011. The deficit mushroomed under President Dilma Rousseff, who took office at the start of 2011. In comparison, at the height of its debt crisis in 2009 Greece had a deficit of 15.2 percent of GDP. Brazil's widening budget deficit is fueling worries among investors that the once-booming economy may struggle to repay its debt in coming years as a deepening recession cuts revenues. On the other hand, high inflation has forced authorities to raise interest rates, the rate that the government pays some investors who purchase its debt. Measures to cut spending and raise revenues failed to provide enough savings to close the widening budget gap under pressure from rising law-mandated expenditures linked to health and education The closely monitored primary budget balance, or revenues after expenditures prior to debt interest payments, ballooned to a record 111.249 billion reais ($27.4 billion) in 2015.

Surge of Americans tests limits of Cuba's tourism industry | Reuters: Cuba's tourism industry is under unprecedented strain and struggling to meet demand with record numbers of visitors arriving a year after detente with the United States renewed interest in the Caribbean island. Its tropical weather, rich musical traditions, famed cigars and classic cars were for decades off limits to most Americans under Cold War-era sanctions, but those restrictions are fading. Once a rare sight, Americans are now swarming Old Havana's colonial squares and narrow streets along with Europeans and Canadians. Entrepreneurs and hustlers have responded by upping prices on taxi rides, meals, and trinkets. Cuban women who pose for pictures in colorful dresses and headwraps while chomping cigars are now charging $5 instead of $1. Cuba received a record 3.52 million visitors last year, up 17.4 percent from 2014. American visits rose 77 percent to 161,000, not counting hundreds of thousands of Cuban-Americans.

Open Letter to Canadians on the Trans-Pacific Partnership from the Honourable Chrystia Freeland, Minister of International Trade - As Canada’s newly appointed Minister of International Trade, I have spent the last two months talking to Canadians about our potential participation in the Trans‑Pacific Partnership (TPP) Agreement. After attending public town halls, participating in over 70 meetings and round tables, and receiving feedback from thousands of Canadians who have written to me, it is clear that many feel the TPP presents significant opportunities, while others have concerns. Many Canadians still have not made up their minds and many more still have questions. That is why our consultations with the provinces, municipal officials, students, labour leaders and members, business representatives, academic experts, and others are just the beginning of the examination needed to fully understand the TPP’s impact. As Parliament returns this week, I will work with my colleagues from all parties to conduct a full and open debate in Parliament, a commitment we made in October’s election. Further, I have written to the Government and Opposition House Leaders as well as the Chair of the Senate Standing Committee on Foreign Affairs and International Trade to convey my strong belief in the merits of a robust and transparent examination of the TPP. In particular, this should include extensive, non‑partisan consideration, analysis, and testimony from all regions, sectors, and backgrounds. Most importantly, this process will be fully public. For Parliament to fully evaluate the merits of the TPP and for consultations to continue, Canada needs to stay at the table with the other TPP countries. That means when the eleven other countries convene to sign the Agreement next week, Canada will attend as well. Not attending would mean withdrawing from the TPP altogether, even before Canadians have had an opportunity to fully debate its implications.  Just as it is too soon to endorse the TPP, it is also too soon to close the door.

Russian Economy Shrinks Most Since 2009 as Oil Prices Sink - Russia’s economy, facing renewed pressure from plunges in energy prices and the ruble, contracted the most since 2009 last year on oil’s decline and sanctions over the conflict in Ukraine that curbed access to international financing. Gross domestic product fell 3.7 percent after growth of 0.6 percent in 2014, the Federal Statistics Service said Monday on its website, citing preliminary estimates. Economists in a Bloomberg survey forecast a 3.8 percent drop. A separate release of consumer data for December showed spending continued to decline as real wages and disposable incomes fell further. “The economy’s going through big adjustments -- it’s still addicted to oil,” Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said by e-mail. “The weak ruble and import substitution will continue to support local production, although on a moderate path. It’s a long and painful journey to recovery.” The economy of the world’s largest energy exporter is facing a second year of contraction after crude prices resumed their slump at the start of 2016, sending the ruble tumbling to a record. Monetary-policy makers, meeting Friday to discuss interest rates, have limited room to trim borrowing costs with inflation at more than three times their medium-term target. The central bank has held its benchmark at 11 percent for three meetings.

