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

Saturday, January 9, 2016

week ending Jan 9

Will the Fed’s Chickens Come Home to Roost in 2016? - Now that the Federal Reserve has started the process of normalizing interest rates, the global economy is soon likely to learn that Fed quantitative easing was anything but a free lunch. Since while over the past few years quantitative easing might have provided much needed temporary support to a struggling US economy, it also has contributed importantly to an extraordinary number of financial vulnerabilities around the globe. Sadly, past experience would suggest that a number of these are likely to be triggered in the year ahead by a tightening in the interest rate cycle. There would seem to be at least three major financial market vulnerabilities in the global economy that can leave little room for economic policy complacency. First, and among the more immediate of these vulnerabilities, is a likely deepening in the economic crisis in major emerging market economies like Brazil, Indonesia, Russia, and South Africa. Years of ultra-low US interest rates helped fuel a super-sized international commodity boom and precipitated a massive flow of capital into the emerging market economies, which now account for more than a third of the global economy. Indeed, according to the Bank for International Settlements, emerging market corporates have borrowed as much as US$3¼ trillion over the past five years in US dollar-denominated debt.

MAULDIN: Fed will be back at zero bound -  Zero-percent interest rates have distorted the economy and the financial markets in countless ways. A fixed-income market in which the only fixed element is an interest rate fixed at zero is not something that would arise naturally. It exists only because someone twisted nature into a new shape. And as we all know, it’s not nice to fool with Mother Nature. She always takes her revenge. There was a world back in the day where 5% was the minimum return you’d expect from any manager worth his salt. Everyone, myself included, thought that was perfectly normal. Returns in that range or even much higher had been our experience for 50 years, other than a brief stay just below 1% in the early-2000s recession. T-bills had always given us a nicely positive yield. No one imagined any other possibility. A risk-free return is pure fantasy now. We just finished seven years in which achieving returns with a + sign required taking on risk.  Although Fed governors project about 100 basis points of interest-rate hikes in the coming year, the market foresees only two hikes of 25 basis points.  I’ll go with the market. Federal Reserve economists' and board members’ projections assume no recession through 2019. If history has anything to say, they will be wrong.And while my opinion carries nothing like the weight of history, I personally think they will be wrong, too. We have already had the third longest “recovery” (weak as it is) following a recession since World War II. To think we can go without a recession for another full two years, through 2017, strains credibility. We will need to get well into 2018 or 2019 before we see the Fed’s projected funds rate of 3.5%.

16 December 2015 FOMC Meeting Minutes: Why They Raised the Federal Funds Rate.: The 16 December 2015 meeting statement presented the actions taken. This post covers the economic discussion during this FOMC meeting between the members (minutes were released today). There was a significant amount of discussion why the federal funds rate was raised. The quote of these minutes was: ... Normalizing policy gradually would keep the stance of monetary policy sufficiently accommodative to support further improvement in labor market conditions and to exert upward pressure on inflation. ..... Although there was not a universal alignment of perceptions amongst the FOMC participants - these meeting minutes showed more consensus previous meetings. The interesting points are highlighted in bold below. Econintersect publishes below the views of the FOMC members, and ignores the reports given to the members. We are looking for a glimpse of insight into the minds of the FOMC members. Participants' Views on Current Conditions and the Economic Outlook:  In conjunction with this FOMC meeting, members of the Board of Governors and Federal Reserve Bank presidents submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, inflation, and the federal funds rate for each year from 2015 through 2018 and over the longer run. Each participant's projections were conditioned on his or her judgment of appropriate monetary policy. The longer-run projections represent each participant's assessment of the rate to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. These projections and policy assessments are described in the Summary of Economic Projections, which is an addendum to these minutes.

FOMC Minutes: "some members said that their decision to raise the target range was a close call"  -- From the Fed: Minutes of the Federal Open Market Committee, December 15-16. Excerpts:  After assessing the outlook for economic activity, the labor market, and inflation and weighing the uncertainties associated with the outlook, members agreed to raise the target range for the federal funds rate to 1/4 to 1/2 percent at this meeting. A number of members commented that it was appropriate to begin policy normalization in response to the substantial progress in the labor market toward achieving the Committee's objective of maximum employment and their reasonable confidence that inflation would move to 2 percent over the medium term. Members agreed that the postmeeting statement should report that the Committee's decision reflected both the economic outlook and the time it takes for policy actions to affect future economic outcomes. If the Committee waited to begin removing accommodation until it was closer to achieving its dual-mandate objectives, it might need to tighten policy abruptly, which could risk disrupting economic activity. Members observed that after this initial increase in the federal funds rate, the stance of monetary policy would remain accommodative. However, some members said that their decision to raise the target range was a close call, particularly given the uncertainty about inflation dynamics, and emphasized the need to monitor the progress of inflation closely.

Federal Reserve minutes reveal concern about low inflation led to a ‘close call’ hiking rates -- The Federal Reserve is likely to move cautiously as it looks toward further withdrawing support for the American economy, central bank documents released Wednesday showed. The minutes of the December Fed meeting indicated that the central bank has “significant” concerns about the stubbornly low rate of inflation. Though Fed Chair Janet Yellen marshaled unanimous support for a interest rate hike last month, minutes from the Federal Open Market Committee’s Dec. 15-16 meeting show that some members were on the fence about the decision and were swayed by the strong labor market. “Some members said that their decision to raise the target range was a close call, particularly given the uncertainty about inflation dynamics,” the minutes said. The documents cast the first detailed insight into the central bank’s December decision to raise the cost of borrowing and close out a period of rock-bottom rates that had been designed to stimulate the economy. That move now puts the Fed in a delicate position in which it aims to gradually push rates back toward historically normal levels, even as the U.S. economy faces headwinds from a global slowdown, cheap commodity prices and slumping productivity at home. The path of interest rates — which have lagged for several years below the Fed’s 2 percent target — will figure heavily in the calculus of what comes next, the minutes suggested. Inflation has been held down both by plunging energy prices and stagnant wages, and some economists expect that it will pick up as the labor market tightens and employers offer raises to compete. But the Fed’s minutes showed that, for some in the Fed’s 10-member committee, “the risks attending their inflation forecasts remained considerable.” Those risks could take the shape of oil price shocks or a sustained rise in the value of the dollar. The Fed has a mandate to guide the economy both toward maximum employment and stable prices.

Federal Reserve too ‘concerned’ by weak inflation to push on with rate rises --US interest rates could remain unchanged for months, as records of the Federal Reserve’s latest meeting revealed that policymakers were “concerned” by the economic outlook.  Despite raising interest rates for the first time in nearly a decade in December, the US central bank is expected to delay further rate rises until it becomes clearer that inflation is returning towards the Fed’s 2pc target. Investors now anticipate that the US will wait another three months before raising rates again.  While the Federal Open Market Committee (FOMC), which dictates US monetary policy, voted unanimously to lift the Fed’s interest rates for the first time since the financial crisis, there was less harmony among policymakers than implied by the final decision. A number of policymakers said the decision to raise rates was a “close call” given questions about the inflation outlook, and “emphasised the need to monitor the progress of inflation closely”, according to the minutes of the December meeting. The US central bank, which has a dual mandate to promote full employment and an inflation target of 2pc, has been concerned that price growth has remained well below that level.  FOMC officials expressed “significant concern about still-low readings on actual inflation”, which stood at 0.4pc in the year to November on the measure most closely tracked by the central bank.

Fed Watch: Despite Inflation Unease, Fed Still Talks Big On Rates - The minutes of the December FOMC meeting were released today. The minutes were considered to have a dovish tone, although I would be wary of thinking there is much new information to be found. Labor market conditions had improved sufficiently to justify a certain degree of confidence in the inflation outlook:Regarding the medium-term outlook, inflation was projected to increase gradually as energy prices and prices of non-energy imports stabilized and the labor market strengthened. Overall, taking into account economic developments and the outlook for economic activity and the labor market, the Committee was now reasonably confident in its expectation that inflation would rise, over the medium term, to its 2 percent objective. but many members retained concerns about the downside risks: However, for some members, the risks attending their inflation forecasts remained considerable. Among those risks was the possibility that additional downward shocks to prices of oil and other commodities or a sustained rise in the exchange value of the dollar could delay or diminish the expected upturn in inflation. A couple also worried that a further strengthening of the labor market might not prove sufficient to offset the downward pressures from global disinflationary forces. And several expressed unease with indications that inflation expectations may have moved down slightly. Why hike rates? It is all about setting the stage for a gradual path of subsequent rates hikes: And while they ultimately pulled the trigger on higher rates in an unanimous vote, the doves were left with a bitter taste in their mouths:However, some members said that their decision to raise the target range was a close call, particularly given the uncertainty about inflation dynamics, and emphasized the need to monitor the progress of inflation closely.

Fed leans on big balance sheet to soften rate hike impact | Reuters: Federal Reserve policymakers appear to have succeeded in their push last month to convince investors the central bank will hold on to its $4.5-trillion portfolio at least until next year, a Fed survey showed on Thursday. Recent interviews with officials showed they were counting on the Fed's massive bond holdings to blunt some of the impact of interest-rate hikes this year. But they were also concerned that markets did not fully appreciate that the central bank was willing to hang on to the bonds for longer than thought only three or six months ago. They said that apparent perception gap could explain in part why they are expecting a brisker series of rate hikes in 2016 than investors do. It was also a reason why, as it raised rates last month for the first time in nearly a decade, the U.S. central bank used new language saying it will keep its portfolio at its record size until rate hikes are "well under way." The nudge, designed to push back expectations when the Fed would start shrinking its giant portfolio, seems to have worked. The New York Fed's survey published on Thursday showed that before last month's rate hike most Wall Street dealers had expected the balance sheet to start shrinking around December. But canvassed again on Dec. 18 most forecast the Fed would keep its $2.5 trillion Treasuries portfolio intact until March of next year, and its nearly $2 trillion mortgage-backed securities until January of 2017. San Francisco Fed President John Williams told Reuters that by holding long-term borrowing costs down, the Fed's giant portfolio should give it some more headroom to raise rates without accidentally triggering an economic slowdown.

Fed Vice Chair Explains Why The Fed Is Still Obsessing With Negative Interest Rates - Two months ago, and roughly 6 weeks before the Fed's first rate hike in 9 years, Janet Yellen warned that if the "outlook worsened, the fed might weight negative rates" adding that "negative rates could help encourage banks to lend." Moments ago, in a speech titled "Monetary Policy, Financial Stability, and the Zero Lower Bound" delivered before the American Economic Association in San Francisco, the Fed's second in command, Vice Chairman Stanley Fischer while discussing the equilibrium real interest rate, or r* (or the real interest rate at which the economy would settle at full employment and with inflation at 2 percent, provided the economy is not at the ZLB), unexpectedly hinted once again at the potential advent of negative rates in the US, two weeks after the Fed's raised the interest rate to a 25-50 bps corridor except of course for December 31 when as we noted, the Fed Funds dropped to 0.12%, suggesting that banks are perfectly ok with hiking rates... except when it comes to quarter and year-end window dressing for regulatory, compliance and public filing purposes. Specifically, Fischer discussed what steps, if any, can be taken to mitigate the constraints associated with the ZLB? His second answer: NIRP. To wit: Another possible step would be to reduce short-term interest rates below zero if needed to provide additional accommodation. Our colleagues in Europe are busy rewriting economics textbooks on this topic as we speak-and also helping us to remember earlier discussions of negative interest rates by Keynes, Irving Fisher, Hicks, and Gesell.

Fed’s Williams Foresees Up to Five Rate Hikes This Year - The Federal Reserve could raise interest rates as many as five times this year, according to San Francisco Fed President John Williams.  “I think something in that three-to-five-rate-hike range makes sense, at least at this time,” Williams said Monday in an interview on the cable news channel CNBC.  Williams said the U.S. economy is “in very good shape” and remains stronger than other major global economies.  The economy is on pace for continued job gains in 2016 after adding an estimated 2.5 million jobs last year, he said.  Williams said he was not surprised or concerned by weak Chinese economic data, which many blame for Monday’s stock-market selloff. China, he said, has been undergoing a pretty significant shift for some time away from manufacturing and toward consumer spending.  Williams said he doesn’t have a stock-market terminal on his desk telling him when the market moves up and down. He said the Fed is focused on the medium term and understanding why the market is moving, “rather than responding to just ups and downs.”

What the Latest Data Tell Us About the Fed’s Economic Assessments - When the Federal Reserve announced in mid-December that it would begin raising short-term interest rates, Fed officials characterized domestic spending as “solid” and the risks to economic growth as “balanced.” Data released the past few weeks, however, underscore concerns about the economic outlook that were apparent even before the Fed’s announcement.The same day it announced its monetary policy decision, the Federal Reserve released its latest measure of industrial production. As the chart above shows, the industrial sector contracted 1.2% in November from a year earlier. That contraction was initially played down as largely reflecting the effects of warm weather on utility production. But subsequent data point to a broader and more persistent contraction. In the manufacturing survey published Monday by the Institute of Supply Managers, the index of business conditions declined further in December; this index stands at its lowest level since 2009. Turning to domestic spending, the term “solid” implies substantial strength and resilience. Yet recent indicators paint a gloomier picture. Shipments of core capital goods (that is, nondefense items excluding aircraft) contracted at an annual rate of nearly 2% over the three months ending in November. Private non-residential construction contracted about 4%. Meanwhile, growth in real personal consumption expenditures dropped from 4% last spring to 3% over the summer and slowed further, to around 2%, over the three months ending in November. In light of those readings, the Atlanta Fed’s current “now-cast” analysis indicates that real GDP barely increased during the fourth quarter of 2015.  These data reinforce the view that the U.S. economy may be operating at stall speed. Consequently, the possibility of falling into recession poses a much more significant risk than the prospect of economic overheating. As the first chart shows, every episode of contracting industrial output since 1970 has been associated with the onset of a recession. These downside risks make a compelling case for Fed officials to refrain from further monetary tightening and, instead, refocus on contingency planning for scenarios in which such risks materialize.

Updated model hints Fed staff sees much lower inflation in 2016 - — An update of an economic model used by the Federal Reserve suggests the staff of the U.S. central bank has sharply lowered its forecast for inflation over the next six months, economists from Barclays said Tuesday. As a result, the Fed will only hike rates three times this year, rather than the four increases projected by the U.S. central bank last month, said Rob Martin, an economist at Barclays. Core inflation, as measured by the personal consumption expenditure index, is now running at a 1.3% annual rate in November. The Fed’s inflation target is 2%,as measured by the broader PCE index, which also includes food and energy. The Fed periodically releases updates to its FRB/US, one of several economic models used by the Fed, to improve public understanding of how it works. According to the path implied by the latest update to the model released late last year, the Fed’s staff now sees core inflation ticking up to 1.4% in the first quarter of 2016, then dipping to 1.3% in the second quarter and then moving higher towards the Fed’s target, Martin of Barclays said. As recently as October, the Fed staff didn’t share this view, saying that it expected prices of non-energy imported goods “to begin steadily rising next year.” The downward revisions suggests the Fed staff has come around to the view that import prices are going to remain weak this year, Martin said.

High-Level Federal Reserve Official: Fed Intentionally "Front-Loaded An Enormous [Stock] Market Rally in Order to Create a Wealth Effect" -- Central banks – including the Bank of Japan, Bank of Israel, Bank of Switzerland and the Czech Republic – have been buying stocks to prop up their nations’ stock markets. We’ve noted for years that Fed policy is aimed at boosting stocks, as well. Today, the decade-long former president of the Federal Reserve Bank of Dallas – a voting member of the the Fed’s principal monetary policymaking group (the Federal Open Market Committee) – admitted (full interview): What The Fed did, and I was part of it, was front-loaded an enormous rally starting in 2009 … in order to create a wealth effect…  I wouldn’t blame [the declining stock market]  on China.  An uncomfortable digestive period is likely now. Indeed, only higher income brackets ever liked the Fed’s “wealth effect” policies.

Former Fed President Fisher Admits Fed Culpable Of Overinflating The Market -- Amazing interview just given by former Federal Reserve President Richard Fisher in which he admits:

  • the Fed intentionally over-inflated the financial markets to create a wealth effect
  • markets are now going to have to go through a corrective process with less support from central banks
  • he thinks QE3 was a mistake -- admits the Fed caved to pressure from politicians and banks to keep prices rising
  • the Fed is "out of ammo" at this point

Watch here:  While I'm pleased to see admission of these transgressions (which we've been shouting about for years here at by a high-ranking insider like Fisher, I'm depressed at how cavalierly he treats the matter. Sort of an "Oh, well...what can we do about it at this point?" attitude. And watching the CNBC interviews let all this slide is just downright maddening. The media exists to hold the mirror of truth up to power and demand accountability. There's only one pointed question in the whole interview "Will the Fed apologize if the market crashes?", and the rest is just a fawning acceptance of everything Fisher says. A great example of how our media has become too stupid/captive to do its job.

A case of post ‘Fed-hike’ traumatic stress disorder for markets?  - The rate hike was all priced in. They said. But might everyone who made this purchasing decision just before Christmas live to regret it? Today’s market action suggests possibly: A little selection of the more striking market movements on Thursday, starting with Brent Crude: The FTSE 100: Anglo American: And just for continuity, here’s the RMB offshore market price against the dollar (still elevated): And for those who doubt this is a Fed story, the eur/usd:

What did you do in the currency war, Daddy? -  Ben Bernanke -  The financial crisis and its immediate aftermath saw close cooperation among the world’s policymakers, especially central bankers. For example, in October 2008, the Federal Reserve coordinated simultaneous interest-rate cuts with five other major central banks. It also established currency swap arrangements—in which the Fed provided dollars in exchange for foreign currencies—with fourteen foreign central banks, including four from emerging markets. However, once the crisis had passed and recovery begun, national economic interests began to diverge. In particular, some foreign policymakers argued that the Fed’s aggressive monetary policies, undertaken to support the U.S. economic recovery, were damaging their own economies.Two criticisms were prominent, and a third perennial issue also reared its head. First, several foreign policymakers accused the Fed of engaging in “currency wars”—deliberately weakening the dollar to gain an advantage in trade. (The phrase is most closely associated with Brazilian finance minister Guido Mantega, who leveled the charge when the Fed began a second round of quantitative easing in November 2010.) A second complaint, raised prominently by Reserve Bank of India governor Raghuram Rajan, among others, was that shifts in Fed policy (toward either greater tightness or greater ease) were creating spillovers—sharp swings in capital flows and increased market volatility—that destabilized financial markets in emerging-market countries. This concern has surfaced again recently, as the Fed has initiated what may prove to be a series of interest-rate increases. ...

The dollar’s international role: An “exorbitant privilege”? - Ben Bernanke - This post is the third of three based on my Mundell-Fleming lecture, which discussed the international effects of Fed policy (see here for a video of the lecture and here for a paper that expands on the lecture’s themes). In the two previous posts (see here and here), I addressed a pair of criticisms of recent U.S. monetary policy: (1) that the U.S. had engaged in “currency wars” by depreciating the dollar for competitive advantage in trade; and (2) that shifts in U.S. monetary policy have had spillover effects on financial stability in other countries, especially emerging markets. These debates raise yet another question: Why is the Fed the principal subject of such critiques, even though other major central banks have also engaged in aggressive monetary policies? A common answer is that the dominant role of the U.S. dollar in international trade and finance—about 60 percent of international reserves are held in dollar-denominated assets, for example—makes Fed actions particularly consequential. That in turn, it is sometimes argued, confers a special responsibility on U.S. policymakers to take the international implications of their actions into account. Why is the dollar the most often-used global currency? Does the dollar’s international role unfairly advantage the United States, to the detriment of other countries? Does the dollar’s role magnify the effects of Fed actions on other countries, and if so, how? I’ll touch on these questions in this post. I’ll argue that the benefits of the dollar’s status to the United States have been much reduced in recent decades, and that a principal channel of the Fed’s international influence works through dollarized credit markets.

Nomi Prins' Financial Road Map For 2016: "The Potential For Chaotic Fluctuations Is Greater Than Ever" by Nomi Prins - We are currently in a transitional phase of geo-political-monetary power struggles, capital flow decisions, and fundamental economic choices. This remains a period of artisanal (central bank fabricated) money, high volatility, low growth, excessive wealth inequality, extreme speculation, and policies that preserve the appearance of big bank liquidity and concentration at the expense of long-term stability. The potential for chaotic fluctuations in any element of the capital markets is greater than ever.  The butterfly effect - the flutter of a wing in one part of the planet altering the course of seemingly unrelated events in another part - is on center stage. There is much information to process. So, I’d like to share with you – not my financial predictions for 2016 exactly - – but some of the items that I will be examining from a geographical, political and financial perspective as the year unfolds.

The Great Malaise Continues - Joseph Stiglitz - In early 2010, I warned in my book Freefall, which describes the events leading up to the Great Recession, that without the appropriate responses, the world risked sliding into what I called a Great Malaise. Unfortunately, I was right: We didn’t do what was needed, and we have ended up precisely where I feared we would. The economics of this inertia is easy to understand, and there are readily available remedies. The world faces a deficiency of aggregate demand, brought on by a combination of growing inequality and a mindless wave of fiscal austerity. Those at the top spend far less than those at the bottom, so that as money moves up, demand goes down. And countries like Germany that consistently maintain external surpluses are contributing significantly to the key problem of insufficient global demand. At the same time, the US suffers from a milder form of the fiscal austerity prevailing in Europe. Indeed, some 500,000 fewer people are employed by the public sector in the US than before the crisis. With normal expansion in government employment since 2008, there would have been two million more. Moreover, much of the world is confronting – with difficulty – the need for structural transformation: from manufacturing to services in Europe and America, and from export-led growth to a domestic-demand-driven economy in China. Likewise, most natural-resource-based economies in Africa and Latin America failed to take advantage of the commodity price boom underpinned by China’s rise to create a diversified economy; now they face the consequences of depressed prices for their main exports. Markets never have been able to make such structural transformations easily on their own.  There are huge unmet global needs that could spur growth. Infrastructure alone could absorb trillions of dollars in investment, not only true in the developing world, but also in the US, which has underinvested in its core infrastructure for decades. Furthermore, the entire world needs to retrofit itself to face the reality of global warming.

Is the whole theory of secular stagnation a hoax? - The world's monetary watchdog has thrown down the gauntlet. It has challenged the twin assumptions of secular stagnation and the global savings glut that have possessed - some would say corrupted - the Western economic elites. It has implicity indicted the US Federal Reserve and fellow central banks for perverting the machinery of interest policy to conjure demand that may not, in fact, be needed, and ensnaring us in a self-perpetuating "debt-trap" with a diet of ever looser money. The Bank for International Settlements (BIS) - the temple of monetary orthodoxy in Switzerland - has been waiting for this moment, combing through the archives of economic history to mount an unanswerable assault. The BIS believes it has found the smoking gun in a study of recessions in 22 rich countries dating back to the late 1960s. The evidence suggests that the long malaise of the post-Lehman era - and the strange episode that preceded it - can be explained almost entirely by the destructive effects of boom and bust on productivity growth. Credit bubbles are corrosive. They gobble up resources on the upswing, diverting workers into low-productivity sectors and building booms. In Spain the construction share of GDP reached 16pc at the height of the "burbuja" in 2007, when teenagers abandoned school en masse to earn instant money erecting ghost towns. Parasitical wastage creeps in. "Financial institutions' high demand for skilled labour may crowd out more productive sectors," said the paper, acidly. The bubbles leave a long toxic legacy after the bust hits. This takes eight years or so to clear. "The occurrence of a crisis greatly amplifies the impact of previous misallocations," said the paper, racily titled "Labour reallocation and productivity dynamics: financial causes, real consequences".

Atlanta Fed Just Slashed Q4 GDP Forecast To Barely Positive 0.7%, Down 1.2% In Ten Days Just before the aborted Santa Rally took off in earnest, on December 23 the famous US economic growth prognosticators at the Atlanta Fed (famous because unlike Wall Street they actually are right) slashed its Q4 GDP forecast from 1.9% to 1.3% citing weakness in real consumer spending and poor existing-home sales. Moments ago, in its latest Q4 GDP revision, the Atlanta Fed just pulled the rug from under the economy (and the market now that bad news for the economy is bad news for stocks), and slashed its latest quarterly forecast by another 50%, from 1.3% to a barely positive 0.7%, a print which matches the "abysmal" Q1 2015 GDP, which as a reminder had to be double seasonally adjusted higher to compensate for the "harsh winter." Does that mean that when "triple seasonally adjusting" for warm weather that the real Q4 GDP was negative? This is what the Atlanta Fed said: The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2015 is 0.7 percent on January 4,down from 1.3 percent on December 23. The forecast for the contribution of net exports to fourth-quarter real GDP growth fell 0.1 percentage points to -0.4 percentage points on December 29 after the U.S. Census Bureau's advance report on international trade in goods. The nowcast for real GDP growth fell 0.5 percentage points this morning following the Census Bureau's release on construction spending and the Institute for Supply Management's Manufacturing ISM Report On Business.

In Q4 When 282,000 Average Jobs Were Supposedly Added, The Atlanta Fed Sees GDP At A Paltry 0.8% -- Just over two hours ago, following the latest disappointing wholesale sales and trade, using the Atlanta Fed's GDP methodology, we calculated just where the regional Fed would trim its famous "nowcast" estimate to:  Atlanta Fed to revise Q4 GDP to ~0.8% shortly.  Moments ago, that's precisely what the Atlanta Fed's revised Q4 GDP estimate was lowered to. To wit:  Latest forecast — January 8, 2016 The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2015 is 0.8 percent on January 8, down from 1.0 percent on January 6. The forecast for the contribution of inventory investment to fourth-quarter real GDP growth declined 0.2 percentage points to -0.8 percentage points after this morning's wholesale trade report from the U.S. Census Bureau.  So, to summarize: in a quarter in which GDP rose by 0.8%, and was likely negative when excluding the benefits - yes, that's right, benefits - of the warm winter, the same way last year's "harsh winter" supposedly subtracted from GDP, the US added on average over 270,000 workers per month.

There’s another recession out there somewhere. We are so not ready for it. -- Jeez, you try to get the new year off to a good start and all of a sudden everybody’s talking about the next recession. The Wall Street Journal warns of “weak readings” in manufacturing and construction activity; forecasters are marking estimates for the current quarter down to 1 percent or even lower. Economist Andy Levin, who knows of what he speaks, presents data that “reinforce the view that the U.S. economy may be operating at stall speed.” You ask me, I see neither a bubble in a key sector nor resource constraints (overheating). To the contrary, underwhelming demand, low interest rates and very low inflation continue to characterize our six-and-a-half year-old economic expansion. So while we may well be facing slower growth than I’d like, I don’t see a recession around the corner. That said, I tend to throw in with economist Jeff Frankel, who recently averred that “[r]ecessions are not forecastable. A downturn is no more likely in 2016 than in a typical year, nor less likely.” Still, 6.5 years is already longer than the average expansion over the past few decades, and so here’s the only kind of economic forecast you should trust: a conditional one. If X does happen, then Y is likely to happen, too. So here’s my conditional forecast: Somewhere out there is the next recession. We are woefully unprepared for it and I fear that the likelihood that this will change by the time the next downturn gets here is low.

Dollar Dominance: Deconstructing the Myths and Untangling the Web - naked capitalism Yves here.  I am suspending my usual reservations on this issue, since this post has some merit, and we’ll see how this writer, who looks to be new to blogging, evolves. Nevertheless, there are a couple of points to keep in mind. Being the reserve currency issuer is not the boon the author presents it to be. The issuer inevitably winds up being a net importer to keep currency in circulation abroad. Being a net exporter means you are using your demand to employ people overseas. Other countries seek strongly to be net exporter because they recognize the importance of providing an adequate level of employment as key to social stability. The burdens that go with being the reserve currency issues is a big reason why China is unlikely to be willing or able to step into that role any time soon. The government, more so than in other countries, depends on preserving employment and wage growth as key to its legitimacy. Running the needed trade deficits that go with being a reserve currency issuer is anathema to that prime directive.

On the puzzling increase in UST settlement fails - FT Alphaville has tackled the issue of an explosion of settlement fails in US Treasury markets before, referencing how fails seem to balloon in times of crisis, such as the2008 global financial crisis, when the incentive not to deliver owed-securities increases — a stealth form of financing in the view of some observers. It’s precisely the sort of behaviour that the TPMG fails charge, introduced in May 2009, was supposed to nip in the bud by making it too costly to neglect to deliver a security. Yet, despite having quelled the number of UST fails when it was first introduced quite successfully, its capacity to serve as an effective fail deterrent seems to be slipping. In that regard, Fred Sommers of OpRisk Ltd, who watches fail rates like a hawk, tells us that on Dec 29, 2015, the DTCC reported US Treasury fails-to-deliver of $136.7bn, a record level since April 1 2010 when DTCC started to report US Treasury fails-to-deliver.As Sommers noted to us in an email over the holidays: The last time US Treasuries were close to this level were in Jun-July 2015 just prior to the Oct 15th 2015 upheaval described by Jamie Dimon as a “once in 3-billion year” event. He also forwards us the following chart:  Before the charge was introduced financial players sometimes had the incentive to sell a US bond in return for cash, then avoid delivering the bond to their buyer without losing any money. This encouraged high failure rates, which in turn caused some to worry that confusion about who really owned which security could lead to further system instability in the longer run. While there’s no doubt that the UST fails charge, when it was first introduced, had a significant impact on the number of fails registered by New York Fed primary dealer statistics

Falling Interest Rates and Government Investment: Switzerland is an amazing place, not least the skiing, the chocolate, and the punctual trains. The latter is part of the country’s exquisitely maintained infrastructure: there are no potholes, and no deferred maintenance of train tracks, tunnels, airports, or public buildings. Few countries go so far, but many can take a lesson: it pays to maintain infrastructure at least so that it doesn’t fail. We bring this up now because financial markets are telling us that it’s a very good time to build and repair infrastructure: real (inflation-adjusted) interest rates have fallen so low that it has become exceptionally cheap to finance the improvement and repair of neglected roads, bridges, transport hubs, and public utilities. Yet, in the United States, we are doing less public investment than ever: net government investment has fallen to what is probably a record low. ... Fixing the problem would be straightforward, and cheap in terms of finance. ... To be clear, this argument need not be seen as one for a larger government, but for an efficient one that provides the public goods necessary for sustained economic growth at the lowest cost. For a country to remain prosperous, it needs an infrastructure that is constantly being renewed and improved. The alternative of postponing maintenance probably leads to higher costs—both from the direct impact on the economy from the deterioration of physical capital and from the need to finance future (larger) repair projects at potentially higher interest rates.

How Congress Finally Passed IMF Governance Overhauls, Five Years After the Deal Was Signed - Republicans asked for repeal of Obamacare. Instead, they got a change in an arcane—but important—emergency lending rule. Five years after world leaders signed a deal to overhaul the International Monetary Fund’s antiquated antiquated governance, the U.S. Congress this month ratified the 2010 deal. The Obama administration tried repeatedly to get the agreement through Congress, to no avail. House Republicans time and again slapped down the proposal, demanding at one point the administration nix the president’s signature health-care law in exchange for their approval. What made this time different? Key, say insiders, was a growing acknowledgement among lawmakers that inaction was harming U.S. diplomacy. House and Senate leadership privately committed to Treasury officials in early April they would seek to ratify the deal by the end of the year. But an 11th-hour acquiescence by the U.S. Treasury to repeal a controversial IMF bailout rule sealed the deal. Critics say the IMF’s so-called “systemic exemption” loophole, which allowed the fund to green-light an unprecedented amount of money to Greece in 2010 despite clear signs the country’s debt was unsustainable, fuels irresponsible borrowing by countries and feckless risk-taking by markets. U.S. Treasury Secretary Jacob Lew says the political sacrifice was a small price to pay. U.S. ratification of the IMF governance reforms is “critically important to national and economic security and underscores the IMF will continue to play a significant positive role in the global economy,” Mr. Lew said in an interview.

Government regarded as No.1 problem for U.S. in 2015: Gallup - (Xinhua) -- For the second consecutive year, Americans' dissatisfaction with U.S. government edged out economy as the country's top problem in 2015, a poll analysis issued Monday by the Gallup showed. Sixteen percent of Americans see government (including Congress and politicians) as the nation's top problem in 2015, compared with economy at 13 percent, and unemployment and immigration, both at 8 percent, according to the analysis based on the monthly measure of the most important problems facing the U.S. in the past year. The number of Americans rating government as No. 1 problem facing the nation increased by two percentage points from 2014; while the number of Americans regarding economy as top issue decreased by 4 percentage points. Notably, 2015 was the first year since 2007 in which immigration was regarded by Americans as one of the top four most frequently cited problems. Healthcare was regarded by 6 percent of Americans as the top problem facing the nation. Other issues in the top 10 list of problems averaging 5 percent, included ethical/moral decline, race relations/racism, terrorism, the federal budget deficit or debt, and education.

TTIP: the key to freer trade, or corporate greed? -- Trade deals were once seen as a panacea for global poverty. In the 1990s, the World Trade Organisation was formed to harmonise cross-border regulations on everything from cars to pharmaceuticals and cut tariffs in order to promote the free flow of goods and services around the world. There was always a fear that, far from being a winning formula for all, lower tariffs would favour the rich and powerful and crucify small producers, who would struggle to compete in an unprotected environment. The effects of the North American Free Trade Agreement (Nafta), signed by the US, Mexico and Canada in 1993, appeared to justify that fear: it became in later years a cause celebre for anti-poverty campaigners, angered by the plight of Mexican workers. Not only were they subjected to low wages and poor working conditions by newly relocated US corporations – and, as consumers, to the relentless marketing power of Walmart, Coca Cola and the rest – but the major fringe benefit of cutting corruption remained illusory. This year the US hopes to sign what many believe will be Nafta’s direct successor – TTIP. Should it get the green light from Congress and the EU commission, the agreement will be a bilateral treaty between Europe and the US, and, just like Nafta before it, outside the ambit of a gridlocked WTO. Supporters say it will be an improvement on its predecessor because the main proponents are a liberal US president and a European commission that considers itself concerned with workers and consumers.  But it strikes fear into the hearts of many, who believe it to be a Trojan horse for rapacious corporations. These corporations, hellbent on driving down costs to enhance shareholder value, spell the end for Europe’s cosy welfare states and their ability to shield fledgling or, in the case of steel and coal, declining industries from the harsh realities of open competition.

The New Geo-Economics by Joseph E. Stiglitz - The most controversial geo-economic decisions last year concerned trade. Almost unnoticed after years of desultory talks, the World Trade Organization’s Doha Development Round – initiated to redress imbalances in previous trade agreements that favored developed countries – was given a quiet burial. America’s hypocrisy – advocating free trade but refusing to abandon subsidies on cotton and other agricultural commodities – had posed an insurmountable obstacle to the Doha negotiations. In place of global trade talks, the US and Europe have mounted a divide-and-conquer strategy, based on overlapping trade blocs and agreements. As a result, what was intended to be a global free-trade regime has given way to a discordant managed-trade regime. Trade for much of the Pacific and Atlantic regions will be governed by agreements, thousands of pages in length and replete with complex rules of origin that contradict basic principles of efficiency and the free flow of goods. The US concluded secret negotiations on what may turn out to be the worst trade agreement in decades, the so-called Trans-Pacific Partnership (TPP), and now faces an uphill battle for ratification, as all the leading Democratic presidential candidates and many of the Republicans have weighed in against it. The problem is not so much with the agreement’s trade provisions, but with the “investment” chapter, which severely constrains environmental, health, and safety regulation, and even financial regulations with significant macroeconomic impacts. In particular, the chapter gives foreign investors the right to sue governments in private international tribunals when they believe government regulations contravene the TPP’s terms (inscribed on more than 6,000 pages). In the past, such tribunals have interpreted the requirement that foreign investors receive “fair and equitable treatment” as grounds for striking down new government regulations – even if they are non-discriminatory and are adopted simply to protect citizens from newly discovered egregious harms.

What is NOT Discussable in the Media -- Jobs, Free Trade, and Globalization

  • TTIP and TTP
  • Who is keeping these important trade deals off the front page?
  • Trade deficit—where have the jobs gone? Let’s ask Obama, Hillary, et al.
  • Outsourcing and the myth of Free Trade.
  • Are we edging towards deflation?
  • Have corporations squeezed the final dollar out of globalization? Is globalization about to implode. Take a good look at China and its export machine. Did Jobs make his buck in China on the backs of the poor? Why do we celebrate the bastard?

I will be posting an update to the U.S. trade deficit fiasco–along with some comments about China.  It is a joke that this stuff and its consequences are ignored by the main street media and many so-called economists.

World’s Richest Lose $194 Billion In First Trading Week of 2016 -- The world’s 400 richest people lost almost $194 billion this week as world stock markets began the year with a shudder on poor economic data in China and falling oil prices. Forty-seven billionaires lost $1 billion or more during the worst week for U.S. stocks since 2011, according to the Bloomberg Billionaires Index. The combined drop was almost seven times the $29 billion lost in the first five trading days of 2015. The 400 people on the index had a combined $3.7 trillion at the end of the week, compared with more than $4 trillion a year ago. founder Jeff Bezos, the best-performing billionaire in 2015, lost the most, his fortune dropping $5.9 billion this week as shares of the world’s largest online retailer fell more than 10 percent. Bezos is the world’s fourth-richest person with $53.7 billion and more than doubled his net worth in 2015 as investors cheered profits at Amazon.The world’s richest person, Bill Gates, fell $4.5 billion to $79.2 billion, while Spain’s Amancio Ortega, the second-richest, dropped $3.4 billion to $69.5 billion.

Why Lowering the Marginal Corporate Tax Rate Does Not Increase Growth -- naked capitalism Yves here. This post is the author’s summary of a new working paper Lowering the Marginal Corporate Tax Rate: Why the Debate?, which was a co-winner of the 2015 Amartya Sen Prize Competition given by the Global Justice Program at Yale. It puts another nail in the coffin to the idea that lowering corporate tax rates will boost growth.   Originally published at Tax Justice Network Internationally, countries ‘compete’ to attract foreign direct investment (FDI) from multinationals. Despite the increasing evidence of the negative consequences of tax competition, governments continue to base their economic development strategies on it.The two policy outcomes that are measured when considering tax competition between states are FDI and economic growth. The assumption has long been that lower corporate taxes lead to increases in FDI, resulting in “capital formation” that generates economic growth. This key assumption is politically attractive because it suggests that the foreign firms link to local production networks and in addition to creating jobs, also provide knowledge transfers that increase the productivity of their local partners. Site selection firms broker recruitment deals between local governments and foreign investors, gaming the process for their own profit, which they earn based on winning the best incentive package for the global investor. Governments agree to lower and/or eliminate recurrent businesses costs, which are utility and tax rates. A winning bid technically translates into forgone public revenue sources. States lower tax rates, in what many call a ‘race to the bottom.

Tax-Trade Mess Lingers at Bank of America - WSJ: A group at Bank of America Corp. that specialized in arranging trades to help clients around the world avoid taxes has been dismantled. Some employees claim they aren’t even allowed to say the group’s name anymore. But escaping the troubles left by the group, called Structured Equity Finance and Trading, hasn’t been so easy. Regulators have intensified their scrutiny of certain dividend-tax trades and deepened an investigation into whether Bank of America broke rules designed to safeguard client accounts, people familiar with the matter say. Bank of America also is still grappling with internal dissent and client disputes related to the group, which at its peak had just a few dozen employees working from a quiet corner of a Manhattan trading floor and an office in central London. They spent hour after hour discussing the minutiae of tax codes, accounting and internal bank financing, current and former employees say. SEFT was never a big moneymaker, generating revenue of $259 million in 2013, or about 0.3% of Bank of America’s total, according to an internal document reviewed by The Wall Street Journal. Still, clients flocked to SEFT’s pioneering trading strategies, some of which helped customers reduce withholding taxes on stock dividends. The impact of some trades was magnified by using money from the parent company’s federally insured bank, other company documents show. SEFT also made stock-based loans to a wide variety of corporate and financial clients.

Pfizer and America’s Corporate Exodus - The biggest corporate deal of 2015 was also, in the view of many, the shadiest: Pfizer’s $160-billion merger with the Irish drug company Allergan. It’s a “tax inversion”—Pfizer will in effect be reconstituting itself as an Irish company, in order to lower its taxes—and that’s why so many people found it so offensive. Hillary Clinton said that ending inversions wasn’t just about fairness but about “patriotism”; Donald Trump called the deal “disgusting.” It’s got to make you wonder when even Trump finds your moneymaking schemes repugnant. Meanwhile, the inversion train seems only to be picking up speed. Such deals were once exceedingly rare—according to the Congressional Research Service, there was just one in the nineteen-eighties—but there have been more than fifty in the past decade, most since 2009. Although in the past couple of years both the Treasury Department and the I.R.S. have issued new rules designed to make inversions more difficult, the trend continued apace in 2015. It’s a predictable, if dismaying response both to the current U.S. tax code and to the changing nature of big corporations. Two features of American tax policy make inversions attractive: a relatively high corporate tax rate and what’s called a worldwide tax system—American corporations have to pay that tax rate on all their global income. That makes the U.S. unusual; every other country in the G-8, and eighty per cent of the countries in the O.E.C.D. (the club of industrialized democracies), has adopted some form of what’s known as a territorial tax system, in which companies largely pay taxes only on the income they earn in a country.

Private Equity Made Bad Bet on Ships, Hit by Collapse in China Trade  -- Yves Smith - Private equity clearly has more money than it can deploy sensibly.  One sign was its enthusiasm for energy plays. It’s hard to imagine an investment more out of synch with the classic private equity formula of steady cash flows and solid customer franchises. Fracking, one of PE’s recent targets, is highly capital intensive, and the sellers are at the mercy of price swings in a highly volatile end market.  Apparently the private equity crowd fell for the sales pitch of the oil & gas crowd, and convinced themselves that energy prices had nowhere to go but up. Oops.  Similarly, some private equity firms seem to have believed the China hype, that the emerging superpower’s trajectory was inevitable Yet as we’ve stressed, no major economy has made a smooth transition from being export-led to consumer-driven. And for those who were watching China, there were signs in addition to the commodity price declines that all was not well. For instance, about 24 months ago, imports of almonds, a favorite of the emerging middle classes in China, fell abruptly, a sign of consumer retrenchment.  The Financial Times discuses today how tanker charter prices have collapsed, and the Baltic Dry index is at the lowest level since it started to be published, in 1985. Needless to say, the news of the day, that manufacturing indexes in China have weakened for the 10th straight months. Stock prices fell over 7%, enough to trigger a trading halt for the balance of the day under new circuit breaker rules. Mind you, even by the standards of the highly cyclical shipping business, the current state of affairs is dire. From the Financial TimesChina’s slowing growth and a glut of ships have hit earnings for vessels carrying coal and other dry bulk commodities so hard that owners face forced sales, emergency capital raisings and possible bankruptcy. Charter fees are not covering vessels’ operating costs, let alone their financing, in the latest bad news for the many private equity firms that have invested in the sector. Short-term charter rates for Capesize ships — the largest kind — were as low as $4,897 a day on December 23, down from more than $20,000 a day in August. Vessels typically cost around $13,000 a day to operate and finance. And private equity made this debacle even worse than it had to be by adding to capacity at the peak:

Private Equity Firms Muscling Lenders by Choosing and Paying for Their Lawyers --Yves Smith - Today, the New York Times’ Andrew Ross Sorkin has a detailed story on a troubling, and apparently well-established practice among buyout firms: that of making sure that the lenders to their deals don’t have the benefit of independent legal advice. No, I am not making that up. As we’ll discuss in due course, I suspect the reason for bank complacency is analogous to what took place with securitization: they do not think they have to care much about corner-cutting on risk because they don’t anticipate being long term holders of much, if any, of these loans. I’d love people current on how these loans are sold down to weigh in; the fact that this practice is not well known outside the industry and that Sorkin found sources to be closed-mouthed (despite also trying to maintain that this practice was no big deal) suggests that the ultimate owners of these loans may not always be aware of this dubious practice. It appears to be yet another case of the “originate and distribute” model leading to the ability of the originator (in this case the lead lender or lenders) to escape liability despite its assumed role as quality-vetter. Sorkin’s piece is solid. Key sections: Instead of allowing a bank to hire its own lawyers to vet a potential loan, many large private equity firms — Blackstone, Apollo Global Management, Kohlberg Kravis Roberts and Carlyle Group among them — now regularly require the banks to use a specific law firm that they designate, hence the term “designated lender counsel.” The private equity firms pay for the law firm’s services, too.  Think about it this way: It is, in effect, the equivalent of your employer giving you an employment agreement and telling you that the only lawyer who can look it over is the one the company has retained.

How to end the stock buyback deluge - Harold Myerson -- A Pew Research Center study released in December documents the evisceration of the American middle class at the hands of the American rich.. The declining fortunes of the middle class are due in part to globalization and technological change, but those phenomena can hardly account for so shattering an upward redistribution of income and wealth. To solve that riddle, we need to look to the fundamental redefinition of the corporate mission that has transformed U.S. business over the past 35 years.  Time was when corporations invested their retained earnings in expansion, research, even higher wages. Now, even the most profitable companies are left with little to no retained earnings once they pay off their shareholders and top executives, whose incomes derive more from stock than salary. As University of Massachusetts economics professor William Lazonick has documented, the 500 highest-paid U.S. corporate executives received 76 percent of their income in stock-based compensation between 2006 and 2014. One elected official who’s been following this particular trail of money with justifiable concern is Sen. Tammy Baldwin (D-Wis.), who has sent several letters to Securities and Exchange Commission Chair Mary Jo White asking the agency to investigate the consequences of its rule and the buyback deluge on corporate investment and the broader economy. Clearly, one consequence of the rule has been to facilitate the rise of shakedown artists (excuse me: activist investors) who buy a chunk of company stock and then threaten the executives with a shareholder revolt that could cost them their jobs unless they buy back shares.  Herewith, then, a goal for the Obama administration’s final year, or, that failing, for the administration that follows it: Repeal 10b-18. Such data as we do have — the rise of corporate rewards to shareholders at the expense of all other endeavors, the concomitant rise in wealth and political power of an investor class grown fat on extracting funds from productive enterprises rather than facilitating further investment by those enterprises — justify the rule’s repeal.

Wall Street Is Pummeling The Nation's Largest Student Loan Company: Student loan giant Navient Corp. plunged on Wall Street Thursday to an all-time low that for the first time was less than the company's book value. Navient shares fell 6 percent to $10.27 as an influential progressive group urged states to crack down on the student loan servicing industry. Navient's most recent book value, an estimate of how much shareholders could fetch if the company were liquidated, was $10.73 per share, suggesting that investors now believe the company is worth less than the value of its assets. Until Thursday, Navient stock had never closed below book value. A year ago, Navient traded at twice its book value. More than 12 million student loan borrowers, or about one in four, have a relationship with Navient, making it the nation's largest student loan specialist. The company, formerly known as Sallie Mae, also is a major U.S. Department of Education contractor. Navient shares have plunged 53 percent over the past year, and are down about 40 percent since the company spun off from Sallie Mae in 2014 and began trading independently. Patricia Christel, a Navient spokeswoman, didn't respond to a request for comment. The company is contending with a variety of woes, from a possible lawsuit from the federal Consumer Financial Protection Bureau over allegations it cheated student loan borrowers, to investors' concerns that the company will struggle to meet its obligations.

Wall Street Taking Over Nonprofit Sector - While there has traditionally been a close relationship between Wall Street donors and nonprofit organizations like charities and universities, a new study from the Stanford Social Innovation Review (SSIR) reveals a growing Wall Street takeover of nonprofit boards of directors. Using data from what are referred to in the study as major private research universities, elite small liberal arts colleges, and prominent New York City cultural and health institutions, SSIR calculates that “[T]he percentage of people from finance on the boards virtually doubled at all three types of nonprofits between 1989 and 2014.” SSIR posits that nonprofits favor Wall Street partly because “nonprofit organizations are simply following the money.” Wall Street has grown increasingly rich in the past decades and fundraising is a vital aspect of running a nonprofit organization. Hedge fund managers’ compensation regularly outstrips other corporate executives, making them prime fundraising targets.  But the banksters are not content to just donate to the nonprofit organizations, financial service industry executives are taking positions of influence and control. As one might expect, the vision Wall Street players have of and for the world often clashes with the preexisting culture within those organizations. The most pronounced conflict, according to SSIR, is the effort to make nonprofits more like businesses:

Capital, Predistribution and Redistribution Thomas Piketty - In my view, my Capital in the 21st Century is primarily a book about the history of the distribution of income and wealth. Thanks to the cumulative efforts of several dozen scholars, we have been able to collect a relatively large historical database on the structure of national income and national wealth and the evolution of income and wealth distributions, covering three centuries and over 20 countries. In effect, we have been extending to a larger scale the pioneering historical data collection work of Simon Kuznets and Tony Atkinson (see Kuznets, 1953, and Atkinson and Harrison, 1978). My first objective in this book is to present this body of historical evidence in a consistent manner, and to try to analyze the many economic, social and political processes that can account for the various evolutions that we observe in the different countries since the Industrial Revolution (see Piketty and Saez, 2014, for a brief summary of some of the main historical facts). Another important objective is to draw lessons for the future and for the optimal regulation and taxation of capital and property relations. I stress from the beginning that we have too little historical data at our disposal to be able to draw definitive judgments. On the other hand, at least we have substantially more evidence than we used to. Imperfect as it is, I hope this work can contribute to put the study of distribution and of the long run back at the center of economic thinking.

End of Capitalism Is Here: Ellen Brown -- Public banking expert and attorney Ellen Brown says, “Your life savings could be wiped out in a derivatives collapse.” Brown explains, “Nobody anticipated what happened in 2008, and that was a $700 billion bailout. Even if the FDIC tapped its Treasury line, that’s only $500 billion. So, certainly things could go wrong. Also, why are they rushing to put these things into place? They’re expecting something.” Brown goes on to point out, “They think they have avoided too-big-to-fail, but what they have actually done is formalize too-big-to-fail. I mean it’s the end of capitalism. There is no such thing as too-big-to-fail in a capitalistic society where you say certain corporations can’t fail. If you have to take the people’s money to prop them up, it’s no longer capitalism.” Brown says, “Instead of treating banks like they are too-big-to-fail, treat them like public utilities. I am head of the Public Banking Institute, and what we want to do is publicly own banks. In every country, something like an average of 50% of the economy is publicly owned and 50% is privately owned. For us, the big 50% is like the military. The military is our biggest socialist engine. It seems to me we’d be better off with publicly owned banks, which is just acknowledging that money is a public utility. It’s our money and ‘We the People’ back it, and clearly we back it. We are making these banks too-big-to-fail, and we are backing these banks. They are sucking the profits out like a parasite from the economy. The profit should go back to the people. The credit should go into manufacturing jobs. Manufacturing is disappearing because the banks make more money on derivatives than by making loans to small and medium size businesses, which is where manufacturing comes from and where jobs come from.”

Making the World Safe for Predatory Capitalism - Dean Baker - You can’t live in the United States without hearing celebrations of capitalism and the wonders of entrepreneurship. People such as Steve Jobs and Bill Gates are lauded for making it possible to buy low-cost computers to put on our desks or carry around. The wizards at Google made it possible to search the huge offerings on the web in a fraction of a second. And Jeff Bezos made an click the first and last stop on tens of millions of shopping trips.All of these successes have dark sides. Jobs used old-fashioned anti-raiding agreements to keep competitors from enticing away his workers. Gates and Google have both engaged in anti-competitive practices that likely would have brought antitrust enforcement in prior decades. And Amazon has prospered not only because of low prices and good service, but also by being exempted from the requirement to collect the same sales tax as its brick-and-mortar competitors.But in these cases, and many others, there clearly have been huge benefits to consumers and the economy as a whole as the result of innovative capitalists. However, in today’s economy, getting rich does not necessarily require better serving your customers. A series by the New York Times on arbitration clauses in contracts shows that one of the best ways to make money is to find ways to rip off your customers.The point of these arbitration clauses is to take away the right of consumers to bring class action lawsuits against improper practices. For example, if a telephone company charges an outlandish fee for ending a contract early, without clear notification in the initial agreement, an arbitration clause may prevent customers from bringing suit.

Should We Break Up the Big Banks? (MSNBC) - AFR - (MSNBC video) On January 6th, 2016, AFR’s senior policy analyst Alexis Goldstein appeared on MSNBC’s “All in with Chris Hayes.” On the show, Goldstein made the case for a new Glass Steagall Act as part of an “all of the above” approach to financial reform: “Lehman Brothers did not cause the crisis. Lehman Brothers exposed the crisis. All of the megabanks who were a byproduct of the repeal of Glass-Steagall, which is the Depression-era law separating casino banking from boring banking – they had the same positions, the same garbage subprime mortgages that Lehman Brothers had… I think you need an all-of-the-above approach: you use the law that bears Congressman Barney Frank’s name, which requires the breakup of any bank that is too big to fail without harming the economy; you pass new legislation, the 21st Century Glass Steagall Act, which is a bipartisan piece of legislation – Senator Warren’s on it, and Senator McCain is on it. And then you need to involve the public and the grass roots in order to build this new voice that’s going to hold these people accountable. You can’t just do one thing. If Glass-Steagall was repealed by a death by a thousand cuts, you need a hundred small steps to make the financial system safer.” — AFR’s Alexis Goldstein

Big banks are joining forces with the firms that were supposed to be disrupting them : America's biggest banks are backing online lenders. Wall Street institutions like Citigroup, JPMorgan, and Barclays are partnering with startups that, in many cases, set out to disrupt the banks they are now colloborating with. The student-loan-refinancing specialist CommonBond on Tuesday announced the closing of separate $275 million warehouse lines of funding from Macquarie Capital, Barclays, and other investors. "You'll start to see more and more banks partner" with startups, CommonBond CEO David Klein told Business Insider. Klein said he considered working with "a number of banks on Wall Street" but ultimately settled on Macquarie Capital and Barclays — for now. CommonBond will expand into new lines of business including personal loans, according to Klein, who said the firm may even expand into mortgages.  Macquarie and Barclays' deals with CommonBond marks the latest example of an establishment firm's partnering with an online-lending startup. Lending Club and Citigroup teamed up last year in a $150 million venture that is ongoing. And JPMorgan teamed up with the online business lender On Deck Capital late last year. These arrangements help big banks that want to lend and startups that want to make credit available to their users.

Defaults and Restructuring Next for Retailers | Wolf Street: It’s getting tough for our over-indebted, junk-rated LBO queens. As so many times, there’s a private equity angle to it: the cycle of LBOs, debts, and defaults. Many retailers are over-indebted, junk-rated LBO queens, some dating from the LBO boom that ended so spectacularly in 2008: luxury chain Neiman Marcus, supermarket chain Albertsons, J. Crew Group, 99 Cents Only Stores, Bon-Ton Stores, jewelry and accessory retailer Claire Stores…. They’re now bogged down in the current brick-and-mortar retail quagmire. Strip away booming auto sales and soaring internet sales: the rest of retail is tough. And many of these retailers are trying to balance precariously above their heads the pile of debt thrown at them over the years by their private equity owners. The vast majority of retailers are junk-rated, with the “B” category dominating the rating scale, according to S&P Capital IQ Global Credit’s retail report. It was already tough last year: of the Standard & Poor’s rated US retailers, 11 defaulted – the most since crisis-year 2009. And for 2016, we already have this to look forward to: 24 S&P-rated retail and restaurant bond issues (which S&P lumps together) have plunged so much that they’re now trading at “distressed levels” and are included in the Standard & Poor’s Distress Ratio.

Ratings Agencies Still Coming Up Short, Years After Crisis - Gretchen Morgenson -- The mistakes that led to the 2008 mortgage crisis can’t happen again, right? Not so fast, particularly if you’re talking about credit ratings agencies like Moody’s Investors Service and Standard & Poor’s. Eight years after these companies were found to have put profits ahead of principle when they assigned high grades to low-quality debt securities, some of the same dubious practices continue to infect their operations. That’s the message in the most recent regulatory report on the companies from the Securities and Exchange Commission. The credit ratings agencies played an enormous role in generating billions of dollars in losses during the debacle. Internal emails that emerged in congressional investigations were especially revealing of the problems at these companies. “We rate every deal,” one Standard & Poor’s employee famously wrote. “It could be structured by cows and we would rate it.”  But like many of those responsible for the mess, credit raters largely escaped accountability. They were allowed to maintain their conflicted business models, in which issuers pay the agencies to rate their securities. And their ratings remain deeply embedded in our financial system: bank capital requirements are still based in part on the grades assigned to securities these entities hold.Ten credit ratings agencies are currently registered and operating in the United States. As their overseer, the S.E.C. must conduct examinations of them every year and issue an annual report of its findings.The most recent such report came out on Dec. 28, easily missed in the holiday crush. But its contents are a potent reminder that absent strong enforcement of the rules, questionable behavior is not likely to change.

MBA: Mortgage Applications Decreased Over Two Week Period in Latest MBA Weekly Survey, Purchase Applications up 22% YoY - From the MBA: Mortgage Applications Decreased Over Two Week Period in Latest MBA Weekly Survey Mortgage applications decreased 27 percent from two weeks earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 1, 2016. The most recent week’s results include an adjustment to account for the New Year’s Day holiday, while the previous week’s results were adjusted for the Christmas holiday. The Refinance Index decreased 37 percent from two weeks ago. The seasonally adjusted Purchase Index decreased 15 percent from two weeks earlier. The unadjusted Purchase Index decreased 40 percent compared with two weeks ago 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) increased to 4.20 percent, its highest level since July 2015, from 4.19 percent, with points decreasing to 0.42 from 0.49 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. Refinance activity remains low. 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: Home prices keep rising, now just 5% off pre-crisis peak - Home prices continued rising in October, marking the 42nd straight month of year-over-year home price appreciation, according to a new report from Black Knight Financial Services. Black Knight’s Home Price Index report for October showed that home prices rose 0.2% from September to October. Home prices in Oct. 2015 were also 5.5% higher than one year prior. According to Black Knight’s report, October’s national home price index of $254,000 puts national home prices up 26.9% since the bottom of the market at the start of 2012, and just 5.3% off the June 2006 peak of $268,000. The Black Knight HPI utilizes repeat sales data from the nation’s largest public records data set, as well as its “market-leading, loan-level mortgage performance data, to produce one of the most complete and accurate measures of home prices available for both disclosure and non-disclosure states.” According to Black Knight’s report, home prices in New York, Tennessee and Texas all hit new peaks again in October, with New York at $356,000; Tennessee at $178,000; and Texas at $216,000. In fact, seven markets in the top 40 all hit new peaks in October:

Black Knight: House Price Index up 0.2% in October, Up 5.5% year-over-year - 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 Up 0.2 Percent for the Month; Up 5.5 Percent Year-Over-Year:
» U.S. home prices were up 0.2 percent for the month, and have gained 5.5 percent from one year ago
» At $254K, the national level HPI is now just 5.3 percent off its June 2006 peak of $268K, and up 26.9 percent from the market’s bottom in January 2012
» New York led gains among the states for the fourth consecutive month, seeing 1.1 percent month-over-month appreciation, followed by Nevada and Utah, both of which rose 0.8 percent from September » Connecticut once again saw the most negative movement among the states in October, with home prices there falling by 0.6 percent month-over-month
» New York, NY and Reno, NV led the nation’s metro areas, with home prices there rising 1.2 percent from September
» All five California metro areas ranked among the nation’s 40 largest saw home prices decline in October, as did the state as a whole
» Home prices in New York, Tennessee and Texas all hit new peaks again in October
» Of the nation’s 40 largest metros, 7 hit new peaks in October – Austin, TX; Dallas, TX; Denver, CO; Houston, TX; Nashville, TN; Portland OR and San Antonio, TX
The Black Knight HPI increased 0.2% percent in October, 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.

CoreLogic: House Prices up 6.3% Year-over-year in November - Notes: The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA). From CoreLogic: CoreLogic US Home Price Report Shows Home Prices Up 6.3 Percent Year Over Year in November 2015 Home prices nationwide, including distressed sales, increased by 6.3 percent in November 2015 compared with November 2014 and increased by 0.5 percent in November 2015 compared with October 2015, according to the CoreLogic HPI.  “Heading into 2016, home price growth remains in its sweet spot as prices have increased between 5 and 6 percent on a year-over-year basis for 16 consecutive months,” said Dr. Frank Nothaft, chief economist for CoreLogic. “Regionally we are beginning to see fissures, with slowdowns in some Texas and California markets, but the northwest and southeast remain on solid footing.”  “Many factors, including strong demand and tight supply in many markets, are contributing to the long-sustained boom in prices and home equity which is a very good thing for those owning homes,” said Anand Nallathambi, president and CEO of CoreLogic. “On the flip side, prices have outstripped incomes for several years in a number of regions so, as we enter 2016, affordability is becoming more of a constraint on sales in some markets.”  This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100. The index was up 0.5% in October (NSA), and is up 6.3% over the last year. This index is not seasonally adjusted, and this was a solid month-to-month increase. The second graph shows the YoY change in nominal terms (not adjusted for inflation).

Houston Has Highest Chance of Home Price Declines - As a whole, U.S. real estate has a low chance of experiencing a drop in prices. But energy-dependent areas are more vulnerable. Across the entire country, there is a six percent likelihood that residential home prices will decline during the next two years. While the national risk level is low, Energy Patch states — those dependent on coal, oil or natural gas — are at significantly more risk. That is according to the Winter 2016 Housing and Mortgage Market Review published by Arch Mortgage Insurance Co. “Nationwide, the housing market is likely to strengthen over the coming year in spite of economic headwinds from a strong dollar and expected gradual rate increases by the Federal Reserve,” said Dr. Ralph G. DeFranco, senior director of risk analytics and pricing at Arch MI. But DeFranco warns that Energy Patch states are at the greatest risk of experiencing declining prices as their economies contract as a result of the continued fallout from the large drop in coal, oil and natural gas prices.

Construction Spending decreased 0.4% in November, Up 10.5% YoY -- The Census Bureau reported that overall construction spending decreased in November compared to October. The U.S. Census Bureau of the Department of Commerce announced today that construction spending during November 2015 was estimated at a seasonally adjusted annual rate of $1,122.5 billion, 0.4 percent below the revised October estimate of $1,127.0 billion. The November figure is 10.5 percent above the November 2014 estimate of $1,016.1 billion. During the first 11 months of this year, construction spending amounted to $1,011.9 billion, 10.7 percent (±1.2%) above the $913.9 billion for the same period in 2014. Both private spending and public spending decreased: Spending on private construction was at a seasonally adjusted annual rate of $828.2 billion, 0.2 percent below the revised October estimate of $829.7 billion. ... In November, the estimated seasonally adjusted annual rate of public construction spending was $294.3 billion, 1.0 percent below the revised October estimate of $297.3 billion. Note: There were substantial upward revisions to private residential construction spending for the last few years. . This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted. Private residential spending has been increasing, but is 37% below the bubble peak. Non-residential spending is only 3% below the peak in January 2008 (nominal dollars). Public construction spending is now 10% below the peak in March 2009 and about 11% above the post-recession low. The second graph shows the year-over-year change in construction spending. On a year-over-year basis, private residential construction spending is up 11%. Non-residential spending is up 14% year-over-year. Public spending is up 6% year-over-year.

November 2015 Construction Spending Growth Rate Declined.: The headlines say construction spending declined. The backward revisions make this series very wacky - and this month all the data was revised since January 2005. Econintersect analysis:

  • Growth acceleration 2.4 % month-over-month and Up 9.7 % year-over-year.
  • Inflation adjusted construction spending up 7.6 % year-over-year.
  • 3 month rolling average is 10.8 % above the rolling average one year ago, and down 1.3 % month-over-month. As the data is noisy (and has so much backward revision) - the moving averages likely are the best way to view construction spending.

Construction spending during November 2015 was estimated at a seasonally adjusted annual rate of $1,122.5 billion, 0.4 percent (±1.5%)* below the revised October estimate of $1,127.0 billion. The November figure is 10.5 percent (±1.8%) above the November 2014 estimate of $1,016.1 billion. During the first 11 months of this year, construction spending amounted to $1,011.9 billion, 10.7 percent (±1.2%) above the $913.9 billion for the same period in 2014. Spending on private construction was at a seasonally adjusted annual rate of $828.2 billion, 0.2 percent (±0.8%)* below the revised October estimate of $829.7 billion. Residential construction was at a seasonally adjusted annual rate of $427.9 billion in November, 0.3 percent (±1.3%)* above the revised October estimate of $426.8 billion. Nonresidential construction was at a seasonally adjusted annual rate of $400.3 billion in November, 0.7 percent (±0.8%)* below the revised October estimate of $402.9 billion.In November, the estimated seasonally adjusted annual rate of public construction spending was $294.3 billion, 1.0 percent (±2.5%)* below the revised October estimate of $297.3 billion. Educational construction was at a seasonally adjusted annual rate of $71.2 billion, 5.0 percent (±3.9%) above the revised October estimate of $67.8 billion. Highway construction was at a seasonally adjusted annual rate of $90.7 billion, 1.3 percent (±5.6%)* below the revised October estimate of $92.0 billion.

Government "Processing Error" Sinks Housing Reports for Entire Year; Where to From Here? -- When I saw some of the upwardly revised GDP estimates in 2015 I thought they were too good to be true, and that downward revisions were coming.  I had almost given up on that idea, but I was correct all along.  Last month, construction spending was reported to be up 1%. Today we see it was only 0.3%. Economists, being perpetual optimists, came up with a consensus estimate for this month of +0.7%.  The actual result is -0.4%, over a full percentage point below the consensus and nearly a pull point lower than the lowest estimate of +0.5%.  Construction spending had been a highlight of the U.S. economy but less so with November's report where the headline fell 0.4 percent, far below the Econoday consensus for plus 0.7 percent. The year-on-year gain for spending, at 10.5 percent, is the lowest since April last year. Today's report also includes sharp downward revisions to prior months, the result of a processing error going back to January last year. October's initial 1.0 percent monthly gain is now cut 7 tenths to 0.3 percent while September is now at plus 0.2 percent vs an initial plus 0.6 percent. The processing error, unfortunately for the housing outlook, is centered in the residential component where prior strength has been cut back. Still, residential spending rose 0.3 percent for a second month in a row that follows September's very solid 1.2 percent gain. Spending on new single-family homes has been rising strongly with the year-on-year rate at a very solid plus 9.3 percent. Spending on multi-family homes did fall in November but has been in fact booming in prior months, up 24.5 percent year-on-year.Spending on nonresidential construction has also been solid, down in November but with the year-on-year rate at plus 13.6 percent. Public spending has been led by the educational component, up 15.2 percent year-on-year, with highway spending behind at plus 5.6 percent. A processing error of this size is rare for government data but even after the downward revisions, construction spending remains a central plus and a reminder that domestic demand is the economy's most important driver.  As a result of the discovery of a "processing error", huge by even government standards, not only will GDP estimates for the current quarter sink, so will reported GDP from prior quarters.

US Government Discovers 10 Years Of "Processing Errors" In Construction Spending Data Slamming GDP -- Even as increasingly more parts of the economy, especially those with exposure to manufacturing and industrial production, sink into the recessionary quicksand, one sector that was seen as immune from the malaise gripping US manufacturing and was outperforming the overall growth rate of the US economy, was housing, and specifically spending on private and public construction: a direct input into the GDP model.  That all changed today when the US Census released its latest, November, construction spending data, which not only missed expectations of a 0.6% rebound, but tumbled -0.4%, the most since June of 2014, while all the recent data had been mysteriously revised lower. And then the source of the mystery was revealed, because in the fine print the government made a rare admission: all the construction spending data for the past 10 years had been "erroneous."  In the November 2015 press release, monthly and annual estimates for private residential, total private, total residential and total construction spending for January 2005 through October 2015 have been revised to correct a processing error in the tabulation of data on private residential improvement spending. An Excel file containg all of the revisions can be found here The result of the "revision" of the processing error is shown below: every month starting with April and going through October, was "found" to have been a lower increase than according to the previous data. Not only that, but the October print which had been the strongest since May, confounding many data watchers as it did not fit with anecdotal evidence of a dramatic slowdown in energy-related construction, suddenly was barely positive, leading to the November sequential decline, the worst since the -0.7% drop in June of 2014.

Diving Into the Revisions: Construction Spending Revised Lower 8 Consecutive Months! 2015 GDP Will Decline: By How Much? --Yesterday I commented Government "Processing Error" Sinks Housing Reports for Entire Year. In that report I stated 2015 GDP would be revised lower. Some disagree.     For example, MarketWatch reports IHS Global Insight US economist Patrick Newport wrote in a research note "The upward revision to spending in 2014 is enough to raise growth that year from 2.4% to 2.6%-2.7%. The revisions are likely to boost growth for 2015 as well." Let's investigate that claim with a look at the actual revised construction data as posted by the Census Bureau. For two years, construction spending went up vs. previous reported data. The net effect is GDP did indeed go up in 2014. However, GDP declined in 2015 vs. previous reports. To understand why, we need to look at month over month differences as compared to previously reported numbers. Let's take a look. The question is not whether 2015 GDP will rise, but rather by how much it will sink. Let's start with the GDPNow forecast. Of the decline since December 23, 0.5 percentage points came following the Census Bureau's release on construction spending and the Institute for Supply Management's Manufacturing ISM Report On Business, both on January 4. I do not know how to separate ISM from construction, but nonresidential structures declined by 0.10, residential declined by 0.14 and PCE declined by 0.13. That's a total of decline for those three components of 0.37. Part of that decline was based not only on revisions, but also on a month-over month decline in construction spending of 0.4 percentage points. If 3/4 of the decline is due to construction spending, then I estimate third quarter GDP will be revised about .57 percentage points lower, second quarter .56 percentage points lower, and first quarter .21 percentage points higher. Those are very crude calculations that may be wildly off the mark. If accurate, first quarter GDP would be 0.0%, second quarter GDP 3.3%, third quarter GDP would be 1.4%. And if the Atlanta Fed model holds with no changes from here, fourth quarter GDP would be 0.7%. In that case, 2015 GDP would be 1.35% with the Fed hiking and GDP decelerating rapidly.

Reis: Apartment Vacancy Rate increased in Q4 to 4.4% -- Reis reported that the apartment vacancy rate increased in Q4 2015 to 4.4%, up from 4.3% in Q3, and up from 4.3% in Q4 2014. The vacancy rate peaked at 8.0% at the end of 2009, and appears to have bottomed at 4.2%. A few comments from Reis Senior Economist and Director of Research Ryan Severino: Fourth quarter data provides yet more evidence that the national vacancy rate has already bottomed out and is set to keep increasing. As we noted last quarter, vacancy technically started rising during the second quarter of 2014, but had fallen back before bottoming out again during the second quarter of 2015. However, the national vacancy rate has now increased for two consecutive quarters. This marks is the first time that has happened since the fourth quarter of 2009 and truly represents a turning point in the apartment market. With construction outpacing demand the national vacancy rate should slowly drift higher over the coming years.  Vacancy once again increased by 10 basis points to 4.4% during the quarter with construction slightly outpacing net absorption. While demand and supply had been largely in balance between mid-2013 and mid-2015, that has started to change over the last two quarters. Gradually, construction is overtaking net absorption by a wider margin, putting increasing upward pressure on vacancy. During the second quarter construction exceed demand by 3,471 units. During the third quarter that difference had risen to 12,350 units and during the fourth quarter it registered 15,263 units. Asking and effective rents both grew by 0.8% during the fourth quarter. This was a bit slower than the scorching performance during the last two quarters, but still represents an annualized rate in excess of 3%, well ahead of even core inflation. On a calendar-year basis, rent growth continues to accelerate. Asking and effective rents grew by 4.5% and 4.6%, respectively, during 2015.This is greater than 2014's growth rates of 3.7% and 3.9% for asking and effective rents and is the strongest performance during a calendar year since 2007 before the recession. The low vacancy rate, improving economy, tightening labor market and gradually rising income growth is providing all of the fodder for continued rent growth, even in the face of rising construction.

Reis: Office Vacancy Rate declined in Q4 to 16.3% -- Reis released their Q4 2015 Office Vacancy survey this morning. Reis reported that the office vacancy rate declined to 16.3% in Q4, from 16.5% in Q3. This is down from 16.7% in Q4 2014, and down from the cycle peak of 17.6%. From Reis: Senior Economist and Director of Research Ryan Severino: The ongoing decline in the national vacancy rate finally gained momentum this quarter, falling by 20 basis points to 16.3%. This marks the first time since the market began to recover in early 2011 that the quarterly vacancy rate fell by more than 10 basis points. The vacancy rate has now declined in five of the last six quarters and is at its lowest level since the second quarter of 2009. The quiet acceleration in the office market recovery is now beginning to make more noise. Both net absorption and new construction are increasing, but absorption is beginning to pull ahead of construction by a wider margin. By many measures, including absorption, construction, and vacancy compression, 2015 was the best year in the office market in recent history. The acceleration in improvement will persist in 2016 as the labor market remains near full employment, the economy expands, and office jobs are created. ...Occupied stock increased by 15.322 million square feet during the fourth quarter. This was an increase versus last quarter and was the highest level for quarterly net absorption since the third quarter of 2007. The calendar-year total for 2015 of 42.436 million square feet was the highest annual total since 2007. In short, 2015 was the best year for demand in the office market since before the recession. Moreover, the improvement is accelerating - roughly 11 million more square feet were absorbed in 2015 versus 2014. That is the largest increase between calendar years since 2005. This should accelerate in 2016 as the continued gains in the labor market translate into greater demand for office space.

Reis: Mall Vacancy Rate Declined in Q4 -- Reis reported that the vacancy rate for regional malls declined to 7.8% in Q4 2015, down from 7.9% in Q3. This is down from a cycle peak of 9.4% in Q3 2011. For Neighborhood and Community malls (strip malls), the vacancy rate declined to 10.0% in Q4 2015, down from 10.1% in Q3. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011. Comments from Reis Senior Economist and Director of Research Ryan Severino:The national vacancy rate for neighborhood and community shopping centers declined by 10 basis points during the fourth quarter to 10.0%. Although both net absorption and construction remain at weak levels, net absorption is slowly starting to pull ahead of construction and push the vacancy rate down again. The vacancy rate for malls also declined by 10 basis points to 7.8%, also demonstrating a bit of resurgence. Malls have had a better recovery than neighborhood and community centers up to this juncture, but neither has had a strong recovery on a widespread basis. ..Asking and effective rents once again grew by 0.5% during the fourth quarter. There has not been much change in the rental growth rates for neighborhood and community centers over the last five quarters. Given such an elevated vacancy rate these results are in line with expectations. Over the last 12 months asking and effective rents grew by 2.0% and 2.2%, respectively, which is a bit of an improvement from the 1.8% and 2.0% that they respectively increased during 2014. This was the best calendar-year performance for rent growth since 2007, before the recession. This graph shows the strip mall vacancy rate starting in 1980 (prior to 2000 the data is annual). The regional mall data starts in 2000. Back in the '80s, there was overbuilding in the mall sector even as the vacancy rate was rising. This was due to the very loose commercial lending that led to the S&L crisis.

Fed: Q3 Household Debt Service Ratio Very Low -- The Fed's Household Debt Service ratio through Q3 2015 was released Dec 28th: Household Debt Service and Financial Obligations Ratios. I used to track this quarterly back in 2005 and 2006 to point out that households were taking on excessive financial obligations.These ratios show the percent of disposable personal income (DPI) dedicated to debt service (DSR) and financial obligations (FOR) for households. Note: The Fed changed the release in Q3 2013.The household Debt Service Ratio (DSR) is the ratio of total required household debt payments to total disposable income. The DSR is divided into two parts. The Mortgage DSR is total quarterly required mortgage payments divided by total quarterly disposable personal income. The Consumer DSR is total quarterly scheduled consumer debt payments divided by total quarterly disposable personal income. The Mortgage DSR and the Consumer DSR sum to the DSR.This data has limited value in terms of absolute numbers, but is useful in looking at trends. Here is a discussion from the Fed:  The limitations of current sources of data make the calculation of the ratio especially difficult.  Nonetheless, this approximation is useful to the extent that, by using the same method and data series over time, it generates a time series that captures the important changes in the household debt service burden.

Bankruptcy Filings Drop 10% in 2015 - According to the latest figures from Epiq Systems, total U.S. bankruptcy filings dropped 10% in 2015. The yearly total was 819,240 compared to 910,090 the previous year. As bankruptcy experts know, these figures are low. In 2015, there were 2.55 bankruptcy petitions per 1,000 persons, the lowest figure since 1989, ignoring the statistical gyrations around the 2005 bankruptcy law. If the decline keeps up, we won't even have to ignore the 2005-06 statistical gyrations for the statement to be true. Last January, when forecasting the number of 2015 filings, I wrote, "a good estimate for 2015 bankruptcy filings is 800,000." That turned out to be not too bad of a forecast, off by only 2,5%. As the model I used seems to have been a good prediction, I will try it again and post the results here on Credit Slips. Before I go off to crunch numbers, one other thing caught my eye in the latest numbers. The daily filing rate for December was only 2,446, which was a year-over-year decline of 14.8%. The decline in U.S. bankruptcy filings had been slowing, and I was expecting the decline to eventually flatten out. December is an unusually slow month for bankruptcy filings, but it is an unusually slow month every year. I am always cautious about extrapolating too much from one month of data, but the size of the decline in December took me by surprise.

US consumer borrowing rose $14 billion in November - US News: — U.S. consumers boosted their borrowing in November, as higher credit card spending partially offset slower growth in auto and student loans. Consumer borrowing rose $14 billion in November to a fresh record high of $3.53 trillion, the Federal Reserve said Friday. Economists believe that strong job gains in the labor market will boost consumer confidence and convince households to finance purchases by taking on more debt. For November, the category that covers credit cards increased $5.7 billion after a much smaller $65 million gain in October. The category that covers auto loans and student loans rose by $8.3 billion. That was the smallest monthly gain for this category in more than three years. In its monthly credit report, the Fed does not break down auto loans and student loans in the seasonally adjusted data. However, analysts said they believed the slowdown occurred in student loans given that car sales have been so strong in recent months. The overall monthly gain of $14 trillion was slightly below the October gain of $15.6 trillion. It was the smallest overall gain since an increase of $10.8 billion last January.

U.S. Consumer Credit Grew Slowly in November - WSJ: -Americans’ outstanding debt tab grew at the second-slowest pace of the year in November as they appeared to rein in borrowing for higher education, masking a pickup in credit-card debt. Outstanding consumer credit, a measure of all debt besides mortgages, rose by $13.95 billion, or at an annual 4.8% rate in November, the Federal Reserve said Friday. That is a tapering from October, when it rose at a downwardly revised annual rate of 5.4%, and the slowest pace since January 2015. It is a sharp drop from September’s rate of 9.9%. Economists surveyed by The Wall Street Journal had expected an increase of $17.9 billion in November. The report showed faster growth in credit-card debt from the prior month and sharply slower growth in nonrevolving credit, main auto and student loans. Revolving credit, mostly credit cards, rose at an annual 7.4% rate, a steep increase from October’s downwardly revised rate of 0.1%. Nonrevolving credit rose at an annual 3.8% rate, its slowest pace since October 2011, and a drop from the downwardly revised 7.3% annual rate notched in October 2015. Neither the strengthening labor market nor savings from a year of low gasoline prices have yet translated to robust consumer spending. Over the past year, Americans have largely focused their spending on major purchases like cars and homes. But in November, consumers shifted into holiday gift-giving mode and spent more on smaller items such as electronics, clothing, music and books. Much of the increase in outstanding consumer credit since 2010 has been due to a rise in student loans and, more recently, auto loans. Friday’s report showed slower growth in federal student loans, though it wasn’t clear whether that was due to seasonal factors.

Auto Sales Are About To Choke: Increase In Non-Revolving Credit Is Smallest In 4 Years -- Moments ago, the Fed released the latest, November, consumer credit data: it was not good. Rising by just $13.95 trillion, it was a big miss to the $18.5 trillion expected, and below the $15.6 billion downward revised increase in October. In fact, three months after the historic surge in September to the highest print in the revised series, total consumer credit has tumbled to the lowest since January. But the big problem was not in the total data, but in one of the two key component data sets. Recall that a few days ago we noted something very disturbing for US auto makers: for all the hoopla around the auto sales number, US domestic car sales had actually dropped to a 6 month low, missing estimates by the most since 2008. What was just as disturbing was that "plans to buy an auto" had tumbled the most since January of 2013. Lacking the most recent credit data, we did not know what may have caused this dramatic slowdown in auto purchasing, and intentions. Now that we have the data, we also have the answer, because while revolving consumer credit rose at a respectable pace of $5.7 billion in November, it was that all important "other" series, non-revolving credit - the source of funds for student and auto loans - where there was a dramatic slowdown. As the chart below shows, after rising by $15.5 billion in the month before, and a near-record $22 billion in September, the November increase in nonrevolving credit was a paltry $8.3 billion - this was the smallest monthly increase in this most important for US car makers data, since February of 2012!

Cheaper Crude Oil Affects Consumer Prices Unevenly: from the Dallas Fed -- this  Crude oil prices fell sharply in the last half of 2014, concluding a four-year period of relative price stability. Prices declined 41 percent between June and December 2014 - from $102.51 a barrel to $60.70. The steepness of the decline is second only to the collapse during the 2008 economic crisis, when oil fell from $129 to $37 per barrel within six months. Since summer, crude oil prices as measured by U.S. refiners' acquisition costs have traded below $50 a barrel. Both Brent and West Texas Intermediate crude oil benchmarks dipped below $40 in December 2015. Unlike the 2008 episode, which was mainly demand driven, both demand and supply factors have played a key role in the recent period. On the supply side, U.S. shale production rose due to technological innovation, and Middle East oil output grew. On the demand side, sluggish global growth constrained consumer purchases. U.S. consumers experience crude oil price drops largely at the pump. Consumers spent an average of $2.17 per gallon for unleaded gas in November 2015, down from an average of $3.60 per gallon in the summer of 2014.

Who is Driving the Decline in Consumer Inflation Expectations? - NY Fed - The expectations of U.S. consumers about inflation have declined to record lows over the past several months. That is the finding of two leading surveys, the Federal Reserve Bank of New York’s Survey of Consumer Expectations (SCE) and the University of Michigan’s Survey of Consumers (SoC). In this post, we examine whether this decline is broad-based or whether it is driven by specific demographic groups.

America’s Largest Utility Jacks up Rates the Most Since 2006 Despite Total Collapse of Natural Gas Prices -- Wolf Richter - Pacific Gas and Electric, America’s largest electric utility and the second largest gas utility by number of customers, the utility whose 2010 gas-pipeline explosion in San Bruno, just south of San Francisco, killed 8 people, injured another 66, and burned down 38 homes, the utility that is still digging in its heels after five years since the explosion and is now under investigation by the California Public Utilities Commission because it failed to deliver certain documents, the very same PUC that is being probed by a federal grand jury for potential illegal ties between the regulators and the executives of PG&E in this ballooning corruption scandal … well, this beloved utility now has announced a very special New Year’s resolution. It will hike natural gas rates for the average residential customer by 4.0% and electricity rates by a stunning 8.5%, for a combined rate increase of 7%, the steepest since 2006. Much of the power PG&E distributes is generated by natural gas. And all of the natural gas it distributes is, well, the same natural gas whose price has plunged to historic lows. In fact, in its third quarter financial statement, PG&E admits as much: its cost of electricity over the first nine months of 2015 dropped 8.8% year-over-year, and its cost of natural gas plunged 36%!

Gallup US ECI January 5, 2016: December's economic confidence index averaged minus 11 in December, slightly better than averages from July through November. Confidence was a bit lower in December than in early 2015, but better than it's been for most of the time since 2008. The Economic Confidence Index rose sharply in late 2014 and early 2015 coincident with falling gas prices. In January, Gallup's index reached positive territory, with a monthly score of plus 3, for the first time since the recession. Confidence ebbed slightly in March and April, returning to negative index scores. From May to September, though, the index dropped a bit each month, dipping as low as minus 14 in September. It has since remained below minus 10. The slight improvement in the overall index in December is attributable to Americans' improved views of the current economy. In December, 25 percent of Americans rated current economic conditions as "excellent" or "good," while 29 percent rated them as "poor." This resulted in a current conditions score of minus 4, up from minus 7 in each of the prior three months and the highest since June. The economic outlook score was minus 18, matching November's score. This was the result of 39 percent of Americans saying the economy is "getting better" and 57 percent saying it is "getting worse." Americans' outlook for the economy is similar to what Gallup has measured since July, but remains down significantly from earlier in 2015.

A $500 Car Repair Bill Would Send Most Americans Scrambling - An unexpected car repair or medical bill would cause the vast majority of Americans to scramble because they lack the needed funds in their savings accounts. Only 37% of adults have the necessary savings to cover a $500 car repair or a $1,000 emergency room bill, according to a survey released Wednesday. The finding is little changed from last year, when 38% said they didn’t have the cash on hand, despite a year of steady job creation and the unemployment rate falling to 5%. “Most Americans are ill-prepared for life’s inevitable curveballs,” said Sheyna Steiner,’s senior investing analyst. She said that’s a concern because more than 40% of families experienced a similar unexpected cost during the past 12 months.  Without the savings, 23% of those surveyed said they would have to cut back on spending elsewhere, and 15% said they would turn to credit cards. The same share said they would have to borrow from friends or family. The data suggests that many households are still on uncertain financial footing more than six years after the recession ended. However, other figures indicate Americans are earning, and saving, more. The personal saving rate was 5.5% in November, the second-highest level since the start of 2013, the Commerce Department said last month. Lower gasoline prices and solid income gains in recent months are supporting savings. Wages increased 2.3% from a year earlier in November, the Labor Department said, even as consumer inflation held near zero. The Bankrate survey found that preparedness for unexpected expenses varied widely by income level. Just 23% of those earning less than $30,000 annually had the needed savings, while 54% of those earning more than $75,000 annually said they would have the cash on hand.

Looking Beyond the Internet of Things -  Imagine if almost everything — streets, car bumpers, doors, hydroelectric dams — had a tiny sensor. That is already happening through so-called Internet-of-Things projects run by big companies like General Electric and IBM.All those devices and sensors would also wirelessly connect to far-off data centers, where millions of computer servers manage and learn from all that information.Those servers would then send back commands to help whatever the sensors are connected to operate more effectively: A home automatically turns up the heat ahead of cold weather moving in, or streetlights behave differently when traffic gets bad. Or imagine an insurance company instantly resolving who has to pay for what an instant after a fender-bender because it has been automatically fed information about the accident.Think of it as one, enormous process in which machines gather information, learn and change based on what they learn. All in seconds.“I’m interested in affecting five billion people,” said Mr. Bosworth, a former star at Microsoft and Google who now makes interactive software at, an online software company that runs sales for thousands of corporations. “We’re headed into one of those historic discontinuities where society changes.”It is lofty language, no doubt, but he and others believe they are on the brink of one of the next big shifts in computing, perhaps as big as the web browser or the personal computer.

Cheap oil drives changes in auto industry - — For more than a year, low gasoline prices have been adding extra froth to the nation’s steadily rising auto sales.  Car dealers and auto makers have enjoyed a surge in sales of high-margin pickups and SUVs. For consumers, paying less at the pump has boosted their confidence about splurging on new wheels and loading up on high-trim options.  Ford Motor Co., General Motors Co. and other auto makers are reporting record North American profits, and when the industry reports December sales this week, 2015 may turn out to be the best year ever, with U.S. sales topping the 17.4 million vehicles that were sold in 2000.But there is a flip side to the cheap-oil dividend: It crimps vehicle sales in regions that are heavy in oil and gas production. The weakness can be tough to detect because the impact tends to be localized and obscured in state-by-state data by broader strength in the economy. But auto dealers in certain markets say they are seeing a retreat from the drilling boom that helped drive up sales and profits. One pocket where the trend is most clear is in an 11-county area around Dallas-Fort Worth — an area that overlaps the massive Barnett Shale natural-gas field. In the first nine months of 2015, retail vehicle sales in that area declined 4.4 percent, according to the TexAuto Facts Report published by InfoNation Inc., a market research firm that tracks auto sales in the state.

U.S. Light Vehicle Sales at 17.2 million annual rate in December  -- Based on an estimate from WardsAuto, light vehicle sales were at a 17.2 million SAAR in December. That is up about 2% from December 2014, and down about 5% from the 18.06 million annual sales rate last month. This is probably a record year for light vehicle sales (more on that when the official data is released).  It looks like the best years were:
1) 2015 with 17.39 million sold
2) 2000 with 17.35 million
3) 2001 with 17.12 million
4) 2005 with 16.95 million
5) 1999 with 16.89 million
This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for December (red, light vehicle sales of 17.2 million SAAR from WardsAuto). This was below the consensus forecast of 18.1 million SAAR (seasonally adjusted annual rate). The second graph shows light vehicle sales since the BEA started keeping data in 1967.

December US New Car Sales "Down, Exceptionally Weak" Says Bloomberg; WSJ Says Up and Strong -- US car sales are going to have a record year in 2015, clearly one of the bright spots in the US economy. Judging from revisions in construction spending, perhaps the only bright spot left besides very lagging jobs data.  Today I note from Bloomberg that Domestic New Car Sales Declined in December. "The Big Three are in and December sales are running below expectations, down about 5 percent from November vs expectations for a 1 to 2 percent decline. Car sales are especially weak with sales of light trucks down only slightly. One sees a completely different portrayal in the Wall Street Journal article U.S. Car Sales Poised for Their Best Year EverU.S. new-car sales accelerated through December as auto makers remained poised to report their highest annual sales ever, shattering the record set in 2000.  Car sales are on track for their best-selling month of the year and their best December ever. Can sales be up and down? Clearly not, so who is correct?The answer is Bloomberg. The reason pertains to the number of selling days.

  • December 2015 had 28 selling days vs. 26 selling days in December 2014 according to JD Power.
  • November 2015 only had 23 selling days and only only four selling weekends for the first time since 2012 according to JD Power.
Based on selling days alone, month over month car sales should be up 5/23 or 21.74%. They weren't. Other seasonal adjustments apply, such as the average December vs. the average November, but the bottom line is the WSJ report is out of whack vs. reality.

US Auto Sales Plunge To 6-Month Lows - Biggest Miss Since Nov 2008 - Despite the blustering propaganda from CNBC's Phil LeBeau, it appears the Auto-sales (and massive inventory build) party is over in America. December US domestic auto sales SAAR printed 13.46 mm - the lowest in 6 months (missing expectations of 14.15mm by the most since November 2008). With revolving credit growth slowing in December, andinventories at record highs, the wheels just fell off the credit-fueled auto 'recovery'. Car sales just fel off a cliff... Which should not be a big surprise since...lowest level of "plans to buy an auto" since January 2013... Of course - if sales are collapsing then this is a major problem!!

U.S. auto sales break record in 2015: The U.S. auto industry set a sales record in 2015 as solid December gains by the biggest automakers pushed the annual tally above the 17,402,486 mark set in 2000. Automakers chalked up 17,470,659 light-vehicle sales last year, an increase of 5.7 percent over 2014, according to the Automotive News Data Center. The December increase of 8.9 percent was one of the year’s strongest, while the seasonally adjusted annual sales rate came in at 17.3 million, the lowest since June. Among the largest automakers, Nissan Motor Co. was the biggest gainer, with a 19 percent jump from December 2014 levels. FCA US climbed 13 percent. Volume rose 11 percent at Toyota Motor Corp. and 10 percent at Honda Motor Co. Ford Motor Co. volume increased 8.3 percent while General Motors deliveries rose 5.7 percent. Heading into today, most analysts had forecast a seasonally adjusted annual sales rate above 18 million and a 12-month total of 17.5 million light vehicles. GM and FCA said today the SAAR would come in slightly below 18 million. U.S. sales continue to be driven by low gasoline prices, pent-up demand, widespread credit availability, an increase in leasing and employment gains. Trucks, SUVs and crossovers continued to set the pace, jumping 19 percent in December and 13 percent in 2015. Car demand remains weak, falling 3.8 percent last month and 2.3 percent for the year.

Big SUVs Fuel U.S. Auto Production Boom - WSJ - Three years ago, Lili Rodriguez gambled when she transferred from General Motors Co.’s small-car factory in Lordstown, Ohio, to GM’s plant in north Texas making full-size sport-utility vehicles.  As the U.S. auto industry was on the mend after a near-financial collapse in 2009, low-cost passenger cars like Lordstown’s compact Chevrolet Cruze were driving its recovery. With the national average for a gallon of gasoline costing about $3.50 at the time of Mr. Rodriguez’s move, sales of Arlington’s full-size SUVs were declining.  The tables have turned for the U.S. auto industry and Arlington is among the biggest winners. GM is committing $1.4 billion to upgrade the factory, part of tens of billions in U.S. capacity investments planned for the next several years by Volvo Car Corp., Ford Motor Co., Daimler AG and other car makers.  Light-vehicle sales are on track to hit a record in 2015, and an increasing bulk of those units are hulking highly-profitable models like the Chevrolet Suburbans, Tahoes, Cadillac Escalades and GMC Yukons that roll off an Arlington assembly line running six days a week, building 16.5% more vehicles through the first 11 months in 2015 than in the same period a year ago. GM posted record profit in the third quarter; with its SUV plant—one of the most profitable auto factories in the world—contributing much of the earnings.

Washington Post Disses Electric Cars As Sales Soar Tenfold In 5 Years -  Plug-in electric vehicle (PEV) sales are exploding. Annual global sales are up tenfold in just five years — from a mere 45,000 in 2011 to a record 448,000 last year. And yet for the Washington Post’s Charles Lane, the latest PEV figures are simply grist for his umpteenth highly-confused anti-PEV screed. Before seeing how Lane pulls this off, let us go back two years, when the the Post published two attacks on electric vehicles by Charles Lane. The first in February 2013, titled “Obama’s electric car mistake” began “The Obama administration’s electric-car fantasy finally may have died on the road between Newark, Del., and Milford, Conn.” I am sure you remember that moment when a dubious New York Times review killed off that obscure electric car company nobody talks about any more. What was it’s name. Oh yes, Tesla. Later that year, in a November piece, Lane insisted “these are trying times for Tesla Motors” though he conceded “Tesla might survive this rough patch.” His headline made his central point, “Liberals’ investment drives Tesla’s survival.” Yes, those foolish liberals. Anyone who bought the stock when Lane said the fantasy died has only seen a sixfold increase in their money in two years.

Factory Orders January 6, 2016: Flat is a good description of the nation's factory sector as factory orders slipped 0.2 percent in November, making October's revised 1.3 percent gain look like a rare outlier. Durable goods orders were unchanged in the month while orders for non-durable goods fell 0.4 percent on price weakness for petroleum and coal. Capital goods data, unfortunately, are mostly weak including a 0.3 percent decline for core orders. Shipments of core capital goods fell 0.6 percent in November and follow October's 1.0 percent decline in readings that will pull down the business investment component of the fourth-quarter GDP report. Outside of orders, total shipments edged 0.2 percent higher to end a string of declines that go all the way back to July. Inventories also offer good news, falling 0.3 percent and bringing down the inventory-to-shipment ratio to a less heavy 1.35 vs October's 1.36. Unfilled orders are another positive, rising 0.2 percent following a 0.3 percent gain in October. The factory sector is not exactly robust, the result of weak demand for U.S. exports and also weakness in the domestic energy sector reflected in this report by a 13.6 percent monthly plunge in orders for mining & oil field machinery. But the nation's economy is not narrowly focused on the factory sector, evidenced by healthy readings in today's ISM non-manufacturing report.

US factory orders dipped 0.2 percent in November -- Orders to U.S. factories declined in November for the third time in the past four months. A key category that tracks business investment fell as well. Factory orders dipped 0.2 percent in November after a 1.3 percent increase in October, the Commerce Department said Wednesday. A closely watched category that serves as a proxy for business investment plans fell 0.3 percent. American manufacturers have struggled this year with a strong dollar, which has made their products pricier and less competitive overseas. In addition, economic weakness in many major export markets, from Europe to China, has hurt U.S. sales abroad. For November, orders for long-lasting durable goods — everything from airplanes to refrigerators — were flat after a 2.8 percent increase in October. Demand for nondurable goods, such as paper, chemicals and food, fell 0.4 percent in November after dropping 0.2 percent in October.

Factory Orders Decline Again, Previous Month Revised Lower - Factory orders rose last month for a change, but nearly all of it was due to transportation, especially aircraft orders that have a very long lead time. This month we see a 0.2% decline this month that's inline with the Econoday Consensus EstimateFlat is a good description of the nation's factory sector as factory orders slipped 0.2 percent in November, making October's revised 1.3 percent gain look like a rare outlier. Durable goods orders were unchanged in the month while orders for non-durable goods fell 0.4 percent on price weakness for petroleum and coal. Capital goods data, unfortunately, are mostly weak including a 0.3 percent decline for core orders. Shipments of core capital goods fell 0.6 percent in November and follow October's 1.0 percent decline in readings that will pull down the business investment component of the fourth-quarter GDP report. Outside of orders, total shipments edged 0.2 percent higher to end a string of declines that go all the way back to July. Inventories also offer good news, falling 0.3 percent and bringing down the inventory-to-shipment ratio to a less heavy 1.35 vs October's 1.36. Unfilled orders are another positive, rising 0.2 percent following a 0.3 percent gain in October. The factory sector is not exactly robust, the result of weak demand for U.S. exports and also weakness in the domestic energy sector reflected in this report by a 13.6 percent monthly plunge in orders for mining & oil field machinery. But the nation's economy is not narrowly focused on the factory sector, evidenced by healthy readings in today's ISM non-manufacturing report.

US Factory Orders Deep In Recession - Tumble YoY For 13th Month In A Row US factory orders have never dropped this far for so long without the US economy overall being in recession. November's 4.2% YoY drop is the 13th consecutive monthly drop. Revistions to durable goods data shows a 1% drop in new orders ex-defense in November after rising 1.4% in October.. and as a reminder, this data was buoyed by a 46.9% surge in defense aircraft and parts orders to all-time highs. Factory Orders are flashing deep red recessionary indicators...Traders better hope for moar war or the reality of the economy will peak out from behind the military-industrial complex veil. This was the highest level of defense spending since 9/11!!

Things That Make You Go Boom: U.S. Spending On Military Aircraft Surges Most Since September 11 -- Now that the subprime-funded "growth dynamo" that kept the US economy chugging along over the past year has finally choked, as we saw yesterday when auto sales posted the weakest print in half a year, there is just one industry that is keeping US factory orders, which have already declined for 13 consecutive months, from an all out implosion. War. As the chart below shows, spending on military aircraft (and parts), mostly purchased by US "allies" in the middle east and elsewhere, just soared to $8.2 billion, a 46.9% jump in one month, and the highest monthly spending spree since... Sept.11. Thank you war.

Negative rates are boosting corporate inventories - Izabella Kaminska - Did you know there was a hidden credit crunch going on in the world economy as far into the post-GFC-crisis era as 2015?UBS economist Paul Donovan dishes the details in a report on Tuesday, noting how the crunch related primarily to inter-company credit, the sort that companies use to finance inventory. The good news, says Donovan, is that smaller business finally seem to be willing to acquire inventory, suggesting the credit crunch may finally be concluding. Quantifying the scale of the potential inventory turn-around isn’t going to be easy. As Donovan notes:This chart shows the process at work after 2008. The NFIB survey showed a collapse in the desire of small businesses to hold inventory. Meanwhile their suppliers (large businesses represented in the ISM data) continued to expect an increase in demand as they viewed their customers’ inventory levels as inadequate by historical standards. The NFIB and ISM surveys are not ideal measures, as sentiment surveys have a tendency to overreact to underlying fundamentals. However, the sub-headline indices of these details may be thought of as less liable to media influence and political bias.  Quantifying the scale of the potential inventory turn-around isn’t going to be easy.  What’s really interesting, however, is what Donovan attributes the revival to: the introduction negative interest rates in Europe (and the related negative rate phenomenon in low risk sovereign nations more generally).  These, he says, made banks more likely to pass through negative rates to their larger corporate customers, which in turn became more likely to extend credit to their customers as a means of reducing their cash balances. Basically, in a negative interest rate environment it really does make more sense to hold your wealth in naturally depreciating inventory than it does in cash deposits at banks.

Wholesale Trade January 8, 2016: Wholesale inventories fell a sizable 0.3 percent for a second straight month in November. Sales at the wholesale level fell an even sharper 1.0 percent in the month and, despite the decline in inventories, drove the stock-to-sales ratio up to 1.32 vs 1.31 in the two prior months. A year-ago, the ratio was at 1.23 in what is confirmation that inventories in the sector remain heavy. Inventories of farm products and petroleum rose due to weak sales while inventories of furniture and metals fell on strong sales. Previously released data on the factory sector show a 0.3 percent inventory contraction in November. The missing piece, retail inventories, will be posted following next week's retail sales report

November 2015 Wholesale Sales Under Expectations.: The headlines say wholesale sales were down month-over-month with inventory levels remaining at levels associated with recessions. Our analysis shows an improving trend with acceleration of the 3 month averages. The best way to look at this series may be the unadjusted data three month rolling averages. Note that Econintersect analysis is based on the change from one year ago. Econintersect Analysis:

  • unadjusted sales rate of growth accelerated 3.9 % month-over-month.
  • unadjusted sales year-over-year growth is down 2.0 % year-over-year
  • unadjusted sales (but inflation adjusted) down 3.3 % year-over-year
  • the 3 month rolling average of unadjusted sales accelerated 1.0 % month-over-month, and down 3.9 % year-over-year. There has been a general deceleration trend since late 2014.
  • unadjusted inventories up 2.1 % year-over-year (deceleration of 1.5 % month-over-month), inventory-to-sales ratio is 1.36 which is historically is at recessionary levels.

US Census Headlines based on seasonally adjusted data:

  • sales down 1.0 % month-over-month, down 4.6 % (last month was reported down 3.7 %) year-over-year
  • inventories down 0.3 % month-over-month, inventory-to-sales ratios were 1.23 one year ago - and are now 1.32.
  • the market (from Bloomberg) expected inventory month-over-month change between -0.3 % to 0.3 % (consensus 0.0 %) versus the -1.0 % reported.

Wholesale Trade Data Suggest Manufacturing Recession Spreading To Entire Economy -- The good news - wholesale inventories are being worked off (falling 0.3% MoM in November - biggest drop since May 2013). The bad news - inventories are being worked off (crushing Q4 GDP hopes and Fed forecasts). The ugly news - Wholesale sales collapsed 1.0% MoM - the biggest drop in a year (leaving the spread between sales and inventories at a record high). The ugliest data of all - inventories-to-sales spiked to 1.32x - (the highest since 2008's crisis recession and as high as the worst in the 2001 recession!) The year-over-year drops are a disaster...

Trade Deficit Decreased in November to $42.4 Billion --The Department of Commerce reported: The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that the goods and services deficit was $42.4 billion in November, down $2.2 billion from $44.6 billion in October, revised. November exports were $182.2 billion, $1.6 billion less than October exports. November imports were $224.6 billion, $3.8 billion less than October imports.  The trade deficit was smaller than the consensus forecast of $44.4 billion. The first graph shows the monthly U.S. exports and imports in dollars through November 2015. Imports and exports decreased in November. Exports are 10% above the pre-recession peak and down 7% compared to November 2014; imports are 3% below the pre-recession peak, and down 5% compared to November 2014. The second graph shows the U.S. trade deficit, with and without petroleum. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products (wild swings earlier last year were due to West Coast port slowdown). Oil imports averaged $39.24 in November, down from $40.12 in October, and down from $82.92 in November 2014. The petroleum deficit has generally been declining and is the major reason the overall deficit has declined since early 2012. The trade deficit with China increased to $31.3 billion in November, from $30.2 billion in November 2014. The deficit with China is a substantial portion of the overall deficit.

Trade Deficit Improves In November Despite Trade Slowdown, As "Exports Decrease Less Than Imports" -- While the recent dramatic revision in construction spending - a direct input into GDP - which aswe noted earlier this week, was a huge revision in the series  by the US government which admitted to "processing errors" would lead to substantial downward revisions to recent GDP prints, moments ago the US November Trade deficit printed at $42.4 billion, down from $44.6 billion in October and better than the $44.0 billion consensus expectation. However, instead of suggesting on overall improvement, the only reason the deficit improved is because as the BEA admitted, "exports decreased less than imports", in other words, bothdecreased. Specifically, imports fell 1.7% in Nov. to $224.59b from $228.36b in Oct, while exports fell 0.9% in Nov. to $182.21b from $183.78b in Oct. A key driver was another decline in petroleum imports which fell $262 million to a total of $10.7 billion courtesy of the drop in oil prices.

November 2015 Trade Data Shows Continues To Show Weak Global Trade: A quick recap to the trade data released today continues to paint a relatively negative picture of global trade. The unadjusted three month rolling average value of exports and imports decelerated,. Many care about the trade balance which improved as imports shrunk more than exports.

  • Import goods growth has positive implications historically to the economy - and the seasonally adjusted goods and services imports were reported down month-over-month. Econintersect analysis shows unadjusted goods (not including services) growth acceleration of 3.4 % month-over-month (unadjusted data) - down 3.8 % year-over-year (up 5.6% year-over-year inflation adjusted). The rate of growth 3 month trend is decelerating but in expansion.
  • Exports of goods were reported down, and Econintersect analysis shows unadjusted goods exports growth deceleration of (not including services) 0.2 % month-over month - down 10.7 % year-over-year (up 4.4 % year-over-year inflation adjusted). The rate of growth 3 month trend is decelerating and in contraction.
  • The decline in seasonally adjusted (but not inflation adjusted) exports was due to industrial supplies and consumer goods. Import decrease was due to consumer goods.
  • The market expected (from Bloomberg) a trade deficit of $-45.0 to $-40.5 billion (consensus $-44.4 billion deficit) and the seasonally adjusted headline deficit from US Census came in at a deficit of $42.4 billion.
  • It should be noted that oil imports were up 4 million barrels from last month, and up 21 million barrels from one year ago.
  • The data in this series is noisy, and it is better to use the rolling averages to make sense of the data trends.

The headline data is seasonally but not inflation adjusted. Econintersect analysis is based on the unadjusted data, removes services (as little historical information exists to correlate the data to economic activity), and inflation adjusts. Further, there is some question whether this services portion of export/import data is valid in real time because of data gathering concerns. Backing out services from import and exports shows graphically as follows:

Derailed? What Rail Traffic Tells Us About The U.S. Economy --Raw materials and goods need to be transported regardless of how modern or sophisticated an economy is. Every week the Association of American Railways (“AAR”) posts a free report on rail volumes transported across North America by major category. This provides some decent clues on the condition of the US economy, almost in real time. Let’s see what the latest report covering virtually all of 2015 is telling us. The rail intermodal traffic category registers the long-haul movement of shipping containers and truck trailers by rail whenever combined with (a much shorter) truck movement at one or both ends. In addition to its large relative size – accounting for 22% of 2014 revenue for major US railroads, more than any other single commodity group – intermodal is quite an important category since it covers a broad range of goods that Americans use every day, from computers to frozen chickens.The graph above shows the year-on-year percentage change on a weekly basis going back to mid-2006. The weaknesses leading up to the 2008 financial crisis is pretty noticeable, as is the subsequent rebound. For the most part this indicator has remained positive since then, suggesting continued economic growth. That being said, the latest reports show a cluster of negative readings (red circle) which is a novelty in this cycle (by count, not magnitude). We will keep an eye on this one. Now, let’s look at some major commodity groups. Last March we looked at crude oil volumes transported by rail across North America. Here’s an update of the US petroleum products chart: This reversal in trend is clearly not the friend of US oil & gas workers and their communities.

PMI Manufacturing Index January 4, 2016: The manufacturing PMI has been consistently running warmer than other manufacturing surveys which helps put into context the disappointment of December's slowing to 51.2, down from 52.8 in November. The final reading for December is 1 tenth lower than the mid-month flash. Near stagnation in new orders is a key negative in the report, one that points to further slowing for the headline index in coming readings. Orders are still growing but at their slowest pace of the recovery, since September 2009. Backlog orders are contracting sharply, the most since September 2009 as well. The report points to widespread weakness across orders including for export orders where manufacturers continue to site strength in the dollar as a negative. Among other readings, production is flat, pre-production inventories are down, but hiring, at least for now, is still strong. Price data show continued contraction for inputs, the result of low oil and commodity prices, but a third month of gains for finished prices which is one of the few pluses in this report. Up next at 10:00 a.m. ET on the calendar will be the very closely watched ISM manufacturing report.

ISM Manufacturing index decreased to 48.2 in December -- The ISM manufacturing index indicated contraction in December. The PMI was at 48.2% in December, down from 48.6% in November. The employment index was at 48.3%, down from 51.3% in November, and the new orders index was at 49.2%, up from 48.9%. From the Institute for Supply Management: December 2015 Manufacturing ISM® Report On Business®. "The December PMI® registered 48.2 percent, a decrease of 0.4 percentage point from the November reading of 48.6 percent. The New Orders Index registered 49.2 percent, an increase of 0.3 percentage point from the reading of 48.9 percent in November. The Production Index registered 49.8 percent, 0.6 percentage point higher than the November reading of 49.2 percent. The Employment Index registered 48.1 percent, 3.2 percentage points below the November reading of 51.3 percent. The Prices Index registered 33.5 percent, a decrease of 2 percentage points from the November reading of 35.5 percent, indicating lower raw materials prices for the 14th consecutive month. The New Export Orders Index registered 51 percent, up 3.5 percentage points from the November reading of 47.5 percent and the Imports Index registered 45.5 percent, down 3.5 percentage points from the November reading of 49 percent. As was the case in November, 10 out of 18 manufacturing industries reported contraction in December. Contraction in new orders, production, employment and raw materials inventories accounted for the overall softness in December."

December 2015 ISM Manufacturing Survey In Contraction For The Second Month In A Row.: The ISM Manufacturing survey was in contraction for the second month in a row. The key internals were in contraction. The ISM Manufacturing survey index (PMI) marginally declined from 48.6 to 48.2 (50 separates manufacturing contraction and expansion). This was slightly below expectations which were 48.5 to 50.4 (consensus 49.2). Earlier today, the PMI Manufacturing Index was released - from Bloomberg: The manufacturing PMI has been consistently running warmer than other manufacturing surveys which helps put into context the disappointment of December's slowing to 51.2, down from 52.8 in November. The final reading for December is 1 tenth lower than the mid-month flash. Near stagnation in new orders is a key negative in the report, one that points to further slowing for the headline index in coming readings. Orders are still growing but at their slowest pace of the recovery, The regional Fed manufacturing surveys indicated little growth or contraction in November, and now the ISM indicates manufacturing shows contraction. Relatively deep penetration of this index below 50 has normally resulted in a recession. The noisy Backlog of Orders contraction improved. Backlog growth should be an indicator of improving conditions; a number below 50 indicates contraction. Backlog accuracy does not have a high correlation against actual data.

ISM Manufacturing Index: Lowest Since June 2009 - Today the Institute for Supply Management published its monthly Manufacturing Report for December. The latest headline PMI was 48.2 percent, a decrease of 0.4% from the previous month and below the forecast of 49.0. It is currently at its lowest level since June of 2009. Here is the key analysis from the report: "The December PMI® registered 48.2 percent, a decrease of 0.4 percentage point from the November reading of 48.6 percent. The New Orders Index registered 49.2 percent, an increase of 0.3 percentage point from the reading of 48.9 percent in November. The Production Index registered 49.8 percent, 0.6 percentage point higher than the November reading of 49.2 percent. The Employment Index registered 48.1 percent, 3.2 percentage points below the November reading of 51.3 percent. The Prices Index registered 33.5 percent, a decrease of 2 percentage points from the November reading of 35.5 percent, indicating lower raw materials prices for the 14th consecutive month. The New Export Orders Index registered 51 percent, up 3.5 percentage points from the November reading of 47.5 percent and the Imports Index registered 45.5 percent, down 3.5 percentage points from the November reading of 49 percent. As was the case in November, 10 out of 18 manufacturing industries reported contraction in December. Contraction in new orders, production, employment and raw materials inventories accounted for the overall softness in December." Here is the table of PMI components.

Manufacturing ISM Sinks to January 2009 Low; Dont' Count on Services or Housing to Save the Day -- The perpetual optimists who month after month believe a manufacturing recovery is at hand are wrong once again.The Econoday Consensus Estimate called for a bit of stabilization following last month's damaging report. Instead the reading dipped further into contraction, below the lowest estimate of 48.5.  ISM's manufacturing sample is reporting the weakest conditions since July 2009. At 48.2, December is much lower than Econoday's 49.2 consensus and is only the third sub-50 reading of the recovery. Yet the story, nevertheless, is much the same as it was in November which came in at 48.6 with both months showing slight contraction underway for both new orders and production. Employment in the sample, however, is noticeably weaker than November, at 48.1 for a more than 2 point decline and the second sub-50 reading in the last three months. A sizable 4.5 point rise for new export orders to 51.0 is a positive in the report. Inventories are steady and low but the sample still say inventories are a little bit high which betrays caution in their outlook. Prices for raw materials continue to contract, a reminder that low oil and commodity prices are making it difficult for the Fed to reach its 2 percent inflation target. This report points to ever softer conditions for a sector that, held down by energy and weak foreign demand, showed very little life during 2015.

Industrial Recession Now Inevitable As Manufacturing ISM Worst In Six Years -- Following China's disappointing drop in Manufacturing PMI overnight, this morning started off poorly with Canada's PMI crashing to its lowest reading since records began at 47.5. Then US Manufacturing PMI tumbled to 51.2 - its lowest print since October 2012 (with US factory orders collapsing to weakest since 2009). But The ISM Manufacturing crashed to 48.2 (deep in contraction) - the weakest level since June 2009, with employment bumping along at its lowest level since September 2009 and imports (reflecting domestic demand perhaps) crashed to levels only seen twice in 20 years. The manufacturing recession is now inevitable: the only question is when and how it will spread to the service sector and be recognized by the NBER: And while New orders "rose" on a seasonally-adjusted magical basis, the unadjusted series plunged to the lowest in over two years. What the ever gloomier respondents are saying:

  • "Low oil prices are negatively impacting oil and gas exploration activities. Low oil prices are generally positive for the petrochemical industry." (Petroleum & Coal Products)
  • "Month-over-month sales were down, profitability up." (Chemical Products)
  • "December revenue is flat compared to last month." (Computer & Electronic Products)
  • "Still very slow due to oil prices." (Fabricated Metal Products)
  • "Deflation in many commodities is helping with product savings. Sales are strong with a backlog." (Transportation Equipment)
  • "Targeting reduced inventories for raw materials by year-end." (Textile Mills)
  • "Sales have dropped and continue to be soft. This is resulting in [a] reduction in workforce and furloughs." (Apparel, Leather & Allied Products)

ISM Manufacturing Survey Shows Contraction Once Again - Robert Oak - The December ISM Manufacturing Survey is yet another awful month.  Manufacturing is in a second month of contraction and this time slightly deeper than November.  PMI was 48.2%, -0.4 percentage points lower than the previous month.  New orders is still in contraction and employment plunged and went into contraction.  Only six sectors showed any growth according to the survey.  A contracting manufacturing sector two months in a row is not a good sign and this survey is highly correlated to other economic metrics.  The ISM Manufacturing survey is a direct survey of manufacturers.  Generally speaking, indexes above 50% indicate growth and below indicate contraction.  Every month ISM publishes survey responders' comments, which are part of their survey.  This month the comments were horrific.  While some say low gas prices are hurting them, most talked about weak demand and cutting their inventories.  New orders increased by 0.3 percentage points to 49.2%.  This is in contraction for the 2nd month, but slower than last month. The Census reported November durable goods new orders had no change, where factory orders, or all of manufacturing data, will be out later this week.  Note the Census one month behind the ISM survey.  The ISM claims the Census and their survey are consistent with each other and they are right.  Below is a graph of manufacturing new orders percent change from one year ago (blue, scale on right), against ISM's manufacturing new orders index (maroon, scale on left) to the last release data available for the Census manufacturing statistics.  Here we do see a consistent pattern between the two and this is what the ISM says is the growth mark: A New Orders Index above 52.3 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders. Below is the ISM table data, reprinted, for a quick view.

ISM a Leading Indicator of Jobs? Why 2016 Will Shock to the Downside!  - I expect monthly jobs reports in 2016 will shock to the downside. Before I list all the reasons, here's an interesting chart that suggests manufacturing ISM is a leading indicator of jobs.The above chart plots percent change in seasonally-adjusted nonfarm payrolls vs. the seasonally adjusted ISM manufacturing index.  Looking at about 30 turning points since 1965, I can only find one key top or bottom where ISM did not lead jobs. Unless manufacturing turns here, 2016 looks to be a rough year for jobs, especially vs. expectations.   Manufacturing is not not my only reason to think jobs will sour in 2016. Here's a litany of reasons of all the reasons.

  1. Manufacturing has been in an outright recession for nearly a year. Contrary to popular belief, production, not spending is the driver for growth.
  2. Housing is slowing. This was evident even before the construction revisions. Home prices are not affordable.
  3. Higher minimum wages that take effect in January in many states will act as a huge drag on hiring.
  4. Many big box retailers including Walmart and Macy's are struggling. Struggling retailers do not build as many stores as they would otherwise.
  5. Mall vacancies are rising.
  6. Corporate profits are under pressure.
  7. The strong dollar continues to hurt exports.
  8. Inventories have risen far more than sales. This will impact future hiring.
  9. Auto sales, a key component of spending took a hit in December. The auto party, fueled in part by subprime loans cannot last forever.

Does Faltering Manufacturing Activity Threaten A US Recession? -- Yesterday’s news that the ISM Manufacturing dipped a bit deeper into the red zone in December raised new questions about the strength of the US economy. This widely followed benchmark fell to 48.2 from 48.6 in November. The slide marks the second straight month of below-50 readings, which indicates contraction. US manufacturing activity, in other words, is stumbling along at the weakest pace in six years. A competing benchmark—Markit’s purchasing managers’ index (PMI)—offered a modestly stronger profile for manufacturing at 2015’s close. But here too there are clear signs of accelerating weakness, albeit in the form of slower growth, according to this data. Although the PMI remained above the neutral 50 mark that separates growth from contraction, the slide to 51.2 last month is the lowest in more than three years and the downward momentum of late suggests that a dip below 50 in the months ahead is a distinct possibility.  After reading the lastest numbers the usual suspects quickly declared that the end is nigh for the US recovery. Perhaps, but a convincing case is still wobbly for assuming that a new recession is fate. The potential for trouble is certainly higher as we begin the new year, but it’s premature to argue that the die is cast for the business cycle if the standard for deciding is objective econometric analysis. Why? For starters, manufacturing alone doesn’t claim a monopoly on representing the broad macro trend. Yes, it’s a key sector and it has been known to offer early clues of an approaching storm. But as I noted last month, the long history of the ISM Manufacturing Index also reveals that this benchmark has dispensed numerous false alarms as well through the decades in terms of signaling an NBER-defined recession.

Minnesota and other Midwest manufacturers take it on the chin in December - Minnesota and other Midwest manufacturers slowed in December to one of the worst performances in six years due to the strong U.S. dollar and weaknesses in Canada and abroad, according to a widely watched economic report. “Those factors will continue to squeeze U.S. and regional manufacturers,” said Ernie Goss, director of Creighton University’s Economic Forecasting Group, which produces the Mid-America Business Conditions Index. For December, the index for the nine-state region that includes Minnesota fell to 39.6 from 40.7 in November. Minnesota’s Business Conditions Index slumped in December to 39.4 from November’s 41.1. Any index below 50 signals economic contraction. But December’s slippage marked one of the worst readings since the recession-plagued 2009. Surveyed supply managers noted significant slowdowns in most categories, including new orders, sales, delivery lead times, inventories and employment. Food-processing firms reported the most declines, while medical equipment makers saw gains. Economists noted that central U.S. factories laid off workers, siphoned off existing inventory and saw export orders plummet during the month.

ISM Non-Manufacturing Index Decreased to 55.3% in December - The December ISM Non-manufacturing index was at 55.3%, down from 55.9% in November. The employment index increased in December to 55.7%, up from 55.0% in November. Note: Above 50 indicates expansion, below 50 contraction.  From the Institute for Supply Management: December 2015 Non-Manufacturing ISM Report On Business® The NMI® registered 55.3 percent in December, 0.6 percentage point lower than the November reading of 55.9 percent. This represents continued growth in the non-manufacturing sector at a slightly slower rate. The Non-Manufacturing Business Activity Index increased to 58.7 percent, which is 0.5 percentage point higher than the November reading of 58.2 percent, reflecting growth for the 77th consecutive month at a slightly faster rate. The New Orders Index registered 58.2 percent, 0.7 percentage point higher than the reading of 57.5 percent in November. The Employment Index increased 0.7 percentage point to 55.7 percent from the November reading of 55 percent and indicates growth for the 22nd consecutive month. The Prices Index decreased 0.6 percentage point from the November reading of 50.3 percent to 49.7 percent, indicating prices decreased in December for the third time in the last four months. According to the NMI®, 11 non-manufacturing industries reported growth in December. Faster deliveries in December contributed to the overall slight slowing in the rate of growth according to the NMI® composite index. All of the other component indexes increased in the month of December. The majority of respondents’ comments remain positive about business conditions and the overall economy."This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index. This was below the consensus forecast of 56.5 and suggests slightly slower expansion in December than in November.  Still a solid report.

December 2015 ISM Services Index Declines Insignificantly But Remains in Expansion - The ISM non-manufacturing (aka ISM Services) index continues its growth cycle, but declined insignificantly from 55.9 to 55.3 (above 50 signals expansion). Important internals improved, however, and remain in expansion. Market PMI Services Index was released this morning, also is in expansion, and also declined. This was below expectations (from Bloomberg) of 55.5 to 57.0 (consensus 56.5). For comparison, the Market PMI Services Index was released this morning also - and it weakened marginally. Highlights The services PMI slowed to 54.3 for the final December reading, well down from November's 56.1 but up 6 tenths from the December flash of 53.7. Growth in new orders came in at its slowest rate since the weather disruptions in January last year with some respondents citing a "wait-and-see" approach among customers. Though output is slowing and backlogs are being worked down, the sample is still adding employees at a solid pace. Price data are soft with both input inflation and output charges continuing to moderate. Another negative is an easing in business expectations to their least optimistic level since July. But the hiring in this report is clearly a positive and hints at what may be Friday's conflicting theme -- strong job growth amid slowing activity. There are two sub-indexes in the NMI which have good correlations to the economy - the Business Activity Index and the New Orders Index - both have good track records in spotting an incipient recession - both remaining in territories associated with expansion. This index and its associated sub-indices are fairly volatile - and one needs to step back from the data and view this index over longer periods than a single month. The Business Activity sub-index declined 0.5 points and now is at 58.7.

Manufacturing Leads, Services Follow: ISM Collapses To Weakest Since March 2014 As "Pace Of Hiring" Slows -- As goes US manufacturing, so goes US services. In a narrative-crushing print, US Services PMI dropped to 54.3 - the lowest since January 2015. Output and New business growth slumped to 11-month lows, optimism dropped, and input cost inflation continued to moderate as "suggests the pace of hiring has slowed since earlier in the year as businesses have become more cautious." Then, confirming  this plunge, ISM Services printed 55.3 - its lowest since March 2014 as unadjusted new orders collapsed to their lowest since February 2014. As Markit notes,“The PMI surveys show the service sector losing momentum alongside a stalling of growth in the manufacturing sector, pushing the overall rate of economic expansion down to the weakest for a year."The survey also signals robust employment growth, but likewise suggests the pace of hiring has slowed since earlier in the year as businesses have become more cautious in the face of worries such as the forthcoming elections, the strong dollar, global growth jitters and the outlook for interest rates. The December survey data are consistent with non-farm payrolls rising by around 175,000 compared to an average of 200,000 in the first eleven months of the year. And then ISM hit...and it was a disaster - crashing to levels it was last lower than in March 2014...

Weekly Initial Unemployment Claims decrease to 277,000 --The DOL reported: In the week ending January 2, the advance figure for seasonally adjusted initial claims was 277,000, a decrease of 10,000 from the previous week's unrevised level of 287,000. The 4-week moving average was 275,750, a decrease of 1,250 from the previous week's unrevised average of 277,000. There were no special factors impacting this week's initial claims.  The previous week was unrevised at 287,000. The following graph shows the 4-week moving average of weekly claims since 1971.

December 2015 Job Cuts Fall - Fewest Monthly Job Cuts in More than 15 Years.: A strong economy, coupled with what appears to be a growing reluctance to announce layoffs during the holidays, contributed to December experiencing the lowest number of monthly job cuts in more than 15 years. U.S.-based employers announced planned workforce reductions totaling 23,622 in December. That was 24 percent lower than the 30,593 job cuts announced in November and 28 percent below last year's 32,640 December job cuts.December was not only the lowest job-cut month of 2015, it was the lowest job-cut month since June 2000, when employers announced 17,241 planned layoffs. Last month also represents the lowest December job-cut total on record, since Challenger began its monthly tracking in 1993.The December decline was significant enough to prevent 2015 job cuts from reaching a six-year high. In all, employers announced 598,510 job cuts during the year, 24 percent more than the 483,171 planned layoffs in 2014. While 2015 total still saw the heaviest downsizing activity since 2011 (606,082), the year definitely ended with job cuts on the decline. Employers announced 105,072 job cuts in the fourth quarter, down 49 percent from 205,759 in the previous quarter. The fourth quarter total was 12 percent lower than the 119,763 job cuts announced during the same quarter in 2014. The 105,072 job cuts announced in the final three months of 2015 represents the lowest quarterly total since the third quarter of 2012, when employers cut 102,910 workers from their payrolls.

Gallup Good Jobs Rate Ticks Slightly Higher in Dec.: The Gallup Good Jobs (GGJ) rate in the U.S. was 45.3% in December. This is up slightly from the rate measured in November (44.9%) and even with the rate measured from August through October. Given seasonal patterns in employment, it is notable that the current rate is a full percentage point higher than in December 2014. The GGJ metric tracks the percentage of the U.S. adult population, aged 18 and older, who work for an employer full time -- at least 30 hours per week. Gallup does not count adults who are self-employed, work fewer than 30 hours per week, are unemployed or are out of the workforce as payroll-employed in the GGJ metric.The latest results are based on Gallup Daily tracking interviews Dec. 1-30, 2015, with 27,350 Americans. GGJ is not seasonally adjusted. The percentage of U.S. adults in December who were participating in the workforce by working full time, working part time or actively seeking and being available for work was 67.3%. This is down only slightly from the rate in November (67.5%). Gallup's workforce participation measure averaged 67.7% between January 2010 and June 2013, but since then has averaged about one point lower, at 66.9%. Higher participation rates in the past several months may signal returning strength in the labor market.

ADP: Private Employment increased 257,000 in December  --- From ADP: Private sector employment increased by 257,000 jobs from November to December according to the December ADP National Employment Report® ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis...Goods-producing employment rose by 23,000 jobs in December, well up from a downwardly revised -2,000 the previous month. The construction industry added 24,000 jobs, which was roughly in line with the 21,000 average monthly jobs gained for the year. Meanwhile, manufacturing stayed in positive territory for the second straight month adding 2,000 jobs.Service-providing employment rose by 234,000 jobs in December, up from an upwardly revised 213,000 in November. ... Mark Zandi, chief economist of Moody’s Analytics, said, “Strong job growth shows no signs of abating. The only industry shedding jobs is energy. If this pace of job growth is sustained, which seems likely, the economy will be back to full employment by mid-year. This is a significant achievement, given that the last time the economy was at full employment was nearly a decade ago.” This was well above the consensus forecast for 190,000 private sector jobs added in the ADP report. 

December 2015 ADP Job Growth at 257,000 - Well Above Expectations: ADP reported non-farm private jobs growth at 257,000. The rolling averages of year-over-year jobs growth rate remains strong but the rate of growth continues in a downtrend (although insignificant this month).

  • The market expected 180,000 to 225,000 (consensus 190,000) versus the 257,000 reported. These numbers are all seasonally adjusted;
  • In Econintersect's December 2015 economic forecast released in late November, we estimated non-farm private payroll growth at 120,000 (based on economic potential) and 160,000 (fudged based on current overrun of economic potential);
  • This month, ADP's analysis is that small and medium sized business created 62 % of all jobs;
  • Manufacturing jobs grew by 2,000.
  • 91% of the jobs growth came from the service sector;
  • November report (last month), which reported job gains of 217,000 was revised down to 211,000;
  • The three month rolling average of year-over-year job growth rate has been slowing declining since February 2015 - it is now 2.02% (statistically unchanged from last month's 2.04%)

ADP changed their methodology starting with their October 2012 report, and ADP's real time estimates are currently worse than the BLS. Per Mark Zandi, chief economist of Moody's Analytics: Strong job growth shows no signs of abating. The only industry shedding jobs is energy.. If this pace of job growth is sustained, which seems likely, the economy will be back to full employment by mid-year. This is a significant achievement, given that the last time the economy was at full employment was nearly a decade ago.

ADP: US Job Growth Accelerates In December - The pace of hiring at US companies picked up last month, according to the ADP Employment Report. Private payrolls increased by 257,000 in December in seasonally adjusted terms—beating the consensus forecast by a wide margin and delivering the strongest monthly gain in a year for this series. The surprisingly good news provides some relief after several days of discouraging economic updates. “Strong job growth shows no signs of abating,” says Mark Zandi, chief economist of Moody’s Analytics, which produces the data in collaboration with ADP. “The only industry shedding jobs is energy. If this pace of job growth is sustained, which seems likely, the economy will be back to full employment by mid-year.”  ADP’s estimate implies that Friday’s official numbers on payrolls from Washington will deliver a round of upbeat news as well. The consensus forecast published by before today’s release projected that the Labor Department will report a rise of 193,000 for private-sector employment in December. Today’s figures from ADP suggest that Friday’s estimate should be raised. Crunching the numbers by way of a simple linear regression model certainly puts a positive spin on expectations. This model’s point forecast for Friday anticipates a 258,000 jump in private payrolls for December (blue dot in chart below)—far above current expectations. If the actual results turn out to be anywhere near that projection, the news will offer fresh support for optimism on the macro front.

ADP Payrolls Soar To Highest Since 2014, Zandi Sees "Return To Full Employment By Mid-Year" Great news right? For those hoping for some "bad news is good news to slow The Fed down" data, ADP is a disappointment. The December monthly change was a rise of 257k - hugely better than the expected 198k and th ebiggest rise since December 2014. Most importantly the goods-producing sector added a shocking 23,000 jobs - despite every single manufacturing indicator deep in recession. Service-sector jobs added 234k. Payrolls for businesses with 49 or fewer employees increased by 95,000 jobs in December, up from November’s downwardly revised 72,000. Employment among companies with 50-499 employees increased by 65,000 jobs, up about 10 percent from last month. Employment at large companies – those with 500 or more employees – came in at 97,000 an increase from the upwardly revised 80,000 jobs added in November. Companies with 500-999 added 39,000 jobs, while companies with over 1,000 employees gained 58,000 jobs.  Goods-producing employment rose by 23,000 jobs in December, well up from a downwardly revised -2,000 the previous month. The construction industry added 24,000 jobs, which was roughly in line with the 21,000 average monthly jobs gained for the year. Meanwhile, manufacturing stayed in positive territory for the second straight month adding 2,000 jobs.  Service-providing employment rose by 234,000 jobs in December, up from an upwardly revised 213,000 in November. The ADP National Employment Report indicates that professional/business services contributed 66,000 jobs, the largest increase in this sector in 2015. Trade/transportation/utilities grew by 38,000, off a bit from an upwardly revised 41,000 the previous month. The 13,000 new jobs added in financial activities were right in line with the average for the year.

December Employment Report: 292,000 Jobs, 5.0% Unemployment Rate  From the BLSTotal nonfarm payroll employment rose by 292,000 in December, and the unemployment rate was unchanged at 5.0 percent, the U.S. Bureau of Labor Statistics reported today. Employment gains occurred in several industries, led by professional and business services, construction, health care, and food services and drinking places. Mining employment continued to decline. ...  The change in total nonfarm payroll employment for October was revised from +298,000 to +307,000, and the change for November was revised from +211,000 to +252,000. With these revisions, employment gains in October and November combined were 50,000 higher than previously reported.  ...In December, average hourly earnings for all employees on private nonfarm payrolls, at $25.24, changed little (-1 cent), following an increase of 5 cents in November. Over the year, average hourly earnings have risen by 2.5 percent. The first graph shows the monthly change in payroll jobs, ex-Census (meaning the impact of the decennial Census temporary hires and layoffs is removed - mostly in 2010 - to show the underlying payroll changes). Total payrolls increased by 292 thousand in December (private payrolls increased 275 thousand). Payrolls for October and November were revised up by a combined 50 thousand. This graph shows the year-over-year change in total non-farm employment since 1968. In December, the year-over-year change was 2.65 million jobs. This was the 2nd best year since the '90s. The third graph shows the employment population ratio and the participation rate. The Labor Force Participation Rate increased in December to 62,6%. This is the percentage of the working age population in the labor force. A large portion of the recent decline in the participation rate is due to demographics. The Employment-Population ratio increased to 59.4% (black line). The unemployment rate was unchanged in December at 5.0%.

US Private Payrolls Rise Sharply In December -- US companies increased payrolls by a strong 275,000 (seasonally adjusted) in December, according to this morning’s employment report from the Labor Department. The gain beat the consensus forecast by a wide margin and introduces a timely round of optimism after a bearish start for markets so far in the new year. Today’s update reaffirms the case for anticipating that the US economy will continue to expand in the near term. In fact, that’s been the general message from a diversified set of macro indicators all along. As I noted in last month’s business-cycle review, “the manufacturing sector may be in recession, but the labor market still looks resilient.” Today’s release certainly strengthens that view. Indeed, the three-month average for growth in private payrolls through last month is a robust 276,000—the strongest gain for that rolling time frame since January. Meantime, the year-over-year trend continues to print at a healthy pace—+2.15% through December. There’s still concern that the continued deceleration in the growth rate will create trouble down the road. But until/if we see the annual change slip under the 2.0% mark it’s premature to get worked up about the potential for weakness in payrolls. “The remarkable thing is how consistent employment growth has been over the past three or four years,” notes Mark Zandi, chief economist at Moody’s Analytics. “We’re getting at least 200,000 jobs per month on a consistent basis. That’s quite an achievement.” Michael Feroli, chief US economist at JPMorgan Chase, agrees. “This should calm some fears about the US economy losing growth momentum. It’s reassuring in the backdrop of some recent economic reports that were weak.”