Is Russia Imploding In Front Of Our Eyes... Again? -- Certain countries are starting to feel the pain of the low oil prices. In a previous column, we already warned you about the potential problems in Saudi Arabia that might spill over to the USA. Saudi Arabia was quickly moving towards a government deficit of almost 22% of the GDP, resulting in a shortage of $150B on the total budget in 2015. Keep in mind that preliminary expectation was based on an oil price of $40-45 per barrel and as the oil price has continued to fall, Saudi Arabia’s finances have gotten worse by the week (and even by the day). But Saudi Arabia isn’t the only country that is feeling a huge impact from the low oil prices, as Russia for instance might have some more issues to dig itself out of the current government deficit hole. Whereas Saudi Arabia was smart enough to put quite a bit of cash in its sovereign wealth fund (which was the third largest in the world) to reduce the impact of the economic shocks, the Russian economy isn’t as well-prepared as the Saudi Arabian economy. Even though Russia says it has been preparing for an average oil price of approximately 40-60 dollars per barrel during the next several years, we remain unconvinced about the country’s readiness to indeed be able to cope with a continuously low oil price, and it’s really hard to imagine the country can indeed survive it at all.

Former BIS Chief Economist Warns of Massive Debt Defaults, Need for Debt Jubilee; Fingers Europe as First in Line -  Yves Smith - When you hear an orthodox economist, particularly one who was early to warn of the dangers of real estate bubbles around the world, speaking of a debt jubilee as the best of bad option, you know a crunch is coming. Here is the key quote from William White, former chief economist of the Bank of International Settlements, in an exclusive interview with Ambrose Evans-Pritchard of the Telegraph: 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 5,000 years, as far back as the Sumerians. White gives a dire set of underlying causes, and one of them is what economists would call a lack of policy space, which in layspeak means “no remedies available to treat the disease.” Yet even though White is almost certainly correct as to the endgame, which is that many people who hold financial assets will find that they are worth a lot less than they believe, one of the reasons is that even people like White, as he exhibits in this interview, subscribe to economic beliefs that are part of the problem. In other words, there are treatments that would work, even now, but mainstream economist reject them and thus look as if they will have to relearn the lessons of the Great Depression.  Mind you, White is largely correct, most of all in his pointing out that debts need to be written down, and if they aren’t in a formal manner, they will be forcibly written down, via default. But where he errs is in deeming debt always and ever bad, and in further not acknowledging (or recognizing) that for a fiat currency issuer like the United States, using debt to finance government spending is a political requirement, not an economic one. The federal government could simply deficit spend, but our funding procedures are a holdover from the gold standard era. Thus some of the lack of policy space he complains about is due to self-imposed constraints, like the perverse and self-destructive fear of running deficits in economies that are tipping into deflation and have plenty of underutilized resources. Let’s parse the interview.

IMF changes debt sustainability rules for large bailouts | Reuters: The International Monetary Fund said on Friday it is leaving the door open to large bailout loans for countries with questionable ability to repay debt, but has revised its rules for such rescues. Last week, the IMF ended the 2010 lending exemption that allowed major bailout loans to Greece, Ireland and Portugal and helped to ease a European sovereign debt crisis. In a press release detailing changes in its lending practices, the IMF said it will allow larger loans to countries that do not have a "high probability" of debt sustainability if they are also able to maintain private-sourced credit on terms that allow gradual improvement of their fiscal situation. IMF officials said doing so may require a reprofiling of existing debt by extending maturities or other terms, but it would be less than a full restructuring that cut interest payments or principal, which they said could disrupt markets. The aim is to get a debtor country back on its feet more quickly while instilling confidence in the loan program. If private creditors are simply paid off with IMF money, there is less incentive for a country to pursue reforms needed to improve its debt profile.

Who Wins and Loses in the IMF Governance Overhaul, and What’s Next -- More than five years after the deal was inked by global powers, the International Monetary Fund executive board this week officially approved the governance overhauls that give emerging markets more power at the emergency lender.  The so-called quota reforms help restore some of the credibility the fund lost in the last decade as emerging markets grew in economic heft and injected critically needed cash into the fund, but gained little power at the IMF in return.“These reforms will ensure that the fund is able to better meet and represent the needs of its members in a rapidly changing global environment,” said IMF chief Christine Lagarde. IMF brass worried that countries such as China, India and Brazil were growing increasingly disenfranchised with the Washington-based institution, undermining global cooperation during a fragile era for the global economy.  The quota reforms, ratified late Wednesday, give China, Brazil and other developing nations more power at the fund, largely at the expense of European nations. Here are the biggest winners and losers among some of the world’s largest economies:

Deutsche CEO predicts cash will be gone in a decade - Cash won't be around in a decade, the chief executive of one of Europe's biggest banks predicted on Wednesday. "“Cash I think in ten years time probably won’t (exist). There is no need for it, it is terribly inefficient and expensive,” John Cryan, chief executive of Deutsche Bank, said during a discussion on financial technology, known as "fintech". Other predictions made during the panel discussion at the World Economic Forum in Davos included James Gorman, chief executive of Morgan Stanley, who warned against "hysteria" surrounding fintech. "This is going to unfold over many years in many ways.” Dan Schulman, CEO of Paypal, flagged cybercrime as the biggest threat to the financial industry. "The big next stress is that the financial system is going to be hacked for one or two days”.

German exports and the Eurozone - I have argued that the low level of German wage increases before the financial crisis were a significant destabilising influence on the Eurozone, which also indirectly contributed to Germany taking a hard line on austerity. The basic idea is that Germany gained a significant competitive advantage over its Eurozone neighbours, which it has since been unwilling to unwind (through above average German inflation). What this competitiveness gain did was lead to very healthy export growth and a large current account surplus, and that additional demand meant that Germany did not suffer as much as its neighbours from the second Eurozone recession that policy created. Peter Bofinger has made a similar argument. This argument is often criticised on the grounds that Germany’s healthy export growth was not primarily due to any competitive advantage, but instead was the result of non-price factors like strong demand from China for the type of goods Germany produces. This and other criticisms were recently made in a paper by Servaas Storm. One of the points made by Storm has itself been criticised by Thorsten Hild, and Hild’s point is entirely correct (see also Storm’s reply here). But the issue about what was the primary cause of strong export growth remains. Trying to disentangle how much of German export growth was due to the competitiveness advantage they gained would require some econometric analysis which unfortunately I do not have time to undertake. But the point I want to make here is that if there has been a permanent positive shift in Germany’s exports (i.e one unrelated to price or cost competitiveness), then this strengthens the argument that I have been making. Before we get there, it is worth going through the basic macroeconomics involved.

Desperate in Davos: policymakers struggle for answers | Reuters: Angela Merkel was missing from Davos this year, but the German leader's optimistic mantra "we can do this" echoed through the snowy resort in the Swiss Alps. China's economic slowdown? Manageable. Plunging financial markets? Temporary. And Europe's refugee crisis? A big challenge, but one which will ultimately push the bloc's members closer together, audiences were told over and over again. Beneath the veneer of can-do optimism at the World Economic Forum, however, was a creeping concern that the politicians, diplomats and central bankers who flock each year to this gathering of the global elite are at the mercy of geopolitical and economic forces beyond their control. At the top of the lengthy list of worries was Europe, whose policymakers remain deeply divided in their approach to the refugee crisis at a time when the bloc faces a host of other threats, from Islamic extremism and the rise of far-right populists, to a possible British exit from the European Union. "You've had deadly crises in Europe from day one and we've overcome them. However we always had one crisis at a time. Today we have about five, from Brexit to ISIS and everything in between," said Josef Joffe, the publisher-editor of German weekly Die Zeit. "In the past we had leadership. Today we are facing overwhelming demands on leadership and we are delivering less of it," he added.

The EUs banking union: a recipe for disaster -- On 1 January 2016 the EU’s banking union – an EU-level banking supervision and resolution system – has officially come into force. The move to the banking union has been the most significant regulatory outcome of the crisis – ‘a change of regime, rather than an act of institutional tinkering’, as Christos Hadjiemmanuil of the London School of Economics writes in a comprehensive paper on the topic that this article is largely based on – and it is widely agreed that ‘even in its current incomplete form, [the banking union] is the single biggest structural policy success of the EU since the start of the financial crisis’. A closer look, though, reveals the banking union – in its current form at least – to be simply the latest step in the EU’s post-crisis creditor-led path of austerity and asymmetric adjustment; one that could potentially put the final nail in the EMU’s coffin. 