December Jobs Report – The Numbers - U.S. employers added a seasonally adjusted 292,000 jobs in December, well above economists’ expectations for a gain of 210,000 jobs. Nonfarm payrolls for the prior two months were revised up by a combined 50,000–employers added 307,000 jobs in October and 252,000 in November. Job creation in 2015 didn’t match that of 2014—the best year for employment growth since 1999. For all of 2015, the economy added an average of 221,000 jobs per month, below the 260,000 averaged in 2014. But last year was the second-best since the turn of the century with solid December hiring. The latest stretch of job gains has run for 63 consecutive months.  The unemployment rate was unchanged at 5% in December for the third month in a row, and the number of jobless people was “essentially unchanged” at 7.9 million, the Labor Department said. The headline number has fallen sharply from a 10% peak during the recession. Economists surveyed by The Wall Street Journal had expected the jobless rate to fall to 4.9%. The unemployment rate was last below 5% in November 2007. The unemployment rate has fallen the past few years in part because Americans are dropping out of the workforce. But that wasn’t the case in December. Labor-force participation ticked higher to 62.6% last month as more people joined the labor force and found jobs. Still, participation remains near levels last seen in the 1970s, in part because baby boomers are retiring but also because discouraged workers have given up on their job searches. The trend started to emerge in the early 2000s but accelerated during the recession.  At $25.24, average hourly earnings for private-sector workers were little changed in December, posting a one-cent decline following a five-cent increase in November. From a year earlier, wages are up 2.5%, matching the best 12-month increase of the year. That is still well below levels seen before the recession. With a tightening labor market, many economists are looking for signs of stronger pay gains, though those have been slow to materialize. Job growth was solid for industries tied to the domestic economy in December. Professional and business services led last month’s job creation, adding 73,000 jobs, followed by gains in construction, health care, food services and drinking places. Cheap oil continues to ravage the U.S. mining industry, a sector that includes oil and gas. Employment in mining shrank by 8,000 in December and the industry has posted job losses every month since December 2014.

Third Strong Payroll Number +292,000; Unemployment Unchanged at 5.0%  - For the third consecutive month we see a strong headline payroll number. The Bloomberg Consensus estimate was 200,000 jobs and the headline total was 292,000. The unemployment rate was steady to 5.0%, the lowest since April 2008.  BLS Jobs Statistics at a Glance:

  • Nonfarm Payroll: +292,000 - Establishment Survey
  • Employment: +485,000 - Household Survey
  • Unemployment: -20,000 - Household Survey
  • Involuntary Part-Time Work: -63,000 - Household Survey
  • Voluntary Part-Time Work: +72,000 - Household Survey
  • Baseline Unemployment Rate: +0.0 at 5.0% - Household Survey
  • U-6 unemployment: +0.0 at 9.9% - Household Survey
  • Civilian Non-institutional Population: +189,000
  • Civilian Labor Force: +466,000 - Household Survey
  • Not in Labor Force: -277,000 - Household Survey
  • Participation Rate: +0.1 at 62.6 - Household Survey
Please consider the Bureau of Labor Statistics (BLS) Current Employment Report. Total nonfarm payroll employment rose by 292,000 in December, and the unemployment rate was unchanged at 5.0 percent, the U.S. Bureau of Labor Statistics reported today. Employment gains occurred in several industries, led by professional and business services, construction, health care, and food services and drinking places. Mining employment continued to decline.

December Jobs Soar by 292K, Smash Expectations But Average Wages Post First Drop Since 2014 --As we noted in the jobs preview, only a super strong number had any chance of prompting a market reaction, and sure enough, the just announced December print of +292,000 smashed expectations of +200K, surging from last month's upward revised 252K, while October was revised to a massive 307,000, a net addition of 50K over the last two months. So time for another rate hike, right? Not so fast: as usual, the fly in the ointment was a well-familiar one: wages simply did not grow, and with Wall Street expecting a 0.2% increase in average hourly wages, in December not only was there no wage growth, but in fact, average hourly earnings posted a tiny decline from $25.25 to $25.24. From the report: The number of unemployed persons, at 7.9 million, was essentially unchanged in December, and the unemployment rate was 5.0 percent for the third month in a row. Over the past 12 months, the unemployment rate and the number of unemployed persons were down by 0.6 percentage point and 800,000, respectively. (See table A-1.) Among the major worker groups, the unemployment rate for blacks declined to 8.3 percent in December, while the rates for adult men (4.7 percent), adult women (4.4 percent), teenagers (16.1 percent), whites (4.5 percent), Asians (4.0 percent), and Hispanics (6.3 percent) showed little or no change. (See tables A-1, A-2, and A-3.) The number of long-term unemployed (those jobless for 27 weeks or more) was essentially unchanged at 2.1 million in December and accounted for 26.3 percent of the unemployed. The number of long-term unemployed has shown little movement since June, but was down by 687,000 over the year. (See table A-12.) The civilian labor force participation rate, at 62.6 percent, was little changed in December and has shown little movement in recent months. In December, the employment- population ratio, at 59.5 percent, changed little. (See table A-1.)

BLS Jobs Situation Was Good in December 2015. Well Above Expectations.: The BLS job situation headlines were good - I would consider this a strong report. As strong as this report appears, there still was an insignificant decline in the rate of employment growth. The rate of growth for employment insignificantly decelerated this month (red line on graph below).

  • The unadjusted jobs added month-over-month was above normal for times of economic expansion.
  • Economic intuitive sectors of employment were strong.
  • This month's report internals (comparing household to establishment data sets) was inconsistent with the household survey showing seasonally adjusted employment growing 485,000 vs the headline establishment number of growing 292,000. The point here is that part of the headlines are from the household survey (such as the unemployment rate) and part is from the establishment survey (job growth). From a survey control point of view - the common element is jobs growth - and if they do not match, your confidence in either survey is diminished. [note that the household survey includes ALL jobs growth, not just non-farm).
  • The household survey added 466,000 people to the workforce.
  • BLS reported: 292K (non-farm) and 275K (non-farm private). Unemployment unchanged at 5.0%.
  • ADP reported: 257K (non-farm private)
  • In Econintersect's December 2015 economic forecast released in late November, we estimated non-farm private payroll growth at 120,000 (based on economic potential) and 160,000 (fudged based on current overrun of economic potential);

The labor market is still moving in the right direction, but has a ways to go before reaching full employment - The top line numbers from this morning’s jobs report suggest that the economy is moving in the right direction, but we need to see a whole lot more movement before we reach full employment. It’s hard to overstate how important true full employment is for workers. In the absence of substantive policy changes to restore workers’ bargaining power, a tight labor market is the one avenue left to improve living standards for the vast majority of workers and their families. In a full employment economy, there are fewer people lined up for every job and employers have to offer higher wages to attract and retain workers. So, it’s really important for the Federal Reserve to let the economy achieve not just a full recovery from the Great Recession, but also genuine full employment.While payroll employment growth in 2015 was a bit weaker than 2014, we ended the year on high note. Payroll job growth in December was strong at 292,000 jobs. While average payroll growth in 2015 (221,000 a month) was still below 2014 (260,000), the last three months saw some decent acceleration. Fourth quarter job growth averaged 284,000, compared to 174,000 in the third quarter. I’m hoping this is an indication of stronger job growth in 2016. If that strong pace continues over the next year, we will return to pre-recession labor market health in the near future. When that happens, we should see better and better wage growth. Nominal average hourly wage growth rose 2.5 percent over the year, which is still too slow, but there have been some signs it’s picking up. In each successive quarter of 2015, average hourly wage growth increased by 0.1 percentage points. I wouldn’t go so far as to say that constitutes substantial acceleration, but the rate of growth has indeed nudged up. It’s important to remember, however, that nominal wage growth is still far below target levels. We need to see stronger and more sustained wage growth, above 3.5 percent, before it would be safe to say we were at full employment and it would be appropriate for the Fed to act to raise rates.

December New Jobs Surprises Forecast; November Had Large Upward Revision - dshort - Here are the lead paragraphs from the Employment Situation Summary released this morning by the Bureau of Labor Statistics: Total nonfarm payroll employment rose by 292,000 in December, and the unemployment rate was unchanged at 5.0 percent, the U.S. Bureau of Labor Statistics reported today. Employment gains occurred in several industries, led by professional and business services, construction, health care, and food services and drinking places. Mining employment continued to decline.Today's report of 292K new nonfarm jobs in November was higher than the forecast of 200K. November's nonfarm payrolls was revised further upward by 41K. The unemployment rate remained at 5.0%. Here is a snapshot of the monthly percent change in Nonfarm Employment since 2000.. The next chart shows the unemployment rate for the civilian population unemployed 27 weeks and over. This rate has fallen significantly since its 4.4% all-time peak in April 2010. It is now at 1.3%, a post-recession low, unchanged from the previous month The next chart is an overlay of the unemployment rate and the employment-population ratio. This is the ratio of the number of employed people to the total civilian population age 16 and over. The inverse correlation between the two series is obvious. We can also see the accelerating growth of women in the workforce and two-income households in the early 1980's. The latest ratio of 59.5% is now at its post-recession high. For a confirming view of the secular change the US is experiencing on the employment front, the next chart illustrates the labor force participation rate. We're at 62.6%, up 0.1% from last month.

Ratio of Part-Time Employed Remains Higher Than the Pre-Recession Levels -  Let's take a close look at Friday's employment report numbers on Full and Part-Time Employment. Buried near the bottom of Table A-9 of the government's Employment Situation Summary are the numbers for Full- and Part-Time Workers, with 35-or-more hours as the arbitrary divide between the two categories. The source is the monthly Current Population Survey (CPS) of households. The focus is on total hours worked regardless of whether the hours are from a single or multiple jobs. The Labor Department has been collecting this since 1968, a time when only 13.5% of US employees were part-timers. That number peaked at 20.1% in January 2010. The latest data point, over five years later, is only modestly lower at 18.2% last month. If the pre-recession percentage is a recovery target, we're just above half-way there. Here is a visualization of the trend in the 21st century, with the percentage of full-time employed on the left axis and the part-time employed on the right. We see a conspicuous crossover during the Great Recession. Since February of this year, the two cohorts oscillated in a narrow range around the crossover point, diverged slightly in August, and began to converge again through November. Here is a closer look since 2007. The reversal began in 2008, but it accelerated in the Fall of that year following the September 15th bankruptcy of Lehman Brothers. In this seasonally adjusted data, the reversal peaked in January of 2010.

The December Jobs Report in 14 Charts - The U.S. economy added 292,000 jobs in December to close out the year with the strongest three-month hiring stretch since January 2015, and the unemployment rate held steady at 5%. The jobs report offers far more than these headline numbers. Here’s a visual run-through the highlights of Friday’s employment survey. December’s job haul means the U.S added 2.65 million jobs last year, which was below the 3.12 million jobs added in 2014, but good enough for the second-best year of job growth since 1999. Employers added on average 221,000 jobs every month last year, down from 260,000 jobs every month in 2014. The 292,000 jobs added in December ended the year with the strongest three-month stretch of hiring gains since January. Average hourly wages ticked down a penny from November, but they were still 2.5% higher than a year earlier. The unemployment rate stayed at 5% and broader measures of underemployment were unchanged from November. The more education a person has, the less likely they are to be unemployed. About 2.5% of college graduates are unemployed compared with 5.6% of those who have no schooling after high school. The share of Americans with jobs, known as the employment-to-population ratio, improved to 59.5%, the highest since May 2009. The labor-force participation rate also climbed slightly to 62.6% from 62.5% in November. Many young people do not work because they are in school, and many people in their late 50s and 60s begin thinking about retirement. But neither of those are primary explanations for what’s happened to labor-force participation among those ages 25 to 54, who are more likely to work than a few years ago, but don’t participate the way they did before the recession. Unemployment rates vary widely across races and genders. While white men and white women have similarly low unemployment rates, a significant gender gap continues between black men and black women, with the men facing unemployment rates nearly two percentage points higher. Hispanic men have somewhat lower unemployment rates than Hispanic women. As of December, the median jobless worker has been unemployed for 10.5 weeks, the shortest period since 2008 and a substantial improvement from 2010 when the typical jobless spell lasted 25 weeks. The share of Americans who have been unemployed and looking for jobs for more than six months is still higher than it was before the recession began eight years ago. During the recession, a majority of the unemployed had been either temporarily or permanently laid off. As the labor market has slowly improved, the unemployed are increasingly made up of those who quit their previous job and new entrants or re-entrants to the labor force, such as recent graduates looking for a job. The economy has now added more than nine million full-time jobs since the current expansion began in July 2009. The economy has recovered all of the full-time jobs lost since the last recession hit eight years ago, though that doesn’t account for the growth in the labor force over that span.

Wage Growth Is Weak. Inflation-Adjusted Wage Growth Is Much Healthier - Today’s jobs report showed that average hourly earnings rose by 2.5% from a year earlier, a figure that many economists have flagged as disappointing. After all, compared with wage growth in the 1980s, 1990s and mid-2000s, today’s wage gains appear to be on the lackluster side. The above chart shows wages for all nonproduction and supervisory workers over the past 30 years. It’s not adjusted for inflation, and we’ll get back to that. Today’s sluggishness appears to be quite broad-based. For the most part, it’s not the case that jobs are being disproportionately generated in industries with low wage growth. In fact, the relatively low rate of wage growth is common across industries. The fastest-growing industry is utilities and the slowest-growing is transportation and warehousing, but both are on the small side, with only about half a million utilities workers and a bit under five million in transportation. The vast majority of the nation’s 143 million payroll employees are in industries with slow growth. But interpreting the figures is not as easy as gauging whether wage growth is up or down. To see why, consider what wages have done over the past 50 years. The last three decades appear to be a considerable disappointment compared with the late 1970s, when wages were growing at nearly a 10% clip. But wait a moment, the late-1970s? Is something missing from this chart? The 1970s is an era that many people (especially economists) remember as an era of underwhelming growth and unrest. The era of stagflation. In fact, stagflation is exactly what’s missing from the chart above. When accounting for the inflation rate, a very different picture begins to emerge—both looking back at the past and considering the situation today.

Comments: Another Strong Employment Report --This was a strong employment report with 292,000 jobs added, and employment gains for October and November were revised up. However wages were mostly unchanged, from the BLS: "In December, average hourly earnings for all employees on private nonfarm payrolls, at $25.24, changed little (-1 cent), following an increase of 5 cents in November. Over the year, average hourly earnings have risen by 2.5 percent." Note: The warm weather might have had a positive impact on this report. As an example, very few people reported they had a full time job, but worked part time due to bad weather (an indicator of the impact of weather). A few more numbers: Total employment is now 4.9 million above the previous peak. Total employment is up 13.6 million from the employment recession low. Private payroll employment increased 275,000 in December, and private employment is now 5.3 million above the previous peak. Private employment is up 14.1 million from the recession low. In December, the year-over-year change was 2.65 million jobs. Typically retail companies start hiring for the holiday season in October, and really increase hiring in November. Here is a graph that shows the historical net retail jobs added for October, November and December by year. This graph really shows the collapse in retail hiring in 2008. Since then seasonal hiring has increased back close to more normal levels. Retailers hired 746 thousand workers (NSA) net in October, November and December. Note: this is NSA (Not Seasonally Adjusted).Since the overall participation rate declined recently due to cyclical (recession) and demographic (aging population, younger people staying in school) reasons, here is the employment-population ratio for the key working age group: 25 to 54 years old. In the earlier period the participation rate for this group was trending up as women joined the labor force. Since the early '90s, the participation rate moved more sideways, with a downward drift starting around '00 - and with ups and downs related to the business cycle. The 25 to 54 participation rate increased in October to 80.9%, and the 25 to 54 employment population ratio was unchanged at 77.4%. The participation rate for this group might increase a little more (or at least stabilize for a couple of years) - although the participation rate has been trending down for this group since the late '90s. This graph is based on “Average Hourly Earnings” from the Current Employment Statistics (CES) (aka "Establishment") monthly employment report.

The Economy Gained Jobs. But We’re Still Not at Full Employment. - About a million Americans have joined the labor force since September. The good news is that nearly all of those individuals have found jobs, and the unemployment rate has remained steady at 5%. These developments contradict the notion that people who have been out of the labor force for an extended period have lost their skills and are no longer employable. Nonetheless, labor-force participation rates for youths and prime-age adults remain well below pre-recession levels. Recent analysis by the Congressional Budget Office indicates that the labor force is substantially smaller than its full-employment level and that an additional 2 million Americans can be expected to rejoin the labor force as long as the job market continues to strengthen. Friday’s numbers also indicate that nominal wage growth remains subdued. The chart above shows the recent evolution of average hourly earnings for all employees. The annualized six-month growth rate has been remarkably steady for the last two years at around 2.2%. But average hourly earnings can vary significantly from month to month. The one-month growth rate spiked last January, reversing the previous month’s decline; that fluctuation accounts for the transitory bump in the latest 12-month growth rate (not shown). These wage data provide further evidence that the labor market is not on the verge of overheating.Sustained payroll gains will be crucial for closing the employment gap. If the economy were to slide into a recession over coming quarters, nonfarm payrolls would be likely to shrink and nominal wage growth might head downward. Conversely, if the recovery stays on track and keeps generating payrolls gains of at least 200,000 jobs per month, the economy should reach full employment sometime next year, and nominal wage growth should also pick up moderately.

The Most Important Message in the December Job Figures -- The jobs number from the Labor Department’s payroll survey, which most people focus on, comes with a large margin of error (about ninety thousand jobs) attached to it, and it’s subject to seasonal adjustments that can go awry, especially when the weather is weird, as it often is these days. To get a more reliable picture of what’s happening, it’s a good idea to look at two or three months’ worth of figures together, taking account of the latest revisions, and also to inspect the numbers in the other half of the jobs report, which come from a household survey carried out by the Census Bureau for the Labor Department. If you do this, you will find that December’s payroll figure wasn’t a fluke. During the last quarter of 2015, employment growth averaged two hundred and eighty-four thousand jobs a month, up from about two hundred thousand in the previous nine months.  Over the past few years, I’ve written several times about the dropouts from the labor force, suggesting that there might be as many as six million of them. Other estimates are smaller, but whatever the actual figure is, it’s a large one, as indicated by the slow growth in the labor force—people working or actively looking for work—and a sharp decline in the labor-force participation rate. (That’s the percentage of the non-institutionalized working-age population that is working or seeking employment.) Between December, 2007, when the Great Recession began, and September of last year, the participation rate fell from sixty-six per cent to a historic low of 62.4 per cent. That fall was much too large to be explained by demographic trends, such as the aging of the baby boomers. It also reflected fallout from the economic slump. Now, at long last, there are signs that things are changing. In the last three months of 2015, according to figures drawn from the monthly household survey, almost a million people—nine hundred and sixty-six thousand of them, to be more precise—joined the labor force. That was more than the growth over the previous twelve months combined, which was seven hundred and thirty-eight thousand. Reflecting the recent surge, the labor-force participation rate has picked up a bit, rising from 62.4 per cent in September to 62.6 per cent in December.

Where The December Jobs Were: Minimum Wage Deluge Continues - Earlier we gave a big picture explanation how the US can add 292,000 while average hourly wages actually decline. Below is a more nuanced answer, looking at the breakdown of jobs by industry in December.  It will probably come as no surprise to anyone that for another consecutive month, the well-paying jobs: mining and logging, wholesale trade, manufacturing, and information barely posted a net increase.Alternatively, the worst quality jobs continued to soar, pushed higher once again by none other than education and health, where Obamacare was once again instrumental to propel healthcare jobs by a 52,600 surge in December. The rest was just ugly: temp help soared by 34,400, while waiter and bartenders added another 36,900. The one surprising, and positive outlier: construction jobs - traditionally a well-paid category - soared by 45,000, something very unexpected for the otherwise freezing month of December. This, however, is easily explained by two words: warm weather. As Goldman admits, "Construction employment rose by a firm 45k, a gain we suspect was helped by warm weather. " This means that in January once the weather effect wears off, all these jobs will be lost and then some. Finally, employment of "couriers and messengers" gained 15k, likely reflecting seasonal adjustment challenges related to secular growth in online holiday shopping. The flip side: thousands of malls are going empty, and soon to crush the CMBS market. The full breakdown is below.

Merrill: Warm Weather "added nearly 100,000 jobs in December" -- A few excerpts from a research note by Merrill Lynch economists Michelle Meyer and Alexander Lin: Melting snowmen   After two brutal winters, we have been enjoying an unprecedented warm winter start. The average temperature in December was 38.6 degrees, versus the previous record of 37.7 and the historical average of 33.2. If we create a national aggregate for temperature which is weighted by state population instead of area, we see an even bigger divergence from the norm in December. The appeal of using population weights is that it will put more emphasis on the temperature in the areas which have a greater economic contribution. Another proxy for gauging the weather in the winter is to show heating degree days, which measures the demand for energy to heat houses or businesses ... the deviation from the norm for heating degree days in December and this past month was literally off the charts... Plugging in the December temperature and snowfall data to the output of the model from Bloesch and Gouri, we find that the weather can explain about 97,000 of job growth. This would imply that without the weather distortion, the economy would have added 195,000 jobs. While we don’t want to give a false sense of precision, this seems like a reasonable approximation. Before the sharp acceleration the past three months, job growth was trending at around 200,000 a month.

Jobs Involving Routine Tasks Aren't Growing - St. Louis Fed -- U.S. labor markets are undergoing important long-run changes. These include:

  • The decline of middle-skill occupations, such as manufacturing and production occupations
  • The growth in both high- and low-skill occupations, such as managers and professional occupations on one end, and assisting or caring for others on the other.

Economists have coined the term “job polarization” for this process. As has been argued in the economic literature, the most likely drivers of job polarization are automation and offshoring, as both these forces lower the demand for middle-skill occupations relative to the rest.  For example, some jobs that require performing routine or repetitive tasks can be automated. Also, some stages of the production process of a good or service can be performed in foreign countries. Therefore, some tasks can be outsourced. In general, the types of tasks that can be outsourced are mostly routine tasks.  Given this, it is important to classify occupations according to how routine their tasks are. It is also important to classify occupations by whether they use mostly cognitive skills or mostly manual skills (brain vs brawn). The following figure shows the evolution of U.S. employment across four types of occupations:

  • Nonroutine cognitive occupations, which include management and professional occupations
  • Nonroutine manual occupations, which include service occupations related to assisting or caring for others
  • Routine cognitive, which include sales and office occupations
  • Routine manual, which include construction, transportation, production and repair occupations

What Occupational Projections Say about Entry-Level Skill Demand - Atlanta Fed's macroblog  On December 8, 2015, the U.S. Bureau of Labor Statistics (BLS) released its latest projections of labor force needs facing the U.S. economy from now until 2024. Every two years, the BLS undertakes an extensive assessment of worker demand based on a number of factors: projected growth in the overall economy, dynamics of economic growth (such as which industries are growing fastest), labor force demographics (for example, the aging of the labor force), and expected changes in the labor force participation rate. Total worker demand includes both the number of workers needed to meet economic growth as well as the number of workers needed to replace current workers expected to retire. A number of observations about these projections have already been identified. For example: overall employment growth will be slower, health care jobs will continue growing, and computer programmer jobs will lose ground. In addition to the number of workers that will be in demand in different occupations in the U.S. economy, the BLS reports the skills that are needed for entry into those occupations—skills pertaining to both education levels and on-the-job training. As I perused this report, I was surprised at how much attention the press pays to the growth in high-skilled jobs at the expense of attention paid to those occupations requiring less skill but actually employ the greatest number of workers.

Intellectual property and the decline of the U.S. labor share - Nick Bunker  Recent research about the decline of the labor share has caused economists to reconsider the continued relevance of the “stylized fact” that the labor share is constant. Labor and capital might have split up income at a constant rate for a while, but that’s just not true now. But what if the fact were never true? A new paper presented at this year’s Allied Social Science Associations meeting claims that the apparent stability in the share of income going to labor never happened. According to the paper, the decline in the U.S. labor share didn’t start in the 1980s or 2000s—it started right after the Second World War. Why has the labor share declined? The rise of intellectual property, it would seem. The paper takes advantage of newly updated GDP data from the U.S. Bureau of Economic Analysis. While the Bureau is constantly releasing new data on economic growth, it also revises previous data. Sometimes those revisions show an increase in total U.S. economic output, and sometimes the revisions show a change in the composition of that output. It’s the latter kind of revision that’s important in this case.

2015 on track to be worst year for layoffs since 2009 - Layoffs fell in November — but not enough to knock 2015 off course from being the worst year for job cuts in six years, according to consultants Challenger, Gray & Christmas. U.S. employers announced planned layoffs of 30,953 workers last month, significantly fewer than the 50,504 job cuts announced in October and also less than the 35,940 in November 2014. But those relatively positive results follow four bad months in which 256,263 job cuts were announced. Oil and other energy industry jobs have accounted for the largest slice of the cuts. Government and retail also saw significant layoffs. So far this year, 574,888 jobs cuts have been detailed nationwide, the worst result since 2009, when 1.27 million cuts were announced. “The fourth quarter tends to experience heavier cuts, as employers make year-end adjustments to workforce levels in order (to) achieve earnings goals,” John A. Challenger, chief executive officer of Challenger, Gray & Christmas, said in a statement. “The November decline could be the quiet before a December storm or it could signal a lower-than-expected downsizing to close out the year. If recent history is any indication, it could be the latter, as December job cuts have been lower than the annual average since the end of the recession.”

With A Straight Face, US Government "Finds" Number Of Retiring 20-Year-Olds Has Doubled - Earlier today we reported that when it comes to one of the most important data series that feed directly into the US GDP calculation, namely construction spending, the US government admitted it had literally made up numbers for the past 10 years. The phrase used was "processing error":  But nothing compares to the latest farce released recently by the Bureau of Labor Statistics, the same guy whom we caught fabricating jobs data back in September 2013. As everyone knows, one of the biggest question marks surrounding the US labor market is the 95 million of Americans not in the labor force, resulting in the lowest labor force participation rate since the mid-1970s. So a few months ago, the Atlanta Fed tried to answer this question. Its answer: the labor force is plunging because people simply "don't want a job." No really: The decrease in labor force participation among prime-age individuals has been driven mostly by the share who say they currently don't want a job. As of December 2014, prime-age labor force participation was 2.4 percentage points below its prerecession average. Of that, 0.5 percentage point is accounted for by a higher share who indicate they currently want a job; 2 percentage points can be attributed to a higher share who say they currently don't want a job. That "explanation" did not fly with the goalseeking statisticians manning the Arima-X-12 seasonal adjustment computers at the BLS, so, as Bloomberg reports, in a new Bureau of Labor Statistics report, career economists tired to provide fresh answers to this critical question. And here we cross in the twilight zone, because while fabricating numbers is one thing, engaging in absolute lunacy as a form of scientific inquiry is a bridge we did not think the BLS would cross. They did. Here's Bloomberg's summary of what the bureau found: For Americans between the ages of 20 and 24, the share of those sidelined over the past decade because they were in school increased, unsurprisingly, during the decade that included the Great Recession. What's more unusual is that the share of 20- to 24-year-olds who say they're retired doubled from 2004 to 2014.

Labor force participation quirks cloud Federal Reserve's outlook - Why are more people retiring in their early 20s? Why are middle-aged men becoming stay-at-home dads? What's keeping women out of the workforce — other than illness, kids or school? Those are some of the questions raised in a new Bureau of Labor Statistics report that shows changes in the past decade in why people stay out of the labor force. Finding answers is key for the Federal Reserve as it maps the contours of a job market that's becoming harder to predict with the aging of baby boomers and shifting household priorities. Here's what the bureau found, broadly: Thirty-five percent of the population was not in the labor force in 2014, up from 31.3 percent a decade earlier. (You're considered out of the workforce if you don't have a job and are not looking for one. That's distinct from the official unemployment rate, which tracks those out of work who are actively job hunting.) Drilling down into the numbers reveals more about the shifts in the reasons some people forgo a paycheck. In all age groups, for instance, more people cited retirement as the reason for being out of the labor force, and it was not just older people. For Americans between the ages of 20 and 24, the share of those sidelined over the past decade because they were in school increased, unsurprisingly, during the decade that included the Great Recession. What's more unusual is that the share of 20- to 24-year-olds who say they are retired doubled from 2004 to 2014.

Software putting lawyers' jobs at risk: Lawyers have been described as the canaries in the coal mine in the face of a wave of automation now beginning to displace highly skilled white-collar workers. In recent years, the increasing reliance on so-called "e-discovery" software in lawsuits raised the spectre that $US35-an-hour paralegals as well as $US400-an-hour lawyers would fall victim to programs that could read and analyze legal documents more quickly and accurately than humans. The fate of lawyers has been seen as a harbinger of a broader wave of worker displacement. The rapid commercialisation of a new generation of artificial-intelligence-derived technologies has led to concerns that technological disruption will extend from white- and blue-collar occupations of largely routine work that can be automated to highly paid professions like legal workers and doctors. That has led to a new round of automation anxiety. Two Massachusetts Institute of Technology economists, Eric Brynjolfsson and Andrew McAfee, and a Silicon Valley software entrepreneur, Martin Ford, have written several books among them - including "Race Against the Machine, "The Second Machine Age", "The Lights in the Tunnel" and "Rise of the Robots" - warning that rapid technological advances might wreak havoc with the economy.

The End of Lawyers? Not So Fast. -  Lawyers have been described as the canaries in the coal mine in the face of a wave of automation now beginning to displace highly skilled white-collar workers.In recent years, the increasing reliance on so-called “e-discovery” software in lawsuits raised the specter that $35-an-hour paralegals as well as $400-an-hour lawyers would fall victim to programs that could read and analyze legal documents more quickly and accurately than humans.The fate of lawyers has been seen as a harbinger of a broader wave of worker displacement. The rapid commercialization of a new generation of artificial intelligence-derived technologies has led to concerns that technological disruption will extend from white- and blue-collar occupations of largely routine work that can be automated, into highly-paid professions like legal workers and doctors.That has led to a new round of automation anxiety. Two Massachusetts Institute of Technology economists, Eric Brynjolfsson and Andrew McAfee, and a Silicon Valley software entrepreneur, Martin Ford, have written several books among them — including “Race Against the Machine,” “The Second Machine Age,” “The Lights in the Tunnel” and “Rise of the Robots,” warning that rapid technological advances might wreak havoc with the economy.Not so fast.Despite the fears of some of a “jobs-pocalypse,” the economy has stubbornly refused to cooperate with the doomsayers. Last month, there were 149 million people employed in the United States, the most in history. And in recent months a growing array of new studies have indicated that the relationship between technological advances and job displacement is more complex and nuanced than pessimists have suggested.

The “white-slaver” awakens: It’s not Disney to whom George Lucas should be apologizing -- George Lucas ended his 2015 in controversy, describing Disney—owners of the Star Wars franchise—as “white slavers.” He quickly apologized. To Disney.Rather than apologizing to a $170bn corporation for hurting its feelings, Lucas should probably apologize to all of his employees from the mid-1980s onwards, and to the tens of thousands of VFX animators and tech engineers and others caught up in the massive wage-fixing cartel that spread across industries and oceans until it was busted up by the Department of Justice in 2010. Better yet, he could pay back some of the stolen wages that VFX tech workers are seeking in a class action antitrust lawsuit that grew out of the landmark Silicon Valley wage-theft lawsuit, and which -- court documents revealed -- was prompted by Pando’s reporting on the Hollywood component of the illegal conspiracy. As readers of our series of articles on the Silicon Valley wage-theft cartel will recall, it was George Lucas himself who first initiated the illegal conspiracy to suppress tech workers’ wages by secretly coordinating recruitment and salaries with competing VFX film companies. Lucas later justified his actions by claiming that had he not secretly suppressed employees’ wages, the small movie studios would’ve gone bankrupt and everyone would’ve suffered. Stealing workers’ wages and their opportunities to protect Lucasfilm’s bottom line may have been an act of selfless benevolence, but it also turned Lucas into a multibillionaire when he sold out to Disney in 2012 and pocketed over four billion dollars for himself.

US: Immigration Crackdown on Central American Families Begins - At least five families of Central American origin in the Atlanta, Georgia area were detained Saturday, a move that immigration advocates see as the beginning of an effort by U.S. authorities to deport thousands of people without immigration status. “We believe this is the beginning, above all if officials went through the trouble of carrying out the detentions on a Saturday,” Adelina Nicholls, executive director of the Georgia Latino Alliance for Human Rights, told Notimex. Nicholls added that relatives did not know the whereabouts of their family members. Nicholls told the Los Angeles Times that they believed some of those recently detained were being held by Immigration and Customs Enforcement at their field office in Atlanta but that the office was an inappropriate place for children to be held. Some have already been flown to detention centers in Texas, including 30-year-old Ana Lizet Mejia along with her nine-year-old son, William. Her aunt, Joana Gutierrez, alleges that ICE officials entered her home without a warrant, presenting a warrant for a man Gutierrez claims she did not know. The officials then searched her home and detained Mejia and her son. "They came in unmarked trucks; they said they had a paper, that they were seeking a black person, I told them there was no one like that, but they went in and removed the children, my niece, my husband, and did not care that the children were crying,” said Gutierrez.

Firm to pay up after making workers clock out for bathroom -- A Pennsylvania company that publishes business newsletters will pay about $1.75 million to thousands of employees who had to clock out while going on short breaks, including for the bathroom. A federal judge has given the U.S. Department of Labor and the Malvern-based company, American Future Systems Inc., until Thursday to submit proposals on how to manage the payment process, The Philadelphia Inquirer reported ( The bill includes back pay and damages to 6,000 employees who worked at offices in Pennsylvania, New Jersey and Ohio between July 2009 and July 2013. The Department of Labor filed a lawsuit in November 2012, claiming the company violated the federal Fair Labor Standards Act because employees weren't earning the minimum wage- $7.25 per hour -when the company required them to clock out for breaks. "No worker should have to face the choice: Do I take a bathroom break, or do I get paid?" said Adam Welsh, an attorney at the U.S. Department of Labor's Philadelphia office.

40% of millennials have used a pawnshop or payday lender -- It’s no secret that today’s 20- and 30-somethings are skittish about the financial system. Watching their parents and grandparents lose a big chunk of their retirement savings during the Great Recession has not exactly endeared them to the stock market. And they’re wary of asking financial advisers, for, well, financial advice, and instead turn to apps, blogs and social clubs. But that fear apparently doesn’t extend to the alternative financial system. More than 40% of millennials used a payday loan, pawnshop, tax refund advance or other alternative financial product in the past five years, according to a survey of more than 5,000 millennials released Thursday by tax and consulting firm PricewaterhouseCoopers. A new report from PwC suggests millennials are struggling to grasp basic financial concepts which is impacting their overall financial well-being. Though it’s hard to see exactly how this rate compares with the general population, it’s pretty clear young people aren’t alone in availing themselves of these products. Nearly the same percentage (39%) of U.S. households used at least one alternative financial service, according to a 2013 survey from the Federal Deposit Insurance Corporation. Consumer advocates have derided these products, saying they target the most financially vulnerable Americans, offering them quick cash and charging them exorbitant fees that leave them saddled with debt it’s difficult to climb out from under. But in many cases, frequent users of these products have few alternatives to bridge the gap between paychecks because they may struggle to get a loan from a traditional financial institution.

Economists Take Aim at Wealth Inequality - Warren Buffett, Bill Gates, Sheldon Adelson and Mark Zuckerberg are just the most visible members of a larger but less-talked-about cadre of the big winners in today’s economy. This group consists of roughly 250,000 Americans who mainly populate the executive offices and managerial suites of major companies and financial institutions, along with a smattering of top law firms, hedge funds and other elite aeries.These people — the top one-quarter of 1 percent of the country’s employed population — have enjoyed explosive gains in income and wealth in recent decades, even as salaries and wages stagnated for the typical American worker. "You hear about C.E.O.s, entertainers, athletes and hedge funders, but that’s the tip of the iceberg,” said Nicholas A. Bloom, a professor of economics at Stanford who is finishing a paper examining the underlying dynamics of income inequality. “It’s a much, much bigger group and they are outpacing everyone else.” Like those of many of his peers who are presenting new research at the annual meeting of the American Economic Association, which began here on Sunday and ends on Tuesday, Mr. Bloom’s findings are bringing to light fresh perspectives on why income inequality is growing and how it is reshaping the national and global economy. While the much-talked-about 1 percent is doing just fine, the supersize gains are taking place even further up the income ladder, according to what Mr. Bloom and four colleagues found by examining 35 years of data from the Social Security Administration. The phenomenon is not limited to Wall Street or the big banks — manufacturers rewarded their top executives every bit as generously as did firms in the finance, insurance and real estate sectors. And this pattern is being repeated in countries where the political landscape is quite different from that of the United States, like Sweden, Germany and Britain.

You can’t fix poverty by breaking the safety net  --Republican Speaker of the House Paul Ryan and Senator Tim Scott are hosting a poverty forum tomorrow for some of the R presidential candidates. In advance, they wrote a joint op-ed in the Wall Street Journal about how they’d fight poverty, and how the damn liberals keep getting it wrong (“A Republican Cure for Liberal Policy Failures on Poverty”). Jeb Bush also spoke on these issues at a recent town hall. Poverty’s a serious problem in America, and I of course welcome their interest. But because their diagnosis is fundamentally flawed, their prescriptions often risk increasing poverty and inequality, while restricting opportunities for millions of American children. Ryan’s theory of the case is that anti-poverty policy as crafted by liberals gives a person a fish, as it were, instead of teaching them to fish for themselves. He writes (with Scott) that, while safety net programs “prevent extreme deprivation,” they’re “not only putting a floor under people’s feet; [they’re] gluing their feet to it.”  Bush says, similarly, that “transfer payments to try to provide for people in poverty [are] actually putting limits on people’s possibilities.” This is merely a gussied up version of “if your only tool is a hammer, then everything looks like a nail.” The idea, and Ryan’s budgets very much underscore this point, is that we can help the poor more by doing less for them. The evidence points strongly in the opposite direction. As CBPP’s Arloc Sherman noted yesterday (and Ben Spielberg and I have explained in detail), a large and growing body of high-quality research, like that described in the graph below, shows that the impact of income support and safety net programs like SNAP and Medicaid do not just occur upon receipt and immediately fade away. They have important, positive long-term benefits for children.

Racial Identity, and Its Hostilities, Are on the Rise in American Politics -  Why do working-class Americans vote as they do?The question has long bedeviled analysts on the left, troubled that people who would largely benefit from a more robust government seem so often to vote for right-leaning politicians eager to cut federal programs to pay for tax cuts for the rich.The unusual Republican presidential primary, evolving from one surprise to the next, has revived the debate, but with an important racial coda. As Donald Trump and Ted Cruz surge in the polls, buoyed by the enthusiastic support of angry white men, they raise a narrower question: What’s going on with working-class whites?Though subtle, this variation reflects an important shift in American politics: Perhaps even more than economic status, racial, ethnic and cultural identity is becoming a main driver of political choice. It suggests that the battle over the purpose and configuration of the American government — what it’s for, who it serves — may become more openly about “us” versus “them,” along ethnic lines. Consider the Trump phenomenon. While polls find that he also leads the Republican pack among women and higher-income voters, by far his most solid support comes from less educated, lower-income white men, according to a Pew Research Center analysis conducted in October.  Similarly, a Quinnipiac University poll last month found that Hillary Clinton would readily beat Mr. Trump in a general election among college-educated voters, while Mr. Trump would eke out victory among those without a college degree. This is also true of the other angry Republican at the top of the list, Senator Ted Cruz.

More Mexicans are leaving the US than coming, recent study shows -- During the most recent Republican debate, Donald Trump declared “people are pouring across the southern border.”  Trump is right that the United States has been a major immigrant destination since the 1960s, but if he is referring to Mexican flows today, he is wrong. According to sociologists Frank Bean and Gillian Stevens, Mexican migration to the United States is “the largest sustained flow of migrant workers in the contemporary world,” and Mexico is the single largest contributor of migrants to the United States since 1965. But here’s what Trump ignores: a recent Pew Report shows that more Mexicans are leaving than coming to the United States – reversing a decades-long trend.The main reason for the trend is family reunification, but this migration back to Mexico is not driven by nostalgia for kin. The reasons behind it are much more complex. Mexican families have to grapple with hard economic and legal realities, and they often conclude that returning to Mexico is their best option. The Pew Report looks at the years between 2009 and 2014. It combines Mexican survey data on the entry of Mexicans and their families – including American children – with US census data on Mexican entries to the United States. The report is designed to overcome the limitations of national statistics that typically ignore departures.  The study shows a net loss of 140,000 Mexican immigrants from the United States. One million Mexican migrants and their children left the US for Mexico, while just over 860,000 left Mexico for the United States.

How Not to Fix a Fiscal Crisis: Puerto Rico’s Population Loss Accelerates - Puerto Rico’s population loss accelerated last year, a troubling sign for an island facing a severe fiscal crisis and a recession entering its 10th year.  The island’s governor said last week that the U.S. territory would make most of roughly $1 billion in debt payments due Jan. 1, largely as it borrows from reserve accounts. It will miss around $37 million in payments on two bonds Monday, and officials have warned of future defaults. The island’s bondholders and the insurance companies that have guaranteed those bonds say Puerto Rico’s elected leaders have made the crisis worse by resisting deeper spending cuts and tax increases. The island’s local government has said there isn’t enough spending to cut or revenue to raise to plug budget deficits and, together with congressional Democrats and the Obama administration, they have called for Congress to create a mechanism for the island to restructure its debt. The population figures, which were released last month, illustrate how Puerto Rico’s fiscal and economic crises are likely to worsen. Puerto Ricans are American citizens, and as they leave the island to seek employment or retirement in the U.S., the island faces a shrinking tax base to pay for debts incurred over the past decade. The Census Bureau report showed that Puerto Rico’s population fell 1.7% in the year ended June, an acceleration from the 1.6% decline for the year before that. The island’s population has fallen by more than 1.1% for five straight years.

Puerto Rico Defaults a Second Time; Claims of “Scheming” Designed to Crush Island Citizens - David Dayen -  The commonwealth of Puerto Rico opened 2016 with their second debt default in as many years. Having followed this issue for several months, I always find it difficult to discern just what was defaulted and what was paid out. CNBC claims that 2 of the 13 scheduled bonds due today went unpaid; $35.9 million to the Puerto Rico Infrastructure Financing Authority (PRIFA) and $1.4 million to the Puerto Rico Public Finance Corporation. But the Times says the island defaulted on “$174 million in debt payments,” even though it refers to the same two bonds. The byzantine rules around what constitutes a default accounts for the discrepancy: With big bond payments looming, (Puerto Rico Governor Alejandro) García Padilla announced last week that he had ordered a “clawback,” or recovery, of cash that would have normally been used to pay certain bonds. Since Nov. 30, he said, that cash had instead been diverted to help make a $328 million payment to the island’s general obligation bondholders, who are entitled to be paid first, according to the Puerto Rican constitution […] The clawback allowed the government to amass enough cash to pay the general obligation bonds,  But it put the other bonds into default, the governor acknowledged. At least one bond insurer, Ambac, freaked out amid the news. Their stock has been falling since last week when the announcement was first made. $37.3 million in bond insurance payouts is one thing, but if this becomes a habit, the monolines simply don’t have the reserves.   The bad news for Puerto Rico is that, without the big ticket items like the R&D tax credit and others to anchor a tax extenders bill, it’s likely that was the last extension, meaning expanded rum tax revenue only has about another year left before reverting back. And that might not be the only revenue source: there are rumors of raids to the public employee pension fund.

Puerto Rico misses second major debt payment as economy struggles - BBC News: Puerto Rico has defaulted for the second time in five months, as the island struggles with massive debt obligations and a flagging economy. Last week, the island's governor said it would pay most, but not all, of the nearly $1bn (£681.6m) it owed, using extraordinary financial measures. Governor Alejandro Padilla has called for the island to be granted bankruptcy rights like those on the mainland. The US Congress is set to debate the issue in the coming weeks. Overall, the island has a total debt load of about $70bn, which Governor Padilla has said the island cannot pay. The biggest payment on Monday was made towards the general obligation (GO) debt, which came to a total of $328.7m. More than half of that payment was made by raiding funds for other government agencies in a special move being dubbed a "clawback", which had the aim of making sure the constitutionally-guaranteed GO debt would be paid. In the end, the manoeuvre meant that the island defaulted on about $37m worth of bonds tied to infrastructure and development institutions on the island. In an interview with CNBC on Monday, Mr Padilla said that the island was bracing for lawsuits, and warned that "every dollar used to pay lawyers will be a dollar...not available to pay creditors".

Puerto Ricans Are Fleeing The Island's Economic Woes: Tens of thousands of Puerto Ricans fled the island in 2015, as Puerto Rico faces an ongoing economic crisis that Congress has failed to address. The island's population shrunk by nearly 61,000 people from July 2014 to July 2015, mostly due to migration, according to estimates released by the Census Bureau last month. Departures from Puerto Rico have increased as jobs have become scarce, and the government has cut back on salaries, benefits and services in order to make payments on its $70 billion in debt.  In fact, Puerto Rico has seen its population decline every year from 2006 through 2015, according to the Census Bureau. The total drop: 9.1 percent over the last decade. No U.S. state has suffered greater population loss over a 10-year span since World War II (though Washington, D.C., has faced larger declines over three such spans). The last time a U.S. state's population plunged by more than 1 percent in a single year, as Puerto Rico's has done for the last five, was when Louisiana lost 6 percent of its populationin the aftermath of Hurricane Katrina in 2005,

Puerto Rico Is Greece, & These 5 States Are Next To Go - The direct indebtedness of US states (excluding revenue bonds) is $500 billion. However, bonds are just one part of the picture: states have another trillion in future obligations related to pension and retiree healthcare. In the summer of 2014, we conducted a deep-dive analysis of US states, incorporating bonds, pension obligations and retiree healthcare obligations. After reviewing over 300 Comprehensive Annual Financial Reports from different states, we pulled together an assessment of each state’s total debt service relative to its tax collections, incorporating the need to pay down underfunded pension and retiree healthcare obligations. While there are five states with significant challenges (Illinois, Connecticut, Hawaii, New Jersey, and Kentucky) , the majority of states have debt service-to-revenue ratios that are more manageable. As a brief summary, we computed the ratio of debt, pension and retiree healthcare payments to state revenues. The blue bars show what states are currently paying. The orange bars show this ratio assuming that states pay what they owe on a full-accrual basis, assuming a 30-year term for amortizing unfunded pension and retiree healthcare obligations, and assuming a 6% return on pension plan assets. States below the green bar are spending less than 15% of total revenues on debt, which seems manageable from an economic and political perspective. When this ratio rises above 15%, harder discussions in the state legislature about difficult choices begin.

It's Not Just Militia Members Who Want to Take Over Federal Land - The federal government owns 47 percent of the 11 Western states. Much of this land is controlled by the Bureau of Land Management and is open for hunting, ranching, logging, mining, and drilling. Usually, these public lands can only change hands with approval from Congress—something that isn't going to happen anytime soon.Nevertheless, Ivory's concept has caught on beyond the militia types who are demanding that the feds give up control of their holdings such as the eastern Oregon wildlife refuge currently held by armed occupiers. The Republican National Committee has endorsed the idea of turning over federal land to the states, and in March, the Senate passed a budget amendment sponsored by Sen. Lisa Murkowski (R-Alaska) that would create a fund for selling or transferring the land. Sen. Ted Cruz (R-Texas) has set forth a proposal that the federal government cannot own more than half the land in any state. Sen. Rand Paul (R-Ky.) has also endorsed state or private control of federal land. "You run into problems now with the federal government being, you know, this bully," Paul told a crowd in June before meeting with Cliven Bundy, the Nevada rancher who refused to pay more than $1 million in fees for grazing his cattle on federal land. The meeting, Bundy said, helped show Paul "the difference between Cliven Bundy's stand and Ken Ivory's stand." Bundy's son Ammon is currently leading the armed occupation in Oregon.

ND taxable sales and purchases drop 25 percent as oil price slump continues - North Dakota posted a double-digit percentage decrease in taxable sales and purchases for the second straight quarter as depressed oil prices continue to drag on the state’s economy. Taxable sales and purchases dropped 25 percent to about $5.8 billion in July, August and September compared with the third quarter of 2014, after a 16 percent decrease during the second quarter, state Tax Commissioner Ryan Rauschenberger said. The third-quarter slide was led by a nearly $729 million, or 53 percent, decrease in the mining and oil extraction sector. “During the third quarter of 2015, North Dakota continued to feel the effects of low commodity prices, which negatively impacted both the agriculture and energy industries,” Rauschenberger said. “The decrease in spending statewide is a direct outcome.” Rauschenberger said the third-quarter figures will play a major role in a new state revenue forecast being conducted by Moody’s Analytics and expected to be completed later this month. State tax revenues fell $40 million short of projections in November and were $152 million below forecast during the first five months of the biennium from July through November. Office of Management and Budget Director Pam Sharp has said it’s very likely that state agencies will see across-the-board budget cuts after the new forecast comes out.

New York governor orders officials to force homeless into shelters during freezing weather - (Reuters) - New York Governor Andrew Cuomo signed an executive order on Sunday requiring local officials throughout the state to force the homeless into shelters when temperatures dip below freezing, and vowed to defend the edict if challenged in court. The order, which goes into effect on Tuesday, requires social service agencies and police to move homeless individuals into shelters, against their will if necessary, when the temperature is at or below 32 degrees Fahrenheit (O degrees Celsius).   New York and other big U.S. cities have long wrestled with the dilemma of dealing with homeless people who refuse to be taken to shelters, even in the most bitter cold. Many of them fear falling victim to crime in the shelters. The order also requires shelters to extend hours of operation to ensure that homeless people can stay inside whenever there is "inclement winter weather which can cause hypothermia, serious injury and death." Officials at the Coalition for the Homeless advocacy group in New York City could not be immediately reached for comment. New York City Mayor Bill de Blasio's office said it supported the intent of the order, but added that Cuomo will need to pass a law to force homeless individuals into shelters, according to a statement given to the New York Times. Cuomo said during an interview with news radio station WCBS-AM that he is prepared to defend the order's constitutionality in court. According to the order, more than 77,000 emergency shelter beds are available for homeless single adults, families and unaccompanied youth in the state. More than 80,000 homeless individuals live in the state, according to a 2015 report by the National Alliance to End Homelessness. The order said the state will assist local agencies if they lack the necessary resources.

Something Went Wrong In Baltimore -- It has been a bloody year in Baltimore, that much everyone knows, but as The Economist shows, something changed dramatically after Freddie Gray's death in April... On November 14th the police department reported the city’s 300th homicide in 2015, a total not seen since 1999. The surge in killings in the majority-black city of roughly 623,000 began after the death on April 19th of Freddie Gray, a 25-year-old black man who was fatally injured while in police custody. Since Mr Gray’s death the city has recorded 244 homicides, a 78% increase over the same period in 2014, representing more than 100 additional deaths. Criminologists and city officials disagree as to the causes:

  • Some say police have deliberately pulled back from poor, black neighbourhoods, a theory that the police disputes.
  • Others blame an influx of drugs from pharmacies looted during the April riots.
  • A third theory is that a decline in trust between the police and the policed has had deadly consequences: fewer residents talk to the police, which leads to fewer murders being solved, which - by lowering the odds of being caught - results in more murders.

Whatever the reason, the killing continues. Just hours after the 300th murder, police reported a shooting in the city’s Westport neighbourhood, the fourth homicide of the day. The total for the year now stands at 305.

Entire Florida Police Dept Busted Laundering Tens of Millions for International Drug Cartels – The village of Bal Harbour, population 2,513, may have a tiny footprint on the northern tip of Miami Beach, but its police department had grand aspirations of going after international drug traffickers, and making a few million dollars while they were at it. The Bal Harbour PD and the Glades County Sheriff’s Office set up a giant money laundering scheme with the purported goal of busting drug cartels and stemming the surge of drug dealing going on in the area. But it all fell apart when federal investigators and the Miami-Herald found strange things going on.The two-year operation, which took in more than $55 million from criminal groups, resulted in zero arrests but netted $2.4 million for the police posing as money launderers. Members of the 12-person task force traveled far and wide to carry out their deals, from Los Angeles to New York to Puerto Rico. Along the way, the small-town cops got a taste of luxury as they used the money for first-class flights, luxury hotels, Mac computers and submachine guns. Meanwhile, the Bal Harbour PD and Glades County Sheriffs were buying all sorts of fancy new equipment. Besides these “official” uses of the money, confidential records obtained by the Miami-Herald show that officers withdrew hundreds of thousands of dollars with no record of where the money went.  “They were like bank robbers with badges,” said Dennis Fitzgerald, an attorney and former Drug Enforcement Administration agent who taught undercover tactics for the U.S. State Department. “It had no law enforcement objective. The objective was to make money.”

Google Is Collecting Information On Public School Students – Here's How -  The more you read, the more you realize the importance of extreme vigilance when it comes to what’s happening at whatever place you send your kids to for majority of their day. One such example relates to Google’s penetration of the U.S. public school system, and how the company employs a loophole in order to collect data on children. Google achieves this by referring to itself as a “school official” under the law. I truly wish I was making this up. From the Washington Post: Google is a major player in U.S. education. In fact, in many public schools around the country, it’s technically a “school official.” And that designation means parents may not get a chance to opt out of having information about their children shared with the online advertising giant.  The combined allure of Google’s free suite of productivity tools and cheap laptops that use the company’s Web-based ChromeOS operating system have made Google’s products a popular choice at schools around the country. And the company’s growing dominance is raising concern from some privacy advocates who allege it is using some student data for its own benefit. Google’s standard agreement for providing its education suite defines the company as a “school official” for the purpose of that student privacy law. In Google’s case, the company is providing software that districts might otherwise have to develop or support themselves, such as email services or tools that help students digitally collaborate on assignments. But schools are supposed to have “direct control” of how a company or individual uses and maintains education records to deem them a “school official,” according to the department’s regulation. Khaliah Barnes, an associate director at the Electronic Privacy Information Center or EPIC, argues that isn’t happening with many ed tech providers, including Google.

Solitary confinement of Nebraska youth said 'disturbing' -- Jacob Rusher was a status offender in his mid-teens, charged with crimes that would not be crimes if he were an adult. He was put in the Douglas County Youth Facility three times between 15 and 17. Each time, he was placed in lockdown, the first time “for his own good” because he had a broken ankle. What might have been a few weeks in isolation turned into three months, according to a report on kids in solitary confinement released Monday by ACLU of Nebraska. After Rusher pounded on the door and begged them to release him, he was charged with “inciting a riot.” His second and third visits to solitary lasted more than three months each and came after he was attacked by older gang members. "It was 23 hours a day alone, no TV or radio. You were in there with one book, a blanket, a mat and a toothbrush. No art materials, no hobby items — everything was considered contraband. No classes or school while on lockdown," Rusher, now 24, said in the report. He developed a pacing habit -- one wall to the other -- that hangs on today, he said. While he paced, he would imagine he was in one of the books he was reading. And at night, he said, he'd get a little crazy, with the lights on at all hours. In the report, "Growing Up Locked Down: Juvenile Solitary Confinement in Nebraska," ACLU of Nebraska said it has uncovered some disturbing trends in how state and county lockups in Nebraska use solitary confinement to discipline youths in custody.

Report: Detroit Public Schools owe $3.5B; out of cash in April?: Desks sit emply at Burton International Academy in Detroit as a power outage made it impossible to hold classes Tuesday Feb. 4, 2014. Detroit Public Schools is grappling with an escalating problem with power outages that threatens to impact their efforts to improve academic achievement. A new report says Detroit Public Schools' total debt tops $3.5 billion, while district officials are warning that DPS is in danger of running out of cash this spring. The report, released today by the Citizens Research Council of Michigan, offers the first detailed breakdown of employee legacy costs and sheds light on how the district's borrowing practices have added to the crisis, said Craig Thiel, senior research associate for the council. It urges state officials to take quick action. "The sheer size of the debts suggests that the district isn’t going to be able to get out of them on their own," Thiel said. "The takeaway is, something has got to be done. It can't be business as usual. Business as usual has always added to the problem." The report says DPS has $1.9 billion in operating liabilities, which are mostly employee legacy costs — such as unfunded pension benefits — and also include past cash flow borrowing. The district has another $1.7 billion in debt related to bonds and state loans for capital improvements.

Report highlights DPS debt burden: "Emergency manager regime has not worked" | Michigan Radio:  A new report lays out the stark reality of how the Detroit Public Schools is rapidly sinking under its debt burden. The report from the Citizens Research Council of Michigan also details how the district accumulated its $3.5 billion debt load by mid-2015. Almost $1.9 billion of that is “operational” debt – meaning it’s paid off by money that could otherwise be used in the classroom and for other day-to-day district expenses. Robert Bobb was the first of four DPS emergency managers. He was appointed by Gov. Granholm in 2009. Credit Sarah Hulett / Michigan RadioThe remainder is capital debt, such as bonds, largely paid for by local millages and other dedicated local taxes. Craig Thiel, a CRC senior researcher and one of the report’s authors, says much of the operational debt stems from pension and other retiree costs, which come due over many years. Of more concern are the debts coming due much sooner, including more than $430 million in “short-term” borrowing from the Michigan Finance Authority, about $260 million of which the state allowed the district to refinance on several occasions. These are “cash advances that the district received in previous years, that they weren’t able to repay within the year that the funds were borrowed,” said Thiel. “That then becomes a long-term liability on the district’s books.” Then there’s the $81 million in missed payments to the Michigan Public School Employee Retirement System (MPSERS) that DPS didn’t make during the last school year to conserve cash. While the state and district have reached an agreement for DPS to pay back some of that money, Thiel says it doesn’t cover the total delinquency, which now amounts to at least $115 million. In many ways, the report presents a more detailed picture of what’s already well-known: that without some kind of state rescue package, DPS will tip into insolvency sometime before the end of this school year.

Are Charter Schools the New Subprime Mortgages? - naked capitalism - Yves here. University of Connecticut professor Preston Green and his co-authors warn that the rapid growth of charter schools is producing a charter school “bubble”. Key to the rise of charter has been lax and fragmented oversight, particularly the use of “multiple authorizers” to who approve charter schools, but have no obligation to deal with the mess when schools underperform or fail.

  • EduShyster: It’s unusual to see the words *hair-raising* and *academic study* in tandem, but your new study merits that marriage. You and your co-authors make the case that, just as with subprime mortgages, the federal government is encouraging the expansion of charter schools with little oversight, and the result could be a charter school *bubble* that blows up in urban communities. Do I have it right?
  • Preston Green: The problem of subprime mortgages began in part because the government tried to increase homeownership for poor people and minorities by enabling private entities to offer more mortgages without assuming the risk. Under the old system, the mortgage originator was still at risk if the mortgage went into default. With subprime, they were able to spread that risk by selling the mortgages on the secondary market. You had all these mortgage originators that could issue more mortgages without careful screening because they no longer had skin in the game. Now how are charter schools similar to subprime? In the charter school context, charter school authorizers are like mortgage originators.

Cities look at subsidized housing to stem teacher shortages: The studio apartment Jiménez rents for $1,783 a month, or 43 percent of her salary, is located in one of San Francisco's sketchiest neighborhoods. Getting home involves running a gauntlet of feces-strewn sidewalks, popping crack pipes, discarded needles and menacing comments — daily irritants that become more daunting after dark.  "You have so many things to do to prep for the next day, but it's gotten to the point where even if I leave at a decent time I will walk three blocks out of my way to avoid some streets." It's a scenario that has Jiménez wondering if she should find a profession that pays more, and public officials here and in other cities looking at housing as a tool to prevent the exodus of young educators like her. Inspired by the success in the heart of the Silicon Valley of a 70-unit teachers-only apartment complex, school districts in high cost-of-living areas and rural communities that have long struggled to staff classrooms are considering buying or building rent-subsidized apartments as a way to attract and retain teachers amid concerns of a looming shortage.Housing costs especially have become a point of friction for teachers in expensive cities such as Seattle, where teachers who went on a one-week strike in September said they could not afford to live in the same city as the children they teach. In San Francisco, where many of Jiménez's colleagues have roommates or long commutes, addressing the affordability crisis for teachers was one of the main selling points of a housing bond voters approved in November, the first to pass in a generation.

A long look at AP students in public schools - This morning, I released a paper looking at the growth of Advanced Placement (AP) course-taking in public schools between 1990 and 2012. AP programs are valued by students looking for early college credit and an edge in the college admissions race. But the AP brand is valued by high schools seeking to burnish their image, by college admissions department looking for signs of excellence, by media outlets rating high school quality, and by policymakers regularly calling to expand AP access.  In the past two decades, AP certainly has expanded, with the College Board reporting more than 2 million students taking AP exams in 2013 — twice the number just ten years earlier. In fact, in an education system long focused on helping low-performing students, AP has filled a vacuum of attention to high performers, growing into the default program for advanced coursework in public high schools. Given the importance of AP programs, I wanted to look at AP participation among public schools graduates to address two primary criticisms that have been leveled at AP over the years: first, inequity in AP participation by race and poverty level; and second, whether AP is expanding too quickly and watering down its rigor. Unfortunately, College Board data don’t make it easy to look at the growth in AP courses in public schools, where most students receive advanced coursework. And other independent research on AP has not taken a national longitudinal view on public schools programs. This report is a start in filling that gap.

Illinois college moves to fire professor who said Muslims, Christians worship same God | Reuters: Wheaton College, an evangelical Christian university outside of Chicago, said on Tuesday it was taking steps to fire a tenured political science professor after she wrote in a Facebook post that Muslims and Christians worship the same God. Dr. Larycia Hawkins wrote on the social media site on Dec. 10 that she was donning the hijab head scarf during the period of advent before Christmas as a sign of solidarity with Muslims. In her post she said "we worship the same God." Hawkins was placed on administrative leave after the comment drew criticism, and on Tuesday the school said in a statement Wheaton's provost had delivered a notice to President Philip Ryken recommending her employment be terminated. "This Notice follows the impasse reached by the parties," the statement said. "Dr. Hawkins declined to participate in further dialogue about the theological implications of her public statements," it said. The school has said that Hawkins was not placed on leave because she wore a hijab, but because her "theological statements seem inconsistent with Wheaton College’s doctrinal convictions."

Chart of the Day: Universities Are Pretty Liberal Places - The chart on the right comes from Heterodox Academy, a group founded a few months ago to promote more ideological diversity on university campuses. What it shows is unsurprising: over the past few decades, university faculties have become almost entirely liberal. And this is for all university faculty. According to HA, humanities and social science faculty are closer to 95 percent liberal.  Why? Paul Krugman thinks it's because conservatives went nuts starting in the 80s, so nobody with any intelligence and genuine curiosity wants to associate with them anymore. Michael Strain suggests that it might be because faculties actively discriminate against conservative job candidates. This argument has been going on forever, and there are a few basic points of view:

  • Undergrads, especially in the humanities, are mostly liberal, which means that PhD program fill up with liberals. Conservatives just aren't interested in the liberal arts these days, so there are very few to choose from when it comes time to hire new faculty.
  • Being exposed to graduate work in the humanities converts a lot of people to liberalism.
  • Liberal arts departments consider conservative views inherently racist/sexist/etc. and are loath to hire anyone who promotes conservative views.

Needless to say, all of these interact with each other, and more than one may be right. But here's what I don't get: why the endless argument? These all seem like eminently testable hypotheses:

As States Cut Funding, Tuition at Public Colleges Soars -  It’s been eight years since the Great Recession caused many states to scale back their higher education budgets, and the vast majority of states haven’t fully restored that spending despite improvements in the overall economy. A new report from the research firm Young Invincibles, a millennial advocacy group, finds that 48 states -- all but Alaska and North Dakota -- are spending less per student on higher education than they did before the recession. Louisiana’s funding has fallen the most since the recession (41 percent), followed by Alabama (39 percent) and Pennsylvania (37 percent). On average, states have cut funding per student by 21 percent since the recession. Tuition at public schools has increased 28 percent over the same period. (Private school tuition has increased about 20 percent in that period, according to the College Board.) Tuition hikes vary greatly by state, with Ohio, Missouri and Maryland seeing total increases of less than 10 percent since 2008. The cost of public higher education in some other states has skyrocketed, led by Arizona (72 percent), Georgia (68 percent) and Louisiana (66 percent). Analysts graded each of the states on its support for higher education, with 19 states receiving a failing grade, up from 11 states last year. Wyoming was the only state in the country to receive a grade of “A” on the report. Three-quarters of American college students attend public colleges. A separate December poll by Young Invincibles found that more than 80 percent of millennial voters supported increasing state funding for higher education.

The trouble with student loans? Low earnings, not high debt - Susan Dynarski - If you even casually follow the news, you have probably heard that Americans owe a record $1.3 trillion in student loans. Student loans are now second only to mortgages as the largest source of household debt.[i] Seven million borrowers are in default, and millions more are behind on their payments.[ii] Readers—and politicians—often connect these two data points: higher debt must lead to increased risk of defaults. But the fact is that default is highest among those with the smallest student debts. Of those borrowing under $5,000 for college, 34 percent end up in default. This default rate actually drops as borrowing increases. For those borrowing more than $100,000, the default rate is 18 percent.[iii] Among graduate borrowers—who tend to have the largest debts—just seven percent default on their loans.[iv] What explains this odd pattern? Earnings. The big borrowers tend to be those who attended graduate school, or who earned undergraduate degrees at expensive, elite institutions. These borrowers spent many years in college, and so racked up many years of debt. But they built up a lot of human capital during their college careers (and brought a lot with them in the first place), which pays off in the labor market. The small borrowers tend to be those who spent just a year or two at a for-profit or community college. They spent little time in college, and so racked up little debt. But they also built up little human capital (and had low stocks to begin with), and so do relatively poorly in the labor market.

Expand, Don't Cut Social Security - Americans are facing an unprecedented retirement security crisis. Right now, we have a $7.7 trillion retirement savings gap – meaning that for the first time in our country’s history, current and future retirees are preparing for a lower standard of living in retirement than their parents. And, with 38.3 million working age households with zero retirement savings, our elected officials must look for ways to expand the only guaranteed source of retirement security: Social Security. As the New York Times says:Nearly all Republican candidates have called for cuts to Social Security benefits. Jeb Bush, Chris Christie, Ted Cruz and Marco Rubio all favor cutting benefits by delaying the age for full benefits; the retirement age is already set to rise to 67 for people born in 1960 or later. They say a higher retirement age is needed to keep up with longer lives. But data show that life expectancy is growing faster among the wealthy than among the poor, and poor women are seeing life expectancy decline. So raising the retirement age across the board would hit lower-income workers the hardest.  Mr. Bush, Mr. Christie and Mr. Cruz have also endorsed reducing future cost-of-living adjustments in Social Security, even though there is no compelling evidence that the current adjustment is too high.  Mr. Bush and Mr. Cruz have said that Social Security payroll taxes should be diverted into new private accounts for employees, a reprise of President George W. Bush’s failed privatization attempt in 2005. Private accounts do not enhance retirement security. They divert money that would otherwise finance Social Security to Wall Street and shift the risk from government to individuals. Donald Trump opposes benefit cuts, including a higher retirement age, but he has offered no meaningful ideas for reform. The Democratic candidates have played defense and offense. They have opposed benefit cuts and privatization. They have proposed increasing the system’s revenues by raising the ceiling on the amount of wages, currently $118,500, that are subject to payroll taxes. That reform is overdue. If the wage ceiling had kept pace with the income gains of high earners over the decades, it would be about $250,000 today.

Employees pay 130% more for health care than a decade ago - Employees of midsize and large companies in 2015 paid an average of $4,700 for their health insurance, up from $2,001 in 2005, according to recent analysis from Aon Hewitt. Because they are looking for solutions to high costs, companies are changing the design of their benefit programs, Aon Hewitt Senior Vice President Mike Morrow said, moving toward leaner plans. In fact, 38% of employers have increased their participants’ deductibles and/or copays in the last year, and another 46% may do so in the future, the report from Aon said. Companies are also beginning to offer high-deductible health plans (HDHPs) more frequently, an option that didn’t really exist for employers until the last decade, said Gerald Kominski, the director of the UCLA Center for Health Policy Research; they are now the second-most popular plan choice, surpassing health-maintenance organization plans (HMOs). Employers are making cutbacks in health coverage in other ways, too. Some 18% of companies are reducing subsidies for covered dependents, and 17% are adding a surcharge for adult dependents who have access to other health coverage. Plus, 43% of companies are considering using unitized pricing, in which employees pay per person instead of individual versus family. “It comes down to a fairness-and-equity point of view,” Morrow said. “If you are covering many more members of your family than another employee, is it fair that your contributions are the same?” These types of increases in health-care costs do make a significant impact on workers’ purchasing power, since they happen faster than increases in wages, Kominski said.

Many See I.R.S. Penalties as More Affordable Than Insurance - Mr. Murphy, an engineer in Sulphur Springs, Tex., estimates that under the Affordable Care Act, he will face a penalty of $1,800 for going uninsured in 2016. But in his view, paying that penalty is worth it if he can avoid buying an insurance policy that costs $2,900 or more. All he has to do is stay healthy.“I don’t see the logic behind that, and I’m just not going to do it,” said Mr. Murphy, 45, who became uninsured in April after leaving a job with health benefits to pursue contract work. “The fine is still going to be cheaper.”Two years after the Affordable Care Act began requiring most Americans to have health insurance, 10.5 million who are eligible to buy coverage through the law’s new insurance exchanges were still uninsured this fall, according to the Obama administration. That number appears to be shrinking: Administration officials said last month that about 2.5 million new customers had bought insurance through, the federal exchange serving 38 states, since open enrollment began on Nov. 1. The number of new enrollees is 29 percent higher than last year at this time, suggesting that the threat of a larger penalty may be motivating more people to get covered.

Even Insured Can Face Crushing Medical Debt, Study Finds - The number of uninsured Americans has fallen by an estimated 15 million since 2013, thanks largely to the Affordable Care Act. But a new survey, the first detailed study of Americans struggling with medical bills, shows that insurance often fails as a safety net. Health plans often require hundreds or thousands of dollars in out-of-pocket payments — sums that can create a cascade of financial troubles for the many households living paycheck to paycheck.   In the new poll, conducted by The New York Times and the Kaiser Family Foundation, roughly 20 percent of people under age 65 with health insurance nonetheless reported having problems paying their medical bills over the last year. By comparison, 53 percent of people without insurance said the same.These financial vulnerabilities reflect the high costs of health care in the United States, the most expensive place in the world to get sick. They also highlight a substantial shift in the nature of health insurance. Since the late 1990s, insurance plans have begun asking their customers to pay an increasingly greater share of their bills out of pocket though rising deductibles and co-payments. The Affordable Care Act, signed by President Obama in 2010, protected many Americans from very high health costs by requiring insurance plans to be more comprehensive, but at the same time it allowed or even encouraged increases in deductibles. “We’re at a point where there’s been slow growth in health care costs and huge improvements in the numbers of people who have health insurance,” said Sara Collins, a vice president at the Commonwealth Fund, a health research group. “But there is this underlying trend towards higher cost sharing that could put increasing numbers of people at risk for being underinsured.”

More people turn to faith-based groups for health coverage | Fox News: A growing number of people are turning to health-care ministries to cover their medical expenses instead of buying traditional insurance, a trend that could challenge the stability of the Affordable Care Act. The ministries, which operate outside the insurance system and aren’t regulated by states, provide a health-care cost-sharing arrangement among people with similarly held beliefs. Their membership growth has been spurred by an Affordable Care Act provision allowing participants in eligible ministries to avoid fines for not buying insurance. Ministry officials estimate they have about 500,000 members nationwide, more than double the roughly 200,000 members before the law was enacted in 2010.The membership growth was largely unanticipated by ministry officials when the groups obtained an exception to the law. Only ministries in continuous operation since at least Dec. 31, 1999 are exempt from the ACA. The carve-out was intended to satisfy what at the time were relatively small religious groups that argued that their nonparticipation was a matter of religious freedom. But now, some insurance commissioners are concerned that the ministries could put consumers at risk if bills aren’t paid. The ministries aren’t overseen by state commissioners, which generally guard against unfair practices and ensure solvency.

By the end of my first year as a doctor, I was ready to kill myself -- On my morning drives to the hospital, the tears fell like rain. The prospect of the next 14 hours – 8am to 10pm with not a second’s respite from the nurses’ bleeps, or the overwhelming needs of too many sick patients – was almost too much to bear.  By the time I neared the end of my first year as a doctor, I’d chosen the spot where I intended to kill myself. I’d bought everything I needed to do it. All my youthful enthusiasm for healing, big dreams of saving lives and of making a difference, had soured and I felt an astronomic emptiness. Made monumentally selfish by depression, I’d ceased even to care what my husband would think of me, or that my little boy would grow up without his mother.  Doctor suicide is the medical profession’s grubby little secret. Female doctors are twice as likely as the general population to take our own lives. A US study shows our suicide rate appears higher than that of other professional groups, with young doctors at the beginning of their training being particularly vulnerable. As I wrestled silently with the urge to kill myself, another house officer in my trust went right on and did it. To me, that monstrous waste of young life seemed entirely logical. The constant, haunting fear of hurting my patients, coupled with relentless rotas at work, had rendered me incapable of reason.  Though we know large numbers of doctors kill themselves, what is less clear are the reasons why, when dedicated to preserving human life, some doctors silently plot their own deaths. A 2006 study at the University of Pennsylvania identified that during their first year as doctors, young physicians experienced skyrocketing rates of burnout, with symptoms of emotional exhaustion, depersonalisation, and reduced sense of personal accomplishment soaring from 4% to 55%.

The Opposition to Guidelines Discouraging Overuse of Narcotics --  As I have written before as a physician who saw too many dire results of intravenous drug abuse, I was amazed how narcotics were pushed as the treatment of choice for chronic pain in the 1990s, with the result that the US was once again engulfed in an epidemic of narcotic abuse and its effects.  In mid-December, 2015, as reported in the Washington Post,  The nation continues to suffer through a widespread epidemic to prescription opioids and their illegal cousin, heroin. The CDC estimated that 20 percent of patients who complain about acute or chronic pain that is not from cancer are prescribed opioids. Health-care providers wrote 259 million prescriptions for the medications in 2012, ‘enough for every adult in the United States to have a bottle of pills,’ the CDC wrote.  Last week, the National Center for Health Statistics reported that the number of overdose deaths from legal opioid drugs surged by 16.3 percent in 2014, to 18,893, while overdose fatalities from heroin climbed by 28 percent, to 10,574. Authorities have said that previous efforts to restrict prescription drug abuse have forced some people with addictions to the medications onto heroin, which is cheaper and widely available. This rising tide of death and morbidity seems to have been fueled by reckless, sometimes deceptive, sometimes illegal marketing by the pharmaceutical companies that produced narcotics other than heroin.

Human-Animal Chimeras Are Gestating on U.S. Research Farms - MIT Technology Review - Braving a funding ban put in place by America’s top health agency, some U.S. research centers are moving ahead with attempts to grow human tissue inside pigs and sheep with the goal of creating hearts, livers, or other organs needed for transplants. The effort to incubate organs in farm animals is ethically charged because it involves adding human cells to animal embryos in ways that could blur the line between species. Last September, in a reversal of earlier policy, the National Institutes of Health announced it would not support studies involving such “human-animal chimeras” until it had reviewed the scientific and social implications more closely. The agency, in a statement, said it was worried about the chance that animals’ “cognitive state” could be altered if they ended up with human brain cells. The NIH action was triggered after it learned that scientists had begun such experiments with support from other funding sources, including from California’s state stem-cell agency. The human-animal mixtures are being created by injecting human stem cells into days-old animal embryos, then gestating these in female livestock. Based on interviews with three teams, two in California and one in Minnesota, MIT Technology Review estimates that about 20 pregnancies of pig-human or sheep-human chimeras have been established during the last 12 months in the U.S., though so far no scientific paper describing the work has been published, and none of the animals were brought to term.

Scientists prove drugs can alter personality permanently -  By altering parts of the DNA of ants using drugs injected directly into their brain, scientists have shown that fundamental changes can be made which could lead to uses within humans to improve memory and learning.  According to reports from the magazine Science, the University of Pennsylvania conducted an experiment where researchers tried to change the personalities and jobs of carpenter ants and have now proven that drugs will not only do that, but do it permanently.  The study discovered that by using injectible drugs to alter the DNA of carpenter ants, they could make the scout ants that normally forage for food disinterested in doing so. The experiment involved altering the balance of epigenetic chemicals known as acetyl groupsm which are attached to histone protein complexes around which the DNA strands wrap around cell nucleus.  By using these drugs and altering those acetyl groups the scientists could, in effect, reprogram the ant’s DNA and alter foraging behaviors. This discovery leads to potentially larger animals and how their behavior can potentially be altered by manipulating the epigenetic materials in their DNA.

At C.D.C., a Debate Behind Recommendations on Cellphone Risk -  When the Centers for Disease Control and Prevention published new guidelines 18 months ago regarding the radiation risk from cellphones, it used unusually bold language on the topic for the American health agency: “We recommend caution in cellphone use.”The agency’s website previously had said that any risks “likely are comparable to other lifestyle choices we make every day.”Within weeks, though, the C.D.C. reversed course. It no longer recommended caution, and deleted a passage specifically addressing potential risks for children.Mainstream scientific consensus holds that there is little to no evidence that cellphone signals raise the risk of brain cancer or other health problems; rather, behaviors like texting while driving are seen as the real health concerns. Nevertheless, more than 500 pages of internal records obtained by The New York Times, along with interviews with former agency officials, reveal a debate and some disagreement among scientists and health agencies about what guidance to give as the use of mobile devices skyrockets.Although the initial C.D.C. changes, which were released in June 2014, had been three years in the making, officials quickly realized they had taken a step they were not prepared for. Health officials and advocates began asking if the new language represented a policy change. One state official raised the question of potential liabilities for allowing cellphones in schools.

FDA Bans Three Chemicals Linked to Cancer From Food Packaging -- Under pressure from the Environmental Working Group (EWG) and other environmental and health groups, the U.S. Food and Drug Administration (FDA) is banning three grease-resistant chemical substances linked to cancer and birth defects from use in pizza boxes, microwave popcorn bags, sandwich wrappers and other food packaging.  The FDA’s belated action comes more than a decade after EWG and other advocates sounded alarms and five years after U.S. chemical companies stopped making the chemicals. It does nothing to prevent food processors and packagers from using almost 100 related chemicals that may also be hazardous. “Industrial chemicals that pollute people’s blood clearly have no place in food packaging,” EWG President Ken Cook said. “But it’s taken the FDA more than 10 years to figure that out and it’s banning only three chemicals that aren’t even made any more.

State of emergency declared over polluted drinking water in Michigan city - Michigan governor Rick Snyder has declared a state of emergency in Flint over problems with lead in the city’s drinking water as federal officials confirm they are investigating the matter.   Snyder announced the action on Tuesday. It makes available state resources in cooperation with local response and recovery operations.   Federal prosecutors also said on Tuesday they are working with the US Environmental Protection Agency on an investigation into problems with lead in Flint’s water supply.  The city temporarily switched from Detroit’s water system to Flint river water in a cost-cutting move in 2014, while under state financial management.   Residents complained about the water’s taste, smell and appearance and children were found to have elevated levels of lead.  Last week, Snyder apologized and Michigan’s top environmental regulator resigned.

Snyder declares emergency as feds probe Flint water: Although the state assisted Flint in switching its drinking water supply back to Lake Huron water from Flint River water in October, there are concerns that lead problems persist due to damage the corrosive river water caused to the water distribution system. "By declaring a state of emergency, Snyder has made available all state resources in cooperation with local response and recovery operations," the news release said. The declaration authorizes the emergency management and homeland security division of the Michigan State Police to coordinate state efforts. "The health and welfare of Flint residents is a top priority, and we’re committed to a coordinated approach with resources from state agencies to address all aspects of this situation,” Snyder said in the release. “Working in full partnership with the Flint Water Advisory Task Force, all levels of government and water quality experts, we will find both short-term and long-term solutions to ensure the health and safety of Flint residents.” The emergency declaration also sets the stage for possible federal aid. Under the law, the governor can ask the Federal Emergency Management Agency (FEMA), to conduct a damage assessment that would be used as a basis for determining eligibility for federal aid. "If state and local resources are unable to cope with the emergency, the governor may request federal assistance," Snyder spokesman Dave Murray said. "We will continue to look for all avenues for potential assistance for Flint as part of our collaborative efforts to protect the health and welfare of children and all residents."

Governor helped hush-hush delivery of water filters to Flint pastors - Gov. Rick Snyder quietly helped deliver 1,500 water filters to Flint last month -- even as state officials gave assurances that the city's tap water was safe and meeting all regulatory standards. Dave Murray, a spokesman for Snyder, confirmed that the filters, distributed by the Concerned Pastors for Social Action, came from a "corporate donor that does not wish to be recognized but cares deeply about the community." The donor "worked with the governor to provide 1,500 faucet filters to be distributed to city homes," Murray said in an email. The state's involvement in the filter distribution was never publicized and pastors told The Flint Journal-MLive Tuesday, Sept. 29, that they were asked by staffers in the governor's office not to speak about it.Recent testing and studies show lead levels have been rising -- both in water and children's blood. Pastors involved with the giveaway of the filters, which were designed to remove total trihalomethanes (TTHM) as well as lead from water, said they accepted the condition that they not discuss the state's role in securing the equipment

Calls for Michigan Gov. Snyder's Arrest as Flint Poisoning Scandal Implicates Top Staffers - Calls for Michigan Governor Rick Snyder's ouster—and arrest—are growing after internal emails showed that his high-level staffers were aware of lead poisoning in Flint's public water supply six months before the administration declared a state of emergency. According to the newly-released emails, which were obtained by NBC News, Snyder's chief of staff at the time, Dennis Muchmore, wrote to an unnamed high-level health department staffer: "I'm frustrated by the water issue in Flint." "These folks are scared and worried about the health impacts and they are basically getting blown off by us (as a state we're just not sympathizing with their plight)," Muchmore wrote in the email, according to journalists Stephanie Gosk, Kevin Monahan, Tim Sandler and Hannah Rappleye. "I really don't think people are getting the benefit of the doubt," wrote Muchmore. "Now they are concerned and rightfully so about the lead level studies they are receiving." But it was not until this week that Snyder declared a state of emergency, following in the footsteps of the city's mayor. "The health and welfare of Flint residents is a top priority and we're committed to a coordinated approach with resources from state agencies to address all aspects of this situation," Snyder said on Tuesday. Following the resignation of Michigan's top environmental official, as well as sustained community demands, the Department of Justice announced this week it is launching an investigation into the water crisis.

The Italian Mob Is To Blame For Naples' High Cancer Rates: (AP) -- An Italian parliament-mandated health survey has confirmed higher-than-normal incidents of death and cancer among residents in and around Naples, thanks to decades of toxic waste dumping by the local Camorra mob. The report by the National Institute of Health said it was "critical" to address the rates of babies in the provinces of Naples and Caserta who are being hospitalized in the first year of life for "excessive" instances of tumors, especially brain tumors. The report, which updated an initial one in 2014, blamed the higher-than-usual rates on "ascertained or suspected exposure to a combination of environmental contaminants that can be emitted or released from illegal hazardous waste dump sites and/or the uncontrolled burning of both urban and hazardous waste." Residents have long complained about adverse health effects from the dumping, which has poisoned the underground wells that irrigate the farmland which provides vegetables for much of Italy's center and south. Over the years, police have sequestered dozens of fields because their irrigation wells contained high levels of lead, arsenic and the industrial solvent tetrachloride. Authorities say the contamination is due to the Camorra's multibillion-dollar racket in disposing of toxic waste, mainly from industries in Italy's wealthy north that ask no questions about where the garbage goes as long as it's taken off their hands - for a fraction of the cost of legal disposal.

How Does Monsanto Plan to Deploy the Terminator on a Mass Scale? -- According to lore, Monsanto halted its drive to commercialize GMOs containing the Terminator gene when Gordon Conway of the Rockefeller Foundation warned the company that its extreme aggressiveness was becoming so politically reckless and counterproductive as to put the entire GMO project at risk.  Whatever the motivation, it’s true that Monsanto announced in 1999 it was not pursuing commercialization of the Terminator. This was followed in 2000 by an international moratorium on development and commercial approval of this technology, voted under the UN’s Convention on Biological Diversity (CBD). The moratorium was reaffirmed in 2006 at the CBD meeting held in Brazil.  [The Terminator, AKA a “GURT” (Genetic Use Restriction Technology), is a transgene which would cause the plants containing it to produce sterile seeds. This would render patent enforcement moot, since it would become physically impossible to save and replant seed from such a GMO. Some versions can be rendered fertile, i.e. the Terminator gene can be counteracted if the seed is coated with an antibiotic or some other chemical. So we see how, in addition to simplifying seed monopoly, the Terminator allows those deploying it to dream of inserting it into all commercial crop seed and then forcing all seed growers to buy the antidote from them.  Could the Terminator spread chaotically to other crops and wild plants, rendering them sterile? As usual with genetic engineering, no one has the slightest idea.

Monsanto and Gates Foundation Pressure Kenya to Lift Ban on GMOs -- Kenya is on the verge of reversing its ban on genetically modified organisms (GMOs). The East African country—which has banned the import and planting of GMOs since 2012 due to health concerns—may soon allow the cultivation of GMO maize and cotton after being pushed for approval by pro-GMO organizations including Monsanto, the agribusiness giant and world’s largest seed company. If it does so, Kenya will become only the fourth African country to allow the cultivation of GMO crops following South Africa, Bukina Faso and Sudan. According to Mail & Guardian Africa, Kenya’s possible GMO reversal comes after the country’s National Biosafety Authority received one application from the Kenya Agricultural and Livestock Research Organization and the African Agricultural Technology Foundation to release Bt maize, and another application from Monsanto’s Kenyan subsidiary to release Bt cotton. Bt crops have been bioengineered with the moth- and butterfly-killing bacterium Bacillus thuringiensis.  Kenya’s potential GMO reversal comes after “pressure” from Monsanto, the United States Agency for International Development and the Gates Foundation, according to a report by RT.  The report cited Monsanto’s Water Efficient Maize for Africa, a five-year development project led by the Kenyan-based African Agricultural Technology Foundation that aims to develop a variety of drought-tolerant maize seeds. Incidentally, as the website points out, the project receives funding from the Gates Foundation, United States Agency for International Development and Howard G. Buffett Foundation. Bill Gates, for one, is known to be pro-GMO seed, especially for the crops’ purported benefits to drought-prone African countries.

Nestle, Pepsi Fined for Concealing GMOs as Campbell Soup Announces Voluntary Label -- As the food fight over genetically modified food (GMOs) rages on in the U.S., six major food manufacturers—including Nestle, PepsiCo and Mexican baking company Grupo Bimbo—have been slapped with fines by the Brazilian Ministry of Justice for concealing the presence of GMOs in their products. According to teleSUR, the respective companies are facing fines ranging from $277,400 to just over $1 million, amounting to $3 million in total. The ministry’s decision came after a 2010 investigation carried out by Brazil’s Consumer Protection Agency, Senacon, which detected GMOs in various food products sold by the companies in Brazilian markets.Senacon accused the companies of violating Brazilian consumer rights, including the right to information, freedom of choice and the right for protection against abusive corporate practices, teleSUR reported. Since 2003, Brazilian law has required food products containing more than 1 percent of GMOs to carry a warning label—a yellow triangle with the letter “T” inside, standing for “transgenic.”

Greenpeace: Chinese Farmers Are Illegally Growing GMO Corn - A Greenpeace East Asia investigation into corn production in Liaoning Province, one of China’s major breadbaskets, has found that 93 percent of random field samples and 20 of 21 samples from grain markets and supermarkets in the area tested positive for illegal genetically engineered (GE) contamination. The commercial production of GE staple crops in China is strictly illegal. Greenpeace calls for an urgent investigation into this large scale GE contamination, for the implementation of measures to prevent its reoccurrence and for the reallocation of resources into promoting ecological agriculture as a solution to China’s food needs. “The scale of GE contamination is truly shocking,” Li Yifang, head of food and agriculture campaign for Greenpeace, said. “China has strict and clear regulations on GE and the ongoing production of GE corn in Liaoning province breaks these regulations on multiple levels.” The investigation was carried out from May to December 2015. A combination of rapid testing, sampling and laboratory testing by a third party was used. Samples were taken from five corn growing counties in Liaoning Province from the three main stages of corn production; agricultural seed supplies (supply), fields (production) and local grain silos, markets and supermarkets (distribution). All stages showed a high level of GE contamination. The patents of the discovered GE corn strains belong to international companies Monsanto, Syngenta, Du Pont Pioneer and Dow Chemical.

GMOs Increase Pesticide Use - This standard “less pesticide” lie always implies lots of fine print. Namely, it refers only to pesticides which are physically sprayed. But this obfuscates two monumental accounting frauds. These days the number one form of insecticide application is the coating of seeds with neonicotinoid insecticides. To the extent that less spraying is done, this is primarily because neonic seed coatings have replaced spraying. In fact GMO seeds including Bt varieties are slathered, not just with neonics but usually with fungicides and other poison treatments. We see the great fraud necessary to put over the “less pesticide” lie.  These poison coatings are designed to become endemic in the cells of the crop, including the edible part.  Then we must include the Bt endotoxin load itself. Of course the pro-GM activists and their media stenographers always omit this massive pesticide load when they parrot the line about “less pesticide”. But according to the calculations of Charles Benbrook (p.6), based on data from corporate submissions to the regulators, SmartStax maize (which Monsanto touts as the normative baseline Bt maize product at this point) generates an average Bt endotoxin load of 4.2 kilograms per hectare, 19 times the application rate of conventional sprayed insecticides in 2010. So acre for acre SmartStax deploys pesticide at 19 times the rate which the “less pesticide” lie implies is the total application. How’s that for accounting fraud? Benbrook finds that in general Bt endotoxins equal or exceed the amount of sprayed insecticides displaced. In fact, just as with neonics, to the extent any spraying is displaced, that’s only because it’s replaced by other poisons such as the Bt toxins.  The Bt poison is endemic in every cell of the crop including the edible part.

Widely-Used Pesticide Is Harmful To Honeybees, EPA Finds -- The Environmental Protection Agency has finally begun to answer a major question on honeybee health.  This week, the EPA released its first findings on neonicotinoids, a widely-used class of pesticides that many think play a role in the staggering honeybee losses over the last few years. The agency examined imidacloprid — one of four neonic pesticides that the EPA plans to assess, and the most commonly-used neonicotinoid in the United States — and found that it is harmful to bees when applied to certain crops, like cotton or citrus, but not when applied to others, like corn and berries.  That’s because, the assessment found, the main thing that mattered when determining whether or not the pesticide would harm bees was the concentration of the pesticide in the nectar the bees brought back to their hives. If bees returned to their hives with nectar that contained more than 25 parts per billion (ppb) of imidacloprid, it negatively impacted the hive — meaning, as the AP reports, fewer bees and less honey. But if the concentration was less than 25 ppb, the bees fared OK. Some crops contained nectar with higher concentrations than others — while others produce no nectar at all — which explains the difference in danger from crop to crop.   The risk assessment comes as honeybee colonies continue to experience large declines. A survey of 6,100 beekeepers published last May found that 42.1 percent of U.S. managed honeybees were lost between April 2014 and April 2015.  Some of the dangers posed to bees by neonicotinoids are well-known. The pesticides have been found to damage bees’ brains, causing them to forget the scent of food.  But bee experts say the decline of honeybees and some native bees is likely due to a number of factors — not just pesticides. Another parasite, called the varroa mite, has been implicated in bee deaths — the mite attaches itself to bees and sucks out their circulatory fluid, causing the bees to die. And poor nutrition, caused by more monoculture and fewer natural fields for bees to forage in, could also contribute to bee deaths.

EPA Confirms Longstanding Fears About Impact of Neonics on Bees - The Environmental Protection Agency (EPA) on Wednesday confirmed longstanding fears that a widely-used pesticide can pose a significant risk to honeybee populations. The first risk assessment released by the agency on the long-term impact of neonicotinoids focused on the most popular class of the insecticide, imidacloprids. Slammed by researchers as a "deeply flawed" study, the EPA nonetheless found that when used on certain crops, pollinator hives exhibited a dangerous level of chemical residue.  If pollinators were found carrying nectar back to the hive with a greater than 25 parts per billion concentration of imidacloprid, likely effects included decreases in population as well as less honey produced, the EPA stated.  The analysis found that "citrus and cotton may have residues of the pesticide in pollen and nectar above the threshold level. Other crops such as corn and leafy vegetables either do not produce nectar or have residues below the EPA identified level."  The Associated Press described the findings as "a nuanced answer that neither clears the way for an outright ban nor is a blanket go-ahead for continued use." Lori Ann Burd, environmental health director with the Center for Biological Diversity went further than that. The EPA analysis, she told Common Dreams, is "deeply flawed" because it only analyzed the effect of imidacloprid on honeybees, and "ignored the 4,000 species of native bees" as well "other pollinator species, including butterflies, some of which are now listed as endangered species."

Groundbreaking Study Says Asian Carp Could Make Up One-Third of Lake Erie Biomass -- Lake Erie is bountiful in highly prized walleye and rainbow trout. But populations of these commercially important fish could plummet if Asian carp manage to invade the lake, according to a new report.In the groundbreaking study, scientists from the National Oceanic and Atmospheric Administration (NOAA) and the University of Notre Dame found that carp, which are moving at a rapid pace toward the Great Lakes, could make up one-third of all fish in Lake Erie by weight within 20 years if the invasive species overcomes efforts to keep it at bay.Voracious eaters, Asian carp feed on plankton, which are tiny organisms which form the basis of the food web. Small fish that live in Lake Erie—the emerald shiner, gizzard shad and rainbow smelt—also feed on plankton and their numbers could fall dramatically if they have to compete with carp for food, according to the study. This would hurt the commercially valuable walleye, which eat the smaller fish. Two Asian carp species found in the U.S.—the bighead carp and silver carp—have reached watersheds near the Great Lakes. In October 2015, U.S. Fish and Wildlife Service scientists discovered that silver carp had advanced a record 12 miles up the Illinois River in just one month, traveling 66 miles toward Lake Michigan since the beginning of 2015.

27,000 Pink Plastic Detergent Bottles Wash Up on UK Beach -- Many plastic bottles are washing up on Poldhu Beach in Cornwall, UK this week, making the waves literally pink.  It appears that a whopping 27,000 of these bright pink bottles—believed to be Vanish brand detergent—have washed ashore, prompting wildlife warnings in the area due to the potentially toxic contents of the bottles, according to UK-based ocean advocacy group Surfers Against SewageMailOnline reported that the bright pink bottles have been “strewn across bubbly sand as far as the eye can see” and even more bottles are expected to wash up in the coming days, the National Trust (who owns the beach) said.  Many of the bottles are full but some have leaked, a Cornwall council spokeswoman said. As you can see in the photos, the soapy content in the bottles have coated the shoreline with foam.    “The main worry is all that detergent going into our beautiful marine environment, but thankfully most are full,” Justin Whitehouse, from the National Trust, told the BBC.  Surfers Against Sewage said in a blog post that the bottles originated from a shipping vessel, which reportedly lost “a number of containers” near Land’s End in May last year. The Maritime and Coastguard Agency said (via the BBC) that “while it is fact that the MV Blue Ocean lost a container containing bottles of ‘Vanish,’ there is no currently available evidence that the bottles washed up on the Cornish coast are from this container; all evidence is currently circumstantial.”

Mercury-Laden Fog Swirls Over California Coastal Cities  - For the past five years, researchers from University of California, Santa Cruz and other institutions have been sampling fog in central California. Two years ago, the researchers expanded their scope to seven locations stretching from Monterey to Eureka as part of the FogNet project, which is funded by the National Science Foundation. Researchers found the concentration of monomethyl mercury is 19 times higher in fog collected on land compared to rain. They told the San Francisco Chronicle that exposure levels are relatively low for humans, but the discovery still worried them. It’s already well known that monomethyl mercury bioaccumulates in aquatic food webs, often making fish and other animals unsafe for human consumption. But there has been nothing in the scientific literature about mercury in the fog and its potential impact on terrestrial ecosystems until now. “There haven’t been reports of monomethyl mercury measurements in fog water in the scientific literature,” Weiss-Penzias said. “But these elevated concentrations suggest that fog could be a significant source in coastal environments.” According to the Chronicle, “the scientists determined that mesoscale eddies—large, circular currents of water from the California current—are depositing dimethyl mercury into the fog, where acidic marine aerosols—particles left over from evaporated droplets of ocean spray—convert it into its monomethyl mercury form. That compound is then blown ashore in the fog, where it is deposited on the coastal landscape.” The source of monomethyl mercury in the ocean is debated, but emissions from coal-burning power plants “likely make a significant contribution,” Weiss-Penzias said. So far, researchers have shown that, at the highest periods of fog, mercury levels in wolf spiders along the coast exceeded the U.S. Food and Drug Administration’s three parts per million safety threshold. “I would definitely not eat any spiders from foggy areas,”

The Pacific 'blob' loses. El Niño wins. What comes next? - The very warm and wet start to winter comes courtesy of El Niño, ranked among the strongest in modern times. This powerhouse El Niño should continue to exert its influence through the final two-thirds of winter, but we should see some temporary breaks in the pattern with some colder periods. The dominance of El Niño is a sharp departure from the feedback mechanism that dominated our prior two winters: The big, bad blob in the northeast Pacific! The “blob” refers to the large area of very warm waters that helped set up a bulging area of high pressure over Alaska, around which the jet stream flowed, directing impressive cold over the U.S. for the past two winters and blocking storms from hitting the West Coast. While some had speculated that the “blob” could throw a wrench into this winter’s super El Niño forecast, most meteorologists (including Mass) expected the El Niño to win the battle to influence North America this winter. And wow has it been winning! CWG’s Angela Fritz showed this quite clearly in last week’s blog detailing the West’s winter walloping. Water temperatures are still marginally warmer than normal in the Gulf of Alaska area, indicative of a positive Pacific Decadal Oscillation, but they are nowhere near the super-warm anomalies we saw last summer or in the prior two winters:

El Niño storms slam Southern California -- The first major El Niño storm of the season brought heavy rainfall that closed roads, caused flooding and gave Southern California a good drenching. And that's not all -- the storms are expected to continue throughout the week, forecasters say....The wet walloping delivered to Southern California on Tuesday, courtesy of El Niño, made for the wettest day Los Angeles has seen in almost four months. There was more rain in Los Angeles on Tuesday than every day in 2015 except for one, Sept. 15, when the remnants of Hurricane Linda washed ashore, said Bill Patzert, a climatologist with the NASA Jet Propulsion Laboratory in La Cañada Flintridge. .. “This is not a bashful El Niño. This is a brash El Niño,” Patzert said. “Definitely, it’s impressive.”

What North America can expect from El Niño - Kevin Trenberth - A major El Niño is under way now. It already has substantially influenced weather patterns around the globe, but could have even bigger impacts this winter. There have been only two “super” El Niños until now: in 1982-83 and 1997-98. We are now experiencing a third “super” El Niño. Every El Niño cycle is different. The effects from this year’s already include a record number of hurricanes/typhoons in the Pacific and intense wildfires in Indonesia. In the United States over the next several months, El Niño is expected to cause heavy rains across the South, with the potential for coastal flooding in California, along with relatively mild and dry weather in the northern states. Global climate change, which, along with the El Niño, is making 2015 the warmest year on record, is likely to amplify these impacts. El Niños are not uncommon. Every three to seven years or so, the surface waters of the tropical Pacific Ocean become extremely warm from the International Dateline to the west coast of South America. This process causes changes in the local and regional ecology, and is clearly linked with abnormal global climate patterns. El Niño is linked to major changes in the atmosphere known as the Southern Oscillation(SO). Scientists call the whole phenomenon the El Niño–Southern Oscillation (ENSO). During El Niño, higher-than-normal surface air pressures develop over Australia, Indonesia, Southeast Asia and the Philippines, producing drier conditions or even droughts. Dry conditions also prevail in Hawaii, parts of Africa, and northeastern Brazil and Colombia. During the coming months, climate scientists expect that El Niño will pull the east Pacific Northern Hemisphere jet stream and its associated storm track southward. Normally these storms veer to the north toward the Gulf of Alaska or enter North America near British Columbia and Washington, where they often link up with cold Arctic and Canadian air masses and bring them down into the United States. Instead, with the jet stream following an altered path, the northern states are likely to experience relatively mild and drier-than-normal weather. Storms tracking across the continent further to the south will likely create wet conditions in California and across the South as far east as Florida.

El Nino Is So Last Year, Here Comes La Nina to Bring Havoc - As the effects of the most severe El Nino in almost 20 years still reverberate globally, parts of the world are already preparing for La Nina. Indonesia is set to distribute water pumps to farmers and is assessing its rice stockpiles in anticipation of the weather event materializing in October, Agriculture Minister Amran Sulaiman told reporters in Jakarta on Wednesday. La Nina, sometimes thought of as El Nino’s opposite, typically brings more rainfall to the region, threatening crops with flooding and delaying harvests. Australia says El Nino has peaked and there’s a chance of its counterpart occurring in the second half of the year. El Nino has hampered cocoa crops in Ivory Coast, curbed the monsoon in India and forced the Philippines to import more rice. Indonesia deployed planes last year for artificial rain to help alleviate drought conditions that restricted palm oil output and exacerbated forest fires that engulfed the region in haze. Based on the 26 El Nino events since 1900, about 50 percent have been followed by a neutral year with 40 percent by La Nina, Australia’s weather bureau said Tuesday.  “ . Indonesia’s palm oil output may stagnate or fall about 3 percent this year, according to Bayu Krisnamurthi, the head of the government-appointed Indonesia Estate Crop Fund for Palmoil. Supply concerns helped palm oil cap its best year since 2010, while sugar posted its first annual gain in five years. El Nino is a warming in the equatorial Pacific Ocean, while La Nina is a cooling of the waters. Each can impact agricultural markets as farmers contend with too much or too little rain. A large part of the agricultural U.S. tends to dry out during La Nina events, while parts of Australia can be wetter than normal.

Southern Illinois battles flooding as Mississippi River builds downstream | Reuters: Residents of flooded areas in far southern Illinois anxiously waited for the swollen Mississippi River to peak on Sunday, with hundreds electing to remain in their homes, as states downstream prepared for the rising waters. About 125 structures were flooded in hard-hit Alexander County, the southernmost point in Illinois, where three families near one breach stayed dry behind sandbag fortifications and private levees, county board Chairman Chalen Tatum said. The National Weather Service on Sunday canceled a flash flood watch for Alexander and two other Illinois counties, where record or near-record river levels have threatened levees. Days of downpours totaling 10 inches or more in spots pushed the Mississippi and smaller rivers over their banks in several states. At least 31 people have died in Missouri, Illinois, Oklahoma and Arkansas, most of them after vehicles drove into flooded areas. Nine people have died in the Illinois flooding and a dozen counties have been declared disaster areas there, said Patti Thompson, spokeswoman for the Illinois Emergency Management Agency.

Record flooding in the UK is just the latest symptom of both El Nino and climate change - There’s been much discussion about the causes behind the surprising rash of winter storms in the region, and equal suspicion has fallen on the effects of climate change and the influences of this year’s particularly potent El Niño event. It can be difficult to parse exactly what’s going on, though. Nicola Maxey, a press officer from the Met Office (the U.K.’s national weather service), noted in an email to The Washington Post that it was too early to say for sure whether climate change was a major contributor to this winter’s extreme rainfall — but added that evidence from both physics and the study of weather systems suggests that it may have played a part. The Met Office, in fact, recently published a report in the Bulletin of the American Meteorological Society examining the causes behind dozens of extreme weather events in 2014, including similarly severe rainfall in the U.K. in the winter of 2013/2014. Using models, the report concluded that anthropogenic climate change likely had a hand in the extreme conditions that winter — the highest rainfall since 1931 — and that climate change increases the chances of extreme rainfall during a time period of 10 consecutive winter days by a factor of seven.  So while scientists frequently warn that individual weather events can’t always be considered an indicator of long-term climatic patterns, the research in this case suggests that climate change is increasing the odds of extreme winter weather events in the U.K. This is in keeping with research from all over the world that suggests that extreme weather, in general, is likely to increase in frequency and intensity all around the world as a result of climate change.

Why African countries need to make plans to cope with rising temperatures  --Southern Africa has been experiencing high temperatures in recent months. In October, Zimbabwe experienced a heatwave with temperatures in Kariba reaching 45°C. In late October, temperatures in Vredendal, South Africa reached a maximum of 48.4°C, breaking the record for the highest worldwide temperature for that month.  Southern Africa is not alone. 2015 is the warmest year on record. The impact that high temperatures will have on the health of people living in southern Africa is not yet clear. This is particularly worrying since the increases are projected to continue because of climate change. And there are no alert and response systems or tools in place to ensure public health and safety during heatwaves.m According to a new publication, by the end of the century temperatures in sub-tropical Africa could increase by 4°- 6°C. In tropical Africa there could be rises of between 3°-5°C. Unless greenhouse gas emissions are reduced, these temperatures will become a reality. These increases in temperature are likely to have a severe impact on health across Africa. High temperatures can directly impact health by upsetting the body’s thermoregulatory balance. Heat exhaustion can occur when body temperatures exceed 38°C and heat stroke when body temperatures reach over 40°C. But studies have also shown that there can be negative health effects and increases in mortality even at lower outdoor temperatures.In general, the relationship between temperature and mortality varies by geographical area and climate, as well as by the characteristics of the population. When temperatures surpass the optimal range, the risk of mortality increases rapidly. And, in cases where high temperatures are experienced over multiple days in a row - as in a heatwave - human health can be negatively affected.

How One Man Plans to Make Billions Selling Water From Mojave Desert to Drought-Stricken California -- Scott Slater, CEO of Cadiz Inc., has a controversial plan. He wants to pump 814 billion gallons of water from the Mojave Desert to Los Angeles, San Diego and other drought-stricken communities in Southern California—making more than $2 billion in the process. Slater’s company owns the water rights to 45,000 acres of land in the Mojave Desert, and he’s already secured contracts to sell the water for $960 per acre-foot (the amount of water it takes to cover an acre of land in a foot of water), according to The Guardian. At that price, the company stands to make $2.4 billion over the 50-year period of its water extraction deal with San Bernardino County. But in the last 10 years, the company has suffered $185 million in losses.  “To develop the project, the company burns through $10 million to $20 million annually,” The New York Times explained, “paying for a never-ending battle in courthouses and conference rooms across California to win make-or-break government permits and to cover the salaries of its 10 full-time employees.” The company borrows extensively and regularly issues new shares to cover its costs. The project has faced fierce opposition from environmental groups, local ranchers, Native American tribes, politicians—notably, Sen. Dianne Feinstein (D-Calif.)—and most recently, the U.S. Bureau of Land Management (BLM).  “I remain concerned the Cadiz project could damage the Mojave Desert beyond repair and believe the BLM decision to deny the right-of-way is the right one,” Feinstein told The LA Times in October 2015. “I’ll continue to work through the appropriations committee to block any additional attempts to draw down this aquifer. We need to use water more responsibly, not less, and the Cadiz project is a bad idea.”

Report: Lake Mead dropping 12 feet per year -- The math is simple. So states a disarming truism in a new report from the Colorado River Research Group, formed of water scholars in four states, “an independent, scientific voice for the future of the Colorado River.” In 2007, the U.S. secretary of the interior adopted interim guidelines for a period of 20 years that sought peace among the seven Colorado River basin states and Mexico, most of which are always ready to grapple over one of the Southwest’s most precious resources: Colorado River water.  This month’s new report from the research group assesses just how those interim guidelines are faring. Not so well, it turns out. The math is simple. Lake Mead, backed up by iconic Hoover Dam just outside Las Vegas, receives about 9 million acre-feet of water annually from Lake Powell, a small percentage of which also comes from downstream tributaries. But after sending water to Arizona, Nevada, California and Mexico, after evaporation and other subtractions, Lake Mead loses 10.2 million acre-feet each year. During the ongoing 15-year period of drought in the river basin, the annual shortfall of 1.2 million acre-feet of water in Lake Mead has come to be known as the “structural deficit.” Everyone who has seen the ring-around-the-tub photos of Lake Mead in recent years knows what that means. Each year the deficit drops the surface level of Mead by 12 feet, according to the research group. If the surface falls to 1,075 feet above sea level as measured on Jan. 1 of any year, the interim guidelines state that the secretary of the interior can declare a shortage on the river. And the lake briefly dropped below that level this past June, before record-breaking spring precipitation in the Rockies boosted it back.  Should a shortage be declared, water deliveries could be curtailed — with the size of the delivery reduction depending on just how far the lake level falls. Should Mead’s surface reach 1,025 feet, for example, deliveries of consumptive water to Arizona, Nevada and California would be curtailed by 500,000 acre-feet.

Pumped Dry: The Global Crisis of Vanishing Groundwater -  Much of the planet relies on groundwater. And in places around the world – from the United States to Asia, the Middle East, Africa and Latin America – so much water is pumped from the ground that aquifers are being rapidly depleted and wells are going dry. Groundwater is disappearing beneath cornfields in Kansas, rice paddies in India, asparagus farms in Peru and orange groves in Morocco. As these critical water reserves are pumped beyond their limits, the threats are mounting for people who depend on aquifers to supply agriculture, sustain economies and provide drinking water. In some areas, fields have already turned to dust and farmers are struggling.Climate change is projected to increase the stresses on water supplies, and heated disputes are erupting in places where those with deep wells can keep pumping and leave others with dry wells. Even as satellite measurements have revealed the problem’s severity on a global scale, many regions have failed to adequately address the problem. Aquifers largely remain unmanaged and unregulated, and water that seeped underground over tens of thousands of years is being gradually used up. In this project, USA TODAY and The Desert Sun investigate the consequences of this emerging crisis in several of the world’s hotspots of groundwater depletion. These are stories about people on four continents confronting questions of how to safeguard their aquifers for the future – and in some cases, how to cope as the water runs out.

World's Biggest Dam Has 'Extremely Dangerous' Low Water Levels - Water levels at Kariba dam, the world’s largest, are at “extremely dangerous” lows that could force a shutdown of its hydro power plants, said Zambian Energy Minister Dora Siliya. Poor rainfall and overuse of water by Zambia and Zimbabwe, the southern African countries that share the reservoir, have caused its levels to drop, with electricity generation already reduced by more than half. As of Dec. 28, Kariba was 14 percent full, compared with 51 percent a year earlier, according to the dam’s regulator. “The situation is dire,”  Mining companies in Africa’s second-biggest copper producer have had to reduce their electricity use and buy expensive imports at a time when plunging metal prices have triggered the mothballing of some mines and more than 10,000 job cuts. Households and businesses endure power cuts as long as 14 hours a day. The cost of importing power and emergency generation could threaten the government’s 3.8 percent budget deficit target for 2016. Zambia is the most vulnerable country in sub-Saharan Africa to the El Nino weather system, partly because of its dependence on hydro power for more than 95 percent of generation, Bank of America Merrill Lynch analysts including Oyinkansola Anubi said in a November note. Six of Zambia’s 10 provinces have received below-normal rainfall this wet season,   Water flows in the Zambezi river that feeds Kariba on Dec. 28 were 27 percent lower than a year earlier when measured at the Victoria Falls, about 125 kilometers (78 miles) upstream from the dam. At

UAE Eyes Pakistan's Dasht River Water in Balochistan -- A top UAE businessman has proposed building a 500 kilometer long pipeline to bring Pakistan's Dasht River water from the Makran coast to Fujaira for his United Arab Emirates' water security.  Water-scarce Pakistan itself needs to store and use the Dasht River water for development of Balochistan, particularly Gwadar and other related projects as part of the ambitious China-Pakistan Economic Corridor (CPEC).  Abdullah Al Shehi, the CEO of GeoWash, has argued that the Dasht River floods annually, which has prompted the Pakistani government to empty the excess water through channels leading to the sea. That excess water, said Mr Al Shehi, could be put to use in the UAE, according to a report in the UAE's newspaper "The National". Mirani Dam was completed on Dasht River in 2006 to store over 300,000 acre-feet of fresh water to meet the needs of southern Balochistan. This water reservoir is essential for the development of a deep sea port and a major new metropolis in Gawadar as part of China-Pakistan Economic Corridor. In addition to supplying fresh water to Turbat, Jiwani and Gwadar cities, it has sufficient capacity to irrigate over 33,000 acres of farm land. The United Arab Emirates uses 80% of its fresh water for agriculture in its arid desert and the rest of the 20% for urban needs, according to The National. Here's the key question: Does it make more sense for the UAE to import food rather than grow its own food by importing fresh water?

Your Tax Dollars Subsidizing Methane Gas Emissions - Well, looky here. Federal government subsidies to a small number of cattle ranchers has increased as the gap between the market price and the Bureau of Land Management grazing fees has widened. According to a report from the Center for Biological Diversity, "fewer than 21,000 — or 2.7 percent of the nation’s total livestock operators — benefit from the Forest Service and BLM grazing programs in the West." Furthermore, The federal subsidy of the grazing program goes beyond the direct costs and fees. There are vast indirect costs to grazing on federal lands, including the government killing of native carnivores perceived as threats to livestock, wildfire suppression caused by invasive cheat grass facilitated by cattle grazing, and expenditure of U.S. Fish and Wildlife Service funds from protecting other species threatened by livestock grazing.  And just what comes out the other end of those federally-subsidized cattle? Greenhouse gases... Methane... Farts. According to the Environmental Protection Agency. 26% of U.S. methane gas emissions in 2013 came from "enteric fermentation," The EPA also explains that:Methane (CH4) is the second most prevalent greenhouse gas emitted in the United States from human activities. In 2013, CH4 accounted for about 10% of all U.S. greenhouse gas emissions from human activities. Methane is emitted by natural sources such as wetlands, as well as human activities such as leakage from natural gas systems and the raising of livestock.About 70% of that enteric fermentation is done by cattle. So the BLM subsidized cattle ranchers account for about half of one percent (.5%) of U.S. methane emissions annually and .05% of total ghgs from human activities. In effect, taxpayers pay around $100 million in grazing subsidies annually to the cattle ranchers whose cattle emit that greenhouse gas. That subsidy. of course, doesn't include the uncompensated damages the methane contributes to through climate change.

Methane ‘Volcano’ Continues To Erupt In Southern California - For more than two months, methane has been escaping from a storage well in Los Angeles, causing the evacuation of thousands of homes and dumping more than six coal plants’ worth of greenhouse gas into the atmosphere.  Now, residents are suing, alleging that Southern California Gas Company took out and never replaced a safety valve that could have shut off the leak, and generally failed to maintain the site.  The gas leaking from the Aliso Canyon Storage Facility has been treated with an odorant, so that if there is a leak — say, in a home — it is detected (methane is naturally odorless). At this large scale, though, the odorant has been reportedly causing headaches, nausea, nosebleeds, and other adverse reactions. SoCalGas has temporarily relocated 2,300 households and is working with another 1,500 on relocations, Kristine Lloyd, a spokesperson for the company, told ThinkProgress via email.  The residents’ complaint alleges that the company identified leaks at the Aliso Canyon site in the Porter Ranch neighborhood of Los Angeles, about 25 miles northwest of downtown, five years ago — and the company even received a rate hike to pay for improvements, which it never implemented. “Despite the ratepayer increase and its annual profits of nearly $100 million, SoCalGas ‘slow-walked’ the replacement of valves,” attorney R. Rex Parris said in a statement. “In 2010, SoCalGas proposed spending $898,000 per year to replace five percent of its leaking valves each year — a 20-year program before the field was rendered safe.” This is really a methane volcano going into the air that continues to the present day

Porter Ranch Natural Gas Leak Spews 150 Million Pounds of Methane, Will Take Months to Fix - Democracy Now! - (video & transcript) In the nation’s biggest environmental disaster since the BP oil spill, a runaway natural gas leak above Los Angeles has emitted more than 150 million pounds of methane. Thousands of residents in the community of Porter Ranch, California, have been evacuated and put in temporary housing. The fumes have caused headaches and nosebleeds. The company responsible, Southern California Gas Company, says it could take 3 to 4 months to stop the breach. We are joined by two guests: renowned consumer advocate and legal researcher Erin Brockovich, who helped win the biggest class action lawsuit in American history and is now working to seek justice for victims of the Porter Ranch gas leak, and David Balen, president of Renaissance Homeowners Association, which is located just outside of the breached well site.

Porter Ranch Residents Flee, Schools Close as Natural Gas Storage Facility Continues to Spew Toxic Chemicals - As the natural gas storage facility in the Porter Ranch neighborhood of Los Angeles continues to spew gas for nearly three months, the human face of this environmental disaster becomes even more pressing. As of Tuesday, close to 2,000 residents have been evacuated, two schools closed and the health department has linked hundreds of health complaints from nausea and vomiting to headaches and respiratory problems to two chemicals in the gas. The health threat from this leak comes primarily from exposures to the chemicals known as odorants, tert-butyl mercaptan and tetrahydrothiophene, added to the natural gas to serve as a warning for leaks. The methane, which is the primary ingredient in the gas, is a powerful contributor to global warming and global ozone smog levels but is not toxic to the local community. The gas also contains low levels of other chemicals that can be harmful and the health department has recommended continued monitoring of the air in the Porter Ranch community to keep an eye on the levels of these contaminants. So far, air testing in the neighborhood has not shown levels of pollutants tied to long-term health damage. But close scrutiny is needed as this drags on and it’s no longer a short-term incident. The following are important questions to answer if this leak extends for the additional two to three months currently projected.

Lawyer: Gas well missing valve that could have stopped fumes -- A leaking natural gas well that has displaced thousands of people from a Los Angeles neighborhood lacks a working safety valve that could stop the release of fumes, a lawyer representing residents said. The valve might not have prevented the months-long leak, but it could have stopped the flow of fumes into the community of Porter Ranch, said attorney Brian Panish, who represents residents suing over the months-long leak. “There would have been a small runoff of some gas and it would have been over,” Panish told the Los Angeles Times about how the valve would work. “All these people wouldn’t have had to leave and they wouldn’t be sick.” Southern California Gas Co. confirmed that its well at the Aliso Canyon Underground Storage Facility did not have the deep subsurface valve, the Times reported Monday. Such a valve is not required by law, company spokeswoman Melissa Bailey told the newspaper via email. “Until the facts are determined and this assessment is completed, it is premature to comment further on the well or the cause of the incident,” Bailey said. “In the interim, SoCal Gas will continue to focus its efforts on stopping the leak as soon as possible.” Attorneys for residents said the company failed to replace a deep subsurface valve that was removed in 1979. The leak has forced the relocation of residents who said the stench made them sick. Workers have been unable to plug the leak and instead have undertaken the painstaking task of drilling two relief wells.

‘It’s About Time’: California Governor Declares Porter Ranch a State of Emergency  -- Following months of pressure from activists and residents, California Gov. Jerry Brown on Wednesday issued a state of emergency over the Porter Ranch gas leak that has been pouring tens of thousands of kilograms of methane into the air surrounding the community since October 2015. The order means “all necessary and viable actions” will be taken to stop the leak and ensure that the Southern California Gas Company (SoCal Gas), which owns the leaking natural gas injection well, is held accountable for the damage. Brown issued the state of emergency after making a quiet visit to the area earlier this week to tour the facility and meet with the Porter Ranch neighborhood council. Wednesday’s order also directs action to protect public health, according to a press release issued from the governor’s office. The leak, which has been ongoing since October 2015, gained limited media attention after environmental and public health advocate Erin Brockovich declared it “a catastrophe the scale of which has not been seen since the 2010 BP oil spill.” Residents living in proximity to the well, which is situated in Aliso Canyon, roughly 30 miles northwest of Los Angeles, reported having symptoms of methane exposure, including headaches, nausea and in some cases, bleeding eyes and gums. Brown’s hesitance to issue an emergency order in the face of a growing public health crisis raised questions over a possible conflict of interest between the governor and SoCal Gas. Brown’s sister, Kathleen Brown, is a paid member of the company’s board.

Doctors Urge California Residents "Leave Now...While You Can" As Gas Leak Fears Grow -- California Governor Jerry Brown finally declared a state of emergency on Wednesday, concerning the ongoing, currently unstoppable methane gas leak spewing from Aliso Canyon that has created a nightmare for residents of Porter Ranch. “I will tell you, this goes well beyond Porter Ranch. We’ve had complaints from as far as Chatsworth, Northridge, and Granada Hills,” emphasized Los Angeles City Councilman Mitchell Englander during a Porter Ranch town hall meeting on December 28. “Apparently this plume of toxic chemicals and whatever it might be, doesn’t know zip codes […] This is the equivalent of the BP oil spill on land, in a populated community.”  Aliso Canyon sits less than two and a half miles from Porter Ranch and less than 30 miles from the city of Los Angeles — the second most populous city in the United States — whose outlying total statistical area includes nearly 18 million residents, as of 2013.  Brown has been widely criticized for lack of decisive action on the leak, which is erupting from its underground storage area with all the force “of a volcano.” Under Wednesday’s declaration,“all state agencies will utilize state personnel, equipment, and facilities to ensure a continuous and thorough state response to this incident.” Porter Ranch residents have been evacuating the area for some time, though SoCalGas’ rather maladroit handling of the relocation procedure has been a nightmare — and the cause for a mounting number of lawsuits, including one from the L.A. city attorney’s office.  Pediatrician Dr. Richard Kang gave an ominous warning during the Porter Ranch meeting, saying, “Unfortunately, the only real way to get away from the symptoms is… you have to relocate — you have to get away from the environment.” Health complaints include severe headaches, nosebleeds, respiratory issues including increasing cases of asthma, and a number of other issues.

Aliso Canyon's Historic Gas Leak Puts Sempra Energy In "Uncharted Regulatory Territory"- Sempra Energy may be entering uncharted regulatory and technical territory with the massive and uncontained Aliso Canyon gas leak, according to Bloomberg Intelligence, as the company and its regulators simply cannot find historical leaks of this magnitude. Sempra’s Southern California Gas Co. is drilling a relief well but has warned that capping the well could take two months which has prompted massive evacuations in the area, the instigation of a no-fly zone, and now Governor Brown's declaration of a state of emergency to protect residents. Sempra’s Southern California Gas Co. is drilling a relief well that it expects will stop the gas from escaping from the well located in the Aliso Canyon storage facility, the fourth-largest underground field in the U.S. The utility has said capping the well could take two months.Through Dec. 31, Sempra has spent about $50 million on addressing the leak and environmental and community impacts, including the temporary relocation of residents, according to a regulatory filing Thursday. Sempra also said it has made seven unsuccessful attempts to plug the leak by pumping fluids down the well shaft and that it mayface fines and penalties as a result of the incident.However, as's Dave Smith reports, scientists and engineers are finding it difficult to contain the largest natural gas leak ever recorded – since late October, an estimated 73,000 tons of methane, a highly flammable gas 25 times more potent as a greenhouse gas than carbon dioxide, has escaped from an energy facility in Aliso Canyon, California; and there is no immediate end in sight.

Latest data shows cooling Sun, warming Earth - Lots of studies into the Sun-climate link have reported that recent changes in the heat output by the Sun are simply too small to explain much of the recent global warming. Even 5 years ago it was clear that Earth's temperature isn't tracking solar activity very well. And now including data up to 2015, that pattern is even clearer. In each case the 2015 result is based on slightly incomplete data: up to end-November for temperature and mid-October for solar activity. It shows that in the 5 years since we first published a version of the figure below, Earth's surface has continued to warm despite declining solar activity. The temperature record is from NASA and the solar heat output arriving at the top of Earth's atmosphere, the "Total Solar Irradiance" comes from two sources. From 1978 we have satellite measurements, in this case from PMOD (data here). Before that, the heat output was not measured directly, but instead it has to be estimated from measurements of sunspots, which look something like this. Sunspots happen where the Sun's magnetic field breaks through the surface. The dark areas of sunspots are cooler, but the glowing bits around are hotter, leading to an overall increase in heat output by the Sun. More sunspots are visible when the Sun is more active, and astronomers have been counting and recording sunspot numbers for centuries. Krivova et al. (2010) converted this record of sunspot counts into total heat output from the Sun, and this is where we got the numbers for the solar activity up until satellites began measuring in 1978 (data here).

Scientists Warn Climate Change Affecting Greenland Ice Sheet More Than Previously Thought  -- Not long into the New Year and already a new warning about climate change and rising sea levels. A new scientific study, published this week in the journal Nature Climate Change, is warning that climate change may be affecting the vast Greenland ice sheet more seriously than previously thought.  Traditionally the huge Greenland ice sheet, which NASA estimates is losing an estimated 287 billion tons of ice every year, has also been seen by scientists as a “sponge” for glacier meltwater. But new research has found that the ice sheet could be losing this ability to act as a sponge. An international team of scientists have been spent the last few years examining “firn,” the porous snow cover which overlays dense glacier ice near the surface. Firn is seen as crucial is capturing melt-water runoff before it enters the ocean adding to sea-level rise.  “As this layer is porous and the pores are connected, theoretically all the pore space in this firn layer can be used to store meltwater percolating into the firn whenever melt occurs at the surface,” the new paper’s Lead Author, Horst Machguth of the Geological Survey of Denmark and Greenland, told The Washington Post. Another of the scientists, York University Professor William Colgan, said: “The study looked at very recent climate change on the ice sheet, how the last couple of years of melt have really altered the structure of the ice sheet firn and made it behave differently to future melt.”

What scientists just discovered in Greenland could be making sea-level rise even worse -- Rising global temperatures may be affecting the Greenland ice sheet — and its contribution to sea-level rise — in more serious ways that scientists imagined, a new study finds. Recent changes to the island’s snow and ice cover appear to have affected its ability to store excess water, meaning more melting ice may be running off into the ocean than previously thought.That’s worrying news for the precarious Greenland ice sheet, which scientists say has already lost more than 9 trillions tons of ice in the past century — and whose melting rate only continues to increase as temperatures keep warming. NASA estimates that the Greenland ice sheet is losing about 287 billion tons of ice every year, partly due to surface melting and partly due to the calving of large chunks of ice. Because of the ice sheet’s potential to significantly raise sea levels as it runs into the ocean, scientists have been keeping a close eye on it — and anything that might affect how fast it’s melting. The new study, published Monday in the journal Nature Climate Change, focuses on a part of the ice sheet known as “firn” — a porous layer of built-up snow that slowly freezes into ice over time. It’s considered an important part of the ice sheet because of its ability to trap and store excess water before it’s able to run off the surface of the glacier, an essential service that helps mitigate the sea-level rise that would otherwise be caused by the runoff water. Until recently, many scientists have assumed that most of Greenland’s firn space is still available for trapping meltwater. But the new research shows that this is likely no longer the case. Through on-the-ground observations, the scientists have shown that the recent formation of dense ice layers near the ice sheet’s surface are making it more difficult for liquid water to percolate into the firn — meaning it’s forced to run off instead.

Russia China scaling up Antarctic presence -  Russia and China are both drastically scaling up their presence in Antarctica in a bid to increase their influence in the last unclaimed part of the globe, The New York Times reports.  For Russia, operations in Antarctica are continuing along the lines first put in place by the Soviet Union. Building off of Soviet bases already in place, Russia is expanding its development of a global positioning system meant as a rival to American GPS.  Moscow has so far constructed a minimum of three satellite monitoring systems in the Antarctic, the Times reports, with future bases planned. Russia also has more long-term ambitions in the region. Moscow, for example, was the lone country to oppose the creation of an Antarctic sanctuary that would have protected regions around the pole from fishing.  It is in terms of fishing and future access to resources that Russia and China's ambitions in the Antarctic converge. Although Beijing did not establish its first Antarctic research base until 1985, Chinese efforts to expand its influence across the continent have intensified and are now outpacing other nations' plans. As this map from 2013 shows, at the time China only had three bases in Antarctica. Now, China's plans to open a fifth base in Antarctica are proceeding on schedule, after Beijing opened its fourth base last year. The bases, unlike Russia's holdovers from the Soviet Union, are brand new and reflect the country's growing international ambitions and power, the Times reports

How Is Inequality Linked to Climate Change, and What to Do About It? - Progressives see climate change and economic inequality as two of the big problems of our time. As the global aid organization Oxfam points out in a recent media briefing paper, “Extreme Carbon Inequality,” the two are “inextricably linked.” But just what is the nature of the linkage? Does inequality cause climate change? Does climate change cause inequality? Is there an inherent tradeoff between mitigation of climate change and reduction in global inequality, or is there a way to address both problems at once? These questions deserve a closer look. The principal message of the Oxfam study is that that the rich are disproportionately responsible for climate change. As evidence, it supplies the following chart showing “lifestyle carbon emissions” by income class of global population. The report defines lifestyle emissions as those that arise from consumption of goods and services, with emissions from producing those goods attributed to the country in which consumption takes place, even if they are produced elsewhere. The chart indicates that the poorest half of the global population is responsible for only 10 percent of total global emissions while nearly 50 percent can be attributed to the wealthiest 10 percent. The rich have average carbon footprints 11 times as high as the poorest half of the population, and 60 times as high as the poorest 10 percent. I have no trouble with the proposition that wealthy consumers contribute more than proportionately to climate change, but to be fair, the Oxfam chart exaggerates that tendency, and in more than one way. One problem is that “lifestyle emissions,” as defined by Oxfam, understate the role of agriculture in climate change. As detailed in a report from the respected environmental organization Worldwatch Institute, agriculture is responsible for a substantial share of climate change—two-thirds as much as transportation, and more than a third as much as the burning of fossil fuels for heat and energy production. According to Worldwatch, agricultural emissions are heavily concentrated in lower- and middle-income countries:

Meet the World’s First Climate Refugees - “This is a story about people who stand to lose everything—people who may need to flee their native home and never come back. These people are refugees, but they’re not running from war or an oppressive government. They’re seeking asylum from climate change,” the narrator of the Seeker Stories episode below explained. Climate refugees are those displaced from their homes due to climate change-induced disasters such as flooding or drought, as well as slow-creeping crises such as sea level rise. There are a growing number of communities that are on the “frontlines of climate change,” including Native Alaskans and the low-lying island nations of Oceania. These communities are already facing the impacts of climate change, and their unique locations and more traditional livelihoods make them particularly vulnerable to the consequences of a warming world.   Photographer and filmmaker Vlad Sokhin partnered with Seeker to produce the video to document how rising seas and increasingly violent storms have already decimated Pacific island communities like Tuvalu.

95% consensus of expert economists: cut carbon pollution: The Institute for Policy Integrity at the New York University (NYU) School of Law recently published a report summarizing a survey of economists with climate expertise. The report was a follow-up and expansion of a similar survey conducted in 2009 by the same institute. The key finding: there’s a strong consensus among climate economics experts that we should put a price on carbon pollution to curb the expensive costs of climate change. The survey participants included economists who have published papers related to climate change “in a highly ranked, peer-reviewed economics or environmental economics journal since 1994.” Overall, 365 participants completed the survey, which established the consensus of expert climate economists on a number of important questions.

Why is the largest Earth science conference still sponsored by Exxon? - “Thank You to Our Sponsors: ExxonMobil, Chevron, Shell...” This was the first message to greet us upon arrival at the 2015 American Geophysical Union (AGU) fall meeting - the world’s largest gathering of Earth and space scientists.  As aspiring and early career environmental scientists, this was a dismaying welcome, for we are immensely disturbed and angered by the well-documented complicity of these companies in climate denial and disinformation. For example, recent investigative journalism has shed light on the fact that ExxonMobil,informed by their in-house scientists, has known about the devastating global warming effects of fossil fuel burning since the late 1970s, but spent the next decades funding disinformation campaigns to confuse the public, slander scientists, and sabotage science - the very science conducted by thousands of AGU members. Even today, ExxonMobil and Chevron continue to fund the American Legislative Exchange Council, a lobbying group that routinely misrepresents climate science to US state legislators and attempts to block pro-renewable energy policies.The impacts of Exxon’s tactics have been devastating. Thanks in part to Exxon, the American public remains confused and polarized about climate change. Thanks in part to Exxon, climate science-denying Republicans in Congress and lobby groups operating at the state level remain a major obstacle to U.S. efforts to mitigate climate change. And thanks in no small part to Exxon, climate action has been delayed at the global level; as the international community began to consider curbing greenhouse gas emissions with the Kyoto Protocol in 1997, Exxon orchestrated and funded anti-Kyoto campaigns, including participation in the Global Climate Coalition.

Facing Up to Climate Reality by Adair Turner - Last year, three facts about climate change became clear: Achieving a low-carbon economy is essential; new technologies make that goal attainable at an acceptable cost; but technological progress alone will be insufficient without strong public policies. Extreme weather in December – big floods in South America, the United States, and Britain, and very little snow in the Alps – partly reflected this year’s strong El Niño (caused by warmer Pacific Ocean water off Ecuador and Peru). But the planet’s rising surface temperature will increase the probability and severity of such weather patterns, and 2015 – the warmest year on record – confirmed that human greenhouse-gas emissions are driving significant climate change. Earth’s average land surface temperature is now about 1°C above pre-industrial levels. Support Project Syndicate’s mission Project Syndicate needs your help to provide readers everywhere equal access to the ideas and debates shaping their lives. Learn more Faced with that reality, the climate agreement reached in Paris last month represents a valuable but still insufficient response. All major economies are now committed to reducing emissions below business-as-usual levels: but the combination of national commitments would likely result in warming of almost 3°C above preindustrial levels – a terrifying prospect, given the adverse consequences already apparent from a 1°C rise. To cap the global increase in temperature at 2°C (the target endorsed in Paris), let alone to limit global warming to 1.5°C (an aspiration which was also confirmed), will require that emissions in the year 2030 be about 20% lower than the combined national commitments envisage. Moreover, it demands further reductions beyond 2030 that ensure subsequent progress toward net-zero carbon emissions by the second half of this century.

How to Forge a Grand Bargain on Energy - Jeffrey D. Sachs - The wars over climate science aren’t really about whether humanity is dangerously changing the climate. It is. They are proxy wars—lobbying wars—over 21st-century energy sources: fossil fuels vs. renewables vs. nuclear energy. In fact, we will need all energy sources that meet three conditions: homegrown (for national security), low-cost (for competitiveness) and environmentally safe. With improved technologies, there is a place for fossil fuels, renewables and nuclear in the mix. Fossil fuels can continue to be used safely to the extent that their carbon-dioxide emissions are captured and stored underground. The new Boundary Dam coal-fired power plant in the Canadian province of Saskatchewan suggests that the costs of carbon capture and storage can be reasonably low and that they will decline along a future learning curve. Nuclear energy can continue to be used safely with improvements in nuclear technology. One promising possibility is the integral fast reactor technology that uses its own nuclear wastes as energy inputs in a closed fuel cycle. Such reactors also have passive safety features that would be safer in case of a shutdown. Renewables, including solar and wind, are falling in cost and expanding in application. Renewables may not only power the future grid and electric-vehicle fleet with zero-emission power but also be used to produce synthetic fuels. If Elon Musk can bring a re-entry rocket back to Earth in a perfect upright landing, as he’s just done, he can also dramatically improve batteries for his Tesla dream machines and the grid.

TTIP and Climate Change: Low Economic Benefits, Real Climate Risks --Climate change governance should inform global governance more broadly, including international trade and investment policy. One of the most important trade and investment agreements is the Trans-Atlantic Trade and Investment Partnership (TTIP)—currently under negotiation between the European Union and United States—given the role the agreement will likely play in establishing rules for the global economy in the 21st century. The current model that the TTIP is based on will increase carbon dioxide emissions and jeopardize the ability of Europe and the United States to put in place effective policies for mitigating climate change. Trade and investment treaties should be used to help achieve the broader climate change objectives of Europe and the United States, not hinder them. This short brief outlines how the TTIP can increase emissions and restrict the ability of nations to adequately mitigate and adapt to climate change and offers a set of recommendations that would make EU–U.S. trade policy more consistent with global climate change goals.