The Latest Central Bank Fad: Asymmetric Inflation Targeting - I have noted many times here how the Fed's treats its 2% inflation target as more of a ceiling than a symmetric target. Apparently, the ECB is even more brazen in its asymmetric interpretation of its inflation target: The ECB has got itself into an extraordinarily difficult position. It has missed its policy target — a headline rate of inflation at “close to but below” two per cent — for four years. The target has lost credibility. Once people have lost confidence in an inflation target, it becomes very hard for the central bank to persuade them to trust the target again. It was touching to hear Mr Draghi last Thursday talk about failing to reach a goal, then to try again and to fail again. I do not doubt his determination but the minutes of the December 3 meeting of the governing council tell us that not everybody supports the target in the same way... One [governor] said that he would not accept a further increase in QE unless the eurozone was once again in deflation. The implicit message of that statement is that this particular governor’s policy target must be zero per cent, not two per cent. He will only act once prices actually fall. [...] [A former governing council member] confirms something I had suspected for a long while but was never able to confirm: he cares if inflation is above the target but less so when it is low. The target becomes asymmetric... Germany’s economic establishment has its unofficial inflation target, which I would put at a range of 0-2 per cent. If that were the target, no policy action would be needed now. [...] To me this all shows that, as an institution, the ECB is only partially committed to its stated goal. This is one of the reasons why it keeps missing its policy target. This can mean only one thing: it is time to update my inflation targeting chart from this earlier post. Asymmetric inflation targeting seems to be the new fad at central banks, at least the big ones.

Swiss government sees structural budget deficit swelling | Reuters: The Swiss government projected rising structural budget deficits through 2019 due to infrastructure spending, corporate tax and pension reforms and rising numbers of asylum requests. The shortfalls come even after the government last year decided to slash spending by up to 2 billion Swiss francs ($1.97 billion) to help offset sharply lower revenue projections as the strong franc hit the export-dependent economy. It expects a timid economic recovery this year and next and consumer prices to return to positive territory in 2017. It gave this breakdown on Wednesday in its legislative financing plan agreed by the cabinet.

Helicopter Money Arrives: Switzerland To Hand Out $2500 Monthly To All Citizens -- With Citi's chief economist proclaiming "only helicopter money can save the world now," and the Bank of England pre-empting paradropping money concerns, it appears that Australia's largest investment bank's forecast that money-drops were 12-18 months away was too conservative. While The Finns consider a "basic monthly income" for the entire population, Swiss residents are to vote on a countrywide referendum about a radical plan to pay every single adult a guaranteed income of around $2500 per month, with authorities insisting that people will still want to find a job. The plan, as The Daily Mail reports, proposed by a group of intellectuals, could make the country the first in the world to pay all of its citizens a monthly basic income regardless if they work or not.  But the initiative has not gained much traction among politicians from left and right despite the fact that a referendum on it was approved by the federal government for the ballot box on June 5. Under the proposed initiative, each adult would receive $2,500 per months, and each child would also receive 625 francs ($750) a month. The federal government estimates the cost of the proposal at 208 billion francs ($215 billion) a year. Around 153 billion francs ($155 bn) would have to be levied from taxes, while 55 billion francs ($60 bn) would be transferred from social insurance and social assistance spending. That is 30% of GDP!!!

Wobbly Italian Banks May Get “Bad Bank” Resolution Vehicle naked capitalism -- Yves here. There are so many fracture points in the financial system that are now under stress that it is hard to keep on top of them all. One has been Italian banks. In 2011, Unicredit, which ironically is the successor by acquisition to Creditanstalt, the Austrian banks whose failure in 1931 triggered the slide into the Great Depression nadir of 1932-1933, was rated the second worst bank in the awfully permissive European stress tests. It had gone on a buying spree, picking up often-weak institutions at elevated pre-crisis prices. Even after multiple capital raisings and years of clean-ups, UniCredit now has non-performing loans that stand at 20% of its loan and receivables book. From a Financial Times article earlier this month: “The banking sector is a crucial problem of Italy,” says Luigi Zingales, professor of entrepreneurship and finance at the University of Chicago Booth School of Business. “When there is low tide you see who is swimming naked. And we have a low tide and all the problems are coming to the surface.”

EU pension stress tests show hit from low interest rates | Reuters: Stress tests of Europe's employer pension providers have highlighted an increasing threat posed by prolonged low interest rates, the European Union's insurance and pensions watchdog EIOPA said on Tuesday. Unveiling the results of its first test of the occupational pensions sector's resilience to various adverse shocks, EIOPA said near-zero interest rates would create "significant future challenges" requiring close monitoring by pension funds and national pensions supervisors. While the scenarios tested by EIOPA - including low interest rates, inflation and drops in the value of assets - were hypothetical, the gap with the real world was narrowing, said Gabriel Bernardino, chairman of the European Insurance and Occupational Pensions Authority (EIOPA). "Reality is not so different from the stresses we are making and that gives even more relevance to the conclusions," Bernardino told a press briefing. The European Central Bank has slashed interest rates and launched a money-printing campaign to try to boost growth, but that effort has driven down returns needed by insurers and pension funds to meet future promises to clients.

Resentment simmers as Greece launches debate on pension reforms | Reuters: Greek Prime Minister Alexis Tsipras launched a vocal defence of plans to overhaul the country's pensions system on Tuesday as public unrest simmered over cutbacks that are a condition for the indebted country to receive more international aid. Amid escalating protests, Tsipras said the country had no choice but to reform a system which had created chronic deficits and would collapse if left unchanged. He also challenged his main opposition rivals to come up with a better plan. "Present and future projections leave no room for complacency. To pay pensions in 2016, the social security system - apart from contributions and state funding - will need to find additional funds of 980 million euros," he said during a parliamentary debate, a preamble to a formal submission of the pension reforms bill expected in February. Tsipras, a leftist who swept to power a year ago, must keep lenders onside to complete an overdue review of reforms, without alienating his electorate altogether. Kyriakos Mitsotakis, newly-elected leader of the Conservative New Democracy Party, accused Tsipras of 'fooling' Greeks, referring to the prime minister's u-turn on his pre-election promises to end austerity. "In the space of a year, you turned hope into despair," said Mitsotakis in his first parliament speech as party leader. He is marginally leading Tsipras in opinion polls.

Rajoy Says Leftist Parties Causing "Terror in Europe" as Spanish Government About to Fall  -- Following a December election that has left Spanish politics deeply fragmented, Prime Minister Mariano Rajoy's People's Party (PP) has been unable to secure the majority coalition he needs to rule. Unless someone has a majority, it is the role of the king, otherwise a largely ceremonial role, to see if anyone can build a coalition. First chance goes to the party receiving the most votes.  Here's a sequence of events with brief translations and a couple of comments from reader Bran who lives in Spain. The clips are from last Friday through today. Links are in Spanish.

• Rajoy declines the offer by the king to try to form a government. However the news is later tempered with his words "I haven't renounced the right to be chosen, it is that right now I don't have the votes".
• During the round of meetings with the king, Iglesias (leader of Podemos) announced without any warning that he would seek to form a coalition with PSOE based on proportional representation of power in the government with Sanchez as president and himself as vice president and ministers also proportionally assigned. Iglesias includes IU (left) as part of the tripartite and asks for a Catalan referendum.
• Sanchez's first reaction was a cautious welcome, saying "Voters would not understand if I and Podemos did not understand each other". He says he will hold talks with Podemos over the weekend.
• Reactions of the regional heads and ex-heads of the PSOE, including previous party leader Rubalcaba was not favorable.

Taxi Drivers Take to the Streets in 24-Hour French Strikes - France endured mass strikes on Tuesday as taxi drivers, air traffic controllers, civil servants and teachers demanded more purchasing power, job creation and an end to disruptive competition to traditional industries. Hundreds of taxi drivers took to the streets of Paris, burning car tyres and blocking routes to principal airports in a demonstration that spread disruption across the capital. A protest by air traffic controllers prompted France’s Civil Aviation Authority to ask airlines to cancel 20 per cent of their flights in France.  The strikes stand to create further problems for President François Hollande and his socialist government as he battles with low economic growth and record unemployment. Mr Hollande has promised not to run for re-election in 2017 if he does not manage to reverse the upward trend in joblessness. On Tuesday, hundreds of taxi drivers blocked the road at Paris’s Porte Maillot, one of the capital’s principal entry points. By early morning, they had already succeeded in blocking one direction of the eight-lane highway. Television images showed the strikers lighting fireworks and dragging metal barriers in front of commuter cars desperate to pass.  Waving flags and burning tyres, the taxi drivers were protesting about the rise of disruptive competition such as Uber, the US ride-sharing application, and Heetch, a French ride-sharing app that has become popular among young people.