Infographic Of The Day: The Evolution Of Sustainability: Sustainability gained attention and a voice in 1970. Earth Day and the creation of the Clean Air Act became more than words - they had importance and impact. Today, social media brings attention to environmental causes. See more on the evolution of sustainability in our latest infographic:

What should America do with its $2-per-gallon gas windfall? -   American consumers have been enjoying Christmas since July – that is, July 2014, when the average price for all grades of gasoline peaked at US$3.75 per gallon, according to the Energy Information Administration. Since then, prices have declined substantially, as every motorist knows: to $2.90 by Thanksgiving 2014 and to $2.14 as we approach the end of 2015. In many parts of the country, the price of regular gasoline is well below $2 per gallon today.    For consumers, this is unquestionably a financial windfall. There are losers too, of course, especially across the petroleum and fuels industry. But from a societal perspective – from consumer behavior to public policy – how should we view this change and the likelihood of low energy prices for the longer term, even if they rebound from today’s lows? Voting with their wallets The behavioral response of consumers to falling gas prices has been rapid, and from the perspective of greenhouse gas emissions and the climate, not good. Gasoline retail sales in the US are up a whopping 28% for the first nine months of 2015 compared to the same period in 2014, according to the EIA. There are longer-term consequences of current consumer choices as well. According to the University of Michigan Transportation Research Institute, the average gas mileage of new vehicles sold in the US has decreased from a record high of 25.8 miles per gallon (mpg) in the summer of 2014 to 25.0 mpg in November 2015. That translates into a 5% increase in emissions from new vehicles over that period. That may not sound like much, but in the face of the US commitment ahead of the COP21 Paris climate summit to decrease greenhouse gas (GHG) emissions by 28% by 2025, it is clearly a step in the wrong direction.

Hydropower’s Future Looks Dim as Heat and Drought Intensify  - Climate change could threaten the electricity supply around the world, according to new calculations. That is because the power generation depends on a sure supply of water. But climate change also promises greater frequencies and intensities of heat and drought. So more than half of the world’s hydropower and thermoelectric generating plants could find their capacity reduced. Michelle van Vliet, an environmental scientist at Wageningen University in the Netherlands, and colleagues from the International Institute of Applied Systems Analysis in Austria report in Nature Climate Change that they modeled the potential performance in the decades ahead of 24,515 hydropower plants and 1,427 nuclear, fossil-fueled, biomass-fueled and geothermal power stations. Thermoelectric turbines—which generate power directly from heat, and rely on water as a coolant—and hydropower plants currently generate 98 percent of the planet’s electricity. But global water consumption for power generation is expected to double in the next 40 years as economies develop and the population continues to grow. The scientists found that reductions in stream and river flow and the rise in levels of water temperature could reduce the generating capacity of up to 86 percent of the thermoelectric plants and up to 74% of the hydropower plants in their study. This means that power from hydro stations could fall by 3.6 percent in the 2050s and 6.1 percent in the 2080s, because of reduced stream flow. And by the 2050s, the monthly capacity of most of the thermoelectric power plants could drop by 50 percent.

The Conservative Case for Solar Subsidies - Solar energy prices have continued to fall rapidly, twice as many Americans work in the solar industry as in coal mining, and last year one-third of new electricity generation came from solar power. Solar, long viewed through the lens of crony capitalism, has shown the ability to inject real market competition in energy distribution, one of the last monopolies in the energy sector, while improving the efficiency of the grid and putting more dollars in the pockets of middle-class Americans. Conservatives, in other words, need to take another look at solar. The case for solar isn’t limited to prices and jobs. Consumers want choice. Unfortunately, in most markets around the country, electricity is still one of the few areas where we have virtually no choice over our supplier. Imagine you want to buy a G.M. car, but you were told you can buy only a Toyota. You’d be outraged — yet this is how almost all Americans are forced to procure their electricity. Solar also solves an efficiency challenge. Right now, demand peaks during the daytime, far exceeding the supply of baseload power. To meet demand, we have invested in a great deal of spare capacity. Most of this capacity comes from coal and natural gas plants that run only for a fraction of the day. According to the Energy Information Administration, outside of peak hours, most natural gas-fired power plants in America used only 5 percent of their total capacity in 2012.  Critics of solar have often said that it produces only “when the sun is shining,” and that is true. Fortunately, we need energy most during the daytime — making rooftop solar a smart choice for consumers while adding energy to the grid when we need it most.

Preparing for large-scale solar deployment: Deploying solar power at the scale needed to alleviate climate change will pose serious challenges for today's electric power system, finds a study performed by researchers at MIT and the Institute for Research and Technology (ITT). For example, local power networks will need to handle both incoming and outgoing flows of electricity. Rapid changes in photovoltaic (PV) output as the sun comes and goes will require running expensive power plants that can respond quickly to changes in demand. Costs will rise, yet market prices paid to owners of PV systems will decline as more PV systems come online, rendering more PV investment unprofitable at market prices. The study concludes that ensuring an economic, reliable, and climate-friendly power system in the future will require strengthening existing equipment, modifying regulations and pricing, and developing critical technologies, including low-cost, large-scale energy storage devices that can smooth out delivery of PV-generated electricity. Most experts agree that solar power must be a critical component of any long-term plan to address climate change. . However, analyses performed as part of the MIT "Future of Solar Energy" report found that getting there won't be straightforward. Without the ability to store energy, all solar (and wind) power devices are intermittent sources of electricity. When the sun is shining, electricity produced by PVs flows into the power system, and other power plants can be turned down or off because their generation isn't needed. When the sunshine goes away, those other plants must come back online to meet demand. That scenario poses two problems. First, PVs send electricity into a system that was designed to deliver it, not receive it. And second, their behavior requires other power plants to operate in ways that may be difficult or even impossible.

Gail Tverberg: Something Has Got To Break (podcast) - Actuary Gail Tverberg explains the tight correlation between the rates of GDP growth and growth in energy supply. For decades, energy has been becoming more costly to obtain, and instead of accepting lower GDP growth, we have been using debt to fund further energy exploration and extraction. That strategy has diminishing returns, Tverberg warns. And we are close to the moment of reckoning: The more we look at it the more we see that the rate of growth and energy supply is very closely correlated with the rate of GDP growth. And I know on some of my recent posts I’ve included a chart that goes back to 1820 that shows the same correlation. You have to have an increasing supply of energy in order to get GDP growth. The GDP growth tends to be a little higher than the energy growth. That’s especially the same when we made the change in the mid 70’s, when we had the big first oil crisis and we realized that Japan had already started making small cars, and so we could make smaller cars, too, and save quite a bit of oil very quickly. And we realized then that we didn’t have to burn oil to create electricity; there were a lot of other alternative approaches, including nuclear. So we pulled those off line, and where home heating had been done by oil it was easy to transfer that to other types of energy. So we had a number of different things we could do very quickly back then -- and I think people got the idea that because we could pick the low-hanging fruit, then somehow or other we could do the same thing again. But we’re not getting that same kind of effect any more.You can dial up your debt growth for a while but then you discover that debt growth has a lot of adverse effects. And one of the big ones is that it tends to funnel money to the wealthier class and take money away from the poor members of society. I’m afraid what it means is that at some point there’s got to be a discontinuity. Something has got to break.

Will 2016 be the year where Climate Change begins to matter to corporate India? - The 21st edition of the Conference of the Parties (COP21) has been a landmark event of 2015. Governments world over, after 21 years of intense negotiations and debate, have finally come to a legally binding agreement aiming to contain the increase in the global average temperature to “well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels” – a more ambitious goal than had been expected. This new climate deal will come into force in 2020. Leading companies in India have been watching the negotiations with interest. The implications of the treaty are not just in terms of the new business environment but about the larger impacts on how businesses will be run five, ten and fifteen years from now. The cost of environmental damage can no longer just be passed on to the community, as businesses will increasingly be expected to bear this cost and infact undo the damage. The Paris accord has significant impact on climate finance and enabling technology as well.Corporate India is not new to Climate Risk. In fact, India has reeled under the impact of increased supply risk in 2015. Floods in several parts of the country, drought in others and extreme pollution in almost all our cities are important signals that business as usual is no longer an option. Conversely though, if one were to examine corporate disclosures around sustainability, we find that only just about half the companies actually release sustainability reports and even fewer are externally certified. Both the release and external verification is highly variable across industries.

VW faces billions in fines as U.S. sues for environmental violations | Reuters: The U.S. Justice Department has sued Volkswagen for up to $48 billion for allegedly violating environmental laws - a reminder of the carmaker's problems nearly four months after its emissions scandal broke. Although such U.S. lawsuits are typically settled at a fraction of the theoretical maximum penalty, analysts said the size of the claim meant Volkswagen (VW) could face a larger bill than previously anticipated. "The announcement serves as a reminder/reality check of VW's still unresolved emissions issues," Goldman Sachs analysts wrote in a note, maintaining their "sell" recommendation on the stock. VW shares fell as much as 6 percent to a six-week low on Tuesday, the biggest drop on Germany's blue-chip DAX index. The civil lawsuit, announced on Monday, reflects the growing number of allegations against VW since the German company admitted in September to installing devices to cheat emissions tests in several 2.0 liter diesel vehicle models. According to a Reuters review of the U.S. complaint, VW could in theory face fines of as much as $37,500 per vehicle for each of two violations of the law; up to $3,750 per "defeat device"; and another $37,500 for each day of violation. The complaint says illegal devices to impair emission control systems were installed in nearly 600,000 vehicles in the United States. (here)

A Bailout for Volkswagen? Congress Wants to Do Something Absolutely Crazy -- When Volkswagen admitted to cheating on air pollution standards tests in September, it opened itself up not only to government punishment, but lawsuits from 500,000 U.S. purchasers of its “clean” diesel vehicles. Volkswagen has yet to fix the vehicles to bring them into emissions compliance, and even if it does, that will likely create a lower-performance car than consumers paid for. “Throughout these years, Volkswagen has been lying to us,” says Rebecca Kaplan, who has joined one of hundreds of class-action suits against the automaker, likely to be consolidated into a large multi-district case.  But a bill in Congress consisting of a little more than 100 words would not only prevent Kaplan from seeking justice but also cripple virtually all class-action lawsuits against corporations. It’s known as the “Fairness in Class Action Litigation Act,” but lawyers and advocates call it the “VW Bailout Bill.” The bill, which will get a vote on the House floor in the first week of January, follows a series of steps by the judiciary to block the courthouse door on behalf of corporations.  “There's no question the Supreme Court has ben moving in that direction to limit access to courts,” . “But Congress has never done something like this, trying to step in and wipe out class-actions.”The simplicity of the VW Bailout Bill belies the chaos it would create. Proponents like the U.S. Chamber of Commerce, the bill’s leading lobbyist, say they merely want to get rid of “non-injury” class-action cases, based on potential damages from defective consumer products or corporate actions that have yet to result in harm. Lawyers for class-action litigants argue that defective products deserve compensation even if the consumer hasn’t yet been injured. But the bill goes much further, stating that courts may not certify class-action suits unless the plaintiff “affirmatively demonstrates that each proposed class member suffered the same type and scope of injury as the named class representative or representatives.”

Radioactive materials spreading from St. Louis landfill – report -- Dangerous radioactive materials from a nuclear waste dump near St. Louis, Missouri have spread to neighboring areas, a new study shows. Storm water runoff from the site has also raised concerns and is being tested for radioactive pollution.  According to a peer-reviewed study just published in the Journal of Environmental Radioactivity, there is “strong evidence” that radon gas and water emanating from the West Lake Landfill are responsible for the anomalous levels of a lead isotope (210Pb), created by radioactive decay, in the surrounding area.  Study points to evidence that radon gas is leaving West Lake Landfill, affecting nearby areas. Just northwest of the St. Louis International Airport, the West Lake Landfill is a repository of nuclear waste from the Manhattan Project, the WW2 effort to create the atomic bomb. The area was declared an Environmental Protection Agency (EPA) Superfund site in 1990, but the federal government is still deciding how to clean up the waste. After analyzing nearly 300 soil samples from a 200-square-kilometer zone surrounding West Lake, the report’s authors concluded that “offsite migration of radiological contaminants from Manhattan Project-era uranium processing wastes has occurred in this populated area.”  “The stuff we're talking about at West Lake is hotter than what you would find in a typical uranium mill tailings operation,” In 48 percent of the samples, concentrations of the isotope were “above the risk-based soil cleanup limits for residential farming,” according to the study. Moreover, the levels of Lead-210 were not in equilibrium with other isotopes in the radioactive decay series, suggesting that its origin was in the “short-lived, fugitive radon gas that escaped the landfill,” the study says.

The Looming Environmental Disaster In Missouri That Nobody Is Talking About --Since we first highlighted the potential for a "catastrophic event" in Missouri three months ago, there has been little mainstream media coverage. However, as Claire Bernish via notes, residents near the smoldering fill have expressed increasing frustration with the quarreling agencies offering few answers for an increasing number of health issues, like asthma. For now, it’s startlingly apparent no one knows exactly what’s happening with the West Lake and Bridgeton Landfills - though the smoldering below the surface doesn’t cease and floodwaters continue to rise. What happens when radioactive byproduct from the Manhattan Project comes into contact with an “underground fire” at a landfill? Surprisingly, no one actually knows for sure; but residents of Bridgeton, Missouri, near the West Lake and Bridgeton Landfills — just northwest of the St. Louis International Airport — may find out sooner than they’d like.And that conundrum isn’t the only issue for the area. Contradicting reports from both the government and the landfill’s responsible parties, radioactive contamination is actively leaching into the surrounding populated area from the West Lake site — and likely has been for the past 42 years. In order to grasp this startling confluence of circumstances, it’s important to understand the history of these sites. Pertinent information either hasn’t been forthcoming or is muddied by disputes among the various government agencies and companies that should be held accountable for keeping area residents safe.  West Lake Landfill was placed on the National Priorities List in 1990, giving the Environmental Protection Agency regulatory authority through its designation as a Superfund site. However, the area wasn’t a planned radioactive waste storage site. Uranium processing residue leftover from the World War II-era Manhattan Project was originally dumped there, illegally, by a contractor for former uranium processing company and General Atomics affiliate, Cotter Corporation in 1973.

Reports warn Ohio's energy sector about risks from climate change - Ohio energy leaders are not especially worried about future climate change impacts on their operations, despite an unusually warm 2015 and two recent studies suggesting that extreme weather events could cause significant problems for the state by mid-century.One study by researchers at Climate Central and ICF International gave Ohio a D- grade for its preparedness to deal with anticipated climate change impacts, ranking it in the bottom ten among U.S. states. That research was presented on December 15 at the American Geophysical Union fall meeting in San Francisco. Power plants can be particularly vulnerable to increasing temperatures from climate change, according to the second study, which came out this week in Nature Climate Change. The Climate Central report is the first nationwide analysis of each state’s preparedness for extreme weather events that are driven by climate change. “We looked mostly at extreme weather events and how that could change in the future with climate change,” explained Rita Yu of Climate Central. “We assessed the magnitude of that for the state as a whole.” “For Ohio in particular, we looked at extreme heat, flooding and drought,” Yu said. “For each of these hazards we looked at the climate science.” The severity of summer droughts for Ohio could increase by 50 percent by 2050, her research team found. At the same time, it reported, heavy run-off events that lead to flooding could increase by 25 percent. “Then we looked at whether the state agencies are doing anything about the hazards we looked at,” Yu said. In Ohio’s case, the answer is not much at all, she noted. “There’s no state-level adaptation planning,”

Rosebud idling most Pennsylvania mines, 429 miners out of work (AP) — Rosebud Mining Co. is idling most of its Pennsylvania coal mines, putting 429 miners temporarily out of work. Jim Barker, vice president of the Kittanning-based company tells the Indiana Gazette ( he hopes the workers will be called back in February. Barker blames the temporary shutdown on unseasonably warm weather in November and December, which decreased demand for coal at power plants it supplies. Rosebud operates 20 underground Pennsylvania coal mines, and only a few are staying open for maintenance projects during the furlough. Barker says the mines have to cut production until cold weather increases the demand for coal.

The World’s Largest Coal Producer Is Halting Approvals For New Coal Mines - China, the largest coal producer in the world, won’t be approving new mines for the next three years as it grapples with alarming pollution and pursues other energy sources, including nuclear plants.  The country announced the move last week, according to the state-run Xinhua News Agency. This ban on new mines is unprecedented, published reports note, though mines have been closed in the past and will to be shut down in the coming year. The halting of licenses coincides with a slower Chinese economy, which affects energy demand, but also with heavy air pollution in Beijing and nearby towns. Early last month millions of Chinese went through the country’s first red alert for air pollution, only to experience a second one a week later. Visibility in the streets was an issue, and residents — many of whom use expensive air purifiers in their homes — were urged to stay indoors.  The recent announcement is yet another sign that China, the largest coal producer and consumer in the world, is increasingly distancing from its largest energy source. It also emboldens promises made at the recent Paris summit on climate change. Some 64 percent of Chinese energy comes from coal, but according to Chinese media, the country said it will reduce its consumption by about 2 percent in 2016.  Such change, though it appears small, is a major turn for a growing economy that exponentially increased its coal use over the past 15 years. What’s more, studies suggest that coal use in China declined in 2014 and may have peaked in 2013. In turn, the government said it will add millions of kilowatts of wind and solar power in the next five years, while also approving an unspecified number of nuclear plants in the coastal region.

 Consol plans Utica gas well at Pittsburgh airport - Consol Energy Inc. will drill a test well into the deeper Utica shale from one of its Marcellus gas well pads on Pittsburgh International Airport property. The Cecil-based natural gas and coal producer said Tuesday it received approval from Findlay zoning officials to replace one of the 12 Marcellus wells it planned for Pad 4 at the airport with a Utica well. No date has been set for drilling. Like other several other major shale producers, Consol is getting huge results from a few new wells tapping the dry Utica layer, which runs beneath the Marcellus and can produce large amounts of gas with few related liquids. Consol is fracking a Utica well in Greene County and finished wells in Monroe County, Ohio, and in Westmoreland County. The wells will help company officials map the geographic extent of the productive part of the rock layer. Because of persistently low prices, Consol has halted its drilling program while it fracks wells in its inventory, though drilling from an existing well pad can be done more cheaply.

Christiana wants to replace impact fee to severance tax - State Rep. Jim Christiana last week said he wants to eliminate Pennsylvania’s impact fee on natural gas drilling and replace it with a severance tax, a proposal that is garnering mixed reactions from local stakeholders. Christiana, R-15, Beaver, said his proposed legislation would include an initial 3 percent severance tax starting on July 1. The tax would be tied to the price of natural gas, however, meaning it could increase to as much as 5 percent according to market conditions. Christiana’s proposal would abolish the impact fee that has been used in Pennsylvania since 2012. Last year, the impact fee distributed $223.5 million across the state. In contrast, Gov. Tom Wolf previously touted a plan that would have kept the impact fee while also adding a 3.5 percent severance tax and a charge of 4.7 cents per thousand cubic feet. Jack Manning, president of the Beaver County Chamber of Commerce, said Tuesday he reacted positively when he heard about Christiana’s proposal. For starters, Manning said Wolf’s proposal of 4.7 cents per thousand cubic feet is “way out of line with the market and onerous beyond belief.” “What Jim seems to be proposing from what I know is very reasonable and puts us in line with other gas-producing states,” Manning said

No fracking pits allowed under new DEP regs for oil and gas industry - The Pennsylvania Department of Environmental Protection on Wednesday made available thousands of pages of documents outlining new rules for the oil and gas industry. Among the trove of public documents are increased regulations for unconventional drillers, which apply to companies extracting natural resources from the Marcellus Shale. All of it can be found here. Some of the biggest changes include “a prohibition on all pits,” such as the pits used for drill cuttings and flowback fluids. A driller that still wants to use a centralized impoundment will need a residual waste permit, in addition to DEP permits. Regulators say the changes are necessary after a number of cases in which pits and impoundments were found to be leaking.

Toxins found in fracking fluids and wastewater, study shows: Yale News -- In an analysis of more than 1,000 chemicals in fluids used in and created by hydraulic fracturing (fracking), Yale School of Public Health researchers found that many of the substances have been linked to reproductive and developmental health problems, and the majority had undetermined toxicity due to insufficient information. Further exposure and epidemiological studies are urgently needed to evaluate potential threats to human health from chemicals found in fracking fluids and wastewater created by fracking, said the research team in their paper, published Jan. 6 in the Journal of Exposure Science and Environmental and Epidemiology. The research team evaluated available data on 1,021 chemicals used in fracking, a process that recovers oil and natural gas from deep within the ground by using a mixture of hydraulic-fracturing fluids that can contain hundreds of chemicals. The process creates significant amounts of wastewater and fractures the bedrock, posing a potential threat to both surface water and underground aquifers that supply drinking water, note the researchers. While they lacked definitive information on the toxicity of the majority of the chemicals, the team members analyzed 240 substances and concluded that 157 of them — chemicals such as arsenic, benzene, cadmium, lead, formaldehyde, chlorine, and mercury — were associated with either developmental or reproductive toxicity. Of these, 67 chemicals were of particular concern because they had an existing federal health-based standard or guideline, said the scientists, adding that data on whether levels of chemicals exceeded the guidelines were too limited to assess.

Fracking Fluid Contains A Stew Of Known Toxic Chemicals -- And That May Not Be The Worst Of It: Arsenic, benzene, formaldehyde, lead and mercury are among more than 200 toxins found in fracking fluids and wastewater that may pose serious risks to reproductive and developmental health, according to a paper published on Wednesday. And that list may just be just the tip of the iceberg, said Nicole Deziel, an environmental health expert at the Yale School of Public Health and senior author of the new study. Many more chemicals known to be used in fracking could pose similar risks, yet remain unstudied, Deziel said. Other substances involved in oil and natural gas production remain undisclosed by fracking companies. In their study, Deziel and her team investigated more than 1,000 chemicals used in and created by the controversial drilling process, which shoots a mix of pressurized water, sand and chemicals into shale rock to unlock hydrocarbon reserves. The U.S. Environmental Protection Agency used the same list in its assessment of the available science, which found no evidence that fracking has led to widespread, systemic contamination of drinking water. For most of the chemicals, insufficient information thwarted the researchers' efforts to determine potential toxicity. "That's not really surprising," said Deziel. "There are thousands of chemicals in commerce that people are routinely exposed to and for which we have limited data."   Of the 240 chemicals for which the Yale team did have adequate data, they found that 157 were associated with some kind of reproductive or developmental problem, such as adverse birth outcomes, derailed brain development or infertility.

Another reason fracking sucks: Study links fracking to even more health problems - Another day, another study linking fracking to health problems.” A new study from the Yale School of Public Health links the chemicals used in fracking with potential reproductive and developmental problems. This isn’t exactly new — we’ve known for some time that fracking is connected with lowered sperm counts, as well as premature births and a host of other health issues. This particular study, however, raises concerns about wastewater in particular, which the researchers found is even more toxic than the chemicals used in fracking. The New Haven Register reports: But, in addition to the natural gas, wastewater surfaces, which contains leftover chemicals that were pumped down as well as other potentially harmful substances such as lead and arsenic. “What comes back up is actually more toxic than chemicals that went down,” Deziel said. Researchers analyzed public data available on 1,021 chemicals that are used in fracking with the main goal of identifying the most toxic chemicals used in the process. And the most toxic chemicals used have links to reproductive and developmental health problems. Sounds like exactly the thing we should be relying on as we move toward a clean energy future, right? It’s a terrible idea — fracking emits methane, which has 25 times the impact of carbon on climate change over a 100-year period. That is Not Good, and yet, President Obama made natural gas a central tenant of his Clean Power Plan to lower greenhouse gas emissions. As my colleague Ben Adler pointed out, this “could encourage utilities to switch from coal to gas instead of to renewables, even though gas might not be better for the climate over its whole life cycle.” Plus there’s the whole reproductive health thing, like the Yale study found. Oh, and the earthquake thing. And the exploding tap water thing. And the cancer thing. The list, unfortunately, goes on.

Its Own Scientists Question EPA Claim Fracking Is Safe for Drinking Water --- A landmark study by the U.S. Environmental Protection Agency that concluded fracking causes no widespread harm to drinking water is coming under fire — this time, from the agency’s own science advisers. The EPA’s preliminary findings released in June were seen as a vindication of the method used to unlock oil and gas from dense underground rock. A repudiation of the results could reignite the debate over the need for more regulation. Members of the EPA Science Advisory Board, which reviews major studies by the agency, says the main conclusion — that there’s no evidence fracking has led to “widespread, systemic impacts on drinking water” — requires clarification, said David Dzombak, a Carnegie Mellon University environmental engineering professor leading the review, via email. The panel Dzombak heads will release its initial recommendations later this month. “Major findings are ambiguous or are inconsistent with the observations/data presented in the body of the report,” the 31 scientists on the panel said in December, in a response to the study.

EPA Scientists Call Foul on Fracking Study, Say Findings ‘Inconsistent With Data Presented’ -  The U.S. Environmental Protection Agency’s (EPA) advisors are calling foul on the agency’s highly controversial study that determined hydraulic fracturing, or fracking, has not led to “widespread, systemic impacts on drinking water resources in the U.S.” This specific conclusion is being called into question by members of the EPA Science Advisory Board, which reviews the agency’s major studies, Bloomberg reported. The EPA’s conclusion requires clarification, David Dzombak, a Carnegie Mellon University environmental engineering professor who is leading the review, told Bloomberg. A panel headed by Dzombak will release its initial recommendations later this month. “Major findings are ambiguous or are inconsistent with the observations/data presented in the body of the report,” the 31 scientists on the panel said in December 2015. Possible changes to the report could spell trouble for the oil and gas industry that recently celebrated the ending of a 40-year-old crude oil export ban in December 2015. According to Bloomberg, “a repudiation of the results could reignite the debate over the need for more regulation.” The controversial drilling process has spurred a boom in U.S. oil and gas production and driven down gas prices across the country.  However, the report’s misleading and widely reported conclusion—“there is no evidence fracking has led to widespread, systemic impacts on drinking water resources”—has not only downplayed fracking’s effects on drinking water resources, it was also seen by many in the pro-drilling camp as the EPA’s thumbs up to the drilling industry. For instance, a Forbes writer summed up the study with this headline: EPA Fracking Study: Drilling Wins

A blistering report that claimed fracking was safe is now being disputed by its own scientists - An Environmental Protection Agency report released in June on the impacts of fracking on water quality is now being called into question — by none other than the agency's own scientists.   The report initially did not find "widespread, systemic impacts" on drinking water resources close to fracking sites. But the EPA's Science Advisory Board responded in December, after the report was released, that "major findings are ambiguous or inconsistent with the observations/data presented in this report," according to Bloomberg. The controversy rests on one key aspect of the report's findings. It states that the "...number of identified cases [of contaminated wells], however, was small compared to the number of hydraulically fractured wells." While this may be accurate, the report goes on to admit that insufficient long-term data on pre and post fracking water quality could have limited their results, and may not explicitly point to the "rarity of effects on drinking water resources."It's this paucity of information that gives some of the reviewing scientists pause: "I do not think that the document’s authors have gone far enough to emphasize how preliminary these key conclusions are and how limited the factual bases are for their judgments," James Bruckner, a member of the Science Advisory Board, told Bloomberg. Members of the Science Advisory Board, as well as environmental advocates, are also pushing the EPA to include more detailed analysis of the severity of alleged instances of contamination near drilling sites.  Though the Board's recommendations aren't binding, the EPA will "evaluate" possible changes to the report, according to Bloomberg.

Fracking wars heat back up - EPA’s independent Science Advisory Board tugged fracking back into the limelight with a draft report yesterday criticizing the agency for an “inconsistent” finding on fracking risks. Recall that oil and gas companies hailed EPA’s June report, which found that fracking poses no “widespread, systemic” risk to drinking water, as validation that the popular extraction method posed no risk to public health. The agency responded by vowing to consider its independent advisers’ recommendations before finalizing the report sometime this year, but an EPA spokeswoman also stood by the agency’s contextualizing of fracking-water impacts as relatively minor: “EPA’s assessment cites examples where hydraulic fracturing has impacted drinking water resources,” the agency told ME. “However, based on available data, the number of cases is small compared to the number of hydraulically fractured wells.”  Katie Brown, spokeswoman for the Independent Petroleum Association of America-backed Energy in Depth project, said the EPA advisers’ draft report is “concerning, to say the least. [The advisory board's] members are asking EPA to alter scientific findings based on what they admit are ‘outliers.'”  Recall that former EPA chief Lisa Jackson testified before Congress in May 2011 that she was “not aware of any proven case where the fracking process itself has affected water.” Even if the final version of the agency’s study materially alters its headline finding of no broad threat from fracking, it is not expected to offer any specific edicts on stricter regulations.

Industry challenges to be addressed at Marcellus-Utica Midstream Conference - As Marcellus and Utica shale continues to emerge as some of the most prolific gas fields in the world, many challenges lie ahead for the midstream market. Those challenges will be addressed at the Marcellus-Utica Midstream Conference & Exhibition. The event will be held January 26-28 at the David L. Lawrence Convention Center in Pittsburgh. The region’s top companies will come together for an in-depth look at midstream activity throughout the Appalachian plays. Attendees can hear the latest production estimates, learn about midstream projects planned and listen to forecasts on commodity prices. The conference will feature 19 keynote speakers and more than 150 exhibitors.Don Raikes, senior vice president of Dominion Transmission, will be one of the keynote speakers. He will speak about evolving markets and how the Marcellus and Utica shale plays have changed.  “I think that we have probably one of the best and most diverse programs that’s we’ve had for Marcellus-Utica Midstream since we’ve started,” said Paul Hart, editor of Midstream Business.

Moratorium on fracking waste is approved in Wheatfield  — The Town Board voted Monday in favor of a six-month moratorium on the storage or application of waste from hydraulic fracturing on any land or road in the town. Asked whether any such material has been used in Wheatfield, Town Attorney Matthew E. Brooks said, “No, and we don’t want any, either.” Some municipalities have used water from fracking to melt ice because of its salinity, Brooks said. Hydraulic fracturing, or fracking, has been barred in New York State by the Department of Environmental Conservation. The fracking process uses high-pressure water and chemicals to push oil and natural gas out of crevices in underground rock, and has resulted in an energy boom in several states, including Pennsylvania.  The Federal Energy Regulatory Commission has the final say on whether and where the pipeline and associated facilities will be built.

Vermont utility regulator won't reconsider gas line project — Vermont’s utility regulating Public Service Board is sticking with its approval of a plan to build a 41-mile natural gas pipeline from Chittenden County to Middlebury despite a 78 percent increase in cost from what was approved in 2013. In a ruling issued Friday, the board said the Vermont Gas Systems has agreed to limit the potential increase in costs to ratepayers to 12.2 percent. When the board first approved the project in 2013 its cost was estimated at $86.6 million. The price has since ballooned to $153.6 million. Vermont Gas says the decision means the project will be able to deliver clean energy to thousands of customers. Opponent Sandy Levine of the Conservation Law Foundation says it’s disappointing Vermonters will be saddled with high costs and pollution for decades.

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

Rosenberg: Gas pipeline at odds with state's energy goals (AP) — Senate President Stan Rosenberg is asking federal energy regulators to take into consideration Massachusetts efforts to reduce greenhouse gases as they review a proposed natural gas pipeline. In a letter to Federal Energy Regulatory Commission Chairman Norman Bay, Rosenberg said he’s concerned that the planned natural gas pipeline through southern New Hampshire and western Massachusetts by Kinder Morgan Inc. could set back those efforts. Rosenberg pointed to the state’s 2008 Global Warming Solutions Act, which calls for reducing greenhouse gas emissions between 10 percent and 25 percent below 1990 levels by 2020. In the letter, Rosenberg said the state is instead trying to increase the availability of solar power, off-shore wind turbines, hydropower and other technologies to meet future energy demand. FERC is currently accepting public comment on the project.

West Virginia receives $18 million from fracking leases; no royalties yet - — West Virginia has brought in $18 million by leasing the right to drill for oil and natural gas deep below state wildlife management areas and waterways, including beneath the Ohio River. But as natural gas prices stay low, no companies with the state leases have begun extracting gas, as far as state Department of Commerce officials know. As a result, officials say they have received up-front checks, but no royalties from the unearthing of resources from the deep shale deposits, a process generally known as hydraulic fracturing, or fracking. The department first put horizontal drilling opportunities out to bid in the fall of 2014 and has since struck leases in the northern counties of Marshall, Tyler and Wetzel. They include parts of wildlife management areas at Conaway Run Lake, The Jug, Underwood, Burches Run Lake and Lewis Wetzel; Fish Creek and Middle Island Creek; and a few miles of the Ohio River. Given the uncertainty about natural gas prices, West Virginia Commerce Secretary Keith Burdette said the state is treating the leases as one-time cash that will bolster the parks system and wildlife programs, hopefully creating more revenue sources through the improvements. Under state and federal requirements, about $5.4 million has to be doled out to state Division of Natural Resources projects, and $12.6 million must go back into wildlife management.

West Virginia still waiting for fracking royalties - West Virginia has received $18 million so far from leases granted by state officials to drill for oil and natural gas below state wildlife management areas and waterways, including beneath the Ohio River. But as natural gas prices stay low, state officials say they've only received up-front checks so far, and no royalties for unearthing the resources from the deep shale deposits. No companies with state leases have begun extracting gas, as far as state Department of Commerce officials know. The department first put the deep, horizontal drilling leases out to bid in fall 2014. Commerce Secretary Keith Burdette says much of the money will go back into wildlife management programs. Some will fund parks projects, ranging from upgrades at cabins to campground improvements.

It’s Warm Outside – But Natural Gas Demand Has Some Underlying Growth This Winter -- The mild winter in the U.S. thus far has created a balancing nightmare for the natural gas market. A freakishly warm December has meant below-average withdrawals and contributed to a record storage surplus over last winter’s levels. Not surprisingly, natural gas futures prices have been struggling under the weight of this surplus. However, a closer look at gas consumption over the past few weeks shows some underlying demand strength despite the warm weather. Today we take a closer look at where gas demand is coming from. At the end of December 2015 in If I Could Turn Back Production, we examined the extent of the current storage surplus and presented several scenarios for how the market could balance in 2016 – including a few involving higher demand from a colder than normal January and February. With production remaining steady around 73 Bcf/d last fall, it became clear that it would take robust demand to keep the storage surplus from growing and prices from collapsing. However, that winter demand is highly dependent on cold weather, which drives residential and commercial heating demand. Trouble is, the winter was largely a no show until recent days. Let’s look at just how mild it has been. A good way to quantify the impact of winter weather on gas demand is to look at heating degree days (HDDs), which measure heating demand for every outdoor degree below 65 degrees Fahrenheit (see Under the Weather for more on how Degree Days are calculated).  Natural gas fundamental analysts look at HDD data in the winter to understand the relationship between cold weather and the resulting demand and storage withdrawals.  The lower the HDDs, the lower the demand and storage withdrawals in the winter; and the higher the HDDs, the higher the demand and withdrawals. 

EIA: 2015 natural gas spot prices average cheapest since 1999 - Fuel Fix: — Warm weather and strong production in 2015 drove down natural gas prices to their lowest average since 1999, according to a government analysis released Tuesday. Natural gas spot prices at the nation’s central gas-trading Henry Hub in Louisiana averaged $2.61 per million British thermal unit through 2015, the lowest annual average level since the turn of the century, according to the U.S. Energy Information Administration. Spot prices value physical gas, as opposed to the more often cited futures contracts that price natural gas to be delivered at a later date. Spot prices at Henry Hub opened relatively low last year and proceeded to fall. Natural gas became even cheaper when U.S. inventories rose to record levels during the summer. Gas is injected into storage during the warmer months so it can be drawn during the colder winter months to meet heating demand. But the draws from inventories mostly failed to materialize in 2015, and when temperatures stayed warm in the early winter, prices collapsed. Daily spot prices fell below $2 per million British thermal unit for the first time since 2012. The U.S. has several different physical markets for natural gas, each of which serve demand in a different region. Louisiana’s Henry Hub is considered the benchmark and is the delivery point for the next-month futures contract most often traded, but consumers in the Northeast are also impacted by a few other important markets. Prices between the hubs can vary because shipping constraints make it hard to even out spikes in demand that can happen during cold weather.

Natural Gas Stockpiles Shrink, Ends 2015 Down 19% -  The U.S. Energy Department's weekly inventory release showed a larger-than-expected decrease in natural gas supplies. Following the bullish inventory news, plus forecasts for colder temperatures ahead, natural gas prices experienced sharp gains. Despite the boost, the commodity is still languishing near its lowest level in years, ending 2015 down 19%. With production remaining plentiful and expected to outpace demand for most of 2016, the commodity is likely to stay depressed for a while.  The Weekly Natural Gas Storage Report - brought out by the Energy Information Administration (EIA) every Thursday since 2002 - includes updates on natural gas market prices, the latest storage level estimates, recent weather data and other market activities or events. The Analysis of the Data Stockpiles held in underground storage in the lower 48 states fell by 58 billion cubic feet (Bcf) for the week ended Dec 25, 2015, above analyst expectations for a draw of 54 Bcf as per the analysts surveyed by The Wall Street Journal. The decrease exceeded last year's drop of 26 Bcf but was lower than the 5-year (2010-2014) average shrinkage of 98 Bcf for the reported week.

Natural Gas Prices Traded below the 50-Day Moving Average - Market Realist: Natural gas prices have rebounded from the historic low of $1.7 per MMBtu (British thermal units in millions) since December 2015. Short covering and bargain buying pushed natural gas prices higher. However, long-term oversupply concerns are dragging gas prices lately. The cold winter weather forecast could push natural gas prices higher. Gas prices could see resistance at $3 per MMBtu. Prices tested this mark back in April 2015. On the other hand, record inventory and weak demand could push natural gas prices lower. The next support for natural gas prices is seen at $1.6 per MMBtu. Prices hit this level in 1995.Raymond James—the financial services firm—stated that natural gas prices could average around $2 per MMBtu in 2016. The previous forecast was around $2.4 per MMBtu for the same period. Many banks and financial services firms have lately downgraded their oil and gas price forecast for 2016 and 2017. However, the EIA1 estimates that gas prices could average around $2.9 per MMBtu in 2016. We could see a downward revision in the next EIA STEO (Short-Term Energy Outlook) report in the January 2016 edition.

Emails: U.S. Government Facilitated LNG Business Deals Before Terminals Got Required Federal Permits | Steve Horn -- Emails and documents obtained by DeSmog reveal that the U.S. Department of Trade has actively promoted and facilitated  business deals for the liquefied natural gas (LNG) industry and export terminal owners, even before some of the terminals have the federal regulatory agency permits needed to open for business.  This release of the documents coincides with the imminent opening of the first ever LNG export terminal in the U.S. hydraulic fracturing ("fracking") era, owned by Cheniere.   The documents came via an open records request filed by DeSmog with the Port of Lake Charles. The request centered around the Memorandum of Understanding (MOU) the Port signed with the Panama Canal Authority in January 2015.  The records offer an inside glimpse of how -- as the U.S. Federal Energy Regulatory Commission (FERC) and U.S. Department of Energy (DOE) weigh environmental and energy policy concerns before handing out LNG export permits -- other federal agencies have proceeded as if the permits are a fait accompli.   They also further raise the specter that, as some have highlighted, FERC and DOE merely serve as rubber-stamp regulatory agencies in service to powerful industrial interests. Further, they demonstrate how pivotal the proposed and nearly operational Panama Canal expansion project is for the LNG shipping industry moving forward.

Northern Michigan company implements new technology to produce oil - Traverse City oil company, Core Energy, has begun implementing CO2 Enhanced Oil Recovery in Otsego County. The technology uses Carbon Dioxide to extract oil from fields that were otherwise depleted. Core Energy's President and CEO Bob Mannes says the process is expected to not only benefit the local economy, but also help the environment."We are taking CO2 that would otherwise be vented into the atmosphere and we are injecting the CO2 a mile underground into an oil field," said Mannes.Specifically, the 840-acre oil field in Bagley Township just south of Gaylord, where they began the process in December. The field was done producing oil through conventional drilling until Core Energy added it to the eight other oil fields in northern Michigan they're using CO2 Enhanced Oil Recovery to extract oil from. "At the pressure and temperature of this reservoir, this type of oil becomes immiscible to CO2," said Mannes. "The CO2 turns to liquid and it mixes with the oil which will change the viscosity, allow the oil to flow to the reservoir easier." "This is not fracking; this is beneficial to the environment and it's great economically and impacts the entire state," Cole said. "This is a win-win win across-the-board, it's very exciting."

Stunning Drone Footage Of The Midwest Flooding Wreaking Havoc On The US Oil Industry - After the first deadly winter storm this season, now come the floods: the near-record water level across the U.S. Midwest has disrupted everything from oil to agriculture, forcing pipelines, terminals and grain elevators to close. This is the worst flood in the region since May 2011, and is just shy of the worst flood of breaking 30-year records.  According to Bloomberg, the floods have killed at least 20 people and shut hundreds of roads across Missouri and Illinois, according to AccuWeather Inc. Rain-swollen rivers will set records in the Mississippi River basin through much of January. Fifty miles (80 kilometers) of the Illinois River remain closed, according to the U.S. Coast Guard, as well as five miles of the Mississippi River.  Additionally, the Coast Guard issued a high-water safety advisory for 566 miles of Mississippi River between Caruthersville, Missouri, and Natchez, Mississippi. It also instituted high-water towing limitations near Morgan City, Louisiana, for vessels heading south that are 600 feet or shorter, it said in a statement.  The impact of the flood has hit farmers, with hog producers in southern Illinois calling other farmers, hoping to find extra barn space to relocate pigs. In one case, an overflowing creek took out electricity and made roads impassable, causing 2,000 pigs to drown. But the flood's most adverse economic impact may be on oil,  which may see an even greater increase in stockpiles as a result, pushing the price of oil even lower.As Bloomberg adds, so far the biggest oil shutdown involves Enbridge Inc.’s Ozark pipeline, which was booked to carry about 200,000 barrels a day this month to Wood River, Illinois, from Cushing, Oklahoma. The outage of the section under the Mississippi River may further add to stockpiles at Cushing that reached a record high last week.

2015 another record year for quakes in Oklahoma - A 4.2 magnitude earthquake Tuesday near Edmond capped off a record year of earthquakes in the state. Now, 2016 is off to a shaky start. Just before 6 a.m Friday, the Oklahoma Geological Survey recorded a 4.2 magnitude quake near north Oklahoma City. OGS Director Jeremy Boak said he expects the trend to continue, but to what extent remains to be seen. “We had 881 M3.0+ earthquakes for the year … With 480 in January to June, this means we had about 20 percent fewer of these earthquakes in the second half. On the other hand, we had 14 and 15 M4.0+ earthquakes in the same periods for the year, for a total of 29, more than twice last year’s total. Because the overall numbers are small, this is probably not statistically important, but it will have felt so to those near these earthquakes.” In 2014, the state recorded 585 quakes of magnitude 3 or larger, compared with only 100 in 2013, according to federal earthquake data. California, by comparison, had fewer than one-third that number. That put Oklahoma at the top of the list for most seismically active state outside of Alaska and Hawaii, a dubious distinction it maintained in 2015. Geologists have linked the earthquake proliferation to disposal wells used to jettison byproducts of the fracking process. Disposal wells in the Arbuckle formation receive a large portion of the wastewater, but the Oklahoma Corporation Commission has been monitoring those sites heavily and has implemented restrictions to limit capacity and usage. “I do expect a decrease this year, but could not hope to estimate how much,” Boak said. “I suspect it will have to be substantial to reduce the pressure on the Corporation Commission.”

Drilling-Crazy Oklahoma Has Its 12th Earthquake In Less Than A Week: — The state commission that regulates Oklahoma's oil and natural gas industry ordered some injection well operators to reduce wastewater disposal volumes on Monday after at least a dozen earthquakes hit an area north of Oklahoma City in less than a week. The Oklahoma Corporation Commission said it was implementing a plan that affects five wastewater injection wells operating within 10 miles of the center of earthquake activity near Edmond, a northeast suburb of Oklahoma City. Among the recent quakes to hit the area was a 4.2 magnitude temblor on New Year's Day that caused minor damage but no injuries. Oklahoma's energy regulator declared in November that the state now has more earthquakes than anywhere else in the world, which scientists have linked to wastewater injections, a long-used method to dispose of the chemical-laced byproduct of oil and gas production. A recent study by the U.S. Geological Survey traced wastewater injection methods to the 1920s in Oklahoma and tied the rise in quakes in the past 100 years to industrial activities, such as oil and natural gas production. About 1.5 billion barrels of wastewater was disposed underground in Oklahoma last year, according to statistics released by the governor's office.

12 Earthquakes Hit Frack-Happy Oklahoma in Less Than a Week -- After the Oklahoma City area was hit by at least a dozen earthquakes in less than a week, the Oklahoma Corporation Commission, which regulates the state’s oil and gas industry, ordered Monday that several injection well operators reduce wastewater disposal volumes. The commission’s plan addresses five wastewater injection wells operating within 10 miles of the center of the earthquake activity near Edmond, a suburb outside of Oklahoma City. The plan calls for one well, located 3.5 miles from the epicenter, to reduce its disposal volume by 50 percent, with four more wells reducing their volumes by 25 percent.  However, one Oklahoma oil company is defying the state regulator’s request that it shut down six wastewater disposal wells—located more than 100 miles northwest of Oklahoma City—used as part of the company’s fracking operations. According to the The Wall Street Journal: Sandridge Energy Inc., which has complied with similar requests in the past, said this time it won’t stop using its wastewater disposal wells … The Oklahoma Corporation Commission, which regulates energy companies, is working on legal action to modify Sandridge’s permits in order to force it to abandon the wells, said Matt Skinner, a spokesman for the agency … Sandridge may be reluctant to shut down the wells because it needs every bit of revenue it can generate at this point,  . Even if Sandridge continues to pump all the oil and gas it can, the company could run out of cash in 2016, he said. On New Year’s Day, a 4.2-magnitude earthquake struck near Edmond. On Monday, at least three earthquakes were recorded in the Stillwater area, the largest of which had a magnitude of 3.2, according to the U.S. Geological Survey.

Oklahoma oil, gas regulators order changes after earthquakes — The state commission that regulates Oklahoma’s oil and natural gas industry ordered some injection well operators to reduce wastewater disposal volumes on Monday after at least a dozen earthquakes hit an area north of Oklahoma City in less than a week. The Oklahoma Corporation Commission said it was implementing a plan that affects five wastewater injection wells operating within 10 miles of the center of earthquake activity near Edmond, a northeast suburb of Oklahoma City. Among the recent quakes to hit the area was a 4.2 magnitude temblor on New Year’s Day that caused minor damage but no injuries. “We are working with researchers on the entire area of the state involved in the latest seismic activity to plot out where we should go from here,” Oil and Gas Conservation Division Director Tim Baker said, adding that responding to the swarm of earthquakes in the region was an ongoing process. Oklahoma has become one of the most earthquake-prone areas in the world, with the number of quakes magnitude 3.0 or greater skyrocketing from a few dozen in 2012 to more than 800 in 2015. Many of the earthquakes are occurring in swarms in areas where injection wells pump salty wastewater — a byproduct of oil and gas production — deep into the earth.

Oil Companies Putting US Environment ‘On Shaky Ground’ With Fracking: – Oil companies are endangering the lands across the United States with their fracking activities, the Center For Biological Diversity Climate Media Director Patrick Sullivan told Sputnik. "The more oil companies frack, the more contaminated wastewater they produce, and that dangerous waste is polluting our water and putting large parts of our country on shaky ground," Sullivan said. On Monday, the Oklahoma Corporation Commission announced it would regulate five wastewater injection wells by limiting the amount of wastewater injected during the fracking process. Oklahoma has recently been hit with numerous earthquakes, many of which have been attributed to the fracking practice’s injection of wastewater into the earth. The method has been heavily criticized for the associated environmental risks and its potential to trigger tremors. Sullivan stated that the slowness of Oklahoma regulators to address the impact of fracking on the country’s lands displays a disturbing influence of the oil and gas industry over the state’s officials. "Oil industry-earthquakes are wreaking havoc, and both state and federal regulators are doing very little to protect people and property from this inevitable result of fracking and oil production," Sullivan concluded.

Oklahoma Fracking Company Defies Plan To Reduce Earthquakes - An Oklahoma fracking company said Tuesday that it will not comply with a request to reduce the amount of water it discards into underground wells, setting up a legal battle.  The state has been hit with a significant, unprecedented rise in earthquakes that has been tied to the increase in hydraulic fracturing and wastewater disposal. In an effort to address the issue, the Oklahoma Corporation Commission, which oversees oil and gas production in the state, has been regularly issuing directives to natural gas companies to reduce the volume of water injected into the ground. In December, a directive in the Medford, Oklahoma area directed SandRidge Energy to completely stop injecting water into four wells, and restricted volumes in nearly two dozen others. Now, the company is saying there isn’t sufficient evidence that wastewater injection wells are triggering earthquakes, and it will not comply with the voluntary measures. In turn, the OCC will file an application to the agency’s commissioners — a group of three elected officials who have judicial authority — to legally change SandRidge’s allowable levels.The issue is, what does the data suggest in terms of potential risk of induced seismicity?  “We have had 100 percent compliance with the plans that we have issued up until now,” Matt Skinner, a spokesman for the commission, told ThinkProgress. Skinner said staff has been working closely with partners, particularly at the Oklahoma Geological Survey, to make decisions using the best data available.

Oil, Gas Companies Ignoring Oklahoma Fracking Controls - Greenpeace USA: Oil and gas companies operating in the US state of Oklahoma will not follow regulations put in place to help ease environmental damages from fracking, Greenpeace USA Researcher Jesse Coleman told Sputnik Tuesday. On Monday, the Oklahoma Corporation Commission announced it would regulate five wastewater injection wells by limiting the amount of wastewater injected during the fracking process. Oklahoma has recently been hit with numerous earthquakes, many of which have been attributed to the fracking practice’s injection of wastewater into the ground. The method has been heavily criticized for the associated environmental risks in addition to its potential to trigger tremors. Coleman noted that some oil and gas companies have already broken their promise to make the required wastewater reductions. He explained there is no link between reducing wastewater and stopping damaging earthquakes. "It is now time for Governor Mary Fallin and the state of Oklahoma to choose protecting Oklahomans over protecting industry profits," Coleman asserted. On Tuesday, Oklahoma advocacy group Stop Fracking Oklahoma founder Kelley McDonald told Sputnik that the oil and gas companies will only follow the fracking mandates if they are forced to by possible penalties and criminal prosecution.

The Morning Brew: Oklahomans rattled by large earthquakes - It's Thursday, and the central plains are shaking. Here's the latest on Oklahoma earthquakes and other goings-on.  The earth unleashed a string of earthquakes Wednesday and Thursday, including a 4.8-magnitude temblor that has tied for the second largest earthquake since 2011.  "Since 2011"-- that's significant. That's because between 1975 and 2008, the state registered zero to three earthquakes a year at 3.0-magnitude or above.  Since 2009, quakes of this magnitude have smashed records each year, becoming a regular fixture in the state's natural disaster menagerie. There were 20 in 2009, 35 in 2010, 64 in 2011, 35 in 2012, 109 in 2013 and 585 in 2014. Along came 2015 and another earthquake record obliterated: 857 earthquakes. According to this report, that means Oklahoma had more 3.0-magnitude earthquakes in 2015 than every state in the U.S., combined - if you exclude Alaska. A 4.7-magnitude quake that struck near Medford Nov. 30 held the previous record for second-biggest since 2011.  So many quakes hit the Sooner state Wednesday and Thursday it's become difficult to keep up. That's why we have the following earthquake map.

3 earthquakes of magnitude 4.0 or more hit northwest Oklahoma — Three earthquakes capable of causing moderate damage rocked northwestern Oklahoma overnight, but there were no immediate reports of significant damage or injuries. The U.S. Geological Survey reports a magnitude 4.7 quake hit just before 10:30 p.m. Wednesday about 20 miles northwest of Fairview and a magnitude 4.8 quake struck about a half mile away less than a minute later. A magnitude 4.0 quake was recorded in the area just after 2:30 a.m. Thursday. Oklahoma’s earthquakes have been linked to injecting wastewater underground from oil and gas production. Regulators have ordered a reduction in volume or the closure of some wells. Fairview police and Major County Sheriff’s Department officials say there were no reports of damage or injuries. Hundreds of people reporting feeling the quakes in Kansas and Oklahoma. There were also reports to the USGS that the quake was felt hundreds of miles away in Arkansas, Illinois, Iowa, Mississippi, Missouri, Nebraska, Texas and Wisconsin.

Magnitude 4.7 and 4.8 Earthquakes Shake Oklahoma 30 Seconds Apart; 30 Quakes Reported in 19 Hours - A pair of moderate earthquakes shook northwest Oklahoma late Wednesday night, part of a swarm of Sooner State temblors that has produced more than two dozen quakes in less than 24 hours. A 4.7-magnitude tremor was followed 30 seconds later by another 4.8-magnitude quake centered in a sparsely populated area about 20 miles northwest of Fairview, Oklahoma, about 97 miles northwest of Oklahoma City. The quakes struck at depths of 2.1 and 3.7 miles below the surface. The twin earthquakes occurred at 10:27 p.m. CST Wednesday night and were felt from central Kansas to southern Oklahoma and the eastern Texas panhandle, including in Wichita, Kansas, and the Oklahoma City metropolitan area.  There were no reported injuries in either Majors or Woods Counties, near the epicenter of the twin quakes, according to The 4.8-magnitude quake was the strongest in the Sooner State since the November 2011 swarm that included the state's strongest on record, a 5.6-magnitude temblor in Prague on Nov. 6, 2011. It was the fourth strongest quake on record in Oklahoma, according to the Oklahoma Geological Survey (OGS). This was one of 30 separate earthquakes of magnitude 2.5 or greater reported in Oklahoma within a 19-hour span from Wednesday evening through early Thursday afternoon. Twenty-seven of those, including the two strongest quakes mentioned above, were clustered in southern Woods County. Two others were reported in the far northern Oklahoma City metropolitan area east-northeast of Edmond, and a third occurred around midday Thursday near Perry in north-central Oklahoma.

32 Oklahoma quakes in 24-hour period could foretell stronger temblor, experts say -  A rash of 32 earthquakes that shook the state Wednesday night and Thursday increases the likelihood that Oklahoma will experience a higher-magnitude quake, Jeremy Boak, director of the Oklahoma Geological Survey, said Thursday. Two large earthquakes — one that tied for fourth largest in state history — struck near a town in northwestern Oklahoma less than a minute apart Wednesday night and were followed by 30 smaller quakes through Thursday evening. "This little burst has been quite remarkable," Boak said. "Having four magnitude 4s in one day is highly unusual. It's up there in that northern center. So it's quite isolated from the ones we had earlier this year and the tail end of last year. But it's definitely of concern." The United States Geological Survey reported a 4.4-magnitude earthquake about 20 miles northwest of Fairview at 10:27 p.m. Wednesday, followed 30 seconds later by a 4.8 quake less than a mile away. The two temblors were about 3.5 miles deep. The first quake on Wednesday night was initially estimated to be 4.7 in magnitude but was later revised to a 4.4. Seven smaller earthquakes — still 2.5 magnitude or greater — had occurred earlier in the day Wednesday. The third largest in the overnight swarm was a 4.0-magnitude quake at 2:37 a.m. Thursday about 17 miles northwest of Fairview. It was recorded about 3 miles deep. Another 4.0-magnitude quake recorded at about 2 p.m. in the same area. About 9 minutes after the first Fairview seismicity of Wednesday night — the 4.4- and 4.8-magnitude quakes — a 3.4 struck about 20 miles south of Alva, according to the agency. Another 12 minutes later saw a 3.4 occur about 18 miles northwest of Fairview.

U.S. oil 'strippers' maneuver to keep pumping amid crude slump – U.S. “stripper well” operators, the nation’s smallest oil producers seen as most likely to succumb to the crude price slump, are hanging in tough, reducing the chances of near-term production cuts needed to rebalance the domestic oil market. The conventional wisdom is that “strippers” would be the first to fold in the face of oil’s slide below $40 given their tiny size – some may pump as little as few hundred dollars’ worth of oil a day – limited access to capital and high costs compared with bigger, more efficient shale producers. Yet interviews with executives and experts show those smallest, often family-owned, businesses are also among the most resourceful, keeping the oil flowing even as prices near 11-year lows and a growing number of their wells lose money. While hopes for a rebound are fading, “strippers” are doing everything they can to keep their “nodding donkey” pumps working so they can hold on to land leases that give them access to oil reserves. “The small operators of the stripper wells are pretty resilient,” says Mike Cantrell, head of the National Stripper Well Association. “They’ve always made it through and will still make it through.” Stripper wells pump no more than 15 barrels of oil per day but together over 400,000 wells scattered across the nation’s oilfields produce over a tenth of U.S. oil output, enough to affect the market supply-demand balance and prices.

Next goal: Reclaim unused well pads - When falling prices caused natural gas development to start dropping off in places like western Colorado after peaking in 2008, in some cases it ended up in companies doing little or no drilling on well pads they’d already built. How to ensure such pads are reclaimed through reseeding and other measures is part of a stepped-up focus by the Colorado Oil and Gas Conservation Commission. It comes as COGCC Commissioner Richard Alward, a Grand Junction ecologist and consultant whose work includes oil and gas reclamation, continues to call for an update of the agency’s reclamation rules. A new report by commission staff finds that of some 98,000 wells under the agency’s jurisdiction, about 45,000 are eligible for final reclamation, and 58 percent of those have passed final reclamation inspection. That leaves 18,685 locations that the agency plans to focus on inspecting, including about 12,000 sites with wells that either were dry from the start, or produced before being plugged. The nearly 6,800 remaining sites are what the commission calls abandoned locations — sites where companies planned to drill wells but never drilled them. “The number of Wells eligible for final reclamation that have not yet passed a final reclamation inspection has increased substantially since 2009,” the commission says in its new report. It cites a number of factors, such as an increase in requests by surface owners to waive reclamation requirements that may conflict with their desired uses for the land, and more requests by companies to abandon locations they no longer plan to use. Addressing these requests is time-consuming, and staff have to prioritize them with other inspections, such as ones based on citizen complaints, the report notes. But it has added four full-time reclamation inspectors to address the backlog since 2014.

North Dakota rigs slip below 60 for first time since 2009 - The number of drill rigs in North Dakota slid below 60 on Monday for the first time since 2009 as crude prices tumble and companies focus on richer portions of the state’s oil patch. State Department of Mineral Resources data show 59 rigs were operating Monday in western North Dakota’s oil-producing region, down from 171 rigs on the same day last year and 192 in 2012. North Dakota, the nation’s No. 2 oil producer behind Texas, produced about 1.1 million barrels of oil daily in October, which was about 60,000 barrels per day less than the record set in December 2014. October production is the latest available; data typically lags about two months. State and industry officials said North Dakota should be able to maintain oil production at the current level if the number of drill rigs stays above 50. “As long as we can keep those rigs and completions at today’s level, we’ll be able to maintain that production,” said Ron Ness, president of the North Dakota Petroleum Council. There are more than 13,100 active oil wells in North Dakota, a number that has nearly tripled since 2010. Almost all of the new wells are targeting rich Bakken and Three Forks formations in the western part of the state. North Dakota sweet crude was fetching $37 a barrel on Monday, about $25 less than the price a year ago.

Tribes, North Dakota fail to reach deal on oil tax agreement — Tribal officials on North Dakota’s oil-rich Fort Berthold Reservation said Thursday they won’t sign off on a revenue sharing agreement with the state because of a new law that shaves the overall oil tax rate following the fall in crude prices. The Legislature in April passed the measure, which also abolishes some price-based incentives. Three Affiliated Tribes officials said they’re not happy with the tax cut because more money is needed to pay for oversight, road repairs and other consequences of oil development. Tribal leaders have threatened since the law was passed to pull out of the oil tax revenue-sharing agreement that has raised more than $1.5 billion for the state and the tribes since 2008. The tax cut takes effect New Year’s Day. “(The tribes) take no formal action at this time concerning the oil and gas tax agreement while negotiations with the governor’s office continue,” Three Affiliated Tribes Chairman Mark Fox said in a statement.

County objects to any lowered fine in large pipeline spill  — The Williams County Commission has gone on record as opposing a reduction of a $2.4 million fine levied against a Texas company for the largest pipeline spill in North Dakota history. State regulators are considering easing the record fine levied in June against pipeline owner Summit Midstream Partners. Regulators routinely settle on fines, saying it promotes cooperation with proper cleanup and diligence against future spills. Alison Ritter, a spokeswoman for the state Department of Mineral Resources, told The Associated Press recently that the state and the company are “actively negotiating a settlement.” The 3 million-gallon spill of saltwater and oil was discovered in early January near Williston. Saltwater is a byproduct of oil production. Regulators believe the ruptured pipeline had been leaking unnoticed for three months. Officials said it primarily contaminated Blacktail Creek but also flowed into the Little Muddy and Missouri rivers. The Williams County Commission has directed its attorney to write a letter to the state objecting to any lowered fine, the Williston Herald reported. “When we have a spill of this magnitude, it behooves us to give the state notice that no, we don’t believe the penalty should be lower in this situation,”

North Dakota approves crude oil pipeline beneath big lake — North Dakota regulators have approved a crude oil pipeline that will be built 100 feet beneath the lake bed of Lake Sakakawea, the largest of the six reservoirs on the Missouri River. The three-member Public Service Commission unanimously approved Sacagawea Pipeline Co.’s plan on Tuesday. The company is developing the 70-mile-long, pipeline to move crude from Mountrail County to a rail facility in neighboring McKenzie County. The company estimates the cost of the project at $125 million. The timeline for the project is uncertain. The U.S. Army Corps of Engineers still must sign off on the project.

State regulators again approve Keystone XL oil pipeline =— State regulators have again approved the portion of the embattled Keystone XL oil pipeline that would go through South Dakota. The Public Utilities Commission’s decision Tuesday still requires TransCanada Corp. to get a presidential permit for the project. President Barack Obama blocked the pipeline in November. But an attorney for the company has said TransCanada remains committed to the project, which could be revived under the next president. The state authorized the pipeline in 2010, but permits must be revisited if construction doesn’t start within four years. The commission voted to accept the company’s guarantee that it can complete the project while meeting the conditions of the 2010 approval. The pipeline would transport oil from Canada to Nebraska, where it would connect with existing pipelines headed to the Gulf Coast.

TransCanada Announces It Will Sue U.S. Over Keystone XL Denial -  TransCanada, the company behind the Keystone XL pipeline, announced Wednesday it is filing a claim under the North American Free Trade Agreement (NAFTA), saying that the project’s permit denial was “arbitrary and unjustified.” TransCanada is seeking $15 billion in costs and damages due to the denial, and has also filed a separate lawsuit against the U.S. in federal court.  Under NAFTA, companies can sue governments that put investments at risk through regulation. If it proceeds, the case will go in front of an international tribunal. (A U.S. company sued Montreal in 2013 over a fracking ban, using the same rationale). The tribunal cannot overturn the permit denial, but it can force payment of damages.   A NAFTA challenge had been previously identified as a potential legal recourse for the company.  In the notice to submit a claim for arbitration, TransCanada notes that two previous pipelines, carrying oil from the same tar sands region across the U.S. border, were both approved. This, TransCanada claims, suggests that the denial was political in nature, which is prohibited under NAFTA. “Environmental activists … turned opposition to the Keystone XL Pipeline into a litmus test for politicians—including U.S. President Barack Obama — to prove their environmental credentials. The activists’ strategy succeeded,” TransCanada states in its filings. “Stated simply, the delay and the ultimate decision to deny the permit were politically-driven, directly contrary to the findings of the Administration’s own studies, and not based on the merits of Keystone’s application. The Administration’s actions violated U.S. obligations under the North American Free Trade Agreement (“NAFTA”).”

TransCanada Sues Obama Administration; Says Keystone Pipeline Rejection Was Unconstitutional -- On November 6, Obama was delighted to take his place in the pantheon of progressive, liberal Warren Buffett apparatchiks when he proudly announced that the Keystone XL pipeline, which had been delayed for years, had finally been rejected. Exactly two months later, Obama's "mission accomplished" banner has just led to a big slap on the face of the former constitutional expert, and could carry a multi-billion dollar chage after late this afternoon, TransCanada filed a lawsuit in Federal court in Houston, suing the U.S. government and claiming the Obama acted unconstitutionally when he rejected the Keystone XL, while also seeking $15 billion alleging the pipeline denial was "arbitrary and unjustified."The company's lawsuit in federal court in Houston does not seek legal damages but wants the permit denial invalidated and seeks a ruling that no future president can block construction.According to Reuters, in filing the NAFTA claim, TransCanada said it "had every reason to expect its application would be granted" as it had met the same criteria the U.S. State Department used when approving other similar cross-border pipelines.

Keystone: TransCanada Challenges Project Rejection  — The Canadian company that proposed the Keystone XL oil pipeline filed a lawsuit over the U.S. government’s rejection of the project and announced it plans to file a second legal challenge that will seek more than $15 billion in damages.TransCanada filed a federal lawsuit Wednesday in Houston alleging President Barack Obama’s decision in November to kill the pipeline exceeded his power under the U.S. Constitution.The company also announced the same day that it will submit a separate petition seeking the billions in damages, alleging the U.S. breached its obligations under the North American Free Trade Agreement.In November, Obama quashed the pipeline, declaring it would have undercut U.S. efforts to clinch a global climate change deal at the center of his environmental legacy. The president said he agreed with a State Department conclusion that Keystone wouldn’t advance U.S. national interests.“TransCanada has been unjustly deprived of the value of its multi-billion dollar investment by the U.S. Administration’s action,” TransCanada said in a statement. “As the administration candidly admitted, its decision was not based on the merits of the project. Rather, the denial was a symbolic gesture based on speculation about the (false) perceptions of the international community regarding the administration’s leadership on climate change.”  In its lawsuit, TransCanada alleges Obama’s decision exceeded his powers as president and infringed upon Congress’ power under the Constitution to regulate interstate and international commerce.  TransCanada said it plans to submit a separate petition that alleges the U.S. breached four articles under NAFTA — which governs trade between the U.S., Canada and Mexico — that provide financial protections for all Canadian investors.

TransCanada launches $15-billion free trade challenge over Keystone XL denial -- TransCanada Corp. has launched a free-trade agreement challenge claiming US$15 billion in damages and filed a constitutional lawsuit against the United States government over its rejection of the Keystone XL pipeline. The Calgary-based energy transportation company announced Wednesday it had filed a lawsuit in Houston, claiming that President Barack Obama’s “decision to deny construction of Keystone XL exceeded his power under the U.S. Constitution.” In addition, the pipeline company said it intends to file a request for arbitration claiming US$15 billion under the North American Free Trade Agreement, arguing that the basis for the denial was “arbitrary and unjustified.” “The NAFTA claim asserts that TransCanada had every reason to expect its application would be granted as the application met the same criteria the U.S. State Department applied when approving applications to construct other similar cross-border pipelines — including the existing Keystone pipeline, which was approved in under two years, in contrast with the seven years the administration took to make a decision on Keystone XL,” TransCanada said in a news release.