How Europe Will Fail to Address the Migration Crisis in Early 2016 --naked capitalism - Yves here. This post provides a clear-eyed and sobering discussion of the numerous political conflicts that stand in the way of European countries making progress on, much the less resolving, the migration crisis. It also, refreshingly, does not mince words on key issues. For instance, it depicts the Greek and Italian government as being sensible in foot-dragging in building refugee holding tanks which in bloodless Eurocrat speak are called “hotspots.” The author, Jacob Kirkegaard, points out that these “hotspots” would have to be “de facto prison camps” to work as envisaged, which in turn means that Northern European countries could continue to renege on their promise to take refugees and leave them interned in these supposed waystation.   Note the Kirkegaard does not stick his neck out all that much; he merely points out that Europe will continue to fail to manage the refugee crisis into the medium term, which in light of how badly things are going is a sensible call. Moreover, he describes the set of conflicts and explains why there is no mechanism for forcing resolution. It’s not hard to see that gridlock will continue unless there is an external change, such as improved conditions in the Middle East so that emigration falls off, or alternatively, word getting back that Europe is so hostile to migrants that it is not worth the risk to try to gain entry. That is already starting to happen. From Euronews, Migrant crisis: Iraqis return home, disenchanted with life in Germany:

Denmark Passes Law To Seize Valuables, Cash From Refugees -- “Welcome to Europe. Now gimmie that watch.” That’s the greeting asylum seekers will get when they enter Denmark from now on thanks to a new law that will allow police to search refugees on arrival and confiscate anything worth more than 10,000 kroner. The idea, apparently, is to help offset the cost of taking the migrants in by robbing them. Denmark’s center-right government likens the new policy to how Danish welfare recipients are treated but Klaus Petersen, professor at the Centre for Welfare State Research, University of Southern Denmark says that’s not entirely accurate. “Danish welfare claimants have to give up their savings before they receive benefits – but not their valuables, unlike refugees,” Petersentold The Guardian. “A Danish citizen could be searched in an extreme case if the municipality has a suspicion of fraud, but you need court permission to do so [whereas] for refugees, you would not need a court permission,” he adds. And while this may seem somewhat repugnant, Prime Minister Lars Løkke Rasmussen swears it’s all a big misunderstanding. “It’s the most misunderstood law” in Denmark’s history, he insists. But it’s difficult to see where the “misunderstanding” is. You’re either confiscating refugees’ valuables or you aren’t and if you are, well, prepare for the Nazi comparisons. “Bent Melchior, the former chief rabbi of Denmark, said in December that the initial proposal appeared ‘like it had the character of what was actually in force during the Nazis’ persecution of minorities,"WaPo writes, noting that “other commentators made similar comparisons.” The confiscation law is part of a larger immigration bill which stipulates that authorities will allow refugees to keep certain valuable items that have "sentimental value" - like wedding rings.

Denmark′s daylight robbery of refugees  -- Denmark is defying international outrage and pressing ahead with plans to force refugees to hand over valuables in return for providing sanctuary. Trine Villemann reports from Copenhagen.  Lis Greve, a supporter, posted, "It's disgraceful that migrants and refugees have to hand over what they own in money and valuables. It's like when the Jews were robbed by the Nazis. Is that where Denmark is heading?" The measures, seen by some critics as comparable to systematic Nazi robbery from Jews, and designed to dissuade migrants from seeking asylum in Denmark, are due to be ratified by parliament in Copenhagen on Tuesday. Danish politicians have been unmoved by fierce criticism.Minister Støjberg, widely regarded as a hardliner on integration and migrant matters, has been unrepentant.  She wrote on Facebook, "I am aware that some international media are banging on about the fact that Denmark in the future will seize valuables form refugees in order for them to pay for their stay in asylum centers. This criticism is unwarranted as Danish law already states that people on benefits, who own valuables worth more then 10,000 kroner, ($1,451/1,340 euros) can be forced to sell them off before being able to receive benefits. It is a principle in Denmark that those who can provide for themselves also have to. It applies to those who already live here and now it will also apply to those who just arrived here."The first draft of the controversial legislation was tougher than the version parliament will finally ratify. Originally, the government wanted to seize cash and valuables worth more than 3,000 Danish kroner (400 euros).