TransCanada to file 2 legal challenges to Keystone rejection - The Canadian company that proposed the Keystone XL oil pipeline has filed a lawsuit over the U.S. government’s rejection of the project and announced it plans to file a second legal challenge that will seek more than $15 billion in damages. TransCanada filed a federal lawsuit in Houston on Wednesday alleging President Barack Obama’s decision in November to kill the pipeline exceeded his power under the U.S. Constitution. The company also announced it will submit a separate petition seeking the billions in damages, alleging the U.S. breached its obligations under the North American Free Trade Agreement. In November, Obama quashed the pipeline, declaring it would have undercut U.S. efforts to clinch a global climate change deal at the center of his environmental legacy. The president said he agreed with a State Department conclusion that Keystone wouldn’t advance U.S. national interests. “TransCanada has been unjustly deprived of the value of its multi-billion dollar investment by the U.S. Administration’s action,” TransCanada said in a statement. “As the administration candidly admitted, its decision was not based on the merits of the project. Rather, the denial was a symbolic gesture based on speculation about the (false) perceptions of the international community regarding the administration’s leadership on climate change.” In its lawsuit, TransCanada alleges Obama’s decision exceeded his powers as president and infringed upon Congress’ power under the Constitution to regulate interstate and international commerce. The White House and the State Department both declined to comment on the lawsuit or the NAFTA challenge.

US Under Attack from Canada -- TransCanada, the company behind the Keystone XL pipeline, announced Wednesday it is filing a claim under the North American Free Trade Agreement (NAFTA), saying that the project’s permit denial was “arbitrary and unjustified.” TransCanada is seeking $15 billion in costs and damages due to the denial, and has also filed a separate lawsuit against the U.S. in federal court.   Under NAFTA, companies can sue governments that put investments at risk through regulation. If it proceeds, the case will go in front of an international tribunal. (A U.S. company sued Montreal in 2013 over a fracking ban, using the same rationale). The tribunal cannot overturn the permit denial, but it can force payment of damages.  A NAFTA challenge had been previously identified as a potential legal recourse for the company.  In the notice to submit a claim for arbitration, TransCanada notes that two previous pipelines, carrying oil from the same tar sands region across the U.S. border, were both approved. This, TransCanada claims, suggests that the denial was political in nature, which is prohibited under NAFTA.  “Environmental activists … turned opposition to the Keystone XL Pipeline into a litmus test for politicians—including U.S. President Barack Obama — to prove their environmental credentials. The activists’ strategy succeeded,” TransCanada states in its filings. “Stated simply, the delay and the ultimate decision to deny the permit were politically-driven, directly contrary to the findings of the Administration’s own studies, and not based on the merits of Keystone’s application. The Administration’s actions violated U.S. obligations under the North American Free Trade Agreement (“NAFTA”).”

TransCanada Sues the US for Rejecting Keystone XL; Will This Be the New Normal Under TPP? - On Wednesday, TransCanada Corporation filed a lawsuit in US federal court alleging President Obama's rejection of the Keystone XL pipeline exceeded his power under the US Constitution. TransCanada also filed legal action under the North American Free Trade Agreement, or NAFTA, claiming the pipeline permit denial was "arbitrary and unjustified." It's seeking $15 billion as part of its NAFTA claim. TransCanada's lawsuit comes just days before President Obama's final State of the Union address, where he's anticipated to tout his controversial Trans-Pacific Partnership, or TPP, deal. The secretive trade pact between the United States and 11 Pacific Rim nations could govern up to 40 percent of the world's economy. After TransCanada announced its lawsuit on Wednesday, the group Friends of the Earth released a statement saying, "This is why Friends of the Earth opposes the Trans-Pacific Partnership and other trade agreements, which allow companies and investors to challenge sovereign government decisions to protect public health and the environment." For more, we're joined by Lori Wallach, the director of Public Citizen's Global Trade Watch.

ARCO counter-sues Montana residents in ongoing legal battle — An oil company has counter-sued residents of Opportunity and Crackerville who are seeking further cleanup of a mine smelter site than is required by federal regulators. The Montana Standard reports that the Atlantic Richfield Co. filed a federal lawsuit naming 97 residents, claiming their long legal fight for cleanup of smelter waste contamination will interfere with cleanup plans approved by the Environmental Protection Agency. The residents filed a lawsuit against ARCO in 2008 claiming negligence, public nuisance, trespass, liability for an abnormally dangerous activity, constructive fraud, unjust enrichment, and wrongful occupation of real property. They sought damages for the cost of restoring their properties to their original uncontaminated state. The Montana Supreme Court reinstated the claims in September and returned the case to court after ARCO sought summary judgment in 2013. ARCO argues federal law prohibits private claims that interfere with cleanup being done under EPA supervision.

Pollution-control employee investigated over seemingly biased e-mails on Sandpiper oil pipeline - Gov. Mark Dayton on Wednesday said state regulatory officials will investigate a pollution-control employee who sent at least two e-mails regarding the proposed Sandpiper oil pipeline that the governor called unprofessional. The Minnesota Pollution Control Agency (MPCA) is looking into actions by Scott Lucas, a pollution-control employee in its Brainerd office, who made seemingly critical statements in e-mails on the proposed crude-oil pipeline.The Sandpiper is a $2.6 billion project that would span 600 miles, transporting North Dakota crude oil across remote areas in northern Minnesota to a terminal in Clearbrook, and then to Superior, Wis.   Enbridge, the company behind the project, had hoped to start work on the project this year, but the Minnesota Court of Appeals in September ruled that a full environmental-impact statement must be conducted, delaying the approval process.  In one e-mail, Lucas sent a message including a link to an environmental report regarding another pipeline, saying it “could be a very useful tool for us to use when making our case against Sandpiper in this area of the state.” The e-mails were first reported by the Pioneer Press. “Somebody in that position who’s playing an advocacy role with advocate organizations has really crossed the line of what their professional responsibilities are,” Dayton said Wednesday. “If they’re going to get into political advocacy, they should resign their position and run for the Legislature or go to work for one of the organizations that oppose the pipeline.”It’s unclear whether the employee has played a prominent role during the regulatory approval process, said Dayton, who supports the project.

The Shale Defaults Begin Here: Banks Quietly Shrink These 25 Companies' Credit Facilities - Everyone knows that at $35/barrel oil, virtually every US shale company is cash flow negative and is therefore burning through cash and other forms of liquidity such as bank revolvers and term loans, just as everyone knows that should oil remain at these prices, the US shale sector is facing an avalanche of defaults.What is less known is who will be the next round of companies to default.One good place to get an answer is to find which companies' bankers are quietly tightening the liquidity noose (because they don't want to be stuck holding worthless assets in bankruptcy or for whatever other reason), by quietly reducing the borrowing base on existing credit facilities.It is these companies which find themselves inside this toxic feedback loop of declining liquidity, which forces them to utilize assets even faster, thus even further shrinking the borrowing base against which their banks have lent them money, that will be at the forefront of the epic bankruptcy wave that is waiting to be unleashed across the US, leading to tens of billions of defaults junk bonds over the next 12-18 months.So, without further ado here are 25 deeply distressed companies, whose banks we found have quietly shrunk the borrowing base of their credit facilities anywhere from 6% in the case of Black Ridge Oil and Gas to a whopping 51% for soon to be insolvent New Source Energy Partners.

Lower oil prices are bad news for pollution cleanup - Prices at the pump these days are good for drivers — and not so good for Washington’s more than 5,000 contaminated sites in need of cleanup. Much of the money to clean toxic zones and prevent new ones from forming comes from a voter-approved state tax on petroleum products and other “hazardous substances.” But lower oil prices combined with state lawmakers’ demands to spread tax revenue around have left a shortfall of more than $40 million for cleanups. “That has really thrown a wrench in the port’s work,” said Alex Smith, director of environmental programs for the Port of Olympia, one agency hoping for cleanup money. The Port of Olympia had been slated for a grant of more than $6 million as it tries to figure out how to remove sediment tainted with dioxin from beneath Budd Inlet. A byproduct of industrial processes and of burning all kinds of substances, dioxin can work its way up the food chain from dirt-dwelling critters to humans, Smith said. Even with help from anyone else who might share liability, the port could still come up short on a cleanup expected to top $50 million and perhaps reach $100 million, she said. Those price tags include the expense of removing Swantown Marina, dredging the dirt beneath it and replacing the marina.

This Can't Be Good News -- Alaska Pipeline In Danger Of "Freezing" Up -- Platts is reporting:Trans-Alaska Pipeline System operators are taking new steps to keep North Slope crude oil warm enough to flow through the 800-mile pipeline during cold months of the Alaskan winter. In 2011, a mid-winter disruption in operations almost resulted in oil congealing into sludge, to a point where the pipeline would be difficult to restart. Since then, operators have been adding heat during the winter by recirculating oil through pipe loops at pump stations. In 2015 they added a plug-in heating unit at a remote gate valve in Interior Alaska, where winter temperatures drop below minus 60 degrees Fahrenheit. The pipeline company is battling a gradual, long-term cooling of the oil temperature as production from the North Slope drops and as lower volumes reduce natural mechanisms that previously warmed the oil, such as the friction of fluids against pipe walls. During winter, oil that now enters the pipeline at 104 degrees on the North Slope drops to 40 degrees by the time it reaches the Valdez Marine Terminal in southern Alaska.  TAPS, built in 1977, now operates at about 25% of its 2 million b/d design capacity.

U.S. Light Crude Sails Overseas After 40 Years - Following the lifting of the four-decade long U.S. oil export ban last month, the first crude tanker departed from Texas for export last week. The light crude that was loaded in the tanker by ConocoPhillips COP and NuStar Energy LP NS was pumped from South Texas-based Eagle Ford Shale. ConocoPhillips − located in Houston, TX − is a major global exploration and production (E&P) company. NuStar Energy is a master limited partnership (MLP) that engages in the transportation and storage of crude oil as well as refined products in the U.S., the Netherlands Antilles, Canada, Mexico, and the U.K.As per NuStar, Switzerland-based crude trading player Vitol Group - which also has interests in the refineries − will purchase the crude cargo. Vitol Group is also expected to be the buyer of the second light oil cargo that may be exported from Houston this week. It is to be noted that Enterprise Products Partners LP EPD is loading the tanker, for second U.S. crude export, in Houston. The tanker will carry 600,000 barrels of the commodity.Last month, the 40-year-long U.S. crude export ban was lifted after President Barack Obama signed the legislation. The departure of the first oil tanker from the U.S. put an end to the trade halt since mid 1970.Will U.S. Crude Export impact Oil Price?The oil market is already oversupplied, resulting in weak crude prices since mid 2014.

Union Pacific could move 1 million gallons of oil through region weekly - Trains operating on Union Pacific Railroad lines through Lewis and Thurston counties could be carrying 1 million gallons of Bakken crude oil weekly, according to a notification issued in early December and highlighted by Lewis County Emergency Management last week. The rail line previously didn’t report transporting that much oil per train. The notification by Union Pacific is required by a U.S. Department of Transportation emergency order. The order calls for rail lines to issue public notices in each state where it operates trains carrying 1 million gallons or more of oil from the Bakken oil fields in Montana and North Dakota. According to its notification released Dec. 9, Union Pacific began running the trains in November. Union Pacific lines expect no more than one train per week carrying 1 million gallons of oil or more to pass through Lewis and Thurston counties. Most trains are enroute to the Portland-Vancouver area. Union Pacific issued a notification in June 2014, stating the company did not transport enough Bakken crude oil to meet the threshold at that time. Burlington Northern Santa Fe’s last notification was released in September, stating it was transporting an estimated 10 to 18 trains carrying 1 million gallons or more of Bakken oil through Thurston and Lewis counties.

List of 36 Oil & Gas Companies that Filed for Bankruptcy in 2015 - Whew. Dodged a bullet–this year. Haynes and Boone, LLP is an international corporate law firm with offices in Texas, New York, California, Colorado, Washington, D.C., Shanghai and Mexico City. Their HQ is in Texas. The firm has a sizable Bankruptcy and Energy practices. Unfortunately those two practices are increasingly becoming one, and the firm says they’re adding lawyers to the Bankruptcy practice. Last week Haynes and Boone issued their very first Oil Patch Bankruptcy Monitor (full copy below), a report that details the rising tide of 2015 exploration and production company Chapter 11 filings. The report lists 36 bankruptcies in 2015 totaling about $13 billion in cumulative secured and unsecured debt. With fear and trepidation we reviewed the list–and found that none of the companies listed have major, nor even minor, operations in the Marcellus/Utica. However, that may not remain the case… As we’ve warned, some industry observers believe, based on their own statements, that Magnum Hunter Resources (MHR) will soon declare bankruptcy (see Dire Straits: Magnum Hunter Tells SEC Heading for Bankruptcy). Please don’t misunderstand us! We’re not “pulling for” nor cheering a potential MHR bankruptcy. We’re grieving it. We hope it doesn’t happen. But hope doesn’t change the circumstances–and you need to be aware of those circumstances and what may be coming. In the meantime, here’s a roundup of the the 36 companies that have already filed for bankruptcy:

Swift Energy becomes 40th North American driller in bankruptcy – Swift Energy Co. has become the latest U.S. shale driller to succumb to the brutal downturn in crude prices, seeking Chapter 11 bankruptcy.  The Houston driller filed paperwork on Thursday to become the 40th North American oil producer prodded into bankruptcy court as crude exporters Russia and Saudi Arabia keep prices depressed by pumping crude all-out, jockeying for a bigger corner of the global oil market. It was the 20th driller headquartered in Texas to file for bankruptcy in the past year. Swift Energy, founded in 1979 by Aubrey Earl Swift, had trimmed 60 percent of its capital budget, cut 20 percent of its workforce and reduced its office space to cope with the 68-percent slide in U.S. crude prices over the past 19 months. But like several small rivals, Swift is running out of financial levers to pull.  In a restructuring deal subject to bankruptcy court approval, Swift has agreed with its creditors to convert its senior debt to equity. Company officials were not immediately available for comment on Saturday. Swift, which pumps oil in the Eagle Ford Shale in South Texas and in Louisiana fields, listed about $1 billion in assets and $1.35 billion in debt. The company’s third-quarter revenues sank 55 percent from the same period the prior year, and it posted a $354.6 million net loss from July to September, mostly because it had to write down the value of its oil and gas properties. In November, lenders cut $45 million from Swift’s $375 million borrowing base. The company said it has 228 employees.

Oil on the export market: Good or bad? -  The U.S. once again is an oil exporting country. Somewhere in the bowels of of the monstrous $1.1 trillion spending bill Congress rammed through Dec. 18 can be found approval for the U.S. to flip the “on” switch to the oil spigot for global customers. The first shipments likely are on the water now, or they will be soon. What it means to consumers, who have had little to cling to in a stubbornly moribund economy, is unclear. The U.S. Energy Information Administration did a study how exporting U.S. oil might affect U.S. motorists, who have grown accustomed, once again, to paying $2 or less per gallon to fuel their cars and trucks. The EIA study predicted little or no change in the price of gas for U.S. consumers. Of course, the report had the usual caveats that delved into markets, production and other unpredictable scenarios. In other words, their guess is as good as ours. And, since it’s the government, let’s assume it’s not as good. We do know the energy industry has been sagging. The fracking boom of recent years brought prices down and pushed the U.S. into potential position of world dominance in terms of oil and gas production, creating a real possibility of the ever-elusive “energy independence.”

Oil exports could bolster Eagle Ford - eventually - The first oil exports from the United States left the Port of Corpus Christi on Thursday afternoon aboard the “Theo T” tanker heading for Europe just weeks after Congress repealed the nearly 40-year-old export ban. The exports — using Eagle Ford oil pumped by ConocoPhillips and transported by NuStar Energy — mark a momentous change in the midst of one of the worst price crunches in the history of the industry. As of Thursday, the American benchmark West Texas Intermediate was hovering around $37.50 a barrel — down $15 from a year ago and more than $60 from Dec. 31, 2013. But the lifting of the ban could spell some relief for Eagle Ford producers as their oil is closer to export points than American-produced crude in North Dakota’s Bakken shale,   “It’s not going to be something that’s going to happen overnight. But it will impact the shale in the long term and allow us to continue to drill and add jobs in the Eagle Ford.” As for the first exports leaving Corpus Christi, NuStar Energy communications assistant Molly Haerer said in an email that “NuStar has invested heavily in the Port of Corpus Christi and the Eagle Ford to be in a position to load large cargoes of crude for export. We like the Port of Corpus Christi because it is largely less congested than the port in Houston.” Garcia echoed that message, saying that midstream pipeline companies have pumped billions of dollars into projects in order to take advantage of export possibilities. The region is still seeing an inflow of money as well.

Yesterday (All My Exports Seemed So Far Away) – The Brent/WTI Spread in 2016 and Beyond -- Following the news that regulations restricting the export of U.S. crude had been lifted, West Texas Intermediate (WTI) crude rallied to a slight premium over its international counterpart Brent for 6 days at the end of December 2015 – apparently leveling the playing field between the two rival light sweet grades. Is this the green light for a surge in U.S. crude exports? Not hardly.  In fact, it is the other way around. Prices for WTI need to be well below Brent for exports to make economic sense and – according to the futures market – that is not happening anytime soon. Today we conclude our analysis of the Brent/WTI price relationship with a look forward to 2016. In Part 1 of this 2 part series we reviewed the historic price relationship between West Texas Intermediate (WTI) crude – the U.S. benchmark – and its international counterpart Brent. Between 1989 and the end of 2005, Brent and WTI traded within a pretty narrow range of each other with Brent typically at a discount to WTI that averaged $1.55/Bbl over that 17 year period. Between 2006 and 2010 the relationship was far more volatile - in the run up to - and aftermath of – the financial crisis in 2008 - as crude prices increased to nearly $150/Bbl and retreated to $34/Bbl in less than 6-months. Over the past 5-years since 2010 – the period covering the shale oil era – Brent has mostly traded at a premium to WTI that at times reached $30/Bbl.  Landlocked U.S. light crude supplies piled up in inventory that weighed on prices and kept WTI at a discount to Brent averaging $6.50/Bbl in 2014. But falling oil prices worldwide – under pressure from a rising supply surplus– squeezed the Brent/WTI spread further to the $3/Bbl level in the fall of 2015. During the week before Christmas 2015 the passage of Congressional legislation lifting export restrictions led to a rally in WTI prices to top Brent by 20 cents/Bbl on Christmas Eve. This time we look forward to the Brent/WTI relationship in 2016 and beyond with the help of forward curves and then discuss other influences – including prices for Gulf Coast Benchmark Light Louisiana Sweet (LLS) and the Houston market for WTI.

Where U.S. Crude Would Move Next If the Economics Were Right -- The race to load the first freely exported U.S. crude cargo was won by NuStar’s Corpus Christi terminal, edging out Enterprise’s Houston terminal, as the Theo T set sail for Italy on New Year’s Eve with Eagle Ford crude and condensate on board. Midstream companies are now set to fiercely compete, not just for bragging rights but for terminal fees, as more U.S. crude heads overseas. But where exactly will that crude go? With oil prices tracking below $40/Bbl and narrow differentials prevailing between U.S. and overseas crudes, breaking into new markets will be tough. Today we outline which markets are most likely to absorb U.S. crude supply.  The public rush to be the first to load a cargo has created high expectations for future U.S. crude exports. But as we said earlier this week, current narrow price differentials between U.S. benchmark West Texas Intermediate (WTI) and international marker Brent suggest limited exports will occur in the short term based on economics (see Yesterday – All My Exports Seemed So Far Away). Another expectation that is likely overblown is the idea that exports of light shale crude will take off because U.S. refineries are not configured to process these grades and only did so in recent years because they were made so cheap by the export constraint.

Obama's Oily Christmas Gift: Faster Pipeline Approvals - Steve Horn -- Just over a week before the U.S. signed the Paris climate agreement at the conclusion of the COP21 United Nations summit, President Barack Obama signed a bill into law with a provision that expedites permitting of oil and gas pipelines in the United States.   The legal and conceptual framework for the fast-tracking provision on pipeline permitting arose during the fight over TransCanada's Keystone XL tar sands pipeline. President Barack Obama initially codified that concept via Executive Order 13604 -- signed the same day as he signed an Executive Order to fast-track construction of Keystone XL's southern leg -- and this provision "builds on the permit streamlining project launched by" Obama according to corporate law firm Holland & Knight.  That 60-page streamlining provision falls on page 1,141 of the broader 1,301-page FAST (Fixing America's Surface Transportation) Act (H.R. 22 and S. 1647), known in policy wonk circles as the highway bill. The provision is located in a section titled, "Federal Permitting Improvement." Explaining what types of projects the provision cover, the bill reads,..any activity in the United States that requires authorization or environmental review by a Federal agency involving construction of infrastructure for renewable or conventional energy production, electricity transmission, surface transportation, aviation, ports and waterways, water resource projects, broadband, pipelines, manufacturing, or any other sector as determined by a majority vote of the Council that is subject to [the National Environmental Policy Act] NEPA [and] is likely to require a total investment of more than $200,000,000.

Despite protests, oil industry has thrived under Obama energy agenda - -- The nation's biggest fossil-fuel trade group will deliver its annual state-of-the-industry report today. It's sure to include a whack at President Barack Obama -- even though oil and gas have flourished on his watch. U.S. oil production has surged 82 percent to near-record levels in the past seven years and natural gas is up by nearly one-quarter. Instead of shutting down the hydraulic fracturing process that has unlocked natural gas from dense rock formations, Obama has promoted the fuel as a stepping stone to a greener, renewable future. The administration has also permitted drilling in the Arctic Ocean over the objections of environmentalists and opened the door to a new generation of oil and gas drilling in Atlantic waters hugging the East Coast. Obama also signed, with reservations, a measure to lift a 40-year-old ban on the export of most U.S. crude. "Given an administration that was so committed to combating climate change, they have coexisted pretty peacefully with the industry, despite all the protestations," said David Goldwyn, a consultant who for two years served as the State Department's top energy diplomat under Obama. "And the best metric is just look at the production." That hasn't stopped the American Petroleum Institute from taking aim at Obama in its annual addresses on the industry -- such as the one API president, Jack Gerard, is scheduled to deliver in Washington. The Obama administration's approach to fossil fuels -- including his endorsement of natural gas in State of the Union addresses and in a landmark climate change speech in 2013 -- has drawn anger from some environmentalists. "From day one of the administration and accelerating into the present, this administration and this White House has viewed the natural gas and oil bonanza in this country as an economic opportunity, and they have ridden it and ridden it hard,"

Oil drives our Israel policy: New government documents reveal a very different history of America and the Middle East - The role of the United States in the Arab-Israeli conflict is an inextri­cable part of history in this region. Confronting that role is indispens­able to understanding both U.S. policy in the conflict and its course. A knowledge of the foundation of U.S. policy in the Middle East in the postwar years is indispensable to an understanding of current U.S. policies in the Middle East in which oil, Palestine, and Israel play such significant roles. The record of U.S. policy from 1945 to 1949 challenges fundamental assumptions about U.S. understanding and involvement in the struggle over Palestine that continue to dominate mainstream interpretations of U.S. policy in the Middle East. Coming to grips with the U.S. record and its frequently mythified depiction of the struggle over Palestine is criti­cal. Those engaged in the creation of the Common Archive, a project of Zochrot, the Israeli NGO, in which Israelis and Palestinians have joined to reconstruct the history of Palestinian villages destroyed by Israel in 1948, clearly understand the importance of this record. Palestinian historians have long written about this history, and Israel’s “New His­torians” have confirmed it in their challenge to the dominant Israeli narrative of the war of 1948.

Charter Rights at Issue in Fracking Supreme Court Case - An Alberta woman's landmark eight-year battle over fracking regulation, water contamination and Charter rights will take centre stage in the Supreme Court of Canada Tuesday. Jessica Ernst claims fracking contaminated the water supply at her homestead near Rosebud, about 110 kilometres east of Calgary. She is seeking $33 million in damages. Ernst is also taking on the agency that regulates the energy industry in Alberta, claiming it has denied her the right to raise her concerns effectively and is shielded by unconstitutional legislation that bar citizens from suing it for wrongdoing. The B.C. Civil Liberties Association, the Canadian Civil Liberties Association and the David Asper Centre for Constitutional Law at the University of Toronto have intervened in support of Ernst's position and the lawsuit could change the way the controversial technology of hydraulic fracturing is regulated in Canada. Ernst's lawyers hope the Supreme Court will eventually rule that the Alberta Energy Regulator violated the Charter of Rights and Freedoms by limiting her ability to communicate with the agency. Such a decision would punt Ernst's case back into Alberta's courts where it can continue its slow course. Ernst considers the regulator the most at fault in her famous and multi-pronged lawsuit.

Statoil to conduct CCS feasibility studies in North Sea fields - The Norwegian government has asked oil and gas firm Statoil to conduct new studies on carbon storage on the Norwegian continental shelf, the firm said on Monday. Some 195 nations agreed last month in Paris to limit rising temperatures. Carbon capture and storage (CCS), which captures carbon dioxide and stores it underground so it won’t slip into the atmosphere, is seen as an important tool to achieve that. The Norwegian oil major, which is involved in four large-scale CCS projects, was the only tender for the contract, worth 35 million Norwegian crowns ($3.96 million). “We’re moving from pure research and development, out-of-the-lab and into the physical deployment of this, we’re excited about that,” Stephen Bull, senior vice president of wind power and CCS for Statoil said. The feasibility studies will be carried out at three locations in the Norwegian sector of the North Sea and the work will be completed by June 1, Statoil said in a statement. “The results from the storage studies, together with feasibility studies within CO2 capture and CO2 transport, will form the basis for a decision by the Norwegian government on further progress for full-scale CCS in Norway,” Statoil said.

Energy prices dropped more than any other sector in 2015 --  Energy prices dropped 41 percent during 2015, outpacing all other commodities tracked by a widely followed index. The S&P Goldman Sachs Commodity Index tracks the prices of energy, industrial metals, grains and precious metals commodities. Among the four areas, energy prices dropped almost 20 percent more than any of the other sectors in 2015. According to the index, industrial metals prices dropped 24 percent, grains dropped 19 percent and precious metals dropped 11 percent.  Energy prices plummeted mostly due to the steep drop oil prices during 2015, prompting thousands of layoffs of U.S. energy workers as an oil glut caused wells to close. The price for West Texas Intermediate crude dropped nearly 30 percent and the price of Brent crude dropped about 33 percent, according to the index. Those two types of crude serve as the major benchmarks. While gasoline prices dropped this year, they didn't fall as much as oil prices because of the increased demand from consumers, the Energy Information Administration reported. Crude oil prices fell to 11-year lows in December and natural gas prices dropped to their lowest level in 16 years, according to federal statistics.

Stubborn oversupply through 2016 to curb crude price recovery: poll  -- Crude oil prices are unlikely to rally much in 2016 as subdued demand growth looks unable to absorb rising supply from the likes of Iran and Iraq, even though non-OPEC output is expected to moderate, a Reuters poll showed on Monday. The average 2016 price for benchmark North Sea Brent crude futures was forecast at $52.52 a barrel, $5.43 below the previous month’s poll, according to the survey of 20 analysts. This is the seventh consecutive monthly Reuters poll in which analysts have cut their price. In May, analysts forecast Brent to average $70.90 in 2016, but have been reducing their outlook ever since. Thirteen of the 18 respondents who participated in both the November poll and the most recent survey, conducted in December, cut their average 2016 price forecasts for Brent futures, which averaged $53.79 in 2015. Oil prices have been hovering around 11-year lows after falling to their lowest since mid-2004 in late December, as near-record-high production looks set to feed a global surplus.

The Oil Market - Anybody who tells you they know where the oil market is headed for 2016 is inexperienced, too stupid to realize there are far too many variables in play that are unknowable to predict with any accuracy their effects on other variables in the oil equation, talking their own respective books, just piling in with the recent herd mentality on the street, giving an opinion about as valid as the best paint color for a room, or like to see themselves on television talking about the hot market moving topic du jour. We have written extensively on the topic, have a lot of experience in the industry, were right regarding the direction, but frankly wrong about the timing of the inevitable market correction. I remember reading all the comments at the time of our analysis with reactions such as “Shale requires $80 a barrel oil prices”, or “OPEC needs $85 a barrel oil prices so oil can never go lower than $85 a barrel”, “Shale wells depletion rates mean…”, and “China is going to use so much oil that…”. I have to sit back now and smile when IHS, Goldman Sachs, and the IMF or any other oil analyst gives their predictions for the price of oil for the end of 2016. Just look at all the predictions at the start of 2015 for oil prices by year`s end!   Consequently if one starts with the premise that the price of oil is unpredictable for 2016, then what do we know? Where can we at least have a foothold for pretty reliable assumptions? Well let’s start with this, we know at some price oil operations will shut down. What price does oil need to go to before oil operations shut down? Moreover, that such money is lost that banks will not finance operations even if oil prices rise because they realize that this would just bring new production online only to have oil prices fall again, and they lose money all over again.

Oil prices could hit low point in first quarter - BP's Dudley  – The slump in global oil prices could hit bottom in early 2016 although prices are likely to remain low for the next couple of years, BP Chief Executive Officer Bob Dudley said. “A low point could be in the first quarter,” Dudley said in BBC radio interview broadcast on Saturday. Brent crude prices fell by 34 percent last year after shedding 48 percent in 2014. The plunge in global oil prices has pushed inflation close to or below zero in many countries, helping consumers but wrong-footing central banks. Dudley said a more natural balance between supply and demand could come back in the third and fourth quarter of this year, after which stock levels could start to wear off. “Prices are going to stay lower for longer, we have said it and I think we are in this for a couple of years. For sure, there is a boom-and-bust cycle here,” Dudley said. Dudley also said he did not agree with Bank of England Governor Mark Carney’s use of the term “stranded assets” to describe oil and gas reserves held by companies but which may prove unviable as the world moves to a low-carbon economy.

Why The U.S. Can't Be Called A "Swing Producer" - Arthur Berman -- Daniel Yergin and other experts say that U.S. tight oil is the swing oil producer of the world. They are wrong. It is preposterous to say that the world’s largest oil importer is also its swing producer. There are two types of oil producers in the world: those who have the will and the means to affect market prices, and those who react to them. In other words, the swing producer and everyone else. A swing producer must meet the following criteria:

  • A swing producer must be a net exporter of oil.
  • A swing producer must have enough daily production, spare capacity and reserves to influence market prices by balancing supply and demand through increasing or decreasing output.
  • A swing producer must be able to act authoritatively and quickly to increase or decrease output.
  • In the real world, a swing producer is a euphemism for a cartel. No single producer has enough oil leverage to balance the market and influence prices by itself. That includes Saudi Arabia, Russia, and the United States, the top 3 producers in the world. Obviously, it also includes U.S. tight oil.
  • A swing producer must have low production costs and have the financial reserves to withstand reduced cash flow when restricting or increasing supply is necessary to balance the market.

OPEC’s net exports for 2014 were 23 million barrels per day (mmbpd) (Figure 1). U.S. net exports were -7 mmbpd. In other words, the U.S. is a net importer of crude oil. A net importer of oil cannot be a swing producer.

2016: Oil Limits and the End of the Debt Supercycle - Gail Tverberg - What is ahead for 2016? Most people don’t realize how tightly the following are linked:

  1. Growth in debt
  2. Growth in the economy
  3. Growth in cheap-to-extract energy supplies
  4. Inflation in the cost of producing commodities
  5. Growth in asset prices, such as the price of shares of stock and of farmland
  6. Growth in wages of non-elite workers
  7. Population growth

It looks to me as though this linkage is about to cause a very substantial disruption to the economy, as oil limits, as well as other energy limits, cause a rapid shift from the benevolent version of the economic supercycle to the portion of the economic supercycle reflecting contraction. Many people have talked about Peak Oil, the Limits to Growth, and the Debt Supercycle without realizing that the underlying problem is really the same–the fact the we are reaching the limits of a finite world. There are actually a number of different kinds of limits to a finite world, all leading toward the rising cost of commodity production. I will discuss these in more detail later. In the past, the contraction phase of the supercycle seems to have been caused primarily by too high population relative to resources. This time, depleting fossil fuels–particularly oil–plays a major role. Other limits contributing to the end of the current debt supercycle include rising pollution and depletion of resources other than fossil fuels. The problem of reaching limits in a finite world manifests itself in an unexpected way: slowing wage growth for non-elite workers. Lower wages mean that these workers become less able to afford the output of the system. These problems first lead to commodity oversupply and very low commodity prices. Eventually these problems lead to falling asset prices and widespread debt defaults. These problems are the opposite of what many expect, namely oil shortages and high prices. This strange situation exists because the economy is a networked system. Feedback loops in a networked system don’t necessarily work in the way people expect.

Crude Oil Opens Above $38, Takes Out 1-Week Highs -- With hedge fund short positions near record highs and speculators at their least bullish in almost five years, oil prices have spurted higher in the early trading as the diplomatic gloves come off in The Middle East. Despite record levels of crude inventory around the world, WTI Crude is trading above $38, up over 3% from its $37.07 close on New Year's Eve.Algos ran the stops above last week's highs ($38.32) but for now prices are not as excited as many would have expected. But don't forget that while a "war premium" makes sense in the marginal production barrel sense, with inventories at their limits amid a record glut, unless this escalates even more, the physical demand/supply divergence remains vast... And of course, if oil prices are higher then US equity prices are higher because "lower oil prices are unequivocally good for America"... oh wait.  Source: Bloomberg

Oil Tumbles After Saudis Slash Prices To Europe -- "The Saudis are preparing for Iran’s return," said Mohamed Sadegh Memarian, who recently retired as the head of petroleum market analysis at Iran’s oil ministry, as they sharply cut the prices they charge for crude oil in Europe (to the biggest discount since Feb 2009). The move that will likely undercut Iran happens as sectarian tensions escalate between the rival Middle Eastern nations. As WSJ reports, the Saudi move appears to pave the way for a competition over European oil markets later this year when Iran is expected to increase its exports after the expected end of western sanctions over its nuclear program. As The Wall Street Journal reports, Italy and Spain relied on Iran for 13% and 16% of their oil imports before the European Union banned such purchases under sanctions related to its nuclear program in 2012. Although the country was replaced in the market by Saudi Arabia and other countries such as Russia, Tehran is counting on rekindling those ties when it resumes exports. Saudi Arabian Oil Co., or Saudi Aramco, the kingdom’s state-owned oil company,didn’t mention the conflict in its news release about the price cuts. Aramco prices are set every month at a discount or premium to various regional benchmark prices, which go up and down based on supply, demand and other factors considered by the market. On Tuesday, Aramco said it was deepening the discount for its light crude by $0.60 a barrel to Northwest Europe and by $0.20 a barrel in the Mediterranean for February delivery. Iranian oil professionals interpreted the move as a way to compete with Iran returning to the oil markets. The European Union is set to lift an embargo on Tehran as soon as next month.

Cushing crude oil storage at all-time high for week ending January 1 - Crude inventories at Cushing, OK, reached an all-time high for the week ending January 1, 2016, surpassing the previous all-time high set April 14, 2015, by nearly 347,000 bbls. West Texas Intermediate (WTI) prices fell $1.65/barrel to $36.60/barrel in the first two hours after the report in reaction to the growing Cushing supply. The most recent record high was due in part to increasingly favorable storage economics in connection with a widening 12-month price contango structure for WTI. In addition, year-end tax reduction strategies added incentive to move crude into storage tanks at Cushing. The April 2015 storage high was also reached when the WTI price was in a 12-month contango structure. Capacity utilization at Cushing is currently two percent below the all-time high set in March 2011. Since that time, close to 32mn bbls of storage capacity has been added to the storage hub. Seven operators at the Cushing tank farm are now above 80 percent capacity utilization, indicating that most of their storage volumes are likely merchant, or leased to others, rather than operational. Genscape considers 80 percent capacity utilization to be an operational maximum. These seven owners, representing 31.184mn bbls of operational capacity in total, have only 4.745mn bbls of available capacity. Four terminals are currently 70 to 80 percent full with only 6.302mn bbls of remaining capacity. The final five terminals that are still below 70 percent utilization represent just 32 percent of Cushing’s total capacity and have 9.473mn bbls of capacity available for storage. The available capacity amount does not account for operationally necessary empty space (for blending, pipeline operations, etc.) or contingency tank top space. At this time, three different companies are expanding their storage infrastructure at Cushing with a combined 1.93mn bbls of capacity under construction. All of these projects are expected to be online by the end of Q1 2016. Currently, 2.276mn bbls of storage capacity is in maintenance. Tanks returning from maintenance could add incremental space in the interim.

Oil Prices Fall, Even With Spat Between Two Big Producers — It turns out that thanks to a glut of crude, even tension between two big oil-producing countries isn’t enough to drive prices higher.Oil futures spiked briefly on Monday after the news that Saudi Arabia would cut diplomatic ties with Iran, a development that could be seen as a threat to oil supplies.Investors quickly discounted those fears, however. After rising by $1.35, the price of benchmark U.S. crude ended the day down 28 cents to $36.76 a barrel on the New York Mercantile Exchange. Brent crude, reflecting the price of international oils, dipped 6 cents to close at $37.22 a barrel in London.While oil markets were see-sawing, stock markets sagged on evidence that the global economy might be weaker than expected this year. The Dow Jones industrial average lost 276 points, or 1.6 percent, and was down 468 points earlier in the day.New reports indicated that manufacturing is continuing to struggle, with factory activity falling in December for the second straight month in the U.S. and the 10th straight month in China. Slow growth means that the current oversupply of oil could be more stubborn than expected.

WTI Plunges To $35 Handle As Loonie Hits 12 Year Low - WTI Crude prices just broke back to a $35 handle for the first time since mid-December as the combination of un-growth, Saudi price cuts, a rancorous OPEC, and production increases weigh on the world's most important commodity. At the same time, oil producers are getting hit with the Canadian Dollar plunging above 1.4000 to its lowest since 2003...And FX producers are getting battered...

API data show U.S. crude supplies dropped by 5.6 million barrels: sources - The American Petroleum Institute late Tuesday reported that crude supplies fell by 5.6 million barrels for the week ended Jan. 1, according to sources who reviewed the report. The more closely watched EIA report is due Wednesday. On average, analysts polled by Platts show expectations for an increase of 2.75 million barrels, but Citi Futures analysts expect a decline of between 2 million and 3 million barrels. Following the API data, February crude was at $36.13 a barrel in electronic trading, up from the $35.97 settlement on Nymex.

Crude Spikes Higher As API Reports Large Inventory Draw -- For the last week of December - typically a month when inventories are drawn down dramatically to avoid year-end tax-burdens - API reports a huge 5.6 million barrel inventory draw (massively bigger than expectations of a 488k build). It would appear, after 3 mixed weeks, that energy firms waited for the very last week to dump inventories into year-end (as seasonally occurs). Of course the transit of the first post-export-ban tanker may have also helped. While WTI spiked higher it is fading a little as Cushing reported a very large build of 1.4mm barrels (the 9th week in a row). Crude inventories dropped dramatically uin the last week of December (as is usual at this time of year)...However, there have now been 9 weeks of builds in Cushing inventory in a row (with today's 1.4mm build) as Genscape warned earlier that storage levels are getting extremely full. And after falling all day, Crude spiked higher on the news...but gave some back as traders remembered the seasonals....

Oil dives below US$35, lowest in 11 years, as US supply swells -- Crude oil prices plunged 6 per cent on Wednesday, diving below US$35 per barrel for the first time since 2004 as data showing a shockingly large build-up of US gasoline supplies fed fears that a global surplus was still growing. The sell-off, the biggest one-day drop for global benchmark Brent futures since the start of September, takes losses this year to more than 8 per cent, a descent stoked by worsening Chinese economic data, the world's No. 2 oil consumer, and a fierce row between Saudi Arabia and Iran that some say may be more bearish than bullish. The focus on Wednesday was US government data showing a 10.6 million-barrel surge in gasoline supplies, the biggest build since 1993, which some traders said signalled a slow-down in demand that could prolong the global glut. The figures overshadowed a 5.1 million-barrel fall in crude stocks. "Gasoline was the sole source of strength within the complex, and that looks to have ended," said John Kilduff, a partner at energy hedge fund Again Capital.Brent futures fell US$2.19 to settle at US$34.23 a barrel. Earlier, it fell to as low as US$34.13, its lowest level since the start of July 2004. US crude futures fell US$2.00 to settle at US$33.97 a barrel, its lowest close since February 2009. Traders shrugged off rising geopolitical risks, including an apparent North Korea nuclear test. Many reckoned that the row between Saudi Arabia and Iran posed little threat to oil shipments, but made an agreement on output even less likely.

Oil prices dips below $34 amid world economic turmoil: Oil prices sank to the lowest level in more than a decade Wednesday as traders grappled with a rash of worries about the global economic outlook. Prices were driven below $34 a barrel as the energy markets coped with a rougher economic outlook in China, another day of stock-market declines and North Korea's disputed claim of having tested a hydrogen bomb. The benchmark U.S. crude, West Texas Intermediate, fell $2 a barrel to close at $33.97, down 5.6.%, to the lowest price level since 2004, Bloomberg News reported. In Europe, Brent crude oil declined $2.19, or 6% to $34.23 a barrel. Oil prices came under pressure as the World Bank predicted China's troubles will spill over to emerging markets, which will face the decline in commodity prices. In addition to the economic concerns and geopolitical issues, the market remains overwhelmed with a global glut of oil. Saudi Arabia, the largest producer in the Organization of the Petroleum Exporting Countries, has refused to slash production. And many U.S. producers have kept oil wells flowing despite the crushing financial blow of low prices. Taken together, it's a formula for prolonged period of low prices. The only question is how low the floor goes. "U.S. oil production will likely need to resume its decline for the market to begin to anticipate a trough in prices,"

Jack Kemp's Weekly Energy Tweets -- January 6, 2016  -- US total crude and product stocks rose 7.3 million bbls last week and is now 164 million bbls above prior-year level; the graph is absolutely incredible: US commercial crude stocks fell 5.1 million bbls last week and are now 100 million bbls above prior-year level; the graph is almost identical
US gasoline stocks jump 10.6 million bbls last week but still 5.2 million bbls below prior-year level; comment: this is actually "bad news" as a tea leaf for reading the health of the economy
US gasoline consumption averaged just 9.0 million bopd over the last four weeks; much weaker than corresponding period prior-year; comment: this is actually "bad news" as a tea leaf for reading the health of the economy
US distillate consumption remained at lowest seasonal level for more than 10 years last week; comment: this is actually "bad news" as a tea leaf for reading the health of the economy
US distillate stocks rose 6.3 million bbls last week and are now 22.5 million (+16.4%) bbls over prior-year level.

US refineries processed a seasonal record 16.6 million bopd of crude last week up almost 200,000 bopd on prior year

WTI Crude Plunges To $34 Handle After Record Gasoline Inventory Build - Following last night's API-reported large draw in overall crude inventories (year-end and exports driven), DOE reports a 5.09mm draw (more than expectations of a 4.1mm draw but less than API's 5.6mm draw). However, Cushing inventories rose for the 9th week in a row (+917k) and more troubling for the future is gaoline inventories soared 10.58mm barrels (and distillates rose 6.31mm barrels). Crude prices already gave up their API gains and are tumbling back below $35 on this build news. DOE confirms API's reported large draw but Cushing continues to build for the 9th week in a row...The build in distillates means that primary product may be gettiung shipped away but there is no demand. So exporting oil from US helps with overall inventory decline, but massive build of gas, distillate shows clear production surplus And even more worrisome, Domestic Supply in lower 48 up 20,000 boe/d and HIGHER than a year ago. Crude jumped on the API news but gave it all up as growth fears rose overnight... As we continue to remind traders - December ALWAYS see notably drawdowns as firms lighten up inventories on their balance sheet ahead of year-end to reduce tax burdens...

Thats the Bottom in the Oil Market --  On Wednesday the oil market sold off to $33.77 on large product`s builds, China`s devaluation of its currency, and a substantial selloff in equities. Sure Oil can go a dollar below this low, but for all intents and purposes this is the bottom in the oil selloff that was predicted for the start of the year. This move down was as predictable a move as there is in financial markets, and we called this down move to start the year with a piece we issued in December. It took over 500k in futures contracts just to push oil futures below $34 a barrel on Wednesday, and trust me it wasn`t an easy task for those involved in the pushdown. They now are stuck with being far too short the market at a level they don`t even like being stuck short. At a time when US Production is about to drop off a cliff, and the Middle East is a ticking time bomb that is about to blow up any day now. Look for a major short squeeze in the oil market over the next month as the ramifications of $34 oil play out in the market.

Don't be fooled by year-end rise in U.S. gasoline stocks -  The 10.6 million barrel jump in U.S. gasoline stocks last week, reported by the Energy Information Administration on Wednesday, sent gasoline futures tumbling 4 percent and intensified the selloff in oil prices. Estimated gasoline consumption was also down 1.2 million barrels per day (bpd), over 13 percent, compared with the prior week, adding to market alarm about the health of fuel demand. But most of the increase in stockpiles and apparent drop in fuel consumption was likely due to year-end seasonal quirks rather a sign of slackening consumption. The latest data on gasoline consumption, production and stocks are for the week ending on Friday Jan. 1 and straddle year-end. In the previous five years, from 2010/11 to 2014/15, gasoline stocks increased by an average of more than 6 million barrels over the year end period, with increases ranging from 3.6 million to 8.1 million barrels. Estimated consumption declined by an average of around 500,000 bpd between the last week of the old year and the first week of the new, ranging from a decline of 34,000 bpd to as much as 805,000 bpd. The reported decline in consumption and increase in stockpiles last week was somewhat larger than usual but broadly in line with the seasonal pattern.Gasoline blending components accounted for 203 million barrels, more than 87 percent of the total gasoline stockpile reported last week, compared with just 29 million barrels of finished gasoline. Blending components also accounted for four-fifths of the increase in stocks last week, increasing by 8.9 million barrels, compared with an increase of just 1.6 million barrels in finished gasoline stockpiles. The rise in reported stocks was therefore really a rise in the amount of gasoline held by refiners and especially blenders prior to blending, and stocks of blending components typically increase sharply over year-end.

Brent crude oil breaks through $33 a barrel -- The international oil benchmark has touched a new 11-year low, falling below $33 a barrel. Brent crude oil fell 4 per cent in early hours of London trading to $32.88 a barrel. West Texas Intermediate, the US benchmark, traded as low as $32.77 a barrel, down 3.5 per cent. Brent only breached the $35 mark for the first time in 11 years on Wednesday, as a relentless rise in global production overshadowed geopolitical upheavals. Today’s move follows turmoil in Asian markets, after Chinese stocks fell 7 per cent to trigger a market-wide closure just 29 minutes into the trading session.

Oil Producers Have $100 Billion Wiped Out in Worst Start to Year - Crude’s plunge keeps piling on the bad news for oil producers, who are having the worst start to a year on record. More than $100 billion has been wiped off the 61-company Bloomberg World Oil & Gas Index this year as it plunged to the lowest since August 2004. It has dropped 5.6 percent, making it the worst opening to the year since the index started in 2003. Thailand’s PTT Pcl, Apache Corp. and China Petroleum & Chemical Corp. led the decline. Crude is hurtling down toward $30 a barrel as concerns increase over China’s economy, a supply glut persists and the world’s biggest oil-producing nations continue to pump at near-record levels. European and Asian shares dropped to three-month lows with U.S. stock futures as billionaire George Soros warned of a crisis. Goldman Sachs Group Inc. and Citigroup Inc. say oil may have further to fall. “It’s going from bad to worse very quickly,”  “Doubts over China’s demand have been added to already existing concerns over the surplus supply.” Royal Dutch Shell Plc, Europe’s biggest oil company, dropped as much as 5.7 percent and BG Group Plc, the company it’s seeking to buy, fell as much as 6.4 percent in London. Sinopec, Asia’s biggest refiner, plunged 7.6 percent in Hong Kong and PetroChina Co., the world’s second-biggest oil company by market value, lost 6.8 percent.

Natural Gas Prices Signaling Oil Bottom for Investors -- Everyone is trying to figure when the oil markets will bottom. Well lost in all the crazy action in markets globally is the nice resurgence off the bottom for natural gas prices. Natural Gas prices have essentially gone from $1.68 per MMBtu to $2.40 per MMBtu rather rapidly in the midst of a mild winter so far. The reason is that all those rig reductions are starting to affect the production of the commodity, less natural gas is coming to market relative to expectations.  The lag effect in all those rig declines is starting to show up in the natural gas production numbers, and although the cut in oil rigs hasn`t shown up yet in oil production in a meaningful way, it is just around the corner over the next three months by my calculation. We should start to experience some meaningful U.S. Oil Production cuts by late March and early April which will solidify the fact that the oil market had long sense bottomed in January of this year.

Global stocks, oil tumble as China economy concerns mount - Shares on major exchanges fell for a sixth straight day on Thursday and crude oil prices touched multi-year lows as investors fretted over the state of China's economy and its ability to stabilize its stock market. In a move that deepened concerns over China's economic health, the People's Bank of China set the yuan midpoint rate lower for an eighth consecutive day. The 0.5 percent decline was the biggest between daily fixings since August. China suspended a circuit breaker implemented at the start of 2016 that stopped trading for the day when the benchmark index fell 7 percent, a halt already triggered twice this week. Analysts and investors said the mechanism, put in place to avoid market volatility, may have backfired. "People see the weakness in China and in the overall equity market and think there's going to be an impact on corporations here in the United States," said Robert Pavlik, chief market strategist at Boston Private Wealth in New York. Rounding out its worst four-day start to a year in more than a century, the Dow Jones industrial average .DJI fell 392.41 points, or 2.32 percent, to 16,514.1.

Oil down again to 12-year low; $30 handle looks more likely | Reuters: Oil prices fell for a fourth day on Thursday, lurching again to 12-year lows as new financial market tumult in China brought a $30 per barrel handle within view. Oil has fallen every day this year, losing nearly 10 percent in a sudden dive that makes last year's Goldman Sachs warning of sub-$30 crude seem not so outlandish after all. "Can we go down another $3 a barrel? In percent terms, that's another 10 percent and could happen in a matter of one or two days of trading," said Greg Sharenow, executive vice-president overseeing a $16 billion commodities portfolio for the Pacific Investment Management Company in Newport Beach, California. Global oil benchmark Brent and U.S. crude futures fell to nearly $32 a barrel on Thursday, their lowest since at least 2004, after another free fall in the Chinese stock market rattled investors already concerned by the world glut in oil. Although oil prices later bounced off the day's lows as some bearish traders took profits on short positions, few dealers were willing to call an end to the 18-month slump. "I wouldn't say it's a given right now that we will break below $30, but I think before the first quarter we will," said Doug King, fund manager in London for the $220 million Singapore-based Merchant Commodity Fund. "And the reason for that is you're not stopping enough production where it needs to be shut, like in the U.S."

OPEC Crude Oil Plunges Below $30 for First Time Since 2004  -- The price of crude sold by OPEC members slid below $30 a barrel, the lowest level in almost 12 years, as turmoil in Chinese markets deepened the global commodities rout.The daily basket price of crudes produced by the 13 members of the Organization of Petroleum Exporting Countries fell to $29.71 a barrel on Wednesday, down from $31.21 the previous day, the group said in an e-mailed statement. That’s the lowest level since February 2004, according to data compiled by Bloomberg.  Oil has slumped further this week as a selloff in Chinese markets added to concerns about the strength of the nation’s economy. WTI crude, the U.S. benchmark, has had its worst-ever start to the year, deepening the economic pain for OPEC’s weaker members such as Venezuela.  Saudi Arabia -- OPEC’s biggest producer -- has led the group for just over a year in a strategy to defend its market share and let prices fall in a bid to push higher-cost rivals such as U.S. shale oil explorers out of the market. The policy has proven costly and slow to bear fruits. While U.S. output has fallen 4.1 percent from its June peak of 9.6 million barrels a day, OPEC members lost about $500 billion in revenue last year, according to the International Energy Agency.  OPEC, which supplies around 40 percent of the world’s oil, left its strategy unchanged at its December meeting in Vienna, effectively abandoning any limits on its production. 

Oil rig count plummets to start 2016 - The number rigs drilling for oil in the U.S. plummeted by another 20 rigs during the first week of 2016 as the energy sector continues to struggle. West Texas’ seemingly resilient Permian Basin led the way with the loss of eight rigs, while southern Texas’ Eagle Ford shale dipped by five rigs, according to weekly data released by oil field services firm Baker Hughes. The sharp cutbacks starting the new year might represent the first sign of significant budget slashing for the new fiscal calendar, said Andy Lipow, president of Lipow Oil Associates in Houston. “The Permian tends to be more resilient, and we might be seeing the impact of producers cutting their new budgets,” Lipow said. The oil rig count now stands at 516 rigs, down 68 percent from when oil field rigs were operating at the peak of the U.S. oil boom in October 2014, when oil rigs totaled 1,609. The amount of rigs exploring for natural gas also sunk sharply by 14 down to just 148 rigs. The overall rig count is at it lowest point since 1999. Texas still counts 308 rigs, which is nearly half of the nation’s total of 664 rigs. Louisiana picked up one new rig and it was the only gainer in the country for the week. The holdouts, essentially, can no longer hold out, said Marshall Adkins, director of energy research at Raymond James in Houston. “The last bastions of resistance are being ferreted out by the low price of oil,” Adkins said. “It’s rapidly becoming a wasteland.” The price of oil also continued to sink Friday with the benchmark for U.S. oil settling at $33.16 a barrel, down 11 cents for the day and at its lowest settlement since 2004 on the New York Mercantile Exchange. “Below $50 the industry doesn’t work, and we’re well below $50,” Adkins said. “Oil prices have been a disaster. At these levels, you’re going to see everyone cut back.”

Baker Hughes: US Oil Rig Count Lowest Since 2010 As Drillers Step Up Cuts  (Reuters) - The U.S. oil rig count this week dropped to the lowest level in over five years as energy firms stepped up the rate of idling rigs after one of the worst years in almost 30 years for drilling, data showed on Friday. Drillers removed 20 oil rigs in the week ended Jan. 8, bringing the total rig count down to 516, the least since April 2010, oil services company Baker Hughes Inc said in its closely followed report. That was the seventh decrease in the past eight weeks and brings the total rig count down to about a third of the 1,421 oil rigs operating in same week a year ago. In 2015, drillers idled a total of 963 oil rigs, the first annual cut since 2002 and the biggest annual decline since at least 1988, according to Baker Hughes. Over the prior five years (2010-2014), producers added on average 216 oil rigs per year. In 2015, however, they cut on average 18 oil rigs per week. U.S. crude prices dropped 30 percent last year and 10 percent in the first week of the year to near 12-year lows around $33 a barrel on Friday on persistent global oversupply worries and a bleak demand outlook. "Daily fluctuations in oil prices do not have an immediate effect on rig count changes," "But persistently lower prices do effect the trend to reduce drilling activity over time," U.S. crude futures were trading at higher levels around $38 a barrel for the rest of 2016 and $43 for 2017, which some analysts have said could entice producers to return to drilling later this year.

If You Are An Oil Bull, Don't Look At These 2 Charts -- It's getting worse... faster! These two stunning overnight developments in crude oil prices should shock investors... First, OPEC - after its crude basket price dropped below $30 for the first time in 12 years -slashed its price overnight by $2 to $27.85 - the biggest single-day drop in history and lowest level since November 2003...  Is it any wonder the Saudis are trying to sell every national asset to subsidize this US Shale-crushing energy price? Second, even closer to home, Canadian heavy crude oil collapse below $20 - a record low!   As Bloomberg notes, The low prices may push more of the highest-cost output offline. Producers including Baytex Energy Corp. and Canadian Natural Resources Ltd. have shut in more than 35,000 barrels a day of heavy oil and bitumen production capacity, according to company presentations and a report on the Alberta government website. Current prices are “below shut-in levels,” said Tim Pickering, founder and chief investment officer of Auspice Capital Advisors Ltd. in Calgary. There’s no incentive to ship Canadian crude to the U.S. Gulf Coast and producers may start annual maintenance sooner than planned, he said. “We’re the last barrel produced and we’re the first barrel shut in.” So record inventory surge in gasoline, global storage at its limits, price-war in Europe, Saudis in panic cash-flow "whatever it takes" mode, borrowing bases being slashed, credit risk at record highs, and Canada now facing widespread shut-ins... but apart from that, the bottom must be close right?  Bonus Chart: Venezuela lowers its crude below crucial $30 level - Feb 2004 lows...

Is $20 Oil A Possibility? - The first trading week of 2016 was dominated by negative sentiment, mostly surrounding the stock market instability in China. China’s Shanghai Composite had to be shuttered twice this week because plummeting stocks triggered the “circuit breaker,” a mechanism that closes the markets to prevent panic selling. The composite capped off the dismal week with more stable trading; the composite was up 2 percent on Friday. Another concern is the value of the yuan. The currency has been under pressure from the slowing economy, but the weaker yuan is raising concerns about so many other emerging market currencies around the world, some of which may be forced to devalue in corresponding fashion with the yuan. The Chinese government has not exactly inspired confidence in a stable currency policy after repeatedly shifting its tone. "Market volatility this week suggests that nobody really knows what the policy is right now. Or if the government itself knows or is capable of implementing the policy even if there is one," DBS Bank wrote in a currency note on January 8. "The market's message was loud and clear that more clarity and less flip-flopping is needed going forward." The cracks in the Chinese stock market surpassed the geopolitical turmoil between Saudi Arabia and Iran in terms of the effect on oil prices. WTI and Brent slumped below $34 per barrel to close out the week, the lowest level in 12 years. The prices are so low that a growing number of oil producers will not even be able to turn a profit even at existing projects. Some oil sands projects in Canada are already looking to shut down.

Global oil, gas investments to fall to $522bn in 2016 | Arab News: With crude prices at 11-year lows, the world’s biggest oil and gas producers are facing their longest period of investment cuts in decades, but are expected to borrow more to preserve the dividends demanded by investors. At around $37 a barrel, crude prices are well below the $60 firms such as Total, Statoil and BP need to balance their books, a level that has already been sharply reduced over the past 18 months. International oil companies are once again being forced to cut spending, sell assets, shed jobs and delay projects as the oil slump shows no sign of recovery. US producers Chevron and ConocoPhillips have published plans to slash their 2016 budgets by a quarter. Royal Dutch Shell has also announced a further $5 billion in spending cuts if its planned takeover of BG Group goes ahead. Global oil and gas investments are expected to fall to their lowest in six years in 2016 to $522 billion, following a 22 percent fall to $595 billion in 2015, according to the Oslo-based consultancy Rystad Energy. “This will be the first time since the 1986 oil price downturn that we see two consecutive years of a decline in investments,” said Bjoernar Tonhaugen, vice president of oil and gas markets at Rystad Energy. The activities that survive will be those that offer the best returns.

Saudi Arabia says won't limit oil production, can meet customer demand  – Saudi Arabian Oil Minister Ali al-Naimi said the kingdom, the world’s top crude exporter, does not limit its output and has the capacity to meet additional demand, state television Al Ekhbariya reported on Wednesday. “The increase in production depends on … the demand of the customers. We meet our customers’ demand, there is no longer a limit to production, as long as there is demand, we have the ability to meet demand,” Naimi said. The Wall Street Journal, which reported the same comments as Al Ekhbariya, also quoted Naimi as saying Saudi Arabia’s oil policy was “reliable” and would not change. He has made similar comments in the past when asked about plans to boost production. On Monday, Saudi Arabia, its finances hit by low oil prices, announced plans to shrink a record state budget deficit with spending cuts, reforms to energy subsidies and a drive to raise revenues from taxes and privatisation. Saudi Arabia’s planned cuts in spending and energy subsidies signal the kingdom is bracing for a prolonged period of low oil prices which this month hit their lowest levels since 2004. “We expect – from now on – efficiency of energy consumption to increase, which means the energy consumed will be reduced,” Naimi said, in reference to the recent subsidy reforms.

OPEC December oil output slips, near record  – OPEC oil output fell in December, a Reuters survey found on Tuesday, led by lower supply from Iraq following a record-breaking month in November and smaller declines elsewhere in the producer group. The Organization of the Petroleum Exporting Countries is still pumping close to record amounts as Saudi Arabia and other big producers focus on market share, weighing on any recovery in oil prices from near 11-year lows. OPEC supply fell in December to 31.62 million barrels per day (bpd) from a revised 31.79 million in November, according to the survey, based on shipping data and information from sources at oil companies, OPEC and consultants. Oil prices have more than halved in 18 months and hit an 11-year low in the wake of OPEC’s Dec. 4 decision to keep its year-old policy of no output restraint. The current crisis between Saudi Arabia and Iran – expected to pump more oil as sanctions are lifted – makes cooperation over supply even less likely, analysts say. “There is certainly no chance of Saudi Arabia scaling back its oil supply to make space for Iranian oil,” said Carsten Fritsch, analyst at Commerzbank, adding the tensions still justify a risk premium on prices because they could escalate. “In other words, the existing oversupply may actually grow further in the short term.”

Iran says boosting oil exports depends on future demand - A rise in Iran’s crude oil exports once sanctions against it are lifted depends on future global oil demand and that should not further weaken oil prices, a senior Iranian oil official was quoted as saying. Oil prices are likely to come under further pressure this year, when international sanctions on Iran are due to be removed under a nuclear deal reached in July. Brent crude settled at $37.28 a barrel on Thursday. Iran has repeatedly said it plans to raise oil output by 500,000 barrels per day post sanctions, and another 500,000 bpd shortly after that, to reclaim its position as the Organization of the Petroleum Exporting Countries’ second-largest producer. “The decision on the amount of exports highly depends on the future condition of the market. We will raise our market quota steadily,” said Mohsen Qamsari, director general for international affairs of the National Iranian Oil Company (NIOC). “We will adjust our output to the global market’s demand,” he told Iran’s oil ministry news agency Shana on Saturday.

Is Iran a gas empire in the making? . Iran is wooing foreign investors to attract billions of dollars in gas infrastructure as global trade in gas products is expanding rapidly. With more than 34 trillion cubic meters under its belt, Iran owns the world’s largest natural gas reserves but its share of the global trade in gas is less than one percent. The country is in a race against time to embolden its footmark in the market as global interest in gas expands rapidly and the shale gas is tightening rivalry among producers. "Natural gas will be the main fuel in the next 20 to 30 years,” international affairs director at National Iranian Gas Co. Azizollah Ramezani has said. Iran has signed a raft of initial agreements with a number of neighbors in recent years but the plans have remained on the paper only as Western sanctions have curbed trade engagement with the Islamic Republic. Currently, Turkey is Iran’s biggest customer with 30 million cubic meters a day of imports under a 25-year deal signed before the West imposed sanctions on Tehran. Iran also exports gas to neighboring Armenia and Azerbaijan but the volumes are not significant. Exports to Iraq are to start this year to feed three power plants in Baghdad and Diyala through a pipeline. A separate pipeline will be built in the next two years to transfer gas to Basra in southern Iraq. With the much-anticipated lifting of sanctions, officials hope to attract $40 billion in the gas industry. The investment has to go to building new infrastructure and expanding the gas transfer network.

Kazakhstan’s $64 Billion Question: Will Oil Fund Disappear? - WSJ: Kazakhstan’s $64 billion oil fund could run out of money within six or seven years as slumping oil prices cut revenue and the government spends its savings, a central-bank official said. The so-called National Fund has fallen 17% from its peak of $77 billion in August 2014. The government is drawing as much as $9.5 billion a year from it for spending. Kazakh politicians and the central bank need to cut spending, boost tax collection and invest the fund in higher-yielding assets such as private equity, according to Berik Otemurat, chief executive of the National Investment Corp., a unit of the central bank created in 2012. “We are eating up the National Fund,” Mr. Otemurat said in an interview. “The money we have been lucky to accumulate is the only money we have to capitalize on. I think the government needs to focus on the National Fund’s investment management.” Mr. Otemurat’s unit was set up to manage the fund but hasn’t actually taken it over. Instead, it is investing $800 million of the central bank’s foreign-exchange reserves. Trillions of dollars of state savings in oil-rich nations from Kazakhstan to Saudi Arabia are under threat as governments that grew accustomed to high oil revenues scramble for cash. The International Monetary Fund is advising nations from Asia, Africa, Latin America and the Middle East to devise sovereign-asset and liability-management plans that will involve a combination of asset sales, budget cuts and domestic and international borrowing to stabilize public finances.

Saudi Arabia faces 'economic bomb' -- While the world's attention is focused on Saudi Arabia's latest flare up with Iran, many Saudis are concerned about the "economic bomb" at home. The government is slashing a plethora of perks for its citizens. The cash crunch is so dire that the Saudi government just hiked the price of gasoline by 50%. Saudis lined up at gas stations Monday to fill up before the higher prices kicked in. "They have announced cutbacks in subsidies that will hurt every single Saudi in their pocketbook," says Robert Jordan, a former U.S. ambassador to Saudi Arabia and author of "Desert Diplomat: Inside Saudi Arabia Following 9/11." Gas used to cost a mere 16 cents a liter in Saudi Arabia, one of the cheapest prices in the world. Many Saudis drive large SUVs and "have no concept of saving gas," says Jordan. Gas price hike is just the beginning The gas hike is just the beginning. Water and electricity prices are also going up, and the government is scaling back spending on roads, buildings and other infrastructure. Those cuts might sound normal for any government that is running low on cash. But it's especially problematic in Saudi Arabia because the vast majority of Saudis work in the public sector. About 75% of the Saudi government's budget comes from oil. The price of oil has crashed from over $100 a barrel in 2014 to around $36 currently. Most experts don't expect a rebound anytime soon.

Saudi Arabia Carries Out Largest Mass Execution In 25 Years After Beheadings Soar In 2015 - As we and others have documented extensively, Saudi Arabia’s promotion of Wahhabism makes the kingdom the number one state sponsor of terror almost by default (Erdogan’s support for ISIS notwithstanding). Despite the best efforts of quite a few commentators and analysts who this year have drawn attention to the fact that the ideology espoused and promulgated by the Saudis is really no different than that promoted by ISIS, the Western public is still largely in the dark - we know this because if the US electorate were truly in tune to what’s going on, voters would stage a popular revolt before they’d allow King Salman to parade into Washington in a fleet of Mercedes on the way to commandeering the entire Four Seasons for a two day stay.  As Kamel Daoud, a columnist for Quotidien d’Oran, and the author of “The Meursault Investigation” put it in a New York Times op-ed in November, Saudi Arabia is simply “an ISIS that made it.”

Even-Handed Beheadings in Saudi Arabia; Friends Must Be Friends  - Saudi Arabia executed 47 people today in the biggest mass execution since 1980. Those executed include Sheikh Nimr al-Nimr, a prominent Shi'ite Muslim cleric.  Some were beheaded, others shot. Saudi Arabia says there's nothing to be concerned about, the executions were "even-handed".Sheikh Nimr al-Nimr's crime was speaking out against the government. In order to get rid of al-Nimr, Saudi Arabia had to get rid of 46 others, mostly Al Qaeda or alleged Al Qaeda sympathizers.   As further proof of even-handedness, al-Nimr was not crucified for his alleged "mischief in the land."

Nimr al-Nimr execution: Former Iraq PM al-Maliki says death will 'topple Saudi regime' - The former prime minister of Iraq, Nuri al-Maliki, has said that the execution of the prominent Shi'ite cleric Sheikh Nimr al-Nimr by Saudi Arabia will be the downfall of the Gulf kingdom's government.  Mr al-Maliki, who was prime minister of Iraq between 2006 and 2014, said in a statement that his countrymen "strongly condemn these detestable sectarian practices and affirm that the crime of executing Sheikh al-Nimr will topple the Saudi regime as the crime of executing the martyr al-Sadr did to Saddam," referencing the death of another prominent cleric in Iraq in 1980. Hundreds of armoured vehicles were sent to Qatif in Saudi Arabia to contain protests in response to the execution, while demonstrators in Bahrain have been tear-gassed. large numbers of men and women gathering now in Qatif to protest Saudi execution of Sheikh Nimr. Several protests have taken place in majority Shia Qatif and in Bahrain, following the execution of Sheikh al-Nimr and 46 others for ‘terrorism offences’. Demonstrators carrying pictures of the Shi’ite cleric were involved in a clash with police in the Bahraini village of Abu-Saiba, where dozens were tear-gassed, according to witnesses.

EU warns of 'dangerous consequences' of Saudi cleric execution - (Reuters) - The European Union's foreign policy chief warned on Saturday that Saudi Arabia's execution of a prominent Shi'ite Muslim cleric risked "dangerous consequences" by further inflaming sectarian tensions in the region. The kingdom executed cleric Nimr al-Nimr on Saturday alongside dozens of al Qaeda members, signaling that it would not tolerate attacks, whether by Sunni jihadists or from its Shi'ite minority. EU foreign policy chief Federica Mogherini, reiterating the bloc's opposition to the death penalty and mass executions in particular, said Nimr's case raised serious concerns over freedom of expression and the respect of basic civil and political rights in Saudi Arabia. "This case has also the potential of inflaming further the sectarian tensions that already bring so much damage to the entire region, with dangerous consequences," she said, urging Saudi authorities to promote reconciliation between different communities in the country.

Iranian Protesters Ransack Saudi Embassy After Execution of Shiite Cleric -  Iranian protesters ransacked and set fire to the Saudi Embassy in Tehran on Saturday after Saudi Arabia executed an outspoken Shiite cleric who had criticized the kingdom’s treatment of its Shiite minority.The cleric, Sheikh Nimr al-Nimr, was among 47 men executed in Saudi Arabia on terrorism-related charges, drawing condemnation from Iran and its allies in the region, and sparking fears that sectarian tensions could rise across the Middle East.The executions coincided with increased attacks in Saudi Arabia by the jihadists of the Islamic State and an escalating rivalry between the Sunni monarchy and Shiite Iran that is playing out in conflicts in Syria, Yemen and elsewhere. Sheikh Nimr was an outspoken critic of the Saudi monarchy and was adopted as a symbolic leader by Shiite protesters in several Persian Gulf countries during the Arab Spring uprisings.Saudi officials said the mass execution, one of the largest in the kingdom in decades, was aimed at deterring violence against the state. But analysts said that the grouping of Sheikh Nimr with hardened jihadists was a warning to domestic dissidents that could ripple across the region. The execution of Sheikh Nimr is widely seen as part of the growing rivalry, and Shiite leaders in different countries — in Iran, in particular — condemned it. “It is clear that this barren and irresponsible policy will have consequences for those endorsing it, and the Saudi government will have to pay for pursuing this policy,”

Oil Spike Risk: Iran Police Use Water Cannon On Angry Protesters Near Saudi Consulate --Despite official pleas for “calm” following the death of prominent Shiite cleric Nimr al-Nimr, Iranians are in no mood to stand down.  Perhaps the Ayatollah's calls for "divine vengeance" have incited a riot or perhaps the Shiite world has simply had enough of the House of Saud, but whatever the case, crowds once again gathered outside the Saudi consulate in Mashhad on Sunday where riot police tried in vain to disperse the mob with water cannons just hours after angry protesters torched the Saudi embassy in Tehran. Below, find images from the scene which underscore just how precarious the situation has become in the wake of Saturday's executions in Saudi Arabia.

It's On: Saudis Sever Diplomatic Ties With Iran, Will Confront Iranian "Hostility" -- Earlier today, as Iranian police struggled to disperse protesters gathered outside the Saudi consulate in Mashhad, we said the following about the rapidly deteriorating situation: If crude needed an excuse to rally, then surely this is it as it now appears that in addition to the fact that Riyadh and Tehran are squaring off in Syria (where Iran is present and the Saudis fight by proxy) and Yemen (where the Saudis are present and the Iranians fight by proxy), the two countries are on the verge of a historic diplomatic crisis which has the potential to stoke sectarian violence across the Muslim world. Well sure enough, just hours later, Saudi Foreign Minister Adel Al-Ahmad Al-Jubeir announced that Riyadh has cut diplomatic ties with Tehran. The Saudis have demanded the Iran mission leave the country within 48 hours. Riyadh also claims Iran did not attempt to stop protesters from storming the consulate.

Saudi Default, Devaluation Odds Spike As Mid-East Careens Into Chaos - Saudi Arabia just doesn’t know when to quit.  The kingdom’s plan to deliberately suppress crude prices in an effort to bankrupt the US shale space and preserve market share has cost Riyadh dearly over the past 12 months. The country’s budget deficit for 2015 ballooned to some 15% of GDP as oil revenue collapsed. For 2016, the deficit is expected to come in at a still elevated 13% of economic output. The red ink has forced the Saudis to tap the SAMA reserve war chest as well the debt market.In a testament to how dire the situation has become, Riyadh also moved to cut subsidies on everything from fuel to electricity to water in order to buy some budget breathing room. The welfare state overhaul was necessary because the Saudis aren’t keen on i) dropping the riyal peg, or ii) rolling back the defense spending. As if the situation needed to get still more precarious, Riyadh went out and sparked a sectarian showdown over the weekend by executing a prominent Shiite cleric. The Sheikh’s death triggered protests in Iran (among other countries) and before you knew it, the Saudi embassy in Tehran was on fire. That prompted Riyadh to cut diplomatic ties with the Iranians and comments by Saudi Foreign Minister Adel Al-Ahmad Al-Jubeir seem to suggest that the kingdom may be on the verge of taking more steps to intervene militarily in the region in an effort to rollback Iran’s growing influence and stop the Shiite crescent from waxing. Of course war is costly and is generally accompanied by quite a bit of uncertainty. And if there’s anything the Saudis absolutely do not need right now, it’s more expenses and more geopolitical ambiguity. In a testament to just how unwelcome the events that unfolded over the weekend truly are, Saudi CDS is blowing out to six year wides...

Bahrain, Sudan and UAE follow Saudis in diplomatic action against Iran - Bahrain and Sudan have quickly followed Saudi Arabia in severing diplomatic relations with Iran in the wake of a row over the execution of a leading Shia cleric by the Saudi authorities, which has provoked wide international condemnation. Bahrain, Saudi Arabia’s closest Gulf ally, said on Monday that Iranian diplomats had 48 hours to leave Manama, and its own diplomats would be leaving Tehran. Shortly afterwards, Sudan announced that it was expelling the Iranian ambassador to Khartoum and that all ties had been severed. Sudan has been distancing itself gradually from Tehran in recent months. The UAE is also downgrading its diplomatic representation to Iran, replacing its ambassador with a chargé d’affaires, al-Hadath TV reported. The relatively modest step is likely to reflect the close trade ties between the two countries despite longstanding political tensions. . Over the weekend protesters set ablaze the Saudi embassy in Tehran and its consulate in another Iranian city, Mashhad. The attacks have been widely condemned inside Iran as an own goal, diverting attention from the execution of Sheikh Nimr al-Nimr and 46 others. The recent incidents have brought much embarrassment for the moderate administration of the president, Hassan Rouhani, and undermined his diplomatic apparatus. Internal critics say the unrest has shifted attention away from the executions in Saudi Arabia.

Iraq Says Mosque Bombings Were False Flag ISIS Attacks - Earlier today, in the course of documenting the Mid-East melee that’s set to unfold amid a worsening diplomatic crisis between Iran and Saudi Arabia, we noted that two Sunni mosques were attacked in Iraq on Sunday. “The attack on the Ammar bin Yasir mosque in central Hilla destroyed its dome and several walls,” Reuters reported. “Another mosque in Hilla's northern outskirts, al-Fath al-Mubeen, was also attacked,” sources said. The most obvious explanation for the attacks seemed to be that angry Shiites were retaliating for the execution of Sheikh Nimr al-Nimr, whose death triggered protests from Bahrain to Pakistan and now threatens to plunge the region into sectarian strife. Iraqi officials however, tell a different story. “An Iraqi official blamed the Islamic State group on Monday for the bombing of two Sunni mosques in a predominantly Shiite city in southern Iraq the previous night, saying the militant group seeks to stoke sectarian tensions,” AP reports. ISIS "did this to inflame sectarian strife in the country,” provincial security official Falah al-Khafaji contends.

Sunni v Shia Gas WarSunni Muslims and Shia Muslims have been enemies for over a thousand years. For the Saudis, the Syrian pipeline war is between two competing age-old vectors of Islam. Saudi Arabia, home to the sacred cities of Mecca and Medina, claims de facto supremacy in the Islamic world of Sunni Islam. The Saudi Sunni form is ultra-conservative Wahhabism, named for an 18th Century Bedouin Islamic fundamentalist or Salafist named Muhammad ibn Abd al-Wahha. The Taliban derive from Wahhabism with the aid of Saudi-financed religious instruction. All of the 9/11 bombers were Saudi Wahhabis. The Gulf Emirates and Kuwait also adhere to the Sunni Wahhabism of the Saudis, as does the Emir of Qatar. Iran on the other hand historically is the heart of the smaller branch of Islam, the Shi’ite. Iraq’s population is some 61% majority Shi’ite. Syria’s President, Bashar al-Assad is a member of a satellite of the Shi’ite branch known as Alawite. Some 23% of Turkey is also Alawite Muslim. To complicate the picture more, across a bridge from Saudi Arabia sits the tiny island country, Bahrain where as many as 75% of the population is Shi’ite but the ruling Al-Khalifa family is Sunni and firmly tied to Saudi Arabia. Moreover, the richest Saudi oil region is dominated by Shi’ite Muslims who work the oil installations of Ras Tanura.  These historic fault lines inside Islam which lay dormant, were brought into a state of open warfare with the launching of the US State Department and CIA’s Islamic Holy War, otherwise known as the Arab Spring.   Now if we map the resources of known natural gas reserves in the entire Persian Gulf region, the motives of the Saudi-led Qatar and UAE in financing with billions of dollars the opposition to Assad, including the Sunni ISIS, becomes clearer. Natural gas has become the favored “clean energy” source for the 21st Century and the EU is the world’s largest growth market for gas, a major reason Washington wants to break the Gazprom-EU supply dependency to weaken Russia and keep control over the EU via loyal proxies like Qatar.

Saudi-Iran split dashes chance of OPEC deal to curb oil glut - The collapse in relations between Saudi Arabia and Iran after the Saudi execution of a Shi’ite cleric puts an end to speculation that OPEC could somehow agree production curbs to lift the price of oil anytime soon. A Reuters survey of OPEC production showed on Tuesday that Saudi Arabia ended 2015 with its output at full tilt, with no sign of cutting supply to make room for Iran, which plans to ramp up its own output when international financial sanctions are lifted this year. According to the survey, compiled from shipping data, oil company figures and industry experts, Saudi production for December averaged 10.15 million barrels per day. That means it was above 10 million barrels per day for nine straight months, the longest period of sustained production above that threshold for decades. The determination by the world’s biggest exporter Saudi Arabia to defend its market share despite a global glut has helped drive oil prices to their lowest in 11 years. Meanwhile, the lifting of sanctions on Iran in line with a nuclear agreement is expected to provide the biggest increase in supply of 2016. The world is now producing 1.5 million barrels a day more than it is consuming, and Iran is promising to add another million bpd to supply over the next 12 months.

'We are not natural-born enemies of Iran,' Saudi U.N. envoy says | Reuters: Saudi Arabia said on Monday it would restore ties with Iran when Tehran stopped meddling in the affairs of other countries and pledged that Riyadh would continue to work "very hard" to support bids for peace in Syria and Yemen despite the spat. Saudi Arabia cut all ties with Iran on Sunday following the kingdom's execution of prominent Shi'ite cleric Nimr al-Nimr. Protesters in Iran and Iraq marched for a third day to denounce the execution. When asked what it would take for ties to be restored, Saudi U.N. Ambassador Abdallah Al-Mouallimi told reporters: "Very simple - Iran to cease and desist from interfering in the internal affairs of other countries, including our own." He added, "If they do so, we will of course have normal relations with Iran. We are not natural-born enemies of Iran." On Monday, Bahrain and Sudan cut all ties with Iran, following Riyadh's example. Saudi Foreign Minister Adel al-Jubeir told Reuters Riyadh would also halt air traffic and commercial relations between the rival powers. Jubeir blamed Iran's "aggressive policies" for the diplomatic action, alluding to years of tension that spilled over on Saturday night when Iranian protesters stormed the kingdom's embassy in Tehran. The United Arab Emirates (UAE), home to hundreds of thousands of Iranians, partially downgraded its relations but the other Gulf Arab countries - Kuwait, Qatar and Oman - stayed above the fray.

One Map That Explains the Dangerous Saudi-Iranian Conflict - The Kingdom of Saudi Arabia executed Shiite Muslim cleric Nimr al-Nimr on Saturday. Hours later, Iranian protestors set fire to the Saudi embassy in Tehran. On Sunday, the Saudi government, which considers itself the guardian of Sunni Islam, cut diplomatic ties with Iran, which is a Shiite Muslim theocracy.To explain what’s going on, the New York Times provided a primer on the difference between Sunni and Shiite Islam, informing us that “a schism emerged after the death of the Prophet Muhammad in 632” — i.e., 1,383 years ago. But to the degree that the current crisis has anything to do with religion, it’s much less about whether Abu Bakr or Ali was Muhammad’s rightful successor and much more about who’s going to control something more concrete right now: oil. In fact, much of the conflict can be explained by a fascinating map created by M.R. Izady, a cartographer and adjunct master professor at the U.S. Air Force Special Operations School/Joint Special Operations University in Florida. What the map shows is that, due to a peculiar correlation of religious history and anaerobic decomposition of plankton, almost all the Persian Gulf’s fossil fuels are located underneath Shiites. This is true even in Sunni Saudi Arabia, where the major oil fields are in the Eastern Province, which has a majority Shiite population. As a result, one of the Saudi royal family’s deepest fears is that one day Saudi Shiites will secede, with their oil, and ally with Shiite Iran.

The Geopolitics of Cheap Oil - FPIF: The market was supposed to save the planet. That, at least, was the argument of many economists grappling with the problem of climate change. As fossil fuels became scarcer, they pointed out, the price of oil and natural gas would go up. And then other options, like solar and wind, would become cheaper, particularly as investment flowed into that sector and drove down the cost of new technologies. And voila: The invisible hand would gradually turn down the global thermostat. It’s a ridiculous argument. For one, there’s no guarantee that the market would respond in a timely manner (i.e., before we’re under water). For another, oil and gas prices are as volatile and unpredictable as a Q-and-A session with Donald Trump. In 2008, for instance, oil hit a high of $145 a barrel. But that didn’t last long. And in 2015, despite all sorts of turmoil in the Middle East and in other oil-producing countries like Nigeria, the price of crude fell between 30 and 40 percent to its lowest levels in 11 years. That’s a bigger drop than the commodity price declines for metals, grains, and soybeans. Gas stations around the United States didn’t fully reflect this drop, but petrol prices still fell to an average of $2.40 a gallon, saving each driver more than $500 last year.  There are a number of reasons for the price drop, but it boils down to supply (more of it) and demand (less of it). The United States boosted oil production by 66 percent over the last five years, making it the largest oil and natural gas producer in the world in 2015. Other producers, like Saudi Arabia, also didn’t scale back, in part to stick it to a sanctions-hobbled Iran and snatch up its clients. Meanwhile, greater fuel efficiency and slower economic growth around the world (particularly in China) have reduced demand.

Why Are Republican Candidates Backing Saudi Arabia in Its Fight With Iran? -- Once upon a time, Republican leaders said the United States should push the Middle East toward democracy because Arab dictators were breeding Arab terrorists. Not anymore. In the party George W. Bush once ran, his fight-terrorism-with-democratization thesis has been largely orphaned. The new buzzword is “stability.” Donald Trump publicly bemoans the fall of Saddam Hussein and Muammar al-Qaddafi. Ted Cruz attacks the Obama administration for not doing more to keep Hosni Mubarak in power and urges it to emulate Egypt’s current dictator, General Abdel Fattah el-Sisi. Bush’s former vice president, Dick Cheney, insists that, “The Egyptian people are delighted that the military stepped in,” in a brutal coup d’état. And W.’s own brother, Jeb, whose Super PAC has received donations from at least two lobbyists for Saudi Arabia, says the next president must “restore trust” and “work more closely” with America’s “important partner” in Riyadh.

Pressure Grows on Saudi Arabia to Ditch Dollar Peg - WSJ: The prolonged rout in oil has left Saudi Arabia’s long-standing peg of its currency to the dollar at its most vulnerable point in more than a decade. For almost 30 years, the kingdom has held the riyal at a fixed exchange rate and that has brought stability to government finances. Ninety percent of the government’s revenue comes from oil, which is priced in dollars. But fewer dollars are coming in now, straining a budget that is committed to generous subsidies and public-sector wages. Abandoning the peg would make those dollars stretch further when converted to a local riyal, because without the peg, the riyal would weaken. What’s more, to hold the peg, Saudi Arabia spends billions of its dollars buying riyals in foreign-exchange markets.With oil trading around $36 a barrel, some investors and Saudi Arabian businesses believe the government will succumb to the pressure and let the peg go—something long regarded as unthinkable. That is a minority view, but one that is growing in popularity. This week, the number of riyals that forward contracts can buy for a dollar in a year’s time surged to a 16-year high.

Iran may limit oil output to avoid price war: Official — Iran wants to avoid an oil price war with rival producers and only gradually lift exports once sanctions against it cease, a senior official said, in what would be a major shift away from planning to ship as much fuel as soon as possible. Iran, which has some of the world’s biggest petroleum reserves, has repeatedly urged fellow members within the Organization of the Petroleum Exporting Countries (OPEC) to make room for a supply jump from the Islamic Republic, pledging to ramp up exports as soon as sanctions on its oil industry are lifted under a nuclear deal with world powers. A move to limit export growth would be a major shift in Iran’s policies in an environment when most OPEC and non-OPEC producers are fighting for market share despite a growing global oil glut, which has already cut crude prices by two-thirds since 2014, hurting energy firms and oil-exporting nations. “We don’t want to start a sort of a price war,” Mr Mohsen Qamsari, director-general for international affairs of the National Iranian Oil Company (NIOC), told Reuters. “We will be more subtle in our approach and may gradually increase output. I have to say that there is no room to push prices down any further, given the level where they are.” He did not give any details on how much Iran would be prepared to moderate a rise in its shipments but said Iran would not offer further discounts to lure customers. Currently, Iran offers 90-day credit, free shipping and some discounts on crude prices to buyers in India.

Iraq offers to mediate between Saudi and Iran, fearing for ISIS campaign  (Reuters) - Iraq dispatched its foreign minister to Tehran on Wednesday with an offer to mediate in an escalating feud between Saudi Arabia and Iran, reflecting Baghdad's fears that new sectarian conflict could unravel its campaign against Islamic State. Sunni Saudi Arabia's execution of Shi'ite dissident Nimr al-Nimr on Saturday has inflamed sectarian anger across the Middle East, infuriating Iran, the region's main Shi'ite Muslim power. After demonstrators sacked the Saudi embassy in Iran, Riyadh and some of its allies cut off diplomatic ties with Tehran. Iraq, where a Shi'ite-led government is urgently trying to reach out to minority Sunnis as it seeks to retake territory controlled by Islamic State militants, is particularly vulnerable to any upsurge in anger between the Muslim sects. Powerful Iran-backed Shi'ite militia called on Iraqi Prime Minister Haidar al-Abadi -- a Shi'ite who has staked his credibility on efforts to reconcile with Sunnis -- to shut a Saudi embassy that reopened only last month after decades of strained ties. Thousands of Shi'ites rallied in central Baghdad on Wednesday chanting slogans against the Saudi ruling family. Abadi sent Foreign Minister Ibrahim al-Jaafari to Tehran to help defuse the crisis. Speaking with his Iranian counterpart Mohammad Javad Zarif, Jaafari said the row could have "wide-ranging repercussions". "We have solid relations with the Islamic Republic (Iran) ... and also we have relations with our Arab brothers and therefore we cannot stay silent in this crisis," Jaafari told the joint press conference in Tehran. There was no immediate reaction from Saudi Arabia to the Iraqi mediation offer.

The Real Reason Why Saudi Arabia Executed Sheikh Nimr  -- Saudi Arabia finally executed the elderly Shia cleric, Sheikh Nimr Baqir al-Nimr, even though many Muslim and other religious leaders as well as the United Nations and a number of political leaders had urged—at least privately—Saudi Arabia to commute the death sentence. Viewed in any logical light, this execution could not be in Saudi Arabia’s short- and long-term interests. But the execution can also be understood as a strategy to provoke Iran to respond in a way to justify a Saudi military attack against it.

How the Saudi king benefits from a cleric’s execution  - Oil prices are falling. America is far more energy independent than it was a decade ago. It is slowly moving toward a new diplomatic relationship with Iran, dissolving the glue holding the United States-Saudi relationship together. Many disgruntled Saudis support Islamic State, an organization that has sworn to take down the al-Saud monarchy. These destabilizing elements come as the al-Saud family faces succession issues. The current leader, King Salman bin Abdulaziz al-Saud, looks likely to be the final son of the country’s founder, Ibn al-Saud, to hold the office. Ibn al-Saud died in 1953. Salman has named a nephew as the crown prince, and his own son as second in line to the throne, which will bring an entirely new generation into power. There have been rumors of growing opposition to Salman, even of a possible coup. The execution of Nimr thus sends multiple signals within the kingdom. The most significant is a get-tough message to all, coupled with an assurance to the Iranians that Salman is firmly in control, and able to further prosecute the open-ended war in Yemen. The execution also appeases the Wahhabists Salman needs in his corner, and gives the government a new excuse to crack down on Shi’ite dissent. Shi’ites are estimated to make up 10-15 percent of Saudi Arabia’s population. The threat is real — Nimr is now a martyr with an international profile, and may prove more dangerous dead than alive. Nimr aside, the simultaneous execution of 43 al Qaeda members (three other Shi’ites were also executed) may have been a message to disgruntled Sunni youth returning from jihad that the king will not tolerate support for al Qaeda and Islamic State at home. The Saudi monarchy fears an Islamic revolution from within far more than any external military threat.

Fear And Loathing in the House of Saud: Riyadh was fully aware the beheading of respected Saudi Shi'ite cleric Nimr al-Nimr was a deliberate provocation bound to elicit a rash Iranian response. The Saudis calculated they could get away with it; after all they employ the best American PR machine petrodollars can buy, and are viscerally defended by the usual gaggle of nasty US neo-cons. In a post-Orwellian world "order" where war is peace and "moderate" jihadis get a free pass, a House of Saud oil hacienda cum beheading paradise — devoid of all civilized norms of political mediation and civil society participation — heads the UN Commission on Human Rights and fattens the US industrial-military complex to the tune of billions of dollars while merrily exporting demented Wahhabi/Salafi-jihadism from MENA (Middle East-Northern Africa) to Europe and from the Caucasus to East Asia. And yet major trouble looms. Erratic King Salman's move of appointing his son, the supremely arrogant and supremely ignorant Prince Mohammad bin Salman to number two in the line of succession has been contested even among Wahhabi hardliners. But don't count on petrodollar-controlled Arab media to tell the story. English-language TV network Al-Arabiyya, for instance, based in the Emirates, long financed by House of Saud members, and owned by the MBC conglomerate, was bought by none other than Prince Mohammad himself, who will also buy MBC. With oil at less than $40 a barrel, largely thanks to Saudi Arabia's oil war against both Iran and Russia, Riyadh's conventional wars are taking a terrible toll. The budget has collapsed and the House of Saud has been forced to raise taxes.

Saudi Arabia's defiant oil strategy may backfire on several fronts - Straits Times: Saudi Arabia's move to try to keep global oil prices low was intended to hurt its rivals - but experts now say its decision may be starting to backfire. As oil prices started dipping in 2014 due to record production in the United States and Canada, the Saudis decided to continue pumping more oil to defend their market share - and also to economically squeeze energy-dependent rivals such as Iran and Russia. The events of the past few days - beginning with Riyadh's execution of Shi'ite cleric Nimr al-Nimr - have led some to conclude that Saudi Arabia is a country under stress, and its decision to suppress oil prices has come under intense scrutiny. "The Saudis have to be careful how long they continue to follow their current strategy, which is akin to walking in a firepit covered in flammable oil," "The ability of the Saudi monarchy to provide extensive social welfare programmes for its population is closely tied over the long term to its ability to extract revenues from oil. Low oil prices undercut the ability of the Saudis to finance the social welfare system that their population has become accustomed to, and which in many ways limits the spread of dissent in the kingdom."Mr Heras said that although threats of widespread dissent are not an immediate challenge, cracks are starting to appear. Already there have been cutbacks in social welfare programmes. A steep cut in fuel subsidies has also sent pump prices in Saudi Arabia shooting up 40 per cent. Yet, at the last Opec meeting in December, Riyadh continued to push for the oil cartel to keep up production.

How Saudi Arabia Controls Its Own Media Coverage  - With Saudi Arabia making headline news once again, I thought it was a great time to take a look at the WikiLeaks Saudi Cables release which took place relatively quietly on June 19, 2015.  Thus far, 122,619 cables of the more than half a million cables and other documents from the Kingdom of Saudi Arabia Ministry of Foreign Affairs have been released,  most of them dating between 2010 and 2015, providing us with a rather intimate look at how the Saudi Royal Family (aka the Saudi dictatorship) functions.  Because of its oil producing capabilities, despite its flagrant disregard for human rights, it continues to be regarded as a key Middle East ally by the United States, the United Kingdom and much of the rest of the western world.  These documents help us to better understand how Saudi Arabia controls its image on the world's stage, the main thrust of this posting.  From the cables that have been released so far, there is a pattern to how Saudi Arabia and its Royal Family control coverage by the world's media.  Saudi Arabia has a strategy of co-opting Arab media using two main methods; neutralization and containment.  When the Kingdom receives negative coverage in the regional media, it seeks to neutralize it by having the media outlets that it controls refrain from publishing any news that reflects negatively on the Saudis.  When a more proactive approach is needed, the Saudis use the containment approach to put pressure on the media to either sing the Kingdom's praises or attack any party that criticizes them.  How can the Saudis gain such control over the media?  One method used by the Saudis is the purchasing of hundreds or thousands of subscriptions in targeted newspapers and other publications as shown on this document:

Iran claims Saudi strike hits embassy in Yemen - Iran has accused the Saudi-led coalition battling Shiite rebels in Yemen of hitting its embassy in the capital, Sanaa, in an overnight air strike. The accusation comes amid a dangerous rise in tensions between Iran and Saudi Arabia in recent days, following the kingdom's execution of a Shiite cleric and attacks on Saudi diplomatic posts in the Islamic Republic.  Analysts have feared the dispute could boil over into the proxy wars between the two Mideast rivals in Yemen and in Syria. Meanwhile, Saudi Arabia's eastern Shiite heartland prepared to hold a funeral service on Thursday night to honour the executed Shiite cleric, Nimr al-Nimr. That could spark further unrest, as witnesses in eastern Saudi towns have reported hearing gunfire overnight and armoured personnel carriers have been seen driving through neighbourhood streets. On Thursday afternoon, Iran's state-run news agency said a Saudi-led air strike the previous night hit the Iranian embassy in Sanaa, citing Iran's Foreign Ministry spokesman. However, an Associated Press reporter who reached the site just after the announcement saw no visible damage to the building.

Saudi foreign minister visits Pakistan as Iran tensions deepen: (Reuters) – Saudi Arabia’s foreign minister arrived in Pakistan on Thursday, where he will meet leaders of a government keen to defuse spiralling sectarian tension between the Sunni-majority kingdom and Shi’ite Iran. Saudi Arabia’s execution of a prominent Shi’ite cleric on Saturday has inflamed tension across the Middle East and infuriated Iran, Riyadh’s main rival in the region. Several of Saudi Arabia’s Sunni allies have broken diplomatic ties with Iran after demonstrators ransacked the Saudi embassy in Tehran. Pakistan, which has a large Shi’ite minority, has sought to avoid taking sides as Prime Minister Nawaz Sharif tries to stem sectarian violence at home and boost economic ties with both Saudi Arabia and Iran. Saudi Foreign Minister Adel al-Jubeir is due to meet Sharif, his foreign affairs adviser Sartaj Aziz, and army chief General Raheel Sharif later on Thursday. Pakistan’s foreign ministry said a joint news conference with Al-Jubeir set for Thursday had been cancelled, citing a delay in his arrival for the two-day visit. Aziz, Sharif’s foreign affairs adviser, said that Pakistan was a friend of both Saudi Arabia and Iran, and would seek to heal the rift between them during al-Jubeir’s visit. “Pakistan has called for resolution of differences through peaceful means in the larger interest of Muslim unity in these challenging times,” Aziz told parliament on Tuesday. The visit comes after Pakistan last month distanced itself from an anti-Islamic State coalition announced by Saudi Arabia, which had named Pakistan as a member.

Saudi Arabia and Iran are playing a winner-take-all game: How did the execution of a cleric escalate so quickly into a diplomatic crisis between two regional rivals that have been fighting a cold war for over a decade? Saudi leaders have been dismayed since July, when the United States and five other world powers reached an agreement with Iran to limit its nuclear program in exchange for lifting international sanctions. Under the deal, Iran will be allowed to re-enter the global financial system, increase its oil exports and access more than $100 billion in frozen assets. Saudi Arabia is worried that the nuclear deal will help Iran gain an edge in their ongoing regional rivalry. This series of proxy battles — in which the two rivals are backing competing factions in Iraq, Syria, Yemen, Lebanon and Bahrain — have shaped the Middle East since the United States invaded Iraq in 2003. While the conflict is partly rooted in the historical Sunni-Shi’ite schism within Islam, it is mainly a struggle for political dominance of the Middle East between Shi’ite-led Iran and Sunni-led Saudi Arabia. These proxy wars, which involve other powers aside from Iran and Saudi Arabia, are at the root of much of the destruction in the region over the past five years. They have cost hundreds of thousands of lives, especially in Syria, where where more than 250,000 have been killed since the March 2011 uprising against the regime of Bashar al-Assad. The Syrian war has also spurred the most severe refugee crisis since World War Two, with nearly 4.4 million Syrians forced to seek refuge in neighboring countries.  In late March, Saudi Arabia launched a war against Houthi rebels and their allies in Yemen. The Houthis, who belong to a sect of Shi’ite Islam called Zaydis, are allies of Iran. . As the war has dragged on, air strikes by Saudi Arabia and its Sunni allies caused most of the estimated 2600 civilian deaths.

Saudi Devaluation Odds Highest In 20 Years, Kingdom Now More Likely To Default Than Portugal -- On Monday, we brought you “Saudi Default, Devaluation Odds Spike As Mid-East Careens Into Chaos,” in which we outlined the jump in riyal forwards and widening of CDS spreads that Riyadh witnessed in the aftermath of the kingdom’s move to cut diplomatic ties with Iran.In short: the market is getting worried that Riyadh is about to careen into crisis. In the face of slumping crude, the Saudis are staring down double digit budget deficits and the prospect of having to once again tap debt markets in order to offset the SAMA burn and k eep the kingdom from having to implement further subsidy cuts. The open hostilities with Iran all but guarantee the war in Yemen will escalate (just today for instance, Tehran accused the Saudis of bombing the Iranian embassy in Sana’a) and that entails a further drain on the kingdom’s finances as the monarchy will be forced to fund a prolonged and intractable struggle with the Houthis.Additionally, the more tension there is between Riyadh and Tehran, the more fractious OPEC will become and with Iranian supply set to rise in the new year as international sanctions are lifted, this may well be one Mid-East conflict that drives oil prices lower rather than higher - especially if the SAR peg falls.

Fall, Fall, Al Saud ! Saudi Shiite protesters shout 'death' to ruling family - Firstpost: Shiite Muslim protesters in eastern Saudi Arabia called Friday for the "death" of the Sunni-majority kingdom's ruling Al-Saud family at a rally to honour executed Shiite cleric Nimr al-Nimr, a witness said. Protestors shout death to the Al Saud family/ ReutersThe demonstration capped a week of unrest in Nimr's hometown of Awamiya and uncertainty in the surrounding Shiite-dominated region of Qatif, after Nimr's execution last Saturday. "Death to the Saud family," protesters shouted, raising their arms in the air, according to the witness. "Fall, fall, Al-Saud", they added. Pictures of the protest showed what appeared to be hundreds of people, many of them clad in black. They held black flags and pictures of the executed sheikh, who was a driving force behind protests that began in 2011 among the kingdom's minority Shiite community. Those protests developed into a call for equality in the Sunni-dominated kingdom, where Shiites complain of marginalisation. Nimr and three other Shiites were among 47 people convicted of terrorism and executed, provoking anger among Shiites and concern in Western nations.Shiites protested in several Muslim countries and attacked Saudi diplomatic missions in the kingdom's regional rival, Iran. Saudi Arabia and some of its allies cut diplomatic ties with Iran in reaction, triggering a diplomatic crisis and raising sectarian tensions in the region.

"Death To Saudi Arabia": Thousands Of Iranians Pour Into The Streets In Anti-Saudi Protests - It’s now been nearly a week since Saudi Arabia set the Muslim world on fire (both figuratively and literally) by executing prominent Shiite cleric Nimr al-Nimr. The Sheikh was a leading figure in the 2011 anti-government protests staged in the kingdom’s Eastern Province and when the House of Saud moved to silence a dissident voice once in for all last Saturday, demonstrators poured into the streets from Bahrain to Pakistan to decry the execution. For the Saudis, Nimr is a “terrorist,” but for the Shiite community he has now become a symbol of the oppression embodied by the Sunni Gulf monarchies. For those interested in a bit of background, here are some excerpts from The Atlantic: The State Department cable added Nimr was gaining popularity among young people. His stature grew in spring 2009, after Shia pilgrims clashed with security forces in Medina over access to holy sites; Nimr denounced the security forces, but then was forced to go into hiding to avoid arrest. By January 2010, the State Department reported in another cable that Nimr had returned home and was living under something like house arrest. The diplomat, who wrote that cable, judged that Nimr had overestimated his sway, gone too big, and as a result had lost his influence. A neighbor said that the government “chose not to pursue him further out of concern they would elevate his status.” The government changed its ignore-them-and-they’ll-go-away stance on Shia rabble-rousers once the Arab Spring began. In Bahrain, Shia protests threatened the stability of the regime, and the Sunni regimes of Saudi Arabia and the United Arab Emirates sent troops to help quell uprisings. But protests also spread from Bahrain into the kingdom. Nimr preached forcefully against the regime, and was rare in speaking up both in favor of the domestic protests and those in Bahrain

Saudi Arabia considers Aramco share sale - Saudi Arabia is considering listing shares in state-owned Saudi Aramco, the largest oil producer, in a move that would be likely to create the most valuable listed company in the world. Mohammed bin Salman, the kingdom’s deputy crown prince, said he was “enthusiastic” about launching an initial public offering of Saudi Aramco and a decision would be made “over the next few months”. His comments to The Economist came as the world’s largest oil-exporting nation struggles to contain a burgeoning deficit of nearly $98bn following the oil price’s spectacular 70 per cent collapse over the past 18 months. The Saudi government recently unveiled spending cuts for this year, subsidy reforms and called for privatisations to rein in its widening deficit. Its annual revenues — tied closely to the price of oil — are forecast by the International Monetary Fund to have plummeted 34.5 per cent last year. “I believe it is in the interest of the Saudi market, and it is in the interest of Aramco,” Prince Mohammed said. He said taking the group public would create “more transparency” and “counter corruption, if any, that may be circling around Aramco”. A full listing of the oil group could value it in the trillions of dollars. By contrast iPhone maker Apple, currently the world’s most valuable company, is worth $543bn.

As The Saudi Economy Implodes, A Fascinating Solution Emerges: The Aramco IPO -- Earlier today we reported that when it comes to Saudi Arabia, things are going from bad to abysmal, with the market is clearly aware of it. Saudi riyal forwards hit their highest level in almost two decades as oil plummeted: twelve-month forward contracts for the riyal climbed 260 points, and set for the steepest close since December 1996 on growing speculation the world’s biggest oil exporter may allow its currency to slide against the dollar for the first time since 1986 (incidentally, Bank of America's "Number One Black Swan Event For The Global Oil Market In 2016").  And then earlier today everything changed when Saudi Arabia's unveiled what may be a stunning Hail Mary: one which is great news for the suddenly liquidity challenged Saudi government, and is very bad news for the future price of oil. According to the Economist, Saudi Arabia is contemplating taking Saudi Aramco - arguably the world's most valuable company - public. To wit: SAUDI ARABIA is thinking about listing shares in Saudi Aramco, the state-owned company that is the world’s biggest oil producer and almost certainly the world’s most valuable company. Muhammad bin Salman, the kingdom’s deputy crown prince and power behind the throne of his father, King Salman, has told The Economist that a decision will be taken in the next few months. “Personally I’m enthusiastic about this step,” he said. “I believe it is in the interest of the Saudi market, and it is in the interest of Aramco.”

You’ve probably never heard of the world’s most valuable company - -- It’s Saudi Aramco—the world’s most important energy producer, controlling Saudi Arabia’s roughly 321 billion barrels of proven oil and gas reserves. The company could open itself up to outside investors in a share sale, according to deputy Crown Prince Muhammad bin Salman, who mentioned the matter to reporters from The Economist today (Jan. 7). “This is something that is being reviewed, and we believe a decision will be made over the next few months,” he said, according to a transcript of the interview. The seemingly offhand comment isn’t an ironclad pronouncement, of course. But it can’t help but get attention if only for the sheer size of the firm. Saudi Aramco would almost certainly become the world’s most highly valued company with a market capitalization north of $1 trillion. (Exxon Mobil has roughly 25 billion barrels of proven oil and gas reserves, and public markets have given it a value of about $320 billion. Aramco has more than 10 times as much oil.) While it’s impossible to say whether any share sale will materialize, the idea is being floated at an interesting moment. Saudi Arabia has led a risky OPEC production push over the last year that has tanked global oil prices in an effort to squeeze higher cost suppliers—such as US based shale gas producers—out of the business.  The move has been costly for Saudi Arabia, however, pushing its own oil revenues down sharply, and forcing it to eat into its currency reserves to preserve the riyals peg to the US dollar.

Saudi Arabia may launch IPO for Saudi Aramco - Saudi Arabia may launch an initial public offering for the world’s largest oil producer, Saudi Arabian Oil Co., according to a report. Deputy Crown Prince Mohammed bin Salman told The Economist that a decision will be made in the next few months. The crown prince is widely thought to hold considerable power in the monarchy and also heads the defense ministry. “I believe it is in the interest of the Saudi market, and it is in the interest of Aramco,” he said. Saudi Arabia is dealing with the economic punch declining oil prices have taken on the country. On Thursday pricing fell below $35 per barrel, its lowest point since 2004. There’s also rising tension between Saudi Arabia and Iran after the execution of a Shiite cleric and attacks on Saudi diplomatic posts in the Islamic Republic. Fadel Gheit, analyst for Oppenheimer & Co., said an Aramco IPO “makes a lot of sense.” Exxon Mobil Corp.’s market value is more than $300 billion, and Saudi Aramco produces three times as much oil, Gheit said. He figures Aramco could sell off a 20 percent minority interest and raise $200 billion.”That will fund their budget for a year,” he said.The Economist said that options under preliminary consideration for Saudi Aramco range from listing some of its petrochemical and other refining operations to selling shares in the parent company.

Saudi Aramco Confirms "World's Most Valuable Company" May Go Public --On Thursday we previewed the upcoming IPO of the world’s most valuable company: Saudi Aramco, Riyadh's state-owned crown jewel that’s the world’s most prolific crude producer. The move comes as Saudi Arabia burns through cash and takes on debt in a desperate attempt to plug a yawning budget hole created by the largely self-inflicted pain from "lower for longer" crude. Pressured by declining oil revenue, the cost of financing multiple regional proxy wars, and the necessity of maintaining costly subsidies for everyday Saudis, Riyadh is apparently resorting to what we called “a stunning Hail Mary”: privatization.On Friday, the kingdom confirmed it's mulling plans to sell a stake in the company.Here’s the official statement: Saudi Aramco confirms that it has been studying various options to allow broad public participation in its equity through the listing in the capital markets of an appropriate percentage of the Company’s shares and/or the listing of a bundle its downstream subsidiaries.Once the study of these various options is complete, the findings will be presented to the Company’s Board of Directors which will make its recommendations to the Saudi Aramco Supreme Council.This proposal is consistent with the broad and progressive direction pursued by the Kingdom for reforms, including privatization in various sectors of the Saudi economy and deregulation of markets, which the Company strongly supports. Saudi Aramco would like to emphasize that this process will strengthen the Company's focus on its long term vision of becoming the world’s leading energy and chemical enterprise. This includes prudently managing the Kingdom’s hydrocarbon resources, adding value across the value chain, reliably meeting its customers’ demand, and meeting its stakeholder and environmental commitments. As RBS notes, "Aramco has the largest known oil reserves at around 261bn barrels – almost 10 times more than Exxon Mobil."

How petrostates may solve their fiscal woes - Oil’s price decline has put the finance ministers of oil-exporting states from Abu Dhabi to Alaska in a bind. Reliant on oil royalties for revenue, their governments have long written budgets that need high oil prices to balance. Every major oil exporter, in fact, now has a “fiscal breakeven” oil price that is higher than the prevailing oil price, according to data from the International Monetary Fund.  What, then, is a petrostate to do about its finances? Maybe the most obvious option is fiscal austerity. All the spending and welfare schemes that these governments established during the oil boom have got to go. That, along with contemplating an initial offering of shares in Aramco, seems to be Saudi Arabia’s answer, at least for the moment. Facing a whopper of a fiscal deficit — some 15 percent of GDP — the monarchy is planning an austerity program that would wipe out most of the gap over the next two years. Yet oil exporters did not respond to the 1980 drop in oil prices with fiscal austerity — or not, at least, in so neat a pattern as the case study of Saudi Arabia would suggest. Across 20 oil-exporting countries, government consumption actually rose four percentage points as a share of GDP after oil prices collapsed. These governments’ shares of consumption had been, for the most part, slowly rising or stable throughout the 1970s. In real terms, government consumption rose 30 percent after 1980, despite no growth in real output. That’s a considerable increase in government spending, not austerity.

"Pray For Us": Libya Issues "Cry For Help" As ISIS Advances On Oil Fields “We are helpless and not being able to do anything against this deliberate destruction to the oil installations. NOC urges all faithful and honorable people of this homeland to hurry to rescue what is left from our resources before it is too late.” That’s from Libya’s National Oil Corp and as you might have guessed, it references the seizure of state oil assets by Islamic State, whose influence in the country has grown over the past year amid the power vacuum the West created by engineering the demise of Moammar Qaddafi. The latest attacks occurred in Es Sider, a large oil port that’s been closed for at least a year.  Seven guards were killed on Monday in suicide bombings while two more lost their lives on Tuesday as ISIS attacked checkpoints some 20 miles from the port. "Es Sider and Ras Lanuf, Libya's biggest oil ports, have been closed since December 2014," Reuters notes. "They are located between the city of Sirte, which is controlled by Islamic State, and the eastern city of Benghazi." ISIS also set fire to oil tanks holding hundreds of thousands of barrels of crude. "Four tanks in Es Sider caught fire on Tuesday, and a fifth one in Ras Lanuf the day before," Ali al-Hassi, a spokesman for the the Petroleum Facilities Guard told Bloomberg over the phone. Islamic State is pushing east from Sirte in an effort to seize control of the country's oil infrastructure, much as the group has done in Syria and Iraq. As Middle East Eye wrote last summer, "the desert region to the south of the oil ports has been strategically cleared in a series of attacks by IS militants on security personnel and oil fields, where employees have been killed and kidnapped, and vehicles and equipment seized."

Fires rage at Libyan oil ports after Islamic State attacks (Reuters) – Three days of Islamic State attacks on Libya’s biggest oil terminals have started fires that have spread to five massive oil storage tanks, a guards spokesman said on Wednesday. Ali al-Hassi said the Petroleum Facilities Guards were still in control of the neighboring ports of Es Sider and Ras Lanuf, where at least nine guards were killed and more than 40 injured near the ports’ perimeters on Monday and Tuesday. Hassi said guards had recovered bodies of 30 Islamic State fighters, and had captured two military tanks and other vehicles from the militants. He also said the guards had received air support from forces loyal to the General National Congress (GNC), the government that has controlled Tripoli since its rival, which was internationally recognized, moved to Bayda in the east in 2014. Firefighters were trying to control four fires at Es Sider and one at Ras Lanuf. Two were triggered by Islamic State shelling, and three more had caught fire, Hassi said. Mohamed al-Manfi, an oil official in eastern Libya, said each of the oil tanks was estimated to contain 420,000 to 460,000 barrels of oil.

Shocking: ISIS Attacks On Libyan Oil Facilities Visible from Space -  ISIS militants in Libya continue to attack key oil infrastructure in the country.  The two large oil export terminals at Es Sider and Ras Lanuf came under ISIS attacks on January 4-6. Some oil storage tanks exploded after suffering damage from machine gun fire. NASA just published some shocking photos that clearly show the smoke plumes from the oil storage tanks are visible by satellite. The smoke blew east and northeast, blanketing Libya’s Mediterranean Coast. News reports suggest that at least five oil storage tanks are burning, each thought to have the capacity to hold 420,000 to 460,000 barrels of oil. Four of them are located at Es Sider and one at Ras Lanuf. A spokesperson for the National Oil Company in Libya said that seven storage tanks were burning. The attacks came as the oil company issued a “cry for help” on its website, calling on the Libyan people “of this homeland to hurry to rescue what is left from our resources before it is too late.” Libya’s rival governing factions have taken steps to patch up their differences, signing a UN-backed power-sharing agreement in December. The attacks from ISIS threaten to inflict lasting damage on the heart of Libya’s economy: its oil infrastructure. Take a look at the stunning NASA images below:

OilPrice Intelligence Report: Middle East Tension Won’t Rescue Oil Prices: Middle East tensions often cause a spike in oil prices, so a sudden conflict between OPEC’s first and third largest oil producer unsurprisingly affected crude on January 4. At the same time, markets tend to react first, only to come to more realistic conclusions later. For now, the conflict has no real tangible effect on oil markets – there is little chance of a supply disruption, absent a more catastrophic escalation in the conflict. As such, oil prices quickly retraced their gains on January 4, closing out the day mostly back where they started. The conflict between Saudi Arabia and Iran almost certainly won’t erupt into a direct military confrontation. Instead, the conflict could play out in the world of oil. As a result, the effect on oil prices is, if anything, negative not positive. For example, Saudi Arabia just slashed its price for oil shipments heading to Europe, the region where Iran held significant market share before 2012 sanctions forced it out. Saudi Arabia is likely trying to box out Iran as it ramps up oil exports in the coming weeks and months when sanctions are removed. Saudi Aramco announced on January 5 that it would discount oil exports to Northwest Europe by $0.60 per barrel and by $0.20 for oil destined for the Mediterranean. The market share strategy also serves to outcompete Russia for the European market. Competition for market share will push down prices as more discounted crude floods the market.

Will Mideast Allies Drag Us Into War? - Patrick Buchanan -- The New Year’s execution by Saudi Arabia of the Shiite cleric Sheikh Nimr Baqir al-Nimr was adeliberate provocation. Its first purpose: Signal the new ruthlessness and resolve of the Saudi monarchy where the power behind the throne is the octogenarian King Salman’s son, the 30-year-old Defense Minister Mohammed bin Salman. Second, crystallize, widen and deepen a national-religious divide between Sunni and Shiite, Arab and Persian, Riyadh and Tehran. Third, rupture the rapprochement between Iran and the United States and abort the Iranian nuclear deal. The provocation succeeded in its near-term goal. An Iranian mob gutted and burned the Saudi embassy, causing diplomats to flee, and Riyadh to sever diplomatic ties.  From Baghdad to Bahrain, Shiites protested the execution of a cleric who, while a severe critic of Saudi despotism and a champion of Shiite rights, was not convicted of inciting revolution or terror.  In America, the reaction has been divided.The Wall Street Journal rushed, sword in hand, to the side of the Saudi royals: “The U.S. should make clear to Iran and Russia that it will defend the Kingdom from Iranian attempts to destabilize or invade.” The Washington Post was disgusted. In an editorial, “A Reckless Regime,” it called the execution risky, ruthless and unjustified. Yet there is a lesson here. Like every regime in the Middle East, the Saudis look out for their own national interests first. And their goals here are to first force us to choose between them and Iran, and then to conscript U.S. power on their side in the coming wars of the Middle East.  Thus the Saudis went AWOL from the battle against ISIS and al-Qaida in Iraq and Syria. Yet they persuaded us to help them crush the Houthi rebels in Yemen, though the Houthis never attacked us and would have exterminated al-Qaida.  Now that a Saudi coalition has driven the Houthis back toward their northern basecamp, ISIS and al-Qaida have moved into some of the vacated terrain. What kind of victory is that — for us?  In the economic realm, also, the Saudis are doing us no favors.

Enough Already! It's Time To Send The Despicable House Of Saud To The Dustbin Of History - David Stockman - The recent column by Pat Buchanan could not be more spot on. It slices through the misbegotten assumption that Saudi Arabia is our ally and that the safety and security of the citizens of Lincoln NE, Spokane WA and Springfield MA have anything to do with the religious and political machinations of Riyadh and its conflicts with Iran and the rest of the Shiite world. Nor is this only a recent development. In fact, for more than four decades Washington’s middle eastern policy has been dead wrong and increasingly counter-productive and destructive. The crisis provoked this past weekend by the 30-year old hot-headed Saudi prince, who is son of the King and heir to the throne, only clarified what has long been true. That is, Washington’s Mideast policy is predicated on the assumption that the answer to high oil prices and energy security is deployment of the Fifth Fleet to the Persian Gulf. And that an associated alliance with one of the most corrupt, despotic, avaricious and benighted tyrannies in the modern world is the lynch pin to regional stability and US national security. Nothing could be further from the truth. The House of Saud is a scourge on mankind that would have been eliminated decades ago, save for Imperial Washington’s deplorable coddling and massive transfer of arms and political support. At the same time, the answer to high oil prices is high oil prices. Could anything not be more obvious than today when crude oil is hovering around $35 per barrel notwithstanding a near state of war in the Persian Gulf? Here’s the thing. The planet was endowed by the geologic ages with a massive trove of stored energy in the form of buried hydrocarbons; and it is showered daily by even more energy in the form of the solar, tidal and wind systems which shroud the earth. The only issue is price, the shape and slope of the supply curve and the rate at which technological progress and human ingenuity drives down the real cost of extraction and conversion.

Don’t Blame Oil for Global Chaos - WSJ: Those who see a price recovery coming soon note that expensive projects to wring oil from Arctic waters or Canadian oil sands or the deepest Gulf of Mexico are being halted. Once halted, they won’t easily be restarted, so oil in the future will be undersupplied once today’s excess inventories are burned off and producers are done eking out revenue based on capital they’ve already spent. Those who argue “lower for longer” point to U.S. shale players, whose projects have shorter-time horizons and can ramp up quickly and set a natural cap on rising prices. Oil bears also note that most of the world’s reserves are controlled by revenue-hungry governments that aren’t eager to put potentially restive oil workers out of jobs just because the price is low. Take your pick of forecasts. Just don’t make the mistake of thinking today’s rampant geopolitical instabilities are caused by depressed oil. Vladimir Putin’s economy was hitting a wall, and Russia was turning to foreign adventures to boost its leader’s domestic popularity and justify opposition crackdowns, well before the price collapse. Oil was selling for $104 a barrel when Mr. Putin annexed Crimea in March 2014. The Arab Spring, progenitor of so many soured dreams from Egypt to Libya and Syria, came during a period of high and rising oil prices. Oil didn’t drop below $100 until July 31, 2014, when the region was already in flames. If anything, geopolitical causation now runs the other way. Markets once assumed that instability, particularly in the Middle East, meant rising oil prices. Now instability means falling oil prices. Saudi Arabia, which peak oil theorists insisted was on the verge of exhausting its major fields, recently tweaked production to a record-beating 10.5 million barrels a day, low prices be damned. The motive: Riyadh’s undeclared war against Iran and Iran’s ally-of-the-moment, Russia.

China, Oil, & Markets: It's All One Story -- Ilargi --If there’s one thing to take away from this year’s developments in markets and economies so far, it’s that they are all linked, they’re all part of the same thing. If you can’t see that, you’re not going to understand what’s happening. Looking at falling oil prices as a separate thread is not much use, and neither is doing the same with Chinese stocks, or the yuan, or the millions of Americans who are one paycheck away from poverty, for that matter. It’s all one story.  And the take-away from that, in turn, is that focusing too much on ‘narrow’ conditions in your particular part of the globe has only limited value. We’re very much all in this together. In the UK today, it matters very little what George Osborne says or does, or Mark Carney, because they don’t shape the future of the economy. The same goes for all finance ministers and central bank governors across the planet, Yellen, Draghi, Koruda, the lot: the influence they exert on their own economies, which was always limited from the start, is running into the boundaries imposed by global developments. Even if central bankers could ever have ‘lifted’ anything at all (a big question mark), their power to do so is rapidly diminishing. The constraints global developments place on their powers will now be exposed -even more. And of course they’ll try to deny and ignore that, as naked emperors are wont to do. And with the exposure of the limits to their abilities to make markets and economies do what they want, come the limitations of the mainstream financial press to make their long-promoted recovery narratives appear valid. Before we know it, we might have functioning markets back.

More bad news out of China means more bad news for oil prices - Quartz: Prices for Brent crude oil, the commodity’s international benchmark, just hit a new 11-year low and is trading below $35 a barrel. West Texas Intermediate, the US benchmark, is still above its financial crisis-era low, but it’s also below $35 a barrel. This is the first time both contracts have been under $35 at the same time since 2004. The trigger today? A soft reading of services activity in China’s economy. Since China is undergoing—or at least its government is trying to encourage—a shift from a manufacturing-driven economy to one built on consumer activity, Monday’s industrial activity numbers wrecked global markets but left oil prices more or less alone. But, as CNBC reported, financial firm Markit’s purchasing manager index for services hit 50.2, signaling that things are just barely expanding, sparking further worries. A Bloomberg story in September noted that some analysts dispute the notion that Chinese oil demand is under threat, but oil industry newswire Platts just put out a report that suggests the growth of that demand is becoming less robust. The growing rift between Iran and the Arab world that threatens to engulf the crucial Strait of Hormuz has led analysts to believe it’s increasingly unlikely that major exporters in the region will be able to reach an agreement to cut production, further pressuring prices. At the same time, US crude oil stockpiles are hovering near a new record. All this means $20 oil becomes less unthinkable by the day.

Rural China Economics and Policy: China Pushes Reform, Puzzles Over Grain Glut: China's top leadership plans to push ahead with deep structural reforms of agriculture and the countryside next year, but the most pressing matter is how to deal with its huge stockpile of surplus grain. At their annual conference for rural work China's top leaders held December 24-25, 2015, President Xi Jinping and Premier Li Keqiang sent a signal to the rest of the communist party that they intend to push forward with their ambitious overhaul of the countryside. Xi celebrated the progress made during the 12th five year plan (2011-15), but he warned that agriculture and the countryside still face great difficulties. Xi exhorted officials to make rural work a key priority during the 13th five year plan, firmly pursuing concepts of "innovative, coordinated, green, open, and mutual" development while pushing forward agricultural modernization and rural reforms of all kinds. Officials hope to move more rural people into cities, consolidate farmland into modern farms, link up farmers with processing and service industries, cut back on excessive use of fertilizer and pesticide use, foster innovation, more egalitarian economic growth, greater openness to the world economy, and much more. This "new idea" about rural development is expected to be the theme of the communist party's "Number one document" for 2016.

Ford sells 1.1M vehicles in China in 2015, sets new record - Yahoo Finance: (AP) -- Ford reported record sales of about 1.1 million vehicles in China last year. The Dearborn, Michigan, automaker said Friday that its 2015 sales in the country were up 3 percent from the previous year. It also set a new monthly sales record in December, selling 124,768 vehicles. That's up 27 percent from the prior-year period. Ford Motor Co.'s passenger car joint venture, Changan Ford Automobile, broke its annual and December sales records. For 2015, the joint venture sold 836,425 vehicles. It's a 7 percent rise from 2014. It sold 96,960 vehicles in December, a 49 percent jump from the year-ago period. Demand for its new Mondeo gave a boost to Changan's annual and December sales performances, the company said. Annual sales of sport utility vehicles like the Ecosport, Kuga, Edge, Explorer and Everest rose 13 percent to 274,188 vehicles. December sales of SUVs surged 56 percent to 32,290 vehicles. Jiangling Motors Corp., Ford's commercial vehicle investment in China, reported a 6 percent decline in annual sales and a 12 percent drop in December sales.

China manufacturing continues to shrink - China’s economy started the year with more bad news as official data showed that the manufacturing sector shrank for a fifth straight month in December. That will increase pressure on the government to stimulate growth in the world’s second-biggest economy, which has been slowing as it struggles with overcapacity and a heavy debt burden after years of breakneck expansion, as well as weak global demand for its factories’ products. Global investors are watching China’s economy closely after a year in which commodity prices slumped because of lower Chinese demand and fears of a hard landing hung over markets in emerging and developed nations. The official manufacturing purchasing managers’ index for December came in at 49.7, according to figures released on Friday — slightly above November’s performance but broadly in line with economists’ expectations. A reading below 50 implies a contraction, while a reading above 50 suggests growth. China’s national bureau of statistics said that in spite of the slight improvement in the PMI, financial tensions had become “more prominent” toward the end of the year and “the downward pressure on manufacturing was still relatively big”. But the statistics agency said the services sector, which has been performing relatively well, had continued to grow last month. The non-manufacturing PMI was 54.4 in December, up from 53.6 in November and helped by strong ecommerce sales. With China poised to post its slowest annual economic growth rate in 25 years, the country’s economic planners promised more “proactive” and “flexible” fiscal and monetary policies at the conclusion of the annual Central Economic Work Conference last month.

China: Shanghai Index Halted As Shares Dive 7%: — China’s Shanghai stock index plunged nearly 7% on Monday and trading in Chinese shares was halted for the remainder of the day after weak manufacturing data and Middle East tensions weighed on Asian markets.The Shanghai Composite Index dived 6.9% to 3,296.66 on Monday, the first trading day of 2016. The index was at the lowest level in nearly three months.The official Xinhua News Agency said China halted trading on the Shanghai and Shenzhen stock markets to stop steeper falls. It was the first time China used the “circuit breaker” mechanism it announced late last year following a rout in Chinese stocks.Weak manufacturing data was behind the sell-off Monday along with Middle East tensions, which pushed up oil prices.The Caixin/Markit index of Chinese manufacturing, which is based on a survey of factory purchasing managers, fell to 48.2 in December from 48.6 the previous month, marking contraction for the 10th straight month. It was the latest sign of the headwinds facing China’s economy that add to a downbeat outlook for Asian exporters.Saudi Arabia said Sunday it is severing diplomatic relations with Iran, a development that could potentially threaten oil supply. The world’s largest oil supplier executed a prominent Shiite cleric that prompted protesters to set fire to the Saudi Embassy in Tehran and Iran’s top leader to criticize Saudi Arabia.Other stock markets in the region also started the new year on a weaker note. Japan’s Nikkei 225 tumbled more than 3% and Hong Kong’s Hang Seng retreated about 3%. South Korea’s Kospi closed 2.2% lower.

China central bank injects billions to ease liquidity strain - (Xinhua) -- China's central bank on Tuesday pumped the biggest amount of funds since September into the financial system in open market operations in an effort to ease a liquidity strain. The People's Bank of China (PBOC) conducted seven-day reverse repurchase (repo) agreements worth 130 billion yuan (20 billion U.S. dollars). In a reverse repo, the central bank purchases securities from banks with an agreement to resell them in the future. The reverse repo was priced to yield 2.25 percent, unchanged from the yield of a net injection last week of 10 billion yuan using reverse repos, according to a PBOC statement. The move aims to ease a short-term liquidity shortage, which was caused by drops in new yuan funds outstanding for foreign exchange. The most effective measure to ease liquidity would be to cut banks' reserve requirement ratio, Minsheng Securities analysts said in a report.

The Chinese devaluation threat – again - The risk of a large devaluation in the Chinese renminbi is once again spooking markets, which are firmly convinced that this as a very bad contingency for global risk assets in 2016. As last year ended, investors became more relaxed about the threat, following a series of veiled announcements from the PBoC about its currency strategy. These statements seemed to suggest that the central bank would broadly stabilise the effective exchange rate against a currency basket from now on, while allowing greater flexibility against a (possibly) rising dollar. Since the dawn of the new year, however, investors have become much more concerned that a larger devaluation may be in the works, either through the choice of the Chinese authorities, or because the outflow of private capital is getting out of hand. Some bears in the currency markets believe that China could soon be suffering from a genuine exchange rate crisis, in which its enormous foreign exchange reserves could be quickly drained. That would indeed be a severe shock to global markets, since it would effectively export the deflationary forces that are overpowering the Chinese manufacturing sector to the rest of the world, and would probably require direct measures to restore the health of the Chinese financial system. But it still seems unlikely to happen, for now at least. Why have markets recently become so nervous about a Chinese devaluation? It is largely because there is still so much uncertainty about the exact regime that the authorities are pursuing.

Yuan Movements Highlight China's Attempt to Halt 10th Month of Export Contraction; Major Currency War Coming Up? -- Chinese manufacturers see further deterioration in business conditions, down 10 consecutive months as noted in the latest Caixin China General Manufacturing PMI release.  Operating conditions faced by Chinese goods producers continued to deteriorate in December.  Adjusted for seasonal factors, the Purchasing Managers’ Index™, operating conditions in the manufacturing economy registered below the neutral 50.0 value at 48.2 in December, down from 48.6 in the previous month. Business conditions have now worsened in each of the past 10 months. That said, the latest deterioration was modest overall. Production declined for the seventh time in the past eight months, driven in part by a further fall in total new work. Data suggested that client demand was weak both at home and abroad, with new export business falling for the first time in three months in December. As a result, manufacturers continued to trim their staff numbers and reduce their purchasing activity in line with lower production requirements. Meanwhile, deflationary pressures persisted, as highlighted by further marked declines in both input costs and selling prices. Manufacturing companies continued to cut their payroll numbers at the end of 2015 and at a moderate rate. According to panelists, lower staff numbers were the result of company downsizing policies and cost-saving initiatives. Fewer employees contributed to an accumulation of outstanding work in December, with the rate of growth quickening to an eight-month high. December data signaled a further fall in average cost burdens faced by Chinese manufacturers. Moreover, the rate of reduction eased only slightly since November and remained sharp overall. Panelists that reported decreased input costs widely attributed this to lower raw material prices. Manufacturers generally passed on their cost savings to clients in the form of lower selling prices, while some companies mentioned that greater market competition had led them to cut their tariffs

"It's Coming To A Head In 2016" - Why Bank of America Thinks The Probability Of A Chinese Crisis Is 100% --  Some sobering words about China's imminent crisis, not from your friendly neighborhood doom and gloom village drunk, but from BofA's China strategist David Cui.  A case for financial instability It’s widely accepted that the best leading indicator of financial instability is rapid debt to GDP growth over a period of several years as it’s a strong sign of significant malinvestment. Based on Bank of International Settlement’s (BIS) private debt data and the financial instability episodes identified in "This time is different", a book by Reinhart & Rogoff, we estimate that once a country grows its private debt to GDP ratio by over 40% within a period of four years, there is a 90% chance that it may run into financial system trouble (Table 1). The disturbance can be in the form of banking sector re-cap (with or without a credit crunch), sharp currency devaluation, high inflation, sovereign debt default or a combination of a few of these (Table 2). As Chart 1 demonstrates, China’s private debt to GDP ratio rose by 75% between 2009 and 2014 (i.e., since the Rmb4tr stimulus), by far the highest in the world (we suspect a significant portion of the debt growth in HK went to China). At the peak speed, over four years from 2009 to 2012, the ratio in China rose by 49%.

Identifying Vectors Influencing China’s (and International) Markets  - I’ve been loath to say much about the Chinese market turmoil, due to the difficulty in getting a decent handle on what is going on via the English language media. And given the huge incentives for Chinese officialdom to engage in heavy applications of porcine maquillage, it’s not clear that one would know all that much more by reading the presumably pretty-well-controlled Chinese press.  It’s thus a bit of a relief to see a Western media outlet actually admit that analysts at a loss in reading the Chinese terrain. From Why It’s Getting Harder to Understand China, in the Wall Street Journal:The quickening pace of depreciation in the Chinese yuan spilled over into global markets this week, raising concerns about global growth. It’s exposing the increasing difficulty of getting a firm reading on the world’s second-largest economy.“The sheer size of China’s economy and financial markets make it one of the key countries to watch,” “But the economy’s opacity and China’s distorted financial system makes it incredibly difficult for investors to know exactly what to watch.” What may have investors most rattled is the impression that Chinese leaders have hit the panic button. They spend lots of foreign exchange reserves propping up the renminbi late last year so as to not derail its inclusion in the IMF’s Special Drawing Rights basket, even though the decision to include the renminbi was clearly political (as in there were key respects in which the currency did not qualify for inclusion). The Chinese central bank has let the renminbi depreciate sharply in the new year, while bizarrely trying to deny responsibility. From an earlier Wall Street Journal article, on the closure of China’s stock markets for a second day as they hit circuit-breaker limits twice, first a 5% fall, which led to a 15 minute halt, then a second fall when trading reopened, which quickly reached the 7% “no more for the day” threshhold:

China Markets Halted in 14 Minutes 17 Seconds, Chinese Equities Plunge Another 7.32% -  Chinese equities are down another 7.32% and the exchanges were halted in a record 14 minutes, 17 seconds. The Wall Street Journal comments on China’s Shocking Stock Halt. A plunge in China stocks on Thursday led to their second trading halt this week and the shortest trading day in the market’s 25-year history. The duration of trading that occurred in Chinese markets today: 14 minutes 17 seconds.  The Shanghai and Shenzhen stock markets were shuttered as “circuit breakers” installed Monday were triggered for the second time this week. The mechanism halts trading for 15 minutes if the CSI 300 index moves 5% and ends trading for the day if it moves 7%.The Shanghai composite’s this week: -11.96%. With today’s performance, this week’s decline marks the worst start to a year in Chinese trading history. The Shanghai Composite is on track for its worst week since July. With today’s performance, this week’s decline marks the worst start to a year in Chinese trading history. The Shanghai Composite is on track for its worst week since July.

RIP Chinese circuit breakers, 2016-16  *CHINA SUSPENDS STOCK CIRCUIT BREAKER RULE, CSRC SAYS ON WEIBO.  Full statements on CSRC’s website. An unedited Google translation is included after the jump. Tributes in memoriam:

    • “I may never write about Chinese stocks again,” David Keohane, FT Alphavillain.
    • “There will be economic papers,” Anon.
    • “There will be blood,” Governmental Anon.