EU pushes ‘worst-case scenario’ to stem migrant crisis - The future of the Schengen zone of passport-free travel is in serious doubt, as EU countries Monday prepared for the worst and sought permission to extend internal border controls for up to two years. After a meeting of EU interior ministers in Amsterdam, Klaas Dijkhoff, the migration minister of the Netherlands, said they “invited the [European] Commission to prepare the legal and practical basis for the continuance of temporary border measures.” The announcement came after several days in which EU countries said more needed to be done to control the flow of refugees across European borders. Germany and Austria stepped up pressure on Greece, for example, warning that it could be excluded from the Schengen zone unless it did a better job of controlling its external borders. Dijkhoff said the procedure sought Monday, known as Schengen’s Article 26, was not intended to “push a country” out of the agreement. But Etienne Schneider, Luxembourg’s deputy prime minister, said rows between member countries were unhelpful. “I am tired of all this finger pointing, there’s no need for it,” he told POLITICO. “The countries that point the finger at Greece are not showing their hand when we are talking about redistributing refugees.” The process announced Monday will allow the extension of internal border controls for a maximum of two years for those countries that ask for it, including Germany and Austria, which reintroduced them in September. So far, six countries in the Schengen group have reintroduced internal border controls to cope with the influx of refugees and the related security concerns: France, Denmark, Sweden, Norway, Germany and Austria. Berlin and Vienna could be the first ones to extend the controls since they were the first ones to reintroduce them. For those two countries, the legal terms for the reintroduction of internal controls will expire in May, hence the need for a possible extension.

Fiscal Cost of Refugees in Europe  - naked capitalism   Yves here. We featured an earlier post which pointed out that the results of modeling the cost/benefits of allowing migration depend, not surprisingly, on the assumptions made. This study is useful in that it is empirical, using Swedish data, when Sweden has good information and also generous social support programs. This analysis concludes the “costs” are low, based on the conventional view that deficits must be financed. One could just as well argue that managing immigration well gives political cover for deficit spending that is useful in a world with underemployment and a deflationary undertow. Originally published at VoxEU The current inflow of refugees into Europe has left policymakers in disagreement over how to react. A major concern is the perceived financial burden that can result from large intakes. This column discusses the fiscal impact of refugees on the Swedish economy. The current net redistribution from the non-refugee population to refugees (excluding arrivals in 2015) is estimated to be 1.35% of GDP. The economic burden of a generous refugee policy is therefore not particularly heavy, especially if the host country incorporates them as quickly as possible into the labour market.

Europe Faces Another Million Refugees This Year, UN Report Says -- As many as 1 million people from Africa, the Middle East and Asia will seek refuge in Europe this year, according to a report by global migration agencies, a number that nears levels seen last year in the continent’s worst migration crisis since World War II. The war in Syria will continue to be the main source of migrants after triggering a spike in 2015, according to the report from the United Nations High Commissioner for Refugees and the International Organization for Migration. An increasing number of people will also come from southwest Asia and northern and western Africa, and the continued flow will exacerbate tension among European Union governments already deemed incapable of dealing with new entries smoothly, they said. “The conflict in Syria will continue unabated and will generate high levels of internal and external displacement,” the agencies said in the report published on their websites. Refugees fleeing “Afghanistan may increase amid “deteriorating security situation in the majority of the provinces and the continuing downward spiral of the economy.” The EU is struggling to create a comprehensive plan to deal with its worst refugee crisis since World War II. The crunch has riled politics across the bloc by bolstering support for anti-immigrant parties and has prompted some governments to impose border controls with other European countries. This week, Germany and its neighbors laid the groundwork to extend a reintroduction of checks at internal borders for as long as two years, a move that departs from the EU’s principle of passport-free travel among most of its members.

Jeremy Corbyn: All Calais migrants should be given chance to come to Britain - Telegraph: Jeremy Corbyn has called on the government to allow thousands of migrants living in camps in Calais to come to the UK. The Labour leader said "everyone who wants to come to Britain and has a connection" should be free to submit an application for processing by UK officials. He added that "we're talking 3,000 people... it's not very many", during a trip to France to see the impact of British aid. Mr Corbyn's comments came after he visited the Calais refugee camp on Saturday where around a few thousand people are living in squalid conditions in a bid to make it to the UK.The Labour leader said his party has in the past been "too defensive" about immigration and should make the case for the benefits that migrants can bring to the economy - particularly public services. In an interview with Sky News he said: "We're not doing anything about the refugee crisis that's actually happening in Europe itself." He called on ministers to process the applications of anyone who wants to live in the UK rather than allow people to remain in "fetid" conditions without proper facilities. Mr Corbyn added: "It's a very strange magnet of desperation, a fetid swamp with foul water, and people living in tents in the middle of winter shows the level of desperation - we're talking 3,000 people. It's not very many."