China's Use of Derivatives to Hide Capital Flight Comes Unglued; Reserves Fall by Record Amount; "Worthless" Certificates of Confiscation -- China's foreign-exchange reserves are close to a three-year low, following the largest yearly decline ever. Capital flight is not only intense, it's accelerating so much that China has undertaken measures to hide the intensity. First, let's consider the flight. The Wall Street Journal reports China’s Forex Reserves Fall by Record $107.9 Billion on Yuan Fears. China’s hoard of foreign-exchange reserves continued to shrink in December, recording the biggest monthly drop ever and falling overall to its lowest level in nearly three years as worries intensify over the country’s economic slowdown. With the $107.9 billion drop in December, Beijing’s foreign-exchange reserves have fallen every month but one since May. The data suggest the central bank is having to spend huge amounts of dollars to support an increasingly beleaguered yuan amid decelerating economic growth and the onset of higher U.S. interest rates. December’s decline brought overall reserves to $3.33 trillion, the People’s Bank of China said Thursday. For the full year, reserves fell $512.7 billion, the largest yearly decline on record. In addition to the PBOC’s spending to support the yuan, some of December’s decrease may have stemmed from depreciating nondollar assets among the central bank’s holdings as the U.S. raised rates last month, analysts said. Higher U.S. interest rates make dollar-denominated assets more attractive to investors.

China forex reserves fall $512.66 billion in 2015, biggest drop on record | Reuters: China's foreign exchange reserves, the world's largest, posted their biggest annual drop on record in 2015, adding to worries about growing capital outflows that are dragging its yuan currency to multi-year lows and mauling global financial markets. Foreign exchange reserves fell $512.66 billion in 2015 to $3.33 trillion, central bank data showed on Thursday. They dropped $107.9 billion in December alone, the biggest monthly decline on record and more than markets had expected. Economists polled by Reuters had expected reserves to end the year at $3.40 trillion. Nearly two-thirds of the year's drop came between August and December, hinting at the scope of the central bank's attempts to stabilize the yuan after its surprise devaluation of the currency on Aug. 11 panicked markets. Global questions about China's foreign exchange policy have erupted again early in 2016, as the central bank unexpectedly set its official midpoint rate for the currency on Thursday at a near five-year low, allowing it to depreciate at a faster rate. "The sharp fall in foreign exchange reserves indicates increased pressure on capital outflows,"

How China accumulated $28 trillion in debt in such a short time - Bank of America Merrill Lynch became the most recent financial institution to start sounding scared about China's debt. While no one is panicking just yet, there sure are an increasing number of people — including analysts at UBS and Macquarie — who are talking about when it might be appropriate to consider panicking. To recap, China's total debt is about $28 trillion, larger than that of the United States or Germany. Until recently, most people have reassured themselves that Chinese debt isn't something to worry about because the economy is growing, which means it's easier to pay back as time goes by. Also, the debt is spread around in various sectors — corporate, consumer, and government — rather than in one systemically threatening toxic dump.  Now the Chinese economy is slowing. But China hasn't stopped adding more debt. About five years ago, Chinese debt levels began accelerating far faster than GDP was growing. In other words, as time goes by China adds more debt and becomes less and less able to pay it off. Nomura analysts Wendy Liu and her team just did us all a huge favour by calculating all of China's debts, over time, in these two charts. We've added some highlights to draw your attention to the most dramatic bits.

China Finds $3 Trillion Just Doesn't Pack the Punch It Used To - The U.S. measure of China's holdings of Treasuries, the China’s $3 trillion-plus in foreign currency reserves, the biggest such stockpile in the world, would seem to be a gold-plate insurance policy against the country’s current market chaos, a depreciating currency and torrent of capital leaving the country. Maybe not, say economists. First off, data point to an alarming burn rate of dollars at the People’s Bank of China. The nation’s stockpile of foreign exchange reserves plunged by $513 billion, or 13.4 percent, in 2015 to $3.33 trillion as the nation’s central bank coped with a weakening yuan and an estimated $843 billion in capital that left China between February and November, the most recent tally available according to data compiled by Bloomberg. True, trillions of dollars under the central bank’s care are thought to be invested in safe liquid securities, including Treasury bonds. The U.S. measure of China’s holdings of Treasuries, the benchmark liquid investment in dollars, stood at $1.25 trillion in October, according to the U.S. Treasury Department, which cautions that the figures may not reflect the true ownership of securities held in a custodial account in a third country. In China, like some other countries, the exact composition of China’s reserves is a state secret. But analysts worry the currency armory may not be as strong as it looks. That’s because some of the investments may not be liquid or easy to sell. Others may have suffered losses that haven’t been accounted for. In addition, some Chinese reserves may have already been committed to fund pet government projects like the Silk Road fund to build roads, ports and railroad across Asia or tens of billions in government-backed loans to countries such as Venezuela, much of which is repaid through oil shipments. Then there are other liabilities that China needs to cover, such as the nation’s foreign currency debt to finance and manage imports denominated in overseas currencies. When those factors are taken into account, some $2.8 trillion in reserves may already be spoken for.

When China Stumbles, by Paul Krugman -  So, will China’s problems cause a global crisis? The good news is that the numbers, as I read them, don’t seem big enough. The bad news is that I could be wrong...China’s economic model, which involves very high saving and very low consumption, was ... possible when China had vast reserves of underemployed rural labor. But that’s no longer true, and China now faces the tricky task of transitioning to much lower growth without stumbling into recession. A reasonable strategy would have been to buy time with credit expansion and infrastructure spending while reforming the economy in ways that put more purchasing power into families’ hands. Unfortunately, China pursued only the first half of that strategy... The result has been rapidly rising debt, much of it owed to poorly regulated “shadow banks,” and a threat of financial meltdown. As I suggested above, however, I have a hard time making the numbers for that kind of catastrophe work. Yes, China is a big economy, accounting in particular for about a quarter of world manufacturing, so what happens there has implications for all of us. And China buys more than $2 trillion worth of goods and services from the rest of the world each year. But it’s a big world, with a total gross domestic product excluding China of more than $60 trillion. Even a drastic fall in Chinese imports would be only a modest hit to world spending. All of this says that while China itself is in big trouble, the consequences for the rest of us should be manageable. But I have to admit that I’m not as relaxed about this as the above analysis says I should be. If you like, I lack the courage of my complacency.

China’s Contradictory Aims, Greater International Role Versus Domestic Economic Control, Hit Breaking Point  Yves Smith -- China’s great success as a significantly controlled economy is foundering for similar reasons to that of the last great Asian success story, Japan, which also had a model of central guidance and in many ways, even less economic integration that China has shown in recent years (Japan’s domestic market was famously impenetrable to foreigners even after the West demanded the dismantling of import barriers; Japanese consumers simply did not want and 30 years later are still suspicious of foreign goods).  Japan had financial liberalization forced on it by the US in the 1980s, which wanted the world made safe for America’s investment banks. The Chinese variant of this story is that China’s evolution from an economy with restrictions on capital flows and a controlled currency to one that is more open is deemed to be both internationally and in China a sign that China is “maturing”. But we’ve been skeptical of the conventional wisdom that leaving economies open to the free movement of capital is all that it is cracked up to be. This view was confirmed by an important 2011m paper, Global imbalances and the financial crisis: Link or no link?, by Claudio Borio and Piti Disyatat of the Bank of International Settlements, which ascertained that America’s capital flows were a stunning 61 times greater than trade flows, and argued that a major driver of the crisis was excessive financial elasticity. Similarly, in their study of 800 years of financial crises, Carmen Reinhart and Kenneth Rogoff found that higher levels of international capital flows were strongly correlated with more frequent and severe financial crises.

Stunning Photos From China's Creepiest Modern Ghost Town -- Welcome to the most ironically-named city in China. A would-be utopia, rapidly constructed for a population of one million (that failed to materialize), the futuristic city of Ordos, which takes its name from ordo, the Mongolian word for crowd and the root for the English word 'horde', has been almost totally abandoned. The stunning landscape left behind in the following images is both disturbing and confirming of China's epic mal-investment boom...

Winter comes to China shipyards facing near-record maturing debt, Transport - China's shipyards and shipping firms face a year of near-record bond repayments, stoking speculation debt failures will spread as the economy slows. The companies must repay 50.3 billion yuan (S$10.9 billion) of notes this year, the second highest ever after an unprecedented 54 billion yuan in 2015, data compiled by Bloomberg show. Sainty Marine Corp, the biggest shipyard in Jiangsu province, said on Dec 23 it had 542.9 million yuan of overdue borrowings. Zhoushan Wuzhou Ship Repairing & Building Co in December became the first state-owned shipbuilder to go bankrupt in a decade, according to Minsheng Securities Co. "Winter has come to the whole Chinese shipbuilding industry," said Xiang Feiyan, a bond analyst at Zhong Tai Securities Co in Shanghai. "Default risks for smaller shipbuilders are high while they are struggling with the slumping economy and the government's curb on overcapacity." Premier Li Keqiang is allowing mergers and acquisitions to consolidate the industry as he seeks to boost international competitiveness. Regional peers are also struggling as the weakest Chinese economy in a quarter century curbs demand, with Korean authorities calling for asset sales after operating losses mounted at the world's three biggest shipyards.

Wave of bankruptcies predicted among Chinese dry bulk owners -  A report just out from state-backed Shanghai International Shipping Institute (SISI) warns of a likely wave of bankruptcies among China’s dry bulk shipowners. SISI stated that more than 60% of the 50 dry bulk shipping firms it surveyed were struggling with long-term losses, while approximately 40% faced liquidity problems. “The market is extremely depressed and these conditions are likely to continue in 2016, exacerbating dry bulk firms’ losses, increasing costs and creating obstacles to obtaining financing. This will kick-start a wave of bankruptcies,” SISI said in a report published yesterday, the day the Baltic Dry Index hit another record low, closing at 468 points. SISI said that more than 60% of the survey respondents did not expect the BDI to climb above 800 points this year. SISI’s survey follows on from the Future of Shipping Poll being carried on this site since late December. The poll, which closes next month, has already attracted more than 400 votes – 69% of whom believe that 2016 will see a peak in shipping bankruptcies. The survey closes in just over one month’s time. There is no registration and the nine questions can be answered in under two minutes, although we always appreciate anonymous comments by any topic that particularly piques your interest. Results of the survey will be carried in the next issue of Maritime CEO magazine.

China rail freight down 10.5 pct in 2015, biggest annual fall-Caixin -  The total volume of goods transported by China's national railway dropped by a tenth last year, its biggest ever annual decline, business magazine Caixin reported on Tuesday, a figure likely to fan concerns over how sharply the economy is really slowing. Citing sources from railway operator National Railway Administration, Caixin said rail freight volumes declined 10.5 percent year-on-year to 3.4 billion tonnes in 2015. In comparison, volumes fell 4.7 percent in 2014. The amount of cargo moved by railways around China is seen as an indicator of domestic economic activity. The country's top economic planner said last month that November rail freight volumes fell 15.6 percent from a year earlier. Weighed down by weak demand at home and abroad, factory overcapacity and cooling investment, China is expected to post its weakest economic growth in 25 years in 2015, with growth seen cooling to around 7 percent from 7.3 percent in 2014. But some China watchers believe real economic growth is already much weaker than official data suggest, pointing to falling freight volumes and weak electricity consumption among other measures. Power consumption in November inched up only 0.6 percent from a year earlier. A private survey published on Monday showed that the factory activity contracted for the 10th straight month in December and at a sharper pace than in November, suggesting a continued gradual loss of momentum in the world's second-largest economy.

China Set To Establish No-Fly Zone Over Islands After Successful Test Flight - When last we checked in on the dispute over Beijing’s land reclamation efforts in the South China Sea, several dozen protesters from the Philippines were camped out on Pagasa island in a demonstration aimed at raising awareness of what they say is an illegal occupation of the Spratlys. To let China tell it, it’s the other way around. That is, the Filipino troop presence in the archipelago represents an illegal occupation of territory that belongs to Beijing and China would be well within its rights to forcibly expel the occupying army. The entire dispute centers around China’s construction of some 3,000 acres of new sovereign territory atop reefs in disputed waters. Although other countries have undertaken similar efforts, Beijing’s project is by far the most ambitious and Washington’s regional allies fear China is attempting to build what amount to a series of forward military operating bases in the Spratlys. The argument over the new islands reached a crescendo in October when the US sent a warship to the region in what Washington called a "freedom of navigation" exercise but what was, in reality, a show of force. For those unfamiliar with the history here, the alarm bells didn’t start ringing in earnest until April, when satellite images showed China was building a runway on Fiery Cross reef. The 10,000 foot airstrip is long enough to accommodate fighter jets and surveillance aircraft and has been variously described as “a game changer” and an effort to “vastly expand China’s zone of competition with the US.” Here's a look at the runway in question when it was one-third complete: On Saturday, Beijing tested the runway for the first time, a move which drew sharp criticism from the islands various claimants. Vietnam, for instance, has filed a formal diplomatic complaint. "China's first landing of a plane on one of its new island runways in the South China Sea shows Beijing's facilities in the disputed region are being completed on schedule and military flights will inevitably follow," Reuters writes, adding that "China's increasing military presence in the disputed sea could effectively lead to a Beijing-controlled air defence zone, ratcheting up tensions with other claimants and with the United States in one of the world's most volatile areas."

China Devalues Currency Most Since August, Offshore Yuan Crashes 5 Handles, Dow Futures Tumble -- Following the collapse of offshore Yuan to 5 year lows and decompression to record spreads to onshore Yuan, The PBOC has stepped in and dramatically devalued the Yuan fix by 0.5% to 6.5646. This is the biggest devaluation since the August collapse. Offshore Yuan has erased what modest bounce gains it achieved intraday and is heading significantly lower once again. Dow futures are down 100 points on the news.PBOC fixes Yuan at its weakest since March 2011... with the biggest devaluation since August.  And Offshore Yuan collapses... This all has a worrisome sense of deja vu all over again... We have seen this pattern of money flow chaos before... Outflows surge from China, send liquidity needs spiking, which bleeds over into Saudi stress (petrodollar?), causing unwinds in major equity markets (thanks to deleveraging of carry trades) in China and then US stocks...

Is China sparking a global currency war? - When China moves to lower the value of the yuan, others in the developing world follow suit. China's currency moves also come at a critical time for the yuan: it was recently placed into the IMF's group of elite global currencies. Chinese officials may not be starting a currency war, some experts argue. After all, they're allowing market forces to have greater influence over the yuan now. But the snowball effect of a sinking currency is picking up momentum. The yuan is down 6% against the dollar from a year ago. China's central bank moved it even lower on Thursday since its surprising devaluation in August. The concern is that it will force other countries to devalue their currencies in a tit-for-tat fashion.   Indonesia and Thailand's currencies have fallen 9% and 10% respectively over the past year. Vietnam and Taiwan's currencies too have declined 4% and 6%.By devaluing its currency, China gains an advantage in global trade. Its exports become cheaper, and more attractive, to foreign buyers. To stay competitive against China, its trade partners -- mostly in Asia -- devalue as well to maintain a cheaper currency.  "Emerging markets will react negatively,"   They "have to remain competitive."  Global currency losses are also a sign of a much bigger picture. Many emerging market countries rely on exporting commodities like oil, copper and soybeans to fuel their economic growth. But commodity prices have plunged in the past year, hurting growth. At the same time, the strong dollar and rate hikes from the Federal Reserve make borrowing money abroad more expensive. And experts say it's those forces -- not necessarily the China's central bank -- that are moving the yuan lower.  In fact, China's central bank has in fact spent a ton of money propping up the yuan. It spent $500 billion last year to keep it from devaluing further.

It's Official: Bitcoin Was The Top Performing Currency Of 2015 - For most investors, the major story of 2015 was the expectation and eventual fulfillment of a rate hike, signalling the start of tightening monetary policy in the United States. This policy is divergent to those of other major central banks, and this has translated into considerable strength and momentum for the U.S. dollar. Using the benchmark of the U.S. Dollar Index, a comparison against a basket of major currencies, the dollar gained 8.3% throughout the year. Despite this strength, the best performing currency in 2015 was not the dollar. In fact, the top currency of 2015 is likely to be considered the furthest thing from the greenback. Bitcoin, a digital and decentralized cryptocurrency, staged a late comeback in 2015 to >overtake the dollar by a whopping 35% by the end of the year.

China, euro zone and U.S. manufacturing suggest global economy still fragile - The global economy finished last year on a fragile footing, with factory activity in China shrinking for the 10th month running in December, while euro zone manufacturing picked up but U.S. activity slowed. Coming on a day of volatility in Asian stock markets after China's central bank fixed the yuan at a 4-1/2 year low, the data point to sluggish economic growth and inflation globally to start the new year. Mainland Chinese shares sank over 7.0 percent on the lower yuan fixing and shrinking factory activity. European stock markets fell too, though the declines were less sharp as investors took note of the brighter data from the euro zone.   The Caixin/Markit China Manufacturing Purchasing Managers' Index (PMI) slipped to 48.2, below a Reuters poll consensus of 49.0 and down from 48.6 in November. That was the lowest since September and well below the 50-point level that separates contraction from expansion. It followed a fractional increase in the official PMI to 49.7. The PMIs in South Korea and Taiwan edged above the 50 mark, though more thanks to a pick-up in domestic demand than any revival in exports. Manufacturing activity in the euro zone area improved last month in all the countries covered by the business survey from private data vendor Markit, suggesting factories performed better over last year as a whole compared to the previous three. Markit's final manufacturing Purchasing Managers' Index (PMI) rose to a 20-month high of 53.2, just above a flash reading of 53.1 and of 52.8 in November. The PMIs suggest a pickup in activity, but in most countries still a mild pace of growth.

Factory figures make for grim reading as global stock markets fall - Figures from China showing that factory output contracted for a 10th straight month in December pointed to a continuation of 2015’s global economic slowdown and the likelihood of worse to come.Separate figures revealed India suffered a shock fall in manufacturing output in the month before Christmas. To cap it all, factory figures from the US showed that the world’s largest economy can catch a cold when China sneezes. Far from being immune, US factories reported declines in new orders and, without an upturn in sight, large scale layoffs. Investors, spooked by the rash of bad news, raced towards safe havens to stash their money. Gold prices jumped and the Swedish krona, long considered a safe currency, soared to new highs before the country’s central bank threatened to intervene to prevent a further appreciation. Stock markets, including Tokyo, New York and London, tumbled. Oil prices, which have slumped in recent months to an 11-year low, were caught in the Saudi Arabia-Iran row, with buyers first sniffing a war that would limit supplies, sending prices higher, before deciding that Saudi Arabia, the world’s largest producer, would want to keep pumping the black stuff to maintain low prices to hurt Iran’s oil revenues.

Malaysia the only country with opt-out clause in TPPA, says economist - Malaysia is the only country to be granted an opt-out clause in a side letter to the Trans-Pacific Partnership Agreement (TPPA), Asian Development Bank lead economist Jayant Menon said. "This actually allows Malaysia to withdraw from the TPPA without even trying to rectify it in Parliament. No other member country can do that. "How Malaysia was able to secure this, I don’t know. But I think International Trade and Industry Minister Datuk Seri Mustapa Mohamed is a great negotiator," he added, at the Asean Economic Forum today. He said the TPPA had been labelled a gold standard agreement, but now that the negotiated text is available, it was significantly watered down to secure compromises. "Malaysia has been perhaps the most successful in securing exemptions in many sensitive areas, including things like government procurement, reform of state enterprises or government-linked companies and protection in certain areas of intellectual property reforms. "With so many exemptions, probably it is not a big deal for Malaysia to go through with the TPP after all," he said. However, Jayant added that the TPP itself might not become a reality if it didn't get through the US congress. "There is no guarantee that it will. The Republicans have to be supported in large numbers as the Democrats are already opposed to it. "Politics is playing a bigger role now. There is no guarantee that the TPPA will simply pass through Congress. We just to have to wait and see," he said. Jayant was speaking as a panel member at the forum on the evolving regional trade architecture and market reaction towards it. –

India weighs fiscal stimulus in new budget despite fast economic growth | Reuters: India claims to be the world's fastest-growing major economy, yet the government might break its budget deficit targets to stimulate demand, potentially undermining the central bank's fight against inflation. Statistically, Asia's third-largest economy is outpacing China with above 7 percent annual growth. But Prime Minister Narendra Modi's economic advisers are complaining of a sharp slowdown that threatens their budget calculations. In February, Finance Minister Arun Jaitley will present the budget for the fiscal year starting April 1. A senior official said the minister has been advised to increase its fiscal deficit target to 3.7 or 3.9 percent of gross domestic product (GDP) from 3.5 percent. There is also a proposal to delay, by one year, a goal of lowering the fiscal deficit to 3 percent in 2017/2018, the official said. "The economy is still suffering from slack demand," said the finance ministry official. "It needs a conducive fiscal and monetary policy." But Shaktikanta Das, the ministry's economic affairs secretary, said the government has yet to decide on relaxing the deficit targets. Running a higher deficit could antagonise the RBI, which is counting on Jaitley's pledge of tight fiscal policy to keep inflation to 5 percent by March 2017.

'India to Post Fastest Growth over 10 Years' : A United States research center says that India will post the fastest growth in the world over the next decade. The Center for International Development (CID) at Harvard University said in its recent report that India will mark an annual growth rate of seven percent on average through 2024, the largest among 124 countries surveyed. East African countries ranked higher, as Uganda and Kenya were projected to grow six-point-04 percent and six percent each on average during the cited period. South Korea was forecast to grow three-point-72 percent on average. CID Director Ricardo Hausman added that India is expected to see an increase in income as it improved its production capacity and diversified export items to include sophisticated products such as medicine and cars.

India’s exports may dip by 13% to $270 billion in 2015-16 -  India's exports are expected to decline about 13 per cent to $270 billion in the current financial year due to global demand slowdown and fall in crude oil prices, a top official said on Thursday. The country's merchandise exports had aggregated $310.5 billion last fiscal. According to an official, commerce secretary Rita Teaotia in her presentation during an interaction with the industry chambers including CII and Ficci stated that it would be difficult for India's exports to exceed $270 billion. In 2008-09, the country's outbound shipments were less than $270 billion, according to exporters body Federation of Indian Export Organizations (FIEO). It was around $210 billion in 2008-09. Teaotia has also stated that imports during the fiscal would stand around $390 billion. So the trade deficit would aggregate at $120-125 billion in 2015-16. During April-November this fiscal, exports declined by 18.46 per cent to $174.3 billion. Imports were $261.8 billion and trade deficit was $87.5 billion.

A "Perfect Storm Is Coming" Deutsche Warns As Baltic Dry Falls To New Record Low -- Following disappointing China PMI data and a collapse in US ISM Manufacturing imports data, the fact that The Baltic Dry Index has collapsed to fresh record lows will hardly be a surprise to many. However,as Deutsche Bank warns, a "perfect storm" is brewing in the dry bulk industry, as year-end improvements in rates failed to materialize, which indicates a looming surge in bankruptcies. At 468, The Baltic Dry Index is now at a new record low... And US Manufacturing imports suggest things are getting worse, not better... Which leads Deutsche Bank to warn of...A Perfect Storm Brewing The improvement in dry bulk rates we expected into year-end has not materialized. And based on conversations we've had with several industry contacts, we believe a number of dry bulk companies are contemplating asset sales to raise liquidity, lower daily cash burn, and reduce capital commitments. The glut of "for sale" tonnage has negative implications for asset and equity values. More critically, it can easily lead to breaches in loan-to-value covenants at many dry bulk companies, shortening the cash runway and likely necessitating additional dilutive actions. Dry bulk companies generally have enough cash for the next 1yr or so, but most are not well positioned for another leg down in asset values The majority of publically listed dry bulk companies have already taken painful measures to adapt to the market- some have filed Chapter 11, others have issued equity at deep discounts, and most have tried to delay/defer/cancel newbuilding deliveries. The additional cushion, however, is likely not enough if asset values take another leg down; especially given the majority of publically listed dry bulk companies are already near max allowable LTV levels. The move to sell assets in unison can lead to a downward spiral, where the decline in values leads to an immediate need for additional equity to cure LTV breaches.

World Bank issues 'perfect storm' warning for 2016 -- The risk of the global economy being battered by a “perfect storm” in 2016 has been highlighted by the World Bank in a flagship report that warns that a synchronised slowdown in the biggest emerging markets could be intensified by a fresh bout of financial turmoil. The Bank said the possibility that Brazil, Russia, India, China and South Africa – the so-called Brics economies – could all face problems simultaneously would put in jeopardy the chances of a pick-up in growth in the coming year. It added that the impact would be heightened by severe financial market stress of the sort triggered in 2013 by the announcement by the Federal Reserve that it was considering reducing the stimulus it was then providing to the US economy. Launching its annual Global Economic Prospects, the Bank said activity in 2015 had failed to live up to its expectations – the fifth year in a row that growth has undershot the forecasts made by the Washington-based institution, which lends to the world’s poorest countries. The Bank said growth had slowed to 2.4% in 2015, from 2.6% in 2014, but added that a stronger performance in developed countries should lead to 2.9% growth this year. “Downside risks dominate and have become increasingly centred on emerging and developing countries,” it said. The Bank is predicting that recessions in Brazil and Russia will bottom out in 2016, that China will experience only a modest growth slowdown from 6.9% to 6.7% and that India will continue to expand at a robust pace.

Fears mount over rise of sovereign-backed corporate debt - More than $800bn of emerging market sovereign debt is being camouflaged by the growing use of bonds that offer implicit state backing without always appearing on government balance sheets, according to new research. The stock of so-called quasi-sovereign bonds issued in dollars and other hard currencies by emerging markets has risen sharply in the past 12 months to overtake that of all external emerging market sovereign debt by the end of 2015. The growing use of such bonds suggests that developing countries are increasingly transferring debt obligations to third parties that have taken advantage of historically low interest rates to load up with cheap debt. Emerging markets are already under strain as the US dollar strengthens against the renminbi and other emerging market currencies, making the cost of servicing debt denominated in dollars harder to bear. Although official debt-to-GDP levels of countries such as India, Russia and China remain low by global standards, the growth of less visible debt which they might still have to guarantee in a crisis underlines the potential scale of their liabilities. “This has been a source of worry for some time, in part because it does not always appear on government balance sheets.” . “Emerging markets have benefited from interest rates at historic low levels and commodity prices at historic highs,” he said: “In the last year both of these have begun to unwind. If the resulting strains on a country compel a sovereign debt rearrangement of some kind, these contingent liabilities of the sovereign will need to be addressed.” New figures from JPMorgan and Bond Radar show that issuance of quasi-sovereign bonds outpaced that of sovereign bonds in emerging markets last year, raising the stock of such debt from $710bn in 2014 to a record $839bn by the end of 2015. By comparison, the stock of all external emerging market sovereign debt stood at $750bn at the end of last year, according to JPMorgan.

Another Slow Year for the Global Economy -- Last April, the International Monetary Fund projected that the world economy would grow by 3.5% in 2015. In the ensuing months, that forecast was steadily whittled down, reaching 3.1% in October. But the IMF continues to insist – as it has, with almost banal predictability, for the last seven years – that next year will be better. But it is almost certainly wrong yet again.  For starters, world trade is growing at an anemic annual rate of 2%, compared to 8% from 2003 to 2007. Whereas trade growth during those heady years far exceeded that of world GDP, which averaged 4.5%, lately, trade and GDP growth rates have been about the same. Even if GDP growth outstrips growth in trade this year, it will likely amount to no more than 2.7%.  The question is why. According to Christina and David Romer of the University of California, Berkeley, the aftershocks of modern financial crises – that is, since World War II – fade after 2-3 years. The Harvard economists Carmen Reinhart and Kenneth Rogoff say that it takes five years for a country to dig itself out of a financial crisis. And, indeed, the financial dislocations of 2007-2008 have largely receded. So what accounts for the sluggish economic recovery?

Global Food Export Prices Fell Dramatically in 2015 -- The dramatic decrease in the FAO food price index is worth noting. It has steadily been falling for four years. Some of this is attributed to the strength of the dollar, but it also reflects the world's growing ability to produce food, as well as deflationary forces and low oil prices.  The FAO Food Price Index is a measure of the monthly change in international prices of a basket of food commodities. It consists of the average of five commodity group price indices, weighted with the average export shares of each of the groups for 2002-2004 that are sugar, meat, cereals, dairy, and vegetable oils.

  • the FAO food price index fell 19 percent in 2015
  • the index dropped one percent in December
  • 2015 was the fourth year in a row that the index dropped
  • the cereal price decreased 15.4 percent in 2015
  • the vegetable oil index decreased 19 percent in 2015 and reached a nine year low
  • the dairy index went down 28.5 percent in 2015
  • the meat price index went down 15 percent, setting a record
  • the sugar index was 20 percent lower in 2015 than it was

2015′s ‘Commodity Catastrophe’ Was Unprecedented - -  Last year will go down as one of the worst ever for commodities. Here’s another worry for 2016: stocks and commodities are moving more closely in tandem, which erodes the benefits of diversification. The total return of the S&P GSCI Index, which tracks a broad basket of futures contracts on commodities from wheat and cocoa to gold and silver, lost 32.9% in 2015, the fourth-largest annual loss since the inception of the index in 1970, says the index’s provider Buying dips hasn’t helped in recent years. The S&P GSCI Index just suffered its third annual decline in a row, a three-peat that’s unprecedented in the 45-year history of the index, according to Jodie Gunzberg, global head of commodities at S&P Dow Jones Indices. And it wasn’t just oil and gold prices, though these two captured most of the headlines: Some 22 of the 24 commodities in the index suffered declines last year — gas oil, heating oil, wheat, nickel, copper, zinc, and coffee were among those that fell more than 20% in 2015.  “Not only did every sector lose, but they all posted double-digit losses. Agriculture (-16.9%), Energy (-41.5%), Industrial Metals (-24.5%), Livestock (-18.3%) and Precious Metals (-11.1%). Over the past three years, their losses have been significant with about 2/3 shaved off energy, 40% each in metals and agriculture, and 10% off of livestock.”

What Comes After The Commodities Bust? -- The days of E&P companies using external debt financing to fuel growth have most likely come to a close. The one thing executives should have learned in 2015 is that Wall Street can for long periods of time remain disconnected from fundamentals and can swing to extremes. Another lesson from 2015 is that OPEC can no longer be relied upon to set prices. Thus, the debt fueled financing boom in the shale space will most likely never return. As a result, the industry will likely move to self-funding capital expenditures through free cash flow generation in an attempt to significantly reduce its reliance on leverage. Debt levels will initially have to be reduced, significantly fueling a cycle of dramatically lower capital expenditures and consolidation. This process is already underway, but still has a long way to go. When the internet bubble burst in 2001, only the business models that generated cash vs subscriber growth and cash burn survived and continued to get funded. Furthermore, larger companies survived and thrived as the smaller ones got starved for cash, died or dramatically scaled back subscriber acquisition to achieve a positive cash flow. We are about to experience the same consequences of misguided investments from a Federal Reserve-inspired bubble. The toxic combination of lower capital expenditures and constrained output will result in another spike in prices, one that few will anticipate. The current Federal Reserve policy, which isn’t conducive to higher commodity prices, will also make the price spike more difficult to see ahead of time. However, in the interim, until policy changes at the Fed or OPEC are enacted, prices will remain below the marginal cost to maintain production.

Supermines Add to Supply Glut of Metals - WSJ: In this volcanic desert, a dusty moonscape patrolled by bats, snakes and guanacos, America’s biggest miner is piling on to the new force in industrial resources: supermines. It’s a strategy that could be driving miners into the ground. Freeport-McMoRan is completing a yearslong $4.6 billion expansion that will triple production at its Cerro Verde copper mine, turning a once-tiny, unprofitable state mine into one of the world’s top five copper producers. As Cerro Verde’s towering concrete concentrators grind out copper to be made into pipes and wires in Asia, it will add to production coming from newly built giant mines around the world, in a wave of supply that is compounding the woes of the depressed mining sector. Slowing growth in China and other emerging markets has dragged metals prices into a deep downturn, just a few years after mining companies and their investors bet billions on a so-called supercycle, the seemingly never-ending growth in demand for commodities. Back then, miners awash in cheap money set out to build the biggest mines in history, extracting iron ore in Australia, Brazil and West Africa, and copper from Chile, Peru, Indonesia, Arizona, Mongolia and the Democratic Republic of Congo. They also expanded production of minerals such as zinc, nickel and bauxite, which is mined to make aluminum.

Copper Futures Crash Below $2 For First Time Since 2009 -- Dr. Copper is sick. For the first time since May 2009, Copper futures prices traded with a $1 handle this morning ($1.99) as Nomura analysts warn the commodity is likely to see more downside risk over the medium term as the market is expected to remain in surplus through the end of the decade. As Bloomberg adds, Nomura's Patrick Jones warns: Copper demand could see 2m-3m mt/yr “demand destruction” led by substitution of the metal by using aluminum and other materials. Expects substitution in autos, air conditioning, power distribution cabling rising over next several yrs Despite RBC noting yesterday, copper price should now be reasonably well supported at $2.08/lb vs historic cost support at 90th percentile of cash cost curve (at $1.98/lb), though if market remains in surplus, further downside risk exists

Infinite growth in a finite world? Hopium economics has given us deeply-in-debt individuals, businesses and nations -Economic growth is a central assumption to political and economic systems. It is the mechanism relied upon for improving living standards, reducing poverty to now solving the problems of over indebted individuals, businesses and nations. All brands of politics and economics assume sustainable, strong economic growth, combined with the belief that governments and central bankers can control the economy to bring this about.But strong growth is not normal, being a recent phenomenon over the last two centuries. Economic activity and the wealth created have increasingly relied on borrowed money and speculation. It was based upon the profligate use of mispriced natural resources such as oil, water and soil. It relied on allowing unsustainable degradation of the environment.The human race refuses to accept that it is not possible to have infinite growth and improvement in living standards in a finite world. As author Edward Abbey warned, “Growth for the sake of growth is the ideology of a cancer cell.” Central to the problem is the level of indebtedness. Debt accelerates consumption, as borrowed funds are used to purchase something today against the promise of paying back the money in the future. Spending that would have taken place normally over a period of years is squeezed into a relatively short period because of the availability of cheap borrowing. Business overinvests misreading demand, assuming that the exaggerated growth will continue indefinitely, increasing real asset prices and building significant overcapacity. Around 85% of the debt incurred over the last 30-35 years funded the purchase of existing assets or consumption rather than being used for creating new businesses or productive purposes which build wealth.

Angola's Currency Collapses To Record Low As "Hyperinflation Monster" Looms Over Africa - Just two weeks ago we warned of the looming "hyperinflation monster" in Africa with the continent appearing to be running out of dollars as some of Africa’s largest economies, including Nigeria, Angola, Ethiopia and Mozambique, are restricting access to the greenback to protect dwindling reserves. Specifically we warned of Angola's already-soaring inflationhampering its ability to 'adjust' its currency towards its black market 'reality'. But that did not stop the central bank devaluing Kwanza by 15% over the weekend - the most since 2001 - to record lows as crude prices crush their economy. Here's what we said two weeks ago: to be sure, African central banks have a simple way out: stop defending their currencies, and let the market determine the fair value. The problem with this approach is that it promptly leads to an immedate devaluation of the currency, and without fail, hyperinflation and social unrest. The latter is not an option for many African countries where inflation is already running red-hot in the double digits.Angola, which is Africa’s second-biggest oil producer after Nigeria, has also been using its dollars to prop up its currency, the kwanza. Its central bank says it plans to stay on that course. “If we devalue, it will have a huge impact on inflation because most of our food is imported,” said Gualberto Lima Campos, deputy governor for the Central Bank of Angola. The country has a 14% annual rate of inflation. And now, it seems Angola is willing to face the hyperinflation and social unrest as it devalues the Kwanza to record lows. As Bloomberg notes, the central bank, known as the BNA, started managing foreign-exchange sales by commercial lenders to businesses in November as a response to the limited supplies of U.S. currency.

Why Emerging Markets Are Melting Down, and Why It Matters, in 10 Charts -  Emerging markets face one of their most challenging years since the financial crisis. Here’s why, and why it matters, in 10 charts.  Economists, including at the International Monetary Fund and the World Bank, have had to slash their forecasts for emerging markets over the last several years.  Some countries have faced bigger downgrades than others, for example, Russia, Brazil and China.  Old estimates assumed growth rates based on much stronger commodity prices. And economists assumed much higher productivity. But oil, metals and other commodity prices have plummeted. Crude oil prices have lost roughly 65% of their value over the last 18 months:  And governments didn’t take advantage of the good times and cheap debt to overhaul their economies in ways that would make them more competitive and boost their capacity to grow. Growth from efficiency gains, called “total factor productivity,” is shrinking in emerging markets:  Part of the problem is that the labor force isn’t growing as quickly, or in China’s case, is shrinking. Beijing’s one-child policy, for example, means there’s a wave of older workers retiring with not enough younger workers to replace them. Other emerging markets are also aging fast. Besides building major unfunded welfare liabilities over the long term, it also crimps growth potential in the medium term. Like rich countries, developing nations face a dwindling labor force: One of the biggest problems is debt. Emerging markets gorged on cheap debt amid the easy-money era. Now they are facing the consequences. At nearly 200% of GDP, emerging market debt is hitting record levels:

Pillaging the World. The History and Politics of the IMF -  No other financial organization has affected the lives of the majority of the world’s population more profoundly over the past fifty years than the International Monetary Fund (IMF). Since its inception after World War II, it has expanded its sphere of influence to the remotest corners of the earth. Its membership currently includes 188 countries on five continents. For decades, the IMF has been active mainly in Africa, Asia and South America. There is hardly a country on these continents where its policies have not been carried out in close cooperation with the respective national governments. When the global financial crisis broke out in 2007, the IMF turned its attention to northern Europe. Since the onset of the Euro crisis in 2009, its primary focus has shifted to southern Europe. Officially, the IMF’s main task consists in stabilizing the global financial system and helping out troubled countries in times of crisis. In reality, its operations are more reminiscent of warring armies. Wherever it intervenes, it undermines the sovereignty of states by forcing them to implement measures that are rejected by the majority of the population, thus leaving behind a broad trail of economic and social devastation.

2016 Rio Olympics - Track stadium goes dark due to unpaid bills: -- The track and field stadium for this year's Rio de Janeiro Olympics was without power Monday with the city hall and Rio soccer club Botafogo blaming each other for unpaid utility bills. In a statement to The Associated Press, the city hall said Botafogo has been responsible for the utility bills since May 2015. But the club told the AP in a statement that the city government owed it money to pay water and electricity bills. "We have to find out who is responsible for the debt," the club said. The Brazilian website Globo Esporte, which is connected to the newspaper O Globo, said the unpaid bills totaled 1 million reals ($250,000). It reported electricity has been off since last week and said water was cut more than a month ago. The website said two months of payments were in arrears.

Brazil heads for worst recession since 1901, economists forecast -  Brazil’s economy will contract more than previously forecast and is heading for the deepest recession since at least 1901 as economic activity and confidence sink amid a political crisis, a survey of analysts showed. Latin America’s largest economy will shrink 2.95 percent this year, according to the weekly central bank poll of about 100 economists, versus a prior estimate of a 2.81 percent contraction. Analysts lowered their 2016 growth forecast for 13 straight weeks and estimate the economy contracted 3.71 percent last year. Brazil’s policy makers are struggling to control the fastest inflation in 12 years without further hamstringing a weak economy. Finance Minister Nelson Barbosa, who took the job in December, has faced renewed pressure to moderate austerity proposals aimed at bolstering public accounts and avoiding further credit downgrades. Impeachment proceedings and an expanding corruption scandal have also been hindering approval of economic policies in Congress. “We’re now taking into account a very depressed scenario,” Flavio Serrano, senior economist at Haitong in Sao Paulo, said by phone. Central bank director Altamir Lopes said on Dec. 23 the institution will adopt necessary policies to bring inflation to its 4.5 percent target in 2017. Less than a week later, the head of President Dilma Rousseff’s Workers’ Party, Rui Falcao, said Brazil should refrain from cutting investments and consider raising its inflation target to avoid higher borrowing costs. Consumer confidence as measured by the Getulio Vargas Foundation in December reached a record low. Business confidence as measured by the National Industry Confederation fell throughout most of last year, rebounding slightly from a record low in October.

Canada, loonie lose footing in global economy - A decade ago, Canada set out to become an energy superpower. Now, it enters 2016 riding down one of the world’s most battered petro-currencies. When the clock struck midnight on Dec. 31, the loonie, so- called for the bird engraved on the dollar coin, officially recorded its longest and deepest downturn since it became a floating currency in 1970. And there’s no relief in sight.  The loonie’s 16 percent decline against the U.S. dollar over the past year marks its third straight annual decline. The currency has lost more than a quarter of its value since 2012, falling to 72.27 U.S. cents from $1.01. That’s almost a penny a month. In the 45 years since Canada ended its currency peg to its largest trading partner – a period spanning two votes on Quebec separation, a full-blown fiscal crisis, a previous Saudi- engineered oil price rout and several recessions far worse than the shallow contraction early last year – no dollar depreciation has been this bad for this long. Canada, the envy of the world for weathering the 2008-09 global financial crisis better than almost any other developed country, has suddenly lost its footing in the global economy. The high oil prices and increased oil sands production that fueled growth for a decade look unlikely to return soon, prompting an unusual level of soul-searching about just what kind of economy the country has built.

Alberta’s debt-to-GDP ratio set to skyrocket, warns Fraser Institute -- Alberta is the only province in Canada with financial assets greater than government liabilities but its debt-to-GDP ratio is set to skyrocket, says a new report from the Fraser Institute. Every Canadian government, except Saskatchewan, is expected to see an increase in its debt-to-GDP ratio from 2007-08 to 2015-16, but Alberta is expected to have the largest percentage increase, climbing 92.6 per cent, says the study released by the conservative think-tank Tuesday. Each Albertan will still be in the black by $808, based on net provincial debt per person, according to projections. The study — The Cost of Government Debt in Canada, 2016 — says Alberta is unique in being the only jurisdiction in Canada in a net financial asset position, where the value of financial assets exceeds government liabilities. “However, since 2007-08, the province has been sliding towards a net debt position, where debt will exceed financial assets,” the study warns.

Canada PMI Crashes Into Contraction - Canada's Ivey Purchasing Managers Index collapsed from an exuberant and simply unbelievable 63.6 in November to a contractionary 49.9 in December - one of the biggest MoM drops on record and biggest misses on record. On a seasonally-unadjusted basis, this is the weakest print in at least 2 years. From the best data since February 2012 to the worst since February 2015 seems to expose these soft-surveys as practically useless. The huge drop in Inventories suggests a major drag on GDP and an extension of Canada's recession.From First to Worst!!

Government debt set to hit $1.3 trillion in 2016: study -- A new report is sounding the alarm about rising government debt levels in Canada. The Fraser Institute’s Cost of Government Debt in Canada study, released on Tuesday, suggests provincial and federal government debt in Canada is set to top $1.3 trillion in 2016. According to the right-leaning think-tank, the combined total debt is equivalent to every Canadian man, woman and child owing $35,827.  “Whether you’re talking about a household or a government, when you take on debt, you have to pay interest,” said Charles Lammam, director of fiscal studies at the Fraser Institute and study co-author. “For governments, that leaves less money for other priorities such as health care, education or even tax relief.” The study suggests that Canadian governments (federal, provincial and local) spent $60.8 billion on debt interest payments in 2014/15, and that the federal government is currently paying $25.9 billion (or 9.0 per cent of total revenue) in debt interest payments. “This year’s round of federal and provincial budgets is an opportunity for governments to take meaningful action to reverse an eight-year trend of persistent deficits and growing debt,” suggested Lammam in a news release. “Governments have been borrowing at historically low interest rates so if interest rates rise, the cost of carrying debt will increase and even more money will have to be re-directed to debt servicing costs.”

The Trouble with the TPP, Day 3: Copyright Term Extension - The Trouble with the TPP series continues with one of the most high profile copyright concerns associated with the TPP: mandatory copyright term extension (prior posts include Day 1: US Blocks Balancing Provisions, Day 2: Locking in Digital Locks). The term of copyright in Canada is presently life of the author plus an additional 50 years, a term consistent with the international standard set by the Berne Convention. This is also the standard in half of the TPP countries with Japan, Malaysia, New Zealand, Brunei, and Vietnam also providing protection for life plus 50 years. From a Canadian perspective, the issue of extending the term of copyright was raised on several prior occasions and consistently rejected by governments and trade negotiators. For example, term extension was discussed during the 2009 national copyright consultation, but the Canadian government wisely decided against it. Further, the European Union initially demanded that Canada extend the term of copyright in the Canada-EU Trade Agreement, but that too was effectively rebuffed with the issue of term removed from the final text. From a policy perspective, the decision to maintain the international standard of life plus 50 years is consistent with the evidence that term extension creates harms by leaving Canadians with 20 years of no new works entering the public domain with virtually no gains in terms of new creativity. In other words, in a policy world in which copyright strives to balance creativity and access, term extension does not enhance creativity but it does restrict access.

Russia sues Ukraine over $3bn debt - Russia has formally initiated legal proceedings against Ukraine over the non-payment of a $3bn debt, setting the stage for the latest dispute between the two countries to play out in English courts. The Russian finance ministry said in a statement on Friday that it had “initiated the procedures necessary for a prompt commencement of court hearings with Ukraine” and that it would file a lawsuit in the English courts. The move was widely expected after Kiev last month imposed a moratorium on servicing the debt after reaching an $18bn restructuring agreement with all of its creditors apart from Russia. The initiation of what is likely to be a protracted legal battle over the debt adds to myriad economic and financial disputes between the two neighbours, which have intensified in recent months even as fighting in east Ukraine has waned. On Thursday, power supplies from Ukraine to Crimea, which Russia annexed in March 2014, were once again cut. On Friday, Moscow imposed new trade restrictions against Kiev, banning imports of a range of foodstuffs and cancelling a free-trade agreement. The $3bn bond was the first instalment of a $15bn Russian cash infusion that Mr Putin promised the ailing government of then Ukrainian president Viktor Yanukovich in December 2013. The support came after Mr Yanukovich backed out of Kiev’s plans for economic integration with the EU, but Mr Yanukovich was toppled by the Maidan movement after payment of the first tranche. Russia refused to take part in Ukraine’s restructuring deal agreed in September as part of a $40bn IMF-led support package for Ukraine. While Moscow initially insisted on full repayment on time, President Vladimir Putin in November proposed instead to allow Ukraine to repay the bond in three annual $1bn tranches from next year. Kiev insisted it could not offer better terms than those given to its other creditors.

Denmark Tightens Border Controls with Germany - Denmark has imposed controls on its southern frontier with Germany in a move that is intended to stem the flow of migrants but will also deepen concerns about Europe’s fraying commitment to the free movement of people. Lars Lokke Rasmussen, Danish prime minister, said the decision was prompted by Sweden’s move hours earlier to introduce identity checks for all passengers arriving by train, bus or ferry from Denmark. “The new Swedish requirement for ID checks poses a serious risk of a large number of asylum seekers accumulating in a short time, for example in and around Copenhagen, threatening public order and safety. We do not want this,” he said at a hastily called press conference on Monday. The Danish controls are temporary and will last for the next 10 days but can be extended. Distinct from the Swedish measures, they will involve random checks and will not automatically require all cars and passengers crossing from Germany to show their passports. Mr Rasmussen said Angela Merkel, German chancellor, and the European Commission had been notified. Sweden was long regarded as Europe’s most generous country to asylum-seekers, offering permanent residence in recent years to Iraqis and then Syrians. But after a surge in the number of asylum seekers last year, Sweden’s centre-left government buckled under pressure from local authorities and the public to crack down on immigration.

The end of Schengen? Restrictions by Denmark and Sweden are 'threatening Europe's passport-free zone' - Europe’s passport-free Schengen zone is facing the biggest test of its two-decade existence after Sweden re-imposed controls on visitors crossing from Denmark across what had been one of most open borders in the world. Hours after the measures came into effect, Denmark announced it would slap new controls on its own border with Germany, while Berlin warned that the 26-nation zone of passport-free travel was now “in danger”. Six Schengen countries – Austria, Germany, France, Sweden, Denmark and non-EU member Norway – have now reintroduced border checks as Europe struggles to cope with an unprecedented influx of refugees and migrants from conflict zones including Syria and Afghanistan.Danish Prime Minister Lars Lokke Rasmussen blamed Sweden for his own country’s introduction of random border checks. “We are simply reacting to a decision made in Sweden. This is not a happy moment at all,” he said. Without action, he said, the checks in Sweden could “increase the risk of a large number of illegal immigrants accumulating in and around Copenhagen”. Sweden’s new identity-controls target travellers crossing by train or bus from Denmark over the five-mile Öresund Bridge, or using ferry services. Some 17,000 commuters cross the Öresund between Danish capital Copenhagen and Malmo in Sweden daily. The rules, enforcing an identity check for travellers between the two nations for the first time in half a century, meant rail passengers had to exit their trains and show photo identification at checkpoints in Copenhagen before reboarding to cross the bridge. Direct journeys from Copenhagen’s main station to Sweden were cancelled, with the changes doubling the usual 40-minute commute time.

Economists Tackle the Refugee Crisis: ‘There Are No Easy Solutions’ - Millions of migrants are on the move, seeking shelter from war, poverty and persecution at home. Political leaders across Europe and the U.S. are engaged in passionate, often divisive debates about refugee resettlement and repercussions for society and security. Economists are taking notice. It’s “a crucial policy issue that is really very much underserved by our profession,” Columbia University economist Jeffrey D. Sachs said at the American Economic Association’s annual conference in San Francisco. He and more than a half-dozen other economists and experts spent two hours Monday discussing new research on asylum seekers, migration policy and related topics at a conference session titled “60 Million Refugees,” a reference to a United Nations estimate last year of refugees and other forcibly displaced people. In the end, there remained more difficult questions than simple answers. “There are no easy solutions to the refugee crisis, and I think by now we all understand that,” said Timothy J. Hatton, an economics professor at the University of Essex. But, he added, “we could do better.” Mr. Hatton studied applications for asylum in industrialized countries from 1997 to 2012, looking at the characteristics of both origin and destination countries. “Making life miserable for asylum applicants is not really going to do very much to stop them coming,” he said. “It’s not a deterrent, so let’s put more effort into and resources into refugee welfare and to integration policies for those that are accepted. And, in fact, many countries have been doing that for the last 10, 15 years.”

In the bleak midwinter -- In the latest of his excellent reports for the BBC on the refugee crisis in Europe, Feargal Keene focuses on the plight of children. A baby, only a month old, makes the hazardous crossing from Turkey to the Greek island of Lesbos. Little children, freezing cold and wet through, climb the muddy path up from the beach. Volunteers from many nations provide food, blankets and medical care for these tiny lives. But Lesbos is only the start of their journey, And in Europe, it is winter. Across the continent, refugees - including many children and babies - huddle round camp fires at the borders, waiting to be admitted. But the signs are up everywhere. "No room....." At this time of year, Christians sing carols about a baby born in a stable, because there was no room in the inn. A baby born to a migrant mother, in freezing conditions in the middle of winter. "Behold a silly tender babe, in freezing winter night, in homely manger trembling lies. Alas, a piteous sight", wrote Robert Southwell in the 16th century.  Indeed, a piteous sight. Though these days it would be a tent, not a stable. Along Europe's refugee routes, babies are born every day to migrant mothers. In a report produced in November 2015, Unicef describes the plight of these babies and their mothers: Women who have recently given birth are less resilient to the stresses of the journey and risk being unable to continue breastfeeding, as families are swept along migration routes, through reception centers, and loaded onto buses and trains. Babies are born every day along the migration routes – in very unfavourable conditions – and carried along as newborns. 

Germany shocked by Cologne New Year gang assaults on women - BBC News: The mayor of Cologne has summoned police for crisis talks after about 80 women reported sexual assaults and muggings by men on New Year's Eve. The scale of the attacks on women at the city's central railway station has shocked Germany. About 1,000 drunk and aggressive young men were involved. City police chief Wolfgang Albers called it "a completely new dimension of crime". The men were of Arab or North African appearance, he said. Women were also targeted in Hamburg. But the Cologne assaults - near the city's iconic cathedral - were the most serious, German media report. At least one woman was raped, and many were groped. Most of the crimes reported to police were robberies. A volunteer policewoman was among those sexually molested.

Red alert in Cologne | Opinion -- The assaults and harassment of women by groups of young men of Arab or North African descent have hit Cologne like a bombshell. The shocking incidents are a turning point for German society, says DW's Volker Wagener. Under the cover of darkness they gathered in large numbers - right in the center of Cologne. They were drunk. They groped under skirts and blouses. There is no doubt about who the perpetrators were: they were young, male and looked North African or Arab. Unfailingly, this has brought the migration and refugee debate to a new level. All hell has broken loose on social networks. The sexist assaults only became public much later than New Year's Eve. And it wasn't the police who made the incredible events public either: It was the female victims whose criminal complaints got the ball rolling, bringing to light an issue that is a massive threat to the city's social peace.

Slovak PM Closes The Door To Refugees: "We Don't Want What Happened In Germany To Happen Here" - Earlier today, Slovak Prime Minister Robert Fico formally stood up to the Brussels supergovernment juggernaut and said his government will not allow Muslims to create "a compact community," adding that integrating refugees is impossible. Slovakia has a tiny Muslim community of several thousand. Fico's government filed a legal challenge last month to a mandatory plan by the European Union to distribute migrants among members of the bloc. Fico said Thursday his government sees what he calls a "clear link" between the waves of refugees and the Paris attacks and the sexual assaults and robberies during the New Year's Eve festivities in Germany. He says: "We don't want what happened in Germany to happen here." Fico says "the idea of multicultural Europe has failed" and that "the migrants cannot be integrated, it's simply impossible."

Unhappy in Europe, some Iraqis return home - After quitting his job making tea and cleaning for the Ministry of Education in Baghdad, Faisal Uday Faisal, 25, set off for Turkey to join more than a million refugees and migrants who have made their way to the continent in the past year.But despite a grueling month-long journey to Sweden, he came back home — one of a surging number of returnees, Iraqi and international authorities say. The International Organization for Migration said it helped 779 Iraqis come back from Europe voluntarily in November, more than double the previous month, and those figures don’t include people like Faisal, who returned on his own. Some have chosen to leave because they were confused about the asylum process, disillusioned with the lack of opportunities, or homesick, while others were forced to go when their asylum claims were rejected. “It was a boring life there. Their food — even a cat wouldn’t eat it,” Faisal said of his two months in an asylum center near the Swedish city of Malmo. “I went to Europe and discovered Europe is just an idea. Really, it’s just like Bab al-Sharji,” he said, referring to a Baghdad market neighborhood.

Greek government defends pension cuts - – The Greek government on Tuesday defended its pension cuts proposal in the teeth of bitter attacks from the opposition. Speaking on the ERT public television station on Tuesday morning, government spokeswoman Olga Gerovasili said: “The proposal, which Athens sent to creditors on Monday foresees no reductions for those who have already retired though those retiring from 2016 onward face cuts of between 15 and 30 percent.” Gerovasili added that pensions will start to increase from 2018 as Greek GDP begins to grow again. Gerovasili lashed out at the opposition parties, and spoke of “their hypocrisy and irresponsibility against the great effort made by the government.” She called on them to back up “the national struggle and to not side with the creditors’ demands.” The proposal was presented to President Prokopis Pavlopoulos late on Monday and leaked to the press, after which Social Security Minister Giorgos Katrougalos sent the blueprint to the country’s creditors initiating a new round of negotiations. This reform is seen as the most demanding commitment under the third bailout deal that was struck in July, and the Greek government has been hurrying ever since to complete its commitments in view of the first evaluation by creditors to take place this month. The government’s plan for Social Security includes merging all existing social security funds into one, and the recalculation of pensions under new rates based on the pensioner’s working life. This will lead to significant pension cuts for those who retire after 2016.

Is there a model in which a Country which borrows in it’s own currency has a Greece style crisis ? -  Robert Waldmann -- A challenge. Paul Krugman asks how a country like the USA could have a Greek style crisis. In his Mundell-Fleming Lecture Krugman defined Greek style crisis twice ” a Greek-style crisis of soaring interest rates” and ” a Greek-style scenario of higher rates and a slump in the real economy” . He says there is no plausible mechanism. I will ignore the word “plausible”. First the US Federal government can’t default on dollar denominated debt (if it is considered as a whole including the Treasury, the Federal reserve banks and let’s toss in the Social Security Administration to keep them company). The Fed can create as many dollars as it pleases. The rough equivalent of default is monetization of the debt in which the Fed creates enough dollars to pay it, but the dollar loses its value. Another way to understand this is to note that the US Federal Government can inflate away the present value of payments on long term bonds. Losses to investors can be the same if a bond which pays cents on the dollar because of default and if a bond loses value because payments are discounted at higher market clearing nominal interest rates.  I will use “loss of confidence” to mean loss of confidence that a treasury is solvent so it will be able to pay its debts without default or extraordinarily high inflation. Like Krugman I will consider a loss in such confidence in a treasury which has borrowed in its own currency and will assume that the country in question is in a liquidity trap. I will also assume that fiscal policy can’t be changed quickly, that is that the US Congress is paralyzed (as it is).

What Does The Future Hold For Negative Rates In Europe? Goldman Answers - From Goldman: Official interest rates have fallen further in the Euro area and Sweden. The European Central Bank (ECB) lowered its deposit facility rate 10bp to -0.30% on December 3, pushing beyond levels previously described by Mario Draghi as the bank’s lower bound. The latest ECB measures fell short of market expectations, likely reducing the pressure for neighboring central banks to add stimulus; the Swiss National Bank (SNB) and Riksbank have subsequently been on hold. Government bond yields remain in negative territory. As of December 14, over 50% of European government bonds maturing in less than five years had a negative yield, roughly the same as in the run-up to the launch of ECB QE in March. Two-year government bond yields were generally lower on the year, despite some rebound after aggressively pricing further ECB easing ahead of the December meeting. (The German two-year yield, for example, bottomed out at -0.44% on December 2.) Looking beyond Europe, roughly half of two-year government bonds in the developed world trades at a negative yield. Sovereigns have issued debt at record-low—or altogether negative—yields. In April, Switzerland became the first country to issue 10-year government bonds at a negative yield; other governments did the same at shorter maturities. By contrast, companies with large pension deficits have struggled and continued to underperform, as the present value of their future liabilities continues to rise. Alongside mixed asset returns, pension funding ratios have continued to deteriorate. Similarly, insurance companies have struggled with falling reinvestment yields and solvency ratios. Risks that could push the ECB’s lower bound. While our base case is for the ECB to stay on hold, low inflation or a stronger euro could open the door for further monetary easing. We see the ECB’s effective lower bound in the ballpark of -0.50%. Should the ECB cut rates further, it would likely pressure neighboring economies in Europe to do the same or to implement other easing measures, particularly in cases where the local currency is pegged to the euro.

Sweden Seen Closer to Krona Intervention to Tame Exchange Rate - Some of Scandinavia’s biggest banks are warning investors not to underestimate the risk that the central bank is preparing to intervene in the currency market. Nordea and SEB both say the Riksbank won’t allow the krona to strengthen beyond 9 against the euro. It traded at 9.187 on Friday. The prediction follows a Dec. 30 warning from the central bank that it’s ready to act if persistent krona strength gets in the way of its 2 percent inflation target. With a benchmark interest rate already at an historic low of minus 0.35 percent and several rounds of bond purchases behind them, policy makers are under pressure to consider other measures to live up to their inflation mandate. Underlying inflation has been below the Riksbank’s target since the beginning of 2011 and headline price growth has hovered below zero for much of the past three years. Though Sweden has resorted to extreme policy measures, its negative rates and quantitative easing have been overshadowed by far more dramatic monetary stimulus programs from the European Central Bank. Against the euro, Sweden’s krona has strengthened about 4 percent over the past 12 months. “If the exchange rate strengthens earlier and more rapidly than forecast, it will be more difficult to push up inflation towards the target," Governor Stefan Ingves said on Dec. 30. "The Riksbank is therefore highly prepared to intervene on the exchange market whenever we deem it necessary." The comments pushed the krona off a nine-month high versus the euro.

Sweden hands central bank governor new powers to boost inflation | European CEO: In a bid to push up inflation, Sweden’s central bank has handed its governor and deputy increased powers to intervene in foreign exchange markets. The governor, Stefan Ingves, will have the ability to devalue the Swedish krona, should he deem it necessary to boost inflation. Rather than having to gain approval from a committee as before, the governor will now be able to decide how to intervene in foreign exchange markets instantly, in order to allow the central bank – known as the Riksbank – to act quicker. According to a press release from the bank, the Riksbank board took the decision to allow the governor to “instantly intervene on the foreign exchange market if necessary, as a complementary monetary policy measure, to safeguard the rise in inflation”. The Swedish krona, the bank noted, has appreciated against other currencies since officials at the bank last convened in December. “If this development were to continue”, the press release pointed out, “it could jeopardise the ongoing upturn in inflation”. Rather than having to gain approval from a committee as before, the governor will now be able to decide how to intervene in foreign exchange markets instantlyWhile the Riksbank has no set target for the exchange rate of the krona, it noted that its currency’s value in relation to others formed an important part of its inflation forecast. Inflation in Sweden is on the rise, though it remains under the central bank’s target of two percent.

ECB Chief Economist: "If You Print Enough Money, You Always Get Inflation. Always." --Once upon a time there was a cute, if amusing and terribly disingenuous debate among those who have never actually traded but pretend to know finance, about what QE and "unconventional policy" actually was. "It's an asset swap" they said, "it's not printing money" they said. We are happy to close the chapter on all those sophist hacks once and for all, with a painfully obvious, if stunning in its honesty, declaration by none other than ECB Executive Board Member Peter Preat, who earlier today said the following: "If you print enough money, you always get inflation. Always."The full context from Reuters, which reports that "money-printing plan has so far failed to drive up inflation" and touches on Europe's odd fascination with never having a backup plan: "the bank does not have an alternative "plan B", ECB Executive Board member Peter Praet said in a magazine interview published on Wednesday. More details:"I accept that our policy has not yet been successful: inflation in Europe has for a long time been at a very low level of almost zero," Praet, the ECB's chief economist, told Belgian weekly magazine Knack. Praet said various factors, notably low oil prices and less buoyant emerging economies, meant it was taking longer to reach the goal of inflation of close to but below 2 percent. "We need to be attentive that this shifting horizon does not damage the credibility of the ECB," he added.Too late, friend.Inflation has missed the ECB's target of close to but below 2 percent for almost 3 years and it will still take years at best to drive up price growth towards the target, the bank forecast earlier. Praet said that, despite this shifting horizon, the ECB did not have an alternative to its policy of low interest rates and 1.5 trillion euro asset buying scheme.

Democracy in Europe requires Eurozone breakup - Billy Mitchell - On December 21, 2015, there was an article on the Social Europe portal – A New Plan for Greece And Europe: A Defining Moment For European Social Democracy – which I found interesting, though very incomplete, given its title. In fact, the ‘New Plan’ is really a series of fairly general statements, which at times, are somewhat inconsistent if you extend them into the necessary detail that they imply. For example, one of their key observations is that within the European Union there is a “wide and growing gap between national control over budgets that people have voted for and the post-national governance imposed on them”. Which would suggest that the solution requires that there is an aligning of the fiscal responsibility and control at the level of the currency-issuing unit. However, there is no hint of that in their ‘Plan’. They talk about an “Enhanced respect for the fiscal sovereignty of Greece” but fail to articulate how that can occur within the common currency when the Greek government has no currency-issuing capacity. Of course, if we want to increase the fiscal sovereignty of any Eurozone nation, then the only sustainable way of doing that is for that nation to re-establish its own currency and exit the monetary union. However, this would appear contrary to their “pan-European” sentiments, which dominate their overall vision. In short, once again the bogey person of the pan-European appears to be taken as a given and then specific matters that might appear inconsistent with that old ‘social democratic’ obsession in Europe are glossed over.

EU Seeks to Avoid Brexit at All Costs - SPIEGEL  - The victor in this game has already been determined. On Feb. 19 in Brussels, David Cameron will prevail with all of his most important demands. The British prime minister, to be sure, will be standing alone at the summit, faced with opposition from his 27 EU counterparts. But in the end, following tough negotiations, he will get his way. Such is the result envisioned by EU leaders and in fact European Council President Donald Tusk, European Commission President Jean-Claude Juncker and German Chancellor Angela Merkel have already written the script for their own defeat. "We want Cameron to return to London victorious," say EU officials in Brussels, in an uncommon display of unity. In Berlin, a Chancellery official says: "We will be extremely helpful." Anything that isn't a complete betrayal of European values is negotiable, the Berlin official says.  Their goal is that of providing Cameron with the political tailwind he needs to keep the United Kingdom in the European Union. This summer, Cameron is planning to hold a referendum on Britain's future in the EU. Only if he returns from Brussels in February with a better deal for Britain does he stand a chance of reversing the widespread EU-skepticism that characterizes the country.

British shop prices fall in December, more retail deflation seen | Reuters: Shop prices in Britain fell in December for the 32nd consecutive month, the British Retail Consortium said on Wednesday, the latest sign that inflation is likely to remain tame. The BRC said prices in British shops eased by 2 percent over the 12 months to December, compared with a 2.1 percent fall in November that was jointly the steepest on record. Non-food prices fell 3 percent year-on-year in December, a slightly smaller decline than November's, as clothing and footwear prices continued to slip. Against a backdrop of weak global commodities prices, food prices eased 0.3 percent. "We can expect the current levels of deflation across the retail industry to continue for the first half of 2016," Mike Watkins, head of retail and business insight at data company Nielsen, which collates the survey, said. "After the unseasonably mild autumn and early winter, many non-food retailers will use price cuts and targeted promotions early in the year." The usually reliable British clothing retailer Next was one that struggled with the unusually warm weather, reporting disappointing sales in the run-up to Christmas.

Deflation Denialism: No, Chancellor, 0.5% Inflation is Not “Welcome News” - What is deflation? What has caused inflation to fall? And why is there no such thing as ‘good deflation’?   On Monday the Office of National Statistics (ONS) announced that inflation at 0.5% was lower than the 1% rise that had been predicted by the Bank of England as recently as November. And it was lower than the prediction of most economists who believed prices would rise by to 0.7%. We at PRIME are not surprised, as we have tracked Britain’s disinflation (falling prices) for some time. And we warned as far back as 2003, and again in 2006, 2010, and e.g. in October, 2014 of the threat of global debt-deflation. Because policy-makers lack the tools to correct a deflationary spiral, the prospect of deflation is frightening.We therefore find ourselves at odds with the British Chancellor, George Osborne who announced that the fall in inflation to 0.5% was “welcome news”; with the Bundesbank President, Jens Weidmann, who argued recently that “an inflation rate that for a few months lies below zero, for me, doesn’t represent deflation”; and finally with the Financial Times which ran the following headline on the news of Britain’s low inflation rate: ‘Good deflation’ seen as spur to growth”. (Note: this headline appeared in the paper edition of 14 January, 2015, and not in the digital edition.) For ordinary consumers, workers, farmers and for the owners of firms and shops – especially those with debts – there is no such thing as “good deflation”.

The paradox of plenty - Tyler Cowen is asked a good question: are there any goods someone on a median income can afford which are the very best of their kind? The answer, as Tyler shows, is plenty – including some important ones such as books and recorded music. To this we might add that even where the very best goods are unaffordable, the median income earner can afford pretty decent ones, such as cars, TVs and sound systems. Which poses the question: if someone on a median income can afford such a luxurious cornucopia, what can’t he buy? The obvious answer, in the UK, is a decent house. The average house costs over £208,000, equivalent to 7.5 times median annual earnings. Given that the best schools tend to be in the most expensive areas, this means that our median earner can’t afford the best education for his kids either. However, I suspect that most of the best things that the median income-earner can’t buy are non-material goods. One is financial security. 49% of people, and most 35-44 year-olds live in households with less than £5000 of net financial wealth (pdf). They are only a pay cheque or two away from trouble. Another is status. Our wages are related to our sense of worth – which is one reason why most people would prefer (pdf) a lower but above-average income to a higher but below-average one. A median income, by definition doesn’t provide much status.

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